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Xerox Reports Third-Quarter 2014 EarningsNORWALK, Conn. --(Business Wire)-- Xerox (NYSE:XRX) announced today third-quarter 2014 adjusted earnings per share of 27 cents. Adjusted EPS excludes 5 cents related to amortization of intangibles, resulting in GAAP EPS from continuing operations of 22 cents. In the third-quarter, total revenue of $5.1 billion was down 2 percent. Revenue from the company's Services business, which represented 57 percent of total revenue, was $2.9 billion, up 1 percent and flat year-over-year in constant currency. Revenue from the company's Document Technology business, which represented 40 percent of total revenue, was $2 billion, down 6 percent. Segment margin for Services was 8.9 percent while the Document Technology business was 14 percent. "This quarter we delivered earnings at the high end of our range. Profits from our Document Technology business came in above expectations while Services results were lower than planned," said Ursula Burns, Xerox chairman and chief executive officer. "Our Document Technology business continues to provide strong profitability, and we are continuing to invest in our Services business for revenue and profit improvement by strengthening leadership and evolving our operating model to better leverage our scale and drive efficiency and customer value. These activities will position us well for the future." Third-quarter operating margin of 9.5 percent improved 0.1 points year-over-year, resulting in operating profit of $486 million. Gross margin was 30.8 percent, and selling, administrative and general expenses were 18.6 percent of revenue. The company generated $595 million in cash flow from operations during the quarter. In the third-quarter, Xerox repurchased $251 million in stock and $730 million through Sept. 30, 2014 and is increasing its full-year expectation for repurchases to approximately $1 billion. "Our business continues to deliver strong cash flow that enables us to invest for growth while returning capital to shareholders through share repurchases and dividends," added Burns. For the fourth-quarter, Xerox expects 2014 GAAP earnings per share to be 26 to 28 cents per share. Fourth-quarter adjusted EPS is expected to be 30 to 32 cents. The company expects full-year 2014 GAAP earnings per share of 93 to 95 cents and full-year adjusted EPS of $1.11 to $1.13. About Xerox Xerox is a global business services, technology and document management company helping organizations transform the way they manage their business processes and information. Headquartered in Norwalk, Conn., we have more than 140,000 Xerox employees and do business in more than 180 countries. Together, we provide business process services, printing equipment, hardware and software technology for managing information -- from data to documents. Learn more at www.xerox.com. Non- GAAP Measures This release refers to the following non-GAAP financial measures:
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 and the relocation of our service delivery centers; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term; the risk in the hiring and retention of qualified personnel; the risk that unexpected costs will be incurred; the risk that subcontractors, software vendors and utility and network providers will not perform in a timely, quality manner; our ability to recover capital investments; the risk that our Services business could be adversely affected if we are unsuccessful in managing the start-up of new contracts; development of new products and services; our ability to protect our intellectual property rights; our ability to expand equipment placements; 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; service interruptions; interest rates, cost of borrowing and access to credit markets; reliance on third parties, including subcontractors, 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 Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 and our 2013 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. Note: To receive RSS news feeds, visit http://news.xerox.com/rss. For open commentary, industry perspectives and views visit http://www.linkedin.com/company/xerox, http://twitter.com/xeroxcorp, http://simplifywork.blogs.xerox.com, http://www.facebook.com/XeroxCorp, http://www.youtube.com/XeroxCorp. Xerox® and Xerox and Design® are trademarks of Xerox in the United States and/or other countries.
Financial Review Revenues
Third quarter 2014 total revenues decreased 2% as compared to third quarter 2013, with no impact from currency, and reflected the following:
The decline was primarily driven by lower sales in entry products due to product launch timing and overall price declines that were within our historical range of 5% to 10%. 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:
Operating Margin Third quarter 2014 operating margin1 of 9.5% increased 0.1-percentage points as compared to third quarter 2013, driven primarily by a 0.9-percentage point improvement in operating expenses as a percent of revenue partially offset by a decline in gross margin of 0.7-percentage points. The operating margin improvement reflects restructuring and productivity improvements and continued benefits from currency mostly offset by lower Services margins from higher government healthcare platform expenses and other platform and resource investments across the Services segment. As anticipated, operating margin also benefitted from lower year-over-year pension expense and settlement losses (collectively referred to as "pension expense"), and we expect these benefits to continue through fourth quarter 2014. Gross Margin Gross margin of 30.8% decreased 0.7-percentage points as compared to third quarter 2013. While Document Technology gross margin increased 0.8-percentage points, a 1.1-percentage point decline in Services gross margin, combined with a higher mix of Services revenue, resulted in the overall gross margin reduction. Additional analysis of the change in gross margin for each business segment is included in the "Segment Review" section. Research, Development and Engineering Expenses ("RD&E") Third quarter 2014 RD&E as a percentage of revenue of 2.7% was lower by 0.1-percentage points as compared to third quarter 2013. The decrease was driven by benefits from the higher mix of Services revenue (which historically has lower RD&E as a percentage of revenue) and restructuring and productivity improvements. RD&E of $138 million was $7 million lower than third quarter 2013, reflecting the impact of restructuring and productivity improvements. Innovation continues to be a core strength, and we continue to invest at levels that enhance our innovation, particularly in Services, color and software. R&D is strategically coordinated with Fuji Xerox. Selling, Administrative and General Expenses ("SAG") SAG as a percentage of revenue of 18.6% decreased 0.8-percentage points from third quarter 2013. The decrease was driven by the higher mix of Services revenue (which historically has lower SAG as a percentage of revenue), restructuring and productivity improvements, and lower pension, marketing and bad debt expenses. The net reduction in SAG spending exceeded the overall revenue decline on a percentage basis. SAG of $951 million was $64 million lower than third quarter 2013. This includes a $3 million unfavorable impact from currency for the quarter. SAG expenses reflect the following:
Restructuring and Asset Impairment Charges During third quarter 2014, we recorded net restructuring and asset impairment charges of $28 million, which includes approximately $30 million of severance costs related to headcount reductions of approximately 1,300 employees worldwide and $2 million of lease cancellation costs. These costs were partially offset by $4 million of net reversals for changes in estimated reserves from prior period initiatives. During third quarter 2013, we recorded net restructuring and asset impairment charges of $35 million, which included approximately $38 million of severance costs related to headcount reductions of approximately 2,100 employees primarily in North America. These costs were partially offset by $3 million of net reversals for changes in estimated reserves from prior period initiatives. The restructuring reserve balance as of September 30, 2014 for all programs was $93 million, of which approximately $90 million is expected to be spent over the next twelve months. In fourth quarter 2014, we expect to incur additional restructuring charges of approximately $0.02 per diluted share for actions and initiatives that have not yet been finalized. Worldwide Employment Worldwide employment of approximately 144,500 as of September 30, 2014 increased by approximately 1,400 from December 31, 2013, due primarily to the impact of acquisitions. Other Expenses, Net
Non-financing interest expense Third quarter 2014 non-financing interest expense of $57 million was $3 million lower than third quarter 2013. When combined with financing interest expense (cost of financing), total company interest expense declined by $8 million from third quarter 2013, primarily driven by a lower average debt balance and lower average cost of debt. Gains on sales of businesses and assets Third quarter 2014 and 2013 gains on sales of businesses and assets are primarily comprised of gains on the sales of surplus U.S. properties. Litigation matters Third quarter 2014 litigation matters primarily reflect a reserve adjustment related to lawsuits filed in prior years. Income Taxes Third quarter 2014 effective tax rate was 23.7%. On an adjusted basis1, third quarter 2014 tax rate was 26.8%, which was lower than the U.S. statutory tax rate primarily due to benefits for foreign tax credits as well as the geographical mix of profits. Third quarter 2013 effective tax rate was 25.4%. On an adjusted basis1, third quarter 2013 tax rate was 27.8%, which was lower than the U.S. statutory tax rate primarily due to benefits from foreign tax credits which were partially offset by the discrete impact of $12 million for the U.K. corporate income tax rate reduction and the corresponding adjustment to our deferred tax asset. 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 10-percentage points from these non-U.S. operations, which is comparable to 2013. 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. Excluding the effects of intangibles amortization, we anticipate that our effective tax rate for fourth quarter 2014 will be approximately 23% to 27%, and for full year 2014 we anticipate it will be approximately 24% to 26%. Equity in Net Income of Unconsolidated Affiliates Equity in net income of unconsolidated affiliates primarily reflects our 25% share of Fuji Xerox net income. Third quarter 2014 equity income was $44 million, an increase of $1 million compared to third quarter 2013. Third quarter 2014 equity income includes $1 million of charges related to our share of Fuji Xerox after-tax restructuring, compared to $3 million of restructuring charges for third quarter 2013. Net Income Third quarter 2014 net income from continuing operations attributable to Xerox was $267 million, or $0.22 per diluted share. On an adjusted basis1, net income from continuing operations attributable to Xerox was $320 million, or $0.27 per diluted share. Third quarter 2014 adjustments to net income reflect the amortization of intangible assets. Third quarter 2013 net income from continuing operations attributable to Xerox was $287 million, or $0.22 per diluted share. On an adjusted basis1, net income from continuing operations attributable to Xerox was $339 million, or $0.26 per diluted share. Third quarter 2013 adjustments to net income reflect the amortization of intangible assets. The Net Income and EPS reconciliation table in the Non-GAAP Financial Measures section contains the third 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. Discontinued Operations During third quarter 2014, we completed the closure of Xerox Audio Visual Solutions, Inc. (XAV), a small audio visual business within our Global Imaging Systems subsidiary, and recorded a net pre-tax loss on disposal of $1 million. XAV provided audio visual equipment and services to enterprise and government customers. As a result of this closure, we reported XAV as a Discontinued Operation and reclassified its results from the Other segment to Discontinued Operations in third quarter 2014. In May 2014, we sold our Truckload Management Services, Inc. (TMS) business for $15 million and recorded a net pre-tax loss on disposal of $1 million. TMS provided document capture and submission solutions as well as campaign management, media buying and digital marketing services to the long haul trucking and transportation industry. As a result of this transaction, we reported TMS as a Discontinued Operation and reclassified its results from the Services segment to Discontinued Operations in second quarter 2014. In 2013, in connection with our decision to exit from the Paper distribution business, we completed the sale of our North American and European Paper businesses. As a result of these transactions, we reported these paper-related operations as Discontinued Operations and reclassified the results from the Other segment to Discontinued Operations in 2013. We recorded a net pre-tax loss on disposal of $25 million in 2013 for the disposition of these businesses. In 2014, we recorded net income of $1 million in Discontinued Operations primarily representing adjustments of amounts previously recorded for the loss on disposal due to changes in estimates. Summarized financial information for our Discontinued Operations is as follows:
Segment Review
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). Services Revenue Breakdown:
Note: 2013 BPO and ITO revenues have been revised to conform to the 2014 presentation of revenues. Revenue Third quarter 2014 Services revenue of $2,948 million was 57% of total revenue and increased 1% from third quarter 2013, with a 1-percentage point positive impact from currency.
Segment Margin Third quarter 2014 Services segment margin of 8.9% decreased by 1.1-percentage points from third quarter 2013 driven by a gross margin decline of 1.1-percentage points. Margin improvements in the commercial healthcare, human resources and commercial European businesses were more than offset by declines in the government healthcare, ITO and government and transportation businesses. Productivity improvements and restructuring benefits were more than offset by continued higher but improving expenses associated with our government healthcare Medicaid platform, ITO contract actions to improve margins, higher compensation expenses and price declines that were consistent with prior periods. Metrics Pipeline Our total Services sales pipeline grew 7% over third quarter 2013. The 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. Third quarter 2014 Services signings were $2.3 billion in TCV.
Signings decreased 21% versus third quarter 2013, with ITO decreasing at a higher rate than BPO and DO. The decrease was driven by a lower level of renewal decision opportunities than in third quarter 2013 and lower new business signings which were partially impacted by customer decision delays and a decrease in the average contract length. Signings on a trailing twelve month ("TTM") basis decreased 17% in relation to the comparable prior year period. New business annual recurring revenue ("ARR") and non-recurring revenue ("NRR") decreased 18% from third quarter 2013 and decreased 6% on a TTM basis. The above DO signings amount does not include signings from our partner print services offerings. Note: TCV is the estimated total contractual revenue related to future contracts in the pipeline or signed contracts, as applicable. Renewal rate (for BPO and ITO) Renewal rate is defined as the 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. Third quarter 2014 contract renewal rate for BPO and ITO contracts was 82%, which was moderately below our target range of 85%-90% driven by ITO. Total renewal decision opportunities were significantly lower than in third quarter 2013. Document Technology Our Document Technology segment includes the sale of products and supplies, as well as the associated maintenance and financing of those products. Document Technology Revenue Breakdown:
Third quarter 2014 Document Technology revenue of $2,029 million decreased 6% from third quarter 2013, with no impact from currency. Document Technology revenues exclude Document Outsourcing. Inclusive of Document Outsourcing, third quarter 2014 aggregate document-related revenue decreased 4% from third quarter 2013. Document Technology segment revenue results included the following:
Document Technology revenue mix was 56% mid-range, 24% high-end and 20% entry, consistent with recent quarters. Segment Margin Third quarter 2014 Document Technology segment margin of 14.0% increased 1.9-percentage points from third quarter 2013 including a 0.8-percentage point increase in gross margin. Benefits from restructuring and cost initiatives, lower pension expense, favorable currency on Yen based purchases and revenue mix more than offset price declines and the impact of the prior year finance receivable gain. SAG and RD&E decreased as a percent of revenue, as benefits from restructuring and productivity improvements and lower pension expense more than offset the impact of overall lower revenues. Total Installs (Document Technology and Document Outsourcing2) Install activity includes Document Outsourcing and Xerox-branded products shipped to Global Imaging Systems. Detail by product group (see Appendix II) is shown below: Entry
Several new entry products were launched in third quarter 2014, and additional products are being launched in fourth quarter 2014. The timing of these launches contributed to the activity declines along with higher declines in developing markets. Mid-Range
High-End
Other Revenue Third quarter 2014 Other revenue of $143 million decreased 1% from third quarter 2013, with no impact from currency. The decrease is due primarily to lower wide format revenues. After the aforementioned sales of our N.A. and European Paper distribution businesses, total paper revenue (all within developing markets) comprised approximately one third of Other segment revenue in the quarter. Segment Loss Third quarter 2014 Other segment loss of $85 million increased $29 million from third quarter 2013, primarily driven by lower gains from the sale of surplus U.S. properties and higher legal reserves. Non-financing interest expense as well as all Other expenses, net (excluding Deferred compensation investment gains) are reported within the Other segment. Notes:
(1)See the "Non-GAAP Financial Measures" section for an
explanation of the non-GAAP financial measure. Capital Resources and Liquidity The following table summarizes our cash and cash equivalents for the three months ended September 30, 2014 and 2013:
Cash Flows from Operating Activities Net cash provided by operating activities was $595 million in third quarter 2014. The $366 million decrease in operating cash from third quarter 2013 was primarily due to the following:
Cash Flows from Investing Activities Net cash used in investing activities was $128 million in third quarter 2014. The $46 million increase in the use of cash from third quarter 2013 was primarily due to the following:
Cash Flows from Financing Activities Net cash used in financing activities was $417 million in third quarter 2014. The $454 million decrease in the use of cash from third quarter 2013 was primarily due to the following:
Customer Financing Activities The following represents our Total finance assets, net associated with our lease and finance operations:
(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. The following summarizes our debt:
(1) Includes Notes Payable of $2 million as of September 30, 2014 and $5
million as of December 31, 2013. 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:
(1) Financing Debt includes $3,728 million and $3,964 million as of September 30, 2014 and December 31, 2013, 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 Receivable Accounts receivable sales arrangements are utilized in the normal course of business as part of our cash and liquidity management. We have facilities in the U.S., Canada and several countries in Europe that enable us to sell certain accounts receivable without recourse to third-parties. The accounts receivables sold are generally short-term trade receivables with payment due dates of less than 60 days. Accounts receivable sales for the periods presented were as follows:
(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. Sales of Finance Receivables In the third and fourth quarters of 2013 and 2012, we transferred our entire interest in certain groups of lease finance receivables to third-party entities. The transfers were accounted for as sales and resulted in the de-recognition of lease receivables with a net carrying value of $676 million and $682 million, respectively, and associated pre-tax gains of $40 million and $44 million, respectively. In 2013, the pre-tax gains were $25 million in the third quarter and $15 million in the fourth quarter. We continue to service the sold receivables and record servicing fee income over the expected life of the associated receivables. The net impact on operating cash flows from these transactions for the periods presented is summarized below:
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 and the relocation of our service delivery centers; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term; the risk in the hiring and retention of qualified personnel; the risk that unexpected costs will be incurred; the risk that subcontractors, software vendors and utility and network providers will not perform in a timely, quality manner; our ability to recover capital investments; the risk that our Services business could be adversely affected if we are unsuccessful in managing the start-up of new contracts; development of new products and services; our ability to protect our intellectual property rights; our ability to expand equipment placements; 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; service interruptions; interest rates, cost of borrowing and access to credit markets; reliance on third parties, including subcontractors, 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 Reports on Form 10-Q for the quarter ended March 31, 2014 and June 30, 2014 and our 2013 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 2014 third 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 certain items as well as their related income tax effects.
In 2014 and 2013 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. We also calculate and utilize an Operating income and margin earnings measure by adjusting our pre-tax income and margin amounts to exclude certain items. 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 comprised of non-financing interest expense and also includes certain other non-operating costs and expenses. 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:
(1) Net Income and EPS from continuing operations attributable to
Xerox. Effective Tax reconciliation:
Operating Income / Margin reconciliation:
Guidance:
Our reportable segments are aligned to how we manage the business and view the markets we serve. Our reportable segments are Services, Document Technology and Other. Services: The Services segment comprises three service offerings:
Document Technology: The Document 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:
Other: The Other segment includes paper sales in our developing market countries, Wide Format Systems, licensing revenue, Global Imaging network integration solutions and electronic presentation systems and non-allocated corporate items including non-financing interest, and other items included in Other expenses, net.
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