- GAAP EPS from continuing operations of
63 cents, adjusted EPS of 87 cents
- Total revenue of $2.57 billion, down
8.1 percent or 6.4 percent in constant currency year-over-year
- Adjusted operating margin of 13.3
percent, up 0.4 points year-over-year
- Operating cash flow of $343 million
from continuing operations, up $84 million from the same period in
2016
- Affirms full-year revenue, cash flow
and operating margin guidance; narrows EPS guidance
- Financial Statements for prior periods
revised to reflect the equity income impact from the Fujifilm
investigation of Fuji Xerox accounting practices
Xerox (NYSE: XRX) today announced its second-quarter 2017
financial results.
“We are pleased with the strong operating margins and cash flow
we delivered, as well as the continued progress on our Strategic
Transformation initiatives,” said Jeff Jacobson, Xerox chief
executive officer. “This resulted in solid operating results
despite revenue declines, which were driven by lower equipment
sales as we transition to the recently launched ConnectKey
portfolio.” Jacobson added, “The new product line-up has been met
with enthusiasm by customers, partners and industry experts,
fueling our confidence in improving revenue trends later this year
and into next.”
The company delivered second-quarter 2017 GAAP earnings per
share (EPS) from continuing operations of 63 cents, reflecting its
one-for-four reverse stock split on June 14, 2017. Adjusted EPS was
87 cents, which excludes 24 cents per share of after-tax costs
related to the amortization of intangibles, restructuring and
related costs, and certain retirement related costs.
Revenues were $2.57 billion in the quarter, down 8.1 percent or
6.4 percent in constant currency. Post sale revenue was 79 percent
of total revenue.
Second-quarter adjusted operating margin was 13.3 percent, up
0.4 percentage points from the same quarter a year ago.
EPS fromcontinuingoperations
GrossMargin
SAG as % ofRevenue
Tax Rate
GAAP
Better/(Worse)
$0.63 40.2% 25.0% 22.3%
Year-over-Year
($0.12) 0.4 pts
(0.3) pts (12.9) pts Adjusted
Better/(Worse)
$0.87 40.7% 24.3% 27.0%
Year-over-Year
($0.11) 0.5 pts (0.1) pts (8.5) pts
Xerox generated operating cash flow of $343 million from
continuing operations during the second quarter and ended the
period with a cash balance of $1.25 billion. The company returned
$68 million in dividends to shareholders.
Full-Year 2017 GuidanceThe company narrowed its full-year
2017 guidance of GAAP EPS from continuing operations to $1.84 to
$2.08 and adjusted EPS to $3.20 to $3.44.
Xerox continues to expect to generate operating cash flow from
continuing operations of $700 to $900 million and free cash flow
from continuing operations of $525 to $725 million in 2017.
Fuji Xerox Accounting ReviewFuji Xerox is a joint venture
between Xerox Corporation and Fujifilm Holdings Corporation, in
which Xerox holds a noncontrolling 25% equity interest. During the
second quarter, a review by an independent investigation committee
of the appropriateness of the accounting practices at Fuji Xerox
related to the recovery of receivables associated with certain
bundled leasing transactions in Fuji Xerox’s New Zealand and
Australian subsidiaries was completed. The review identified that
total adjustments of approximately JPY 40 billion (approximately
$360 million based on the Yen/U.S. Dollar spot exchange rate of
111.89 at March 31, 2017) were required to Fuji Xerox’s results for
the period 2009 through 2017. Xerox determined that its share of
that amount was approximately $90 million. Although Xerox
determined that the impact to its equity income was immaterial to
its previously issued financial statements, the cumulative
correction would have a material effect on the company’s current
year consolidated financial statements. Accordingly, Xerox will
revise its previously issued annual and interim consolidated
financial statements for 2014, 2015 and 2016 and the first quarter
of 2017 the next time they are filed. Prior period amounts
throughout this release have been adjusted to incorporate the
revised amounts, where applicable.
About XeroxXerox Corporation is an $11 billion technology
leader that innovates the way the world communicates, connects and
works. Our expertise is more important than ever as customers of
all sizes look to improve productivity, maximize profitability and
increase satisfaction. We do this for small and mid-size
businesses, large enterprises, governments, graphic communications
providers, and for our partners who serve them.
We understand what’s at the heart of work - and all of the forms
it can take. We embrace the increasingly complex world of paper and
digital. Office and mobile. Personal and social. Every day across
the globe - in more than 160 countries - our technology, software
and people successfully navigate those intersections. We automate,
personalize, package, analyze and secure information to keep our
customers moving at an accelerated pace. For more information
visit www.xerox.com.
Non-GAAP Measures:This release refers to the following
non-GAAP financial measures:
- Adjusted EPS, for the second quarter
2017 as well as for the full-year 2017 guidance, which excludes the
amortization of intangibles, restructuring and related costs,
certain retirement related costs and other discrete
adjustments.
- Adjusted operating margin, for the
second quarter 2017, which excludes other expenses, net in addition
to the EPS adjustments noted above and includes equity income.
- Adjusted Gross Margin and SAG (Selling,
Administrative and General) as a percent of Revenue for the second
quarter 2017, which excludes certain retirement related costs.
- Constant currency revenue growth for
the second quarter 2017, which excludes the effects of currency
translation.
- Free cash flow for the full-year 2017
guidance, which is operating cash flow from continuing operations
less capital expenditures including internal use software.
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 StatementsThis 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. Such factors include but are not limited to: our
ability to address our business challenges in order to reverse
revenue declines, reduce costs and increase productivity so that we
can invest in and grow our business; changes in economic
conditions, political conditions, trade protection measures,
licensing requirements and tax laws in the United States and in the
foreign countries in which we do business; changes in foreign
currency exchange rates; our ability to successfully develop new
products, technologies and service offerings and to protect our
intellectual property rights; the risk that multi-year contracts
with governmental entities could be terminated prior to the end of
the contract term and that civil or criminal penalties and
administrative sanctions could be imposed on us if we fail to
comply with the terms of such contracts and applicable law; the
risk that partners, subcontractors and software vendors will not
perform in a timely, quality manner; actions of competitors and our
ability to promptly and effectively react to changing technologies
and customer expectations; 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; 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 systems;
reliance on third parties, including subcontractors, for
manufacturing of products and provision of services; our ability to
manage changes in the printing environment and markets and expand
equipment placements; interest rates, cost of borrowing and access
to credit markets; funding requirements associated with our
employee pension and retiree health benefit plans; the risk that
our operations and products may not comply with applicable
worldwide regulatory requirements, particularly environmental
regulations and directives and anti-corruption laws; the outcome of
litigation and regulatory proceedings to which we may be a party;
the risk that we do not realize all of the expected strategic and
financial benefits from the separation and spin-off of our Business
Process Outsourcing business; 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 2016
Annual Report on Form 10-K, as well as in our Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K filed with the Securities
and Exchange Commission (“SEC”). Xerox 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.
Fuji Xerox Co., Ltd. (“Fuji Xerox”) is a joint venture between
Xerox Corporation and Fujifilm Holdings Corporation (“Fujifilm”) in
which Xerox holds a noncontrolling 25% equity interest and Fujifilm
holds the remaining equity interest. Given our status as a minority
investor, we have limited contractual and other rights to
information with respect to Fuji Xerox matters. On April 20, 2017,
Fujifilm publicly announced it had formed an independent
investigation committee (IIC) to conduct a review of the
appropriateness of the accounting practices at Fuji Xerox’s New
Zealand subsidiary. Fujifilm publicly announced that the IIC
completed its review during the second quarter 2017 and identified
additional adjustments from the amount initially disclosed by
Fujifilm bringing the total aggregate adjustments to approximately
JPY 40 billion (approximately $360 million based on the Yen/U.S.
Dollar spot exchange rate at March 31, 2017 of 111.89). The
increase in adjustments related to subsequent findings by the IIC
in their investigation primarily related to misstatements at Fuji
Xerox's Australian subsidiary, as well as certain other
adjustments. We determined that our cumulative share of the revised
amount of total adjustments identified as part of the investigation
was approximately $90 million and impacted our fiscal years 2009
through 2017. Based on our procedures, as well as those performed
by Fuji Xerox and Fujifilm, we concluded that the cumulative
correction of the misstatements in our historical financial
statements would have had a material effect on our current year
consolidated financial statements. Accordingly, we concluded that
we should revise our previously issued annual and interim
consolidated financial statements for 2014, 2015 and 2016 and the
first quarter of 2017 the next time they are filed. The Fujifilm
audited financial statements were issued in Japan on July 31, 2017,
and our review of this matter is substantially completed. Although
we are not aware of any issues that will cause further adjustments
to our financial statements, Xerox continues to finalize its review
of this matter and additional issues may be identified that may
require adjustments to the amount and timing of charges that we
have already recognized as part of our revision. In addition, we
can provide no assurances relative to the outcome of any potential
governmental investigations or any consequences thereof.
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http://www.youtube.com/XeroxCorp.
Xerox® and Xerox and Design® are trademarks of Xerox in the
United States and/or other countries.
Xerox Corporation
Condensed Consolidated Statements of
Income (Unaudited)
Three Months EndedJune 30, Six Months EndedJune 30, (in
millions, except per-share data) 2017 2016 2017
2016
Revenues Sales $ 1,010 $ 1,126 $ 1,946 $
2,129 Services, maintenance and rentals 1,483 1,585 2,925 3,114
Financing 74 82 150 165
Total
Revenues 2,567 2,793 5,021 5,408
Costs and Expenses Cost of sales 619 696 1,186 1,310 Cost of
services, maintenance and rentals 884 953 1,784 1,903 Cost of
financing 33 32 66 65 Research, development and engineering
expenses 106 119 224 245 Selling, administrative and general
expenses 643 691 1,307 1,392 Restructuring and related costs 40 47
160 147 Amortization of intangible assets 15 16 29 30 Other
expenses, net 34 48 88 93
Total
Costs and Expenses 2,374 2,602 4,844 5,185
Income before Income Taxes & Equity
Income(1) 193 191 177 223 Income tax expense 43 18 19 16
Equity in net income of unconsolidated affiliates 20 26
60 60
Income from Continuing Operations
170 199 218 267 Loss from discontinued operations, net of tax —
(38 ) (6 ) (73 )
Net Income 170 161 212 194 Less: Net
income attributable to noncontrolling interests 4 3 6
5
Net Income Attributable to Xerox $ 166
$ 158 $ 206 $ 189
Amounts
Attributable to Xerox: Net income from continuing operations $
166 $ 196 $ 212 $ 262 Loss from discontinued operations, net of tax
— (38 ) (6 ) (73 )
Net Income Attributable to Xerox $
166 $ 158 $ 206 $ 189
Basic
Earnings (Loss) per Share(2): Continuing
operations $ 0.64 $ 0.75 $ 0.81 $ 0.99 Discontinued operations —
(0.15 ) (0.03 ) (0.29 )
Total Basic Earnings per
Share $ 0.64 $ 0.60 $ 0.78 $ 0.70
Diluted Earnings (Loss) per Share(2):
Continuing operations $ 0.63 $ 0.75 $ 0.80 $ 0.98 Discontinued
operations — (0.15 ) (0.02 ) (0.28 )
Total Diluted
Earnings per Share $ 0.63 $ 0.60 $ 0.78 $
0.70
____________________________(1) Referred to as “Pre-Tax Income”
throughout the remainder of this document.(2) Reflects our
one-for-four reverse stock split that became effective on
June 14, 2017. See "Financial Review" section.
Xerox Corporation
Condensed Consolidated Statements of
Comprehensive Income (Unaudited)
Three Months EndedJune 30, Six Months EndedJune 30, (in
millions) 2017 2016 2017 2016 Net
income $ 170 $ 161 $ 212 $ 194 Less: Net income attributable to
noncontrolling interests 4 3 6 5
Net
Income Attributable to Xerox 166 158 206
189
Other Comprehensive Income (Loss), Net:
Translation adjustments, net 204 (82 ) 337 107 Unrealized (losses)
gains, net (14 ) 24 (6 ) 33 Changes in defined benefit plans, net
(29 ) 20 (3 ) (92 )
Other Comprehensive Income (Loss),
Net 161 (38 ) 328 48 Less: Other comprehensive (loss) income,
net attributable to noncontrolling interests — (1 ) 1
(1 )
Other Comprehensive Income (Loss), Net Attributable to
Xerox 161 (37 ) 327 49
Comprehensive Income, Net 331 123 540 242 Less:
Comprehensive income, net attributable to noncontrolling interests
4 2 7 4
Comprehensive Income, Net
Attributable to Xerox $ 327 $ 121 $ 533 $
238
Xerox Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except share data in thousands) June 30, 2017
December 31, 2016
Assets Cash and cash equivalents $ 1,246 $
2,223 Accounts receivable, net 1,037 961 Billed portion of finance
receivables, net 84 90 Finance receivables, net 1,278 1,256
Inventories 944 841 Assets of discontinued operations — 1,002 Other
current assets 389 619 Total current assets 4,978
6,992 Finance receivables due after one year, net 2,341 2,398
Equipment on operating leases, net 464 475 Land, buildings and
equipment, net 636 660 Investments in affiliates, at equity 1,398
1,294 Intangible assets, net 286 290 Goodwill 3,893 3,787 Deferred
tax assets, long-term 1,481 1,472 Other long-term assets 690
683
Total Assets $ 16,167 $ 18,051
Liabilities and Equity Short-term debt and current portion
of long-term debt $ 765 $ 1,011 Accounts payable 1,202 1,126
Accrued compensation and benefits costs 373 420 Unearned income 191
187 Liabilities of discontinued operations — 1,002 Other current
liabilities 883 908 Total current liabilities 3,414
4,654 Long-term debt 4,236 5,305 Pension and other benefit
liabilities 2,281 2,240 Post-retirement medical benefits 676 698
Other long-term liabilities 188 193
Total
Liabilities 10,795 13,090
Convertible
Preferred Stock 214 214 Common stock 254
254 Additional paid-in capital 3,875 3,858 Retained earnings 5,004
4,934 Accumulated other comprehensive loss (4,010 ) (4,337 ) Xerox
shareholders’ equity 5,123 4,709 Noncontrolling interests 35
38
Total Equity 5,158 4,747
Total
Liabilities and Equity $ 16,167 $ 18,051
Shares of common stock issued and outstanding 254,170
253,594
Xerox Corporation
Condensed Consolidated Statements of
Cash Flows (Unaudited)
Three Months EndedJune 30, Six Months EndedJune 30, (in
millions) 2017 2016 2017 2016
Cash
Flows from Operating Activities: Net income $ 170 $ 161 $ 212 $
194 Loss from discontinued operations, net of tax — 38
6 73 Income from continuing operations 170 199
218 267 Adjustments required to reconcile net income to cash flows
from operating activities: Depreciation and amortization 135 144
268 286 Provision for receivables 10 11 23 24 Provision for
inventory 7 6 12 15 Net (gain) loss on sales of businesses and
assets (1 ) 3 (1 ) (17 ) Undistributed equity in net income of
unconsolidated affiliates 10 5 (30 ) (29 ) Stock-based compensation
12 7 25 17 Restructuring and asset impairment charges 33 43 143 141
Payments for restructurings (67 ) (24 ) (127 ) (45 ) Defined
benefit pension cost 37 33 99 76 Contributions to defined benefit
pension plans (23 ) (34 ) (46 ) (68 ) Increase in accounts
receivable and billed portion of finance receivables (63 ) (111 )
(140 ) (160 ) Collections of deferred proceeds from sales of
receivables 51 74 99 133 (Increase) decrease in inventories (30 ) 7
(88 ) (92 ) Increase in equipment on operating leases (50 ) (68 )
(102 ) (130 ) Decrease in finance receivables 69 21 134 85
Collections on beneficial interest from sales of finance
receivables 5 7 11 15 Decrease (increase) in other current and
long-term assets 14 46 (43 ) 9 Decrease in accounts payable and
accrued compensation (21 ) (90 ) — (166 ) (Decrease) increase in
other current and long-term liabilities — (50 ) 3 (114 ) Net change
in income tax assets and liabilities 5 10 (36 ) (22 ) Net change in
derivative assets and liabilities 44 (66 ) 99 (49 ) Other
operating, net (4 ) 86 12 170 Net cash
provided by operating activities of continuing operations 343 259
533 346 Net cash used in operating activities of discontinued
operations (15 ) (82 ) (95 ) (194 ) Net cash provided by operating
activities 328 177 438 152
Cash
Flows from Investing Activities: Cost of additions to land,
buildings and equipment (13 ) (27 ) (30 ) (46 ) Proceeds from sales
of land, buildings and equipment — 1 1 20 Cost of additions to
internal use software (8 ) (11 ) (17 ) (24 ) Acquisitions, net of
cash acquired (65 ) — (76 ) (18 ) Other investing, net 9 3
10 4 Net cash used in investing activities of
continuing operations (77 ) (34 ) (112 ) (64 ) Net cash used in
investing activities of discontinued operations — (33 ) —
(128 ) Net cash used in investing activities (77 ) (67 )
(112 ) (192 )
Cash Flows from Financing Activities: Net
(payments) proceeds on debt — (3 ) (1,324 ) 42 Common stock
dividends (64 ) (78 ) (145 ) (149 ) Preferred stock dividends (4 )
(6 ) (10 ) (12 ) Proceeds from issuances of common stock — 2 — 3
Repurchases related to stock-based compensation (1 ) — (8 ) —
Distributions to noncontrolling interests (11 ) (1 ) (12 ) (12 )
Proceeds from Conduent — — 161 — Other financing — (1 ) —
(1 ) Net cash used in financing activities (80 ) (87 )
(1,338 ) (129 ) Effect of exchange rate
changes on cash and cash equivalents 30 (8 ) 35 4
Increase in cash of discontinued operations — (18 ) — (20 )
Increase (decrease) in cash and cash equivalents 201 (3 ) (977 )
(185 ) Cash and cash equivalents at beginning of period 1,045
1,046 2,223 1,228
Cash and Cash
Equivalents at End of Period $ 1,246 $ 1,043 $
1,246 $ 1,043
Financial Review
Reverse Stock Split
As a result of the spin-off of the company's business process
outsourcing business, now Conduent Incorporated, Xerox's market
capitalization was divided. Consequently, the company proposed a
reverse stock split, which was intended to increase the per share
trading price of Xerox common stock and to improve its liquidity
and facilitate its trading. On May 23, 2017, the Board of
Directors authorized the reverse stock split of outstanding Xerox
common stock at a ratio of one-for-four shares, together with the
proportionate reduction in the authorized shares of its common
stock from 1,750,000,000 shares to 437,500,000 shares. Shareholder
approval for the reverse stock split was obtained at the company's
Annual Shareholders Meeting on May 23, 2017 and the reverse
stock split became effective on June 14, 2017. At the
effective time, every four shares of the company’s common stock
that were issued and outstanding were automatically combined into
one issued and outstanding share, without any change in par value
of such shares. Accordingly, we reclassified $760 million from
Common stock to Additional paid-in capital. The reverse stock split
also correspondingly affected all outstanding Xerox equity awards
and outstanding convertible securities.
All authorized, issued and outstanding stock and per share
amounts contained within the accompanying Condensed Consolidated
Financial Statements have been adjusted to reflect this reverse
stock split for all prior periods presented.
Correction of Fuji Xerox Misstatement in Prior Period
Financial Statements
Fuji Xerox is a joint venture between Xerox Corporation and
Fujifilm Holdings Corporation (“Fujifilm”) in which Xerox holds a
noncontrolling 25% equity interest and Fujifilm holds the remaining
equity interest. On April 20, 2017, Fujifilm publicly announced it
had formed an independent investigation committee (IIC) to conduct
a review of the appropriateness of the accounting practices at Fuji
Xerox’s New Zealand subsidiary related to the recovery of
receivables associated with certain bundled leasing transactions
that occurred in, or prior to, Fuji Xerox’s fiscal year ending
March 31, 2016. In first quarter 2017, Xerox's Equity in net income
of unconsolidated affiliates included an out-of-period charge of
approximately $30 million1, which represented our estimated share
at that time of the cumulative Fujifilm adjustments from this
initial review of JPY 22 billion (approximately $200 million based
on the Yen/U.S. Dollar spot exchange rate at March 31, 2017 of
111.89), as publicly disclosed by Fujifilm. In the first quarter
2017, the impact of this adjustment was not considered to be
material to any of our previously issued financial statements nor
was it considered to be material to Xerox's anticipated full year
2017 results.
The IIC’s review, completed during the second quarter 2017,
subsequently identified additional adjustments from the amount
initially disclosed by Fujifilm and recorded by Xerox in the first
quarter 2017, bringing the total aggregate adjustments to
approximately JPY 40 billion (approximately $360 million based on
the Yen/U.S. Dollar spot exchange rate at March 31, 2017 of
111.89). The additional adjustments identified by the IIC during
the second quarter 2017 primarily related to misstatements at Fuji
Xerox's Australian subsidiary as well as certain other adjustments.
We determined that our cumulative share of the revised amount of
total adjustments identified as part of the investigation was
approximately $90 million2 and impacted our fiscal years 2009
through 2017.
Accordingly, in the second quarter 2017, we updated our previous
materiality evaluation with the additional adjustments identified
by the IIC during the second quarter 2017 and determined that the
misstatements to our equity income in prior years and in first
quarter 2017 continued to be immaterial to our previously issued
financial statements. However, based on this updated evaluation, we
concluded that the cumulative correction of these misstatements
would have had a material effect on our current year consolidated
financial statements. Accordingly, we will revise our previously
issued annual and interim consolidated financial statements for
2014, 2015 and 2016 and the first quarter of 2017 the next time
they are filed. Certain of the corrections discussed above affected
periods prior to fiscal year 2014, and this effect has been
reflected as a cumulative, net of tax adjustment to reduce retained
earnings as of January 1, 2014 by $69 million. The effect of the
revision on our previously issued financial statements is provided
in Appendix III. Amounts throughout this release have been adjusted
to incorporate the revised amounts, where applicable.
_____________
(1) The difference between the $30 million
out-of-period adjustment recorded in the first quarter 2017 and the
revision adjustment of $24 million in the revision table for the
three months ended March 31, 2017 primarily relates to the
additional adjustments subsequently identified as part of the IIC
review as described above. (2) The difference between the aggregate
revision to retained earnings and the $90 million impact at March
31, 2017 is primarily due to currency and the impact of adjustments
recorded directly by Xerox in the first quarter 2017.
Separation Update
On December 31, 2016, Xerox Corporation completed the separation
of its Business Process Outsourcing (BPO) business from its
Document Technology and Document Outsourcing (DT/DO) business (the
“Separation”). The Separation was accomplished through the transfer
of the BPO business into a new legal entity, Conduent Incorporated
("Conduent"), and then distributing one hundred percent (100%) of
the outstanding common stock of Conduent to Xerox Corporation
stockholders (the “Distribution”). Conduent is now an independent
public company trading on the New York Stock Exchange (“NYSE”)
under the symbol “CNDT”. As a result of the Separation and
Distribution, the BPO business is presented as a discontinued
operation and, as such, has been excluded from continuing
operations for all periods presented.
Segment Changes
Following the separation of the BPO business, we realigned our
operations to better manage the business and serve our customers
and the markets in which we operate. In 2017 we transitioned to 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 transition and change in
structure, we concluded that we have one operating and reportable
segment - the design, development and sale of document management
systems and solutions. Our chief executive officer was identified
as the chief operating decision maker (“CODM”). All of the
company’s activities are interrelated, and each activity is
dependent upon and supportive of the other, including product
development, supply chain and back-office support services. In
addition, all significant operating decisions are largely based
upon an analysis of Xerox at the consolidated level, including
assessments related to the company’s incentive compensation plan,
as well as at the Board level.
Revenues
Three Months EndedJune 30, % of Total Revenue (in millions)
2017 2016
% Change
CC % Change
2017 2016 Equipment sales $ 546 $ 650 (16.0)% (14.6)%
21% 23% Post sale revenue 2,021 2,143 (5.7)% (3.9)%
79% 77%
Total Revenue $ 2,567 $ 2,793 (8.1)%
(6.4)% 100% 100%
Reconciliation to Condensed Consolidated
Statements of Income: Sales $ 1,010 $ 1,126 (10.3)% (9.0)%
Less: Supplies, paper and other sales (464 ) (476 ) (2.5)% (1.3)%
Equipment Sales(1) $ 546 $ 650 (16.0)%
(14.6)% Services, maintenance and rentals $ 1,483 $ 1,585
(6.4)% (4.4)% Add: Supplies, paper and other sales 464 476 (2.5)%
(1.3)% Add: Financing 74 82 (9.8)% (8.0)%
Post
Sale Revenue(1) $ 2,021 $ 2,143 (5.7)%
(3.9)% North America $ 1,534 $ 1,654 (7.3)% (6.9)% 60% 59%
International 895 982 (8.9)% (4.6)% 35% 35% Other 138 157
(12.1)% (12.1)% 5% 6%
Total Revenue(2) $ 2,567
$ 2,793 (8.1)% (6.4)% 100% 100%
Memo:
Managed Document Services(3) $ 834 $ 887 (6.0)%
(3.9)% 32% 32%
____________________________
CC - Constant Currency (see "Non-GAAP
Financial Measures" section).
(1) Equipment sales revenue in 2016 has been revised
to reclassify certain Global Imaging Systems equipment sales to
other sales, which are included in Post sale revenue. (2) Refer to
Appendix II for our Geographic Sales Channels and Product/Offering
Definitions. (3) Excluding equipment revenue, Managed Document
Services (MDS) was $736 million in second quarter 2017 and $754
million in second quarter 2016, representing a decline of 2.4%
including a 2.2-percentage point negative impact from currency.
Second quarter 2017 total revenues decreased 8.1% as compared to
second quarter 2016, with a 1.7-percentage point negative impact
from currency. Second quarter 2017 total revenues reflect the
following:
- Post sale revenue decreased 5.7%
as compared to second quarter 2016, with a 1.8-percentage point
negative impact from currency. Post sale revenue is comprised of
the following:
- Services, maintenance and rentals
revenue includes rental and maintenance revenue (including
bundled supplies) as well as the post sale component of the
document services revenue from our Managed Document Services (MDS)
offerings, and revenues from our Communication and Marketing
Solutions (CMS) offerings that transferred to Xerox from the
Business Process Outsourcing (BPO) business upon Separation. These
revenues declined 6.4%, with a 2.0-percentage point negative impact
from currency; the decline at constant currency1 reflected lower
signings and installs in prior periods and the ongoing decline in
page volumes.
- Supplies, paper and other sales
includes unbundled supplies and other sales. These revenues
declined 2.5%, with a 1.2-percentage point negative impact from
currency. The decline at constant currency1 was driven by lower
original equipment manufacturer (OEM) supplies as well as lower
supplies demand consistent with lower equipment sales in prior
periods.
- Financing revenue is generated
from financed equipment sale transactions. The 9.8% decline in
these revenues reflected a declining finance receivables balance
due to lower equipment sales in prior periods, along with a
1.8-percentage point negative impact from currency.
Three Months EndedJune 30, % of Equipment Sales (in millions) 2017
2016
% Change
CC % Change 2017 2016 Entry $ 92 $ 102 (9.8)% (8.6)%
17% 16% Mid-range 342 415 (17.6)% (16.3)% 63% 64% High-end 106 126
(15.9)% (13.9)% 20% 20% Other 6 7 NM NM NM NM
Equipment Sales(1) $ 546 $ 650 (16.0)%
(14.6)% 100% 100%
____________________________
CC - Constant Currency (see "Non-GAAP
Financial Measures" section).
(1) Equipment sales revenue in 2016 has been revised
to reclassify certain Global Imaging Systems equipment sales to
other sales, which are included in Post sale revenue.
- Equipment sales revenue
decreased 16.0% as compared to second quarter 2016, with a
1.4-percentage point negative impact from currency. Revenue
declined across all product areas and was impacted by price
declines of approximately 5% (which were in-line with our historic
impact). The decline in mid-range sales was in part due to the
anticipated impact of the timing of new products further
exacerbated by a slower roll-out associated with a large portfolio
transition, and ongoing black-and-white revenue declines that
reflected overall market decline trends; in addition, the second
quarter of 2016 benefited from an earlier roll-out of the i-series
product portfolio refresh. The decline in high-end sales reflected
primarily lower revenues from our black-and-white systems,
consistent with overall market decline trends, along with the
impact of elevated partner sales in the prior year associated with
drupa, and timing and delays related to the recent launch of the
Versant entry production color system; these declines were
partially mitigated by higher sales of our continuous feed inkjet
systems. The decline in entry sales reflects lower OEM activity,
and an unfavorable mix caused by higher install activity associated
with new ConnectKey products that are at the lower end of the
portfolio, as well as low-end printers in developing markets.
Revenue Metrics
Total InstallsInstall activity
includes Managed Document Services and Xerox-branded products
shipped to Global Imaging Systems. Detail by product group (see
Appendix II) is shown below:
Entry2
- 24% increase in color multifunction
devices, reflecting demand for recently launched products in this
space.
- 10% increase in black-and-white
multifunction devices, driven largely by higher activity for
low-end printers in developing markets.
Mid-Range3
- 15% decrease in mid-range color
installs, reflecting the transition to the new product portfolio
partly offset by growth in developing markets.
- 14% decrease in mid-range
black-and-white, reflecting overall market decline as well as the
impact of transitioning to the new product portfolio partly offset
by growth in developing markets.
High-End3
- 9% decrease in high-end color systems,
as growth from continuous feed color and the recently launched
Versant products was offset by a decline in iGen and older
entry-production products.
- 34% decrease in high-end
black-and-white systems reflects overall market decline and trends,
and higher declines in North America.
SigningsSignings are defined as
estimated future revenues from contracts signed during the period,
including renewals of existing contracts. Our reported signings
mostly represent those from our Enterprise deals, as we do not
currently include signings from our growing partner print services
offerings or those from our Global Imaging Systems channel. Our
signings, expressed in Total Contract Value (TCV), were as
follows:
Three Months EndedJune 30, Six Months EndedJune 30, (in millions)
2017 2016
% Change
CC % Change 2017 2016
% Change
CC % Change Signings $ 643 $ 700 (8.1)% (6.5)% $
1,155 $ 1,266 (8.8)% (7.1)%
____________________________Note: TCV is the estimated total
contractual revenue related to signed contracts.
Second quarter 2017 signings decreased 8.1% from second quarter
2016, with a 1.6-percentage point unfavorable impact from currency,
reflecting a lower contribution from new business. On a trailing
twelve month (TTM) basis, signings decreased 9.8% from the
comparable prior year period, with a 4.5-percentage point
unfavorable impact from currency.
New business TCV declined 35.2% from second quarter 2016, with a
1.6-percentage point unfavorable impact from currency. New business
TCV for the six months ended June 30, 2017 decreased 24.3% from the
prior year period, with a 1.9-percentage point unfavorable impact
from currency. On a TTM basis, new business TCV decreased 27.3%
from the comparable prior year period, with a 3.7-percentage point
unfavorable impact from currency; this performance is the result of
ongoing competitive pressure in the market as well as the timing of
new products amplified by the longer sales cycles in this area of
the business.
Renewal rateRenewal rate is defined
as the annual recurring revenue (ARR) on contracts that are renewed
during the period as a percentage of ARR on all contracts for which
a renewal decision was made during the period. Second quarter 2017
contract renewal rate was 86%, an increase of 4-percentage points
as compared to our full year 2016 renewal rate of 82%.
Costs, Expenses and Other Income
Summary of Key Financial Ratios
The following is a summary of key financial ratios used to
assess our performance:
Three Months Ended June 30, Reported
Adjusted(1) (in millions) 2017 2016
B/(W) 2017 2016 B/(W) Gross
Profit $ 1,031 $ 1,112 $ (81 ) $ 1,045 $ 1,124 $ (79 ) RD&E 106
119 13 102 113 11 SAG 643 691 48 624 677 53 Equipment Gross
Margin 28.5 % 29.9 % (1.4) pts. N/A N/A N/A Post sale Gross Margin
43.3 % 42.9 % 0.4 pts. 44.0 % 43.4 % 0.6 pts. Total Gross Margin
40.2 % 39.8 % 0.4 pts. 40.7 % 40.2 % 0.5 pts. RD&E as a % of
Revenue 4.1 % 4.3 % 0.2 pts. 4.0 % 4.0 % - pts. SAG as a % of
Revenue 25.0 % 24.7 % (0.3) pts. 24.3 % 24.2 % (0.1) pts.
Pre-tax Income $ 193 $ 191 $ 2 N/A N/A N/A Pre-tax Income Margin
7.5 % 6.8 % 0.7 pts. N/A N/A N/A Adjusted Operating Profit
N/A N/A N/A
342 361 (19 ) Adjusted
Operating Margin N/A N/A
N/A 13.3 % 12.9 %
0.4 pts. Memo: Non-service retirement-related costs $ 37 $
32 $ (5 ) N/A N/A N/A
____________________________(1) See the “Non-GAAP Financial
Measures” section for an explanation of the non-GAAP financial
measure. In fourth quarter 2016, we began to include Equity in net
income of unconsolidated affiliates in the calculation of adjusted
operating income and margin. Prior periods have been restated
accordingly to conform to current year presentation.
Pre-tax Income MarginSecond quarter
2017 pre-tax income margin of 7.5% increased 0.7-percentage points
as compared to second quarter 2016. The increase was primarily
driven by cost and expense reduction (net of higher non-service
retirement related costs), that outpaced the rate of revenue
decline, along with lower interest expense, included in Other
expenses, net, and lower restructuring.
Adjusted1 Operating MarginSecond quarter 2017 adjusted1
operating margin of 13.3% increased 0.4-percentage points as
compared to second quarter 2016. The improvement was driven
primarily by cost productivity and savings from strategic
transformation, including restructuring savings, that outpaced the
rate of revenue decline. Those improvements were partly offset by
adverse transaction currency of 1.0-percentage point.
Gross MarginSecond quarter 2017
gross margin of 40.2% increased by 0.4-percentage points compared
to second quarter 2016. On an adjusted1 basis, gross margin of
40.7% increased by 0.5-percentage points. This performance reflects
cost savings from strategic transformation and cost productivity,
partly offset by adverse transaction currency of 1.0-percentage
point.
Second quarter 2017 equipment gross margin of 28.5% decreased
1.4-percentage points as compared to second quarter 2016, as a
result of adverse transaction currency and pricing, along with an
unfavorable mix towards entry sales, that more than offset product
cost productivity.
Second quarter 2017 post sale gross margin of 43.3% increased
0.4-percentage points as compared to second quarter 2016. On an
adjusted1 basis, post sale gross margin of 44.0% improved
0.6-percentage points, as a result of cost savings from strategic
transformation, including restructuring, which more than offset the
pace of revenue decline and the impact of adverse transaction
currency.
Research, Development and Engineering
Expenses (RD&E)Second quarter 2017 RD&E as a
percentage of revenue of 4.1% decreased 0.2-percentage points from
second quarter 2016. On an adjusted1 basis, RD&E was 4.0% of
revenue and was flat compared to second quarter 2016.
RD&E of $106 million decreased by $13 million compared to
second quarter 2016. On an adjusted1 basis, RD&E of $102
million decreased by $11 million and reflected savings from
strategic transformation including restructuring savings and the
transfer of resources to Electronics for Imaging (EFI), a third
party print server supplier. We strategically coordinate our
R&D investments with Fuji Xerox.
Selling, Administrative and General
Expenses (SAG)SAG as a percentage of revenue of 25.0%
increased by 0.3-percentage points from second quarter 2016. On an
adjusted1 basis, SAG was 24.3% of revenue and increased
0.1-percentage points, reflecting the impact of lower revenues only
partly mitigated by productivity and cost savings from strategic
transformation.
SAG of $643 million was $48 million lower than second quarter
2016. On an adjusted1 basis, SAG of $624 million decreased $53
million, including an approximate $13 million favorable impact from
currency and reflecting primarily cost savings, including savings
from restructuring, as well as a decrease in selling expenses
related to lower incentives and marketing expenses consistent with
lower revenues. Bad debt expense of $9 million was $1 million lower
and remained at less than one percent of receivables.
Non-Service Retirement-Related
CostsNon-service retirement-related costs were $5 million
higher than second quarter 2016, primarily driven by higher losses
from pension settlements.
Restructuring and Related
CostsRestructuring and related costs of $40 million include
restructuring and asset impairment charges of $33 million as well
as $7 million of additional costs primarily related to professional
support services associated with the implementation of the
Strategic Transformation program.
Second quarter 2017 net restructuring and asset impairment
charges of $33 million included $50 million of severance costs
related to headcount reductions of approximately 500 employees
worldwide and $1 million of lease cancellation costs. The second
quarter 2017 actions impacted several functional areas, with
approximately 35% focused on gross margin improvements,
approximately 60% on SAG reductions, and the remainder focused on
RD&E optimization. These costs were partially offset by $18
million of net reversals for changes in estimated reserves from
prior period initiatives, primarily reflecting unanticipated
attrition and other job changes prior to the completion of certain
restructuring initiatives as well as a $5 million favorable
adjustment on the early termination of the lease for the corporate
airplane.
During second quarter 2016 restructuring and related costs were
$47 million which included restructuring and asset impairment
charges of $43 million as well as $4 million of additional costs
primarily related to professional support services associated with
the implementation of the Strategic Transformation program.
Second quarter 2016 net restructuring and asset impairment
charges of $43 million included $51 million of severance costs
related to headcount reductions of approximately 850 employees
worldwide and $1 million of lease cancellation costs. The second
quarter 2016 actions impacted several functional areas, with
approximately 40% focused on gross margin improvements,
approximately 50% on SAG reductions and approximately 10% focused
on RD&E optimization. These costs were partially offset by $4
million of net reversals for changes in estimated reserves from
prior period initiatives, as well as a gain of $5 million from the
sale of real estate impaired in prior periods.
The restructuring reserve balance as of June 30, 2017 for all
programs was $151 million, of which $148 million is expected to be
spent over the next twelve months.
We expect to incur additional restructuring and related costs of
approximately $35 million in third quarter 2017 for actions and
initiatives that have not yet been finalized. For full-year 2017,
we expect to incur restructuring and related costs of approximately
$225 million.
Amortization of Intangible
AssetsSecond quarter 2017 amortization of intangible assets
of $15 million was $1 million lower than second quarter 2016.
Worldwide EmploymentWorldwide
employment was approximately 36,900 as of June 30, 2017 and
decreased by approximately 700 from December 31, 2016. The
reduction is primarily due to the impact of restructuring and
productivity-related reductions.
Other Expenses, Net
Three Months EndedJune 30, (in millions) 2017
2016 Non-financing interest expense $ 24 $ 42 Interest income (2 )
(2 ) (Gains) losses on sales of businesses and assets (1 ) 3
Currency losses (gains), net 1 (1 ) Litigation matters 2 — Loss on
sales of accounts receivable 3 4 All other expenses, net 7 2
Total other expenses, net $ 34 $ 48
Non-financing interest
expenseSecond quarter 2017 non-financing interest expense of
$24 million was $18 million lower than second quarter 2016. When
combined with financing interest expense (Cost of financing), total
interest expense declined by $17 million from second quarter 2016
primarily due to a lower debt balance reflecting the repayment of
approximately $1.3 billion of debt in the first quarter 2017.
Income Taxes
Second quarter 2017 effective tax rate was 22.3%. On an
adjusted1 basis, second quarter 2017 tax rate was 27.0%. Both rates
were lower than the U.S. statutory tax rate primarily due to
foreign tax credits and the geographical mix of profits. The
adjusted1 effective tax rate excludes the tax benefits associated
with the following charges: restructuring and related costs,
amortization of intangible assets and non-service
retirement-related costs.
Second quarter 2016 effective tax rate was 9.4%. On an adjusted1
basis, second quarter 2016 tax rate was 18.5%. These rates were
lower than the U.S. statutory tax rate primarily due to the
redetermination of certain unrecognized tax positions upon
conclusion of several audits, as well as foreign tax credits
resulting from anticipated dividends from our foreign subsidiaries.
The adjusted1 effective tax rate excludes the tax benefits
associated with the following charges: restructuring and related
costs, amortization of intangible assets and non-service
retirement-related costs.
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, restructuring and related
costs, non-service retirement-related costs, separation costs and
other discrete items, we anticipate that our adjusted1 effective
tax rate will be approximately 25% to 28% for full year 2017.
Equity in Net Income of Unconsolidated Affiliates
Equity in net income of unconsolidated affiliates primarily
reflects our 25% share of Fuji Xerox net income. Second quarter
2017 equity income of $20 million decreased by $6 million compared
to second quarter 2016, including $2 million of higher
year-over-year charges related to our share of Fuji Xerox after-tax
restructuring. As noted earlier, we have revised Equity in net
income of unconsolidated affiliates for all applicable prior
periods presented throughout this document (see Appendix III).
Net Income from Continuing Operations
Second quarter 2017 net income from continuing operations
attributable to Xerox was $166 million, or $0.63 per diluted share.
On an adjusted1 basis, net income from continuing operations
attributable to Xerox was $227 million, or $0.87 per diluted share.
Second quarter 2017 adjustments to net income include the
amortization of intangible assets, restructuring and related costs,
and non-service retirement-related costs.
Second quarter 2016 net income from continuing operations
attributable to Xerox was $196 million, or $0.75 per diluted share.
On an adjusted1 basis, net income from continuing operations
attributable to Xerox was $257 million, or $0.98 per diluted share.
Second quarter 2016 adjustments to net income include the
amortization of intangible assets, restructuring and related costs,
and non-service retirement-related costs.
The Net Income and EPS reconciliation table in the "Non-GAAP
Financial Measures" section contains the second quarter adjustments
to net income. See the "Non-GAAP Financial Measures" section for
calculation of adjusted EPS. The calculations of basic and diluted
earnings per share are included as Appendix I.
Discontinued Operations
Business Process Outsourcing (BPO):
As previously noted, on December 31, 2016, Xerox completed the
Separation of its BPO business through the Distribution of all of
the issued and outstanding stock of Conduent to Xerox Corporation
stockholders. As a result of the Separation and Distribution, the
financial position and results of operations of the BPO Business
are presented as discontinued operations and, as such, have been
excluded from continuing operations for all periods presented.
Separation costs were $28 million for the three months ended
June 30, 2016, and are included in Loss from discontinued
operations, net of tax, in the accompanying Condensed Consolidated
Statements of Income.
Summarized financial information for our Discontinued Operations
is as follows:
Three Months EndedJune 30, (in millions) 2017
2016
Revenue $ — $ 1,597
Cost of services — 1,343 Other expenses(1) — 300
Total costs and expenses — 1,643
Net
loss before income taxes — (46 ) Income tax benefit — 8
Loss from discontinued operations, net of tax $ —
$ (38 )
____________________________
(1) 2016 includes $28 million of separation costs and $6 million
of interest on the $1.0 billion Senior Unsecured Term Facility,
which was required to be repaid upon completion of the Separation
and therefore was reported in the loss from discontinued
operations.
____________________________
(1) See the “Non-GAAP Financial Measures” section for
an explanation of the non-GAAP financial measure. (2) Entry
installations exclude OEM sales; including OEM sales, Entry color
multifunction devices decreased 10%, while Entry black-and-white
multifunction devices increased 4%. (3) Mid-range and High-end
color installations exclude Fuji Xerox digital front-end sales;
including Fuji Xerox digital front-end sales, Mid-range color
devices decreased 15%, and High-end color systems decreased 14%.
Capital Resources and Liquidity
The following summarizes our cash and cash equivalents:
Three Months EndedJune 30, (in
millions) 2017 2016 Change Net cash provided by
operating activities of continuing operations $ 343 $ 259 $ 84 Net
cash used in operating activities of discontinued operations (15 )
(82 ) 67 Net cash provided by operating activities 328
177 151 Net cash used in investing
activities of continuing operations (77 ) (34 ) (43 ) Net cash used
in investing activities of discontinued operations — (33 )
33 Net cash used in investing activities (77 ) (67 ) (10 )
Net cash used in financing activities (80 ) (87 ) 7
Effect of exchange rate changes on cash and cash equivalents
30 (8 ) 38 Increase in cash of discontinued operations — (18
) 18 Increase (decrease) in cash and cash equivalents 201 (3
) 204 Cash and cash equivalents at beginning of period 1,045
1,046 (1 )
Cash and Cash Equivalents at End of Period
$ 1,246 $ 1,043 $ 203
Cash Flows from Operating
Activities
Net cash provided by operating activities of continuing
operations was $343 million in second quarter 2017. The $84 million
increase in operating cash from second quarter 2016 was primarily
due to the following:
- $69 million increase in accounts
payable and accrued compensation primarily related to the
year-over-year timing of vendor payments.
- $46 million increase from finance
receivables primarily related to a higher level of run-off due to
lower originations.
- $25 million increase from accounts
receivable primarily due to a higher impact from sales of
receivables as well as lower revenues.
- $18 million increase due to lower
placements of equipment on operating leases reflecting decreased
installs.
- $11 million increase from lower pension
contributions.
- $43 million decrease from higher
restructuring payments.
- $37 million decrease from inventory
primarily due to a lower volume of supplies sales and the impact of
new product launches.
- $30 million decrease due to higher tax
payments.
Cash Flows from Investing
Activities
Net cash used in investing activities of continuing operations
was $77 million in second quarter 2017. The $43 million change from
second quarter 2016 was primarily due to the following:
- $65 million decrease related to the
acquisition of MT Business Technologies, Inc. in 2017.
- $17 million increase due to lower
capital expenditures (including internal use software).
Cash Flows from Financing
Activities
Net cash used in financing activities was $80 million in second
quarter 2017. The $7 million increase in cash from second quarter
2016 was primarily due to the following:
- $16 million increase due to lower
common and preferred stock dividends.
- $10 million decrease due to higher
distributions to noncontrolling interests.
Debt and Customer Financing Activities
The following summarizes our debt:
(in millions) June 30, 2017
December 31, 2016 Principal debt balance(1) $ 5,047 $ 6,349 Net
unamortized discount (38 ) (43 ) Debt issuance costs (29 ) (21 )
Fair value adjustments(2) - terminated swaps 16 27 - current swaps
5 4
Total Debt $ 5,001 $ 6,316
____________________________
(1) Includes Notes Payable of $5 million and $4
million as of June 30, 2017 and December 31, 2016, respectively.
(2) Fair value adjustments include the following: (i) fair value
adjustments to debt associated with terminated interest rate swaps,
which are being amortized to interest expense over the remaining
term of the related notes; and (ii) changes in fair value of hedged
debt obligations attributable to movements in benchmark interest
rates. Hedge accounting requires hedged debt instruments to be
reported inclusive of any fair value adjustment.
Separation Debt Activity
In connection with the Separation, Conduent made a cash
distribution of approximately $1.8 billion to Xerox in fourth
quarter 2016. Xerox used a portion of the cash distribution
proceeds to repay its $1.0 billion Senior Unsecured Term Facility
in January 2017, which was required to be repaid upon completion of
the Separation. This $1.0 billion of cash and debt was excluded
from the Cash and cash equivalents and Total Debt at December 31,
2016, respectively, and was reported in Current Assets and Current
Liabilities of discontinued operations at December 31, 2016,
respectively. Interest expense associated with this borrowing
incurred during 2016 was included in the Loss from discontinued
operations, net of tax. Xerox used the balance of the proceeds
received as well as cash on hand to repay its $500 million 6.75%
Senior Notes and $500 million 2.95% Senior Notes that came due in
first quarter 2017.
Finance Assets and Related Debt
The following represents our total finance assets, net
associated with our lease and finance operations:
(in millions) June 30, 2017
December 31, 2016 Total finance receivables, net(1) $ 3,703 $ 3,744
Equipment on operating leases, net 464 475
Total Finance
Assets, net(2) $ 4,167 $ 4,219
____________________________
(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. (2) The change from December 31, 2016
includes an increase of $128 million due to currency.
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:
(in millions) June 30, 2017
December 31, 2016 Finance receivables debt(1) $ 3,240 $ 3,276
Equipment on operating leases debt 406 416 Financing debt
3,646 3,692 Core debt 1,355 2,624
Total Debt $ 5,001
$ 6,316
____________________________
(1) Finance receivables debt is the basis for our
calculation of "Cost of financing" expense in the Condensed
Consolidated Statements of Income.
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. Of the accounts receivable
sold and derecognized from our balance sheet, $548 million and $531
million remain uncollected as of June 30, 2017 and December 31,
2016, respectively. Our risk of loss following the sales of
accounts receivable is limited to the outstanding deferred purchase
price receivable. These receivables are included in Other current
assets in the accompanying Condensed Consolidated Balance Sheets
and were $57 million and $48 million at June 30, 2017 and December
31, 2016, respectively. Accounts receivable sales were as
follows:
Three Months EndedJune 30, (in millions) 2017
2016 Accounts receivable sales $ 567 $ 582 Deferred
proceeds 56 59 Loss on sales of accounts receivable 3 4 Estimated
increase (decrease) to operating cash flows(1) 54 (11 )
____________________________
(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.
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. Such factors include but are not
limited to: our ability to address our business challenges in order
to reverse revenue declines, reduce costs and increase productivity
so that we can invest in and grow our business; changes in economic
conditions, political conditions, trade protection measures,
licensing requirements and tax laws in the United States and in the
foreign countries in which we do business; changes in foreign
currency exchange rates; our ability to successfully develop new
products, technologies and service offerings and to protect our
intellectual property rights; the risk that multi-year contracts
with governmental entities could be terminated prior to the end of
the contract term and that civil or criminal penalties and
administrative sanctions could be imposed on us if we fail to
comply with the terms of such contracts and applicable law; the
risk that partners, subcontractors and software vendors will not
perform in a timely, quality manner; actions of competitors and our
ability to promptly and effectively react to changing technologies
and customer expectations; 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; 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 systems;
reliance on third parties, including subcontractors, for
manufacturing of products and provision of services; our ability to
manage changes in the printing environment and markets and expand
equipment placements; interest rates, cost of borrowing and access
to credit markets; funding requirements associated with our
employee pension and retiree health benefit plans; the risk that
our operations and products may not comply with applicable
worldwide regulatory requirements, particularly environmental
regulations and directives and anti-corruption laws; the outcome of
litigation and regulatory proceedings to which we may be a party;
the risk that we do not realize all of the expected strategic and
financial benefits from the separation and spin-off of our Business
Process Outsourcing business; 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 2016
Annual Report on Form 10-K, as well as in our Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K filed with the Securities
and Exchange Commission (“SEC”). Xerox 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.
Fuji Xerox Co., Ltd. (“Fuji Xerox”) is a joint venture between
Xerox Corporation and Fujifilm Holdings Corporation (“Fujifilm”) in
which Xerox holds a noncontrolling 25% equity interest and Fujifilm
holds the remaining equity interest. Given our status as a minority
investor, we have limited contractual and other rights to
information with respect to Fuji Xerox matters. On April 20, 2017,
Fujifilm publicly announced it had formed an independent
investigation committee (IIC) to conduct a review of the
appropriateness of the accounting practices at Fuji Xerox’s New
Zealand subsidiary. Fujifilm publicly announced that the IIC
completed its review during the second quarter 2017 and identified
additional adjustments from the amount initially disclosed by
Fujifilm bringing the total aggregate adjustments to approximately
JPY 40 billion (approximately $360 million based on the Yen/U.S.
Dollar spot exchange rate at March 31, 2017 of 111.89). The
increase in adjustments related to subsequent findings by the IIC
in their investigation primarily related to misstatements at Fuji
Xerox's Australian subsidiary, as well as certain other
adjustments. We determined that our cumulative share of the revised
amount of total adjustments identified as part of the investigation
was approximately $90 million and impacted our fiscal years 2009
through 2017. Based on our procedures, as well as those performed
by Fuji Xerox and Fujifilm, we concluded that the cumulative
correction of the misstatements in our historical financial
statements would have had a material effect on our current year
consolidated financial statements. Accordingly, we concluded that
we should revise our previously issued annual and interim
consolidated financial statements for 2014, 2015 and 2016 and the
first quarter of 2017 the next time they are filed. The Fujifilm
audited financial statements were issued in Japan on July 31, 2017,
and our review of this matter is substantially completed. Although
we are not aware of any issues that will cause further adjustments
to our financial statements, Xerox continues to finalize its review
of this matter and additional issues may be identified that may
require adjustments to the amount and timing of charges that we
have already recognized as part of our revision. In addition, we
can provide no assurances relative to the outcome of any potential
governmental investigations or any consequences thereof.
Non-GAAP Financial Measures
We have reported our financial results in accordance with
generally accepted accounting principles (GAAP). In addition, we
have discussed our financial results using the non-GAAP measures
described below. We believe these non-GAAP measures allow investors
to better understand the trends in our business and to better
understand and compare our results. Accordingly, we believe it is
necessary to adjust several reported amounts, determined in
accordance with GAAP, to exclude the effects of certain items as
well as their related income tax effects.
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 second quarter 2017 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
- Net income and Earnings per share
(EPS)
- Effective tax rate
- Gross margin, RD&E and SAG
(adjusted for non-service retirement-related costs only)
The above measures were adjusted for the following items:
- 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. 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.
- Restructuring and
related costs: Restructuring and related costs include
restructuring and asset impairment charges as well as costs
associated with our Strategic Transformation program beyond those
normally included in restructuring and asset impairment charges.
Restructuring consists of costs primarily related to severance and
benefits paid to employees pursuant to formal restructuring and
workforce reduction plans. Asset impairment includes costs incurred
for those assets sold, abandoned or made obsolete as a result of
our restructuring actions, exiting from a business or other
strategic business changes. Additional costs for our Strategic
Transformation program are primarily related to the implementation
of strategic actions and initiatives and include third-party
professional service costs as well as one-time incremental costs.
All of these costs can vary significantly in terms of amount and
frequency based on the nature of the actions as well as the
changing needs of the business. Accordingly, due to that
significant variability, we will exclude these charges since we do
not believe they provide meaningful insight into our current or
past operating performance nor do we believe they are reflective of
our expected future operating expenses as such charges are expected
to yield future benefits and savings with respect to our
operational performance.
- Non-service
retirement-related costs: Our defined benefit pension and
retiree health costs include several elements impacted by changes
in plan assets and obligations that are primarily driven by changes
in the debt and equity markets as well as those that are
predominantly legacy in nature and related to employees who are no
longer providing current service to the company (e.g. retirees and
ex-employees). These elements include (i) interest cost, (ii)
expected return on plan assets, (iii) amortized actuarial
gains/losses and (iv) the impacts of any plan
settlements/curtailments. Accordingly, we consider these elements
of our periodic retirement plan costs to be outside the operational
performance of the business or legacy costs and not necessarily
indicative of current or future cash flow requirements. Adjusted
earnings will continue to include the elements of our retirement
costs related to current employee service (service cost and
amortization of prior service cost) as well as the cost of our
defined contribution plans.
- Other discrete,
unusual or infrequent items: In addition, during the first
quarter of 2017 we also excluded the following additional items
given the discrete, unusual or infrequent nature of the items and
their impact on our results for the period: 1) a loss on early
extinguishment of debt; and 2) a benefit from the remeasurement of
a tax matter related to a previously adjusted item. We believe the
exclusion of these items allows investors to better understand and
analyze the results for the period as compared to prior periods and
expected future trends in our business.
Adjusted Operating Income/MarginWe
also calculate and utilize operating income and margin earnings
measures by adjusting our pre-tax income and margin amounts. In
addition to the costs noted for our Adjusted Earnings measures,
operating income and margin also exclude other expenses, net. Other
expenses, net is primarily comprised of non-financing interest
expense and also includes certain other non-operating costs and
expenses. 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. Operating income and margin
also includes Equity in net income of unconsolidated affiliates.
Equity in net income of unconsolidated affiliates primarily
reflects our 25% share of Fuji Xerox net income. We include this
amount in our measure of operating income and margin as Fuji Xerox
is our primary intermediary to the Asia/Pacific market for
distribution of Xerox branded products and services.
Constant CurrencyTo 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.” 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.
Free Cash FlowTo better understand
trends in our business, we believe that it is helpful to subtract
amounts for capital expenditures (inclusive of internal use
software) from cash flows from continuing operations. Management
believes this measure gives investors an additional perspective on
cash flow from operating activities in excess of amounts required
for reinvestment. It provides a measure of our ability to fund
acquisitions, dividends and share repurchase. It is also used to
measure our yield on market capitalization.
Summary:
Management believes that all of 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:
Three Months EndedJune 30, 2017 Three Months EndedJune 30,
2016 (in millions, except per share amounts) Net Income
EPS Net Income EPS
Reported(1) $
166 $ 0.63 $ 196 $ 0.75
Adjustments: Restructuring and
related costs 40 47 Amortization of intangible assets 15 16
Non-service retirement-related costs 37 32 Income tax on
adjustments(2) (34 ) (35 ) Restructuring charges - Fuji Xerox 3
1
Adjusted $ 227 $ 0.87
$ 257 $ 0.98 Dividends on preferred stock used in
adjusted EPS calculation(3) $ — $ — Weighted average shares for
adjusted EPS(3) 263 262 Fully diluted shares at end of period(4)
263
____________________________
(1) Net income and EPS from continuing operations
attributable to Xerox. (2) Refer to Effective Tax Rate
reconciliation. (3) For those periods that exclude the preferred
stock dividend the average shares for the calculations of diluted
EPS include 7 million shares associated with our Series A or Series
B convertible preferred stock, as applicable. (4) Represents common
shares outstanding at June 30, 2017 as well as shares associated
with our Series B convertible preferred stock plus potential
dilutive common shares as used for the calculation of diluted
earnings per share for the second quarter 2017.
Effective Tax Rate
reconciliation:
Three Months EndedJune 30, 2017 Three Months EndedJune 30,
2016 (in millions) Pre-Tax
Income
Income TaxExpense
Effective TaxRate
Pre-TaxIncome
Income TaxExpense
Effective TaxRate
Reported(1) $ 193 $ 43 22.3 % $ 191 $ 18 9.4 %
Non-GAAP Adjustments(2) 92 34 95 35
Adjusted(3) $ 285 $ 77 27.0 % $ 286
$ 53 18.5 %
____________________________
(1) Pre-Tax Income and Income Tax Expense from
continuing operations. (2) Refer to Net Income and EPS
reconciliation for details. (3) The tax impact on Adjusted Pre-Tax
Income from continuing operations is calculated under the same
accounting principles applied to the As Reported Pre-Tax Income
under ASC 740, which employs an annual effective tax rate method to
the results.
Operating Income /
Margin reconciliation:
Three Months EndedJune 30, 2017 Three Months EndedJune 30,
2016 (in millions) Profit Revenue
Margin Profit Revenue Margin
Reported(1) $ 193 $ 2,567 7.5 % $ 191 $ 2,793 6.8 %
Adjustments: Restructuring and related costs 40 47
Amortization of intangible assets 15 16 Non-service
retirement-related costs 37 32 Equity in net income of
unconsolidated affiliates 20 26 Restructuring charges - Fuji Xerox
3 1 Other expenses, net 34 48
Adjusted $ 342 $ 2,567 13.3 % $ 361 $
2,793 12.9 %
____________________________
(1) Pre-Tax Income and revenue from continuing
operations.
Key Financial Ratios
reconciliation:
Three Months EndedJune 30, 2017 Three Months EndedJune 30,
2016 (in millions)
As Reported(1)
Non-serviceretirement-relatedcosts
Adjusted
As Reported(1)
Non-serviceretirement-relatedcosts
Adjusted
Total Revenue $ 2,567 $ — $ 2,567 $ 2,793 $ — $ 2,793 Total Gross
Profit 1,031 14 1,045 1,112 12 1,124 Post sale revenue 2,021 —
2,021 2,143 — 2,143 Post sale gross profit 875 14 889 919 12 931
RD&E 106 (4 ) 102 119 (6 ) 113 SAG 643 (19 ) 624 691 (14 ) 677
Total Gross Margin 40.2 % 40.7 % 39.8 % 40.2 % Post sale
Gross Margin 43.3 % 44.0 % 42.9 % 43.4 % RD&E as a % of Revenue
4.1 % 4.0 % 4.3 % 4.0 % SAG as a % of Revenue 25.0 % 24.3 % 24.7 %
24.2 %
____________________________
(1) Revenue and costs from continuing operations.
Guidance:
Earnings per Share FY 2017 GAAP EPS from
Continuing Operations $1.84 - $2.08 Non-GAAP Adjustments
1.36
Adjusted EPS from Continuing Operations $3.20 -
$3.44
____________________________Note: Adjusted EPS guidance excludes
amortization of intangible assets, restructuring and related costs
and non-service retirement-related costs, as well as other
discretely identified adjustments. Current GAAP range reflects an
expected lower level of non-service retirement-related costs than
originally anticipated at the beginning of the year.
Free Cash Flow (in millions)
FY 2017
Estimated Operating Cash Flows from Continuing
Operations $ 700 - 900 Less: Capital Expenditures
(including Internal Use Software) (175)
Free Cash Flows from
Continuing Operations $ 525 - 725
APPENDIX I
Xerox Corporation
Earnings per Common Share
(in millions except per share data, shares
in thousands)
Three Months EndedJune 30,
Six Months EndedJune 30,
2017 2016 2017 2016
Basic Earnings
(Loss) per Share: Net income from continuing operations
attributable to Xerox $ 166 $ 196 $ 212 $ 262 Accrued dividends on
preferred stock (3 ) (6 ) (7 ) (12 ) Adjusted net income from
continuing operations available to common shareholders $ 163 $ 190
$ 205 $ 250 Net loss from discontinued operations attributable to
Xerox — (38 ) (6 ) (73 ) Adjusted net income available to
common shareholders $ 163 $ 152 $ 199 $ 177
Weighted average common shares outstanding 254,193 253,321
254,107 253,291
Basic Earnings (Loss) per Share: Continuing
operations $ 0.64 $ 0.75 $ 0.81 $ 0.99 Discontinued operations —
(0.15 ) (0.03 ) (0.29 ) Total $ 0.64 $ 0.60 $
0.78 $ 0.70
Diluted Earnings (Loss) per Share:
Net income from continuing operations attributable to Xerox $ 166 $
196 $ 212 $ 262 Accrued dividends on preferred stock — (6 )
(7 ) (12 ) Adjusted net income from continuing operations available
to common shareholders $ 166 $ 190 $ 205 $ 250 Net loss from
discontinued operations attributable to Xerox — (38 ) (6 )
(73 ) Adjusted net income available to common shareholders $ 166
$ 152 $ 199 $ 177 Weighted average
common shares outstanding 254,193 253,321 254,107 253,291 Common
shares issuable with respect to: Stock options — 205 — 209
Restricted stock and performance shares 2,275 1,979 2,190 1,789
Convertible preferred stock 6,742 — — —
Adjusted weighted average common shares outstanding 263,210
255,505 256,297 255,289
Diluted Earnings
(Loss) per Share: Continuing operations $ 0.63 $ 0.75 $ 0.80 $
0.98 Discontinued operations — (0.15 ) (0.02 ) (0.28 ) Total
$ 0.63 $ 0.60 $ 0.78 $ 0.70
The following securities were not included
in the computation of dilutedearnings per share as they were either
contingently issuable shares or sharesthat if included would have
been anti-dilutive:
Stock options — 486 — 483 Restricted stock and performance shares
2,375 3,977 2,460 4,167 Convertible preferred stock — 6,742
6,742 6,742 Total Anti-Dilutive Securities
2,375 11,205 9,202 11,392
Dividends per Common Share $ 0.25 $ 0.31 $
0.50 $ 0.62
APPENDIX II
Xerox CorporationGeographic Sales
Channels and Product/Offering Definitions
Our business is aligned to a geographic focus and is primarily
organized on the basis of two main go-to-market sales channels,
which are structured to serve a range of customers for our products
and services:
- North America, which includes our sales
channels in the U.S. and Canada.
- International, which includes our sales
channels in Europe, Eurasia, Latin America, Middle East, Africa and
India.
- Other primarily includes our OEM
business, as well as sales to and royalties from Fuji Xerox, and
our licensing revenue.
Our products and offerings include:
- “Entry”, which includes A4 devices and
desktop printers. Prices in this product group can range from
approximately $150 to $3,000.
- “Mid-Range”, which includes A3 Office
and Light Production devices that generally serve workgroup
environments in mid to large enterprises. Prices in this product
group can range from approximately $2,000 to $75,000+.
- “High-End”, which includes production
printing and publishing systems that generally serve the graphic
communications marketplace and large enterprises. Prices for these
systems can range from approximately $30,000 to $1,000,000+.
- Managed Document Services (MDS)
revenue, which includes solutions and services that span from
managing print to automating processes to managing content. Our
primary offerings within MDS are Managed Print Services (including
from Global Imaging Systems), as well as workflow automation
services, and Centralized Print Services and Solutions (CPS). MDS
excludes Communication and Marketing Solutions (CMS).
APPENDIX III
Xerox CorporationCorrection of Fuji
Xerox Misstatement in Prior Period Financial Statements
Revised Consolidated Statements of Income (Loss) and Non-GAAP
Financial Measures
The following tables reconcile selected lines from the company’s
first quarter of 2017 and fiscal years of 2016, 2015 and 2014
Consolidated Statements of Income (Loss) and applicable non-GAAP
Operating Income/Margin reconciliations from the previously
reported amounts to the revised amounts. The revision did not have
an impact on the company's operating cash flows.
Three Months EndedMarch 31,
2017
Year EndedDecember 31,
2016
(in
millions)
As Reported Adjustment (1)
As Revised As Reported
Adjustment As Revised Equity in net
income of unconsolidated affiliates $ 16 $ 24 $ 40 $ 121 $ 6 $ 127
Income from Continuing Operations 24 24 48 627 6 633 Net Income
(Loss) 18 24 42 (466 ) 6 (460 ) Net Income (Loss) Attributable to
Xerox 16 24 40 (477 ) 6 (471 ) Net income from continuing
operations attributable to Xerox $ 22 $ 24 $ 46 $ 616 $ 6 $ 622
Basic Earnings (Loss) per Share: Continuing
operations $ 0.07 $ 0.10 $ 0.17 $ 2.33 $ 0.03 $ 2.36 Total $ 0.05 $
0.09 $ 0.14 $ (1.98 ) $ 0.03 $ (1.95 )
Diluted Earnings
(Loss) per Share: Continuing operations $ 0.07 $ 0.09 $ 0.16 $
2.31 $ 0.02 $ 2.33 Total $ 0.05 $ 0.09 $ 0.14 $ (1.96 ) $ 0.03 $
(1.93 )
Non-GAAP Measures Adjusted Net Income $ 154 $
24 $ 178 $ 921 $ 6 $ 927 Adjusted EPS $ 0.58 $ 0.09 $ 0.67 $ 3.50 $
0.03 $ 3.53 Adjusted Operating Profit (2) $ 250 $ 24 $ 274 $
1,345 $ 6 $ 1,351 Adjusted Operating Margin 10.2 % 11.2 % 12.5 %
12.5 %
____________________________
(1) The difference between the $30 million
out-of-period adjustment recorded in the first quarter 2017 and the
revision adjustment of $24 million, primarily relates to the
additional adjustments subsequently identified as part of the IIC
review. (2) As reported Adjusted Operating Profit excludes
Fuji Xerox restructuring charges. As reported Adjusted Operating
Profit for the three months ended March 31, 2017 also reflects the
reversal of the $30 million out-of-period adjustment recorded in
the first quarter 2017.
Year EndedDecember 31,
2015
Year EndedDecember 31,
2014
(in
millions)
As Reported Adjustment As Revised As
Reported Adjustment As Revised Equity
in net income of unconsolidated affiliates $ 135 $ (26 ) $ 109 $
160 $ (18 ) $ 142 Income from Continuing Operations 866 (26 ) 840
1,052 (18 ) 1,034 Net Income 492 (26 ) 466 1,036 (18 ) 1,018 Net
Income Attributable to Xerox 474 (26 ) 448 1,013 (18 ) 995
Net income from continuing operations attributable to Xerox $ 848 $
(26 ) $ 822 $ 1,029 $ (18 ) $ 1,011
Basic Earnings per
Share: Continuing operations $ 3.10 $ (0.10 ) $ 3.00 $ 3.48 $
(0.06 ) $ 3.42 Total $ 1.69 $ (0.10 ) $ 1.59 $ 3.43 $ (0.06 ) $
3.37
Diluted Earnings per Share: Continuing
operations $ 3.06 $ (0.09 ) $ 2.97 $ 3.43 $ (0.06 ) $ 3.37 Total $
1.67 $ (0.09 ) $ 1.58 $ 3.38 $ (0.06 ) $ 3.32
Non-GAAP
Measures Adjusted Net Income $ 978 $ (26 ) $ 952 $ 1,148 $ (18
) $ 1,130 Adjusted EPS $ 3.55 $ (0.10 ) $ 3.45 $ 3.83 $ (0.06 ) $
3.77 Adjusted Operating Profit (1) $ 1,461 $ (26 ) $ 1,435 $
1,688 $ (18 ) $ 1,670 Adjusted Operating Margin 12.7 % 12.5 % 13.3
% 13.2 %
__________________________
(1) As reported Adjusted Operating Profit excludes
Fuji Xerox restructuring charges.
Revised Quarterly Results of Operations
The following tables reconcile selected lines from the company’s
2016 and 2015 quarterly Consolidated Statements of Income (Loss)
from the previously reported amounts to the revised amounts:
Three Months EndedMarch 31,
2016
Three Months EndedJune 30,
2016
(in
millions)
As Reported Adjustment As Revised As
Reported Adjustment As Revised Equity
in net income of unconsolidated affiliates $ 37 $ (3 ) $ 34 $ 22 $
4 $ 26 Income from Continuing Operations 71 (3 ) 68 195 4 199 Net
Income 36 (3 ) 33 157 4 161 Net Income Attributable to Xerox 34 (3
) 31 154 4 158
Basic Earnings per Share: Continuing
operations $ 0.25 $ (0.01 ) $ 0.24 $ 0.74 $ 0.01 $ 0.75 Total $
0.11 $ (0.01 ) $ 0.10 $ 0.59 $ 0.01 $ 0.60
Diluted
Earnings per Share: Continuing operations $ 0.24 $ (0.01 ) $
0.23 $ 0.73 $ 0.02 $ 0.75 Total $ 0.11 $ (0.01 ) $ 0.10 $ 0.58 $
0.02 $ 0.60
Non-GAAP Measures Adjusted Net Income $
186 $ (3 ) $ 183 $ 253 $ 4 $ 257 Adjusted EPS $ 0.70 $ (0.01 ) $
0.69 $ 0.97 $ 0.01 $ 0.98 Adjusted Operating Profit (1) $
274 $ (3 ) $ 271 $ 357 $ 4 $ 361 Adjusted Operating Margin 10.5 %
10.4 % 12.8 % 12.9 %
Three Months EndedSeptember 30,
2016
Three Months EndedDecember 31,
2016
(in
millions)
As Reported Adjustment As Revised As
Reported Adjustment As Revised Equity
in net income of unconsolidated affiliates $ 39 $ 1 $ 40 $ 23 $ 4 $
27 Income from Continuing Operations 177 1 178 184 4 188 Net Income
(Loss) 185 1 186 (844 ) 4 (840 ) Net Income (Loss) Attributable to
Xerox 182 1 183 (847 ) 4 (843 )
Basic Earnings (Loss) per
Share: Continuing operations $ 0.66 $ — $ 0.66 $ 0.69 $ 0.02 $
0.71 Total $ 0.69 $ — $ 0.69 $ (3.37 ) $ 0.02 $ (3.35 )
Diluted Earnings (Loss) per Share: Continuing operations $
0.65 $ 0.01 $ 0.66 $ 0.68 $ 0.02 $ 0.70 Total $ 0.68 $ 0.01 $ 0.69
$ (3.32 ) $ 0.02 $ (3.30 )
Non-GAAP Measures Adjusted
Net Income $ 222 $ 1 $ 223 $ 260 $ 4 $ 264 Adjusted EPS $ 0.84 $ —
$ 0.84 $ 0.99 $ 0.01 $ 1.00 Adjusted Operating Profit (1) $
330 $ 1 $ 331 $ 384 $ 4 $ 388 Adjusted Operating Margin 12.6 % 12.6
% 14.0 % 14.2 %
____________________________
(1) As reported Adjusted Operating Profit excludes
Fuji Xerox restructuring charges.
Three Months EndedMarch 31,
2015
Three Months EndedJune 30,
2015
(in
millions)
As Reported Adjustment As Revised As
Reported Adjustment As Revised Equity
in net income of unconsolidated affiliates $ 34 $ (18 ) $ 16 $ 29 $
(4 ) $ 25 Income from Continuing Operations 189 (18 ) 171 210 (4 )
206 Net Income 230 (18 ) 212 17 (4 ) 13 Net Income Attributable to
Xerox 225 (18 ) 207 12 (4 ) 8
Basic Earnings per
Share: Continuing operations $ 0.64 $ (0.06 ) $ 0.58 $ 0.73 $
(0.01 ) $ 0.72 Total $ 0.79 $ (0.07 ) $ 0.72 $ 0.02 $ (0.01 ) $
0.01
Diluted Earnings per Share: Continuing
operations $ 0.63 $ (0.06 ) $ 0.57 $ 0.72 $ (0.01 ) $ 0.71 Total $
0.78 $ (0.07 ) $ 0.71 $ 0.02 $ (0.01 ) $ 0.01
Non-GAAP
Measures Adjusted Net Income $ 229 $ (18 ) $ 211 $ 225 $ (4 ) $
221 Adjusted EPS $ 0.79 $ (0.06 ) $ 0.73 $ 0.80 $ (0.02 ) $ 0.78
Adjusted Operating Profit (1) $ 343 $ (18 ) $ 325 $ 353 $ (4
) $ 349 Adjusted Operating Margin 12.2 % 11.6 % 12.1 % 11.9 %
Three Months EndedSeptember 30,
2015
Three Months EndedDecember 31,
2015
(in
millions)
As Reported Adjustment As Revised As
Reported Adjustment As Revised Equity
in net income of unconsolidated affiliates $ 40 $ — $ 40 $ 32 $ (4
) $ 28 Income from Continuing Operations 206 — 206 261 (4 ) 257 Net
(Loss) Income (31 ) — (31 ) 276 (4 ) 272 Net (Loss) Income
Attributable to Xerox (34 ) — (34 ) 271 (4 ) 267
Basic
(Loss) Earnings per Share: Continuing operations $ 0.75 $ — $
0.75 $ 0.99 $ (0.02 ) $ 0.97 Total $ (0.16 ) $ — $ (0.16 ) $ 1.05 $
(0.02 ) $ 1.03
Diluted (Loss) Earnings per Share:
Continuing operations $ 0.75 $ — $ 0.75 $ 0.98 $ (0.02 ) $ 0.96
Total $ (0.16 ) $ — $ (0.16 ) $ 1.04 $ (0.02 ) $ 1.02
Non-GAAP Measures Adjusted Net Income $ 239 $ — $ 239 $ 285
$ (4 ) $ 281 Adjusted EPS $ 0.88 $ — $ 0.88 $ 1.09 $ (0.01 ) $ 1.08
Adjusted Operating Profit (1) $ 372 $ — $ 372 $ 393 $ (4 ) $
389 Adjusted Operating Margin 13.4 % 13.4 % 13.3 % 13.2 %
____________________________
(1) As reported Adjusted Operating Profit excludes
Fuji Xerox restructuring charges.
NOTE: The sum of quarterly earnings per share may differ from
the full-year amounts due to rounding, or in the case of diluted
earnings per share, because securities that are anti-dilutive in
certain quarters may not be anti-dilutive on a full year-year
basis.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170801005496/en/
XeroxMedia Contact:Carl Langsenkamp,
+1-585-423-5782carl.langsenkamp@xerox.comorInvestor
Contact:Jennifer Horsley,
+1-203-849-2656jennifer.horsley@xerox.com
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