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  • Xerox Reports Second Quarter 2017 Earnings

    • GAAP EPS from continuing operations of 63 cents, adjusted EPS of 87 cents
    • Total revenue of $2.57 billion, down 8.1 percent or 6.4 percent in constant currency year-over-year
    • Adjusted operating margin of 13.3 percent, up 0.4 points year-over-year
    • Operating cash flow of $343 million from continuing operations, up $84 million from the same period in 2016
    • Affirms full-year revenue, cash flow and operating margin guidance; narrows EPS guidance
    • Financial Statements for prior periods revised to reflect the equity income impact from the Fujifilm investigation of Fuji Xerox accounting practices

    NORWALK, Conn., August 1, 2017 - Xerox (NYSE: XRX) today announced its second-quarter 2017 financial results.

    “We are pleased with the strong operating margins and cash flow we delivered, as well as the continued progress on our Strategic Transformation initiatives,” said Jeff Jacobson, Xerox chief executive officer. “This resulted in solid operating results despite revenue declines, which were driven by lower equipment sales as we transition to the recently launched ConnectKey portfolio.” Jacobson added, “The new product line-up has been met with enthusiasm by customers, partners and industry experts, fueling our confidence in improving revenue trends later this year and into next.”

    The company delivered second-quarter 2017 GAAP earnings per share (EPS) from continuing operations of 63 cents, reflecti

    ng its one-for-four reverse stock split on June 14, 2017.Adjusted EPS was 87 cents, which excludes 24 cents per share of after

    -tax costs related to the amortization of intangibles, restructuring and related costs, and certain retirement related costs.

    Revenues were $2.57 billion in the quarter, down 8.1 percent or 6.4 percent in constant currency. Post sale revenue was 79 percent of total revenue. Second-quarter adjusted operating margin was 13.3 percent, up 0.4 percentage points from the same quarter a year ago.
    https://static.ombe.com/slir/w500/forums/200/rickpics/XeroxQuarterEarn.jpg

    Xerox generated operating cash flow of $343 million from continuing operations during the second quarter and ended the period with a cash balance of $1.25 billion. The company returned $68 million in dividends to shareholders.

    Full-Year 2017 Guidance
    The company narrowed its full-year 2017 guidance of GAAP EPS from continuing operations to $1.84 to $2.08 and adjusted EPS to $3.20 to $3.44.

    Xerox continues to expect to generate operating cash flow from continuing operations of
    $700 to $900 million and free cash flow from continuing operations of $525 to $725 million in 2017.

    Fuji Xerox Accounting Review
    Fuji Xerox is a joint venture between Xerox Corporation and Fujifilm Holdings Corporation, in which Xerox holds a noncontrolling 25% equity interest. During the second quarter, a review by an independent investigation committee of the appropriateness of the accounting practices at Fuji Xerox related to the recovery of receivables associated with certain bundled leasing transactions in Fuji Xerox’s New Zealand and Australian subsidiaries was completed. The review identified that total adjustments of approximately JPY 40 billion (approximately $360 million based on the Yen/U.S. Dollar spot exchange rate of 111.89 at March 31, 2017) were required to Fuji Xerox’s results for the period 2009 through 2017.
    Xerox determined that its share of that amount was approximately $90 million. Although Xerox determined that the impact to its equity income was immaterial to its previously issued financial statements, the cumulative correction would have a material effect on the company’s current year consolidated financial statements. Accordingly, Xerox will revise its previously issued annual and interim consolidated financial statements for 2014, 2015 and 2016 and the first quarter of 2017 the next time they are filed. Prior period amounts throughout this release have been adjusted to incorporate the revised amounts, where applicable.

    About Xerox
    Xerox Corporation is an $11 billion technology leader that innovates the way the world communicates, connects and works. Our expertise is more important than ever as customers of all sizes look to improve productivity, maximize profitability and increase satisfaction. We do this for small and mid-size businesses, large enterprises, governments, graphic communications providers, and for our partners who serve them.

    We understand what’s at the heart of work - and all of the forms it can take. We embrace the increasingly complex world of paper and digital. Office and mobile. Personal and social. Every day across the globe - in more than 160 countries - our technology, software and people successfully navigate those intersections. We automate, personalize, package, analyze and secure information to keep our customers moving at an accelerated pace. For more information visit www.xerox.com.

    Non-GAAP Measures:
    This release refers to the following non-GAAP financial measures:

    • Adjusted EPS, for the second quarter 2017 as well as for the full-year 2017 guidance, which excludes the amortization of intangibles, restructuring and related costs, certain retirement related costs and other discrete adjustments.
    • Adjusted operating margin, for the second quarter 2017, which excludes other expenses, net in addition to the EPS adjustments noted above and includes equity income.
    • Adjusted Gross Margin and SAG (Selling, Administrative and General) as a percent of Revenue for the second quarter 2017, which excludes certain retirement related costs.


    • Constant currency revenue growth for the second quarter 2017, which excludes the effects of currency translation.
    • Free cash flow for the full-year 2017 guidance, which is operating cash flow from continuing operations less capital expenditures including internal use software.


    Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measure.

    Forward-Looking Statements
    This release contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; changes in economic conditions, political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that individually identifiable information of customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; our ability to manage changes in the printing environment and markets and expand equipment placements; interest rates, cost of borrowing and access to credit markets; funding requirements associated with our employee pension and retiree health benefit plans; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; the risk that we do not realize all of the expected strategic and financial benefits from the separation and spin-off of our Business Process Outsourcing business; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of our 2016 Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission (“SEC”). Xerox assumes no obligation to update any forward- looking statements as a result of new information or future events or developments, except as required by law.

    Fuji Xerox Co., Ltd. (“Fuji Xerox”) is a joint venture between Xerox Corporation and Fujifilm Holdings Corporation (“Fujifilm”) in which Xerox holds a noncontrolling 25% equity interest and Fujifilm holds the remaining equity interest. Given our status as a minority investor, we have limited contractual and other rights to information with respect to Fuji Xerox matters. On April 20, 2017, Fujifilm publicly announced it had formed an independent investigation committee (IIC) to conduct a review of the appropriateness of the accounting practices at Fuji Xerox’s New Zealand subsidiary. Fujifilm publicly announced that the IIC completed its review during the second quarter 2017 and identified additional adjustments from the amount initially disclosed by Fujifilm bringing the total aggregate adjustments to approximately JPY 40 billion (approximately $360 million based on the Yen/U.S. Dollar spot exchange rate at March 31, 2017 of 111.89). The increase in adjustments related to subsequent findings by the IIC in their investigation primarily related to misstatements at Fuji Xerox's Australian subsidiary, as well as certain other adjustments. We determined that our cumulative share of the revised amount of total adjustments identified as part of the investigation was approximately $90 million and impacted our fiscal years 2009 through 2017. Based on our procedures, as well as those performed by Fuji Xerox and Fujifilm, we concluded that the cumulative correction of the misstatements in our historical financial statements would have had a material effect on our current year consolidated financial statements. Accordingly, we concluded that we should revise our previously issued annual and interim consolidated financial statements for 2014, 2015 and 2016 and the first quarter of 2017 the next time they are filed. The Fujifilm audited financial statements were issued in Japan on July 31, 2017, and our review of this matter is substantially completed. Although we are not aware of any issues that will cause further adjustments to our financial statements, Xerox continues to finalize its review of this matter and additional issues may be identified that may require adjustments to the amount and timing of charges that we have already recognized as part of our revision. In addition, we can provide no assurances relative to the outcome of any potential governmental investigations or any consequences thereof.

    -XXX-

    Media Contact:
    Carl Langsenkamp, Xerox, +1-585-423-5782, carl.langsenkamp@xerox.com

    Investor Contact:
    Jennifer Horsley, Xerox, +1-203-849-2656, jennifer.horsley@xerox.com

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