Slide 1: Third-Quarter 2008 Earnings Presentation
Third-Quarter 2008 Earnings Presentation Anne Mulcahy Chairman & CEO Ursula Burns President Larry Zimmerman Executive Vice President & CFO October 23, 2008
Slide 2: Forward-Looking Statements
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 identif
Slide 3: Anne Mulcahy
Anne Mulcahy
Slide 4: Business Dynamics
Business Dynamics Challenges • U.S. and U.K. large enterprises • Pressure on Production business Business Model resiliency and flexibility • Over 70% of revenues recurring; buffers revenue risk • Geographic and market diversity • Strong and resilient cash flow; modest capital requirements • Focusing
Slide 5: Third-Quarter Overview
Third-Quarter Overview Earnings of $0.29 per share Total revenue stable from previous quarters - up 2%, Flat CC • Post-sale up 3%, 2%CC • Equipment down (3)%, (4)% CC Margin pressure offset by lower tax rate • Gross margin 39.2%; mix and price pressure continue • SAG percent of revenue 26% Balance s
Slide 6: Business Metrics
Business Metrics Revenue Growth Geographic Overview 3% U.S. and U.K. large enterprise account 1% @ CC pressure (1)% (3)% @ CC Global Imaging Systems remains strong $2,446 $1,272 Overall Europe stable Developing markets continue to deliver Production Office consistent growth 5% Activity Summary1 3% @
Slide 7: Larry Zimmerman
Larry Zimmerman
Slide 8: Cash Flow
Cash Flow (in millions) Q3 2008 YTD 2008 Net income $ 258 $ 229 Depreciation and amortization 175 498 Provisions for receivables and inventory 65 173 Provision for litigation, net - 795 Restructuring and asset impairment charges 14 80 Cash payments for restructurings (33) (92) Contributions to pensi
Slide 9: Balance Sheet and Cash Generation
Balance Sheet and Cash Generation Strong Cash from Operations Receivables and Ending Cash Balances Provisions and write-off ratios remain in historical ranges 2.0 $1.9 Cash from Operations 3.0% Ending Cash Balance Write-offs % Revenue $1.6 Bad Debt Provision% Revenue $1.4 $1.4 $ Billions $1.3 2.0% $
Slide 10: Earnings
Earnings (in millions, except per share data) Q3 2008 Q3 2007 Continued modest growth led by post Revenue $ 4,370 $ 4,302 sale recurring revenue Lower gross margin but stable Gross Margin 39.2% 40.1% sequentially R,D&E $ 228 $ 233 Consistent investment R,D&E % of Revenue 5.2% 5.4% SAG $ 1,138 $ 1,09
Slide 11: Q4 Restructuring
Q4 Restructuring Significant opportunities exist in $17B+ cost and expense base Approximate Q4 Charge ~$400M Enables margin stability and sustained Approximate 2009 Savings ~$200M investment in growth Focus areas: • Improving efficiency and effectiveness Targeted Focus Areas of infrastructure: Marke
Slide 12: Annuity Scorecard
Annuity Scorecard 2008 YTD Post Sale Leading Indicators Digital Revenue K 6% Color Revenue K 14% B&W Digital Rev flat Digital MIF K 6% Color MIF K 34% B&W Digital MIF flat Digital Pages1 L 1% Color Pages1 K 28% B&W Digital Pages1 L 5% Total Digital Pages2 K 2% Total Color Pages2 K 26% Total B&W Digi
Slide 13: Anne Mulcahy
Anne Mulcahy
Slide 14: Guidance
Guidance Q4 Assumptions • Current environment continues into 2009 • Continued pressure on margins • Benefit from Q3 product launches and restructuring actions • Strong seasonal cash flow Q4 EPS $ 0.03 - $0.05 • Adjusted Q4 EPS $0.34 - $0.36 excluding restructuring1 1Adjusted diluted EPS: see slides
Slide 15: Summary
Summary • Revenue stability due to global strength • Annuity model demonstrates resiliency during difficult times • Cash flow and balance sheet remain strong • Restructuring enables positioning for 2009 15
Slide 16: Earnings Expectations
Earnings Expectations Actual Guidance Q3 08 Q4 08 FY 08 GAAP EPS $0.29 $0.03 - $0.05 $0.28 - $0.30 Litigation $0.55 Q4 Restructuring $0.31 $0.31 Adjusted Diluted EPS1 $0.29 $0.34 – $0.36 $1.14 – $1.16 1Adjusted diluted EPS: see slides 24 and 25 for explanation of non-GAAP measures 16
Slide 17: Supplemental Slides
Supplemental Slides
Slide 18: Revenue
Revenue 2008 (in millions) Q1 Adjusted1 Q2 Adjusted1 Q3 Total Revenue $ 4,335 $ 4,533 $ 4,370 Growth 13% 5% 8% 5% 2% CC* Growth 9% 1% 4% 1% --% Post Sale $ 3,237 $ 3,373 $ 3,245 Growth 11% 6% 10% 8% 3% CC* Growth 7% 2% 6% 4% 2% Equipment $ 1,098 $ 1,160 $ 1,125 Growth 18% 2% 2% (2%) (3%) CC* Growth
Slide 19: Color Performance
Color Performance Total Color Revenue Color Trends Q3 Q3 Q3 $1,564M $1,636M Total Revenue 5% 2006 2007 2008 (+3% @ CC) Color Revenue: % of Post Sale 31% 35% 37% Post Sale 10% % of Equipment 48% 51% 50% $1,038 $1,143 (+9% @ CC) % of Total Revenue 36% 39% 40% Color Pages: Growth 35% 32% 27% % of Total
Slide 20: Production Segment
Production Segment Production Revenue Production Overview $1,286M $1,272M Total Revenue (1%) Production revenue impacted by (-3% @ CC) weakness in the U.S. $957 Post Sale 2% Developing Markets equipment $974 (Flat @ CC) revenue up 13%; total revenue up 13% $329 $298 Equipment (9%) Color activity imp
Slide 21: Office Segment
Office Segment Office Revenue Office Overview $2,384M $2,446M Total Revenue 3% (+1% @ CC) Global Imaging delivers strong results $1,680 $1,625 Post Sale 3% Developing Markets equipment (+2% @ CC) revenue up 23%; total revenue up 15% $759 $766 Equipment 1% Continue to deliver solid activity (Flat @ C
Slide 22: Developing Markets Operations
Developing Markets Operations DMO Revenue DMO Overview $535M $616M Total Revenue 15% Strong performance across all regions Equipment sales increasing in both $432 Production and Office $379 Post Sale 14% • Marketing investments yielding good results $156 $184 Equipment 18% Post-sale growth driven by
Slide 23: Appendix
Appendix
Slide 24: Non-GAAP Financial Measures
Non-GAAP Financial Measures “Adjusted Diluted EPS”: Diluted earnings per share for the 2008 fourth quarter and full year expectations are discussed in this release using a non-GAAP financial measure that excludes the effect of restructuring charges and charges associated with our securities-related
Slide 25: Non-GAAP Financial Measures
Non-GAAP Financial Measures “Constant Currency”: To understand 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”. Currencies for
Slide 26: Q3 2008 Adjusted Effective Tax Rate Reconciliation
Q3 2008 Adjusted Effective Tax Rate Reconciliation Three Months Ended September 30. 2008 Pre-Tax Income Effective Tax (in millions) Income Taxes Rate As Reported $ 238 $ 15 6.3% Restructuring $ 14 $ 5 Tax Settlements $ - $ 41 As Adjusted $ 252 $ 61 24.2% 26
Slide 27: Q1 2008 Non-GAAP Reconciliation
Q1 2008 Non-GAAP Reconciliation Three Months Ended % Change at (in millions) March 31, Constant 2008 2007 % Change Currency Currency* Equipment Sales Revenue: As Reported $ 1,098 $ 931 18% (5%) 13% As Adjusted $ 1,098 $ 1,078 2% (4%) (2%) Post Sale Revenue: As Reported $ 3,237 $ 2,905 11% (4%) 7% As
Slide 28: Q2 2008 Non-GAAP Reconciliation
Q2 2008 Non-GAAP Reconciliation Three Months Ended % Change at (in millions) June 30, Constant 2008 2007 % Change Currency Currency* Equipment Sales Revenue: As Reported $ 1,160 $ 1,141 2% (4%) (2%) As Adjusted $ 1,160 $ 1,179 (2%) (3%) (5%) Post Sale Revenue As Reported $ 3,373 $ 3,067 10% (4%) 6%