Xerox Holdings Corporation Annual Report 2013

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FY2013 Annual Report · Xerox Holdings Corporation

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Xerox Corporation
45 Glover Avenue
P.O. Box 4505
Norwalk, CT 06856-4505
United States
203.968.3000
www.xerox.com

2013
Annual
Report

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The Next 75

In four
of the last
ﬁve years

Xerox was named to
Canada’s Best
Diversity Employers

The Xerox
Alto had
the ﬁrst
integrated keyboard
mouse & graphic
interface

Xerox
invented
pop-up
call centers
for areas recovering
from a disaster

Xerox manages a
$285 billion
consumer loan
servicing
portfolio

Over 900 million
healthcare
program claims
are processed annually
in the U.S.
by Xerox

Through our
Heroes@Home

program

Xerox hires veterans
& military spouses
for at-home employment

Xerox is one of only
5 companies
named an EPA
Corporate
Leader

Xerox has
119,000
customer
facing
employees

Xerox has been named
one of the top
IT innovators
on this year’s Information

Week
500

Xerox has been on
Ethisphere Institute’s
Most Ethical
Company list
seven
years
running

Xerox IT mega-centers
process over
57K million
instructions
per second

Xerox
is awarded
about

patents
per week

Printed on recycled paper
from responsible sources.

© 2014 Xerox Corporation. All rights reserved. Xerox®, Xerox and Design®, ColorQube®, ConnectKey®, Merge®, iGen®, iGen4®, CiPress®, DocuColor®,
Xerox FreeFlow®, Xerox Nuvera®, Phaser® and WorkCentre® are trademarks of Xerox Corporation in the U.S. and/or other countries. BR9277

002CSN32F2

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In 2013, Xerox marked 75 years of xerography and of
revolutionizing how the world works and shares information.
To honor our past and look to the future, we put together a
celebratory collection of Xerox firsts, breakthroughs and
advancements that help make the world work better.
We call them “75 things you might not know about Xerox”
and we’re featuring them throughout this annual report.

Xerox
naturally
invented
two-sided
copying in

1970

Over 12,000

Xerox people participated
in 2012 Xerox
Community
Involvement
Programs

Xerox
ColorQube
devices
work like a charm
even in the world’s
driest desert

A subsidiary of Xerox provided

solar power

generators for the Mariner-C
spacecraft to Mars

Inside

1 Financial Highlights
2 Letter to Shareholders
8 Financial Measures
9 Non-GAAP Measures

10 Board of Directors
11 Officers
12 FYI

2013 Form 10-K Insert

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Financial Highlights

(in millions, except EPS)

Total revenue

Equipment sales

Annuity revenue

Net income from continuing operations – Xerox

Adjusted net income* – Xerox

Diluted earnings per share from continuing operations

Adjusted earnings per share*

Net cash provided by operating activities

Adjusted operating margin*

2013

$21,435

3,359

18,076

1,185

1,390

0.93

1.09

2,375

8.9%

2012

$21,737

3,476

18,261

1,184

1,387

0.87

1.02

2,580

9.5%

* See Non-GAAP Measures on page 9 for the reconciliation of the difference between this financial measure that is not in compliance with Generally Accepted
Accounting Principles (GAAP) and the most directly comparable financial measure calculated in accordance with GAAP.

Note: 2012 has been restated to reflect the 2013 disposition of our North American (Canada and U.S.) and Western European Paper business as
Discontinued Operations.

CSI
blue
light
technology
is derived from Xerox
imaging technology

(forensic DNA investigation)

Xerox
recycled

93%

of its nonhazardous
waste in 2012

ACS now Xerox Services

grew from one ofﬁce to

almost 500 in just

25 years

Xerox is developing
Xerox is developing
smart packaging
smart packaging
products that track
products that track
temperatures
temperatures
& relay info about
& relay info about
consumption
consumption
when a package is
when a package is
opened
opened

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Xerox 2013 Annual ReportXerox ranked 3rd inFORTUNE magazine's 2013 World's MostAdmired computer categoryCompanies

Letter to
Shareholders

Ursula M. Burns
Chairman and Chief Executive Officer

Fellow Shareholders,

At Xerox, we’re here to help our customers be more
successful by harnessing the potential of services and
technologies for the promise of a better world. That’s a
grand statement. Let me explain. We take very complex
business processes and challenges, create solutions and
make them appear simple to the people who need them.
We use innovation smartly and strategically to help the
world tackle some daunting and complex tasks.

It’s a noble mission and part of the Xerox heritage. It may
surprise you to know that the man who invented xerography
75 years ago had the same objective.

In 1938, a patent attorney named Chester Carlson created
an easier way to duplicate information on paper. After
spending countless hours in the New York Public Library
hand-writing copies of materials he needed, he was
determined to find a way “to make office work a little more
productive and a little less tedious.” His invention, later
named xerography, gave birth to Xerox and revolutionized
how information is shared, ultimately simplifying how office
work gets done.

Seventy-five years later, Chester’s vision lives on in every
aspect of today’s Xerox and has led us on a journey to
innovate ways to simplify complex and tedious work.

To that end, today’s Xerox provides not only the world-class
document technology you would expect, but also a deep and
broad array of business process, document and information
technology outsourcing services you might not expect.

As we expand further into business services, chances are
very good that Xerox is touching your life every day. If you
drive toll roads or park in municipal parking, we probably
handle the transaction. If you apply for a mortgage or call
for help with your mobile device or file a medical claim or
pay bills, we probably handle those transactions, too. That’s
because we work behind the scenes – in both the public
and private sector – to make sure things work smoothly in
hundreds of different ways.

And, as remarkable as our evolution has been, there is so
much more that we will do in the future for our customers,
shareholders, employees and communities around the
world. At Xerox, there’s inspiration and innovation around
every corner, and we’re on a mission to move it forward
another 75 years.

Xerox

enabled over

63 million

unclaimed property
searches last year through
missingmoney.com

Xerox developed
xeroradiographic
machines which produce
clearer images
than standard X-ray
machines

FujiXerox was born over
50 years ago
a joint venture between
Xerox & Fuji Photo Film

The company that
became Xerox supplied
black & white copiers
for the production of

101

Dalmatians

Xerox is
the 2nd
largest
beneﬁts &
pensions
administrator
globally

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Results in 2013
For Xerox, 2013 was another year of steady progress – a
year in which we continued to evolve our business model,
improve operational efficiency, invest in growth and win in
the global marketplace. All while delivering value to you.

Here’s a summary of how we performed:

• Net income of $1.2 billion; adjusted net income of

$1.4 billion.¹

are confident our profit improvement plans will position us
for long-term growth.

Differentiating and delivering
The numbers don’t tell the entire story. In 2013, we took
aggressive action to boost future profitability and we
made some critical strategic bets that are differentiating
Xerox in the marketplace and increasing the value we bring
to our customers.

• GAAP earnings per share from continuing operations

of 93 cents.

Here’s a snapshot of the
progress we made:

• Adjusted earnings per share of $1.09, which compares to

$1.02¹ in 2012.

• Total revenue of $21.4 billion, down 1 percent or 2 percent

in constant currency¹ from 2012.

– Total Services revenue of $11.9 billion, up 3 percent.

– Total Document Technology revenue of $8.9 billion,

down 6 percent.

• Operating margin of 8.9 percent.¹

• Operating cash flow of $2.4 billion.

“ For Xerox, 2013 was another
year of steady progress –
a year in which we continued
to evolve our business model,
improve operational efficiency,
invest in growth and win in the
global marketplace.”

New clients, new markets.
Xerox is known for world-class
innovation and service. Our
investments in innovation
have generated new services
and products and have led us
to engage with new clients
and new markets around the globe. We have invested in
those businesses that are aligned with our core strengths
and market opportunities like transportation, healthcare,
education, graphic communications and customer care.

At the same time, we continued to take steps to build
shareholder value. In 2013, we returned nearly $1 billion
to you through $700 million of share repurchases and
almost $300 million in dividends. Last year we increased
our common stock dividend by 35 percent and just recently
announced another 9 percent increase starting in April 2014.

Nonetheless, our results were impacted by the effect of
lower revenues and operating margins stemming from
challenges in several of our businesses and a sluggish world
economy. We are tackling these obstacles head on and we

In doing so, we successfully supported the launch of new
health insurance exchanges in a half dozen states, helping
them comply with the U.S. Affordable Care Act. We simplified
services in government healthcare with Enterprise, our next
generation Medicaid Management Information System,
which helps states manage their Medicaid programs and
prevent fraud and abuse. And, we rolled out smart parking
solutions in Malaysia and Texas, as well as our real-time
analytics-based technology – Merge® – that addresses
parking challenges in car-centric cities like Los Angeles.

The Xerox
Green World
Alliance
recycle program
for imaging supplies
operates in over
35 countries

Xerox has worked
with LA to develop
innovative solutions
to improve parking and
transportation

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In 2013 the Xerox
Foundation invested
$13.5 million
in over 2600
non-proﬁt organizations

Xerox services
touches 2 out of
every 3
insured
lives in
the U.S.

Gartner
IDC &
Forrester
have ranked Xerox
in the top tier of Managed
Print Services vendors

worldwide

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Xerox 2013 Annual ReportWe launched our next generation managed print services,
paving the way for future growth with new workflow
and digital automation for today’s connected world. Our
managed print services have been awarded highest honors
for global market leadership by industry analyst firms, a
distinction that validates the strength of our document
outsourcing business.

“ Our shift to a Services-led
company is ongoing and
requires us to constantly
enhance our offerings and
deliver unique solutions to
our customers.”

And, we saw investments in
Europe begin to yield benefits
with growth in our European
Services business. We will keep
up the pace in Europe and build
on investments we have made
in Asia to grow our Services
business there.

In addition, key metrics are trending well: in Services, total
contract signings were up 21 percent for the full year; new
business signings were up 5 percent; the contract renewal
rate in our business process and IT outsourcing businesses
was 92 percent; and in Document Technology, we had good
product install growth in key segments and retained our
leadership in worldwide market share.

Our shift to a Services-led company is ongoing and requires
us to constantly enhance our offerings and deliver unique
solutions to our customers. In 2014, we will continue
to invest in growing vertical markets and in expanding
internationally so that we can extend our reach to more
customers around the world.

Targeted acquisitions, strategic partnerships. During
2013, we added to our capabilities through acquisitions and
partnerships, something we’ll continue to expand in 2014.

In Services, we made our portfolio stronger by adding
service offerings in areas that complement our strengths,
such as e-learning solutions for pharmacists, cloud-
based finance and accounting services, and software
that simplifies pension administration. In our Document
Technology business we acquired Impika to advance our
presence in the high-growth production inkjet segment
and added distribution capacity in the U.S. And we’re off
to a fast start in 2014 with the acquisition of the European
customer care services company, Invoco, and a healthy
pipeline of other potential deals.

We also partnered with technology companies like HCL and
Cognizant to deliver best-in-class expertise in engineering
and software development.

World-class products, revolutionary innovation. To further
support the customer experience, we continued to develop
and deploy relevant products in 2013, like our multifunction
printers enabled with ConnectKey® technology, which have
seen sales of more than 200,000 units so far. We also had our
best year ever for sales of our iGen® family of production color
printers – including a mega-win with one of the world leaders
in personalized photo products and services.

We are benefiting from innovation as we have shifted our
investments to reflect today’s Xerox. We are stretching
the boundaries of what is possible in digital printing of
course, but we’re also creating agile business processes,
transforming data into decisions, making personalization
pervasive and enabling the sustainable and mobile
enterprise. We have hundreds of scientists, engineers and
researchers around the world, not only making our current
offerings better, but also working closely with clients to
identify problems and find simple ways to solve them.

Xerox holds the
Royal Warrant
by appointment to Her
Majesty the Queen
for Pension
Systems

Xerox
provides
human resource
services to more than

11 million

employees & retirees

Ethernet

a family of technologies for
local area networks
(LANs)
was developed
at Xerox
PARC

In 1974
Xerox
PARC
demoed Bravo
the word-processing
program that led to
Microsoft Word

80% of Peru’s
high-altitude
mining operations
trust
Xerox
equipment

Xerox
operates
more than

28,000

servers globally
1/3 of them remotely

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As a proof point, last year, Xerox was awarded 1,168 U.S.
patents. We hold about 12,100 active U.S. patents and,
together with our research partner Fuji Xerox, we continue to
invest over $1 billion a year in research and development.

Big data, powerful analytics. As the amount and types
of data continue to grow exponentially, so too does the
potential to revolutionize the decision-making process.
We are using the power of analytics to extract value from
proprietary data and transfer that value to clients. In doing
so, we are delivering real answers to today’s pressing issues.

In 2013, we made significant strides in enhancing our use of

“ We are focused on
creating services and
technologies that reduce
the impact on the
environment and showcase
sustainable innovation.”

data and analytics for customer
care and education. For example,
we are providing our customer
care agents with innovative call
center technology to give them
easier access to information to
address customer needs more
efficiently. And, with our Ignite™
software, which electronically

grades exams and produces analytic feedback to improve
learning, we are allowing teachers to customize education
based on a student’s progress.

Good business, good citizenship. More than ever, our
story involves the commitment to innovate for a better
world. We are focused on creating services and technologies
that reduce the impact on the environment and showcase
sustainable innovation. We are committed to helping
improve working conditions across the industry’s supply
chain. And we continue to invest in our communities
through initiatives like our Community Involvement Program
and the Xerox Foundation.

In 2013, we were named one of the world’s most ethical
companies by Ethisphere Magazine; one of the best
technology stocks by CRN.com; No. 3 in FORTUNE magazine’s
most admired companies in the computer industry; one of
the top IT innovators by InformationWeek 500; and the
U.S. Environmental Protection Agency and others recognized
Xerox for our work on climate change.

I’m grateful that we are being noticed for our contributions,
but our work in corporate responsibility and global
citizenship is never-ending. There is always more to do.

Higher value, solid returns. We implemented a number of
cost management and productivity improvement initiatives
across the business in 2013. The good news is they enabled
us to hold our expenses down while we made additional
investments to better serve our customers, increase our
competitiveness and put us on solid footing as we enter 2014.

In Services, we are well under way in implementing a five-
plank strategy that includes not only cost initiatives but also
active portfolio management to drive growth and direct
investments toward our higher-margin, more differentiated
offerings. We expect successful implementation of our five-
plank strategy will result in higher revenue growth, margin
expansion and a healthy cash flow driven by our recurring
revenue business model and increased competitiveness.

Our Document Technology business is performing well
with stabilized revenue declines, a strong market position
and good profitability and cash flow. We will continue to
nurture this resilient business in ways that maintain market
leadership while boosting our bottom line.

Xerox serves
clients in
160

countries

The Xerox 914
was featured in
an episode of
Mad
Men

The ﬁrst live band
on the Internet
featured a PARC scientist
and later opened
for the
Rolling
Stones

Each year Xerox
processes over
$420 billion in
payables and
$190 billion in
receivables

Xerox has more than
5,000 virtual
employees
performing a wide
range

of functions

Xerox is the sole
supplier & trainer
for printing &
copying gear aboard
U.S. Navy
vessels

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Xerox 2013 Annual ReportChester Carlson was on to something 75 years ago. And,
today at Xerox, we continue to believe our purpose is to
simplify how work gets done. When we do just that in smart,
innovative ways, we’ll help the world work a little better…
for the next 75 years.

This is a journey we’re committed to. Thank you for your
continued support.

Ursula M. Burns
Chairman and Chief Executive Officer

Building on 75 years of innovation
As I think about what’s ahead, I’m incredibly optimistic
about what Xerox will deliver. Consider this: when
xerography was invented, little did we know that
the underlying reason for that very first image would drive
75 years of innovation, business process simplification
and sustained success for our company.

The core of our story is based on the premise that we live
in an age when technology is producing transformative
change, enabling businesses big and small to accomplish
more than could have been dreamed possible decades ago.
At Xerox, we are in a strong position to capitalize on market
opportunities and deliver on our commitment to create
value for all our stakeholders.

Here’s why:

• Our Services business serves as a beacon for our

path forward;

• our Document Technology business is the fuel that

allows growth;

• our culture of innovation permits us to think big;

• we are committed to delivering earnings expansion; and

• we are managing our cash in a way that’s building value

for you for years to come.

The Brother Dominic ad
for the Xerox 9200
is one of the
most famous
commercials
of all time

School
buses
are safer
thanks to our
CrossSafe
camera system

Xerox was
the 1st to deploy

mobile
faxes
in 1985

using cell phones

Xerox
supports
over
100 languages
for our communication
& marketing services

Top Xerox
scientists
show science
experiments
to elementary school
students

throughout the year

¹ We have discussed our results using non-GAAP measures. Management believes that these non-GAAP financial measures provide an additional means of analyzing
the current periods’ results against the corresponding prior periods’ 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. 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 on page 9.

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Learning@Xerox
Learning@Xerox
has over 750,000
has over 750,000
educational
educational
offerings
offerings

Our health studies

on toner
have been in place
for over 30 years
making Xerox
the world’s
expert

The Xerox Research

As an EPA

Energy Star Charter Partner
Xerox developed
certiﬁcation criteria for

ofﬁce
equipment

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Xerox 2013 Annual Report

Xerox provides servicesstate & local governmentsin theU.S.aloneto more than1,700 federalXerox provides servicesstate & local governmentsin theU.S.aloneto more than1,700 federal1976detection inﬁngerprintThe Xerox ResearchCentre of Canadadeveloped laser13

8.9%

Financial Measures
Net Income from Continuing
Net Income from Continuing
Net Income from Continuing
Operations – Xerox
Operations – Xerox
Operations – Xerox
(in millions)
(in millions)
(in millions)
Net Income from Continuing
Net Income from Continuing
Net Income from Continuing
1,542*
1,542*
1,542*
Operations – Xerox
Operations – Xerox
Operations – Xerox
1,387*
1,281*
1,281*
(in millions)
(in millions)
1,274
1,274
1,274
(in millions)

1,387*

1,281*

1,390*

Total Revenue
(in millions)

Total Revenue
Total Revenue
(in millions)
(in millions)

Total Services Segment Revenue
Total Services Segment Revenue
Total Services Segment Revenue
(in millions – percent of total revenue)
(in millions – percent of total revenue)
(in millions – percent of total revenue)

21,900
21,900
20,872
20,872
20,872
Total Revenue
Total Revenue
Total Revenue
(in millions)
(in millions)
(in millions)

21,900

21,737

21,435

1,184

1,185

1,184

1,185

14,376

20,872

14,376

21,900
20,872

20,872

21,900

21,737

21,435

46%

1,542*

1,281*

1,274

1,281*

607*
478

591

607*
478

591

1,274

1,387*
1,274

1,184

1,387*

1,390*

1,387*

1,184

1,185

1,184

1,390*

1,185

14,376

3,476

11,859
11,859
11,859
Total Services Segment Revenue
Total Services Segment Revenue
Total Services Segment Revenue
11,528
11,528
11,528
10,837
10,837
10,837
55%
55%
53%
(in millions – percent of total revenue)
(in millions – percent of total revenue)
(in millions – percent of total revenue)
49%
49%
9,637

9,637

53%

49%

53%

55%

9,637
46%

46%

9,637

49%

10,837
9,637
46%

46%

11,528

10,837

10,837
49%

53%

49%

11,859

11,528

11,528
53%

55%

53%

11,859
55%

55%

3,476

3,476
24%

24%

46%

24%

607*
478

591

607*
478

607*
478
09

591
10

591

12
11

11
10

3,476
09

3,476
10
09
24%

24%

10
09

Annuity Revenue
Annuity Revenue
Annuity Revenue
(in millions – percent of total revenue)
(in millions – percent of total revenue)
(in millions – percent of total revenue)

Net Cash from Operating Activities
(in millions)

18,261
18,044
18,044
Annuity Revenue
Annuity Revenue
Annuity Revenue
17,015
17,015
17,015
84%
82%
82%
(in millions – percent of total revenue)
(in millions – percent of total revenue)
(in millions – percent of total revenue)
82%
82%

18,261
18,076
84%

18,044

18,261

82%

84%

18,076
84%

84%

2,726
2,726
Net Cash from Operating Activities
Net Cash from Operating Activities
Net Cash from Operating Activities
2,580
2,580
2,375
(in millions)
(in millions)
(in millions)
2,208
2,208
2,208

2,726

2,580

2,375

10,826

17,015

10,826

10,826
75%

82%

75%

17,015
82%

82%

75%

18,044

18,261

18,044

18,044
82%

84%

82%

18,261

18,261
18,076
84%

18,076
84%

84%

2,726

2,208

1,961

2,726

1,961

2,580

2,375

Adjusted Operating Margin*

9.9%
9.5%
Adjusted Operating Margin*

10.0%
9.9%
9.5%
8.9%
Adjusted Operating Margin*

9.5%
Adjusted Operating Margin*

10.0%

8.9%

9.9%

8.9%

7.2%

7.2%
9.9%

9.9%

10.0%
9.9%

10.0%

10.0%
9.5%

9.5%

8.9%

2,375

7.2%

1,961

11
10

10,826

10,826
75%

75%

11
10

10
09
* See Non-GAAP Measures on page 9 for the reconciliation of the difference between this financial measure that is not in compliance with Generally Accepted
Accounting Principles (GAAP) and the most directly comparable financial measure calculated in accordance with GAAP.

11
10

13
12

Note: 2009 through 2012 have been restated to reflect the 2013 disposition of our North American (Canada and U.S.) and Western European Paper business as
Discontinued Operations.

The Xerox
The Xerox

914is featured
914is featured

as part of
as part of
American history in the
American history in the
Smithsonian
Smithsonian
Institution
Institution

Xerox
processes
over
695 million
checks annually
for our clients

STOLEN

Xerox
researchers
received
a patent for their work on
Automatic License
Plate Recognition (ALPR)

technology

Xerox
processes
more
than
$2.7 billion
in electronic toll
transactions every year

In 2007 Xerox received the
National Medal of
Technology
the highest
U.S. honor for
innovation

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Non-GAAP Measures

Adjusted Earnings Per Share (EPS)

(in millions; except per share amounts)
As Reported(1)
Adjustments:
Amortization of intangible assets
Loss on early extinguishment of debt
Xerox and Fuji Xerox restructuring charge
ACS acquisition-related costs
ACS shareholders’ litigation settlement
Venezuela devaluation costs
Medicare subsidy tax law change

Adjusted
Weighted average shares for adjusted EPS(2)

2013

2012

Net Income
$ 1,185

EPS Net Income
$ 1,184

$ 0.93

Year Ended December 31,
2009
EPS Net Income Net Income Net Income
$ 478

$ 1,274

$ 591

2011

2010

$ 0.87

205
–
–
–
–
–
–
205
$ 1,390

0.16
–
–
–
–
–
–
0.16
$ 1.09
1,274

203
–
–
–
–
–
–
203
$ 1,387

0.15
–
–
–
–
–
–
0.15
$ 1.02
1,356

248
20
–
–
–
–
–
268
$ 1,542

194
10
355
58
36
21
16
690
$ 1,281

38
–
41
49
–
–
–
128
$ 606

(1) Net income and EPS from continuing operations attributable to Xerox.
(2) Average shares for the calculation of adjusted EPS include 27 million shares associated with the Series A convertible preferred stock and therefore the related

quarterly dividend was excluded.

Operating Margin (in millions)

Total Revenues(1)
Pre-tax Income(1)
Adjustments:
Amortization of intangible assets
Xerox restructuring charge
Curtailment gain
ACS acquisition-related costs
Other expenses, net
Adjusted Operating Income
Pre-tax Income Margin
Adjusted Operating Margin

2013
$ 21,435
$ 1,312

2012
$ 21,737
$ 1,332

2011
$ 21,900
$ 1,535

Year Ended December 31,
2009
$ 14,376
$ 616

2010
$ 20,872
$ 793

332
116
–
–
150
$ 1,910
6.1%
8.9%

328
154
–
–
261
$ 2,075
6.1%
9.5%

398
32
(107)
–
326
$ 2,184
7.0%
10.0%

312
483
–
77
392
$ 2,057
3.8%
9.9%

60
(8)
–
72
289
$ 1,029
4.3%
7.2%

(1) Revenue and Profit from continuing operations attributable to Xerox.

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.” Currencies for developing market countries (Latin America, Brazil, Middle East, India,
Eurasia and Central-Eastern Europe) that we operate in are reported at actual exchange rates for both actual and constant revenue growth rates because (1) these
countries historically have had volatile currency and inflationary environments and (2) our subsidiaries in these countries have historically taken pricing actions to
mitigate the impact of inflation and devaluation. 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.

Note: 2009 through 2012 have been restated to reflect the 2013 disposition of our North American (Canada and U.S.) and Western European Paper business as
Discontinued Operations.

Every year Xerox manages

37 billion
public transport
transactions
across 400

cities

worldwide

In 1969 the
1st Xerox
caucus
group
started in
San Francisco

(Bay Area Black Employees)

XER35101_AR_Text_v1_3Mar2014.indd 9

Xerox received an
Xerox received an
Emmy for
Emmy for
our pioneering
our pioneering
support of the ﬁrst
support of the ﬁrst
electronic graphic
electronic graphic
creative system
creative system

Xerox
was the
ﬁrst to introduce
energy saving
power-down features
in our equipment

xerox.com

xerox.com
was the
seventh
top-level
domain name

to be registered with the U.S.
Department of Defense

3/2/14 5:27 PM

Xerox 2013 Annual ReportBoard of Directors

Ursula M. Burns
Chairman and Chief
Executive Officer
Xerox Corporation
Norwalk, CT

Glenn A. Britt B
Retired Chairman and
Chief Executive Officer
Time Warner Cable Inc.
New York, NY

Richard J. Harrington A
Retired President and
Chief Executive Officer
The Thomson Corporation
Stamford, CT

William Curt Hunter A, C
Dean Emeritus, Tippie
College of Business
University of Iowa
Iowa City, IA

Robert J. Keegan A, B
Retired Chairman,
President and CEO
The Goodyear Tire &
Rubber Company
Akron, OH

Robert A. McDonald A, B
Retired Chairman,
President and Chief
Executive Officer
The Procter &
Gamble Company
Cincinnati, OH

Charles Prince C, D
Retired Chairman and
Chief Executive Officer
Citigroup Inc.
New York, NY

Ann N. Reese C, D
Executive Director
Center for Adoption Policy
Rye, NY

Sara Martinez Tucker C, D
President and CEO
National Math and
Science Initiative
Dallas, TX

Mary Agnes Wilderotter D
Chairman and Chief
Executive Officer
Frontier Communications
Corporation
Stamford, CT

A: Member of the Audit Committee
B: Member of the Compensation Committee
C: Member of the Corporate Governance Committee
D: Member of the Finance Committee

500K
frequent
f lyer

transactions
are supported
annually
by Xerox

Xerox
handles
more than

2.5 million

contact interactions daily
in 160 centers globally

Xerox has been
doing business in the
developing markets
for more than
ﬁve

decades

Xerox
has scored
100

on the Corporate
Equality Index
every year since 2005

Xerography
derives from two
Greek words
meaning
dry and
writing

XER35101_AR_Text_v1_3Mar2014.indd 10

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Officers

Ursula M. Burns
Chairman and Chief Executive Officer

Lynn R. Blodgett
Executive Vice President
President, Xerox Services

James A. Firestone
Executive Vice President
President, Corporate Strategy and
Asia Operations

Kathryn A. Mikells
Executive Vice President
Chief Financial Officer

Armando Zagalo de Lima
Executive Vice President
President, Xerox Technology

Don H. Liu
Senior Vice President
General Counsel and Secretary

Thomas J. Maddison
Senior Vice President
Chief Human Resources Officer

Hervé Tessler
Senior Vice President
President, Corporate Operations

David Amoriell
Vice President
Chief Operating Officer,
Government and Transportation
Xerox Services

Thomas Blodgett
Vice President
Chief Operating Officer, Capabilities and
Commercial Sector
Xerox Services

Richard M. Dastin
Vice President
Chief Development Engineer
Xerox Services

Kathleen S. Fanning
Vice President
Vice President, Worldwide Tax

Michael D. Feldman
Vice President
President, Large Enterprise Operations
Xerox Technology

Michael R. Festa
Vice President
Chief Financial Officer
Xerox Services

Grant Fitz
Vice President
Chief Financial Officer
Xerox Technology

Jacques H. Guers
Vice President
Vice President, Global Accounts Operations

Connie Harvey
Vice President
Chief Operating Officer, Commercial Healthcare
Xerox Services

Jeffrey Jacobson
Vice President
Chief Operating Officer
Xerox Technology

James H. Lesko
Vice President
Vice President, Investor Relations

Stephen Little
Vice President
Chief Information Officer

Yehia Maaty
Vice President
President, Developing Markets Operations
Xerox Technology

Joseph H. Mancini Jr.
Vice President
Chief Accounting Officer

Ivy Thomas McKinney
Vice President
Deputy General Counsel and Chief Ethics Officer

Shaun W. Pantling
Vice President
Director, Services Development Europe
Xerox Technology

Russell M. Peacock
Vice President
President, Global Technology and Delivery Group
Xerox Technology

Rhonda L. Seegal
Vice President
Treasurer

Sophie V. Vandebroek
Vice President
Chief Technology Officer and President,
Xerox Innovation Group

Leslie F. Varon
Vice President
Vice President, Finance and Corporate Controller

Ann Vezina
Vice President
Vice President, Human Resources
Xerox Services

Kevin M. Warren
Vice President
President, Growth Opportunities,
Global Imaging Systems, Xerox Canada
Xerox Technology

Douraid Zaghouani
Vice President
President, Channel Partner Operations
Xerox Technology

Douglas H. Marshall
Assistant Secretary

Carol A. McFate
Chief Investment Officer

Xerox did
business
behind the
iron curtain
2 decades before the
Berlin Wall fell

XER35101_AR_Text_v1_3Mar2014.indd 11

Xerox manages over

1 million
printing & copying
devices
half of them
made by
competitors

Xerox is one of 11
companies cited for
world-class
diversity by a U.S.
Vice

Presidents
Commission

Xerox is the
Xerox is the

ﬁrst
ﬁrst
Fortune 500
Fortune 500
company to have a
company to have a
woman CEO
woman CEO

hand off to another woman
hand off to another woman

Mathew
Knowles
a top medical
sales rep
at Xerox
for 10 years
is Beyoncé’s dad

Xerox processes
16 million
parking
tickets
annually

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Xerox 2013 Annual ReportAdditional Information

The Xerox Foundation
203.849.2453
Mark Conlin, President

Global Diversity & Inclusion
Programs and EE0-1 Reports
585.423.3150
www.xerox.com/diversity

Minority and Women Owned
Business Suppliers
www.xerox.com/supplierdiversity

Ethics Helpline
866.XRX.0001
North America; International numbers
and Web submission tool on
www.xerox.com/ethics

Environment, Health, Safety
and Sustainability
www.xerox.com/environment

Global Citizenship
www.xerox.com/citizenship
email: citizenship@xerox.com

Governance
www.xerox.com/governance

Questions from Students
and Educators
email: nancy.dempsey@xerox.com

Xerox Innovation
www.xerox.com/innovation

Independent Auditors
PricewaterhouseCoopers LLP
300 Atlantic Street
Stamford, CT 06901
203.539.3000

FYI

Shareholder Information

How to Reach Us

Xerox Corporation
45 Glover Avenue
Norwalk, CT 06856-4505
United States
203.968.3000
www.xerox.com

Xerox Europe
Riverview
Oxford Road
Uxbridge
Middlesex
United Kingdom
UB8 1HS
+44.1895.251133

Fuji Xerox Co., Ltd.
Tokyo Midtown West
9-7-3, Akasaka
Minato-ku, Tokyo 107-0052
Japan
+81.3.6271.5111

Products and Services
www.xerox.com or by phone:
800.ASK.XEROX (800.275.9376)

For investor information, including
comprehensive earnings releases:
www.xerox.com/investor or call
888.979.8378.

For shareholder services: call
800.828.6396 (TDD: 800.368.0328)
or 781.575.3222; or write to
Computershare Trust Company, N.A.
P.O. Box 43078, Providence, RI
02940-3078; or use email available
at www.computershare.com.

Annual Meeting

Tuesday, May 20, 2014, 9:00 a.m. EDT
Xerox Corporate Headquarters
45 Glover Avenue
Norwalk, CT 06856

Proxy material mailed on April 7, 2014
to shareholders of record March 24, 2014.

Investor Contacts

Jennifer Horsley
jennifer.horsley@xerox.com

Troy Anderson
troy.anderson@xerox.com

This annual report is also available online
at www.xerox.com/investor.

Electronic Delivery Enrollment

Xerox offers shareholders the convenience of
electronic delivery including:
• Immediate receipt of the

Proxy Statement and Annual Report

• Online proxy voting

Registered Shareholders, visit
http://www.eTree.com/Xerox
You are a registered shareholder if you have
your stock certificate in your possession or
if the shares are being held by our transfer
agent, Computershare.

Beneficial Shareholders, visit
http://enroll.icsdelivery.com/xrx
You are a beneficial shareholder if you
maintain your position in Xerox within
a brokerage account.

XER35101_AR_Text_v1_3Mar2014.indd 148

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM 10-K
_________________________________________________

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2013

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: ______ to: _______

Commission File Number 001-04471
_________________________________________________

XEROX CORPORATION
(Exact Name of Registrant as specified in its charter)
_________________________________________________

New York

(State of incorporation)

P.O. Box 4505, 45 Glover Avenue,
Norwalk, Connecticut 06856-4505

(Address of principal executive offices)

16-0468020

(IRS Employer Identification No.)

(203) 968-3000

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Stock, $1 par value

Name of each exchange on which registered

New York Stock Exchange

Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
___________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K.

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting

company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

The aggregate market value of the voting stock of the registrant held by non-affiliates as of June 30, 2013 was $11,179,071,063.

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

Class

Common Stock, $1 par value

Outstanding at January 31, 2014
1,184,945,440

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated herein by reference:

Document

Xerox Corporation Notice of 2014 Annual Meeting of Shareholders and Proxy Statement (to
be filed no later than 120 days after the close of the fiscal year covered by this report on Form
10-K)

Part of Form 10-K in which Incorporated

III

FORWARD-LOOKING STATEMENTS

From time to time, we and our representatives may provide information, whether orally or in writing, including certain
statements in this Annual Report on Form 10-K, which are deemed to be "forward-looking" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"). These forward-looking statements and
other information are based on our beliefs as well as assumptions made by us using information currently available.

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they
relate to us, are intended to identify forward-looking statements. These statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated, expected or intended or using other
similar expressions. We do not intend to update these forward-looking statements, except as required by law.

In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-
looking statements, because they relate to future events, are by their very nature subject to many important factors
that could cause actual results to differ materially from those contemplated by the forward-looking statements
contained in this Annual Report on Form 10-K, any exhibits to this Form 10-K and other public statements we make.
Such factors include, but are not limited to: changes in economic conditions, political conditions, trade protection
measures, licensing requirements and tax matters in the United States and in the foreign countries in which we do
business; changes in foreign currency exchange rates; actions of competitors; 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 and the relocation of our service delivery centers; the risk that multi-year contracts with
governmental entities could be terminated prior to the end of the contract term; the risk in the hiring and retention of
qualified personnel; the risk that unexpected costs will be incurred; the risk that subcontractors, software vendors
and utility and network providers will not perform in a timely, quality manner; our ability to recover capital
investments; the risk that our Services business could be adversely affected if we are unsuccessful in managing the
start-up of new contracts; development of new products and services; our ability to protect our intellectual property
rights; our ability to expand equipment placements; the risk that individually identifiable information of customers,
clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security; service
interruptions; interest rates, cost of borrowing and access to credit markets; reliance on third parties, including
subcontractors, for manufacturing of products and provision of services; our ability to drive the expanded use of
color in printing and copying; the outcome of litigation and regulatory proceedings to which we may be a party; 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 this Annual
Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

XEROX CORPORATION
FORM 10-K
DECEMBER 31, 2013

TABLE OF CONTENTS

Page

Part I
Item 1.

Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Part II
Item 5.

Item 6.
Item 7.

Item 7A.
Item 8.
Item 9.

Item 9A.
Item 9B.

Part III
Item 10.
Item 11.
Item 12.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures

Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.
Item 14.

Certain Relationships, Related Transactions and Director Independence . . . . . . . . . .
Principal Auditor Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part IV
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1
16
22
22
23
23

23
26

27
58
60

122
122
122

123
124

124
124
124

125
126
127
128

PART I

ITEM 1. BUSINESS

Xerox is the world's leading enterprise for business process and document management solutions. We provide
services, technology and expertise to enable our customers - from small businesses to large global enterprises - to
focus on their core business and operate more effectively.

2013 marked the 75th anniversary of the first xerographic image, which was created by Chester Carlson to simplify
the process of copying information. His invention would eventually lead to the formation of Xerox Corporation and
the birth of an industry. Even today, this xerographic process remains at the heart of most office printers and copiers
around the world.

Xerox has changed greatly in size and scope since the invention of the copier. However, the company’s basic
principles have remained the same. From printers and multifunction devices, to business services and solutions for
transportation, education and healthcare our engineers, scientists and researchers continue to invent ways that
make work, and life, a little simpler.

We are a leader across large, diverse and growing markets estimated at over $600 billion. The global business
process outsourcing and information technology outsourcing markets are estimated to be in excess of $250
billion each. These markets are very broad, encompassing horizontal business processes as well as industry-
specific processes. The document management market is estimated at roughly $100 billion. This market is
comprised of the document systems, software, solutions and services that our customers have relied on for years to
help run their businesses and reduce their costs. Xerox led the establishment of the managed print services market,
and continues as the industry leader today.

Market estimates are derived from third-party forecasts produced by firms such as Gartner and NelsonHall, and from our internal assumptions.

The following are some additional insights into these business areas:

Business Process Outsourcing (BPO): We are the largest worldwide diversified business process outsourcing
company, with an expertise in managing transaction-intensive processes. This includes services that support all
enterprises through offerings such as customer care, finance and accounting, and human resources, as well as
vertically focused offerings in areas such as healthcare, transportation, retail and telecommunications.

Information Technology Outsourcing (ITO): Our specialty is the design, development, and delivery of flexible IT
solutions, mapped to each client's needs and standards. Our secure data centers, help desks and managed storage
facilities around the world provide a reliable IT infrastructure.

Document Technology and Document Outsourcing (DO): Our document technology products and solutions
support the work processes of our customers, and provide them with an efficient, cost effective printing and
communications infrastructure. Our managed print services offering helps customers optimize the use of document
systems across small businesses or large global enterprises.

Our Strategy and Business Model

Our strategy is to create sustained shareholder value through growth in business services and continued leadership
in document technology. We will also create value through expanding margins and profits as well as a balanced
capital allocation strategy that returns cash to shareholders, while investing for growth and competitive advantage.
To accomplish this, we have established the following strategic priorities:

Services-Driven Revenue Growth and Global Expansion
Through ongoing innovation and acquisitions, over half of the Company’s revenue was derived from business
services in 2013. Our target is to increase business services to approximately two-thirds of total revenue by 2017.

The majority of our BPO and ITO revenues are currently derived from services provided to customers in the U.S. By
leveraging our existing global presence and customer relationships, we are expanding our BPO and ITO services
internationally. In addition, we expect to grow globally through acquisitions. Three of the four Services segment
acquisitions in 2013 were made outside of the U.S.

Strengthen and Differentiate Our Portfolio
• Portfolio Management: Xerox has a broad and diverse set of offerings in Services and a strong and well-

positioned product portfolio in Document Technology. We are strengthening our market positions by evaluating
our businesses and focusing our investments in areas where we have an advantage, and where the greatest
market opportunities exist. We expect to accomplish this by targeting acquisitions and investing in businesses
that will enhance our Services offerings and capabilities, capitalize on advantaged verticals and expand
services globally, while maintaining our document technology leadership in attractive market segments.

• Enhance Services Offerings and Capabilities: Differentiating our Services offerings is key to our strategy. We
direct our research & development (R&D) investments to areas such as data analytics and business process
automation, and we are investing in attractive markets, such as healthcare, to create differentiation. In addition,
our acquisitions target companies providing new capabilities and offering access to adjacent Services areas.
We expect this will deliver incremental added value for our customers and drive profitable revenue growth for
our business.

• Maintain Document Technology and Outsourcing Leadership in Attractive Market Segments: We

continue to maintain leadership in Document Technology and managed print services (MPS). We are focused
on maintaining this leadership position and continuing to innovate around our software, hardware and services
offerings. For instance, in 2013: we launched Xerox® ConnectKey®, a major new software and solutions
capability, across a number of multifunction printers in our product portfolio; we enhanced our competitive
position in high-end color printing through our acquisition of Impika; and we leveraged our leadership in
document technology to grow our BPO and ITO businesses.

• Capitalize on Advantaged Verticals: Across our business, we serve verticals where we have deep expertise

resulting from years of experience, strong customer relationships, and large scale and renowned innovation.
Capitalizing on the opportunities that these strengths provide will continue to be key to our growth.

• One example of an advantaged vertical is healthcare, where we have built a $2 billion business that
touches every aspect of the industry - government, provider, payer, employer and pharmaceutical. In
addition, we apply innovation to differentiate our unique offerings. As a result, we are positioned to
capitalize on current industry trends, including the changes presented by healthcare reform in the U.S.

• We also view transportation, wireless communications and graphic communications (among others) as
advantaged verticals in which we have a leading position, strong capabilities and attractive market
opportunities.

Customer and Employee Focused
Our Services and Document Technology offerings and know-how are a powerful combination. But, at the end of the
day, they are only as good as our people. Xerox people define the customer experience and, as such, define our
reputation. That’s why the value we deliver to customers is a point of pride for us and personifies Team Xerox, living
our values and putting customers first every day. The charge in 2014 is to continue to keep the customer at the
center of our world.

To help do that, we continue to nurture and develop our employees’ talents by investing in HR processes and
systems to equip them with modern tools that will make it easier for them to preform their job more effectively,
manage their careers and provide more opportunities for growth and development. As our business improves, we
will ensure that we share the Company’s success with our employees.

Xerox 2013 Annual Report 2

Profitability In-Line with the Industry Best
Margin expansion is a key priority and opportunity for Xerox that we will achieve through our continued focus on
operational excellence, as well as specific initiatives aimed at improving our cost structure and portfolio mix. Our
operational excellence model leverages our global delivery capabilities, production model, incentive-based
compensation process, proprietary systems and financial discipline to deliver productivity and lower costs for our
customers and for our business. As markets shift, we undertake restructuring to optimize our workforce and facilities
to best align our resources with the growth areas of our business, and to maximize profitability and cash flow in
businesses that are declining. In Services, we launched a major initiative to increase the percentage of our labor
spend in low-cost countries over the next several years. We also have initiatives underway to continue to improve
our software platform implementation and overall service delivery, which includes establishing strategic partnerships
to supplement our internal capabilities. With ongoing efforts and targeted initiatives, we look to maintain or increase
our competitive position with regard to profitability in each of our business areas.

Annuity-Based Business Model and Shareholder Centered Capital Allocation
Our business is based on an annuity model that provides significant recurring revenue and cash generation. In
2013, 84 percent of our total revenue was annuity-based; it includes contracted services, equipment maintenance,
consumable supplies and financing, among other elements. The remaining 16 percent of our revenue comes from
equipment sales, either from lease agreements that qualify as sales for accounting purposes or outright cash sales.

We remain committed to using our strong cash flow to deliver shareholder returns now and in the future through a
balanced capital allocation strategy that includes share repurchase, acquisitions and dividends.

Acquisitions and Divestitures

Consistent with our strategy to expand our Services offerings through acquisitions, we acquired the following
companies in 2013:

In June, we acquired LearnSomething, Inc., a Florida-based provider of custom e-learning solutions and
consumer education for the food, drug and healthcare industries. This acquisition broadens the services Xerox
offers to these industries, providing retail companies with Web-based information programs that meet the
regulatory, operational, continuing education and internal training needs of their diverse and widely-distributed
workforces.

In July, we acquired Customer Value Group Ltd (CVG), a London-based software company that specializes in
cloud-based accounts receivable and customer relationship management software. CVG’s primary product,
Value+, is a Software-as-a-Service (SaaS) cloud application that simplifies the management of customer credit,
collections and disputes; improving overall cash collections for our customers. With Value+, Xerox now offers a
flexible solution that can be tailored to meet any business model, further strengthening our full suite of finance
and accounting process services.

In August, we acquired CPAS Systems, Inc., a Toronto-based company providing pension administration
software to the private and public sectors. CPAS software simplifies administration and record keeping for
defined benefit, defined contribution, and hybrid retirement savings plans and health, welfare and group life
insurance premiums. CPAS will be offered as both a standalone software solution and as part of our human
resources outsourcing services offering, with a special focus on the emerging market for government pension
administration outsourcing.

In December, we announced the intent to acquire Germany-based Invoco Holding GmbH to expand our
European customer care services. The acquisition successfully closed in January 2014. Invoco provides our
global customers immediate access to industry-leading German-language customer care services and provides
Invoco’s existing customers access to our broad business process outsourcing capabilities.

•

In the Document Technology segment, during 2013 we acquired the following businesses and pursued strategic
transactions to expand and strengthen our product portfolio and distribution capabilities:

•

In February, we acquired Impika, a leader in the design, production and sale of production inkjet printing
solutions used for industrial, commercial, security, label and package printing. Impika, based in Aubagne,
France, offers a portfolio of aqueous (water-based) inkjet presses utilizing proprietary technology. Since 2011,
Xerox has been reselling the Impika brand in Europe and developing markets. The addition of Impika's
technology to our existing CiPress® offerings enables Xerox to go to market with the industry’s broadest range
of digital presses, strengthening our leadership in digital color production printing.

• Consistent with our strategy to expand distribution to under-penetrated markets, we acquired Zeno Office

Systems in April and Oklahoma Office Systems in July.

•

In December, we sold a portion of our Wilsonville, Oregon, product design, engineering and chemistry group,
and related assets that were surplus to our needs, to 3D Systems, Inc. (3D Systems). The sale involved the
transfer of approximately 100 engineers and contractors to 3D Systems. The related assets included laboratory,
testing and modeling equipment. The sale also included a grant of a non-exclusive license to certain patents
and non-patented intellectual property to enable 3D Systems to continue development of certain technologies
associated with the transferred employees and related assets. Xerox retained ink and print head development
resources along with research relevant for digital printing and the 3D market.

Within the Other segment, Xerox divested its North American (U.S. and Canadian) and its Western European paper
businesses in 2013. The divestiture of these businesses is consistent with our ongoing effort to manage our
portfolio to focus more on services and develop innovative technologies. These divestitures do not affect the
manufacture, sale or support of our broad range of consumables, such as toner, ink and Xerox® replacement
cartridges.

Innovation and Research

Xerox has a rich heritage of innovation, and innovation continues to be a core strength of the Company, as well as a
competitive differentiator. Our investments in innovation align with our growth opportunities in areas like business
process services, color printing and customized communication. Our aim is to create value for our customers, for
our shareholders, and for our people by driving innovation in key areas. Our research efforts can be categorized
under four themes:

1. Transforming Data into Actionable Decisions: Competitive advantage can be achieved by better utilizing
available and real-time information. Today, information resides in an ever increasing universe of servers,
repositories and formats. The vast majority of information is unstructured, including text, images, voice and
videos. One key research area is making sense of unstructured information using natural language processing
and semantic analysis. A second major research area focuses on developing proprietary methods for
prescriptive analytics applied to business processes. Here, we seek to better manage very large data systems
in order to extract business insights and use these insights to provide our clients with actionable
recommendations. Tailoring these methods to various vertical applications leads to new customer value
propositions.

Example: Xerox developed an analytics-based engine that dynamically adjusts parking rates based on driver
demand for spaces and availability. It models how people choose parking spaces and the flexibility available to
drivers about where, when and for how long they stay. The parking engine is integrated as a module into our
new Merge® parking management system, which is a single portal for managing a city’s meters, pay-by-mobile
phone, sensors, enforcement and collections.

Xerox 2013 Annual Report 4

2. Creating Agile Business Processes: Businesses require agility in order to quickly respond to market changes
and new business requirements. To enable greater business process agility, our research goals are to simplify,
automate and enable business processes on the cloud via flexible platforms that run on robust and scalable
infrastructures. Automation of business processes benefits from our research on image, video and natural
language processing as well as machine learning. Application of these methods to business processes enables
technology to perform tasks that today are performed manually by workers, thus allowing workers to focus on
higher level tasks.

Example: Xerox is adapting its expertise in imaging to the area of Computer Vision. The ability to extract and
analyze vast amounts of information from videos and images touches areas as diverse as surveillance,
healthcare, education, transportation, environmental sciences and reading written records. In transportation,
researchers have developed a high-speed, video-based license plate recognition technology that is 99 percent
accurate. Deployed in Los Angeles, it automates highway toll collection. Retailers and other large enterprises
are working with our scientists to extract information from video about customer satisfaction and other valuable
information. And in healthcare, we are working on ways to detect vital signs from video images.

3. Making Personalization Pervasive: Whether talking about business correspondence, personal

communication, manufactured items or an information service, personalization increases the value to the
recipient. Our research leads to technologies that improve the efficiency, economics and relevance of business
services, such as customer care, benefits and educational services. Our proprietary printing technologies give
us a strong platform to research and develop methods that create affordable, ubiquitous color printing. We also
research how to expand the application of digital printing to cover new applications such as packaging printing
and printing directly on end-use products.

Example: Xerox® Ignite® Educator Support System is a Web-based, teacher tool for printing, scanning and
scoring a variety of assessments. With Ignite, teachers can give tests and also use the information they gather
to tailor their instruction along the way. This solution enables personalized assessments of students and
highlights key learning strengths and deficiencies, thereby allowing teachers to optimize learning programs for
individual students.

4. Enabling the Sustainable Enterprise: Global demand for energy, and the environmental consequences of

products used by enterprises and consumers, has elevated customer interest in sustainable solutions. Our
research develops technologies that minimize the environmental impact of document systems and business
processes. We seek opportunities to utilize processes and components that minimize life-cycle footprint and
waste, and create zero bioaccumulation. We also actively seek to incorporate bio-based materials in our
printing consumables. To help our customers optimize their operations, research is creating new enterprise-
wide energy optimization tools, and user sustainability feedback systems.

Global Research Centers
We have five global research centers each with a unique area of focus. They are places where creativity and
entrepreneurship are truly valued. Our leadership has empowered employees to deliver leading-edge research and
high-impact innovations that make a difference to our clients and the world. Our research centers are:

• Palo Alto Research Center (PARC): A wholly-owned subsidiary of Xerox located in the heart of Silicon Valley,
PARC provides Xerox commercial and government clients with R&D and open innovation services. PARC
scientists have deep technological expertise in big data analytics, networking, printed electronics, energy, and
digital design and manufacturing.

• Xerox Research Centre of Canada (XRCC): Located in Mississauga, Ontario, Canada, XRCC is our materials
research center with a focus on imaging and consumable materials. These include toners, inks and smart
materials for our document technology business, as well as materials for digital manufacturing.

• Xerox Research Center Webster (XRCW): Located in Webster, New York, XRCW focuses on innovation for
our document technology business and in areas that impact our healthcare, transportation and the overall
Services segment. Our work here includes data and video analytics, intelligent sensing, computer vision and
urban informatics.

• Xerox Research Centre Europe (XRCE): Located in Grenoble, France, XRCE research aims to differentiate

Xerox business process service offerings by simplifying them and making them more automated, intelligent and
agile. The center combines its world-class expertise in imaging, text and data analytics, with insights from its
ethnographic studies to create and design innovative and disruptive technology.

• Xerox Research Center India (XRCI): Located in Bangalore, India, XRCI explores, develops, and incubates

innovative solutions and services for our global customers, with a special focus on emerging markets.

Investment in R&D is critical for competitiveness in our fast-paced markets. One of the ways that we maintain our
market leadership is through strategic coordination of our R&D with Fuji Xerox (an equity investment in which we
maintain a 25 percent ownership interest). We have aligned our R&D investment portfolio with our growth initiatives,
including enhancing customer value by building on our business process services leadership and accelerating our
color leadership.

Our total research, development and engineering expenses (RD&E) (including sustaining engineering expenses,
which are the hardware engineering and software development costs incurred after we launch a product) totaled
$601 million in 2013, $655 million in 2012 and $719 million in 2011. Fuji Xerox R&D expenses were $724 million in
2013, $860 million in 2012 and $880 million in 2011.

Segment Information

Our reportable segments are Services, Document Technology and Other. We present operating segment financial
information in Note 2 - Segment Reporting in the Consolidated Financial Statements, which we incorporate by
reference here. We have a broad and diverse base of customers by both geography and industry, ranging from
small and midsize businesses (SMBs) to graphic communications companies, governmental entities, educational
institutions and Fortune 1000 corporate accounts. None of our business segments depends upon a single
customer, or a few customers, the loss of which would have a material adverse effect on our business.

Revenues by Business Segment
Our Services segment is the largest segment within the Company, with $11,859 million in revenue in 2013,
representing 55 percent of total revenue. The Document Technology segment contributed $8,908 million in revenue,
representing 42 percent of total revenue. The Other segment contributed $668 million in revenue, representing 3
percent of total revenue.

Services Segment
We provide comprehensive services in global markets across all major industries and government agencies. These
services help our clients simplify the way work gets done, providing them more time and resources to allocate to
their core operations, enabling them to respond rapidly to changing technologies and reducing expenses associated
with their business processes and information technology support.

Our Services segment comprises three service offerings: Business Process Outsourcing (BPO), Information
Technology Outsourcing (ITO) and Document Outsourcing (DO).

Business Process Outsourcing
We are the largest worldwide diversified BPO company, with an expertise in transaction-intensive offerings tailored
for several industries. BPO represented 59 percent of our total Services segment revenue in 2013. Our BPO
services are delivered through three market-oriented operating sectors: Healthcare, Commercial and Government
and Transportation Services. Our services include:

Healthcare Services
The healthcare industry is experiencing a radical transformation. Xerox is uniquely positioned across all segments
of the industry to help our customers meet these challenges with innovative, scalable and flexible services tailored
to their needs. Examples include:

Xerox 2013 Annual Report 6

• Directly supporting U.S. government programs for Medicaid expansion and state Health Insurance Exchanges.

• Services for payers and providers that support increased participation, reduce costs, improve care and meet

new regulatory requirements.

• Offering a private exchange solution for employers through our Human Resource Services group. This solution
benefits both the employee and employer through reduced costs, and improved employee care and wellness.

We apply our deep healthcare and innovation expertise across the healthcare ecosystem including providers and
payers, employers and government agencies. We help these customers focus on delivering better, more accessible
and more affordable healthcare, which leads to better health and wellness for their constituencies. We have three
market-facing verticals: Government, Payer and Pharma, and Provider.

• Government Healthcare Solutions: We provide administrative and care management solutions to state
Medicaid programs and federally-funded government healthcare programs. We provide a broad range of
innovative solutions to 37 states, which includes providing Health Insurance Exchange support services to
seven states. Our services include processing Medicaid claims, pharmacy benefits management, clinical
program management, supporting health information exchanges, eligibility application processing and
determination, management of long-term care programs, delivering public and private health insurance
exchange services and care and quality management.

• Healthcare Payer and Pharma: We deliver administrative efficiencies to our healthcare payer and

pharmaceutical clients through scalable and flexible transactional business solutions, which encompass our
global delivery model and domestic payer service centers. We support the top 20 U.S. commercial health plans,
touching nearly two-thirds of the insured population in the U.S. Our services include data capture, claims
processing, customer care, inside sales, recovery services and healthcare communications. We also provide
these services to payers outside of healthcare. No other competitor has offerings in all of these areas.

• Healthcare Provider Solutions: For hospitals, doctors and other care providers, we offer technology services
and adoption solutions that simplify healthcare operations. This includes consulting for system selection,
implementation support, training and education, technology and infrastructure services, and analytical tools
supporting clinical care, case management and metrics for quality and benchmarking. We serve every large
health system in the U.S., with contracts in all 50 states. Our services help our clients improve access to patient
data, achieve tighter regulatory compliance, realize greater operational efficiencies, reduce administrative costs
and provide better health outcomes.

Commercial Services
• Human Resource Services (HRS): From actuarial expertise to a full range of human resources (HR)

consulting that includes employee service centers, learning, retirement, health, private healthcare exchange
and welfare services, our extensive experience provides an option for organizations that need to transform their
human resources, learning or reward functions. We help HR departments engage employees as individuals by
communicating with personalized messages and enable employees to get smarter about managing their own
health, wealth and career outcomes.

• Financial Services: We serve clients in many industries by managing their critical finance, accounting and

procurement processes. Our methodologies enable transformation and continuous improvement for each client.
Our services span corporate finance and decision support, order to cash and record to report. In addition, we
provide outsourcing of financial aid and enrollment office operations for colleges and universities, and back-
room functions such as customer services, transaction processing and mailroom operations for the financial
services industry.

• Customer Care: With more than two decades of experience in contact center outsourcing, we have expertise
in many industry segments and verticals, including telecommunications, high tech, eCommerce, retail, travel,
logistics, financial services and healthcare. We provide customer service, tech support, sales and collections
and other services via multiple channels including phone, SMS, chat, interactive voice response (IVR), social
networks and email. We have locations in more than 160 countries, with over 50,000 agents who provide
customer care services in approximately thirty languages on behalf of our clients around the world.

• Retail, Travel, Litigation and Learning: We provide technology-based transactional services for retail, travel
and non-healthcare insurance companies, as well as e-discovery services for corporations and law firms. With
targeted industry focus, we handle data entry, mailrooms, imaging input and hosting, call centers and help
desks.

• Communication & Marketing Services (CMS): CMS delivers end-to-end outsourcing for design, creation,

marketing, logistics and distribution services that help clients communicate with their customers and employees
more effectively. We deliver communications through traditional routes, such as print, but also through a
growing number of multimedia channels, including SMS, web, email and mobile media. We help our clients
identify how their customers want to be engaged, tailor content, translate content, personalize communication,
select the appropriate channel, execute on campaigns and measure the resulting success.

Government and Transportation Services
• Transportation Services: We provide revenue-generating solutions for our government clients in over 35

countries. Our services include public transit and fare collection, electronic toll collection, parking management,
photo enforcement and commercial vehicle operations. We create simple and reliable processes for operators
and government agencies, and we are differentiated by the breadth of our offerings and innovative technology.

• Government Services: We support our government clients with services targeting key agencies within federal,

state, county and municipal governments. Our clients include Health and Human Services, Veterans
Administration, Treasury, Safety and Justice, and Government Administration. Our services span child support
payment processing, tax and revenue systems, eligibility systems and services, electronic payment cards,
unclaimed property services, IT services and many other services. Our competitive advantage is our depth of
agency specific expertise, and we have the scale required to deliver and manage programs at all levels of
government.

Information Technology Outsourcing
We specialize in designing, developing and delivering effective IT solutions. Our secure data centers, help desks
and managed storage facilities around the world provide a reliable IT infrastructure that minimizes the risk of
disruption to our clients' daily operations. ITO represented 13 percent of our total Services segment revenue in
2013.

We provide ITO services across all industries, and have developed deep expertise in several key verticals including
Healthcare, Retail, Manufacturing, Financial Services and Public Sector. Our ITO services include:

• Managed IT Services: We support our clients' needs for adaptable computing environments and their potential
growth, and we provide comprehensive systems support services. We provide a 24/7 support organization that
maintains a unified set of tools and processes that support our clients' IT environments, including systems
administration, database administration, systems monitoring, batch processing, data backup, network and
infrastructure management and capacity planning.

• End-User Computing (EUC): Our EUC services provide our clients with a comprehensive solution to manage
end-user platforms and devices. These include help and service desks, wireless and mobility services, and
desktop management. We design and execute strategies that address and resolve issues such as enterprise
bandwidth constraints, unstable computing environments, areas of insecurity and unavailable network
resources.

•

IT Solutions: Our IT Solutions include cloud services, utility computing, desktop virtualization and other
solutions. We design our solutions to quickly scale up or down and fit different business needs. Many of these
solutions can be delivered through our cloud-based, multi-tenant infrastructure with compliance, monitoring and
performance transparency built in.

Xerox 2013 Annual Report 8

Document Outsourcing
We are the industry leader in document outsourcing services. We have more than 20 years of experience and
15,000 business professionals in more than 160 countries. We help companies optimize their printing infrastructure
and simplify their communication and business processes so that they can grow revenue, reduce costs and operate
more efficiently. Document Outsourcing represented 28 percent of our total Services segment revenue in 2013. Our
two primary offerings within Document Outsourcing are Managed Print Services and Centralized Print Services.

• Managed Print Services (MPS): As the market leader in MPS, Xerox helps clients cut costs, increase
productivity and meet their environmental sustainability goals while supporting their mobile and security
needs. Our approach is built on three stages; it is a roadmap to manage clients’ information today and provide
ongoing insight for continuous innovation.

The first stage is to Assess and Optimize. We use best-in-class tools and processes to create a baseline of a
client's current spend, then we design a solution that reduces costs by up to 30 percent and that supports
sustainability goals. We look across the office and production environments to create a holistic view of the
client's printing needs, and provide the accurate information needed to take action.

The second stage is Secure and Integrate. Once we have optimized our clients’ printing environment, we
ensure that everything is connected to their IT environment in a secure and compliant way. We activate
solutions for enhanced security, printing from mobile devices and streamlining the IT environment by managing
print servers and print queues. These offerings are supported by our help desk support.

The third stage is Automate and Simplify. With the right technology in place and securely integrated into our
clients' IT environment, we improve employee productivity through automating paper-based processes by
digitizing paper documents and leveraging content management, thus creating better workflows and reducing
print.

We provide the most comprehensive portfolio of MPS services in the industry, supporting large global
enterprises down through small and midsize businesses. We are recognized as an industry leader by several
major analyst firms, including Gartner, IDC, Quocirca and Forrester.

Xerox® MPS complements and provides opportunities to expand existing BPO and ITO services. Within BPO
accounts, Xerox® MPS helps to automate workflow and enhance employee productivity. In ITO accounts, MPS
complements our clients' IT services that we currently manage and positions us as a complete IT services
provider.

• Centralized Print Services (CPS): Xerox is the world leader in CPS. We work with clients to establish a

common understanding of their business needs. We address the operational and financial aspects of their
business and create a document production service that supports revenue growth.

Within CPS, our main offerings include: On-site print center support which consists of on-demand printing and
copying, transactional printing, complete finishing, track and trace, global governance and mainframe
production printing; external print procurement; mail and distribution; creative and design; cross-media; and e-
publishing.

Document Technology Segment
Document Technology includes the sale of products and supplies, as well as the associated technical service and
financing of those products (which are not related to document outsourcing contracts). Our Document Technology
business is centered around strategic product groups that share common technology, manufacturing and product
platforms. The strategic product groups are: Entry, Mid-Range and High-End.

In 2013, we launched Xerox® ConnectKey® which is a software system and set of solutions embedded in our
Entry and Mid-Range multifunction printers (MFP's). ConnectKey responds to an increasingly mobile workforce, and
the need for more advanced IT security across connected devices. ConnectKey-enabled MFPs use the industry’s
first embedded security protection from McAfee. These new MFPs also incorporate additional security with Cisco’s
TrustSec, which protects data paths to and from the devices.

With ConnectKey’s open Application Programming Interface (API), reseller partners, systems integrators, solutions
developers and managed service providers can develop and embed applications on the MFP. Additional features
include cloud access, connect to SharePoint, easy IT integration and mobile print.

Entry
Entry comprises desktop monochrome and color printers and multifunction printers ranging from small personal
devices to workgroup printers and MFPs that serve the needs of demanding office users. Entry products
represented 21 percent of our total Document Technology segment revenue in 2013 and are sold worldwide in all
segments from SMB to enterprise, principally through a global network of reseller partners and service providers.

In 2013, we continued to build on our position in the market:

• Expanded our channel reach, partner programs and capacity to support the needs of small to midsize

businesses in our customers' preferred buying locations.

• Made our products more efficient and cost effective to deploy, in conjunction with our MPS offerings.

•

Launched products and solutions that help individuals, small work teams, large workgroups or whole
departments achieve their business goals.

The following devices were also launched during 2013:

• The WorkCentre® 3615 Multifunction Printer and Phaser® 3610 printers: These desktop monochrome

devices are designed for small offices or distributed applications in the enterprise. They feature class-leading
speed and productivity.

• The WorkCentre® 7220 and 7225: Powered by the Xerox® ConnectKey® Controller, the small A3-capable

footprint, and quiet operation, make the WorkCentre 7200 series color multifunction printer ideal for workgroups
in small offices and the enterprise.

• ColorQube® 8700/8900 Series: Our existing ColorQube 8700 and ColorQube 8900 multifunction printers were
updated with ConnectKey. This update enhances productivity and allows for these products to leverage the
ConnectKey product and solutions portfolio.

Mid-Range
Mid-Range comprises products for enterprises of all sizes. They are sold through dedicated Xerox-branded
partners, our direct sales force, indirect multi-branded channel partners and resellers worldwide. Our Mid-Range
products represented 58 percent of our total Document Technology segment revenue in 2013. We offer a wide
range of multifunction printers, copiers, digital printing presses and light production devices that deliver flexibility
and advanced features.

Xerox 2013 Annual Report 10

The following mid-range devices were launched during 2013, which includes the ConnectKey-enabled MFPs:

• Xerox® WorkCentre® 7800 Series: These ConnectKey-enabled MFPs offer speeds from 30 ppm to 55/50 ppm.

The Hi-Q LED print engine technology consumes less energy and space, and produces less noise, while
offering printing resolutions of 1200 x 2400 dpi.

• Xerox® ColorQube® 9300 Series: The series combines our solid ink innovation with our ConnectKey
capabilities. This results in a multifunction printer that produces vivid color quality that is affordable and
produces significantly less printing waste versus comparable color laser devices. The device copies and prints
at speeds up to 60 ppm, while increasing productivity even further with speeds up to 85 ppm in Fast Color
mode for draft or short-life documents.

• Xerox® WorkCentre® 5800 Series: These black-and-white workgroup and departmental A3 multifunction
printers are ConnectKey-enabled, and range from 45 ppm to 90 ppm. They replace the WorkCentre 5700
family.

• Xerox® Color 570 Printer: This light production color printer prints at speeds up to 75 ppm. It is targeted at

customers who have multiple needs and requirements, which means it can accommodate quick print shops, in-
plant operations, agencies, small businesses and manufacturers. The combination of 2400 x 2400 dpi
resolution and our EA Toner results in vibrant and detailed prints with an offset-like finish.

• Xerox® D136 Copier/Printer and Printer: These light production monochrome devices print at speeds up to
136 ppm. With oversized and high-capacity feeders, the devices can accommodate various paper sizes and
custom stock - handling an additional 4,000 sheets for uninterrupted production runs. The devices’ array of
finishing options can improve pay-for-print providers profits, while reducing costs for in-plant print shops.

High-End
Our High-End digital color and monochrome solutions are designed for customers in the graphic communications
industry and for large enterprises. Our High-End products comprised 21 percent of our total Document Technology
segment revenue in 2013. These High-End solutions enable digital, full-color, on-demand printing of a wide range of
applications, including variable data for personalized content and 1:1 marketing.

During 2013, a key initiative in this space was the expansion of our workflow software portfolio. FreeFlow® Core, a
new modular, scalable, open automation platform, is a key new offering at the center of the workflow suite. Another
new offering, FreeFlow® Digital Publisher, uses FreeFlow Core to automate workflows that enable both print and
e-media content, which provides a new revenue source for Xerox print customers. Other solutions include Xerox®
IntegratedPLUS Automated Color Management, which enables more effective image quality control across a
fleet of presses. Each of these solutions automate processes that allow our customers to reduce costs, produce
more jobs and grow their businesses.

Within the hardware portfolio, the most significant advancement was the acquisition of Impika. Impika is a leader in
the design, production and sale of high-speed, continuous-feed inkjet printing systems that are used for commercial
and industrial printing. The Impika offerings include the iPrint eVolution, iPrint Compact and iPrint Reference.
These presses utilize proprietary, aqueous inkjet technology, and print at speeds as fast as 832 feet (254 meters)
per minute. The Impika products join the Xerox® CiPress Production Inkjet Systems in our high-speed inkjet
lineup, strengthening our position in this rapidly growing segment.

In addition to the acquisition of Impika, we built on our industry-leading product lineup in 2013 with the launch of
several products:

• Xerox® Color J75 & C75 Presses: In February, we introduced the Xerox entry production color family, the

Color J75 and C75 Presses. These products print at speeds up to 75 ppm and include a wide range of finishing
options. The J75 includes the Xerox® Automated Color Quality Suite, which delivers outstanding productivity
and quality.

• Xerox® iGen4® Diamond Edition: The newest product in the iGen® family, the Xerox® iGen4 Diamond Edition
digital press, incorporates the latest image quality, automation and productivity innovations from the flagship
Xerox® iGen 150 into the iGen4 platform, providing unmatched flexibility, productivity and profitability.
Automation from beginning to end speeds up turnaround times and delivers improved profitability for print
providers.

• Xerox® Color 8250 Production Printer: In June, we launched the Color 8250 Production Printer. Based on
Xerox® iGen technology, the 8250 is a cost-effective, high-speed cut-sheet system that is designed to deliver
high volume business-quality color on uncoated papers. When coupled with the FreeFlow suite, the 8250 is
ideal for producing high volumes of personalized direct mail and transactional documents.

• Xerox® Wide Format IJP 2000: The Wide Format IJP 2000, an inkjet based press, was launched in

September. The IJP 2000 helps customers produce a variety of high-quality, high-value jobs on a wide range of
media, including papers, vinyl and banner fabric.

• Xerox® CiPress Single Engine Duplex: The Single Engine Duplex configurations of the CiPress 500 and 325
Production Inkjet Systems were launched in September, enabling two-sided printing in a single print engine.
This configuration helps customers reduce costs while delivering exceptional reliability and performance in a
compact, economical footprint.

Other Segment
The Other segment includes paper sales in our developing market countries, wide-format systems, licensing
revenue, Global Imaging Systems network integration solutions and electronic presentation systems and non-
allocated corporate items, including Other expenses, net. Paper comprised approximately one-third of the revenues
in the Other segment in 2013, which is lower than the 59 percent in 2012 due to the sale of our North American and
Western European paper businesses during 2013.

Geographic Information
Our global presence is one of our core strengths. Overall, 32 percent of our revenue is generated by customers
outside the U.S. We have a significant opportunity to take advantage of our global presence and customer
relationships to expand our Services business in Europe and developing markets.

In 2013, our revenues by geography were as follows: U.S.: $14,534 million (68 percent of total revenue), Europe:
$4,574 million (21 percent of total revenue), and Other areas: $2,327 million (11 percent of total revenue).
Revenues by geography are based on the location of the unit reporting the revenue and include export sales.

Patents, Trademarks and Licenses
Xerox and its subsidiaries were awarded 1,168 U.S. utility patents in 2013. On that basis, we would rank 23rd on
the list of companies that were awarded the most U.S. patents during the year. Including our research partner Fuji
Xerox, we were awarded about 1,950 U.S. utility patents in 2013. Our patent portfolio evolves as new patents are
awarded to us and as older patents expire. As of December 31, 2013, we held about 12,100 U.S. design and utility
patents. These patents expire at various dates up to 20 years or more from their original filing dates. While we
believe that our portfolio of patents and applications has value, in general no single patent is essential to our
business or any individual segment. In addition, any of our proprietary rights could be challenged, invalidated or
circumvented, or may not provide significant competitive advantages.

In the U.S., we are party to numerous patent-licensing agreements and, in a majority of them, we license or assign
our patents to others in return for revenue and/or access to their patents. Most patent licenses expire concurrently
with the expiration of the last patent identified in the license. In 2013, we added 11 new agreements to our portfolio
of patent-licensing and sale agreements, and Xerox and its subsidiaries were licensor or seller in seven of the
agreements. We are also a party to a number of cross-licensing agreements with companies that hold substantial
patent portfolios, including Canon, Microsoft, IBM, Hewlett-Packard, Oce, Sharp, Samsung, Seiko Epson and
Toshiba TEC. These agreements vary in subject matter, scope, compensation, significance and time.

Xerox 2013 Annual Report 12

In the U.S., we own more than 500 U.S. trademarks, either registered or applied for. These trademarks have a
perpetual life, subject to renewal every 10 years. We vigorously enforce and protect our trademarks.

Marketing and Distribution
We operate in over 160 countries, providing the industry's broadest portfolio of document technology, services and
software, and the most diverse array of business processes and IT outsourcing support through a variety of
distribution channels around the world. We manage our business based on the principal segments described
earlier. We have organized the marketing, selling and distribution of our products and services by geography,
channel type and line of business.

We go to market with a services-led approach and sell our products and services directly to customers through our
world-wide sales force and through a network of independent agents, dealers, value-added resellers, systems
integrators and the Web. In addition, our wholly-owned subsidiary, Global Imaging Systems (GIS), an office
technology dealer which is comprised of regional core companies in the U.S., sells and services document
management systems, network integration devices and electronic presentation systems. We continued to expand
our distribution to small and mid-size businesses in 2013 as GIS acquired two companies.

Our brand is a valuable resource and continues to be ranked in the top percentile of the most valuable global
brands. In Europe, Africa, the Middle East and parts of Asia, we distribute our products through Xerox Limited, a
company established under the laws of England, as well as through related non-U.S. companies. Xerox Limited
enters into distribution agreements with unaffiliated third parties to distribute our products in many of the countries
located in these regions, and previously entered into agreements with unaffiliated third parties who distribute our
products in Sudan and Syria. Sudan and Syria, among others, have been designated as state sponsors of terrorism
by the U.S. Department of State and are subject to U.S. economic sanctions. We maintain an export and sanctions
compliance program, and believe that we have been and are in compliance with U.S. laws and government
regulations for these countries. We have no assets, liabilities or operations in these countries other than liabilities
under the distribution agreements. After observing required prior notice periods, Xerox Limited terminated its
distribution agreements with distributors servicing Sudan and Syria in August 2006. Now, Xerox has only legacy
obligations to third parties, such as providing spare parts and supplies to these third parties. In 2013, total Xerox
revenues of $21.4 billion included less than $20 thousand attributable to Sudan and Syria.

Competition
Although we encounter competition in all areas of our business, we are the leader -- or among the leaders -- in each
of our principal business segments. We compete on the basis of technology, performance, price, quality, reliability,
brand, distribution and customer service and support.

In the Services business, our larger competitors include Accenture, Aon, Computer Sciences Corporation,
Convergys, Dell, Genpact, Hewlett-Packard, IBM and Teletech. In addition, we compete with in-house departments
that perform the functions that could be outsourced to us.

In the Document Technology business, our larger competitors include Canon, Hewlett-Packard, Konica Minolta,
Lexmark and Ricoh.

Our brand recognition, positive reputation for business process and document management, innovative technology
and service delivery are our competitive advantages. This combined with our breadth of product offerings, global
distribution channels and customer relationships positions us as a strong competitor going forward.

Global Employment
Globally, we have approximately 143,100 direct employees, including approximately 6,400 sales professionals,
approximately 10,800 technical service employees and approximately 97,000 employees serving our customers
through on-site operations or off-site delivery centers.

Customer Financing
We finance a large portion of our direct channel customer purchases of Xerox equipment through bundled lease
agreements. Financing facilitates customer acquisition of Xerox technology and enhances our value proposition,
while providing Xerox an attractive gross margin and a reasonable return on our investment in this business.
Additionally, because we primarily finance our own products and have a long history of providing financing to our
customers, we are able to minimize much of the risk normally associated with a finance business.

Because our lease contracts permit customers to pay for equipment over time rather than at the date of installation,
we maintain a certain level of debt to support our investment in these lease contracts. We fund our customer
financing activity through a combination of cash generated from operations, cash on hand, proceeds from capital
market offerings and the sale of selected finance receivables. At December 31, 2013, we had $4.5 billion of finance
receivables and $0.6 billion of equipment on operating leases, or Total Finance assets of $5.1 billion. We maintain
an assumed 7:1 leverage ratio of debt to equity as compared to our Finance assets, which results in the majority of
our $8.0 billion of debt being allocated to our financing business.

Refer to "Customer Financing Activities" in the Capital Resources and Liquidity section of Management's Discussion
and Analysis included in Item 7 of this 2013 Form 10-K, which is incorporated here by reference, for additional
information.

Manufacturing and Supply
Our manufacturing and distribution facilities are located around the world. The Company's largest manufacturing
site is in Webster, N.Y., where we produce Xerox® iGen and Nuvera® systems, components, EA Toner,
consumables, fusers, photoreceptors, and other products. Our other primary manufacturing operations are located
in: Dundalk, Ireland, for our High-End production products and consumables; and Wilsonville, OR, for solid ink
products, consumable supplies and components for our mid-range and entry products. We also have a facility in
Venray, Netherlands, which provides supplies manufacturing and supply chain management for the Eastern
Hemisphere.

Our master supply agreement with Flextronics, a global electronics manufacturing services company, to outsource
portions of manufacturing for our mid-range and entry businesses, continues through 2014 (exclusive of extension
rights). We also acquire products from various third parties in order to increase the breadth of our product portfolio
and meet channel requirements.

We have arrangements with Fuji Xerox under which we purchase and sell products, some of which are the result of
mutual research and development agreements. Refer to Note 8 - Investments in Affiliates, at Equity in the
Consolidated Financial Statements, which is incorporated here by reference, for additional information regarding
our relationship with Fuji Xerox.

Services Global Production Model
Our global services production model is one of our key competitive advantages. We have approximately 130
Strategic Delivery Centers located around the world, including India, Philippines, Jamaica, Mexico, Guatemala,
Colombia, Brazil, Chile, Argentina, Ireland, Spain, Poland and Romania. These locations are comprised of
Customer Care Centers, Mega IT Data Centers, Finance and Accounting Centers, Human Resource Centers and
Document Process Centers. Our global production model is enabled by the use of proprietary technology, which
allows us to securely distribute client transactions within data privacy limits across a global workforce. This global
production model allows us to make the most of lower-cost production locations, consistent methodology and
processes, and time zone advantages.

Fuji Xerox
Fuji Xerox is an unconsolidated entity in which we own a 25 percent interest, and FUJIFILM Holdings Corporation
(FujiFilm) owns a 75 percent interest. Fuji Xerox develops, manufactures and distributes document processing
products in Japan, China, Hong Kong, other areas of the Pacific Rim, Australia and New Zealand. We retain
significant rights as a minority shareholder. Our technology licensing agreements with Fuji Xerox ensure that the
two companies retain uninterrupted access to each other's portfolio of patents, technology and products.

Xerox 2013 Annual Report 14

International Operations
The financial measures by geographical area for 2013, 2012 and 2011 that are included in Note 2 - Segment
Reporting in the Consolidated Financial Statements, are incorporated here by reference. See also the risk factor
entitled “Our business, results of operations and financial condition may be negatively impacted by economic
conditions abroad, including local economies, political environments, fluctuating foreign currencies and shifting
regulatory schemes” in Part I, Item 1A included herein.

Backlog
Backlog, or the value of unfilled orders, is not a meaningful indicator of future business prospects because of the
significant proportion of our revenue that follows contract signing and/or equipment installation, the large volume of
products we deliver from shelf inventories and the shortening of product life cycles.

Seasonality
Our revenues are affected by such factors as the introduction of new products, the length of sales cycles and the
seasonality of technology purchases and services unit volumes. These factors have historically resulted in lower
revenues, operating profits and operating cash flows in the first quarter and the third quarter.

Other Information
Xerox is a New York corporation, organized in 1906, and our principal executive offices are located at 45 Glover
Avenue, P.O. Box 4505, Norwalk, Connecticut 06856-4505. Our telephone number is (203) 968-3000.

In the Investor Information section of our Internet website, you will find our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports. We make these
documents available as soon as we can after we have filed them with, or furnished them to, the Securities and
Exchange Commission.

Our Internet address is www.xerox.com.

ITEM 1A. RISK FACTORS

Our business, results of operations and financial condition may be negatively impacted by conditions
abroad, including local economics, political environments, fluctuating foreign currencies and shifting
regulatory schemes.

A significant portion of our revenue is generated from operations outside the United States. In addition, we maintain
significant operations and acquire or manufacture many of our products and/or their components outside the United
States. Our future revenues, costs and results of operations could be significantly affected by changes in foreign
currency exchange rates - particularly the Japanese Yen to U.S. Dollar and Japanese Yen to Euro exchange rates,
as well as by a number of other factors, including changes in economic conditions from country to country, changes
in a country's political conditions, trade protection measures, licensing requirements, local tax issues, capitalization
and other related legal matters. We generally hedge foreign currency denominated assets, liabilities and anticipated
transactions primarily through the use of currency derivative contracts. The use of derivative contracts is intended to
mitigate or reduce transactional level volatility in the results of foreign operations, but does not completely eliminate
volatility. We do not hedge the translation effect of international revenues and expenses, which are denominated in
currencies other than our U.S. parent functional currency, within our consolidated financial statements. If our future
revenues, costs and results of operations are significantly affected by economic conditions abroad and we are
unable to effectively hedge these risks, they could materially adversely affect our results of operations and financial
condition.

We face significant competition and our failure to compete successfully could adversely affect our results
of operations and financial condition.

We operate in an environment of significant competition, driven by rapid technological advances and the demands
of customers to become more efficient. Our competitors range from large international companies to relatively small
firms. Some of the large international companies have significant financial resources and compete with us globally
to provide document processing products and services and/or business process services in each of the markets we
serve. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution
and customer service and support. Our success in future performance is largely dependent upon our ability to
compete successfully in the markets we currently serve and to expand into additional market segments. To remain
competitive, we must develop services, applications and new products; periodically enhance our existing offerings;
and attract and retain key personnel and management. If we are unable to compete successfully, we could lose
market share and important customers to our competitors and that could materially adversely affect our results of
operations and financial condition.

Our profitability is dependent upon our ability to obtain adequate pricing for our products and services and
to improve our cost structure.

Our success depends on our ability to obtain adequate pricing for our services and products and that will provide a
reasonable return to our shareholders. Depending on competitive market factors, future prices we obtain for our
services and products may decline from previous levels. In addition, pricing actions to offset the effect of currency
devaluations may not prove sufficient to offset further devaluations or may not hold in the face of customer
resistance and/or competition. If we are unable to obtain adequate pricing for our services and products, it could
materially adversely affect our results of operations and financial condition. In addition, our services contracts are
increasingly requiring tighter timelines for implementation as well as more stringent service level metrics. This
makes the bidding process for new contracts much more difficult and require us to adequately consider these
requirements in the pricing of our services.

We continually review our operations with a view towards reducing our cost structure, including but not limited to
reducing employee base, exiting certain businesses, improving process and system efficiencies and outsourcing
some internal functions. We from time to time engage in restructuring actions to reduce our cost structure. If we are
unable to continue to maintain our cost base at or below the current level and maintain process and systems
changes resulting from prior restructuring actions, it could materially adversely affect our results of operations and
financial condition.

Xerox 2013 Annual Report 16

In addition, in order to continually meet the service requirements of our customers, which often includes 24/7
service, and to optimize our employee cost base, we will locate our delivery service centers in lower-cost locations,
including several developing countries. Concentrating our delivery service centers in these locations presents a
number of operational risks, many of which are beyond our control, including the risks of political instability, natural
disasters, safety and security risks, labor disruptions and rising labor rates. These risks could impair our ability to
effectively provide services to our customers and keep our costs aligned to our associated revenues and market
requirements.

Our ability to sustain and improve profit margins is dependent on a number of factors, including our ability to
continue to improve the cost efficiency of our operations through such programs as Lean Six Sigma, the level of
pricing pressures on our services and products, the proportion of high-end as opposed to low-end equipment sales
(product mix), the trend in our post-sale revenue growth and our ability to successfully complete information
technology initiatives. If any of these factors adversely materialize or if we are unable to achieve and maintain
productivity improvements through design efficiency, supplier and manufacturing cost improvements and
information technology initiatives, our ability to offset labor cost inflation, potential materials cost increases and
competitive price pressures would be impaired, all of which could materially adversely affect our results of
operations and financial condition.

Our government contracts are subject to termination rights, audits and investigations, which, if exercised,
could negatively impact our reputation and reduce our ability to compete for new contracts.

A significant portion of our revenues are derived from contracts with U.S. federal, state and local governments and
their agencies, as well as international governments and their agencies. Governments and their agencies may have
the right to terminate many of these contracts at any time without cause. These contracts, upon their expiration or
termination, are typically subject to a bidding process in which Xerox may not be successful. Also, our contracts
with governmental entities are generally subject to the approval of annual appropriations by the United States
Congress or other legislative/governing bodies to fund the expenditures of the governmental entities under those
contracts. Additionally, government contracts are generally subject to audits and investigations by government
agencies. If the government finds that we improperly charged any costs to a contract, the costs are not
reimbursable or, if already reimbursed, the cost must be refunded to the government. If the government discovers
improper or illegal activities or contractual non-compliance in the course of audits or investigations, we may be
subject to various civil and criminal penalties and administrative sanctions, which may include termination of
contracts, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business
with the government. Any resulting penalties or sanctions could have a material adverse effect on our business,
financial condition, results of operations and cash flows. Further, the negative publicity that arises from findings in
such audits, investigations or the penalties or sanctions therefore could have an adverse effect on our reputation in
the industry and reduce our ability to compete for new contracts and may also have a material adverse effect on our
business, financial condition, results of operations and cash flow.

Our ability to deliver services could be impaired if we are unable to hire or retain qualified personnel in
certain areas of our business, which could result in decreased revenues or additional costs.

At times, we have experienced difficulties in hiring personnel with the desired levels of training or experience.
Additionally, in regard to the labor-intensive business of the Company, quality service and adequate internal controls
depend on our ability to retain employees and manage personnel turnover. An increase in the employee turnover
rate or our inability to recruit and retain qualified personnel could increase recruiting and training costs and
potentially decrease revenues or decrease our operating effectiveness and productivity. We may not be able to
continue to hire, train and retain a sufficient number of qualified personnel to adequately staff new client projects.

For our services contracts, we rely to a significant extent on third-party providers, such as subcontractors,
a relatively small number of primary software vendors, utility providers and network providers; if they
cannot deliver or perform as expected or if our relationships with them are terminated or otherwise change,
our business, results of operations and financial condition could be materially adversely affected.

Our ability to service our customers and clients and deliver and implement solutions depends to a large extent on
third-party providers such as subcontractors, a relatively small number of primary software vendors and utility
providers and network providers meeting their obligations to us and our expectations in a timely, quality manner.
Our business, revenues, profitability and cash flows could be materially and adversely affected and we might incur
significant additional liabilities if these third-party providers do not meet these obligations or our expectations or if
they terminate or refuse to renew their relationships with us or were to offer their products to us with less
advantageous prices and other terms than we previously had. In addition, a number of our facilities are located in
jurisdictions outside of the United States where the provision of utility services, including electricity and water, may
not be consistently reliable and, while there are backup systems in many of our operating facilities, an extended
outage of utility or network services could have a material adverse effect on our operations, revenues, cash flow
and profitability.

Our ability to recover capital investments in connection with our contracts is subject to risk.

In order to attract and retain large outsourcing contracts, we sometimes make significant capital investments to
enable us to perform our services under the contracts, such as purchases of information technology equipment and
costs incurred to develop and implement software. The net book value of such assets recorded, including a portion
of our intangible assets, could be impaired, and our earnings and cash flow could be materially adversely affected in
the event of the early termination of all or a part of such a contract or a reduction in volumes and services
thereunder for reasons such as, among other things, a customer's or client's merger or acquisition, divestiture of
assets or businesses, business failure or deterioration, or a customer's or client's exercise of contract termination
rights.

Our services business could be adversely affected if we are unsuccessful in managing the start-up of new
contracts.

In order for our services business to continue its growth, we must successfully manage the start-up of services
related to new contracts. If a client is not satisfied with the quality of work performed by us or a subcontractor, or
with the type of services or solutions delivered, then we could incur additional costs to address the situation, the
profitability of that work might be impaired and the client's dissatisfaction with our services could damage our ability
to obtain additional work from that client or obtain new work from other potential clients. In particular, clients who are
not satisfied might seek to terminate existing contracts prior to their scheduled expiration date, which may result in
our inability to fully recover our up-front investments. In addition, clients could direct future business to our
competitors. We could also trigger contractual credits to clients or a contractual default. Failure to properly transition
new clients to our systems, properly budget transition costs or accurately estimate new contract operational costs
could result in delays in our contract performance, trigger service level penalties, impair fixed or intangible assets or
result in contract profit margins that do not meet our expectations or our historical profit margins.

If we fail to successfully develop new products, technologies and service offerings and protect our
intellectual property rights, we may be unable to retain current customers and gain new customers and our
revenues would decline.

The process of developing new high technology products and solutions is inherently complex and uncertain. It
requires accurate anticipation of customers' changing needs and emerging technological trends. We must make
long-term investments and commit significant resources before knowing whether these investments will eventually
result in products that achieve customer acceptance and generate the revenues required to provide desired returns.
In developing these new technologies and products, we rely upon patent, copyright, trademark and trade secret
laws in the United States and similar laws in other countries, and agreements with our employees, customers,
suppliers and other parties, to establish and maintain our intellectual property rights in technology and products
used in our operations. However, the laws of certain countries may not protect our proprietary rights to the same
extent as the laws of the United States and we may be unable to protect our proprietary technology adequately
against unauthorized third-party copying or use, which could adversely affect our competitive position. In addition,
some of our products rely on technologies developed by third parties. We may not be able to obtain or to continue to

Xerox 2013 Annual Report 18

obtain licenses and technologies from these third parties at all or on reasonable terms, or such third parties may
demand cross-licenses to our intellectual property. It is also possible that our intellectual property rights could be
challenged, invalidated or circumvented, allowing others to use our intellectual property to our competitive
detriment. We also must ensure that all of our products comply with existing and newly enacted regulatory
requirements in the countries in which they are sold, particularly European Union environmental directives. If we fail
to accurately anticipate and meet our customers' needs through the development of new products, technologies and
service offerings or if we fail to adequately protect our intellectual property rights or if our new products are not
widely accepted or if our current or future products fail to meet applicable worldwide regulatory requirements, we
could lose market share and customers to our competitors and that could materially adversely affect our results of
operations and financial condition.

Our operating results may be negatively impacted by lower equipment placements and usage trends.

Our ability to maintain a consistent trend of revenue growth over the intermediate to longer term is largely
dependent upon expansion of our worldwide equipment placements, as well as sales of services and supplies
occurring after the initial equipment placement (post sale revenue) in the key growth markets of digital printing, color
and multifunction systems. We expect that revenue growth can be further enhanced through our document
management and consulting services in the areas of personalized and product life cycle communications, enterprise
managed print services and document content and imaging. The ability to achieve growth in our equipment
placements is subject to the successful implementation of our initiatives to provide advanced systems, industry-
oriented global solutions and services for major customers, improve direct and indirect sales productivity and
expand our indirect distribution channels in the face of global competition and pricing pressures. Our ability to
increase post sale revenue is largely dependent on our ability to increase the volume of pages printed, the mix and
price of color pages, equipment utilization and color adoption, as well as our ability to retain a high level of supplies
sales in unbundled contracts. Equipment placements typically occur through leases with original terms of three to
five years. There will be a lag between the increase in equipment placement and an increase in post sale revenues.
The ability to grow our customers' usage of our products may continue to be adversely impacted by the movement
toward distributed printing and electronic substitutes and the impact of lower equipment placements in prior periods.
If we are unable to maintain a consistent trend of revenue growth, it could materially adversely affect our results of
operations and financial condition.

We are subject to laws of the United States and foreign jurisdictions relating to individually identifiable
information, and failure to comply with those laws, whether or not inadvertent, could subject us to legal
actions and negatively impact our operations.

We receive, process, transmit and store information relating to identifiable individuals, both in our role as a service
and technology provider and as an employer. As a result, we are subject to numerous United States (both federal
and state) and foreign jurisdiction laws and regulations designed to protect individually identifiable information,
including the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the HIPAA regulations
governing, among other things, the privacy, security and electronic transmission of individually identifiable health
information, and the European Union Directive on Data Protection (Directive 95/46/EC). Other United States (both
federal and state) and foreign jurisdiction laws apply to our processing of individually identifiable information and
these laws have been subject to frequent changes, and new legislation in this area may be enacted at any time.
Changes to existing laws, introduction of new laws in this area, or failure to comply with existing laws that are
applicable to us may subject us to, among other things, additional costs or changes to our business practices,
liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to
obtain and process information and allegations by our customers and clients that we have not performed our
contractual obligations, any of which may have a material adverse effect on our profitability and cash flow.

We are subject to breach of our security systems and service interruptions which could expose us to
liability, impair our reputation or temporarily render us unable to fulfill our service obligations under our
contracts.

We have implemented security systems with the intent of maintaining the physical security of our facilities and
protecting our customers', clients' and suppliers' confidential information and information related to identifiable
individuals against unauthorized access through our information systems or by other electronic transmission or
through the misdirection, theft or loss of physical media. These include, for example, the appropriate encryption of

information. Despite such efforts, we are subject to breach of security systems which may result in unauthorized
access to our facilities and/or the information we are trying to protect. Because the techniques used to obtain
unauthorized access change frequently and often are not recognized until launched against a target, we may be
unable to anticipate these techniques or implement preventative measures. If unauthorized parties gain physical
access to one of our facilities or electronic access to our information systems or such information is misdirected, lost
or stolen during transmission or transport, any theft or misuse of such information could result in, among other
things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by
our customers and clients that we have not performed our contractual obligations, litigation by affected parties and
possible financial obligations for damages related to the theft or misuse of such information, any of which could
have a material adverse effect on our profitability and cash flow. We also maintain various systems and data centers
for our customers. Often these systems and data centers must be maintained worldwide and on a 24/7 basis.
Although we endeavor to ensure that there is adequate back-up and maintenance of these systems and centers, we
could experience service interruptions that could result in curtailed operations and loss of customers, which would
reduce our revenue and profits in addition to impairing our reputation.

Our ability to fund our customer financing activities at economically competitive levels depends on our
ability to borrow and the cost of borrowing in the credit markets.

The long-term viability and profitability of our customer financing activities is dependent, in part, on our ability to
borrow and the cost of borrowing in the credit markets. This ability and cost, in turn, is dependent on our credit
ratings and is subject to credit market volatility. We primarily fund our customer financing activity through a
combination of cash generated from operations, cash on hand, capital market offerings, sales and securitizations of
finance receivables and commercial paper borrowings. Our ability to continue to offer customer financing and be
successful in the placement of equipment with customers is largely dependent on our ability to obtain funding at a
reasonable cost. If we are unable to continue to offer customer financing, it could materially adversely affect our
results of operations and financial condition.

Our significant debt could adversely affect our financial health and pose challenges for conducting our
business.

We have and will continue to have a significant amount of debt and other obligations, primarily to support our
customer financing activities. Our substantial debt and other obligations could have important consequences. For
example, it could (i) increase our vulnerability to general adverse economic and industry conditions; (ii) limit our
ability to obtain additional financing for future working capital, capital expenditures, acquisitions and other general
corporate requirements; (iii) increase our vulnerability to interest rate fluctuations because a portion of our debt has
variable interest rates; (iv) require us to dedicate a substantial portion of our cash flows from operations to service
debt and other obligations thereby reducing the availability of our cash flows from operations for other purposes;
(v) limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we
operate; (vi) place us at a competitive disadvantage compared to our competitors that have less debt; and
(vii) become due and payable upon a change in control. If new debt is added to our current debt levels, these
related risks could increase.

We need to maintain adequate liquidity in order to meet our operating cash flow requirements, repay
maturing debt and meet other financial obligations, such as payment of dividends to the extent declared by
our Board of Directors. If we fail to comply with the covenants contained in our various borrowing
agreements, it may adversely affect our liquidity, results of operations and financial condition.

Our liquidity is a function of our ability to successfully generate cash flows from a combination of efficient operations
and improvement therein, access to capital markets and funding from third parties. We believe our liquidity
(including operating and other cash flows that we expect to generate) will be sufficient to meet operating
requirements as they occur; however, our ability to maintain sufficient liquidity going forward depends on our ability
to generate cash from operations and access to the capital markets and funding from third parties, all of which are
subject to general economic, financial, competitive, legislative, regulatory and other market factors that are beyond
our control.

Xerox 2013 Annual Report 20

The Credit Facility contains financial maintenance covenants, including maximum leverage (debt for borrowed
money divided by consolidated EBITDA, as defined) and a minimum interest coverage ratio (consolidated EBITDA
divided by consolidated interest expense, as defined). At December 31, 2013, we were in full compliance with the
covenants and other provisions of the Credit Facility. Failure to comply with material provisions or covenants in the
Credit Facility could have a material adverse effect on our liquidity, results of operations and financial condition.

We have outsourced a significant portion of our overall worldwide manufacturing operations and
increasingly are relying on third-party manufacturers, subcontractors and external suppliers.

We have outsourced a significant portion of our overall worldwide manufacturing operations to third parties and
various service providers. To the extent that we rely on third-party manufacturing relationships, we face the risk that
those manufacturers may not be able to develop manufacturing methods appropriate for our products, they may not
be able to quickly respond to changes in customer demand for our products, they may not be able to obtain
supplies and materials necessary for the manufacturing process, they may experience labor shortages and/or
disruptions, manufacturing costs could be higher than planned and the reliability of our products could decline. If
any of these risks were to be realized, and assuming similar third-party manufacturing relationships could not be
established, we could experience interruptions in supply or increases in costs that might result in our being unable
to meet customer demand for our products, damage our relationships with our customers and reduce our market
share, all of which could materially adversely affect our results of operations and financial condition.

In addition, in our services business we may partner with other parties, including software and hardware vendors, to
provide the complex solutions required by our customers. Therefore, our ability to deliver the solutions and provide
the services required by our customers is dependent on our and our partners' ability to meet our customers'
requirements and schedules. If we or our partners fail to deliver services or products as required and on time, our
ability to complete the contract may be adversely affected, which may have an adverse impact on our revenue and
profits.

We need to develop and expand the use of color printing and copying.

Increasing the proportion of pages that are printed in color and transitioning color pages currently produced on
offset devices to Xerox technology represent key growth opportunities. A significant part of our strategy and ultimate
success in this changing market is our ability to develop and market technology that produces color prints and
copies quickly, easily, with high quality and at reduced cost. Our future success in executing on this strategy
depends on our ability to make the investments and commit the necessary resources in this highly competitive
market, as well as the pace of color adoption by our existing and prospective customers. If we are unable to
develop and market advanced and competitive color technologies or the pace of color adoption by our existing and
prospective customers is less than anticipated, or the price of color pages declines at a greater rate and faster pace
than we anticipate, we may be unable to capture these opportunities and it could materially adversely affect our
results of operations and financial condition.

Our business, results of operations and financial condition may be negatively impacted by legal and
regulatory matters.

We have various contingent liabilities that are not reflected on our balance sheet, including those arising as a result
of being involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law;
governmental entity contracting, servicing and procurement laws; intellectual property law; environmental law;
employment law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations, as
discussed in the “Contingencies” note in the Consolidated Financial Statements. Should developments in any of
these matters cause a change in our determination as to an unfavorable outcome and result in the need to
recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for
significant amounts, they could have a material adverse effect on our results of operations, cash flows and financial
position in the period or periods in which such change in determination, judgment or settlement occurs.

Our operations and our products are subject to environmental regulations in each of the jurisdictions in which we
conduct our business and sell our products. Some of our manufacturing operations use, and some of our products
contain, substances that are regulated in various jurisdictions. For example, various countries and jurisdictions have
adopted or are expected to adopt restrictions on the types and amounts of chemicals that may be present in
electronic equipment or other items that we use or sell. If we do not comply with applicable rules and regulations in
connection with the use of such substances and the sale of products containing such substances, then we could be

subject to liability and could be prohibited from selling our products, which could have a material adverse effect on
our results of operations and financial condition. Further, various countries and jurisdictions have adopted or are
expected to adopt, programs that make producers of electrical goods, including computers and printers, responsible
for certain labeling, collection, recycling, treatment and disposal of these recovered products. If we are unable to
collect, recycle, treat and dispose of our products in a cost-effective manner and in accordance with applicable
requirements, it could materially adversely affect our results of operations and financial condition. Other potentially
relevant initiatives throughout the world include proposals for more extensive chemical registration requirements
and/or possible bans on the use of certain chemicals, various efforts to limit energy use in products and other
environmentally related programs impacting products and operations, such as those associated with climate change
accords, agreements and regulations. For example, the European Union's Energy-Related Products Directive
(ERP) is expected to lead to the adoption of “implementing measures” intended to require certain classes of
products to achieve certain design and/or performance standards, in connection with energy use and potentially
other environmental parameters and impacts. It is possible that some or all of our products may be required to
comply with ERP implementing measures. Another example is the European Union “REACH” Regulation
(Registration, Evaluation, Authorization and Restriction of Chemicals), a broad initiative that requires parties
throughout the supply chain to register, assess and disclose information regarding many chemicals in their
products. Depending on the types, applications, forms and uses of chemical substances in various products,
REACH could lead to restrictions and/or bans on certain chemical usage. Xerox continues its efforts toward
monitoring and evaluating the applicability of these and numerous other regulatory initiatives in an effort to develop
compliance strategies. As these and similar initiatives and programs become regulatory requirements throughout
the world and/or are adopted as public or private procurement requirements, we must comply or potentially face
market access limitations that could have a material adverse effect on our operations and financial condition.
Similarly, environmentally driven procurement requirements voluntarily adopted by customers in the marketplace
(e.g., U.S. EPA EnergyStar) are constantly evolving and becoming more stringent, presenting further market access
challenges if our products fail to comply.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

We own several manufacturing, engineering and research facilities and lease other facilities. Our principal
manufacturing and engineering facilities, located in New York, California, Oklahoma, Oregon, Canada, U.K., Ireland
and the Netherlands, are used primarily by the Document Technology segment. Our principal research facilities are
located in California, New York, Canada, France and India. The research activities in our principal research centers
benefit all of our operating segments. We lease and own several facilities worldwide to support our Services
segment with larger concentrations of space in Texas, Kentucky, New Jersey, California, Mexico, Philippines,
Jamaica and India. Our Corporate Headquarters is a leased facility located in Norwalk, Connecticut.

As a result of implementing our restructuring programs (refer to Note 10 - Restructuring and Asset Impairment
Charges in the Consolidated Financial Statements, which is incorporated here by reference) as well as various
productivity initiatives, several leased and owned properties became surplus. We are obligated to maintain our
leased surplus properties through required contractual periods. We have disposed or subleased certain of these
properties and are actively pursuing the successful disposition of remaining surplus properties.

We also own or lease numerous facilities globally, which house general offices, sales offices, service locations, data
centers, call centers and distributions centers. It is our opinion that our properties have been well maintained, are in
sound operating condition and contain all the necessary equipment and facilities to perform their functions. We
believe that our current facilities are suitable and adequate for our current businesses.

Xerox 2013 Annual Report 22

ITEM 3. LEGAL PROCEEDINGS

The information set forth under Note 17 "Contingencies and Litigation" in the Consolidated Financial Statements is
incorporated here by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

Part II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Exchange Information
Xerox common stock (XRX) is listed on the New York Stock Exchange and the Chicago Stock Exchange.

Xerox Common Stock Prices and Dividends

New York Stock Exchange composite prices *

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

2013

High

Low

Dividends declared per share

2012

High

Low

Dividends declared per share

_____________
* Price as of close of business.

8.76

7.11

0.0575

8.76

7.73

0.0425

9.49

8.33

0.0575

8.15

6.94

0.0425

10.51

9.23

0.0575

7.94

6.38

0.0425

12.23

9.61

0.0575

7.39

6.23

0.0425

In January 2014, the Board of Directors approved an increase in the Company's quarterly cash dividend from
5.75 cents per share to 6.25 cents per share, beginning with the dividend payable April 30, 2014.

Common Shareholders of Record
See Item 6 - Selected Financial Data, Five Years in Review, Common Shareholders of Record at Year-End,
which is incorporated here by reference.

PERFORMANCE GRAPH

Total Return To Shareholders

(Includes reinvestment of dividends)

2008

2009

2010

2011

2012

2013

Xerox Corporation

S&P 500 Index

S&P 500 Information Technology Index

100.00

108.98

151.00

106.39

93.24

100.00

126.46

161.72

145.51

178.20

148.59

182.50

172.37

209.55

170.30

228.19

269.13

Year Ended December 31,

Source: Standard & Poor's Investment Services
Notes: Graph assumes $100 invested on December 31, 2008 in Xerox, the S&P 500 Index and the S&P 500 Information

Technology Index, respectively, and assumes dividends are reinvested.

SALES OF UNREGISTERED SECURITIES DURING THE QUARTER ENDED DECEMBER 31, 2013

During the quarter ended December 31, 2013, Registrant issued the following securities in transactions that were
not registered under the Securities Act of 1933, as amended (the “Act”).

Dividend Equivalent
(a) Securities issued on October 31, 2013: Registrant issued 4,408 deferred stock units (DSUs), representing the

right to receive shares of Common stock, par value $1 per share, at a future date.

(b) No underwriters participated. The shares were issued to each of the non-employee Directors of Registrant:
Glenn A. Britt, Richard J. Harrington, William Curt Hunter, Robert J. Keegan, Robert A. McDonald, Charles
Prince, Ann N. Reese, Sara Martinez Tucker and Mary Agnes Wilderotter.

Xerox 2013 Annual Report 24

Xerox 2013 Annual Report

(c)

The DSUs were issued at a deemed purchase price of $10.31 per DSU (aggregate price $45,446), based
upon the market value of our Common Stock on the date of record, in payment of the dividend equivalents
due to DSU holders pursuant to Registrant’s 2004 Equity Compensation Plan for Non-Employee Directors.
(d) Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not

involving a public offering.

Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2013

Repurchases of Xerox Common Stock, par value $1 per share include the following:

Board Authorized Share Repurchase Program:

Total Number of
Shares
Purchased

Average Price
Paid per Share(1)

7,223,202

18,582,549

22,000,684

47,806,435

10.38

10.54

11.45

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs(2)

Maximum Approximate
Dollar Value of Shares
That May Yet Be
Purchased Under the
Plans or Programs(2)

7,223,202

1,062,105,745

18,582,549

22,000,684

47,806,435

1,366,170,836

1,114,257,534

October 1 through 31

November 1 through 30

December 1 through 31

Total

_____________

(1) Exclusive of fees and costs.
(2)

In November 2013, the Board of Directors authorized an additional $500 million in share repurchase. Of the cumulative $6.5 billion of share
repurchase authority granted by our Board of Directors, exclusive of fees and expenses, approximately $5.4 billion has been used through
December 31, 2013. Repurchases may be made on the open market, or through derivative or negotiated transactions. Open-market
repurchases will be made in compliance with the Securities and Exchange Commission’s Rule 10b-18, and are subject to market
conditions, as well as applicable legal and other considerations.

Repurchases Related to Stock Compensation Programs(1):

Total Number of
Shares
Purchased

Average Price
Paid per Share(2)

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number
(or Approximate Dollar Value)
of Shares That May Yet Be
Purchased under the Plans or
Programs

24,660

10,896

—

35,556

10.49

10.02

—

n/a

October 1 through 31

November 1 through 30

December 1 through 31

Total

______________

(1) These repurchases are made under a provision in our restricted stock compensation programs for the indirect repurchase of shares through

a net-settlement feature upon the vesting of shares in order to satisfy minimum statutory tax-withholding requirements.

(2) Exclusive of fees and costs.

ITEM 6. SELECTED FINANCIAL DATA

FIVE YEARS IN REVIEW
(in millions, except per-share data)

Per-Share Data

Income from continuing operations

Basic

Diluted

Earnings

Basic

Diluted

Common stock dividends declared

Operations

Revenues

Sales

Outsourcing, maintenance and rentals

Financing

Income from continuing operations

Income from continuing operations - Xerox

Net income

Net income - Xerox

Financial Position

Working capital

Total Assets

Consolidated Capitalization

Short-term debt and current portion of long-term debt

Long-term debt
Total Debt(3)

Liability to subsidiary trust issuing preferred securities

Series A convertible preferred stock

Xerox shareholders' equity

Noncontrolling interests

Total Consolidated Capitalization

Selected Data and Ratios

Common shareholders of record at year-end

Book value per common share

Year-end common stock market price

Employees at year-end

Gross margin

Sales gross margin

Outsourcing, maintenance and rentals gross margin

Finance gross margin

2013

2012(1)

2011(1)

2010(1)(2)

2009(1)

0.95

0.93

0.91

0.23

0.89

0.87

0.90

0.88

0.17

0.90

0.88

0.92

0.90

0.17

0.43

0.42

0.44

0.43

0.17

0.55

0.54

0.56

0.55

0.17

21,435

21,737

21,900

20,872

14,376

5,659

15,293

483

1,205

1,185

1,179

1,159

5,927

15,213

597

1,212

1,184

1,223

1,195

6,400

14,868

632

1,307

1,274

1,328

1,295

6,473

13,739

660

622

591

637

606

5,843

7,820

713

509

478

516

485

2,825

2,363

1,531

2,222

5,270

29,036

30,015

30,116

30,600

24,032

1,117

1,042

1,545

1,370

6,904

8,021

—

349

12,300

119

7,447

8,489

—

349

11,521

143

7,088

8,633

—

349

11,876

149

7,237

8,607

650

349

12,006

153

988

8,276

9,264

649

—

7,050

141

20,789

20,502

21,007

21,765

17,104

37,552

10.35

12.17

39,397

41,982

9.41

6.82

8.88

7.96

43,383

8.59

11.52

44,792

8.11

8.46

143,100

147,600

139,700

136,500

53,600

31.0%

36.1%

28.0%

66.3%

32.0%

36.0%

29.0%

66.8%

33.4%

36.3%

30.9%

63.4%

35.2%

36.9%

33.1%

62.7%

41.2%

36.8%

42.6%

62.0%

___________
(1) 2009 through 2012 have been restated to reflect the 2013 disposition of our North American (Canada and U.S.) and Western European

Paper businesses as Discontinued Operations. Refer to Note 3 - Acquisitions and Divestitures in our Consolidated Financial Statements,
which is incorporated here by reference, for additional information.

(2) 2010 results include the acquisition of ACS.
(3)

Includes capital lease obligations.

Xerox 2013 Annual Report 26

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand the results
of operations and financial condition of Xerox Corporation. MD&A is provided as a supplement to, and should be
read in conjunction with, our Consolidated Financial Statements and the accompanying notes. Throughout the
MD&A, we refer to various notes to our Consolidated Financial Statements which appear in Item 8 of this 2013
Form 10-K, and the information contained in such notes is incorporated by reference into the MD&A in the places
where such references are made.

Throughout this document, references to “we,” “our,” the “Company,” and “Xerox” refer to Xerox Corporation and its
subsidiaries. References to “Xerox Corporation” refer to the stand-alone parent company and do not include its
subsidiaries.

Executive Overview

With revenues of $21.4 billion, we are the world's leading global enterprise for business process and document
management solutions. We provide services, technology and expertise to enable our customers - from small
businesses to large global enterprises - to focus on their core business and operate more effectively.

2013 marked the 75th anniversary of the first xerographic image, created by Chester Carlson to simplify the process
of copying information. This xerographic process is still at the heart of most office printers and copiers around the
world. From printers and multifunction devices, to business services and solutions for transportation, education, and
healthcare, the Company’s engineers, scientists and researchers are continuing to invent ways that make work, and
life, a little simpler.

We are a leader across large, diverse and growing markets estimated at over $600 billion. Headquartered in
Norwalk, Connecticut, the 143,100 people of Xerox serve customers in more than 160 countries providing business
services, printing equipment and software for commercial and government organizations. In 2013, 32 percent of our
revenue was generated outside the U.S.

We organize our business around two main segments: Services and Document Technology.

• Our Services segment is comprised of business process outsourcing (BPO), information technology

outsourcing (ITO) and document outsourcing (DO) services.

A key priority in 2013 was continued growth in our services business. Revenue from Services grew 3% in 2013,
reflecting growth from all three service offerings, BPO, ITO and DO, and represented 55% of our total revenues.
Growth was below our expectations primarily due to lower than expected contributions from acquisitions and the
effects of the run-off of our student loan business. In 2013, our Services signings grew as we continued to win in
the marketplace. In 2013, we introduced a new government healthcare Medicaid platform and supported the
launch of health insurance exchanges in several states. Across our services portfolio, the diversity of our
offerings and the differentiated solutions we provide, enable us to deliver greater value to our customers.

• Our Document Technology segment is comprised of our document technology and related supplies, technical
service and equipment financing (excluding contracts related to document outsourcing). Our product groups
within this segment include Entry, Mid-Range and High-End products.

In 2013 we focused on maintaining our leadership in Document Technology as well as improving our
productivity to reduce our cost base. This strategy included the introduction of new products like our
ConnectKey® enabled devices as well as steadily growing our channel operations to expand our reach to small
and mid-sized businesses (SMB). Although Document Technology revenues declined 6% in 2013, in line with
expectations, segment margin was 10.8%, at the high end of our targeted range of 9% to 11%.

Annuity-Based Business Model

In 2013, 84 percent of our total revenue was annuity-based, which includes contracted services, equipment
maintenance, consumable supplies and financing, among other elements. Our annuity revenue significantly benefits
from growth in Services. Some of the key indicators of annuity revenue growth include:

• Services business signings, which reflects the estimated future revenues from contracts signed during the

period.

• Services renewal rate, which is defined as the annual recurring revenue (ARR) on contracts that are renewed
during the period, calculated as a percentage of ARR on all contracts where a renewal decision was made
during the period.

• Services pipeline growth, which measures the increase in new business opportunities.

•

Installations of printers and multifunction printers as well as the number of machines in the field (MIF) and the
page volume and mix of pages printed on color devices, where available.

Acquisitions

Consistent with our strategy to expand our Services offerings and expand and strengthen our product portfolio and
distribution capabilities in Document Technology, we completed several acquisitions during 2013. Refer to
Acquisitions and Divestitures in Item 1. Business in this Form 10-K as well as Note 3 - Acquisitions and Divestitures
in our Consolidated Financial Statements for additional information regarding our 2013 acquisitions.

Financial Overview

Total revenue of $21.4 billion in 2013 declined 1% from the prior year, with a 1-percentage point positive impact
from currency. Services segment revenues increased 3%, with no impact from currency, reflecting growth in all
three of our Services offerings. Services segment margin of 9.8% decreased 0.4-percentage points from 2012,
reflecting a decline in gross margin of 0.8-percentage points partially offset by productivity improvements and
restructuring benefits. Document Technology segment revenues declined 6% with no impact from currency
reflecting the continued migration of customers to Xerox managed print services, which is included in our Services
segment, lower supplies sales, weakness in developing markets and price declines. These declines were partially
offset by the benefits from the refresh of our mid-range products and improving trends on our high-end products.
Document Technology segment margin of 10.8% decreased 0.5-percentage points from 2012.

Net income from continuing operations attributable to Xerox for 2013 was $1,185 million and included $205 million
of after-tax amortization of intangible assets. Net income for 2013 reflects the continued pressure on margins,
including the impacts from the run-off of the high-margin student loan business and the ramping of new contracts in
Services as well as the effects of ongoing equipment price pressure in Document Technology. These impacts were
partially offset by operational improvements and cost reductions from restructuring actions. Net income attributable
to Xerox for 2012 was $1,184 million and included $203 million of after-tax amortization of intangible assets.

Cash flow from operations was $2.4 billion in 2013 as compared to $2.6 billion in 2012. The decrease in cash was
primarily due to the impacts from prior year sales of finance receivables. This decrease was partially offset by lower
pension contributions as working capital (accounts receivable, inventory and accounts payables) was roughly flat for
the year. Cash used in investing activities of $452 million primarily reflects capital expenditures of $427 million and
acquisitions of $155 million partially offset by proceeds from the sale of businesses and assets of $112 million. Cash
used in financing activities was $1.4 billion, which primarily reflects $696 million for stock repurchases, $434 million
of net payments on debt and $296 million for dividends.

During 2013 we sold our U.S. and Canadian (North American) and Western European (European) Paper
businesses. As a result of these transactions, we reported these paper-related operations as Discontinued
Operations. All prior period results were accordingly restated to conform to this presentation. Refer to Note 3 -
Acquisitions and Divestitures in our Consolidated Financial Statements for additional information regarding
discontinued operations.

Xerox 2013 Annual Report 28

We expect 2014 revenue in the range of flat to growing 2 percent, excluding the impact of currency. In our Services
business, we expect mid-single digit revenue growth driven by 2013 signings growth, global expansion and
additional acquisitions which increase our service capabilities and global footprint. Services margins are expected to
be in the 10 to 11 percent range as we continue to focus on portfolio mix as well as productivity and cost
improvements. In our Document Technology business, we expect a mid-single digit revenue decline. We expect to
partially offset the projected declines in black-and-white printing by capitalizing on the most advantaged segments
of the market including color, high-end graphic communications and SMB markets. Margins in Document
Technology are expected to be in the 9 to 11 percent range, as we maintain our focus on productivity and cost
improvements in light of the expected decline in revenues.

Currency Impact

To understand the trends in our business, we believe that it is helpful to analyze the impact of changes in the
translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as “currency
impact” or “the impact from 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 the local country currency. Revenues and expenses from our developing market countries
(Latin America, Brazil, the Middle East, India, Eurasia and Central-Eastern Europe) are analyzed at actual
exchange rates for all periods presented, since these countries generally have unpredictable currency and
inflationary environments, and our operations in these countries have historically implemented pricing actions to
recover the impact of inflation and devaluation. We do not hedge the translation effect of revenues or expenses
denominated in currencies where the local currency is the functional currency.

Approximately 32% of our consolidated revenues are derived from operations outside of the United States where
the U.S. Dollar is normally not the functional currency. When compared with the average of the major European
currencies and Canadian Dollar on a revenue-weighted basis, the U.S. Dollar was 1% weaker in 2013 and 5%
stronger in 2012, each compared to the prior year. As a result, the foreign currency translation had a 1% positive
impact on revenue in 2013 and a 1% detrimental impact on revenue in 2012.

Application of Critical Accounting Policies

In preparing our Consolidated Financial Statements and accounting for the underlying transactions and balances,
we apply various accounting policies. Senior management has discussed the development and selection of the
critical accounting policies, estimates and related disclosures included herein with the Audit Committee of the Board
of Directors. We consider the policies discussed below as critical to understanding our Consolidated Financial
Statements, as their application places the most significant demands on management's judgment, since financial
reporting results rely on estimates of the effects of matters that are inherently uncertain. In instances where different
estimates could have reasonably been used, we disclosed the impact of these different estimates on our
operations. In certain instances, like revenue recognition for leases, the accounting rules are prescriptive; therefore,
it would not have been possible to reasonably use different estimates. Changes in assumptions and estimates are
reflected in the period in which they occur. The impact of such changes could be material to our results of
operations and financial condition in any quarterly or annual period.

Specific risks associated with these critical accounting policies are discussed throughout the MD&A, where such
policies affect our reported and expected financial results. For a detailed discussion of the application of these and
other accounting policies, refer to Note 1 - Summary of Significant Accounting Policies in the Consolidated Financial
Statements.

Revenue Recognition

Application of the various accounting principles in GAAP related to the measurement and recognition of revenue
requires us to make judgments and estimates. Complex arrangements with nonstandard terms and conditions may
require significant contract interpretation to determine the appropriate accounting. Refer to Note 1 - Summary of
Significant Accounting Policies - Revenue Recognition, in the Consolidated Financial Statements for additional
information regarding our revenue recognition policies. Specifically, the revenue related to the following areas
involves significant judgments and estimates:

• Bundled Lease Arrangements,
• Sales to Distributors and Resellers, and
• Services - Percentage-of-Completion.

Bundled Lease Arrangements - We sell our equipment under bundled lease arrangements, which typically include
the equipment, service, supplies and a financing component for which the customer pays a single negotiated
monthly fixed price for all elements over the contractual lease term. Approximately 37% of our equipment sales
revenue is related to sales made under bundled lease arrangements. Recognizing revenues under these
arrangements requires us to allocate the total consideration received to the lease and non-lease deliverables
included in the bundled arrangement, based upon the estimated fair values of each element.

Sales to Distributors and Resellers - We utilize distributors and resellers to sell many of our Document Technology
products to end-user customers. Sales to distributors and resellers are generally recognized as revenue when
products are sold to such distributors and resellers. Distributors and resellers participate in various rebate, price-
protection, cooperative marketing and other programs, and we record provisions and allowances for these
programs as a reduction to revenue when the sales occur. Similarly, we also record estimates for sales returns and
other discounts and allowances when the sales occur. We consider various factors, including a review of specific
transactions and programs, historical experience and market and economic conditions when calculating these
provisions and allowances. Approximately 10% of our revenues include sales to distributors and resellers and
provisions and allowances recorded on these sales are approximately 19% of the associated gross revenues.

Revenue Recognition for Services - Percentage-of-Completion - A portion of our Services revenue is recognized
using the percentage-of-completion (POC) accounting method. This method requires the use of estimates and
judgment. Approximately 3% of our Services revenue uses the POC accounting method. Although not significant to
total Services revenue, the POC methodology is normally applied to certain of our larger and longer term
outsourcing contracts involving system development and implementation services. In addition, approximately $340
million of our Accounts receivable balance at December 31, 2013 of $2,929 million is related to our POC contracts.

The POC accounting methodology involves recognizing probable and reasonably estimable revenue using the
percentage of services completed based on a current cumulative cost to estimated total cost basis and a
reasonably consistent profit margin over the period. Due to the long-term nature of these arrangements, developing
the estimates of cost often requires significant judgment. Factors that must be considered in estimating the
progress of work completed and ultimate cost of the projects include, but are not limited to, the availability of labor
and labor productivity, the nature and complexity of the work to be performed and the impact of delayed
performance. If changes occur in delivery, productivity or other factors used in developing the estimates of costs or
revenues, we revise our cost and revenue estimates, which may result in increases or decreases in revenues and
costs. Such revisions are reflected in income in the period in which the facts that give rise to that revision become
known. We perform ongoing profitability analysis of our POC services contracts in order to determine whether the
latest estimates require updating. Key factors reviewed by the company to estimate the future costs to complete
each contract are future labor costs, future product costs and expected productivity efficiencies. If at any time these
estimates indicate the POC contract will be unprofitable, the entire estimated loss for the remainder of the contract
is recorded immediately in cost of services.

Allowance for Doubtful Accounts and Credit Losses

We continuously monitor collections and payments from our customers and maintain a provision for estimated
credit losses based upon our historical experience adjusted for current conditions. We recorded bad debt provisions
of $120 million, $119 million and $157 million in SAG expenses in our Consolidated Statements of Income for the
years ended December 31, 2013, 2012 and 2011, respectively.

Xerox 2013 Annual Report 30

Bad debt provisions remained flat in 2013. Reserves, as a percentage of trade and finance receivables, were 3.5%
at December 31, 2013, as compared to 3.3% at December 31, 2012 and 2011. We continue to assess our
receivable portfolio in light of the current economic environment and its impact on our estimation of the adequacy of
the allowance for doubtful accounts. In addition, although our bad debt provisions were relatively flat in Europe, this
region continues to be a focus of our credit review and analysis.

As discussed above, we estimated our provision for doubtful accounts based on historical experience and
customer-specific collection issues. This methodology was consistently applied for all periods presented. During the
five year period ended December 31, 2013, our reserve for doubtful accounts ranged from 3.3% to 4.1% of gross
receivables. Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the
December 31, 2013 rate of 3.5% would change the 2013 provision by approximately $39 million.

Refer to Note 4 - Accounts Receivables, Net and Note 5 - Finance Receivables, Net in the Consolidated Financial
Statements for additional information regarding our allowance for doubtful accounts.

Pension Plan Assumptions

We sponsor defined benefit pension plans in various forms in several countries covering employees who meet
eligibility requirements. Several statistical and other factors that attempt to anticipate future events are used in
calculating the expense, liability and asset values related to our defined benefit pension plans. These factors
include assumptions we make about the expected return on plan assets, discount rate, the rate of future
compensation increases and mortality. Differences between these assumptions and actual experiences are
reported as net actuarial gains and losses and are subject to amortization to net periodic benefit cost over future
periods. Over the past several years, we have amended several of our major defined benefit pension plans to
freeze current benefits and eliminate benefit accruals for future service. The freeze of current benefits is the primary
driver of the reduction in pension service costs during 2013 and expected reductions in future periods. In certain
plans we are required to continue to consider salary increases in determining the benefit obligation related to prior
service.

Cumulative net actuarial losses for our defined benefit pension plans of $2.4 billion as of December 31, 2013
decreased by $855 million from December 31, 2012, reflecting the decrease in our benefit obligations as a result of
a higher discount rate as well as 2013 settlement losses. The total actuarial loss will be amortized over future
periods, subject to offsetting gains or losses that will impact the future amortization amounts.

We used a consolidated weighted average expected rate of return on plan assets of 6.7% for 2013, 6.9% for 2012
and 7.2% for 2011, on a worldwide basis. During 2013, the actual return on plan assets was $465 million as
compared to an expected return of $496 million. When estimating the 2014 expected rate of return, in addition to
assessing recent performance, we considered the historical returns earned on plan assets, the rates of return
expected in the future, particularly in light of current economic conditions, and our investment strategy and asset
mix with respect to the plans' funds. The weighted average expected rate of return on plan assets we will use in
2014 is 6.7%.

Another significant assumption affecting our defined benefit pension obligations and the net periodic benefit cost is
the rate that we use to discount our future anticipated benefit obligations. In the U.S. and the U.K., which comprise
approximately 75% of our projected benefit obligation, we consider the Moody's Aa Corporate Bond Index and the
International Index Company's iBoxx Sterling Corporate AA Cash Bond Index, respectively, in the determination of
the appropriate discount rate assumptions. The consolidated weighted average discount rate we used to measure
our pension obligations as of December 31, 2013 and to calculate our 2014 expense was 4.4%; the rate used to
calculate our obligations as of December 31, 2012 and our 2013 expense was 3.9%. The weighted average
discount rate we used to measure our retiree health obligation as of December 31, 2013 and to calculate our 2014
expense was 4.5%; the rate used to calculate our obligation at December 31, 2012 and our 2013 expense was
3.6%.

Holding all other assumptions constant, a 0.25% increase or decrease in the discount rate would change the 2014
projected net periodic pension cost by $25 million. Likewise, a 0.25% increase or decrease in the expected return
on plan assets would change the 2014 projected net periodic pension cost by $18 million.

One of the most significant and volatile elements of our net periodic defined benefit pension plan expense is
settlement losses. Our primary domestic plans allow participants the option of settling their vested benefits through
the receipt of a lump-sum payment.

We have elected to apply settlement accounting and, therefore, we recognize the losses associated with these
settlements immediately upon the settlement of the vested benefits. Settlement accounting requires us to recognize
a pro rata portion of the aggregate unamortized net actuarial losses upon settlement. As noted above, cumulative
unamortized net actuarial losses were $2.4 billion at December 31, 2013, of which the U.S. primary domestic plans
represented approximately $600 million. The pro rata factor is computed as the percentage reduction in the
projected benefit obligation due to the settlement of a participant's vested benefit. Settlement accounting is only
applied when the event of settlement occurs - i.e. the lump-sum payment is made. Since settlement is dependent
on an employee's decision and election, the level of settlements and the associated losses can fluctuate
significantly period to period. In 2013, settlement losses associated with our primary domestic pension plans
amounted to $162 million and were $48 million, $31 million, $20 million and $63 million for the first through fourth
quarters of 2013, respectively. Currently, on average, approximately $100 million of plan settlements will result in
settlement losses of approximately $25 million. During the three years ended December 31, 2013, U.S. plan
settlements were $838 million, $481 million and $598 million, respectively.

The following is a summary of our benefit plan costs and funding for the three years ended December 31, 2013 as
well as estimated amounts for 2014:

(in millions)
Defined benefit pension plans(1)

U.S. Settlement losses
U.S. Curtailment gain(2)

Defined contribution plans

Retiree health benefit plans

Total Benefit Plan Expense

___________

Estimated

2014

2013

100

—

105

162

—

Actual

2012

2011

218

—

253

364

374

204

(107)

257

(1) Excludes U.S. settlement losses.
(2) Refer to the "Plan Amendment" section in Note 15 - Employee Benefit Plans in the Consolidated Financial Statements for further information.

Our estimated 2014 defined benefit pension plan cost is expected to be approximately $111 million lower than 2013,
primarily driven by the U.K. and Canadian defined benefit plan freeze at December 31, 2013, which eliminated
approximately $55 million of service costs, as well as lower projected U.S. settlement losses of $62 million.
Offsetting the decrease in our defined benefit pension plan expense is an increase in expense associated with our
defined contribution plans as employees from those defined benefit pension plans that have been amended to
freeze future service accruals are transitioned to enhanced defined contribution plans.
Benefit plan costs are included in several income statement components based on the related underlying employee
costs.

(in millions)

Defined benefit pension plans:

Cash

Stock

Total

Defined contribution plans

Retiree health benefit plans

Total Benefit Plan Funding

Estimated

2014

2013

Actual

2012

2011

250

230

—

250

105

—

230

364

130

494

426

403

641

426

130

556

695

Refer to Note 15 - Employee Benefit Plans in the Consolidated Financial Statements for additional information
regarding defined benefit pension plan assumptions, expense and funding.

Xerox 2013 Annual Report 32

Income Taxes

We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities
and amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards.
We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets
recorded in our Consolidated Balance Sheets and provide valuation allowances as required. We regularly review
our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the
expected timing of the reversals of existing temporary differences and tax planning strategies. Adjustments to our
valuation allowance, through charges (credits) to income tax expense, were $2 million, $(9) million and $(5) million
for the years ended December 31, 2013, 2012 and 2011, respectively. There were other decreases to our valuation
allowance, including the effects of currency, of $42 million, $14 million and $53 million for the years ended
December 31, 2013, 2012 and 2011, respectively. These did not affect income tax expense in total as there was a
corresponding adjustment to deferred tax assets or other comprehensive income. Gross deferred tax assets of $3.4
billion and $3.8 billion had valuation allowances of $614 million and $654 million at December 31, 2013 and 2012,
respectively.

We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may incur
additional tax expense based upon our assessment of the more-likely-than-not outcomes of such matters. In
addition, when applicable, we adjust the previously recorded tax expense to reflect examination results. Our
ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require
judgment and can materially increase or decrease our effective tax rate, as well as impact our operating results.
Unrecognized tax benefits were $267 million, $201 million and $225 million at December 31, 2013, 2012 and 2011,
respectively.

Refer to Note 16 - Income and Other Taxes in the Consolidated Financial Statements for additional information
regarding deferred income taxes and unrecognized tax benefits.

Business Combinations and Goodwill

The application of the purchase method of accounting for business combinations requires the use of significant
estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order
to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill.
Our estimates of the fair values of assets and liabilities acquired are based upon assumptions believed to be
reasonable, and when appropriate, include assistance from independent third-party valuation firms. Refer to Note 3
- Acquisitions and Divestitures in the Consolidated Financial Statements for additional information regarding the
allocation of the purchase price consideration for our acquisitions.

As a result of our acquisition of ACS, as well as other acquisitions including GIS, we have a significant amount of
goodwill. Goodwill at December 31, 2013 was $9.2 billion. Goodwill is not amortized but rather is tested for
impairment annually or more frequently if an event or circumstance indicates that an impairment may have been
incurred. Events or circumstances that might indicate an interim evaluation is warranted include, among other
things, unexpected adverse business conditions, macro and reporting unit specific economic factors, supply costs,
unanticipated competitive activities and acts by governments and courts.

Application of the annual goodwill impairment test requires judgment, including the identification of reporting units,
assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and the assessment
- qualitatively or quantitatively - of the fair value of each reporting unit against its carrying value. At December 31,
2013, $6.8 billion and $2.4 billion of goodwill was allocated to reporting units within our Services and Document
Technology segments, respectively. Our Services segment is comprised of four reporting units while our Document
Technology segment is comprised of one reporting unit for a total of five reporting units with goodwill balances.

Our annual impairment test of goodwill was performed in the fourth quarter of 2013. Consistent with 2012, we
elected to utilize a quantitative assessment of the recoverability of our goodwill balances for each of our reporting
units.

In our quantitative test, we estimate the fair value of each reporting unit by weighting the results from the income
approach (discounted cash flow methodology) and market approach. These valuation approaches require
significant judgment and consider a number of factors that include, but are not limited to, expected future cash
flows, growth rates and discount rates, and comparable multiples from publicly traded companies in our industry
and require us to make certain assumptions and estimates regarding the current economic environment, industry
factors and the future profitability of our businesses.

When performing our discounted cash flow analysis for each reporting unit, we incorporate the use of projected
financial information and discount rates that are developed using market participant-based assumptions. The cash-
flow projections are based on three-year financial forecasts developed by management that include revenue and
expense projections, capital spending trends, and investment in working capital to support anticipated revenue
growth or other changes in the business. The selected discount rates consider the risk and nature of the respective
reporting units' cash flows and an appropriate capital structure and rates of return that market participants would
require to invest their capital in our reporting units.

In performing our 2013 impairment test, the following were the 3-year assumptions for Document Technology and
the four reporting units within our Services segment with respect to revenue, operating income and margins, which
formed the basis for estimating future cash flows used in the discounted cash flow model:

• Document Technology - revenue decline: 2%-3% - with higher declines in 2014 and moderating in 2015-2016,
operating income growth: flat-1%, and operating margin: 10%-11% - as we continue to manage costs as a
result of an expected decline in revenues.

• Services - revenue growth: 5%-6%, operating income growth: 9%-12%, and operating margin: 10%-12% - as

we benefit from recurring revenue and prior year signings while improving the mix of services and restructuring
the businesses to achieve operating margin growth.

We believe these assumptions are appropriate because they are consistent with historical results as well as our
forecasted long-term business model and give appropriate consideration to the current economic environment and
markets that we serve. The average discount rate applied to our projected cash flows was approximately 10%,
which we considered reasonable based on the estimated capital costs of applicable market participants. Although
the sum of the fair values of our reporting units was in excess of our market capitalization, we believe the difference
is reasonable when market-based control premiums and other factors are taken into consideration, including the
evolution of our business to be predominantly services-based.

When performing our market approach for each reporting unit, we rely specifically on the guideline public company
method. Our guideline public company method incorporates revenues and earnings multiples from publicly traded
companies with operations and other characteristics similar to each reporting unit. The selected multiples consider
each reporting unit’s relative growth, profitability, size and risk relative to the selected publicly traded companies.

After completing our annual impairment reviews for each reporting unit in the fourth quarter of 2013 and 2012, we
concluded that goodwill was not impaired in either of these years. In 2013, no reporting unit had an excess of fair
value over carrying value of less than 20%. Our impairment assessment methodology includes the use of outside
valuation experts and the inclusion of factors and assumptions related to third-party market participants.
Subsequent to our fourth quarter impairment test, we did not identify any indicators of potential impairment that
required an update to the annual impairment test.

Refer to Note 9 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional
information regarding goodwill by reportable segment.

Xerox 2013 Annual Report 34

Revenue Results Summary

Total Revenue
Revenue for the three years ended December 31, 2013 was as follows:

(in millions)

Equipment sales

Annuity revenue

Total Revenue

Reconciliation to
Consolidated Statements of
Income:

Sales

Less: Supplies, paper and other
sales

Equipment Sales

Outsourcing, maintenance and
rentals

Add: Supplies, paper and other
sales

Add: Financing

Annuity Revenue

Revenues

Change

Percent of Total Revenue

2013

2012

2011

2013

2012

2013

2012

2011

3,359

3,476

3,856

18,076

18,261

18,044

21,435

21,737

21,900

(3)%

(1)%

(10)%

1 %

(1)%

16%

84%

100%

16%

84%

100%

18%

82%

100%

5,659

5,927

6,400

(2,300)

3,359

15,293

2,300

483

(2,451)

3,476

15,213

2,451

597

(2,544)

3,856

(3)%

(10)%

14,868

1 %

2,544

632

(6)%

(19)%

(1)%

2 %

(4)%

(6)%

1 %

18,076

18,261

18,044

16%

71%

11%

84%

16%

70%

11%

84%

18%

68%

11%

82%

Revenue 2013
Total revenues decreased 1% compared to the prior year and included 1-percentage point positive impact from
currency. Total revenues included the following:

• Annuity revenue decreased 1% compared to prior year with no impact from currency. Annuity revenue is

comprised of the following:
Outsourcing, maintenance and rentals revenue includes outsourcing revenue within our Services segment
and technical service revenue (including bundled supplies) and rental revenue, both primarily within our
Document Technology segment. Revenues of $15,293 million increased 1% from the prior year and
included a 1-percentage point positive impact from currency. The increase was primarily driven by growth
in all three outsourcing offerings in our Services segment partially offset by a decline in maintenance
revenue due to moderately lower page volumes and revenue per page. Total digital page volumes declined
2% despite a 3% increase in digital MIF.

Supplies, paper and other sales includes unbundled supplies and other sales, primarily within our

Document Technology segment. Revenues of $2,300 million decreased 6% from the prior year with no
impact from currency. The decrease was primarily driven by a reduction in channel supplies inventories in
the U.S. and developing markets, moderately lower supplies and paper demand, and lower licensing sales.
Financing revenue is generated from financed sale transactions primarily within our Document Technology
segment. Financing revenues decreased 19% from the prior year reflecting a lower balance of finance
receivables as a result of prior period sales of receivables and lower originations due to decreased
equipment sales. Financing revenues in 2013 include gains of $40 million from the sales of finance
receivables as compared to $44 million in 2012. Refer to the discussion on Sales of Finance Receivable in
the Capital Resources and Liquidity section as well as Note 5 - Finance Receivables, Net in the
Consolidated Financial Statements for additional information.

• Equipment sales revenue is reported primarily within our Document Technology segment and the Document
Outsourcing business within our Services segment. Equipment sales revenue decreased 3% from the prior
year, including a 1-percentage point positive impact from currency. Benefits from new product introductions
and a positive mix impact were more than offset by lower sales in developing markets and price declines
ranging from 5% to 10%, which is consistent with prior years.

Revenue 2012 Total revenues decreased 1% compared to the prior year and included a 1-percentage point
negative impact from currency. Total revenues included the following:

• Annuity revenue increased 1% and included a 1-percentage point negative impact from currency. Annuity

revenue is comprised of the following:

Outsourcing, maintenance and rentals revenue include outsourcing revenue within our Services segment
and technical service revenue (including bundled supplies) and rental revenue, both primarily within our
Document Technology segment. Revenues of $15,213 million increased 2% and included a 2-percentage
point negative impact from currency. The increase was primarily driven by growth in all three outsourcing
offerings in our Services segment partially offset by a decline in technical service revenues. Total digital
pages declined 2% despite a 3% increase in digital MIF.
Supplies, paper and other sales include unbundled supplies and other sales, primarily within our Document
Technology segment. Revenues of $2,451 million decreased 4% and included a 1-percentage negative
impact from currency. The decrease was primarily due to moderately lower demand.
Financing revenue is generated from financed sale transactions primarily within our Document Technology
segment. The decrease of 6% from 2011 reflects a lower balance of finance receivables primarily from
lower originations due to decreased equipment sales. The decrease was partially offset by $44 million in
gains from the sale of finance receivables from our Document Technology segment. Refer to the
discussion on Sales of Finance Receivable in the Capital Resources and Liquidity section as well as to
Note 5 - Finance Receivables, Net in the Consolidated Financial Statements for additional information.

• Equipment sales revenue is reported primarily within our Document Technology segment and the document
outsourcing business within our Services segment. Equipment sales revenue decreased 10% and included a
2-percentage point negative impact from currency primarily driven by delayed customer decision-making and
overall weak economic and market conditions. An increase in total product installs was offset by the impact of
lower product mix and price declines. Price declines were in the range of 5% to 10%.

An analysis of the change in revenue for each business segment is included in the “Operations Review of Segment
Revenue and Profit” section.

Costs, Expenses and Other Income

Summary of Key Financial Ratios

Total Gross Margin

RD&E as a % of Revenue

SAG as a % of Revenue
Operating Margin(1)
Pre-tax Income Margin

Operating Margin

Year Ended December 31,

Change

2013

2012

2011

2013

2012

31.0%

2.8%

19.3%

8.9%

6.1%

32.0%

3.0%

19.4%

9.5%

6.1%

33.4%

3.3%

20.2%

10.0%

7.0%

(1.0) pts

(0.2) pts

(0.1) pts

(0.6) pts

— pts

(1.4) pts

(0.3) pts

(0.8) pts

(0.5) pts

(0.9) pts

The operating margin1 for the year ended December 31, 2013 of 8.9% decreased 0.6-percentage points as
compared to 2012. The decline was driven primarily by a decline in gross margin of 1.0-percentage points partially
offset by a moderate improvement in operating expenses as a percent of revenue. The operating margin decline
reflects continued pressure on Services margins from higher healthcare platform expenses and the run-off of the
student loan business, as well as from higher pension settlement costs impacting Document Technology.

The operating margin1 for the year ended December 31, 2012 of 9.5% decreased 0.5-percentage points as
compared to 2011. The decline, which was primarily in our Services segment due to a decrease in gross margin,
was partially offset by expense reductions.
_____________

(1) See the "Non-GAAP Financial Measures" section for an explanation of the Operating Margin non-GAAP financial measure.

Xerox 2013 Annual Report 36

Gross Margins

Total Gross Margin
Total gross margin for year ended December 31, 2013 of 31.0% decreased 1.0-percentage points as compared to
2012. The decrease was driven by margin declines within the Services segment as well as the continued increase
in services revenue as a percent of total revenue.

Gross margin for year ended December 31, 2012 of 32.0% decreased 1.4-percentage points as compared to 2011.
The decrease was driven by the overall mix of services revenue, the ramping of new services contracts and
pressure on government contracts, particularly in the third quarter 2012. These negative impacts were partially
offset by productivity improvements and cost savings from restructuring.

Services Gross Margin
Services gross margin for the year ended December 31, 2013 decreased 0.8-percentage points as compared to
2012. The decrease is primarily due to revenue mix in the segment, the run-off of our student loan business, lower
volumes in some areas of the business and higher healthcare platform costs. These impacts were only partially
offset by productivity improvements and restructuring benefits.

Services gross margin for the year ended December 31, 2012 decreased 1.7-percentage points as compared to
2011. The decrease is primarily due to the ramping of new services contracts within BPO and ITO and pressure on
government contracts, particularly in the third quarter 2012.

Document Technology Gross Margin
Document Technology gross margin for the year ended December 31, 2013 increased by 0.1-percentage points as
compared to 2012. The increase was driven by cost productivities and favorable transaction currency on our Yen
based purchases, which more than offset the impact of price declines and mix.

Document Technology gross margin for the year ended December 31, 2012 increased by 0.1-percentage points as
compared to 2011. Productivity improvements, restructuring savings and gains recognized on the sales of finance
receivables more than offset the impact of price declines, product mix and the unfavorable year-over-year impact of
transaction currency.

Research, Development and Engineering Expenses (RD&E)

(in millions)

R&D

Sustaining engineering

Total RD&E Expenses
R&D Investment by Fuji Xerox(1)

______________

Year Ended December 31,
2012

2011

2013

Change

2013

2012

479

545

611

122

601

724

110

655

860

108

719

880

(66) $

(54) $

(136) $

(66)

(64)

(20)

(1) Fluctuation in Fuji Xerox R&D was primarily due to changes in foreign exchange rates.

RD&E as a percent of revenue for the year ended December 31, 2013 of 2.8% decreased 0.2-percentage points.
The decrease was driven by the higher mix of Services revenue (which historically has a lower RD&E as a
percentage of revenue) lower spending and productivity improvements.

RD&E of $601 million for the year ended December 31, 2013, was $54 million lower reflecting the impact of
restructuring and productivity improvements.

Innovation is one of our core strengths and we continue to invest at levels that enhance this core strength,
particularly in services, color and software. During 2013 we managed our investments in R&D to align with growth
opportunities in areas like business services, color printing and customized communication. Our R&D is also
strategically coordinated with Fuji Xerox.

RD&E as a percent of revenue for the year ended December 31, 2012 of 3.0% decreased 0.3-percentage points. In
addition to lower spending, the decrease was also driven by the positive mix impact of the continued growth in
Services revenue, which historically has a lower RD&E percent of revenue.

RD&E of $655 million for the year ended December 31, 2012, was $64 million lower, reflecting the impact of
restructuring and productivity improvements.

Selling, Administrative and General Expenses (SAG)

SAG as a percent of revenue of 19.3% decreased 0.1-percentage point for the year ended December 31, 2013.

SAG expenses of $4,137 million for the year ended December 31, 2013 were $79 million lower than the prior year
period. The decrease in SAG expense reflects the following:

•

$61 million decrease in selling expenses reflecting the benefits from restructuring and productivity
improvements, as well as lower compensation-related expenses and advertising spending partially offset by the
impact of acquisitions.
$19 million decrease in general and administrative expenses as restructuring savings and productivity
improvements were partially offset by the impact of acquisitions and increased consulting costs.
$1 million increase in bad debt expenses to $120 million.

SAG as a percent of revenue of 19.4% decreased 0.8-percentage points for the year ended December 31, 2012.
The decrease was driven by spending reductions reflecting benefits from restructuring and productivity
improvements in addition to the positive mix impact from the continued growth in Services revenue, which
historically has a lower SAG percent to revenue.

SAG expenses of $4,216 million for the year ended December 31, 2012 was $205 million lower than the prior year
period including a $60 million favorable impact from currency. The SAG expense decrease reflects the following:

•

$236 million decrease in selling expenses reflecting the benefits from restructuring, productivity improvements
and decrease in brand advertising partially offset by the impact of acquisitions.
$69 million increase in general and administrative expenses, as restructuring savings and productivity
improvements were more than offset by the impact of acquisitions and deferred compensation expense.
$38 million decrease in bad debt expense to $119 million, driven primarily by lower write-offs in Europe.

Restructuring and Asset Impairment Charges

During the year ended December 31, 2013, we recorded net restructuring and asset impairment charges of $116
million ($81 million after-tax). Approximately 34% of the charges were related to our Services segment and 66% to
our Document Technology segment and included the following:

•

$142 million of severance costs related to headcount reductions of approximately 4,900 employees globally.
The actions impacted several functional areas, and approximately 65% of the costs were focused on gross
margin improvements, 34% on SAG and 1% on the optimization of RD&E investments.
$2 million for lease termination costs primarily reflecting continued optimization of our worldwide operating
locations.
$1 million of asset impairment losses.

The above charges were partially offset by $29 million of net reversals for changes in estimated reserves from prior
period initiatives.

We expect 2014 pre-tax savings of approximately $150 million from our 2013 restructuring actions.

During the year ended December 31, 2012, we recorded net restructuring and asset impairment charges of $154
million ($98 million after-tax). Approximately 46% of the charges were related to our Services segment and 54% to
our Document Technology segment and included the following:

•

$161 million of severance costs related to headcount reductions of approximately 6,300 employees primarily in
North America. The actions impacted several functional areas, and approximately 63% of the costs were
focused on gross margin improvements, 31% on SAG and 6% on the optimization of RD&E investments.
$5 million for lease termination costs primarily reflecting continued optimization of our worldwide operating
locations.
$2 million of asset impairment losses.

Xerox 2013 Annual Report 38

The above charges were partially offset by $14 million of net reversals for changes in estimated reserves from prior
period initiatives.

Restructuring Summary
The restructuring reserve balance as of December 31, 2013 for all programs was $116 million, of which
approximately $108 million is expected to be spent over the next twelve months. In the first quarter 2014, we expect
to incur additional restructuring charges of approximately $0.01 per diluted share for actions and initiatives that have
not yet been finalized. This charge compares to an $8 million net benefit recorded in the first quarter 2013 due to
net reversals from prior periods initiatives exceeding charges incurred in the quarter.

Refer to Note 10 - Restructuring and Asset Impairment Charges in the Consolidated Financial Statements for
additional information regarding our restructuring programs.

Amortization of Intangible Assets
During the year ended December 31, 2013, we recorded $332 million of expense related to the amortization of
intangible assets, which is $4 million higher than the prior year reflecting the increase in acquisitions in 2012.

During the year ended December 31, 2012, we recorded $328 million of expense related to the amortization of
intangible assets, which was $70 million lower than the prior year. 2011 included the $52 million accelerated
amortization of the ACS trade name, which was fully written off in 2011, as a result of the decision to discontinue its
use and transition the services business to the use of the "Xerox" trade name. The impact from the write-off of the
ACS trade name was partially offset by the amortization of intangible assets associated with current and prior-year
acquisitions.

Refer to Note 9 - Goodwill and Intangible assets, Net in the Consolidated Financial Statements for additional
information regarding our intangible assets.

Curtailment Gain

In December 2011, we amended all of our primary non-union U.S. defined benefit pension plans for salaried
employees to fully freeze benefit and service accruals after December 31, 2012. As a result of these plan
amendments, we recognized a pre-tax curtailment gain of $107 million ($66 million after-tax), which represents the
recognition of deferred gains from other prior year amendments (prior service credits) as a result of the
discontinuation (freeze) of any future benefit or service accrual period. The amendments did not materially impact
2012 pension expense.

Refer to Note 15 - Employee Benefit Plans in the Consolidated Financial Statements for additional information
regarding our plan amendments.

Worldwide Employment

Worldwide employment of 143,100 at December 31, 2013 decreased approximately 4,500 from December 31,
2012, primarily due to restructuring-related actions, normal attrition outpacing hiring and a slower pace of
acquisitions. Worldwide employment was approximately 147,600 and 139,700 at December 2012 and 2011,
respectively.

Other Expenses, Net

(in millions)

Non-financing interest expense

Interest income

(Gains) losses on sales of businesses and assets

Currency (gains) losses, net

Litigation matters

Loss on sales of accounts receivables

Loss on early extinguishment of liability

Deferred compensation investment gains

All other expenses, net

Total Other Expenses, Net

Year Ended December 31,

2013

2012

2011

243

(11)

(64)

(7)

(34)

—

(15)

232

(13)

(1)

—

(10)

150

261

247

(21)

(9)

—

326

Note: With the exception of Deferred compensation investment gains, all items comprising Other Expense, Net are
reported in the Other segment. Deferred compensation investment gains are reported in the Services segment as
an offset to the associated compensation expense - see below.

Non-Financing Interest Expense: Non-financing interest expense for the year ended December 31, 2013 of $243
million was $11 million higher than prior year primarily due to a higher average cost of debt. When non-financing
interest expense is combined with financing interest expense (cost of financing), total company interest expense
declined by $24 million from the prior year, primarily driven by a lower total average debt balance partially offset by
a higher average cost of debt.

Refer to Note 12 - Debt in the Consolidated Financial Statements for additional information regarding our allocation
of interest expense.

Non-financing interest expense for the year ended December 31, 2012 of $232 million was $15 million lower than
the prior year. The decrease in interest expense is primarily due to the benefit of lower borrowing costs achieved as
a result of refinancing existing debt. When non-financing interest expense is combined with financing interest
expense (cost of financing), total company interest expense declined by $48 million from the prior year.

(Gains) Losses on Sales of Businesses and Assets: The 2013 gains on sales of businesses and assets include
the following transactions:

• A $29 million gain on the sale of a portion of our Wilsonville, Oregon product design, engineering and chemistry
group and related assets that were surplus to our needs for $32.5 million in cash to 3D Systems, Inc. (3D
Systems). The sale involved the transfer of approximately 100 engineers and contractors to 3D Systems. The
related assets include laboratory, testing and modeling equipment. The sale also included a grant of a non-
exclusive license to certain patents and non-patented intellectual property to enable 3D Systems to continue
development of certain technologies associated with the transferred employees and related assets.

• A $23 million gain on the sale of a surplus facility in the U.S.
• An $8 million gain on the sale of a surplus facility in Latin America.

Currency (Gains) Losses, Net: Currency (gains) losses primarily result from the re-measurement of foreign
currency-denominated assets and liabilities, the cost of hedging foreign currency-denominated assets and liabilities
and the mark-to-market of foreign exchange contracts utilized to hedge those foreign currency-denominated assets
and liabilities. The 2011 net currency losses were primarily due to the significant movement in exchange rates
during the third quarter of 2011 among the U.S. Dollar, Euro, Yen and several developing market currencies.

Litigation Matters: Litigation matters for 2013 of $(34) million primarily reflects the benefit resulting from a reserve
reduction related to litigation developments.

Litigation matters for 2012 and 2011 primarily represent charges related to probable losses for various legal matters,
none of which were individually material. Refer to Note 17 - Contingencies and Litigation, in the Consolidated
Financial Statements for additional information regarding litigation against the Company.

Loss on Sales of Accounts Receivables: Represents the loss incurred on our sales of accounts receivables.
Refer to "Sales of Accounts Receivables" below and Note 4 - Accounts Receivables, Net in the Consolidated
Financial Statements for additional information regarding our sales of receivables.

Loss on Early Extinguishment of Liability: The 2011 loss of $33 million was related to the redemption by Xerox
Capital Trust I, our wholly-owned subsidiary trust, of its $650 million 8% Preferred Securities due in 2027. The
redemption resulted in a pre-tax loss of $33 million ($20 million after-tax), representing the call premium of
approximately $10 million, as well as the write-off of unamortized debt costs and other liability carrying value
adjustments of $23 million.

Deferred Compensation Investment Gains: Represents gains on investments supporting certain of our deferred
compensation arrangements. These gains or losses are offset by an increase or decrease, respectively, in
compensation expense recorded in SAG in our Services segment as a result of the increase or decrease in the
liability associated with these arrangements.

Income Taxes

The 2013 effective tax rate was 21.0% or 24.5% on an adjusted basis1. The adjusted tax rate for 2013 was lower
than the U.S. statutory tax rate primarily due to foreign tax credits resulting from actual and anticipated dividends

Xerox 2013 Annual Report 40

from our foreign subsidiaries, the geographical mix of income and the retroactive tax benefits from the American
Taxpayer Relief Act of 2012 tax law change of approximately $19 million. These benefits were partially offset by the
discrete impact of $12 million for the U.K. corporate income tax rate reduction and the corresponding adjustment to
our U.K. deferred tax assets.

The 2012 effective tax rate was 20.4% or 23.9% on an adjusted basis1. The adjusted tax rate for 2012 was lower
than the U.S. statutory rate primarily due to foreign tax credits resulting from anticipated dividends and other foreign
transactions as well as the geographical mix of profits. In addition, a net tax benefit from adjustments of certain
unrecognized tax positions and deferred tax valuation allowances was offset by a similar impact on deferred tax
assets from the 2012 reduction in the U.K. corporate income tax rate.

The 2011 effective tax rate was 24.6% or 27.5% on an adjusted basis1. The adjusted tax rate for 2011 was lower
than the U.S. statutory rate primarily due to the geographical mix of profits as well as a higher foreign tax credit
benefit as a result of our decision to repatriate current year income from certain non-U.S. subsidiaries.

Xerox operations are widely dispersed. The statutory tax rate in most non U.S. jurisdictions is lower than the
combined U.S. and state tax rate. The amount of income subject to these lower foreign rates relative to the amount
of U.S. income will impact our effective tax rate. However, no one country outside of the U.S. is a significant factor
to our overall effective tax rate. Certain foreign income is subject to U.S. tax net of any available foreign tax credits.
Our full year effective tax rate for 2013 includes a benefit of 11.9-percentage points from these non-U.S. operations.
Refer to Note 16 - Income and Other Taxes, in the Consolidated Financial Statements for additional information
regarding the geographic mix of income before taxes and the related impacts on our effective tax rate.

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 (e.g. audit
settlements, tax law changes, changes in valuation allowances, etc.) that may not be predictable. Excluding the
effects of intangibles amortization and other discrete items, we anticipate that our adjusted effective tax rate will be
approximately 25% to 27% for 2014.
_____________

(1) See the "Non-GAAP Financial Measures" section for an explanation of the adjusted effective tax rate non-GAAP financial measure.

Equity in Net Income of Unconsolidated Affiliates

(in millions)

Year Ended December 31,

2013

2012

2011

Total equity in net income of unconsolidated affiliates

Fuji Xerox after-tax restructuring costs

169

152

149

Equity in net income of unconsolidated affiliates primarily reflects our 25% share of Fuji Xerox.

Refer to Note 8 - Investment in Affiliates, at Equity, in the Consolidated Financial Statements for additional
information regarding our investment in Fuji Xerox.

Net Income From Continuing Operations

Net income from continuing operations attributable to Xerox for the year ended December 31, 2013 was $1,185
million, or $0.93 per diluted share. On an adjusted basis1, net income attributable to Xerox was $1,390 million, or
$1.09 per diluted share, and included adjustments for the amortization of intangible assets. The increase in earnings
per diluted share reflects a lower average share count as a result of share repurchases over the last two years.

Net income from continuing operations attributable to Xerox for the year ended December 31, 2012 was $1,184
million, or $0.87 per diluted share. On an adjusted basis1, net income attributable to Xerox was $1,387 million, or
$1.02 per diluted share, and included adjustments for the amortization of intangible assets.

Net income from continuing operations attributable to Xerox for the year ended December 31, 2011 was $1,274
million, or $0.88 per diluted share. On an adjusted basis1, net income attributable to Xerox was $1,542 million, or
$1.06 per diluted share, and included adjustments for the amortization of intangible assets and the loss on early
extinguishment of liability.
_____________

(1) See the "Non-GAAP Financial Measures" section for a reconciliation of reported net income from continuing operations to adjusted net

income.

Discontinued Operations

During 2013, in connection with our decision to exit from the Paper distribution business, we completed the sale of
our North American (N.A.) and European Paper businesses. The decision to exit the Paper distribution business
was largely the result of management’s objective to focus more on Services and innovative Document Technology.
As a result of these transactions, we reported these paper-related operations as Discontinued Operations and
reclassified their results from the Other segment to Discontinued Operations. All prior periods have been restated to
conform to this presentation.

Refer to Note 3 - Acquisitions and Divestitures, in the Consolidated Financial Statements for additional information
regarding Discontinued Operations.

Other Comprehensive Income

2013 Other comprehensive income attributable to Xerox of $448 million increased $959 million from 2012. The
increase was primarily the result of gains associated with our defined benefit plans due to an increase in the
discount rates used to measure our benefit obligations (Refer to our discussion of Pension Plan Assumptions in the
Application of Critical Accounting Policies section of the MD&A as well as Note 15 - Employee Benefit Plans in the
Consolidated Financial Statements for additional information). These gains were partially offset by losses from the
translation of our foreign currency-denominated net assets in 2013 as compared to translation gains in 2012. The
translation losses are the result of the weakening of our major foreign currencies against the U.S. Dollar in 2013 as
compared to a strengthening of those same currencies in 2012.

2012 Other comprehensive loss attributable to Xerox of $511 million decreased $217 million from 2011. The
decreased loss was primarily due to gains from the translation of our foreign currency-denominated net assets in
2012 as compared to translation losses in 2011. The translation gains are the result of a strengthening of our major
foreign currencies against the U.S. Dollar in 2012 as compared to a weakening of those same currencies in 2011. A
decrease in losses associated with our defined benefit plans was offset by an increase in unrealized losses from our
cash flow hedges primarily due to a weakening of the Japanese Yen particularly in the fourth quarter 2012 (Refer to
Note 13 - Financial Instruments in the Consolidated Financial Statements for additional information regarding our
cash flow hedges).

Recent Accounting Pronouncements

Refer to Note 1 - Summary of Significant Accounting Policies in the Consolidated Financial Statements for a description
of recent accounting pronouncements including the respective dates of adoption and the effects on results of operations
and financial conditions.

Xerox 2013 Annual Report 42

Operations Review of Segment Revenue and Profit

Our reportable segments are consistent with how we manage the business and view the markets we serve. Our
reportable segments are Services, Document Technology and Other. Revenues by segment for the three years
ended December 31, 2013 were as follows:

(in millions)

2013

Services

Document Technology

Other

Total

2012

Services

Document Technology

Other

Total

2011

Services

Document Technology

Other

Total

Services Segment

Total Revenue

% of Total
Revenue

Segment Profit
(Loss)

Segment
Margin

11,859

8,908

668

21,435

11,528

9,462

747

21,737

10,837

10,259

804

21,900

55% $

42%

100% $

53%

44%

100% $

49% $

47%

100% $

1,157

966

(222)

1,901

1,173

1,065

(256)

1,982

1,207

1,140

(285)

2,062

9.8 %

10.8 %

(33.2)%

8.9 %

10.2 %

11.3 %

(34.3)%

9.1 %

11.1 %

(35.4)%

9.4 %

Our Services segment is comprised of three service offerings: Business Process Outsourcing (BPO), Document
Outsourcing (DO) and Information Technology Outsourcing (ITO).

Services segment revenues for the three years ended December 31, 2013 were as follows:

(in millions)

2013

Revenue

2012

Change

2011

2013

2012

Business processing outsourcing

7,160

7,061

3,337

1,551

(189)

3,210

1,426

(169)

6,470

3,149

1,326

(108)

11,859

11,528

10,837

Document outsourcing

Information technology outsourcing

Less: Intra-segment elimination

Total Services Revenue

____________________________

* Percent not meaningful.

Note: The 2012 and 2011 BPO and DO revenues have been revised to reflect the transfer of our Communication & Marketing Services (CMS)
business from DO to BPO in 2013. The revenue transfered was $450 million in 2012 and $396 million in 2011.

Revenue 2013

Services revenue of $11,859 million increased 3% with no impact from currency.
• BPO revenue increased 1% and represented 59% of total Services revenue. Growth in healthcare, human
resources and state government businesses were partially offset by lower volumes in portions of our
commercial BPO business and the run-off of our government student loan business.

• DO revenue increased 4% and represented 28% of total Services revenue. The increase in DO revenue was

primarily driven by growth in our partner print services offerings as well as higher equipment sales.
ITO revenue increased 9% and represented 13% of total Services revenue. ITO growth was driven by the
continued revenue ramp on prior period signings including several large deals signed in 2011. Throughout
2013, ITO revenue growth decelerated, as expected, and was 2% in the fourth quarter 2013.

•

Segment Margin 2013

Services segment margin of 9.8% decreased 0.4-percentage points from the prior year primarily due to a 0.8-
percentage point decline in gross margin as increased productivity improvements and restructuring benefits were
more than offset by the run-off of the student loan business, higher healthcare platform expenses, the impact of
price declines, which were consistent with prior years, and lower volumes. The gross margin decline was partially
offset by SAG improvements reflecting restructuring benefits as well as lower compensation-related expenses.

Metrics

Pipeline
Our total services sales pipeline at December 31, 2013, grew 9% over the prior year. This sales pipeline includes
the Total Contract Value (TCV) of new business opportunities that potentially could be contracted within the next six
months and excludes business opportunities with estimated annual recurring revenue in excess of $100 million.

Signings
Signings are defined as estimated future revenues from contracts signed during the period, including renewals of
existing contracts. TCV represents the estimated future contract revenue for pipeline or signed contracts for
signings, as applicable.

Signings were as follows:

(in billions)

BPO

ITO

Total Signings

_________

Year Ended December 31,
2012(1)

2013

8.9

3.3

1.0

13.2

6.5

2.9

1.5

10.9

(1) The 2012 BPO and DO signings have been revised to reflect the transfer of our Communication & Marketing Services (CMS) business from

DO to BPO in 2013.

Services signings were an estimated $13.2 billion in TCV for 2013 and increased 21% compared to the prior year.
The increase was driven by new business and higher renewals.

Services signings were an estimated at $10.9 billion in TCV for 2012 and decreased 25% compared to the prior
year. This decline was driven by a decrease in large deals from the prior year as well as delays in customer
decision making. While the total number of BPO/ITO contracts signed in 2012 increased from 2011, the decline in
large deals drove a reduction in the average contract length of new business signings in 2012.

The above DO signings amount represents Enterprise signings only and does not include signings from our partner
print services offerings, which is driving the revenue growth in DO.

Note: TCV is the estimated total contractual revenue related to future contracts in the pipeline or signed contracts,
as applicable.

Renewal rate (BPO and ITO only)
Renewal rate is defined as the annual recurring revenue (ARR) on contracts that are renewed during the period as
a percentage of ARR on all contracts on which a renewal decision was made during the period. Our 2013 renewal
rate of 92% was above our target range of 85%-90% and 7-percentage points higher than 2012. Our 2012 renewal
rate of 85% was 5-percentage points higher than our 2011 renewal rate of 80%.

Revenue 2012

Services revenue of $11,528 million increased 6% with a 1-percentage point negative impact from currency.
• BPO revenue increased 9%, including a 1-percentage point negative impact from currency, and represented
57% of total Services revenue. BPO growth was driven by the government healthcare, healthcare payer,
customer care, financial services, retail, travel and insurance businesses and other state government solutions,
as well as the benefits from recent acquisitions.

Xerox 2013 Annual Report 44

• DO revenue increased 2%, including a 2-percentage point negative impact from currency, and represented 31%
of total Services revenue. The increase in DO revenue was primarily driven by our new partner print services
offerings as well as new signings.
ITO revenue increased 8% and represented 12% of total Services revenue. ITO growth was driven by the
revenue ramp resulting from strong growth in recent quarters and also includes 3-percentage points of growth
related to revenue from intercompany services, which is eliminated in total Services segment revenue.

•

Segment Margin 2012

Services segment margin of 10.2% decreased 0.9-percentage points from the prior year primarily due to a decline
in gross margin, which was driven by the ramping of new services contracts, pressure on government contracts,
the impact of lower contract renewals and lower volumes in some areas of the business. The gross margin decline
was partially offset by the benefits from restructuring and lower SAG, primarily in DO.

Document Technology Segment

Our Document Technology segment includes the sale of products and supplies, as well as the associated
maintenance and financing of those products.

Revenue

(in millions)

Equipment sales

Annuity revenue

Total Revenue

Revenue 2013

Year Ended December 31,

Change

2013

2012

2011

2013

2012

2,727

6,181

8,908

2,879

6,583

9,462

3,277

6,982

10,259

(5)%

(6)%

(12)%

(6)%

(8)%

Document Technology revenue of $8,908 million decreased 6%, with no impact from currency. Total revenues
include the following:
• Equipment sales revenue decreased by 5% with a 1-percentage point positive impact from currency. Equipment
sales benefited from our 2013 mid-range product refresh, growth and acquisitions in the small and mid-size
business market and increased demand for color digital production presses. These benefits were more than
offset by the continued migration of customers to managed print services and our growing partner print services
offerings (included in our Services segment), weakness in developing markets and price declines, which were
in the historical 5% to 10% range.

• Annuity revenue decreased by 6%, with no impact from currency, driven by a modest decline in total pages, the
reduction in channel supplies inventory levels, lower sales in developing markets and a decline in financing
revenue as a result of prior period sales of finance receivables and lower originations. Annuity revenue was
also impacted by the continued migration of customers to our partner print services offerings (included in our
Services segment).

Document Technology revenue mix was 21% entry, 58% mid-range and 21% high-end.

Segment Margin 2013

Document Technology segment margin of 10.8% decreased 0.5-percentage points from prior year. The decline was
primarily driven by an increase in SAG as a percent of revenue due to the overall impact of lower revenue and
higher pension settlement losses which were only partially offset by restructuring savings, productivity
improvements and lower compensation-related expenses.

Total revenue declines in 2014 are expected to remain at the mid-single digit level for the Document Technology
segment as projected declines in black-and-white printing are only partially offset with growth in color and in the
graphic communications and SMB markets. The expected 2014 revenue decline for the Document Technology
segment is consistent with the trend we have experienced for this segment over the past three years as we
continue to transform the Company from a technology-based equipment company to a document outsourcing
services-based entity and customers continue to migrate their business to more services-based offerings. These
services-based offerings are reported within our Services segment. This business is also heavily impacted by price
and page declines. Although annual revenue declines are expected in 2014, we believe there will eventually be a

Entry
•

•

High-End
•

relative flattening of revenues in future years. We expect to manage the impact of any revenue declines through
measures to improve productivity and reduce costs and expenses.

Installs 2013

24% increase in color multifunction devices driven by demand for the recently introduced WorkCentre® 6605,
WorkCentre® 6015 and ColorQube® 8700/8900.
5% increase in color printers driven by demand for the Phaser® 6600 family of products as well as an increase
in sales to OEM partners.
20% decrease in entry black-and-white multifunction devices driven by declines in all geographies.

Mid-Range
•
•

8% increase in installs of mid-range color devices driven by demand for the ConnectKey® enabled products.
3% decrease in installs of mid-range black-and-white devices.

43% increase in installs of high-end color systems driven by growth in the sale of digital front-ends (DFE's) to
Fuji Xerox, as well as strong customer demand for the Color J75 Press and iGen® as we continue to strengthen
our market leadership in the Production Color segment. High-end color installs increased 7%, excluding the
DFE sales to Fuji Xerox.
8% decrease in installs of high-end black-and-white systems, reflecting continued declines in the overall
market.

Install activity percentages include installations for Document Outsourcing and the Xerox-branded product
shipments to GIS. Descriptions of “Entry”, “Mid-Range” and “High-End” are defined in Note 2 - Segment Reporting,
in the Consolidated Financial Statements.

Revenue 2012

Document Technology revenue of $9,462 million decreased 8%, including 2-percentage points negative impact from
currency. Total revenues include the following:
•

12% decrease in equipment sales revenue, with a 1-percentage point negative impact from currency. This
decline, primarily in mid-range and high-end equipment, was driven by delayed customer decision-making
reflecting the continued weak macro-environment. In addition, the impact of lower product mix and price
declines in the range of 5% to 10% more than offset growth in installs. Document Technology revenue excludes
increasing revenues in our DO offerings.
6% decrease in annuity revenue, including a 2-percentage point negative impact from currency driven by lower
supplies and a decline in total digital pages of 2% as well as the continued migration of customers to our
partner print services offerings, which is included in our Services segment.

•

• Document Technology revenue mix was 22% entry, 57% mid-range and 21% high-end.

Segment Margin 2012

Document Technology segment margin of 11.3% increased 0.2-percentage points from prior year. Productivity
improvements, restructuring savings and gains recognized on the sale of finance receivables (see Note 5 - Finance
Receivables, Net in the consolidated Financial Statements for additional information) more than offset the impact of
price declines and overall lower revenues.

Installs 2012

Entry
•

39% increase in color multifunction devices driven by demand for the WorkCentre® 6015, WorkCentre® 6605
and ColorQube® 8700/8900.
23% increase in entry black-and-white multifunction devices driven by demand for the WorkCentre® 3045.
7% decrease in color printers driven by a decrease in sales to OEM partners.

•
•

Xerox 2013 Annual Report 46

Mid-Range
•

High-End
•

•

2% decrease in installs of mid-range color devices driven by a difficult compare in the U.S. from the fourth
quarter 2012 was partially offset by demand for products such as the WorkCentre® 7535/7125/7530 and the
WorkCentre® 7556, which enabled continued market share gains in the fastest growing and most profitable
segment of the office color market.
10% decrease in installs of mid-range black-and-white devices.

34% increase in installs of high-end color systems driven by strong demand for the Xerox® Color 770. This
product has enabled large market share gains in the Entry Production Color market segment.
26% decrease in installs of high-end black-and-white systems, reflecting continued declines in the overall
market.

Other Segment

Revenue 2013

Other segment revenue of $668 million decreased 11%, with no impact from currency, due to lower wide format
systems revenue, lower sales of electronic presentation systems, lower developing market paper sales and lower
licensing revenue. Total paper revenue (all within developing markets) comprised approximately one-third of the
Other segment revenue.

Segment Loss 2013

Other segment loss of $222 million, improved $34 million from the prior year, primarily driven by gains on the sale of
businesses and assets, partially offset by lower revenues. Non-financing interest expense as well as all Other
expenses, net (excluding deferred compensation investment gains) are reported within the Other segment.

Revenue 2012

Other segment revenue of $747 million decreased 7%, including a 1-percentage point negative impact from
currency, due to a decline in paper sales, which was driven by lower market pricing and activity, as well as a decline
in revenues from wide format systems and lower patent sales and licensing revenue.

Segment Loss 2012

Other segment loss of $256 million, improved $29 million from the prior year, primarily driven by a decrease in
Other expenses, net partially offset by lower gross profit as a result of the decline in revenues.

Discontinued Operations

In 2013, in connection with our decision to exit from the paper distribution business, we sold our North American
and Western European Paper businesses.

As a result of these transactions, we reported these paper-related operations as Discontinued Operations and
reclassified their results from the Other segment to Discontinued Operations. All prior periods have accordingly
been restated to conform to this presentation.

Below is a summary of the restated amounts for our 2012 and 2011 Other segment and Total segment results as a
result of the reclassification of the North American and Western European Paper businesses to Discontinued
Operations.

(in millions)

2012

Other segment - restated

Other segment - as reported

Total segments - restated

Total segments - as reported

2011

Other segment - restated

Other segment - as reported

Total segments - restated

Total segments - as reported

Total Revenue

Segment Profit
(Loss)

Segment
Margin

747

1,400

21,737

22,390

804

1,530

21,900

22,626

(256)

(241)

1,982

1,997

(285)

(255)

2,062

2,092

(34.3)%

(17.2)%

9.1 %

8.9 %

(35.4)%

(16.7)%

9.4 %

9.2 %

Capital Resources and Liquidity

Our liquidity is primarily dependent on our ability to continue to generate strong cash flows from operations.
Additional liquidity is also provided through access to the financial capital markets, including the Commercial Paper
market, as well as a committed global credit facility. The following is a summary of our liquidity position:

• As of December 31, 2013 and 2012, total cash and cash equivalents were $1,764 million and $1,246 million,
respectively, and there were no outstanding borrowings under our Commercial Paper Program in either year.
There were also no borrowings or letters of credit under our $2 billion Credit Facility at either year end. The
increase in our cash balance in 2013 is primarily due to a lower level of acquisitions, proceeds from the sales of
businesses and assets and a Senior Note borrowing in December 2013. See "Capital Markets Activity" section
below.

• Over the past three years we have consistently delivered strong cash flows from operations driven by the

strength of our annuity-based revenue model. Cash flows from operations were $2,375 million, $2,580 million
and $1,961 million in each of the years in the three year period ended December 31, 2013, respectively.

• We expect cash flows from operations to be between $1.8 and $2.0 billion for 2014, which include the adverse
impact of prior period sales of finance receivables of approximately $400 million. No additional sales of finance
receivables are planned for 2014. Cash flows from operations are expected to benefit from profit improvement
in our Services Segment as well as improvements in working capital (accounts receivables, inventory and
accounts payable). Consistent with our normal cash flows seasonality, we expect the first quarter 2014 cash
flows from operations to be the lowest of the year with sources roughly offsetting uses.

Cash Flow Analysis

The following summarizes our cash flows for the three years ended December 31, 2013, as reported in our
Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:

(in millions)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Year Ended December 31,

Change

2013

2012

2011

2013

2012

2,375

2,580

1,961

(205) $

(452)

(1,402)

(3)

518

1,246

(761)

(1,472)

(3)

344

902

(675)

(1,586)

(9)

(309)

1,211

309

—

174

344

518

619

(86)

114

653

(309)

344

Cash and Cash Equivalents at End of Year

1,764

1,246

902

Xerox 2013 Annual Report 48

Cash Flows from Operating Activities
Net cash provided by operating activities was $2,375 million for the year ended December 31, 2013. The $205
million decrease in operating cash from 2012 was primarily due to the following:
•
•

$105 million decrease in pre-tax income before net gain on sales of businesses and assets and restructuring.
$307 million decrease due to lower net run-off of finance receivables of $280 million and higher equipment on
operating leases of $27 million. The lower net run-off of finance receivables was primarily related to the impact
from the receivables sales (see Note 5 - Finance Receivables, Net in the Consolidated Financial Statements for
additional information).
$149 million decrease due to lower accounts payable and accrued compensation primarily related to the timing
of accounts payable payments.
$38 million decrease due to higher growth in inventory reflecting the launch of new products.
$22 million decrease due to the timing of settlements of our foreign currency derivative contracts. These
derivatives primarily relate to hedges of Yen inventory purchases.
$17 million decrease due to higher net income tax payments.
$212 million increase from accounts receivable primarily due to lower revenues partially offset by a reduction in
the use of accelerated collection programs such as early pay discounts.
$134 million increase due to lower contributions to our defined benefit pension plans. This was in line with
expectations.
$106 million increase from lower spending for product software and up-front costs for outsourcing service
contracts.

•

•
•

•

Net cash provided by operating activities was $2,580 million for the year ended December 31, 2012. The $619
million increase in cash from 2011 was primarily due to the following:
•

$879 million increase from finance receivables primarily due to sales of receivables as well as higher net run-off
of finance receivables as a result of lower equipment sales (see Note 5 - Finance Receivables, Net in the
Consolidated Financial Statements for additional information).
$124 million increase due to lower inventory growth.
$74 million increase due to lower restructuring payments.
$62 million increase due to lower contributions to our defined benefit pension plans primarily in the U.S. as a
result of pension funding legislation enacted in 2012.
$41 million increase as a result of less up-front costs and other customer related spending associated primarily
with new services contracts.
$390 million decrease due to a lower benefit from accounts receivable sales as well as growth in services
revenue.
$45 million decrease from higher net income tax payments primarily due to refunds in the prior year.

•
•
•

•

In 2012 and 2011, we elected to make contributions of 15.4 million and 16.6 million, respectively, of shares of our
common stock, with an aggregate value of approximately $130 million in each year, to our U.S. defined benefit
pension plan for salaried employees in order to meet our planned level of funding for those years.

Cash Flows from Investing Activities
Net cash used in investing activities was $452 million for the year ended December 31, 2013. The $309 million
decrease in the use of cash from 2012 was primarily due to the following:
•

$121 million decrease in acquisitions. 2013 acquisitions include Zeno Office Solutions, Inc. for $59 million,
Impika for $53 million and four smaller acquisitions totaling $43 million. 2012 acquisitions include Wireless Data
for $95 million, RK Dixon for $58 million as well as seven smaller acquisitions totaling $123 million.
$86 million decrease due to lower capital expenditures (including internal use software).
$77 million decrease primarily due to $38 million of proceeds from the sale of a U.S. facility and $33 million of
proceeds from the sale of assets to 3D Systems.
$26 million decrease due to proceeds from the sale of the North American and European Paper businesses.

•
•

•

Net cash used in investing activities was $761 million for the year ended December 31, 2012. The $86 million
increase in the use of cash from 2011 was primarily due to the following:
•

$64 million increase in acquisitions. 2012 acquisitions include Wireless Data for $95 million, RK Dixon for $58
million as well as seven smaller acquisitions totaling $123 million. 2011 acquisitions include Unamic/HCN B.V.
for $55 million, ESM for $43 million, Concept Group for $41 million, MBM for $42 million, Breakaway for $18
million and ten smaller acquisitions for an aggregate of $46 million as well as a net cash receipt of $35 million
for Symcor.
$19 million increase due to lower cash proceeds from asset sales.

•

Cash Flows from Financing Activities
Net cash used in financing activities was $1,402 million for the year ended December 31, 2013. The $70 million
decrease in the use of cash from 2012 was primarily due to the following:
•
•
•

$356 million decrease from lower share repurchases.
$80 million decrease due to higher proceeds from the issuances of common stock.
$326 million increase from net debt activity. 2013 reflects payments of $1 billion on Senior Notes offset by net
proceeds of $500 million from the issuance of Senior Notes and $39 million from the sale and capital leaseback
of a building in the U.S. 2012 reflects net proceeds of $1.1 billion from the issuance of Senior Notes offset by
net payments on Senior Notes of $1.1 billion and a decrease of $100 million in Commercial Paper.
$41 million increase due to higher common stock dividends.

•
Net cash used in financing activities was $1,472 million for the year ended December 31, 2012. The $114 million
decrease in the use of cash from 2011 was primarily due to the following:
•

$670 million decrease reflecting the absence of payment of our liability to Xerox Capital Trust I in connection
with their redemption of preferred securities.
$351 million increase from higher share repurchases in 2012.
$157 million increase from net debt activity. 2012 reflects net proceeds of $1.1 billion from the issuance of
Senior Notes offset by net payments on Senior Notes of $1.1 billion and a decrease of $100 million in
Commercial Paper. 2011 includes proceeds of $1.0 billion from the issuance of Senior Notes offset by the
repayment of $750 million on Senior Notes and a decrease of $200 million in Commercial Paper.
$47 million increase due to higher distributions to noncontrolling interests.

•
•

•

Customer Financing Activities

We provide lease equipment financing to our customers, primarily in our Document Technology segment. Our lease
contracts permit customers to pay for equipment over time rather than at the date of installation. Our investment in
these contracts is reflected in Total finance assets, net. We primarily fund our customer financing activity through
cash generated from operations, cash on hand, commercial paper borrowings, sales and securitizations of finance
receivables and proceeds from capital markets offerings.

We have arrangements in certain international countries and domestically with our small and mid-sized customers,
where third-party financial institutions independently provide lease financing, on a non-recourse basis to Xerox,
directly to our customers. In these arrangements, we sell and transfer title of the equipment to these financial
institutions. Generally, we have no continuing ownership rights in the equipment subsequent to its sale; therefore,
the unrelated third-party finance receivable and debt are not included in our Consolidated Financial Statements.

The following represents our Total finance assets, net associated with our lease and finance operations:

(in millions)
Total Finance receivables, net(1)
Equipment on operating leases, net

Total Finance Assets, Net

______________

December 31,

2013

2012

4,530

559

5,089

5,313

535

5,848

(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 Consolidated Balance Sheets.

The decrease of $759 million in Total finance assets, net primarily reflects the sale of finance receivables (discussed
further below) and the decrease in equipment sales over the past several years as well as equipment sales growth in
regions or operations where we don't offer direct leasing. These impacts were partially offset by an increase of $35
million due to currency.

We maintain a certain level of debt, referred to as financing debt, to support our investment in these lease contracts
or Total finance assets, net. We maintain this financing debt at an assumed 7:1 leverage ratio of debt to equity as
compared to our Total finance assets, net for this financing aspect of our business. Based on this leverage, the
following represents the allocation of our total debt at December 31, 2013 and 2012 between financing debt and
core debt:

Xerox 2013 Annual Report 50

(in millions)
Financing debt(1)
Core debt

Total Debt

________________

December 31,

2013

2012

4,453

3,568

8,021

5,117

3,372

8,489

(1) Financing debt includes $3,964 million and $4,649 million as of December 31, 2013 and December 31, 2012, respectively, of debt

associated with Total finance receivables, net and is the basis for our calculation of “Equipment financing interest” expense. The remainder
of the financing debt is associated with Equipment on operating leases.

In 2014, we expect to continue the leveraging of our finance assets at an assumed 7:1 ratio of debt to equity. The
following summarizes our total debt at December 31, 2013 and 2012:

(in millions)
Principal debt balance(1)
Net unamortized discount
Fair value adjustments(2)

Total Debt

________________

December 31,

2013

2012

7,979

(58)

100

8,021

8,410

(63)

142

8,489

(1) Balance at December 31, 2013 includes $5 million of Notes Payable.
(2) Fair value adjustments - during the period from 2004 to 2011, we early terminated several interest rate swaps that were designated as fair
value hedges of certain debt instruments. The associated net fair value adjustments to debt are being amortized to interest expense over
the remaining term of the related notes.

Sales of Accounts Receivable
Accounts receivable sales arrangements are utilized in the normal course of business as part of our cash and
liquidity management. We have financial facilities in the U.S., Canada and several countries in Europe that enable
us to sell certain accounts receivables without recourse to third-parties. The accounts receivables sold are generally
short-term trade receivables with payment due dates of less than 60 days.

Accounts receivable sales were as follows:

(in millions)

Accounts receivable sales

Deferred proceeds

Loss on sale of accounts receivable
Estimated (decrease) increase to operating cash flows(1)

_______________

Year Ended December 31,

2013

2012

2011

3,401

3,699

486

(55)

639

(78)

3,218

386

133

(1) Represents the difference between current and prior year fourth quarter receivable sales adjusted for the effects of: (i) the deferred

proceeds, (ii) collections prior to the end of the year, and (iii) currency.

Refer to Note 4 - Accounts Receivable, Net in the Consolidated Financial Statements for additional information.

Sales of Finance Receivables

2013 Transactions

In September 2013, we transferred our entire interest in a group of U.S. lease finance receivables to a third-party
financial institution. The transfer was accounted for as a sale and resulted in the derecognition of lease receivables
with a net carrying value of $419 million, the receipt of cash proceeds of $387 million and a beneficial interest of
$60. A pre-tax gain of $25 million was recognized on this transaction and is net of fees and expenses of
approximately $3 million.

In December 2013, our Canadian subsidiary transferred its entire interest in a group of lease finance receivables to
a third-party trust. The transfer was accounted for as a sale and resulted in the derecognition of lease receivables
with a net carrying value of $257 million, the receipt of cash proceeds of $248 million and a beneficial interest of
$26 million. A pre-tax gain of $15 million was recognized on this transaction and is net of additional fees and
expenses of approximately $1 million.

2012 Transactions
In 2012, we completed similar sale transactions on two separate portfolios of U.S. lease finance receivables with a
combined net carrying value of $682 million to a third-party financial institution for cash proceeds of $630 million
and beneficial interests of $101 million. A pre-tax gain of $44 million was recognized on these transactions and is
net of additional fees and expenses of approximately $5 million.

The gains on these transactions are reported in Finance income in Document Technology segment revenues, as
the sold receivables are from this segment. We will continue to service the sold receivables and expect to a record
servicing fee income over the expected life of the associated receivables. These transactions enable us to lower the
cost associated with our financing portfolio.

Refer to Note 5 - Finance Receivables, Net in the Consolidated Financial Statements for additional information.

The net impact on operating cash flows from the sales of finance receivables is summarized below:

(in millions)
Net cash received for sales of finance receivables(1)
Impact from prior sales of finance receivables(2)

Collections on beneficial interest

Estimated Increase to Operating Cash Flows

______________

Year Ended December 31,

2013

2012

2011

631

(392)

297

625

(45)

—

580

—

(1) Net of beneficial interest, fees and expenses
(2) Represents cash that would have been collected if we had not sold finance receivables.

Capital Market Activity

Senior Notes
In December 2013, we issued $500 million of 2.75% Senior Notes due 2019 (the “2019 Senior Notes”). The 2019
Senior Notes accrue interest at a rate of 2.75% per annum and are payable semi-annually. The 2019 Senior Notes
were issued at 99.915% of par, resulting in aggregate net proceeds essentially at par. In connection with the
issuance of these Senior Notes, debt issuance costs of $4 million were deferred.

The December 2013 Senior Note issuance was approximately $200 million higher than originally planned and we
expect to use that excess to partially fund the $1.1 billion in Senior Notes maturing in May 2014. The remainder of
the proceeds from this offering were used for general corporate purposes.

Refer to Note 12- Debt in the Consolidated Financial Statements for additional information regarding our debt.

Financial Instruments
Refer to Note 13 - Financial Instruments in the Consolidated Financial Statements for additional information
regarding our derivative financial instruments.

Share Repurchase Programs - Treasury Stock
During 2013, we repurchased 65.2 million shares of our common stock for an aggregate cost of $696 million,
including fees. In November 2013, the Board of Directors authorized an additional $500 million in share
repurchases bringing the total cumulative authorization to $6.5 billion.

Through February 18, 2014, we repurchased an additional 15.8 million shares at an aggregate cost of $175.1
million, including fees, for total program repurchases of 509.3 million shares at a cost of $5.6 billion, including fees.

Xerox 2013 Annual Report 52

We expect total share repurchases of at least $500 million in 2014.

Refer to Note 19 - Shareholders’ Equity – Treasury Stock in the Consolidated Financial Statements for additional
information regarding our share repurchase programs.

Dividends
The Board of Directors declared aggregate dividends of $287 million, $226 million and $241 million on common
stock in 2013, 2012 and 2011, respectively. The increase in 2013 as compared to prior years is primarily due to the
increase in the quarterly dividend to 5.75 cents per share in 2013 partially offset by a lower level of outstanding
shares as a result of the repurchase of shares under our share repurchase programs.
The Board of Directors declared aggregate dividends of $24 million on the Series A Convertible Preferred Stock in
each of the years in the three year period ended December 31, 2013. The preferred shares were issued in 2010 in
connection with the acquisition of ACS.

In January 2014, the Board of Directors approved an increase in the Company's quarterly cash dividend from 5.75
cents per share to 6.25 cents per share, beginning with the dividend payable April 30, 2014.

Liquidity and Financial Flexibility
We manage our worldwide liquidity using internal cash management practices, which are subject to (1) the statutes,
regulations and practices of each of the local jurisdictions in which we operate, (2) the legal requirements of the
agreements to which we are a party and (3) the policies and cooperation of the financial institutions we utilize to
maintain and provide cash management services.

Our principal debt maturities are in line with historical and projected cash flows and are spread over the next ten
years as follows (in millions):

Year
2014(1)

2015

2016

2017

2018

2019

2020

2021

2022

2023 and thereafter

Total

______________

(1)

Includes $5 million of Notes Payable.

Amount

1,112

1,283

975

1,018

1,011

1,156

1,067

—

350

7,979

Foreign Cash
At December 31, 2013, we had $1.8 billion of cash and cash equivalents on a consolidated basis. Of that amount,
approximately $600 million was held outside the U.S. by our foreign subsidiaries to fund future working capital,
investment and financing needs of our foreign subsidiaries. Accordingly, we have asserted that such funds are
indefinitely reinvested outside the U.S.

We believe we have sufficient levels of cash and cash flows to support our domestic requirements. However, if the
cash held by our foreign subsidiaries was needed to fund our U.S. requirements, there would not be a significant
tax liability associated with the repatriation, as any U.S. liability would be reduced by the foreign tax credits
associated with the repatriated earnings.

However, our determination above is based on the assumption that only the cash held outside the U.S. would be
repatriated as a result of an unanticipated or unique domestic need. It does not assume repatriation of the entire
amount of indefinitely reinvested earnings of our foreign subsidiaries. As disclosed in Note 16- Income and Other
Taxes in our Consolidated Financial Statements, we have not estimated the potential tax consequences associated
with the repatriation of the entire amount of our foreign earnings indefinitely reinvested outside the U.S. We do not

believe it is practical to calculate the potential tax impact, as there is a significant amount of uncertainty with respect
to determining the amount of foreign tax credits as well as any additional local withholding tax and other indirect tax
consequences that may arise from the distribution of these earnings. In addition, because such earnings have been
indefinitely reinvested in our foreign operations, repatriation would require liquidation of those investments or a
recapitalization of our foreign subsidiaries, the impacts and effects of which are not readily determinable.

Loan Covenants and Compliance
At December 31, 2013, we were in full compliance with the covenants and other provisions of our Credit Facility and
Senior Notes. We have the right to terminate the Credit Facility without penalty. Failure to comply with material
provisions or covenants of the Credit Facility and Senior Notes could have a material adverse effect on our liquidity
and operations and our ability to continue to fund our customers' purchase of Xerox equipment.

Refer to Note 12 - Debt in the Consolidated Financial Statements for additional information regarding debt
arrangements.

Contractual Cash Obligations and Other Commercial Commitments and Contingencies
At December 31, 2013, we had the following contractual cash obligations and other commercial commitments and
contingencies:

(in millions)
Total debt, including capital lease obligations(1)
Interest on debt(1)
Minimum operating lease commitments(2)

Defined benefit pension plans

Retiree health payments

Estimated Purchase Commitments:

Fuji Xerox(3)
Flextronics(4)
Other(5)

Total

_______________

2014

2015

2016

2017

2018

Thereafter

1,112

1,283

376

579

250

1,903

499

169

307

467

—

113

975

248

304

—

151

1,018

1,011

2,580

191

122

—

146

—

647

—

317

—

117

4,959

2,243

1,749

1,471

1,362

3,753

(1) Total debt for 2014 includes $5 million of Notes Payable. Refer to Note 12 - Debt in the Consolidated Financial Statements for additional

information regarding debt. and interest on debt.

(2) Refer to Note 7 - Land, Buildings, Equipment and Software, Net in the Consolidated Financial Statements for additional information related

to minimum operating lease commitments.

(3) Fuji Xerox: The amount included in the table reflects our estimate of purchases over the next year and is not a contractual commitment.
(4) Flextronics: We outsource certain manufacturing activities to Flextronics. The amount included in the table reflects our estimate of

purchases over the next year and is not a contractual commitment. In the past two years, actual purchases from Flextronics averaged
approximately $550 million per year.

(5) Other purchase commitments: We enter into other purchase commitments with vendors in the ordinary course of business. Our policy with
respect to all purchase commitments is to record losses, if any, when they are probable and reasonably estimable. We currently do not
have, nor do we anticipate, material loss contracts.

Pension and Other Post-retirement Benefit Plans
We sponsor defined benefit pension plans and retiree health plans that require periodic cash contributions. Our
2013 cash contributions for these plans were $230 million for our defined benefit pension plans and $77 million for
our retiree health plans. In 2014, based on current actuarial calculations, we expect to make contributions of
approximately $250 million to our worldwide defined benefit pension plans and approximately $71 million to our
retiree health benefit plans.

Contributions to our defined benefit pension plans in subsequent years will depend on a number of factors,
including the investment performance of plan assets and discount rates as well as potential legislative and plan
changes. At December 31, 2013, the un/under funded balance of our U.S. and Non-U.S. defined benefit pension
plans was $1,017 million and $875 million, respectively.

Our retiree health benefit plans are non-funded and are almost entirely related to domestic operations. Cash
contributions are made each year to cover medical claims costs incurred during the year. The amounts reported in
the above table as retiree health payments represent our estimate of future benefit payments.

Xerox 2013 Annual Report 54

Refer to Note 15 - Employee Benefit Plans in the Consolidated Financial Statements for additional information
regarding contributions to our defined benefit pension and post-retirement plans.

Fuji Xerox
We purchased products, including parts and supplies, from Fuji Xerox totaling $1.9 billion, $2.1 billion and $2.2
billion in 2013, 2012 and 2011, respectively. Our purchase commitments with Fuji Xerox are entered into in the
normal course of business and typically have a lead time of three months. Related party transactions with Fuji
Xerox are discussed in Note 8 - Investments in Affiliates, at Equity in the Consolidated Financial Statements.

Brazil Tax and Labor Contingencies
Our Brazilian operations are involved in various litigation matters and have received or been the subject of
numerous governmental assessments related to indirect and other taxes, as well as disputes associated with former
employees and contract labor. The tax matters, which comprise a significant portion of the total contingencies,
principally relate to claims for taxes on the internal transfer of inventory, municipal service taxes on rentals and
gross revenue taxes. We are disputing these tax matters and intend to vigorously defend our positions. Based on
the opinion of legal counsel and current reserves for those matters deemed probable of loss, we do not believe that
the ultimate resolution of these matters will materially impact our results of operations, financial position or cash
flows. The labor matters principally relate to claims made by former employees and contract labor for the equivalent
payment of all social security and other related labor benefits, as well as consequential tax claims, as if they were
regular employees. As of December 31, 2013, the total amounts related to the unreserved portion of the tax and
labor contingencies, inclusive of related interest, amounted to approximately $933 million, with the decrease from
December 31, 2012 balance of approximately $1,010 million, primarily related to currency and closed cases partially
offset by interest. With respect to the unreserved balance of $933 million, the majority has been assessed by
management as being remote as to the likelihood of ultimately resulting in a loss to the Company. In connection
with the above proceedings, customary local regulations may require us to make escrow cash deposits or post
other security of up to half of the total amount in dispute. As of December 31, 2013, we had $167 million of escrow
cash deposits for matters we are disputing, and there are liens on certain Brazilian assets with a net book value of
$8 million and additional letters of credit of approximately $236 million, which include associated indexation.
Generally, any escrowed amounts would be refundable and any liens would be removed to the extent the matters
are resolved in our favor. We routinely assess all these matters as to probability of ultimately incurring a liability
against our Brazilian operations and record our best estimate of the ultimate loss in situations where we assess the
likelihood of an ultimate loss as probable.

Other Contingencies and Commitments
As more fully discussed in Note 17 - Contingencies and Litigation in the Consolidated Financial Statements, we are
involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; governmental
entity contracting, servicing and procurement law; intellectual property law; environmental law; employment law; the
Employee Retirement Income Security Act (ERISA); and other laws and regulations. In addition, guarantees,
indemnifications and claims may arise during the ordinary course of business from relationships with suppliers,
customers and non-consolidated affiliates. Nonperformance under a contract including a guarantee, indemnification
or claim could trigger an obligation of the Company.

We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is
deemed probable and can be reasonably estimated. Should developments in any of these areas cause a change in
our determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should
any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a
material adverse effect on our results of operations, cash flows and financial position in the period or periods in
which such change in determination, judgment or settlement occurs.

Unrecognized Tax Benefits
As of December 31, 2013, we had $267 million of unrecognized tax benefits. This represents the tax benefits
associated with various tax positions taken, or expected to be taken, on domestic and foreign tax returns that have
not been recognized in our financial statements due to uncertainty regarding their resolution. The resolution or
settlement of these tax positions with the taxing authorities is at various stages and therefore we are unable to
make a reliable estimate of the eventual cash flows by period that may be required to settle these matters. In
addition, certain of these matters may not require cash settlement due to the existence of credit and net operating
loss carryforwards, as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be
available.

Refer to Note 16 - Income and Other Taxes in the Consolidated Financial Statements for additional information
regarding unrecognized tax benefits.

Off-Balance Sheet Arrangements

We may occasionally utilize off-balance sheet arrangements in our operations (as defined by the SEC Financial
Reporting Release 67 (FRR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet
Arrangements and Aggregate Contractual Obligations”). We enter into the following arrangements that have off-
balance sheet elements:

• Operating leases in the normal course of business. The nature of these lease arrangements is discussed in

Note 7 - Land, Buildings, Equipment and Software, Net in the Consolidated Financial Statements.

• We have facilities, primarily in the U.S., Canada and several countries in Europe that enable us to sell to third-

parties certain accounts receivable without recourse. In most instances, a portion of the sales proceeds are held
back by the purchaser and payment is deferred until collection of the related sold receivables. Refer to Note 4 -
Accounts Receivables, Net in the Consolidated Financial Statements for further information regarding these
facilities.

• During 2013 and 2012, we entered into arrangements to transfer and sell our entire interest in certain groups of
finance receivables where we received cash and beneficial interests from the third-party purchaser. Refer to
Note 5 - Finance Receivables, Net in the Consolidated Financial Statements for further information regarding
these sales.

At December 31, 2013, we do not believe we have any off-balance sheet arrangements that have, or are
reasonably likely to have, a material current or future effect on financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

In addition, see the table above for the Company's contractual cash obligations and other commercial commitments
and Note 17 - Contingencies and Litigation in the Consolidated Financial Statements for additional information
regarding contingencies, guarantees, indemnifications and warranty liabilities.

Non-GAAP Financial Measures

We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In
addition, we have discussed our results using non-GAAP measures.

Management believes that these non-GAAP financial measures provide an additional means of analyzing the
current periods’ results against the corresponding prior periods’ 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.

Adjusted Earnings Measures
To better understand the trends in our business, we believe it is necessary to adjust the following amounts
determined in accordance with GAAP to exclude the effects of the certain items as well as their related income tax
effects. For our 2013 reporting year, adjustments were limited to the amortization of intangible assets.

• Net income and Earnings per share (EPS), and
• Effective tax rate.

Xerox 2013 Annual Report 56

The above have been adjusted for the following items:

• Amortization of intangible assets (all periods): 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. Accordingly, due to the incomparability of acquisition activity among
companies and from period to period, we believe exclusion of the amortization associated with intangible assets
acquired through our acquisitions allows investors to better compare and understand our results. 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.

• Other discrete, unusual or infrequent costs and expenses: In addition, we occasionally may also exclude
additional items given the discrete, unusual or infrequent nature of the item on our results of operations for the
period. In 2011, we excluded the Loss on early extinguishment of liability. We believe the exclusion of this item
allows investors to better understand and analyze the results for the period as compared to prior periods as well
as expected trends in our business.

We also calculate and utilize an Operating income and margin earnings measure by adjusting our pre-tax income
and margin amounts to exclude certain items. In addition to the amortization of intangible assets, operating income
and margin also exclude Other expenses, net as well as Restructuring and asset impairment charges. Other
expenses, net is primarily comprised of non-financing interest expense and also includes certain other non-
operating items. Restructuring and asset impairment charges consist of costs primarily related to severance and
benefits for employees pursuant to formal restructuring and workforce reduction plans. Such charges are expected
to yield future benefits and savings with respect to our operational performance. 2011 operating income and margin
also exclude a Curtailment gain recorded in the fourth quarter 2011. The Curtailment gain resulted from the
amendment of our primary non-union U.S. defined benefit pension plans for salaried employees to fully freeze
future benefit and service accruals after December 31, 2012. We exclude all of these amounts in order to evaluate
our current and past operating performance and to better understand the expected future trends in our business.

Net Income and EPS reconciliation:

(in millions; except per share amounts)
As Reported(1)

Adjustments:

Amortization of intangible assets

Loss on early extinguishment of liability

Adjusted
Weighted average shares for adjusted EPS(2)
Fully diluted shares at December 31, 2013(3)

____________________________

Year Ended December 31,

2013

2012

2011

Net Income

EPS

Net Income

EPS

Net Income

EPS

1,185

0.93

1,184

0.87

1,274

0.88

205

—

0.16

—

203

—

0.15

—

248

1,390

1.09

1,387

1.02

1,542

0.17

0.01

1.06

1,274

1,235

1,356

1,444

(1) Net income and EPS from continuing operations attributable to Xerox.

(2) Average shares for the calculation of adjusted EPS include 27 million of shares associated with the Series A convertible preferred stock and therefore the

related annual dividend was excluded.

(3) Represents common shares outstanding at December 31, 2013 as well as shares associated with our Series A convertible preferred stock plus dilutive potential

common shares as used for the calculation of diluted earnings per share in the fourth quarter 2013.

Effective Tax reconciliation:

Year Ended December 31,
2013

Year Ended December 31,
2012

Year Ended December 31,
2011

Pre-Tax
Income

Income Tax
Expense

Effective
Tax Rate

Pre-Tax
Income

Income Tax
Expense

Effective
Tax Rate

Pre-Tax
Income

Income Tax
Expense

Effective
Tax Rate

1,312

276

21.0% $

1,332

272

20.4%

1,535

377

24.6%

(in millions)
As Reported(1)

Adjustments:

Amortization of intangible assets

Loss on early extinguishment of
liability

332

—

Adjusted

1,644

127

—

403

____________________________

328

—

24.5% $

1,660

125

—

397

23.9%

398

1,966

150

540

27.5%

(1) Pre-tax income and income tax expense from continuing operations attributable to Xerox.

Operating Income / Margin reconciliation:

(in millions)
Reported Pre-tax Income(1)

Adjustments:

Amortization of intangible assets

Xerox restructuring charge

Curtailment gain

Other expenses, net

Adjusted Operating Income /
Margin

Equity in net income of unconsolidated
affiliates

Fuji Xerox restructuring charge

Litigation matters (Q1 2013 only)

Loss on early extinguishment of
liability

Other expense, net*

Segment Profit / Margin

____________________________

Year Ended December 31, 2013

Year Ended December 31, 2012

Year Ended December 31, 2011

Profit

Revenue

Margin

Profit

Revenue

Margin

Profit

Revenue

Margin

1,312

21,435

6.1% $

1,332

21,737

6.1% $

1,535

21,900

7.0%

332

116

—

150

328

154

—

261

398

(107)

326

1,910

21,435

8.9%

2,075

21,737

9.5%

2,184

21,900

10.0%

169

(37)

—

(150)

1,901

21,435

8.9%

152

—

(261)

1,982

21,737

9.1%

149

—

(323)

2,062

21,900

9.4%

* Includes rounding adjustments.
(1) Profit and revenue from continuing operations attributable to Xerox.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Risk Management

We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect
operating results, financial position and cash flows. We manage our exposure to these market risks through our
regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.
We utilized derivative financial instruments to hedge economic exposures, as well as reduce earnings and cash flow
volatility resulting from shifts in market rates.

Recent market events have not caused us to materially modify or change our financial risk management strategies
with respect to our exposures to interest rate and foreign currency risk. Refer to Note 13 - Financial Instruments in
the Consolidated Financial Statements for additional discussion on our financial risk management.

Foreign Exchange Risk Management

Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency
exchange rates at December 31, 2013, the potential change in the fair value of foreign currency-denominated
assets and liabilities in each entity would not be significant because all material currency asset and liability
exposures were economically hedged as of December 31, 2013. A 10% appreciation or depreciation of the U.S.
Dollar against all currencies from the quoted foreign currency exchange rates at December 31, 2013 would have an
impact on our cumulative translation adjustment portion of equity of approximately $655 million. The net amount
invested in foreign subsidiaries and affiliates, primarily Xerox Limited, Fuji Xerox and Xerox Canada Inc. and
translated into U.S. Dollars using the year-end exchange rates, was approximately $6.6 billion at December 31,
2013.

Xerox 2013 Annual Report 58

Interest Rate Risk Management
The consolidated weighted-average interest rates related to our total debt for 2013, 2012 and 2011 approximated
5.0%, 4.7%, and 5.2%, respectively. Interest expense includes the impact of our interest rate derivatives.

Virtually all customer-financing assets earn fixed rates of interest. The interest rates on a significant portion of the
Company's term debt are fixed.

As of December 31, 2013, $350 million of our total debt of $8 billion carried variable interest rates, including the
effect of pay variable interest rate swaps, if any, we may use to reduce the effective interest rate on our fixed
coupon debt.

The fair market values of our fixed-rate financial instruments are sensitive to changes in interest rates. At
December 31, 2013, a 10% change in market interest rates would change the fair values of such financial
instruments by approximately $96 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Xerox Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
comprehensive income, cash flows and shareholders’ equity present fairly, in all material respects, the financial
position of Xerox Corporation and its subsidiaries at December 31, 2013 and 2012, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in Item 15(a)(1) of this Form 10-K presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is
responsible for these financial statements and financial statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 21, 2014

Xerox 2013 Annual Report 60

REPORTS OF MANAGEMENT

Management's Responsibility for Financial Statements

Our management is responsible for the integrity and objectivity of all information presented in this annual report.
The consolidated financial statements were prepared in conformity with accounting principles generally accepted in
the United States of America and include amounts based on management's best estimates and judgments.
Management believes the consolidated financial statements fairly reflect the form and substance of transactions
and that the financial statements fairly represent the Company's financial position and results of operations.

The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly
with the independent auditors, PricewaterhouseCoopers LLP, the internal auditors and representatives of
management to review accounting, financial reporting, internal control and audit matters, as well as the nature and
extent of the audit effort. The Audit Committee is responsible for the engagement of the independent auditors. The
independent auditors and internal auditors have free access to the Audit Committee.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in the rules promulgated under the Securities Exchange Act of 1934. Under the supervision
and with the participation of our management, including our principal executive, financial and accounting officers,
we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in “Internal Control - Integrated Framework (1992)” issued by the Committee of Sponsoring Organizations
of the Treadway Commission.

Based on the above evaluation, management has concluded that our internal control over financial reporting was
effective as of December 31, 2013.

/s/ URSULA M. BURNS

/s/ KATHRYN A. MIKELLS

/s/ JOSEPH H. MANCINI, JR.

Chief Executive Officer

Chief Financial Officer

Chief Accounting Officer

XEROX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per-share data)

Revenues

Sales

Outsourcing, maintenance and rentals

Financing

Total Revenues

Costs and Expenses

Cost of sales

Cost of outsourcing, maintenance and rentals

Cost of financing

Research, development and engineering expenses

Selling, administrative and general expenses

Restructuring and asset impairment charges

Amortization of intangible assets

Curtailment gain

Other expenses, net

Total Costs and Expenses

Income Before Income Taxes and Equity Income

Income tax expense

Equity in net income of unconsolidated affiliates

Income from Continuing Operations

(Loss) income from discontinued operations, net of tax

Net Income

Less: Net income attributable to noncontrolling interests

Net Income Attributable to Xerox

Amounts attributable to Xerox:

Net income from continuing operations

Net (loss) income from discontinued operations

Net Income Attributable to Xerox

Basic Earnings per Share:

Continuing operations

Discontinued operations

Total Basic Earnings per Share

Diluted Earnings per Share:

Continuing operations

Discontinued operations

Total Diluted Earnings per Share

Year Ended December 31,

2013

2012

2011

5,659

5,927

15,293

483

21,435

3,616

11,008

163

601

4,137

116

332

—

150

20,123

1,312

276

169

1,205

(26)

1,179

15,213

597

21,737

3,791

10,802

198

655

4,216

154

328

—

261

20,405

1,332

272

152

1,212

1,223

1,159

1,195

1,185

(26)

1,159

0.95

(0.02)

0.93

(0.02)

0.91

1,184

1,195

0.89

0.01

0.90

0.87

0.01

0.88

6,400

14,868

632

21,900

4,076

10,269

231

719

4,421

398

(107)

326

20,365

1,535

377

149

1,307

1,328

1,295

1,274

1,295

0.90

0.02

0.92

0.88

0.02

0.90

The accompanying notes are an integral part of these Consolidated Financial Statements.

Xerox 2013 Annual Report 62

XEROX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

Net Income

Less: Net income attributable to noncontrolling interests

Net Income Attributable to Xerox

Other Comprehensive (Loss) Income, Net(1):

Translation adjustments, net

Unrealized (losses) gains, net

Changes in defined benefit plans, net

Other Comprehensive Income (Loss), Net

Less: Other comprehensive loss, net attributable to noncontrolling
interests

Other Comprehensive Income (Loss), Net Attributable to Xerox

Comprehensive Income, Net

Less: Comprehensive income, net attributable to noncontrolling
interests

Comprehensive Income, Net Attributable to Xerox

Year Ended December 31,

2013

2012

2011

1,179

1,159

1,223

1,195

(185) $

113

—

632

447

(1)

448

1,626

1,607

(63)

(561)

(511)

—

(511) $

712

684

1,328

1,295

(105)

(636)

(729)

(1)

(728)

599

567

(1) Refer to Note 20 - Other Comprehensive Income for gross components of other comprehensive income, reclassification adjustments out of

Accumulated Other Comprehensive Income and related tax effects.

The accompanying notes are an integral part of these Consolidated Financial Statements.

XEROX CORPORATION
CONSOLIDATED BALANCE SHEETS

(in millions, except share data in thousands)

Cash and cash equivalents

Accounts receivable, net

Billed portion of finance receivables, net

Assets

Finance receivables, net

Inventories

Other current assets

Total current assets

Finance receivables due after one year, net

Equipment on operating leases, net

Land, buildings and equipment, net

Investments in affiliates, at equity

Intangible assets, net

Goodwill

Deferred tax assets, long-term

Other long-term assets

Total Assets

Liabilities and Equity

Short-term debt and current portion of long-term debt

Accounts payable

Accrued compensation and benefits costs

Unearned income

Other current liabilities

Total current liabilities

Long-term debt

Pension and other benefit liabilities

Post-retirement medical benefits

Other long-term liabilities

Total Liabilities

Series A Convertible Preferred Stock

Common stock

Additional paid-in capital

Treasury stock, at cost

Retained earnings

Accumulated other comprehensive loss

Xerox shareholders’ equity

Noncontrolling interests

Total Equity

Total Liabilities and Equity

Shares of common stock issued

Treasury stock

Shares of common stock outstanding

December 31,

2013

2012

1,764

2,929

113

1,500

998

1,207

8,511

2,917

559

1,466

1,285

2,503

9,205

368

2,222

1,246

2,866

152

1,836

1,011

1,162

8,273

3,325

535

1,556

1,381

2,783

9,062

763

2,337

29,036

30,015

1,117

1,626

734

496

1,713

5,686

6,904

2,136

785

757

1,042

1,913

741

438

1,776

5,910

7,447

2,958

909

778

16,268

18,002

349

1,210

5,282

(252)

8,839

(2,779)

12,300

119

12,419

29,036

1,239

5,622

(104)

7,991

(3,227)

11,521

143

11,664

30,015

1,210,321

1,238,696

(22,001)

(14,924)

1,188,320

1,223,772

The accompanying notes are an integral part of these Consolidated Financial Statements.

Xerox 2013 Annual Report 64

XEROX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Cash Flows from Operating Activities:

Net income

Adjustments required to reconcile net income to cash flows from operating activities:

Depreciation and amortization

Provision for receivables

Provision for inventory

Deferred tax expense

Net (gain) loss on sales of businesses and assets

Undistributed equity in net income of unconsolidated affiliates

Stock-based compensation

Restructuring and asset impairment charges

Payments for restructurings

Contributions to defined benefit pension plans

Increase in accounts receivable and billed portion of finance receivables

Collections of deferred proceeds from sales of receivables

Increase in inventories

Increase in equipment on operating leases

Decrease in finance receivables

Collections on beneficial interest from sales of finance receivables

Increase in other current and long-term assets

(Decrease) increase in accounts payable and accrued compensation

Decrease in other current and long-term liabilities

Net change in income tax assets and liabilities

Net change in derivative assets and liabilities

Other operating, net

Net cash provided by operating activities

Cash Flows from Investing Activities:

Cost of additions to land, buildings and equipment

Proceeds from sales of land, buildings and equipment

Cost of additions to internal use software

Proceeds from sale of businesses

Acquisitions, net of cash acquired

Other investing, net

Net cash used in investing activities

Cash Flows from Financing Activities:

Net (payments) proceeds on debt

Payment of liability to subsidiary trust issuing preferred securities

Common stock dividends

Preferred stock dividends

Proceeds from issuances of common stock

Excess tax benefits from stock-based compensation

Payments to acquire treasury stock, including fees

Repurchases related to stock-based compensation

Distributions to noncontrolling interests

Other financing

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and Cash Equivalents at End of Year

Year Ended December 31,

2013

2012

2011

1,179

1,223

1,358

123

122

(45)

(92)

116

(136)

(230)

(576)

482

(38)

(303)

609

(145)

(29)

(50)

(11)

(145)

2,375

(346)

(81)

(155)

(452)

(434)

—

(272)

(24)

124

(696)

(57)

(56)

(3)

(1,402)

(3)

518

1,246

1,301

127

(90)

125

154

(144)

(364)

(776)

470

—

(276)

947

—

(265)

120

(71)

(82)

2,580

(388)

(125)

—

(276)

(761)

(108)

—

(231)

(24)

(1,052)

(42)

(69)

—

(1,472)

(3)

344

902

1,764

1,246

1,328

1,251

154

203

(9)

(86)

123

(218)

(426)

(296)

380

(124)

(298)

—

(249)

(22)

(121)

1,961

(338)

(163)

—

(212)

(675)

(670)

(241)

(24)

(701)

(27)

(22)

—

(1,586)

(9)

(309)

1,211

902

The accompanying notes are an integral part of these Consolidated Financial Statements.

XEROX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in millions)

Common
Stock

Additional
Paid-in
Capital

Treasury
Stock

Retained
Earnings

AOCL(3)

Xerox
Shareholders’
Equity

Non-
controlling
Interests

Total
Equity

Balance at December 31, 2010

1,398

6,580

— $

6,016

$ (1,988) $

12,006

153

$ 12,159

Comprehensive income, net
Cash dividends declared-common stock(1)
Cash dividends declared-preferred stock(2)

Contribution of common stock to U.S. pension
plan

Stock option and incentive plans, net

Payments to acquire treasury stock, including
fees

Cancellation of treasury stock

Distributions to noncontrolling interests

—

(73)

—

113

128

—

(504)

—

(701)

577

—

1,295

(728)

(241)

(24)

—

567

(241)

(24)

130

139

(701)

—

(36)

599

(241)

(24)

130

139

(701)

—

(36)

Balance at December 31, 2011

1,353

6,317

(124) $

7,046

$ (2,716) $

11,876

149

$ 12,025

Comprehensive income, net
Cash dividends declared-common stock(1)
Cash dividends declared-preferred stock(2)

Contribution of common stock to U.S. pension
plan

Stock option and incentive plans, net

Payments to acquire treasury stock, including
fees

Cancellation of treasury stock

Distributions to noncontrolling interests

—

(147)

—

115

—

(925)

—

(1,052)

1,072

—

1,195

(511)

(226)

(24)

—

684

(226)

(24)

130

133

(1,052)

—

(34)

712

(226)

(24)

130

133

(1,052)

—

(34)

Balance at December 31, 2012

1,239

5,622

(104) $

7,991

$ (3,227) $

11,521

143

$ 11,664

Comprehensive income, net
Cash dividends declared-common stock(1)
Cash dividends declared-preferred stock(2)

Conversion of notes to common stock

Stock option and incentive plans, net

Payments to acquire treasury stock, including
fees

Cancellation of treasury stock

Distributions to noncontrolling interests

—

(58)

—

142

—

(490)

—

(696)

548

—

1,159

(287)

(24)

—

448

—

1,607

(287)

(24)

170

(696)

—

(43)

1,626

(287)

(24)

170

(696)

—

(43)

Balance at December 31, 2013

1,210

5,282

(252) $

8,839

$ (2,779) $

12,300

119

$ 12,419

_______________

(1) Cash dividends declared on common stock of $0.0575 in each quarter of 2013 and $0.0425 in each quarter of 2012 and 2011.
(2) Cash dividends declared on preferred stock of $20 per share in each quarter of 2013, 2012 and 2011.
(3) AOCL - Accumulated other comprehensive loss.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Xerox 2013 Annual Report 66

XEROX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per-share data and where otherwise noted)

Note 1 – Summary of Significant Accounting Policies

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

Description of Business and Basis of Presentation

Xerox is a $21.4 billion global enterprise for business process and document management solutions. We offer
business process outsourcing and IT outsourcing services, including data processing, healthcare solutions, human
resource benefits management, finance support, transportation solutions and customer relationship management
services for commercial and government organizations worldwide. We also provide extensive leading-edge
document technology, services, software and genuine Xerox supplies for graphic communication and office printing
environments of any size.

Basis of Consolidation

The Consolidated Financial Statements include the accounts of Xerox Corporation and all of our controlled
subsidiary companies. All significant intercompany accounts and transactions have been eliminated. Investments in
business entities in which we do not have control, but we have the ability to exercise significant influence over
operating and financial policies (generally 20% to 50% ownership) are accounted for using the equity method of
accounting. Operating results of acquired businesses are included in the Consolidated Statements of Income from
the date of acquisition.

We consolidate variable interest entities if we are deemed to be the primary beneficiary of the entity. Operating
results for variable interest entities in which we are determined to be the primary beneficiary are included in the
Consolidated Statements of Income from the date such determination is made.

For convenience and ease of reference, we refer to the financial statement caption “Income before Income Taxes
and Equity Income” as “pre-tax income” throughout the Notes to the Consolidated Financial Statements.

In 2013 we completed the sale of our U.S. and Canadian (North American or N.A.) and Western European
(European) Paper businesses. Results from these paper-related businesses are reported as discontinued
operations and all prior period results have been reclassified to reflect this change. Refer to Note 3 - Acquisitions
and Divestitures for additional information regarding discontinued operations.

Use of Estimates

The preparation of our Consolidated Financial Statements requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Future events and their effects cannot be predicted with certainty; accordingly, our accounting estimates
require the exercise of judgment. The accounting estimates used in the preparation of our Consolidated Financial
Statements will change as new events occur, as more experience is acquired, as additional information is obtained
and as our operating environment changes. Our estimates are based on management's best knowledge of current
events, historical experience, actions that the company may undertake in the future and on various other
assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different
from these estimates.

The following table summarizes certain significant costs and expenses that require management estimates for the
three years ended December 31, 2013:

Expense/(Income)

Provisions for restructuring and asset impairments

Provisions for receivables

Provisions for litigation and regulatory matters

Provisions for obsolete and excess inventory

Provisions for product warranty liability

Depreciation and obsolescence of equipment on operating leases

Depreciation of buildings and equipment

Amortization of internal use software

Amortization of product software

Amortization of acquired intangible assets

Amortization of customer contract costs
Defined pension benefits - net periodic benefit cost(1)

Retiree health benefits - net periodic benefit cost

Income tax expense

______________

Year Ended December 31,

2013

2012

2011

116

123

(34)

283

431

147

332

122

267

276

154

127

(1)

279

452

116

328

107

300

272

154

294

405

401

177

377

(1) 2011 includes $107 pre-tax curtailment gain - refer to Note 15 - Employee Benefit Plans for additional information.

Changes in Estimates

In the ordinary course of accounting for the items discussed above, we make changes in estimates as appropriate
and as we become aware of new or revised circumstances surrounding those estimates. Such changes and
refinements in estimation methodologies are reflected in reported results of operations in the period in which the
changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements
and in Management's Discussion and Analysis of Financial Condition and Results of Operations.

New Accounting Standards and Accounting Changes

Except for the Accounting Standard Updates (ASU's) discussed below, the new ASU's issued by the FASB during
the last two years did not have any significant impact on the Company.

Income Taxes

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This update provides guidance on the
financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax
loss, or a tax credit carryforward, exists. The guidance from this update is effective prospectively for our fiscal year
beginning January 1, 2014. Upon adoption of this standard, we expect to reclassify approximately $200 of liabilities
for unrecognized tax benefits against deferred tax assets.

Hedge Accounting

In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index
Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The update permits the Fed Funds
Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under FASB ASC
Topic 815, in addition to the interest rates on direct Treasury obligations of the U.S. government (UST) and the
London Interbank Offered Rate (LIBOR). The update also removes the restriction on using different benchmark
rates for similar hedges. ASU 2013-10 is effective prospectively for qualifying new or re-designated hedging
relationships entered into on or after July 17, 2013. The adoption of this standard did not have a material impact on
our financial condition or results of operations.

Cumulative Translation Adjustments

In March 2013, the FASB issued ASU 2013-05, Parent's Accounting for the Cumulative Translation Adjustment
upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a
Foreign Entity. The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release into net
income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a
foreign entity. The guidance from this update is effective prospectively for our fiscal year beginning January 1, 2014.

Xerox 2013 Annual Report 68

We do not anticipate that the adoption of this standard will have a material impact on our financial condition or
results of operations.

Presentation of Comprehensive Income

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220) - Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income, which requires an entity to provide additional
information about the amounts reclassified out of Accumulated Other Comprehensive Income by component. This
update was effective for us beginning January 1, 2013 and the additional information required by this ASU is
reported in Note 20 - Other Comprehensive Income, including amounts related to 2012 and 2011.

Balance Sheet Offsetting

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210), Disclosures about Offsetting Assets
and Liabilities. ASU 2011-11 requires entities to disclose both gross information and net information about both
instruments and transactions eligible for offset in the Balance Sheet and instruments and transactions subject to an
agreement similar to a master netting arrangement to enable users of its financial statements to understand the
effects of offsetting and related arrangements on its financial position. In January 2013, the FASB issued ASU
2013-01, which limited the scope of this guidance to derivatives, repurchase type agreements and securities
borrowing and lending transactions. The guidance from these updates was effective for our fiscal year beginning
January 1, 2013. We currently report our derivative assets and liabilities on a gross basis in the Balance Sheet and
none of our derivative instruments are subject to a master netting agreement. Accordingly, no additional disclosures
were required upon adoption of these ASU's.

Fair Value Accounting

In May 2011, the FASB issued ASU 2011-04, which amended Fair Value Measurements and Disclosures - Overall
(ASC Topic 820-10) to provide a consistent definition of fair value and ensure that the fair value measurement and
disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This
update changed certain fair value measurement principles and enhanced the disclosure requirements, particularly
for level 3 fair value measurements. We adopted this update prospectively effective for our fiscal year beginning
January 1, 2012. This update did not have a material effect on financial condition or results of operations.

Summary of Accounting Policies

Revenue Recognition

We generate revenue through services, the sale and rental of equipment, supplies and income associated with the
financing of our equipment sales. Revenue is recognized when it is realized or realizable and earned. We consider
revenue realized or realizable and earned when we have persuasive evidence of an arrangement, delivery has
occurred, the sales price is fixed or determinable and collectibility is reasonably assured. Delivery does not occur
until equipment has been shipped or services have been provided to the customer, risk of loss has transferred to
the customer, and either customer acceptance has been obtained, customer acceptance provisions have lapsed, or
the company has objective evidence that the criteria specified in the customer acceptance provisions have been
satisfied. The sales price is not considered to be fixed or determinable until all contingencies related to the sale
have been resolved. More specifically, revenue related to services and sales of our products is recognized as
follows:

Equipment-Related Revenues

Equipment: Revenues from the sale of equipment, including those from sales-type leases, are recognized at the
time of sale or at the inception of the lease, as appropriate. For equipment sales that require us to install the product
at the customer location, revenue is recognized when the equipment has been delivered and installed at the
customer location. Sales of customer installable products are recognized upon shipment or receipt by the customer
according to the customer's shipping terms. Revenues from equipment under other leases and similar
arrangements are accounted for by the operating lease method and are recognized as earned over the lease term,
which is generally on a straight-line basis.

Technical Services: Technical service revenues are derived primarily from maintenance contracts on the
equipment sold to our customers and are recognized over the term of the contracts. A substantial portion of our
products are sold with full service maintenance agreements for which the customer typically pays a base service fee
plus a variable amount based on usage. As a consequence, other than the product warranty obligations associated
with certain of our low end products, we do not have any significant product warranty obligations, including any
obligations under customer satisfaction programs.

Bundled Lease Arrangements: We sell our products and services under bundled lease arrangements, which
typically include equipment, service, supplies and financing components for which the customer pays a single
negotiated fixed minimum monthly payment for all elements over the contractual lease term.These arrangements
also typically include an incremental, variable component for page volumes in excess of contractual page volume
minimums, which are often expressed in terms of price-per-page. The fixed minimum monthly payments are
multiplied by the number of months in the contract term to arrive at the total fixed minimum payments that the
customer is obligated to make (fixed payments) over the lease term. The payments associated with page volumes
in excess of the minimums are contingent on whether or not such minimums are exceeded (contingent payments).
In applying our lease accounting methodology, we only consider the fixed payments for purposes of allocating to the
relative fair value elements of the contract. Contingent payments, if any, are recognized as revenue in the period
when the customer exceeds the minimum copy volumes specified in the contract. Revenues under bundled
arrangements are allocated considering the relative selling prices of the lease and non-lease deliverables included
in the bundled arrangement. Lease deliverables include the equipment, financing, maintenance and other executory
costs, while non-lease deliverables generally consist of the supplies and non-maintenance services. The allocation
for the lease deliverables begins by allocating revenues to the maintenance and other executory costs plus a profit
thereon. These elements are generally recognized over the term of the lease as service revenue. The remaining
amounts are allocated to the equipment and financing elements which are subjected to the accounting estimates
noted below under “Leases.”

Our pricing interest rates, which are used in determining customer payments in a bundled lease arrangement, are
developed based upon a variety of factors including local prevailing rates in the marketplace and the customer’s
credit history, industry and credit class. We reassess our pricing interest rates quarterly based on changes in the
local prevailing rates in the marketplace. These interest rates have generally been adjusted if the rates vary by 25
basis points or more, cumulatively, from the last rate in effect. The pricing interest rates generally equal the implicit
rates within the leases, as corroborated by our comparisons of cash to lease selling prices.

Sales to distributors and resellers: We utilize distributors and resellers to sell many of our technology products to
end-user customers. We refer to our distributor and reseller network as our two-tier distribution model. Sales to
distributors and resellers are generally recognized as revenue when products are sold to such distributors and
resellers. However, revenue is only recognized when the distributor or reseller has economic substance apart from
the company, the sales price is not contingent upon resale or payment by the end user customer and we have no
further obligations related to bringing about the resale, delivery or installation of the product.

Distributors and resellers participate in various rebate, price-protection, cooperative marketing and other programs,
and we record provisions for these programs as a reduction to revenue when the sales occur. Similarly, we account
for our estimates of sales returns and other allowances when the sales occur based on our historical experience.

In certain instances, we may provide lease financing to end-user customers who purchased equipment we sold to
distributors or resellers. We compete with other third-party leasing companies with respect to the lease financing
provided to these end-user customers.

Supplies: Supplies revenue generally is recognized upon shipment or utilization by customers in accordance with
the sales contract terms.

Software: Most of our equipment has both software and non-software components that function together to deliver
the equipment's essential functionality and therefore they are accounted for together as part of equipment sales
revenues. Software accessories sold in connection with our equipment sales, as well as free-standing software
sales are accounted for as separate deliverables or elements. In most cases, these software products are sold as
part of multiple element arrangements and include software maintenance agreements for the delivery of technical
service, as well as unspecified upgrades or enhancements on a when-and-if-available basis. In those software
accessory and free-standing software arrangements that include more than one element, we allocate the revenue
among the elements based on vendor-specific objective evidence (VSOE) of fair value. Revenue allocated to
software is normally recognized upon delivery while revenue allocated to the software maintenance element is
recognized ratably over the term of the arrangement.

Leases: As noted above, equipment may be placed with customers under bundled lease arrangements. The two
primary accounting provisions which we use to classify transactions as sales-type or operating leases are: (1) a
review of the lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and
(2) a review of the present value of the minimum lease payments to determine if they are equal to or greater than
90% of the fair market value of the equipment at the inception of the lease.

We consider the economic life of most of our products to be five years, since this represents the most frequent
contractual lease term for our principal products and only a small percentage of our leases are for original terms

Xerox 2013 Annual Report 70

longer than five years. There is no significant after-market for our used equipment. We believe five years is
representative of the period during which the equipment is expected to be economically usable, with normal service,
for the purpose for which it is intended. Residual values are not significant.

With respect to fair value, we perform an analysis of equipment fair value based on cash selling prices during the
applicable period. The cash selling prices are compared to the range of values determined for our leases. The
range of cash selling prices must be reasonably consistent with the lease selling prices in order for us to determine
that such lease prices are indicative of fair value.

Financing: Finance income attributable to sales-type leases, direct financing leases and installment loans is
recognized on the accrual basis using the effective interest method.

Services-Related Revenue

Outsourcing: Revenues associated with outsourcing services are generally recognized as services are rendered,
which is generally on the basis of the number of accounts or transactions processed. Information technology
processing revenues are recognized as services are provided to the customer, generally at the contractual selling
prices of resources consumed or capacity utilized by our customers. In those service arrangements where final
acceptance of a system or solution by the customer is required, revenue is deferred until all acceptance criteria
have been met. Revenues on cost reimbursable contracts are recognized by applying an estimated factor to costs
as incurred, determined by the contract provisions and prior experience. Revenues on unit-price contracts are
recognized at the contractual selling prices as work is completed and accepted by the customer. Revenues on time
and material contracts are recognized at the contractual rates as the labor hours and direct expenses are incurred.

Revenues on certain fixed price contracts where we provide system development and implementation services are
recognized over the contract term based on the percentage of development and implementation services that are
provided during the period compared with the total estimated development and implementation services to be
provided over the entire contract using the percentage-of-completion accounting methodology. These services
require that we perform significant, extensive and complex design, development, modification or implementation of
our customers' systems. Performance will often extend over long periods, and our right to receive future payment
depends on our future performance in accordance with the agreement.

The percentage-of-completion methodology involves recognizing probable and reasonably estimable revenue using
the percentage of services completed, on a current cumulative cost to estimated total cost basis, using a reasonably
consistent profit margin over the period.

Revenues earned in excess of related billings are accrued, whereas billings in excess of revenues earned are
deferred until the related services are provided. We recognize revenues for non-refundable, upfront implementation
fees on a straight-line basis over the period between the initiation of the ongoing services through the end of the
contract term.

In connection with our services arrangements, we incur and capitalize costs to originate these long-term contracts
and to perform the migration, transition and setup activities necessary to enable us to perform under the terms of
the arrangement. Certain initial direct costs of an arrangement are capitalized and amortized over the contractual
service period of the arrangement to cost of services.

From time to time, we also provide inducements to customers in various forms, including contractual credits, which
are capitalized and amortized as a reduction of revenue over the term of the contract. Customer-related deferred
set-up/transition and inducement costs were $399 and $356 at December 31, 2013 and 2012, respectively, and the
balance at December 31, 2013 is expected to be amortized over a weighted average period of approximately 6
years. Amortization expense associated with customer-related contract costs at December 31, 2013 is expected to
be approximately $132 in 2014.

Long-lived assets used in the fulfillment of the arrangements are capitalized and depreciated over the shorter of
their useful life or the term of the contract if an asset is contract specific.

Our outsourcing services contracts may also include the sale of equipment and software. In these instances we
follow the policies noted above under Equipment-Related Revenue.

Other Revenue Recognition Policies

Multiple Element Arrangements: As described above, we enter into the following revenue arrangements that may
consist of multiple deliverables:

• Bundled lease arrangements, which typically include both lease deliverables and non-lease deliverables as

described above.

• Contracts for multiple types of outsourcing services, as well as professional and value-added services. For

instance, we may contract for an implementation or development project and also provide services to operate
the system over a period of time; or we may contract to scan, manage and store customer documents.

In substantially all of our multiple element arrangements, we are able to separate the deliverables since we
normally will meet both of the following criteria:

•

The delivered item(s) has value to the customer on a stand-alone basis; and

If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of
the undelivered item(s) is considered probable and substantially in our control.

Consideration in a multiple-element arrangement is allocated at the inception of the arrangement to all deliverables
on the basis of the relative selling price. When applying the relative selling price method, the selling price for each
deliverable is primarily determined based on VSOE or third-party evidence (TPE) of the selling price. The above
noted revenue policies are then applied to each separated deliverable, as applicable.

Revenue-based taxes: We report revenue net of any revenue-based taxes assessed by governmental authorities
that are imposed on and concurrent with specific revenue-producing transactions. The primary revenue-based taxes
are sales tax and value-added tax (VAT).

Other Significant Accounting Policies

Shipping and Handling

Costs related to shipping and handling are recognized as incurred and included in Cost of sales in the Consolidated
Statements of Income.

Research, Development and Engineering (RD&E)

Research, development and engineering costs are expensed as incurred. Sustaining engineering costs are incurred
with respect to on-going product improvements or environmental compliance after initial product launch. Sustaining
engineering costs were $122, $110 and $108 in 2013, 2012 and 2011, respectively.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, including money market funds, and investments with original
maturities of three months or less.

Receivable Sales

We regularly transfer certain portions of our receivable portfolios and normally account for those transfers as sales
based on meeting the criteria for derecognition in accordance with ASC Topic 860 "Transfer and Servicing" of
Financial Assets. Gains or losses on the sale of receivables depend, in part, on both (a) the cash proceeds and (b)
the net non-cash proceeds received or paid. When we sell receivables we normally receive beneficial interests in
the transferred receivables from the purchasers as part of the proceeds. We may refer to these beneficial interests
as a deferred purchase price. The beneficial interests obtained are initially measured at their fair value. We
generally estimate fair value based on the present value of expected future cash flows, which are calculated using
management's best estimates of the key assumptions including credit losses, prepayment rate and discount rates
commensurate with the risks involved. Refer to Note 4 - Accounts Receivable, Net and Note 5 - Finance
Receivables, Net for more details on our receivable sales.

Inventories

Inventories are carried at the lower of average cost or market. Inventories also include equipment that is returned at
the end of the lease term. Returned equipment is recorded at the lower of remaining net book value or salvage
value, which normally are not significant. We regularly review inventory quantities and record a provision for excess
and/or obsolete inventory based primarily on our estimated forecast of product demand, production requirements
and servicing commitments. Several factors may influence the realizability of our inventories, including our decision
to exit a product line, technological changes and new product development. The provision for excess and/or

Xerox 2013 Annual Report 72

obsolete raw materials and equipment inventories is based primarily on near term forecasts of product demand and
include consideration of new product introductions, as well as changes in remanufacturing strategies. The provision
for excess and/or obsolete service parts inventory is based primarily on projected servicing requirements over the
life of the related equipment populations.

Land, Buildings and Equipment and Equipment on Operating Leases

Land, buildings and equipment are recorded at cost. Buildings and equipment are depreciated over their estimated
useful lives. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life.
Equipment on operating leases is depreciated to estimated salvage value over the lease term. Depreciation is
computed using the straight-line method. Significant improvements are capitalized and maintenance and repairs are
expensed. Refer to Note 6 - Inventories and Equipment on Operating Leases, Net and Note 7 - Land, Buildings,
Equipment and Software, Net for further discussion.

Software - Internal Use and Product

We capitalize direct costs associated with developing, purchasing or otherwise acquiring software for internal use
and amortize these costs on a straight-line basis over the expected useful life of the software, beginning when the
software is implemented (Internal Use Software). Costs incurred for upgrades and enhancements that will not result
in additional functionality are expensed as incurred. Amounts expended for Internal Use Software are included in
Cash Flows from Investing.

We also capitalize certain costs related to the development of software solutions to be sold to our customers upon
reaching technological feasibility (Product Software). These costs are amortized based on estimated future
revenues over the estimated economic life of the software. Amounts expended for Product Software are included in
Cash Flows from Operations. We perform periodic reviews to ensure that unamortized Product Software costs
remain recoverable from estimated future operating profits (net realizable value or NRV). Costs to support or service
licensed software are charged to Costs of services as incurred.

Refer to Note 7 - Land,Buildings, Equipment and Software, Net for further information.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of acquired net assets in a business
combination, including the amount assigned to identifiable intangible assets. The primary drivers that generate
goodwill are the value of synergies between the acquired entities and the company and the acquired assembled
workforce, neither of which qualifies as an identifiable intangible asset. Goodwill is not amortized but rather is tested
for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have
been incurred.

Impairment testing for goodwill is done at the reporting unit level. A reporting unit is an operating segment or one
level below an operating segment (a "component") if the component constitutes a business for which discrete
financial information is available, and segment management regularly reviews the operating results of that
component.

When testing goodwill for impairment, we may assess qualitative factors for some or all of our reporting units to
determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a
reporting unit is less than its carrying amount, including goodwill. Alternatively, we may bypass this qualitative
assessment for some or all of our reporting units and perform a detailed quantitative test of impairment (Step 1). If
we perform the detailed quantitative impairment test and the carrying amount of the reporting unit exceeds its fair
value, we would perform an analysis (Step 2) to measure such impairment. In 2013, we elected to proceed to the
quantitative assessment of the recoverability of our goodwill balances for each of our reporting units in performing
our annual impairment test. Based on our quantitative assessments, we concluded that the fair values of each of
our reporting units in 2013 exceeded their carrying values and no impairments were identified.

Other intangible assets primarily consist of assets obtained in connection with business acquisitions, including
installed customer base and distribution network relationships, patents on existing technology and trademarks. We
apply an impairment evaluation whenever events or changes in business circumstances indicate that the carrying
value of our intangible assets may not be recoverable. Other intangible assets are amortized on a straight-line basis
over their estimated economic lives. We believe that the straight-line method of amortization reflects an appropriate
allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained
annually by the Company.

Refer to Note 9 - Goodwill and Intangible Assets, Net for further information.

Impairment of Long-Lived Assets

We review the recoverability of our long-lived assets, including buildings, equipment, internal use software and other
intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset
may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying
value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the
related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is
recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is
based on discounted cash flows.

Pension and Post-Retirement Benefit Obligations

We sponsor defined benefit pension plans in various forms in several countries covering employees who meet
eligibility requirements. Retiree health benefit plans cover U.S. and Canadian employees for retiree medical costs.
We employ a delayed recognition feature in measuring the costs of pension and post-retirement benefit plans. This
requires changes in the benefit obligations and changes in the value of assets set aside to meet those obligations to
be recognized not as they occur, but systematically and gradually over subsequent periods. All changes are
ultimately recognized as components of net periodic benefit cost, except to the extent they may be offset by
subsequent changes. At any point, changes that have been identified and quantified but not recognized as
components of net periodic benefit cost, are recognized in Accumulated Other Comprehensive Loss, net of tax.

Several statistical and other factors that attempt to anticipate future events are used in calculating the expense,
liability and asset values related to our pension and retiree health benefit plans. These factors include assumptions
we make about the discount rate, expected return on plan assets, rate of increase in healthcare costs, the rate of
future compensation increases and mortality. Actual returns on plan assets are not immediately recognized in our
income statement due to the delayed recognition requirement. In calculating the expected return on the plan asset
component of our net periodic pension cost, we apply our estimate of the long-term rate of return on the plan assets
that support our pension obligations, after deducting assets that are specifically allocated to Transitional Retirement
Accounts (which are accounted for based on specific plan terms).

For purposes of determining the expected return on plan assets, we utilize a market-related value approach in
determining the value of the pension plan assets, rather than a fair market value approach. The primary difference
between the two methods relates to systematic recognition of changes in fair value over time (generally two years)
versus immediate recognition of changes in fair value. Our expected rate of return on plan assets is applied to the
market-related asset value to determine the amount of the expected return on plan assets to be used in the
determination of the net periodic pension cost. The market-related value approach reduces the volatility in net
periodic pension cost that would result from using the fair market value approach.

The discount rate is used to present value our future anticipated benefit obligations. The discount rate reflects the
current rate at which benefit liabilities could be effectively settled considering the timing of expected payments for
plan participants. In estimating our discount rate, we consider rates of return on high-quality fixed-income
investments adjusted to eliminate the effects of call provisions, as well as the expected timing of pension and other
benefit payments.

Each year, the difference between the actual return on plan assets and the expected return on plan assets, as well
as increases or decreases in the benefit obligation as a result of changes in the discount rate and other actuarial
assumptions, are added to or subtracted from any cumulative actuarial gain or loss from prior years. This amount is
the net actuarial gain or loss recognized in Accumulated other comprehensive loss. We amortize net actuarial gains
and losses as a component of net pension cost for a year if, as of the beginning of the year, that net gain or loss
(excluding asset gains or losses that have not been recognized in market-related value) exceeds 10% of the greater
of the projected benefit obligation or the market-related value of plan assets (the "corridor" method). This
determination is made on a plan-by-plan basis. If amortization is required for a particular plan, we amortize the
applicable net gain or loss in excess of the 10% threshold on a straight-line basis in net periodic pension cost over
the remaining service period of the employees participating in that pension plan. In plans where substantially all
participants are inactive, the amortization period for the excess is the average remaining life expectancy of the plan
participants.

Our primary domestic plans allow participants the option of settling their vested benefits through the receipt of a
lump-sum payment. The participant's vested benefit is considered fully settled upon payment of the lump-sum. We
have elected to apply settlement accounting and therefore we recognize the losses associated with settlements in
this plan immediately upon the settlement of the vested benefits. Settlement accounting requires us to recognize a

Xerox 2013 Annual Report 74

pro rata portion of the aggregate unamortized net actuarial losses upon settlement. The pro rata factor is computed
as the percentage reduction in the projected benefit obligation due to the settlement of the participant's vested
benefit.

Refer to Note 15 - Employee Benefit Plans for further information regarding our Pension and Post-Retirement
Benefit Obligations.

Foreign Currency Translation and Re-measurement

The functional currency for most foreign operations is the local currency. Net assets are translated at current rates
of exchange and income, expense and cash flow items are translated at average exchange rates for the applicable
period. The translation adjustments are recorded in Accumulated other comprehensive loss.

The U.S. Dollar is used as the functional currency for certain foreign subsidiaries that conduct their business in U.S.
Dollars. A combination of current and historical exchange rates is used in re-measuring the local currency
transactions of these subsidiaries and the resulting exchange adjustments are recorded in Currency (gains) and
losses within Other expenses, net together with other foreign currency remeasurments.
Note 2 – Segment Reporting

Our reportable segments are aligned with how we manage the business and view the markets we serve. We report
our financial performance based on the following two primary reportable segments – Services and Document
Technology. Our Services segment operations involve delivery of a broad range of services including business
process, document and IT outsourcing. Our Document Technology segment includes the sale and support of a
broad range of document systems from entry level to high-end.

The Services segment is comprised of three outsourcing service offerings:

• Business Process Outsourcing (BPO)

• Document Outsourcing (which includes Managed Print Services) (DO)

•

Information Technology Outsourcing (ITO)

Business process outsourcing services include service arrangements where we manage a customer’s business
activity or process. Document outsourcing services include service arrangements that allow customers to
streamline, simplify and digitize their document-intensive business processes through automation and deployment
of software applications and tools and the management of their printing needs. Document outsourcing also includes
revenues from our partner print services offerings. Information technology outsourcing services include service
arrangements where we manage a customer’s IT-related activities, such as application management and
application development, data center operations or testing and quality assurance.

Our Document Technology segment is centered on strategic product groups, which share common technology,
manufacturing and product platforms. Our product groupings range from:
•

“Entry,” which includes A4 devices and desktop printers; to
“Mid-range,” which includes A3 devices that generally serve workgroup environments in mid to large
enterprises and includes products that fall into the following market categories: Color 41+ ppm priced at less
than $100K and Light Production 91+ ppm priced at less than $100K; to
“High-end,” which includes production printing and publishing systems that generally serve the graphic
communications marketplace and large enterprises.

•

Customers range from small and mid-sized businesses to large enterprises. Customers also include graphic
communication enterprises as well as channel partners including distributors and resellers. Segment revenues
reflect the sale of document systems and supplies, technical services and product financing.

The segment classified as Other includes several units, none of which meet the thresholds for separate segment
reporting. This group includes paper sales in our developing market countries, Wide Format Systems, licensing
revenues, GIS network integration solutions and electronic presentation systems and non-allocated corporate items
including non-financing interest, as well as other items included in Other expenses, net.

As discussed in Note 3 - Acquisitions and Divestitures, during 2013, we completed the sales of our North American
and European Paper businesses. As a result of these transactions, in 2013 we began to report these paper-related
operations as Discontinued Operations and reclassified their results from the Other segment to Discontinued
Operations. All prior periods have been reclassified to conform to this presentation.

Selected financial information for our Reportable segments was as follows:

2013 (1)
Revenue

Finance income

Total Segment Revenue

Interest expense
Segment profit (loss)(2)

Equity in net income of unconsolidated affiliates

2012 (1)
Revenue

Finance income

Total Segment Revenue

Interest expense
Segment profit (loss)(2)

Equity in net income of unconsolidated affiliates

2011 (1)
Revenue

Finance income

Total Segment Revenue

Interest expense
Segment profit (loss)(2)

Equity in net income of unconsolidated affiliates

____________________________

Years Ended December 31,

Services

Document
Technology

Other

Total

11,792

8,500

660

11,859

1,157

408

8,908

140

966

135

668

247

(222)

—

11,453

8,951

736

11,528

1,173

511

9,462

172

1,065

122

747

236

(256)

—

10,754

9,722

792

10,837

1,207

537

10,259

202

1,140

118

804

251

(285)

—

20,952

483

21,435

406

1,901

169

21,140

597

21,737

430

1,982

152

21,268

632

21,900

478

2,062

149

(1) Asset information on a segment basis is not disclosed as this information is not separately identified and internally reported to our Chief

Operating Decision Maker (CODM).

(2) Depreciation and amortization expense, which is recorded in Cost of Sales, Cost of Services, RD&E and SAG are included in segment profit

above. This information is neither identified nor internally reported to our CODM.

The following is a reconciliation of segment profit to pre-tax income:

Segment Profit Reconciliation to Pre-tax Income

2013

2012

2011

Years Ended December 31,

Total Segment Profit

Reconciling items:

Amortization of intangible assets

Equity in net income of unconsolidated affiliates

Restructuring and asset impairment charges

Restructuring charges of Fuji Xerox

Litigation matters (Q1 2013 only)

Loss on early extinguishment of liability and debt

Curtailment gain

Other

Pre-tax Income

1,901

1,982

2,062

(332)

(169)

(116)

(9)

—

(328)

(152)

(154)

(16)

—

(398)

(149)

(32)

(19)

—

(33)

107

(3)

1,312

1,332

1,535

Xerox 2013 Annual Report 76

Geographic area data is based upon the location of the subsidiary reporting the revenue or long-lived assets and is
as follows for the three years ended December 31:

United States

Europe

Other areas

Total Revenues and Long-Lived Assets

________________

Revenues

Long-Lived Assets (1)

2013

2012

2011

2013

2012

2011

14,534

14,500

14,253

1,870

1,966

1,894

4,574

2,327

4,733

2,504

5,148

2,499

761

243

784

262

776

276

21,435

21,737

21,900

2,874

3,012

2,946

(1) Long-lived assets are comprised of (i) land, buildings and equipment, net, (ii) equipment on operating leases, net, (iii) internal use software,

net and (iv) product software, net.

Note 3 – Acquisitions and Divestitures

Acquisitions

2013 Acquisitions
In April 2013, we acquired Florida based Zeno Office Solutions, Inc. (Zeno), a provider of print and IT solutions to
small and mid-sized businesses in the Southeast, for approximately $59 in cash. This acquisition furthers our
coverage in Florida, building on our strategy of expanding our network of locally-based companies focused on
customers' requirements to improve their performance through efficiencies.

In February 2013, we acquired Impika, a leader in the design, manufacture and sale of production inkjet printing
solutions used for industrial, commercial, security, label and package printing for approximately $53 in cash. Impika,
which is based in Aubagne, France, offers a portfolio of aqueous (water-based) inkjet presses based on proprietary
technology. Through the addition of Impika's aqueous technology to our offerings, we go to market with the
industry's broadest range of digital presses, strengthening our leadership in digital color production printing.

Zeno and Impika are included in our Document Technology segment. Additionally, during 2013, our Document
Technology segment acquired one additional business for approximately $12 in cash, and our Services segment
acquired three businesses for a total of $31 in cash.

2013 Summary
All of our 2013 acquisitions reflected 100% ownership of the acquired companies. The operating results of the
acquisitions described above are not material to our financial statements and are included within our results from
their respective acquisition dates. Our 2013 acquisitions contributed aggregate revenues of approximately $56 to
our 2013 total revenues from their respective acquisition dates. The purchase prices for all acquisitions were
primarily allocated to intangible assets and goodwill based on third-party valuations and management's estimates.
The primary elements that generated the goodwill are the value of synergies and the acquired assembled
workforce. None of the goodwill recorded in 2013 is expected to be deductible for tax purposes. Refer to Note 9 -
Goodwill and Intangible Assets, Net for additional information.

The following table summarizes the purchase price allocations for our 2013 acquisitions as of the acquisition dates:

Accounts/finance receivables

Intangible assets:

Customer relationships

Existing technology

Trademarks

Non-compete agreements

Software

Goodwill

Other assets

Total Assets Acquired

Liabilities assumed

Total Purchase Price

Weighted-
Average Life
(Years)

Total 2013
Acquisitions

121

204

(49)

155

2012 and 2011 Acquisitions
In July 2012, we acquired Wireless Data Services, Ltd. (WDS), a provider of technical support, knowledge
management and related consulting to the world's largest wireless telecommunication brands for approximately $95
(£60 million) in cash. Based in the U.K., WDS's expertise in the telecommunications industry strengthens our broad
portfolio of customer care solutions.

In February 2012, we acquired R.K. Dixon, a leading provider of IT services, copiers, printers and managed print
services for approximately $58 in cash. The acquisition furthers our coverage of central Illinois and eastern Iowa,
building on our strategy to create a nationwide network of locally-based companies focused on customers' needs to
improve performance through efficiencies.

In December 2011, we acquired the Merizon Group Inc. which operates MBM formerly known as Modern Business
Machines, a Wisconsin-based office products distributor for approximately $42 net of cash acquired. The acquisition
furthers our strategy of creating a nationwide network of locally-based companies focused on improving document
workflow and office efficiency.

In November 2011, we acquired The Breakaway Group (Breakaway), a cloud-based service provider that helps
healthcare professionals accelerate their adoption of an electronic medical records (EMR) system, for
approximately $18 net of cash acquired. We are also obligated to pay the sellers up to an additional $25 if certain
future performance targets are achieved, of which $18 was recorded as of the acquisition date representing the
estimated fair value of this obligation for a total acquisition fair value of $36 (see "Contingent Consideration" below).
The Denver-based firm's technology allows caregivers to practice using an EMR system without jeopardizing actual
patient data. This acquisition adds to our offering of services that help healthcare professionals use the EMR
system for clinical benefit.

In September 2011, we acquired the net assets related to the U.S. operations of Symcor Inc. (Symcor). In
connection with the acquisition, we assumed and took over the operational responsibility for the customer contracts
related to this operation. We agreed to pay $17 for the acquired net assets and the seller agreed to pay us $52,
which represented the fair value of the liabilities assumed for a net cash receipt of $35.The assumed liabilities
primarily include customer contract liabilities representing the estimated fair value of the obligations associated with
the assumed customer contracts. We are recognizing these liabilities over a weighted-average period of
approximately two years consistent with the cash outflows from the contracts. Symcor specializes in outsourcing
services for U.S. financial institutions and its offerings range from cash management services to statement and
check processing.

Xerox 2013 Annual Report 78

In July 2011, we acquired Education Sales and Marketing, LLC (ESM), a leading provider of outsourced
enrollment management and student loan default solutions, for approximately $43 net of cash acquired. The
acquisition of ESM enables us to offer a broader range of services to assist post-secondary schools in attracting
and retaining the most qualified students while reducing accreditation risk.

In April 2011, we acquired Unamic/HCN B.V., the largest privately-owned customer care provider in the Benelux
region in Western Europe, for approximately $55 net of cash acquired. Unamic/HCN’s focus on the Dutch-speaking
market expands our customer care capabilities in the Netherlands, Belgium, Turkey and Suriname.

In February 2011, we acquired Concept Group, Ltd. for $41 net of cash acquired. This acquisition expands our
reach into the small and mid-size business market in the U.K. Concept Group has nine locations throughout the
U.K. and provides document imaging solutions and technical services to more than 3,000 customers.

Our Document Technology segment also acquired three additional business in 2012 and seven additional business
in 2011 for $62 and $21, respectively, in cash. These acquisitions were largely a part of our strategy of increasing
our distribution network for small and mid-size businesses. Our Services segment acquired four additional
businesses in 2012 and three additional business in 2011 for $61 and $25, respectively, in cash primarily related to
customer care and software to support our BPO service offerings.

Summary - 2012 and 2011 Acquisitions
All of our 2012 and 2011 acquisitions reflected 100% ownership of the acquired companies. The operating results of
the 2012 and 2011 acquisitions described above were not material to our financial statements and were included
within our results from the respective acquisition dates. WDS, Breakaway, Symcor, ESM and Unamic/HCN were
included within our Services segment while the acquisitions of R.K. Dixon, MBM and Concept Group were included
within our Document Technology segment. The purchase prices for all acquisitions, except Symcor, were primarily
allocated to intangible assets and goodwill based on third-party valuations and management's estimates. Refer to
Note 9 - Goodwill and Intangible Assets, Net for additional information. Our 2012 acquisitions contributed aggregate
revenues from their respective acquisition dates of approximately $277 and $162 to our 2013 and 2012 total
revenues, respectively. Our 2011 acquisitions contributed aggregate revenues from their respective acquisition
dates of approximately $396, $397 and $177 to our 2013, 2012 and 2011 total revenues, respectively.

Contingent Consideration
In connection with certain acquisitions, we are obligated to make contingent payments if specified contractual
performance targets are achieved. Contingent consideration obligations are recorded at their respective fair value.
As of December 31, 2013, the maximum aggregate amount of outstanding contingent obligations to former owners
of acquired entities was approximately $60, of which $36 was accrued representing the estimated fair value of this
obligation.

Divestitures

During 2013, in connection with our decision to exit from the Paper distribution business, we completed the sale of
our N.A. Paper business and our European Paper business. The decision to exit from the Paper distribution
business was largely the result of management's objective to focus more on Services and innovative Document
Technology. Net proceeds from the sale of the N.A. and European Paper businesses were approximately $36, of
which $26 was received in cash and is reported as cash flows from investing activities in the Consolidated
Statements of Cash Flows. The remainder of the proceeds of $10 were received as a note receivable, which is
payable in October 2014.

As a result of these transactions, in 2013 we reported these paper-related operations as Discontinued Operations
and reclassified their results from the Other segment to Discontinued Operations. All prior periods have accordingly
been reclassified to conform to this presentation. The net assets sold or expected to be sold in connection with
these transactions are primarily related to working capital - accounts receivables and inventory - utilized in the
business.

We recorded a net pre-tax loss of $25 for the disposition of our N.A. and European Paper businesses. The loss is
primarily related to exit and disposal costs associated with these businesses. The disposals resulted in a reduction
in headcount of approximately 300 employees, primarily in Europe.

The components of Discontinued Operations for the periods presented are as follows:

(in millions)

Revenues*

Income from operations

Loss on disposal

Net (Loss) Income Before Income Taxes

Income tax expense

(Loss) Income From Discontinued Operations, Net of Tax

Year Ended December 31,

2013

2012

2011

403

653

726

(25)

(22) $

(4)

(26) $

—

(5)

—

(9)

* 2013 revenue from discontinued operations reflects five months of N.A. paper revenue as a result of the completion of the sale of this business

on May 31, 2013 and ten months of European Paper revenue as a result of the completion of the sale of this business on October 31, 2013.

Note 4 – Accounts Receivable, Net

Accounts receivable, net were as follows:

Amounts billed or billable

Unbilled amounts

Allowance for doubtful accounts

Accounts Receivable, Net

December 31,

2013

2012

2,651

390

(112)

2,929

2,639

335

(108)

2,866

Unbilled amounts include amounts associated with percentage-of-completion accounting and other earned
revenues not currently billable due to contractual provisions. Amounts to be invoiced in the subsequent month for
current services provided are included in amounts billable, and at December 31, 2013 and 2012 were approximately
$1,054 and $1,049, respectively.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment
history and current creditworthiness. The allowance for uncollectible accounts receivables is determined principally
on the basis of past collection experience as well as consideration of current economic conditions and changes in
our customer collection trends.

Accounts Receivable Sales Arrangements

Accounts receivable sales arrangements are utilized in the normal course of business as part of our cash and
liquidity management. We have facilities in the U.S., Canada and several countries in Europe that enable us to sell
certain accounts receivable without recourse to third-parties. The accounts receivables sold are generally short-term
trade receivables with payment due dates of less than 60 days.

All of our arrangements involve the sale of our entire interest in groups of accounts receivable for cash. In most
instances a portion of the sales proceeds are held back by the purchaser and payment is deferred until collection of
the related receivables sold. Such holdbacks are not considered legal securities nor are they certificated. We report
collections on such receivables as operating cash flows in the Consolidated Statements of Cash Flows because
such receivables are the result of an operating activity and the associated interest rate risk is de minimis due to their
short-term nature. Our risk of loss following the sales of accounts receivable is limited to the outstanding deferred
purchase price receivable. These receivables are included in the caption “Other current assets” in the
accompanying Consolidated Balance Sheets and were $121 and $116 at December 31, 2013 and 2012,
respectively.

Under most of the agreements, we continue to service the sold accounts receivable. When applicable, a servicing
liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability
were not material.

Xerox 2013 Annual Report 80

Of the accounts receivables sold and derecognized from our balance sheet, $723 and $766 remained uncollected
as of December 31, 2013 and 2012, respectively. Accounts receivable sales were as follows:

Accounts receivable sales

Deferred proceeds

Loss on sale of accounts receivables
Estimated (decrease) increase to operating cash flows(1)

_______________

Year Ended December 31,

2013

2012

2011

3,401

3,699

486

(55)

639

(78)

3,218

386

133

(1) Represents the difference between current and prior year fourth quarter receivable sales adjusted for the effects of: (i) the deferred

proceeds, (ii) collections prior to the end of the year and (iii) currency.

Note 5 – Finance Receivables, Net

Finance receivables include sales-type leases, direct financing leases and installment loans arising from the marketing
of our equipment. These receivables are typically collateralized by a security interest in the underlying assets. Finance
receivables, net were as follows:

Gross receivables

Unearned income

Subtotal

Residual values

Allowance for doubtful accounts

Finance Receivables, Net

Less: Billed portion of finance receivables, net

Less: Current portion of finance receivables not billed, net

Finance Receivables Due After One Year, Net

December 31,

2013

2012

5,349

(666)

4,683

(154)

4,530

113

1,500

2,917

6,290

(809)

5,481

(170)

5,313

152

1,836

3,325

Contractual maturities of our gross finance receivables as of December 31, 2013 were as follows (including those
already billed of $124):

2014

2015

2016

2017

2018

Thereafter

Total

2,010

1,504

1,023

572

221

5,349

Transfer and Sale of Finance Receivables

U.S. Lease Finance Receivable Transactions - In 2013 and 2012, we transferred our entire interest in certain groups
of U.S. lease finance receivables to a third-party financial institution for cash proceeds and a beneficial interest from the
purchaser. The lease contracts, including associated service and supply elements, were initially transferred to a wholly-
owned consolidated bankruptcy-remote limited purpose subsidiary, which in turn transferred the principal and interest
portions of such contracts to the third-party financial institution (the “ultimate purchaser”). The final transfer met the
requirements for derecognition according to ASC Topic 860, Transfers and Servicing and therefore were accounted for
as sales. Accordingly, we derecognized the associated lease receivables. The following is a summary of our U.S.
activity:

Net carrying value (NCV) sold

Allowance included in NCV

Cash proceeds received

Beneficial interests received

Pre-tax gain on sales

Net fees and expenses

Year Ended December 31,

2013

2012

2011

419

682

387

630

101

—

The principal value of the U.S. receivables derecognized from our balance sheet was $761 and $644 at December 31,
2013 and 2012, respectively (sales value of approximately $833 and $715, respectively).

The beneficial interest represents our right to receive future cash flows from the sold receivables, which exceed the
servicing fee as well as the ultimate purchaser's initial investment and associated return on that investment. The
beneficial interest was initially recognized at an estimate of fair value based on the present value of the expected future
cash flows. The present value of the expected future cash flows was calculated using management's best estimate of
key assumptions including credit losses, prepayment rate and an appropriate risk adjusted discount rate (all
unobservable Level 3 inputs) for which we utilized annualized rates of 2.1%, 9.3% and 10.0%, respectively. These
assumptions are supported by both our historical experience and anticipated trends relative to the particular portfolio of
receivables sold. However, to assess the sensitivity on the fair value of the beneficial interest, we adjusted the credit
loss rate, prepayment rate and discount rate assumptions individually by 10% and 20% while holding the other
assumptions constant. Although the effect of multiple assumption changes was not considered in this analysis, a 10% or
20% adverse variation in any one of these three individual assumptions would have decreased the initially recorded
beneficial interest by approximately $3 or less for sales in 2013 and $4 or less for sales in 2012.

We will continue to service the sold receivables for which we receive a 1% servicing fee. We have concluded that the
1% servicing fee is adequate compensation and, accordingly, no servicing asset or liability was recorded.

Canada Lease Finance Receivables Transfer: In December 2013, our Canadian subsidiary transferred its entire
interest in a group of lease finance receivables to a third-party trust. The transfer was accounted for as a sale and
resulted in the derecognition of lease receivables with a net carrying value of $257, net of allowance of $5, the receipt of
cash proceeds of $248 and a beneficial interest of $26. A pre-tax gain of $15 was recognized on this transaction and is
net of additional fees and expenses of approximately $1. We will continue to service the sold receivables for which we
will receive a 1% servicing fee. We have concluded that the 1% servicing fee is adequate compensation and,
accordingly, no servicing asset or liability was recorded. The principal value of the Canadian receivables derecognized
from our balance sheet was $245 at December 31, 2013 (sale value of approximately $265).

Consistent with the U.S. transfers, the beneficial interest was initially recognized at an estimate of fair value based on
the present value of the expected future cash flows. The present value of the expected future cash flows was calculated
using management's best estimate of key assumptions including credit losses, prepayment rate and an appropriate risk
adjusted discount rate (all unobservable Level 3 inputs) for which we utilized annualized rates of 1.7%, 12.0% and
10.0%, respectively. These assumptions are supported by both our historical experience and anticipated trends relative
to the particular portfolio of receivables sold. However, to assess the sensitivity on the fair value of the beneficial
interest, we adjusted the credit loss rate, prepayment rate and discount rate assumptions individually by 10% and 20%
while holding the other assumptions constant. Although the effect of multiple assumption changes was not considered in
this analysis, a 10% or 20% adverse variation in any one of these three individual assumptions would have decreased
the initially recorded beneficial interest by approximately $1 or less.

Summary Finance Receivable Sales The lease portfolios transferred and sold were all from our Document Technology
segment and the gains on these sales were reported in Financing revenues within the Document Technology segment.
The ultimate purchaser has no recourse to our other assets for the failure of customers to pay principal and interest
when due beyond our beneficial interests which were $150 and $103 at December 31, 2013 and 2012, respectively, and
are included in Other current assets and Other long-term assets accordingly in the accompanying Consolidated Balance
Sheets. Beneficial interests of $124 and $103 at December 31, 2013 and 2012, respectively, are held by the
bankruptcy-remote subsidiaries and therefore are not available to satisfy any of our creditor obligations. We report
collections on the beneficial interests as operating cash flows in the Consolidated Statements of Cash Flows because
such beneficial interests are the result of an operating activity and the associated interest rate risk is de minimis
considering their weighted average lives of less than 2 years.

The net impact from the sales of finance receivables on operating cash flows is summarized below:

Net cash received for sales of finance receivables(1)
Impact from prior sales of finance receivables(2)

Collections on beneficial interest

Estimated Increase to Operating Cash Flows
_________________

Year Ended December 31,

2013

2012

2011

631

625

(392)

(45)

—

297

580

—

(1) Net of beneficial interest, fees and expenses.
(2) Represents cash that would have been collected if we had not sold finance receivables.

Xerox 2013 Annual Report 82

Finance Receivables - Allowance for Credit Losses and Credit Quality
Our finance receivable portfolios are primarily in the U.S., Canada and Europe. We generally establish customer credit
limits and estimate the allowance for credit losses on a country or geographic basis. Customer credit limits are based
upon an initial evaluation of the customer's credit quality and we adjust that limit accordingly based upon ongoing credit
assessments of the customer, including payment history and changes in credit quality.

The allowance for doubtful accounts and provision for credit losses represents an estimate of the losses expected to be
incurred from the Company's finance receivable portfolio. The level of the allowance is determined on a collective basis
by applying projected loss rates to our different portfolios by country, which represent our portfolio segments. This is the
level at which we develop and document our methodology to determine the allowance for credit losses. This loss rate is
primarily based upon historical loss experience adjusted for judgments about the probable effects of relevant observable
data including current economic conditions as well as delinquency trends, resolution rates, the aging of receivables,
credit quality indicators and the financial health of specific customer classes or groups. The allowance for doubtful
finance receivables is inherently more difficult to estimate than the allowance for trade accounts receivable because the
underlying lease portfolio has an average maturity, at any time, of approximately two to three years and contains past
due billed amounts, as well as unbilled amounts. We consider all available information in our quarterly assessments of
the adequacy of the allowance for doubtful accounts. The identification of account-specific exposure is not a significant
factor in establishing the allowance for doubtful finance receivables. Our policy and methodology used to establish our
allowance for doubtful accounts has been consistently applied over all periods presented.

Since our allowance for doubtful finance receivables is determined by country, the risk characteristics in our finance
receivable portfolio segments will generally be consistent with the risk factors associated with the economies of those
countries/regions. Loss rates declined in the U.S. reflecting the effects of improved collections during 2012 and 2013 as
well as the lower balance of finance receivables primarily due to sales in 2012 and 2013. The loss rate in Canada was
flat in 2013 as compared to the prior year. Since Europe is comprised of various countries and regional economies, the
risk profile within our European portfolio segment is somewhat more diversified due to the varying economic conditions
among the countries. Charge-offs in Europe were flat in 2013 as compared to the prior years reflecting a stabilization of
the credit issues noted in 2011. Loss rates peaked in 2011 as a result of the European economic challenges particularly
for those countries in the southern region.

The following table is a rollforward of the allowance for doubtful finance receivables as well as the related investment in
finance receivables:

Allowance for Credit Losses:

Balance at December 31, 2011

Provision

Charge-offs
Recoveries and other(1)

Sale of finance receivables

Balance at December 31, 2012

Provision

Charge-offs
Recoveries and other(1)

Sale of finance receivables

Balance at December 31, 2013

Finance Receivables Collectively Evaluated for
Impairment:
December 31, 2012(2)
December 31, 2013(2)

______________

United States

Canada

Europe

Other(3)

Total

(21)

(18)

(8)

(12)

(15)

—

(16)

(5)

(59)

—

(60)

—

2,012

1,666

801

421

2,474

2,292

(2)

—

(2)

—

194

304

201

(97)

(18)

170

(86)

(17)

154

5,481

4,683

(1)

Includes the impacts of foreign currency translation and adjustments to reserves necessary to reflect events of non-payment such as customer
accommodations and contract terminations.

(2) Total Finance receivables exclude residual values of $1 and $2 and the allowance for credit losses of $154 and $170 at December 31, 2013 and

2012, respectively.
Includes developing market countries and smaller units.

(3)

In the U.S. and Canada, customers are further evaluated or segregated by class based on industry sector. The primary
customer classes are Finance & Other Services, Government & Education; Graphic Arts; Industrial; Healthcare and
Other. In Europe, customers are further grouped by class based on the country or region of the customer. The primary
customer classes include the U.K./Ireland, France and the following European regions - Central, Nordic and Southern.
These groupings or classes are used to understand the nature and extent of our exposure to credit risk arising from
finance receivables.

We evaluate our customers based on the following credit quality indicators:
•

Investment grade: This rating includes accounts with excellent to good business credit, asset quality and the
capacity to meet financial obligations. These customers are less susceptible to adverse effects due to shifts in
economic conditions or changes in circumstance. The rating generally equates to a Standard & Poors (S&P) rating
of BBB- or better. Loss rates in this category are normally minimal at less than 1%.

• Non-investment grade: This rating includes accounts with average credit risk that are more susceptible to loss in
the event of adverse business or economic conditions. This rating generally equates to a BB S&P rating. Although
we experience higher loss rates associated with this customer class, we believe the risk is somewhat mitigated by
the fact that our leases are fairly well dispersed across a large and diverse customer base. In addition, the higher
loss rates are largely offset by the higher rates of return we obtain with such leases. Loss rates in this category are
generally in the range of 2% to 4%.

• Substandard: This rating includes accounts that have marginal credit risk such that the customer’s ability to make
repayment is impaired or may likely become impaired. We use numerous strategies to mitigate risk including higher
rates of interest, prepayments, personal guarantees, etc. Accounts in this category include customers who were
downgraded during the term of the lease from investment and non-investment grade evaluation when the lease was
originated. Accordingly there is a distinct possibility for a loss of principal and interest or customer default. The loss
rates in this category are around 10%.

Credit quality indicators are updated at least annually, and the credit quality of any given customer can change during
the life of the portfolio. Details about our finance receivables portfolio based on industry and credit quality indicators are
as follows:

December 31, 2013

December 31, 2012

Investment
Grade

Non-
investment
Grade

Sub-
standard

Total
Finance
Receivables

Investment
Grade

Non-
investment
Grade

Sub-
standard

Total
Finance
Receivables

102

Finance and other services $

Government and education

Graphic arts

Industrial

Healthcare

Other

189

656

142

Total United States

1,208

253

Finance and other services

Government and education

Graphic arts

Industrial

Other

Total Canada

France

U.K./Ireland
Central(1)
Southern(2)
Nordic(3)

Total Europe

Other

Total

_____________

250

282

199

287

102

916

226

100

314

171

394

187

1,108

108

205

122

268

325

671

309

135

115

111

252

750

115

109

1,666

1,388

108

106

421

718

412

724

347

2,292

304

151

117

446

274

215

315

139

992

148

147

359

116

243

294

155

445

230

1,160

137

265

112

134

322

458

769

319

163

160

143

2,012

307

129

101

135

129

801

702

420

816

442

2,474

194

5,481

2,600

1,530

553

4,683

2,974

1,801

706

(1) Switzerland, Germany, Austria, Belgium and Holland.
(2)
Italy, Greece, Spain and Portugal.
(3) Sweden, Norway, Denmark and Finland.

Xerox 2013 Annual Report 84

The aging of our receivables portfolio is based upon the number of days an invoice is past due. Receivables that are
more than 90 days past due are considered delinquent. Receivable losses are charged against the allowance when
management believes the uncollectibility of the receivable is confirmed and is generally based on individual credit
evaluations, results of collection efforts and specific circumstances of the customer. Subsequent recoveries, if any, are
credited to the allowance.

We generally continue to maintain equipment on lease and provide services to customers that have invoices for finance
receivables that are 90 days or more past due and, as a result of the bundled nature of billings, we also continue to
accrue interest on those receivables. However, interest revenue for such billings is only recognized if collectability is
deemed reasonably assured. The aging of our billed finance receivables is as follows:

Finance and other services

Government and education

Graphic arts

Industrial

Healthcare

Other

Total United States

Canada

France

U.K./Ireland
Central(1)
Southern(2)
Nordic(3)
Total Europe

Other

Total

Finance and other services

Government and education

Graphic arts

Industrial

Healthcare

Other

Total United States

Canada

France

U.K./Ireland
Central(1)
Southern(2)
Nordic(3)

Total Europe

Other

Total

________________

December 31, 2013

31-90
Days
Past Due

>90 Days
Past Due

Total Billed

Unbilled

Total
Finance
Receivables

>90 Days
and
Accruing

Current

—

Current

31-90
Days
Past Due

—

315

647

296

130

111

107

325

671

309

135

115

111

1,606

1,666

411

718

410

716

314

2,247

295

421

718

412

724

347

2,292

304

124

4,559

4,683

—

110

—

194

December 31, 2012

Total Billed

Unbilled

Total
Finance
Receivables

>90 Days
and
Accruing

>90 Days
Past Due

—

441

740

301

155

151

136

458

769

319

163

160

143

1,924

2,012

794

696

416

807

400

2,412

191

801

702

420

816

442

2,474

194

—

126

—

249

160

5,321

5,481

(1) Switzerland, Germany, Austria, Belgium and Holland.
Italy, Greece, Spain and Portugal.
(2)
(3) Sweden, Norway, Denmark and Finland.

Note 6 – Inventories and Equipment on Operating Leases, Net

The following is a summary of Inventories by major category:

Finished goods

Work-in-process

Raw materials

Total Inventories

December 31,

2013

2012

837

101

998

844

106

1,011

The transfer of equipment from our inventories to equipment subject to an operating lease is presented in our
Consolidated Statements of Cash Flows in the operating activities section. Equipment on operating leases and
similar arrangements consists of our equipment rented to customers and depreciated to estimated salvage value at
the end of the lease term.

Equipment on operating leases and the related accumulated depreciation were as follows:

Equipment on operating leases

Accumulated depreciation

Equipment on Operating Leases, Net

December 31,

2013

2012

1,575

(1,016)

559

1,533

(998)

535

Depreciable lives generally vary from three to four years consistent with our planned and historical usage of the
equipment subject to operating leases. Our equipment operating lease terms vary, generally from one to three
years. Scheduled minimum future rental revenues on operating leases with original terms of one year or longer are:

2014

2015

2016

2017

2018

Thereafter

331

275

181

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum
contracted amounts, for the years ended December 31, 2013, 2012 and 2011 amounted to $151, $158 and $154,
respectively.

Note 7 - Land, Buildings, Equipment and Software, Net

Land, buildings and equipment, net were as follows:

December 31,

2013

2012

Land

Buildings and building equipment

Leasehold improvements

Plant machinery

Office furniture and equipment

Other

Construction in progress

Subtotal

Accumulated depreciation

Estimated
Useful Lives
(Years)

25 to 50

Varies

5 to 12

3 to 15

4 to 20

1,086

483

1,493

1,826

5,087

(3,621)

Land, Buildings and Equipment, Net

1,466

1,135

506

1,571

1,681

5,111

(3,555)

1,556

Xerox 2013 Annual Report 86

Depreciation expense and operating lease rent expense were as follows:

Depreciation expense
Operating lease rent expense(1)
_____________________________

Year Ended December 31,

2013

2012

2011

431

754

452

646

405

681

(1) We lease certain land, buildings and equipment, substantially all of which are accounted for as operating leases. Capital leased assets were

approximately $150 and $80 at December 31, 2013 and 2012, respectively.

Future minimum operating lease commitments that have initial or remaining non-cancelable lease terms in excess
of one year at December 31, 2013 were as follows:

2014

2015

2016

2017

2018

Thereafter

579

467

304

122

Internal Use and Product Software

Additions to:

Internal use software

Product software

Capitalized costs, net:

Internal use software

Product software

Year Ended December 31,

2013

2012

2011

125

107

December 31,

2013

2012

506

343

163

108

577

344

Useful lives of our internal use and product software generally vary from three to ten years.

Included within product software at December 31, 2013 is approximately $250 of capitalized costs associated with
significant software systems developed for use in certain of our government services businesses. We regularly
review these software systems for impairment. Our impairment review for 2013 and 2012 indicated that the costs
will be recoverable from estimated future operating profits; however, those future operating profits are heavily
dependent on our ability to successfully obtain future contracts.

Note 8 – Investment in Affiliates, at Equity

Investments in corporate joint ventures and other companies in which we generally have a 20% to 50% ownership
interest were as follows:

Fuji Xerox

All other equity investments

Investments in Affiliates, at Equity

December 31,

2013

2012

1,224

1,285

Our equity in net income of our unconsolidated affiliates was as follows:

Fuji Xerox

Other investments

Total Equity in Net Income of Unconsolidated Affiliates

Year Ended December 31,

2013

2012

2011

156

169

139

152

1,317

1,381

137

149

Fuji Xerox
Fuji Xerox is headquartered in Tokyo and operates in Japan, China, Australia, New Zealand and other areas of the
Pacific Rim. Our investment in Fuji Xerox of $1,224 at December 31, 2013, differs from our implied 25% interest in
the underlying net assets, or $1,329, due primarily to our deferral of gains resulting from sales of assets by us to
Fuji Xerox.

Equity in net income of Fuji Xerox is affected by certain adjustments to reflect the deferral of profit associated with
intercompany sales. These adjustments may result in recorded equity income that is different from that implied by our
25% ownership interest.

Summarized financial information for Fuji Xerox is as follows:

Year Ended December 31,

2013

2012

2011

Summary of Operations

Revenues

Costs and expenses

Income before income taxes

Income tax expense

Net Income

Less: Net income - noncontrolling interests

Net Income - Fuji Xerox

Balance Sheet

Assets:

Current assets

Long-term assets

Total Assets

Liabilities and Equity:

Current liabilities

Long-term debt

Other long-term liabilities

Noncontrolling interests

Fuji Xerox shareholders' equity

Total Liabilities and Equity

11,415

12,633

10,479

11,783

936

276

660

850

279

571

655

565

4,955

5,154

5,160

6,158

5,056

6,064

10,115

11,312

11,120

3,114

3,465

3,772

978

680

5,315

1,185

917

5,718

10,115

11,312

12,367

11,464

903

312

591

586

817

700

5,806

11,120

2011

79.61

77.62

Yen/U.S. Dollar exchange rates used to translate are as follows:

Financial Statement

Exchange Basis

Summary of Operations

Weighted average rate

Balance Sheet

Year-end rate

2013

97.52

105.15

2012

79.89

86.01

Transactions with Fuji Xerox
We receive dividends from Fuji Xerox, which are reflected as a reduction in our investment. Additionally, we have a
Technology Agreement with Fuji Xerox whereby we receive royalty payments for their use of our Xerox brand
trademark, as well as rights to access our patent portfolio in exchange for access to their patent portfolio. These
payments are included in Outsourcing, maintenance and rental revenues in the Consolidated Statements of
Income. We also have arrangements with Fuji Xerox whereby we purchase inventory from and sell inventory to Fuji
Xerox. Pricing of the transactions under these arrangements is based upon terms the Company believes to be
negotiated at arm's length. Our purchase commitments with Fuji Xerox are in the normal course of business and
typically have a lead time of three months. In addition, we pay Fuji Xerox and they pay us for unique research and
development costs.

Xerox 2013 Annual Report 88

Transactions with Fuji Xerox were as follows:

Dividends received from Fuji Xerox

Royalty revenue earned

Inventory purchases from Fuji Xerox

Inventory sales to Fuji Xerox

R&D payments received from Fuji Xerox

R&D payments paid to Fuji Xerox

Year Ended December 31,

2013

2012

2011

118

1,903

145

132

2,069

147

128

2,180

151

As of December 31, 2013 and 2012, net amounts due to Fuji Xerox were $85 and $110, respectively.

Note 9 - Goodwill and Intangible Assets, Net
Goodwill
The following table presents the changes in the carrying amount of goodwill, by reportable segment:

Services

Document
Technology

6,522

(28)

2,127

(6)

Total

8,649

(34)

—

6,619

2,184

8,803

—

6,780

2,282

9,062

—

6,815

2,390

9,205

Balance at December 31, 2010

Foreign currency translation

Acquisitions:

Unamic/HCN

Breakaway

ESM

Concept Group

MBM

Other

Balance at December 31, 2011

Foreign currency translation

Acquisitions:

WDS

R.K. Dixon

Other

Balance at December 31, 2012

Foreign currency translation

Acquisitions:

Zeno

Impika

Other

Balance at December 31, 2013

Intangible Assets, Net

Net intangible assets were $2.5 billion at December 31, 2013 and approximately $2.1 billion relate to our Services
segment and $0.4 billion relate to our Document Technology segment. Intangible assets were comprised of the
following:

December 31, 2013

December 31, 2012

Weighted
Average
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Net
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Amount

Customer relationships

12 years

3,580

1,359

2,221

3,562

1,052

2,510

Distribution network
Trademarks(1)

Technology, patents and
non-compete(1)

Total Intangible Assets

_______________

25 years

20 years

9 years

123

269

197

123

257

4,013

1,510

2,503

3,965

1,182

198

2,783

(1)

Includes $10 and $5 of indefinite-lived assets within trademarks and technology, respectively, related to the 2010 acquisition of ACS.

Amortization expense related to intangible assets was $332, $328, and $401 for the years ended December 31,
2013, 2012 and 2011, respectively.

Excluding the impact of additional acquisitions, amortization expense is expected to approximate $327 in 2014 and
2015, and $323 in years 2016 through 2018.

Note 10 – Restructuring and Asset Impairment Charges

Over the past several years, we have engaged in a series of restructuring programs related to downsizing our
employee base, exiting certain activities, outsourcing certain internal functions and engaging in other actions
designed to reduce our cost structure and improve productivity. These initiatives primarily consist of severance
actions and impact all major geographies and segments. Management continues to evaluate our business,
therefore, in future years, there may be additional provisions for new plan initiatives as well as changes in
previously recorded estimates, as payments are made or actions are completed. Asset impairment charges were
also incurred in connection with these restructuring actions for those assets sold, abandoned or made obsolete as a
result of these programs.

Costs associated with restructuring, including employee severance and lease termination costs are generally
recognized when it has been determined that a liability has been incurred, which is generally upon communication
to the affected employees or exit from the leased facility, respectively. In those geographies where we have either a
formal severance plan or a history of consistently providing severance benefits representing a substantive plan, we
recognize employee severance costs when they are both probable and reasonably estimable.

Xerox 2013 Annual Report 90

323

103

(71)

(233)

123

168

(14)

154

(1)

153

(146)

130

145

(29)

116

122

(136)

116

(233)

(218)

A summary of our restructuring program activity during the three years ended December 31, 2013 is as follows:

Severance and
Related Costs

Lease Cancellation
and Other Costs

Asset
Impairments(1)

Total

298

— $

Balance at December 31, 2010

Restructuring provision

Reversals of prior accruals

Net current period charges - continuing operations(2)

Discontinued operations(3)

Total Net Current Period Charges

Charges against reserve and currency

Balance at December 31, 2011

Restructuring provision

Reversals of prior accruals

Net current period charges - continuing operations(2)

Discontinued operations(3)

Total Net Current Period Charges

Charges against reserve and currency

Balance at December 31, 2012

Restructuring provision

Reversals of prior accruals

Net current period charges - continuing operations(2)

Discontinued operations(3)

Total Net Current Period Charges

Charges against reserve and currency

(65)

(215)

116

161

(13)

148

(1)

147

(140)

123

142

(29)

113

119

(133)

(6)

(5)

—

(5)

(13)

—

(5)

—

(5)

—

(1)

—

(1)

—

(2)

(1)

— $

Balance at December 31, 2013

109

________________

(1) Charges associated with asset impairments represent the write-down of the related assets to their new cost basis and are recorded

concurrently with the recognition of the provision.

(2) Represents amount recognized within the Consolidated Statements of Income for the years shown.
(3) Refer to Note 3 - Acquisitions and Divestitures for additional information regarding discontinued operations.

The following table summarizes the reconciliation to the Consolidated Statements of Cash Flows:

Charges against reserve

Asset impairment

Effects of foreign currency and other non-cash items

Restructuring Cash Payments

Year Ended December 31,

2013

2012

2011

(136) $

(146) $

(1)

(136) $

(144) $

The following table summarizes the total amount of costs incurred in connection with these restructuring programs
by segment:

Year Ended December 31,

2013

2012

2011

—

116

154

(3)

Services

Document Technology

Other

Total Net Restructuring Charges

Note 11 - Supplementary Financial Information

The components of other current and long-term assets and liabilities were as follows:

Deferred taxes and income taxes receivable

Royalties, license fees and software maintenance

Other Current Assets

Restricted cash

Prepaid expenses

Derivative instruments

Deferred purchase price from sales of accounts receivables

Beneficial interests - sales of finance receivables

Advances and deposits

Other

Total Other Current Assets

Deferred taxes and income taxes payable

Other Current Liabilities

Other taxes payable

Interest payable

Restructuring reserves

Derivative instruments

Product warranties

Dividends payable

Distributor and reseller rebates/commissions

Servicer liabilities

Other

Total Other Current Liabilities

Other Long-term Assets

Prepaid pension costs

Net investment in discontinued operations

Internal use software, net

Product software, net

Restricted cash

Debt issuance costs, net

Customer contract costs, net

Beneficial interests - sales of finance receivables

Deferred compensation plan investments

Other

Total Other Long-term Assets

Other Long-term Liabilities

Deferred and other tax liabilities

Environmental reserves

Unearned income

Restructuring reserves

Other

Total Other Long-term Liabilities

December 31,

2013

2012

253

185

147

143

121

256

1,207

180

108

125

140

826

296

165

151

143

116

216

1,162

105

170

122

117

146

869

1,713

1,776

173

506

343

170

399

116

343

190

577

344

214

356

100

416

2,222

2,337

286

168

283

757

262

134

360

778

Xerox 2013 Annual Report 92

Restricted Cash and Investments
As more fully discussed in Note 17 - Contingencies and Litigation, various litigation matters in Brazil require us to
make cash deposits to escrow as a condition of continuing the litigation. In addition, as more fully discussed in Note
4 - Accounts Receivable, Net and Note 5 - Finance Receivables, Net, we continue to service the receivables sold
under most of our receivable sale agreements. As servicer, we may collect cash related to sold receivables prior to
year-end that will be remitted to the purchaser the following year. Since we are acting on behalf of the purchaser in
our capacity as servicer, such cash collected is reported as restricted cash. Restricted cash amounts are classified
in our Consolidated Balance Sheets based on when the cash will be contractually or judicially released.

Restricted cash amounts were as follows:

Tax and labor litigation deposits in Brazil

Escrow and cash collections related to receivable sales

Other restricted cash

Total Restricted Cash and Investments

December 31,

2013

2012

167

140

317

211

146

365

Net Investment in Discontinued Operations
At December 31, 2013, our net investment in discontinued operations primarily consisted of a $191 performance-
based instrument relating to the 1997 sale of The Resolution Group (TRG) net of remaining net liabilities associated
with our discontinued operations of $18. The recovery of the performance-based instrument is dependent on the
sufficiency of TRG's available cash flows, as guaranteed by TRG's ultimate parent, which are expected to be
recovered in annual cash distributions through 2017. The performance-based instrument is pledged as security for
our future funding obligations to our U.K. Pension Plan for salaried employees.

Note 12 – Debt

Short-term borrowings were as follows:

Commercial paper

Notes Payable

Current maturities of long-term debt

Total Short-term Debt

December 31,

2013

2012

— $

1,112

1,117

—

1,042

We classify our debt based on the contractual maturity dates of the underlying debt instruments or as of the earliest
put date available to the debt holders. We defer costs associated with debt issuance over the applicable term, or to
the first put date in the case of convertible debt or debt with a put feature. These costs are amortized as interest
expense in our Consolidated Statements of Income.

Long-term debt was as follows:

Xerox Corporation

Senior Notes due 2013

Floating Rate Notes due 2013

Convertible Notes due 2014

Senior Notes due 2014

Floating Rate Notes due 2014

Senior Notes due 2015

Notes due 2016

Senior Notes due 2016

Senior Notes due 2017

Notes due 2018

Senior Notes due 2018

Senior Notes due 2019

Senior Notes due 2021

Senior Notes due 2039

Subtotal - Xerox Corporation

Subsidiary Companies

Senior Notes due 2015

Borrowings secured by other assets

Other

Subtotal-Subsidiary Companies

Principal Debt Balance

Unamortized discount
Fair value adjustments(1)

Less: current maturities

Total Long-term Debt
_______________

December 31,

Weighted Average
Interest Rates at
December 31, 2013(2)

2013

2012

—% $

— $

—%

9.00%

8.25%

1.06%

4.29%

7.20%

6.48%

6.83%

2.98%

0.57%

6.37%

2.77%

5.66%

5.39%

6.78%

4.25%

3.47%

0.35%

—

750

300

1,000

250

700

500

1,000

500

650

1,062

350

7,572

250

146

402

7,974

(58)

100

(1,112)

6,904

400

600

750

300

1,000

250

700

500

1,000

—

650

1,062

350

8,082

250

328

8,410

(63)

142

(1,042)

7,447

(1) Fair value adjustments - during the period from 2004 to 2011, we early terminated several interest rate swaps that were designated as fair
value hedges of certain debt instruments. The associated net fair value adjustments to debt are being amortized to interest expense over
the remaining term of the related notes.

(2) Represents weighted average effective interest rate which includes the effect of discounts and premiums on issued debt.

Scheduled principal payments due on our long-term debt for the next five years and thereafter are as follows:

2014(1)(2)

2015

2016

2017

2018

Thereafter

1,107

1,283

975

1,018

1,011

2,580

Total

7,974

_________________

(1) Quarterly long-term debt maturities for 2014 are $24, $1,063, $11 and $9 for the first, second, third and fourth quarters, respectively.
(2) Excludes fair value adjustment of $5.

Commercial Paper
We have a private placement commercial paper (CP) program in the U.S. under which we may issue CP up to a
maximum amount of $2.0 billion outstanding at any time. Aggregate CP and Credit Facility borrowings may not
exceed $2.0 billion outstanding at any time. The maturities of the CP Notes will vary, but may not exceed 390 days
from the date of issue. The CP Notes are sold at a discount from par or, alternatively, sold at par and bear interest at
market rates. At December 31, 2013 and 2012, we did not have any CP Notes outstanding.

Xerox 2013 Annual Report 94

Credit Facility
We have a $2.0 billion unsecured revolving Credit Facility with a group of lenders that matures in 2016. The Credit
Facility contains a $300 letter of credit sub-facility, and also includes an accordion feature that would allow us to
increase (from time to time, with willing lenders) the overall size of the facility up to an aggregate amount not to
exceed $2.75 billion.

The Credit Facility provides a backstop to our $2.0 billion CP program. Proceeds from any borrowings under the
Credit Facility can be used to provide working capital for the Company and its subsidiaries and for general
corporate purposes.

At December 31, 2013 we had no outstanding borrowings or letters of credit under the Credit Facility.

The Credit Facility is available, without sublimit, to certain of our qualifying subsidiaries. Our obligations under the
Credit Facility are unsecured and are not currently guaranteed by any of our subsidiaries. Any domestic subsidiary
that guarantees more than $100 of Xerox Corporation debt must also guaranty our obligations under the Credit
Facility. In the event that any of our subsidiaries borrows under the Credit Facility, its borrowings thereunder would
be guaranteed by us.

Borrowings under the Credit Facility bear interest at our choice, at either (a) a Base Rate as defined in our Credit
Facility agreement, plus a spread that varies between 0.00% and 0.45% depending on our credit rating at the time
of borrowing, or (b) LIBOR plus an all-in spread that varies between 0.90% and 1.45% depending on our credit
rating at the time of borrowing. Based on our credit rating as of December 31, 2013, the applicable all-in spreads for
the Base Rate and LIBOR borrowing were 0.175% and 1.175%, respectively.

An annual facility fee is payable to each lender in the Credit Facility at a rate that varies between 0.10% and 0.30%
depending on our credit rating. Based on our credit rating as of December 31, 2013, the applicable rate is 0.20%.

The Credit Facility contains various conditions to borrowing and affirmative, negative and financial maintenance
covenants. Certain of the more significant covenants are summarized below:

(a) Maximum leverage ratio (a quarterly test that is calculated as principal debt divided by consolidated EBITDA, as

defined) of 3.75x.

(b) Minimum interest coverage ratio (a quarterly test that is calculated as consolidated EBITDA divided by

consolidated interest expense) may not be less than 3.00x.

corporate structure, (iii) changes in nature of business and (iv) limitations on debt incurred by certain
subsidiaries.

The Credit Facility also contains various events of default, the occurrence of which could result in termination of the
lenders' commitments to lend and the acceleration of all our obligations under the Credit Facility. These events of
default include, without limitation: (i) payment defaults, (ii) breaches of covenants under the Credit Facility (certain
of which breaches do not have any grace period), (iii) cross-defaults and acceleration to certain of our other
obligations and (iv) a change of control of Xerox.

Interest
Interest paid on our short-term and long-term debt amounted to $435, $464 and $538 for the years ended
December 31, 2013, 2012 and 2011, respectively.

Interest expense and interest income was as follows:

Interest expense(1)
Interest income(2)

_____________

Year Ended December 31,

2013

2012

2011

406

494

430

610

478

653

(1)

(2)

Includes Equipment financing interest expense, as well as non-financing interest expense included in Other expenses, net in the
Consolidated Statements of Income.
Includes Finance income, as well as other interest income that is included in Other expenses, net in the Consolidated Statements of
Income.

Equipment financing interest is determined based on an estimated cost of funds, applied against the estimated level
of debt required to support our net finance receivables. The estimated cost of funds is based on our overall
corporate cost of borrowing adjusted to reflect a rate that would be paid by a typical BBB rated leasing company.
The estimated level of debt is based on an assumed 7 to 1 leverage ratio of debt/equity as compared to our
average finance receivable balance during the applicable period.

Net (Payments) Proceeds on Debt
Net proceeds (payments) on debt as shown on the Consolidated Statements of Cash Flows was as follows:

Net proceeds (payments) on short-term debt

Proceeds from issuance of long-term debt

Payments on long-term debt

Net (Payments) Proceeds on Debt

Note 13 – Financial Instruments

Year Ended December 31,

2013

2012

2011

(108) $

617

(1,056)

1,116

(1,116)

(434) $

(108) $

(200)

1,000

(751)

We are exposed to market risk from changes in foreign currency exchange rates and interest rates, which could
affect operating results, financial position and cash flows. We manage our exposure to these market risks through
our regular operating and financing activities and, when appropriate, through the use of derivative financial
instruments. These derivative financial instruments are utilized to hedge economic exposures, as well as to reduce
earnings and cash flow volatility resulting from shifts in market rates. We enter into limited types of derivative
contracts, including interest rate swap agreements, foreign currency spot, forward and swap contracts and net
purchased foreign currency options to manage interest rate and foreign currency exposures. Our primary foreign
currency market exposures include the Japanese Yen, Euro and U.K. Pound Sterling. The fair market values of all
our derivative contracts change with fluctuations in interest rates and/or currency exchange rates and are designed
so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative
financial instruments are held solely as risk management tools and not for trading or speculative purposes. The
related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated
with our derivative instruments because these transactions are executed with a diversified group of major financial
institutions. Further, our policy is to deal with counterparties having a minimum investment grade or better credit
rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Interest Rate Risk Management

We may use interest rate swap agreements to manage our interest rate exposure and to achieve a desired
proportion of variable and fixed rate debt. These derivatives may be designated as fair value hedges or cash flow
hedges depending on the nature of the risk being hedged. We did not have any interest rate swap agreements
outstanding at December 31, 2013 or 2012.

Xerox 2013 Annual Report 96

Terminated Swaps: During the period from 2004 to 2011, we early terminated several interest rate swaps that were
designated as fair value hedges of certain debt instruments. The associated net fair value adjustments to the debt
instruments are being amortized to interest expense over the remaining term of the related notes. In 2013, 2012
and 2011, the amortization of these fair value adjustments reduced interest expense by $42, $49 and $53,
respectively, and we expect to record a net decrease in interest expense of $100 in future years through 2018.

Foreign Exchange Risk Management

As a global company, we are exposed to foreign currency exchange rate fluctuations in the normal course of our
business. As a part of our foreign exchange risk management strategy, we use derivative instruments - primarily
forward contracts and purchased option contracts - to hedge the following foreign currency exposures, thereby
reducing volatility of earnings or protecting fair values of assets and liabilities:

• Foreign currency-denominated assets and liabilities
• Forecasted purchases and sales in foreign currency

Summary of Foreign Exchange Hedging Positions: At December 31, 2013, we had outstanding forward
exchange and purchased option contracts with gross notional values of $2,917, which is typical of the amounts that
are normally outstanding at any point during the year. Approximately 78% of these contracts mature within three
months, 8% in three to six months and 14% in six to twelve months.

The following is a summary of the primary hedging positions and corresponding fair values as of December 31, 2013:

Currencies Hedged (Buy/Sell)

Euro/U.K. Pound Sterling

Japanese Yen/U.S. Dollar

U.S. Dollar/Euro

Japanese Yen/Euro

U.K. Pound Sterling/Euro

Canadian Dollar/Euro

Euro/U.S. Dollar

Mexican Peso/U.S. Dollar

U.S. Dollar/Japanese Yen

Indian Rupee/U.S. Dollar

Philippine Peso/U.S. Dollar

Swiss Franc/Euro

Euro/Danish Krone

U.S. Dollar/Canadian Dollar

All Other

Total Foreign Exchange Hedging
________________

Gross
Notional
Value

Fair Value
Asset
(Liability)(1)

639

588

495

416

190

160

(27)

(8)

(32)

(1)

—

(1)

—

2,917

(64)

(1)

Represents the net receivable (payable) amount included in the Consolidated Balance Sheet at December 31, 2013.

Foreign Currency Cash Flow Hedges: We designate a portion of our foreign currency derivative contracts as cash
flow hedges of our foreign currency-denominated inventory purchases, sales and expenses. No amount of
ineffectiveness was recorded in the Consolidated Statements of Income for these designated cash flow hedges and
all components of each derivative’s gain or loss was included in the assessment of hedge effectiveness. The net
liability fair value of these contracts was $50 and $48 as of December 31, 2013 and December 31, 2012,
respectively.

Summary of Derivative Instruments Fair Value: The following table provides a summary of the fair value amounts
of our derivative instruments:

Designation of Derivatives

Balance Sheet Location

December 31,

2013

2012

Derivatives Designated as Hedging Instruments

Foreign exchange contracts – forwards

Other current assets

Other current liabilities

Net Designated Derivative Liability

Derivatives NOT Designated as Hedging Instruments

Foreign exchange contracts – forwards

Summary of Derivatives

Other current assets

Other current liabilities

Net Undesignated Derivative Liability

Total Derivative Assets

Total Derivative Liabilities

Net Derivative Liability

(51)

(50) $

(19)

(14) $

(70)

(64) $

(51)

(48)

(31)

(23)

(82)

(71)

Summary of Derivative Instruments Gains (Losses)

Derivative gains and (losses) affect the income statement based on whether such derivatives are designated as
hedges of underlying exposures. The following is a summary of derivative gains and (losses).

Designated Derivative Instruments Gains (Losses): The following tables provide a summary of gains (losses) on
derivative instruments:

Derivatives in Fair Value
Relationships

Location of Gain (Loss)
Recognized in Income

Year Ended December 31,

Derivative Gain (Loss)
Recognized in Income

Hedged Item Gain (Loss)
Recognized in Income

2013

2012

2011

2013

2012

2011

Interest rate contracts

Interest expense

— $

(15)

Derivative Gain (Loss) Recognized in OCI
(Effective Portion)

2013

2012

2011

Year Ended December 31,

Location of Derivative
Gain (Loss)
Reclassified
from AOCI into Income
(Effective Portion)

Gain (Loss) Reclassified from AOCI to
Income (Effective Portion)

2013

2012

2011

(126) $

(50) $

30 Cost of sales

(123) $

Derivatives in Cash
Flow
Hedging Relationships

Foreign exchange
contracts – forwards

No amount of ineffectiveness was recorded in the Consolidated Statements of Income for these designated cash
flow hedges and all components of each derivative’s gain or (loss) were included in the assessment of hedge
effectiveness. In addition, no amount was recorded for an underlying exposure that did not occur or was not
expected to occur.

As of December 31, 2013, net after-tax losses of $37 were recorded in accumulated other comprehensive loss
associated with our cash flow hedging activity. The entire balance is expected to be reclassified into net income
within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Non-Designated Derivative Instruments (Losses) Gains: Non-designated derivative instruments are primarily
instruments used to hedge foreign currency-denominated assets and liabilities. They are not designated as hedges
since there is a natural offset for the re-measurement of the underlying foreign currency-denominated asset or
liability.

Xerox 2013 Annual Report 98

The following table provides a summary of (losses) gains on non-designated derivative instruments:

Derivatives NOT Designated as
Hedging Instruments

Foreign exchange contracts – forwards

Location of Derivative (Loss) Gain

2013

2012

2011

Other expense – Currency (losses)
gains, net

(86) $

(38) $

Year Ended December 31,

During the three years ended December 31, 2013, we recorded Currency gains (losses), net of $7, $(3) and $(12),
respectively. Currency gains (losses), net includes the mark-to-market adjustments of the derivatives not designated
as hedging instruments and the related cost of those derivatives, as well as the re-measurement of foreign
currency-denominated assets and liabilities.

Note 14 – Fair Value of Financial Assets and Liabilities

The following table represents assets and liabilities fair value measured on a recurring basis. The basis for the
measurement at fair value in all cases is Level 2 – Significant Other Observable Inputs.

Assets:

Foreign exchange contracts-forwards

Deferred compensation investments in cash surrender life insurance

Deferred compensation investments in mutual funds

Total

Liabilities:

Foreign exchange contracts-forwards

Deferred compensation plan liabilities

Total

As of December 31,

2013

2012

122

125

195

111

110

192

We utilize the income approach to measure the fair value for our derivative assets and liabilities. The income
approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates
and forward prices, and therefore are classified as Level 2.

Fair value for our deferred compensation plan investments in Company-owned life insurance is reflected at cash
surrender value. Fair value for our deferred compensation plan investments in mutual funds is based on quoted
market prices for actively traded investments similar to those held by the plan. Fair value for deferred compensation
plan liabilities is based on the fair value of investments corresponding to employees’ investment selections, based
on quoted prices for similar assets in actively traded markets.

Summary of Other Financial Assets and Liabilities Fair Value Measured on a Nonrecurring Basis

The estimated fair values of our other financial assets and liabilities fair value measured on a nonrecurring basis
were as follows:

Cash and cash equivalents

Accounts receivable, net

Short-term debt

Long-term debt

December 31, 2013

December 31, 2012

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

1,764

1,246

2,929

1,117

6,904

2,929

1,126

7,307

2,866

1,042

7,447

1,246

2,866

1,051

8,040

The fair value amounts for Cash and cash equivalents and Accounts receivable, net, approximate carrying amounts
due to the short maturities of these instruments. The fair value of Short and Long-term debt was estimated based on
quoted market prices for publicly traded securities (Level 1) or on the current rates offered to us for debt of similar
maturities (Level 2). The difference between the fair value and the carrying value represents the theoretical net
premium or discount we would pay or receive to retire all debt at such date.

Note 15 – Employee Benefit Plans

We sponsor numerous defined benefit and defined contribution pension and other post-retirement benefit plans,
primarily retiree health care, in our domestic and international operations. December 31 is the measurement date for
all of our post-retirement benefit plans.

Change in Benefit Obligation:
Benefit obligation, January 1
Service cost
Interest cost
Plan participants' contributions
Actuarial (gain) loss
Currency exchange rate changes
Curtailments
Benefits paid/settlements
Other
Benefit Obligation, December 31

Change in Plan Assets:
Fair value of plan assets, January 1
Actual return on plan assets
Employer contribution
Plan participants' contributions
Currency exchange rate changes
Benefits paid/settlements
Other
Fair Value of Plan Assets, December 31

Net Funded Status at December 31(1)

Amounts Recognized in the Consolidated Balance
Sheets:

Other long-term assets
Accrued compensation and benefit costs
Pension and other benefit liabilities
Post-retirement medical benefits
Net Amounts Recognized
_______________

(1)

Includes under-funded and un-funded plans.

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

2013

2012

2013

2012

2013

2012

5,033
10
154
—
(440)
—
—
(864)
—
3,893

3,573
139
27
—
—
(864)
1
2,876

4,670
112
282
—
480
—
—
(509)
(2)
5,033

3,393
358
331
—
—
(509)
—
3,573

6,708
91
260
6
(203)
98
(10)
(264)
(22)
6,664

5,431
326
203
6
88
(264)
(1)
5,789

5,835
83
270
9
537
232
(1)
(256)
(1)
6,708

4,884
434
163
9
197
(256)
—
5,431

989
9
33
14
(88)
(10)
—
(91)
—
856

— $
—
77
14
—
(91)
—
— $

1,007
9
42
19
18
4
—
(103)
(7)
989

—
—
84
19
—
(103)
—
—

(1,017) $

(1,460) $

(875) $

(1,277) $

(856) $

(989)

— $
(25)
(992)
—
(1,017) $

— $
(23)
(1,437)
—
(1,460) $

55
(30)
(900)
—
(875) $

35
(25)
(1,287)
—
(1,277) $

— $
(71)
—
(785)
(856) $

—
(80)
—
(909)
(989)

Benefit plans pre-tax amounts recognized in AOCL at December 31:

Net actuarial loss

Prior service credits

Total Pre-tax Loss (Gain)

Accumulated Benefit Obligation

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

2013

2012

2013

2012

2013

2012

672

1,255

1,741

2,013

(15)

(17)

(20)

—

(85)

657

1,238

1,721

2,013

(79) $

(128)

(31)

3,887

5,027

6,368

6,359

Xerox 2013 Annual Report 100

Aggregate information for pension plans with an Accumulated benefit obligation in excess of plan assets is presented
below:

Underfunded Plans:

U.S.

Non U.S.

Unfunded Plans:

U.S.

Non U.S.

Total Underfunded and Unfunded Plans:

U.S.

Non U.S.

Total

December 31, 2013

December 31, 2012

Projected
benefit
obligation

Accumulated
benefit
obligation

Fair value of
plan assets

Projected
benefit
obligation

Accumulated
benefit
obligation

Fair value of
plan assets

3,571

3,565

2,876

4,679

4,672

5,350

5,104

4,964

5,997

5,686

3,574

5,213

322

540

322

526

— $

—

355

527

355

520

—

3,893

3,887

2,876

5,034

5,027

5,890

5,630

4,964

6,524

6,206

9,783

9,517

7,840

11,558

11,233

3,574

5,213

8,787

Our pension plan assets and benefit obligations at December 31, 2013 were as follows:

(in billions)

U.S. funded

U.S. unfunded

Total U.S.

U.K.

Canada

Other funded

Other unfunded

Total

Fair Value of
Pension Plan
Assets

Pension Benefit
Obligations

Net Funded Status

2.9

—

2.9

3.7

0.7

1.4

—

3.6

0.3

3.9

0.9

1.4

0.5

8.7

10.6

(0.7)

(0.3)

(1.0)

(0.2)

—

(0.5)

(1.9)

Prior to the freeze of current benefits (see below), most of our defined benefit pension plans generally provided
employees a benefit, depending on eligibility, calculated under a highest average pay and years of service formula.
Our primary domestic defined benefit pension plans provided a benefit at the greater of (i) the highest average pay and
years of service formula, (ii) the benefit calculated under a formula that provides for the accumulation of salary and
interest credits during an employee's work life or (iii) the individual account balance from the Company's prior defined
contribution plan (Transitional Retirement Account or TRA).

101

The components of Net periodic benefit cost and other changes in plan assets and benefit obligations were as follows:

Components of Net Periodic Benefit
Costs:

Service cost
Interest cost(1)
Expected return on plan assets(2)

Recognized net actuarial loss

Amortization of prior service credit

Recognized settlement loss

Recognized curtailment gain

Defined Benefit Plans

Defined contribution plans

Net Periodic Benefit Cost

Other changes in plan assets and benefit
obligations recognized in Other
Comprehensive Income:

Net actuarial (gain) loss

Prior service credit

Amortization of net actuarial loss

Amortization of net prior service credit

Curtailment gain - recognition of net prior
service credit

Total Recognized in Other Comprehensive
Income

Total Recognized in Net Periodic Benefit
Cost and Other Comprehensive Income

Year Ended December 31,

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

2013

2012

2011

2013

2012

2011

2013

2012

2011

154

(179)

(2)

162

—

164

233

(403)

—

(181)

—

112

282

(306)

(23)

—

200

228

427

(2)

(135)

—

(582)

313

108

328

(337)

(23)

(107)

113

334

(2)

(113)

107

349

260

(317)

—

(8)

103

130

(224)

(14)

(77)

—

270

(307)

—

100

135

416

(1)

(54)

—

284

(310)

—

130

518

—

(40)

—

(315)

361

478

—

(43)

—

n/a

(88)

—

(2)

n/a

(47)

—

(41)

—

n/a

(6)

(1)

n/a

(349) $

541

462

(185) $

496

608

(46) $

—

(41)

—

n/a

(3)

—

n/a

_______________
(1)

Interest cost includes interest expense on non-TRA obligations of $349, $382 and $388 and interest expense directly allocated to TRA
participant accounts of $65, $170 and $224 for the years ended December 31, 2013, 2012 and 2011, respectively.

(2) Expected return on plan assets includes expected investment income on non-TRA assets of $431, $443 and $423 and actual investment

income on TRA assets of $65, $170 and $224 for the years ended December 31, 2013, 2012 and 2011, respectively.

The net actuarial loss and prior service credit for the defined benefit pension plans that will be amortized from
Accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $62 and
$(1), respectively, excluding amounts that may be recognized through settlement losses. The net actuarial loss and
prior service credit for the retiree health benefit plans that will be amortized from Accumulated other comprehensive
income (loss) into net periodic benefit cost over the next fiscal year are $1 and $(43), respectively.

Pension plan assets consist of both defined benefit plan assets and assets legally restricted to the TRA accounts. The
combined investment results for these plans, along with the results for our other defined benefit plans, are shown
above in the “actual return on plan assets” caption. To the extent that investment results relate to TRA, such results are
charged directly to these accounts as a component of interest cost.

Plan Amendments

Pension Plan Freezes
Over the past several years, we have amended several of our major defined benefit pension plans to freeze current
benefits and eliminate benefits accruals for future service. The freeze of current benefits is the primary driver of the
reduction in pension service costs during 2013 and expected reductions in future periods. In certain plans we are
required to continue to consider salary increases in determining the benefit obligation related to prior service. The
following is a discussion of these amendments and their impact on our primary defined benefit pension plans.

Xerox 2013 Annual Report 102

In 2011, we amended all our primary U.S. defined benefit plans for salaried employees. Our primary qualified plans
had previously been amended to freeze the final pay formulas within the plans as of December 31, 2012, but a cash
balance service credit was expected to continue post December 31, 2012. The 2011 amendments fully freeze any
further benefit and service accrual after December 31, 2012 for all of these plans, including the non-qualified plans. As
a result of these plan amendments, in 2011 we recognized a pre-tax curtailment gain of $107 ($66 after-tax). The gain
represents the recognition of deferred gains from other prior year amendments (“Prior service credits”) as a result of
the discontinuation of any future benefit or service accrual period. This amendment resulted in a change in the
amortization period as of January 1, 2013 for actuarial gains and losses from the average remaining service period of
participants (approximately ten years) to the average remaining life expectancy of all participants (approximately thirty-
three years) as a result of all participants being considered inactive as of the effective date of the freeze.

As of December 31, 2012, the aggregate accumulated actuarial losses for our primary U.S. Defined Benefit Plans for
salaried employees amounted to $1.1 billion. This change reduced our 2013 pension expense by approximately $45.
This reduction was partially offset by an increased contribution to the U.S. defined contribution plan as all employees
have been transferred to that plan following the freeze.

In 2011, the Canadian Salary Pension Plan was amended to close the plan to future service accrual effective January
1, 2014. Benefits earned up to January 1, 2014 will not be affected and participants will continue to receive the benefit
of future salary increases to the extent applicable; therefore, the amendment did not result in a material change to the
projected benefit obligation at the re-measurement date of December 31, 2011.

In 2009, the U.K. Final Salary Pension Plan was amended to close the plan to future service accrual effective January
1, 2014. Benefits earned up to January 1, 2014 will not be affected and participants will continue to receive the benefit
of future salary and inflation increases to the extent applicable; therefore, the amendment does not result in a material
change to the projected benefit obligation at the re-measurement date of December 31, 2009.

Plan Assets

Current Allocation
As of the 2013 and 2012 measurement dates, the global pension plan assets were $8.7 billion and $9.0 billion,
respectively. These assets were invested among several asset classes.

103

The following tables presents the defined benefit plans assets measured at fair value and the basis for that
measurement:

Asset Class

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

— $

1 % $

688

— $

688

12%

U.S. Plans

Non-U.S. Plans

December 31, 2013

Equity Securities:

U.S. large cap

U.S. mid cap

U.S. small cap

International developed

Emerging markets

Global equity

Total Equity Securities

Fixed Income:

U.S. treasury securities

Debt security issued by
government agency

Corporate Bonds

Asset backed securities

Total Debt Securities

Derivatives:

Interest rate contracts

Foreign exchange contracts

Equity contracts

Other Contracts

Total Derivatives

Real estate

Private equity/Venture capital

Guaranteed insurance contracts
Other(1)

Total Fair Value Of Plans
Assets

_____________________________

319

182

171

793

—

123

258

180

908

1,172

(17)

(12)

—

(29)

—

451

—

332

305

240

1,051

180

908

1,172

(17)

(12)

—

(29)

103

451

—

12 %

2 %

3 %

11 %

8 %

— %

36 %

3 %

6 %

32 %

— %

41 %

(1)%

— %

(1)%

4 %

16 %

— %

3 %

220

1,314

262

1,854

146

—

181

—

212

—

343

1,189

660

1,866

—

269

212

135

—

275

1,526

338

2,197

1,220

806

2,047

—

168

336

212

135

—%

26%

—%

38%

—%

21%

14%

—%

35%

—%

891

1,505

480

2,876

100 % $

2,837

2,336

616

5,789

100%

(1) Other Level 1 assets include net non-financial assets of $9 U.S. and $6 Non-U.S., such as due to/from broker, interest receivables and accrued

expenses.

Xerox 2013 Annual Report 104

Asset Class

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

— $

1% $

500

— $

500

U.S. Plans

Non-U.S. Plans

December 31, 2012

Equity Securities:

U.S. large cap

Xerox common stock

U.S. mid cap

U.S. small cap

International developed

Emerging markets

Global equity

411

133

282

Total Equity Securities

1,073

Fixed Income:

U.S. treasury securities

Debt security issued by
government agency

Corporate bonds

Asset backed securities

Total Debt Securities

Common/Collective trust

Derivatives:

Interest rate contracts

Foreign exchange contracts

Equity contracts

Credit contracts

Other contracts

Total Derivatives

Hedge funds

Real estate

Private equity/Venture capital

Guaranteed insurance contracts
Other(1)

Total Fair Value Of Plans
Assets

_____________________________

—

205

316

367

153

1,080

1,611

—

(1)

—

300

—

421

338

349

1,389

367

153

1,080

1,611

—

(2)

(1)

—

163

300

—

12%

204

10%

—%

39%

10%

31%

—%

45%

—%

—

1,107

322

1,682

150

189

—

174

313

1,253

753

2,056

—

(4)

—

332

—

131

—

254

—

1,281

398

1,995

1,288

903

2,245

—

160

386

—

131

—%

24%

—%

37%

—%

24%

17%

42%

—%

—

(2)

—

1,195

2,020

358

3,573

100% $

2,483

2,482

466

5,431

100%

(1) Other Level 1 assets include net non-financial liabilities of $13 U.S. and $5 Non-U.S., such as due to/from broker, interest receivables and

accrued expenses.

105

The following tables represents a roll-forward of the defined benefit plans assets measured using significant
unobservable inputs (Level 3 assets):

Fair Value Measurement Using Significant Unobservable Inputs (Level 3)

U.S. Defined Benefit Plans Assets

Non-U.S. Defined Benefit Plans Assets

Private
Equity/
Venture
Capital

Real
Estate

Total

Real
Estate

Private
Equity/
Venture
Capital

Balance at December 31, 2011

318

390

280

Purchases

Sales

Net transfers in from Level 2

Realized gains (losses)

Unrealized gains (losses)

Currency translation

Balance at December 31, 2012

Purchases

Sales

Net transfers in from Level 1

Net transfers in from Level 2

Realized gains (losses)

Unrealized gains (losses)

Currency translation

Balance at December 31, 2013

(11)

—

(5)

—

(36)

—

(18)

—

(48)

—

(26)

—

300

177

(59)

—

(13)

—

(59)

—

(31)

—

358

178

(95)

—

(31)

—

(21)

(25)

332

(128)

—

(21)

Guaranteed
Insurance
Contracts

116

(7)

—

(1)

131

(5)

(1)

—

(2)

—

193

—

Total

399

(28)

(26)

466

260

(133)

(1)

—

(21)

616

451

480

269

212

135

Valuation Method
Our primary Level 3 assets are Real Estate and Private Equity/Venture Capital investments. The fair value of our real
estate investment funds are based on the Net Asset Value (NAV) of our ownership interest in the funds. NAV
information is received from the investment advisers and is primarily derived from third-party real estate appraisals for
the properties owned. The fair value for our private equity/venture capital partnership investments are based on our
share of the estimated fair values of the underlying investments held by these partnerships as reported in their audited
financial statements. The valuation techniques and inputs for our Level 3 assets have been consistently applied for all
periods presented.

Investment Strategy
The target asset allocations for our worldwide defined benefit pension plans were:

Equity investments

Fixed income investments

Real estate

Private equity

Other

2013

Non-U.S.

41%

47%

—%

U.S.

36%

44%

14%

2012

Non-U.S.

40%

47%

—%

U.S.

41%

43%

Total Investment Strategy

100%

We employ a total return investment approach whereby a mix of equities and fixed income investments are used to
maximize the long-term return of plan assets for a prudent level of risk. The intent of this strategy is to minimize plan
expenses by exceeding the interest growth in long-term plan liabilities. Risk tolerance is established through careful
consideration of plan liabilities, plan funded status and corporate financial condition. This consideration involves the
use of long-term measures that address both return and risk. The investment portfolio contains a diversified blend of
equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks,
as well as growth, value and small and large capitalizations, and may include Company stock. Other assets such as
real estate, private equity, and hedge funds are used to improve portfolio diversification. Derivatives may be used to
hedge market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the
portfolio beyond the market value of the underlying investments. Investment risks and returns are measured and
monitored on an ongoing basis through annual liability measurements and quarterly investment portfolio reviews.

Xerox 2013 Annual Report 106

Expected Long-term Rate of Return
We employ a “building block” approach in determining the long-term rate of return for plan assets. Historical markets
are studied and long-term relationships between equities and fixed income are assessed. Current market factors such
as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-
term portfolio return is established giving consideration to investment diversification and rebalancing. Peer data and
historical returns are reviewed periodically to assess reasonableness and appropriateness.

Contributions

In 2013, we made cash contributions of $230 ($27 U.S. and $203 Non-U.S.) and $77 to our defined benefit pension
plans and retiree health benefit plans, respectively. 2013 contributions include additional contributions to one of our
non-U.S. plans.

In 2014 we expect, based on current actuarial calculations, to make contributions of approximately $250 ($90 U.S.
and $160 non-U.S.) to our defined benefit pension plans and approximately $71 to our retiree health benefit plans. The
2014 expected defined benefit plan contributions reflect an increase in required contributions to our U.S. plans as a
result of the diminishing benefits from the pension funding legislation enacted in the U.S. in 2012.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during
the following years:

2014

2015

2016

2017

2018

Years 2019-2022

Assumptions

Pension Benefits

U.S.

Non-U.S.

Total

Retiree Health

463

374

352

333

290

258

265

271

281

289

721

639

623

614

579

1,357

1,603

2,960

317

Weighted-average assumptions used to determine benefit obligations at the plan measurement dates:

Discount rate

Rate of compensation increase

Discount rate

2013

Pension Benefits

2012

2011

U.S.

Non-U.S.

U.S.

Non-U.S.

U.S.

Non-U.S.

4.8%

0.2%

4.2%

2.7%

3.7%

0.2%

4.0%

2.6%

4.8%

3.5%

4.6%

2.7%

Retiree Health

2013

2012

2011

4.5%

3.6%

4.5%

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:

Pension Benefits

2014

2013

2012

2011

U.S.

Non-U.S.

U.S.

Non-U.S.

U.S.

Non-U.S.

U.S.

Non-U.S.

4.8%

7.8%

0.2%

4.2%

6.1%

2.7%

3.7%

7.8%

0.2%

4.0%

6.1%

2.6%

4.8%

7.8%

3.5%

4.6%

6.2%

2.7%

5.1%

8.3%

3.5%

5.3%

6.6%

2.7%

Discount rate

Expected return on plan assets

Rate of compensation increase

107

Discount rate

_____________________________

Retiree Health

2014

2013

2012

2011

4.5%

3.6%

4.5%

4.9%

Note: Expected return on plan assets is not applicable to retiree health benefits as these plans are not funded. Rate of compensation increase is not
applicable to retiree health benefits as compensation levels do not impact earned benefits.

Assumed health care cost trend rates were as follows:

Health care cost trend rate assumed for next year

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

Year that the rate reaches the ultimate trend rate

December 31,

2013

2012

7.2%

4.9%

2023

7.5%

4.9%

2017

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend rates would have the following effects:

Effect on total service and interest cost components

Effect on post-retirement benefit obligation

Defined Contribution Plans

1% increase

1% decrease

(1)

(29)

We have savings and investment plans in several countries, including the U.S., U.K. and Canada. In many instances,
employees from those defined benefit pension plans that have been amended to freeze future service accruals will be
transitioned to an enhanced defined contribution plan. For the U.S. plans, employees may contribute a portion of their
salaries and bonuses to the plans, and we match a portion of the employee contributions. We recorded charges related
to our defined contribution plans of $96 in 2013, $63 in 2012 and $66 in 2011.

Note 16 - Income and Other Taxes

Income before income taxes (pre-tax income) was as follows:

Domestic income

Foreign income

Income Before Income Taxes

Provisions (benefits) for income taxes were as follows:

Federal Income Taxes

Current

Deferred

Foreign Income Taxes

Current

Deferred

State Income Taxes

Current

Deferred

Total Provision

Year Ended December 31,

2013

2012

2011

948

364

876

456

1,312

1,332

914

621

1,535

Year Ended December 31,

2013

2012

2011

119

—

276

272

134

377

Xerox 2013 Annual Report 108

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate was as
follows:

U.S. federal statutory income tax rate

Nondeductible expenses

Effect of tax law changes

Change in valuation allowance for deferred tax assets

State taxes, net of federal benefit

Audit and other tax return adjustments

Tax-exempt income, credits and incentives
Foreign rate differential adjusted for U.S. taxation of foreign profits(1)

Other

Effective Income Tax Rate
_____________________________

Year Ended December 31,

2013

2012

2011

35.0 %

1.4 %

(0.6)%

0.2 %

2.6 %

(2.4)%

(3.8)%

(11.9)%

0.5 %

21.0 %

35.0 %

2.6 %

0.7 %

(0.7)%

2.1 %

(4.8)%

(2.6)%

(12.0)%

0.1 %

20.4 %

35.0 %

2.0 %

0.2 %

(0.3)%

2.4 %

(1.0)%

(3.2)%

(10.6)%

0.1 %

24.6 %

(1) The “U.S. taxation of foreign profits” represents the U.S. tax, net of foreign tax credits, associated with actual and deemed repatriations of

earnings from our non-U.S. subsidiaries.

On a consolidated basis, we paid a total of $155, $137 and $94 in income taxes to federal, foreign and state
jurisdictions during the three years ended December 31, 2013, respectively.

Total income tax expense (benefit) was allocated as follows:

Pre-tax income

Discontinued operations

Common shareholders' equity:

Changes in defined benefit plans

Stock option and incentive plans, net

Cash flow hedges

Translation adjustments

Total Income Tax Expense (Benefit)

Year Ended December 31,

2013

2012

2011

276

272

318

(13)

—

(9)

(233)

(5)

(24)

(9)

576

377

(277)

115

Unrecognized Tax Benefits and Audit Resolutions
We recognize tax liabilities when, despite our belief that our tax return positions are supportable, we believe that
certain positions may not be fully sustained upon review by tax authorities. Each period we assess uncertain tax
positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured
at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement - the more
likely than not recognition threshold. Where we have determined that our tax return filing position does not satisfy
the more likely than not recognition threshold, we have recorded no tax benefits.

We are also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope
of our operations. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related
tax positions require judgment and can increase or decrease our effective tax rate, as well as impact our operating
results. The specific timing of when the resolution of each tax position will be reached is uncertain. As of
December 31, 2013, we do not believe that there are any positions for which it is reasonably possible that the total
amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

109

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at January 1

Additions related to current year

Additions related to prior years positions

Reductions related to prior years positions
Settlements with taxing authorities(1)

Reductions related to lapse of statute of limitations

Currency

Balance at December 31

____________________________

2013

2012

2011

201

225

(19)

—

(14)

—

(36)

(13)

(8)

—

267

201

186

(17)

(14)

(8)

(3)

225

(1) Majority of settlements did not result in the utilization of cash.

Included in the balances at December 31, 2013, 2012 and 2011 are $36, $16 and $36, respectively, of tax positions
that are highly certain of realizability but for which there is uncertainty about the timing or that they may be reduced
through an indirect benefit from other taxing jurisdictions. Because of the impact of deferred tax accounting, other
than for the possible incurrence of interest and penalties, the disallowance of these positions would not affect the
annual effective tax rate.

We recognized interest and penalties accrued on unrecognized tax benefits, as well as interest received from
favorable settlements within income tax expense. We had $20, $20 and $28 accrued for the payment of interest and
penalties associated with unrecognized tax benefits at December 31, 2013, 2012 and 2011, respectively.

In the U.S., with the exception of ACS, we are no longer subject to U.S. federal income tax examinations for years
before 2007. ACS is no longer subject to such examinations for years before 2005. With respect to our major
foreign jurisdictions, we are no longer subject to tax examinations by tax authorities for years before 2000.

Deferred Income Taxes

We have not provided deferred taxes on approximately $8.0 billion of undistributed earnings of foreign subsidiaries
and other foreign investments carried at equity at December 31, 2013, as such undistributed earnings have been
determined to be indefinitely reinvested and we currently do not plan to initiate any action that would precipitate a
deferred tax impact. We do not believe it is practical to calculate the potential deferred tax impact, as there is a
significant amount of uncertainty with respect to determining the amount of foreign tax credits as well as any
additional local withholding tax and other indirect tax consequences that may arise from the distribution of these
earnings. In addition, because such earnings have been indefinitely reinvested in our foreign operations,
repatriation would require liquidation of those investments or a recapitalization of our foreign subsidiaries, the
impacts and effects of which are not readily determinable.

Xerox 2013 Annual Report 110

The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:

Deferred Tax Assets

December 31,

2013

2012

Research and development

Post-retirement medical benefits

Anticipated foreign repatriations

Net operating losses

Operating reserves and accruals

Tax credit carryforwards

Deferred compensation

Pension

Other

Subtotal

Valuation allowance

Total

Deferred Tax Liabilities

Unearned income and installment sales

Intangibles and goodwill

Anticipated foreign repatriations

Other

Total

Total Deferred Taxes, Net

647

310

—

597

374

694

268

431

3,408

(614)

2,794

959

1,253

2,320

793

359

264

630

403

177

312

696

195

3,829

(654)

3,175

947

1,252

—

2,247

474

928

The above amounts are classified as current or long-term in the Consolidated Balance Sheets in accordance with
the asset or liability to which they relate or, when applicable, based on the expected timing of the reversal. Current
deferred tax assets at December 31, 2013 and 2012 amounted to $209 and $273, respectively.

The deferred tax assets for the respective periods were assessed for recoverability and, where applicable, a
valuation allowance was recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not,
be realized in the future. The net change in the total valuation allowance for the years ended December 31, 2013
and 2012 was a decrease of $40 and $23, respectively. The valuation allowance relates primarily to certain net
operating loss carryforwards, tax credit carryforwards and deductible temporary differences for which we have
concluded it is more-likely-than-not that these items will not be realized in the ordinary course of operations.

Although realization is not assured, we have concluded that it is more-likely-than-not that the deferred tax assets,
for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of
operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and
projected income from operating activities. The amount of the net deferred tax assets considered realizable,
however, could be reduced in the near term if actual future income or income tax rates are lower than estimated, or
if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary
differences.

At December 31, 2013, we had tax credit carryforwards of $694 available to offset future income taxes, of which $94
are available to carryforward indefinitely while the remaining $600 will expire 2014 through 2033 if not utilized. We
also had net operating loss carryforwards for income tax purposes of $1.1 billion that will expire 2014 through 2033,
if not utilized, and $2.4 billion available to offset future taxable income indefinitely.

111

Note 17 – Contingencies and Litigation
As more fully discussed below, we are involved in a variety of claims, lawsuits, investigations and proceedings
concerning: securities law; governmental entity contracting, servicing and procurement law; intellectual property
law; environmental law; employment law; the Employee Retirement Income Security Act (ERISA); and other laws
and regulations. We determine whether an estimated loss from a contingency should be accrued by assessing
whether a loss is deemed probable and can be reasonably estimated. We assess our potential liability by analyzing
our litigation and regulatory matters using available information. We develop our views on estimated losses in
consultation with outside counsel handling our defense in these matters, which involves an analysis of potential
results, assuming a combination of litigation and settlement strategies. Should developments in any of these
matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a
material accrual, or should any of these matters result in a final adverse judgment or be settled for significant
amounts, they could have a material adverse effect on our results of operations, cash flows and financial position in
the period or periods in which such change in determination, judgment or settlement occurs.

Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships
with suppliers, customers and nonconsolidated affiliates when the Company undertakes an obligation to guarantee
the performance of others if specified triggering events occur. Nonperformance under a contract could trigger an
obligation of the Company. These potential claims include actions based upon alleged exposures to products, real
estate, intellectual property such as patents, environmental matters, and other indemnifications. The ultimate effect
on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the
final outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to
results of operations in the period recognized, management does not anticipate they will have a material adverse
effect on the Company's consolidated financial position or liquidity. As of December 31, 2013, we have accrued our
estimate of liability incurred under our indemnification arrangements and guarantees.

Brazil Tax and Labor Contingencies

Our Brazilian operations are involved in various litigation matters and have received or been the subject of
numerous governmental assessments related to indirect and other taxes, as well as disputes associated with former
employees and contract labor. The tax matters, which comprise a significant portion of the total contingencies,
principally relate to claims for taxes on the internal transfer of inventory, municipal service taxes on rentals and
gross revenue taxes. We are disputing these tax matters and intend to vigorously defend our positions. Based on
the opinion of legal counsel and current reserves for those matters deemed probable of loss, we do not believe that
the ultimate resolution of these matters will materially impact our results of operations, financial position or cash
flows.

The labor matters principally relate to claims made by former employees and contract labor for the equivalent
payment of all social security and other related labor benefits, as well as consequential tax claims, as if they were
regular employees. As of December 31, 2013, the total amounts related to the unreserved portion of the tax and
labor contingencies, inclusive of related interest, amounted to approximately $933 with the decrease from
December 31, 2012 balance of approximately $1,010, primarily related to currency and closed cases partially offset
by interest. With respect to the unreserved balance of $933, the majority has been assessed by management as
being remote as to the likelihood of ultimately resulting in a loss to the Company. In connection with the above
proceedings, customary local regulations may require us to make escrow cash deposits or post other security of up
to half of the total amount in dispute. As of December 31, 2013 we had $167 of escrow cash deposits for matters we
are disputing, and there are liens on certain Brazilian assets with a net book value of $8 and additional letters of
credit of approximately $236, which include associated indexation. Generally, any escrowed amounts would be
refundable and any liens would be removed to the extent the matters are resolved in our favor. We routinely assess
all these matters as to probability of ultimately incurring a liability against our Brazilian operations and record our
best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable.

Litigation Against the Company

In re Xerox Corporation Securities Litigation: A consolidated securities law action (consisting of 17 cases) is
pending in the United States District Court for the District of Connecticut. Defendants are the Company, Barry
Romeril, Paul Allaire and G. Richard Thoman. The consolidated action is a class action on behalf of all persons and
entities who purchased Xerox Corporation common stock during the period October 22, 1998 through October 7,
1999 inclusive (Class Period) and who suffered a loss as a result of misrepresentations or omissions by Defendants
as alleged by Plaintiffs (the “Class”). The Class alleges that in violation of Section 10(b) and/or 20(a) of the

Xerox 2013 Annual Report 112

Securities Exchange Act of 1934, as amended (1934 Act), and SEC Rule 10b-5 thereunder, each of the defendants
is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on
purchasers of the Company’s common stock during the Class Period by disseminating materially false and
misleading statements and/or concealing material facts relating to the defendants’ alleged failure to disclose the
material negative impact that the April 1998 restructuring had on the Company’s operations and revenues. The
complaint further alleges that the alleged scheme: (i) deceived the investing public regarding the economic
capabilities, sales proficiencies, growth, operations and the intrinsic value of the Company’s common stock;
(ii) allowed several corporate insiders, such as the named individual defendants, to sell shares of privately held
common stock of the Company while in possession of materially adverse, non-public information; and (iii) caused
the individual plaintiffs and the other members of the purported class to purchase common stock of the Company at
inflated prices. The complaint seeks unspecified compensatory damages in favor of the plaintiffs and the other
members of the purported class against all defendants, jointly and severally, for all damages sustained as a result of
defendants’ alleged wrongdoing, including interest thereon, together with reasonable costs and expenses incurred
in the action, including counsel fees and expert fees. In 2001, the Court denied the defendants’ motion for dismissal
of the complaint. The plaintiffs’ motion for class certification was denied by the Court in 2006, without prejudice to
refiling. In February 2007, the Court granted the motion of the International Brotherhood of Electrical Workers
Welfare Fund of Local Union No. 164, Robert W. Roten, Robert Agius (Agius) and Georgia Stanley to appoint them
as additional lead plaintiffs. In July 2007, the Court denied plaintiffs’ renewed motion for class certification, without
prejudice to renewal after the Court holds a pre-filing conference to identify factual disputes the Court will be
required to resolve in ruling on the motion. After that conference and Agius’s withdrawal as lead plaintiff and
proposed class representative, in February 2008 plaintiffs filed a second renewed motion for class certification. In
April 2008, defendants filed their response and motion to disqualify Milberg LLP as a lead counsel. On
September 30, 2008, the Court entered an order certifying the class and denying the appointment of Milberg LLP as
class counsel. Subsequently, on April 9, 2009, the Court denied defendants’ motion to disqualify Milberg LLP. On
November 6, 2008, the defendants filed a motion for summary judgment. On March 29, 2013, the Court granted
defendants' motion for summary judgment in its entirety. On April 26, 2013, plaintiffs filed a notice of appeal to the
United States Court of Appeals for the Second Circuit. The appeal process is ongoing. The individual defendants
and we deny any wrongdoing and are vigorously defending the action. At this time, we do not believe it is
reasonably possible that we will incur additional material losses in excess of the amount we have already accrued
for this matter. In the course of litigation, we periodically engage in discussions with plaintiffs’ counsel for possible
resolution of this matter. Should developments cause a change in our determination as to an unfavorable outcome,
or result in a final adverse judgment or a settlement for a significant amount, there could be a material adverse
effect on our results of operations, cash flows and financial position in the period in which such change in
determination, judgment or settlement occurs.

Guarantees, Indemnifications and Warranty Liabilities

Indemnifications Provided as Part of Contracts and Agreements
We are a party to the following types of agreements pursuant to which we may be obligated to indemnify the other
party with respect to certain matters:

• Contracts that we entered into for the sale or purchase of businesses or real estate assets, under which we

customarily agree to hold the other party harmless against losses arising from a breach of representations and
covenants, including obligations to pay rent. Typically, these relate to such matters as adequate title to assets
sold, intellectual property rights, specified environmental matters and certain income taxes arising prior to the
date of acquisition.

• Guarantees on behalf of our subsidiaries with respect to real estate leases. These lease guarantees may

remain in effect subsequent to the sale of the subsidiary.

• Agreements to indemnify various service providers, trustees and bank agents from any third-party claims

related to their performance on our behalf, with the exception of claims that result from third-party's own willful
misconduct or gross negligence.

• Guarantees of our performance in certain sales and services contracts to our customers and indirectly the

performance of third parties with whom we have subcontracted for their services. This includes indemnifications
to customers for losses that may be sustained as a result of the use of our equipment at a customer's location.

113

In each of these circumstances, our payment is conditioned on the other party making a claim pursuant to the
procedures specified in the particular contract and such procedures also typically allow us to challenge the other
party's claims. In the case of lease guarantees, we may contest the liabilities asserted under the lease. Further, our
obligations under these agreements and guarantees may be limited in terms of time and/or amount, and in some
instances, we may have recourse against third parties for certain payments we made.

Patent Indemnifications
In most sales transactions to resellers of our products, we indemnify against possible claims of patent infringement
caused by our products or solutions. In addition, we indemnify certain software providers against claims that may
arise as a result of our use or our subsidiaries', customers' or resellers' use of their software in our products and
solutions. These indemnities usually do not include limits on the claims, provided the claim is made pursuant to the
procedures required in the sales contract.

Indemnification of Officers and Directors
Our corporate by-laws require that, except to the extent expressly prohibited by law, we must indemnify Xerox
Corporation's officers and directors against judgments, fines, penalties and amounts paid in settlement, including
legal fees and all appeals, incurred in connection with civil or criminal action or proceedings, as it relates to their
services to Xerox Corporation and our subsidiaries. Although the by-laws provide no limit on the amount of
indemnification, we may have recourse against our insurance carriers for certain payments made by us. However,
certain indemnification payments (such as those related to "clawback" provisions in certain compensation
arrangements) may not be covered under our directors' and officers' insurance coverage. We also indemnify certain
fiduciaries of our employee benefit plans for liabilities incurred in their service as fiduciary whether or not they are
officers of the Company. Finally, in connection with our acquisition of businesses, we may become contractually
obligated to indemnify certain former and current directors, officers and employees of those businesses in
accordance with pre-acquisition by-laws and/or indemnification agreements and/or applicable state law.

Product Warranty Liabilities
In connection with our normal sales of equipment, including those under sales-type leases, we generally do not
issue product warranties. Our arrangements typically involve a separate full service maintenance agreement with
the customer. The agreements generally extend over a period equivalent to the lease term or the expected useful
life of the equipment under a cash sale. The service agreements involve the payment of fees in return for our
performance of repairs and maintenance. As a consequence, we do not have any significant product warranty
obligations, including any obligations under customer satisfaction programs. In a few circumstances, particularly in
certain cash sales, we may issue a limited product warranty if negotiated by the customer. We also issue warranties
for certain of our entry level products, where full service maintenance agreements are not available. In these
instances, we record warranty obligations at the time of the sale. Aggregate product warranty liability expenses for
the three years ended December 31, 2013 were $28, $29 and $30, respectively. Total product warranty liabilities as
of December 31, 2013 and 2012 were $14 and $14, respectively.

Other Contingencies
We have issued or provided the following guarantees as of December 31, 2013:

•

$457 for letters of credit issued to i) guarantee our performance under certain services contracts; ii) support
certain insurance programs; and iii) support our obligations related to the Brazil tax and labor contingencies.
$736 for outstanding surety bonds. Certain contracts, primarily those involving public sector customers, require
us to provide a surety bond as a guarantee of our performance of contractual obligations.

Xerox 2013 Annual Report 114

In general, we would only be liable for the amount of these guarantees in the event of default in our performance of
our obligations under each contract; the probability of which we believe is remote. We believe that our capacity in
the surety markets as well as under various credit arrangements (including our Credit Facility) is sufficient to allow
us to respond to future requests for proposals that require such credit support.

We have service arrangements where we service third-party student loans in the Federal Family Education Loan
program (FFEL) on behalf of various financial institutions. We service these loans for investors under outsourcing
arrangements and do not acquire any servicing rights that are transferable by us to a third-party. At December 31,
2013, we serviced a FFEL portfolio of approximately 3.2 million loans with an outstanding principal balance of
approximately $45.8 billion. Some servicing agreements contain provisions that, under certain circumstances,
require us to purchase the loans from the investor if the loan guaranty has been permanently terminated as a result
of a loan default caused by our servicing error. If defaults caused by us are cured during an initial period, any
obligation we may have to purchase these loans expires. Loans that we purchase may be subsequently cured, the
guaranty reinstated and the loans repackaged for sale to third parties. We evaluate our exposure under our
purchase obligations on defaulted loans and establish a reserve for potential losses, or default liability reserve,
through a charge to the provision for loss on defaulted loans purchased. The reserve is evaluated periodically and
adjusted based upon management’s analysis of the historical performance of the defaulted loans. As of
December 31, 2013, other current liabilities include reserves which we believe to be adequate. At December 31,
2013, other current liabilities include reserves of approximately $3 for losses on defaulted loans purchased.

Note 18 - Preferred Stock

Series A Convertible Preferred Stock
We have issued 300,000 shares of Series A convertible perpetual preferred stock with an aggregate liquidation
preference of $300 and an initial fair value of $349. The convertible preferred stock pays quarterly cash dividends at
a rate of 8% per year ($24 per year). Each share of convertible preferred stock is convertible at any time, at the
option of the holder, into 89.8876 shares of common stock for a total of 26,966 thousand shares (reflecting an initial
conversion price of approximately $11.125 per share of common stock), subject to customary anti-dilution
adjustments.

On or after February 5, 2015, if the closing price of our common stock exceeds 130% of the then applicable
conversion price (currently $11.125 per share of common stock) for 20 out of 30 trading days, we have the right to
cause any or all of the convertible preferred stock to be converted into shares of common stock at the then
applicable conversion rate. The convertible preferred stock is also convertible, at the option of the holder, upon a
change in control, at the applicable conversion rate plus an additional number of shares determined by reference to
the price paid for our common stock upon such change in control. In addition, upon the occurrence of certain
fundamental change events, including a change in control or the delisting of Xerox's common stock, the holder of
convertible preferred stock has the right to require us to redeem any or all of the convertible preferred stock in cash
at a redemption price per share equal to the liquidation preference and any accrued and unpaid dividends to, but
not including the redemption date. The convertible preferred stock is classified as temporary equity (i.e., apart from
permanent equity) as a result of the contingent redemption feature.

Note 19 – Shareholders’ Equity

Preferred Stock
As of December 31, 2013, we had one class of preferred stock outstanding. See Note 18 - Preferred Stock for further
information. We are authorized to issue approximately 22 million shares of cumulative preferred stock, $1.00 par value
per share.

Common Stock
We have 1.75 billion authorized shares of common stock, $1.00 par value per share. At December 31, 2013, 127
million shares were reserved for issuance under our incentive compensation plans, 48 million shares were reserved for
debt to equity exchanges, 27 million shares were reserved for conversion of the Series A convertible preferred stock
and 1 million shares were reserved for the conversion of convertible debt.

115

Treasury Stock
We account for the repurchased common stock under the cost method and include such treasury stock as a
component of our common shareholder's equity. Retirement of treasury stock is recorded as a reduction of Common
stock and Additional paid-in capital at the time such retirement is approved by our Board of Directors.

The following provides cumulative information relating to our share repurchase programs from their inception in
October 2005 through December 31, 2013 (shares in thousands):

Authorized share repurchase programs

Share repurchase cost

Share repurchase fees

Number of shares repurchased

6,500

5,386

493,492

In 2013, the Board of Directors authorized an additional $0.5 billion in share repurchase bringing the total cumulative
authorization to $6.5 billion. As of December 31, 2013, approximately $1.1 billion of that authority remained available.

The following table reflects the changes in Common and Treasury stock shares (shares in thousands):

Common Stock
Shares

Treasury Stock
Shares

Balance at December 31, 2010

Stock based compensation plans, net
Contributions to U.S. pension plan(1)

Acquisition of Treasury stock

Cancellation of Treasury stock

Other

Balance at December 31, 2011

Stock based compensation plans, net
Contributions to U.S. pension plan(1)

Acquisition of Treasury stock

Cancellation of Treasury stock

Balance at December 31, 2012

Stock based compensation plans, net

Acquisition of Treasury stock

Cancellation of Treasury stock

Conversion of 2014 9% Notes

Balance at December 31, 2013
_____________________________

1,397,578

11,027

16,645

—

(72,435)

1,352,849

17,343

15,366

—

(146,862)

1,238,696

28,731

—

(58,102)

996

1,210,321

—

87,943

(72,435)

—

15,508

—

146,278

(146,862)

14,924

—

65,179

(58,102)

—

22,001

(1)

Refer to Note 15 - Employee Benefits Plans for additional information.

Stock-Based Compensation

We have a long-term incentive plan whereby eligible employees may be granted restricted stock units (RSUs),
performance shares (PSs) and non-qualified stock options. We grant stock-based awards in order to continue to attract
and retain employees and to better align employees' interests with those of our shareholders. Each of these awards is
subject to settlement with newly issued shares of our common stock. At December 31, 2013 and 2012, 59 million and
50 million shares, respectively, were available for grant of awards.

Stock-based compensation expense was as follows:

Stock-based compensation expense, pre-tax

Income tax benefit recognized in earnings

2013

Year Ended December 31,
2012

2011

125

123

Xerox 2013 Annual Report 116

Restricted Stock Units: Compensation expense is based upon the grant date market price. The compensation
expense is recorded over the vesting period, which is normally three years from the date of grant, based on
management's estimate of the number of shares expected to vest.

Performance Shares: We grant officers and selected executives PSs that vest contingent upon meeting pre-
determined Revenue, Earnings per Share (EPS) and Cash Flow from Operations targets. These shares entitle the
holder to one share of common stock, payable after a three-year period and the attainment of the stated goals. If the
annual actual results for Revenue exceed the stated targets and if the cumulative three-year actual results for EPS and
Cash Flow from Operations exceed the stated targets, then the plan participants have the potential to earn additional
shares of common stock. This overachievement cannot exceed 50% of the original grant.

The fair value of PSs is based upon the market price of our stock on the date of the grant. Compensation expense is
recognized over the vesting period, which is normally three years from the date of grant, based on management's
estimate of the number of shares expected to vest. If the stated targets are not met, any recognized compensation cost
would be reversed.

Employee Stock Options: With the exception of the conversion of ACS options in connection with the ACS acquisition
in 2010, we have not issued any new stock options associated with our employee long-term incentive plan since 2004.
All stock options previously issued under our employee long-term incentive plan are fully exercised, cancelled or
expired as of December 31, 2013.

We had 14,199 thousand and 33,693 thousand of ACS options outstanding at December 31, 2013 and 2012,
respectively. The ACS options at December 31, 2013 generally expire within the next 3 years. Unvested ACS options
at December 31, 2013 will become fully vested by August 2014.

Summary of Stock-based Compensation Activity

(Shares in thousands)

2013

2012

2011

Weighted
Average Grant
Date Fair
Value

Restricted Stock Units

Outstanding at January 1

Granted

Vested

Cancelled

Outstanding at December 31

Performance Shares

Outstanding at January 1

Granted

Vested

Cancelled

Outstanding at December 31

30,414

610

(9,992)

(1,953)

19,079

14,536

1,839

(6,817)

(1,500)

8,058

Stock Options

Outstanding at January 1

33,732

Granted

Cancelled/expired

Exercised

Outstanding at December 31

Exercisable at December 31

—

(1,298)

(18,235)

14,199

12,164

9.19

9.09

8.43

8.77

9.62

8.74

7.97

8.03

8.82

9.15

6.86

—

6.53

6.82

6.95

7.06

33,784

13,033

(14,848)

(1,555)

30,414

9,763

5,193

—

(420)

14,536

50,070

—

(8,617)

(7,721)

33,732

28,676

8.70

7.82

6.89

8.97

9.19

9.21

7.87

—

8.96

8.74

6.98

—

8.58

5.69

6.86

6.95

32,431

8,035

(5,225)

(1,457)

33,784

7,771

4,852

(1,587)

(1,273)

9,763

71,038

—

(14,889)

(6,079)

50,070

39,987

8.68

10.66

11.64

8.57

8.70

9.78

10.42

12.84

12.79

9.21

8.00

—

8.38

8.21

6.98

7.14

117

1.3

0.6

232

3.0

In 2013, we deferred the annual grant of RSUs and PSs from July 1, 2013 to January 1, 2014. RSUs granted in 2013
represent off-cycle awards while PSs granted in 2013 represent overachievement shares associated with the 2010
PSs grant, which vested in 2013. Commencing in 2014, the annual award cycle will be granted entirely in PSs and on
January 1, 2014, we granted 8,395 thousand PSs with a grant date fair value of $12.17 per share.

The total unrecognized compensation cost related to non-vested stock-based awards at December 31, 2013 was as
follows:

Awards

Restricted Stock Units

Performance Shares

Stock Options

Total

Unrecognized
Compensation

Remaining Weighted-
Average Vesting Period
(Years)

The aggregate intrinsic value of outstanding RSUs and PSs awards was as follows:

Awards

Restricted Stock Units

Performance Shares

December 31, 2013

Information related to stock options outstanding and exercisable at December 31, 2013 was as follows:

Aggregate intrinsic value

Weighted-average remaining contractual life (years)

3.3

Options

Outstanding

Exercisable

The total intrinsic value and actual tax benefit realized for vested and exercised stock-based awards was as follows:

December 31, 2013

December 31, 2012

December 31, 2011

Awards

Total
Intrinsic
Value

Cash
Received

Tax
Benefit

Total
Intrinsic
Value

Cash
Received

Tax
Benefit

Total
Intrinsic
Value

Cash
Received

Tax
Benefit

Restricted Stock Units

Performance Shares

Stock Options

— $

—

124

117

— $

—

— $

—

No Performance Shares vested in 2012 since the 2009 primary award grant that normally would have vested in 2012
was replaced with a grant of Restricted Stock Units with a market based condition and therefore were accounted and
reported for as part of Restricted Stock Units.

Xerox 2013 Annual Report 118

Note 20 – Other Comprehensive Income

Other Comprehensive Income is comprised of the following:

Translation Adjustments (Losses) Gains

(194) $

(185) $

104

113

(103) $

(105)

Year Ended December 31,

2013

2012

2011

Pre-tax

Net of Tax

Pre-tax

Net of Tax

Pre-tax

Net of Tax

Unrealized (Losses) Gains:

Changes in fair value of cash flow hedges
- (losses) gains

Changes in cash flow hedges reclassed to
earnings(1)

Other gains (losses)

Net Unrealized (Losses) Gains

Defined Benefit Plans Gains (Losses):

Net actuarial/prior service gains (losses)
Prior service amortization(2)
Actuarial loss amortization(2)

Curtailment gain - recognition of prior
service credit

Fuji Xerox changes in defined benefit
plans, net(3)
Other (losses) gains(4)

Changes in Defined Benefit Plans Gains
(Losses)

Other Comprehensive Income (Loss)

Less: Other comprehensive loss
attributable to noncontrolling interests

Other Comprehensive Income (Loss)
Attributable to Xerox
_____________________________

(126)

(89)

123

—

729

(45)

260

—

(17)

950

756

(1)

—

483

(29)

172

—

(17)

632

447

(1)

(50)

(37)

—

(87)

(852)

(64)

190

—

(13)

(55)

(794)

(777)

—

(35)

(28)

—

(63)

(578)

(39)

124

—

(13)

(55)

(561)

(511)

—

(14)

(1)

(872)

(107)

(31)

(913)

(1,001)

(1)

(9)

(1)

(607)

(66)

(31)

(636)

(729)

(1)

757

448

(777) $

(511) $

(1,000) $

(728)

(1) Reclassified to Cost of sales - refer to Note 13 - Financial Instruments for additional information regarding our cash flow hedges.
(2) Reclassified to Total Net Periodic Benefit Cost - refer to Note 15 - Employee Benefit Plans for additional information.
(3) Represents our share of Fuji Xerox's benefit plan changes.
(4) Primarily represents currency impact on cumulative amount of benefit plan net actuarial losses and prior service credits included in AOCL.

Accumulated Other Comprehensive Loss (AOCL)
AOCL is comprised of the following:

Cumulative translation adjustments
Benefit plans net actuarial losses and prior service credits(1)

Other unrealized (losses) gains, net

Total Accumulated Other Comprehensive Loss Attributable to Xerox
_____________________________

(1)

Includes our share of Fuji Xerox.

December 31,

2013

2012

2011

(1,010) $

(826) $

(1,732)

(37)

(2,364)

(37)

(2,779) $

(3,227) $

(939)

(1,803)

(2,716)

119

Note 21 – Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share of common stock (shares in
thousands):

Basic Earnings per Share:

Net income from continuing operations attributable to Xerox

Accrued dividends on preferred stock

Net Income From Continuing Operations Available to Common
Shareholders

Net (loss) income from discontinued operations attributable to Xerox

Adjusted Net Income Available to Common Shareholders

Weighted-average common shares outstanding

Basic Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Total Basic Earnings per Share

Diluted Earnings per Share:

Net income from continuing operations attributable to Xerox

Accrued dividends on preferred stock

Interest on convertible securities, net

Adjusted Net Income From Continuing Operations Available to
Common Shareholders

Net (loss) income from discontinued operations attributable to Xerox

Adjusted Net Income Available to Common Shareholders

Weighted-average common shares outstanding

Common shares issuable with respect to:

Stock options

Restricted stock and performance shares

Convertible preferred stock

Convertible securities

Adjusted Weighted Average Common Shares Outstanding

Diluted Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Total Diluted Earnings per Share

Year Ended December 31,

2013

2012

2011

1,185

(24)

1,161

(26)

1,135

1,184

(24)

1,160

1,171

1,274

(24)

1,250

1,271

1,225,486

1,302,053

1,388,096

0.95

(0.02)

0.93

0.89

0.01

0.90

1,185

1,184

—

1,186

(26)

1,160

(24)

1,161

1,172

0.90

0.02

0.92

1,274

—

1,275

1,296

1,225,486

1,302,053

1,388,096

5,401

13,931

26,966

1,743

4,335

20,804

—

1,992

9,727

16,993

26,966

1,992

1,273,527

1,329,184

1,443,774

0.93

(0.02)

0.91

0.87

0.01

0.88

0.02

0.90

The following securities were not included in the computation of diluted earnings per share because to do so would have been anti-
dilutive (shares in thousands):

Stock options

Restricted stock and performance shares

Convertible preferred stock

Total Anti-Dilutive Securities

Dividends per Common Share

Note 22 – Subsequent Event

8,798

12,411

—

21,209

29,397

23,430

26,966

79,793

0.23

0.17

40,343

26,018

—

66,361

0.17

In January 2014, we acquired Invoco Holding GmbH (Invoco), a German company, for approximately $59 (€42) in
cash. The acquisition of Invoco expands our European customer care services and provides our global customers
immediate access to German-language customer care services and provides Invoco’s existing customers access to
our broad business process outsourcing capabilities. We are in the process of determining the purchase price
allocation for this acquisition.

Xerox 2013 Annual Report 120

QUARTERLY RESULTS OF OPERATIONS (Unaudited)

(in millions, except per-share data)

2013

Revenues

Costs and Expenses

Income before Income Taxes and Equity Income

Income tax expense

Equity in net income of unconsolidated affiliates

Income from Continuing Operations

Income (loss) from discontinued operations, net of tax

Net Income

Less: Net income - noncontrolling interests

Net Income Attributable to Xerox

Basic Earnings per Share:

Continuing operations

Discontinued operations

Total Basic Earnings per Share

Diluted Earnings per Share(2):

Continuing operations

Discontinued operations

Total Diluted Earnings per Share

2012(1)

Revenues

Costs and Expenses

Income before Income Taxes and Equity Income

Income tax expense

Equity in net income of unconsolidated affiliates

Income from Continuing Operations

Income from discontinued operations, net of tax

Net Income

Less: Net income - noncontrolling interests

Net Income Attributable to Xerox

Basic Earnings per Share(2)::

Continuing operations

Discontinued operations

Total Basic Earnings per Share:

Diluted Earnings per Share(2):

Continuing operations

Discontinued operations

Total Diluted Earnings per Share

First
Quarter(1)

Second
Quarter

Third
Quarter

Fourth
Quarter

Full
Year

5,202

5,402

5,262

5,569

21,435

4,902

300

5,070

332

4,927

335

5,224

345

20,123

1,312

276

169

297

300

293

315

1,205

(23)

(2)

(4)

(26)

300

277

291

311

1,179

296

271

286

306

1,159

0.23

0.24

0.23

0.25

—

(0.02)

—

0.23

0.22

0.23

0.25

0.23

0.22

0.25

—

(0.02)

—

(0.01)

0.23

0.21

0.22

0.24

0.95

(0.02)

0.93

(0.02)

0.91

5,331

5,368

5,275

5,763

21,737

5,026

305

270

276

5,021

347

314

316

4,961

314

286

288

5,397

366

342

343

20,405

1,332

272

152

1,212

1,223

269

309

282

335

1,195

0.19

0.23

0.21

0.26

0.01

—

0.20

0.23

0.21

0.26

0.19

0.22

0.21

0.26

—

0.19

0.22

0.21

0.26

0.89

0.01

0.90

0.87

0.01

0.88

(1)

(2)

First quarter 2013 and all periods of 2012 have been restated to reflect the 2013 disposition of our North American (Canada and U.S.) and
Western European Paper Businesses as Discontinued Operations. Refer to Note 3 - Acquisitions and Divestitures in our Consolidated
Financial Statements for additional information.
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.

121

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Management's Responsibility for Financial Statements
Our management is responsible for the integrity and objectivity of all information presented in this annual report.
The consolidated financial statements were prepared in conformity with accounting principles generally accepted in
the United States of America and include amounts based on management's best estimates and judgments.
Management believes the consolidated financial statements fairly reflect the form and substance of transactions
and that the financial statements fairly represent the Company's financial position and results of operations.

Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of our principal executive officer and principal
financial officer, or persons performing similar functions, the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the
end of the period covered by this report. Based on this evaluation, our principal executive officer and principal
financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls
and procedures were effective to ensure that information we are required to disclose in the reports that we file
or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms
relating to Xerox Corporation, including our consolidated subsidiaries, and was accumulated and
communicated to the Company’s management, including the principal executive officer and principal financial
officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.

Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in the rules promulgated under the Securities Exchange Act of 1934. Under the supervision
and with the participation of our management, including our principal executive, financial and accounting officers,
we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in “Internal Control - Integrated Framework (1992)” issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

Based on the above evaluation, management concluded that our internal control over financial reporting was
effective as of December 31, 2013.

The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which
appears in Part II, Item 8 of this Form 10-K.

Changes in Internal Control over Financial Reporting
In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no
change identified in our internal control over financial reporting that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

Xerox 2013 Annual Report 122

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding directors is incorporated herein by reference to the section entitled “Proposal 1 - Election
of Directors” in our definitive Proxy Statement (2014 Proxy Statement) to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, for our Annual Meeting of Stockholders to be held on May 20, 2014.
The Proxy Statement will be filed within 120 days after the end of our fiscal year ended December 31, 2013.

The information regarding compliance with Section 16(a) of the Securities and Exchange Act of 1934 is
incorporated herein by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance”
of our 2014 Proxy Statement.

The information regarding the Audit Committee, its members and the Audit Committee financial experts is
incorporated by reference herein from the subsection entitled “Committee Functions, Membership and Meetings” in
the section entitled “Proposal 1 - Election of Directors” in our 2014 Proxy Statement.

We have adopted a code of ethics applicable to our principal executive officer, principal financial officer and
principal accounting officer. The Finance Code of Conduct can be found on our website at: http://www.xerox.com/
investor and then clicking on Corporate Governance. Information concerning our Finance Code of Conduct can be
found under "Corporate Governance" in our 2014 definitive Proxy Statement and is incorporated here by reference.

Executive Officers of Xerox

The following is a list of the executive officers of Xerox, their current ages, their present positions and the year
appointed to their present positions.

Each officer is elected to hold office until the meeting of the Board of Directors held on the day of the next annual
meeting of shareholders, subject to the provisions of the By-Laws.

Name

Ursula M. Burns*

Lynn R. Blodgett

James A. Firestone

Kathryn A. Mikells

Armando Zagalo de Lima

Don H. Liu

Thomas J. Maddison

Herve Tessler

Joseph H. Mancini, Jr.

Leslie F. Varon

* Member of Xerox Board of Directors

Age

Present Position

Chairman of the Board and Chief Executive Officer

Executive Vice President;
President, Services Business

Executive Vice President;
President, Corporate Strategy & Asian Operations

Executive Vice President and
Chief Financial Officer

Executive Vice President;
President, Technology Business

Senior Vice President,
General Counsel and Secretary

Senior Vice President, Chief Human Resources Officer

Senior Vice President,
President, Corporate Operations

Vice President and Chief Accounting Officer

Vice President, Finance and Corporate Controller

Year
Appointed
to Present
Position

2010

2012

Xerox
Officer
Since

1997

2010

2008

1998

2013

2012

2000

2007

2010

2014

2013

2010

2001

123

Each officer named above, with the exception of Lynn R. Blodgett and Kathryn A. Mikells, has been an officer or an
executive of Xerox or its subsidiaries for at least the past five years.

Prior to joining Xerox in 2010 through our acquisition of Affiliated Computer Services, Inc. (ACS), Mr. Blodgett was
President and Chief Executive Officer of ACS since 2006. Prior to that he served as Executive Vice President and
Chief Operating Officer of ACS from 2005-2006 and before that he served as Executive Vice President and Group
President - Commercial Solutions of ACS since July 1999.

Prior to joining Xerox in 2013, Ms. Mikells was with ADT Corporation where she was Chief Financial Officer from
April 2012 to 2013. Prior to that she was Chief Financial Officer with Nalco and before that she held various senior
leadership roles during her 16 year career with UAL Corporation.

ITEM 11. EXECUTIVE COMPENSATION

The information included under the following captions under “Proposal 1-Election of Directors” in our 2014 definitive
Proxy Statement is incorporated herein by reference: “Compensation Discussion and Analysis”, “Summary
Compensation Table”, “Grants of Plan-Based Awards in 2013”, “Outstanding Equity Awards at 2013 Fiscal Year-
End”, “Option Exercises and Stock Vested in 2013”, “Pension Benefits for the 2013 Fiscal Year”, “Nonqualified
Deferred Compensation for the 2013 Fiscal Year”, “Potential Payments upon Termination or Change in Control”,
“Summary of Director Annual Compensation, "Compensation Committee Interlocks and Insider Participation” and
“Compensation Committee”. The information included under the heading “Compensation Committee Report” in our
2014 definitive Proxy Statement is incorporated herein by reference; however, this information shall not be deemed
to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities
of Section 18 of the Exchange Act of 1934, as amended.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

Information regarding security ownership of certain beneficial owners and management and securities authorized
for issuance under equity compensation plans is incorporated herein by reference to the subsections entitled
“Ownership of Company Securities,” and “Equity Compensation Plan Information” under “Proposal 1- Election of
Directors” in our 2014 definitive Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information regarding certain relationships and related transactions is incorporated herein by reference to the
subsection entitled “Certain Relationships and Related Person Transactions” under “Proposal 1- Election of
Directors” in our 2014 definitive Proxy Statement. The information regarding director independence is incorporated
herein by reference to the subsections entitled “Corporate Governance” and “Director Independence” in the section
entitled “Proposal 1 - Election of Directors” in our 2014 definitive Proxy Statement.

ITEM 14. PRINCIPAL AUDITOR FEES AND SERVICES

The information regarding principal auditor fees and services is incorporated herein by reference to the section
entitled “Proposal 2 - Ratification of Election of Independent Registered Public Accounting Firm” in our 2014
definitive Proxy Statement.

Xerox 2013 Annual Report 124

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

(1) Index to Financial Statements and Financial Statement Schedule, incorporated by reference or filed as part

of this report:

Report of Independent Registered Public Accounting Firm including Report on Financial Statement

Schedule;

Consolidated Statements of Income for each of the years in the three-year period ended December 31,

2013;

Consolidated Statements of Comprehensive Income for each of the years in the three-year period

ended December 31, 2013;

Consolidated Balance Sheets as of December 31, 2013 and 2012;

Consolidated Statements of Cash Flows for each of the years in the three-year period ended December

31, 2013;

Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended

December 31, 2013;

Notes to the Consolidated Financial Statements;

Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 2013; and

All other schedules are omitted as they are not applicable, or the information required is included in the

financial statements or notes thereto.

(2) Supplementary Data:

Quarterly Results of Operations (unaudited); and

Five Years in Review.

(3) The exhibits filed herewith or incorporated herein by reference are set forth in the Index of Exhibits

included herein.

(b)

The management contracts or compensatory plans or arrangements listed in the “Index of Exhibits” that
are applicable to the executive officers named in the Summary Compensation Table which appears in
Registrant's 2014 Proxy Statement or to our directors are preceded by an asterisk (*).

125

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

XEROX CORPORATION

/s/ URSULA M. BURNS
Ursula M. Burns
Chairman of the Board and
Chief Executive Officer
February 21, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated.

February 21, 2014

Signature

Title

Principal Executive Officer:
/S/ URSULA M. BURNS
Ursula M. Burns

Principal Financial Officer:
/S/ KATHRYN A. MIKELLS
Kathryn A. Mikells

Principal Accounting Officer:
/S/ JOSEPH H. MANCINI, JR.
Joseph H. Mancini, Jr.
/S/ GLENN A. BRITT

Glenn A. Britt
/S/ RICHARD J. HARRINGTON

Richard J. Harrington
/S/ WILLIAM CURT HUNTER

William Curt Hunter
/s/ ROBERT J. KEEGAN

Robert J. Keegan
/s/ ROBERT A. McDONALD

Robert A. McDonald
/S/ CHARLES PRINCE

Charles Prince
/S/ ANN N. REESE

Ann N. Reese
/s/ SARA MARTINEZ TUCKER

Sara Martinez Tucker
/S/ MARY AGNES WILDEROTTER

Mary Agnes Wilderotter

Chairman of the Board, Chief Executive Officer and Director

Executive Vice President and Chief Financial Officer

Vice President and Chief Accounting Officer

Director

Xerox 2013 Annual Report 126

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the three years ended December 31, 2013

(in millions)

2013 Allowance for Losses:

Accounts Receivable

Finance Receivables

2012 Allowance for Losses:

Accounts Receivable

Finance Receivables

2011 Allowance for Losses:

Accounts Receivable

Finance Receivables

Balance
at beginning
of period

Additions
charged to
bad debt
provision (1)

Amounts
(credited)
charged to
other income
statement
accounts (1)

Deductions
and other, net
of recoveries (2)

Balance
at end
of period

108

170

278

102

201

303

112

212

324

120

119

100

157

(2) $

(1) $

(2)

(3) $

(33) $

(102)

(135) $

(41) $

(111)

(152) $

(66) $

(109)

(175) $

112

154

266

108

170

278

102

201

303

__________
(1) Bad debt provisions relate to estimated losses due to credit and similar collectability issues. Other charges (credits) relate to adjustments to

reserves necessary to reflect events of non-payment such as customer accommodations and contract terminations.

(2) Deductions and other, net of recoveries primarily relates to receivable write-offs, but also includes the impact of foreign currency translation

adjustments and recoveries of previously written off receivables.

127

INDEX OF EXHIBITS
Document and Location

3(a)

3(b)

4(a)(1)

4(a)(2)

4(a)(3)

4(b)(1)

4(b)(2)

4(b)(3)

4(b)(4)

4(c)

4(d)

4(e)(1)

Restated Certificate of Incorporation of Registrant filed with the Department of State of the State
of New York on February 21, 2013.

Incorporated by reference to Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2012. See SEC File Number 001-04471.
By-Laws of Registrant, as amended through May 21, 2009.
Incorporated by reference to Exhibit 3(b) to Registrant's Current Report on Form 8-K dated May
21, 2009 (filed May 28, 2009). See SEC File Number 001-04471.
Indenture dated as of December 1, 1991, between Registrant and Citibank, N.A., as trustee,
relating to unlimited amounts of debt securities, which may be issued from time to time by
Registrant when and as authorized by or pursuant to a resolution of Registrant's Board of
Directors (the “December 1991 Indenture”).
Incorporated by reference to Exhibit 4(a) to Registrant's Registration Statement Nos. 33-44597,
33-49177 and 33-54629. See SEC File Number 001-04471.
Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among
Registrant, Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor
trustee, relating to the December 1991 Indenture.
Incorporated by reference to Exhibit 4(a)(2) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 filed on June 7, 2001. See SEC File Number 001-04471.
Instrument of Resignation, Appointment and Acceptance dated as of July 30, 2008, among
Registrant, Wilmington Trust Company, as prior trustee, Citibank,, N.A. as prior paying agent,
registrar and issuing and paying agent, and The Bank of New York Mellon, as successor trustee,
relating to the December 1991 Indenture.
Incorporated by reference to Exhibit 4(a)(3) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. See SEC File Number 001-04471.
Indenture, dated as of June 25, 2003, between Registrant and Wells Fargo, as trustee, relating to
unlimited amounts of debt securities which may be issued from time to time by Registrant when
and as authorized by or pursuant to a resolution of Registrant's Board of Directors (the “June 25,
2003 Indenture”).
Incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated June
25, 2003. See SEC File Number 001-04471.
Form of Third Supplemental Indenture, dated as of March 20, 2006, to the June 25, 2003
Indenture.
Incorporated by reference to Exhibit 4(b)(6) to Registrant's Current Report on Form 8-K dated
March 20, 2006. See SEC File Number 001-04471.
Form of Fourth Supplemental Indenture, dated as of August 18, 2006, to the June 25, 2003
Indenture.
Incorporated by reference to Exhibit 4(b)(7) to Registrant's Current Report on Form 8-K dated
August 18, 2006. See SEC File Number 001-04471.
Form of Sixth Supplemental Indenture, dated as of May 17, 2007 to the June 25, 2003 Indenture.
Incorporated by reference to Exhibit 4(b)(2) to Registrant's Registration Statement No.
333-142900. See SEC File Number 001-04471.
Form of Credit Agreement dated as of December 16, 2011 between Registrant and the Initial
Lenders named therein, Citibank, N.A., as Administrative Agent, and Citigroup Global Markets
Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and BNP
Paribas Securities Corp. as Joint Lead Arrangers and Joint Bookrunners (the “Credit Agreement”).
Incorporated by reference to Exhibit 4(d) to Registrant's Current Report on Form 8-K dated
December 16, 2011. See SEC File Number 001-04471.
Form of Indenture dated as of December 4, 2009 between Xerox Corporation and the Bank of
New York Mellon, as trustee, relating to an unlimited amount of senior debt securities.
Incorporated by reference to Exhibit 4(b)(5) to Post-Effective Amendment No. 1 to Registrant's
Registration Statement No. 333-142900. See SEC File Number 001-04471.
Indenture, dated as of June 6, 2005, by and between Affiliated Computer Services, Inc. (“ACS”)
as Issuer and The Bank of New York Trust Company, N.A. as Trustee (the “June 6, 2005
Indenture”).

Xerox 2013 Annual Report 128

Incorporated by reference to Exhibit 4.1 to ACS's Current Report on Form 8-K, filed June 6, 2005.
See SEC File Number 001-12665.
Second Supplemental Indenture, dated as of June 6, 2005, to the June 6, 2005 Indenture.
Incorporated by reference to Exhibit 4.3 to ACS's Current Report on Form 8-K, filed June 6, 2005.
See SEC File Number 001-12665.
Third Supplemental Indenture, dated as of February 5, 2010, to the June 6, 2005 Indenture
between Boulder Acquisition Corp., the successor to ACS, and The Bank of New York Trust
Company, N.A.
Incorporated by reference to Exhibit 4(j)(4) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2009. See SEC File Number 001-04471.
Instruments with respect to long-term debt where the total amount of securities authorized
thereunder does not exceed 10 percent of the total assets of Registrant and its subsidiaries on a
consolidated basis have not been filed. Registrant agrees to furnish to the Commission a copy of
each such instrument upon request.
The management contracts or compensatory plans or arrangements listed below that are
applicable to the executive officers named in the Summary Compensation Table which appears in
Registrant's 2014 Proxy Statement or to our directors are preceded by an asterisk (*).
Registrant's Form of Separation Agreement (with salary continuance) - February 2010.
Incorporated by reference to Exhibit 10(a)(1) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2009. See SEC File Number 001-04471.
Registrant's Form of Separation Agreement (without salary continuance) - February 2010.
Incorporated by reference to Exhibit 10(a)(2) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2009. See SEC File Number 001-04471.
[Reserved]

Registrant's 1996 Non-employee Director Stock Option Plan, as amended and restated
December 5, 2007 (“1996 NDSOP”).
Incorporated by reference to Exhibit 10(c)(1) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Amendment dated December 5, 2007 to 1996 NDSOP.
Incorporated by reference to Exhibit 10(c)(2) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Registrant's 2004 Equity Compensation Plan for Non-Employee Directors, as amended and
restated as of May 21, 2013 (“2004 ECPNED”).
Form of Agreement under 2004 ECPNED.
Incorporated by reference to Exhibit 10(d)(2) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 2005. See SEC File Number 001-04471.
Form of Grant Summary under 2004 ECPNED.
Incorporated by reference to Exhibit 10(d)(3) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 2005. See SEC File Number 001-04471.
Form of DSU Deferral under 2004 ECPNED.
Incorporated by reference to Exhibit 10(d)(4) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 2005. See SEC File Number 001-04471.
Registrant's 2004 Performance Incentive Plan, as amended and restated as of December 4, 2007
(“2007-2 PIP”).
Incorporated by reference to Exhibit 10(e)(15) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Amendment dated December 4, 2007 to 2007-2 PIP.
Incorporated by reference to Exhibit 10(e)(20) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Amendment No. 1 dated December 17, 2008 to 2007-2 PIP.
Incorporated by reference to Exhibit 10(e)(22) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. See SEC File Number 001-04471.
Amendment No. 2 dated February 16, 2009 to 2007-2 PIP.
Incorporated by reference to Exhibit 10(e)(23) to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2009. See SEC File Number 001-04471.

4(e)(2)

4(e)(3)

4(f)

*10(a)(1)

*10(a)(2)

10(b)

*10(c)(1)

*10(c)(2)

*10(d)(1)

*10(d)(2)

*10(d)(3)

*10(d)(4)

*10(e)(1)

*10(e)(2)

*10(e)(3)

*10(e)(4)

129

*10(e)(5)

*10(e)(6)

*10(e)(7)

*10(e)(8)

*10(e)(9)

Registrant's 2004 Performance Incentive Plan, as amended and restated May 20, 2010.
Incorporated by reference to Exhibit 10(e)(24) to Registrant's Current Report on Form 8-K dated
May 20, 2010. See SEC File Number 001-04471.
Annual Performance Incentive Plan for 2011
Incorporated by reference to Exhibit 10(e)(16) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.
Performance Elements for 2011 Executive Long-Term Incentive Program (“2011 ELTIP”)
Incorporated by reference to Exhibit 10(e)(20) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2010. See SEC File Number 001-04471.
Form of Executive Long-Term Incentive Award under 2011 ELTIP
Incorporated by reference to Exhibit 10(e)(22) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2010. See SEC File Number 001-04471.
Form of Executive Long-Term Incentive Program Award Summary under 2011 ELTIP

Incorporated by reference to Exhibit 10(e)(21) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2010. See SEC File Number 001-04471.

*10(e)(10)

Annual Performance Incentive Plan for 2012.

Incorporated by reference to Exhibit 10(e)(16) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2012. See SEC File Number 001-04471

*10(e)(11)

Performance Elements for 2012 Executive Long-Term Incentive Program (“2012 ELTIP”).

Incorporated by reference to Exhibit 10(e)(21) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.

*10(e)(12)

Form of Executive Long-Term Incentive Award under 2012 ELTIP (Performance Shares).

Incorporated by reference to Exhibit 10(e)(22) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.

*10(e)(13)

Form of Executive Long-Term Incentive Program Award Summary under 2012 ELTIP
(Performance Shares).

Incorporated by reference to Exhibit 10(e)(23) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.

*10(e)(14)

Form of Executive Long-Term Incentive Program Restricted Stock Unit Retention Award Summary
under 2012 ELTIP.

Incorporated by reference to Exhibit 10(e)(24) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.

*10(e)(15)

Form of Restricted Stock Unit Retention Award under 2012 ELTIP.

Incorporated by reference to Exhibit 10(e)(25) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.

*10(e)(16)

Registrant's 2004 Performance Incentive Plan, as amended and restated as of May 24, 2012
("2012 PIP").

*10(e)(17)
*10(e)(18)

*10(e)(19)

Incorporated by reference to Exhibit 10(e)(26) to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2012. See SEC File Number 001-04471.
Annual Performance Incentive Plan for 2013.
Performance Elements for 2013 Executive Long-Term Incentive Program ("2013 ELTIP").
Incorporated by reference to Exhibit 10(e)(24) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2012. See SEC File Number 001-04471.
Form of Executive Long-Term Incentive Award under 2013 ELTIP (Performance Shares).
Incorporated by reference to Exhibit 10(e)(25) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2012. See SEC File Number 001-04471.

*10(e)(20)

Form of Executive Long-Term Incentive Program Award Summary under 2013 ELTIP
(Performance Shares).

Incorporated by reference to Exhibit 10(e)(26) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2012. See SEC File Number 001-04471.

*10(e)(21)

Form of Executive Long-Term Incentive Program Restricted Stock Unit Retention Award Summary
under 2013 ELTIP.

Xerox 2013 Annual Report 130

*10(e)(22)

*10(e)(23)
*10(e)(24)
*10(e)(25)
*10(e)(26)
*10(e)(27)
*10(e)(28)
*10(e)(29)
*10(f)
*10(g)(1)

*10(g)(2)

*10(g)(3)

*10(g)(4)

Incorporated by reference to Exhibit 10(e)(24) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.

Form of Restricted Stock Unit Retention Award under 2013 ELTIP.

Incorporated by reference to Exhibit 10(e)(25) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011. See SEC File Number 001-04471.
Amendment No. 1 dated as of December 11, 2013 to 2012 PIP.
Annual Performance Incentive Plan for 2014.
Performance Elements for 2014 Executive Long-Term Incentive Plan.
Form of Award Agreement under 2012 PIP (Performance Shares).
Form of Award Summary under 2012 PIP (Performance Shares).
Form of Award Agreement under 2012 PIP (Retention Restricted Stock Units).
Form of Award Summary under 2012 PIP (Retention Restricted Stock Units).
[Reserved]
2004 Restatement of Registrant's Unfunded Supplemental Executive Retirement Plan, as
amended and restated December 4, 2007 (“2007 USERP”).
Incorporated by reference to Exhibit 10(g)(1) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Amendment dated December 4, 2007 to Registrant's 2007 USERP.
Incorporated by reference to Exhibit 10(g)(2) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Amendment No. 1 dated December 11, 2008 to Registrant's 2007 USERP.
Incorporated by reference to Exhibit 10(g)(3) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. See SEC File Number 001-04471.
Amendment No. 2 dated April 28, 2011 to Registrant's 2007 USERP.

Incorporated by reference to Exhibit 10(g)(4) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 2011. See SEC File Number 001-04471.

*10(g)(5)

Amendment No. 3 dated December 7, 2011 to Registrant's 2007 USERP.

Incorporated by reference to Exhibit 10(g)(5) to Registrant's Current Report on Form 8-K dated
December 7, 2011. See SEC File Number 001-04471.
1996 Amendment and Restatement of Registrant's Restricted Stock Plan for Directors, as
amended through February 4, 2002.
Incorporated by reference to Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004. See SEC File Number 001-04471.

[Reserved]
Registrant's Universal Life Plan as amended and restated as of August 26, 2013.
Incorporated by reference to Exhibit 10(j)(1) to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2013. See SEC File Number 001-00471.
Participant Agreement for Registrant's Universal Life Plan.

Incorporated by reference to Exhibit 10(j)(2) to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2013. See SEC File Number 001-00471.

Registrant's Deferred Compensation Plan for Directors, as amended and restated December 5,
2007 (“DCPD”).
Incorporated by reference to Exhibit 10(k)(1) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Amendment dated December 5, 2007 to DCPD.
Incorporated by reference to Exhibit 10(k)(2) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. See SEC File Number 001-04471.
Amendment No. 2 dated May 17, 2010 to DCPD.
Incorporated by reference to Exhibit 10(k)(3) to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010. See SEC File Number 001-04471.
Registrant's Deferred Compensation Plan for Executives, 2004 Restatement, as amended
through August 11, 2004.

*10(h)

10(i)

*10(j)(1)

*10(j)(2)

*10(k)(1)

*10(k)(2)

*10(k)(3)

*10(l)

131

10(m)

*10(n)

10(o)

*10(p)

*10(q)

*10(r)(1)

*10(r)(2)

*10(s)

*10(t)

*10(u)

*10(v)

*10(w)

21
23
31(a)
31(b)
32

101.CAL
101.DEF
101.INS

Incorporated by reference to Exhibit 10(l) to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2004. See SEC File Number 001-04471.
Separation Agreement dated May 11, 2000 between Registrant and G. Richard Thoman, former
President and Chief Executive Officer of Registrant.
Incorporated by reference to Exhibit 10(n) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2005. See SEC File Number 001-04471.
Uniform Rule dated December 17, 2008 for all Deferred Compensation Promised by Registrant.
Incorporated by reference to Exhibit 10(r) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. See SEC File Number 001-04471.
2006 Technology Agreement, effective as of April 1, 2006, by and between Registrant and Fuji
Xerox Co., Ltd.
Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K dated March
9, 2006. See SEC File Number 001-04471.**
Form of Severance Agreement entered into with various executive officers, effective October
2010.
Incorporated by reference to Exhibit 10(t) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2010. See SEC File Number 001-04471.
Senior Executive Agreement dated September 27, 2009 among ACS, Registrant and Lynn
Blodgett.
Incorporated by reference to Exhibit 10.2 to ACS's Current Report on Form 8-K dated September
27, 2009. See SEC File Number 001-12665.
Affiliated Computer Services, Inc. (“ACS”) 1997 Stock Incentive Plan (“ACS 1997 SIP”)
Incorporated by reference to Appendix D to ACS's Joint Proxy Statement on Schedule 14A, filed
November 14, 1997. See SEC File Number 001-12665.
Amendment No. 1 dated October 28, 2004 to ACS 1997 SIP.
Incorporated by reference to Exhibit 4.6 to ACS's Registration Statement on Form S-8, filed
December 6, 2005. See SEC File Number 001-12665.
ACS Amended and Restated 2007 Equity Incentive Plan.
Incorporated by reference to Exhibit 10.1 to ACS's Current Report on Form 8-K filed August 21,
2009. See SEC File Number 001-12665.
ACS Senior Executive Annual Incentive Plan.
Incorporated by reference to Exhibit A to ACS's Proxy Statement on Schedule 14A, filed April 14,
2009. See SEC File Number 001-12665.
ACS 401(k) Supplemental Plan, effective as of July 1, 2000, as amended.
Incorporated by reference to Exhibit 10.15 to ACS's Annual Report on Form 10-K for the fiscal
year ended June 30, 2004. See SEC File Number 001-12665.
Letter Agreement dated March 25, 2013 between Registrant and Kathryn A. Mikells, Executive
Vice President and Chief Financial Officer of Registrant.
Incorporated by reference to Exhibit 10(f) to Registrant's Current Report on Form 8-K dated
March 26, 2013. See SEC File Number 001-04471.
Master Plan Amendment dated May 2, 2011 to Registrant-Sponsored Benefit
Plans.

Incorporated by reference to Exhibit 10(bb) to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2011. See SEC File Number 001-04471.
Computation of Ratio of Earnings to Fixed charges and the Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
Subsidiaries of Registrant.
Consent of PricewaterhouseCoopers LLP.
Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
Certification of CEO and CFO pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Instance Document.

Xerox 2013 Annual Report 132

101.LAB
101.PRE
101.SCH

XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
XBRL Taxonomy Extension Schema Linkbase.

**Pursuant to the Freedom of Information Act and/or a request for confidential treatment filed with the Securities and Exchange Commission
under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, the confidential portion of this material has been omitted and filed
separately with the Securities and Exchange Commission.

133

Xerox
naturally
invented
two-sided
copying in

1970

Over 12,000

Xerox people participated
in 2012 Xerox
Community
Involvement
Programs

Xerox
ColorQube
devices
work like a charm
even in the world’s
driest desert

A subsidiary of Xerox provided

solar power

generators for the Mariner-C
spacecraft to Mars

Inside

1 Financial Highlights
2 Letter to Shareholders
8 Financial Measures
9 Non-GAAP Measures

10 Board of Directors
11 Officers
12 FYI

2013 Form 10-K Insert

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Xerox Corporation
45 Glover Avenue
P.O. Box 4505
Norwalk, CT 06856-4505
United States
203.968.3000
www.xerox.com

2013
Annual
Report

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r
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3
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7
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The Next 75

In four
of the last
ﬁve years

Xerox was named to
Canada’s Best
Diversity Employers

The Xerox
Alto had
the ﬁrst
integrated keyboard
mouse & graphic
interface

Xerox
invented
pop-up
call centers
for areas recovering
from a disaster

Xerox manages a
$285 billion
consumer loan
servicing
portfolio

Over 900 million
healthcare
program claims
are processed annually
in the U.S.
by Xerox

Through our
Heroes@Home

program

Xerox hires veterans
& military spouses
for at-home employment

Xerox is one of only
5 companies
named an EPA
Corporate
Leader

Xerox has
119,000
customer
facing
employees

Xerox has been named
one of the top
IT innovators
on this year’s Information

Week
500

Xerox has been on
Ethisphere Institute’s
Most Ethical
Company list
seven
years
running

Xerox IT mega-centers
process over
57K million
instructions
per second

Xerox
is awarded
about

patents
per week

Printed on recycled paper
from responsible sources.

002CSN32F2

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