Document




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
_______________
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to
Commission File Number 001-04471
  xrxlogoaa02a01a01a01a11.jpg
XEROX CORPORATION
(Exact Name of Registrant as specified in its charter)
New York
 
16-0468020
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
P.O. Box 4505, 201 Merritt 7
Norwalk, Connecticut
 
06851-1056
(Address of principal executive offices)
 
(Zip Code)
(203) 968-3000
(Registrant’s telephone number, including area code)
_________________________________________________  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
(Do not check if smaller reporting company)
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x
Class
 
Outstanding at June 30, 2017
Common Stock, $1 par value
 
254,169,785 shares






FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and any exhibits to this Report may contain "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 (BPO) 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 this Quarterly Report on Form 10-Q, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and our 2016 Annual Report on Form 10-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 has been completed. However, 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.


Xerox 2017 Form 10-Q
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XEROX CORPORATION
FORM 10-Q
June 30, 2017
TABLE OF CONTENTS
 
 
Page
 
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
For additional information about Xerox Corporation and access to our Annual Reports to Shareholders and SEC filings, free of charge, please visit our website at www.xerox.com/investor. Any information on or linked from the website is not incorporated by reference into this Form 10-Q.
 

Xerox 2017 Form 10-Q
2





PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

XEROX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 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 and Equity Income
 
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

Net loss from discontinued operations
 

 
(38
)
 
(6
)
 
(73
)
Net Income Attributable to Xerox
 
$
166

 
$
158

 
$
206

 
$
189

 
 
 
 
 
 
 
 
 
Basic Earnings (Loss) per Share(1):
 
 
 
 
 
 
 
 
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(1):
 
 
 
 
 
 
 
 
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) Reflects our one-for-four reverse stock split that became effective on June 14, 2017. Refer to Note 1 - Basis of Presentation for further information.


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


Xerox 2017 Form 10-Q
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XEROX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 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(1):
 

 

 

 

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

__________________________

(1) Refer to Note 16 - Other Comprehensive Income (Loss) for gross components of Other Comprehensive Income (Loss), reclassification adjustments out of Accumulated Other Comprehensive Loss and related tax effects.


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


Xerox 2017 Form 10-Q
4





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

 
 
 
 
 
Commitments and Contingencies (See Note 18)
 


 


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


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 

Xerox 2017 Form 10-Q
5





XEROX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 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 proceeds on short-term debt
 

 
249

 
1

 
998

Proceeds from issuance of long-term debt
 
2

 
5

 
5

 
9

Payments on long-term debt
 
(2
)
 
(257
)
 
(1,330
)
 
(965
)
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


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Xerox 2017 Form 10-Q
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XEROX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per-share data and where otherwise noted)

Note 1 – Basis of Presentation
References herein to “we,” “us,” “our,” the “company” and “Xerox” refer to Xerox Corporation and its consolidated subsidiaries unless the context suggests otherwise.
We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the accounting policies described in our 2016 Annual Report on Form 10-K (2016 Annual Report), and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. You should read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements included in our 2016 Annual Report.
In our opinion, all adjustments which are necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented have been made. These adjustments consist of normal recurring items. Interim results of operations are not necessarily indicative of the results of the full year.
For convenience and ease of reference, we refer to the financial statement caption “Income before Income Taxes and Equity Income” as “pre-tax income.”
Overview
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”). The Separation and Distribution were structured to be tax-free for Xerox Corporation stockholders for federal income tax purposes. Conduent is now an independent public company trading on the New York Stock Exchange (“NYSE”) under the symbol “CNDT”. After the Separation, Xerox retained the DT/DO businesses and Xerox does not beneficially own any shares of Conduent common stock.
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. The accompanying Notes to the Condensed Consolidated Financial Statements have all been revised to reflect the effect of the Separation and Distribution and all prior year balances have been revised accordingly to reflect continuing operations only. The historical statements of Comprehensive Income (Loss) and Shareholders' Equity have not been revised to reflect the Separation and instead reflect the Separation and Distribution as a final adjustment to the balances at December 31, 2016. Refer to Note 5 - Divestitures for additional information regarding discontinued operations.
In connection with the Separation, Xerox entered into several agreements with Conduent to (1) effect the legal and structural separation of Xerox and Conduent, (2) govern the relationship between Xerox and Conduent up to and after the completion of the Separation and (3) allocate between Xerox and Conduent various assets, liabilities and obligations, including, among other things, employee benefits and tax-related assets and liabilities. The agreements entered into included a separation and distribution agreement, a transition service agreement, a tax matters agreement, an employee matters agreement, an intellectual property agreement and a trademark license agreement.
Segment Discussion
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,

Xerox 2017 Form 10-Q
7





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 operating decisions at the Board level.
Reverse Stock Split
On May 23, 2017, the Board of Directors authorized a reverse stock split of the issued and 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 Shareholder 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 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 in the accompanying Condensed Consolidated Financial Statements have been adjusted to reflect this reverse stock split for all prior periods presented.
Note 2 – 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 $301, which represented our estimated share at that time of the cumulative Fujifilm adjustments from this initial review of JPY 22 billion (approximately $200 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 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 $902 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 in net income of unconsolidated affiliates in prior years and the first quarter of 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. The effect of the revision on our previously issued financial statements is provided in the tables below. Amounts throughout the consolidated financial statements and notes thereto have been adjusted to incorporate the revised amounts, where applicable.
_____________
(1)
The difference between the $30 out-of-period adjustment recorded in the first quarter 2017 and the revision adjustment of $24 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 impact at March 31, 2017 is primarily due to currency and the impact of adjustments recorded directly by Xerox in the first quarter 2017.

Xerox 2017 Form 10-Q
8






Revised Annual Consolidated Statements of Income
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) from the previously reported amounts to the revised amounts:
 
 
Three Months Ended March 31, 2017
 
Year Ended December 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
)


 
 
Year Ended December 31, 2015
 
Year Ended December 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

_____________
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 basis.


Xerox 2017 Form 10-Q
9





Revised Consolidated Statements of Comprehensive Income (Loss)
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 Comprehensive Income (Loss) from the previously reported amounts to the revised amounts:
 
 
Three Months Ended March 31, 2017
 
Year Ended December 31, 2016
(in millions)
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Net Income (Loss)
 
$
18

 
$
24

 
$
42

 
$
(466
)
 
$
6

 
$
(460
)
Net Income (Loss) Attributable to Xerox
 
16

 
24

 
40

 
(477
)
 
6

 
(471
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Translation adjustments, net
 
$
136

 
$
(3
)
 
$
133

 
$
(346
)
 
$
(1
)
 
$
(347
)
Other Comprehensive Income (Loss), Net
 
170

 
(3
)
 
167

 
(235
)
 
(1
)
 
(236
)
Other Comprehensive Income (Loss), Net Attributable to Xerox
 
169

 
(3
)
 
166

 
(232
)
 
(1
)
 
(233
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss), Net
 
$
188

 
$
21

 
$
209

 
$
(701
)
 
$
5

 
$
(696
)
Comprehensive Income (Loss), Net Attributable to Xerox
 
185

 
21

 
206

 
(709
)
 
5

 
(704
)

 
 
Year Ended December 31, 2015
 
Year Ended December 31, 2014
(in millions)
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Net Income
 
$
492

 
$
(26
)
 
$
466

 
$
1,036

 
$
(18
)
 
$
1,018

Net Income Attributable to Xerox
 
474

 
(26
)
 
448

 
1,013

 
(18
)
 
995

 
 
 
 
 
 
 
 
 
 
 
 
 
Translation adjustments, net
 
$
(660
)
 
$
9

 
$
(651
)
 
$
(734
)
 
$
6

 
$
(728
)
Other Comprehensive Loss, Net
 
(484
)
 
9

 
(475
)
 
(1,381
)
 
6

 
(1,375
)
Other Comprehensive Loss, Net Attributable to Xerox
 
(483
)
 
9

 
(474
)
 
(1,380
)
 
6

 
(1,374
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss), Net
 
$
8

 
$
(17
)
 
$
(9
)
 
$
(345
)
 
$
(12
)
 
$
(357
)
Comprehensive Loss, Net Attributable to Xerox
 
(9
)
 
(17
)
 
(26
)
 
(367
)
 
(12
)
 
(379
)

Revised Consolidated Balance Sheets
The following table reconciles selected lines from the company’s Consolidated Balance Sheet at March 31, 2017 and December 31, 2016 and 2015 from the previously reported amounts to the revised amounts:
 
 
As of March 31, 2017
 
As of December 31, 2016
 
As of December 31, 2015
(in millions)
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Investments in affiliates, at equity
 
$
1,477

 
$
(73
)
 
$
1,404

 
$
1,388

 
$
(94
)
 
$
1,294

 
$
1,382

 
$
(99
)
 
$
1,283

Total Assets
 
15,916

 
(73
)
 
15,843

 
18,145

 
(94
)
 
18,051

 
25,541

 
(99
)
 
25,442

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retained earnings
 
$
4,987

 
$
(81
)
 
$
4,906

 
$
5,039

 
$
(105
)
 
$
4,934

 
$
9,686

 
$
(111
)
 
$
9,575

Accumulated other comprehensive loss
 
(4,179
)
 
8

 
(4,171
)
 
(4,348
)
 
11

 
(4,337
)
 
(4,642
)
 
12

 
(4,630
)
Xerox shareholders' equity
 
4,926

 
(73
)
 
4,853

 
4,803

 
(94
)
 
4,709

 
9,074

 
(99
)
 
8,975

Total Equity
 
4,966

 
(73
)
 
4,893

 
4,841

 
(94
)
 
4,747

 
9,117

 
(99
)
 
9,018

Total Liabilities and Equity
 
15,916

 
(73
)
 
15,843

 
18,145

 
(94
)
 
18,051

 
25,541

 
(99
)
 
25,442



Xerox 2017 Form 10-Q
10





Revised Consolidated Statements of Cash Flows from Operations
The revision did not have an impact on the company’s operating cash flows. The following table reconciles selected lines from the company’s first quarter of 2017 and fiscal years of 2016, 2015 and 2014 Consolidated Statements of Cash Flows from the previously reported amounts to the revised amounts:
 
 
Three Months Ended March 31, 2017
 
Year Ended December 31, 2016
(in millions)
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
 
$
18

 
$
24

 
$
42

 
$
(466
)
 
$
6

 
$
(460
)
Income from Continuing Operations
 
24

 
24

 
48

 
627

 
6

 
633

 
 
 
 
 
 
 
 
 
 
 
 
 
Undistributed equity in net income of unconsolidated affiliates
 
$
(16
)
 
$
(24
)
 
$
(40
)
 
$
(69
)
 
$
(6
)
 
$
(75
)

 
 
Year Ended December 31, 2015
 
Year Ended December 31, 2014
(in millions)
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
$
492

 
$
(26
)
 
$
466

 
$
1,036

 
$
(18
)
 
$
1,018

Income from Continuing Operations
 
866

 
(26
)
 
840

 
1,052

 
(18
)
 
1,034

 
 
 
 
 
 
 
 
 
 
 
 
 
Undistributed equity in net income of unconsolidated affiliates
 
$
(79
)
 
$
26

 
$
(53
)
 
$
(91
)
 
$
18

 
$
(73
)

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 Ended March 31, 2016
 
Three Months Ended June 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


Xerox 2017 Form 10-Q
11





 
 
Three Months Ended September 30, 2016
 
Three Months Ended December 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
)
 
 
Three Months Ended March 31, 2015
 
Three Months Ended June 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

 
 
Three Months Ended September 30, 2015
 
Three Months Ended December 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