Operations Review
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 2008, 2007 and 2006 were as follows:
| Year Ended December 31, | ||||||||||||||||
| (in millions) | Production | Office | Other | Total | ||||||||||||
|
2008 |
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|
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 |
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|
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 | % | ||||||||
|
2006 |
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|
Equipment sales |
$ | 1,491 | $ | 2,786 | $ | 180 | $ | 4,457 | ||||||||
|
Post sale revenue |
3,564 | 5,926 | 1,948 | 11,438 | ||||||||||||
|
Total Revenues |
$ | 5,055 | $ | 8,712 | $ | 2,128 | $ | 15,895 | ||||||||
|
Segment Profit (Loss) |
$ | 504 | $ | 1,010 | $ | (124 | ) | $ | 1,390 | |||||||
|
Operating Margin |
10.0 | % | 11.6 | % | (5.8 | )% | 8.7 | % | ||||||||
In 2008 we revised our segment reporting to integrate the Developing Markets Operations (“DMO”) into the Production, Office and Other segments. DMO is a geographic region that has matured to a level where we now manage it on the basis of products sold, consistent with our North American and European geographic regions. All prior periods presented have been restated accordingly.
Note: Install activity percentages include the Xerox-branded product shipments to GIS.
Segment Revenue and Operating Profit
Production
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.
2007 Production revenue of $5,315 million increased 5%, including a 4-percentage point benefit from currency, reflecting:
- 8% increase in post sale and other revenue, including a 4-percentage point benefit from currency, as growth from digital products more than offset declines in revenue from older light lens technology.
- 1% decrease in equipment sales revenue, including a 3-percentage point benefit from currency, reflecting growth in production color systems offset by declines in black-and-white production printing systems and light production and an increased proportion of equipment installed under operating lease contracts where revenue is recognized over-time in post sale.
- 6% growth in installs of production color products driven by DocuColor® 242/252/260 family, DocuColor 5000 and iGen3® activity.
- 8% decline in installs of production black-and-white systems reflecting declines in installs of both high-volume and light production systems.
Operating Profit
2008 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.
2007 Operating profit of $562 million increased $58 million from 2006. The increase is primarily the result of higher gross profit and lower R,D&E, partially offset by an increase in bad debt expense.
Office
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.
2007 Office revenue of $9,473 million increased 9%, including a 3-percentage point benefit from currency, reflecting:
- 9% increase in post sale revenue, reflecting the inclusion of GIS since May 2007 as well as growth from color multifunction devices and color printers.
- 9% increase in equipment sales revenue, reflecting the inclusion of GIS since May 2007 as well as color multifunction products install growth.
- 65% color multifunction device install growth led by strong demand for Xerox WorkCentre products.
- 5% increase in installs of black-and-white copiers and multifunction devices, including 4% growth in Segment 1&2 products (11-30 ppm) and 7% growth in Segment 3-5 products (31-90 ppm) that includes the 95 ppm device with an embedded controller.
- 10% decline in color printer installs due to lower OEM sales.
Operating Profit
2008 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.
2007 Operating profit of $1,115 million increased $105 million from 2006. The increase was primarily due to the inclusion of GIS since May 2007 and higher gross profits partially offset by higher SAG expenses.
Other
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 Other segment revenue.
2007 Other revenue of $2,440 million increased 15%, including a 3-percentage point benefit from currency, primarily reflecting the inclusion of GIS since May 2007 as well as increased paper and value-added services revenues. Paper comprised approximately 50% of Other segment revenue.
Operating Loss
2008 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.
2007 Operating loss of $89 million decreased $35 million from 2006 reflecting higher revenue as well as lower currency exchange losses and litigation charges, partially offset by higher interest expense and lower gains on the sales of businesses and assets.