Basis of Presentation and Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2015

Schedule of Error Corrections and Prior Period Adjustments

Prior Period Adjustments

During 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 our 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 Consolidated Financial Statements for 2014 have been revised as summarized below:

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 (Unaudited)		As Revised (Unaudited)		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		)

Significant Accounting Estimates

The following table summarizes certain recurring type costs and expenses that require management estimates for the three years ended December 31, 2015:



	Year Ended December 31,
Expense/(Income)	2015			2014		2013
Provisions for restructuring and asset impairments - continuing operations	$	186		$	128	$	115
Provisions for restructuring and asset impairments - discontinued operations	—			2		7
Provision for receivables	58			53		123
Provisions for litigation and regulatory matters	16			11		(34		)
Provisions for obsolete and excess inventory	30			26		35
Provision for product warranty liability	22			25		28
Depreciation and obsolescence of equipment on operating leases	286			297		283
Depreciation of buildings and equipment ⁽¹⁾	277			324		332
Amortization of internal use software ⁽¹⁾	135			139		137
Amortization of product software	69			62		43
Amortization of acquired intangible assets ⁽¹⁾	310			315		305
Amortization of customer contract costs ⁽¹⁾	113			128		100
Defined pension benefits - net periodic benefit cost	142			82		267
Retiree health benefits - net periodic benefit cost	2			3		1
Income tax (benefit) expense - continuing operations	(23		)	215		253
Income tax expense - discontinued operations	81			6		27

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(1)	Excludes amounts related to our ITO business, which was reported as a discontinued operation through its date of sale on June 30, 2015. Refer to Note 4 - Divestitures for additional information regarding this sale.

Schedule of Deferred Customer Contract Costs

Spending associated with customer-related deferred set-up/transition and inducement costs for the three years ended December 31, 2015 were as follows:



	Year Ended December 31,
	2015		2014		2013
Set-up/transition and inducement expenditures	$	77	$	80	$	107

The capitalized amount of customer contract costs at December 31, 2015 and 2014 were as follows:

__________

(1) The balance at December 31, 2015 of $180 is expected to be amortized over a weighted average period of approximately 8 years, and amortization expense in 2016 is expected to be approximately $76.

Year Ended December 31,

Capitalized customer contract costs ⁽¹⁾