Notes to the Consolidated Financial Statements
(Dollars in millions, except per-share data and unless otherwise indicated)
Note 2 – Segment Reporting
Our reportable segments are consistent with how we manage the business and view the markets we serve. Our reportable segments are Production, Office, Developing Markets Operations (“DMO”) and Other.
The Production and Office segments are centered around strategic product groups which share common technology, manufacturing and product platforms, as well as classes of customers.
The Production segment includes black-and-white products which operate at speeds over 90 pages per minute (“ppm”) excluding 95 ppm with an embedded controller and color products which operate at speeds over 40 ppm, excluding 50 and 60 ppm products with an embedded controller. Products include the Xerox iGen3 digital color production press, Xerox Nuvera, DocuTech, DocuPrint, and DocuColor families, as well as older technology light-lens products. These products are sold predominantly through direct sales channels in North America and Europe to Fortune 1000, graphic arts, government, education and other public sector customers.
The Office segment includes black-and-white products which operate at speeds up to 90 ppm as well as 95 ppm with an embedded controller and color devices up to 40 ppm as well as 50 and 60 ppm products with an embedded controller. Products include the suite of CopyCentre, WorkCentre, and WorkCentre Pro digital multifunction systems, DocuColor color multifunction products, color laser, solid ink color printers and multifunction devices, monochrome laser desktop printers, digital and light-lens copiers, facsimile products and non-Xerox branded products with similar specifications. These products are sold through direct and indirect sales channels in North America and Europe to global, national and mid-size commercial customers as well as government, education and other public sector customers. Approximately 75% of GIS’ revenue is included in our Office segment representing those sales and services that align to our Office segment.
The DMO segment includes our operations in Latin America, Brazil, the Middle East, India, Eurasia, Central and Eastern Europe and Africa. This segment’s sales consist of office and production including a large proportion of office devices and printers which operate at speeds of 11-40 ppm. Management serves and evaluates these markets on an aggregate geographic basis, rather than on a product basis.
The segment classified as Other includes several units, none of which met the thresholds for separate segment reporting. This group primarily includes Xerox Supplies Business Group (predominantly paper sales), value-added services, Wide Format Systems, Xerox Technology Enterprises, royalty and licensing revenues, GIS network integration solutions and electronic presentation systems, equity net income and non-allocated Corporate items. Value-added services includes the results of our acquisitions of Amici LLC (now Xerox Litigation Services) and Advectis, Inc. (now Xerox Mortgage Services). Other segment profit includes the operating results from these entities, other less significant businesses, our equity income from Fuji Xerox, and certain costs which have not been allocated to the Production, Office and DMO segments, including non-financing interest as well as other items included in Other expenses, net.
Operating segment revenues and profitability for each of the years ended December 31, 2007, 2006 and 2005, respectively, was as follows (in millions):
| Production | Office | DMO | Other | Total | |||||||||||
| 2007(1) | |||||||||||||||
| Information about profit or loss: | |||||||||||||||
| Revenues | $ | 4,460 | $ | 7,813 | $ | 2,150 | $ | 1,983 | $ | 16,406 | |||||
| Finance income | 311 | 491 | 5 | 15 | 822 | ||||||||||
| Total Segment revenues | $ | 4,771 | $ | 8,304 | $ | 2,155 | $ | 1,998 | $ | 17,228 | |||||
| Interest expense | $ | 122 | $ | 186 | $ | 5 | $ | 266 | $ | 579 | |||||
| Segment profit (2) | 448 | 973 | 134 | 33 | 1,588 | ||||||||||
| Equity in net income of unconsolidated affiliates | $ | – | $ | – | $ | 7 | $ | 90 | $ | 97 | |||||
| 2006(1) | |||||||||||||||
| Information about profit or loss: | |||||||||||||||
| Revenues | $ | 4,256 | $ | 7,128 | $ | 1,932 | $ | 1,739 | $ | 15,055 | |||||
| Finance income | 323 | 497 | 6 | 14 | 840 | ||||||||||
| Total Segment revenues | $ | 4,579 | $ | 7,625 | $ | 1,938 | $ | 1,753 | $ | 15,895 | |||||
| Interest expense | $ | 120 | $ | 179 | $ | 7 | $ | 238 | $ | 544 | |||||
| Segment profit (2) | 403 | 832 | 124 | 31 | 1,390 | ||||||||||
| Equity in net income of unconsolidated affiliates | $ | – | $ | – | $ | 5 | $ | 109 | $ | 114 | |||||
| 2005(1) | |||||||||||||||
| Information about profit or loss: | |||||||||||||||
| Revenues | $ | 4,198 | $ | 7,106 | $ | 1,803 | $ | 1,719 | $ | 14,826 | |||||
| Finance income | 342 | 512 | 9 | 12 | 875 | ||||||||||
| Total Segment revenues | $ | 4,540 | $ | 7,618 | $ | 1,812 | $ | 1,731 | $ | 15,701 | |||||
| Interest expense | $ | 121 | $ | 179 | $ | 8 | $ | 249 | $ | 557 | |||||
| Segment profit (2) | 427 | 819 | 64 | 151 | 1,461 | ||||||||||
| Equity in net income of unconsolidated affiliates | $ | – | $ | – | $ | 4 | $ | 94 | $ | 98 | |||||
| (1) Asset information on a segment basis is not disclosed as this information is not separately identified and internally reported to our chief executive officer. |
| (2) Depreciation and amortization expense is recorded in cost of sales, research, development and engineering expenses and selling, administrative and general expenses and is included in the segment profit above. This information is neither identified nor internally reported to our chief executive officer. The separate identification of this information for purposes of segment disclosure is impracticable, as it is not readily available and the cost to develop it would be excessive. |
The following is a reconciliation of segment profit to pre-tax income (in millions):
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
|
Total Segment profit |
$ | 1,588 | $ | 1,390 | $ | 1,461 | ||||||
|
Reconciling items: |
||||||||||||
|
Restructuring and asset impairment charges |
6 | (385 | ) | (366 | ) | |||||||
|
Provisions for litigation matters (1) |
– | (68 | ) | (114 | ) | |||||||
|
Initial provision for WEEE Directive |
– | – | (26 | ) | ||||||||
|
Restructuring charges of Fuji Xerox |
(30 | ) | – | – | ||||||||
|
Hurricane Katrina adjustments (losses) |
– | 8 | (15 | ) | ||||||||
|
Other expenses, net |
(29 | ) | (23 | ) | (12 | ) | ||||||
|
Equity in net income of unconsolidated affiliates |
(97 | ) | (114 | ) | (98 | ) | ||||||
|
Pre-tax income |
$ | 1,438 | $ | 808 | $ | 830 | ||||||
| (1) 2006 provision for litigation represents $68 related to probable losses on Brazilian labor-related contingencies. 2005 provision for litigation primarily includes $102 related to MPI arbitration panel ruling. Refer to Note 16 – Contingencies for further discussion relating to the 2006 and 2005 annual periods. |
Geographic area data is based upon the location of the subsidiary reporting the revenue or long lived assets and is as follows (in millions):
| Revenues | Long-Lived Assets (1) | |||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||
|
United States |
$ | 9,078 | $ | 8,406 | $ | 8,388 | $ | 1,375 | $ | 1,309 | $ | 1,386 | ||||||
|
Europe |
5,888 | 5,378 | 5,226 | 746 | 572 | 500 | ||||||||||||
|
Other Areas |
2,262 | 2,111 | 2,087 | 341 | 356 | 386 | ||||||||||||
|
Total |
$ | 17,228 | $ | 15,895 | $ | 15,701 | $ | 2,462 | $ | 2,237 | $ | 2,272 | ||||||
| (1) Long-lived assets are comprised of (i) land, buildings and equipment, net, (ii) equipment on operating leases, net, (iii) internal use software, net and (iv) capitalized software costs, net. |
