|
--Adjusted EPS of 26 cents
--Revenue of $5.5 billion down 1 percent, up 1 percent constant currency
--Services revenue up 5 percent, up 7 percent constant currency
Xerox
(XRX) announced today second-quarter 2012 adjusted earnings per
share of 26 cents, which excludes 4 cents related to the amortization of
intangibles, resulting in flat year-over-year GAAP earnings of 22 cents
per share.
In the second quarter, total revenue of $5.5 billion was down 1 percent
or up 1 percent in constant currency.
Revenue from the company’s services
business was up 7 percent in constant currency. "With more than half our
total revenue coming from services, accelerating growth in this segment
of our business is a priority," said Ursula
Burns, Xerox chairman and chief executive officer. "Our
second-quarter results reflect solid progress with 8 percent growth from business
process outsourcing, 9 percent growth from IT
outsourcing and 6 percent growth in document
outsourcing, all at constant currency."
The continued weak macro environment, especially in Europe, resulted in
a 4 percent constant currency decline in the company’s technology
revenue, which represents the sale of document
systems, supplies,
technical
service and financing of products.
"Strong revenue from services - our growth driver today and in the
future - gives us financial flexibility that helps minimize the impact
from our slowing technology business," added Burns. "While ramping
services for long-term growth, we’re focused on maintaining market
leadership in our technology segment and benefitting from its
cash-generating business model."
Operating margin of 9.7 percent was down 0.7 points from second-quarter
2011, and up 1.2 points from first quarter of this year, driven by a 1.3
point sequential improvement from the company’s services business.
Second-quarter gross margin was 32 percent, and selling, administrative
and general expenses were 19.4 percent of revenue.
The company generated $228 million in cash from operations, a
year-over-year decline primarily due to the change in the quarterly
timing of cash pension contributions. Xerox continues to expect
full-year operating cash flow of $2 billion to $2.3 billion, and plans
to repurchase $900 million to $1.1 billion in Xerox stock during the
year.
Considering the economic uncertainty, Xerox now expects that revenue
from its technology business will continue to be weak, and, as a result,
revised its full-year earnings expectations, which are based on
continued strong year-over-year revenue growth from services, lower
revenue from technology, and the ongoing benefit from operational
efficiencies.
Xerox expects third-quarter 2012 GAAP earnings of 20 cents to 22 cents
per share. Third-quarter adjusted EPS is expected to be 24 cents to 26
cents per share.
The company expects full-year 2012 GAAP earnings per share of 92 cents
to 97 cents and full-year adjusted earnings per share of $1.07 to $1.12.
About Xerox
With sales approaching $23 billion, Xerox
(XRX) is the world’s leading enterprise for business
process and document
management. Its technology, expertise and services
enable workplaces - from small businesses to large global enterprises -
to simplify the way work gets done so they operate more effectively and
focus more on what matters most: their real
business. Headquartered in Norwalk, Conn., Xerox offers business
process 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. The company also provides extensive
leading-edge document
technology, services, software
and genuine
Xerox supplies for graphic
communication and office
printing environments of any size. The 140,000 people of Xerox serve
clients in more than 160 countries. For more information, visit http://www.xerox.com,
http://news.xerox.com
or http://www.realbusiness.com.
For investor information, visit http://www.xerox.com/investor.
Notes
ITO Revenue Growth: ITO revenue growth includes 3-percentage
points of growth related to intercompany services, which are eliminated
from total services revenue growth.
Non- GAAP Measures: This release refers to the following non-GAAP
financial measures:
--
Adjusted EPS (earnings per share) for the second quarter 2012 as well
as for the third quarter and full year 2012 guidance that excludes
certain items.
--
Operating margin for the second quarter 2012 that excludes certain
expenses.
--
Constant Currency revenue growth for the second quarter 2012 that
excludes the effects of currency translation.
Refer to the "Non-GAAP Financial Measures" section of this release for a
discussion of these non-GAAP measures and their reconciliation to the
reported GAAP measure.
Forward-Looking Statements
This release contains "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. The words
"anticipate," "believe," "estimate," "expect," "intend," "will,"
"should" and similar expressions, as they relate to us, are intended to
identify forward-looking statements. These statements reflect
management’s current beliefs, assumptions and expectations and are
subject to a number of factors that may cause actual results to differ
materially. These factors include but are not limited to: changes in
economic conditions, political conditions, trade protection measures,
licensing requirements and tax matters in the United States and in the
foreign countries in which we do business; changes in foreign currency
exchange rates; actions of competitors; our ability to obtain adequate
pricing for our products and services and to maintain and improve cost
efficiency of operations, including savings from restructuring actions;
the risk that unexpected costs will be incurred; our ability to expand
equipment placements; the risk that subcontractors, software vendors and
utility and network providers will not perform in a timely, quality
manner; the risk that individually identifiable information of
customers, clients and employees could be inadvertently disclosed or
disclosed as a result of a breach of our security; our ability to
recover capital investments; development of new products and services;
our ability to protect our intellectual property rights; interest rates,
cost of borrowing and access to credit markets; the risk that multi-year
contracts with governmental entities could be terminated prior to the
end of the contract term; reliance on third parties for manufacturing of
products and provision of services; our ability to drive the expanded
use of color in printing and copying; the outcome of litigation and
regulatory proceedings to which we may be a party; and other factors
that are set forth in the "Risk Factors" section, the "Legal
Proceedings" section, the "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" section and other
sections of our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2012 and our 2011 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The Company assumes no obligation to
update any forward-looking statements as a result of new information or
future events or developments, except as required by law.
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XEROX(R), XEROX and Design(R) are trademarks of Xerox
in the United States and/or other countries.
Xerox Corporation
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
(in millions, except per-share data) 2012 2011 % Change 2012 2011 % Change
------------------------------------------------------------ ---------- ---------- -------- ----------- ----------- --------
Revenues
Sales $ 1,635 $ 1,720 (5%) $ 3,223 $ 3,391 (5%)
Outsourcing, service and rentals 3,763 3,731 1% 7,530 7,363 2%
Finance income 143 163 (12%) 291 325 (10%)
----- ----- ------ ------
Total Revenues 5,541 5,614 (1%) 11,044 11,079 --
----- ----- ------ ------
Costs and Expenses
Cost of sales 1,092 1,139 (4%) 2,144 2,229 (4%)
Cost of outsourcing, service and rentals 2,625 2,538 3% 5,315 5,052 5%
Equipment financing interest 51 60 (15%) 104 120 (13%)
Research, development and engineering expenses 161 175 (8%) 334 359 (7%)
Selling, administrative and general expenses 1,076 1,119 (4%) 2,144 2,238 (4%)
Restructuring and asset impairment charges 29 (9) * 46 (24) *
Amortization of intangible assets 82 87 (6%) 164 172 (5%)
Other expenses, net 74 104 (29%) 129 182 (29%)
----- ----- ------ ------
Total Costs and Expenses 5,190 5,213 -- 10,380 10,328 1%
----- ----- ------ ------
Income before Income Taxes & Equity Income(1) 351 401 (12%) 664 751 (12%)
Income tax expense 66 108 (39%) 143 203 (30%)
Equity in net income of unconsolidated affiliates 31 34 (9%) 71 68 4%
----- ----- ------ ------
Net Income 316 327 (3%) 592 616 (4%)
Less: Net income attributable to noncontrolling interests 7 8 (13%) 14 16 (13%)
----- ----- ------ ------
Net Income Attributable to Xerox $ 309 $ 319 (3%) $ 578 $ 600 (4%)
=== ===== === ===== === ====== === ======
Basic Earnings per Share $ 0.23 $ 0.22 5% $ 0.42 $ 0.42 -
Diluted Earnings per Share $ 0.22 $ 0.22 - $ 0.41 $ 0.41 -
* Percent change not meaningful.
(1) Referred to as "Pre-Tax Income" throughout the
remainder of this document.
Xerox Corporation
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------------
(in millions) 2012 2011 2012 2011
---------------------------------------------------------------------- ------------- -------- ------------- --------------
Net Income $ 316 $ 327 $ 592 $ 616
Less: Net income attributable to noncontrolling interests 7 8 14 16
---- --- ---- -----
Net Income Attributable to Xerox $ 309 $ 319 $ 578 $ 600
=== ==== === === === ==== === =====
Other Comprehensive (Loss) Income:
Translation adjustments, net $ (323 ) $ 153 $ (163 ) $ 450
Unrealized gains (losses), net 34 6 (9 ) (15 )
Changes in defined benefit plans, net 64 14 10 (22 )
---- --- ---- ----- ---
Other Comprehensive (Loss) Income, net (225 ) 173 (162 ) 413
Less: Other comprehensive loss attributable to noncontrolling (1 ) - - -
interests
---- --- --- ---- -----
Other Comprehensive (Loss) Income Attributable to Xerox $ (224 ) $ 173 $ (162 ) $ 413
=== ==== === === === === ==== === === =====
Comprehensive Income, net $ 91 $ 500 $ 430 $ 1,029
Less: Comprehensive income attributable to noncontrolling interests 6 8 14 16
---- --- ---- -----
Comprehensive Income Attributable to Xerox $ 85 $ 492 $ 416 $ 1,013
=== ==== === === === ==== === =====
Xerox Corporation
Condensed Consolidated Balance Sheets (Unaudited)
June 30, December 31,
(in millions, except share data in thousands) 2012 2011
----------------------------------------------------- -------------------- --------------------
Assets
Cash and cash equivalents $ 814 $ 902
Accounts receivable, net 2,776 2,600
Billed portion of finance receivables, net 100 166
Finance receivables, net 2,036 2,165
Inventories 1,073 1,021
Other current assets 1,213 1,058
--------- ---------
Total current assets 8,012 7,912
Finance receivables due after one year, net 3,780 4,031
Equipment on operating leases, net 519 533
Land, buildings and equipment, net 1,553 1,612
Investments in affiliates, at equity 1,367 1,395
Intangible assets, net 2,904 3,042
Goodwill 8,848 8,803
Deferred tax assets, long-term 598 672
Other long-term assets 2,260 2,116
--------- ---------
Total Assets $ 29,841 $ 30,116
==== ========= ==== =========
Liabilities and Equity
Short-term debt and current portion of long-term debt $ 1,099 $ 1,545
Accounts payable 1,712 2,016
Accrued compensation and benefits costs 675 757
Unearned income 404 432
Other current liabilities 1,492 1,631
--------- ---------
Total current liabilities 5,382 6,381
Long-term debt 8,061 7,088
Pension and other benefit liabilities 2,194 2,487
Post-retirement medical benefits 916 925
Other long-term liabilities 793 861
--------- ---------
Total Liabilities 17,346 17,742
--------- ---------
Series A Convertible Preferred Stock 349 349
--------- ---------
Common stock 1,348 1,353
Additional paid-in capital 6,347 6,317
Treasury stock, at cost (303 ) (124 )
Retained earnings 7,496 7,046
Accumulated other comprehensive loss (2,878 ) (2,716 )
--------- ---- --------- ----
Xerox shareholders’ equity 12,010 11,876
Noncontrolling interests 136 149
--------- ---------
Total Equity 12,146 12,025
--------- ---------
Total Liabilities and Equity $ 29,841 $ 30,116
==== ========= ==== =========
Shares of common stock issued 1,348,042 1,352,849
Treasury stock (40,839 ) (15,508 )
--------- ---- --------- ----
Shares of common stock outstanding 1,307,203 1,337,341
========= =========
Xerox Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
(in millions) 2012 2011 2012 2011
------------------------------------------------------------------------- -------------- -------------- ------------- --------------
Cash Flows from Operating Activities:
Net income $ 316 $ 327 $ 592 $ 616
Adjustments required to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 313 298 626 589
Provision for receivables 33 29 60 54
Provision for inventory 7 6 17 19
Net gain on sales of businesses and assets (2 ) (7 ) (3 ) (8 )
Undistributed equity in net income of unconsolidated affiliates (4 ) (7 ) (35 ) (40 )
Stock-based compensation 31 31 62 63
Restructuring and asset impairment charges 29 (9 ) 46 (24 )
Payments for restructurings (44 ) (63 ) (83 ) (120 )
Contributions to defined benefit pension plans (158 ) (79 ) (237 ) (123 )
Increase in accounts receivable and billed portion of finance (156 ) (15 ) (608 ) (286 )
receivables
Collections of deferred proceeds from sales of receivables 160 95 256 182
Increase in inventories (50 ) (37 ) (84 ) (137 )
Increase in equipment on operating leases (68 ) (68 ) (135 ) (129 )
Decrease in finance receivables 111 65 275 160
Increase in other current and long-term assets (61 ) (44 ) (162 ) (123 )
Decrease in accounts payable and accrued compensation (93 ) (145 ) (237 ) (378 )
Decrease in other current and long-term liabilities (127 ) (89 ) (162 ) (175 )
Net change in income tax assets and liabilities 18 47 61 168
Net change in derivative assets and liabilities (30 ) 1 (9 ) 24
Other operating, net 3 11 (27 ) (15 )
----- ----- ---- --- ----- ---
Net cash provided by operating activities 228 347 213 317
----- ----- ---- -----
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment (82 ) (94 ) (173 ) (165 )
Proceeds from sales of land, buildings and equipment 3 2 7 4
Cost of additions to internal use software (33 ) (41 ) (70 ) (81 )
Acquisitions, net of cash acquired - (94 ) (87 ) (137 )
Net change in escrow and other restricted investments 11 (7 ) 8 (8 )
Other investing, net 3 19 3 19
----- ----- ---- -----
Net cash used in investing activities (98 ) (215 ) (312 ) (368 )
----- --- ----- --- ---- --- ----- ---
Cash Flows from Financing Activities:
Net (payments) proceeds on debt (455 ) 690 543 703
Payment of liability to subsidiary trust issuing preferred securities - (670 ) - (670 )
Common stock dividends (57 ) (59 ) (114 ) (119 )
Preferred stock dividends (6 ) (6 ) (12 ) (12 )
Proceeds from issuances of common stock 3 12 10 31
Excess tax benefits from stock-based compensation - 2 - 4
Payments to acquire treasury stock, including fees (307 ) - (357 ) -
Repurchases related to stock-based compensation (1 ) (3 ) (1 ) (6 )
Distributions to noncontrolling interests (4 ) (5 ) (61 ) (12 )
----- --- ----- --- ---- --- ----- ---
Net cash (used in) provided by financing activities (827 ) (39 ) 8 (81 )
----- --- ----- --- ---- ----- ---
Effect of exchange rate changes on cash and cash equivalents (3 ) 5 3 19
----- --- ----- ---- -----
(Decrease) increase in cash and cash equivalents (700 ) 98 (88 ) (113 )
Cash and cash equivalents at beginning of period 1,514 1,000 902 1,211
----- ----- ---- -----
Cash and Cash Equivalents at End of Period $ 814 $ 1,098 $ 814 $ 1,098
=== ===== === ===== === ==== === =====
Financial Review
Revenues
Three Months Ended
June 30, % of Total Revenue
--------------------------------- -------------------
(in millions) 2012 2011 % Change 2012 2011
-------------------------------- ---------------- ---------------- ---------- -------- ----------
Equipment sales $ 846 $ 925 (9 %) 15 % 16 %
Annuity revenue 4,695 4,689 - 85 % 84 %
------ ------ --- --- --- -----
Total Revenue $ 5,541 $ 5,614 (1 %) 100 % 100 %
====== ====== ====== ====== === === === =====
Reconciliation to Condensed Consolidated Statements of Income:
Sales $ 1,635 $ 1,720
Less: Supplies and other sales (571 ) (558 )
Less: Paper sales (218 ) (237 )
------ - ------ -
Equipment Sales $ 846 $ 925
====== ====== ====== ======
Outsourcing, service and rentals $ 3,763 $ 3,731
Add: Finance income 143 163
Add: Supplies and other sales 571 558
Add: Paper sales 218 237
------ ------
Annuity Revenue $ 4,695 $ 4,689
====== ====== ====== ======
Second quarter 2012 total revenues decreased by 1%compared to the second
quarter 2011, including a 2-percentage point negative impact from
currency and reflected the following:
--
Annuity revenue, which was flat as compared to the second
quarter 2011, including a 2-percentage point negative impact from
currency. Annuity revenue is comprised of the following:
--
Outsourcing, service and rentals revenue, which includes
outsourcing revenue within our Services segment and technical
service revenue (including bundled supplies) and rental revenue,
both primarily within our Technology segment. An increase of 1%,
including a 2-percentage point negative impact from currency, was
driven by an increase in outsourcing revenue in our business
process outsourcing, document outsourcing and IT outsourcing
offerings.
--
Supplies and other sales, which includes unbundled supplies
and other sales, primarily within our Technology segment. An
increase of 2%, including a 2-percentage point negative impact
from currency, was driven primarily by a 4% increase (including a
1-percentage point negative impact from currency) in supplies
sales driven by the timing of supplies purchases by our channel
partners.
--
Paper sales, primarily within our Other segment. A decline
of 8%, including a 4-percentage point negative impact from
currency, was driven by market pricing and lower activity.
--
Equipment sales revenue is reported primarily within our
Technology segment and the document outsourcing business within our
Services segment. Equipment sales revenue declined 9% as
compared to the second quarter 2011, including a 3-percentage point
negative impact from currency, driven by weakness in Europe and the
impact of lower product mix. Product installs increased from the
second quarter 2011 in all three of our product groups. Consistent
with prior quarters, price declines were in the range of 5% to 10%. Consistent
with prior quarters, equipment sales within our Services segment
continued to grow, driven by migration of customers looking to reduce
printing costs by moving to our market leading document outsourcing
offering.
--
Color Revenue(3) declined 4% as compared
to second quarter 2011, including a 4-percentage point negative impact
from currency. An increase in color pages of 10% was offset by a
decline in color equipment sale revenue driven primarily by weakness
in Europe and the impact of lower product mix.
Additional analysis of the change in revenue for each business segment
is included in the "Segment Review" section.
Costs, Expenses and Other Income
Summary of Key Financial Ratios
The following is a summary of key financial ratios used to assess our
performance:
Three Months Ended
June 30,
-------------------
2012 2011 B/(W)
------ ---------- ----------
Total Gross Margin 32.0% 33.4% (1.4) pts.
RD&E as a % of Revenue 2.9% 3.1% 0.2 pts.
SAG as a % of Revenue 19.4% 19.9% 0.5 pts.
Operating Margin (1) 9.7% 10.4% (0.7) pts.
Pre-Tax income margin 6.3% 7.1% (0.8) pts.
Operating Margin
Second quarter 2012 operating margin(1) of 9.7% decreased
0.7-percentage points as compared to the second quarter 2011. The
decrease was primarily due to a decrease in gross margin, which was
partially offset by expense reductions. Operating margin improved
sequentially from the first quarter 2012 by 1.2-percentage points.
Gross Margin
Gross margin of 32.0% decreased 1.4-percentage points as compared to the
second quarter 2011. The decrease was driven primarily by the ramping of
new services contracts and the higher mix of Services revenue.
Services segment gross margin decreased by 2.3-percentage points as
compared to the second quarter 2011, driven primarily by the ramping of
new services contracts. However, the Services segment gross margin
improved sequentially from first quarter 2012 by 0.9 points.
Technology segment gross margin increased by 0.2-percentage points as
compared to the second quarter 2011 as productivity improvements and
restructuring savings more than offset the impact of price declines and
unfavorable year-over-year transaction currency, reflecting continued
focus on cost management.
Research, Development and Engineering Expenses
("RD&E")
Second quarter 2012 RD&E as a percent of revenue of 2.9% decreased
0.2-percentage points from the second quarter 2011. In addition to lower
spending, the decrease was driven by the positive mix impact of the
continued growth in Services revenue, which historically has a lower
RD&E percent of revenue.
RD&E of $161 million was $14 million lower than the second quarter 2011,
reflecting the impact of restructuring and productivity improvements.
Innovation continues to be one of our core strengths and we continue to
invest at levels that enhance this core strength, particularly in color,
software and services. Xerox R&D is strategically coordinated with Fuji
Xerox.
Selling, Administrative and General Expenses
("SAG")
SAG as a percent of revenue of 19.4% decreased 0.5-percentage points
from the second quarter 2011. The decrease was driven by spending
reductions reflecting benefits from restructuring and productivity
improvements in addition to the positive mix impact from the continued
growth in Services revenue, which historically has a lower SAG percent
of revenue.
SAG of $1,076 million was $43 million lower than the second quarter
2011. This included a $24 million favorable impact from currency for the
quarter. SAG expenses reflect the following:
--
$56 million decrease in selling expenses, driven primarily by benefits
from restructuring and productivity improvements, partially offset by
the impact of acquisitions and spending associated with the drupa
print trade show in Dusseldorf, Germany.
--
$11 million increase in general and administrative expenses as
restructuring savings and productivity improvements were more than
offset by the impact of acquisitions and compensation-related expenses.
--
$2 million increase in bad debt expenses to $31 million. Second
quarter 2012 bad debt expense remained at less than one percent of
receivables.
Restructuring and Asset Impairment Charges
During the second quarter 2012, we recorded net restructuring and asset
impairment charges of $29 million, which included approximately $25
million of severance costs related to headcount reductions of
approximately 700 employees primarily in North America, and $5 million
of lease cancellation charges. These costs were partially offset by $1
million of net reversals for changes in estimated reserves from prior
period initiatives.
During the second quarter 2011, we recorded net restructuring and asset
impairment credits of $9 million, primarily resulting from net reversals
and changes in estimated reserves from prior period initiatives.
The restructuring reserve balance as of June 30, 2012 for all programs
was $84 million, of which approximately $76 million is expected to be
spent over the next twelve months.
Amortization of Intangible Assets
During the second quarter 2012, we recorded $82 million of expense
related to the amortization of intangible assets. This was $5 million
lower than second quarter 2011 primarily as a result of the accelerated
write-off of the ACS brand name in the fourth quarter 2011.
Worldwide Employment
Worldwide employment of 139,077 at June 30, 2012 decreased approximately
570 from year-end 2011, primarily due to restructuring related actions
partially offset by the impact of acquisitions.
Other Expenses, Net
Three Months Ended
June 30,
--------------------
(in millions) 2012 2011
----------------------------------------- --------- ----------
Non-financing interest expense $ 58 $ 64
Interest income (4 ) (5 )
Gains on sales of businesses and assets (2 ) (7 )
Litigation matters - 6
Fees - Sales of receivables 6 5
Loss on early extinguishment of liability - 33
All other expenses, net 16 8
-- ---
Total Other Expenses, Net $ 74 $ 104
== == == ===
Non-financing interest expense
Second quarter 2012 non-financing interest expense of $58 million was $6
million lower than second quarter 2011 primarily due to the benefit of
lower borrowing costs achieved as a result of refinancing existing debt.
Loss on early extinguishment of liability
In second quarter 2011, Xerox Capital Trust I ("Trust I"), our wholly
owned subsidiary trust, redeemed the $650 million 8.0% preferred
securities due in 2027. We incurred a pre-tax loss on the early
extinguishment of this liability of $33 million ($20 million after-tax),
representing the call premium of approximately $10 million as well as
the write-off of unamortized debt costs and other liability carrying
value adjustments of $23 million.
All other expenses, net
Second quarter 2012 all other expenses, net of $16 million was $8
million higher than second quarter 2011 primarily due to the write-off
of an investment.
Income Taxes
Second quarter 2012 effective tax rate was 18.8%. On an adjusted basis(1),
second quarter 2012 tax rate was 22.4%, which was lower than the U.S.
statutory tax rate primarily due to foreign tax credits resulting from
anticipated dividends and other foreign transactions. In addition, the
resolution of a number of tax audit positions and an increase in our
anticipated future utilization of tax credits provided a 5-percentage
point reduction in our second quarter adjusted tax rate.
Second quarter 2011 effective tax rate was 26.9%. On an adjusted basis(1),
second quarter 2011 tax rate was 29.6%, which was lower than the U.S.
statutory tax rate primarily due to our foreign income being taxed at
lower rates or offset by available foreign tax credits.
Xerox operations are widely dispersed. The statutory tax rate in most
non U.S. jurisdictions is lower than the combined U.S. and state tax
rate. The amount of income subject to these lower foreign rates relative
to the amount of U.S. income will impact our effective tax
rate. However, no one country outside of the U.S. is a significant
factor to our overall effective tax rate. Certain foreign income is
subject to U.S. tax net of any available foreign tax credits. Our
full-year effective tax rate includes a benefit of approximately 12
percentage points from these non-U.S. operations, which is comparable to
2011.
Our effective tax rate is based on nonrecurring events as well as
recurring factors, including the taxation of foreign income. In
addition, our effective tax rate will change based on discrete or other
nonrecurring events that may not be predictable. We anticipate that our
effective tax rate for the remaining quarters of 2012 will be
approximately 29%, excluding the effects of intangibles amortization and
discrete events.
Equity in Net Income of Unconsolidated Affiliates
Equity in net income of unconsolidated affiliates, which primarily
reflects our 25% share of Fuji Xerox net income, was $31 million, a
decrease of $3 million compared to second quarter 2011.
Second quarter 2012 equity income includes charges of $6 million related
to our share of Fuji Xerox after-tax restructuring compared to $4
million of charges for the second quarter 2011.
Net Income
Second quarter 2012 net income attributable to Xerox was $309 million,
or $0.22 per diluted share. On an adjusted basis(1), net income
attributable to Xerox was $360 million, or $0.26 per diluted share.
Second quarter 2012 adjustments to net income reflect the amortization
of intangible assets.
Second quarter 2011 net income attributable to Xerox was $319 million,
or $0.22 per diluted share. On an adjusted basis(1), net income
attributable to Xerox was $393 million, or $0.27 per diluted share.
Second quarter 2011 adjustments to net income include amortization of
intangible assets and the loss on the early extinguishment of liability.
The Net Income and EPS reconciliation table in the Non-GAAP Financial
Measures section contains the second quarter adjustments to net income.
The calculations of basic and diluted earnings per share are included as
Appendix I. See Non-GAAP financial measures for calculation of adjusted
EPS.
Segment Review
Three Months Ended June 30,
--------------------------------------------------
Total % of Total Segment Segment
(in millions) Revenues Revenue Profit (Loss) Margin
------------------ ----------- ----------- --------------- ----------
2012
Services $ 2,806 51 % $ 298 10.6 %
Technology 2,370 43 % 268 11.3 %
Other 365 6 % (68 ) (18.6 %)
----- ----- ---- ---- ---- ----- ---
Total $ 5,541 100 % $ 498 9.0 %
==== ===== ===== ==== ==== ==== ===== ===
2011
Services $ 2,672 48 % $ 322 12.1 %
Technology 2,552 45 % 300 11.8 %
Other 390 7 % (73 ) (18.7 %)
----- ----- ---- ---- ---- ----- ---
Total $ 5,614 100 % $ 549 9.8 %
==== ===== ===== ==== ==== ==== ===== ===
Refer to Appendix II for the reconciliation of Segment Profit to Pre-tax
Income.
Services
Our Services segment comprises three service offerings: Business Process
Outsourcing ("BPO"), Document Outsourcing ("DO") and Information
Technology Outsourcing ("ITO").
Revenue
Second quarter 2012 Services total revenue of $2,806 million increased
5%from the second quarter 2011, including a 2-percentage point negative
impact from currency.
--
BPO revenue increased 7%, including a 1-percentage point negative
impact from currency, and represented 56%of total Services revenue.
BPO growth was driven by the government healthcare, financial services
and retail, travel and insurance businesses and was partially offset
by lower transaction volumes from existing contracts.
--
DO revenue increased 3%, including a 3-percentage point negative
impact from currency, and represented 32%of total Services revenue.
Growth was driven primarily by our new partner print services
offerings as well as new signings. Xerox is the market leader in this
growing segment of the Document Technology market.
--
ITO revenue increased 9%and represented 12% of total Services revenue.
ITO growth was driven by strong signings growth in recent quarters and
also includes 3-percentage points of growth related to intercompany
services which is eliminated in total Services segment revenue.
Segment Margin
Second quarter 2012 Services segment margin of 10.6% decreased
1.5-percentage points from second quarter 2011, due primarily to a
decline in gross margin, which was driven by the ramping of new services
contracts. However, segment margin improved sequentially from first
quarter 2012 by 1.3-percentage points.
Metrics
Pipeline
Our total Services sales pipeline, including synergy opportunities, grew
10% over the second quarter 2011. This sales pipeline includes the Total
Contract Value ("TCV") of new business opportunities that potentially
could be contracted within the next six months and excludes business
opportunities with estimated annual recurring revenue in excess of $100
million.
Signings
Signings are defined as estimated future revenues from contracts signed
during the period, including renewals of existing contracts. Services
signings were an estimated $2.6 billion in TCV for the quarter.
--
BPO signings of $1.4 billion TCV.
--
DO signings of $950 million TCV.
--
ITO signings of $250 million TCV.
Signings on a trailing twelve month basis declined 1% in relation to the
comparable prior year period. Although the eligible renewal population
was smaller in second quarter 2012 than in prior quarters, new business
signings increased by 13% on a trailing twelve month basis.
Note: TCV is estimated total revenue for future contracts for pipeline
or signed contracts for signings as applicable.
Renewal rate (for BPO and ITO)
Renewal rate is defined as the annual recurring revenue ("ARR") on
contracts that are renewed during the period as a percentage of ARR on
all contracts on which a renewal decision was made during the period.
The second quarter 2012 contract renewal rate for BPO and ITO contracts
was 89%, which is within our target range of 85%-90%.
Technology
Our Technology segment includes the sale of products and supplies, as
well as the associated technical service and financing of those products.
Revenue
Three Months Ended
June 30,
---------------------
(in millions) 2012 2011 Change
--------------- ---------- ---------- --------
Equipment sales $ 709 $ 790 (10 %)
Annuity revenue 1,661 1,762 (6 %)
----- -----
Total Revenue $ 2,370 $ 2,552 (7 %)
=== ===== === =====
Second quarter 2012 Technology revenue of $2,370 million decreased
7%from the second quarter 2011, including a 3-percentage point negative
impact from currency. Technology revenues exclude the impact of growth
in the Xerox document outsourcing business. Revenue results included the
following:
--
Equipment sales revenue decreased by 10%, including a
3-percentage point negative impact from currency. A weak
macro-environment combined with a lower product mix and price declines
in the 5% to 10%range more than offset install growth in all three
product groups. In addition, growth was negatively impacted by the
continued migration of customers to our rapidly growing partner print
services offering within document outsourcing.
--
Annuity revenue decreased by 6%, including a 3-percentage point
negative impact from currency. An increase in supplies revenue was
more than offset by a moderating decline in total pages and the
continued migration of customers to our partner print services
offering.
--
Technology revenue mix was 22% entry, 58% mid-range and 20% high-end.
Segment Margin
Second quarter 2012 Technology segment margin of 11.3% declined by
0.5-percentage points from the second quarter 2011, as an improvement in
gross margin was more than offset by expenses related to the drupa print
trade show and an increase in general and administrative expenses as a
percentage of revenue.
Total Installs (Technology and Document
Outsourcing(2))
Second quarter 2012 installs increased from the second quarter 2011 in
all three strategic product groups (Entry, Mid-Range and High-End).
Install activity includes installations for document outsourcing and
Xerox-branded products shipped to GIS. Detail by product group is shown
below:
Entry
--
9% increase in black-and-white multifunction devices driven by demand
for the recently launched WorkCentre(R) 3045.
--
34% increase in color multifunction devices driven by demand for the
recently introduced WorkCentre(R) 6015 and the ColorQube 8900.
--
4% increase in color printers driven by an increase in sales to OEM
partners.
Mid-Range
--
15% increase in installs of mid-range color devices across all
geographies driven by strong demand for products such as the WorkCentre(R)
7530/7535.
--
2% decrease in installs of mid-range black-and-white devices.
High-End
--
80% increase in installs of high-end color systems driven by strong
demand for the recently launched Xerox Color 770, which has enabled
large market share gains in the Entry Production Color market segment.
--
24% decrease in installs of high-end black-and-white systems,
reflecting continued declines in the overall market.
Note: "Entry", "Mid-Range" and "High-End" are defined in Appendix II.
Other
Revenue
Second quarter 2012 Other revenue of $365 million decreased 6%from the
second quarter 2011, including a 2-percentage point negative impact from
currency. The decline is due primarily to a decline in paper sales,
which was driven by market pricing and lower activity. Paper comprised
approximately 60% of the second quarter 2012 Other segment revenue.
Segment Margin
Second quarter 2012 Other segment loss of $68 million decreased $5
million from the second quarter 2011, primarily driven by lower
non-financing interest expense.
Notes
(1)See the "Non-GAAP Financial Measures" section for an
explanation of the non-GAAP financial measure.
(2)Equipment sales associated with Document Outsourcing are
reported as revenue in our Services segment revenues.
(3)Represents revenues from color devices and is a subset of
total revenues and excludes Global Imaging Systems ("GIS") color
revenues.
Capital Resources and Liquidity
The following table summarizes our cash and cash equivalents for the
three months ended June 30, 2012 and 2011:
Three Months Ended
June 30,
---------------------------------
(in millions) 2012 2011 Change
------------------------------------------------------------ ---------- ---------- -----------
Net cash provided by operating activities $ 228 $ 347 $ (119 )
Net cash used in investing activities (98 ) (215 ) 117
Net cash used in financing activities (827 ) (39 ) (788 )
Effect of exchange rate changes on cash and cash equivalents (3 ) 5 (8 )
----- - ----- ---- --
(Decrease) increase in cash and cash equivalents (700 ) 98 (798 )
Cash and cash equivalents at beginning of period 1,514 1,000 514
----- ----- ----
Cash and Cash Equivalents at End of Period $ 814 $ 1,098 $ (284 )
= ===== = ===== == ==== ==
Cash Flows from Operating Activities
Net cash provided by operating activities was $228 million in the second
quarter 2012. The $119 million decrease in cash from second quarter 2011
was primarily due to the following:
--
$79 million decrease due to the timing of contributions to our defined
benefit pension plans.
--
$76 million decrease related to higher accounts receivable primarily
due to growth in services revenue and a reduction in the use of prompt
pay discounts partially offset by an increase in sales of accounts
receivable.
--
$31 million decrease from derivatives primarily due to the absence of
the early termination of certain interest rate swaps.
--
$46 million increase due to higher net run-off of finance receivables
as a result of lower equipment sales.
--
$19 million increase due to lower restructuring payments.
Cash Flows from Investing Activities
Net cash used in investing activities was $98 million in the second
quarter 2012. The $117 million decrease in the use of cash from second
quarter 2011 was primarily due to the following:
--
$94 million decrease primarily due to the 2011 acquisitions of
Unamic/HCN for $55 million and five smaller acquisitions for an
aggregate of $37 million.
--
$20 million decrease due to lower capital expenditures (including
internal use software).
Cash Flows from Financing Activities
Net cash used in financing activities was $827 million in the second
quarter 2012. The $788 million increase in the use of cash from second
quarter 2011 was primarily due to the following:
--
$1,145 million increase from net debt activity. Second quarter 2012
reflects payments of $1.1 billion on Senior Notes and net payments of
$4 million on other debt offset by an increase of $649 million on
Commercial Paper. Second quarter 2011 reflects proceeds of $1 billion
from the issuance of Senior Notes offset by a decrease of $300 million
in Commercial Paper and $10 million of other debt.
--
$307 million increase resulting from our share repurchase program.
--
$670 million decrease reflecting the absence of payment of our
liability to Xerox Capital Trust I in connection with their redemption
of preferred securities.
Customer Financing Activities
The following represents our Total finance assets, net associated with
our lease and finance operations:
June 30, December 31,
(in millions) 2012 2011
---------------------------------- ----------- --------------
Total Finance receivables, net (1) $ 5,916 $ 6,362
Equipment on operating leases, net 519 533
----- ------
Total Finance Assets, net (2) $ 6,435 $ 6,895
==== ===== ====== ======
(1) Includes (i) billed portion of finance
receivables, net, (ii) finance receivables, net and (iii) finance
receivables due after one year, net as included in our Condensed
Consolidated Balance Sheets.
(2) Change from December 31, 2011 includes a decrease of $91
million due to currency.
The following summarizes our debt:
June 30, December 31,
(in millions) 2012 2011
-------------------------------------------- ------------- -----------------
Principal debt balance(1) $ 9,061 $ 8,450
Net unamortized discount (65 ) (7 )
Fair value adjustments 164 190
------ ------
Total Debt 9,160 8,633
Less: current maturities and short-term debt (1,099 ) (1,545 )
------ -- ------ ----
Total Long-Term Debt $ 8,061 $ 7,088
== ====== ==== ======
_____________
(1) Includes Commercial Paper of $649 million and $100 million at June
30, 2012 and December 31, 2011, respectively.
The increase in debt from December 31, 2011 is primarily driven by an
increase in commercial paper due to the timing of cash flows.
Our lease contracts permit customers to pay for equipment over time
rather than at the date of installation; therefore, we maintain a
certain level of debt (that we refer to as financing debt) to support
our investment in these lease contracts, which are reflected in Total
finance assets, net. For this financing aspect of our business, we
maintain an assumed 7:1 leverage ratio of debt to equity as compared to
our finance assets. Based on this leverage, the following represents the
breakdown of total debt between financing debt and core debt:
June 30, December 31,
(in millions) 2012 2011
----------------- ----------- --------------
Financing Debt(1) $ 5,631 $ 6,033
Core Debt 3,529 2,600
----- ------
Total Debt $ 9,160 $ 8,633
==== ===== ====== ======
(1)Financing debt includes $5,177 million and $5,567 million
as of June 30, 2012 and December 31, 2011, respectively, of debt
associated with Total finance receivables, net and is the basis for our
calculation of "Equipment financing interest" expense. The remainder of
the financing debt is associated with equipment on operating leases.
Sales of Accounts Receivables
We have facilities in the U.S., Canada and several countries in Europe
that enable us to sell to third-parties, on an on-going basis, certain
accounts receivable without recourse. The accounts receivables sold are
generally short-term trade receivables with payment due dates of less
than 60 days. Accounts receivable sales were as follows:
Three Months
Ended June 30,
-----------------
(in millions) 2012 2011
--------------------------------------------- --------- -------
Accounts receivable sales $ 1,215 $ 819
Deferred proceeds 256 103
Fees associated with sales 6 5
Estimated increase to operating cash flows(1) 169 29
(1) Represents the difference between current and prior
period receivable sales adjusted for the effects of the deferred
proceeds, collections prior to the end of the quarter and currency.
Forward-Looking Statements
This release contains "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. The words
"anticipate," "believe," "estimate," "expect," "intend," "will,"
"should" and similar expressions, as they relate to us, are intended to
identify forward-looking statements. These statements reflect
management’s current beliefs, assumptions and expectations and are
subject to a number of factors that may cause actual results to differ
materially. These factors include but are not limited to: changes in
economic conditions, political conditions, trade protection measures,
licensing requirements and tax matters in the United States and in the
foreign countries in which we do business; changes in foreign currency
exchange rates; actions of competitors; our ability to obtain adequate
pricing for our products and services and to maintain and improve cost
efficiency of operations, including savings from restructuring actions;
the risk that unexpected costs will be incurred; our ability to expand
equipment placements; the risk that subcontractors, software vendors and
utility and network providers will not perform in a timely, quality
manner; the risk that individually identifiable information of
customers, clients and employees could be inadvertently disclosed or
disclosed as a result of a breach of our security; our ability to
recover capital investments; development of new products and services;
our ability to protect our intellectual property rights; interest rates,
cost of borrowing and access to credit markets; the risk that multi-year
contracts with governmental entities could be terminated prior to the
end of the contract term; reliance on third parties for manufacturing of
products and provision of services; our ability to drive the expanded
use of color in printing and copying; the outcome of litigation and
regulatory proceedings to which we may be a party; and other factors
that are set forth in the "Risk Factors" section, the "Legal
Proceedings" section, the "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" section and other
sections of our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2012 and our 2011 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The Company assumes no obligation to
update any forward-looking statements as a result of new information or
future events or developments, except as required by law.
Non-GAAP Financial Measures
We have reported our financial results in accordance with generally
accepted accounting principles ("GAAP"). In addition, we have discussed
the non-GAAP measures described below. A reconciliation of these
non-GAAP financial measures to the most directly comparable financial
measures calculated and presented in accordance with GAAP are set forth
below as well as in the 2012 second quarter presentation slides
available at www.xerox.com/investor.
These non-GAAP financial measures should be viewed in addition to, and
not as a substitute for, the Company’s reported results prepared in
accordance with GAAP.
Adjusted Earnings Measures
To better understand the trends in our business, we believe it is
necessary to adjust the following amounts determined in accordance with
GAAP to exclude the effects of the certain items as well as their
related income tax effects.
--
Net income and Earnings per share ("EPS")
--
Effective tax rate
In 2012 and 2011 we adjusted for the amortization of intangible assets.
The amortization of intangible assets is driven by our acquisition
activity which can vary in size, nature and timing as compared to other
companies within our industry and from period to period. Accordingly,
due to the incomparability of acquisition activity among companies and
from period to period, we believe exclusion of the amortization
associated with intangible assets acquired through our acquisitions
allows investors to better compare and understand our results. The use
of intangible assets contributed to our revenues earned during the
periods presented and will contribute to our future period revenues as
well. Amortization of intangible assets will recur in future periods.
In 2011, we also adjusted for the loss on early extinguishment of
liability given the discrete, unusual or infrequent nature of this item
on our results of operations for the period. We believe exclusion of
this item allows investors to better understand and analyze the results
for the period as compared to prior periods as well as expected trends
in our business.
We also calculate and utilize an operating income and margin earnings
measure by adjusting our pre-tax income and margin amounts to exclude
certain expenses. In addition to the amortization of intangible assets,
operating income and margin also exclude Other expenses, net as well as
Restructuring and asset impairment charges. Other expenses, net is
primarily composed of non-financing interest expense and also includes
the loss on early extinguishment of liability mentioned above.
Restructuring and asset impairment charges consist of costs primarily
related to severance and benefits for employees pursuant to formal
restructuring and workforce reduction plans. Such charges are expected
to yield future benefits and savings with respect to our operational
performance. We exclude these amounts in order to evaluate our current
and past operating performance and to better understand the expected
future trends in our business.
Constant Currency
To better understand trends in our business, we believe that it is
helpful to adjust revenue to exclude the impact of changes in the
translation of foreign currencies into U.S. dollars. We refer to this
adjusted revenue as "constant currency." Currencies for developing
market countries (Latin America, Brazil, Middle East, India, Eurasia and
Central-Eastern Europe) that we operate in are reported at actual
exchange rates for both actual and constant revenue growth rates because
(1) these countries historically have had volatile currency and
inflationary environments and (2) our subsidiaries in these countries
have historically taken pricing actions to mitigate the impact of
inflation and devaluation. Management believes the constant currency
measure provides investors an additional perspective on revenue trends.
Currency impact can be determined as the difference between actual
growth rates and constant currency growth rates.
Management believes that these non-GAAP financial measures provide an
additional means of analyzing the current period’s results against the
corresponding prior period’s results. However, these non-GAAP financial
measures should be viewed in addition to, and not as a substitute for,
the Company’s reported results prepared in accordance with GAAP. Our
non-GAAP financial measures are not meant to be considered in isolation
or as a substitute for comparable GAAP measures and should be read only
in conjunction with our consolidated financial statements prepared in
accordance with GAAP. Our management regularly uses our supplemental
non-GAAP financial measures internally to understand, manage and
evaluate our business and make operating decisions. These non-GAAP
measures are among the primary factors management uses in planning for
and forecasting future periods. Compensation of our executives is based
in part on the performance of our business based on these non-GAAP
measures.
A reconciliation of these non-GAAP financial measures and the most
directly comparable measures calculated and presented in accordance with
GAAP are set forth on the following tables:
Net Income and EPS reconciliation:
Three Months Ended Three Months Ended
June 30, 2012 June 30, 2011
----------------------- -----------------------
(in millions; except per share amounts) Net Income EPS Net Income EPS
------------------------------------------- ------------ ---------- ------------ ----------
Reported $ 309 $ 0.22 $ 319 $ 0.22
Adjustments:
-------------------------------------------
Amortization of intangible assets 51 0.04 54 0.04
Loss on early extinguishment of liability - 20 0.01
----- ----- -----
Adjusted $ 360 $ 0.26 $ 393 $ 0.27
===== ===== === ===== ===== ===== === =====
Weighted average shares for adjusted EPS(1) 1,393 1,465
Fully diluted shares at June 30, 2012(2) 1,366
__________
(1)Average shares for the calculation of adjusted EPS for the
second quarter 2012 were 1,393 million and include 27 million shares
associated with the Series A convertible preferred stock and therefore
the related quarterly dividend of $6 million is excluded. Second quarter
2011 shares of 1,465 million also include the 27 million shares
associated with the Series A convertible preferred stock and the related
quarterly dividend of $6 million was excluded. We evaluate the dilutive
effect of the Series A convertible preferred stock on an "if-converted"
basis.
(2)Represents common shares outstanding at June 30, 2012 as
well as shares associated with our series A convertible stock plus
dilutive common shares as used for the calculation of adjusted earnings
per share for three months ended June 30, 2012.
Guidance:
Earnings Per Share guidance
-----------------------------
Q3 2012 FY 2012
------------- -------------
GAAP EPS $0.20 - $0.22 $0.92 - $0.97
Adjustments:
---------------------------------
Amortization of intangible assets 0.04 0.15
------------- -------------
Adjusted EPS $0.24 - $0.26 $1.07 - $1.12
============= =============
Effective Tax reconciliation:
Three Months Ended Three Months Ended
June 30, 2012 June 30, 2011
---------------------------- ----------------------------
Income Income
Pre-Tax Tax Effective Pre-Tax Tax Effective
(in millions) Income Expense Tax Rate Income Expense Tax Rate
----------------------------------------- -------- -------- --------- -------- -------- ---------
Reported $ 351 $ 66 18.8% $ 401 $ 108 26.9%
Adjustments:
-----------------------------------------
Amortization of intangible assets 82 31 - 87 33
Loss on early extinguishment of liability - - - 33 13
--- --- --------- --- ---
Adjusted $ 433 $ 97 22.4% $ 521 $ 154 29.6%
=== === === === ========= === === === === =========
Operating Income / Margin reconciliation:
Three Months Ended Three Months Ended
June 30, 2012 June 30, 2011
----------------------- ------------------------
(in millions) Profit Revenue Margin Profit Revenue Margin
------------------------------------------------- ------------ ---------- -------- ------------- ---------- ---------
Reported pre-tax income $ 351 $ 5,541 6.3 % $ 401 $ 5,614 7.1 %
Adjustments:
-------------------------------------------------
Amortization of intangible assets 82 87
Xerox restructuring charge (credit) 29 (9 )
Other expenses, net 74 104
--- ----
Adjusted Operating $ 536 $ 5,541 9.7 % $ 583 $ 5,614 10.4 %
Equity in net income of unconsolidated affiliates 31 34
Loss on early extinguishment of liability - 33
Fuji Xerox restructuring charge 6 4
Other expenses, net* (75 ) (105 )
--- --- ---- ---
Segment Profit/Revenue $ 498 $ 5,541 9.0 % $ 549 $ 5,614 9.8 %
=== === === ===== === === === ==== === ===== ==== ===
_______________
* Includes rounding adjustments.
-----------------------------------------------------------------------------------------------------------------------
Services Revenue Breakdown:
Services Segment: Three Months Ended June 30,
-----------------------------
Constant
Currency
(in millions) 2012 2011 Change Change
----------------------------------- -------------- -------------- -------- ----------
Business Processing Outsourcing $ 1,606 $ 1,504 7 % 8 %
Document Outsourcing 900 876 3 % 6 %
Information Technology Outsourcing 344 316 9 % 9 %
Less: Intra-Segment Eliminations (44 ) (24 ) * *
----- --- ----- ---
Total Revenue - Services $ 2,806 $ 2,672 5 % 7 %
=== ===== === =====
Segment Profit - Services $ 298 $ 322 (7% )
=== ===== === === ===== ===
Segment Margin - Services 10.6 % 12.1 % ( 1.5) pts
=== ===== === === ===== ===
* Percent change not meaningful.
Note: ITO growth includes 3 pts of growth from intercompany services
which is eliminated in total services.
APPENDIX I
Xerox Corporation
Earnings per Common Share
(in millions, except per share data. Shares in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- -------------------------------------
2012 2011 2012 2011
------------------ ------------------ ------------------ ------------------
Basic Earnings per Share:
Net income attributable to Xerox $ 309 $ 319 $ 578 $ 600
Accrued Dividends on preferred stock (6 ) (6 ) (12 ) (12 )
--------- --- --------- --- --------- --- --------- ---
Adjusted net income available to common shareholders $ 303 $ 313 $ 566 $ 588
=== ========= === ========= === ========= === =========
Weighted average common shares outstanding 1,333,942 1,402,206 1,333,927 1,401,065
========= ========= ========= =========
Basic Earnings per Share $ 0.23 $ 0.22 $ 0.42 $ 0.42
=== ========= === ========= === ========= === =========
Diluted Earnings per Share:
Net income attributable to Xerox $ 309 $ 319 $ 578 $ 600
Accrued Dividends on preferred stock (6 ) (6 ) (12 ) (12 )
Interest on Convertible Securities, net - - 1 1
Adjusted net income available to common shareholders $ 303 $ 313 $ 567 $ 589
=== ========= === ========= === ========= === =========
Weighted average common shares outstanding 1,333,942 1,402,206 1,333,927 1,401,065
Common shares issuable with respect to:
Stock options 5,759 11,698 6,366 12,485
Restricted stock and performance shares 24,506 22,000 23,028 20,903
Convertible preferred stock - - - -
Convertible securities 1,992 1,992 1,992 1,992
--------- --------- --------- ---------
Adjusted weighted average common shares outstanding 1,366,199 1,437,896 1,365,313 1,436,445
========= ========= ========= =========
Diluted Earnings per Share $ 0.22 $ 0.22 $ 0.41 $ 0.41
=== ========= === ========= === ========= === =========
The following securities were not included in the computation of
diluted earnings per share because to do so would have been
anti-dilutive (in thousands of shares):
Stock options 41,732 53,745 41,125 52,958
Restricted stock and performance shares 17,316 15,892 18,794 16,989
Convertible preferred stock 26,966 26,966 26,966 26,966
Convertible Securities - - - -
--------- --------- --------- ---------
86,014 96,603 86,885 96,913
========= ========= ========= =========
Dividends per Common Share $ 0.0425 $ 0.0425 $ 0.0850 $ 0.0850
=== ========= === ========= === ========= === =========
APPENDIX II
Xerox Corporation
Reconciliation of Segment Operating Profit to Pre-Tax Income
Three Months Ended
June 30,
---------------------------------
(in millions) 2012 2011
----------------------------------------------------- ---------------- ----------------
Segment Profit $ 498 $ 549
Reconciling items:
Restructuring and asset impairment charges (29 ) 9
Restructuring charges of Fuji Xerox (6 ) (4 )
Amortization of intangible assets (82 ) (87 )
Loss on early extinguishment of liability - (33 )
Equity in net income of unconsolidated affiliates (31 ) (34 )
Other 1 1
Pre-Tax Income $ 351 $ 401
====== ====== ====== ======
Our reportable segments are aligned to how we manage the business and
view the markets we serve. Our reportable segments are Services,
Technology, and Other.
Services: The Services segment comprises three service
offerings:
--
Business Process Outsourcing, which includes Xerox’s historic Business
Process Outsourcing services.
--
Document Outsourcing, which includes Managed Print Services and
revenues from our partner print services offerings.
--
Information Technology Outsourcing.
Technology: The Technology segment is centered around
strategic product groups, which share common technology, manufacturing
and product platforms. This segment includes the sale of document
systems and supplies, provision of technical service and financing of
products. Our products range from:
--
"Entry", which includes A4 devices and desktop printers.
--
"Mid-Range", which includes A3 devices that generally serve workgroup
environments in mid to large enterprises. This includes products that
fall into the market categories, Color 41+ppm <$100K and Light
Production 91+ppm <$100K.
--
"High-End", which includes production printing and publishing systems
that generally serve the graphic communications marketplace and large
enterprises.
Other: The Other segment includes Xerox Supplies Business
Group ("XSBG") (predominantly paper), Wide Format Systems, licensing
revenue, GIS network integration solutions and electronic presentation
systems, and non-allocated corporate items.
SOURCE: Xerox
Xerox
Karen Arena, +1-203-849-5521
karen.arena@xerox.com
or
Ken Ericson, +1-410-571-0161
kenneth.ericson@xerox.com
| 
