Xerox 2013 Annual Report Download - page 33

ITEM 1A. RISK FACTORS
Our business, results of operations and financial condition may be negatively impacted by conditions
abroad, including local economics, political environments, fluctuating foreign currencies and shifting
regulatory schemes.
A significant portion of our revenue is generated from operations outside the United States. In addition, we maintain
significant operations and acquire or manufacture many of our products and/or their components outside the United
States. Our future revenues, costs and results of operations could be significantly affected by changes in foreign
currency exchange rates - particularly the Japanese Yen to U.S. Dollar and Japanese Yen to Euro exchange rates,
as well as by a number of other factors, including changes in economic conditions from country to country, changes
in a country's political conditions, trade protection measures, licensing requirements, local tax issues, capitalization
and other related legal matters. We generally hedge foreign currency denominated assets, liabilities and anticipated
transactions primarily through the use of currency derivative contracts. The use of derivative contracts is intended to
mitigate or reduce transactional level volatility in the results of foreign operations, but does not completely eliminate
volatility. We do not hedge the translation effect of international revenues and expenses, which are denominated in
currencies other than our U.S. parent functional currency, within our consolidated financial statements. If our future
revenues, costs and results of operations are significantly affected by economic conditions abroad and we are
unable to effectively hedge these risks, they could materially adversely affect our results of operations and financial
condition.
We face significant competition and our failure to compete successfully could adversely affect our results
of operations and financial condition.
We operate in an environment of significant competition, driven by rapid technological advances and the demands
of customers to become more efficient. Our competitors range from large international companies to relatively small
firms. Some of the large international companies have significant financial resources and compete with us globally
to provide document processing products and services and/or business process services in each of the markets we
serve. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution
and customer service and support. Our success in future performance is largely dependent upon our ability to
compete successfully in the markets we currently serve and to expand into additional market segments. To remain
competitive, we must develop services, applications and new products; periodically enhance our existing offerings;
and attract and retain key personnel and management. If we are unable to compete successfully, we could lose
market share and important customers to our competitors and that could materially adversely affect our results of
operations and financial condition.
Our profitability is dependent upon our ability to obtain adequate pricing for our products and services and
to improve our cost structure.
Our success depends on our ability to obtain adequate pricing for our services and products and that will provide a
reasonable return to our shareholders. Depending on competitive market factors, future prices we obtain for our
services and products may decline from previous levels. In addition, pricing actions to offset the effect of currency
devaluations may not prove sufficient to offset further devaluations or may not hold in the face of customer
resistance and/or competition. If we are unable to obtain adequate pricing for our services and products, it could
materially adversely affect our results of operations and financial condition. In addition, our services contracts are
increasingly requiring tighter timelines for implementation as well as more stringent service level metrics. This
makes the bidding process for new contracts much more difficult and require us to adequately consider these
requirements in the pricing of our services.
We continually review our operations with a view towards reducing our cost structure, including but not limited to
reducing employee base, exiting certain businesses, improving process and system efficiencies and outsourcing
some internal functions. We from time to time engage in restructuring actions to reduce our cost structure. If we are
unable to continue to maintain our cost base at or below the current level and maintain process and systems
changes resulting from prior restructuring actions, it could materially adversely affect our results of operations and
financial condition.
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