Xerox 2009 Annual Report Download - page 24

22 Xerox 2009 Annual Report
The following Management’s Discussion and Analysis (“MD&A”)
is intended to help the reader understand the results of operations
and financial condition of Xerox Corporation. MD&A is provided
as a supplement to, and should be read in conjunction with, our
consolidated financial statements and the accompanying notes.
Throughout this document, references to “we,” “our,” the “Company”
and “Xerox” refer to Xerox Corporation and its subsidiaries. References
to “Xerox Corporation” refer to the stand-alone parent company and
do not include its subsidiaries.
Executive Overview
We are a technology and services enterprise and a leader in the global
document market. We develop, manufacture, market, service and
finance the industry’s broadest portfolio of document equipment,
software, solutions and services. The global document market continues
to see significant trends toward color, enterprise print services and
electronic document management. Our broad portfolio of production,
office and service offerings provide value to our customers and enable
Xerox to lead and grow in the $132 billion market we serve.
In 2009, we agreed to acquire Affiliated Computer Services, Inc. (“ACS”).
The acquisition was completed in February 2010. This acquisition trans -
forms us into the world’s leading enterprise for business process and
document management and accelerates our growth in an expanding
market. ACS is one of the largest providers of business process
outsourcing (“BPO”) and information technology (“IT”) services and
solutions to commercial and government clients worldwide. ACS’s
revenues for the calendar year ended December 31, 2009 were $6.6
billion and they employed 78,000 people and operated in over 100
countries. With the acquisition of ACS we have greatly expanded our
market opportunity. The BPO market is estimated at $150 billion and
the ITO market is estimated at $250 billion.
Our business strategy is built upon an annuity model that yields con-
sistent, strong cash flow, expanded earnings and enables us to provide
good returns to shareholders. The majority of our revenue (supplies,
service, paper, outsourcing, rentals and financing) is recurring, which we
collectively refer to as post sale revenue. This recurring revenue provides
a significant degree of stability to our revenue, profits and cash flow.
Post sale revenue currently represents more than 75 percent of the
Company’s revenue and is driven by the amount of equipment installed
at customer locations and the utilization of that equipment. As such, our
critical success factors include equipment installations, which stabilize
and grow our installed base of equipment at customer locations, page
volume growth and higher revenue per page. Key drivers to increase
equipment installations, usage and associated post sale revenue include
the following:
• Accelerate transition to color
• Build on services leadership
• Strengthening our leadership in digital production printing.
The transition to color is a primary driver to improve revenue per page,
as color documents typically require significantly more toner coverage
per page than traditional black-and-white printing. We have the broadest
color portfolio in the industry and leading technologies. Our growing
services business helps customers reduce their costs. We lead the
industry with end-to-end managed print services. Lastly, we continue to
create new market opportunities with digital printing as a complement
to traditional offset printing.
We operate in a global business environment, serving a wide range
of customers, with about 50 percent of our revenue generated from
customers outside the U.S. Our markets are competitive. Customers are
demanding document services such as assessment consulting, managed
print services, imaging and hosting, and document-intensive business
process improvements. Additionally, our customers demand improved
technology solutions, such as the ability to print offset-quality color
documents on-demand; improved product functionality, such as the
ability to print, copy, fax and scan from a single device; and lower prices
for the same functionality.
Accretive acquisitions and expanded distribution to drive organic
growth are also key elements of our business strategy. In addition
to the ACS acquisition, in 2009 Global Imaging Systems, Inc. (“GIS”)
acquired ComDoc, Inc. (“ComDoc”), one of the larger independent
dealers in the U.S., expanding coverage in Ohio, Pennsylvania, New York
and West Virginia.
Financial Overview
Although we began to see some improvements in our markets in
the fourth quarter 2009, we faced significant external challenges in
2009 including:
• A worldwide recession driving down demand and volumes;
• A credit market crisis impacting access, rates and creating liquidity
pressures on our channels and customers; and
• The negative effects of currency changes on our revenue and costs.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations