Correction of Fuji Xerox Misstatement in Prior Period Financial Statements

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. 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 related to the recovery of receivables associated with certain bundled leasing transactions that occurred in, or prior to, Fuji Xerox’s fiscal year ending March 31, 2016.

The IIC’s review, completed during the second quarter 2017, subsequently identified total aggregate adjustments to Fuji Xerox's financial statements of approximately JPY 40 billion (approximately $360 based on the Yen/U.S. Dollar spot exchange rate at March 31, 2017 of 111.89). The adjustments identified by the IIC primarily related to misstatements at Fuji Xerox's New Zealand subsidiary as well as their Australian subsidiary and certain other adjustments. We determined that our cumulative share of the revised amount of total adjustments identified as part of the investigation was approximately $90¹ and impacted our fiscal years 2009 through 2017.

In the second quarter 2017, we determined that the misstatements to our Equity in net income of unconsolidated affiliates in prior years and the first quarter of 2017 identified through the IIC's review were immaterial to our previously issued financial statements. However, we concluded that the cumulative correction of these misstatements would have had a material effect on our current year consolidated financial statements. Accordingly, we will 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. Certain of the corrections discussed above affected periods prior to fiscal year 2014, and this effect was reflected as a cumulative, net of tax adjustment to reduce retained earnings as of January 1, 2014 by $69. The effect of the revision on our previously issued financial statements is provided in the tables below. Amounts throughout the consolidated financial statements and notes thereto have been adjusted to incorporate the revised amounts, where applicable.

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(1)	The difference between the aggregate revision to retained earnings and the $90 impact at March 31, 2017 is primarily due to currency and the impact of adjustments recorded directly by Xerox in the first quarter 2017.

Revised Annual Consolidated Statements of Income

The following tables reconcile selected lines from the company’s first quarter of 2017 and fiscal years of 2016, 2015 and 2014 Consolidated Statements of Income (Loss) from the previously reported amounts to the revised amounts:



	Three Months Ended March 31, 2017						Year Ended December 31, 2016
	As Reported		Adjustment⁽¹⁾		As Revised		As Reported			Adjustment		As Revised
Equity in net income of unconsolidated affiliates	$	16	$	24	$	40	$	121		$	6	$	127
Income from Continuing Operations	24		24		48		627			6		633
Net Income (Loss)	18		24		42		(466		)	6		(460		)
Net Income (Loss) Attributable to Xerox	16		24		40		(477		)	6		(471		)

Net income from continuing operations attributable to Xerox	$	22	$	24	$	46	$	616		$	6	$	622

Basic Earnings (Loss) per Share:
Continuing operations	$	0.07	$	0.10	$	0.17	$	2.33		$	0.03	$	2.36
Total	$	0.05	$	0.09	$	0.14	$	(1.98	)	$	0.03	$	(1.95	)

Diluted Earnings (Loss) per Share:
Continuing operations	$	0.07	$	0.09	$	0.16	$	2.31		$	0.02	$	2.33
Total	$	0.05	$	0.09	$	0.14	$	(1.96	)	$	0.03	$	(1.93	)



	Year Ended December 31, 2015							Year Ended December 31, 2014
	As Reported		Adjustment			As Revised		As Reported		Adjustment			As Revised
Equity in net income of unconsolidated affiliates	$	135	$	(26	)	$	109	$	160	$	(18	)	$	142
Income from Continuing Operations	866		(26		)	840		1,052		(18		)	1,034
Net Income	492		(26		)	466		1,036		(18		)	1,018
Net Income Attributable to Xerox	474		(26		)	448		1,013		(18		)	995

Net income from continuing operations attributable to Xerox	$	848	$	(26	)	$	822	$	1,029	$	(18	)	$	1,011

Basic Earnings per Share:
Continuing operations	$	3.10	$	(0.10	)	$	3.00	$	3.48	$	(0.06	)	$	3.42
Total	$	1.69	$	(0.10	)	$	1.59	$	3.43	$	(0.06	)	$	3.37

Diluted Earnings per Share:
Continuing operations	$	3.06	$	(0.09	)	$	2.97	$	3.43	$	(0.06	)	$	3.37
Total	$	1.67	$	(0.09	)	$	1.58	$	3.38	$	(0.06	)	$	3.32

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Note: The sum of quarterly earnings per share may differ from the full-year amounts due to rounding, or in the case of diluted earnings per share, because securities that are anti-dilutive in certain quarters may not be anti-dilutive on a full-year basis.

Revised Consolidated Statements of Comprehensive Income (Loss)

The following tables reconcile selected lines from the company’s first quarter of 2017 and fiscal years of 2016, 2015 and 2014 Consolidated Statements of Comprehensive Income (Loss) from the previously reported amounts to the revised amounts:



	Three Months Ended March 31, 2017							Year Ended December 31, 2016
	As Reported		Adjustment			As Revised		As Reported			Adjustment			As Revised
Net Income (Loss)	$	18	$	24		$	42	$	(466	)	$	6		$	(460	)
Net Income (Loss) Attributable to Xerox	16		24			40		(477		)	6			(471		)

Translation adjustments, net	$	136	$	(3	)	$	133	$	(346	)	$	(1	)	$	(347	)
Other Comprehensive Income (Loss), Net	170		(3		)	167		(235		)	(1		)	(236		)
Other Comprehensive Income (Loss), Net Attributable to Xerox	169		(3		)	166		(232		)	(1		)	(233		)

Comprehensive Income (Loss), Net	$	188	$	21		$	209	$	(701	)	$	5		$	(696	)
Comprehensive Income (Loss), Net Attributable to Xerox	185		21			206		(709		)	5			(704		)



	Year Ended December 31, 2015									Year Ended December 31, 2014
	As Reported			Adjustment			As Revised			As Reported			Adjustment			As Revised
Net Income	$	492		$	(26	)	$	466		$	1,036		$	(18	)	$	1,018
Net Income Attributable to Xerox	474			(26		)	448			1,013			(18		)	995

Translation adjustments, net	$	(660	)	$	9		$	(651	)	$	(734	)	$	6		$	(728	)
Other Comprehensive Loss, Net	(484		)	9			(475		)	(1,381		)	6			(1,375		)
Other Comprehensive Loss, Net Attributable to Xerox	(483		)	9			(474		)	(1,380		)	6			(1,374		)

Comprehensive Income (Loss), Net	$	8		$	(17	)	$	(9	)	$	(345	)	$	(12	)	$	(357	)
Comprehensive Loss, Net Attributable to Xerox	(9		)	(17		)	(26		)	(367		)	(12		)	(379		)

Revised Consolidated Balance Sheets

The following table reconciles selected lines from the company’s Consolidated Balance Sheet at March 31, 2017 and December 31, 2016 and 2015 from the previously reported amounts to the revised amounts:



	As of March 31, 2017									As of December 31, 2016									As of December 31, 2015
	As Reported			Adjustment			As Revised			As Reported			Adjustment			As Revised			As Reported			Adjustment			As Revised
Investments in affiliates, at equity	$	1,477		$	(73	)	$	1,404		$	1,388		$	(94	)	$	1,294		$	1,382		$	(99	)	$	1,283
Total Assets	15,916			(73		)	15,843			18,145			(94		)	18,051			25,541			(99		)	25,442

Retained earnings	$	4,987		$	(81	)	$	4,906		$	5,039		$	(105	)	$	4,934		$	9,686		$	(111	)	$	9,575
Accumulated other comprehensive loss	(4,179		)	8			(4,171		)	(4,348		)	11			(4,337		)	(4,642		)	12			(4,630		)
Xerox shareholders' equity	4,926			(73		)	4,853			4,803			(94		)	4,709			9,074			(99		)	8,975
Total Equity	4,966			(73		)	4,893			4,841			(94		)	4,747			9,117			(99		)	9,018
Total Liabilities and Equity	15,916			(73		)	15,843			18,145			(94		)	18,051			25,541			(99		)	25,442

Revised Consolidated Statements of Cash Flows from Operations

The revision did not have an impact on the company’s operating cash flows. The following table reconciles selected lines from the company’s first quarter of 2017 and fiscal years of 2016, 2015 and 2014 Consolidated Statements of Cash Flows from the previously reported amounts to the revised amounts:



	Three Months Ended March 31, 2017									Year Ended December 31, 2016
	As Reported			Adjustment			As Revised			As Reported			Adjustment			As Revised
Cash Flows from Operating Activities:
Net Income (Loss)	$	18		$	24		$	42		$	(466	)	$	6		$	(460	)
Income from Continuing Operations	24			24			48			627			6			633

Undistributed equity in net income of unconsolidated affiliates	$	(16	)	$	(24	)	$	(40	)	$	(69	)	$	(6	)	$	(75	)



	Year Ended December 31, 2015									Year Ended December 31, 2014
	As Reported			Adjustment			As Revised			As Reported			Adjustment			As Revised
Cash Flows from Operating Activities:
Net Income	$	492		$	(26	)	$	466		$	1,036		$	(18	)	$	1,018
Income from Continuing Operations	866			(26		)	840			1,052			(18		)	1,034

Undistributed equity in net income of unconsolidated affiliates	$	(79	)	$	26		$	(53	)	$	(91	)	$	18		$	(73	)

Revised Quarterly Results of Operations

The following tables reconcile selected lines from the company’s 2016 and 2015 quarterly Consolidated Statements of Income (Loss) from the previously reported amounts to the revised amounts:



	Three Months Ended March 31, 2016							Three Months Ended June 30, 2016
	As Reported		Adjustment			As Revised		As Reported		Adjustment		As Revised
Equity in net income of unconsolidated affiliates	$	37	$	(3	)	$	34	$	22	$	4	$	26
Income from Continuing Operations	71		(3		)	68		195		4		199
Net Income	36		(3		)	33		157		4		161
Net Income Attributable to Xerox	34		(3		)	31		154		4		158

Basic Earnings per Share:
Continuing operations	$	0.25	$	(0.01	)	$	0.24	$	0.74	$	0.01	$	0.75
Total	$	0.11	$	(0.01	)	$	0.10	$	0.59	$	0.01	$	0.60

Diluted Earnings per Share:
Continuing operations	$	0.24	$	(0.01	)	$	0.23	$	0.73	$	0.02	$	0.75
Total	$	0.11	$	(0.01	)	$	0.10	$	0.58	$	0.02	$	0.60



	Three Months Ended September 30, 2016						Three Months Ended December 31, 2016
	As Reported		Adjustment		As Revised		As Reported			Adjustment		As Revised
Equity in net income of unconsolidated affiliates	$	39	$	1	$	40	$	23		$	4	$	27
Income from Continuing Operations	177		1		178		184			4		188
Net Income (Loss)	185		1		186		(844		)	4		(840		)
Net Income (Loss) Attributable to Xerox	182		1		183		(847		)	4		(843		)

Basic Earnings (Loss) per Share:
Continuing operations	$	0.66	$	—	$	0.66	$	0.69		$	0.02	$	0.71
Total	$	0.69	$	—	$	0.69	$	(3.37	)	$	0.02	$	(3.35	)

Diluted Earnings (Loss) per Share:
Continuing operations	$	0.65	$	0.01	$	0.66	$	0.68		$	0.02	$	0.70
Total	$	0.68	$	0.01	$	0.69	$	(3.32	)	$	0.02	$	(3.30	)



	Three Months Ended March 31, 2015							Three Months Ended June 30, 2015
	As Reported		Adjustment			As Revised		As Reported		Adjustment			As Revised
Equity in net income of unconsolidated affiliates	$	34	$	(18	)	$	16	$	29	$	(4	)	$	25
Income from Continuing Operations	189		(18		)	171		210		(4		)	206
Net Income	230		(18		)	212		17		(4		)	13
Net Income Attributable to Xerox	225		(18		)	207		12		(4		)	8

Basic Earnings per Share:
Continuing operations	$	0.64	$	(0.06	)	$	0.58	$	0.73	$	(0.01	)	$	0.72
Total	$	0.79	$	(0.07	)	$	0.72	$	0.02	$	(0.01	)	$	0.01

Diluted Earnings per Share:
Continuing operations	$	0.63	$	(0.06	)	$	0.57	$	0.72	$	(0.01	)	$	0.71
Total	$	0.78	$	(0.07	)	$	0.71	$	0.02	$	(0.01	)	$	0.01



	Three Months Ended September 30, 2015								Three Months Ended December 31, 2015
	As Reported			Adjustment		As Revised			As Reported		Adjustment			As Revised
Equity in net income of unconsolidated affiliates	$	40		$	—	$	40		$	32	$	(4	)	$	28
Income from Continuing Operations	206			—		206			261		(4		)	257
Net (Loss) Income	(31		)	—		(31		)	276		(4		)	272
Net (Loss) Income Attributable to Xerox	(34		)	—		(34		)	271		(4		)	267

Basic (Loss) Earnings per Share:
Continuing operations	$	0.75		$	—	$	0.75		$	0.99	$	(0.02	)	$	0.97
Total	$	(0.16	)	$	—	$	(0.16	)	$	1.05	$	(0.02	)	$	1.03

Diluted (Loss) Earnings per Share:
Continuing operations	$	0.75		$	—	$	0.75		$	0.98	$	(0.02	)	$	0.96
Total	$	(0.16	)	$	—	$	(0.16	)	$	1.04	$	(0.02	)	$	1.02

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