- GAAP EPS from continuing operations of
67 cents up one cent year-over-year; adjusted EPS of 89 cents up
five cents year-over-year
- Total revenue of $2.5 billion, down 5.0
percent or 5.9 percent in constant currency year-over-year
- Adjusted operating margin of 12.2
percent, down 0.4 points year-over-year
- Cash flow reflects continued good
results excluding higher year-over-year pension contributions
- Affirms full-year revenue and adjusted
operating margin guidance; raises lower-end of EPS guidance
- Updates operating cash flow guidance to
reflect the net impact of higher operational cash flow, incremental
pension contributions and the elimination of certain accounts
receivable sales programs
Xerox (NYSE: XRX) today announced its third-quarter 2017
financial results.
“We posted another solid quarter of earnings, margins, and cash
flow in line with our expectations, supported by our on-going
Strategic Transformation initiatives,” said Jeff Jacobson, Xerox
chief executive officer. “Revenue decline improved sequentially
which we expect to carry through the rest of the year.” Jacobson
added, “All 29 of our new ConnectKey®-enabled office products are
now available and shipping to large and small customers around the
globe; momentum is building, as expected, entering the last quarter
of the year.”
The company delivered third-quarter 2017 GAAP earnings per share
(EPS) from continuing operations of 67 cents, up 1.5 percent
year-over-year. Adjusted EPS was 89 cents, up 6.0 percent
year-over-year, and excludes 22 cents per share of after-tax costs
related to the amortization of intangibles, restructuring and
related costs, and certain retirement-related costs.
Revenues were $2.5 billion in the quarter, down 5.0 percent or
5.9 percent in constant currency. Post sale revenue was 79 percent
of total revenue.
Third-quarter adjusted operating margin was 12.2 percent, down
0.4 points year-over-year.
EPS fromcontinuingoperations
GrossMargin
SAG as % ofRevenue
EffectiveTaxRate
GAAP
Better/(Worse)
$0.67 39.6% 26.0% 10.8%
Year-over-Year
$0.01
0.2 pts
(0.7) pts
6.1 pts
Adjusted
Better/(Worse)
$0.89 40.2% 25.3% 19.4%
Year-over-Year
$0.05
0.3 pts
(0.6) pts
3.6 pts
Operating cash flow from continuing operations was a $383
million use of cash and included $671 million in pension
contributions, which reflect the incremental $500 million
contribution to domestic pension plans that Xerox announced in
September. Excluding total pension contributions in both years,
operating cash flow increased $44 million year-over-year. Cash
balance at the end of the quarter was $1.8 billion. This includes
$475 million, paid in October, for the redemption of a portion of
the 6.35 percent Senior Notes due May 2018. The company returned
$68 million in dividends to shareholders.
Full-Year 2017 GuidanceThe company updated its full-year
2017 guidance of GAAP EPS from continuing operations to $1.97 to
$2.13 (from previous $1.84 to $2.08) and adjusted EPS to $3.28 to
$3.44 (from previous $3.20 to $3.44).
Xerox revised its operating cash flow from continuing operations
guidance to reflect incremental pension contributions, the
elimination of certain accounts receivable (A/R) sales programs and
higher operational cash flow. The company expects to end the year
with more than $1.0 billion of cash on its balance sheet.
Operating Cash Flow from Continuing Operations guidance
update Full-Year 2017
Beginning
of Year Guidance $700M - $900M (+) Higher Operational
Cash Flow $100M
Updated Operational Range $800M - $1B
(-) Incremental Pension contributions $(500)M (-) One-time impact
of A/R sales elimination $(350)M
Updated Guidance $(50)M
- $150M
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 third quarter
2017 and 2016 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
third 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 third
quarter 2017, which excludes certain retirement-related costs.
- Adjusted Effective Tax Rate for the
third quarter 2017, which excludes the EPS adjustments noted
above.
- Constant currency revenue growth for
the third quarter 2017, which excludes the effects of currency
translation.
- A year-over-year change in third
quarter 2017 operating cash flows, which excludes total pension
contributions in both years.
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 Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2017, June
30, 2017 and our 2016 Annual Report on Form 10-K, as well as our
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. In April 2017,
Fujifilm publicly announced it had formed an independent
investigation committee (IIC) to primarily conduct a review of the
appropriateness of the accounting practices at Fuji Xerox’s New
Zealand subsidiary and at other subsidiaries. Fujifilm publicly
announced that the IIC completed its review during the second
quarter 2017 and identified aggregate adjustments to Fuji Xerox’s
financial statements of 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 adjustments primarily related to
misstatements at Fuji Xerox’s New Zealand and Australian
subsidiaries, 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 has been completed. However, Fujifilm
and Fuji Xerox continue to review Fujifilm’s oversight and
governance of Fuji Xerox as well as Fuji Xerox’s oversight and
governance over its businesses in light of the findings of the IIC.
In addition, at this time, we can provide no assurances relative to
the outcome of any potential governmental investigations or any
consequences thereof that may happen as a result of this
matter.
Note: To receive RSS news feeds, visit
https://www.news.xerox.com. For open commentary, industry
perspectives and views visit http://twitter.com/xerox,
http://www.linkedin.com/company/xerox,
http://connect.blogs.xerox.com, http://www.facebook.com/XeroxCorp,
http://www.youtube.com/XeroxCorp.
Xerox®, Xerox and Design® and ConnectKey® are trademarks of
Xerox in the United States and/or other countries.
Xerox Corporation
Condensed Consolidated Statements of
Income (Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
(in millions, except per-share data) 2017 2016 2017
2016
Revenues Sales $ 981 $ 1,057 $ 2,927 $ 3,186 Services,
maintenance and rentals 1,443 1,489 4,368 4,603 Financing 73
83 223 248
Total Revenues 2,497
2,629 7,518 8,037
Costs and Expenses
Cost of sales 594 647 1,780 1,957 Cost of services, maintenance and
rentals 882 913 2,666 2,816 Cost of financing 33 32 99 97 Research,
development and engineering expenses 108 118 332 363 Selling,
administrative and general expenses 648 664 1,955 2,056
Restructuring and related costs 36 25 196 172 Amortization of
intangible assets 12 14 41 44 Other expenses, net 17 50
105 143
Total Costs and Expenses 2,330
2,463 7,174 7,648
Income before
Income Taxes & Equity Income(1) 167 166 344 389
Income tax expense 18 28 37 44 Equity in net income of
unconsolidated affiliates 30 40 90 100
Income from Continuing Operations 179 178 397 445 Income
(loss) from discontinued operations, net of tax 3 8
(3 ) (65 )
Net Income 182 186 394 380 Less: Net income
attributable to noncontrolling interests 3 3 9
8
Net Income Attributable to Xerox $ 179 $ 183
$ 385 $ 372
Amounts Attributable to
Xerox: Net income from continuing operations $ 176 $ 175 $ 388
$ 437 Income (loss) from discontinued operations, net of tax 3
8 (3 ) (65 )
Net Income Attributable to Xerox
$ 179 $ 183 $ 385 $ 372
Basic
Earnings (Loss) per Share(2): Continuing
operations $ 0.68 $ 0.66 $ 1.49 $ 1.65 Discontinued operations 0.01
0.03 (0.01 ) (0.25 )
Total Basic Earnings per
Share $ 0.69 $ 0.69 $ 1.48 $ 1.40
Diluted Earnings (Loss) per Share(2):
Continuing operations $ 0.67 $ 0.66 $ 1.47 $ 1.64 Discontinued
operations 0.01 0.03 (0.01 ) (0.26 )
Total Diluted
Earnings per Share $ 0.68 $ 0.69 $ 1.46 $
1.38
_____________
(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 EndedSeptember 30,
Nine Months EndedSeptember 30,
(in millions) 2017 2016 2017 2016 Net income $ 182 $
186 $ 394 $ 380 Less: Net income attributable to noncontrolling
interests 3 3 9 8
Net Income
Attributable to Xerox 179 183 385 372
Other Comprehensive Income (Loss), Net:
Translation adjustments, net 154 (21 ) 491 86 Unrealized gains
(losses), net 2 (9 ) (4 ) 24 Changes in defined benefit plans, net
(41 ) (15 ) (44 ) (107 )
Other Comprehensive Income (Loss),
Net 115 (45 ) 443 3 Less: Other comprehensive income (loss),
net attributable to noncontrolling interests — — 1
(1 )
Other Comprehensive Income (Loss), Net Attributable
to Xerox 115 (45 ) 442 4
Comprehensive Income, Net 297 141 837 383 Less:
Comprehensive income, net attributable to noncontrolling interests
3 3 10 7
Comprehensive Income, Net
Attributable to Xerox $ 294 $ 138 $ 827 $
376
Xerox Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except share data in thousands) September 30, 2017
December 31, 2016
Assets Cash and cash equivalents $ 1,781 $
2,223 Accounts receivable, net 1,031 961 Billed portion of finance
receivables, net 86 90 Finance receivables, net 1,290 1,256
Inventories 1,039 841 Assets of discontinued operations — 1,002
Other current assets 402 619 Total current assets
5,629 6,992 Finance receivables due after one year, net 2,296 2,398
Equipment on operating leases, net 456 475 Land, buildings and
equipment, net 636 660 Investments in affiliates, at equity 1,441
1,294 Intangible assets, net 276 290 Goodwill 3,922 3,787 Deferred
tax assets, long-term 1,477 1,472 Other long-term assets 684
683
Total Assets $ 16,817 $ 18,051
Liabilities and Equity Short-term debt and current portion
of long-term debt $ 763 $ 1,011 Accounts payable 1,183 1,126
Accrued compensation and benefits costs 405 420 Unearned income 191
187 Liabilities of discontinued operations — 1,002 Other current
liabilities 910 908 Total current liabilities 3,452
4,654 Long-term debt 5,235 5,305 Pension and other benefit
liabilities 1,674 2,240 Post-retirement medical benefits 674 698
Other long-term liabilities 178 193
Total
Liabilities 11,213 13,090
Convertible
Preferred Stock 214 214 Common stock 255
254 Additional paid-in capital 3,880 3,858 Retained earnings 5,116
4,934 Accumulated other comprehensive loss (3,895 ) (4,337 ) Xerox
shareholders’ equity 5,356 4,709 Noncontrolling interests 34
38
Total Equity 5,390 4,747
Total
Liabilities and Equity $ 16,817 $ 18,051
Shares of common stock issued and outstanding 254,586
253,594
Xerox Corporation
Condensed Consolidated Statements of
Cash Flows (Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
(in millions) 2017 2016 2017 2016
Cash Flows from
Operating Activities: Net income $ 182 $ 186 $ 394 $ 380
(Income) loss from discontinued operations, net of tax (3 ) (8 ) 3
65 Income from continuing operations 179 178 397 445
Adjustments required to reconcile net income to cash flows from
operating activities: Depreciation and amortization 131 140 399 426
Provision for receivables 15 15 38 3 39 Provision for inventory 9 6
21 21 Net gain on sales of businesses and assets (13 ) (3 ) (14 )
(20 ) Undistributed equity in net income of unconsolidated
affiliates (26 ) (37 ) (56 ) (66 ) Stock-based compensation 14 14
39 31 Restructuring and asset impairment charges 35 13 178 154
Payments for restructurings (42 ) (38 ) (169 ) (83 ) Defined
benefit pension cost 34 32 133 108 Contributions to defined benefit
pension plans (671 ) (34 ) (717 ) (102 ) Increase in accounts
receivable and billed portion of finance receivables (34 ) (13 )
(174 ) (173 ) Collections of deferred proceeds from sales of
receivables 58 58 157 191 Increase in inventories (99 ) (12 ) (187
) (104 ) Increase in equipment on operating leases (53 ) (74 ) (155
) (204 ) Decrease in finance receivables 75 53 209 138 Collections
on beneficial interest from sales of finance receivables 2 5 13 20
(Increase) decrease in other current and long-term assets (3 ) 20
(46 ) 29 Decrease in accounts payable and accrued compensation (4 )
(84 ) (4 ) (250 ) Increase (decrease) in other current and
long-term liabilities 44 32 47 (82 ) Net change in income tax
assets and liabilities — (151 ) (36 ) (173 ) Net change in
derivative assets and liabilities (9 ) 49 90 — Other operating, net
(25 ) 41 (13 ) 211 Net cash (used in) provided by
operating activities of continuing operations (383 ) 210 150 556
Net cash (used in) provided by operating activities of discontinued
operations (2 ) 160 (97 ) (34 ) Net cash (used in) provided
by operating activities (385 ) 370 53 522
Cash Flows from Investing Activities: Cost of additions to
land, buildings and equipment (15 ) (19 ) (45 ) (65 ) Proceeds from
sales of land, buildings and equipment 1 3 2 23 Cost of additions
to internal use software (8 ) (10 ) (25 ) (34 ) Proceeds from sale
of businesses 20 — 20 — Acquisitions, net of cash acquired — 1 (76
) (17 ) Other investing, net (2 ) 2 8 6 Net
cash used in investing activities of continuing operations (4 ) (23
) (116 ) (87 ) Net cash used in investing activities of
discontinued operations — (46 ) — (174 ) Net cash
used in investing activities (4 ) (69 ) (116 ) (261 )
Cash Flows
from Financing Activities: Net proceeds (payments) on debt 988
(1 ) (336 ) 41 Common stock dividends (65 ) (79 ) (210 ) (228 )
Preferred stock dividends (3 ) (6 ) (13 ) (18 ) Proceeds from
issuances of common stock — 3 — 6 Repurchases related to
stock-based compensation (7 ) — (15 ) — Payments to noncontrolling
interests (5 ) (1 ) (17 ) (13 ) Proceeds from Conduent — — 161 —
Other financing — — — (1 ) Net cash provided
by (used in) financing activities 908 (84 ) (430 ) (213 )
Effect of exchange rate changes on cash
and cash equivalents 16 5 51 9 Decrease
(increase) in cash of discontinued operations — 10 — (10 ) Increase
(decrease) in cash and cash equivalents 535 232 (442 ) 47 Cash and
cash equivalents at beginning of period 1,246 1,043
2,223 1,228
Cash and Cash Equivalents at End of
Period $ 1,781 $ 1,275 $ 1,781 $ 1,275
Financial Review
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. In April 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. The IIC’s review, completed during the second
quarter 2017, identified total aggregate adjustments to Fuji
Xerox’s prior period financial statements of 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 adjustments
identified by the IIC primarily related to misstatements at Fuji
Xerox’s New Zealand subsidiary as well as their Australian
subsidiary and certain other adjustments. We determined that our
cumulative share of the total adjustments identified as part of the
IIC's investigation was approximately $90 million1 and impacted our
fiscal years 2009 through 2017.
In the second quarter 2017, we determined that the misstatements
to our equity income in prior years and in first quarter 2017
resulting from the IIC’s review were immaterial to our previously
issued financial statements. However, 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 was reflected as a
cumulative, net of tax adjustment to reduce retained earnings as of
January 1, 2014 by $69 million. Amounts throughout this release
have been adjusted to incorporate the revised amounts, where
applicable.
Reverse Stock Split
As a result of the spin-off of the company's Business Process
Outsourcing (BPO) 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.
Separation Update
On December 31, 2016, Xerox Corporation completed the separation
of its 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.
_____________
(1) 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.
Revenues
Three Months EndedSeptember 30,
% of Total Revenue
(in millions) 2017 2016
%Change
CC %Change
2017 2016 Equipment sales $ 521 $ 573 (9.1)% (10.0)% 21% 22%
Post sale revenue 1,976 2,056 (3.9)% (4.8)% 79% 78%
Total Revenue $ 2,497 $ 2,629 (5.0)% (5.9)%
100% 100%
Reconciliation to Condensed Consolidated
Statements of Income: Sales $ 981 $ 1,057 (7.2)% (7.9)% Less:
Supplies, paper and other sales (460 ) (484 ) (5.0)% (5.3)%
Equipment Sales(1) $ 521 $ 573 (9.1)%
(10.0)% Services, maintenance and rentals $ 1,443 $ 1,489
(3.1)% (4.2)% Add: Supplies, paper and other sales 460 484 (5.0)%
(5.3)% Add: Financing 73 83 (12.0)% (12.9)%
Post
Sale Revenue(1) $ 1,976 $ 2,056 (3.9)%
(4.8)% North America $ 1,514 $ 1,597 (5.2)% (5.7)% 61% 61%
International 853 880 (3.1)% (5.1)% 34% 33% Other 130 152
(14.5)% (14.5)% 5% 6%
Total Revenue(2) $ 2,497
$ 2,629 (5.0)% (5.9)% 100% 100%
Memo:
Managed Document Services(3) $ 853 $ 835 2.2% 1.2% 34% 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 IT-related 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 $745 million in third quarter
2017 and $719 million in third quarter 2016, representing an
increase of 3.6% including a 1.0-percentage point favorable impact
from currency.
Third quarter 2017 total revenues decreased 5.0% as compared to
third quarter 2016, with a 0.9-percentage point favorable impact
from currency. Third quarter 2017 total revenues reflect the
following:
- Post sale revenue decreased 3.9%
as compared to third quarter 2016, with a 0.9-percentage point
favorable 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 BPO
business upon Separation. These revenues declined 3.1%, with a
1.1-percentage point favorable impact from currency; the decline at
constant currency1 reflected lower signings and installs in prior
periods and the continuing decline in page volumes.
- Supplies, paper and other sales
includes unbundled supplies and other sales. These revenues
declined 5.0%, with a 0.3-percentage point favorable impact from
currency. The decline at constant currency1 was driven by lower
network integration solutions sales from our Global Imaging
business, as well as reduced original equipment manufacturer (OEM)
supplies and lower supplies demand consistent with declining
equipment sales in prior periods.
- Financing revenue is generated
from financed equipment sale transactions. The 12.0% decline in
these revenues reflected a declining finance receivables balance
due to lower equipment sales in prior periods and included a
0.9-percentage point favorable impact from currency.
Three Months EndedSeptember 30, % of Equipment Sales (in millions)
2017 2016
%Change
CC %Change
2017 2016 Entry $ 86 $ 97 (11.3)% (12.7)% 17% 17% Mid-range
334 362 (7.7)% (8.5)% 64% 64% High-end 97 108 (10.2)% (11.8)% 19%
19% Other 4 6 NM NM NM NM
Equipment
Sales(1) $ 521 $ 573 (9.1)% (10.0)% 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 IT-related equipment
sales to other sales, which are included in Post sale revenue.
- Equipment sales revenue
decreased 9.1% as compared to third quarter 2016, with a
0.9-percentage point favorable impact from currency. Revenue
decline was impacted by price declines of approximately 5% (which
were in-line with our historic impact). The decline in mid-range
sales reflected longer new product transition cycles that are
characteristic of certain areas of the business as well as ongoing
black-and-white revenue declines that reflected overall market
trends; the decline in mid-range improved sequentially, led by
Global Imaging, US channels and developing markets. The decline in
high-end sales primarily reflected lower revenues from our
black-and-white systems consistent with overall market decline
trends, along with the impact of higher sales of iGen and Color
Press in prior year associated with the drupa trade show; these
declines were only partially mitigated by higher sales of our
continuous feed inkjet systems and demand for our recently launched
Versant entry production color systems. The decline in entry sales
reflected an unfavorable mix caused by higher install activity
associated with new ConnectKey products that are at the lower end
of the portfolio, and a higher low-end printer mix in developing
markets, as well as continued lower OEM activity.
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
- 23% increase in color multifunction
devices, reflecting demand for recently launched products as well
as the migration from printers to multifunction devices, consistent
with market trends.
- 26% increase in black-and-white
multifunction devices, driven largely by higher activity for
low-end printers in developing markets.
Mid-Range3
- Mid-range color installs were flat,
reflecting demand for recently launched products including strong
activity in developing markets, offset by the timing of large
account sales in the prior year.
- 11% 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
- 2% decrease in high-end color systems,
as growth from continuous feed color and the recently launched
Versant products was more than offset by higher iGen and Color
Press installs in the prior year, following the drupa trade
show.
- 32% decrease in high-end
black-and-white systems reflecting overall market decline and
trends.
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. Total
Contract Value (TCV) is the estimated total contractual revenue
related to signed contracts; our signings expressed in TCV were as
follows:
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
(in millions) 2017 2016
%Change
CC %Change
2017 2016
%Change
CC %Change
Signings $ 606 $ 663 (8.6)% (6.7)% $ 1,760 $ 1,929 (8.8)% (7.0)%
____________________________
CC - Constant Currency (see "Non-GAAP Financial Measures"
section).
Third quarter 2017 signings decreased 8.6% from third quarter
2016, with a 1.9-percentage point unfavorable impact from currency,
primarily reflecting a lower contribution from new business. On a
trailing twelve month (TTM) basis, signings decreased 14.1% from
the comparable prior year period, with a 3.4-percentage point
unfavorable impact from currency.
New business TCV declined 14.2% from third quarter 2016, with a
1.6-percentage point unfavorable impact from currency. New business
TCV for the nine months ended September 30, 2017 decreased 21.0%
from the prior year period, with a 1.8-percentage point unfavorable
impact from currency. On a TTM basis, new business TCV decreased
28.2% from the comparable prior year period, with a 3.1-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. Third quarter 2017
contract renewal rate was 85%, an increase of 3-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 September 30, Reported
Adjusted(1) (in millions) 2017
2016 B/(W) 2017 2016 B/(W) Gross Profit $ 988
$ 1,037 $ (49 ) $ 1,003 $ 1,050 $ (47 ) RD&E 108 118 10 103 111
8 SAG 648 664 16 631 650 19 Equipment Gross Margin 29.2 %
31.9 % (2.7) pts. N/A N/A N/A Post sale Gross Margin 42.4 % 41.5 %
0.9 pts. 43.1 % 42.1 % 1.0 pts. Total Gross Margin 39.6 % 39.4 %
0.2 pts. 40.2 % 39.9 % 0.3 pts. RD&E as a % of Revenue 4.3 %
4.5 % 0.2 pts. 4.1 % 4.2 % 0.1 pts. SAG as a % of Revenue 26.0 %
25.3 % (0.7) pts. 25.3 % 24.7 % (0.6) pts. Pre-tax Income $
167 $ 166 $ 1 N/A N/A N/A Pre-tax Income Margin 6.7 % 6.3 % 0.4
pts. N/A N/A N/A Adjusted Operating Profit N/A
N/A N/A 305 331 (26 )
Adjusted Operating Margin N/A N/A N/A
12.2 % 12.6 % (0.4) pts. Memo:
Non-service retirement-related costs $ 37 $ 34 $ (3 ) 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 MarginThird quarter
2017 pre-tax income margin of 6.7% increased 0.4-percentage points
as compared to third quarter 2016. The increase was primarily
driven by lower Other expenses, net reflecting lower interest
expense and a gain from the sale of a research facility. Costs and
expense savings from strategic transformation also mitigated the
impact of lower revenues and higher transaction currency,
restructuring and non-service retirement-related costs.
Adjusted1 Operating MarginThird quarter 2017 adjusted1
operating margin of 12.2% declined 0.4-percentage points as
compared to third quarter 2016. Cost productivity and savings from
strategic transformation were more than offset by revenue declines
and adverse transaction currency of 0.6-percentage points. The
decline is also partly driven by higher compensation and benefits
expenses, as well as lower equity income from our Fuji Xerox joint
venture.
Gross MarginThird quarter 2017
gross margin of 39.6% increased by 0.2-percentage points compared
to third quarter 2016. On an adjusted1 basis, gross margin of 40.2%
increased by 0.3-percentage points. This performance reflects cost
savings from strategic transformation and cost productivity, partly
offset by adverse transaction currency of 0.6-percentage
points.
Third quarter 2017 equipment gross margin of 29.2% decreased
2.7-percentage points as compared to third quarter 2016, as product
cost productivity was more than offset by transaction currency.
Third quarter 2017 post sale gross margin of 42.4% increased
0.9-percentage points as compared to third quarter 2016. On an
adjusted1 basis, post sale gross margin of 43.1% improved
1.0-percentage point, 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)Third quarter 2017 RD&E as a
percentage of revenue of 4.3% decreased 0.2-percentage points from
third quarter 2016. On an adjusted1 basis, RD&E was 4.1% of
revenue and decreased 0.1-percentage points compared to third
quarter 2016.
RD&E of $108 million decreased by $10 million compared to
third quarter 2016. On an adjusted1 basis, RD&E of $103 million
decreased by $8 million; the reduction reflected savings from
strategic transformation including restructuring savings and lower
expenses as a result of the transfer of resources to Electronics
for Imaging (EFI), a third party print server supplier, and the
sale of our Xerox Research Centre Europe in Grenoble, France, which
was mainly dedicated to support the discontinued BPO business. We
strategically coordinate our R&D investments with Fuji
Xerox.
Selling, Administrative and General
Expenses (SAG)SAG as a percentage of revenue of 26.0%
increased by 0.7-percentage points from third quarter 2016. On an
adjusted1 basis, SAG was 25.3% of revenue and increased
0.6-percentage points, reflecting the impact of lower revenues that
were partly mitigated by productivity and cost savings from
strategic transformation, including savings from restructuring.
SAG of $648 million was $16 million lower than third quarter
2016. On an adjusted1 basis, SAG of $631 million decreased $19
million, including an approximate $5 million unfavorable impact
from currency; the reduction primarily reflected cost savings,
including savings from restructuring, and lower incentives and
marketing expenses consistent with lower revenues; these savings
were partly offset by higher compensation and benefit expenses. Bad
debt expense of $8 million was $5 million lower than third quarter
2016 and remained at less than one percent of receivables.
Non-Service Retirement-Related
CostsNon-service retirement-related costs were $3 million
higher than third quarter 2016, primarily due to higher losses from
pension settlements.
Restructuring and Related
CostsRestructuring and related costs of $36 million include
net restructuring and asset impairment charges of $35 million as
well as $1 million of additional costs primarily related to
professional support services associated with the implementation of
the Strategic Transformation program.
Third quarter 2017 net restructuring and asset impairment
charges of $35 million reflected $40 million of severance costs
related to headcount reductions of approximately 600 employees
worldwide. Third quarter 2017 actions impacted several functional
areas, with approximately 80% focused on SAG reductions and 20%
focused on gross margin improvements. These costs were partially
offset by $5 million of net reversals for changes in estimated
reserves from prior period initiatives.
During third quarter 2016 restructuring and related costs were
$25 million which included net restructuring and asset impairment
charges of $13 million as well as $12 million of additional costs
primarily related to professional support services associated with
the implementation of the Strategic Transformation program.
Third quarter 2016 net restructuring and asset impairment
charges of $13 million reflected $18 million of severance costs
related to headcount reductions of approximately 150 employees
worldwide. Third quarter 2016 actions impacted several functional
areas, with approximately 40% focused on gross margin improvements,
approximately 50% on SAG reductions and the remainder focused on
RD&E optimization. These costs were partially offset by $5
million of net reversals for changes in estimated reserves from
prior period initiatives.
The restructuring reserve balance as of September 30, 2017
for all programs was $147 million, of which $142 million is
expected to be spent over the next twelve months.
We expect to incur additional restructuring and related costs of
approximately $30 million in fourth 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
AssetsThird quarter 2017 amortization of intangible assets
of $12 million was $2 million lower than third quarter 2016.
Worldwide EmploymentWorldwide
employment was approximately 36,100 as of September 30, 2017
and decreased by approximately 1,500 from December 31, 2016.
The reduction is primarily due to the impact of restructuring and
productivity-related reductions partly offset by an increase of
approximately 300 from acquisitions.
Other Expenses, Net
Three Months EndedSeptember 30, (in millions)
2017 2016 Non-financing interest expense $ 29 $ 42
Interest income (2 ) (2 ) Gains on sales of businesses and assets
(13 ) (3 ) Currency losses, net — 4 Loss on sales of accounts
receivable 3 4 All other expenses, net — 5
Other
expenses, net $ 17 $ 50
Non-financing interest expenseThird
quarter 2017 non-financing interest expense of $29 million was $13
million lower than third quarter 2016. When combined with financing
interest expense (Cost of financing), total interest expense
declined by $12 million from third quarter 2016 primarily due to a
lower debt balance reflecting the repayment of approximately $1.3
billion of debt in the first quarter 2017. This decrease was partly
offset by the issuance of approximately $1.0 billion of new debt in
the third quarter 2017; $500 million of this new debt was used for
a voluntary pension contribution, while the remainder was used in
October for the early redemption of a portion of our outstanding
debt due May 2018. See Debt and Customer Financing Activities for
further details.
Gains on sales of businesses and
assetsThird quarter 2017 gains on sales of businesses and
assets of $13 million were related to the sale of our research
facility in Grenoble, France, which was mainly dedicated to support
the discontinued BPO business.
Income Taxes
Third quarter 2017 effective tax rate was 10.8%. On an adjusted1
basis, third quarter 2017 tax rate was 19.4%. Both 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. 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.
Third quarter 2016 effective tax rate was 16.9%. On an adjusted1
basis, third quarter 2016 tax rate was 23.0%. Both rates were lower
than the U.S. statutory tax rate primarily due to 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 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. Third quarter 2017
equity income of $30 million decreased by $10 million compared to
third quarter 2016, including an unfavorable translation currency
impact and $4 million of higher year-over-year charges related to
our share of Fuji Xerox after-tax restructuring and other charges.
Other charges in third quarter 2017 represent audit and other fees
associated with the independent investigation of Fuji Xerox's
accounting practices.
Net Income from Continuing Operations
Third quarter 2017 net income from continuing operations
attributable to Xerox was $176 million, or $0.67 per diluted share.
On an adjusted1 basis, net income from continuing operations
attributable to Xerox was $236 million, or $0.89 per diluted share.
Third quarter 2017 adjustments to net income include the
amortization of intangible assets, restructuring and related costs,
and non-service retirement-related costs.
Third quarter 2016 net income from continuing operations
attributable to Xerox was $175 million, or $0.66 per diluted share.
On an adjusted1 basis, net income from continuing operations
attributable to Xerox was $223 million, or $0.84 per diluted share.
Third quarter 2016 adjustments to net income include the
amortization of intangible assets, restructuring and related costs,
and non-service retirement-related costs.
See the "Non-GAAP Financial Measures" section for the third
quarter adjustments to net income and the 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 discussed, 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 of $1 million and $39 million for the third
quarter 2017 and third quarter 2016, respectively, are included in
Income (loss) from discontinued operations, net of tax, in the
accompanying Condensed Consolidated Statements of Income.
Third quarter 2017 Income from discontinued operations, net of
tax of $3 million was primarily related to changes in
estimates.
Summarized financial information for our Discontinued Operations
is as follows:
Three Months EndedSeptember 30, (in millions)
2017 2016
Revenue $ — $ 1,587
Cost of services — 1,317 Other expenses(1) 1 286
Total costs and expenses 1 1,603
Net loss before income taxes (1 ) (16 ) Income tax benefit 4
24
Income from discontinued operations, net of
tax $ 3 $ 8
____________________________
(1) 2016 includes $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 within
Income from discontinued operations, net of tax.
____________________________
(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 increased 3%, while Entry black-and-white
multifunction devices increased 15%.(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 were flat, and High-end color systems decreased 2%.
Capital Resources and Liquidity
The following summarizes our cash and cash equivalents:
Three Months EndedSeptember 30,
(in millions) 2017 2016 Change Net cash (used in) provided
by operating activities of continuing operations $ (383 ) $ 210 $
(593 ) Net cash (used in) provided by operating activities of
discontinued operations (2 ) 160 (162 ) Net cash (used in)
provided by operating activities (385 ) 370 (755 )
Net cash used in investing activities of continuing operations (4 )
(23 ) 19 Net cash used in investing activities of discontinued
operations — (46 ) 46 Net cash used in investing
activities (4 ) (69 ) 65 Net cash provided by (used
in) financing activities 908 (84 ) 992 Effect
of exchange rate changes on cash and cash equivalents 16 5 11
Decrease in cash of discontinued operations — 10 (10
) Increase in cash and cash equivalents 535 232 303 Cash and cash
equivalents at beginning of period 1,246 1,043 203
Cash and Cash Equivalents at End of Period $ 1,781
$ 1,275 $ 506
Cash Flows from Operating
ActivitiesNet cash used in operating activities of
continuing operations was $383 million in third quarter 2017. The
$593 million decrease in operating cash from third quarter 2016 was
primarily due to the following:
- $637 million decrease primarily from
voluntary contributions of $635 million to our domestic
tax-qualified defined benefit plans in third quarter 2017.
- $142 million decrease from the
settlements of foreign currency derivative contracts associated
with our Yen-denominated inventory purchases as well as other
foreign currency denominated arrangements.
- $87 million decrease from inventory
primarily due to a lower volume of equipment and supplies sales and
the impact of new product launches.
- $21 million decrease from accounts
receivable primarily due to the lower impact from sales of
receivables.
- $161 million increase due to higher net
tax payments in prior year partially attributable to the separation
of Conduent.
- $80 million increase from accounts
payable and accrued compensation primarily related to the
year-over-year timing of supplier and vendor payments.
- $21 million increase due to lower
placements of equipment on operating leases reflecting decreased
installs.
- $19 million increase from finance
receivables primarily related to a higher level of run-off due to
lower originations.
The $635 million of voluntary contributions to our domestic
tax-qualified defined benefit plans included an incremental $500
million that was funded through a Senior Note offering in the third
quarter 2017. See Cash Flows from Financing Activities below as
well as Debt and Customer Financing Activities for further
information regarding the issuance of the Senior Notes. The
additional pension funding will significantly reduce mandatory cash
contributions to U.S. plans in future years beginning 2018 and is
incremental to the $350 million of global pension contributions
planned in 2017.
Cash Flows from Investing
ActivitiesNet cash used in investing activities of
continuing operations was $4 million in third quarter 2017. The $19
million change was primarily due to proceeds from the sale of the
Xerox Research Centre Europe in Grenoble, France for $20
million.
Cash Flows from Financing
ActivitiesNet cash provided by financing activities was $908
million in third quarter 2017. The $992 million increase in cash
from third quarter 2016 was primarily due to net debt activity.
Third quarter 2017 reflects proceeds of $1.0 billion on Senior
Notes offset by debt issuance costs of $8 million.
Debt and Customer Financing Activities
The following summarizes our debt:
(in millions)
September 30, 2017
December 31, 2016 Principal debt balance(1) $ 6,053 $ 6,349 Net
unamortized discount (37 ) (43 ) Debt issuance costs (34 ) (21 )
Fair value adjustments(2) - terminated swaps 12 27 - current swaps
4 4
Total Debt $ 5,998 $ 6,316
____________________________
(1) Includes Notes Payable of $5 million and $4 million as of
September 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.
Senior Notes
In September 2017, we issued $1.0 billion of 3.625% Senior Notes
due March 2023 (the "2023 Senior Notes") resulting in aggregate net
proceeds of approximately $992 million. Interest on these Senior
Notes is payable semi-annually. Debt issuance costs of
approximately $8 million were paid and deferred in connection with
the issuance of these Senior Notes and will be amortized over the
term of the Senior Notes. The proceeds were used for general
corporate purposes, which included a $500 million voluntary cash
contribution to our U.S. defined benefit pension plans as well as
the early redemption of $475 million of the remaining $740 million
6.35% Senior Notes due May 2018. The redemption was completed in
October 2017, and we expect to record a related net loss of $7
million in fourth quarter 2017.
Credit Facility
In August 2017, we entered into an Amended and Restated Credit
Agreement that included a reduction in the size of our unsecured
revolving Credit Facility from $2.0 billion to $1.8 billion and an
extension in the maturity date from March 2019 to August 2022. We
deferred $5 million of debt issuance costs in connection with this
amendment, which includes approximately $2 million of unamortized
deferred debt issuance costs associated with the existing Credit
Facility. The write-off of debt issuance costs associated with
lenders that reduced their participation in the amended and
restated Credit Facility was not material. Although the amended and
restated Credit Facility included revisions to pricing as well as
certain financial covenants, the terms were generally consistent
with the $2.0 billion Credit Facility. At September 30, 2017, we
had no outstanding borrowings or letters of credit under our Credit
Facility.
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 Income (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) September 30, 2017
December 31, 2016 Total finance receivables, net(1) $ 3,672 $ 3,744
Equipment on operating leases, net 456 475
Total Finance
Assets, net(2) $ 4,128 $ 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 $190 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) September 30, 2017
December 31, 2016 Finance receivables debt(1) $ 3,213 $ 3,276
Equipment on operating leases debt 399 416 Financing debt
3,612 3,692 Core debt 2,386 2,624
Total Debt $ 5,998
$ 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
ReceivableAccounts 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
receivable 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, $476 million and $531
million remained uncollected as of September 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 $56 million and $48 million at September 30,
2017 and December 31, 2016, respectively. Accounts receivable sales
were as follows:
Three Months EndedSeptember 30,
(in millions) 2017 2016 Accounts receivable sales $
520 $ 516 Deferred proceeds 56 55 Loss on sales of accounts
receivable 3 4 Estimated decrease to operating cash flows(1) (77 )
(58 )
____________________________
(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.
In connection with the efforts of our Strategic Transformation
Program to reduce costs and simplify our business processes, we
decided to terminate all accounts receivable sales arrangements in
North America and most arrangements in Europe during the fourth
quarter 2017. The termination of these programs will result in a
one-time reduction of our operating cash flow for the full year
2017 of approximately $350 million.
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 Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2017, June
30, 2017 and our 2016 Annual Report on Form 10-K, as well as our
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. In April 2017,
Fujifilm publicly announced it had formed an independent
investigation committee (IIC) to primarily conduct a review of the
appropriateness of the accounting practices at Fuji Xerox’s New
Zealand subsidiary and at other subsidiaries. Fujifilm publicly
announced that the IIC completed its review during the second
quarter 2017 and identified aggregate adjustments to Fuji Xerox’s
financial statements of 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 adjustments primarily related to
misstatements at Fuji Xerox’s New Zealand and Australian
subsidiaries, 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 has been completed. However, Fujifilm
and Fuji Xerox continue to review Fujifilm’s oversight and
governance of Fuji Xerox as well as Fuji Xerox’s oversight and
governance over its businesses in light of the findings of the IIC.
In addition, at this time, we can provide no assurances relative to
the outcome of any potential governmental investigations or any
consequences thereof that may happen as a result of this
matter.
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 third 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 adjusted operating income and margin
measures by adjusting our reported pre-tax income and margin
amounts. In addition to the costs and expenses noted as adjustments
for our Adjusted Earnings measures, adjusted 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. Adjusted 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.” This impact is calculated by
translating current period activity in local currency using the
comparable prior year period's currency translation rate. This
impact is calculated for all countries where the functional
currency is the local country currency. The constant currency
impact for signings growth is calculated on the basis of plan
currency rates. 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.
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 EndedSeptember 30,
2017
Three Months EndedSeptember 30, 2016
(in millions, except per share amounts) Net Income EPS Net
Income EPS
Reported(1) $ 176 $ 0.67 $ 175 $
0.66
Adjustments: Restructuring and related costs 36 25
Amortization of intangible assets 12 14 Non-service
retirement-related costs 37 34 Income tax on adjustments(2) (31 )
(27 ) Restructuring and other charges - Fuji Xerox(3) 6
2
Adjusted $ 236 $ 0.89 $
223 $ 0.84 Dividends on preferred stock used in adjusted EPS
calculation(4) $ — $ 6 Weighted average shares for adjusted EPS(4)
263 256 Fully diluted shares at end of period(5) 263
____________________________
(1) Net income and EPS from continuing operations attributable
to Xerox.(2) Refer to Effective Tax Rate reconciliation.(3) Other
charges in third quarter 2017 represent audit and other fees
associated with the independent investigation of Fuji Xerox's
accounting practices.(4) 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.(5)
Represents common shares outstanding at September 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 third quarter
2017.
Effective Tax Rate
reconciliation:
Three Months EndedSeptember 30, 2017
Three Months EndedSeptember 30, 2016
(in millions)
Pre-TaxIncome
Income TaxExpense
Effective TaxRate
Pre-TaxIncome
Income TaxExpense
Effective TaxRate
Reported(1) $ 167 $ 18 10.8 % $ 166 $ 28 16.9 %
Non-GAAP Adjustments(2) 85 31 73 27
Adjusted(3) $ 252 $ 49 19.4 % $ 239
$ 55 23.0 %
____________________________
(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 EndedSeptember 30,
2017 Three Months EndedSeptember 30, 2016 (in millions) Profit
Revenue Margin Profit Revenue Margin
Reported(1) $ 167 $ 2,497 6.7 % $ 166 $ 2,629 6.3 %
Adjustments: Restructuring and related costs 36 25
Amortization of intangible assets 12 14 Non-service
retirement-related costs 37 34 Equity in net income of
unconsolidated affiliates 30 40 Restructuring and other charges -
Fuji Xerox(2) 6 2 Other expenses, net 17 50
Adjusted $ 305 $ 2,497 12.2 % $ 331
$ 2,629 12.6 %
____________________________
(1) Pre-Tax Income and revenue from continuing operations.(2)
Other charges in third quarter 2017 represent audit and other fees
associated with the independent investigation of Fuji Xerox's
accounting practices.
Key Financial Ratios
reconciliation:
Three Months EndedSeptember 30,
2017 Three Months EndedSeptember 30, 2016 (in millions)
AsReported(1)
Non-serviceretirement-relatedcosts
Adjusted
AsReported(1)
Non-serviceretirement-relatedcosts
Adjusted Total Revenue 2,497 $ — $ 2,497 $ 2,629 $ — $ 2,629
Total Gross Profit 988 15 1,003 1,037 13 1,050 Post sale revenue
1,976 — 1,976 2,056 — 2,056 Post sale gross profit 837 15 852 853
13 866 RD&E 108 (5 ) 103 118 (7 ) 111 SAG 648 (17 ) 631 664 (14
) 650 Total Gross Margin 39.6 % 40.2 % 39.4 % 39.9 % Post
sale Gross Margin 42.4 % 43.1 % 41.5 % 42.1 % RD&E as a % of
Revenue 4.3 % 4.1 % 4.5 % 4.2 % SAG as a % of Revenue 26.0 % 25.3 %
25.3 % 24.7 %
____________________________
(1) Revenue and costs from continuing operations.
Change in Operating Cash Flows excluding
contributions to defined benefit pension plans
reconciliation:
Three Months EndedSeptember 30,
(in millions) 2017 2016 Change
Reported(1) $
(383 ) $ 210 $ (593 )
Adjustments: Contributions to defined
benefit pension plans (671 ) (34 ) (637 )
Adjusted $ 288
$ 244 $ 44
____________________________
(1) Net cash (used in) provided by operating activities of
continuing operations.
Guidance:
Earnings per Share FY 2017
GAAP EPS from Continuing Operations $1.97 -
$2.13 Non-GAAP Adjustments 1.31
Adjusted EPS from Continuing
Operations $3.28 - $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.
APPENDIX I
Xerox Corporation
Earnings per Common Share
(in millions except per share data, shares
in thousands)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2017 2016 2017 2016
Basic Earnings (Loss) per
Share: Net income from continuing operations attributable to
Xerox $ 176 $ 175 $ 388 $ 437 Accrued dividends on preferred stock
(4 ) (6 ) (11 ) (18 ) Adjusted net income from continuing
operations available to common shareholders $ 172 $ 169 $ 377 $ 419
Net income (loss) from discontinued operations attributable to
Xerox 3 8 (3 ) (65 ) Adjusted net income available to
common shareholders $ 175 $ 177 $ 374 $ 354
Weighted average common shares outstanding 254,510 253,430
254,259 253,340
Basic Earnings (Loss) per Share: Continuing
operations $ 0.68 $ 0.66 $ 1.49 $ 1.65 Discontinued operations 0.01
0.03 (0.01 ) (0.25 ) Total $ 0.69 $ 0.69
$ 1.48 $ 1.40
Diluted Earnings (Loss) per
Share: Net income from continuing operations attributable to
Xerox $ 176 $ 175 $ 388 $ 437 Accrued dividends on preferred stock
— (6 ) (11 ) (18 ) Adjusted net income from continuing
operations available to common shareholders $ 176 $ 169 $ 377 $ 419
Net income (loss) from discontinued operations attributable to
Xerox 3 8 (3 ) (65 ) Adjusted net income available to
common shareholders $ 179 $ 177 $ 374 $ 354
Weighted average common shares outstanding 254,510 253,430
254,259 253,340 Common shares issuable with respect to: Stock
options — 150 — 173 Restricted stock and performance shares 2,133
2,744 2,170 2,081 Convertible preferred stock 6,742 —
— — Adjusted weighted average common shares
outstanding 263,385 256,324 256,429 255,594
Diluted Earnings (Loss) per Share: Continuing
operations $ 0.67 $ 0.66 $ 1.47 $ 1.64 Discontinued operations 0.01
0.03 (0.01 ) (0.26 ) Total $ 0.68 $ 0.69
$ 1.46 $ 1.38
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 — 327 — 304 Restricted stock and performance shares
3,890 5,658 3,852 6,321 Convertible preferred stock — 6,742
6,742 6,742 Total Anti-Dilutive Securities
3,890 12,727 10,594 13,367
Dividends per Common Share $ 0.25 $ 0.31 $
0.75 $ 0.93
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(As
Previously Presented in our Second-Quarter 2017 Earnings
Release)
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)
AsReported
Adjustment (1)
As Revised
AsReported
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)
AsReported
Adjustment As Revised
AsReported
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)
AsReported
Adjustment As Revised
AsReported
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)
AsReported
Adjustment As Revised
AsReported
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)
AsReported
Adjustment As Revised
AsReported
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)
AsReported
Adjustment As Revised
AsReported
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/20171026005686/en/
XeroxMedia:Carl Langsenkamp,
+1-585-423-5782carl.langsenkamp@xerox.comorInvestor:Jennifer
Horsley, +1-203-849-2656jennifer.horsley@xerox.com
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