Anne M. Mulcahy - Chairman, Chief Executive Officer Lawrence A. Zimmerman - Chief Financial Officer, Executive Vice President Ursula M. Burns - President, Director

Shannon Cross - Cross Research Keith Bachmann - BMO Capital Markets Jay Vleeschhouwer - Merrill Lynch Ananda Baruah - Banc of America Chris Whitmore - Deutsche Bank Mark Moskowitz - J.P. Morgan Richard Gardner - Citigroup Caroline Sabbagha - Lehman Brothers

Good morning and welcome to the Xerox Corporation second quarter 2008 earnings release conference call hosted by Ann Mulcahy, Chairman and Chief Executive Officer. She is joined by Ursula Burns, President, and Larry Zimmerman, 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 tape recorded. Other taping and/or rebroadcasting of this call are prohibited without express permission of Xerox. After the presentation, there will be a question-and-answer session. (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 Mrs. Mulcahy. Mrs. Mulcahy, you may begin. Anne M. Mulcahy: Thank you, Lauren and thanks to all of you for joining us today. We are going to begin at slide four and you will see a summary of our second quarter performance. The strength of our global annuity model resulted in second quarter earnings and cash in line with our expectations. We reported earnings of $0.24 per share, which does include $0.05 per share from a previously announced restructuring charge. We are seeing the challenges in the U.S. economy affect us primarily in large enterprises where there is a hesitancy to purchase higher end technology. However, this pressure was largely offset by steady growth in developing markets, consistent performance in the small and mid-sized business segment, and an increasing demand from customers looking to drive down costs by using our document management services. While these areas contributed to revenue growth and support our healthy annuity stream, they did have an impact on gross margin. We’re managing the pressure on margin with a clear focus on cost reductions and operational improvements to ensure we deliver solid bottom line results. Total revenue of $4.5 billion is up 8%, largely driven by 10% post sale growth. Currency gave us a four-point benefit. Our gross margin was 39.2% of revenue, down a little more than a point. Selling, administrative, and general expenses were 25.8% of revenue, about flat from this time last year. We are staying the course with our marketing and sales coverage investments this year. While the tougher economy has forced a hard look at all business decisions, we believe that expanding coverage, making pricing investments, and acting on more marketing initiatives serves us well today as well as in the long-term. We are already seeing these actions benefit us in developing markets, through Global Imaging, and from the install activity for our office color systems. And at the same time, we’re managing the balance sheet well, generating $442 million in cash from operations during the second quarter. We repurchased $377 million in Xerox shares this quarter, investing $711 million in stock buy-back during the first half of the year alone, and our board of directors approved an additional $1 billion for share repurchase, bringing the total available authorization to $1.7 billion. So if you turn to slide five, we’ll overview our Q2 revenue. So here’s a look at the revenue trends, noting the year-over-year compare in actual and constant currencies. The adjusted column on this chart assumes that Global’s total revenue for Q207 is included in our results for the same period. You will recall that we closed on the Global Imaging acquisition in mid-May of 2007, which gave us a month-and-a-half of benefit in the second quarter last year. So going forward, we will no longer need to adjust for the Global Imaging benefit, since we’ve now lapsed the acquisition date. Again, total revenue was up 8% in the quarter to $4.5 billion. When we adjust the compare for Global Imaging, revenue was up 5% with four points of positive currency. The leverage from post sale continues to be significant. It was up 10% in the quarter. That’s an increase of $306 million with Global Imaging. Adjusting for Global and the benefit from currency, the trend in post sale remains strong, up 4% in Q2. Where we are seeing the most impact from the economy is in production equipment sales, which led to equipment revenue up 2% in the quarter but down 5% without the benefit of Global Imaging and currency. As I mentioned earlier, our document management services are an area of strength for us. In fact, during the second quarter, we signed our largest outsourcing win to date in the U.S., a $100 million plus agreement with a major telecom company to manage the print operations of its 9,000 site serving more than 300,000 employees, and this deal is consistent with what we are seeing from our large enterprise customers -- services led deals that help them reduce costs and get more from their technology for less. It is a great value proposition for our customers and a marketplace differentiator for Xerox and it is working. Our services offerings have generated $1.8 billion in annuity revenue in the first half of this year. That’s up 8% from the first half of 2007, and color continues to be a strong growth driver as well, so turn to slide six and we’ll take a closer look at color. The adoption of color printing is accelerating. So far this year, more than $25 billion color pages have been printed on our system, putting us on pace for $50 billion color pages in 2008, and that’s a 25% increase over last year. Revenue from color grew 11% this quarter to $1.7 billion, including a six point currency benefit. Post sale revenue from color grew 17%, and that’s without factoring in any benefit from Global Imaging. And color now represents half of our total equipment sales and 40% of total revenue. There are two key factors resulting in the flat equipment sales for color this quarter. First, the economic pressure in the U.S. and second, the timing of major new production launches delayed purchases this quarter. We will see the benefit of those launches in the second half, especially coming through our European and developing markets operations. So if you turn to slide seven, we’ll give you more details on our production business. Total production revenue grew 4% including a five point benefit from currency. Most important, color page growth lifted our post sale revenue up 9% in the quarter. So keep in mind that no one else in the industry comes close to generating the production pages we do. According to the research firm InfoTrends, our DocuColor and iGen presses account for about half of the total worldwide color pages printed by high-speed digital systems. They tell us that’s more than twice as much as our nearest competitor. In May, at the industry trade show known as Drupa, we launched six production color systems, including the iGen 4, the most productive and highest quality cut-sheet digital press in the industry. We also announced the Xerox 700 entry production color system and the DocuColor 5000 AP for mid-market production color printing. Along with our new color continuous feed system, we significantly upgraded our portfolio and sent a strong reminder to the industry of our leadership in this marketplace. Drupa was a huge success for us and it exceeded our expectations at every turn. Order taking was 30% more than our goal heading into the show and we sold more than 300 systems and software applications, including a multiple iGen 4 and iGen 3 order to a photo and print lab in Switzerland, and four color continuous feed systems to [Strafor], a large European printer. We took advantage of the order-taking opportunity at Drupa to unveil these new systems, but installs primarily don’t start until late Q3. The result of the timing is a decline in production equipment revenue in Q2, with momentum building in the second half of the year. We are seeing strong demand for the iGen 4, with many large customers holding back on iGen 3 orders in anticipate of the iGen 4, and the Xerox 700 meets the need for high quality production printing at a very attractive price point, so much so that we are already seeing demand outpace supply. That’s a good problem to have and one that we are addressing with urgency heading into the second half of the year. So if you turn to slide eight, we’ll take a closer look at the performance in our office marketplace. With the benefit of Global Imaging in our results, total office revenue was up 9% in the quarter and 5% in constant currency. Our competitive play to install more and more Xerox units helped to boost post sale, which was up 10% in the quarter. Equipment sales were up 5%, and we continue to expand distribution, bringing the quality of our brand and extensive portfolio to more businesses of any size. Global Imaging acquired Florida’s Saxon Business Systems in Q2 and last week purchased a company that extends its coverage in Nevada. That’s seven acquisitions Global has made since we bought the company last May. It is a strategy worth repeating and that’s why we purchased Veenman, the largest office technology dealer in The Netherlands, and we are looking for other opportunities to extend our coverage to regional distributors. Veenman gives us access to more than 4,000 new SMB customers and more than doubles our sales force in this region. More distribution translates into increased install activity, up 34% in color MFDs and 10% in black-and-white multi-function, and installs of color printers were up 12%. During the quarter, we continued to aggressively expand our product portfolio for the SMB marketplace with competitively priced printers and multi-function systems, and there’s more to come in the second half of this year, priced right and available through our multiple channels of distribution. And that’s clearly what’s driving DMO results in the office, with equipment sales growth of 16% and total office revenue up 14%. Turn to slide nine for a closer look at our performance in developing markets. While the results from our developing markets are reflected in the office and production segment, here is a look at the overall regional performance. Revenue from DMO was up 19%, with post sale up 19% and equipment sale revenue up 18%. Any way you look at it, it was a strong quarter for developing markets across the board. About a third of the overall revenue growth generated this quarter came from our developing markets, progress that we expect will continue throughout the year as demand picks up for our technology, both office and production systems and for document services. So on that note, I would like to hand it over to Larry, and then of course I’ll be back to wrap up and discuss Q3 expectations, and then Larry, Ursula, and I will take your questions. Larry, over to you. Lawrence A. Zimmerman: Thank you, Anne and good morning. In the second quarter, we delivered to our expectations, with earnings per share of $0.24 and $430 million of core cash flow. I would categorize the quarter as good overall results with strong performance in some areas -- post sale growth, DMO, and office, balanced by weaker results in production and pressure on gross profit margin due to the mix of channels, products, and price. The economy, as well as the timing of new product introductions played a part in a slower production business. DMO and Global Imaging played a very positive role in office. In addition, our cash flow performance and optimism going forward gave us the confidence to continue to invest in distribution acquisitions and buy back 27 million shares. So let’s go to slide 11 and review the P&L. Anne reviewed the revenue with you but it’s important to note again the 4% growth of post sale revenue in constant currency and apples-to-apples in Global Imaging drivers our earnings and cash flow in a tough environment. Gross profit margin declined about 1%, driven by product and channel mix, as well as the year-over-year price effect of first quarter price actions. The channel mix affect is reflective of the slower performance in the U.S. large accounts versus considerable growth in DMO and services, but through time this should self-correct. From a second quarter view, we actually saw some improvement in price and margin sequentially. With restructuring actions, we would expect to see continued improvement by fourth quarter. Having said that, our gross margin business model is 40 to 41, and with the first half at 39.3, we expect to be in the 39 to 40 range for the full year. As we have said before, we believe our model is flexible and we plan on adjusting it so that we will deliver earnings consistent with the full year guidance that we had given in the first quarter of $1.26 to $1.30, including the second quarter $0.05 restructuring charge, and any additional we feel we need to do later. In expense management, we delivered productivity in R&D with improved expense to revenue, which we’ll continue, and flat expense to revenue and SAG as we invest in distribution. The major part of the year-over-year SAG dollar growth is currency and Global Imaging. As we guided last quarter, we took a $63 million, $0.05 a share restructuring charge, primarily gross profit related, and that will help margin going forward. Net income was lower, including the $63 million restructuring charge. The tax rate was 24%, flat year over year but the rate was 26% if restructuring is pulled out. Restructuring was tax affected approximately 32%. Going forward for the remainder of the year, we would expect the tax rate to be 26%. And finally, EPS was $0.24, in the middle of our guidance, $0.23 to $0.25, inclusive of the $0.05 restructuring charge. Next slide. We are pleased with second quarter results of $430 million of core cash and $442 million of total cash from operations. This keeps us on track to maintain our full year commitment of $1.1 billion core cash flow, allowing for the $795 million for litigation settlement we talked about last quarter. We expect settlement cash will run through cash from operations in the fourth quarter. No surprises in cash flow -- it is driven by earnings and working capital is at the levels that we expected. Cash from investing included $88 million capital and internal software spending, $138 million for acquisitions to support our expanding distribution strategy, and $138 million partial payment into an escrow account for our Carlson litigation settlement. We have been active in share repurchase as we repurchased $377 million in the quarter and $711 million year-to-date, approximately 50 million shares. We announced an additional $1 billion board authorization, which gives us approval to repurchase a total of $1.7 billion. We plan on being active going forward, consistent with cash flow and appropriate leverage, and at the same time maximize shareholder value. Lastly, we paid out $39 million for our quarterly dividend. Overall, a very good cash performance and we continue to be dedicated to strong liquidity and investment grade rating. Next slide. Our business model is driven by annuity. In times of economic uncertainty, this provides us with stable revenue stream and a good source of cash flow. The leading indicators for our annuity continue to be positive. As we go through this score card, keep in mind that machines in the field, as well as page data do not include printers, developing markets, and Global Imaging, and all revenue measures exclude Global Imaging. Including these items would improve the results. As our channels of distribution evolve, this limits our ability to measure pages and machines in the field and it does not provide a complete picture of post sale dynamics. Going forward, we will need to supplement the scorecard as DMO and Global Imaging lead the way in office and are too significant to not include. Our estimate of their impact on digital pages would show a change from down 1% to approximately up 1%. Looking first at the top left box, digital revenue in the quarter was up 8%, MIF was up 6%, and digital pages were down 1%, but would be approximately up 1% when we include DMO, Global Imaging, and printers. Color continues to drive digital growth with 16% revenue, 37% MIF, and 29% page growth. This, along with the positive impact of color on price per page, continues to provide us a great opportunity, as color only represents 21% of the MIF and 16% of the pages. Black and white MIF is stable, with declines in pages being driven in part by the transition of pages into color and color-capable devices. Black and white MIF stability, along with our strong color growth, is a positive indicator for future annuity, and Global Imaging, DMO, and printers would increase this. We also continue to see strong growth in services, another key post sale indicator and an important element of our growth strategy. Services annuity is up 8% in the first half and we see the growth continuing as more and more customers look to Xerox to help them reduce their costs by optimizing and simplifying their document management. These leading indicators, as well as the strong DMO, Global Imaging, and printer performance, reflect well on continued annuity performance. So in summary, we delivered earnings and strong cash flow. We delivered shareholder value with acquisitions, quarterly dividend, and share repurchase. We invested in coverage. We took actions to improve gross profit margin and we are maintaining our full year guidance. Now I’ll give it back to Anne. Anne M. Mulcahy: Thanks, Larry. So we continue to say it, but it is an important message to leave you with, and that’s our annuity-based business really is the driver of our profitable growth and it is an asset in tougher economic times. With the leverage from color and services, we are confident in the sustainable strength of this model through the long-term. So far this year, we’ve launched 23 products, including a significant refresh of our production line and expanded offerings for the SMB marketplace, and we’ll start to see the benefit of these innovation investments later this year as equipment activity drives page volume, pages that help boost post sale -- you know the story. In addition, our broader distribution, developing markets, and Global Imaging organizations are rapidly growing our brand presence in SMB, and with the additional $1 billion in share repurchase authorization, you will see us continue to buy back Xerox stock. And at the same time, we’re managing the balance sheet with a close eye on the bottom line, making the marketing investments needed to drive growth while controlling costs and ensuring flexibility in our model so we can deliver on earnings expectations and generate strong operating cash flow. So we expect Q3 earnings in the range of $0.28 to $0.30 per share, and full year EPS of $1.26 to $1.30. So thank you all for joining us today and Larry and Ursula and I will be pleased to take your questions now.

(Operator Instructions) Your first question comes from the line of Shannon Cross with Cross Research. Shannon Cross - Cross Research: Good morning. A couple of questions, the first, if you could talk a little bit about if you hadn’t seen the dip in color production demand prior to the launch of the iGen 4, any idea on how the quarter might have tracked what your production color might have looked like? I’m just trying to get an idea of sort of the magnitude of impact from delays in installs. And then also, if you can give us any update on demand for some of the new products, like the 700, that would be great. Thanks. Anne M. Mulcahy: Okay. If we look historically at our revenue growth in color production, it obviously had a significant impact on the quarter. Second quarter is our second strongest quarter in the year, so obviously it would have changed the story significantly. I will say that I would look at it and say in the U.S., I do think that there’s more economic content, quite frankly, to the production story but in terms of Europe and DMO, there’s no question that we had demand we couldn’t fulfill from the announcements of the new product. So it would have helped in a number of ways -- obviously it would have helped equipment sell revenue. It’s our higher margin area of the business, so it would have helped margin as well, and it would have helped color growth rate. So there’s no question -- I think you know, Shannon, that we decided to really go out more aggressively in Drupa because we didn’t want to miss the window, and particularly in light of competitors pre-announcing products that weren’t available, quite frankly, for a longer time. We thought it was a wise thing to do to go out and announce products, get the momentum built, since we’re bringing these products to market late in the third quarter. So we will see some benefit in the third quarter, a lot in the fourth quarter. The 700 is the product that’s clearly exceeded our expectations. Early demand says that it’s way more than we had anticipated, it’s priced right, it’s in a sweet spot in terms of entry production color. We’re now working on increasing the supply as aggressively as possible so that we can take advantage of this demand through the balance of the year. But I think, Ursula, it would be fair to say we’ll install every single one we get. Ursula M. Burns: We have already installed every single one that we have gotten, and we are working, as Anne said, on getting more. The up-tick in the 700 shows primarily in Europe. That’s where we’ve launched it first. We’ll launch it in the U.S. and some of the DMO territories in the third quarter of this year, late -- early fourth quarter of this year and we’ll see an additional tick-up in that segment as well. Shannon Cross - Cross Research: And then just sort of a follow-up to -- assuming that the color production demand remains relatively solid, at least in countries other than the U.S., and then sort of looking at the numbers that you provided, are you sort of taking a conservative outlook, given all the economic factors that are out there? Because when you look at your EPS guidance, especially with the benefit from lower tax and continued aggressive share repurchase, I mean, is this basically better to be conservative and prudent than aggressive kind of an attitude, looking at your numbers, given some of the tailwinds you probably will have in the second half? Anne M. Mulcahy: Well, we’re certainly not looking for any economic improvements balance of year, so should there be some, then I think we would clearly take advantage of some of the upside that it would bring, but that’s not something that we’ve considered as we’ve done our outlook for balance of year. It’s an interesting scenario because the pressure on margin is coming from mix and the good news on tax rate is coming also from geographical mix, so there’s a little bit of a trade-off there, Shannon, in the sense that the lower tax rate is being generated literally by the weakness in the U.S., which is the higher tax area, and the fact that the benefit from the disproportionate amount of the revenue that’s coming from the emerging markets and Europe. So I think it’s fair to say that as the U.S. gets stronger, we will see that tax rate potentially go up a bit as well. But what we’re looking at through the balance of the year is basically what we’ve seen through the first half of the year. Shannon Cross - Cross Research: Thank you very much.

Your next question comes from the line of Keith Bachmann with Bank of Montreal. Keith Bachmann - BMO Capital Markets: Thank you. I wanted to ask just a couple of questions, if I could; Anne, could you just talk about how you are thinking about, given that economic backdrop in the mix, how you are thinking about pricing on both the production side and the office side through the end of the year? And what risk do you see in the implications to gross margins that have ticked down over the course of the last four quarters, five quarters? If you could address that as you -- as it relates to the demand environment. Thanks. Anne M. Mulcahy: I think we would view the pricing environment, it’s important to say, by the way, that pricing moderated a bit in second quarter. You may remember we were pretty aggressive, particularly in the mono-production area, so we brought that back a bit and think it was a wise thing to do. So pricing did moderate a little bit but it’s still clearly a source of pressure on margin and we would expect that to continue. Now, importantly it’s primarily on the equipment sales side still, so getting the install still is a priority and maximizing our channels of distribution is a priority, so -- but we don’t expect the pricing environment to deteriorate much more, nor improve significantly for balance of year. But I have to say that if you look at margins, I would say that for the balance of the year, we have a number of things that are going in our direction for margin improvement. The first is the impact of the restructuring. The second is, as I mentioned, production color, which clearly is a helper in terms of improving performance in production color. And the third is as we get into the second half of the year, that potential improvement in the ratio of SAG and RD&E is also a helper, so I think we have more helping us than hurting us but I don’t think pricing will be the major helper going forward. It will come from restructuring, better performance in production color, and some improving ratios on SAG and RD&E. Keith Bachmann - BMO Capital Markets: Okay. If I could just ask one more than, Anne, I want to change subjects for a second; I wonder if you could address how you think some of your acquisitions have performed, particularly in the software side, things like Amici, and how you think about your acquisition portfolio going forward, away from the distribution side. Anne M. Mulcahy: Well, I think we would tell you that the biggest and most significant acquisition we’ve done is Global Imaging and we continue to be more than pleased with Global Imaging. They had a very strong quarter. Amici, which is now known as Xerox Litigation Services, is a great performer. It’s high margin, high value services business that we think still has lots of legs to grow. The XMS, which is the mortgage processing business, as you would expect is under some pressure but the reality is that what we’ve invested in clearly is going to be even more important to the mortgage industry going forward, which is a systemic digital mortgage processing platform that clearly has already got market share in the mortgage industry and I think will only gain, so we think that’s an investment that will yield more in the future. The other one is XMPie, which we’re thrilled with. I mean, XMPie continues to be a great acquisition. Our graphic communications space is a world that’s driven by applications and primarily personalization and to have XMPie in our portfolio is terrific. So all in all, I think we’ve been careful. I think we’ve set our sights high but I think our acquisition process has yielded great results. Keith Bachmann - BMO Capital Markets: And so Anne, with that as a backdrop and then I’ll cede the floor, but would it make sense in your mind if you’ve been successful in those areas, which I presume also would eventually lead to an improved margin profile, why not go after more on that side of the fence, rather than the distribution side which doesn’t necessarily diversify your revenue streams? Anne M. Mulcahy: Well, I think we are. I think this is more a question of finding the right properties. We are looking and saying to the extent we can do more, particularly on the vertical services side than the software side, we’re very open to that. I wouldn’t, by the way -- by the way, whatever we do in distribution becomes a channel not just for our traditional business but it’s a channel for our services business and we are demonstrating that with Global already, that we’re changing the boundaries of what those channels distribute with a wider portfolio of offerings. So in one sense, distribution just gives us a bigger pipe to take all of our offerings through, so it’s a driver of growth for the entire portfolio of the business. But I would look and say I think we are selective and we are totally open to acquisitions that will help us on the services and software side and continue to look at them and have them in our pipeline as well. Keith Bachmann - BMO Capital Markets: Thank you.

Your next question comes from the line of Jay Vleeschhouwer with Merrill Lynch. Jay Vleeschhouwer - Merrill Lynch: Thanks. Good morning. Anne, how are you thinking about the continuity of growth for DMO, specifically post sales within DMO? You’ve been seeing some good mid-teens growth there year over year, but at least in the second half of this year, the comps do start getting quite a bit harder versus the second half of last year, so maybe you could talk about how you are thinking about DMO, both on the production and office side. Secondly, with respect to the gross margin, is the 39% to 40% just the reality of this year that you have to acknowledge, or is this a leading indicator of another reset of the gross margin in future, notwithstanding some potentially favorable mix trends? Anne M. Mulcahy: On DMO, I think -- I mean, we did see extraordinary growth this quarter, 18% to 19% growth is pretty ambitious but if you looked at where we are investing, particularly on the marketing and the covered side, you would see it disproportionately allocated to DMO, so our intent is to continue to capture growth in DMO by investing in future sources of growth. And I think the model is very different from the rest of the world. I mean, when we look at our post sale in the rest of the world, a lot of it is driven by document services, technical services, financing. And DMO, it’s really a consumable post sale model which does yield a higher set of returns in the post sale than you have from the blended post sale stream you see in the rest of the world, Jay, so you will continue to see kind of a higher ratio of post sale in DMO because of the makeup of the kind of razor, razor blade model that we have in DMO. So I’m not suggesting that we’ll see 18% potentially over the long-term but I think we have double-digit growth in DMO for a long time to come and we’re investing and making sure that we’ve got the ability to get it. And I would say that we have in the services and the production market, we clearly have not yet really capitalized on the opportunity going forward there. I know Ursula and I were both at Drupa and I would tell you, the excitement from the developing markets on the high-end technologies, and even I think the order rate from DMO, Ursula, was higher than it was from Europe. Ursula M. Burns: We are impressed at the pick-up of the high-end technology, particularly color technology, in the territories in DMO -- Russia, Brazil, Mexico, the Eurasia companies, India. So all of the production equipment actually plays very well in those areas. Anne M. Mulcahy: And on the margin, I think we would characterize 39 to 40 as the reality of the economic mix that we are seeing right now. And that’s why I wanted to kind of make clear that when you’ve got weakness in U.S., weakness in production, you are really looking at your highest margin businesses, kind of not producing their fair share, and the extraordinary strength we’re seeing from DMO and Global and services, which are all doing very, very well as lower margin businesses is really driving it. As the U.S. and production comes back, there’s no question that the gross margin will improve, so we basically believe this is a temporary outlook, one that we are adjusting our business model to so that we can maintain our expectation to outlook, but that it will be conditional to economic improvement in the U.S. and -- but for as long a time as we’re dealing with that, we believe we’ve got the right actions in place so that we can really not have to deteriorate the overall business returns. On the flipside of that, Jay, as the margin gets stronger with U.S., then you will see probably a tax rate change as well. Jay Vleeschhouwer - Merrill Lynch: Okay. Additionally, Anne, can you comment on any areas where you feel that you need to capture or perhaps recapture share? We’ve been seeing some interesting trends in both office and production with respect to Canon’s numbers, Ricoh’s numbers, Oce and continuous feed -- you know, where are the holes that you need to try to run through? Anne M. Mulcahy: I think, by the way, if you looked at the last share results through Q1, we actually grew share almost everywhere, which gives us one area of focus that we are focused on like crazy, and that’s the entry production color area, and particularly the low-end of the entry production color area, and that’s why the introduction of the 700 color press is so critically important and the success of it, because that is our path to be very aggressive in gaining back share in that area. But other than that, I have to tell you we are really pleased with share across the board. Jay Vleeschhouwer - Merrill Lynch: All right and then lastly, the usual question on vertical markets, graphic arts, transactional, public sector, financial, and so forth? Anne M. Mulcahy: I think the only one that we would break out would be graphic arts, and graphic arts only in the U.S., and that clearly is feeling the pressure but any of the other industrial verticals, government, we think none of that is material in terms of the results. Jay Vleeschhouwer - Merrill Lynch: Thank you.

Your next question comes from the line of Ananda Baruah with Banc of America. Ananda Baruah - Banc of America: Thanks for taking my call. Just a quick question, I guess, on kind of intertwined installs and margins. Just interested in where you guys were maybe most surprised, or I guess what led to the -- I guess kind of to the biggest surprise in the install activity this quarter? I’m going to sort of assume that you guys probably -- or did you expect some delays in purchasing, sort of ahead of Drupa or were you surprised by that? And then secondarily, depending on the answer to that question, did that also lead to I guess some of the sequential decline in the margins, which I am sort of assuming you were a bit surprised by, because I got the sense coming out of the last quarter that you were expecting at least a slight up-tick sequentially in the gross margin. Anne M. Mulcahy: So let me just talk about installs first, and I think that we clearly -- I can’t say we were totally surprised by it but the production color install rate was way off certainly our traditional production color rate. Now, we definitely changed our minds about bringing the production color products to Drupa that weren’t available to Q3 and we did it to position ourselves competitively. It’s the right thing to do. We couldn’t miss that window to create excitement about the new products based upon what competitors were doing, but it definitely put a hold on the vast majority of our production color orders in the second quarter. So it’s a surprise, I think, in terms of where we thought we were at the beginning of the year and certainly first quarter, but once we assessed the state of Drupa, we made the decision, we knew there would be an impact, and we certainly got it, and it really is due to the strength of the refreshed portfolio. So that’s the only one. If you look through all the office categories, we had 10% in growth in office black and white, I think about 35% in color MFP -- I mean, we’ve been looking at results like Lexmark’s 12% decline in laser printers; we had a 12% increase in color printers, so we would look at it and say office was strong and our weakness was production color and I guess we sort of did it to ourselves but this is a full year, not just a quarter and we think that’s the right thing. Ursula. Ursula M. Burns: And the major focus area in production color was the high-end of production color, where we accelerated the introduction or the showing of iGen 4. In the DocuColor 700 space, our activity in that space was flat on a yearly basis, so we didn’t see a decline. But what we have seen is a significant pick-up in orders or demand for the 700, so that should add to that already solid base. The iGen 4 is the place that we actually decided to accelerate and saw delayed decisions for that. Ananda Baruah - Banc of America: Got it, so -- Anne M. Mulcahy: You wanted me to comment on margins, sequential margin? Ananda Baruah - Banc of America: Sure, yeah, that’d be great. Thanks. Anne M. Mulcahy: I think when we talked about margin last quarter, we said that we would see the impacts of restructuring in the second half of the year, so we really had almost no impacts in terms of restructuring in second quarter. It was a quarter of implementation and I think understanding the impacts of the production color business on margin, you know, had we not had that dip in production color, I think you would have seen a sequential improvement in margin based upon the strengths and the impact of that part of the portfolio. But we haven’t lost it. It’s literally coming in the second half so this is one where I think our projection on margin, we can be confident in improvement because of the flow-through, both from the pent-up demand on the new production products, as well as the restructuring impacts. Ananda Baruah - Banc of America: Great, and just a quick follow-up, if I could; Oce’s continuous feed numbers weren’t great for the quarter. I know that’s been an area that you guys have been talking about, or at least pointing to as an area of expansion. And I know -- I don’t doubt at all that that’s going to continue to be the case, but have you seen anything in that market through the June Q that has maybe dampened the enthusiasm around that market, your opportunity to sort of go into that market in a bigger way in the second half of the year? Ursula M. Burns: Absolutely nothing that dampens our enthusiasm at all; actually, everything that we have seen, especially on the color continuous feeds, has boosted our enthusiasm on that market segment and our ability to be competitive in that segment. Ananda Baruah - Banc of America: Okay, thank you.

Your next question comes from the line of Chris Whitmore with Deutsche Bank. Chris Whitmore - Deutsche Bank: Thanks. Back to the gross margin, hoping to get a little color on the decline in post sale gross margin. On a year-on-year basis, that was down over one percentage point, and you haven’t given much color on that. What was the primary driver of that margin erosion? Anne M. Mulcahy: The strength of services really drove -- I mean, that was the answer on post sale, nothing else. Services does come at a lower margin and because of the weakness -- this is right back to the same weakness in U.S., particularly high-end hardware, and the strength of our services business combined to have an impact on the post sale gross margin. Chris Whitmore - Deutsche Bank: Are you seeing any pull-back at all in printed pages amongst your production, your highest volume production printing customers? Anne M. Mulcahy: Yeah, I think on black and white pages, there is no question. You saw it in Larry’s chart that we are seeing some accelerated declines on the black and white pages side, and that is primarily a U.S. phenomenon. Chris Whitmore - Deutsche Bank: How does that weakening page volume kind of outlook or scenario impact your outlook for equipment sales going forward in production? And related, you just showed about 5% declines in equipment revenue growth on a year-on-year basis, what should we think about as a target for the back half of the year as an organic equipment revenue growth number? Anne M. Mulcahy: I think that this would get back to the question is what kind of assumptions have we put into our outlook for the balance of the year and we are not expecting U.S. black and white pages to improve. That is something that until the U.S. economy starts to improve, I think there will be a relationship on the page side, not so much on color, by the way. Color seems to be holding up a lot better than the black and white page, which is more the transactional side of the business. So I think we’ve made the assumptions that it is what it is until we see some kind of economic improvement. On the actual equipment sales side, which is unrelated from the page discussion, I think we should see improvement based upon the fact that we’ve got the benefit of the new product portfolio in the second half of the year versus what we saw in the second quarter of the year. So we would look and say -- we don’t expect equipment sales to be a robust growth factor but it should be improving based upon the new product introductions. I mean, that’s really going to help but we still think our model is a post-sale model and you are going to see overall revenue growth clearly leveraged through the post sale stream. Chris Whitmore - Deutsche Bank: Final question is for Larry; Larry, bad debt expense was up slightly sequentially. Can you talk about your collections and customer credit quality, if you are seeing any meaningful changes there? That would be helpful. Thanks a lot. Lawrence A. Zimmerman: We haven’t seen any meaningful change that we would call material in the customer payments here. Bad debts goes up -- revenue goes up, bad debts goes up and it’s just that. Chris Whitmore - Deutsche Bank: Thank you.

Your next question comes from the line of Mark Moskowitz with J.P. Morgan. Mark Moskowitz - J.P. Morgan: Thank you. Good morning. A couple of questions; getting back to the commentary on pricing, Anne or Larry, could you talk a little more about some of the drivers to why the pricing moderated in the quarter? Did you have some upside in other areas that allowed you to pull back in production monochrome? And if there was upside in certain areas, how sustainable should we think about those drivers going forward? Anne M. Mulcahy: Mark, I think when we talked about it in the first quarter, we talked about the fact that the pricing pressure came through selected big deals. That’s where you see sometimes the biggest impact on pricing. So generally what we don’t do is kind of, if you will, reduce the water level for the entire portfolio. We try to do it selectively to win light house deals, which gives us the opportunity to manage it going forward, and what we did was clearly just manage and not offer the same level of pricing in Q2 as Q1, and we had the opportunity to do that. You know, as we look at pricing investments across the board, you know, still under 10%, which is not untraditional for us and better than Q1, but it was mostly big deal driven versus any particular category of product. Mark Moskowitz - J.P. Morgan: Okay, and then getting back to the production refresh, Ursula and yourself talked about the demand outstripping supply right now. How should we think about your ability to perform, just given you are implementing a considerable level of restructuring activities in the second half? Is there any wiggle room to restructure if the macro gets worse, just given that you are trying to unleash this new product set with some pretty exciting demand levels at this point. Ursula M. Burns: On the demand side and the supply side, we are confident that we can meet the demand as we ramp up the production line. It’s a pretty standard product introduction cycle that we go through, so we have very high demand in the 700. That demand will be met with supply as we [come to production curve] [inaudible] so -- and the restructuring wouldn’t have anything to do with that at all. Anne M. Mulcahy: Remember, the restructuring is very focused. It has literally I think zero impact in terms of our ability to execute against the plan, and I think that if the economy gets worse, I think that’s something we actually are pretty good at. We literally know how to deal with anticipating and making sure that we take advantage of any cost opportunities to make sure that we don’t, quite frankly, disappoint in terms of bottom line expectations. So you can be assured that we have all of our contingency approaches understood, hopefully not to implement but we know what to do. Lawrence A. Zimmerman: I think in a price performance technology company, you have to constantly reduce cost and the only way to do that is through some small kinds of restructuring, and we’ve done that a lot, and we’re prepared to do it in the future and we would do it within the guidance that we’ve given. Mark Moskowitz - J.P. Morgan: Okay. Thank you. One more question, if I could; any update -- I may have missed it, so I apologize, but any update on the distribution inventory activities across the U.S.? I remember last quarter, you did talk about some of the distributors having some hesitancy to take on inventory. Has that changed or not? Anne M. Mulcahy: I think we talked about specifically in the reseller channel and I think we would say it’s a continuing trend. It has not worsened but there’s no question there’s a very conservative approach to inventory in the channels, but I would not say its worsened from Q1. Mark Moskowitz - J.P. Morgan: Thank you.

Your next question comes from the line of Richard Gardner with Citigroup. Richard Gardner - Citigroup: Thank you for taking the question. I had two questions for you. I was hoping that you could give us a little bit more color on the timing of shipments and installs for the new production products in the third quarter. Is it going to be fairly linear or it is going to be heavily back-end loaded in the quarter? And then secondly, Larry, I was hoping that you could give me a little bit more detail on the specific types of costs that were affected by the restructuring actions in Q2. Thank you. Anne M. Mulcahy: Okay, timing on the -- you know, absolutely will be back-end loaded in Q3, so we’ll get as much as we can done but primarily I think a September kind of delivery for, for example, iGen 4 and the 5000. Particularly, I think you will see a more steady 700 availability, although not available until probably Q4 or September or Q4 in the U.S. So definitely back-end loaded, that’s comprehended within our outlook. It’s why we know that we’ve got a lot of momentum, particularly going into the fourth quarter as we look at the production business. But we’re staged and ready and we’ll take as much advantage as we can in third quarter. On costs and restructuring, Larry. Lawrence A. Zimmerman: On costs and restructuring, what we said was that two-thirds of it was gross profit related, and that had to do with supply chain and also service, rate-fixed service were the two primary areas. Richard Gardner - Citigroup: Okay. Thank you. Anne M. Mulcahy: Thank you. Last question, I think, we have time for.

Your last question comes from the line of Caroline Sabbagha with Lehman Brothers. Caroline Sabbagha - Lehman Brothers: Thanks. A question on the increased share buy-back authorization; I guess the question is why now? You still had $700 million left on it, which is kind of the level you’ve been running at for the first half. Does it imply that you are going to do more than the $700 million for the rest of the year that you had outstanding? And associated with that, given what we think may be a bigger buy-back than you intended in the beginning of the year, the incremental cash-out for the litigation settlement, what is your view looking out 12 months or so on where you want the balance sheet, what sort of cash levels do you feel comfortable with, what sort of leverage do you feel comfortable with? Lawrence A. Zimmerman: Well, I think -- and I think we’ve said this, Carol, but basically somewhere around $750 million as a cash balance is what we’ve tried to do. We’ve generally fallen into around $800 million, if you look back at the last quarter since we said that. We probably could do it at less than that but that’s sort of a comfort zone number. I think we just saw some opportunity to be active with share repurchase because of the share price, and so that’s what we did, sort of bought ahead, maybe a little bit ahead of the cash flow in anticipation that we really have a strong fourth quarter on cash flow in this company and that we can meet what we say there. And I think the authorization was just simply a statement of the fact that we are kind of dedicated to that idea, that share repurchase is important for us and just increases it and the timeframe might increase because of the higher amount that we had there. Share repurchase is done and consistent with cash flow, so -- as far as debt levels, I think in the second quarter, we had a seven-to-one ratio of debt in our financing business leverage, and we had about $400 million or $500 million of core debt. And somewhere around that is a comfort zone of where we think core debt should be. Caroline Sabbagha - Lehman Brothers: Okay. And then one quick question on the product side -- we’ve been talking, or you guys have been talking since the analyst meeting last November about the higher end solid ink product coming out in 2008 and I think second half of the year. Where are we in that processed? And I know you were testing out the price elasticity in solid ink with the existing products -- again, what have your results showed? Ursula M. Burns: We are on track to bring solid ink [up market] at the end of 2008 with market introductions and the financial impact in the beginning of 2009. And as far as our test-out goes, we are still testing out, obviously, but the feedback has been good, strong on our color MFP, lower on color MFP introduction that we made last year, so on track for both ends. Caroline Sabbagha - Lehman Brothers: Terrific. Thank you. Anne M. Mulcahy: Okay. Thank you, Carol and thanks to all of your for participating today. Have a great day.

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Good day.