Basis of Presentation

References herein to “we,” “us,” “our,” the “Company” and “Xerox” refer to Xerox Corporation and its consolidated subsidiaries unless the context suggests otherwise.

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the accounting policies described in our 2014 Annual Report on Form 10-K (2014 Annual Report), and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. You should read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements included in our 2014 Annual Report.

In our opinion, all adjustments which are necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented have been made. These adjustments consist of normal recurring items. Interim results of operations are not necessarily indicative of the results of the full year.

For convenience and ease of reference, we refer to the financial statement caption “(Loss) Income before Income Taxes and Equity Income” as “pre-tax (loss) income.”

In December 2014 we announced an agreement to sell our Information Technology Outsourcing (ITO) business to Atos SE (Atos). As a result of this agreement and having met applicable accounting requirements, we reported the ITO business as held for sale and a discontinued operation at December 31, 2014 through its sale, which was completed on June 30, 2015. In 2014 we also completed the disposal of two smaller businesses - Xerox Audio Visual Solutions, Inc. (XAV) and Truckload Management Services (TMS) - that were also reported as discontinued operations. All prior periods have been reclassified to conform to the presentation of these businesses as discontinued operations. Refer to Note 5 - Divestitures, for additional information regarding discontinued operations.

During the third quarter 2015, we recorded a $16 out-of-period adjustment associated with the over accrual of an employee benefit liability account. The impact of this adjustment was not material to any individual prior quarter or year and is not material to anticipated 2015 results.

During second quarter 2015, in connection with Fuji Xerox’s (FX) payment of its semi-annual dividend, we determined that the dividends were no longer subject to an additional tax as a result of a change in the U.K. - Japan Tax Treaty in December 2014. As of December 31, 2014, we had a deferred tax liability of $44 associated with this additional tax on the undistributed earnings of FX through that date. This deferred tax liability was no longer required as a result of the change in the Tax Treaty and, therefore, should have been reversed in December 2014. There was no impact on operating cash flows from this adjustment. We assessed the materiality of this error on our 2014 financial statements and concluded that it was not material to the fourth quarter or annual period. However, due to the impact of this adjustment on the current year consolidated financial statements, the accompanying unaudited Condensed Consolidated Balance Sheet has been revised as of December 31, 2014 to increase retained earnings by $44 and decrease our deferred tax liabilities by the same amount.

The following table presents the effect of this correction on our Consolidated Statements of Income for all periods affected:



	Three Months Ended December 31, 2014				Year Ended December 31, 2014
	As Reported		As Revised		As Reported		As Revised
Income tax expense	$	78	$	34	$	259	$	215
Income from Continuing Operations	311		355		1,107		1,151
Net Income	162		206		992		1,036
Net Income Attributable to Xerox	156		200		969		1,013
Net Income Attributable to Xerox - continuing operations	305		349		1,084		1,128

Basic Earnings per Share:
Continuing Operations	$	0.26	$	0.30	$	0.92	$	0.96
Total Basic Earnings per Share	0.13		0.17		0.82		0.86

Diluted Earnings per Share:
Continuing Operations	$	0.26	$	0.30	$	0.90	$	0.94
Total Diluted Earnings per Share	0.13		0.17		0.81		0.85

The following table presents the effect this correction had on our Consolidated Balance Sheet at December 31, 2014:



	December 31, 2014
	As Reported		As Revised
Other long-term liabilities	$	498	$	454
Total Liabilities	16,600		16,556
Retained earnings	9,491		9,535
Xerox shareholders' equity	10,634		10,678
Total Equity	10,709		10,753

The correction did not have an effect on the Company’s operating cash flows. The following table presents the effect on the individual line items within operating cash flows of our Consolidated Statement of Cash Flows for the year ended December 31, 2014:



	Year Ended December 31, 2014
	As Reported		As Revised
Net income	$	992	$	1,036
Net change in income tax assets and liabilities	29		(15		)