Announces 2020 guidance consistent with three-year plan,
including further EPS expansion and revenue trend
improvement
2019 Full-Year Financial Highlights:
- GAAP earnings per share (EPS) from continuing operations of
$2.78, up $1.62 year-over-year (YOY); adjusted EPS from continuing
operations of $3.55, up $0.67 YOY.
- Adjusted operating margin of 13.1 percent, up 180 basis points
YOY.
- $1.24 billion of operating cash flow from continuing
operations, up $162 million YOY; $1.18 billion of free cash flow,
up $187 million YOY.
- $9.07 billion of revenue, a decrease of 6.2 percent in actual
currency YOY or 4.7 percent in constant currency YOY.
- Achieved gross savings of $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.
- Returned 72 percent of free cash flow to shareholders.
Xerox Holdings Corporation (NYSE: XRX) announced its
fourth-quarter and full-year 2019 financial results and 2020
guidance.
“We are delivering on our three-year plan. We grew earnings per
share, increased cash flow and expanded adjusted operating margin
for the full year, and we improved our revenue trajectory in the
second half of the year as our investments in the business gained
traction,” said Xerox Vice Chairman and CEO John Visentin. “We
accomplished this while returning more than 70 percent of free cash
flow to shareholders, paying down approximately $950 million in
debt and increasing investments in our innovation areas. We are
well-positioned to carry this momentum into 2020 and lead the way
for long-overdue industry consolidation.”
Fourth-Quarter Key Financial Results -
Continuing Operations:
(in millions, except per share
data)
Q4 2019
Q4 2018
B/(W) YOY
% Change YOY
Revenue
$2,444
$2,498
$(54)
(2.2)% AC (1.6)% CC1
Gross Margin
41.6%
40.0%
160 bps
RD&E %
3.8%
3.8%
—
SAG %
20.9%
22.1%
120 bps
Pre-Tax Income
$336
$124
$212
171.0%
Pre-Tax Income Margin
13.7%
5.0%
Operating Income - Adjusted1
$411
$352
$59
16.8%
Operating Margin - Adjusted1
16.8%
14.1%
270 bps
GAAP EPS
$1.17
$0.37
$0.80
216.2%
EPS - Adjusted1
$1.33
$0.94
$0.39
41.5%
Full-Year Key Financial
Results - Continuing Operations:
(in millions, except per share
data)
2019
2018
B/(W) YOY
% Change YOY
Revenue
$9,066
$9,662
$(596)
(6.2)% AC (4.7)% CC1
Gross Margin
40.3%
40.0%
30 bps
RD&E %
4.1%
4.1%
0
SAG %
23.0%
24.6%
160 bps
Pre-Tax Income
$822
$549
$273
49.7%
Pre-Tax Income Margin
9.1%
5.7%
Operating Income -
Adjusted1
$1,192
$1,093
$99
9.1%
Operating Margin - Adjusted1
13.1%
11.3%
180 bps
GAAP EPS
$2.78
$1.16
$1.62
139.7%
EPS - Adjusted1
$3.55
$2.88
$0.67
23.3%
(1) 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 measures.
Fourth-quarter and full-year 2019 results include the benefit
from $77 million of revenue associated with an OEM license
agreement with Fuji Xerox received as part of a series of
transactions with FUJIFILM Holdings Corporation (FUJIFILM). This
benefit was included in Xerox’s updated 2019 guidance measures
filed with the U.S. Securities and Exchange Commission on Form 8-K
on December 3, 2019 that reflected adjustments resulting from the
transactions with FUJIFILM.
Full-Year Key Business Highlights:
- Implemented a new supply chain and supplier strategy, which
included expanding Xerox’s relationship with HP and favorably
structuring terms with FUJIFILM that monetized the company’s
investment in Fuji Xerox at over 20 times 2019 expected aggregate
cash flow.
- Expanded Xerox’s services portfolio with the launch of
Intelligent Workplace Services; IT Services for the small and
mid-size business market in the U.S.; and vertical services
targeting healthcare, retail, insurance, and the public
sector.
- Invested in several industry firsts within Xerox’s core
technology business such as the Iridesse® Production Press,
Baltoro™ HF Inkjet Press and Adaptive CMYK Plus Technology.
- Made progress on our three-year innovation roadmap with
products for 3D printing and AI Workflow Assistants becoming
commercially available in 2020 and monetizing innovations through
partners.
- Added and renewed several Fortune 500 and public sector clients
such as Morgan Stanley, Office Depot, Generali, BAE Systems, the
Commonwealth of Massachusetts, the Texas Department of Information
Resources and the California Department of State Hospitals.
2020 Guidance:
The company expects continued progress on its strategic
initiatives, as projected in its 2020 financial guidance:
- Revenue decline of approximately 4 percent at constant
currency, excluding revenue from the $77 million OEM license in
2019.2
- Adjusted operating margin of approximately 13 percent.
- GAAP EPS from continuing operations in the range of $2.80 to
$2.90.
- Adjusted EPS in the range of $3.60 to $3.70.
- Operating cash flow from continuing operations of approximately
$1.3 billion and free cash flow of approximately $1.2 billion.
- Company expects at least $300 million of share repurchases and
return of at least 50 percent of annual free cash flow to
shareholders in 2020.
(2) Revenue decline of approximately 4.9 percent including the
$77 million OEM License in 2019.
About Xerox Xerox Holdings Corporation (NYSE: XRX) makes
every day work better. We are a workplace technology company
building and integrating software and hardware for enterprises
large and small. As customers seek to manage information across
digital and physical platforms, Xerox delivers a seamless, secure
and sustainable experience. Whether inventing the copier, the
ethernet, the laser printer or more, Xerox has long defined the
modern work experience. Learn how that innovation continues at
xerox.com.
Non-GAAP Measures This release refers to the following
non-GAAP financial measures for the Fourth Quarter and Full-Year
2019 and Full-Year 2020 guidance:
- Adjusted EPS, which excludes restructuring and related costs,
the amortization of intangible assets, non-service
retirement-related costs, transaction and related costs, net and
other discrete adjustments from GAAP-EPS from continuing
operations.
- Adjusted operating margin and income, which exclude the EPS
adjustments noted above as well as the remainder of other expenses,
net from pre-tax margin and income.
- Constant currency (CC) revenue change, which excludes the
effects of currency translation.
- Free cash flow, which is cash flow from continuing operations
less capital expenditures.
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 measures.
Forward-Looking Statements This release, 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 impacts resulting from the restructuring of our
relationship with Fujifilm Holdings Corporation; the shared
services arrangements entered into by us as part of Project Own It;
the ultimate outcome of any possible transaction between Xerox
Holdings Corporation (“Xerox”) and HP Inc. (“HP”), including the
possibility that the parties will not agree to pursue a business
combination transaction or that the terms of any definitive
agreement will be materially different from those proposed;
uncertainties as to whether HP will cooperate with Xerox regarding
the proposed transaction; the ultimate result should Xerox
determine to commence a proxy contest for election of directors to
HP’s board of directors; Xerox’s ability to consummate the proposed
transaction with HP; the conditions to the completion of the
proposed transaction, including the receipt of any required
shareholder approvals and any required regulatory approvals;
Xerox’s ability to finance the proposed transaction with HP;
Xerox’s indebtedness, including the substantial indebtedness Xerox
expects to incur in connection with the proposed transaction with
HP and the need to generate sufficient cash flows to service and
repay such debt; the possibility that Xerox may be unable to
achieve expected synergies and operating efficiencies within the
expected time-frames or at all and to successfully integrate HP’s
operations with those of Xerox; that such integration may be more
difficult, time-consuming or costly than expected; that operating
costs, customer loss and business disruption (including, without
limitation, difficulties in maintaining relationships with
employees, customers or suppliers) may be greater than expected
following the proposed transaction or the public announcement of
the proposed transaction; the retention of certain key employees
may be difficult; and general economic conditions that are less
favorable than expected. Additional risks that may affect Xerox’s
operations 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 Xerox
Corporation's 2018 Annual Report on Form 10-K, as well as in Xerox
Corporation's and Xerox Holdings Corporation's Quarterly Reports on
Form 10-Q and 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.
Note: To receive RSS news feeds, visit
https://www.news.xerox.com. For open commentary, industry
perspectives and views, visit http://twitter.com/xerox,
http://www.facebook.com/XeroxCorp,
https://www.instagram.com/xerox/,
http://www.linkedin.com/company/xerox,
http://www.youtube.com/XeroxCorp.
Xerox®, Iridesse®, and Baltoro™ are trademarks of Xerox in the
United States and/or other countries.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)
Three Months Ended December
31,
Year Ended December 31,
(in millions, except per-share data)
2019
2018
2019
2018
Revenues
Sales(1)
$
919
$
958
$
3,227
$
3,454
Services, maintenance and rentals(1)
1,465
1,476
5,595
5,940
Financing
60
64
244
268
Total Revenues
2,444
2,498
9,066
9,662
Costs and Expenses
Cost of sales(1)
605
613
2,097
2,188
Cost of services, maintenance and
rentals(1)
790
855
3,188
3,473
Cost of financing
33
32
131
132
Research, development and engineering
expenses
93
94
373
397
Selling, administrative and general
expenses
512
552
2,085
2,379
Restructuring and related costs
53
67
229
157
Amortization of intangible assets
10
12
45
48
Transaction and related costs, net
4
5
12
68
Other expenses, net
8
144
84
271
Total Costs and Expenses
2,108
2,374
8,244
9,113
Income before Income Taxes & Equity
Income(2)
336
124
822
549
Income tax expense
73
34
179
247
Equity in net income of unconsolidated
affiliates
3
2
8
8
Income from Continuing
Operations
266
92
651
310
Income from discontinued operations, net
of tax
553
49
710
64
Net Income
819
141
1,361
374
Less: Income from continuing operations
attributable to noncontrolling interests
—
1
3
4
Less: Income from discontinued operations
attributable to noncontrolling interests
1
3
5
9
Net Income Attributable to Xerox
Holdings
$
818
$
137
$
1,353
$
361
Amounts Attributable to Xerox
Holdings:
Income from continuing operations
$
266
$
91
$
648
$
306
Income from discontinued operations
552
46
705
55
Net Income Attributable to Xerox
Holdings
$
818
$
137
$
1,353
$
361
Basic Earnings per Share:
Continuing operations
$
1.22
$
0.37
$
2.86
$
1.17
Discontinued operations
2.56
0.19
3.17
0.23
Basic Earnings per Share
$
3.78
$
0.56
$
6.03
$
1.40
Diluted Earnings per Share:
Continuing operations
$
1.17
$
0.37
$
2.78
$
1.16
Discontinued operations
2.44
0.19
3.02
0.22
Diluted Earnings per Share
$
3.61
$
0.56
$
5.80
$
1.38
___________________________
(1) Certain prior year amounts have been conformed to the
current year presentation. See Appendix III for this change in
presentation. (2) Referred to as “Pre-Tax Income” throughout the
remainder of this document.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended December
31,
Year Ended December 31,
(in millions)
2019
2018
2019
2018
Net income
$
819
$
141
$
1,361
$
374
Less: Net income attributable to
noncontrolling interests(1)
1
4
8
13
Net Income Attributable to Xerox
Holdings
818
137
1,353
361
Other Comprehensive Income (Loss),
Net
Translation adjustments, net
184
(83
)
62
(242
)
Unrealized (losses) gains, net
(9
)
11
(6
)
16
Changes in defined benefit plans, net
37
218
(1
)
409
Other Comprehensive Income, Net
212
146
55
183
Less: Other comprehensive loss, net
attributable to noncontrolling interests(1)
(1
)
—
—
—
Other Comprehensive Income, Net
Attributable to Xerox Holdings
213
146
55
183
Comprehensive Income, Net
1,031
287
1,416
557
Less: Comprehensive income from continuing
operations, net attributable to noncontrolling interests(1)
—
4
8
13
Comprehensive Income, Net Attributable
to Xerox Holdings
$
1,031
$
283
$
1,408
$
544
___________________________
(1) Includes continuing and discontinued operations.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except share data in
thousands)
December 31, 2019
December 31, 2018
Assets
Cash and cash equivalents
$
2,740
$
1,081
Accounts receivable, net
1,236
1,270
Billed portion of finance receivables,
net
111
105
Finance receivables, net
1,158
1,218
Inventories
694
829
Assets of discontinued operations
—
19
Other current assets
201
191
Total current assets
6,140
4,713
Finance receivables due after one year,
net
2,082
2,149
Equipment on operating leases, net
364
442
Land, buildings and equipment, net
426
498
Intangible assets, net
199
220
Goodwill
3,900
3,858
Deferred tax assets
596
740
Assets of discontinued operations
—
1,352
Other long-term assets
1,349
902
Total Assets
$
15,056
$
14,874
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
1,049
$
961
Accounts payable
1,053
1,073
Accrued compensation and benefits
costs
349
348
Liabilities of discontinued operations
—
21
Accrued expenses and other current
liabilities
984
848
Total current liabilities
3,435
3,251
Long-term debt
3,233
4,269
Pension and other benefit liabilities
1,707
1,482
Post-retirement medical benefits
352
350
Other long-term liabilities
512
269
Total Liabilities
9,239
9,621
Convertible Preferred Stock
214
214
Common stock
215
232
Additional paid-in capital
2,782
3,321
Treasury stock, at cost
(76
)
(55
)
Retained earnings
6,312
5,072
Accumulated other comprehensive loss
(3,637
)
(3,565
)
Xerox Holdings shareholders’ equity
5,596
5,005
Noncontrolling interests
7
34
Total Equity
5,603
5,039
Total Liabilities and Equity
$
15,056
$
14,874
Shares of common stock issued
214,621
231,690
Treasury stock
(2,031
)
(2,067
)
Shares of Common Stock
Outstanding
212,590
229,623
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
Three Months Ended December
31,
Year Ended December 31,
(in millions)
2019
2018
2019
2018
Cash Flows from Operating
Activities
Net Income
$
819
$
141
$
1,361
$
374
Income from discontinued operations, net
of tax
(553
)
(49
)
(710
)
(64
)
Income from continuing operations
266
92
651
310
Adjustments required to reconcile Net
income to Cash flows from operating activities
Depreciation and amortization
98
128
430
526
Provisions
15
14
73
70
Net gain on sales of businesses and
assets
(1
)
—
(21
)
(35
)
Stock-based compensation
9
13
50
57
Restructuring and asset impairment
charges
47
66
127
156
Payments for restructurings
(22
)
(39
)
(93
)
(169
)
Defined benefit pension cost
20
86
109
175
Contributions to defined benefit pension
plans
(34
)
(33
)
(141
)
(144
)
(Increase) decrease in accounts receivable
and billed portion of finance receivables
(50
)
(8
)
10
31
Decrease in inventories
78
126
109
17
Increase in equipment on operating
leases
(40
)
(66
)
(153
)
(248
)
(Increase) decrease in finance
receivables
(23
)
(15
)
101
166
(Increase) decrease in other current and
long-term assets
(15
)
12
(14
)
29
(Decrease) increase in accounts
payable
(23
)
(27
)
(47
)
1
Increase (decrease) in accrued
compensation
5
(15
)
(94
)
(111
)
Increase in other current and long-term
liabilities
21
40
40
52
Net change in income tax assets and
liabilities
60
11
90
176
Net change in derivative assets and
liabilities
(4
)
(12
)
11
(14
)
Other operating, net
(9
)
11
6
37
Net cash provided by operating activities
of continuing operations
398
384
1,244
1,082
Net cash provided by operating activities
of discontinued operations
40
31
89
58
Net cash provided by operating
activities
438
415
1,333
1,140
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(17
)
(17
)
(65
)
(90
)
Proceeds from sales of businesses and
assets
—
27
21
59
Acquisitions, net of cash acquired
—
—
(42
)
—
Other investing, net
—
1
1
2
Net cash (used in) provided by investing
activities of continuing operations
(17
)
11
(85
)
(29
)
Net cash provided by investing activities
of discontinued operations
2,233
—
2,233
—
Net cash provided by (used in) investing
activities
2,216
11
2,148
(29
)
Cash Flows from Financing
Activities
Net payments on debt
(551
)
(1
)
(950
)
(307
)
Dividends
(60
)
(65
)
(243
)
(269
)
Payments to acquire treasury stock,
including fees
(232
)
(416
)
(600
)
(700
)
Other financing, net
(8
)
(3
)
(31
)
(15
)
Net cash used in financing activities of
continuing operations
(851
)
(485
)
(1,824
)
(1,291
)
Net cash used in financing activities of
discontinued operations
—
(1
)
(10
)
(10
)
Net cash used in financing activities
(851
)
(486
)
(1,834
)
(1,301
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
13
(10
)
—
(30
)
Increase (decrease) in cash, cash
equivalents and restricted cash
1,816
(70
)
1,647
(220
)
Cash, cash equivalents and restricted cash
at beginning of period
979
1,218
1,148
1,368
Cash, Cash Equivalents and Restricted
Cash at End of Period(1)
$
2,795
$
1,148
$
2,795
$
1,148
____________________________
(1) Balance at December 31, 2018 includes $3 million associated
with discontinued operations.
Sales of Ownership Interests in Fuji Xerox Co., Ltd. and
Xerox International Partners
In November 2019, Xerox Holdings completed a series of
transactions to restructure its relationship with FUJIFILM Holdings
Corporation (“FH”), including the sale of its indirect 25% equity
interest in Fuji Xerox ("FX") for approximately $2.2 billion as
well as the sale of its indirect 51% partnership interest in Xerox
International Partners (XIP) for approximately $23 million
(collectively the “Sales”).
As a result of the Sales and the related strategic shift in our
business, the historical financial results of our equity method
investment in FX and our XIP business, which was fully
consolidated, are reflected as a discontinued operation for the
periods prior to the Sales, and their impact is excluded from
continuing operations for all periods presented.
The transactions with FH also included an OEM license agreement
by and between FX and Xerox, granting FX the right to use specific
Xerox Intellectual Property (IP) in providing certain named
original equipment manufacturers (OEM’s) with products (such as
printer engines) in exchange for an upfront license fee of $77
million. The license fee is recorded within other revenues. In
addition, arrangements with FX whereby we purchase inventory from
and sell inventory to FX, will continue post the Sales and, as a
result of our Technology Agreement with Fuji Xerox which remains in
effect through March 2021, we will continue to receive royalty
payments for FX’s use of our Xerox brand trademark, as well as
rights to access our patent portfolio in exchange for access to
their patent portfolio.
See the “Discontinued Operations” section for additional
information. The $77 million ($58 million after-tax) OEM license
had the following impact on our financial results for the Fourth
Quarter 2019 and Full Year 2019:
(in millions, except per share
amounts)
Three Months Ended December 31,
2019
Year Ended December 31, 2019
Financial Results from Continuing
Operations
As Reported
OEM License Impact
As Reported Excluding OEM License
Impact
As Reported
OEM License Impact
As Reported Excluding OEM License
Impact
Revenue
(2.2
)%
3.1
%
(5.2
)%
(6.2
)%
0.8
%
(7.0
)%
Revenue - CC (1)
(1.6
)%
3.1
%
(4.7
)%
(4.7
)%
0.8
%
(5.5
)%
Gross Margin
41.6
%
1.9
%
39.7
%
40.3
%
0.6
%
39.7
%
Adjusted Operating Margin(1)
16.8
%
2.7
%
14.1
%
13.1
%
0.7
%
12.4
%
EPS - GAAP
$
1.17
$
0.25
$
0.92
$
2.78
$
0.25
$
2.53
EPS - Adjusted(1)
$
1.33
$
0.25
$
1.08
$
3.55
$
0.25
$
3.30
Operating Cash Flow (2)
$
398
$
58
$
340
$
1,244
$
58
$
1,186
______________________
CC - Constant Currency. (1) Adjusted measures and CC: see the
“Non-GAAP Financial Measures” section for an explanation of the
non-GAAP financial measures. (2) Free cash flow likewise impacted
by $58 million from OEM license.
Revenues
Three Months Ended December
31,
% of Total Revenue
(in millions)
2019
2018
% Change
CC % Change
2019
2018
Equipment sales
$
616
$
629
(2.1)%
(1.5)%
25%
25%
Post sale revenue
1,828
1,869
(2.2)%
(1.7)%
75%
75%
Total Revenue
$
2,444
$
2,498
(2.2)%
(1.6)%
100%
100%
Reconciliation to Condensed
Consolidated Statements of Income:
Sales(1)
$
919
$
958
(4.1)%
(3.5)%
Less: Supplies, paper and other
sales(1)
(303
)
(329
)
(7.9)%
(7.3)%
Equipment Sales
$
616
$
629
(2.1)%
(1.5)%
Services, maintenance and rentals(1)
$
1,465
$
1,476
(0.7)%
(0.2)%
Add: Supplies, paper and other
sales(1)
303
329
(7.9)%
(7.3)%
Add: Financing
60
64
(6.3)%
(5.9)%
Post Sale Revenue
$
1,828
$
1,869
(2.2)%
(1.7)%
Americas
$
1,562
$
1,617
(3.4)%
(3.3)%
64%
65%
EMEA
756
830
(8.9)%
(7.4)%
31%
33%
Other
126
51
nm
nm
5%
2%
Total Revenue(2)
$
2,444
$
2,498
(2.2)%
(1.6)%
100%
100%
Memo:
Xerox Services(3)
$
870
$
917
(5.1)%
(4.5)%
36%
37%
____________________________
CC - Constant Currency (see "Non-GAAP Financial Measures"
section). (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 $751 million and $786 million
in the fourth quarter 2019 and 2018, respectively, representing a
decrease of 4.5% including a 0.7-percentage point unfavorable
impact from currency.
Fourth quarter 2019 total revenue decreased 2.2% as compared to
fourth quarter 2018, including a 0.6-percentage point unfavorable
impact from currency, and an approximate 3.1-percentage point
favorable impact from a fee of $77 million received in exchange for
an OEM license of certain intellectual property to Fuji Xerox. See
the “Sales of Ownership Interests in Fuji Xerox Co., Ltd. and Xerox
International Partners” section for further details. Fourth quarter
2019 total revenue reflected the following:
- 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 also includes
transactional IT hardware sales and implementation services from
our XBS organization. Post sale revenue decreased 2.2% as compared
to fourth quarter 2018, including a 0.5-percentage point
unfavorable impact from currency, and an approximate 4.1-percentage
point favorable impact from the OEM license fee described above.
The decline in post sale revenue 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 0.7% as
compared to fourth quarter 2018, including a 0.5-percentage point
unfavorable impact from currency and an approximate 5.2-percentage
point favorable impact from the OEM license fee described above.
The decline at constant currency1 reflected the continuing trends
of lower page volumes (including a higher mix of lower
average-page-volume 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 and current periods.
- Supplies, paper and other sales includes unbundled
supplies and other sales. These revenues decreased 7.9% as compared
to fourth quarter 2018, including a 0.6-percentage point
unfavorable impact from currency and reflected the timing impact of
prior year transactional IT sales from our XBS organization along
with lower paper sales from developing markets (primarily from the
Latin America region), as well as the impact of lower supplies
revenues primarily associated with lower page volume trends.
- Financing revenue is generated from financed equipment
sale transactions. The 6.3% decline in these revenues reflected a
continued decline in the finance receivables balance due to lower
equipment sales in prior periods and included a 0.4-percentage
point unfavorable impact from currency.
Three Months Ended December
31,
% of Equipment Sales
(in millions)
2019
2018
% Change
CC % Change
2019
2018
Entry
$
63
$
66
(4.5)%
(4.2)%
10%
11%
Mid-range
408
418
(2.4)%
(2.0)%
66%
66%
High-end
139
137
1.5%
1.9%
23%
22%
Other
6
8
(25.0)%
(25.0)%
1%
1%
Equipment Sales
$
616
$
629
(2.1)%
(1.5)%
100%
100%
____________________________
CC - Constant Currency (see "Non-GAAP Financial Measures"
section).
- Equipment sales revenue decreased 2.1% as compared to
fourth quarter 2018, including a 0.6-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 offset by higher sales of our
production-centric systems (high-end) as well as the benefit of
targeted price actions. The decline at constant currency1 reflected
the following:
- Entry - The decrease was primarily due to lower sales of
devices from developing market regions in the Americas, as well as
lower sales through our indirect channels in EMEA and the U.S.
- Mid-range - The decrease was driven by lower sales from
EMEA, reflecting in part continued weakness and delayed decisions
associated with uncertainty in the economic environment, partially
offset by higher sales from our Americas region, primarily related
to our U.S. Enterprise organization which had higher activity from
light-production devices associated with the recent launch of
PrimeLink (an entry-level production printer) and the benefit of a
large account refresh cycle. The decrease was also impacted by
lower sales from our U.S. indirect channels and from our XBS sales
organization, which continued to recover from the impact of
organizational changes earlier in the year that were part of our
Project Own It transformation actions (including the transitioning
of accounts to implement coverage changes, consolidation of real
estate locations and the reduction of management layers).
- High-end - The increase reflected primarily
global demand for our newly-launched Baltoro inkjet press, and
higher sales from new business and trade-ins of our Iridesse and
iGen laser color systems in the U.S., partially offset by lower
sales of Versant, our lower-end production systems. The increase
also benefited from higher sales of black-and-white systems in the
U.S. as a result of the timing of our customers' renewal
cycles.
Total Installs
Installs reflect new placement of devices only (i.e., measure
does not take into account removal of devices which may occur as a
result of contract renewals or cancellations). Revenue associated
with equipment installations may be reflected up-front in Equipment
sales or over time either through rental income or as part of our
Xerox Services revenues (which are both reported within our post
sale revenues), depending on the terms and conditions of our
agreements with customers. Installs include activity from Xerox
Services and Xerox-branded products shipped to our XBS sales unit.
Detail by product group (see Appendix II) is shown below:
Entry
- 2% decrease in color multifunction devices reflecting lower
installs of ConnectKey devices primarily from EMEA, partially
offset by higher installs from our indirect channels in the
U.S.
- 9% decrease in black-and-white multifunction devices reflecting
lower activity primarily from our indirect channels in the U.S. and
from developing regions in the Americas.
Mid-Range2
- 8% decrease in mid-range color installs primarily reflecting
lower installs of multifunction color devices partially offset by
higher installs of light-production devices that sit at the higher
end of the portfolio range.
- 19% decrease in mid-range black-and-white reflecting in part
global market trends.
High-End2
- 12% decrease in high-end color installs reflecting lower
installs of our lower-end Versant production systems, partially
offset by global demand for our newly-launched Baltoro inkjet
press, and higher installs of our Iridesse color systems in the
U.S.
- 8% increase in high-end black-and-white systems as a result of
higher sales in the U.S. associated with the timing of our
customers' renewal cycles which offset declining market
trends.
___________________________
(1) See the “Non-GAAP Financial Measures” section for an
explanation of the non-GAAP financial measure. (2) 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 9%, and High-end color systems decreased
11%.
Costs, Expenses and Other
Income
Summary of Key Financial Ratios
The following is a summary of key
financial ratios used to assess our performance:
Three Months Ended December
31,
(in millions)
2019
2018
B/(W)
Gross Profit
$
1,016
$
998
$
18
RD&E
93
94
1
SAG
512
552
40
Equipment Gross Margin
32.0
%
33.2
%
(1.2
)
pts.
Post sale Gross Margin
44.8
%
42.2
%
2.6
pts.
Total Gross Margin
41.6
%
40.0
%
1.6
pts.
RD&E as a % of Revenue
3.8
%
3.8
%
—
pts.
SAG as a % of Revenue
20.9
%
22.1
%
1.2
pts
Pre-tax Income
$
336
$
124
$
212
Pre-tax Income Margin
13.7
%
5.0
%
8.7
pts.
Adjusted(1) Operating Profit
$
411
$
352
$
59
Adjusted(1) Operating Margin
16.8
%
14.1
%
2.7
pts.
____________________________
(1) See the “Non-GAAP Financial Measures” section for an
explanation of the non-GAAP financial measure.
Pre-tax Income Margin
Fourth quarter 2019 pre-tax income margin of 13.7% increased
8.7-percentage points as compared to fourth quarter 2018. The
increase reflected lower Other expenses, net, as well as an
approximate 2.8-percentage point favorable impact from the $77
million OEM license fee described above, and lower operating
expenses which offset the adverse impact of lower revenues.
Adjusted1 Operating Margin
Fourth quarter 2019 adjusted1 operating margin of 16.8%
increased by 2.7-percentage points as compared to fourth quarter
2018 primarily reflecting an approximate 2.7-percentage point
favorable impact from the OEM license fee described above. The
increase also reflected the impact of cost and expense reductions
associated with our Project Own It transformation actions, offset
by the impact of lower revenues and an approximate 0.3-percentage
point unfavorable impact from transaction currency.
____________________________
(1) Refer to the Operating Income and Margin reconciliation
table in the “Non-GAAP Financial Measures” section.
Gross Margin
Fourth quarter 2019 gross margin of 41.6% increased by
1.6-percentage points compared to fourth quarter 2018, reflecting
an approximate 1.9-percentage point favorable impact from the OEM
license fee described above, as well as the benefits from our
Project Own It transformation actions which offset the impact of
lower revenues as well as an approximate 0.3-percentage point
unfavorable impact from transaction currency and an approximate
0.4-percentage point unfavorable impact from incremental tariff
costs.
Fourth quarter 2019 equipment gross margin of 32.0% decreased by
1.2-percentage points as compared to fourth quarter 2018,
reflecting an approximate 1.2-percentage point unfavorable impact
from incremental tariff costs. The favorable mix of sales of
high-end devices, and cost productivity offset the impact of lower
revenues and selective price actions and an approximate
0.7-percentage point unfavorable impact from transaction
currency.
Fourth quarter 2019 post sale gross margin of 44.8% increased by
2.6-percentage points as compared to fourth quarter 2018, including
an approximate 2.4-percentage point favorable impact from the OEM
license fee described above, as well as productivity and
restructuring savings associated with our Project Own It
transformation actions, which entirely offset the impact of lower
revenues, including lower pricing on contract renewals, and an
approximate 0.2-percentage point unfavorable impact from
transaction currency.
Gross margins are expected to continue to be negatively impacted
in future periods as a result of an increase in the cost of our
imported products due to higher import tariffs. We are taking
actions to mitigate the impact of these tariffs, such as raising
prices on certain products, however, we currently estimate an
approximately $35 million cost impact from these higher tariffs in
2020.
Research, Development and Engineering
Expenses (RD&E)
Fourth quarter 2019 RD&E as a percentage of revenue of 3.8%
was flat as compared to fourth quarter 2018, primarily due to lower
expenses offset by the impact of revenues declines.
RD&E of $93 million decreased $1 million as compared to
fourth quarter 2018.
Selling, Administrative and General
Expenses (SAG)
SAG as a percentage of revenue of 20.9% decreased by
1.2-percentage points as compared to fourth quarter 2018, primarily
reflecting the benefit from productivity and restructuring
associated with our Project Own It transformation actions which
offset the impact from lower revenues.
SAG of $512 million decreased by $40 million as compared to
fourth quarter 2018, reflecting productivity and restructuring
savings associated with our Project Own It transformation actions
as well as the year-over-year benefit of $10 million of charges in
the prior year related to the cancellation of certain IT projects,
offset by higher performance incentive compensation as well as
higher advertising investments primarily in indirect channel
marketing. Bad debt expense of $8 million was $7 million higher
compared to fourth quarter 2018 primarily due to an increased level
of sales-type leases as a result of our adoption of ASC Topic 842 -
Leases and associated changes in the collectibility assessment of
certain leases as well as an increased mix of high-end equipment
sales. On a trailing twelve-month basis (TTM), bad debt expense
remained at less than one percent of total receivables.
Restructuring and Related Costs
During the second half of 2018, we started our Project Own It
transformation initiative. The primary goal of this initiative is
to improve productivity by driving end-to-end transformation of our
processes and systems to create greater focus, speed,
accountability and effectiveness and to reduce costs. We incurred
restructuring and related costs of $53 million for the fourth
quarter 2019 primarily related to costs to implement initiatives
under our business transformation projects including Project Own
It. The following is a breakdown of those costs:
(in millions)
Three Months Ended December 31,
2019
Restructuring Severance (1)
$
44
Asset Impairments (2)
13
Other contractual termination costs
(3)
1
Net reversals (4)
(11
)
Restructuring and asset impairment
costs
47
Retention related severance/bonuses
(5)
8
Contractual severance costs (6)
2
Consulting and other costs (7)
(4
)
Total
$
53
___________________
(1) Reflects headcount reductions of approximately 550 employees
worldwide. (2) Primarily related to the exit and abandonment of
leased and owned facilities. The charge includes the accelerated
write-off of $3 million for leased right-of-use asset balances and
$10 million for owned asset balances upon exit from the facilities
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 $4 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)
Reflects severance and other related costs we are contractually
required to pay on employees transferred (approximately 2,200
employees) as part of the shared service arrangement entered into
with HCL Technologies. (7) Represents professional support services
associated with our business transformation initiatives. The credit
in the fourth quarter 2019 reflects adjustments of prior period
estimated accruals for services.
Fourth quarter 2019 actions impacted several functional areas,
with approximately 47% focused on gross margin improvements,
approximately 47% focused on SAG reductions, and the remainder
focused on RD&E optimization.
The implementation of our Project Own It initiatives as well as
other business transformation initiatives is expected to continue
to deliver significant cost savings in 2020. While many initiatives
are underway and have yet to yield the full transformation benefits
expected upon their completion, the changes implemented thus far
have improved our cost structure and are beginning to yield longer
term benefits. However, expected savings associated with these
initiatives may be offset to some extent by business disruption
during the implementation phase as well as investments in new
processes and systems until the initiatives are fully implemented
and stabilized.
Fourth quarter 2018 restructuring and related costs of $67
million included net restructuring and asset impairment charges of
$66 million and $1 million of additional costs primarily related to
professional support services associated with the business
transformation initiatives.
Fourth quarter 2018 net restructuring and asset impairment
charges of $66 million included $72 million of severance costs
related to headcount of approximately 850 employees worldwide and
$1 million of lease cancellation costs. These costs were partially
offset by $7 million of net reversals for changes in estimated
reserves from prior period initiatives. Fourth quarter 2018 actions
impacted several functional areas, with approximately 15% focused
on gross margin improvements, approximately 80% focused on SAG
reductions, and the remainder focused on RD&E optimization.
The restructuring reserve balance as of December 31, 2019 for
all programs was $70 million, which is expected to be paid over the
next twelve months.
Transaction and Related Costs,
Net
We incurred $4 million of Transaction and related costs, net
during fourth quarter 2019 primarily related to legal costs
associated with our announced proposal to acquire HP (see the
“Proposed Transaction with HP” section for further details). These
costs are expected to continue in future periods. This compares to
$5 million of costs incurred during fourth quarter 2018, which were
primarily associated with the terminated Fuji transaction.
Amortization of Intangible
Assets
Fourth quarter 2019 Amortization of intangible assets of $10
million decreased by $2 million compared to fourth quarter 2018 as
a result of the write-off of trade names in prior periods
associated with our realignment and consolidation of certain XBS
sales units as part of Project Own It transformation actions.
Worldwide Employment
Worldwide employment was approximately 27,000 as of December 31,
2019 and decreased by approximately 5,400 from December 31, 2018.
The reduction resulted from net attrition (attrition net of gross
hires), of which a large portion is not expected to be backfilled,
as well as the impact of organizational changes including employees
transferred as part of the shared services arrangement entered into
with HCL Technologies earlier this year.
Other Expenses, Net
Three Months Ended December
31,
(in millions)
2019
2018
Non-financing interest expense
$
24
$
29
Non-service retirement-related costs
(3
)
67
Interest income
(7
)
(3
)
Gains on sales of businesses and
assets
(1
)
—
Contract termination costs - IT
services
(4
)
43
Currency losses, net
1
3
Loss on sales of accounts receivable
1
1
All other expenses, net
(3
)
4
Other expenses, net
$
8
$
144
Non-financing interest expense
Fourth quarter 2019 non-financing interest expense of $24
million was $5 million lower than fourth quarter 2018. When
combined with financing interest expense (Cost of financing), total
interest expense decreased by $4 million from fourth quarter 2018
primarily due to a lower debt balance.
Non-service retirement-related
costs
Fourth quarter 2019 non-service retirement-related costs were
$70 million lower than fourth quarter 2018, primarily driven by the
favorable impact of a 2018 amendment to our U.S. Retiree Health
Plan and lower losses from pension settlements in the U.S.
Interest income
Fourth quarter 2019 interest income was $4 million higher than
fourth quarter 2018, primarily reflecting interest on a higher cash
balance as a result of cash proceeds received from the Sales of our
indirect 25% equity interest in Fuji Xerox (FX) and indirect 51%
partnership interest in Xerox International Partners (XIP)
completed on November 8, 2019. See the “Sales of Ownership
Interests in Fuji Xerox Co., Ltd. and Xerox International Partners”
section for further details.
Contract termination costs - IT
services
Contract termination costs - IT services was a $4 million credit
in fourth quarter 2019 ($12 million for the full year 2019)
reflecting an adjustment to the $43 million penalty recorded in
fourth quarter 2018, associated with the termination of an IT
services arrangement.
Income Taxes
Fourth quarter 2019 effective tax rate was 21.7%. On an
adjusted1 basis, fourth quarter 2019 effective tax rate was 25.0%.
These rates were higher than the U.S. federal statutory tax rate of
21% primarily due to state taxes and the geographical mix of
profits. The adjusted1 effective tax rate excludes the tax impacts
associated with the following charges: Restructuring and related
costs, Amortization of intangible assets, Transaction and related
costs, net as well as non-service retirement-related costs and
other discrete, unusual or infrequent items as described in our
Non-GAAP Financial Measures section.
Fourth quarter 2018 effective tax rate was 27.4% and included a
reduction of $6 million related to a change in the provisional
estimated impact from the 2017 Tax Cuts Jobs Act (the "Tax Act").
On an adjusted1 basis, fourth quarter 2018 effective tax rate was
27.7%. This rate was higher than the U.S. federal statutory tax
rate of 21% primarily due to state taxes and the geographical mix
of profits. The adjusted1 effective tax rate excludes the tax
impacts associated with the following charges: Restructuring and
related costs, Amortization of intangible assets, Transaction and
related costs, net, non-service retirement-related costs as well as
other discrete, unusual or infrequent items as described in our
Non-GAAP Financial Measures section, which include the impact of
the Tax Act.
Our effective tax rate is based on nonrecurring events as well
as recurring factors, including the taxation of foreign income. In
addition, our effective tax rate will change based on discrete or
other nonrecurring events that may not be predictable.
______________
(1) Refer to the Effective Tax Rate reconciliation table in the
"Non-GAAP Financial Measures" section.
Net Income from Continuing Operations
Fourth quarter 2019 net income from continuing operations
attributable to Xerox Holdings was $266 million, or $1.17 per
diluted share. On an adjusted1 basis, net income from continuing
operations attributable to Xerox Holdings was $300 million, or
$1.33 per diluted share. Fourth quarter 2019 adjustments to net
income from continuing operations included Restructuring and
related costs, Amortization of intangible assets, Transaction and
related cost, net as well as non-service retirement-related costs
and other discrete, unusual or infrequent items as described in our
Non-GAAP Financial Measures section.
Fourth quarter 2018 net income from continuing operations
attributable to Xerox Holdings was $91 million, or $0.37 per
diluted share. On an adjusted1 basis, net income from continuing
operations attributable to Xerox Holdings was $231 million, or
$0.94 per diluted share. Fourth quarter 2018 adjustments to net
income from continuing operations included Restructuring and
related costs, Amortization of intangible assets, Transaction and
related costs, net as well as non-service retirement-related costs
and other discrete, unusual or infrequent items as described in our
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.
Discontinued Operations
In November 2019, Xerox Holdings completed a series of
transactions to restructure its relationship with FUJIFILM Holdings
Corporation (“FH”), including the sale of its indirect 25% equity
interest in Fuji Xerox ("FX") for approximately $2.2 billion as
well as the sale of its indirect 51% partnership interest in Xerox
International Partners ("XIP") for approximately $23 million
(collectively the “Sales”).
The Sales resulted in a pre-tax gain of $629 million ($539
million after-tax), which was net of approximately $9 million of
transaction costs and $8 million of allocated goodwill associated
with our XIP business. The XIP allocated goodwill was based on the
relative fair value of our XIP business, as evidenced by the sales
price, as compared to the total estimated fair value of Xerox. No
Goodwill was allocated for our investment in FX based on
consideration of the guidance in ASC 350-20-40-2 and the fact that
an equity investment is not considered a business in accordance
with ASC 805-10-55, as it was not controlled by Xerox.
Three Months Ended December
31,
(in millions)
2019
2018
Revenue
$
6
$
35
Income from operations(1)
$
14
$
52
Gain on disposal
629
—
Income before income taxes
643
52
Income tax expense
(90
)
(3
)
Income from discontinued operations,
net of tax
$
553
$
49
Income from discontinued operations
attributable to noncontrolling interests, net of tax
(1
)
(3
)
Income from discontinued operations,
net of tax attributable to Xerox Holdings
$
552
$
46
Year Ended December 31,
(in millions)
2019
2018
Revenue
$
79
$
168
Income from operations(1)
$
176
$
73
Gain on disposal
629
—
Income before income taxes
805
73
Income tax expense
(95
)
(9
)
Income from discontinued operations,
net of tax
$
710
$
64
Income from discontinued operations
attributable to noncontrolling interests, net of tax
(5
)
(9
)
Income from discontinued operations,
net of tax attributable to Xerox Holdings
$
705
$
55
____________________________
(1) Includes equity income from FX of $15 million and $37
million for the Three Months Ended December 31, 2019 and 2018,
respectively, and $147 million and $25 million for the Year Ended
December 31, 2019 and 2018, respectively.
Capital Resources and Liquidity
The following summarizes our cash, cash
equivalents and restricted cash:
Three Months Ended December
31,
(in millions)
2019
2018
Change
Net cash provided by operating activities
of continuing operations
$
398
$
384
$
14
Net cash provided by operating activities
of discontinued operations
40
31
9
Net cash provided by operating
activities
438
415
23
Net cash (used in) provided by investing
activities of continuing operations
(17
)
11
(28
)
Net cash provided by investing activities
of discontinued operations
2,233
—
2,233
Net cash provided by investing
activities
2,216
11
2,205
Net cash used in financing activities of
continuing operations
(851
)
(485
)
(366
)
Net cash used in financing activities of
discontinued operations
—
(1
)
1
Net cash used in financing activities
(851
)
(486
)
(365
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
13
(10
)
23
Increase (decrease) in cash, cash
equivalents and restricted cash
1,816
(70
)
1,886
Cash, cash equivalents and restricted cash
at beginning of period
979
1,218
(239
)
Cash, Cash Equivalents and Restricted
Cash at End of Period(1)
$
2,795
$
1,148
$
1,647
____________________________
(1) Balance at December 31, 2018 includes $3 million associated
with discontinued operations.
Cash Flows from Operating
Activities
Net cash provided by operating activities from continuing
operations was $398 million in fourth quarter 2019. The $14 million
increase in operating cash from fourth quarter 2018 was primarily
due to the following:
- $58 million increase from after-tax impact of the OEM license
agreement with FX.
- $18 million net increase from finance assets reflecting $26
million increase from lower placements of equipment on operating
leases partially offset by $8 million decrease from higher finance
receivables.
- $20 million increase from accrued compensation primarily
related to lower compensation costs and year-over-year timing of
payments.
- $14 million increase from lower restructuring and related
payments primarily due to timing of initiatives and associated
payments.
- $48 million decrease as a result of lower fourth quarter
inventory reductions in 2019 as compared to the prior year
primarily due to timing of purchases.
- $42 million decrease from accounts receivable primarily due to
the timing of collections.
Cash Flows from Investing
Activities
Net cash used in investing activities of continuing operations
was $17 million in fourth quarter 2019. The $28 million change from
fourth quarter 2018 was primarily due to proceeds from the sale of
buildings in Ireland in the prior year.
Cash Flows from Financing
Activities
Net cash used in financing activities of continuing operations
was $851 million in fourth quarter 2019. The $366 million increase
in the use of cash from fourth quarter 2018 was primarily due to
the following:
- $550 million increase from net debt activity primarily due to
payments of $554 million on maturing Senior Notes in fourth quarter
2019 compared to no payments in prior year.
- $184 million decrease from lower share repurchases due to
timing.
Adoption of New Leasing Standard
On January 1, 2019, we adopted ASU 2016-02, Leases (ASC Topic
842). This update, as well as additional amendments and targeted
improvements issued in 2018 and early 2019, supersedes existing
lease accounting guidance found under ASC 840, Leases (ASC 840) and
requires the recognition of right-of-use (ROU) assets and lease
obligations by lessees for those leases originally classified as
operating leases under prior lease guidance.
Upon adoption, we applied the transition option, whereby prior
comparative periods are not retrospectively presented in the
Condensed Consolidated Financial Statements. Lessee accounting -
the adoption of this update resulted in an increase to assets and
related liabilities of approximately $385 million (approximately
$440 million undiscounted) primarily related to leases of
facilities. Lessor accounting - the adoption of this update
resulted in an increase to equipment sales of approximately $10
million in fourth quarter 2019. The adoption of the new standard
did not, nor is it expected to, have a material impact on our
results of operations or cash flows.
Operating leases ROU assets, net and operating lease liabilities
were reported in the Condensed Consolidated Balance Sheets as
follows:
(in millions)
December 31, 2019
Other long-term assets
$
319
Accrued expenses and other current
liabilities
$
87
Other long-term liabilities
260
Total Operating lease
liabilities
$
347
Cash, Cash Equivalents and Restricted Cash
Restricted cash primarily relates to escrow cash deposits made
in Brazil associated with ongoing litigation. Various litigation
matters in Brazil require us to make cash deposits to escrow as a
condition of continuing the litigation. Restricted cash amounts are
classified in our Condensed Consolidated Balance Sheets based on
when the cash is expected to be contractually or judicially
released.
(in millions)
December 31, 2019
December 31, 2018
Cash and cash equivalents
$
2,740
$
1,081
Restricted cash
Litigation deposits in Brazil
55
61
Other restricted cash
—
3
Total Restricted cash
55
64
Cash, cash equivalents and restricted
cash
2,795
1,145
Cash, cash equivalents and restricted cash
- discontinued operations
—
3
Cash, cash equivalents and restricted
cash - total
$
2,795
$
1,148
Restricted cash was reported in the Condensed Consolidated
Balance Sheets as follows:
(in millions)
December 31, 2019
December 31, 2018
Other current assets
$
—
$
1
Other long-term assets
55
63
Total Restricted cash
$
55
$
64
Debt and Customer Financing
Activities
The following summarizes our debt:
(in millions)
December 31, 2019
December 31, 2018
Principal debt balance(1)
$
4,313
$
5,281
Net unamortized discount
(16
)
(25
)
Debt issuance costs
(17
)
(25
)
Fair value adjustments(2)
- terminated swaps
1
2
- current swaps
1
(3
)
Total Debt
$
4,282
$
5,230
____________________________
(1) There were no Notes Payable as of December 31, 2019 and
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.
Finance Assets and Related Debt
The following represents our total finance
assets, net associated with our lease and finance operations:
(in millions)
December 31, 2019
December 31, 2018
Total finance receivables, net(1)
$
3,351
$
3,472
Equipment on operating leases, net
364
442
Total Finance Assets, net(2)
$
3,715
$
3,914
____________________________
(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 $3 million due to currency.
Our lease contracts permit customers to pay for equipment over
time rather than at the date of installation; therefore, we
maintain a certain level of debt (that we refer to as financing
debt) to support our investment in these lease contracts, which are
reflected in total finance assets, net. For this financing aspect
of our business, we maintain an assumed 7:1 leverage ratio of debt
to equity as compared to our finance assets.
Based on this leverage, the following represents the breakdown
of total debt between financing debt and core debt:
(in millions)
December 31, 2019
December 31, 2018
Finance receivables debt(1)
$
2,932
$
3,038
Equipment on operating leases debt
319
387
Financing debt
3,251
3,425
Core debt
1,031
1,805
Total Debt
$
4,282
$
5,230
____________________________
(1) Finance receivables debt is the basis for our calculation of
"Cost of financing" expense in the Condensed Consolidated
Statements of Income.
Sales of Accounts Receivable
Accounts receivable sales arrangements may be utilized in the
normal course of business as part of our cash and liquidity
management. Accounts receivable sold are generally short-term trade
receivables with payment due dates of less than 60 days.
Accounts receivable sales activities were as follows:
Three Months Ended December
31,
(in millions)
2019
2018
Accounts receivable sales(1)
$
128
$
108
Loss on sales of accounts receivable
1
1
Estimated increase to operating cash
flows(2)
67
36
____________________________
(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.
Corporate Reorganization
On March 6, 2019, the Xerox Board of Directors approved a
reorganization (the “Reorganization”) of the Company's corporate
structure into a holding company structure. The Reorganization was
subject to the approval of shareholders, which was obtained at the
annual shareholders meeting held May 21, 2019.
On July 31, 2019, the Reorganization was completed, pursuant to
which Xerox (the predecessor publicly held parent company) became a
direct, wholly-owned subsidiary of Xerox Holdings. The business
operations, directors and executive officers of the Company did not
change as a result of the Reorganization.
In this Reorganization, shareholders of Xerox became
shareholders of Xerox Holdings on a one-for-one basis; maintaining
the same number of shares and ownership percentage as held in Xerox
immediately prior to the Reorganization. In addition, the
individual holder of the shares of Xerox’s Series B Preferred Stock
exchanged those shares for the same number of shares of Xerox
Holdings Series A Preferred Stock. Each share of Xerox Holdings
Series A Preferred Stock has the same designations, rights, powers
and preferences, and the same qualifications, limitations and
restrictions as the shares of Xerox Series B Preferred Stock, with
the addition of certain voting rights. In connection with the
Reorganization, Xerox Holdings assumed each of the Xerox stock
plans, all unexercised and unexpired options to purchase Xerox
common stock and each right to acquire or vest in a share of Xerox
common stock, including restricted stock unit awards, performance
share awards and deferred stock units that are outstanding under
the Xerox stock plans. In addition, Xerox Holdings became a
guarantor of Xerox’s existing Credit Facility.
The Reorganization was accounted for as a transaction among
entities under common control and is expected to be a tax-free
transaction for U.S. federal income tax purposes. Shares of Xerox
Holdings common stock trade on the New York Stock Exchange under
the ticker symbol “XRX”, formerly used by Xerox.
Shared Services Arrangement with HCL Technologies
In March 2019, as part of Project Own It, Xerox entered into a
shared services arrangement with HCL Technologies ("HCL") pursuant
to which we are transitioning certain global administrative and
support functions, including, among others, selected information
technology and finance functions (excluding accounting), from Xerox
to HCL. This transition is expected to take up to 18 months. HCL is
expected to make certain up-front and ongoing investments in
software, tools and other technology to consolidate, optimize and
automate the transferred functions with the goal of providing
improved service levels and significant cost savings. The shared
services arrangement with HCL includes a total aggregate spending
commitment by us of approximately $1.3 billion over the next 7
years (includes approximately $100 million incurred in 2019).
However, we can terminate the arrangement at any time at our
discretion, subject to payment of termination fees that decline
over the term, or for cause. The spending commitment excludes
restructuring and related costs we are expected to incur in
connection with the transition of the contemplated functions. See
Restructuring and Related Costs within the Costs, Expenses and
Other Income section. The transfer of employees associated with the
HCL arrangement in certain countries was subject to compliance with
works council and other employment regulatory requirements in those
countries, which delayed the transfer as well as the expected
savings from the arrangement.
During fourth quarter 2019, we incurred net charges of
approximately $35 million associated with this arrangement, which
only reflects the cost associated with the employees transferred to
date. The cost has been allocated to the various functional expense
lines in the Condensed Consolidated Income Statement based on an
assessment of the nature and amount of the costs incurred for the
various transferred functions prior to their transfer to HCL.
Proposed Transaction with HP
In November 2019, Xerox proposed a business combination
transaction with HP Inc. (“HP”) in which HP shareholders would
receive $17 per share in cash, and approximately 48% of the pro
forma combined company (based on 0.137 Xerox share for each HP
share). In January 2020, Xerox obtained $24 billion in financing
commitments to support the proposed business combination
transaction with HP. HP has rejected the proposal and refused to
engage in mutual due diligence or negotiations regarding the
proposal. In January 2020, Xerox nominated a slate of directors to
HP’s board to be voted on at HP’s 2020 annual meeting of
stockholders. Xerox intends to continue to pursue the proposed
business combination transaction.
Forward-Looking Statements
This release, 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 impacts resulting from the restructuring of our
relationship with Fujifilm Holdings Corporation; the shared
services arrangements entered into by us as part of Project Own It;
the ultimate outcome of any possible transaction between Xerox
Holdings Corporation (“Xerox”) and HP Inc. (“HP”), including the
possibility that the parties will not agree to pursue a business
combination transaction or that the terms of any definitive
agreement will be materially different from those proposed;
uncertainties as to whether HP will cooperate with Xerox regarding
the proposed transaction; the ultimate result should Xerox
determine to commence a proxy contest for election of directors to
HP’s board of directors; Xerox’s ability to consummate the proposed
transaction with HP; the conditions to the completion of the
proposed transaction, including the receipt of any required
shareholder approvals and any required regulatory approvals;
Xerox’s ability to finance the proposed transaction with HP;
Xerox’s indebtedness, including the substantial indebtedness Xerox
expects to incur in connection with the proposed transaction with
HP and the need to generate sufficient cash flows to service and
repay such debt; the possibility that Xerox may be unable to
achieve expected synergies and operating efficiencies within the
expected time-frames or at all and to successfully integrate HP’s
operations with those of Xerox; that such integration may be more
difficult, time-consuming or costly than expected; that operating
costs, customer loss and business disruption (including, without
limitation, difficulties in maintaining relationships with
employees, customers or suppliers) may be greater than expected
following the proposed transaction or the public announcement of
the proposed transaction; the retention of certain key employees
may be difficult; and general economic conditions that are less
favorable than expected. Additional risks that may affect Xerox’s
operations 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 Xerox
Corporation's 2018 Annual Report on Form 10-K, as well as in Xerox
Corporation's and Xerox Holdings Corporation's Quarterly Reports on
Form 10-Q and 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.
Non-GAAP Financial Measures
We have reported our financial results in accordance with
generally accepted accounting principles (GAAP). In addition, we
have discussed our financial results using the non-GAAP measures
described below. We believe these non-GAAP measures allow investors
to better understand the trends in our business and to better
understand and compare our results. Accordingly, we believe it is
necessary to adjust several reported amounts, determined in
accordance with GAAP, to exclude the effects of certain items as
well as their related income tax effects.
A reconciliation of these non-GAAP financial measures to the
most directly comparable financial measures calculated and
presented in accordance with GAAP are set forth below as well as in
the fourth quarter 2019 presentation slides available at
www.xerox.com/investor.
These non-GAAP financial measures should be viewed in addition
to, and not as a substitute for, the company’s reported results
prepared in accordance with GAAP.
Adjusted Earnings Measures
- Net Income and Earnings per share (EPS)
- Effective Tax Rate
The above measures were adjusted for the following items:
- 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 i) our announced proposal to acquire HP
Inc. and ii) our planned transaction with Fuji, which was
terminated in May 2018, inclusive of costs related to litigation
resulting from the terminated transaction and other shareholder
actions. The costs are primarily for third-party legal, accounting,
consulting and other similar type professional services as well as
potential legal settlements. 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 transactions.
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.
- Other discrete, unusual or infrequent
items: We excluded the following items given their discrete,
unusual or infrequent nature and their impact on our results for
the period.
- Contract termination costs - IT services.
- Impacts associated with the Tax Cuts and Jobs Act (the "Tax
Act") enacted in December 2017.
We believe the exclusion of these items allows investors to
better understand and analyze the results for the period as
compared to prior periods and expected future trends in our
business.
Adjusted Operating
Income/Margin
We calculate and utilize adjusted operating income and margin
measures by adjusting our reported pre-tax income and margin
amounts. In addition to the costs and expenses noted as adjustments
for our Adjusted Earnings measures, adjusted operating income and
margin also exclude the remaining amounts included in Other
expenses, net, which are primarily non-financing interest expense
and certain other non-operating costs and expenses. We exclude
these amounts in order to evaluate our current and past operating
performance and to better understand the expected future trends in
our business.
Constant Currency
To better understand trends in our business, we believe that it
is helpful to adjust revenue to exclude the impact of changes in
the translation of foreign currencies into U.S. dollars. We refer
to this adjusted revenue as “constant currency.” This impact is
calculated by translating current period activity in local currency
using the comparable prior year period's currency translation rate.
This impact is calculated for all countries where the functional
currency is not the U.S. dollar. Management believes the constant
currency measure provides investors an additional perspective on
revenue trends. Currency impact can be determined as the difference
between actual growth rates and constant currency growth rates.
Free Cash Flow
To better understand trends in our business, we believe that it
is helpful to adjust operating cash flows by subtracting amounts
related to capital expenditures. Management believes this measure
gives investors an additional perspective on cash flow from
operating activities in excess of amounts required for
reinvestment. It provides a measure of our ability to fund
acquisitions, dividends and share repurchase.
Summary:
Management believes that all of these non-GAAP financial
measures provide an additional means of analyzing the current
period’s results against the corresponding prior period’s results.
However, these non-GAAP financial measures should be viewed in
addition to, and not as a substitute for, the company’s reported
results prepared in accordance with GAAP. Our non-GAAP financial
measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures and should be read only in
conjunction with our consolidated financial statements prepared in
accordance with GAAP. Our management regularly uses our
supplemental non-GAAP financial measures internally to understand,
manage and evaluate our business and make operating decisions.
These non-GAAP measures are among the primary factors management
uses in planning for and forecasting future periods. Compensation
of our executives is based in part on the performance of our
business based on these non-GAAP measures.
A reconciliation of these non-GAAP financial measures and the
most directly comparable measures calculated and presented in
accordance with GAAP are set forth on the following tables:
Net Income and EPS
reconciliation
Three Months Ended December
31,
Year Ended December 31,
2019
2018
2019
2018
(in millions, except per share
amounts)
Net Income
EPS
Net Income
EPS
Net Income
EPS
Net Income
EPS
Reported(1)
$
266
$
1.17
$
91
$
0.37
$
648
$
2.78
$
306
$
1.16
Adjustments:
Restructuring and related costs
53
67
229
157
Amortization of intangible assets
10
12
45
48
Transaction and related costs, net
4
5
12
68
Non-service retirement-related costs
(3
)
67
18
150
Contract termination costs - IT
services
(4
)
43
(12
)
43
Income tax on adjustments(2)
(22
)
(48
)
(77
)
(116
)
Tax Act
(4
)
(6
)
(35
)
89
Adjusted
$
300
$
1.33
$
231
$
0.94
$
828
$
3.55
$
745
$
2.88
Dividends on preferred stock used in
adjusted EPS calculation(3)
—
—
—
—
Weighted average shares for adjusted
EPS(3)
227
246
233
258
Fully diluted shares at end of
period(4)
224
____________________________
(1) Net income and EPS from continuing operations attributable
to Xerox Holdings. (2) Refer to Effective Tax Rate reconciliation.
(3) 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 A convertible preferred
stock, as applicable. (4) Represents common shares outstanding at
December 31, 2019 as well as shares associated with our Series A
convertible preferred stock plus potential dilutive common shares
as used for the calculation of diluted earnings per share for the
fourth quarter 2019.
Effective Tax Rate
reconciliation
Three Months Ended December 31,
2019
Three Months Ended December 31,
2018
(in millions)
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Reported(1)
$
336
$
73
21.7
%
$
124
$
34
27.4
%
Non-GAAP Adjustments(2)
60
22
194
48
Tax Act
—
4
—
6
Adjusted(3)
$
396
$
99
25.0
%
$
318
$
88
27.7
%
Year Ended December 31, 2019
Year Ended December 31, 2018
(in millions)
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Reported(1)
$
822
$
179
21.8
%
$
549
$
247
45.0
%
Non-GAAP Adjustments(2)
292
77
466
116
Tax Act
—
35
—
(89
)
Adjusted(3)
$
1,114
$
291
26.1
%
$
1,015
$
274
27.0
%
____________________________
(1) Pre-tax income and income tax expense from continuing
operations. (2) Refer to Net Income and EPS reconciliation for
details. (3) The tax impact on Adjusted Pre-Tax Income from
continuing operations 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.
Operating Income /
Margin reconciliation
Three Months Ended December 31,
2019
Three Months Ended December 31,
2018
(in millions)
Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
336
$
2,444
13.7
%
$
124
$
2,498
5.0
%
Adjustments:
Restructuring and related costs
53
67
Amortization of intangible assets
10
12
Transaction and related costs, net
4
5
Other expenses, net
8
144
Adjusted
$
411
$
2,444
16.8
%
$
352
$
2,498
14.1
%
Year Ended December 31, 2019
Year Ended December 31, 2018
(in millions)
Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
822
$
9,066
9.1
%
$
549
$
9,662
5.7
%
Adjustments:
Restructuring and related costs
229
157
Amortization of intangible assets
45
48
Transaction and related costs, net
12
68
Other expenses, net
84
271
Adjusted
$
1,192
$
9,066
13.1
%
$
1,093
$
9,662
11.3
%
____________________________
(1) Pre-Tax Income and revenue from continuing operations.
Free Cash Flow
reconciliation
Three Months Ended December
31,
Year Ended December 31,
(in millions)
2019
2018
2019
2018
Reported(1)
$
398
$
384
$
1,244
$
1,082
Capital Expenditures
(17
)
(17
)
(65
)
(90
)
Free Cash Flow
$
381
$
367
$
1,179
$
992
____________________________
(1) Net cash provided by operating activities from continuing
operations.
Guidance
Earnings per
Share
FY 2020
(in millions, except per share
amounts)
Net Income
EPS
Estimated(1)
$
625
~ $2.80 - $2.90
Adjustments:
Restructuring and related costs
175
Amortization of intangible assets
35
Non-service retirement-related costs
35
Income tax on adjustments
(70
)
Adjusted
$
800
~ $3.60 - $3.70
Estimated Full Year 2020 weighted average
shares for GAAP and adjusted EPS
220
____________________________
(1) Net Income and EPS from continuing operations attributable
to Xerox Holdings.
Operating Income /
Margin
FY 2020
(in millions)
Profit
Revenue(2)
Margin
Estimated(1)
$
845
$
8,625
~ 10%
Adjustments:
Restructuring and related costs
175
Amortization of intangible assets
35
Non-service retirement-related costs
35
Other expenses, net
40
Adjusted
$
1,130
$
8,625
~ 13%
____________________________
(1) Pre-Tax Income and revenue from continuing operations. (2)
Full year 2020 revenue reflects an estimated revenue decline at
actual currency of approximately 4.9% from FY 2019, or a decline of
approximately 4% excluding the impact of the upfront OEM license
fee of $77M in 2019. Impact from translation currency is de
minimis.
Free Cash
Flow
(in millions)
FY 2020
Operating Cash Flow(1)
~ $1,300
Less: capital expenditures
(100
)
Free Cash Flow
~ $1,200
____________________________
(1) Net cash provided by operating activities from continuing
operations
APPENDIX I
Xerox Holdings
Corporation
Earnings per Common
Share
(in millions, except per-share data,
shares in thousands)
Three Months Ended December
31,
Year Ended December 31,
2019
2018
2019
2018
Basic Earnings per Share:
Net Income from continuing operations
attributable to Xerox Holdings
$
266
$
91
$
648
$
306
Accrued dividends on preferred stock
(3
)
(3
)
(14
)
(14
)
Adjusted net income from continuing
operations available to common shareholders
$
263
$
88
$
634
$
292
Net income from discontinued operations
attributable to Xerox Holdings, net of tax
552
46
705
55
Adjusted net income available to common
shareholders
$
815
$
134
$
1,339
$
347
Weighted average common shares
outstanding
215,499
236,190
221,969
248,707
Basic Earnings per Share:
Continuing operations
$
1.22
$
0.37
$
2.86
$
1.17
Discontinued operations
2.56
0.19
3.17
0.23
Basic Earnings per Share
$
3.78
$
0.56
$
6.03
$
1.40
Diluted Earnings per Share:
Net Income from continuing operations
attributable to Xerox Holdings
$
266
$
91
$
648
$
306
Accrued dividends on preferred stock
—
(3
)
—
(14
)
Adjusted net income from continuing
operations available to common shareholders
$
266
$
88
$
648
$
292
Net income from discontinued operations
attributable to Xerox Holdings, net of tax
552
46
705
55
Adjusted net income available to common
shareholders
$
818
$
134
$
1,353
$
347
Weighted average common shares
outstanding
215,499
236,190
221,969
248,707
Common shares issuable with respect
to:
Stock Options
111
—
55
—
Restricted stock and performance
shares
4,326
3,188
4,403
2,953
Convertible preferred stock
6,742
—
6,742
—
Adjusted weighted average common shares
outstanding
226,678
239,378
233,169
251,660
—
Diluted Earnings per Share:
Continuing operations
$
1.17
$
0.37
$
2.78
$
1.16
Discontinued operations
2.44
0.19
3.02
0.22
Diluted Earnings per Share
$
3.61
$
0.56
$
5.80
$
1.38
The following securities were not included
in the computation of diluted earnings per share as they were
either contingently issuable shares or shares that if included
would have been anti-dilutive:
Stock options
750
1,022
805
1,022
Restricted stock and performance
shares
1,350
2,833
1,272
3,068
Convertible preferred stock
—
6,742
—
6,742
Total Anti-Dilutive Securities
2,100
10,597
2,077
10,832
Dividends per Common Share
$
0.25
$
0.25
$
1.00
$
1.00
APPENDIX II
Xerox Holdings Corporation Geographic Sales
Channels and Product/Offering Definitions
Our business is aligned to a geographic focus and is primarily
organized on the basis of go-to-market sales channels, which are
structured to serve a range of customers for our products and
services. In 2019 we changed our geographic structure to create a
more streamlined, flatter and more effective organization, as
follows:
- 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 sales to and royalties from Fuji
Xerox, and our licensing revenue.
Our products and offerings include:
- “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.
APPENDIX III
Change in Presentation
During first quarter 2019, we realigned portions of our business
to support our new revenue strategy. This realignment included the
combination and consolidation of certain sales units to better
service customers consistently across the company. In connection
with that realignment, we changed the classification of revenues
and those related costs from certain service arrangements to
consistently conform the presentation of those amounts among our
various business units. Prior year amounts were also revised as
follows to conform with the 2019 presentation. The revised
presentation does not impact total revenues, total expenses or net
income.
Three Months Ended December 31,
2018
As Reported(1)
Change
As Revised
Sales
$
1,044
$
(86
)
$
958
Services, maintenance and rentals
1,390
86
1,476
Cost of sales
$
639
$
(26
)
$
613
Cost of services, maintenance and
rentals
829
26
855
________________________
(1) Sales and Cost of sales from continuing operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200128005274/en/
Media: Caroline Gransee-Linsey, Xerox, +1-203-849-2359,
Caroline.Gransee-Linsey@xerox.com
Investors: Ann Pettrone, Xerox, +1-203-849-2590,
Ann.Pettrone@xerox.com
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