Anne Mulcahy – Chairman, CEO Lawrence Zimmerman - CFO Ursula Burns - President

Ben Reitzes - UBS Jay Vleeschhouwer - Merrill Lynch Matt Troy - Citigroup Carol Sabbagha - Lehman Brothers Chris Whitmore - Deutsche Bank Bill Shope - JPMorgan Jack Kelly - Goldman Sachs Shannon Cross - Cross Research

Good morning, ladies and gentlemen, and welcome to the Xerox Corporation first quarter 2007 earnings release conference call hosted by Anne Mulcahy, Chairman and Chief Executive Officer. She is joined by Ursula Burns, President; and Lawrence Zimmerman, Senior Vice President and Chief Financial Officer. During this call Ms. Mulcahy and Mr. Zimmerman will refer to slides which are available on the Xerox investor website at www.xerox.com/investor. At the request of Xerox Corporation, today's meeting will be tape recorded. Taping and rebroadcasting of this call are prohibited without express permission of Xerox. (Operator Instructions) During this meeting, Ms. Mulcahy, Ms. Burns and Mr. Zimmerman will make comments that contain forward-looking statements, which by their nature address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I would like to turn the meeting over to Ms. Mulcahy. Ms. Mulcahy, you may begin.

Thank you, and thank you all for joining us today. If you will turn to slide 4, we will provide you a summary of our Q1 results. We delivered solid results this quarter with install activity, color and services all fueling our annuity. Through revenue growth and strong operational performance, we grew earnings by 20%, exceeding our expectations. So it is a good start to the year. We reported earnings per share of $0.24 and net income of $233 million, up 17% from the first quarter of 2006. EPS includes a $0.02 charge for our share of the Fuji Xerox restructuring. On the top line, total revenue grew 4%, largely due to post-sale revenue growth of 6%. This includes a 3 point benefit from currency. Digital, color and services remain key drivers of steady annuity growth. Post-sale from digital up 7%, color post-sale, up 21%, and post-sale from our document management services increased 10%; all strong indicators that our growth model is delivering consistent and steady improvement. Color across the board remains a highlight with color revenue up 17% in the quarter. Gross margins were 40.6% in the first quarter, which is about a half point improvement from the first quarter of 2006 and in line with our expectations. Selling, administrative and general expenses were 24.9% of revenue, down 1.7 points. The balance sheet continues to look good. We generated $187 million in operating cash flow, and our financial strength allowed us to buy back stock while continuing to pursue our acquisition strategy. As many of you know, we made news the first week of April with our announcement to acquire Global Imaging Systems, and this acquisition is on track to close in mid-May. When it does, we will tap into Global's extensive sales and distribution network for small and medium-sized businesses. We have the competitive products to serve these customers. With Global, we will significantly expand our reach to them. That same week, the Xerox board named Ursula Burns President of Xerox. Many of you know Ursula from her excellent leadership of our office and production businesses, R&D, manufacturing and much more. She retains those responsibilities and adds a few more as we sharpen our focus on customer engagement and accelerating growth. Ursula is with Larry and I today. We're going to take your questions in a bit, but first I will review our revenue picture, and then Larry will talk more about our financials. So if you turn to slide 5, it is a look at our revenue trends, noting the year-over-year compare in both actual and constant currency. So once again, total revenue was up 4% in the quarter to $3.8 billion. The leverage from post-sale was significant with post-sale representing more than 70% of total revenue and growing 6% in the quarter. That is a growth of $157 million. During the quarter, we accelerated install activity in key markets and we continue to see a shift to more office services deals. As you know, the installs associated with these deals are recognized as operating leases and not as equipment sales. So this revenue shift cost us a point of equipment sales in Q1, but we see the benefit in post-sale over time. In addition, the continued impact of pricing declines did put pressure on equipment sales. Our strategy is focused on being aggressive in the marketplace with new products, value-added services and competitive pricing. By doing so, we expand our install base and increase our top line through annuity growth. We said we would double product launches in 2007, and we are well on our way. To date we have announced 19 new products, ten of which launched earlier this week. About half the new products are color, with more to come. Our product portfolio remains the broadest in our business and in our history. This innovation keeps up a steady drumbeat of increased install activity. At the same time, our Xerox services remain another key driver of post-sale revenue. Through multi-year, multi-million dollar contracts, our document management services generated nearly $800 million in annuity revenue in the first quarter to the 10% increase in post-sale revenue from services. Xerox signings for document management services were down in the quarter, primarily due to the compare from significantly large contract signings in the first quarter 2006 and the need for longer lead times to finalize some megadeals that are in the pipeline. Color too has strong leverage on post-sale. If you will turn to slide 6, we will talk about color. You hear me say this every quarter, but it is worth repeating: the power of color is in the pages. More than 30 billion color pages were printed on Xerox technology last year and leading research firm InfoTrends just confirmed that Xerox's install base of DocuColor and iGen3 presses accounts for about half of the total worldwide page volume printed by high-speed color printers. So we are strides ahead of our competitors in this space, and you see it in our results. Color pages were up 29%, leading to a 21% increase in post-sale from color and a 17% increase in total color revenue. We launched nine color products this year, strengthening what is already the industry's broadest portfolio of color products. We have kicked off aggressive marketing to promote the quality and affordability of Xerox color. So if you go to frugalcolor.com to take a look, I think you will enjoy it. Our flagship iGen3 remains an important contributor to color growth. So turn to slide 7 for a review of our production business. Total production revenue grew 5%, including a 4-point benefit from currency. It was up 1% in constant currency. This is largely due to the declines in high-end black and white, and Light Lens also cost us about a point of growth. Install activity was stable this quarter, certainly not as strong as we expected it to be for the balance of the year, and that is primarily due to the cycle of product launches. At the On-Demand conference this week, we launched a major refresh of our production line, including new Nuvera systems with EA toner and advanced finishing, light production, continuous feed and additional features to our DocuTech highlight color series. No one understands or competes in the digital production market better than Xerox. We know the market trends are clearly shifting to full color, highlight color and/or light production and our broad product portfolio plays to each market segment, and our strong relationships with graphic arts customers keep Xerox top of mind. So here is a review of four key points: First, the market for high-end cutsheet is declining and did have a drag on our production monochrome activity, but for us, high-volume page production from these presses still makes it a very profitable business. We have high-end monochrome well covered. In fact, we have just launched the Nuvera 288, which has two print engines connected together in one system. It is image quality that rivals offset printing, and it's the industry's fastest cut sheet duplex system. Second, highlight color is a significant advantage for commercial printers, especially for book publishing and financial statements. We expect stronger demand for our DocuTech line, which offers custom-blend colors so commercial printers can match logo colors and other branding requirements for their clients. Third, light production is a popular entry product in this space and an alternative for some office customers. We just launched the Xerox 4595 that gives customers advanced functions at an entry-level price point. Fourth, more customers are moving from production monochrome to full color. Installs of production color grew 4% in the quarter due to strong demand for the iGen3 and DocuColor 5000. This quarter we saw the dynamic of lapping the successful introduction of the DocuColor 240/250, so the huge install rates of this product in Q1 of last year did skew production color activities this quarter. The additions to our DocuColor family announced this week will help us maintain our momentum in this important market. The importance of these products always hits home in the pages. Production color pages were up 25% in the quarter. Every one of those pages has a direct benefit to our annuity, and that is why our model works. More pages, more annuity, growing total revenue. New technology is at the highlight in the office as well. So, if you would turn to page 8 for a review of the office. Total office revenue was up 2% in the quarter and flat in constant currency. Revenue was impacted by pricing investments of between 5% to 10%, a rate we saw for much of last year and light production, Light Lens cost us a point of growth as we bleed off this business. We remain aggressive in the market to drive major placements of office multifunction systems, and you will see this benefit in the install activity. Install activity for segments 3 through 5 multifunction devices, which are designed for work groups and midsize offices, was up 11%. Strong demand for MFD's only partially offset a decline in installs for desktop devices that target small-business customers. Our acquisition of Global Imaging Systems is strategically positioned to increase Xerox's distribution to this important customer base, and we have the products that serve small and midsize businesses. In fact, we launched seven more in February. They are all competitively priced and provide the quality and features needed by SMB customers. So when global closes, we will increase our distribution to this market by 50%, giving Xerox access to about 200,000 new customers. Color remains a significant growth driver in our office business. While demand for OEM color printers was down, Xerox-branded printers remained strong in the quarter. Installs for color MFDs were up 71%, more good news on this front. Our product announcements included additions to our WorkCentre color and our DocuColor families, which we expect will generate more activity, more pages and more annuity growth. So now turn to slide 9 for a look at results in our developing markets. In DMO, revenue was up 5% with post-sale up 6%. First quarter wasn’t as strong as we have been seeing in DMO, but we are confident the pace of activity will pick up through new product launches and expanded service offerings. As a matter of fact, I just returned from visits to Russia and India where I spoke with customers who want more value from their investments in technology. We tend to think of developing markets as important for just product sales, and certainly install activity is strong in DMO, especially with SMB customers, but we are now seeing greater interest in services-led offerings that integrate managed services with our document technology. So we are focused this year on extending our services portfolio across DMO. We will see long-term benefits of this growth in our annuity revenue. So this is a good place for me to hand it over to Larry. He has got more to share on the dynamics of our post-sale results, and he will review our financials. I will be back to wrap up and discuss Q2 expectations. Then Larry, Ursula and I will take your questions.

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Thank you, Anne and good morning. As Anne stated, we are very pleased with our first quarter results. Our performance demonstrates our commitment to deliver shareholder value both in the short and long term. Revenue and earnings growth, along with consistent cash flow, is driving our ability to invest in our business, including the share repurchase program and strategic acquisitions. This provides major opportunities to grow both revenue and profit in our annuity business going forward. Let's start by reviewing our annuity scorecard on slide 11. The results and trends are all quite positive and continue to reinforce the strength of our model. If we start on the top left, we see positive growth in digital revenue of 7%, 4% constant currency, 7% machines in the field (MIF), and digital pages were flat. Growth in digital MIF and color pages, along with the positive influence of color on price per page, indicates a positive trend. Color revenue grew 21% with MIF at 31% and pages at 29%. In addition, when you look at the bottom part of the slide, you will see how this is a huge opportunity going forward. With color at 34% of post-sale revenue but only 15% of MIF and 11% of the pages, the growth opportunity is significant. These numbers will continue to grow and drive annuity growth. Keep in mind that the MIF and page numbers do not include printers in our developing market segment, which would only improve the results. As Anne mentioned, post-sale from services grew 10% year-over-year, 7% at constant currency with an improving trend. This also contributes to our annuity growth and future. The last set of numbers on the bottom address Light Lens, the analog transition to digital that has put a drag on our post-sale. It is only 2% of total annuity revenue and going away fast. This quarter it cost us about 1 point of growth. On the black and white side, we are showing steady performance. Revenue was slightly down, along with pages, but the steady growth of MIF, especially in areas like Light Production, will drive higher page volumes. This positive annuity scorecard leads to my next slide, which is ultimately the key to our business model, annuity revenue growth. And that is what we have: steady growth in post-sale with 6% annuity growth, 3% in constant currency. You can see the positive trend year over year as Light Lens has less and less effect on the total. The consistency of digital and DMO drives this growth. Other post-sale, which is from paper supplies and value-added services, is also doing well. So the foundation of our business model is yielding, and we expect it to continue. Our earnings story starts with total revenue growth of $141 million. This growth, along with gross profit margin improvement of four-tenths of a point resulted in a $72 million increase in gross profit dollars. This is the primary driver of our earnings growth, and we continue to manage our cost and expenses well. Coming off our 2006 restructuring, we see the benefits in margin and expense. Total expenses were down about $36 million, primarily driven by SAG. We had a pretax margin of 8.6%. Our tax rate was 31%, consistent with our expectations and up from last year. Equity income was down $33 million, primarily driven by Fuji Xerox restructuring that we disclosed in February. At that time the estimated cost indicated a $0.03 effect on first quarter earnings. Our portion of their actual charge for this quarter came in at $23 million or $0.02 per share. Net income of $233 million results in earnings per share of $0.24. That is 20% growth compared to last year and a solid start to 2007. Our cash and cash flow results are quite good, and consistent with our expectations and we remain confident in our full year guidance. Core cash flow of $118 million and cash flow from operations of $187 million are driven by earnings. Use of cash in inventory was expected as we prepare for product launches, including those announced earlier this week. CapEx, including internal use software, was $81 million, and cash from financing was driven by paying down secured debt of $165 million and share repurchase of $225 million. We ended the quarter with $1.3 billion of cash and short-term investments. We are pleased with this performance. This slide takes you through some of our balance sheet thinking and gives a perspective on where we are going. Investment grade was and is our goal. We are investment grade with Moody's and in addition, with the announcement of the Global Imaging acquisition, S&P put us on credit watch positive and said they would upgrade us to investment grade at closing. So our consistent performance and delivery on our commitments has paid off, and we appreciate that the rating agencies have recognized us. Our full-year core cash flow expectation is $1.2 billion to $1.5 billion. As we said last November at our investor conference, we believe that $750 million is the right amount of cash balance going forward. We will continue to leverage our financing business 7:1 and expect to have modest core debt at year end. During the second and third quarter, core debt will be higher as we use our credit facilities to bridge the closing of the global acquisition and pay it down, consistent with cash flow. We expect to access capital markets as we replace secured debt with unsecured debt. Our share repurchase program is fundamental to delivering shareholder value. We are committed to it and have done a lot in the last 18 months. We have invested $1.7 billion to acquire 114 million shares, or 10% of the previously outstanding shares. We intend to continue at a slower pace for the remainder of '07 as cash flow catches up to our payment for Global. Our acquisition spend will also be $1.7 billion after closing Global, including Amici and XMPie. All have the same opportunities and goals: strategic growth that enhances revenue and earnings growth accretive in year one and matched with cash flow. We are already seeing this progress with Amici and XMPie. In summary, it was another quarter of effective execution on a strategy that is delivering positive results. I believe we are taking all the right steps to be even more competitive in the marketplace and attractive to shareholders. We plan to continue delivering this consistent performance. Thank you and now back to Anne.

Thanks, Larry. I'm just going to quickly recap. We started this year with good momentum on revenue and 20% EPS growth. Install activity, color and services are fueling our healthy annuity stream. We are bringing new technology to market at a brisk pace, already surpassing the number of launches last year. We expect our investment in innovation will continue to pay off with accelerated activity during the year. Our document management services and respected customer relationships with Global accounts give us a competitive advantage. We've got an exceptionally strong product portfolio, and we are aggressively pursuing new sales channels and expanding our distribution through agents, resellers and our planned acquisition of Global Imaging. We're managing the balance sheet effectively, costs are down, all giving us the flexibility to invest in marketing and growth areas. We are financially strong and remain diligent about generating cash and prioritizing profitability. For the second quarter, we expect to deliver earnings in the range of $0.26 to $0.28 per share. As we factor in the expected benefits from the acquisition of Global Imaging and this quarter's $0.02 impact from the Fuji Xerox restructuring, we expect we will be at the high end of the range for our full year earnings expectations of $1.12 to $1.16. We are confident in our ability to deliver on our commitments, build value and win in the marketplace. So thanks for your attention, now Larry, Ursula and I would be pleased to take your questions.

(Operator Instructions) Your first question comes from Ben Reitzes - UBS. Ben Reitzes – UBS: Thanks a lot, good morning. Anne, any updates on your thoughts about Global Imaging in terms of accretion and the amount and what that would do to your guidance this year?

No updates, Ben. I mean obviously we've got to close this deal before we can really dig in a lot deeper. I think what we have said is that it will be accretive. That accretion we would characterize as modest for the second half of the year. Obviously there is more to come, but certainly from what we know we are confident that with the aspects of absorbing the Fuji Xerox restructuring, what we see as modest accretion we can actually take our full-year expectations to the high end of the range. Ben Reitzes – UBS: Larry, inventories were up 11% sequentially. I was wondering if you could comment on that, and it seems like a little more than seasonal. I think you usually do build inventory for new products in the first quarter, but if you could talk about that and any efforts to reduce that, if it is a concern or not of yours? Thank you.

Thanks, Ben. No, it is not a concern of mine. Our expectation was that it would be around this number. We always see growth in the first quarter and particularly now where we have new products that we announced, so we feel comfortable with the level that it is at.

Just to add to that, it really isn’t just seasonal. I mean 19 new products so far this year, we have already outpaced the total of 14 new products in 2006. I think it really does support the rise in inventory to support the aggressive nature of product launches during the first quarter. Ben Reitzes – UBS: Last thing, just housekeeping. Larry, what tax rate should we use for the year?

33%. Ben Reitzes – UBS: Okay. So it goes up a little back to 33%. Thank you very much.

Your next question comes from Jay Vleeschhouwer - Merrill Lynch. Jay Vleeschhouwer - Merrill Lynch: Thanks, good morning. The first question concerns your equipment sales revenue. Excluding the addition of Global Imaging, would it be reasonable to expect that for at least one quarter of the year there would be a positive year-over-year comparison for ESR, particularly as you roll out the new products over the course of the year? The second question concerns expense management. When the Fuji Xerox hit arose in the February quarter and that you would have to take a GAAP hit to earnings in the first quarter, you stayed within the range for the year, suggesting that you would be able to recoup the earnings hit later in the year through additional expense management and like efficiencies. Now that you have already beaten for Q1 operationally, is the inclination perhaps a little bit less to do that for the remainder of the year than you might have thought at first?

On ESR, I think what we have been trying to certainly point to, Jay, is that total revenue driven by annuity truly is our business. That is why as we look at the post-sale increase of $157 million and you compare that with the $16 million decline in ESR, it is really starting to pale in comparison to the post-sale growth. That is just going to continue. The nature of ESR is going to be a little volatile. It is going to be about product launches and price investments and mix and that is why we are so focused on optimizing activity every quarter because that is what is really going to pay the long-term dividends for this company. So to your point, it can be and should be kind of moving around both in a positive and negative direction; and yes, with product launch strength and certainly our ability to drive share in certain categories, we certainly do plan on it being positive. Yes, it will move around a bit, and we will certainly manage that with the opportunity to deliver very sustainable annuity growth. On expense management, if you look particularly on the SAG line, we delivered very good productivity this quarter. We do believe that we have the opportunity to do a little bit more on the marketing front going forward so that we support this discussion, particularly on the activity side. We're not looking to sustain the amount of productivity that we delivered in the first quarter, although certainly we have always been focused on year-over-year benefits in SAG. Jay Vleeschhouwer - Merrill Lynch: Other than Global, can you comment on the other initiatives you announced in Orlando with respect to adding channel capacity? Anything incremental happen in the two months since that was announced?

Yes, I think we're working in, as a matter of fact our whole office team is focused on both the incentives for agents, the identification of the resellers that we're going to take up market in terms of the equipment side and working with those channels to make sure that they see more opportunity both in product breadth as well as business returns. So that work continues, and obviously that is an advance of the Global Imaging piece of this, which we will dig into after it closes in mid-May.

Your next question comes from Matt Troy - Citigroup. Matt Troy - Citigroup: I had a question centering on two areas. I guess first on Global, can you give us an update in terms of your surprise level or learning curve with the reaction from the Japanese, specifically their desire to pull equipment from the Global platform? Has that been in line with your expectations? It may have happened a little bit more quickly than you would have thought. If you could just talk about the ripple effects of this announcement.

We’re not really prepared to discuss any of that in detail. I think what I would say is that these teams have worked very hard to anticipate any reaction on the part of the suppliers and make sure that customers are put first in terms of a seamless transition if required. So I don't think that there is any particular response we want to talk to at this point in time, other than to say that the Global and Xerox teams have anticipated and will be able to support any reaction by any supplier to the benefit of customers. This was one of the things that we made sure we really had our act together on in terms of making sure that nobody was surprised regardless of the reaction. Matt Troy - Citigroup: As a quick refresher, you had indicated an announcement that the primary driver, at least in the first 12 to 18 months, of synergy and opportunity would just be revenues; pushing the Xerox product through and getting that manufacturing margin on a more direct basis. Is that correct in terms of where the majority of the synergies come from?

Well, definitely the synergies are revenue-based. I would say though it is quite frankly just a business model of Global to deliver growth and great returns. Certainly on top of that, opportunities to intersect Xerox products into the portfolio really offers both leverage on the bottom line because of manufacturing margin and also a greater breadth of access to products that they currently don't sell, which would be incremental. So the good news is that even without some of those opportunities, Global grows very consistently and has a great business model. Matt Troy - Citigroup: The second area touches on that, and that is new technologies. Certainly at On Demand this past week, Xerox is just an absolute clear standout in terms of the product breadth that you offer there. As you splinter across ever finer price points and your ability to surround any kind of competitive offering in the marketplace as they might emerge, is clear. The way I think about it, it looks like you have got about a year or two lead on a breadth basis. If I turn my attention forward thinking of Drupa 2008, and I think about where Xerox plays, your page feeds off of the iGen3 platform are at about 110 pages per minute. There is inkjet technology out there in development that can go as high as 1,500 to 2,000 pages, and there is a whole market and opportunity in between. I was wondering if you could help us think about that opportunity from a Xerox shareholder perspective? Do you extend the iGen or existing platform? Do you introduce a new type of technology, perhaps at Drupa? Is there an opportunity for an acquisition here? Can you just help me in terms of the page count opportunity and how you think about that on a two or three-year basis? Thanks.

Well, this is really a good opportunity to have Ursula address it. She is the one responsible for, quite frankly, the positive differentiation between Xerox and our competitors and for the strength that is being shown at On Demand. So Ursula, if you would take that question.

We have, as you said, shown a force that is unmatched in the industry from a platform perspective, both black and white and color. We continue to leverage that platform, especially the color platforms that we have in the marketplace, the DC family, DocuColor family and the iGen family, up market but more importantly to actually solve customers' application problems. So not just speeds and feeds, but also knitting together whole sets of technologies to solve application problems. We are investing and continue to invest in moving the iGen platform across, up and down frankly, and are looking at other technologies. But we are confident and clear that the technology set that we have today will be able to meet the needs of the customers in the next couple of years. But our eyes are always open, and we are always a little bit paranoid, as I have told you before, when I spoke to you, Matt, on technology. So we invest, we look, we keep close to the customers to make sure that we can actually deliver on their needs. Matt Troy - Citigroup: Absolutely and congrats, Ursula.

Your next question comes from Carol Sabbagha - Lehman Brothers. Carol Sabbagha - Lehman Brothers: Thank you very much. Just a quick question on what you're seeing across the market in terms of enterprise spending. Are you seeing any signs of a potential slowdown?

I think we would not highlight any difference or change in terms of enterprise spending that we certainly are aware of in Q1. We look at pipelines and activity and feel that there is a level of consistency that we are seeing with regard to our enterprise accounts. So I know that that has become a subject of certainly debate, but I don't think we would share the view that there is any noticeable slowdown right now on the enterprise side in the US. Carol Sabbagha - Lehman Brothers: On your gross margin, the gross margin on sales which had been going down for a while actually went up this quarter, and I think you benefited from positive product mix. Given the new launches you have announced and where you expect the activity to be for the rest of the year, do you still continue to expect positive product mix to help that gross margin, that part of the gross margin line?

I think some of the things that we have seen in mix we have worked hard at that are driving some positive gross margin influence. If you look at even our Mono 3 to 5 performance, I mean we actually took over number one share in Mono 3 to 5 in Q4, and obviously that is a better margin leverage for us than the lower end of the office. The strength of color, I mean color multifunction up 71% in the quarter is just amazing and more to come with similar margins going forward, and that offsets; quite frankly, that kind of strength really positively leverages our color margins as well versus just the low end of color printing where there is so much margin pressure. Because we have got this huge base of high-end production color as well, we are starting to benefit from the maturity and the size of our fleet in production color. I mean when you're doing 50% of the pages in the production color business in the marketplace, your ability to drive better margins just on scale is really a big deal. So I would say yes, it is clearly mix, but it is also scale and the fact that we are out there early with products, and we have gained maturity that are allowing us to really leverage margins going forward. So we would expect that our ability to stay in our margin range and still make the kinds of investments in pricing that we do, should be sustainable. Carol Sabbagha - Lehman Brothers: Is it possible to get what your total mix has been year over year this quarter versus a year ago and what the total page growth was for the whole company?

So we don't give you absolutes on that, but I can tell you what the MIF numbers are. Our total MIF grew 1%. If you remember in Q4, we said it was flat, so it is trending in the right direction. Color grew 31%, so obviously leveraged by color. Digital MIF grew 7%, so all trending in the right direction. Our color pages grew 29% for the quarter, which is certainly continued very robust growth on color pages. Basically our total digital pages were flat. Mono was down a little bit, although we think that is more seasonal than it is trend-based right now, so that we are not very concerned about. I think one of the things that we really are pleased about is revenue per page is growing very nicely as well. So, as we look at it, that kind of annuity scorecard that Larry provides, that is why we can have such a feeling of confidence about our ability to sustain annuity growth going forward.

Your next question comes from Chris Whitmore - Deutsche Bank. Chris Whitmore - Deutsche Bank: Overall revenue looked about in line. You mentioned gross margins were in line. Was the upside in the quarter primarily the result of the timing of restructuring and SAG and R&D related?

Actually no, I would be real clear about this one, Chris. The whole benefit in the quarter really was the annuity growth, the $157 million of revenue and gross profit growth of $71 million. We did great on the expense line, but you would look at that and the Fuji Xerox restructuring offset a lot of that. By the way, tax rate year over year certainly also was not a help. It was a hinderer this quarter. So I would make the case that, quite frankly, revenue growth and gross profit were really the drivers of the incremental net income that was driven this quarter. Chris Whitmore - Deutsche Bank: Is there any way to quantify the impact of currency on both the DMO business and the top and bottom lines?

You know, we don't only because DMO is such a diverse set of geographies that at any point in time we have so many negative and positive factors. I think I would certainly say it was not terribly material in terms of the impact on overall DMO revenues or profits. Chris Whitmore - Deutsche Bank: Any impact to currency on gross margins in the bottom line?

It is really hard to quantify. That is why we try to give you currency in terms of revenue. Clearly currency helped on the European revenue side, and we have quantified that. But you get some positive flow through on the revenue side, but then, on the SAG side, for example, it cost us about $30 million or $40 million in SAG. So it is hard to kind of net all that out and know exactly where you wind up. But it was clearly a help on the top line, and that will actually mitigate a bit for the balance of the year based upon the year-over-year spot rates. Chris Whitmore - Deutsche Bank: Fair enough. Lastly, can you talk about longer-term expectations for the DocuTech line? That has been lagging a bit recently. What I am looking for is kind of the two to three outlook for that business.

I am going to turn that over to Ursula. So your question is really about what do we expect from the DocuTech or the high-end mono production part of the business.

We clearly maintain a leadership share in the mono production business. We just announced at AIM a significant refresh at the high end, focused at the very high end, and introduced some new capability as well and spoke about the Nuvera EA line that we just announced and our continuous feed engine that we announced as well. We now have 11 continuous feed products in the marketplace by the way, which is sneaking up there a bit. So we still have a very strong win rate, and we still have a growing participation in the light production segment. All that together I think will help us maintain our leadership share in the Mono space, even though that space is flat to declining.

Your next question comes from Bill Shope – JP Morgan. Bill Shope – JP Morgan: Given the continued positive trends on the cash flow and the balance sheet metrics, particularly when you look past the Global Imaging acquisition, could you remind us of your thinking on dividends versus share repurchase and how that could change over time?

Well, I think we have been clear that this is not a question of “if” it is a question of “when”. We continue to prioritize for the best returns for shareholders. We only actually, it is hard to believe, began our share repurchase about a year and a few months ago, and we have already invested $1.7 billion into share repurchase. and I think delivered some very nice returns on that. We have always said that acquisitions had to be a big part of the shareholder return proposition over the long term to really fulfill the strategic goals we have on growth in the business. Obviously that has also materialized. I think that certainly for the balance of this year our intent is to absorb our acquisitions, return to the set of metrics that Larry outlined in terms of the balance sheet metrics, slow down our share repurchase as we pay for the Global Imaging acquisition, and then quite frankly, get back in the business of share repurchase in a very business as usual way. I don't think it would be short-term, but as we said, we think in the long-term dividend makes good sense for this company, and we, and certainly the board, would be very receptive to that conversation over time. Bill Shope – JP Morgan: We also saw nice acceleration in color revenue growth this quarter. Can you give us a little more clarity perhaps on which products were most effective in the segment for the first quarter? If possible, can you give us a read on possibly which verticals may have shown increased color momentum this quarter as well?

I think what I would say is that we were very pleased with the production performance of iGen and DocuColor 5000. iGen particularly after a very strong Q4, came back roaring in Q1 and was just a fabulous outcome. Color in total performed very well. As a matter of fact, uptick performance when you look at 9% equipment sale growth, 21% post-sale growth, 17% total revenue growth, you will see improvement overall in the total revenue growth for the company. Our high end of the office line, which is the MFP line, was fabulous at 71% activity growth. The one I would say weaknesses, if you will, on the equipment sales side, not on the total revenue side, but on the equipment sales side, was really the OEM color printers. But that has become invest in getting the customers and see the returns in total revenue, and we are. I mean the total revenue picture looks good, but the pricing pressures there are pretty extraordinary. I think you would say it was pretty strong performance across the board, and segment-wise color multifunction and graphic arts particularly I think with iGen would be the highlights.

Your next question comes from Jack Kelly - Goldman Sachs. Jack Kelly - Goldman Sachs: Larry, on the SAG line, there was very strong performance with the 170 basis point drop. Can you talk about the total 2007 savings that we might get from the 2006 restructuring plans? I'm specifically talking about that $34 million number that you mentioned that was generated in savings from the '06 plan. Could that be $100 million, or are we pretty much there for '07? Just a sense of where we are in that process.

Well, first of all, I don't think we forecast by line on SAG or gross profit margin. We try to give you a basic idea of where we are going. I think Anne covered it. We expect to see improvement in productivity and SAG. We don't expect to see as much as we saw in the first quarter, and I think that is what you should factor in your models. Jack Kelly - Goldman Sachs: So in terms of the infrastructure, because that is what I guess a lot of that restructuring charge was taken for, are we pretty much where you want to be in terms of the infrastructure supporting the sales force?

We are pleased with the pace of restructuring. I think to do almost a half point of margin improvement and certainly to see the kind of benefits in SAG, certainly a good portion of those are due to the restructuring efforts. As we go through the year and this is where Larry is alluding, one of the great things about this business model is that we are able to also make some investment decisions that can help fuel the long-term success of the company; and therefore, some opportunities in the marketing area we think are really a big opportunity for us balance of the year, positioned where we are from point of strength now. Will our investments in restructuring pay off? The answer is absolutely yes, they already are, some in the shorter-term, some in the longer-term. Obviously some of the European restructuring pays off over a longer period of time than the U.S.-based piece. But we tracked this really rigorously, and we are quite pleased with the discipline we have had in getting the returns from our restructuring. Jack Kelly - Goldman Sachs: In the production segment, you had indicated that there was about a 7% decline in installs of production black and white with high end down and light production up. If we just focused on those two items looking forward this year, do we reach at some point a stage where we could get a positive comparison out of those combined sales, the high-volume versus the light production?

I think the answer is pretty much this is all about the pages. We look at this thing very holistically in terms of our production pages.

As Anne said, the key here and the play here is about pages. So share is important, activity is important and MIF is important. If you look at those three metrics: share, activity and the resulting MIF that drives pages. As we mix our business, what we are trying to do is make sure that we get as much activity, as many machines in the field to assure that we can drive our MIF up. We are growing MIF in digital mono at 6%. Production digital overall including color is growing at 12%. So we are trying to actually drive activity such that we can get MIF, such that we can get pages. When you do that, we will take whatever install the customer wants. We have the breadth of machine to be able to do that so that we can actually get the results in MIF and pages.

Your next question comes from Shannon Cross - Cross Research. Shannon Cross - Cross Research: Good morning. Congratulations, Ursula, first of all. With some of the launches that you have done in the low end, and I would assume it comes through from the same standpoint of the year-over-year growth you're talking about, but when we look at the low-end MFPs where Lexmark and HP gained a fair amount of share last year with some of their laser-based MFPs, can we get an idea of some of the early indications that you guys are doing well with the products you have launched?

Ursula should take it up from here; I'm not sure we have had enough time yet. Those products got launched in February, the new suite of SMB products. But I have to say that the feedback during our summit meeting with our partners was pretty outstanding, and some of those products are pretty exciting. Ursula, you may want to add to that.

Shannon, you correctly noted that we did have a fairly significant level of introductions in the first quarter. It is early. We just launched them in the middle of February, but we're excited. As Anne said, the partners who look at these products and who are ultimately going to sell them say two things: one is that the breadth is good, and the quality and costs are excellent. So with those two things and the distribution traffic that we have, we are excited about them and expect significant uptick. Shannon Cross - Cross Research: Any comments you can make on enterprise in Europe? You talked about the U.S. as being not weak relative to what we have heard from some others.

I think a couple of things just about Europe. Actually the enterprise services opportunities in Europe are really very, very good in terms of actually big deals have kind of lead the way. So the services environment is pretty robust, but Europe is very cost competitive too. So there is a lot of pricing pressure in Europe that certainly we don't see as much pricing pressure in some segments of the U.S. Nothing of note in terms of economic deterioration or issues that we would say are inconsistent, but our services business in Europe is very robust and pricing pressures continue. Shannon Cross - Cross Research: If you could just give us sort of your latest thinking on Edgeline now that it has been launched? I know they did not have it at On Demand, but any thoughts on the positioning of your products vis-a-vis what Edgeline is offering?

We have a very robust portfolio of offerings from 40 pages a minute all the way up to 110 pages a minute cutsheet. We are confident that we can meet any customer's needs in that office segment of color. We thought we would learn a lot more about Edgeline at AIM, and as you said, we did not see them there. We were a little surprised at that. We think that we have coverage that is good, we have pricing that is outstanding, and we have a robust set of offerings. Shannon Cross - Cross Research: From a cost per page basis, though, with some of the pressure we have seen on color, a multiple of $0.05, obviously Edgeline coming out somewhere around that. Are you at all concerned about where the cost per page is going, or do you think the elasticity of demand will offset that?

Two things. One is there is more to come from Xerox, obviously. We've got a lot more on the horizon. Some of it we just announced this week, but there is more to come, and Solid Ink is a headline in the more to come. Secondly, we're prepared to do whatever we need to do on the pricing side. We have got the critical mass, we have got the base, we have got the economics whether it is just price reductions or whether it is different kind of segment pricing for color, we can certainly do any of that with the product set that we have got in the market. We are not overly concerned about that, and we think we've got a great head start. Thank you very much, Shannon and we thank all of you for your participation and your attention today. We very much appreciate it. Have a great day and weekend as well.

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