[October 28, 2016] |
|
Xerox Reports Third-Quarter 2016 Earnings
Xerox
(NYSE:XRX) announced today its third-quarter financial results and
reaffirmed its full-year guidance. The company reported continued
progress on its strategic transformation program and remains on track to
complete its planned separation into two independent, publicly traded
companies by year end.
"In an important period for Xerox when our separation-related activities
ramped up significantly, we delivered solid financial results despite
challenging market conditions. This reflects our commitment to executing
on all aspects of our ambitious agenda, including our strategic
transformation and achieving our 2016 financial objectives," said Ursula
Burns, Xerox chairman and chief executive officer.
Xerox reported third-quarter GAAP EPS from continuing operations of 17
cents, up 21 cents compared to the same period last year, primarily due
to a prior-year charge related to the company's Health Enterprise
strategy change. Adjusted EPS of 27 cents was within the company's
guidance and in line with the same period last year. Adjusted EPS
excluded $105 million or 10 cents per share of after-tax costs related
to the amortization of intangibles, restructuring and related costs,
certain retirement related costs and separation costs.
Burns added, "As we move toward 2017, we remain intensely focused on
implementing our strategic priorities to position both new companies for
improved profitability and long-term growth that will create sustainable
value for our shareholders."
Third-Quarter Results Third-quarter total revenue of $4.2
billion was down 3 percent year-over-year, or 4 percent on an adjusted
constant currency basis.
Operating margin of 9.2 percent was down 0.2 percentage points
year-over-year. Gross margin and selling, administrative and general
expenses were 31.0 percent and 19.6 percent of revenue, respectively.
Services
segment revenue of $2.4 billion was up 1 percent, or down 2 percent on
an adjusted constant currency basis. Services margin improved 1.6
percentage points year-over-year on an adjusted basis to 9.4 percent,
driven by significant productivity and cost savings across the company's BPO
business.
Document
Technology revenue was $1.6 billion, down 9 percent or 7 percent in
constant currency. Document Technology margin remained strong at 13.1
percent, down 0.8 percentage points year-over-year but up 0.5 percentage
points sequentially, reflecting continued productivity gains and cost
savings from the company's strategic transformation program.
Xerox generated cash flow from operations of $370 million during the
third quarter, up from $271 million in the same quarter last year. The
company ended the quarter with a cash balance of $1.4 billion.
Separation Update Xerox continued its progress toward the
planned separation and remains on track to complete it by year end.
Highlights include:
-
Xerox's credit ratings remain investment grade following recent
updates from the major rating agencies. Conduent
Incorporated is expected to be a high non-investment grade rated
company following the separation. These ratings are in line with
management's expectations.
-
Brian
Webb-Walsh will serve as chief financial officer of Conduent, upon
completion of the separation. Webb-Walsh is currently the CFO for
Xerox Services and has twenty years of experience with the company in
various finance roles.
-
Several amendments to Conduent's Form
10 registration statement have been filed with the U.S. Securities
and Exchange Commission. They included additional information about
Conduent's pro-forma capitalization and financial results and named
the majority of its executive officers and seven out of the nine
directors that will form Conduent's board.
-
The company unveiled the new Conduent
logo and visual identity which will distinguish the brand and
provide a means for describing the company's positioning, business
model and key stakeholders. Conduent's stock will trade on the New
York Stock Exchange (NYSE) under the symbol "CNDT." Xerox will
continue to trade on the NYSE as "XRX."
2016 Guidance For fourth-quarter 2016, Xerox expects GAAP
earnings of 11 to 14 cents per share and adjusted EPS of 32 to 35 cents
per share.
The company narrowed its full-year guidance for GAAP EPS to 45 to 48
cents per share and for full-year adjusted EPS to $1.11 to $1.14.
Xerox continues to expect full-year 2016 cash flow from operations of
$950 million to $1.2 billion and free cash flow of $600 to $850 million.
About Xerox Xerox is helping change the way the world works.
By applying our expertise in imaging, business process, analytics,
automation and user-centric insights, we engineer the flow of work to
provide greater productivity, efficiency and personalization. Our
employees create meaningful innovations and provide business
process services, printing
equipment, software
and solutions that make a real difference for our clients and their
customers in 180 countries. On January 29, 2016, Xerox announced its
plans to separate into two independent, publicly traded companies -
Xerox Corporation, which will be comprised of the company's Document
Technology and Document Outsourcing businesses, and Conduent
Incorporated, a business process services company. Learn more at www.xerox.com.
Non-GAAP Measures As previously noted, the third quarter
2015 results included a charge related to a change in our Health
Enterprise strategy. The charge was $389 million pre-tax ($241 million
after-tax or 23 cents per share) and included a $116 million reduction
in revenue. The impact of this charge has been excluded from
third-quarter 2015 total revenue, operating margin, EPS, Services
segment revenues and margin when making comparisons of the current
quarter's results against the prior year.
This release also refers to the following additional non-GAAP financial
measures:
-
Adjusted EPS, for the third quarter 2016 as well as for the fourth
quarter and full-year 2016 guidance, which excludes the amortization
of intangibles, restructuring and related costs, certain retirement
related costs as well as separation costs.
-
Operating margin, for the third quarter 2016, that excludes other
expenses, net in addition to the EPS adjustments noted above.
-
Constant currency revenue growth for the third quarter 2016, which
excludes the effects of currency translation.
-
Free cash flow for the full year 2016 guidance, which is cash flow
from operations less capital expenditures including internal use
software.
Refer to the "Non-GAAP Financial Measures" section of this release for a
further discussion of these non-GAAP measures and their reconciliation
to the reported GAAP measure.
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, including with respect to
the proposed separation of the Business Process Outsourcing ("BPO")
business from the Document Technology and Document Outsourcing business,
the expected timetable for completing the separation, the future
financial and operating performance of each business, the strategic and
competitive advantages of each business, future opportunities for each
business and the expected amount of cost reductions that may be realized
in the cost transformation program, and are subject to a number of
factors that may cause actual results to differ materially. Such factors
include but are not limited to: changes in economic conditions,
political conditions, trade protection measures, licensing requirements
and tax matters 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 our bids do not accurately estimate the resources and costs
required to implement and service very complex, multi-year governmental
and commercial contracts, often in advance of the final determination of
the full scope and design of such contracts or as a result of the scope
of such contracts being changed during the life of such contracts; the
risk that subcontractors, software vendors and utility and network
providers will not perform in a timely, quality manner; service
interruptions; 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 and the relocation of our service delivery
centers; 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; the risk in
the hiring and retention of qualified personnel; the risk that
unexpected costs will be incurred; our ability to recover capital
investments; the risk that our Services business could be adversely
affected if we are unsuccessful in managing the start-up of new
contracts; the collectability of our receivables for unbilled services
associated with very large, multi-year contracts; reliance on third
parties, including subcontractors, for manufacturing of products and
provision of services; our ability to expand equipment placements;
interest rates, cost of borrowing and access to credit markets; the risk
that our products may not comply with applicable worldwide regulatory
requirements, particularly environmental regulations and directives; the
outcome of litigation and regulatory proceedings to which we may be a
party; the possibility that the proposed separation of the BPO business
from the Document Technology and Document Outsourcing business will not
be consummated within the anticipated time period or at all, including
as the result of regulatory, market or other factors; the potential for
disruption to our business in connection with the proposed separation;
the potential that BPO and Document Technology and Document Outsourcing
do not realize all of the expected benefits of the separation; 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, 2016 and June 30, 2016 and our 2015 Annual Report on Form 10-K
filed with the SEC. Such factors also include, but are not limited to,
the factors that are set forth in the "Risk Factors" section, the "Legal
Proceedings" section and other sections of the Conduent Incorporated
Form 10 Registration Statement, as amended, filed with the 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.
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://simplifywork.blogs.xerox.com,
http://www.facebook.com/XeroxCorp,
http://www.youtube.com/XeroxCorp.
Xerox® and Xerox and Design® are trademarks of
Xerox in the United States and/or other countries. Conduent is a
trademark of Xerox Business Services, LLC in the United States and/or
other countries.
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Xerox Corporation
|
|
Condensed Consolidated Statements of Income (Loss) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
(in millions, except per-share data)
|
|
|
2016
|
|
2015
|
|
% Change
|
|
2016
|
|
2015
|
|
% Change
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
$
|
1,076
|
|
|
$
|
1,150
|
|
|
(6
|
)%
|
|
$
|
3,242
|
|
|
$
|
3,500
|
|
|
(7
|
)%
|
Outsourcing, maintenance and rentals
|
|
|
3,053
|
|
|
3,098
|
|
|
(1
|
)%
|
|
9,388
|
|
|
9,630
|
|
|
(3
|
)%
|
Financing
|
|
|
83
|
|
|
85
|
|
|
(2
|
)%
|
|
248
|
|
|
262
|
|
|
(5
|
)%
|
Total Revenues
|
|
|
4,212
|
|
|
4,333
|
|
|
(3
|
)%
|
|
12,878
|
|
|
13,392
|
|
|
(4
|
)%
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
657
|
|
|
721
|
|
|
(9
|
)%
|
|
1,988
|
|
|
2,171
|
|
|
(8
|
)%
|
Cost of outsourcing, maintenance and rentals
|
|
|
2,216
|
|
|
2,592
|
|
|
(15
|
)%
|
|
6,839
|
|
|
7,316
|
|
|
(7
|
)%
|
Cost of financing
|
|
|
32
|
|
|
33
|
|
|
(3
|
)%
|
|
97
|
|
|
98
|
|
|
(1
|
)%
|
Research, development and engineering expenses
|
|
|
126
|
|
|
135
|
|
|
(7
|
)%
|
|
388
|
|
|
418
|
|
|
(7
|
)%
|
Selling, administrative and general expenses
|
|
|
827
|
|
|
855
|
|
|
(3
|
)%
|
|
2,571
|
|
|
2,676
|
|
|
(4
|
)%
|
Restructuring and related costs
|
|
|
32
|
|
|
20
|
|
|
60
|
%
|
|
229
|
|
|
191
|
|
|
20
|
%
|
Amortization of intangible assets
|
|
|
77
|
|
|
77
|
|
|
-
|
%
|
|
244
|
|
|
233
|
|
|
5
|
%
|
Separation costs
|
|
|
39
|
|
|
-
|
|
|
*
|
|
75
|
|
|
-
|
|
|
*
|
|
Other expenses, net
|
|
|
56
|
|
|
73
|
|
|
(23
|
)%
|
|
168
|
|
|
187
|
|
|
(10
|
)%
|
Total Costs and Expenses
|
|
|
4,062
|
|
|
4,506
|
|
|
(10
|
)%
|
|
12,599
|
|
|
13,290
|
|
|
(5
|
)%
|
Income (Loss) Before Income Taxes & Equity Income(1)
|
|
|
150
|
|
|
(173
|
)
|
|
*
|
|
279
|
|
|
102
|
|
|
*
|
|
Income tax expense (benefit)
|
|
|
5
|
|
|
(105
|
)
|
|
*
|
|
(1
|
)
|
|
(75
|
)
|
|
(99
|
)%
|
Equity in net income of unconsolidated affiliates
|
|
|
39
|
|
|
40
|
|
|
(3
|
)%
|
|
98
|
|
|
103
|
|
|
(5
|
)%
|
Income (Loss) from Continuing Operations
|
|
|
184
|
|
|
(28
|
)
|
|
*
|
|
378
|
|
|
280
|
|
|
35
|
%
|
Loss from discontinued operations, net of tax
|
|
|
-
|
|
|
(3
|
)
|
|
*
|
|
-
|
|
|
(64
|
)
|
|
*
|
|
Net Income (Loss)
|
|
|
184
|
|
|
(31
|
)
|
|
*
|
|
378
|
|
|
216
|
|
|
75
|
%
|
Less: Net income attributable to noncontrolling interests
|
|
|
3
|
|
|
3
|
|
|
-
|
%
|
|
8
|
|
|
13
|
|
|
(38
|
)%
|
Net Income (Loss) Attributable to Xerox
|
|
|
$
|
181
|
|
|
$
|
(34
|
)
|
|
*
|
|
$
|
370
|
|
|
$
|
203
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to Xerox:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
$
|
181
|
|
|
$
|
(31
|
)
|
|
*
|
|
$
|
370
|
|
|
$
|
267
|
|
|
39
|
%
|
Loss from discontinued operations, net of tax
|
|
|
-
|
|
|
(3
|
)
|
|
*
|
|
-
|
|
|
(64
|
)
|
|
*
|
|
Net Income (Loss) Attributable to Xerox
|
|
|
$
|
181
|
|
|
$
|
(34
|
)
|
|
*
|
|
$
|
370
|
|
|
$
|
203
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
*
|
|
$
|
0.35
|
|
|
$
|
0.23
|
|
|
52
|
%
|
Discontinued operations
|
|
|
-
|
|
|
-
|
|
|
*
|
|
-
|
|
|
(0.06
|
)
|
|
*
|
|
Total Basic Earnings (Loss) per Share
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
*
|
|
$
|
0.35
|
|
|
$
|
0.17
|
|
|
*
|
|
Diluted Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
*
|
|
$
|
0.34
|
|
|
$
|
0.23
|
|
|
48
|
%
|
Discontinued operations
|
|
|
-
|
|
|
-
|
|
|
*
|
|
-
|
|
|
(0.06
|
)
|
|
*
|
|
Total Diluted Earnings (Loss) per Share
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
*
|
|
$
|
0.34
|
|
|
$
|
0.17
|
|
|
100
|
%
|
* Percent change not meaningful. (1) Referred to as
"Pre-Tax Income (Loss)" throughout the remainder of this document.
|
|
|
|
|
|
Xerox Corporation
|
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
(in millions)
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income (loss)
|
|
|
$
|
184
|
|
|
$
|
(31
|
)
|
|
$
|
378
|
|
|
$
|
216
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
3
|
|
|
3
|
|
|
8
|
|
|
13
|
|
Net Income (Loss) Attributable to Xerox
|
|
|
181
|
|
|
(34
|
)
|
|
370
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive (Loss) Income, Net:
|
|
|
|
|
|
|
|
|
|
Translation adjustments, net
|
|
|
(22
|
)
|
|
(206
|
)
|
|
92
|
|
|
(521
|
)
|
Unrealized (losses) gains, net
|
|
|
(9
|
)
|
|
8
|
|
|
24
|
|
|
18
|
|
Changes in defined benefit plans, net
|
|
|
(15
|
)
|
|
97
|
|
|
(107
|
)
|
|
262
|
|
Other Comprehensive (Loss) Income, Net
|
|
|
(46
|
)
|
|
(101
|
)
|
|
9
|
|
|
(241
|
)
|
Less: Other comprehensive loss, net attributable to noncontrolling
interests
|
|
|
-
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Other Comprehensive (Loss) Income, Net Attributable to Xerox
|
|
|
(46
|
)
|
|
(100
|
)
|
|
10
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss), Net
|
|
|
138
|
|
|
(132
|
)
|
|
387
|
|
|
(25
|
)
|
Less: Comprehensive income, net attributable to noncontrolling
interests
|
|
|
3
|
|
|
2
|
|
|
7
|
|
|
12
|
|
Comprehensive Income (Loss), Net Attributable to Xerox
|
|
|
$
|
135
|
|
|
$
|
(134
|
)
|
|
$
|
380
|
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xerox Corporation
|
Condensed Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in millions, except share data in thousands)
|
|
2016
|
|
2015
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,423
|
|
|
$
|
1,368
|
|
Accounts receivable, net
|
|
2,466
|
|
|
2,319
|
|
Billed portion of finance receivables, net
|
|
99
|
|
|
97
|
|
Finance receivables, net
|
|
1,279
|
|
|
1,315
|
|
Inventories
|
|
1,019
|
|
|
942
|
|
Other current assets
|
|
721
|
|
|
644
|
|
Total current assets
|
|
7,007
|
|
|
6,685
|
|
Finance receivables due after one year, net
|
|
2,457
|
|
|
2,576
|
|
Equipment on operating leases, net
|
|
488
|
|
|
495
|
|
Land, buildings and equipment, net
|
|
958
|
|
|
996
|
|
Investments in affiliates, at equity
|
|
1,524
|
|
|
1,389
|
|
Intangible assets, net
|
|
1,528
|
|
|
1,765
|
|
Goodwill
|
|
8,688
|
|
|
8,823
|
|
Other long-term assets
|
|
1,992
|
|
|
2,060
|
|
Total Assets
|
|
$
|
24,642
|
|
|
$
|
24,789
|
|
Liabilities and Equity
|
|
|
|
|
Short-term debt and current portion of long-term debt
|
|
$
|
2,033
|
|
|
$
|
985
|
|
Accounts payable
|
|
1,312
|
|
|
1,614
|
|
Accrued compensation and benefits costs
|
|
647
|
|
|
651
|
|
Unearned income
|
|
401
|
|
|
428
|
|
Other current liabilities
|
|
1,389
|
|
|
1,576
|
|
Total current liabilities
|
|
5,782
|
|
|
5,254
|
|
Long-term debt
|
|
5,346
|
|
|
6,354
|
|
Pension and other benefit liabilities
|
|
2,738
|
|
|
2,513
|
|
Post-retirement medical benefits
|
|
744
|
|
|
785
|
|
Other long-term liabilities
|
|
389
|
|
|
417
|
|
Total Liabilities
|
|
14,999
|
|
|
15,323
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
349
|
|
|
349
|
|
|
|
|
|
|
Common stock
|
|
1,014
|
|
|
1,013
|
|
Additional paid-in capital
|
|
3,071
|
|
|
3,017
|
|
Retained earnings
|
|
9,801
|
|
|
9,686
|
|
Accumulated other comprehensive loss
|
|
(4,632
|
)
|
|
(4,642
|
)
|
Xerox shareholders' equity
|
|
9,254
|
|
|
9,074
|
|
Noncontrolling interests
|
|
40
|
|
|
43
|
|
Total Equity
|
|
9,294
|
|
|
9,117
|
|
Total Liabilities and Equity
|
|
$
|
24,642
|
|
|
$
|
24,789
|
|
|
|
|
|
|
Shares of common stock issued and outstanding
|
|
1,013,777
|
|
|
1,012,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xerox Corporation
|
Condensed Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
(in millions)
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
184
|
|
|
$
|
(31
|
)
|
|
$
|
378
|
|
|
$
|
216
|
|
Adjustments required to reconcile net income (loss) to cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
275
|
|
|
317
|
|
|
843
|
|
|
910
|
|
Provision for receivables
|
|
|
15
|
|
|
16
|
|
|
42
|
|
|
48
|
|
Provision for inventory
|
|
|
6
|
|
|
8
|
|
|
21
|
|
|
24
|
|
Net (gain) loss on sales of businesses and assets
|
|
|
(2
|
)
|
|
5
|
|
|
(18
|
)
|
|
67
|
|
Undistributed equity in net income of unconsolidated affiliates
|
|
|
(36
|
)
|
|
(37
|
)
|
|
(64
|
)
|
|
(71
|
)
|
Stock-based compensation
|
|
|
22
|
|
|
(8
|
)
|
|
49
|
|
|
37
|
|
Restructuring and asset impairment charges
|
|
|
13
|
|
|
20
|
|
|
199
|
|
|
191
|
|
Payments for restructurings
|
|
|
(55
|
)
|
|
(20
|
)
|
|
(120
|
)
|
|
(81
|
)
|
Contributions to defined benefit pension plans
|
|
|
(35
|
)
|
|
(50
|
)
|
|
(106
|
)
|
|
(148
|
)
|
(Increase) decrease in accounts receivable and billed portion of
finance receivables
|
|
|
(44
|
)
|
|
115
|
|
|
(312
|
)
|
|
(130
|
)
|
Collections of deferred proceeds from sales of receivables
|
|
|
58
|
|
|
58
|
|
|
191
|
|
|
192
|
|
Increase in inventories
|
|
|
(12
|
)
|
|
(61
|
)
|
|
(104
|
)
|
|
(254
|
)
|
Increase in equipment on operating leases
|
|
|
(74
|
)
|
|
(71
|
)
|
|
(204
|
)
|
|
(210
|
)
|
Decrease (increase) in finance receivables
|
|
|
53
|
|
|
(30
|
)
|
|
138
|
|
|
48
|
|
Collections on beneficial interest from sales of finance receivables
|
|
|
5
|
|
|
10
|
|
|
20
|
|
|
37
|
|
Decrease (increase) in other current and long-term assets
|
|
|
17
|
|
|
(34
|
)
|
|
(43
|
)
|
|
(94
|
)
|
Decrease in accounts payable and accrued compensation
|
|
|
(60
|
)
|
|
(67
|
)
|
|
(289
|
)
|
|
(105
|
)
|
(Decrease) increase in other current and long-term liabilities
|
|
|
(29
|
)
|
|
271
|
|
|
(215
|
)
|
|
188
|
|
Net change in income tax assets and liabilities
|
|
|
(19
|
)
|
|
(142
|
)
|
|
(93
|
)
|
|
(93
|
)
|
Net change in derivative assets and liabilities
|
|
|
49
|
|
|
(19
|
)
|
|
-
|
|
|
(17
|
)
|
Other operating, net
|
|
|
39
|
|
|
21
|
|
|
209
|
|
|
(22
|
)
|
Net cash provided by operating activities
|
|
|
370
|
|
|
271
|
|
|
522
|
|
|
733
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
Cost of additions to land, buildings and equipment
|
|
|
(52
|
)
|
|
(39
|
)
|
|
(153
|
)
|
|
(191
|
)
|
Proceeds from sales of land, buildings and equipment
|
|
|
3
|
|
|
7
|
|
|
23
|
|
|
23
|
|
Cost of additions to internal use software
|
|
|
(21
|
)
|
|
(26
|
)
|
|
(65
|
)
|
|
(71
|
)
|
Proceeds from sale of businesses
|
|
|
-
|
|
|
6
|
|
|
(53
|
)
|
|
939
|
|
Acquisitions, net of cash acquired
|
|
|
-
|
|
|
(153
|
)
|
|
(18
|
)
|
|
(201
|
)
|
Other investing, net
|
|
|
1
|
|
|
(1
|
)
|
|
5
|
|
|
28
|
|
Net cash (used in) provided by investing activities
|
|
|
(69
|
)
|
|
(206
|
)
|
|
(261
|
)
|
|
527
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
Net (payments) proceeds on debt
|
|
|
(1
|
)
|
|
(74
|
)
|
|
41
|
|
|
(171
|
)
|
Common stock dividends
|
|
|
(79
|
)
|
|
(84
|
)
|
|
(228
|
)
|
|
(231
|
)
|
Preferred stock dividends
|
|
|
(6
|
)
|
|
(6
|
)
|
|
(18
|
)
|
|
(18
|
)
|
Proceeds from issuances of common stock
|
|
|
3
|
|
|
3
|
|
|
6
|
|
|
17
|
|
Excess tax benefits from stock-based compensation
|
|
|
-
|
|
|
14
|
|
|
-
|
|
|
17
|
|
Payments to acquire treasury stock, including fees
|
|
|
-
|
|
|
(691
|
)
|
|
-
|
|
|
(1,302
|
)
|
Repurchases related to stock-based compensation
|
|
|
-
|
|
|
(49
|
)
|
|
-
|
|
|
(50
|
)
|
Distributions to noncontrolling interests
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(13
|
)
|
|
(57
|
)
|
Other financing
|
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
|
(1
|
)
|
Net cash used in financing activities
|
|
|
(84
|
)
|
|
(888
|
)
|
|
(213
|
)
|
|
(1,796
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
3
|
|
|
(14
|
)
|
|
7
|
|
|
(71
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
220
|
|
|
(837
|
)
|
|
55
|
|
|
(607
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,203
|
|
|
1,641
|
|
|
1,368
|
|
|
1,411
|
|
Cash and Cash Equivalents at End of Period
|
|
|
$
|
1,423
|
|
|
$
|
804
|
|
|
$
|
1,423
|
|
|
$
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Review
Separation Update
On January 29, 2016, Xerox announced plans for the complete legal and
structural separation of the Company's Business Process Outsourcing
(BPO) business, to be named Conduent Incorporated (Conduent), from its
Document Technology and Document Outsourcing (DT/DO) business, which
will retain the Xerox Corporation name. Each of the businesses will
operate as an independent, publicly-traded company. The transaction is
intended to be tax-free for Xerox shareholders for federal income tax
purposes.
During third quarter 2016, the CFO for Conduent was announced, and
several amendments to the Form 10 registration statement for Conduent
were filed with the U.S. Securities and Exchange Commission (SEC),
including one that provided additional information on its pro-forma
capitalization and results and another that named the majority of its
executive management and seven of nine of its directors. Also, Xerox's
credit ratings remain investment grade following recent updates from the
major rating agencies. Conduent is expected to be a high non-investment
grade rated company following the separation. These ratings are in line
with management's expectations. In addition, we released Conduent's
brand identity and announced that its stock would trade on the New York
Stock Exchange (NYSE) under the symbol "CNDT" while Xerox would continue
to trade on the NYSE as "XRX."
Xerox has begun the process to separate and is finalizing the
transaction structure, which is predicated on a spin-off of the BPO
business. To effect the separation, Xerox is currently undertaking a
series of internal transactions, following which Conduent will hold,
directly or through its subsidiaries, the BPO business. The separation
will be completed by way of a pro rata distribution of Conduent shares
held by Xerox to Xerox's shareholders.
Our objective is to complete the separation by year-end 2016, subject to
customary regulatory approvals, the effectiveness of the Form 10
registration statement with the SEC, tax considerations, securing any
necessary financing and final approval of the Xerox Board of Directors.
Until the separation is complete, we will continue to operate and report
as a single company, and it will continue to be business as usual for
our customers and employees.
In conjunction with the separation, Xerox also began a three-year
Strategic Transformation program targeting a cumulative $2.4 billion
savings across all segments. The program is inclusive of ongoing
activities and $600 million of incremental transformation initiatives.
2015 Health Enterprise (HE) Charge
Prior year results include a pre-tax charge (HE charge) of $389 million
($241 million after-tax or 23 cents per share)associated with our third
quarter 2015 decision to not fully complete the HE implementations in
California and Montana. The charge included a $116 million reduction to
revenues with the remaining $273 million recorded to costs of
outsourcing, maintenance and rentals. As a result of the significant
year-over-year impact of the HE charge on our reported revenues,
earnings and key metrics, we are also comparing our current year results
to adjusted prior year results, which exclude the HE charge. These
adjusted results and comparisons are noted as "adjusted" in the
discussion below.
Revenues
|
|
Three Months Ended September 30,
|
|
|
|
|
|
% of Total Revenue
|
|
|
|
|
|
|
%
|
|
CC %
|
|
|
|
|
(in millions)
|
|
2016
|
|
2015
|
|
Change
|
|
Change
|
|
2016
|
|
2015
|
Equipment sales
|
|
$
|
613
|
|
|
$
|
668
|
|
|
(8)%
|
|
(7)%
|
|
15%
|
|
15%
|
Annuity revenue
|
|
3,599
|
|
|
3,665
|
|
|
(2)%
|
|
(1)%
|
|
85%
|
|
85%
|
Total Revenue
|
|
$
|
4,212
|
|
|
$
|
4,333
|
|
|
(3)%
|
|
(2)%
|
|
100%
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
Sales
|
|
$
|
1,076
|
|
|
$
|
1,150
|
|
|
(6)%
|
|
(5)%
|
|
|
|
|
Less: Supplies, paper and other sales
|
|
(463
|
)
|
|
(482
|
)
|
|
(4)%
|
|
(2)%
|
|
|
|
|
Equipment Sales
|
|
$
|
613
|
|
|
$
|
668
|
|
|
(8)%
|
|
(7)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outsourcing, maintenance and rentals
|
|
$
|
3,053
|
|
|
$
|
3,098
|
|
|
(1)%
|
|
-%
|
|
|
|
|
Add: Supplies, paper and other sales
|
|
463
|
|
|
482
|
|
|
(4)%
|
|
(2)%
|
|
|
|
|
Add: Financing
|
|
83
|
|
|
85
|
|
|
(2)%
|
|
(2)%
|
|
|
|
|
Annuity Revenue
|
|
$
|
3,599
|
|
|
$
|
3,665
|
|
|
(2)%
|
|
(1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outsourcing, maintenance and rentals
|
|
$
|
3,053
|
|
|
$
|
3,214
|
|
|
(5)%
|
|
(4)%
|
|
|
|
|
Annuity revenue
|
|
$
|
3,599
|
|
|
$
|
3,781
|
|
|
(5)%
|
|
(4)%
|
|
85%
|
|
85%
|
Total Revenue
|
|
$
|
4,212
|
|
|
$
|
4,449
|
|
|
(5)%
|
|
(4)%
|
|
|
|
|
____________________________
(1)
|
|
See the "Non-GAAP Financial Measures" section for an explanation of
the non-GAAP financial measure.
|
CC - Constant Currency (See "Non-GAAP Financial Measures" section)
|
Third quarter 2016 total revenues decreased 3% as compared to third
quarter 2015. On an adjusted1 basis, excluding the third
quarter 2015 HE charge, total revenues decreased 5%, with a 1-percentage
point negative impact from currency. On a revenue-weighted basis, our
major European currencies and the Canadian Dollar were approximately 3%
weaker against the U.S. Dollar as compared to prior year. Revenues from
these major foreign currencies comprise approximately 25% of our total
consolidated revenues (revenues from the Pound Sterling represent
approximately 5% of the total), while overall non-U.S. revenues
represent almost one third of the total. Third quarter 2016 total
revenues reflect the following:
-
Annuity revenue decreased 2% as compared to third quarter 2015.
On an adjusted1 basis, annuity revenue decreased 5%, with a
1-percentage point negative impact from currency. Annuity revenue is
comprised of the following:
-
Outsourcing, maintenance and rentals revenue includes
outsourcing revenue within the Services segment and maintenance
revenue (including bundled supplies) and rental revenue, primarily
within the Document Technology segment. These revenues declined
1%, or 5% on an adjusted1 basis, with a 1-percentage
point negative impact from currency, primarily due to a continued
decline in the Document Technology segment as well as a modest
decline in the Services segment.
-
Supplies, paper and other sales includes unbundled supplies
and other sales, primarily within the Document Technology segment.
The 4% decline in these revenues included a 2-percentage point
negative impact from currency, reduced supplies demand as a result
of lower equipment sales in prior periods and lower OEM supplies
sales.
-
Financing revenue is generated from financed equipment sale
transactions primarily within the Document Technology segment. The
2% decline in these revenues reflected a declining finance
receivables balance due to lower equipment sales in prior periods.
-
Equipment sales revenue is reported primarily within our
Document Technology segment and the Document Outsourcing business
within our Services segment. Equipment sales revenue decreased 8% as
compared to third quarter 2015, with a 1-percentage point negative
impact from currency. The decline was driven by fewer large-account
sales in North America, lower OEM sales as well as overall price
declines that continue to be within our historical range of 5% to 10%.
These areas of decline were partially offset by modest growth in
developing markets.
Additional analysis of the change in revenue for each business segment
is included in the "Segment Review" section.
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)
|
|
|
|
|
2016
|
|
2015
|
|
B/(W)
|
|
2016
|
|
2015
|
|
B/(W)
|
Total Gross Margin
|
|
|
|
31.0
|
%
|
|
22.8
|
%
|
|
8.2 pts.
|
|
31.3
|
%
|
|
31.2
|
%
|
|
0.1 pts.
|
RD&E as a % of Revenue
|
|
|
|
3.0
|
%
|
|
3.1
|
%
|
|
0.1 pts.
|
|
2.8
|
%
|
|
2.9
|
%
|
|
0.1 pts.
|
SAG as a % of Revenue
|
|
|
|
19.6
|
%
|
|
19.7
|
%
|
|
0.1 pts.
|
|
19.3
|
%
|
|
18.9
|
%
|
|
(0.4) pts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income Margin
|
|
|
|
3.6
|
%
|
|
(4.0
|
)%
|
|
7.6 pts.
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin (1)
|
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
9.2
|
%
|
|
9.4
|
%
|
|
(0.2) pts.
|
____________________________
(1)
|
|
See the "Non-GAAP Financial Measures" section for an explanation of
the non-GAAP financial measure.
|
Pre-tax Income Margin Third
quarter 2016 pre-tax income margin of 3.6% increased 7.6-percentage
points as compared to third quarter 2015. The increase was primarily
driven by the third quarter 2015 HE charge of $389 million partially
offset by higher 2016 restructuring and related costs as well as
separation costs.
Pre-tax income margin includes the amortization of intangible assets,
restructuring and related costs, separation costs and other expenses,
net, all of which are separately discussed in subsequent sections.
Pre-tax income margin also includes non-service retirement related
costs, which increased by $4 million in third quarter 2016 as compared
to third quarter 2015. Operating margin, discussed below, excludes all
of these items.
Operating Margin Third quarter
2016 operating margin1 of 9.2% decreased 0.2-percentage
points as compared to third quarter 2015. Benefits from strategic
transformation cost and productivity initiatives were more than offset
by increased expense, particularly in SAG, due to favorable prior-year
compensation and benefit adjustments as well as the decline in total
company revenue.
Gross Margin Third quarter 2016
gross margin of 31.0% increased 8.2-percentage points as compared to
third quarter 2015. On an adjusted1 basis, gross margin of
31.3% increased by 0.1-percentage point. Services and Document
Technology gross margins each improved year-over-year driven by cost and
productivity improvements. These improvements were partially offset by
the higher proportion of our revenue from Services (which historically
has a lower gross margin).
Additional analysis of the change in gross margin for each business
segment is included in the "Segment Review" section.
Research, Development and Engineering Expenses
(RD&E) Third quarter 2016 RD&E as a percentage of
revenue of 3.0% decreased 0.1-percentage point from third quarter 2015.
On an adjusted1 basis, RD&E was 2.8% of revenue and decreased
0.1-percentage point due to restructuring savings and the higher mix of
Services revenue (which historically has lower RD&E as a percentage of
revenue).
RD&E of $126 million decreased by $9 million compared to third quarter
2015. On an adjusted1 basis, RD&E of $119 million decreased
by $10 million. We strategically coordinate R&D with Fuji Xerox.
Selling, Administrative and General Expenses
(SAG) SAG as a percentage of revenue of 19.6% decreased
by 0.1-percentage point from third quarter 2015. On an adjusted1
basis, SAG was 19.3% of revenue and increased 0.4-percentage points.
Restructuring and productivity improvements and a higher mix of Services
revenue (which historically has lower SAG as a percentage of revenue)
were more than offset by higher compensation and benefit expense and the
decline in total company revenue.
SAG of $827 million was $28 million lower than third quarter 2015. On an
adjusted1 basis, SAG of $813 million decreased $28 million,
including a $15 million favorable impact from currency and reflected the
following:
-
$33 million decrease in selling expenses.
-
$4 million increase in general and administrative expenses.
-
$1 million increase in bad debt expense. Third quarter 2016 bad debt
expense remained at less than one percent of receivables.
Restructuring and Related Costs Restructuring
and related costs of $32 million include restructuring and asset
impairment charges of $13 million as well as $19 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 included $21 million of severance costs related to headcount
reductions of approximately 550 employees worldwide. Approximately 75%
of the charges were related to our Document Technology segment and 25%
to our Services segment. The third quarter 2016 actions impacted several
functional areas, with approximately 40% of the costs focused on gross
margin improvements and approximately 50% on SAG reductions, with the
remainder focused on RD&E optimization. These costs were partially
offset by $8 million of net reversals for changes in estimated reserves
from prior period initiatives.
During third quarter 2015, we recorded net restructuring and asset
impairment charges of $20 million, which included approximately $16
million of severance costs related to headcount reductions of
approximately 780 employees primarily related to the Services segment,
$1 million of lease cancellation costs and $7 million of asset
impairments which were primarily related to a surplus Canadian facility.
These costs were partially offset by $4 million of net reversals for
changes in estimated reserves from prior period initiatives.
The restructuring reserve balance as of September 30, 2016 for all
programs was $103 million, of which $98 million is expected to be spent
over the next twelve months.
We continue to expect restructuring and related costs of approximately
$300 million for full-year 2016.
Separation costs Separation
costs are primarily for third-party investment banking, accounting,
legal, consulting and other similar types of services related to the
separation transaction as well as costs associated with the operational
separation of the two companies, such as those related to human
resources, brand management, real estate and information management to
the extent not capitalized. Separation costs also include the costs
associated with bonuses and restricted stock grants awarded to employees
for retention through the separation.
During third quarter and year-to-date 2016, we recorded separation costs
of $39 million and $75 million, respectively. For full-year 2016, we
continue to expect to incur separation costs of approximately $175 to
$200 million, which exclude tax-related separation costs discussed below
in Income Taxes. We also continue to anticipate
separation-related capital spending of approximately $50 million for
full-year 2016.
Amortization of Intangible Assets Third
quarter 2016 amortization of intangible assets of $77 million was flat
compared to third quarter 2015.
Worldwide Employment Worldwide
employment was approximately 131,800 as of September 30, 2016 and
decreased by 11,800 from December 31, 2015, due to the impact of
restructuring and productivity-related reductions as well as seasonal
reductions.
Other Expenses, Net
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
(in millions)
|
|
|
|
2016
|
|
2015
|
Non-financing interest expense
|
|
|
|
$
|
49
|
|
|
$
|
55
|
|
Interest income
|
|
|
|
(3
|
)
|
|
(2
|
)
|
Gains on sales of businesses and assets (1)
|
|
|
|
(2
|
)
|
|
-
|
|
Currency losses, net
|
|
|
|
3
|
|
|
3
|
|
Litigation matters
|
|
|
|
3
|
|
|
6
|
|
Loss on sales of accounts receivables
|
|
|
|
4
|
|
|
3
|
|
Deferred compensation investment (gains) losses
|
|
|
|
(2
|
)
|
|
5
|
|
All other expenses, net
|
|
|
|
4
|
|
|
3
|
|
Total Other Expenses, Net
|
|
|
|
$
|
56
|
|
|
$
|
73
|
|
____________________________
(1)
|
|
Excludes the loss on sale of the ITO business reported in
Discontinued Operations.
|
Non-financing interest expense Third
quarter 2016 non-financing interest expense of $49 million was $6
million lower than third quarter 2015. When combined with financing
interest expense (cost of financing), total company interest expense
declined by $7 million from third quarter 2015 driven by a lower average
cost of debt, primarily due to a lower rate on our one-year $1.0 billion
senior unsecured term facility and a lower debt balance.
Deferred compensation investment Third
quarter 2016 deferred compensation gains were $7 million higher than
third quarter 2015 due to the performance of the underlying investments.
Income Taxes
Third quarter 2016 effective tax rate was 3.3%. On an adjusted1
basis, third quarter 2016 tax rate was 25.3%. 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
effective tax rate of 3.3% also included tax-related separation costs,
which are discussed below.
Third quarter 2015 effective tax rate was 60.7% which was higher than
the U.S. statutory tax rate primarily due to the discrete tax benefit
associated with the HE charge. On an adjusted1 basis, third
quarter 2015 tax rate was 27.1%, which was lower than the U.S. statutory
tax rate primarily due to foreign tax credits resulting from anticipated
dividends from our foreign subsidiaries, the geographical mix of profits
and the reversal of a deferred tax valuation allowance, partially offset
by additions to unrecognized tax positions.
Our effective tax rate is based on nonrecurring events as well as
recurring factors, including the taxation of foreign income. In
addition, our effective tax rate will change based on discrete or other
nonrecurring events that may not be predictable. Excluding the effects
of intangibles amortization, restructuring and related costs,
non-service retirement related costs, separation costs and other
discrete items, we anticipate that our adjusted1 effective
tax rate will be approximately 25% to 27% for fourth quarter 2016 and
approximately 23% to 25% for full year 2016.
Tax-related Separation Costs We
recorded a deferred tax benefit/asset of $15 million related to our
separation costs for third quarter 2016 and $29 million for the 2016
year-to-date period. We estimate half of the year-to-date deferred tax
asset will be eliminated at the time the separation is executed, as
certain separation costs are expected to be non-deductible.
In connection with the actual legal separation of the company, we expect
to effect certain internal reorganizations of, and transactions among,
our wholly-owned subsidiaries and operating activities in preparation
for the legal form of separation. Although we believe that, for the most
part, this reorganization of entities can be completed in a tax-free
manner, we do expect to incur incremental income tax expense associated
with certain elements of the reorganization. Accordingly, for
year-to-date 2016, we recorded $24 million, including a $2 million
credit in third quarter 2016, for the estimated income tax on the
book/tax basis differences currently associated with our investments in
certain subsidiaries that are expected to be impacted by these internal
reorganizations. Upon final separation of the company, we also expect to
recognize additional income tax expense in certain state and
international jurisdictions primarily related to the change in
realizability of certain deferred tax assets. At present, we estimate
that this additional income tax expense will be approximately $15 to $25
million, for a total of approximately $40 to $50 million for full-year
2016.
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 2016 equity income of
$39 million was $1 million lower than third quarter 2015, including a $2
million charge related to our share of Fuji Xerox after-tax
restructuring in both periods.
Net Income
Third quarter 2016 net income from continuing operations attributable to
Xerox was $181 million, or $0.17 per diluted share. On an adjusted1
basis, net income from continuing operations attributable to Xerox was
$286 million, or $0.27 per diluted share. Third quarter 2016 adjustments
to net income include the amortization of intangible assets,
restructuring and related costs, non-service retirement related costs
and separation costs.
Third quarter 2015 net loss from continuing operations attributable to
Xerox was $31 million, or $0.04 per diluted share. On an adjusted1
basis, net income from continuing operations attributable to Xerox was
$289 million, or $0.27 per diluted share. Third quarter 2015 adjustments
to net income include the amortization of intangible assets,
restructuring and related costs, the HE charge and non-service
retirement related costs.
The Net Income (Loss) and EPS reconciliation table in the
"Non-GAAP Financial Measures" section contains the third quarter
adjustments to net income.
The calculations of basic and diluted earnings per share are included as
Appendix I. See the "Non-GAAP Financial Measures" section for
calculation of adjusted EPS.
Discontinued Operations
Information Technology Outsourcing (ITO):
In fourth quarter 2014, we announced an agreement to sell the ITO
business to Atos and began reporting it as a Discontinued Operation. All
prior periods were accordingly revised to conform to this presentation.
The sale was completed on June 30, 2015.
There were no Discontinued Operations as of September 30, 2016.
Summarized financial information for our Discontinued Operations for the
three months ended September 30, 2015 is as follows:
|
|
Three Months Ended September 30, 2015
|
(in millions)
|
|
ITO
|
|
Other
|
|
Total
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Loss on disposal
|
|
(5
|
)
|
|
-
|
|
|
(5
|
)
|
Net loss before income taxes
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
|
$
|
(5
|
)
|
Income tax benefit
|
|
2
|
|
|
-
|
|
|
2
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(3
|
)
|
|
$
|
-
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Review
In first quarter 2016, we revised our segment reporting to reflect the
following changes:
-
The transfer of the Education/Student Loan business from the Services
segment to Other as a result of the expected continued run-off of this
business. The business does not meet the threshold for separate
segment reporting.
-
The exclusion of the non-service elements of our defined-benefit
pension and retiree-health plan costs from Segment profit.
Prior year amounts were revised accordingly to reflect these changes.
|
|
Three Months Ended September 30,
|
|
|
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
Annuity
|
|
Total
|
|
% of Total
|
|
Segment
|
|
Segment
|
(in millions)
|
|
Revenue
|
|
Revenue
|
|
Revenues
|
|
Revenue
|
|
Profit (Loss)
|
|
Margin
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
116
|
|
|
$
|
2,282
|
|
|
$
|
2,398
|
|
|
57
|
%
|
|
$
|
226
|
|
|
9.4
|
%
|
Document Technology
|
|
453
|
|
|
1,173
|
|
|
1,626
|
|
|
39
|
%
|
|
213
|
|
|
13.1
|
%
|
Other
|
|
44
|
|
|
144
|
|
|
188
|
|
|
4
|
%
|
|
(65
|
)
|
|
(34.6
|
)%
|
Total
|
|
$
|
613
|
|
|
$
|
3,599
|
|
|
$
|
4,212
|
|
|
100
|
%
|
|
$
|
374
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
117
|
|
|
$
|
2,250
|
|
|
$
|
2,367
|
|
|
55
|
%
|
|
$
|
(196
|
)
|
|
(8.3
|
)%
|
Document Technology
|
|
525
|
|
|
1,253
|
|
|
1,778
|
|
|
41
|
%
|
|
248
|
|
|
13.9
|
%
|
Other
|
|
26
|
|
|
162
|
|
|
188
|
|
|
4
|
%
|
|
(55
|
)
|
|
(29.3
|
)%
|
Total
|
|
$
|
668
|
|
|
$
|
3,665
|
|
|
$
|
4,333
|
|
|
100
|
%
|
|
$
|
(3
|
)
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
117
|
|
|
$
|
2,366
|
|
|
$
|
2,483
|
|
|
56
|
%
|
|
$
|
193
|
|
|
7.8
|
%
|
Total
|
|
$
|
668
|
|
|
$
|
3,781
|
|
|
$
|
4,449
|
|
|
N/A
|
|
$
|
386
|
|
|
8.7
|
%
|
____________________________
(1)
|
|
See the "Non-GAAP Financial Measures" section for an explanation of
the non-GAAP financial measure.
|
Refer to Appendix II for the reconciliation of Segment Profit to
Pre-tax Income.
|
Services
Our Services segment comprises two service offerings: Business Process
Outsourcing (BPO) and Document Outsourcing (DO).
Services Revenue Breakdown:
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
CC %
|
(in millions)
|
|
2016
|
|
2015
|
|
% Change
|
|
Change
|
Business Process Outsourcing
|
|
$
|
1,607
|
|
|
$
|
1,566
|
|
|
3%
|
|
4%
|
Document Outsourcing
|
|
791
|
|
|
801
|
|
|
(1)%
|
|
1%
|
Total Revenue - Services
|
|
$
|
2,398
|
|
|
$
|
2,367
|
|
|
1%
|
|
3%
|
|
|
|
|
|
|
|
|
|
Adjusted(1):
|
|
|
|
|
|
|
|
|
Business Process Outsourcing
|
|
$
|
1,607
|
|
|
$
|
1,682
|
|
|
(4)%
|
|
(4)%
|
Total Revenue - Services
|
|
$
|
2,398
|
|
|
$
|
2,483
|
|
|
(3)%
|
|
(2)%
|
____________________________
(1)
|
|
See the "Non-GAAP Financial Measures" section for an explanation of
the non-GAAP financial measure.
|
CC - Constant Currency (See "Non-GAAP Financial Measures" section)
|
Note: The above table excludes intercompany revenue.
|
Revenue Third quarter 2016
Services revenue of $2,398 million was 57% of total revenue and
increased 1% from third quarter 2015. On an adjusted1 basis,
Services revenue decreased 3%, with a 1-percentage point negative impact
from currency.
-
BPO revenue increased 3% from third quarter 2015 and represented 67%
of total Services revenue. On an adjusted1 basis, BPO
revenue decreased 4% with minimal currency impact. The decline was
driven by lower volumes and lost business, as well as overall price
declines that were consistent with prior periods. These areas of
decline were partially offset by ramping new contracts and modest
growth from acquisitions.
-
In third quarter 2016, BPO revenue mix across the major business
areas was as follows: Commercial Industries (excluding healthcare)
- 44%; Healthcare - 24%; Public Sector - 28%; and all other
(including our HE Medicaid platform implementations) - 4%.
-
DO revenue decreased 1%, with a 2-percentage point negative impact
from currency, and represented 33% of Services revenue. Growth at
constant currency was driven primarily from our partner print services
offerings, which more than offset the impact of lower new business
signings and price declines on renewals.
Segment Margin Third quarter
2016 Services segment margin of 9.4% increased by 17.7-percentage
points, or 1.6-percentage points on an adjusted1 basis, from
third quarter 2015, including a 0.9-percentage point increase in gross
margin. The increase reflected restructuring and productivity
improvements, particularly in BPO, which more than offset price
declines, as well as anticipated year-over-year benefits from lower
expenses associated with our HE platform implementations and a higher
proportion of DO revenue (which historically has higher segment margin).
These benefits were partially offset by continuing margin pressures in
our customer care offering as well as higher compensation and benefit
expense. BPO margin does not reflect the impact of our Student Loan
business, which is included in Other.
Government Healthcare Our HE
platform is performing to contractual standards in the states where it
has been fully implemented, which include New Hampshire, Alaska and
North Dakota. New Hampshire was certified by the Center for Medicare and
Medicaid Services in June 2015, and we are currently in the process of
getting our Alaska HE implementation certified and in the planning phase
of North Dakota certification. We continue to strengthen and improve our
platform development and systems integration capabilities with
additional resources and enhanced program management and quality control
practices.
Due to a number of factors, development work to implement the HE
platform in New York has been elongated beyond the current contractual
schedule resulting in, among other things, increased delivery costs,
which we have considered in our estimates of revenues and costs under
the percentage-of-completion accounting methodology.
We continue to work with New York to address new regulatory
requirements, policy changes and enhanced security protocols, which are
expected to further lengthen the schedule and may result in material
increases in future costs to complete. We are seeking to mitigate these
impacts through a combination of operational actions as well as by
working with New York to pursue an amendment to the contract that will
revise the project schedule and increase the reimbursement we receive.
Metrics
Signings Signings are defined
as estimated future revenues from contracts signed during the period,
including renewals of existing contracts. Third quarter 2016 Services
signings were $2.2 billion in Total Contract Value (TCV).
-
BPO signings of $1.5 billion TCV
-
DO signings of $0.7 billion TCV
Signings increased 15% from third quarter 2015, with a 2-percentage
point negative impact from currency, primarily reflecting higher
contribution from renewals. On a trailing twelve month (TTM) basis,
signings increased 6% at constant currency from the comparable prior
year period. New business TCV at constant currency decreased 15% from
third quarter 2015 and decreased 9% on a TTM basis; these declines
reflect, in part, our decision to not pursue opportunities with lower
margin and return profiles. DO signings do not include signings from our
growing partner print services offerings.
Note: TCV is the estimated total contractual revenue related to signed
contracts.
Renewal rate (Total Services) Renewal
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. The combined
third quarter 2016 contract renewal rate for BPO and DO contracts was
86%, within our target range of 85%-90%.
Document Technology
Our Document Technology segment includes the sale of products and
supplies, as well as the associated maintenance and financing of those
products.
Document Technology Revenue Breakdown:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CC %
|
(in millions)
|
|
|
2016
|
|
2015
|
|
% Change
|
|
Change
|
Equipment sales
|
|
|
$
|
453
|
|
|
$
|
525
|
|
|
(14)%
|
|
(13)%
|
Annuity revenue
|
|
|
1,173
|
|
|
1,253
|
|
|
(6)%
|
|
(5)%
|
Total Revenue
|
|
|
$
|
1,626
|
|
|
$
|
1,778
|
|
|
(9)%
|
|
(7)%
|
____________________________
CC - Constant Currency (See "Non-GAAP Financial Measures" section)
Third quarter 2016 Document Technology revenue of $1,626 million
decreased 9% from third quarter 2015, with a 2-percentage point negative
impact from currency. Document Technology revenues exclude Document
Outsourcing. Inclusive of Document Outsourcing, third quarter 2016
aggregate document-related revenue decreased 6% from third quarter 2015,
with a 1-percentage point negative impact from currency. Document
Technology segment revenue results included the following:
-
Equipment sales revenue declined 14% from third quarter 2015,
with a 1-percentage point negative impact from currency. The decline
was driven by fewer large-account sales in North America, lower OEM
sales and continued migration of customers to our partner print
services offering (included in our Services segment) as well as
overall price declines that continue to be within our historical range
of 5 to 10%. These declines were partially offset by moderate benefits
from improved sales in our high-end color category following the drupa
trade show.
-
Annuity revenue decreased 6% from third quarter 2015, with a
1-percentage point negative impact from currency. The annuity revenue
reduction reflects lower equipment sales in prior periods, ongoing
page declines and lower supplies demand, as well as the continued
migration of customers to our partner print services offering
(included in our Services segment).
Document Technology revenue mix was 57% mid-range, 24% high-end and 19%
entry, consistent with recent quarters.
Segment Margin Third quarter
2016 Document Technology segment margin of 13.1% declined 0.8-percentage
points from third quarter 2015, but included a 0.9-percentage point
improvement in gross margin. The gross margin increase reflects
restructuring and productivity improvements only partially offset by
price declines. SAG increased as a percent of revenue primarily due to
prior-year compensation and benefit expense adjustments and a decline in
segment revenues.
Total Installs (Document Technology and
Document Outsourcing)2 Install
activity includes Document Outsourcing and Xerox-branded products
shipped to Global Imaging Systems. Detail by product group (see Appendix
II) is shown below:
Entry3
-
16% increase in color multifunction devices due to the benefit of
recent product launches and improvements in developing markets.
-
12% decrease in black-and-white multifunction devices.
Mid-Range
-
7% increase in mid-range color installs including the benefit of
recent product launches.
-
25% decrease in mid-range black-and-white reflecting in part fewer
large-account installs.
High-End
-
6% increase in high-end color systems, excluding Fuji Xerox digital
front-end sales, due to a favorable impact from the drupa printing
trade show.
-
1% decrease in high-end black-and-white systems.
Other
Revenue Third quarter 2016
Other revenue of $188 million was flat from third quarter 2015, with a
1-percentage point negative impact from currency. The anticipated
run-off of the Student Loan business, now reported in Other, and lower
wide-format revenues were offset by higher paper and network
integration-related solution sales. Total paper revenue (all within
developing markets) and the Student Loan business combined comprise
nearly half of Other revenue.
Other Loss Third quarter 2016
Other loss of $65 million increased $10 million from third quarter 2015.
Other expenses, net (excluding Deferred compensation investment gains)
are reported within Other and were $58 million in third quarter 2016 as
compared to $68 million in third quarter 2015. The $10 million reduction
was primarily due to a decline in non-financing interest expense.
Remaining Other loss of $7 million in third quarter 2016 increased $20
million from third quarter 2015 income of $13 million primarily related
to lower profitability in the Student Loan business.
____________________________
Notes:
(1)
|
|
See the "Non-GAAP Financial Measures" section for an explanation
of the non-GAAP financial measure.
|
(2)
|
|
Revenue from Document Outsourcing installations is reported in the
Services segment.
|
(3)
|
|
Entry installations exclude OEM sales; including OEM sales, Entry
color multifunction devices increased 4%, while Entry
black-and-white multifunction devices increased 6%.
|
Capital Resources and Liquidity
The following table summarizes our cash and cash equivalents for the
three months ended September 30, 2016 and 2015:
|
|
|
Three Months Ended
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
|
2016
|
|
2015
|
|
Change
|
Net cash provided by operating activities
|
|
|
$
|
370
|
|
|
$
|
271
|
|
|
$
|
99
|
|
Net cash used in investing activities
|
|
|
(69
|
)
|
|
(206
|
)
|
|
137
|
|
Net cash used in financing activities
|
|
|
(84
|
)
|
|
(888
|
)
|
|
804
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
3
|
|
|
(14
|
)
|
|
17
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
220
|
|
|
(837
|
)
|
|
1,057
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,203
|
|
|
1,641
|
|
|
(438
|
)
|
Cash and Cash Equivalents at End of Period
|
|
|
$
|
1,423
|
|
|
$
|
804
|
|
|
$
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities Net
cash provided by operating activities was $370 million in third quarter
2016. The $99 million increase in operating cash from third quarter 2015
was primarily due to the following:
-
Pre-tax income before depreciation and amortization, stock-based
compensation, restructuring and related costs, separation-related
costs and the prior year HE charge was essentially flat year-over-year.
-
$97 million increase from the settlements of foreign currency
derivative contracts. This increase primarily offsets the negative
currency impacts on our Yen-denominated inventory purchases as well as
other foreign currency denominated payments recorded in inventory and
accounts payable.
-
$78 million increase from finance receivables primarily related to a
higher level of run-off due to lower originations and to a reduced
impact from 2012 and 2013 finance receivable sales.
-
$49 million increase primarily due to lower inventory requirements.
-
$15 million increase due to lower pension contributions.
-
$44 million decrease from higher restructuring and related payments.
-
$43 million decrease from accounts receivable primarily due to the
lower impact from sales of receivables.
-
$39 million decrease reflecting settlement payments associated with
our prior year decision to not fully complete the HE implementations
in California and Montana.
-
$21 million decrease due to payments for separation-related costs.
Cash Flows from Investing Activities Net
cash used in investing activities was $69 million in third quarter 2016.
The $137 million decrease in the use of cash was primarily due to the
2015 acquisition of RSA Medical LLC for $141 million.
Cash Flows from Financing Activities Net
cash used in financing activities was $84 million in third quarter 2016.
The $804 million increase in cash from third quarter 2015 was primarily
due to the following:
-
$691 million increase as there were no share repurchases in 2016.
-
$73 million increase from net debt activity. Third quarter 2015
reflects a reduction in Commercial Paper of $461 million offset by
proceeds of $396 million on Senior Notes.
-
$35 million increase due to the absence of a stock-based award vesting
in 2016.
Customer Financing Activities
The following represents our total finance assets, net associated with
our lease and finance operations:
(in millions)
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Total finance receivables, net (1)
|
|
|
$
|
3,835
|
|
$
|
3,988
|
Equipment on operating leases, net
|
|
|
488
|
|
495
|
Total Finance Assets, net (2)
|
|
|
$
|
4,323
|
|
$
|
4,483
|
____________________________
(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, 2015 includes an increase of $16
million due to currency across all Finance Assets.
|
The following summarizes our debt:
(in millions)
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Principal debt balance(1)
|
|
|
$
|
7,400
|
|
$
|
7,365
|
Net unamortized discount
|
|
|
(45)
|
|
(52)
|
Debt issuance costs(2)
|
|
|
(23)
|
|
(28)
|
Fair value adjustments(3)
|
|
|
|
|
|
- terminated swaps
|
|
|
32
|
|
47
|
- current swaps
|
|
|
15
|
|
7
|
Total Debt
|
|
|
$
|
7,379
|
|
$
|
7,339
|
____________________________
(1)
|
|
Includes Notes Payable of $5 million and $3 million as of
September 30, 2016 and December 31, 2015, respectively.
|
(2)
|
|
Reflects the adoption of ASU 2015-03, Interest - Imputation of
Interest: Simplifying the Presentation of Debt Issuance Costs
effective January 1, 2016, which requires debt issuance costs to be
presented as a direct deduction from the carrying amount of the
corresponding debt liability. Prior year amounts were revised to
reflect the new presentation.
|
(3)
|
|
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
|
|
|
|
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, 2016
|
|
December 31, 2015
|
Financing debt(1)
|
|
|
$
|
3,783
|
|
$
|
3,923
|
Core debt
|
|
|
3,596
|
|
3,416
|
Total Debt
|
|
|
$
|
7,379
|
|
$
|
7,339
|
____________________________
(1)
|
|
Financing debt includes $3,356 million and $3,490 million as of
September 30, 2016 and December 31, 2015, respectively, of debt
associated with total finance receivables, net and is the basis for
our calculation of "Equipment financing interest" expense. The
remainder of the financing debt is associated with equipment on
operating leases.
|
Sales of Accounts Receivable Accounts
receivable sales arrangements are utilized in the normal course of
business as part of our cash and liquidity management. We have
facilities in the U.S., Canada and several countries in Europe that
enable us to sell certain accounts receivable without recourse to
third-parties. The accounts receivables sold are generally short-term
trade receivables with payment due dates of less than 60 days. Accounts
receivable sales for the periods presented were as follows:
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
(in millions)
|
|
|
2016
|
|
2015
|
Accounts receivable sales
|
|
|
$
|
591
|
|
$
|
551
|
Deferred proceeds
|
|
|
54
|
|
67
|
Loss on sales of accounts receivable
|
|
|
4
|
|
3
|
Estimated decrease to operating cash flows (1)
|
|
|
(60)
|
|
(31)
|
____________________________
(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.
|
Sales of Finance Receivables In
2013 and 2012, we transferred our entire interest in certain groups of
lease finance receivables to third-party entities. The transfers were
accounted for as sales and resulted in the de-recognition of lease
receivables with a net carrying value of $676 million in 2013 and $682
million in 2012, respectively. We continue to service the sold
receivables and record servicing fee income over the expected life of
the associated receivables.
The net impact on operating cash flows from these transactions for the
periods presented is summarized below:
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
(in millions)
|
|
|
2016
|
|
2015
|
Impact from prior sales of finance receivables (1)
|
|
|
$
|
(41)
|
|
$
|
(79)
|
Collections on beneficial interest
|
|
|
6
|
|
12
|
Estimated decrease to operating cash flows
|
|
|
$
|
(35)
|
|
$
|
(67)
|
____________________________
(1)
|
|
Represents cash that would have been collected if we had not sold
finance receivables.
|
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, including
with respect to the proposed separation of the Business Process
Outsourcing ("BPO") business from the Document Technology and Document
Outsourcing business, the expected timetable for completing the
separation, the future financial and operating performance of each
business, the strategic and competitive advantages of each business,
future opportunities for each business and the expected amount of cost
reductions that may be realized in the cost transformation program, and
are subject to a number of factors that may cause actual results to
differ materially. Such factors include but are not limited to: changes
in economic conditions, political conditions, trade protection measures,
licensing requirements and tax matters 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 our bids do not accurately estimate the
resources and costs required to implement and service very complex,
multi-year governmental and commercial contracts, often in advance of
the final determination of the full scope and design of such contracts
or as a result of the scope of such contracts being changed during the
life of such contracts; the risk that subcontractors, software vendors
and utility and network providers will not perform in a timely, quality
manner; service interruptions; 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 and the relocation of our
service delivery centers; 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;
the risk in the hiring and retention of qualified personnel; the risk
that unexpected costs will be incurred; our ability to recover capital
investments; the risk that our Services business could be adversely
affected if we are unsuccessful in managing the start-up of new
contracts; the collectability of our receivables for unbilled services
associated with very large, multi-year contracts; reliance on third
parties, including subcontractors, for manufacturing of products and
provision of services; our ability to expand equipment placements;
interest rates, cost of borrowing and access to credit markets; the risk
that our products may not comply with applicable worldwide regulatory
requirements, particularly environmental regulations and directives; the
outcome of litigation and regulatory proceedings to which we may be a
party; the possibility that the proposed separation of the BPO business
from the Document Technology and Document Outsourcing business will not
be consummated within the anticipated time period or at all, including
as the result of regulatory, market or other factors; the potential for
disruption to our business in connection with the proposed separation;
the potential that BPO and Document Technology and Document Outsourcing
do not realize all of the expected benefits of the separation; 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, 2016 and June 30, 2016 and our 2015 Annual Report on Form 10-K
filed with the SEC. Such factors also include, but are not limited to,
the factors that are set forth in the "Risk Factors" section, the "Legal
Proceedings" section and other sections of the Conduent Incorporated
Form 10 Registration Statement, as amended, filed with the 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.
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
2016 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.
NOTE: In 2016 we revised our
calculation of Adjusted Earnings Measures to exclude the following items
in addition to the amortization of intangibles:
-
Restructuring and related costs including those related to Fuji Xerox.
-
The non-service related elements of our defined benefit pension and
retiree health plan costs (retirement related).
-
Separation costs
Prior year amounts were revised accordingly to reflect these changes.
Adjusted Revenue, Costs and Expenses, and Margin As
previously discussed, during the third quarter 2015 we recorded a
pre-tax charge (HE charge) of $389 million, which included a $116
million reduction to revenues. As a result of the significant impact of
the HE charge on our reported revenues, costs and expenses as well as
key metrics for the prior year period, we also discussed our results
using non-GAAP measures which exclude the impact of the HE charge. In
addition to the magnitude of the charge and its impact on our prior-year
reported results, we excluded the HE charge due to the fact that it was
primarily a unique charge associated with the conclusion, reached after
a series of discussions, that fully completing our HE platform
implementations in California and Montana was no longer considered
probable. This adjustment was in addition to the adjustments noted below.
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.
-
Separation costs: Separation costs
are expenses incurred in connection with Xerox's planned separation
into two independent, publicly traded companies. Separation costs are
primarily for third-party investment banking, accounting, legal,
consulting and other similar types of services related to the
separation transaction as well as costs associated with the
operational separation of the two companies, such as those related to
human resources, brand management, real estate and information
management to the extent not capitalized. Separation costs also
include the costs associated with bonuses and restricted stock grants
awarded to employees for retention through the separation as well as
incremental income tax expense related to the reorganization of legal
entities and operations in order to effect the legal separation of the
Company. These costs are incremental to normal operating charges and
are being incurred solely as a result of the separation transaction.
Accordingly, we are excluding these expenses from our Adjusted
Earnings Measures in order to evaluate our performance on a comparable
basis.
Operating Income We also
calculate and utilize operating income and margin earnings measures by
adjusting our pre-tax income and margin amounts to exclude certain
items. In addition to the costs noted for our Adjusted Earnings
measures, operating income and margin also exclude other expenses, net.
Other expenses, net is primarily comprised of non-financing interest
expense and also includes certain other non-operating costs and
expenses. We exclude these amounts in order to evaluate our current and
past operating performance and to better understand the expected future
trends in our business.
Constant Currency To 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." In 2016 we revised our calculation of the
currency impact on revenue growth, or constant currency revenue growth,
to include the currency impacts from the developing market countries
(Latin America, Brazil, Middle East, India, Eurasia and Central-Eastern
Europe), which had been previously excluded from the calculation. As a
result of economic changes in these markets over the past few years, we
currently manage our exchange risk in our developing market countries in
a similar manner to the exchange risk in our developed market countries,
and therefore, the exclusion of the developing market countries from the
calculation of the currency effect is no longer warranted. Management
believes the constant currency measure provides investors an additional
perspective on revenue trends. Currency impact can be determined as the
difference between actual growth rates and constant currency growth
rates.
Free Cash Flow To better
understand trends in our business, we believe that it is helpful to
adjust cash flows from operations to exclude amounts for capital
expenditures including internal use software. Management believes this
measure gives investors an additional perspective on cash flow from
operating activities in excess of amounts required for reinvestment. It
provides a measure of our ability to fund acquisitions, dividends and
share repurchase. It is also used to measure our yield on market
capitalization.
Summary:
Management believes that all of these non-GAAP financial measures
provide an additional means of analyzing the current period's results
against the corresponding prior period's results. However, these
non-GAAP financial measures should be viewed in addition to, and not as
a substitute for, the Company's reported results prepared in accordance
with GAAP. Our non-GAAP financial measures are not meant to be
considered in isolation or as a substitute for comparable GAAP measures
and should be read only in conjunction with our consolidated financial
statements prepared in accordance with GAAP. Our management regularly
uses our supplemental non-GAAP financial measures internally to
understand, manage and evaluate our business and make operating
decisions. These non-GAAP measures are among the primary factors
management uses in planning for and forecasting future periods.
Compensation of our executives is based in part on the performance of
our business based on these non-GAAP measures.
A reconciliation of these non-GAAP financial measures and the most
directly comparable measures calculated and presented in accordance with
GAAP are set forth on the following tables:
Net Income (Loss) and EPS reconciliation:
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
|
|
|
|
|
|
Net (Loss)
|
|
|
(in millions, except per share amounts)
|
|
|
Net Income
|
|
EPS
|
|
Income
|
|
EPS
|
Reported(1)
|
|
|
$
|
181
|
|
$
|
0.17
|
|
$
|
(31)
|
|
$
|
(0.04)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
77
|
|
|
|
77
|
|
|
HE Charge (2015 only)
|
|
|
-
|
|
|
|
389
|
|
|
Restructuring and related costs - Xerox
|
|
|
32
|
|
|
|
20
|
|
|
Non-service retirement related costs
|
|
|
34
|
|
|
|
30
|
|
|
Separation costs
|
|
|
39
|
|
|
|
-
|
|
|
Income tax adjustments(2)
|
|
|
(77)
|
|
|
|
(198)
|
|
|
Tax related separation costs(2)
|
|
|
(2)
|
|
|
|
-
|
|
|
Restructuring charges - Fuji Xerox
|
|
|
2
|
|
|
|
2
|
|
|
Adjusted
|
|
|
$
|
286
|
|
$
|
0.27
|
|
$
|
289
|
|
$
|
0.27
|
Weighted average shares for adjusted EPS(3)
|
|
|
|
|
1,052
|
|
|
|
1,078
|
Fully diluted shares at end of period(4)
|
|
|
|
|
1,052
|
|
|
|
|
____________________________
(1)
|
|
Net income (loss) and EPS from continuing operations.
|
(2)
|
|
Refer to Effective Tax Rate reconciliation.
|
(3)
|
|
Average shares for the calculations of adjusted EPS include 27
million of shares associated with our Series A convertible
preferred stock and therefore the related quarterly dividend of $6
million was excluded.
|
(4)
|
|
Represents common shares outstanding at September 30, 2016 as well
as shares associated with our Series A convertible preferred stock
plus potential dilutive common shares used for the calculation of
diluted earnings per share for the third quarter 2016.
|
Effective Tax Rate reconciliation:
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
Income
|
|
Effective
|
|
Pre-Tax
|
|
Tax
|
|
|
|
|
|
Pre-Tax
|
|
Tax
|
|
Tax
|
|
(Loss)
|
|
(Benefit)
|
|
Effective
|
(in millions)
|
|
|
Income
|
|
Expense
|
|
Rate
|
|
Income
|
|
Expense
|
|
Tax Rate
|
Reported(1)
|
|
|
$
|
150
|
|
$
|
5
|
|
3.3%
|
|
$
|
(173)
|
|
$
|
(105)
|
|
60.7%
|
Non-GAAP Adjustments(2)
|
|
|
182
|
|
77
|
|
|
|
516
|
|
198
|
|
|
Tax related separation costs
|
|
|
-
|
|
2
|
|
|
|
-
|
|
-
|
|
|
Adjusted - revised (3)
|
|
|
$
|
332
|
|
$
|
84
|
|
25.3%
|
|
$
|
343
|
|
$
|
93
|
|
27.1%
|
____________________________
(1)
|
|
Pre-Tax Income (Loss) and Income Tax Expense (Benefit) from
continuing operations.
|
(2)
|
|
Refer to Net Income (Loss) and EPS reconciliation for details.
Amounts exclude Fuji Xerox restructuring as these amounts are net of
tax.
|
(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 Ended
|
|
Three Months Ended
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
(in millions)
|
|
|
Profit
|
|
Revenue
|
|
Margin
|
|
Profit
|
|
Revenue
|
|
Margin
|
Reported Pre-Tax Income (Loss)(1)
|
|
|
$
|
150
|
|
|
$
|
4,212
|
|
|
3.6
|
%
|
|
$
|
(173
|
)
|
|
$
|
4,333
|
|
|
(4.0
|
)%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
77
|
|
|
|
|
|
|
77
|
|
|
|
|
|
Restructuring and related costs - Xerox
|
|
|
32
|
|
|
|
|
|
|
20
|
|
|
|
|
|
HE charge (2015 only)
|
|
|
-
|
|
|
|
|
|
|
389
|
|
|
116
|
|
|
|
Non-service retirement related costs
|
|
|
34
|
|
|
|
|
|
|
30
|
|
|
|
|
|
Separation costs
|
|
|
39
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Other expenses, net
|
|
|
56
|
|
|
|
|
|
|
73
|
|
|
|
|
|
Adjusted Operating
|
|
|
$
|
388
|
|
|
$
|
4,212
|
|
|
9.2
|
%
|
|
$
|
416
|
|
|
$
|
4,449
|
|
|
9.4
|
%
|
Equity in net income of unconsolidated affiliates
|
|
|
39
|
|
|
|
|
|
|
40
|
|
|
|
|
|
Business transformation costs
|
|
|
2
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Restructuring charges - Fuji Xerox
|
|
|
2
|
|
|
|
|
|
|
2
|
|
|
|
|
|
HE charge (2015 only)
|
|
|
-
|
|
|
|
|
|
|
(389
|
)
|
|
(116
|
)
|
|
|
Other expenses, net*
|
|
|
(57
|
)
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
Segment Profit (Loss)/Revenue
|
|
|
$
|
374
|
|
|
$
|
4,212
|
|
|
8.9
|
%
|
|
$
|
(3
|
)
|
|
$
|
4,333
|
|
|
(0.1
|
)%
|
____________________________
(1)
|
|
Profit (Loss) and Revenue from continuing operations.
|
* Includes rounding adjustments.
|
Revenue/Segment reconciliation:
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
Outsourcing,
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance
|
|
|
|
|
|
|
|
|
|
|
Annuity
|
|
and Rentals
|
|
Total Segment
|
|
Total Segment
|
(in millions)
|
|
|
|
Total Revenue
|
|
Revenue
|
|
Revenue
|
|
(Loss) Profit(2)
|
|
Margin(2)
|
Reported(1)
|
|
|
|
$
|
4,333
|
|
$
|
3,665
|
|
$
|
3,098
|
|
$
|
(3)
|
|
(0.1)%
|
Adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
HE Charge
|
|
|
|
116
|
|
116
|
|
116
|
|
389
|
|
|
Adjusted
|
|
|
|
$
|
4,449
|
|
$
|
3,781
|
|
$
|
3,214
|
|
$
|
386
|
|
8.7%
|
____________________________
(1)
|
|
Revenue from continuing operations.
|
(2)
|
|
Revised to exclude non-service retirement related costs.
|
Services Segment reconciliation:
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2015(1)
|
|
|
|
|
Annuity
|
|
|
|
Segment
|
|
% of Total
|
|
Segment
|
|
Segment
|
(in millions)
|
|
|
|
Revenue
|
|
BPO Revenue
|
|
Revenue
|
|
Revenue
|
|
(Loss) Profit(3)
|
|
Margin(3)
|
Reported(2)
|
|
|
|
$
|
2,250
|
|
$
|
1,566
|
|
$
|
2,367
|
|
55%
|
|
$
|
(196)
|
|
(8.3)%
|
Adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HE Charge
|
|
|
|
116
|
|
116
|
|
116
|
|
|
|
389
|
|
|
Adjusted
|
|
|
|
$
|
2,366
|
|
$
|
1,682
|
|
$
|
2,483
|
|
56%
|
|
$
|
193
|
|
7.8%
|
____________________________
(1)
|
|
Revised to reflect the transfer of the Education/Student Loan
business from the Services segment to Other.
|
(2)
|
|
Revenue from continuing operations.
|
(3)
|
|
Revised to exclude non-service retirement related costs.
|
Key Financial Ratios reconciliation:
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
service
|
|
|
|
|
|
|
|
service
|
|
|
|
|
|
|
|
|
retirement
|
|
|
|
|
|
|
|
retirement
|
|
|
|
|
|
|
As
|
|
related
|
|
|
|
As
|
|
|
|
related
|
|
|
(in millions)
|
|
|
|
Reported(1)
|
|
costs
|
|
Adjusted
|
|
Reported(1)
|
|
HE Charge
|
|
costs
|
|
Adjusted
|
Revenues
|
|
|
|
$
|
4,212
|
|
$
|
-
|
|
$
|
4,212
|
|
$
|
4,333
|
|
$
|
116
|
|
$
|
-
|
|
$
|
4,449
|
Gross Profit
|
|
|
|
1,307
|
|
13
|
|
1,320
|
|
987
|
|
389
|
|
10
|
|
1,386
|
RD&E
|
|
|
|
126
|
|
(7)
|
|
119
|
|
135
|
|
|
|
(6)
|
|
129
|
SAG
|
|
|
|
827
|
|
(14)
|
|
813
|
|
855
|
|
|
|
(14)
|
|
841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
|
31.0%
|
|
|
|
31.3%
|
|
22.8%
|
|
|
|
|
|
31.2%
|
RD&E as a % of Revenue
|
|
|
|
3.0%
|
|
|
|
2.8%
|
|
3.1%
|
|
|
|
|
|
2.9%
|
SAG as a % of Revenue
|
|
|
|
19.6%
|
|
|
|
19.3%
|
|
19.7%
|
|
|
|
|
|
18.9%
|
____________________________
(1)
|
|
Revenue and costs from continuing operations.
|
Guidance:
|
|
|
|
Earnings Per Share
|
|
|
|
|
Q4 2016
|
|
FY 2016
|
GAAP EPS from Continuing Operations
|
|
|
|
$0.11 - $0.14
|
|
$0.45 - $0.48
|
Non-GAAP Adjustments
|
|
|
|
$0.21
|
|
$0.66
|
Adjusted EPS
|
|
|
|
$0.32 - $0.35
|
|
$1.11 - $1.14
|
____________________________
Note: Adjusted EPS guidance excludes amortization of intangible assets,
restructuring and related costs, non-service retirement related costs
and separation costs.
|
|
|
|
|
|
|
|
|
Free Cash Flow
|
(in millions)
|
|
|
|
FY 2016
|
Cash Flow from Operations
|
|
|
|
$950 - $1,200
|
Capital Expenditures (including Internal Use Software)
|
|
|
|
$350
|
Free Cash Flow
|
|
|
|
$600 - $850
|
2015 Net Income and EPS reconciliation based on
2016 revised methodology:
|
|
|
Q4 2015
|
|
FY 2015
|
(in millions, except per share amounts)
|
|
|
Net Income
|
|
EPS
|
|
Net Income
|
|
EPS
|
Reported (1)
|
|
|
$
|
285
|
|
|
$
|
0.27
|
|
|
$
|
552
|
|
|
$
|
0.49
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
77
|
|
|
|
|
310
|
|
|
|
HE charge
|
|
|
-
|
|
|
|
|
389
|
|
|
|
Restructuring and related charges - Xerox
|
|
|
(5
|
)
|
|
|
|
186
|
|
|
|
Non-service retirement related costs
|
|
|
34
|
|
|
|
|
116
|
|
|
|
Income tax on adjustments (2)
|
|
|
(45
|
)
|
|
|
|
(380
|
)
|
|
|
Restructuring charges - Fuji Xerox
|
|
|
-
|
|
|
|
|
4
|
|
|
|
Adjusted - revised
|
|
|
$
|
346
|
|
|
$
|
0.33
|
|
|
$
|
1,177
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
Adjusted - previous basis
|
|
|
$
|
333
|
|
|
$
|
0.32
|
|
|
$
|
1,076
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - adjusted EPS (3)
|
|
|
|
|
1,046
|
|
|
|
|
1,103
|
____________________________
(1)
|
|
Net Income and EPS from continuing operations.
|
(2)
|
|
The tax impact on the 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 - See
Effective Tax Rate reconciliation.
|
(3)
|
|
Average shares for the calculations of adjusted EPS include 27
million of shares associated with our Series A convertible
preferred stock.
|
2015 Adjusted Effective Tax Rate reconciliation
based on 2016 revised methodology:
|
|
|
Q4 2015
|
|
FY 2015
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
Tax
|
|
|
|
|
|
Pre-Tax
|
|
Tax
|
|
Effective
|
|
Pre-Tax
|
|
(Benefit)
|
|
Effective
|
(in millions)
|
|
|
Income
|
|
Expense
|
|
Tax Rate
|
|
Income
|
|
Expense
|
|
Tax Rate
|
Reported (1)
|
|
|
$
|
310
|
|
|
$
|
52
|
|
|
16.8
|
%
|
|
$
|
412
|
|
|
$
|
(23
|
)
|
|
(5.6
|
)%
|
Non-GAAP Adjustments (2)
|
|
|
106
|
|
|
45
|
|
|
|
|
1,001
|
|
|
380
|
|
|
|
Adjusted - revised (3)
|
|
|
$
|
416
|
|
|
$
|
97
|
|
|
23.3
|
%
|
|
$
|
1,413
|
|
|
$
|
357
|
|
|
25.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted - previous basis
|
|
|
|
|
|
|
20.9
|
%
|
|
|
|
|
|
23.7
|
%
|
____________________________
(1)
|
|
Pre-Tax Income and Income Tax Expense (Benefit) from continuing
operations.
|
(2)
|
|
See Net Income and EPS reconciliation for details. Amounts exclude
Fuji Xerox restructuring as these amounts are net of tax.
|
(3)
|
|
The tax impact on the 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.
|
|
|
|
|
|
|
APPENDIX I
|
|
Xerox Corporation
|
Earnings per Common Share
|
(in millions except per share data, shares in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Basic Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to Xerox
|
|
|
$
|
181
|
|
|
$
|
(31
|
)
|
|
$
|
370
|
|
|
$
|
267
|
|
Accrued dividends on preferred stock
|
|
|
(6
|
)
|
|
(6
|
)
|
|
(18
|
)
|
|
(18
|
)
|
Net income (loss) from continuing operations available to common
shareholders
|
|
|
$
|
175
|
|
|
$
|
(37
|
)
|
|
$
|
352
|
|
|
$
|
249
|
|
Net loss from discontinued operations attributable to Xerox
|
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
(64
|
)
|
Net income (loss) available to common shareholders
|
|
|
$
|
175
|
|
|
$
|
(40
|
)
|
|
$
|
352
|
|
|
$
|
185
|
|
Weighted average common shares outstanding
|
|
|
1,013,718
|
|
|
1,045,131
|
|
|
1,013,360
|
|
|
1,080,020
|
|
Basic Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.35
|
|
|
$
|
0.23
|
|
Discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(0.06
|
)
|
Total
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.35
|
|
|
$
|
0.17
|
|
Diluted Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to Xerox
|
|
|
$
|
181
|
|
|
$
|
(31
|
)
|
|
$
|
370
|
|
|
$
|
267
|
|
Accrued dividends on preferred stock
|
|
|
(6
|
)
|
|
(6
|
)
|
|
(18
|
)
|
|
(18
|
)
|
Net income (loss) from continuing operations available to common
shareholders
|
|
|
$
|
175
|
|
|
$
|
(37
|
)
|
|
$
|
352
|
|
|
$
|
249
|
|
Net loss from discontinued operations attributable to Xerox
|
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
(64
|
)
|
Net income (loss) available to common shareholders
|
|
|
$
|
175
|
|
|
$
|
(40
|
)
|
|
$
|
352
|
|
|
$
|
185
|
|
Weighted average common shares outstanding - basic
|
|
|
1,013,718
|
|
|
1,045,131
|
|
|
1,013,360
|
|
|
1,080,020
|
|
Common shares issuable with respect to:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
601
|
|
|
-
|
|
|
691
|
|
|
1,265
|
|
Restricted stock and performance shares
|
|
|
10,978
|
|
|
-
|
|
|
8,326
|
|
|
11,995
|
|
Convertible preferred stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Weighted average common shares outstanding - diluted
|
|
|
1,025,297
|
|
|
1,045,131
|
|
|
1,022,377
|
|
|
1,093,280
|
|
Diluted Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.34
|
|
|
$
|
0.23
|
|
Discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(0.06
|
)
|
Total
|
|
|
$
|
0.17
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.34
|
|
|
$
|
0.17
|
|
The following securities were not included in the computation of
diluted earnings per
|
|
|
|
|
|
|
|
|
|
share as they were either contingently issuable shares or shares
that if included
|
|
|
|
|
|
|
|
|
|
would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,307
|
|
|
3,391
|
|
|
1,217
|
|
|
2,125
|
|
Restricted stock and performance shares
|
|
|
22,631
|
|
|
25,996
|
|
|
25,283
|
|
|
18,214
|
|
Convertible preferred stock
|
|
|
26,966
|
|
|
26,966
|
|
|
26,966
|
|
|
26,966
|
|
Total Anti-Dilutive Securities
|
|
|
50,904
|
|
|
56,353
|
|
|
53,466
|
|
|
47,305
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per Common Share
|
|
|
$
|
0.0775
|
|
|
$
|
0.0700
|
|
|
$
|
0.2325
|
|
|
$
|
0.2100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APPENDIX II
|
|
|
|
Xerox Corporation
|
Reconciliation of Segment Operating Profit to Pre-Tax Income
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
(in millions)
|
|
2016
|
|
2015
|
Segment Profit (Loss)(1)
|
|
$
|
374
|
|
|
$
|
(3
|
)
|
Reconciling items:
|
|
|
|
|
Restructuring and related costs
|
|
(32
|
)
|
|
(20
|
)
|
Restructuring charges of Fuji Xerox
|
|
(2
|
)
|
|
(2
|
)
|
Business transformation costs
|
|
(2
|
)
|
|
(2
|
)
|
Amortization of intangible assets
|
|
(77
|
)
|
|
(77
|
)
|
Non-service retirement-related costs
|
|
(34
|
)
|
|
(30
|
)
|
Equity in net income of unconsolidated affiliates
|
|
(39
|
)
|
|
(40
|
)
|
Separation costs
|
|
(39
|
)
|
|
-
|
|
Other
|
|
1
|
|
|
1
|
|
Pre-Tax Income (Loss)
|
|
$
|
150
|
|
|
$
|
(173
|
)
|
__________________________
(1)
|
Revised to exclude non-service retirement related costs.
|
Note:
|
|
Certain reclassifications of prior year amounts have been made to
conform to current year presentation.
|
|
|
|
Our reportable segments are aligned to how we manage the business and
view the markets we serve. Our reportable segments are Services,
Document Technology and Other.
Services:
The Services segment comprises two service offerings:
-
Business Process Outsourcing.
-
Document Outsourcing, which includes Managed Print Services, Central
Print Services and revenues from our partner print services offerings.
Document Technology:
The Document Technology segment is centered around strategic product
groups, which share common technology, manufacturing and product
platforms. This segment includes the sale of document systems and
supplies, provision of technical service and financing of products. Our
products range from:
-
"Entry", which includes A4 devices and desktop printers.
-
"Mid-Range", which includes A3 devices that generally serve workgroup
environments in mid to large enterprises. This includes products that
fall into the market categories, Color 41+ppm <$100K and Light
Production 91+ppm <$100K.
-
"High-End", which includes production printing and publishing systems
that generally serve the graphic communications marketplace and large
enterprises.
Other:
Other includes paper sales in our developing market countries, Wide
Format Systems, licensing revenue, Global Imaging network integration
solutions and electronic presentation systems, student loan processing
and non-allocated corporate items including non-financing interest and
other items included in other expenses, net.
View source version on businesswire.com: http://www.businesswire.com/news/home/20161028005358/en/
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