falseQ220190000108772Common Stock, $1 par valueXRX 0000108772 2019-07-30 2019-07-30 0000108772 exch:XNYS 2019-07-30 2019-07-30 0000108772 exch:XCHI 2019-07-30 2019-07-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________________________________  

FORM 8-K 

 _____________________________________________________________________________________________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): July 30, 2019 

 _____________________________________________________________________________________________________

XEROX CORPORATION

(Exact name of registrant as specified in its charter)

______________________________________________________________________________________________________ 

New York		001-04471		16-0468020
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

201 Merritt 7

Norwalk, Connecticut

06851-1056

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (203) 968-3000

_____________________________________________________________________________________________________ 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1 par value	XRX	New York Stock Exchange
		Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None

---

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

______________________________________________________________________________________________________  

Item 2.02. Results of Operations and Financial Condition.

On July 30, 2019, Registrant released its second quarter 2019 earnings and is furnishing to the Securities and Exchange Commission ("SEC") a copy of the earnings press release as Exhibit 99.1 to this Report under Item 2.02 of Form 8-K.

Exhibit 99.1 to this Report contains certain financial measures that are considered “non-GAAP financial measures” as defined in the SEC rules. Exhibit 99.1 to this Report also contains the reconciliation of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles, as well as the reasons why Registrant’s management believes that presentation of the non-GAAP financial measures provides useful information to investors regarding Registrant’s results of operations and, to the extent material, a statement disclosing any other additional purposes for which Registrant’s management uses the non-GAAP financial measures.

The information contained in Item 2.02 of this Report and in Exhibit 99.1 to this Report shall not be deemed “filed” with the Commission for purposes of Section 18 of the Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.		Description
99.1		Registrant’s second quarter 2019 earnings press release dated July 30, 2019

---

Forward-Looking Statements

This filing, and other written or oral statements made from time to time by management contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should”, "targeting", "projecting", "driving" and similar expressions, as they relate to us, our performance and/or our technology, 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; our ability to attract and retain key personnel; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; 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 confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; the exit of the United Kingdom from the European Union; our ability to manage changes in the printing environment 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; any potential termination or restructuring of our relationship with Fujifilm Holdings Corporation; the proposed holding company reorganization; the occurrence and timing of any closing of the proposed holding company reorganization; the shared services arrangements entered into by the Company as part of Project Own It; any potential strategic transaction involving our customer financing business and/or related assets; 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 2018 Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K filed with the SEC. These forward-looking statements speak only as of the date of this release or as of the date to which they refer, and 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.

---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly authorized this Report to be signed on its behalf by the undersigned duly authorized.

Date: July 30, 2019

XEROX CORPORATION
By:		/s/ Joseph H. Mancini, Jr.
		Joseph H. Mancini, Jr.
		Vice President and Chief Accounting Officer

---

EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Registrant’s second quarter 2019 earnings press release dated July 30, 2019

•	$313 million of operating cash flow, up $78 million year-over-year, and $297 million of free cash flow, up $94 million year-over-year

•	GAAP earnings per share (EPS) of $0.77, up $0.35 year-over-year, and adjusted EPS of $0.99, up $0.19 year-over-year

•	Adjusted operating margin of 12.7 percent, up 170 basis points year-over-year

•	$2.3 billion of revenue in the quarter, a decrease of 8.8 percent in actual currency, or 7.2 percent in constant currency, year-over-year

•	Adjusting full-year revenue guidance to approximately 6 percent down at constant currency

•	Maintaining full-year guidance for EPS, adjusted operating margin and free cash flow

•	Completed $300 million of share repurchases year-to-date, expecting at least $600 million in total for the year

---

•	Investing in revenue-generating initiatives including, but not limited to:

◦	Adding new revenue streams for software and services targeting small and medium-sized businesses through partnerships with HP and American Express

◦	Expanding Xerox Business Solutions’ (XBS) IT Services capabilities to capitalize on this growing $95 billion market in the United States

◦	Acquiring two new multi-brand dealers, Rabbit Office Automation and Heritage Business Systems, to grow XBS’ foothold in key markets

◦	Launching new products such as the Xerox Baltoro™ HF Inkjet Press and the Xerox Adaptive CMYK Plus Technology to capture incremental production volume

•	Added and renewed several multi-year contracts with Fortune 500 and public sector clients such as Morgan Stanley, the Commonwealth of Massachusetts and the County of San Diego

•	On track to drive gross savings in 2019 of at least $640 million under Project Own It, Xerox’s enterprise-wide initiative to simplify operations, drive continuous improvement and free up capital to reinvest in the business

•	Adjusted EPS, which excludes restructuring and related costs (including our share of Fuji Xerox restructuring), the amortization of intangible assets, transaction and related costs, net, and non-service retirement-related costs.

•	Adjusted operating margin and income, which exclude the EPS adjustments noted above as well as the remainder of other expenses, net.

•	Constant currency (CC) revenue growth, which excludes the effects of currency translation.

•	Free cash flow, which is cash flow from operations less capital expenditures.

---

---

---

---

---

---

(1)	Certain prior year amounts have been conformed to the current year presentation. See Appendix III for this change in presentation.

(2)	Refer to Appendix II for our Geographic Sales Channels and Products and Offerings Definitions.

(3)	Excluding equipment revenue, Xerox Services was $753 million and $793 million in the second quarter 2019 and 2018, respectively, representing a decrease of 5.0% including a 2.1-percentage point unfavorable impact from currency.

•

Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices, and the revenue per printed page. Post sale revenue decreased 8.4% as compared to second quarter 2018, including a 1.8-percentage point unfavorable impact from currency, and reflected the following:

◦

Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled supplies) as well as the post sale component of the document services revenue from our Xerox Services offerings. These revenues decreased 7.4% as compared to the second quarter 2018, including a 1.8-percentage point unfavorable impact from currency. The decline at constant currency1 reflected the continuing trend of lower page volumes (including a higher mix of lower usage products), an ongoing competitive price environment, and a lower population of devices, which are partially associated with continued lower Enterprise signings and lower installs in prior periods.

◦

Supplies, paper and other sales includes unbundled supplies and other sales. These revenues decreased 12.3% as compared to second quarter 2018, including a 1.4-percentage point unfavorable impact from currency and a 1.8-percentage point unfavorable impact from lower OEM sales. Excluding the impact from OEM sales, the decline at constant currency1 reflected the impact of lower supplies revenues primarily from our developing market regions and from our indirect channel in the U.S. associated with lower page volume trends, as well as timing of sales associated within our two-tier distribution and lower paper sales from developing markets in eastern Europe.

---

◦	Financing revenue is generated from financed equipment sale transactions. The 10.3% decline in these revenues reflected a continued decline in the finance receivables balance due to lower equipment sales in prior periods and included a 2.1-percentage point unfavorable impact from currency.

•

Equipment sales revenue decreased 10.2% as compared to second quarter 2018, including a 1.2-percentage point unfavorable impact from currency as well as the impact of price declines of approximately 5%. The decline at constant currency1 was primarily driven by lower sales of our office-centric devices (entry and mid-range products) partially affected by a challenging comparison against the period of highest equipment revenue growth in the prior year. The decline at constant currency1 reflected the following:

◦	Entry - The decrease reflected primarily lower sales of ConnectKey devices through our indirect channel in the U.S.

◦

Mid-range - The decrease reflected lower sales of Connect Key devices. The majority of the decline was in North America, reflecting primarily the continued transitional impact associated with recently implemented organizational changes in our XBS sales organization (as part of our Project Own It transformation actions), which included the transitioning of accounts to implement coverage changes, consolidation of real estate locations and the reduction of management layers. The decrease also reflected lower activity and a lack of large deals in EMEA.

◦	High-end - The decrease was led by continued lower sales of black-and-white systems partially offset by higher sales of color systems associated with continued demand for our Iridesse production press and higher installs of our Inkjet cut-sheet systems. Lower sales of our iGen and Versant production systems also contributed to the decline.

•	12% decrease in color multifunction devices reflecting lower installs of ConnectKey devices from our indirect channels in the U.S. and low-end devices from EMEA.

•	1% increase in black-and-white multifunction devices driven by higher activity from our EMEA organization, including low-end devices in developing market regions.

---

•

12% decrease in mid-range color installs reflecting lower installs of ConnectKey devices. The decrease was significantly impacted by lower activity as a result of the transitional impact associated with recently implemented organizational changes in our XBS sales organization (as part of our Project Own It transformation actions), which included the transitioning of accounts to implement coverage changes, consolidation of real estate locations and the reduction of management layers. The decrease also reflected lower activity and a lack of large deals in EMEA, as well as a challenging comparison against the period with the highest activity growth in the prior year, partially due to the timing of our ConnectKey product launch.

•	9% decrease in mid-range black-and-white reflecting lower installs of ConnectKey devices primarily from EMEA. The decline also reflected market trends.

•	1% increase in high-end color installs reflecting continued demand for our Iridesse production press in EMEA and higher installs of our inkjet cut-sheet systems. Lower activity from iGen and Versant production systems provided a partial headwind.

•	33% decrease in high-end black-and-white systems reflecting market trends.

(1)	See the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure.

(2)	When combined with OEM sales, Entry color multifunction devices decreased 19%, while Entry black-and-white multifunction devices decreased 11%.

(3)	Mid-range and High-end color installations exclude Fuji Xerox digital front-end sales; including Fuji Xerox digital front-end sales, Mid-range color devices decreased 12%, and High-end color systems increased 1%.

---

---

(1)	Reflects headcount reductions of approximately 150 employees worldwide.

(2)	Primarily related to the exit and abandonment of leased and owned facilities. The charge includes the accelerated write-off of $8 million for leased right-of-use asset balances and $2 million for owned asset balances upon exit from the facility net of any potential sublease income and other recoveries.

(3)	Primarily include additional costs incurred upon the exit from our facilities including decommissioning costs and associated contractual termination costs.

(4)	Reflects net reversals for changes in estimated reserves from prior period initiatives as well as $2 million in favorable adjustments from the early termination of prior period impaired leases.

(5)	Includes retention related severance and bonuses for employees expected to continue working beyond their minimum notification period before termination.

(6)	Represents professional support services associated with our business transformation initiatives.

---

---

(1)	Refer to the Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section.

(1)	Refer to the "Non-GAAP Financial Measures" section for the calculation of adjusted EPS. The calculations of basic and diluted earnings per share are included as Appendix I.

---

•	$58 million increase from accrued compensation primarily related to the year-over-year timing of employee incentive payments.

•	$51 million increase primarily due to lower levels of inventories partially reflecting lower sales volume.

•	$30 million increase in dividends received from equity investments primarily due to increased net income from Fuji Xerox.

•	$21 million increase due to lower placements of equipment on operating leases.

•	$17 million increase due to prior year net payments of $17 million for transaction and related costs as compared to none in the second quarter 2019.

•	$16 million increase from lower restructuring payments primarily due to timing.

•	$48 million decrease due to payments associated with restructuring related costs primarily for our contractual severance obligation incurred as part of the shared service arrangement with HCL Technologies and professional support services associated with our business transformation initiatives.

•	$32 million decrease from higher net tax payments primarily due to the timing and a prior year tax refund of $10 million in Europe.

•	$19 million decrease due to a lower net run-off of finance receivables.

•	$18 million decrease from accounts receivable primarily due to the timing of collections.

•	$38 million decrease due to two acquisitions.

•	$16 million decrease primarily due to the sale of non-core business assets in 2018.

•	$16 million increase reflecting lower capital expenditures.

•	$270 million decrease from net debt activity primarily due to payments of $265 million on Senior Notes and $6 million of bridge facility costs in prior year compared to no Senior Notes activity in second quarter 2019.

•	$197 million increase due to share repurchases.

---

---

(1)	Includes Notes Payable of $1 million as of June 30, 2019. There were no Notes Payable as of December 31, 2018.

(2)

Fair value adjustments include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value adjustment.

(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, 2018 includes an increase of $4 million due to currency.

(1)	Finance receivables debt is the basis for our calculation of "Cost of financing" expense in the Condensed Consolidated Statements of Income.

---

(1)

Customers may also enter into structured-payable arrangements that require us to sell our receivables from that customer to a third-party financial institution, which then makes payments to us to settle the customer's receivable. In these instances, we ensure the sale of the receivables are bankruptcy remote and the payment made to us is without recourse. The activity associated with these arrangements is not reflected in this disclosure as payments under these arrangements have not been material and these are customer directed arrangements.

(2)	Represents the difference between current and prior period accounts receivable sales adjusted for the effects of currency.

---

---

---

•	Net Income and Earnings per share (EPS)

•	Effective Tax Rate

•

Restructuring and related costs: Restructuring and related costs include restructuring and asset impairment charges as well as costs associated with our transformation programs 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 transformation programs 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.

•

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.

•

Transaction and related costs, net: Transaction and related costs, net are expenses incurred in connection with Xerox's planned transaction with Fuji, which was terminated in May 2018, as well as costs and expenses related to the previously disclosed settlement agreement reached with certain shareholders and litigation related to the terminated transaction and other shareholder actions. These costs are considered incremental to our normal operating charges and were incurred or are expected to be incurred solely as a result of the planned combination transaction and the related shareholder settlement agreement and litigation. Accordingly, we are excluding these expenses from our Adjusted Earnings Measures in order to evaluate our performance on a comparable basis.

•

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) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) 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. This approach is consistent with the classification of these costs as non-operating in other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans.

---

•	Restructuring and other charges - Fuji Xerox: We adjust our 25% share of Fuji Xerox’s net income for similar items noted above such as Restructuring and related costs and Transaction and related costs, net based on the same rationale discussed above.

---

(1)	Net income and EPS attributable to Xerox.

(2)	Refer to Effective Tax Rate reconciliation.

(3)	Other charges represent costs associated with the terminated combination transaction.

(4)	For those periods that exclude the preferred stock dividend, the average shares for the calculations of diluted EPS include 7 million shares associated with our Series B convertible preferred stock, as applicable.

(5)	Represents common shares outstanding at June 30, 2019 as well as shares associated with our Series B convertible preferred stock plus potential dilutive common shares as used for the calculation of diluted earnings per share for the second quarter 2019.

(2)	The tax impact on Adjusted Pre-Tax Income is calculated under the same accounting principles applied to the Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results.

(1)	Pre-Tax Income and revenue.

---

(1)	Net cash provided by operating activities.

(1)	Net Income and EPS attributable to Xerox

(2)	Includes $19 million of Fuji Xerox related costs in first half 2019.

---

---

•	Americas, which includes our sales channels in the U.S. and Canada, as well as Mexico, and Central and South America.

•	EMEA, which includes our sales channels in Europe, the Middle East, Africa and India.

•	Other, primarily includes our OEM business, as well as sales to and royalties from Fuji Xerox, and our licensing revenue.

•	“Entry”, which includes A4 devices and desktop printers. Prices in this product group can range from approximately $150 to $3,000.

•	“Mid-Range”, which includes A3 Office and Light Production devices that generally serve workgroup environments in mid to large enterprises. Prices in this product group can range from approximately $2,000 to $75,000+.

•	“High-End”, which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises. Prices for these systems can range from approximately $30,000 to $1,000,000+.

•

Xerox Services, formerly known as Managed Document Services (MDS), which includes solutions and services that span from managing print to automating processes to managing content. Our primary offerings are Intelligent Workplace Services (IWS), which is our rebranded Managed Print Services, as well as Digital and Cloud Print Services (including centralized print services). Xerox Services also includes Communication and Marketing Solutions that were previously excluded from our former MDS definition.

---