Xerox 2008 Annual Report Download - page 4

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2
Dear fellow shareholders:
It will come as no surprise to you that Xerox shareholders
have been negatively impacted by the economic crisis that
has ricocheted around the world in recent months. Through
three quarters of 2008, we were on the path to another year
of solid performance. That trajectory changed dramatically
in the fourth quarter.
One example will make the point. Our developing markets
organization was on track to deliver another year of double-
digit revenue growth. Through the first three quarters of
2008, revenue was up 17 percent. Starting in mid-November,
the bottom fell out with breathtaking speed, resulting in
a fourth-quarter revenue decline of 14 percent in our
developing markets.
Although we are hardly immune from the recessionary turmoil,
we are better positioned than most to navigate through it.
Our value proposition is supported by the strength of our
financial position and the resiliency of our recurring revenue
stream that is driven by installs of Xerox technology and
multi-year contracts for Xerox services. More than 70 percent
of our revenue and 80 percent of our cash flow is generated
from our annuity-based business model, making for a solid
and reliable asset, especially in tough economies. Last year,
our annuity delivered $12.9 billion in revenue – up 4 percent
from 2007 – and helped us generate more than $1.7 billion
in adjusted cash from core operations* – or $1.36 per share in
adjusted free cash flow.*
“ The wonderful people I am privileged
to lead at Xerox are focused with
passion and grit on those things we
can control. This attitude and focus
helped us turn in credible performance
in a very difficult year.”
“ Although we are hardly immune
from the recessionary turmoil, we
are better positioned than most
to navigate through it.”
Some of the sudden shift was due to a rapid decline in the
Russian and Eastern European economies. But 11 points
of the 14-point decline was due to major – some would say
wild – shifts in currency in several developing markets.
* 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.
Typically, we manage changes in currency through pricing,
but this currency decline was so swift and so significant that
pricing couldn’t catch up. I point this out not as an excuse, but
as an illustration of the roller-coaster nature of this economy.