Xerox 2005 Annual Report Download - page 29

Xerox Corporation
21
Other
The Other segment primarily includes revenue from paper
sales, wide-format systems and value-added services.
We sell cut-sheet paper to our customers for use in their
document processing products. The market for cut-sheet
paper is highly competitive and revenues are significantly
affected by pricing. Our strategy is to charge a premium over
mill wholesale prices, which is adequate to cover our costs
and the value we add as a distributor.
We offer document processing products and devices in
our wide-format systems business designed to reproduce
large engineering and architectural drawings up to three
feet by four feet in size.
An increasingly important part of our offering is value-added
services, which leverage our document industry knowledge
and experience. Xerox value-added services deliver solutions,
which not only optimize enterprise output spend and infra-
structure, but also streamline, simplify and digitize our customers’
document-intensive business processes. Often the value-added
services solutions lead to larger Xerox managed services
contracts, which include Xerox equipment, supplies, service
and labor. The revenue from these contracts is reported within
the Production, Office or DMO segments. In 2005, value-added
services and managed services revenue, including equipment,
totaled $3.3 billion.
Revenue
Twenty-nine percent of our revenue comes from Equipment sales,
primarily from either lease arrangements that qualify as sales for
accounting purposes or outright cash sales. The remaining 71%
of our revenue, “Post sale and finance income,” includes annuity-
based revenue from maintenance, service, supplies and financing
as well as revenue from rentals or operating lease arrangements.
We sell most of our products and services under bundled lease
arrangements, in which our customers pay a monthly amount
for the related equipment, maintenance, services, supplies and
financing elements over the course of the lease agreement.
These arrangements are beneficial to our customers and us
since, in addition to customers receiving a bundled offering,
the arrangement allows us to maintain the customer relationship
for subsequent sales of equipment and services.
We are required for accounting purposes to analyze these
arrangements to determine whether the equipment component
meets certain accounting requirements such that the equipment
should be recorded as a sale at lease inception (i.e., sales-type
lease). Sales-type leases require allocation of a portion of the
monthly payment attributable to the fair value of the equipment
which we report as “equipment sales.” The remaining portion
of the monthly payment is allocated to the various remaining
elements based on fair value – service, maintenance, supplies
and financing – which are generally recognized over the term
of the lease agreement and reported as “post sale and other
revenue” and “finance income” revenue. In those arrangements
that do not qualify as sales-type leases, which has been starting
to occur morefrequently as a result of our services-led strategy,
the entiremonthly payment will be recognized over the term
of the lease agreement (i.e., rental or operating lease) and is
reported in “post sale and other revenue.” Our accounting
policies related to revenue recognition for leases and bundled
arrangements are included in Note 1 to the Consolidated Financial
Statements in our 2005 Annual Report.
$100
20
40
60
80
29%
71%
Revenue Stream
Approximately 29% of our revenue
comes from Equipment sales, from
either lease arrangements that
qualify as sales for accounting
purposes or outright cash sales.
The remaining 71% of our
revenue, “Post sale and financing,”
includes annuity-based revenue
from maintenance, service, supplies
and financing, as well as revenue
from rentals or operating lease
arrangements.
Xerox Annual Report 2005