Xerox 2016 Annual Report
2016 Annual Report
2 Letter to Shareholders 6 Financial Measures 7 Non-GAAP Measures 8 Set the Page Free 10 Board of Directors 11 Officers 12 FYI
2016 Form 10-K Insert
Financial Highlights
(in millions, except EPS)
2016
2015
Total revenue
$10,771
$11,465
Equipment sales
2,525
2,781
Post-sale/annuity revenue
8,246
8,684
Net income from continuing operations ? Xerox
616
848
Adjusted net income(1) ? Xerox
921
978
Diluted earnings per share from continuing operations
0.58
0.77
Adjusted earnings per share(1)
0.88
0.89
Net cash provided by operating activities
of continuing operations
1,018
1,078
Adjusted operating margin(1)
12.5%
12.7%
(1) See Non-GAAP Measures on page 7 for the reconciliation of the difference between this financial measure that is not in compliance with Generally Accepted Accounting Principles (GAAP) and the most directly comparable financial measure calculated in accordance with GAAP.
Xerox Today
Xerox is innovating the way the world communicates, connects and works. We've been delivering technologies and solutions to transform how people work since our founding ? and it is at the core of what we do today.
Highest rankings
from industry analysts for managed print and workflow automation services worldwide
Gold standard
recognition with listing on Dow Jones Sustainability World Index
$11 billion
global business with the most comprehensive portfolio in the industry
35,000+ employees
and 5,000 partners serving customers in 160 countries
1.5+ million
devices managed by Xerox
$1 billion
invested annually in R&D and engineering with our partner Fuji Xerox
11 years
on Ethisphere magazine's list of the world's most ethical companies
11,500
active patents
Xerox 2016 Annual Report 1
Fellow Shareholders:
Jeffrey Jacobson, Chief Executive Officer
"Xerox has world-renowned capabilities, industry-leading technology and knowhow, and a talented, high-performing team dedicated to delivering exceptional service to our customers and partners."
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"As the new Xerox, we are refocused on leading the industry with market-making and disruptive solutions that redefine `print' and change the way information is used and shared."
Fellow Shareholders: As I write my first shareholder letter as the CEO of Xerox, I am humbled by the opportunity of leading this storied company, aware of both the promising prospects and the challenges ahead, but, most of all, I am excited about what the future has in store for us.
Last year was an extraordinary and pivotal year for our company. On December 31, 2016, we completed the separation of Xerox and Conduent. We are now a new Xerox with a clearly defined mission: to innovate the way the world communicates, connects and works. It's a mission, which, at its core, is about helping businesses and governments alike improve productivity, maximize profitability and increase customer satisfaction. From the introduction of the first automatic copier in 1959, to the advances we're making today in printed electronics, personalization and workflow automation, we embody collaboration and communication. As the new Xerox, we are refocused on leading the industry with market-making and disruptive solutions that redefine "print" and change the way information is used and shared.
Our Results We remain committed to delivering attractive shareholder returns. You should expect nothing less. In this report, we share 2016 financial results that represent Xerox ? without Conduent ? to establish a baseline you can measure us against moving forward. Here is a summary of how we performed:
? Adjusted earnings per share(1) of $0.88; GAAP earnings per share from continuing operations of $0.58.
? Revenue of $10.8 billion, down 6 percent or 4 percent on a constant currency basis(1) from 2015.
? Adjusted operating margin(1) of 12.5 percent, at the top of the range we expected.
? Operating cash flow from continuing operations of $1,018 million.
? Year-end cash balance of $2.2 billion, which includes $1.0 billion of cash used for debt repayment in first quarter 2017.
? Announced plans to pay an annual dividend of 25 cents per share.
In 2016, we delivered strong margins and a healthy cash flow in the midst of preparing for and completing the separation. We also launched a three-year Strategic Transformation program with a goal of delivering at least $1.5 billion of cost and productivity savings from 2016 to 2018. In the first year, we delivered $550 million in gross savings ? exceeding our goal ? and we are on pace to meet our target for 2017 of $600 million. But it is not just about the numbers. This program is improving our operational excellence and competitiveness, allowing us to both reinvest in the business and deliver attractive returns to shareholders. It is also helping us mitigate the impact of declining revenue, which we are aggressively addressing through our strategy.
As part of the program, we made numerous operational changes. We delayered the organization to streamline decision making and create an environment that enables a quicker go-to-market path. We advanced the use of automation in service delivery by leveraging automated supplies replenishment and remote solve to resolve break/fix issues on our products without dispatching technicians. Within our supply chain, we removed regional and functional barriers to move toward a truly global organization and made progress consolidating our total warehousing footprint.
Xerox 2016 Annual Report 3
Delivering More Value for Our Customers I am always encouraged and re-energized by conversations I have with our customers. Serving our customers well ? and helping them solve the challenges they face in their businesses ? is at the heart of everything we do.
Our customers turn to our products and solutions to work more efficiently and bridge the gap between analog and digital processes. Here are a few examples of our efforts in 2016:
? We brought 35 workflow automation solutions to market as part of our managed document solutions. These new offerings address specific customer needs, acting as a bridge between our products and the important business and process workflows of our customers.
? We launched the ConnectKey?-enabled i-Series multifunction printers for the office. This line of multifunction printers promotes work collaboration by coming equipped with ready-to-use apps to speed up paper-dependent business processes. We also unveiled the Xerox App Gallery, an online portal where our customers can select and download multifunction printer-resident apps to add functionality and make our products work better for them.
? We continued to build out our high-end inkjet printing portfolio, adding two new inkjet presses ? the cut-sheet Xerox Brenva? HD Production Inkjet Press and the continuous feed Xerox Trivor? 2400 Inkjet Press. Both will allow us to better meet our customers' needs in the growing inkjet market.
Pursuing Growth Opportunities We're a $10.8 billion company in an $85 billion market, and, as I tell my team, that gives us ample opportunity to grow and expand. We hold leadership positions in key segments and serve a range of customers from small and medium-sized businesses (SMBs) to large enterprises, governments and graphic communications providers. It's a market we helped create and continue to lead.
Part of the work we did in 2016 was re-examining the market to evaluate how we compare with our competitors and better understand the changing needs of our customers and partners. While the overall market is declining, we identified components that are expanding at rates ranging from low single digit to double digits. Of our revenue in 2016, 38 percent came from these growing areas, and we are now implementing a plan to expand that proportion through a focus on the following strategic growth areas:
? Managed document services, especially managed print services in the SMB. We plan to extend our leadership in the vital services segment.
? Entry products, where pages are moving from single-function A4 sized printers to higher value A4 multifunction printers, where we are better positioned.
? The production cut-sheet color and emerging production inkjet markets, an area where we are historically strong and are making investments in newer technologies.
To pursue these opportunities, we have realigned our go-to-market model and we are expanding our channels to increase our reach and strengthen our relationships with our customers. Additionally, as the new Xerox, all of our investments will once again support our print technology and document services business. Our research, development and engineering efforts continue to be well-funded at
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