Item 1. Business
Item 1. Business
Xerox is a workplace technology company, building and integrating software and hardware for enterprises large and small. As customers seek to manage information across digital and physical platforms, we deliver a seamless, secure and sustainable experience. Whether inventing the copier, the Ethernet, the laser printer or more, Xerox has long defined the modern work experience and continues to do so with investments in artificial intelligence (AI), sensors and services for Internet of Things (IoT), digital packaging, 3D printing and Clean Technologies (clean tech).
Geographically, our footprint spans approximately 160 countries and allows us to deliver our technology and solutions to customers of all sizes, regardless of complexity or number of customer locations.
Recent Changes and Developments
In January 2021, we announced our intention to stand up our Software, Financing and Innovation organizations as separate and distinct businesses by 2022.
The Software business will include a growing portfolio comprised of: DocuShare®, a cloud-based content management system; FreeFlow®, automation software for production print; XMPie, a multi-channel marketing software company; and CareAR, an enterprise augmented reality business Xerox acquired in late 2020.
Xerox Financial Services (XFS) will become a global payment solutions business, offering leasing for Xerox and third-party technology and office equipment. This will expand the Company’s customer base, create cross-selling opportunities and provide more leasing options for small and medium-sized businesses (SMBs).
The Innovation business will include the scientists and engineers located in Palo Alto, Calif.; Webster, N.Y.; Cary, N.C., and Toronto and will be named PARC Innovation. This team will be focused on incubating, productizing and commercializing disruptive technology aligned with our innovation focus areas such as 3D Printing and Digital Manufacturing, Sensors and Services for the IoT, AI and clean tech.
Strategy
The Company’s four strategic initiatives, summarized below, remain at the core of how we operate and deliver results for all stakeholders.
1. Optimize Operations for Simplicity
• Continuously improve our operating model for greater efficiency
• Invest further in robotic process automation, augmented reality and analytics to drive efficiencies
• Reduce complexity and simplify billing and offerings
2. Drive Revenue
• Scale IT Services in the SMB
• Grow XFS as a global payment solutions business
• Expand software offerings in enterprise content management and customer experience
3. Re-energize the Innovation Engine
• Deliver revenue growth from 3D and IoT
• Launch a $250 million corporate venture capital fund
• Embed PARC’s AI technology into new and existing software offerings
4. Focus on cash flow and increasing capital returns
• Maximize annual free cash flow 1 generation
• Deploy excess capital for strategic M&A
• Opportunistic share repurchases
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(1) Free cash flow is defined as Operating cash flow from continuing operations less capital expenditures.
As a result of the COVID-19 pandemic, the workplace has been transformed into a more flexible, hybrid environment. In response, we have further expanded our innovation investments in order to bolster and diversify our portfolio of offerings. Xerox continues to position itself for the future through investments in our core print business including Digital Services such as Digital Mail, Capture & Content and Digital Hub & Cloud Print, which enable work to flow seamlessly between the office and home. Additionally, the hybrid work environment has increased SMB needs for IT Services, an area in which we achieved organic growth in 2020, and which is an important focus area for our business.
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Optimize Operations for Simplicity
Project Own It is Xerox’s enterprise-wide initiative to simplify operations, drive continuous improvement and free up capital to reinvest in the business. Through this initiative, we have delivered approximately $1.4 billion of gross savings during the 30 month-period ending December 31, 2020. In 2020, we generated $450 million in gross cost savings and, consistent with our expectations, we plan to deliver $375 million of gross cost savings in 2021. Savings generated by Project Own It will enable us to invest in our operations, targeted adjacencies and innovation focus areas and ultimately help improve our long-term revenue trajectory.
Drive Revenue
Our roadmap, summarized below, focuses on growing revenue by increasing Xerox’s leadership position in the print market while expanding into targeted adjacent and new markets:
• Gain share in print. Building on our leadership positions in print is central to gaining market share. In the workplace, we are continuing to differentiate Xerox multifunction printers with apps and integrated workflow solutions that speed digital transformation and support workers in and out of the office. In production, investments are targeted to push Xerox into growth areas such as embellishments and inkjet and support customer growth goals.
• Expand services. Managed and digital services leverage the full Xerox portfolio to offer horizontal and vertical offerings that grow wallet share and expand the Company's customer base. Expanding XFS’s offerings to include leasing for both Xerox and third-party technology and office equipment will provide another avenue for new customers and account growth.
• Grow software. Another growth driver is developing SaaS, cloud-based software for enterprise content management that supports a hybrid work environment and aids customers’ digital transformation. We believe the recent acquisition of CareAR will help speed the execution of this approach.
• Target critical SMB market. Ongoing investments in indirect market channels, Xerox Business Solutions (XBS) and similar European sales channels position Xerox to grow in the SMB market, which accounts for the majority of our business. We are expanding our IT Services business geographically and with enhanced capabilities to support growth in this market.
• Enhance the digital experience. Ongoing investments in automation, analytics and digital support tools will elevate the customer experience while increasing productivity. E-commerce enhancements focus on driving sales of select hardware and supplies, with an emphasis on the SMB and low-end production markets.
• Drive innovation and new growth businesses. Investments and an increased focus on incubating, productizing and commercializing disruptive technologies is essential for future growth. The Company continues to make progress across its five innovation focus areas: AI, IoT sensors and services, digital packaging, 3D printing and clean tech.
Re-energize the Innovation Engine
We are delivering on our commitment to re-energize Xerox’s innovation engine, by starting to monetize offerings in 3D print and IoT sensors. In December, we reached an important milestone with the first installation of our Xerox ElemX 3D liquid metal printer at the Naval Postgraduate School in Monterey, Calif. In industrial IoT sensors and services, monitoring critical infrastructure such as bridges and tunnels is a growing market opportunity that requires deep domain expertise and go-to-market partnerships with government agencies responsible for maintenance. Having successfully piloted this technology with VicTrack, a state-owned enterprise that owns all railway and tram lines in Victoria, Australia, Xerox is planning broad commercialization of this offering.
To further monetize our innovation and develop disruptive offerings, PARC-developed technologies in AI, augmented reality and virtual reality will be integrated into CareAR’s product roadmaps and other parts of our portfolio.
Xerox also plans to establish a $250 million corporate venture capital fund to invest in startups and early and mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. The corporate venture capital fund will further enhance the Company’s existing innovation ecosystem and drive growth through investment, commercial partnerships and co-development of new technologies. Although highly dependent on the identification of investment targets, we expect to deploy funds over the next five years.
Refer to the Research, Development and Engineering Expenses (RD&E) section in Item 7 of this combined Form 10-K as well as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding RD&E spending.
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Focus on Cash Flow and Increasing Capital Returns
Our business is based on a model where a large portion of revenues are generated by multi-year contractual arrangements, with approximately 80 percent coming from post-sale revenue, our most profitable revenue stream. Additionally, there is low annual capital expenditures (less than 2 percent of revenues) required to support our current business model. These factors contribute to our ability to generate strong cash flow.
We will deploy our cash flow to drive shareholder returns through:
• A commitment to return at least 50 percent of our free cash flow (Operating cash flows from continuing operations less capital expenditures) to shareholders through a combination of dividends and share repurchases; and
• Selective pursuit of acquisitions in targeted growth areas.
Acquisitions
Our strong balance sheet and cash flow generation allow us to pursue M&A opportunities to support our growth expectations. We maintain a broad M&A pipeline that includes targets within the print industry and adjacent markets.
In 2020, Xerox completed three acquisitions of local area resellers and partners (including multi-brand dealers) in the U.K., as well as one such acquisition in Canada. These acquisitions support our strategy to expand Xerox's presence in the SMB market internationally. In addition, in 2020 we acquired CareAR, a business that uses augmented reality to provide enhanced remote assistance technology for enterprises that can modernize field service, customer support and other IT Services. This acquisition supports our growth strategy by enhancing our portfolio of software solutions. Further details about our acquisitions can be found in Note 5 - Acquisitions, in the Consolidated Financial Statements.
Segment Information
Our business is organized to ensure we focus on efficiently managing operations while serving our customers and markets in which we operate. We maintain a geographic focus and are primarily organized from a sales perspective on the basis of “go-to-market” sales channels. These sales channels are structured to serve a range of customers for our products and services. As a result of this structure, we recognize that we have one operating and reportable segment - the design, development and sale of printing technology and related solutions.
As part of our strategy, we integrate our capabilities across technology, software and services which offer our customers the broadest solutions-enabled portfolio in the industry to address their needs of workflow simplification, security and productivity across their digital and physical document processes.
Revenues
We have a broad and diverse base of customers by both geography and industry, ranging from SMBs to printing production companies, governmental entities, educational institutions and Fortune 1000 corporations. Our business does not depend upon a single customer, or a few customers, the loss of which would have a material adverse effect on our business. Our business spans three primary offering areas: Workplace Solutions, Graphic Communications and Production Solutions and Xerox Services .
Workplace Solutions is made up of two strategic product groups, Entry and Mid-Range , which share common technology, manufacturing and product platforms. Workplace Solutions revenues include the sale of products and supplies, as well as the associated technical service and financing of those products.
• Entry comprises desktop monochrome and color printers and multifunction printers (MFPs) ranging from small personal devices to office workgroup printers and MFPs.
• Mid-Range are larger devices that have more features and can handle higher print volumes and larger paper sizes than entry devices. We are a leader in this area of the market and offer a wide range of MFPs, digital printing presses and light production devices, as well as solutions that deliver flexibility and advanced features. In the last 18 months Xerox has also introduced breakthrough embellishment capabilities for this product group, including the Adaptive CMYK+, an add-on kit that enables existing mid-range light production devices (and low-end production systems) to use metallic and specialty colors.
Graphic Communications and Production Solutions (High-End) are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements. Our broad portfolio of presses and solutions provides full-color, on-demand printing of a wide range of applications. Our xerographic presses provide high-speed, high-volume cut-sheet printing, ideal for publishing, transactional printing, including variable data for personalized content and one-to-one marketing, to the highest quality of color and
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embellishment requirements. Our inkjet presses offer a broad range of roll fed, continuous-feed printing technologies, including waterless inkjet and aqueous inkjet for vivid color, and toner-based flash fusing for black and white. Our portfolio spans a variety of print speeds, image quality, feeding, finishing and media options. We are a worldwide leader in the cut-sheet color and monochrome production industry. Graphic Communications and Production Solutions revenues include the sale of products, software and supplies, as well as the associated technical service and financing of those products.
Xerox Services includes a continuum of solutions and services that helps our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. Xerox has the capability to support integration and document security on a global scale, which are critical factors for large enterprises. Our primary offerings in this area are Intelligent Workplace Services (IWS) and a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services. In addition, during 2020, business closures that resulted from the COVID-19 pandemic shifted our customers’ focus toward secure, efficient and flexible solutions to operate in a hybrid work environment. As a result, we enhanced our focus on the development and promotion of Intelligent Workplace Services and Digital Services offerings to help our customers accelerate their digital transformation.
• Intelligent Workplace Services (IWS), which transcends the traditional MPS offering, utilizes our portfolio of security, analytics, cloud, digitization and ConnectKey® technologies to help companies optimize their print infrastructure, secure their print environment and automate related business processes. We provide the most comprehensive portfolio of MPS services in the industry and are recognized as an industry leader by major analyst firms including IDC and Quocirca. Our IWS offering targets clients ranging from global enterprises to governmental entities and to small and medium-sized businesses, including those served via our channel partners. This portfolio also includes: Intelligent Workplace Services for Remote Workers , where we provide customers with cost effective and secure printing devices along with apps and software tools that enable work from anywhere with the productivity demanded of the workplace; Virtual Print Management Services , where we provide clients with cloud server-enabled fleet management, security and automation software, and remote customer support to administer networks from anywhere; and Home Worker Print Tracker , which strengthens enterprise security and cost controls by using workflows to route data to company-supplied or personal printers based on data classification.
• Digital Services enables the integration of Xerox technology, software and services to securely design and manage the digitization and workflow of our clients’ content and personalization and customization of targeted communications. We utilize our domain expertise and technology to enable efficient and compliant business processing and communications in the demanding regulatory environments and markets such as healthcare or public sector. These solutions include (for example): Capture and Content offerings such as Digital Mailroom , where we use scanning and capture technology combined with AI to extract printed and digital information into usable data that is routed into business workflows (such as accounts payable) or into archives, integrating with cloud-based content management systems such as our DocuShare software; and Digital Hub and Cloud Print services, a one-stop shop where customers can submit print jobs from anywhere and leverage our workflows and on and off-site printing networks to meet their printing or marketing collateral lifecycle management, integrally, safely and with enhanced productivity from scale.
In addition to our three primary offering areas described above, a smaller portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue, as well as from Software and IT Services , which are two areas of our business in which we have enhanced our focus and investments. In software, we are focused on Personalization and Communications Software and Content Management , with our XMPie, DocuShare and FreeFlow solutions. XMPie is a robust personalization and communication software that can support the needs of omni-channel communications customers, from onboarding to retention. DocuShare is a content management platform that provides a better way to capture, store and share paper and digital content, either on-premise or in the cloud while automating time-consuming, document-heavy processes like accounts payable, HR onboarding, contract management and mortgage processing. In addition, we operate a network of centers that digitize and automate paper and workflows, enabling our customers to operate cost-effectively in a fully-digitized environment with speed, quality and 24x7 availability. FreeFlow is a portfolio of software offerings that brings intelligent workflow automation and integration to the processing of print jobs, from file preparation to final production, helping customers of all sizes address a wide range of business opportunities including automation, personalization and even electronic publishing. In addition, in 2020 we added augmented reality to our software capabilities, with the acquisition of CareAR , an enterprise augmented reality business that offers live virtual assistance technology focused on modernizing field service, customer support and other IT Services. In IT Services , we are focused on providing our SMB customers with cost efficient and secure solutions to
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manage their IT needs including PC and network infrastructure, communications technology, and network administration.
Refer to the Impact of COVID-19 on Our Business Operations section of the Management’s Discussion and Analysis included in Item 7, as well as the Risk Factors included in Item 1A of this combined Form 10-K, for additional information
Geographic Information
Overall, approximately 40% of our revenue is generated by customers outside the U.S. Additional details can be found in Note 3 - Segment and Geographic Area Reporting in the Consolidated Financial Statements.
Patents, Trademarks and Licenses
In 2020, Xerox and its subsidiaries were awarded 323 U.S. utility and design patents, and, including our research partner Fuji Xerox, we were awarded 831 U.S. utility and design patents during the period. Fuji Xerox continues to be a research partner subsequent to the sale of our remaining investment in Fuji Xerox in 2019 due to their significance to us as a product supplier. Our patent portfolio evolves as new patents are awarded to us and as older patents expire. As of December 31, 2020, Xerox held approximately 8,587 U.S. utility and design patents. These patents expire at various dates up to 20 years or more from their original filing dates. While we believe that our portfolio of patents and applications has value, in general no single patent is essential to our business. In addition, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide significant competitive advantages.
In 2020, we were party to multiple patent-licensing agreements and, in the majority of them, we licensed or assigned our patents to others in return for revenue and/or access to their patents or to further our business goals. Most patent licenses expire concurrently with the expiration of the last patent identified in the license. We were also party to a number of cross-licensing agreements with companies that also hold substantial patent portfolios. These agreements vary in subject matter, scope, compensation, significance and duration.
In the U.S., we own about 188 U.S. trademarks, either registered or applied for. These trademarks have a perpetual life, subject to renewal every 10 years. We vigorously enforce and protect our trademarks.
Human Capital
Our Employees
As of December 31, 2020 we had approximately 24,700 employees; a reduction of approximately 2,300 (8.5%) employees since December 31, 2019. The reduction is a result of net attrition (attrition net of gross hires), of which a large portion is not expected to be back filled, as well as the impact from organizational changes. Approximately 12,800 employees were located in the U.S. and approximately 11,900 employees were located outside the U.S. We had approximately 11,500 employees or almost half of our employees engaged in providing services to customers (direct service and managed services) and approximately 3,300 engaged in direct sales.
Approximately 20% of our employees are represented by unions or similar organizations, such as worker’s councils, and are covered by collective bargaining agreements with approximately 90% located outside the U.S. As of December 31, 2020, approximately 25% of our employees were women and 30% of our U.S. employees self-identified as diverse.
Employee Safety
The Company’s number one priority is the health and safety of the Xerox community. At the onset of the pandemic, we quickly mobilized to activate our business continuity and pandemic preparedness plans, which included setting up a COVID-19 Response Team of cross functional, global senior leaders, establishing a 24-hour command center to conduct risk assessments and develop mitigation plans, and creating a multi-channel, communication strategy to keep all of our key stakeholders informed.
The Response Team acted swiftly to monitor and implement COVID-19 guidance from the U.S. Centers for Disease Control and Prevention (CDC), the World Health Organization (WHO), and federal, state, local and international governments, as applicable. The efforts of the Response Team were critical, since many of our employees and operations are considered “essential” with a large portion of employees continuing to work at our facilities or on site with those clients also considered essential.
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We created an extensive set of health and safety protocols that every Xerox facility and operation across the world implemented. These protocols include, but are not limited to:
• Completing a daily health check to confirm that employees meet health requirements for entering a Xerox or customer workplace;
• Creating mandatory COVID-19 safety training for all employees before they engage in any Xerox work outside their home;
• Implementing specific risk-based safety requirements to address various workplace scenarios and role-specific protocols to guide employees on how the safety process and Personal Protective Equipment (PPE) guidelines apply to their roles;
• Requiring face coverings at all times, except when an employee is isolated for long periods of time, and always maintaining social distancing of at least 6 feet (2 meters). Xerox updated its workplace layouts throughout the world, as needed, to support this protocol; and
• Ensuring all facilities are regularly cleaned and sanitized and have sufficient ventilation.
Adhering to these protocols ensured that our essential employees could continue to work and support our customers, including hospitals, governments and educational institutions. Additionally, the Company’s cautious, methodical and phased approach allowed us to safely return approximately 50% of our active employees to their workplaces by July 2020. Although developments in the later part of 2020 have required us to return to more remote work as a result of the ongoing pandemic, we believe the actions put in place through 2020 have positioned the Company well to return more employees to the workplace once it is safe to do so.
Optimize Operations
Under Project Own It, we have taken steps to ensure we have the right talent in place to support the evolving needs of our business. Steps taken include, but are not limited to:
• Realigning the workforce in support of the Company’s strategy;
• Right-sizing parts of the business based on shifting customer needs; and
• Optimizing shared services.
In addition, we also utilized government programs to furlough employees to protect both Xerox and their financial wellness.
Diversity, Inclusion and Belonging
Diversity, inclusion and belonging (DIB) is an essential part of our culture and value system. For over half a century, Xerox has always strived to be a leader in this space and continues to be at the forefront of driving change within our Company and our communities. In 2020, we reaffirmed our commitment to DIB by developing a new roadmap to identify areas where we can have a bigger impact on employees and society. To support this, our roadmap focuses on:
• Diverse Pipeline : Building a diverse pipeline and accelerating the careers of underrepresented talent within the organization.
• Partnership : Building relationships with external organizations to ensure that our incoming talent better reflects the markets and communities we serve. For example, we are working with AI vendors to increase the pool of women and diverse candidates for our job openings using their unique artificial intelligence algorithms.
• Culture Change : Reinforcing a Company-wide culture of belonging. In 2020, we held our first-ever global DIB virtual conference, hosted by our Employee Resources Groups (ERGs), which was open to all Xerox employees. The conference was an important milestone in our ongoing commitment to cultivating global and diverse teams across the Company.
• Community Outreach : Extending our reach into the communities that we serve. For example, in the U.S., we are partnering with A Better Chance (ABC) and the Thurgood Marshall College Fund Leadership Institute to help underrepresented and financially challenged youth pave a better career future. In the U.K., we also support Blueprint for All to further their work and honor their mission of working with young people and local communities to create an inclusive society for all.
• Accountability : Measuring our progress and continue to be transparent by utilizing our Corporate Social Responsibility Report to inform the public about our strategy and progress. We are confident that over time, our efforts will yield sustainable progress in this critical business challenge.
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Talent Management and Workforce Development
Talent management and workforce development are critical for the future of Xerox and fueling business growth and innovation. We use high-impact practices and technology to drive global workforce capability and integrate learning with work. Our organization and talent planning processes include reviews with business leaders to build our talent pipeline. More broadly, Human Resources (HR) provides a forum for management to review the future needs of the organization, noting strengths, gaps and strategies to build strong teams for the next chapter at Xerox. The Company is also committed to accelerating the careers of high-potential, diverse employees and women along with identifying more diverse candidates for open roles. Our leaders embrace and support the Wilson Rule, named after Joseph Wilson, a former CEO of the Company, which requires that one out of every three final candidates for professional roles be diverse. Finally, we provide diversity training sessions to managers to reinforce the importance of a diverse workforce.
Global Learning Innovation
The COVID-19 pandemic has accelerated the way HR leaders and organizations must prepare for and anticipate the needs of the business, not just today, but in the near future. In 2020, results from our Future of Work survey found that respondents plan to change their work from home policy to some extent to support a hybrid workforce that includes both remote and onsite employees. Recognizing the new skills required to support remote workers and develop talent that you are not going to see in person is critically important.
Our Learning and Development (L&D) function has been using different forms of digital technology to train and reskill employees such as salespeople who are no longer able to be out in the field due to the COVID-19 pandemic. At the onset of the COVID-19 pandemic, our L&D function pivoted to a digital learning approach to train and reskill employees across the globe. Our employees have access to a global learning platform that includes hundreds of targeted online courses, virtual classroom events, simulations, job aids, and other learning and development resources. Learning topics include critical job-specific information and technical upskilling, management development and professional effectiveness, productivity tools for project management, client service, negotiations, technology solutions, ethics, diversity and inclusion, and information security.
As our business evolves, we will continue to leverage technology and identify new skills or capabilities required to ensure we remain competitive in the global market.
Total Rewards
Our success depends on attracting, retaining, and motivating a highly productive, global workforce. To achieve this, we take pride in offering our employees a comprehensive Total Rewards program that includes various compensation, benefits, and work-life programs. Our programs are designed to achieve the following objectives:
• Drive shareholder value : support our business strategy and culture.
• Align with performance : incentivize the right behaviors – when the Company wins our employees win.
• Support our talent strategy : attract, retain and motivate a productive workforce.
As with most global companies, our compensation and benefits vary based on employee eligibility, and local practices and regulations. We benchmark our programs to ensure we remain competitive with our peers and the markets we serve, and to maintain alignment with our short-term and long-term business goals.
Our compensation offerings include base pay and short-term and long-term incentive programs. Our short-term programs include: a Management Incentive Plan (MIP), designed to drive Xerox’s pay for performance culture and incentivize our leaders to help Xerox achieve sustainable growth; sales compensation programs to tightly align our sales force with business goals; and a Profit Share Plan (PSP), designed to give a broad population of our employees an opportunity to share in the organization’s success. A Long-Term Incentive (LTI) equity-based program is used to reinforce alignment of our leaders and key talent with shareholders.
Our benefit offerings provide our employees with choice and flexibility in order to help them reach their health and financial goals. Our offerings include the following core programs: health care, wellness, retirement, paid time off, life and disability, and voluntary benefits.
Environmental Social Governance (ESG)
At our core is a deep and long-lasting commitment to ESG, a pledge to inspire and support our people, conduct business ethically across the value chain and preserve our planet. This commitment stems from the corporate values established over sixty years ago which include: succeeding through satisfied customers; delivering quality and excellence in all we do; requiring a premium return on assets; using technology to develop market leaders; valuing and empowering our employees; and behaving responsibly as a corporate citizen.
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We continue this legacy by turning investments in innovation into products and services that help our customers be more productive, profitable and sustainable. Driving efficiency in our business operations, smart investments in technologies that afford our customers added agility-personalization, automation and better workflow as part of our customer-centric approach, will underpin our corporate social responsibility efforts. We do this in our own operations, as well as in workplaces, communities and cities around the world. We recognize the world’s challenges such as climate change and human rights and understand the role we play.
We are focused on how we can simplify work, deliver more personalized experiences and improve productivity through new technologies. We strive to connect the physical and digital worlds without adversely affecting the environment, human health and safety.
Our pledge to inspire and support our people, conduct business ethically and protect our planet remains at the core of everything we do. At Xerox, we believe in continuously improving, and we apply this mentality to ensuring we are always finding ways to improve the sustainability of our operations.
The Xerox 2020 Corporate Social Responsibility (CSR) Report (available at www.xerox.com. The content of our website is not incorporated by reference in this combined Form 10-K unless expressly noted.) describes our management approach related to ESG. Xerox’s CSR report highlights include:
Environment
• 98% of supplies and consumables returned by customers at end-of-life were diverted from entering landfills. Instead, we remanufactured, reused, recycled, or provided the waste to suppliers who converted it into an energy source.
• Over 1 billion pages offset through the PrintReleaf program.
• 100% of newly-launched, eligible Xerox products satisfied the Electronic Product Environmental Assessment Tool (EPEAT®) and EPA ENERGY STAR® eco-labels.
• 35% reduction in Greenhouse gas emissions (GHG) from our operations using a 2016 baseline; moving us closer to our goal of 60% GHG reduction by 2030.
Social
• Worldwide employee matching gift program for any qualified non-profit.
• Worldwide Total Recordable Injuries (TRI) rate of our employees in the U.S. decreased by 2.5%.
• Day Away Rate decreased by 23.2%
• Supplier spend with suppliers representing small Tier I, minority, woman or veteran-owned businesses accounted for 13% of our total spend.
• Details on our diversity and inclusion programs including our global affinity groups.
Governance
• All Xerox ESG Priorities 3rd party validated by Business for Social Responsibility (BSR).
• 100% of production suppliers required to adhere to Responsible Business Alliance (RBA) Code of Conduct.
• Board oversight of corporate social responsibility.
• Disclosure of all political activities and trade association memberships.
Material Government Regulations
Our business activities are worldwide and are subject to various federal, state, local, and foreign laws and our products and services are governed by a number of rules and regulations. Currently costs incurred to comply with these governmental regulations are presently not material to our capital expenditures, results of operations and competitive position. Although there is no assurance that existing or future government laws and regulations applicable to our operations, services or products will not have a material adverse effect on our capital expenditures, results of operations and competitive position, we do not currently anticipate material expenditures for government regulations. However, as a result of increased government focus in the U.S. and globally, we believe that environmental and global trade regulations could potentially materially impact our business in the future.
For a discussion of the risks associated with government regulations that may materially impact us, please see Risk Factors in Item 1A.
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Marketing and Distribution
We go to market with a services-led approach and sell our products and services directly to customers through our direct sales force and through independent agents, dealers, value-added resellers, systems integrators and the Web. In addition, we continue to focus on broadening our distribution and offerings to SMBs primarily through XBS, our wholly-owned U.S. subsidiary comprised of regional core companies which provide office technology and services, including IT Services, to SMB customers in the U.S., and through the acquisition of resellers and multi-brand dealers of document technology and IT Services in the U.S. and internationally.
We are structured to serve our customers globally into two primary go-to-market units: the Americas, comprised of the U.S. and Canada along with Mexico, Central and South America; and EMEA, which includes Europe, the Middle East, Africa and India. We have also implemented a common global delivery model that aims to provide a consistent customer experience worldwide. We believe that these changes create a leaner and more effective go-to-market model that will streamline our supply chain and provide our customers with best-in-class services.
In January 2020, Fuji Xerox notified Xerox of its intention to terminate the Technology Agreement (TA) on the agreement’s expiration date of March 31, 2021. The series of transactions entered into between Xerox and FUJIFILM Holdings Corporation (FH) in November 2019, as disclosed in Note 6 - Divestitures in the Consolidated Financial Statements, included an amendment to the TA that would allow Fuji Xerox continued use of the Xerox brand trademark for two years after the date of termination of the TA as it transitions to a new brand in exchange for an upfront prepaid fixed royalty of $100 million. At this time, we expect Fuji Xerox to continue to use the Xerox brand trademark over the next two years subsequent to termination of the TA and, therefore, to make the upfront payment due under the amended agreement. Accordingly, we expect any potential entry by Xerox into the Fuji Xerox territory under the Xerox brand to be deferred to at least April 1, 2023.
Upon termination of the TA, Xerox is free to use both Xerox and Fuji Xerox xerographic IP as well as non-xerographic IP contained in xerographic products worldwide, including in the FX territory. Fuji Xerox on the other hand, can enter markets outside its territory with xerographic products, however it has no rights to the use of any Xerox IP outside of the Fuji Xerox territory. The expiration of the TA does not affect our product sourcing arrangements with FX which are governed by separate, commercial agreements which continue under their existing terms.
Competition
Although we encounter competition in all areas of our business, we are the leader - or among the leaders - in our core mid-range and high-end product groups. We compete on the basis of technology, performance, price, quality, reliability, brand reputation, distribution, and customer service and support.
Our larger competitors include Canon, HP Inc., Konica Minolta and Ricoh. Our brand recognition, reputation for document management expertise, innovative technology and service delivery excellence are our competitive advantages. These advantages, combined with our breadth of product offerings, global distribution channels and customer relationships, position us as a strong competitor going forward.
Customer Financing
We finance a large portion of our direct channel customer purchases of Xerox equipment through bundled lease agreements. We also provide lease financing to end-user customers who purchase Xerox equipment through our indirect channels. We compete with other third-party leasing companies with respect to the lease financing provided to these end-user customers. In both instances, financing facilitates customer acquisition of Xerox technology and enhances our value proposition, while providing Xerox a reasonable return on our investment in this business.
Because our lease contracts allow customers to pay for equipment over time rather than upfront upon installation, we maintain a certain level of debt to support our investment in these lease contracts. We fund our customer financing activity through a combination of cash generated from operations, cash on hand and proceeds from capital market offerings and securitizations. At December 31, 2020, we had approximately $3.2 billion of finance receivables and $296 million of Equipment on operating leases, net, or Total Finance assets of approximately $3.5 billion. We maintain an assumed 7:1 leverage ratio of debt to equity as compared to our Finance assets, which results in approximately $3.0 billion of our $4.4 billion of debt being allocated to our financing business.
Refer to "Debt and Customer Financing Activities" in the Capital Resources and Liquidity section of Management's Discussion and Analysis, included in Item 7 of this combined Form 10-K, for additional information.
In January 2021, we announced plans to expand our financing business to become a global payment solutions business, offering lease financing for Xerox and third-party technology and office equipment. This will expand the Company’s customer base, create cross-selling opportunities and provide more leasing options for small and medium sized businesses.
Xerox 2020 Annual Report 9
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Manufacturing and Supply
Our manufacturing and distribution facilities are located around the world. Our largest manufacturing site is in Webster, N.Y., where we produce the Xerox iGen, Nuvera, and Baltoro production printing presses and new 3D printers as well as key components and consumables for our products, such as toner. We have manufacturing operations for materials and components in Dundalk, Ireland; Wilsonville, OR; Venray, Netherlands; Ontario, Canada; and Oklahoma City, OK. We conduct sustainable manufacturing in all of these facilities. In addition, we work with various manufacturing and distribution partners. This diversification of suppliers brings flexibility and cost efficiency to our manufacturing and supply chain, a critical component in our strategic initiative to optimize operations for simplicity. Fuji Xerox is our largest partner with whom we maintain product sourcing agreements for specific products across our entry, mid-range and high-end portfolios. We also acquire products from various third parties to increase the breadth of our product portfolio and meet channel requirements. In addition, we outsource certain specialized manufacturing activities to partners, such as Flex Ltd. and Jabil Inc., which are global contract manufacturers with whom we have long-standing relationships.
Our supply chain operations utilize a network of world-class logistics partners who offer warehousing and transportation services. Reverse Logistics is an integral part of our sustainability mission, and we perform these operations at our facility in Cincinnati, OH, and with a network of various partners worldwide.
Refer to "Contractual Cash Obligations and Other Commercial Commitments and Contingencies" in the Capital Resources and Liquidity section of Management's Discussion and Analysis, included in Item 7 of this combined Form 10-K, as well as Note 12 - Investments in Affiliates, at Equity in the Consolidated Financial Statements for additional information regarding our relationship with Fuji Xerox.
International Operations
The financial measures, by geographical area for 2020, 2019 and 2018, are included in Note 3 - Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information. See also the risk factor entitled “Our business, results of operations and financial condition may be negatively impacted by conditions abroad, including local economic and political environments, fluctuating foreign currencies and shifting regulatory schemes” in Part I, Item 1A - Risk Factors of this combined report on Form 10-K.
Seasonality
Our revenues may be affected by such factors as the introduction of new products, the length of sales cycles and the seasonality of technology purchases and printing volume. These factors have historically resulted in lower revenues, operating profits and operating cash flows in the first and third quarters. However, the COVID-19 pandemic and related business closures, impacted demand behaviors during 2020, and can potentially continue to have an impact on the seasonal fluctuations of our customers’ purchasing patterns in 2021. For discussion regarding the impact of the COVID-19 pandemic on our business and financial results, see “Management’s Discussion and Analysis” included in Item 7 of this combined Form 10-K, as well as in Part I, Item 1A - Risk Factors of this combined report on Form 10-K.
Other Information
Xerox Holdings Corporation
Xerox Holdings is a New York corporation, organized in 2019 and our principal executive offices are located at 201 Merritt 7, P.O. Box 4505, Norwalk, Connecticut 06851-1056. Our telephone number is 203-849-5216.
Xerox Corporation
Xerox is a New York corporation, organized in 1906 and our principal executive offices are located at 201 Merritt 7, P.O. Box 4505, Norwalk, Connecticut 06851-1056. Our telephone number is 203-849-5216.
Within the Investor Relations section of Xerox Holdings' website, you will find our combined Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports. We make these documents available timely after we have filed them with, or furnished them to, the U.S. Securities and Exchange Commission (the SEC). The SEC's Internet address is www.sec.gov.
Our Internet address is www.xerox.com . The content of our website is not incorporated by reference in this combined Form 10-K unless expressly noted.
Xerox 2020 Annual Report 10
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