Luca Maestri - Chief Financial Officer and Executive Vice President Ursula M. Burns - Chairman and Chief Executive Officer

Keith F. Bachman - BMO Capital Markets U.S. Richard Gardner - Citigroup Inc, Research Division Benjamin A. Reitzes - Barclays Capital, Research Division Mark A Moskowitz - JP Morgan Chase & Co, Research Division Chris Whitmore - Deutsche Bank AG, Research Division Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division Deepak Sitaraman - Crédit Suisse AG, Research Division Bill C. Shope - Goldman Sachs Group Inc., Research Division

Good morning, and welcome to the Xerox Corporation’s Third Quarter 2011 Earnings Release Conference Call hosted by Ursula Burns, Chairman of the Board and Chief Executive Officer. She is joined by Luca Maestri, Executive Vice President and Chief Financial Officer. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. At the request of Xerox Corporation, today's conference call is being recorded. Other recording and/or re-broadcasting of this call are prohibited without expressed permission of Xerox. [Operator Instructions] During this conference call, Xerox executives 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. Burns. Ms. Burns, you may begin. Ursula M. Burns: Good morning, and thanks for joining us today. We'll get started on Slide 3. To set the stage, here is a year-to-date review of the strategy that is transforming our business. First, accelerating our Services business, growing it faster by diversifying our offerings and expanding globally. Through the third quarter, revenue from Services is up 6%. Backed by a very positive pipeline, we've been especially pleased with the new contracts we've signed this year. Our new business signings are up 7% year-to-date. Second, we're a services-led technology-driven company, which means maintaining our leadership in document technology is a top priority. We continue to hold our #1 equipment revenue market share position, and we've already launched 21 new products this year. And we are competitively advantaged through the breadth of our portfolio, our multiple sales channels and through our innovative workflow and managed print solutions. Third, we're managing our business with a disciplined focus on operational excellence. Our productivity initiatives this year have helped offset the challenges from the Japan natural disaster and other macro dynamics. By executing well on the first 3 priorities, we are delivering on the fourth, expanding earnings and returning cash to shareholders. Through October 24, we've bought back $450 million in Xerox shares with another $250 million planned through the end of the year. And year-to-date, adjusted earnings per share are up 17%. We're on track to grow full year earnings by 15% to 18%. The year clearly has not been without challenges, but I'm pleased with the progress that we're making on all 4 priorities, all of which collectively deliver value for our shareholders. Part of the value comes in how we're redefining our business and our brand. As a company in the midst of transformation, I spend a lot of time talking with stakeholders about the new Xerox. It's no surprise that our brand is known for great printing technology, but it's often a big surprise to learn that our technology and services not only change the way the people work, but also how they live. Turn to Slide 4 for some examples of what I mean. This is a snapshot of the many ways our innovation is integrated into solutions that simplify how the world works. Through our transportation solutions group, we're working with municipalities around the world to modernize their public transit systems. In cities like Abu Dhabi, where public transport -- transit use is expected to grow 5x in the next 20 years, we've developed a new payment system that require nothing more than a preloaded debit card. Our role is to handle all the project management, the IT integration, processing and payment reconciliation. As the largest provider of transportation services to governments worldwide, we have projects in 30 countries. Our digital solutions for tolling, parking and public transit are being replicated across multiple geographies from New York, Mexico City and L.A. to Casablanca, New Jersey and 400 other municipalities around the world. The next example is electronic claims processing. This reflects our expertise in bridging the digital and paper divide. With health care payers, including government agencies like the U.S. Department of Veterans Affairs, we've created the infrastructure and are managing the process to convert a paper-based claims system into a digital one. The new system for the VA will significantly reduce backlogs and more accurately process benefit claims for veterans and their dependents. We're also making it easier for health care companies to communicate with their members. At Medco, we're developing and managing a multi-channel platform that lets Medco's 65 million members personalize how they receive information from the company via hard copy statements, secure websites, e-mail/text messages or a combination of all of these channels. It's a solution that is providing -- is proven to be relevant for several member-based industries and one that is increasing our revenue with banks and other financial services firms. All 3 examples demonstrate repeatable, scalable and integrated solutions. This is our approach to real business, improving our client productivity by simplifying the way that they serve their clients. Our results in the quarter reflect progress in these and other areas. So let's turn to Slide 5 for a review of Q3 performance. In the third quarter, we delivered adjusted EPS of $0.26. That's up 18% from a year ago. On a GAAP basis, earnings were $0.22 per share. This includes $0.04 related to the amortization of intangibles. Revenue was up 3%, reflecting growth in Services and aided by the strong euro. Technology revenue was up 1%, and Services revenue increased 6%. Supply constraints due to the natural disaster in Japan have eased considerably, and as we shared with you last quarter, we've been working very closely with our colleagues in Japan to accelerate production and ensure that we're meeting our customers' needs. We've made significant progress in reducing our backlog while meeting new demand, and I'm very confident that these challenges are now entirely behind us. Operating margin of 9.6% was up 0.4 this quarter, and gross margin of 32.7% is down. As demand increases for our outsourcing services, we do see an impact on gross margin, which we continue to offset with cost reductions and operational improvements as you see in our improved SAG results, all of which helped deliver solid bottom line results. Cash from operations was $366 million. We've generated $683 million in cash from quarter 3. With quarter 4 always our strongest quarter for cash generation, we remain committed to delivering at least $2 billion in full year operating cash and will continue to use available cash for acquisitions and share repurchase. In a moment, Luca will provide more detail on cash flow as well as review our balance sheet and reporting segments, then we'll both take your questions. But first, let's take a closer look at our top line results on Slide 6. A year ago, revenue from Technology and Services was almost equal. Now, Services represents a higher percentage of our total revenue, reflecting investments in building our outsourcing portfolio and expanding our offerings globally. This growth strategy is generating more long-term contracts, and as I noted earlier, more new business signings, all of which fuel growth in our annuity stream. Total revenue of $5.6 billion was up 3%, with both annuity and equipment sales up 3%. Equipment sales are up sequentially as well, reflecting progress we've made in reducing backlog, creating demand for new products and the effectiveness of our growing Managed Print Services. There is no doubt that we have industry leadership in MPS, and we're strengthening this leadership by broadening our offerings. This includes print services geared for midsized businesses and sold through our channel partners and managing an enterprise's entire print infrastructure from their outsourced production printing through to individual worker's mobile print needs. Continued external recognition speaks to the competitive advantage of our services-led, technology-driven strategy, and it's helping us grow our business. Revenue from Document Outsourcing was up 12% in the quarter and BPO was up 6%. Joint sales activities between Xerox and ACS have resulted in more than 200 revenue synergy deals this year, delivering significant total contract value for the company and helping grow our pipeline. These deals include a multiyear contract with a major telecom company to administer their employee benefits and a big win with a pharma company to help manage their global learning systems. And at National Grid, the global gas and electricity company, we've developed an integrated solution to redesign their worldwide print and IT infrastructure. So summing up the quarter, we're executing well across the business. We delivered steady revenue growth, along with earnings and cash, in line with our expectations. We effectively managed through the supply chain constraints. We are efficient across our global operations and we've launched market-leading products, acquired new services capabilities and expanded our sales channels. We're winning big deals that fuel our long-term annuity, and we resumed our stock buyback program with plans to do more in Q4. We expect this solid performance will continue, positioning us well to deliver on our full year commitments. With that, let me turn it over to Luca. I'll be back to wrap up and open the call to your questions. Luca?

Thank you, Ursula, and good morning, everyone. We delivered strong EPS in Q3, thanks to improving revenue growth, expense management and equity income. Also, cash came in as planned and we were able to take an aggressive first step in deploying cash towards share repurchase. Starting with our top line, revenue growth was 3% at actual currency, with a 2-point benefit from currency, and increased 2 points sequentially at constant currency. Services continue to drive our growth and were up 6%, while Technology improved and was up 1%. Operating margin in the quarter was 9.6%, up 0.4 of a point year-over-year. Gross margin, however, was affected by the shift of business towards Services and the ramp of new contracts. We expect this dynamic to continue as Services growth accelerates and new contracts start up. We are offsetting the gross margin impact with disciplined expense management. Both R&D and SG&A ratios improved significantly due to restructuring and synergies. Below the line, equity income in the quarter was $43 million, which reflects continued strong results for Fuji Xerox in Asia-Pacific and benefits from restructuring actions. Our adjusted tax rate was slightly lower than usual due to a higher foreign tax credit benefit and offset the negative impact of currency dynamics during the quarter. As a result, adjusted EPS was $0.26 and grew 18% year-over-year. The only adjustment to reported EPS was the amortization of intangibles, and GAAP EPS was up 29% year-over-year. Let us move to the Technology segments on Slide 8. We continue to show profit growth in the Technology segment in spite of a relatively soft and volatile economic environment. Technology revenue at $2.5 billion was up 1% at actual currency and down 1% at constant currency. It represented a 3-point improvement over Q2. Segment margin of 10.3% was up 0.3 of a point year-over-year, reflecting restructuring and synergy savings. At the product segment level, entry install performance was affected by a combination of continued higher backlog and timing of product introductions. Product launches during Q4 should drive improvement in this segment, which represents 22% of our Technology revenue. Mid-range color was the segment most impacted by the Japan shortages, and we saw good growth as the supply chain began to recover. Backlogs are healthy entering Q4 and we expect to continue our positive market performance. Mid-range now accounts for 58% of our Technology revenue. In high-end, iGen4 and the 800/1000 Color Press continued to show good growth, and we began to see some improvement in the entry production color space where we had indicated that we had a product gap. Additionally, we have announced 2 very promising new products that we'll be launching towards the end of the year: the Xerox 770, which will further strengthen our entry production portfolio and the CiPress Color Continuous Feed, which brings our solid ink technology into the continuous feed segment, providing very competitive running costs and ability to print on any paper stock. Moving on to Services on Slide 9. We continue to deliver good growth in Services despite the economic environment, which is a reflection of the breadth and diversity of our Services portfolio. Services revenue was up 6%, with BPO up 6% and Document Outsourcing up 12%. ITO revenue improved and was flat in the quarter. BPO's 6% growth was driven by recent acquisitions, as well as human resources, health care payer, customer care and transportation. This growth more than offset declines in government services and the timing of contract runoffs and ramps. BPO signings were $2.3 billion, which is up over 10% year-over-year and reflects wins across all lines of business, including a significant deal to take over the U.S. check processing services of Symcor, which will contribute approximately $100 million a year in revenues. BPO's pipeline remains strong and revenue growth will continue as we start up significant contracts such as California Medicaid during Q4. ITO revenue was flat in the quarter, with contract ramp from recent strong signings offsetting contract losses from earlier in the year. We expect ITO growth to remain constrained as new business signings will be offset by the impact of the contract runoffs. Document Outsourcing continues to show strong growth, with revenue up 12%, and this reflects both the impact of new signings and benefits from our partner print services offerings which began to be reported in Document Outsourcing this year and are accelerating. Signings of $1 billion were once again strong, with both renewals and new business up double-digits. Maybe the strongest metric for the quarter was total signings, which grew over 30% year-over-year. The trailing 12-month signings calculation declined 9%, as it includes the 10-year, $1.6 billion California Medicaid deal we signed in Q1 2010 and the Texas Medicaid renewal that occurred in Q2 of 2010 for close to $1 billion. Also, the total contract value of new business signings was up over 70% year-over-year, and annual revenues expected from new business signings were the highest ever for the company. Even after a strong signings quarter, the pipeline remains healthy and is up 5% including synergies. Segment margin of 11.9% was up 7/10 of a point year-over-year, thanks to good expense management and the benefits from restructuring, offsetting impacts from contract start-up costs. Moving on to our key metrics slide. In this quarter, we are including all of our key metrics reporting on one single slide. I think it provides a good snapshot of our business drivers. I just reviewed signings and installed performance on the previous slide but I would like to take a moment to touch on color, machine in field and page metrics. Keep in mind that these metrics include the Technology segment plus Document Outsourcing. Total color was up 9% or 6% at constant currency. Digital MIF, machines in field, continued to grow and was up 3% in total; 14% for color-capable devices. Finally, digital pages showed an improvement in the quarter and were down 3% year-to-date, with pages from color devices up 9% year-to-date. Moving on to the balance sheet on Page 11. Our Q3 ending debt balance decreased $100 million from Q2 to $9.2 billion and included the repayment of $750 million in term debt, an increase of $650 million in our commercial paper program. We continue to target a year end debt balance of $8.6 billion, which is a $650 million reduction from our 2010 year end interest-bearing liabilities of $9.3 billion and would put us very close to our steady-state leverage. The vast majority of our debt, as you know, is in support of our financing business. Of the $9.2 billion debt balance, $6 billion can be associated with the financing of Xerox equipment for our customers. The finance debt is calculated assuming a 7:1 leverage of our finance assets of $6.9 billion. These finance assets represent committed revenue streams from our customers. Our strong capital structure and cash generation has enabled us to resume our share repurchase program. During the quarter, we spent $309 million and repurchased 38 million shares. We have continued that activity into Q4. And as of October 24, we have repurchased additional $140 million or 18 million shares for a total of $450 million or 56 million shares since the start of the program. We have also made a portion of our Q3 domestic pension funding stock amounting to approximately 60 million shares. This decision gave us further flexibility in managing our cash flow during the quarter to meet all our cash priorities, including being present consistently in the market to repurchase shares during a time of extreme volatility. We continue to plan to repurchase 700 million shares in 2011 and anticipate a Q4 average fully diluted share count of approximately 1,425,000,000 shares, and at year end, fully diluted share count of approximately 1,405,000,000 shares. Slide 12 provides further detail on our cash performance. Cash from operations of $366 million was equal to Q3 of 2010 and positions us to deliver our cash flow guidance of $2 billion to $2.3 billion. Performance was driven by earnings of $329 million, consistent with normal seasonality, working capital during the quarter was a use of cash of $168 million. Pension contributions of $225 million were $83 million higher year-on-year due to anticipated catch-up payments. CapEx was $121 million in Q3, $367 million year-to-date, and is on track for approximately $500 million for the year. During the quarter, we also invested $51 million on tuck-in acquisitions both in Services and Technology, $69 million on dividends and reduced debt by over $100 million. In summary, during Q3, we continued to execute on our strategy. Revenue growth of 3% was an improvement over the first half of the year. Services signings were very strong, up over 30% year-over-year. Operating margin improved. Adjusted earnings grew 18%. Cash flow is on track, and we began the share repurchase program at a strong pace. With that, back to you, Ursula. Ursula M. Burns: Well, thanks Luca. Let me quickly wrap up so that we can get to your questions. We've been successful in leveraging our brand, our global scale and innovation to win multi-million dollar deals for Xerox technology and for our diverse outsourcing services. We run our operation with a disciplined approach to cost management. This becomes increasingly more important as we are ramping new services contracts, contracts that require upfront investments in time and resources and therefore impacts our gross margins. It's a shift in how we manage our business model. We're driving efficiencies across the enterprise that result in improved operating margins, all while possibly growing our business and generating cash. Like any business, we'll always have headwinds that need to be offset and tailwinds that give us added benefits. But when it nets out, we're delivering steady top line growth, solid bottom line results and delivering shareholder value through dividends and share repurchase. It's this across-the-board progress that I'm confident will continue. For the fourth quarter, we expect to deliver adjusted earnings of $0.32 to $0.35 per share. This will bring our full year adjusted EPS of $108 (sic) [$1.08] to $111 (sic) [$1.11], a year-over-year increase of 15% to 18%. Thank you again for joining us today, and now let's open it up to your questions.

[Operator Instructions] Your first question comes from the line of Shannon Cross with Cross Research. Shannon S. Cross: My first question is with regard to geographic trends. Canon noted pressure in Europe. Lexmark kind of talked about pressure all over. Can you talk just a little bit about what you're hearing from your customers both in terms of demand for products on Technology and Services? And then also printing volumes just in general, what are you hearing? Ursula M. Burns: Yes. So from a demand perspective geographically, we still see -- we continue to see the strongest demand in our developing markets' economies, Russia, the Eurasian regions, some of the Latin and Central American countries are the strongest. I think the next grouping would be -- the next group of countries or the next country would be the United States. It's a little bit stronger than Europe, it's not as strong as DMO. And we haven't seen -- we're seeing a overhang in the U.S. that is dampening go-forward expectations from our clients, particularly from the government. But so far this year, we've been able to manage very well in that environment. And then in Europe, I think it's a little bit weaker than the U.S. So it's like a waterfall, DMO, developing markets, the strongest, United States kind of wallowing around in the middle and Europe is definitely seeing a fall over it. On a go-forward basis, I think it's important for me to talk about that as well. On a go-forward basis, we do see continued headwind from a macro environment in the U.S. and in Europe. There's no doubt about it. The conversations are all muted with our customers across-the-board, and so we don't expect that this economic environment will improve in the fourth quarter very much. As far as page trends go, we see, as Luca discussed, continued growth in color and continued softness particularly in the high-end, black-and-white printing segment. Some of the growth that we saw in the third quarter was driven by the fact that we had a pretty large backlog from the second quarter. And we'll see a little bit of that continue into the fourth quarter. But by the end of this quarter, we expect all of the backlog to be totally cleared up and we'll be back to normal, which I think is about flat on Technology revenues for the fourth quarter. Did I answer all your questions, Shannon? Shannon S. Cross: Well, not all of them yet, but yes, I think you answered that one. Luca, can you talk a little bit about the biggest drivers of your confidence in cash flow during fourth quarter? Because clearly, it's a large -- extremely large cash flow quarter. So just if you can walk through some of the puts and takes we should keep in mind.

Q4 seasonally is our strongest quarter. We intend to deliver stronger earnings than the rest of the year. When -- Shannon, when you look back at our historical performance during Q4, you see, for example, that in Q4 of 2010, we delivered the same level of cash flow, operating cash flow that would be required to get to our range, so we've done that in the past. Clearly, working capital needs to be a positive during Q4. It's been a positive historically. And so we are -- we know that it is the biggest quarter and we've got the plans in place to get there. And of course, we're also trying to position the company for growth, which is very important and has required some investments during the course of the year. We recognize that. Shannon S. Cross: Okay. And then I guess my final question is we've heard from a few companies about potential impact from the Thailand flooding. So can you talk a little bit about what you -- how you're thinking about that and if there's any impact we should worry about. Ursula M. Burns: Yes, first of all, I mean, our hearts go out to the people in Thailand and anything that we can do to help, we will do as a company, particularly if we have suppliers or any clients or customers out there, we will help them. This couldn't be a worse year for natural disasters. I think we've had it all. However, we expect that we will have -- no, no impact from the natural disaster in Thailand from a direct-to-Xerox supply perspective. We've already checked with our supply chain, and we've gotten very positive feedback back. It turns out that we fortunately don't source hard drive, hard disk drives from that region, and that this happens to be something that fell on a positive side for us this time, not on the negative side. We do expect though and it's possible that there will be some impact from equity income from Japan. We don't know that for sure. We still have to wait until this clears up a little bit, and we'll see that as it goes forward. But for Xerox Corporation supply, supply to our customers, et cetera, we expect no impact at all.

Your next question comes from the line of Ben Reitzes for Barclays Capital. Benjamin A. Reitzes - Barclays Capital, Research Division: Wanted to ask about the yen. It keeps strengthening on you. And have you been able to do any renegotiating with Fuji Xerox to maybe improve the baseline? I know you have a 50-50 sharing agreement. Could you talk about maybe how you hedge it and then how that factors into gross margin guidance, not only for the fourth quarter but maybe also next year? And then I have a follow-up.

Yes. So clearly, Ben, strengthening yen is a headwind for us. I would say at today's rate, for the full year, we would be looking at about 0.2 of a point in terms of the impact on margins for the company. So it's not particularly material. As you know, we... Benjamin A. Reitzes - Barclays Capital, Research Division: But that's for next year? That year-over-year...

No, no, this is for 2011. This is the year-on-year impact for 2011 versus 2010. We do hedge out 12 months, and therefore, any impact from currency movements gets delayed a bit. And so obviously, in general, a negative yen is -- strong yen is not a positive for us as you will know. We manage it actively through the hedging program that we, of course, as you said, we've got a currency sharing agreement with our partner Fuji Xerox. And as we develop partner programs, in general, of course, we try to set targets, taking into account a yen that is stronger than it was in the past, and so we need to continue all our efforts in terms of being very competitive on cost, and that's -- those are the ways we manage together with Fuji Xerox. So far, I would say that when you look at our Technology margins for the year, I think it's pretty commendable that they've held up the way they have in spite of the continuing appreciation of the yen. Benjamin A. Reitzes - Barclays Capital, Research Division: Do you have any idea what's the hit in the fourth quarter next year? Similar?

Q4 of 2012? Benjamin A. Reitzes - Barclays Capital, Research Division: 2011.

Yes. Q4 is going to be again, about 0.2 of a point. It's low double-digits. Benjamin A. Reitzes - Barclays Capital, Research Division: Okay. Then earlier today, Canon lowered guidance for their laser printer shipments due to an HP inventory adjustment. Obviously, you're aware of HP in the news and whatnot. Are you -- see, it was laser printer-related but given they're are a big player in MPS, there's a lot of overlap with you guys. Canon's copier numbers were actually fine. So I was just wondering if you're seeing any change in the competitive environment that's HP-related and that's helping your business or impacting your business and trying to put together what they said this morning. Ursula M. Burns: Yes. What we're seeing, HP -- and then I'll just broaden it to other competitors as well. As you know, HP the company is having lots of disruption. But what we're seeing from HP, our segment is a continued strong competitor. I mean, they are -- we haven't seen a lot of hiccups or backpedaling in the market from HP. They continue to be a strong competitor. Where we succeeded and HP has may not be succeeding as much is in 2 segments: One is our MPS, or our Managed Print Services offering attacks HP's strengths straight on. And more and more customers, as you can see from our Document Outsourcing strength this year, 12% year-over-year this quarter, 12% growth in MPS of print services, our Managed Print Services offerings are taking off and it actually works to consolidate where HP's strength is, which is in single function printers. The other place that we're very strong and continue to be strong is in the very high-end production printing segment. iGen4 and our color press technology continues to do well there. So while we haven't seen a marked decline in HP's performance, we've seen a marked increase and improvement in our performance. And that's where I think, net-net, we're winning the war or winning the battle. In addition to that, as we go to clients, when we speak to them, we speak to them about the entire offer: about BPO, ITO, Document Outsourcing and our technology base. And that conversation, as signaled by our signings strength and our backlog strength, is one that is absolutely on fire. It's a conversation that customers want to hear. So when we start talking to them about BPO and ITO, what we end up with if we don't get BPO and ITO, we actually get Document Outsourcing or Technology or all 3. So I think that the combination of the value proposition that we have and our strength in the areas that happen to be places that HP is not very strong maybe having an effect on them. Benjamin A. Reitzes - Barclays Capital, Research Division: All right. Last thing to sneak in is on the cash question, I was surprised, Luca, you didn't mention that a bunch of big contracts are moving from investment to revenue mode, like the California Medicaid, as cash drivers for the fourth quarter is. Is that a big driver or is it not that material?

Well, it is significant. I said, Ben, that we are positioning the company for growth and that's what happens, right? You're starting up big contracts, and of course, they have some upfront cash requirement. But they're included in our numbers, right? We need to manage them. They've been a year-on-year negative for the first 3 quarters of the year, but they are included in our numbers. Ursula M. Burns: And California Medicaid, fortunately, we can say, pretty firmly, is now starting to revenue. We are actually operating, it took a while, but we're operating California Medicaid as a real contract now. We generate revenue from it, et cetera, et cetera. So fourth quarter -- tail left 2 months of the fourth quarter and all of 2012, we'll see the benefit of revenue and then the flow-off of improved earnings from California Medicaid.

Your next question comes from the line of Richard Gardner with Citigroup. Richard Gardner - Citigroup Inc, Research Division: Ursula, in your prepared comments, you made a reference to the continued challenges on the government side of the Services business. And given that that continues to be an area of a lot of questions, I was hoping you could give some detail on government BPO signings year-to-date and what the pipeline looks like there and just generally, what you're seeing in terms of those particular customers' appetite or willingness to go forward with contracts. Ursula M. Burns: Yes. So let me -- I start this always when I get a question about the government with a statement that one of the things that I realize when I -- when we bought ACS, when we got them into our company was how important it was, is and was, for ACS to have strength in the government. A large amount of the revenue in BPO and ITO in the world is generated from government. And so our strength there is a positive, that I want never to be kind of overshadowed by some of the short-term issues. So overall, we're really pleased with our position in the government. What we are seeing though is we are seeing very similar to what we saw in the third -- in the second quarter with a little bit more emphasis on it. It takes longer time to get a contract signed, and after it's -- negotiated and then after it's negotiated, actually signed. And that longer time is not because of lack of desire for the services, particularly in the United States, some of the localities are still trying to figure out what their budgets are going to be and what authorities they have to make big go-forward commitments. Once they figure that out, then they sign. One of those that's currently active for us is New York State Medicaid, for example. Its one that's in competition. And everybody has done their bidding and we're just waiting for the State of New York to decide what to do once they figure out what they can do and what they have to do. So what we're seeing is we're seeing longer times, and then we're also seeing lower volumes with some of the services we provide. The most notable there is in unemployment, and this comes and it goes so we have a baseline unemployed number of people. And depends on what the government does to either extend or not extend that unemployment, the volumes go up or go down. So those are the places. We also have some contracts that naturally end, that we did the service for them and now it's over. They are -- they were very high-return contracts for us, very profitable contracts. And as they roll off, we have not only the revenue impact, we have the profitability impact. And you couple that with some really amazing start-ups with some very big contracts, California Medicaid is one, but there are others as well that are starting up that cause it to be, overall, the government segment to be lower performance this quarter than a year ago and lower performance this quarter than last quarter, than what we would expect. But on a go-forward basis, government is a strong segment for us to be in. And what we have to do is to continue to manage winning big contracts and manage the roll-off of contracts that naturally end and obviously manage our losses so we don't lose any that don't naturally end. I mean, it's a long answer to a question but I hope it -- volumes are lower, contract signing is longer and a little bit more complicated, and that's it. Richard Gardner - Citigroup Inc, Research Division: Okay. If I could ask a follow-up, Ursula. Ursula M. Burns: Of course, you can. Richard Gardner - Citigroup Inc, Research Division: You mentioned worse performance than one year ago in the government BPO business. Is that a revenue statement or a contract signing statement or a pipeline statement or are all of the above? Ursula M. Burns: It's a revenue statement. It's not a contract signing statement, but it's a revenue statement for sure, and it's down about 1% year-over-year.

Actually, bookings in government in Q3 were significantly higher. Ursula M. Burns: Yes. So signings a good revenue for roll-offs. And for others, roll-offs cancellations are down, particularly in Georgia and Texas is where we had 2 big hits. And the fourth quarter based on California Medicaid and other just natural flow-through of smaller contracts will be higher. Revenue will be higher, will be better for government sector in the fourth quarter, and we can just see that before this revenue in California is going to help that. Richard Gardner - Citigroup Inc, Research Division: Okay. And then just one final quick one. In terms of volume sensitivity, are we talking about sort of low single-digit numbers here in terms of the impact on revenue growth rates based on things like changing unemployment claims? I would suspect. Ursula M. Burns: Yes, absolutely. That low -- yes. So it's a single-digit impact on us, low single-digit impact for us, but it’s from a revenue perspective, yes.

Your next question comes from the line of Ananda Baruah with Brean Murray. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: A couple of questions if I could. I guess, the first is going back to hardware. Ursula, I just want to make sure that I understand what the message is. You guys had pretty solid hardware results this quarter, fueled somewhat by backlog but your guidance for the December quarter is solid as well, and it sounds like you're saying you're through the backlog. You're also saying that the macro environment is having some impact to demand. So is the message that despite a bit softer macro environment, you're still delivering to what your hardware expectations were for the second half of the year? And then I have a follow-up next. Ursula M. Burns: Yes, the answer is yes. So if you look year-to-date, take out all the ups and the downs, we're about flat revenue on a year-over-year basis through quarter 3. And that's based on the macro environment and based on just the trends in this business. I think, we are on track to be where I would expect to be. Quarter 4, we expect to be essentially flat, total revenue for the Technology segment. And one of the things that Luca pointed out when he reported is if you look at Technology segment in 2 different buckets, one is just the equipment hardware that we report in Technology, and the other one is the total hardware that we report -- that we sell, some of which is wrapped around or wrapped -- Service is wrapped around it. And where we see the big pickup in quarter 4 is in our Document Outsourcing business and the technology associated with that, which comes into our P&L a little bit differently. As you know, it doesn't come in as equipment sale revenue. It comes in as annuity stream. Total-total, if you look at the activity numbers that we show, we see strength in mid-range color, we see strength in high-end color and we see strength in the total revenue -- reasonable performance in the total revenue for technology that we sell. So net-net, yes, things are looking not terribly. They're not looking terrible. They're actually looking pretty good on a competitive basis. We're gaining share across-the-board on a competitive basis as well. Equipment revenue share, we're #1 on just about everywhere we compete. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: And is it really the MPS where you think you're driving share gains? Ursula M. Burns: Yes, there's MPS for sure, mid-range and very high-end. So those 3 segments are the places that -- very high-end, which has nothing to do with MPS, it has to do with strength of portfolio, iGen, color press. And then later on this year and early -- and into 2012, we will have the CiPress device fully rolled out. And then in the mid-range, some of it is cleaning up backlog but we just have a very strong portfolio in the mid-range and color. So we can -- those places, and then wrapping around in our lower-end product portfolio both in single function printers and in low-end MFPs, wrapping that around with our Services helps us there as well. So this one case that the strategy actually is working as we wanted it to work. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Understood. And I guess just a follow-up on Services. The revenue trends then, the pretty solid last couple of quarters and the bookings trends certainly saw nice improvement this quarter. The mix has been a little softer last quarter and this quarter, and I guess you walked through some of the dynamics in the government business. Can you talk about some of the other mix dynamics that have been a little softer in the other parts of the businesses? And I guess I'm just wondering what the gross margin implications could be over the next few quarters? And how long it could take to work through some of those mix dynamics?

So on the mix of services, you know that a very, very diversified portfolio, many different lines of business that have different characteristics in terms of growth rates and in terms of profitability. Some of them, take customer care for example, is a business that is doing extremely well for us. It was affected a bit by volumes during the third quarter, it very much depends on the level of economic activity for our customers than translating to volumes in our call centers, so there was some of that. But I would say the primary impact on our gross margin dynamics right now comes from government, both in services and health care. Services, Ursula talked about, in Health Care, we're making very significant investments that once we complete those investments, ramp up those contracts, example is California but we've got many other cases, we're going to have a platform for these type of contracts that is going to be really unmatched in the industry and it's going to put us at a very, very strong competitive position. So I think overall, Ananda, we continue to see some level of gross margin pressure in Services from -- purely from the mix and from the fact that we're making investments for growth. And so they will continue into -- in the near-term. But we think that when we look at the long-term and where we want to take the company, the fact that we want to accelerate our revenue growth rates, I think we're making the right decisions. Ursula M. Burns: And with that, if I could add a point. The margin mix therefore that we see on a go-forward basis is on the -- towards the lower end of the range, definitely for quarter 4 and we'll update in January our quarter -- our 2012 numbers. But in -- but what we can see based on start-ups, based on volumes, et cetera, that will be in a gross margin range that's at the lower end of our range, tending towards where we are right now. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: 30%, 30% to 35% range? Ursula M. Burns: Yes, 32-ish percent range, 32% to 35% range, yes. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Okay, got it. And then one last one on Service if I could. Document Outsourcing obviously is giving minimum last few quarters. It seems like, at least anecdotally, you guys are starting to get a little bit more excited about that. And you mentioned, I think in your prepared remarks, that you're seeing some pretty good increase in momentum there. Can you give us some sense of how big of a percent of revenue that can ultimately become? I think it's around 16% today. Can it become a 20% of revenue sort of segment over time or is that shooting too high?

So right now it's, I think you've done the math right, 16% total company, 33% for our Services business. We think that it's a segment within Services that can grow above average. And so you would expect it to trend up a bit in terms of -- it's relatively importance for the company. Ursula M. Burns: And, Ananda, one last point if I can. I have a lot of last points today. One of the things about Document Outsourcing, the benefit that we're seeing from the services strategy that we have, the overall services strategy that we have, is that Document Outsourcing, while it's doing very well, is doing very well because it's a part of a set of offers that actually excites customers more. So we're getting a drag-along of that Document Outsourcing with the fact that we have BPO and ITO as well. And by the way, that's something that we talked about. And I think this quarter and a little bit of last quarter was the first times that we started to see that improvement, that synergy of where Document Outsourcing, BPO and ITO will win, will engage the client and will win 1 of the 3 of these lines to start with, and then we'll expand, we'll penetrate with one of those lines and then we'll expand. Document Outsourcing has benefited in the last quarters from that strategy.

Your next question comes from the line of Keith Bachman with BMO Capital Markets. Keith F. Bachman - BMO Capital Markets U.S.: I had a couple also. Ursula, I wanted to start with you and go back to the strategy question. In Technology, the growth on a constant currency basis was about negative 1% with some help on backlog burn, so maybe it was negative 2%, but it was nevertheless a negative number. Your Services business is doing nicely, it grew about 5%. At the same time, in some parts of Services like ITO, you're very subscale, and in geographic basis, you’re subscale in other areas such as Europe. My question is why deploy anything but the minimum amount necessary for the Technology side of the business and why not deploy the incremental capital towards the Services business? And in the past comments, you've talked about -- it sounds like you want to try to do everything, but I'm not sure why you're devoting incremental capital to Technology business? And then I have a follow-up. Ursula M. Burns: I think that we are devoting the appropriate capital to the Technology business. We have places in the Technology business that we are clearly privileged and that drives incremental profitability and cash. That is focused around color and around Managed Print Services, tightly linked to our Technology business. So we're not -- and as I think I've said in many calls before, we are deploying on a percentage basis and shifting significantly our investments towards Services, towards Document Outsourcing and towards BPO. So we are -- the reason why we'd invest any money is because there is money to be made in that segment of the business, and that's where we are.

Technology is a competitive space. It's a place where we generate a lot of cash, and so we need to continue to be competitive, so there is a certain amount of capital that we allocate to Technology. But when we look at all the activities that we have, acquisitions, we favor Services over Technology. CapEx, most of our CapEx is actually linked to services contracts. Working capital, primarily, it's -- we're deploying working capital to the Services contracts. So when you look at all the different lines -- and now, we're actually starting to deploy R&D towards services. We've got an R&D center in Europe that is totally dedicated to our Services business. So more and more, we're shifting every aspect of the company towards the opportunity where growth is. And you mentioned Europe. Europe is a place where, of course, we will deploy capital because we want to grow Services in Europe. It is a huge opportunity for the company. So I think, overall, I think we agree with you and I think we are following up with our actions. Keith F. Bachman - BMO Capital Markets U.S.: I guess also I wanted to include ITO. I mean, it seems like as we look at the BPO market, increasingly technology is a critical element of BPO. So would your investments include trying to stimulate more growth in ITO which just had a couple of quarters of flat growth?

Yes, definitely, definitely. And ITO is important for us as a stand-alone line of business and also because it provides us with capabilities that support our BPO and Document Outsourcing businesses, right? So we definitely want to make the right investments there. Keith F. Bachman - BMO Capital Markets U.S.: Okay. Let me just ask my follow-up point or question, sorry. On the last -- the June quarter conference call or I guess it was July quarter conference call, the target for cash flow from operations was $2.0 billion to $2.3 billion. I think Ursula said on the prepared remarks was greater than $2 billion. I just wanted to confirm, what are the cash flow targets for the year? Ursula M. Burns: I think that Luca said very clearly, $2 billion to $2.3 billion. Keith F. Bachman - BMO Capital Markets U.S.: Okay, so it is the same cash flow targets? Ursula M. Burns: It's the same thing, yes. Let me [indiscernible] and make sure that they all match. No, we didn't intend to say anything differently there. It's $2 billion to $2.3 billion.

Your next question comes from the line of Deepak Sitaraman with Crédit Suisse. Deepak Sitaraman - Crédit Suisse AG, Research Division: Ursula, can you share with us some color on what renewal rates were in the Services business during the quarter? And how that compares to what you saw a year ago? And maybe if you could just break it down for us by service type, that would be very helpful as well. And then I have a follow-up. Ursula M. Burns: So renewal rates were at 85%. They're back to our normal working rate. We had a low renewal rate last quarter, primarily driven by ITO, drop in ITO renewals, we're back to normal. We’ve worked to make sure that back to normal wasn't an accident that we got back to normal. And so we will continue to be my prediction based on how we're going to manage it to be that 85-plus percent renewal rate next quarter and going into the future. What was the second part of your question, I'm sorry? Deepak Sitaraman - Crédit Suisse AG, Research Division: I was just wondering if you can break it down by service type. But I think your comment on ITO can answer that as well. Ursula M. Burns: Yes. ITO has recovered back to a good rate. It's generally lower than BPO and Document Outsourcing, but it's really high. It's in the higher 70% range. So we're back to normal. Deepak Sitaraman - Crédit Suisse AG, Research Division: Okay, great. And then, Luca, a follow-up for you. I don't see it on the slides, but how should we think about your comfort level, just with the outlook for 6% to 8% revenue growth and $2.6 billion to $2.9 billion of cash flow from operations for next year?

So Deepak, we will provide guidance -- update guidance for 2012 during Q4 earnings. When you think about revenue, clearly, we've got some revenue tailwinds that should improve our growth in 2012. We talked about California a lot. But the fact that our signings are strong, that will help, right? We also need to monitor them, the macro environment, because that has its bumps recently. Cash, again, we will have strong cash next year because we expect earnings to be higher. At the same time, clearly, pensions will become an issue for us and for any company that has got legacy plans. You know the interest rate environment drives lower discount rates that is obviously a negative for companies that have legacy-defined benefit plans. I don't want to get too much into pensions, but pensions will be a headwind versus where what we were thinking previously. So we're putting together our plans. We will provide you with updated guidance in January for 2012.

Your next question comes from the line of Bill Shope with Goldman Sachs. Bill C. Shope - Goldman Sachs Group Inc., Research Division: You've all been pretty clear on how we should think about volumes and the overall pace of business going into the fourth quarter in light of the macro uncertainty around right now. But can you comment on how we should think about competitive pricing, particularly within the Technology business for the fourth quarter and potentially into 2012? There are obviously some signs of incremental price aggression in certain areas of the imaging market and I'm wondering if you're seeing any of this flow into your core business? Is there -- or potentially flow into your core businesses if price conditions remain volatile. Ursula M. Burns: We haven't seen a significant change in pricing trends from the previous quarters. It's 5% to 10% on our Technology business, and we expect that, that will be the same in the fourth quarter. By the way, all large contracts are competed for outside of that range that I just talked about, but the balance is that 5% to 10%. And on our Services business, we see -- the good news about our Services business, any of the 3 lines is that we sign upfront and we sign for the life of the contract, pricing with predefined escalators or de-escalators in those contracts. Occasionally, we get customers who are stressed, who want price concessions, and we negotiate with those contracts, with those customers openly and very willingly, and we generally give a price concession with something in return. So we're comfortable with that as well. So no significant changes to what we're seeing. I think everyone is dealing with the same environment that we are. So while it may seem logical that you would run down on price to get business, everybody's dealing with cost challenges that they have to manage and so they're staying fairly logical in their pricing, which is good. And we are as well, obviously. Bill C. Shope - Goldman Sachs Group Inc., Research Division: Okay, that's very helpful. And then I guess a final question. Just sort of a basic question, I'm thinking about these new contracts in Services business. I know you've discussed it before but how should we think about the life cycle of some of these new contracts coming on? Because clearly, at some point, I would imagine that you're going to have this tilt towards these new contracts all shifting into profitability mode. I mean, how should we think about that time line? Should we assume that this is really a fairly near-term phenomenon and we start to see potential margin improvements and revenue uplift as well as we get deeper into 2012? Or is this something that's really just going to be a sustained phenomenon because you're pushing for growth, I'd imagine, over the longer term?

Yes, the typical -- in fact, the typical -- the profile -- profitability profile of these contracts is fairly similar, right? You've got the upfront investments and then margin tends to improve towards the end of the contract. So in an environment where you're actually trying to promote some growth, you will see some kind of sustained margin pressure because the amount of new contracts that you sign is higher than your base, right, so you continue to require some level of gross margin dilution and some level of working capital investment. So I would say for the near term, for sure, I think we should be looking, for the company, for a gross margin range of 32% to 34% because of these dynamics in the Services business. But again, it is in the context of trying to accelerate our revenue growth rates from the historic numbers to something that is healthier. Ursula M. Burns: And it's in the environment of expanding operating margins as well. So we leverage our SG&A and our R&D investments across a big event base and actually do some shifting to make sure that we can fuel that growth while continuing to expand operating margins. And the big, big, big, contracts are the ones that we're talking about here, I mean, it's California Medicaid, it's some of the pharmaceutical contracts that we are signing and the telecom contracts that are really large and long-standing. The good news about them is that they're long-standing, and the second piece of good news is that they're really large. And so these are really good business deals for us. We investigate them very clearly to make sure that we can afford them way before we sign them, that we can operate them before we sign them, et cetera, et cetera.

Your next question comes from the line of Mark Moskowitz with JPMorgan. Mark A Moskowitz - JP Morgan Chase & Co, Research Division: Two questions if I could. One, Ursula, can you weigh in a little more how we should think about the Technology part of the business in terms of what the installs this past quarter imply for annuity growth next year? It does seem like it was kind of mixed in terms of the year-over-year install activity. Ursula M. Burns: Yes, I think that the install activity will continue to stabilize and then strengthen our annuity revenue on a go-forward basis. This is install in both the Technology segment of the business and Services segment of the business. We're installing higher-end devices, mid-range color and production color devices really well, so that will help. We had some weakness in this quarter in the entry segment, just generally, the entry segment is generally lower everything: lower prices, lower post-sale revenue. We like them if we can get them, but we have lower activity this quarter. But overall, our install activity will drive more pages, stabilizing pages in color for sure, drives an average price of page up. It was up this quarter, it was up last quarter on a total company. So the install activity bodes well for the future, very well. Mark A Moskowitz - JP Morgan Chase & Co, Research Division: And then, Luca, I just want to get a sense here in terms of -- kind of build on some of the previous questions around cash flow. When do we get a sense that all of the new signings on the Services side over the past 12 months or so, when do we get a sense in terms of when the cash flow will exceed the initial cash outlays? I mean, how many more quarter does Xerox has to make these cash outlays to really build out the infrastructure before you start generating positive cash return?

I think, first of all, we will continue to sign new contracts so we're going to continue to have that issue that every time we want to start up a new significant contract that requires some infrastructure investments, we will have that. I think in general, what we're seeing is that some of these things drive some working capital requirements that were maybe higher than what we were anticipating. I would say that over time, these -- as we put some of these contracts into full mode, take California, they will become a positive versus the negative that they've been this year. But it very much will depend on future signings and how -- what the profile of those signings is going to be. Over the years, I think it's important to think about working capital as being fairly neutral as opposed to having had a couple of years in the past where working capital was a significant source of cash. And this is normal for a company that wants to grow a bit faster than we were growing in the past. And so that, probably, that's the way you need to think about it, maybe working capital as a wash and no longer a source of funds.

Your next question comes from the line of Chris Whitmore with Deutsche Bank. Chris Whitmore - Deutsche Bank AG, Research Division: I had a clarification and a follow-up. First, did you lower your near-term expectations for gross margins by about one percentage point? And if so, does that apply to next year as well?

So we are saying that in the near term, we think it's going to be more like 32% to 34%. We had out a range of 33% to 35%. So within that range, it's clearly a reduction, again driven very much by the fact that Services are growing and therefore there is a dilution of gross margin that comes from that and some of these new contracts as we said before. Again, getting into 2012 guidance, we will give you a full update in January. Chris Whitmore - Deutsche Bank AG, Research Division: So my question relates just to reconciling everything we've heard so far in the call and into that next year's outlook. Constant currency revenue growth, growth is tracking 1%, you expect that to accelerate. However, guidance implies something significantly faster. Meanwhile, you have this ongoing mix shift on the gross profit line. I guess my bottom line question is, do you believe you need to restructure and cut costs in order to meet 2012 expectations? And if so, are you willing to do that? Ursula M. Burns: So the answer -- let me start and then Luca can add. We're being very careful to continually say one answer to a question that's been asked a lot of times, and that's what is our guidance for 2012? We've been very careful to say that we were going to update our guidance in the January in the fourth quarter of this year, the January report of that. The reason why is because we actually see tailwinds and headwinds and we want to get a better sense of how the fourth quarter will come out, and we'll have then been a better read of 2012 obviously. There are certain things that we know. One is that we are growing our Services business broader, better, faster, I don't know how to put it, than we thought we would. We are winning contracts, larger contracts. Those contracts that are good contracts. Those contracts require that we invest to start-up. The investment is in CapEx, as Luca talked about. And with more Services contracts, with more mix towards services, our gross margin will come down or is lower. So we see our gross margin 32% to 34% for the fourth quarter. I would suspect that we'll see it that way for 2012 as well, but we'll update you on that when we report the fourth quarter in January. We'll be able to give you a better, a more complete picture. The rest of the lines, we haven't really opined about at all for 2012.

But to your question on cost, Chris, absolutely. I mean, we're working on costs every day of the year. We work on cost on the product cost side. We work on cost on the fixed cost side of the business. Restructuring is a normal course of business. I mean, we're always looking for efficiencies and we're going to take the actions that are needed if we see that we can run our operations more efficiently than we do today, absolutely, we will do it. Ursula M. Burns: Thank you very much. Thanks for all of your time and for your interest, and have a good day.

This concludes today's conference call. You may now disconnect.