Second-Quarter 2007 Earnings Presentation

Transcription

1 Second-Quarter 2007 Earnings Presentation Anne Mulcahy Chairman & CEO Ursula Burns President Larry Zimmerman Executive Vice President & CFO

2 Forward-Looking Statements This release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 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 the risk that the future business operations of Global Imaging Systems (GIS) will not be successful; the risk that customer retention and revenue expansion goals for the GIS transaction will not be met and that disruptions from the GIS transaction will harm relationships with customers, employees and suppliers; the risk that unexpected costs will be incurred; the outcome of litigation and regulatory proceedings to which we may be a party; actions of competitors; changes and developments affecting our industry; quarterly or cyclical variations in financial results; development of new products and services; interest rates and cost of borrowing; our ability to maintain and improve cost efficiency of operations; changes in foreign currency exchange rates; changes in economic conditions, political conditions, trade protection measures, licensing requirements and tax matters in the foreign countries in which we do business; reliance on third parties for manufacturing of products and provision of services; and other factors that are set forth in the Risk Factors section, the Legal Proceedings section, the Management s Discussion and Analysis of Results of Operations and Financial Condition section and other sections of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 as well as in our 2006 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. 2

3 Anne Mulcahy Chairman & CEO Xerox Corporation

4 Second-Quarter Overview Earnings of $0.28 per share Total revenue grew 6%, 4% CC * Post sale and financing revenue up 7%, 5% CC Color revenue up 12%, 38% of total revenue Cost and expense management 40.3% gross margin 25.7% SAG percent of revenue Balance sheet and cash flow performance $388 million cash from operations $1.1B issued in senior unsecured notes Delivering shareholder value Closed Global Imaging Systems (GIS) acquisition Share repurchase program Full-year earnings expectations raised to $ $1.18 *Constant Currency: see slide 20 for explanation of non-gaap measure Color revenue excludes GIS 4

5 Revenue Trends (in millions) Q1 Q2 Q3 Q4 Q1 Q2 Adjusted 1 Total Revenue Growth CC* Growth $ 3,695 (2%) -- % $ 3,977 1% 1% $ 3,844 2% 1% $ 4,379 3% -- % $ 3,836 4% 1% $ 4,208 6% 4% 1% (1%) Post Sale & Financing $ 2,748 $ 2,868 $ 2,832 $ 2,990 $ 2,905 $ 3,067 Growth (1%) 2% 3% 5% 6% 7% 4% CC* Growth 1% 2% 2% 2% 3% 5% 2% Equipment $ 947 $ 1,109 $ 1,012 $ 1,389 $ 931 $ 1,141 Growth (4%) -- % (1%) (1%) (2%) 3% (4%) CC* Growth (2%) (1%) (2%) (4%) (4%) 1% (6%) *Constant Currency: see slide 20 for explanation of non-gaap measures 1 Adjusted 2007 Q2: The percentage point impacts reflect the revenue growth YOY after including GIS estimated results from May 9 - June 30 in See slide 20 for explanation of non-gaap measures 5

6 Color Performance Total Color Revenue Color Trends $1,364M $1,531M $879 $485 $1,022 $509 Q Q Total Revenue 12% CC) Post Sale 16% CC) Equipment 5% CC) Color Revenue: Q Q Q % of Post Sale & Financing 27% 31% 34% % of Equipment 40% 44% 48% % of Total Revenue 31% 34% 38% Color Pages: Growth 31% 40% 30% % of Total Pages 7% 9% 12% Ten color products launched year-to-date Q2 growth driven by office multifunction and production Equipment revenue impacted by declines in OEM printer activity Steady color page volume growth, up 30%; 12% of total pages Constant Currency: see slide 20 for explanation of non-gaap measures Color revenue and pages exclude GIS 6

7 Production Segment Production Revenue $1,134M $801 $1,153M $851 $333 $302 Q Q Total Revenue 2% CC) Post Sale 6% CC) Equipment (9%) CC) Install Growth 1 Q YTD Production Monochrome (7%) (7%) Production Color 4% 4% 1 Install Growth includes Xerox-branded product shipments to GIS Production Overview Post sale growth offsets equipment revenue decline Continued growth in production color installs compared to strong prior year performance Strong demand for igen3, DocuColor 5000 and DocuColor 8000 Launched enhanced DocuColor 8000AP Positive start for newly launched Xerox Nuvera EA and Xerox Nuvera 288 systems DMO grew Production equipment revenue 20% 2-percentage point benefit if included in the Production segment 7

8 Global Imaging Status Performance Xerox Product Roll-out Training Employee Retention GIS Expansion Supplier Status Continued YOY revenue growth Expanding access to broad portfolio GIS sales and service trained to support Xerox portfolio Excellent Acquired Blackstone Valley Office Systems Sharp, Konica Minolta renewed supplier agreements; others continue Canon and Ricoh no longer providing product 8

9 Office Segment Office Revenue $1,927M $2,030M Total Revenue 5% CC) $1,329 $1,406 $598 $624 Q Q Post Sale 6% CC) Equipment 4% CC) Office B&W Copiers/MFDs 7% 1% Segments 1-2 (11-30) ppm 7% Install Growth 1 Q YTD (1%) Segments 3-5 (31-95) ppm 9% 10% Office Color MFDs 54% 62% Color Printers (13%) (16%) 1 Install growth includes Xerox-branded product shipments to GIS Office Overview GIS expands Xerox presence in SMB market; strengthens revenue Solid performance in both Segments 1-2 and Segments 3-5 Strong demand for A4 platform WorkCentre 4150 Xerox-branded color printers grew 31% Recent product launches to improve mix WorkCentre 5600 series WorkCentre 7675 color multifunction system DMO grew Office equipment revenue 16% and total revenue by 10% 2-percentage point benefit to equipment revenue and 1-percentage point benefit to total revenue if included in the Office segment 9

10 Developing Markets Operations Segment DMO Revenue DMO Overview $469M $531M $329 $366 $140 $165 Q Q Total Revenue 13% Post Sale 11% Equipment 18% Growth driven by continued gains in Eurasia and Central and Eastern Europe Production sales ramp up in key DMO regions; steady igen3 installs Continued strong demand for office printers & multifunction devices 10

11 Larry Zimmerman Executive Vice President & CFO Xerox Corporation

12 Annuity Scorecard 2007 Year-to to-date Post Sale and Financing Leading Indicators Digital Revenue 6% Digital MIF 7% Color Revenue 19% Color MIF 32% B&W Digital Rev 1% B&W Digital MIF 3% Digital Pages Flat Color Pages 29% B&W Digital Pages 2% FY 2005 FY 2006 YTD 2007 Color % Revenue 27% 31% 34% Color % of MIF 10% 13% 16% Color % of Pages 7% 9% 12% Services * Annuity Growth 1% 6% 8% Light Lens % of Revenue 5% 3% 2% MIF (Machines in Field) & page data exclude printers, DMO & GIS. All revenue measures exclude GIS * Services annuity includes managed services and value-added services 12

13 Post Sale and Financing Revenue (in millions) FY FY FY Digital $ 7,571 $ 7,841 $ 8,182 Growth 6% 4% 4% Q1 $ 2,105 7% Q2 $ 2,214 8% Adjusted 1 DMO Growth Light Lens/SOHO Growth Other Growth $ 1,204 (7%) $ 946 (38%) $ 1,521 3% $ 1,254 4% $ 560 (41%) $ 1, % $ 1,333 6% $ 339 (40%) $ 1,548 4% $ 328 6% $ 61 (39%) $ 411 9% $ % $ 47 (48%) $ % Total Revenue $ 11,242 $ 11,181 $ 11,438 $ 2,905 $ 3,067 Growth (2%) (1%) 2% 6% 7% 4% CC* Growth (5%) (1%) 2% 3% 5% 2% Light Lens/SOHO Impact (5) pts (3) pts (2) pts (1) pt *Constant Currency: see slide 20 for explanation of non-gaap measures 1 Adjusted 2007 Q2: The percentage point impacts reflect the revenue growth YOY after including GIS estimated results from May 9 - June 30 in See slide 20 for explanation of non-gaap measures (1) pt 13

14 Earnings (in millions, except per share data) Q Q Revenue $ 4,208 $ 3,977 Gross Margin 40.3% 41.1% R,D&E % of Revenue 5.3% 5.8% SAG % of Revenue 25.7% 25.6% Other, Net $ 78 $ 82 Income before Taxes and Equity Income $ 315 $ 265 Pre-Tax Profit Margin 7.5% 6.7% Tax Rate 24% 8% Equity Income $ 27 $ 17 Net Income $ 266 $ 260 Diluted EPS $ 0.28 $ 0.26 After Tax Adjustment Items: Tax Audit Settlement $ (46) Restructuring $ 25 Credit Facility Fee Write-off $ 9 *Adjusted Net Income $ 266 $ 248 *Adjusted Tax Rate 24% 26% *Adjusted Diluted EPS $ 0.28 $ % * Adjusted Net Income, Tax Rate and Diluted EPS: see slide 20 for explanation of non-gaap measures 14

15 Cash Flow (in millions) Q YTD 2007 Net income $ 266 $ 499 Depreciation and amortization Provisions for receivables and inventory Cash payments for restructurings (60) (134) Contributions to pension benefit plans (27) (55) Increase in inventories (22) (160) Increase in A/R and billed portion of F/R (89) (116) Net change in income tax assets and liabilities Other, net 45 (85) Cash from Core Operations* $ 382 $ 500 Increase in equipment on operating leases (76) (145) Decrease in finance receivables Cash from Operations $ 388 $ 575 CAPEX (incl. internal use software) (81) (162) Acquisitions, net of cash acquired (1,530) (1,530) Other cash from investing Cash from Investing $ (1,544) $ (1,528) Change in debt and other Payments to acquire treasury stock (64) (289) Cash from Financing $ 777 $ 387 Change in cash and cash equivalents (368) (549) Cash and cash equivalents $ 850 $ 850 Short-term investments Cash and Short-term investments $ 870 $ 870 * Cash from core operations: see slide 20 for explanation of non-gaap measures 15

16 Year-to-Date Performance Revenue Growth Cost and Expense Management Total revenue 5% Driven by annuity growth and GIS Post Sale and financing 6% MIF and page trends remain positive Equipment sales 1% Equipment installs driving MIF and pages Gross margin 40.4% In model range 40 41% R,D&E % of revenue 5.5% Continued investment SAG % of revenue 25.3% Continued efficiency Earnings Diluted EPS, as reported $ 0.52 In-line with earnings expansion between 10-15% and FY expectations Cash from core operations* $ 500M Strong first half driven by earnings Financial Strength Acquisitions $ 1.5B Closed on GIS in early May Share repurchase $ 289M Remains balanced with acquisitions and cash flow Investment grade Achieved $1.1B 5-yr notes; attractive rate at 5.5% * See slide 20 for explanation of non-gaap measures 16

17 Anne Mulcahy Chairman & CEO Xerox Corporation

18 Summary Growth driven by annuity and acquisitions Leverage from digital, color pages and services Strong start to Global Imaging acquisition Pace of product launches; 28 YTD, doubled product launches from 2006 Enterprise-wide wins for document management services $1.6B in services annuity YTD Costs in line with business model Financial strength supports share repurchase program Completed $1.8 billion of $2.5 billion authorized Increasing full-year earnings expectations to $ $1.18 Q3 EPS $ $

19 Appendix

20 Non-GAAP Financial Measures Adjusted Revenue : We discussed the results for the second quarter 2007 and the corresponding 2006 period using non-gaap financial measures. Management believes these measures give investors an additional perspective of revenue trends, as well as the impact of the acquisition of GIS to the Company. To understand these trends in the business, we believe that it is helpful to adjust revenue to determine the impact of the acquisition of Global Imaging Systems to include GIS estimated revenue for the comparable 2006 period to determine the impact on revenue growth rates. Management believes that these non-gaap financial measures can provide an additional means of analyzing the current periods results against the corresponding prior periods 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. A reconciliation of these non-gaap financial measures and the most directly comparable financial measures calculated and presented in accordance with GAAP is set forth on slide 21. Adjusted Net Income, Tax Rate and Diluted EPS : The net income, tax rate and diluted earnings per share for the 2006 second quarter are discussed in this presentation using non-gaap financial measures that exclude the effect of (i) the tax benefits from the finalization of tax audits during the such period, (ii) restructuring charges, and (iii) the charge related to the termination of the 2003 credit facility. Management believes that these non- GAAP financial measures can 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. A reconciliation of these non-gaap financial measures and the most directly comparable financial measures calculated and presented in accordance with GAAP is set forth on slides 22. Constant Currency : To understand the trends in the 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 growth as constant currency. Developing Markets Operations currencies are shown at actual exchange rates for both actual and constant growth rates, since these countries generally have volatile currency and inflationary environments, and our operations in these countries have historically implemented pricing actions to recover the impact of inflation and devaluation. Management believes this measure gives investors an additional perspective of revenue trends. The currency impact can be determined as the difference between actual growth rates and constant currency growth rates as reported on the applicable slides. Cash from core operations; Core cash flow : This measure of cash flows excludes the effect of investments made in finance receivables and onlease equipment, which are the basis for growth in our leasing operation. These investments are viewed as income-producing assets and are important to the growth of our business. Management believes this measure gives investors an additional perspective of cash flow from operating activities. See reconciliation of cash from core operations to cash flow from operations on slide

21 Q Non-GAAP Reconciliation Three Months Ended June 30, (in millions) % Change Currency % Change at Constant Currency* Equipment Revenue: As Reported $ 1,141 $ 1,109 3% 2% 1% As Adjusted $ 1,141 $ 1,194 (4%) 2% (6%) Post Sale & Financing: As Reported $ 3,067 $ 2,868 7% 2% 5% As Adjusted $ 3,067 $ 2,957 4% 2% 2% Total Revenue: As Reported $ 4,208 $ 3,977 6% 2% 4% As Adjusted $ 4,208 $ 4,151 1% 2% (1%) Revenue As Adjusted adds GIS' estimated results for the period from May 9th through June 30th 2006 to our 2006 reported revenue. *See slide 20 for explanation of non-gaap measure 21

22 Q Non-GAAP Reconciliation (in millions, except per-share data) As reported Foreign Tax Audit 2003 Credit Facility Fee / Restructuring Adjusted Earnings** Revenue Gross Margin R,D&E % of Revenue SAG % of Revenue Other, Net Restructuring Income before taxes and equity income Income Taxes Tax Rate Equity in Unconsolidated Affiliates Net Income Diluted EPS $ 3, % 5.8% 25.6% % 17 $ 260 $ nm* -- $ (46) $ (0.04) (13) (36) % -- $ 34 $ 0.03 $ 3, % 5.8% 25.6% % 17 $ 248 $ 0.25 *Percent not meaningful **See slide 20 for explanation of non-gaap measure 22