Operations Review of Segment Revenue
and Operating Profit

Our reportable segments are consistent with how we manage the business and view the markets we serve. Our reportable segments are Production, Office and Other. See Note 2 – Segment Reporting in the Consolidated Financial Statements for further discussion on our segment operating revenues and segment operating profit.

Revenues by segment for the years ended 2009, 2008 and 2007 were as follows:

 

		Year Ended December 31,
(in millions)		Production				Office				Other				Total
2009
Equipment sales		$	1,031			$	2,363			$	156			$	3,550
Post sale revenue			3,514				6,213				1,902				11,629
Total Revenues		$	4,545			$	8,576			$	2,058			$	15,179
Segment Profit (Loss)		$	217			$	835			$	(274	)		$	778
Operating Margin			4.8	%			9.7	%			(13.3	)%			5.1	%
2008
Equipment sales		$	1,325			$	3,105			$	249			$	4,679
Post sale revenue			3,912				6,723				2,294				12,929
Total Revenues		$	5,237			$	9,828			$	2,543			$	17,608
Segment Profit (Loss)		$	394			$	1,062			$	(165	)		$	1,291
Operating Margin			7.5	%			10.8	%			(6.5	)%			7.3	%
2007
Equipment sales		$	1,471			$	3,030			$	252			$	4,753
Post sale revenue			3,844				6,443				2,188				12,475
Total Revenues		$	5,315			$	9,473			$	2,440			$	17,228
Segment Profit (Loss)		$	562			$	1,115			$	(89	)		$	1,588
Operating Margin			10.6	%			11.8	%			(3.7	)%			9.2	%

Note: Install activity percentages include the Xerox-branded product shipments to GIS.

Production

Revenue 2009

Production revenue of $4,545 million decreased 13%, including a 3-percentage point negative impact from currency, reflecting:

• 10% decrease in post sale revenue with a 3-percentage point negative impact from currency, as declines were driven in part by lower black-and-white page volumes and lower revenue from entry production color products which reflect the weak economic environment during the year.
• 22% decrease in equipment sales revenue, with a 2-percentage point negative impact from currency. The decline in revenue across all product groups reflects lower installs driven by the weak economic environment and delays in customer spending on technology.
• 11% decline in installs of production color products, as entry production color declines were partially offset by increased Xerox^® 700 installs and iGen4.
• 22% decline in installs of production black-and-white systems, reflecting declines in all product groups.

Revenue 2008

Production revenue of $5,237 million decreased 1%, including a 1-percentage point benefit from currency, reflecting:

• 2% increase in post sale revenue as growth from color, continuous feed and light production products offset declines in revenue from black-and-white high-volume printing systems and light lens devices.
• 10% decrease in equipment sales revenue, primarily reflecting pricing declines in both black-and-white and color production systems, driven in part by weakness in the U.S.
• 1% increase in installs of production color products driven in part by Xerox^® 700 and iGen4 activity, as well as color continuous feed.
• 6% decline in installs of production black-and-white systems driven primarily by declines in installs of light production systems.

Operating Profit 2009

Production operating profit of $217 million decreased $177 million from 2008. The decrease is primarily the result of lower gross profit flow-through from revenue declines which were partially offset by lower RD&E and SAG spending as a result of favorable currency and cost reductions. The improvement in SAG was mitigated by an increase in bad debt provisions.

Operating Profit 2008

Production operating profit of $394 million decreased $168 million from 2007. The decrease is primarily the result of lower revenue and lower gross margins due to pricing and product mix, as well as increased SAG expenses.

Office

Revenue 2009

Office revenue of $8,576 million decreased 13%, including a 2-percentage point negative impact from currency, reflecting:

• 8% decrease in post sale revenue with a 3-percentage point negative impact from currency. Revenue declined across most product segments and reflects lower channel supplies purchases, including purchases within developing markets, which more than offset the growth in GIS.
• 24% decrease in equipment sales revenue, including a 1-percentage point negative impact from currency. The decline in revenue across most product groups reflects lower installs driven by the weak economic environment during this year.
• 20% decline in installs of color multifunction devices driven by lower overall demand, which more than offset the impact of new products including the ColorQube and Office version of the Xerox^® 700.
• 37% decline in installs of black-and-white copiers and multifunction devices, including an 83% decline in the low-dollar-value Segment 1 products (11–20 ppm), driven primarily by lower activity in developing markets, offset by a 4% increase in Segment 2–5 products (21–90 ppm). Segment 2–5 installs include the Xerox^® 4595, a 95 ppm device with an embedded controller.
• 34% decline in installs of color printers due to lower demand and lower sales to OEM partners.

Revenue 2008

Office revenue of $9,828 million increased 4%, including a 1-percentage point benefit from currency, as well as the benefits from our expansion in the SMB market through GIS and Veenman. Revenue for 2008 reflects:

• 4% increase in post sale revenue, reflecting the full-year inclusion of GIS, as well as growth from color multifunction devices, and color printers partially offset by declines in black-and-white digital devices. Office post sale revenue was negatively impacted in the fourth quarter of 2008 by declines in channel supply purchases, including lower purchases within developing markets.
• 2% increase in equipment sales revenue, reflecting the full-year inclusion of GIS, as well as growth from color digital products which more than offset declines from black-and-white devices, primarily due to price declines and product mix.
• 24% color multifunction device install growth led by strong demand for Xerox^® WorkCentre and Phaser products.
• 8% increase in installs of black-and-white copiers and multifunction devices, including 8% growth in Segment 1&2 products (11–30 ppm) and 8% growth in Segment 3–5 products (31–90 ppm). Segment 3–5 installs include the Xerox^® 4595, a 95 ppm device with an embedded controller.
• 12% increase in color printer installs.

Operating Profit 2009

Office operating profit of $835 million decreased $227 million from 2008, as revenue declines were partially offset by lower RD&E and SAG as a result of favorable currency and cost actions. The improvement in SAG was mitigated by an increase in bad debt provisions.

Operating Profit 2008

Office operating profit of $1,062 million decreased $53 million from 2007. The decrease was primarily due to lower gross profits reflecting lower margins, as well as higher SAG expenses partially offset by the full-year inclusion of GIS.

Other

Revenue 2009

Other revenue of $2,058 million decreased 19%, including a 2-percentage point negative impact from currency, primarily driven by declines in revenue from paper, wide-format systems, and licensing and royalty arrangements. Paper comprised approximately 50% of the Other segment revenue.

Revenue 2008

Other revenue of $2,543 million increased 4%, primarily reflecting the full-year inclusion of GIS and increased paper revenue partially offset by lower revenue from wide-format systems. There was no impact from currency. Paper comprised approximately 50% of the Other segment revenue.

Operating Loss 2009

Other operating loss of $274 million increased $109 million from 2008, primarily due to lower revenue, as well as lower interest income and equity income.

Operating Loss 2008

Other operating loss of $165 million increased $76 million from 2007, reflecting lower wide-format revenue, higher foreign exchange losses and lower interest income partially offset by gains on sales of assets.