Xerox 2006 Annual Report Download - page 5

XEROX ANNUAL REPORT 2006
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* See Page 7 for the reconciliation of the difference between this financial measure that is not in compliance with
Generally Accepted Accounting Principles (GAAP) and the most directly comparable financial measure calculated
in accordance with GAAP.
We met our full-year expectations on earnings growth and cash generation, increased
post-sale revenue and strengthened our industry-leading portfolio of products and
services. We purchased two well-performing companies – XMPie®and Amici – that are
contributing revenue growth and helping us build value for our customers. We managed
our operations efficiently, giving us the flexibility to compete effectively while generating
strong bottom-line results.
We returned to investment grade and bought back $1.1 billion of Xerox shares in 2006.
We’ve committed $2.5 billion to share repurchase since the program launched in October
2005. Our healthy cash position allows us to deliver value for shareholders by buying back
stock and investing in growth through acquisitions, innovation and a services-led approach
to winning in the marketplace. In fact, Xerox stock appreciated 16 percent in 2006. It was
a good year and we have every reason to believe we are on our way to a better one.
Our growth strategy
While we’re proud of our accomplishments, what gives me the greatest pride in our
leadership team is that we’re not satisfied. Hubris is not a part of our vocabulary. Good
enough is simply not good enough for Xerox. We’re keenly aware that the last frontier we
need to tame is accelerating revenue growth. There are several reasons to believe this is
within our reach.
While we’re justifiably known for our technology, we’re running an annuity-based business
that generates more than 70 percent of revenue from what we call “post sale.” This is the
sale of supplies – like ink and toner – and technical services that are needed to support
our products, as well as revenue from financing our customers’ purchases. It also includes
consulting and outsourcing services such as document imaging and archiving, managing
our customers’ print shops, simplifying their work processes and much more.
Last year was a turning point in growing our post-sale revenue – up 2 percent for the
year – as the annuity from our digital, color and services businesses helped to offset
losses from our older light lens business. This positive trend is expected to continue;
in fact, we expect it will accelerate as light lens becomes less and less of the total and
the annuity from our strong growth markets kicks in.
We have four planks in our growth strategy. Each builds on our core competencies.
Each responds to customer need with customer value. Each is designed to fuel our
annuity stream through long-term contracts. And each is yielding good results. Here’s
a snapshot of how we’re doing in each of our four growth strategies.
The first is to lead in color. We’ve been investing heavily in leading with the transition
to color in the office and in expanding our leadership position in the production market.
Last year we brought eight new color products to market, strengthening what was already
the broadest and deepest set of technologies in our industry. We’ve already announced
five more color products this year and we’re just getting started. The competition doesn’t
stand still and neither do we.
The power of color is in the pages. Color pages generate significantly more revenue and
profit than black-and-white pages. We’re already seeing this benefit flow through to our
annuity. Post-sale revenue from color was up 16 percent in 2006. Much of that is due
to the 38 percent increase in color pages. More than 30 billion color pages were printed
on Xerox color systems last year; that’s close to double what we were doing two years ago.
Color now represents nine percent of total Xerox pages. As that percentage grows, so too
will our all important post-sale revenue stream. It’s a great business model and it’s working.
2006