Xerox 2012 Annual Report Download - page 29

27Xerox 2012 Annual Report
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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
With sales approaching $23 billion, we are the world’s leading global
enterprise for business process and document management. Our
services, technology and expertise enable customers – from small
businesses to large global enterprises – to focus on their core business
and operate more effectively. Headquartered in Norwalk, Connecticut,
we offer business process outsourcing, document outsourcing and IT
outsourcing services, including data processing, healthcare solutions,
HR benefits management, finance support, transportation solutions
and customer relationship management services for commercial
and government organizations worldwide. We also provide
extensive leading-edge document technology, services, software
and genuine Xerox supplies for graphic communication and office
printing environments of any size. Through our business process
and IT outsourcing services as well as our document technology and
managed print services, we operate in a market estimated at over
$600 billion. The 147,600 people of Xerox serve customers in more
than 160 countries. Approximately 34% of our revenue is generated
outside the U.S.
We organize our business around two main segments: Services and
Document Technology.
• Our Services segment is comprised of business process outsourcing,
information technology outsourcing and document outsourcing.
The diversity of our offerings gives us a differentiated solution and
delivers greater value to our customers.
A key priority in 2012 was continued growth in our services business.
Revenue from services grew 6%, reflecting growth from all three
lines of business, business process outsourcing (“BPO”), information
technology outsourcing (“ITO”) and document outsourcing services
(“DO”). Growth in BPO benefited from recent modestly-sized
acquisitions, consistent with our strategy to continue diversifying our
services portfolio and to expand our business globally. In 2012, total
business signings were nearly $11 billion and revenue from services
represented 52% of our total 2012 revenue. Segment margin began
to improve during 2012 and was up 0.9 points in the fourth quarter
2012 as compared to the prior year.
• Our Document Technology segment is comprised of our document
technology and related supplies, technical service and equipment
financing (excluding contracts related to document outsourcing).
Our product groups within this segment include Entry, Mid-range
and High-end products.
In 2012, as a result of economic uncertainties in several regions
and secular shifts in the marketplace, we focused our efforts on
productivity improvements and reductions in our cost base, as well
as steadily expanding distribution through indirect channels. As a
result, we maintained market leadership in the fastest growing, most
attractive segments of this market and segment margin remained
comparable with 2011. During the first quarter of 2013, we will
launch new and refreshed products that enhance our portfolio of
mid-range and production color document systems. In addition,
we are launching a new operating system and software for our line
of multifunction printers (“MFPs”) that add extensive cloud-based
functionality and embedded security protection from McAfee. We
expect that this operating system integrated with new products
will help drive improved installs and sales of Xerox equipment
throughout the year.
Approximately 84% of our 2012 total revenue was annuity-based
revenue that includes contracted services, equipment maintenance,
consumable supplies and financing, among other elements. Our
annuity revenue significantly benefits from growth in Services. Some
of the key indicators of annuity revenue growth include:
• New Services business signings growth, which reflects the year-over-
year increase in estimated future revenues from contracts signed
during the period.
• Services renewal rate, which is defined as the annual recurring
revenue (“ARR”) on contracts that are renewed during the period,
calculated as a percentage of ARR on all contracts that were up for
renewal during the period.
• Services pipeline growth, which measures the year-over-year increase
in new business opportunities.
• Installations of printers and multifunction printers as well as the
number of page-producing machines in the field (“MIF”) and the
page volume and mix of pages printed on color devices, where
available.
Consistent with our strategy to expand our Services offerings through
acquisitions, we acquired the following companies in 2012:
• Wireless Data Services (“WDS”), a telecommunications technical
support and consultancy firm headquartered in the United Kingdom.
• Lateral Data, a leading e-discovery technology provider based in the
United States.
• LaserNetworks Inc., a Canada-based provider of managed print
services solutions that include print device tracking, centralized
service and supply management and document routing.
• XL World, a multi-lingual customer care firm based in Italy that will
further expand our BPO capabilities across Europe.