Xerox Holdings Corporation Annual Report 2018

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FY2018 Annual Report · Xerox Holdings Corporation

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2018
Annual
Report
Making a
Better Future

TA B L E O F C O N T E N T S

Letter to Shareholders

Board of Directors

Officers

FYI

2018 Form 10-K Insert

iii

2 0 1 8 H I G H L I G H T S S

$9.8 billion of revenue

$1.14 billion of operating cash flow

10,307 active U.S. patents

Thomson Reuters Top 100 Global Technology Leader

Named a Leader in Document Services by IDC

Document Imaging Software Line of the Year Award
from Keypoint Intelligence—Buyers Lab

Fellow Shareholder,

Since joining Xerox in May 2018, we have met with investors, customers, partners

and employees to discuss reinventing Xerox and positioning the company for long-

term, sustainable growth. We consistently heard from our stakeholders that the Xerox

brand is synonymous with quality and reliability, but that we had work to do around

leveraging our innovation and transforming our business for sustainable success.

To guide our transformation, we are embracing the era of intelligent work to make

a better future. We identified the following four strategic initiatives that unite

our employees to a common purpose and enable you to measure our success

and performance.

1 . O P T I M I Z E O P E R AT I O N S

In mid-2018, we established Project Own It, an enterprise-wide transformation program designed to create a simpler, more agile
and effective organization, enhance our focus on our customers and partners, instill a culture of continuous improvement and
improve our financial results. We identified a range of opportunities as part of Project Own It, including rationalizing our IT
infrastructure, consolidating our real estate footprint, unlocking greater productivity in our supplier base and establishing more
effective shared service centers. We believe Project Own It will not only make Xerox a more productive, efficient and profitable
organization, it will also enable the Company to reinvest in the business to drive revenue and develop innovation.

2 . D R I V E R E V E N U E

To improve our revenue trajectory, we developed a three-year revenue roadmap that builds on our legacy of technology
and services excellence and focuses on deepening the integration of our software, services and technology to provide a value-
enhancing end-to-end solution for our customers. While revenue decreased in 2018, which was in line with expectations,
we started to see some progress.

In our Core Markets, our Workplace Solutions saw positive results from our ConnectKey® products. We maintained our No. 1
position in worldwide equipment sales revenue. Within high-end products, we brought the Iridesse™ production press to market
in the first half of 2018, and its success has enabled us to retain our No. 1 market share in production color and expand our
customer base, with more than 40 percent of Iridesse™ sales being new business. There is still more opportunity for us to capture
market share across our core product areas.

Continuing our focus on integration and security, we introduced new software to AltaLink®, our flagship A3 multifunction printer
family, to allow companies to monitor critical security settings and automatically remediate unauthorized changes without
having to reboot the device. We also became the only Managed Print Services provider to be pre-vetted and approved by the U.S.
government’s Federal Risk and Authorization Management Program (FedRAMP).

Lastly, we realigned portions of our business to support our revenue roadmap. We created a business unit to focus on driving
end-to-end solutions further into our customer base. We also transitioned over 28,000 of our small and mid-sized accounts
to Xerox Business Solutions (XBS)—formerly known as Global Imaging Systems—to better serve those customers at a local level
and to capitalize on the successful mid-market growth model of XBS.

3 . R E - E N E R G I Z E I N N O V AT I O N

To move into adjacent and new markets that go beyond our Core Markets, we need to innovate and bring new software, services
and products to market. We are taking a disciplined “startup-like” approach to ideating, developing and bringing new technologies
to market with speed.

We have prioritized four areas of innovation:

D I G I T A L

P A C K A G I N G

A N D P R I N T

3 D P R I N T I N G

A N D D I G I TA L

M A N U F A C T U R I N G

A I W O R K F L O W

A S S I S TA N T S F O R

S E N S O R S A N D

S E R V I C E S F O R

K N O W L E D G E

T H E I N T E R N E T O F

W O R K E R S

T H I N G S ( I oT )

We have designed a “Powered by Xerox®” business model and approach, where we don’t always have to build and own the end
product in order to benefit commercially from it and to maximize our participation in these markets.

4 . F O C U S O N C A S H F L O W A N D I N C R E A S I N G C A P I TA L R E T U R N S

With a large portion of revenues under multi-year contractual arrangements, low annual capital expenditures and ongoing
productivity initiatives, we have a business model that drives stable gross margins and operating margins as well as strong and
sustainable cash flow generation. This provides us with a significant source of capital and enables us to be strategic with where
and how we put our cash to work to maximize our internal rate of return, whether it is reinvestment in our business, acquisitions
or share repurchases. With our transformation plan, we also have heightened our focus on cash by adding increased executive
oversight and more direct accountability across the organization, and it is reflected in our results. Everything we do revolves
around sustaining our strong cash generative business to deliver growing shareholder returns.

M O M E N T U M G A I N E D I N 2 0 1 8

Guided by our four strategic initiatives, we started to see improvement across several key measures in 2018. We are pleased with
our early progress, but we know that we have more work to do—and we need to do it with speed—to accelerate our transformation.
With the foundation we established in 2018, we have everything we need to make a better future—not only for Xerox, but
for the world.

Regards,

Keith Cozza
Chairman of the Board

John Visentin
Vice Chairman and Chief Executive Officer

B O A R D O F D I R E C T O R S

Keith Cozza, Chairman
President and Chief
Executive Officer,
Icahn Enterprises LP

Giovanni (John) Visentin
Vice Chairman and
Chief Executive Officer,
Xerox Corporation

Gregory Q. Brown
Chairman and Chief
Executive Officer,
Motorola Solutions, Inc.

Joseph J. Echevarria
Former Chief Executive
Officer, Deloitte LLP

Nicholas Graziano
Portfolio Manager,
Icahn Capital

Cheryl Gordon Krongard
Private investor and Former
Chief Executive Officer,
Rothschild Asset
Management

A. Scott Letier
Managing Director,
Deason Capital
Services, LLC

Sara Martinez Tucker
Retired Chief Executive
Officer, National Math
and Science Initiative;
Former Under Secretary
of Education in the U.S.
Department of Education

not pictured

Jonathan Christodoro
Partner, Patriot Global
Management LP

O F F I C E R S

Giovanni (John) Visentin
Vice Chairman and Chief
Executive Officer

William F. Osbourn, Jr.
Executive Vice President
and Chief Financial Officer

Stephen P. Hoover
Senior Vice President and
Chief Technology Officer

Steven J. Bandrowczak
President and Chief
Operations Officer

Louis J. Pastor
Executive Vice President
and General Counsel

Mary L. McHugh
Senior Vice President and
Chief Delivery Officer

Michael D. Feldman
Executive Vice President
and President, Americas
Operations

Hervé N. Tessler
Executive Vice President
and President, EMEA
Operations

Suzan Morno-Wade
Executive Vice President
and Chief Human Resources
Officer

Joanne Collins Smee
Senior Vice President
and Chief Commercial
Officer

Robert Birkenholz
Vice President and Treasurer

Kathleen S. Fanning
Vice President,
Worldwide Tax

Xavier Heiss
Vice President, Xerox
Controller and Chief
Financial Officer, Americas
Operations

Joseph H. Mancini, Jr.
Vice President and Chief
Accounting Officer

Douglas H. Marshall
Secretary

iii

F Y I

S H A R E H O L D E R I N F O R M AT I O N

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 505000, Louisville, KY 40233; or use email available at www.computershare.com.

I N V E S T O R C O N TA C T S

investorrelations@xerox.com

Electronic Delivery Enrollment: Xerox offers shareholders the convenience of electronic delivery, including immediate receipt
of the Proxy Statement and Annual Report and online proxy voting.

Registered Shareholders, visit: www.computershare.com/investor. 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.

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

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

Governance:
www.xerox.com/governance

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

A D D I T I O N A L I N F O R M AT I O N

2018 Corporate Social Responsibility
Report: https://www.xerox.com/
corporate-social-responsibility/2018/

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

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

Ethics Helpline online submission tool:
www.xeroxethicshelpline.com

Phone numbers:
• U.S. and Canada: 866.XRX.0001
• International numbers located at:

www.xerox.com/ethics

Table of Contents

(Mark One)

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

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

For the fiscal year ended: December 31, 2018

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, 201 Merritt 7
Norwalk, Connecticut 06851-1056
(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

Name of each exchange on which registered

Common Stock, $1 par value

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 every Interactive Data File required
to be submitted 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). Yes

Table of Contents

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 check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated
filer

Accelerated
filer

Non-accelerated filer

Smaller reporting
company

Emerging growth
company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended

transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.

Indicate by 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, 2018 was

$6,122,441,592.

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, 2019
229,726,488

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated herein by reference:

Document
Xerox Corporation Notice of 2019 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

Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

This document, and other written or oral statements made from time to time by management contain “forward-looking
statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”,
“estimate”, “expect”, “intend”, “will”, “should”, "targeting", "projecting", "driving" and similar expressions, as they relate
to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements
reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may
cause actual results to differ materially. Such factors include but are not limited to: our ability to address our business
challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and
grow our business; our ability to attract and retain key personnel; changes in economic and political conditions, trade
protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which
we do business; the imposition of new or incremental trade protection measures such as tariffs and import or export
restrictions; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies
and service offerings and to protect our intellectual property rights; the risk that multi-year contracts with governmental
entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative
sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the risk that
partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and
our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain
adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including
savings from restructuring actions; the risk that confidential and/or individually identifiable information of ours, our
customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security
systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for
manufacturing of products and provision of services; the exit of the United Kingdom from the European Union; our
ability to manage changes in the printing environment and expand equipment placements; interest rates, cost of
borrowing and access to credit markets; funding requirements associated with our employee pension and retiree health
benefit plans; the risk that our operations and products may not comply with applicable worldwide regulatory
requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation
and regulatory proceedings to which we may be a party; any potential termination or restructuring of our relationship
with Fujifilm Holdings Corporation; 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
our Current Reports on Form 8-K filed with the SEC. Xerox assumes no obligation to update any forward-looking
statements as a result of new information or future events or developments, except as required by law.

Table of Contents

Xerox Corporation
Form 10-K
December 31, 2018

Table of Contents

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.

Item 13.
Item 14.

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

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

Market for the Registrant's 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Part IV
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Table of Contents

Part I

Item 1. Business

Our Business

Xerox is a print technology and intelligent work solutions leader. Our experience and broad customer base gives us a
unique perspective and understanding of the inner-workings of business, and our technology allows us to add
intelligence to the development of solutions to connect the physical and digital worlds of work. We apply our expertise
in imaging and printing, data analytics, and the development of secure and automated solutions to help our customers
improve productivity and increase client satisfaction. Every day, our innovative technologies and intelligent work
solutions - Powered by Xerox ® - help people communicate and work better.

In our core market, we compete with our traditional print technology and related services. This core market is estimated
at approximately $67 billion(1). Our primary offerings in this core environment span three main areas: Intelligent
Workplace Services (formerly Managed Document Services (MDS)), Workplace Solutions and Production Solutions
(formerly Graphic Communications). Our Intelligent Workplace Services offerings help customers, ranging from small
businesses to global enterprises, optimize their printing and related document workflow and business processes. Xerox
led the establishment of this expanding market and continues as the industry leader. Our Workplace Solutions and
Production Solutions offerings support the work processes of our customers by providing them with solutions built upon
our broad portfolio of industry-leading printing and workflow offerings.
We also have digital solutions and software assets to compete in an approximately $31 billion(1) adjacent Software
and Services market. Our main offerings in this market are focused on industry-specific Digital Solutions, Personalization
& Communication Software and Content Management Software. Our Industry Digital Solutions leverage our
ConnectKey software platform to enable integration of technology, software and services to securely design and manage
the digitization and workflow of content for our clients. Our main products in this area are Digital Patient, Digital Insurer,
Digital Retailer and Digital Citizen. Our Personalization Software and Content Management Software are products
designed for security, cloud and digital enablement. Our main products in these areas are XMPie and DocuShare. Our
XMPie offering is a robust personalization and communication software that can support the needs of omni-channel
communications customers, giving them the bridge between print and digital, which is a critical element for that market.
Our DocuShare enterprise content management offering provides a better way to manage paper and digital content
from creation to retention to transformation. Capture, store and share documents either on-premise or by cloud while
automating time-consuming, document-heavy processes like accounts payable, HR onboarding, contract management
and mortgage processing.
_____________

(1) Market estimates are derived from third-party forecasts produced by firms such as International Data Corporation (IDC).

Our Strategy and Business Model

Our strategy is to maintain overall leadership in our core market and increase our participation in growth areas, while
expanding into adjacent markets and leveraging our innovation capabilities to enter new markets. We are simplifying
our operations through Project Own It, an enterprise-wide transformation program, which we believe will create a more
frictionless business for our clients and enable us to invest in our business while growing our profits. (Refer to the
Optimize Operations and Establish a Culture of Continuous Improvement section below). We have a strong and
sustainable cash flow business model that supports both investment in our business as well as direct return of capital
to shareholders.

We have outlined the following strategic initiatives for our business:

Optimize Operations and Establish a Culture of Continuous Improvement

In 2018, we started the design and implementation of Project Own It, an enterprise-wide program aimed at re-
engineering the organization to create a more frictionless and high velocity business for our customers and partners.
Project Own It targets seven key areas for transformation - Shared Services, Procurement, IT, Delivery, Supply Chain,
Real Estate and Organization Design. It seeks to deliver at least $640 million of cost savings in 2019, or $1.5 billion
in the three-year-period between 2019 and 2021. We expect that the savings generated from Project Own It will allow
us to expand our margins while also allowing us to make investments in the business that will help us improve our
revenue trajectory. This program is managed with strong discipline and accountability and is focused on changing our
work processes and designing for end-to-end operational efficiency.

Xerox 2018 Annual Report 1

Table of Contents

Drive Revenue

We are a leader in our industry and have a strong and valuable global brand. We have a three-year revenue roadmap
that includes five major strategies to drive revenue improvement, including:

•

Improve our core technology business by building on our leadership positions in our core technology and services
markets. Within the workplace, we plan to leverage our ConnectKey software platform to redefine the multi-function
device user experience. Within production printing environments, we plan to bring unique and higher value printing
capabilities to our customers while also lowering the cost of entry into the growing inkjet printing category.

• Expand our services and software business by building on our leadership in Managed Print Services to deliver
more intelligent workplace solutions with targeted, industry specific offerings as well as achieve greater penetration
of our personalization and content management software solutions.

• Capitalize on the opportunity in SMB by increasing our investments in indirect channels to market as well as our

Xerox Business Solutions (XBS) operations (formerly Global Imaging Services or GIS).

• Transform our client's digital experience by building a world-class digital experience and enhancing our e-commerce

sales platforms.

• Drive innovation and new growth businesses by increasing focus and investment in our four innovation programs
(Digital Packaging & Print, AI (Artificial Intelligence) Workflow Assistants for Knowledge Workers, 3D Printing /
Digital Manufacturing, Sensors & Services for the Internet of Things).

Geographically, our footprint spans approximately 160 countries and allows us to deliver our technology and solutions
to customers of all sizes, regardless of complexity or number of customer locations.

Re-energize Innovation

We believe that a critical role of our research is to identify new competency areas with attractive addressable markets
for the future. Our expertise in technology and printing also uniquely positions us to discover those areas and leverage
our innovation to move into adjacencies beyond our current core technology. Accordingly, we have prioritized
investments in four key areas: Digital Packaging and Print, AI Workflow Assistants for Knowledge Workers, 3D Printing /
Digital Manufacturing, and Sensors and Services for the Internet of Things. (Refer to the Innovation and Research
Enabling Growth Beyond our Core Markets section below).

We also see opportunity in our core coming from our ability to deliver physical devices that connect with the digital
world as well as purely digital offerings that improve our customers’ outcomes. As a result, we direct our research and
development (R&D) investments to areas such as workflow automation, color printing and customized communication,
as well as to improving the quality and reducing the environmental impact of digital printing. We invest in bringing new
capabilities to the market such as our ConnectKey™ software to enable our devices to integrate into digital workflows,
as well as in technologies to improve the security of our devices and offerings such as our recent market leading
FedRamp authorization for MPS services. We will continue to invest in innovations to improve the reliability, IQ and
cost of our printing devices, as well as in new services and software that improve our customers’ ability to manage
their document oriented workflows.

We expect that our investments in innovation for our core, adjacent and new markets will deliver incremental value
for our customers and drive profitable revenue growth for our business.

Focus on Cash Flow

Our business is based on a model with a large portion of revenues under multi-year contractual arrangements with
more than 75 percent of revenues coming from the most profitable post-sale revenue stream. Additionally, there is
low annual Capital Expenditures (less than 2 percent of revenues) required to support our business. These factors
result in stable gross margins and operating margins as well as strong and stable cash flow generation.

We will deploy our substantial cash flow to drive shareholder returns through:
• A commitment to return over 50 percent of our free cash flow (Operating cash flows from continuing operations
less capital expenditures) to shareholders through a combination of dividends and share repurchases; and

• Selective pursuit of acquisitions in targeted growth areas.

We target to manage our core debt (debt excluding financing related debt) to under two times expected free cash flow.

Engage, Develop and Support Our People

Our offerings are supported by a global workforce focused on delivering value to our customers. We continue to develop
our employees by investing in the processes and systems that enable them to perform their jobs more effectively. We
had approximately 32,400 employees worldwide at December 31, 2018.

Xerox 2018 Annual Report 2

Table of Contents

Innovation and Research Enabling Growth Beyond Our Core Markets

Xerox has a rich heritage of innovation, which continues to be a strength of the company as well as a competitive
differentiator. As we invest in our core market technologies, we also aim to create value for our customers, our
shareholders and our employees by driving innovation in new markets beyond our core, where we have differentiated
capabilities.

Our research and innovation efforts to grow beyond our core markets can be categorized under four focus areas:

Digital Packaging and Printing - Improve the cost and capability of digital printing for packaging

Advances in digital printing are enabling mass customization at a run cost approaching the cost of analog printing. We
are continuously investing in research to reduce the cost of digital printing consumables while maintaining the high
print quality that our customers expect. Our research is focused on developing new printing technologies to enable us
to print digitally on a broader range of media and substrates such as foils, cartons, and directly on end-use products,
which could enable us to compete in growth markets such as digital packaging.

AI Workflow Assistants - Create intelligent assistants that help knowledge workers in business workflows,
resulting in lower cost, higher quality and increased agility

Enterprises of all sizes require agility in order to quickly respond to market changes and new requirements. Our goal
is to deliver artificial intelligence that works collaboratively with knowledge workers to perform document-based and
physical workflows with greater efficiency and quality. We continue to invest in new capabilities to help people in
collaborative authoring workflows, such as writing proposals and other business documents. And we go beyond that
to develop innovations to assist in physical workflows, such as machine-servicing, using augmented reality. These
capabilities leverage our research in image, video and natural language processing, as well as machine learning. The
application of these methods to business workflows could enable the automation of repetitive tasks, thus allowing
workers to focus on higher value activities.

3D Printing and Digital Manufacturing - Enable additive manufacturing of high volume production parts through
new print processes, materials and design software

The current 3D Printing and additive manufacturing offerings in the market have mostly been limited to low volume
prototyping due to limitations in print process productivity, breadth of materials, and design software. We expect our
research to lead to technologies that improve the manufacturing productivity, robustness, and designs of 3D-printed
parts so they can be used in high-volume manufacturing. In addition, our research in 3D design software could enable
the creation of “better than” parts that go beyond the limits of human design expertise, and are also optimized for
specific production equipment to enable higher quality and lower cost production.

Sensors and Services for the Internet of Things - Democratize sensing technology by reducing the size and
cost of sensors to enable new disruptive applications

The Internet of Things (IoT) is transforming the world, enabling real-time visibility and optimization of physical systems.
Today, size and cost of sensors, has been a limitation of this technology. One of our key research areas is miniaturizing
and reducing the cost of sensors through semiconductor and printing technologies. A second major research area
focuses on video and image processing to make sense of the sensor data, leading to actionable insights. We see
opportunities to apply these methods to potentially generate new disruptive applications and customer value in areas
such as healthcare, packaging, logistics and supply chain.

Our innovation goals are supported by cross disciplinary research programs in our different research centers. PARC,
the most prominent of these centers, is a wholly-owned subsidiary of Xerox located in Silicon Valley, California. It
provides Xerox commercial and government clients with R&D and open innovation services. PARC scientists have
deep technological expertise in areas that we consider fundamental to bring high-impact innovations to our customers
and the world; such areas include big data analytics, intelligent sensing, computer vision, networking, printed electronics,
energy, and digital design and manufacturing.

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 coordination of our R&D with Fuji Xerox (an equity investment in which we maintain a
25% ownership interest).

Our total research, development and engineering expenses (RD&E), which include sustaining engineering expenses
for hardware engineering and software development after we launch a product, totaled $397 million in 2018, $424
million in 2017 and $463 million in 2016. Fuji Xerox R&D expenses were $586 million in 2018, $536 million in 2017
and $628 million in 2016.

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Acquisitions and Divestitures

We had no acquisitions or divestitures in 2018. Further details about our acquisitions and divestitures in prior periods
can be found in Note 4 - Acquisitions and Note 5 - Divestitures, in the Consolidated Financial Statements.

Segment Information

Our business is organized to ensure we focus on efficiently managing our operations and serving the customers and
markets in which we operate. Since 2017, following the spin-off of Conduent Incorporated, our Business Processing
Outsourcing business, we continue to maintain a geographic focus and are primarily organized from a sales perspective
on the basis of “go-to-market” sales channels. These sales channels are structured to serve a range of customers for
our products and services. As a result of this structure, we recognize that we have one operating and reportable
segment - the design, development and sale of printing technology and related solutions.

As part of our strategy, we also aim to expand into adjacent markets leveraging our industry-specific Digital Solutions,
Personalization & Communication Software and Content Management Software, however the revenues generated
and expected from these areas at this point are not material. Accordingly, the section below primarily discusses the
business based on our primary offerings (Intelligent Workplace Services, Workplace Solutions and Production
Solutions) that are brought to market through our geographic-based sales channels.

Revenues

We have a broad and diverse base of customers by both geography and industry, ranging from SMBs to printing
production (including graphic communications) companies, governmental entities, educational institutions and Fortune
1000 corporations. Our business does not depend upon a single customer, or a few customers, the loss of which would
have a material adverse effect on our business. Our business spans three primary offering areas: Intelligent Workplace
Services, Workplace Solutions and Production Solutions. In addition, a smaller portion of our revenues comes from
non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue
and XBS network integration solutions.

Our Intelligent Workplace Services includes a continuum of solutions and services that helps our customers optimize
their print and communications infrastructure, ensure the highest levels of security and productivity, and enable their
digital business objectives. Our primary offerings in this area are Managed Print Services (MPS), a range of Industry
Digital Solutions that leverage Workflow Automation, Personalization and Communication Software, Content
Management Solutions, and Digitization Services.
•

In our MPS business, we help companies assess and optimize their print infrastructure, secure and integrate their
environment and automate and simplify their business processes. We provide the most comprehensive portfolio
of MPS services in the industry and are recognized as an industry leader by major analyst firms including Gartner,
IDC, Quocirca, InfoTrends and Forrester. Our MPS offering targets clients ranging from large, global enterprises
to governmental entities and to small and medium-sized businesses, including those served via our channel
partners. Our Next Generation Xerox Partner Print Services is a comprehensive suite of services that allows
channel partners to support their SMB customers with some of our best-in-class tools, processes, and workflow
solutions developed by Xerox for large enterprises.

• Our Industry Digital Solutions leverage our ConnectKey software platform to enable integration of technology,
software and services to securely design and manage the digitization and workflow of content for our clients; our
main products in this area are Digital Patient, Digital Insurer, Digital Retailer and Digital Citizen.

• Our Personalization and Communications Software and our Content Management Solutions are products
designed for security, cloud and digital enablement. Our main products in this area are XMPie and DocuShare.
Our XMPie offering is a robust personalization and communication software for omni-channel communications
customers, giving them the bridge between print and digital, which is a critical element for that market. XMPie
offers a range of platform-enabled digital services that deliver relevant and timely communications focused on
customer acquisition, onboarding or retention. Our DocuShare enterprise content management offering provides
a better way to manage paper and digital content from creation to retention to transformation. Capture, store and
share documents either on-premise or by cloud while automating time-consuming, document-heavy processes
like accounts payable, HR onboarding, contract management and mortgage processing. In addition, we operate
a network of centers that digitize and automate paper & digital workflows, enabling our customers to operate cost-
efficiently in a fully-digitized environment with speed, quality and 24x7 availability.

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Our Workplace Solutions area is made up of two strategic product groups, Entry and Mid-Range, which share common
technology, manufacturing and product platforms. Workplace Solutions revenues include the sale of products and
supplies, as well as the associated technical service and financing of those products.
• Entry comprises desktop monochrome and color printers and multifunction printers (MFPs) ranging from small
personal devices to workgroup printers and MFPs that serve the needs of office workgroups. Entry products are
sold to customers in all segments from SMB to enterprise, principally through a global network of reseller partners
and service providers, as well as through our direct sales force.

• Mid-Range are larger devices that have more features and can handle higher print volumes and larger paper sizes
than Entry devices. These products are sold through dedicated partners, our direct sales force, multi-branded
channel partners and resellers worldwide. We are a leader in this area of the market and offer a wide range of
MFPs, copiers, digital printing presses and light production devices, and solutions that deliver flexibility and
advanced features.

Our Production Solutions are designed for customers in the graphic communications, in-plant and production print
environments with high-volume printing requirements. These solutions enable full-color, on-demand printing of a wide
range of applications, including variable data for personalized content and one-to-one marketing. Graphic
Communications Solutions revenues include the sale of products, software and supplies, as well as the associated
technical service and financing of those products.
• Our cut-sheet presses provide graphic communications and commercial printers with high speed, high-volume
printing. They are ideal for publishing, transaction printing, print on demand and one-to-one marketing, offering
the best in high speed, productivity and resolution and color. We are the worldwide leader in the cut-sheet color
and monochrome production industry.

• Our inkjet presses offer a broad range of roll fed, continuous feed printing technologies, including waterless inkjet
and aqueous inkjet for vivid color, and toner-based flash fusing for black and white. Our portfolio spans a variety
of print speeds, image quality, feeding, finishing and media options. We continue to develop and integrate our
production inkjet business to bring the high-end capabilities of toner-based presses such as speed and inline color
correction to the more price sensitive market of inkjet.

• Our FreeFlow portfolio of software offerings brings intelligent automation and integration to the processing of print
jobs, from file preparation to final production, for a touchless workflow. It helps customers of all sizes address a
wide range of business opportunities including automation, personalization and even electronic publishing. In 2017,
we sold our FreeFlow Print Server (FFPS) DFE business to Electronics for Imaging (EFI). Under the terms of the
sale, we established a strategic partnership that will bring to market a next generation digital front end (DFE)
solution with more efficiencies, performance and quality to meet the most demanding production requirements.
Additionally, EFI will continue to supply and support the current range of FFPS. It should be noted that the sale
agreement comprises only the small FFPS business and does not impact our FreeFlow portfolio of software
solutions which remains a key plank for our customers’ workflow strategy.

Geographic Information

Overall, approximately 40% of our revenue is generated by customers outside the U.S. Additional details can be found
in Note 3 - Segment and Geographic Area Reporting in the Consolidated Financial Statements.

Patents, Trademarks and Licenses

In 2018, Xerox and its subsidiaries were awarded 450 U.S. utility patents. Including our research partner Fuji Xerox,
we were awarded 975 U.S. utility patents during the period. Our patent portfolio evolves as new patents are awarded
to us and as older patents expire. As of December 31, 2018, Xerox held approximately 10,307 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. In
addition, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide significant
competitive advantages.

In 2018, we were party to numerous patent-licensing agreements and, in a majority of them, we licensed or assigned
our patents to others in return for revenue and/or access to their patents or to further our business goals. Most patent
licenses expire concurrently with the expiration of the last patent identified in the license. We were also party to a
number of cross-licensing agreements with companies that also hold substantial patent portfolios. These agreements
vary in subject matter, scope, compensation, significance and duration.

In the U.S., we own about 191 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.

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Environmental Social Governance (ESG)

At our core is a deep and long-lasting commitment to ESG, a pledge to inspire and support our people, conduct business
ethically across the value chain and preserve our planet. This commitment stems from the corporate values established
over sixty years ago.

We continue this legacy by turning investments in innovation into products and services that help our customers be
more productive, profitable and sustainable. Driving efficiency in our business operations, smart investments in
technologies that afford our customers added agility-personalization, automation and better workflow-as part of our
customer-centric approach, will underpin our corporate social responsibility efforts. We do this in our own operations,
as well as in workplaces, communities and cities around the world. We recognize the world’s challenges such as climate
change and human rights and understand the role we play.

We are constantly thinking about how we can simplify work, deliver more personalized experiences and improve
productivity through new technologies. We strive to connect the physical and digital worlds without adversely affecting
the environment, human health and safety.

Our pledge to inspire and support our people, conduct business ethically and protect our planet remains at the core
of everything we do.

The Xerox 2018 Corporate Social Responsibility (CSR) Report, available at www.xerox.com, provides an overview of
our progress for the year 2018 including these achievements:

•

100 percent of supplies and consumables returned by customers at end-of-life were diverted from entering landfills.
Instead, we remanufactured, reused, recycled, or provided the waste to suppliers who converted it into an energy
source.
100 percent of newly-launched, eligible Xerox products satisfied the Electronic Product Environmental Assessment
Tool (EPEAT®) and EPA ENERGY STAR® eco-labels.

• Six percent of our U.S. employee population is military Veterans representation bringing us closer to our goal of

6.7%.

• Worldwide Total Recordable Injuries (TRI) rate of our employees dropped by 5.3%.
• Supplier spend with suppliers representing small Tier I, minority, woman or veteran-owned businesses accounted

for 9% of our total spend.

• Employees gave over 91,000 hours of their time for local community involvement.

Marketing and Distribution

We go to market with a services-led approach and sell our products and services directly to customers through our
worldwide sales force and through independent agents, dealers, value-added resellers, systems integrators and the
Web. In addition, our wholly-owned subsidiary, Xerox Business Solutions (XBS), formerly Global Imaging Systems
(GIS), an office technology dealer comprised of regional core companies in the U.S., sells document management and
network integration systems and services. We continued to broaden our distribution to small and mid-sized businesses
in 2018 through expanding our network of resellers and partners (including multi-brand dealers) as well as through
integrating a significant number of our small and mid-sized government, healthcare, education and graphic
communication accounts into XBS. This realignment of our SMB business not only creates synergies that will simplify
our business, but it also gives us the ability to leverage XBS’s high-touch, locally accessible model to provide our
customers with the best experience.

We restructured the way we serve our customers globally into two units: the Americas, with Mexico, Central and South
America joining the U.S. and Canada; and EMEA, which includes Europe, the Middle East, Africa and India. We have
also implemented a common global delivery model that aims to provide a consistent customer experience worldwide.
We believe that these changes create a flatter and more effective go-to-market model that will streamline our supply
chain and provide our customers with best-in-class services.

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. Sudan, among others, has been designated as a state sponsor of terrorism by the U.S. Department of State
and is 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 Sudan. We have no assets,
liabilities or operations in Sudan other than liabilities under the distribution agreements. After observing required prior
notice periods, Xerox Limited terminated its distribution agreements with distributors servicing Sudan in August

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2006. Now, Xerox has only legacy obligations to third parties, such as providing spare parts and supplies to these third
parties. In 2018, total Xerox revenues of $9.8 billion included approximately $8 thousand attributable to Sudan.

Competition

Although we encounter competition in all areas of our business, we are the leader - or among the leaders - in each of
our core offering areas. We compete on the basis of technology (including our technologies for security, automation,
personalization and mobile-ready and cloud-capable devices and solutions), performance, price, quality, reliability,
brand, distribution and customer service and support.

Our larger competitors include Canon, Hewlett-Packard Inc., Konica Minolta and Ricoh. Our brand recognition,
reputation for document management expertise, innovative technology and service delivery excellence are our
competitive advantages. These advantages, combined with our breadth of product offerings, global distribution channels
and customer relationships, position us as a strong competitor going forward.

Customer Financing

We finance a large portion of our direct channel customer purchases of Xerox equipment through bundled lease
agreements. We also provide lease financing to end-user customers who purchased Xerox equipment through our
indirect channels. We compete with other third-party leasing companies with respect to the lease financing provided
to these end-user customers. In both instances, financing facilitates customer acquisition of Xerox technology and
enhances our value proposition, while providing Xerox 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 allow customers to pay for equipment over time rather than upfront upon 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 and proceeds from capital market
offerings. At December 31, 2018, we had approximately $3.5 billion of finance receivables and $442 million of equipment
on operating leases, or Total Finance assets of $3.9 billion. We maintain an assumed 7:1 leverage ratio of debt to
equity as compared to our Finance assets, which results in approximately $3.4 billion of our $5.2 billion of debt being
allocated to our financing business.

Refer to "Debt and Customer Financing Activities" in the Capital Resources and Liquidity section of Management's
Discussion and Analysis, included in Item 7 of this 2018 Form 10-K, for additional information.

Manufacturing and Supply

Our manufacturing and distribution facilities are located around the world. Our largest manufacturing site is in Webster,
N.Y., where we produce the Xerox iGen, Nuvera, Brenva and Direct to Object Inkjet Printer systems, as well as key
components and consumables for our products, such as toner. We also have manufacturing operations in Dundalk,
Ireland, for components, consumables and printer systems sustainable manufacturing; in Wilsonville, OR, for solid ink
consumables and components; and in Aubagne, France, for our Production aqueous ink-jet production systems (Rialto
and Trivor). Other Xerox manufacturing plants are located in Venray, Netherlands; Ontario, Canada; and Oklahoma
City, OK, where we manufacture materials and components.

Additionally, we work with various manufacturing and distribution partners, including a 15+ year relationship with FLEX
LTD (Flex) (formerly Flextronics), a global contract manufacturer.

We have arrangements with Fuji Xerox Co., Ltd. (Fuji Xerox) under which we purchase and sell products, some of
which are the result of mutual research and development agreements. Refer to Note 10 - Investments in Affiliates, at
Equity in the Consolidated Financial Statements for additional information regarding our relationship with Fuji Xerox.

We also acquire products from various third parties in order to increase the breadth of our product portfolio and meet
channel requirements.

Fuji Xerox

Fuji Xerox is an unconsolidated entity in which we own a 25% interest and FUJIFILM Holdings Corporation (Fujifilm)
owns a 75% 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. We maintain commercial relationships with Fuji Xerox, including our technology licensing agreements
which ensure that the two companies retain uninterrupted access to each other's portfolio of patents, technology and
products. Refer to Note 10 - Investment in Affiliates, at Equity in the Consolidated Financial Statements for additional
information regarding our investment in Fuji Xerox. Xerox’s goals include sourcing products, parts and supplies from
the most competitive suppliers to support the needs of its customers.

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International Operations

The financial measures, by geographical area for 2018, 2017 and 2016, are included in Note 3 - Segment and
Geographic Area Reporting in the Consolidated Financial Statements for additional information. See also the risk factor
entitled “Our business, results of operations and financial condition may be negatively impacted by conditions abroad,
including local economic and political environments, fluctuating foreign currencies and shifting regulatory schemes” in
Part I, Item 1A included herein.

Backlog

Backlog, or the value of unfilled equipment orders, is not a meaningful indicator of future business prospects because
a significant proportion of our revenue is fulfilled from existing inventories or within a short period of order signing.

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 printing volumes. These factors have historically resulted in lower revenues,
operating profits and operating cash flows in the first and third quarter.

Other Information

Xerox is a New York corporation, organized in 1906 and our principal executive offices are located at 201 Merritt 7,
P.O. Box 4505, Norwalk, Connecticut 06851-1056. 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 U.S. Securities and Exchange
Commission (the "SEC"). The SEC's Internet address is www.sec.gov.

Our Internet address is www.xerox.com.

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Item 1A. Risk Factors

You should carefully consider the following risk factors as well as the other information included, and risks described,
in other sections of this Form 10-K, including under the headings “Cautionary Statement Regarding Forward-Looking
Statements”, “Legal Proceedings”, “Selected Financial Data”, and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and in our Consolidated Financial Statements and the related notes thereto.

Any of the following risks could materially and adversely affect our business, financial condition, or results of operations.
The selected risks described below, however, are not the only risks facing us. Additional risks and uncertainties not
currently known to us or those we currently view to be immaterial may also materially and adversely affect our business,
financial condition, or results of operations.

If we are unsuccessful at addressing our business challenges, our business and results of operations may
be adversely affected and our ability to invest in and grow our business could be limited.

We are in the process of addressing many challenges facing our business. One set of challenges relates to dynamic
and accelerating market trends, such as the declines in installations and printed pages, fewer devices per location and
an increase in electronic documentation. A second set of challenges relates to changes in the competitive landscape.
Our primary competitors are exerting increased competitive pressure in targeted areas and are entering new markets;
our emerging competitors are introducing new technologies and business models. These market and competitive
trends make it difficult to reverse the current declines in revenue over the past several years. A third set of challenges
relates to our continued efforts to reduce costs and increase productivity in light of declining revenues. In addition, we
are vulnerable to increased risks associated with our efforts to address these challenges given the markets in which
we compete, as well as, the broad range of geographic regions in which we and our customers and partners operate.
If we do not succeed in these efforts, or if these efforts are more costly or time-consuming than expected, our business
and results of operations may be adversely affected, which could limit our ability to invest in and grow our business.

We may be unable to attract and retain key personnel while our business model undergoes significant changes.

Xerox is undergoing significant changes in our business model and, accordingly, current and prospective employees
may experience uncertainty about their future. Our success is dependent, among other things, on our ability to attract,
develop and retain highly qualified senior management and other key employees. Competition for key personnel is
intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing
market conditions and compensation packages offered by companies competing for the same talent. The departure
of existing key employees or the failure of potential key employees to accept employment with Xerox, despite our
recruiting efforts, could have a material adverse impact on our business, financial condition and operating results.

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

A significant portion of our revenue is generated from operations, and we manufacture or acquire 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, the euro and the
British pound - as well as by a number of other factors, including changes in local economic and political conditions,
trade protection measures, licensing requirements, local tax regulations and other related legal matters. We use
currency derivative contracts to hedge foreign currency denominated assets, liabilities and anticipated transactions.
This practice is intended to mitigate or reduce volatility in the results of our foreign operations, but does not completely
eliminate it. We do not hedge the translation effect of international revenues and expenses that are denominated in
currencies other than the U.S. dollar. If our future revenues, costs and results of operations are significantly affected
by economic or political conditions abroad and we are unable to effectively hedge these risks, they could materially
adversely affect our results of operations and financial condition.

Tariffs or other restrictions on foreign imports could negatively impact our financial performance.

Our business, results of operations and financial condition may be negatively impacted by a potential increase in the
cost of our products as a result of new or incremental trade protection measures such as, increased import tariffs,
import or export restrictions and requirements and the revocation or material modification of trade agreements. Changes
in U.S. and international trade policy and resultant retaliatory countermeasures, including imposition of increased tariffs,
quotas or duties by affected countries, and trading partners are difficult to predict and may adversely affect our business.
The U.S. government has and could in the future impose trade barriers including tariffs, quotas, duties or other
restrictions on foreign imports. The implementation of a border tax, tariff or higher customs duties on our products

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manufactured abroad or components that we import into the U.S., or any potential corresponding actions by other
countries in which we do business, could negatively impact our financial performance.

We operate globally and changes in tax laws could adversely affect our results.

We operate globally and changes in tax laws could adversely affect our results. We operate in approximately 160
countries and generate substantial revenues and profits in foreign jurisdictions. The international tax environment
continues to change as a result of both coordinated actions by governments and unilateral measures designed by
individual countries, both intended to tackle concerns over base erosion and profit shifting and perceived international
tax avoidance techniques. The recommendations of the BEPS Project led by the Organization for Economic Cooperation
and Development (OECD) are involved in much of the coordinated activity, although the timing and methods of
implementation vary. Additionally, the U.S. government recently enacted comprehensive tax reform in December of
2017 through the passage and signing of the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act significantly revised
the U.S. corporate income tax system. The exact ramifications of the legislation is subject to interpretation and could
have a material impact on our financial position and/or results of operations.

Although our 2018 and 2017 results of operations reflect our best estimate of the impact of the new tax law, future
regulatory direction associated with the new tax law as well as new legislative developments could adversely affect
our future effective tax rate and results.

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 products and solutions is inherently complex and uncertain. It requires accurate
anticipation of customers' changing needs and emerging technological trends. We must work with our supply partners
and commit resources before knowing whether these initiatives will result in products that are commercially successful
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. It is possible that our intellectual property rights
could be challenged, invalidated or circumvented, allowing others to use our intellectual property to our competitive
detriment. Also, 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 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. 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, we could lose
market share and customers to our competitors and that 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 is derived from contracts with U.S. federal, state and local governments and their
agencies, as well as international governments and their agencies. Government entities typically finance projects
through appropriated funds. While these projects are often planned and executed as multi-year projects, government
entities usually reserve the right to change the scope of or terminate these projects for lack of approved funding and/
or at their convenience. Changes in government or political developments, including budget deficits, shortfalls or
uncertainties, government spending reductions (e.g., Congressional sequestration of funds under the Budget Control
Act of 2011) or other debt or funding constraints, could result in lower governmental sales and in our projects being
reduced in price or scope or terminated altogether, which also could limit our recovery of incurred costs, reimbursable
expenses and profits on work completed prior to the termination.

Additionally, government agencies routinely audit government contracts. If the government finds that we inappropriately
charged costs to a contract, the costs will be non-reimbursable or, to the extent reimbursed, 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, including
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

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audits or, investigations could have an adverse effect on our reputation and reduce our ability to compete for new
contracts and could also have a material adverse effect on our business, financial condition, results of operations and
cash flow.

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 developments, changes in
industry standards, and demands of customers to become more efficient. Our competitors include large international
companies some of which have significant financial resources and compete with us globally to provide document
processing products and 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 future success is
largely dependent upon our ability to compete in the markets we currently serve, to promptly and effectively react to
changing technologies and customer expectations and to expand into additional market segments. To remain
competitive, we must develop services, applications and new products; periodically enhance our existing offerings;
remain cost efficient; 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 such loss 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 products and services that will provide a reasonable
return to our shareholders. Depending on competitive market factors, future prices we obtain for our products and
services may decline from current 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 products and services, it could materially adversely affect our results
of operations and financial condition.

We continually review our operations with a view towards reducing our cost structure, including reducing our employee
base, exiting certain businesses, improving process and system efficiencies and outsourcing some internal functions.
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 cost reduction actions, it could materially adversely affect our results of operations and
financial condition.

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 Project Own It, the level of pricing pressures
on our products and services, 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.

We may not achieve some or all of the expected benefits of our restructuring plans and our restructuring may
adversely affect our business.

We engage in restructuring actions, including Project Own It, as well as other transformation efforts in order to reduce
our cost structure, realign it to the changing nature of our business and achieve operating efficiencies. In addition,
these actions are expected to simplify our organizational structure, upgrade our IT infrastructure and redesign business
processes. We may not be able to obtain the cost savings and benefits that were initially anticipated in connection with
our restructuring actions. Additionally, as a result of our restructuring initiatives, we may experience a loss of continuity,
loss of accumulated knowledge and/or inefficiency during transitional periods. Transformation and restructuring may
require a significant amount of time and focus from both management and other employees, which may divert attention
from operating and growing our business. If we fail to achieve some or all of the expected benefits of restructuring, it
could have a material adverse effect on our competitive position, business, financial condition, results of operations
and cash flows.

As part of our efforts to streamline operations and reduce costs, we have offshored and outsourced certain of our
operations, services and other functions and we will continue to evaluate additional offshoring or outsourcing
possibilities. If our outsourcing partners or operations fail to perform their obligations in a timely manner or at satisfactory
quality levels or if we are unable to attract or retain sufficient personnel with the necessary skill sets to meet our

Xerox 2018 Annual Report 11

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offshoring needs, the quality of our services, products and operations, as well as our reputation, could suffer. Our
success depends, in part, on our ability to manage these potential issues which could be largely outside of our control.
In addition, much of our offshoring takes place in developing countries and as a result may also be subject to geopolitical
uncertainty. Diminished service quality from offshoring and outsourcing could have an adverse material impact to our
operating results due to service interruptions and negative customer reactions.

We are subject to laws of the United States and foreign jurisdictions relating to individually identifiable
information, and failure to comply with those laws 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 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. These laws have been subject
to frequent changes, and new legislation in this area may be enacted at any time. For example, the General Data
Protection Regulation that came into force in the European Union in May 2018. 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 breaches of our security systems, cyber attacks and service interruptions which could
expose us to liability, litigation, and regulatory action and damage our reputation.

We have implemented security systems with the intent of maintaining and protecting our own, and our customers',
clients' and suppliers' confidential information, including information related to identifiable individuals, against
unauthorized access or disclosure. Despite such efforts, we may be subject to breaches of our security systems
resulting in unauthorized access to our facilities or information systems and the information we are trying to protect.
Moreover, the risk of such attacks includes attempted breaches not only of our systems, but also those of our customers,
clients and suppliers. The techniques used to obtain unauthorized access are constantly changing, are becoming
increasingly more sophisticated and often are not recognized until after an exploitation of information has occurred.
Therefore, we may be unable to anticipate these techniques or implement sufficient preventative measures.
Unauthorized access to our facilities or information systems, or those of our suppliers, or accidental loss or disclosure
of proprietary or confidential information about us, our clients or our customers could result in, among other things, a
total shutdown of our systems that would disrupt our ability to conduct business or pay vendors and employees. In the
event of such actions, we could be exposed to unfavorable publicity, governmental inquiry and oversight, 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. While from time to time attempts are
made to access our systems, these attempts have not resulted in any material release of information, degradation or
disruption to our systems. We may also find it necessary to make significant further investments to protect this information
and our infrastructure.

We have outsourced a significant portion of our manufacturing operations and increasingly rely on third-party
manufacturers, subcontractors and suppliers.

We have outsourced a significant portion of our manufacturing operations to third parties, such as Fuji Xerox Co., Ltd.
We face the risk that those manufacturers may not be able to develop manufacturing methods appropriate for our
products, quickly respond to changes in customer demand, and obtain supplies and materials necessary for the
manufacturing process. In addition, they may experience labor shortages and/or disruptions, manufacturing costs could
be higher than planned and lead to higher prices for our products and the reliability of our products could decline. If
any of these risks were to be realized, and 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.

Xerox 2018 Annual Report 12

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We need to successfully manage changes in the printing environment and market because our operating
results may be negatively impacted by lower equipment placements and usage trends.

The printing market and environment is changing as a result of new technologies, shifts in customer preferences in
printing and the expansion of new printing markets as well as ancillary markets. The process of developing new high-
technology products, software, services and solutions and enhancing existing hardware and software products, services
and solutions is complex, costly and uncertain, and any failure by us to anticipate customers' changing needs and
emerging technological trends accurately could significantly harm our market share, results of operations and financial
condition. Examples include mobile printing, color printing, packaging, print on objects, continuous feed inkjet printing
and the expansion of the market for entry products (A4 printers) and high-end products as well as electronic delivery,
and cloud-based computing and software. These changing market trends are also opening up new ancillary markets
for our products, services and software.

A significant part of our strategy and ultimate success in this changing market is our ability to develop and market
technology that produces products, services and software that meet these changes. We expect that revenue growth
can be improved through improvements in the software features of our multifunction devices, increases in the color
printer through expansion to metallic, fluorescent, and clear ink and digital packaging, and leveraging a strong base
in managed print services with new digital, analytics, security features. Our software strategy involves software for
integrated solutions and delivery of industry-focused services into an existing customer base. We also expect to extend
our presence in the small and medium sized business market through organic and inorganic investments as well as
further expansion into channels and eCommerce and invest in innovation including digital packaging, Artificial
Intelligence, workflow, 3D Printing, and IoT sensors and Services. 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.
Despite this investment, the process of developing new products or technologies is inherently complex and uncertain
and there are a number of risks that we are subject to including the risk that our products or technologies will successfully
satisfy our customers’ needs or gain market acceptance. If we are unable to develop and market advanced and
competitive technologies, it may negatively impact our future revenue growth and market share as well as our planned
expansion into new or alternative markets. Additionally, it may negatively impact 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 system. If we are unable to maintain a consistent
level of revenue, it could materially adversely affect our results of operations and financial condition.

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 rating, which
is currently non-investment grade, 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, or find an economic alternative,
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.

Our ability to provide customer financing is a significant competitive advantage. We have and will continue to have a
significant amount of debt and other obligations, the majority of which 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.

Xerox 2018 Annual Report 13

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Our financial condition and results of operations could be adversely affected by employee benefit-related
funding requirements.

We sponsor several defined benefit pension and retiree-health benefit plans throughout the world. We are required to
make contributions to these plans to comply with minimum funding requirements imposed by laws governing these
employee benefit plans. Although most of our major defined benefit plans have been amended to freeze current benefits
and eliminate benefit accruals for future service, the projected benefit obligations under these benefit plans is measured
annually and at December 31, 2018 exceeded the value of the assets of those plans by approximately $1.2 billion.
The current underfunded status of these plans is a significant factor in determining the ongoing future contributions
we will be required to make to these plans. Accordingly, we expect to have additional funding requirements in future
years and we may make additional, voluntary contributions to the plans. Depending on our cash position at the time,
any such funding or contributions to our defined benefit plans could impact our operating flexibility and financial position,
including adversely affecting our cash flow for the quarter in which such funding or contributions are made. Weak
economic conditions and related under-performance of asset markets could also lead to increases in our funding
requirements.

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 continuing operating improvements, 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 subject to the general
liquidity of and on-going changes in the credit markets as well as general economic, financial, competitive, legislative,
regulatory and other market factors that are beyond our control.

Our $1.8 billion credit facility (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, 2018, 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.

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 materially increase an existing accrual, or should any of these matters result in a final adverse judgment or
be settled for significant amounts above any existing accruals, it 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.

Due to the international scope of our operations, we are subject to a complex system of commercial and trade regulations
around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade
compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries.
Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business
practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business
practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions,
could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or
financial condition. We cannot predict the nature, scope or effect of future regulatory requirements to which our
operations might be subject or the manner in which existing laws might be administered or interpreted.

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. Xerox is party to, or otherwise involved in, proceedings brought by U.S.
or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act

Xerox 2018 Annual Report 14

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("CERCLA"), known as "Superfund," or state laws. 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. Recently, a number of studies have been published by third parties
regarding chemicals utilized in our industry, as well as potential health/safety impacts of machine emissions. Additional
studies are planned, and depending on the results of such studies, regulatory initiatives could follow. We are monitoring
these developments. 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 in their existing forms, 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) has led to the adoption of “implementing measures” or "voluntary agreements" that 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. A number of our products are already required to comply with ERP requirements
and further regulations are being developed by the EU authorities. 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 and similar
regulatory programs in other jurisdictions could lead to restrictions and/or bans on certain chemical usage. In the United
States, the Toxics Substances Control Act (“TSCA”) is undergoing a major overhaul with similar potential for regulatory
challenges. 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, EPEAT) are constantly evolving and becoming more stringent, presenting
further market access challenges if our products fail to comply. Concern over climate change, including global warming,
has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions. For example, proposals
that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers
in the countries, states and territories in which we operate. Enacted laws and/or regulatory actions to address concerns
about climate change and greenhouse gas emissions could negatively impact our business, including the availability
of our products or the cost to obtain or sell those products.

The vote by the United Kingdom to leave the EU could adversely affect us.

The June 2016 United Kingdom referendum on its membership in the EU resulted in a majority of United Kingdom
voters voting to exit the EU (Brexit). We have operations and customers in the United Kingdom and the EU, and as a
result, we face risks associated with the potential uncertainty and disruptions that may follow Brexit, including with
respect to volatility in exchange rates and interest rates and potential material changes to the regulatory regime
applicable to our operations in the United Kingdom as well as potential for disruptions in our supply chain in the United
Kingdom. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and
could contribute to instability in global political institutions, regulatory agencies and financial markets. For example,
depending on the terms of Brexit, the United Kingdom could also lose access to the single EU market and to the global
trade deals negotiated by the EU on behalf of its members. Disruptions and uncertainty caused by Brexit may also
cause our customers to closely monitor their costs and reduce their spending budget on our products and services.
Any of these effects of Brexit, and others we cannot anticipate or that may evolve over time, could adversely affect our
business, operating results and financial condition.

Item 1B. Unresolved Staff Comments

None

Xerox 2018 Annual Report 15

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Item 2. Properties

We own several manufacturing, engineering and research facilities and lease other facilities. Our principal
manufacturing and engineering facilities are located in New York, California, Oklahoma, Oregon, Canada, the U.K.,
Ireland, and a leased site in the Netherlands. Our principal research facilities are located in California, New York, and
Canada. Our Corporate Headquarters is a leased facility located in Norwalk, Connecticut.

As a result of implementing our restructuring programs (refer to Note 12 - Restructuring and Asset Impairment Charges
in the Consolidated Financial Statements) 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.

In 2018, we owned or leased numerous facilities globally, which house general offices, sales offices, service locations,
data centers, call centers and distribution centers. The size of our property portfolio at December 31, 2018 was
approximately 15 million square feet and comprised of 728 leased properties and 103 owned properties (of which 73
are located on our Webster, New York campus). 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.

Item 3. Legal Proceedings

Refer to the information set forth under Note 19 - Contingencies and Litigation in the Consolidated Financial Statements.

Item 4. Mine Safety Disclosures

Not applicable.

Xerox 2018 Annual Report 16

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Part II

ITEM 5. Market for the Registrant's Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities

Corporate Information

Stock Exchange Information

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

Xerox Common Stock Dividends

Refer to the Statement of Shareholders' Equity, in our Consolidated Financial Statements, which are incorporated
by reference, for the quarterly and full-year dividend per share disclosures in each of the three years ended
December 31, 2018.

Common Shareholders of Record

See Item 6 - Selected Financial Data, Five Years in Review, Common Shareholders of Record at Year-End, for
additional information.

Xerox 2018 Annual Report 17

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Performance Graph

Total Return to Shareholders

Year Ended December 31,

(Includes reinvestment of dividends)

2013

2014

2015

2016

2017

2018

Xerox Corporation

S&P 500 Index

S&P 500 Information Technology Index

100.00

117.40

93.61

80.64

105.62

100.00

113.69

120.12

115.26

127.23

129.05

144.85

157.22

201.10

74.58

150.33

200.52

_____________
Source: Standard & Poor's Investment Services
Notes: Graph assumes $100 invested on December 31, 2013 in Xerox, the S&P 500 Index and the S&P 500 Information Technology
Index, respectively, and assumes dividends are reinvested.

Xerox 2018 Annual Report 18

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Sales Of Unregistered Securities During The Quarter Ended December 31, 2018

During the quarter ended December 31, 2018, 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, 2018: Registrant issued 3,231 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:
Gregory Q. Brown, Jonathan Christodoro, Keith Cozza, Joseph J. Echevarria, Nicholas Graziano, William Curt
Hunter, Robert J. Keegan, Cheryl Gordon Krongard, Scott Letier, Charles Prince, Ann N. Reese, Stephen H.
Rusckowski and Sara Martinez Tucker.
The DSUs were issued at a deemed purchase price of $26.77 per DSU (aggregate price $86,494), based upon
the market value 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.

(c)

(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, 2018

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

Board Authorized Share Repurchase Program

October 1 through 31

November 1 through 30

December 1 through 31

Total

_____________

Total Number of
Shares
Purchased

Average Price
Paid per Share(1)

6,894,690

6,628,782

2,067,050

15,590,522

26.47

26.99

26.71

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)

6,894,690

6,628,782

2,067,050

15,590,522

534,153,636

355,209,731

300,000,002

(1) Exclusive of fees and costs.
(2) Of the cumulative $1.0 billion of share repurchase authority previously granted by our Board of Directors, exclusive of fees and expenses,
approximately $700 million has been used through December 31, 2018. Repurchases may be made on the open market, or through derivative
or negotiated contracts. 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.

In July 2018, Registrant's Board of Directors authorized a $1.0 billion share repurchase program. This program replaced
the $245 million authority remaining under Registrant's previously authorized share repurchase program.

In January 2019, Registrant's Board of Directors authorized an incremental $1.0 billion share repurchase program
(exclusive of any commissions and other transaction fees and costs).
Repurchases Related to Stock Compensation Programs(1):

October 1 through 31

November 1 through 30

December 1 through 31

Total

Total Number of
Shares
Purchased

Average Price
Paid per Share(2)

9,640

26.66

—

9,640

—

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

Maximum That May Be
Purchased under the Plans or
Programs

n/a

_____________
(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.

Xerox 2018 Annual Report 19

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Item 6. Selected Financial Data
Five Years in Review

(in millions, except per-share data)

Per-Share Data

Income from continuing operations

Basic

Diluted

Net Income (Loss) Attributable to Xerox

Basic

Diluted

Common stock dividends declared

Operations

Revenues

Sales

Services, maintenance and rentals

Financing

Income from continuing operations

Income from continuing operations - Xerox

Net income (loss)

Net income (loss) - Xerox
Financial Position(1)

Working capital

Total Assets
Consolidated Capitalization(1)

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

Long-term debt
Total Debt(2)

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(3)
Year-end common stock market price(3)

2018

2017

2016

2015

2014

1.40

1.38

1.40

1.38

1.00

0.70

0.71

1.00

2.36

2.33

(1.95)

(1.93)

1.24

3.00

2.97

1.59

1.58

1.12

3.42

3.37

3.32

1.00

9,830

10,265

10,771

11,465

12,679

3,972

5,590

268

374

361

374

361

4,073

5,898

294

204

192

207

195

4,319

6,127

325

633

622

(460)

(471)

4,674

6,445

346

840

822

466

448

5,214

7,078

387

1,034

1,011

1,018

995

1,444

2,489

2,338

1,431

2,798

14,874

15,946

18,051

25,442

27,576

961

282

1,011

985

4,269

5,230

214

5,005

5,235

5,517

214

5,256

5,305

6,316

214

4,709

6,382

7,367

349

8,975

1,427

6,314

7,741

349

10,596

10,483

11,024

11,277

16,734

18,761

26,742

21.80

19.76

28,752

20.64

29.15

31,803

18.57

23.00

33,843

35.45

42.52

35,307

37.95

55.44

_____________
(1) Balance sheet amounts at December 31, 2016 exclude Conduent Incorporated (Conduent) balances as a result of the Separation and Distribution
while balance sheet amounts prior to December 31, 2016 include amounts for Conduent. Refer to Note 5 - Divestitures in our Consolidated
Financial Statements for additional information.
Includes capital lease obligations.

(2)
(3) Per share prices and computations for 2015 and 2014 are on a pre-separation basis. Refer to Note 5 - Divestitures in our Consolidated Financial

Statements for further information.

Xerox 2018 Annual Report 20

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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 2018 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 annual revenues of $9.8 billion we are a leading global provider of digital print technology and related solutions;
we operate in a core market estimated at approximately $67 billion. Our primary offerings span three main areas:
Intelligent Workplace Services (formerly Managed Document Services (MDS)), Workplace Solutions and Production
Solutions (formerly Graphic Communications). Our Intelligent Workplace Services offerings help customers, ranging
from small businesses to global enterprises, optimize their printing and related document workflow and business
processes. Xerox led the establishment of this expanding market and continues as the industry leader. Our Workplace
Solutions and Production Solutions offerings support the work processes of our customers by providing them with
solutions built upon our broad portfolio of industry-leading printing and workflow offerings. We also have digital solutions
and software assets to compete in an approximately $31 billion adjacent Software and Services market. Our main
offerings for this market are focused on: industry-specific Digital Solutions, Personalization & Communication Software
and Content Management Software.

Headquartered in Norwalk, Connecticut, with 32,400 employees, Xerox serves customers in approximately 160
countries providing advanced document technology, services, software and genuine Xerox supplies for a range of
customers including small and mid-size businesses ("SMB"), large enterprises, governments and graphic
communications providers, and for our partners who serve them. In 2018, approximately 40% of our revenue was
generated outside the United States.

Market and Business Strategy

Our market and business strategy is to maintain overall leadership in our core market and increase our participation
in the growth areas, while expanding into adjacent markets and leveraging our innovation capabilities to enter new
markets. To accomplish this, we focus on the following strategic initiatives:
• Optimize operations for simplicity - i) Simplify our operating model for greater accountability and efficiency; ii)
Optimize supply chain and heighten supplier competitiveness; and iii) Make it easier for customers and partners
to do business with Xerox.

• Drive revenue - i) Service customers via channels that most effectively meet their needs; ii) Enhance capabilities

to sell higher-value services and integrated solutions; and iii) Expand software and services offerings.

• Re-energize innovation - i) Capitalize on growing industry trends in AI (Artificial Intelligence), Analytics and IoT
(Internet of Things); ii) Leverage existing expertise to develop differentiated technology; and iii) Revamp innovation
business model to focus on monetization.

• Focus on cash flow and increasing capital returns - i) Maximize cash flow generation; ii) Return at least 50% of
free cash flow (Operating cash flows from continuing operations less capital expenditures) to shareholders; and
iii) Focus on Return on Investment (ROI) and Internal Rate of Return (IRR) to make capital allocation decisions.

Post-sale Based Business Model

In 2018, 78% of our total revenue was post-sale based, which includes managed print services, equipment maintenance
services, consumable supplies and financing, among other elements. These revenue streams generally follow
equipment placements and provide some stability to our revenue and cash flows. Some of the key indicators of future
post sale revenue include:

•

Installations and removals of printers and multifunction devices 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.

Xerox 2018 Annual Report 21

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• Managed Document Services - i) signings, which reflects the estimated future revenues from contracts, mostly
from Enterprise deals, signed during the period, and; ii) 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.

Project Own It

During the second half of 2018, we initiated a transformation project - "Project Own It" - centered on creating a simpler,
more agile and effective organization to enhance our focus on our customers and our partners, instill a culture of
continuous improvement and improve our financial results. The primary goal of this project is to improve productivity
by driving end-to-end transformation of our processes and systems to create greater focus, speed, accountability and
effectiveness and to reduce costs. These efforts are considered critical to making us more competitive and giving us
the capacity to invest in growth and maximize shareholder returns. Key opportunities under Project Own It include
establishing more effective shared service centers, rationalizing our IT infrastructure, reducing our real estate footprint,
creating greater velocity in our supply chain and unlocking greater productivity in our supplier base. This project is
also evaluating the sourcing of all of our products in an effort to optimize our options. Our approach is to analyze our
potential options both by product category and holistically to determine what sourcing makes the most strategic and
economic sense.

We incurred restructuring and related costs of $158 million for the year ended December 31, 2018 primarily related to
costs incurred to implement initiatives under our business transformation projects including Project Own It.

Refer to Restructuring and Related Costs section of the MD&A and Note 12 - Restructuring and Asset Impairments
in the Consolidated Financial Statements for additional information.

Fuji Xerox Transaction Overview and Termination of Agreement

Refer to Note 19 - Contingencies and Litigation for additional information related to Xerox's pending litigation with
Fujifilm. Refer to Note 25 - Fuji Xerox Transaction in the Consolidated Financial Statements for additional
information regarding this transaction including recent developments.

Tax Cuts and Jobs Act (the “Tax Act”)

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act significantly revises the
U.S. corporate income tax system by, among other things, lowering the U.S. statutory corporate income tax rate from
35% to 21% and implementing a territorial tax system that includes a one-time transition tax on deemed repatriated
earnings of foreign subsidiaries.

Refer to Income Taxes section of the MD&A and Note 18 - Income and Other Taxes in the Consolidated Financial
Statements for additional information regarding the Tax Act.

Xerox 2018 Annual Report 22

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Financial Overview

Total revenue of $9.8 billion in 2018 decreased 4.2% from the prior year, including a 0.7-percentage point favorable
impact from currency. The decrease in revenue reflected a 4.1% decrease in Equipment sales revenue, including a
0.4-percentage point favorable impact from currency and a 4.3% decrease in Post sale revenue including a 0.7-
percentage point favorable impact from currency. The decline in Post sale revenue reflected the continuing lower page
volumes, an ongoing competitive price environment, a lower population of devices and lower supplies revenues, partially
offset by higher revenues from our Xerox Business Solutions (XBS - formerly GIS) business, our growing partner print
services and paper sales. The decline in Equipment sales reflected the impact of lower revenue from High-end systems
and the impact of lower OEM sales, which were partially offset by higher equipment sales in both Entry and Mid-Range
driven by our ConnectKey products launched in 2017 as well as from our recently launched Iridesse production press.

Net income from continuing operations attributable to Xerox was as follows:

(in millions)

Net income from continuing operations attributable to Xerox
Adjusted(1) Net income from continuing operations attributable to
Xerox

Year Ended December 31,
2017

2016

2018

B/(W)

2018

2017

361

192

622

169

(430)

893

906

918

(13)

(12)

The increase in Net income from continuing operations for 2018 as compared to the prior year was primarily related
to lower income taxes in the current year as compared to 2017. In 2017, the implementation of the Tax Act resulted in
a charge of $400 million as compared to an $89 million additional charge in 2018. The increase also reflects lower
non-service retirement-related costs and Restructuring and related costs. These increases were partially offset by
lower revenues, which were only partially offset by cost savings and productivity improvements associated with our
business transformation actions, higher Transaction and related costs, net and lower Equity in net income from
unconsolidated affiliates that included our share of a significant restructuring charge recorded by Fuji Xerox during
2018.
The decrease in adjusted1 net income from continuing operations attributable to Xerox for 2018 as compared to the
prior year was primarily related to lower revenues, which were only partially offset by cost savings and productivity
improvements associated with our business transformation actions. Adjustments in 2018 include Restructuring and
related costs, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-
related costs and other discrete, unusual or infrequent items.

Operating cash flow provided by continuing operations was $1,140 million in 2018 as compared to a use of $179 million
in 2017. The increase is primarily due to higher prior year pension contributions of $658 million, which included an
incremental $500 million contribution to our U.S. defined benefit pension plans and an additional contribution of
approximately $105 million (GBP 80 million) to our U.K. Pension Plan for salaried employees, as well as the one-time
impact of approximately $350 million from the termination of certain accounts receivable sales programs in the fourth
quarter of 2017. The increase also reflects the prior year reclassification of $234 million of collections of deferred
proceeds and beneficial interests from the sale of receivables to investing cash flows as a result of an accounting
change (refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated
Financial Statements for additional information), lower restructuring payments and improved working capital2, all of
which were partially offset by higher payments for Transaction and related costs, net.

Cash used in investing activities of continuing operations was $29 million in 2018 reflecting $90 million of capital
expenditures, which were partially offset by $59 million from the sale of non-core business assets. Cash used in
financing activities was $1,301 million in 2018 reflecting $700 million for share repurchases, payments of $265 million
on Senior Notes, $25 million for a capital lease termination, $19 million of bridge facility costs and dividend payments
of $269 million.
_____________
(1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure.
(2) Working capital reflects Accounts receivable, net, Inventories, Accounts payable and Accrued compensation and benefits cost.

2019 Outlook

We project total revenues to decline in 2019 by approximately 5%, excluding the impact of currency. At January 2019
exchange rates, we expect translation currency to have an approximate 1.0-percentage point unfavorable impact on
total revenues in 2019, reflecting the strengthening of the U.S. dollar against our major foreign currencies as compared
to prior year. Both reported and adjusted1 earnings are expected to improve reflecting the continued benefits of cost
reductions and productivity improvements, which are expected to offset the impact of projected decline in revenues.

Xerox 2018 Annual Report 23

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We expect 2019 operating cash flows from continuing operations to be between $1.15 and $1.25 billion and capital
expenditures to be approximately $150 million.

Our capital allocation plan for 2019 includes the following:
• Share repurchases – we expect to repurchase at least $300 million.
• Dividends - expect dividend payments to be approximately $250 million, reflecting the current annualized common

stock dividend of $1.00 per share.

Economic and Market Factors

Our business, results of operations and financial condition may be negatively impacted by a potential increase in the
cost of our products as a result of new or incremental trade protection measures such as, increased import tariffs,
import or export restrictions and requirements and the revocation or material modification of trade agreements. At this
stage, we do not anticipate a material impact from the additional China tariffs announced to date on the cost of our
imported products. However, we are continuing to assess the impact of potentially new import tariffs on our products
and we continue to monitor developments in this area and will make efforts to mitigate the impact to the extent possible.

In June 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union
(E.U.), commonly referred to as “Brexit”, and in March 2017, the U.K. formally started the process to leave the E.U.
Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the
withdrawal of the U.K. from the E.U. will have. Brexit creates global political and economic uncertainty, which may
cause, among other consequences, volatility in exchange rates and interest rates and changes in regulations.
Additionally, there may be potential risks to our supply chain including additional administrative requirements, customs
delays, and possibly tariffs. We currently do not believe that these and other related effects will have a material impact
on the Company’s consolidated financial position or operating results. However, we continue to assess the situation
and expect to take any necessary steps to mitigate the potential volatility, increased costs or disruptions to our supply
chain that may result from this matter. For the year ended December 31, 2018, revenues and assets in Europe, including
the U.K., represented approximately 30% of our consolidated revenues and total assets, respectively.

Currency Impact

To understand the trends in the 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 "constant currency",
“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. We do not hedge the translation effect of revenues or
expenses denominated in currencies where the local currency is the functional currency. 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.

Approximately 40% of our consolidated revenues are derived from operations outside of the United States where the
U.S. Dollar is normally not the functional currency. As a result, foreign currency translation had a 0.7-percentage point
favorable impact on revenue in 2018 and no impact on revenue in 2017.

Xerox 2018 Annual Report 24

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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,
such as 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 - Basis of Presentation and 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. On January 1, 2018, we adopted
ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606), which superseded nearly all existing revenue
recognition guidance under U.S. GAAP. Refer to Note 2 - Revenue, in the Consolidated Financial Statements as well
as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies - Revenue Recognition - for additional
information regarding our revenue recognition policies. Specifically, the revenue related to the following areas involves
significant judgments and estimates:

Bundled Lease Arrangements: We sell our equipment direct to end customers 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. Sales made under bundled lease
arrangements directly to end customers comprise approximately 35% of our equipment sales revenue. Revenues
under bundled arrangements are allocated considering the relative standalone 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.

Sales to Distributors and Resellers: We utilize distributors and resellers to sell many of our technology products, supplies
and services 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 discount, rebate,
price-support, 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 35% of our total sale revenues are sales of equipment and supplies to distributors and resellers, and
provisions and allowances recorded on these sales are approximately 22% of the associated gross revenues.

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 $36
million, $33 million and $37 million in Selling, administrative and general (SAG) expenses in our Consolidated
Statements of Income (Loss) for the years ended December 31, 2018, 2017 and 2016, respectively.

Although bad debt provisions increased in 2018, the provision was less than the prior three-year average and continues
to reflect the maintenance of a prudent credit policy. Reserves, as a percentage of trade and finance receivables, were
3.0% at December 31, 2018, as compared to 3.2% and 3.6% at December 31, 2017 and 2016, respectively. 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.

Xerox 2018 Annual Report 25

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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 three year
period ended December 31, 2018, our reserve for doubtful accounts ranged from 3.0% to 3.6% of gross receivables.
Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the December 31,
2018 rate of 3.0% would change the 2018 provision by approximately $24 million.

Refer to Note 6 - Accounts Receivable, Net and Note 7 - 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. Over the past several years, where legally possible, we have amended our major defined benefit pension
plans to freeze current benefits and eliminate benefit accruals for future service, including our primary U.S. defined
benefit plan for salaried employees, the Canadian Salary Pension Plan and the U.K. Final Salary Pension Plan. The
freeze of current benefits is the primary driver of the reduction in pension service costs since 2012. In certain Non-
U.S. plans, we are required to continue to consider salary increases and inflation in determining the benefit obligation
related to prior service. The Netherlands defined benefit pension plan has also been amended to reflect the Company's
ability to reduce the indexation of future pension benefits within the plan in scenarios when the returns on plan assets
are insufficient to cover that indexation.

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, lump-sum settlement rates, 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.

Cumulative net actuarial losses for our defined benefit pension plans of $2.4 billion as of December 31, 2018 decreased
by $350 million from December 31, 2017, primarily due to the recognition of actuarial losses through amortization and
U.S. settlement losses, currency and higher discount rates at December 31, 2018 as compared to the prior year. The
total actuarial loss at December 31, 2018 is subject to offsetting gains or losses in the future due to changes in actuarial
assumptions and will be recognized in future periods through amortization or settlement losses.

We used a consolidated weighted average expected rate of return on plan assets of 4.5% for 2018, 5.0% for 2017 and
5.8% for 2016, on a worldwide basis. During 2018, the actual return on plan assets was a $255 million loss as compared
to an expected return of $311 million, with the difference largely due to negative equity market returns and the negative
impact of increasing interest rates on our fixed income investments. When estimating the 2019 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 2019
is 4.6%.

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, 2018 and to calculate our 2019 expense was 3.2%; the rate used to calculate
our obligations as of December 31, 2017 and our 2018 expense was 2.8%.

Holding all other assumptions constant, the following table summarizes the estimated impacts of a 0.25% change in
the discount rate and a 0.25% change in the expected return on plan assets:

(in millions)

Increase/(Decrease)

Discount Rate

Expected Return

0.25%
Increase

0.25%
Decrease

0.25%
Increase

0.25%
Decrease

2019 Projected net periodic pension cost

Projected benefit obligation as of December 31, 2018

(20) $

(355)

385

(20) $

N/A

Xerox 2018 Annual Report 26

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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 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, 2018, of which the U.S. primary domestic plans, with a lump-sum feature, represented approximately
$810 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 from period to period. During the three years ended
December 31, 2018, U.S. plan settlements were $660 million, $550 million and $229 million, respectively, and the
associated settlement losses on those plan settlements were $173 million, $133 million and $65 million, respectively.
In 2019, on average, we estimate that approximately $100 million of plan settlements will result in settlement losses
of approximately $25 million.

The following is a summary of our benefit plan costs for the three years ended December 31, 2018 as well as estimated
amounts for 2019:

(in millions)
Defined benefit pension plans(1)

U.S. settlement losses
Defined contribution plans(2)

Retiree health benefit plans

Total Benefit Plan Expense

(60)

115

173

133

249

291

236

Estimated

2019

2018

Actual

2017

2016

Our estimated 2019 defined benefit pension plan cost is expected to be approximately $134 million lower than 2018,
primarily driven by lower projected U.S. settlement losses and the amortization of prior service credits resulting from
the 2018 amendments to our Retiree Health plans in the U.S. and Canada.

The following is a summary of our benefit plan funding for the three years ended December 31, 2018 as well as
estimated amounts for 2019:

(in millions)

U.S. Defined benefit pension plans

Non-U.S. Defined benefit pension plans
Defined contribution plans(2)

Retiree health benefit plans

Total Benefit Plan Funding

_____________

Estimated

2019

2018

Actual

2017

110

117

2016

675

161

235

267

967

154

61
313

(1) Excludes U.S. settlement losses.
(2) Prior year amounts have been revised to reflect additional cost for previously excluded plans.

The decrease in contributions to our U.S. defined benefit plans from 2017 was largely due to 2017 including $650
million of contributions to our domestic tax-qualified defined benefit plans, comprised of $15 million required to meet
minimum funding requirements and $635 million of voluntary contributions. Contributions to our U.S. defined benefit
plans in 2018 and estimated for 2019 are primarily for payments associated with our non-qualified plan in the U.S. and
do not include any contributions for our tax-qualified defined benefit plans because none were required to meet the
minimum funding requirements.

Refer to Note 17 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding
defined benefit pension plan assumptions, expense and funding.

Income Taxes

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments are required in
determining the consolidated provision for income taxes. Our provision is based on nonrecurring events as well as
recurring factors, including the taxation of foreign income. In addition, our provision will change based on discrete or
other nonrecurring events such as audit settlements, tax law changes, changes in valuation allowances, etc., that may
not be predictable.

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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. Increases (decreases) to our valuation
allowance, through income tax expense, were $3 million, $6 million and $(8) million for the years ended December 31,
2018, 2017 and 2016, respectively. There were other (decreases) increases to our valuation allowance, including the
effects of currency, of $(41) million, $13 million and $41 million for the years ended December 31, 2018, 2017 and
2016, respectively. These did not affect income tax expense in total as there was a corresponding adjustment to
Deferred tax assets or Other comprehensive income (loss).

The following is a summary of gross deferred tax assets and the related valuation allowances for the three years ended
December 31, 2018:

(in millions)

Gross deferred tax assets

Valuation allowance

Net deferred tax assets

Year Ended December 31,

2018

2017

2016

1,566

(397)

1,169

2,051

(435)

1,616

2,730

(416)

2,314

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 $108 million, $125 million and $165 million at December 31, 2018, 2017 and 2016, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the U.S. The Tax Act significantly
revises the U.S. corporate income tax system by, among other things, lowering the U.S. statutory corporate income
tax rate from 35% to 21% and implementing a territorial tax system that includes a one-time transition tax on deemed
repatriated earnings of foreign subsidiaries.

Refer to Note 18 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding
deferred income taxes, unrecognized tax benefits and the estimated impacts of the Tax Act.

Business Combinations and Goodwill

We allocate the fair value of purchase consideration to tangible assets, liabilities assumed, and intangible assets
acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair
values of these identifiable assets and liabilities is allocated to Goodwill. The allocation of the purchase consideration
requires management to make significant estimates and assumptions, especially with respect to intangible assets.
These estimates can include, but are not limited to, future expected cash flows of acquired customers, acquired
technology and trade names from a market participant perspective, as well as estimates of useful lives and discount
rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable and when
appropriate, include assistance from independent third-party valuation firms. During the measurement period, which
is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed,
with the corresponding offset to Goodwill. Upon the conclusion of the measurement period, any subsequent adjustments
are recorded to earnings. Refer to Note 4 - Acquisitions in the Consolidated Financial Statements for additional
information regarding the allocation of the purchase price consideration for our acquisitions.

Our Goodwill balance was $3.9 billion at December 31, 2018. We assess Goodwill for impairment at least annually
during the fourth quarter based on balances as of October 1st and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Events or circumstances that might indicate an interim evaluation
is warranted include, among other things, unexpected adverse business conditions, macro and company specific
economic factors, supply costs, unanticipated competitive activities and acts by governments and courts. Application
of the annual Goodwill impairment test requires judgment regarding the identification of reporting units. Consistent with
the determination that we had one operating segment, we determined that there is one reporting unit and tested
Goodwill for impairment at the entity level.

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In performing our annual Goodwill impairment test as of October 1st, we qualitatively assessed our Goodwill balance
for impairment and concluded that Goodwill was not impaired. In performing the qualitative assessment, we considered
the prior year excess of fair value over carrying value as well as relevant events and conditions, including but not limited
to, macroeconomic trends, industry and market conditions, overall financial performance, cost factors, company-specific
events, and legal and regulatory factors. Our assessment indicated that consistent with prior year projections, we
retained our market share and offset revenue declines with cost reductions and productivity improvements. Accordingly,
expected net cash flows were consistent with prior period projections. In addition, we also considered the impact of a
higher discount rate than the prior year based on current market and industry conditions but concluded that the impact
would not have had a material adverse impact.

Subsequent to our annual test, as a result of certain business factors including a debt rating downgrade and a significant
decrease in our market capitalization, we performed an interim impairment test of our Goodwill balance as of December
31, 2018. We elected to utilize a quantitative assessment of the recoverability of our Goodwill balance for this interim
impairment assessment.

In our quantitative test, we estimate the fair value of the entity 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. In addition, these approaches
require us to make certain assumptions and estimates regarding the current economic environment, industry factors
and the future profitability of our businesses. Our assessment also includes the use of outside valuation experts and
incorporates factors and assumptions related to third-party market participants.

When performing our discounted cash flow analysis, we incorporate the use of projected financial information and a
discount rate that is 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 and which are consistent with expected guidance for the Company. The selected discount rate considers the
risk and nature of the entity's cash flows and an appropriate capital structure and rates of return that market participants
would require to invest their capital.

We believe these assumptions are appropriate and reflect our current expectations as well as our forecasted long-
term business model, giving appropriate consideration to our historical results as well as the current economic
environment and markets that we serve. The 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 and an
appropriate company-specific risk premium that reflects current market and industry conditions.

When performing our market approach, 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 our entity. The selected multiples consider entity's relative growth, profitability, size
and risk relative to the selected publicly traded companies.

After completing our interim impairment review as of December 31, 2018, we concluded that Goodwill was not impaired
and we had an excess of fair value over carrying value of more than 20%. Although our estimate of the fair value of
the entity was in excess of our market capitalization, we believe the difference is reasonable when a market-based
control premium is taken into consideration.

Refer to Note 11 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information
regarding Goodwill.

Xerox 2018 Annual Report 29

Table of Contents

Revenue Results Summary

Total Revenue

Revenue for the three years ended December 31, 2018 was as follows:

(in millions)

Equipment sales

Post sale revenue

Total Revenue

Revenue

% Change

CC % Change

% of Total Revenue

2018

2017

2016

2018

2017

2018

2017

2018

2017

2016

$ 2,200
7,630
$ 9,830

$ 2,295
7,970

$10,265

$ 2,471
8,300
$10,771

(4.1)%

(4.3)%

(4.2)%

(7.1)% (4.5)%

(4.0)% (5.0)%

(4.7)% (4.9)%

(7.3)%

(3.9)%

(4.7)%

22%

78%
100%

22%

78%
100%

23%

77%
100%

Reconciliation to Consolidated Statements of Income (Loss):

Sales

$ 3,972

$ 4,073

$ 4,319

(2.5)%

(5.7)% (2.7)%

(5.7)%

Less: Supplies, paper and other
sales
Add: Equipment-related training(1)
Equipment sales(2)

(1,772)

(1,822)

(1,900)

(2.7)%

(4.1)% (2.6)%

(3.8)%

—
$ 2,200

44
$ 2,295

52
$ 2,471

(4.1)%

(7.1)% (4.5)%

(7.3)%

Services, maintenance and rentals

Add: Supplies, paper and other sales

Add: Financing
Less: Equipment-related training(1)
Post sale revenue(2)

$ 5,590
1,772

$ 5,898
1,822

$ 6,127
1,900

268

294

325

—
$ 7,630

(44)
$ 7,970

(52)
$ 8,300

(5.2)%

(2.7)%

(8.8)%

(3.7)% (5.4)%

(4.1)% (2.6)%

(9.5)% (10.0)%

(3.7)%

(3.8)%

(9.5)%

(4.3)%

(4.0)% (5.0)%

(3.9)%

North America
International

Other
Total Revenue(3)

$ 5,913
3,532

385
$ 9,830

$ 6,122
3,601

542

$10,265

$ 6,420
3,736

615
$10,771

(3.4)%
(1.9)%

(4.6)% (3.4)%
(3.6)% (3.7)%

(4.9)%
(3.1)%

(29.0)% (11.9)% (29.0)% (11.9)%

(4.2)%

(4.7)% (4.9)%

(4.7)%

60%
36%

4%
100%

60%
35%

5%
100%

60%
34%

6%
100%

1.1 %

(0.6)%

0.5 %

(0.4)%

35%

33%

32%

Memo:
Managed Document Services(4)
_____________
CC - See "Currency Impact" section for description of Constant Currency.
(1)

$ 3,441

$ 3,419

$ 3,457

In 2018, upon adoption of ASU 2014-09 Revenue Recognition, revenue from training related to equipment installation is now included in
Equipment Sales. In prior periods, this revenue was reported as Services, maintenance and rentals.

(2) Equipment sales revenue in 2016 has been revised to reclassify certain XBS IT-related equipment sales to other sales, which are included in

Post sale revenue.

(3) Refer to the "Geographic Sales Channels and Product and Offerings Definitions" section.
(4) Excluding equipment revenue, Managed Document Services (MDS) was $2,974 million, $2,962 million and $2,942 million for the three years
ended December 31, 2018, respectively. For the year ended December 31, 2018, the change represented an increase of 0.4%, including a
0.6-percentage point favorable impact from currency. For the year ended December 31, 2017, the change represented an increase of 0.7%,
including a 0.2-percentage point unfavorable impact from currency.

Revenue

Total revenue decreased 4.2% for the year ended December 31, 2018 including a 0.7-percentage point favorable
impact from currency. Total revenue decreased 4.7% for the year ended December 31, 2017 compared to the prior
year, with no impact from currency. Total revenues included the following:

Post sale revenue

Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing. These
revenues are associated not only with the population of devices in the field, which is affected by installs and removals,
but also by page volumes generated by the usage of such devices, and the revenue per printed page. For the year
ended December 31, 2018, Post sale revenue decreased 4.3% compared to the prior year including a 0.7-percentage
point favorable impact from currency. For the year ended December 31, 2017, Post sale revenue decreased 4.0%
compared to the prior year including a 0.1-percentage point unfavorable impact from currency. Post sale revenue is
comprised of the following:
• Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled
supplies) as well as the post sale component of the document services revenue from our Managed Document
Services (MDS) offerings, and revenues from our Communication and Marketing Solutions (CMS).

Xerox 2018 Annual Report 30

Table of Contents

For the year ended December 31, 2018, these revenues declined 5.2%, including a 0.2-percentage point
favorable impact from currency. The decline at constant currency1 reflected the continuing trends of lower page
volumes (including a higher mix of lower usage products), an ongoing competitive price environment and a
lower population of devices, which are partially associated with continued lower signings and installs from prior
periods. The lower population of devices is partially due to the loss of market share for multiple quarters leading
up to the ConnectKey launch in mid-2017. Additionally, the prior year included $20 million of higher revenues
associated with a licensing agreement. These impacts were partially offset by higher revenues from MDS and
our Xerox Business Solutions (XBS) business, formerly known as Global Imaging Systems, inclusive of
acquisitions.

For the year ended December 31, 2017, these revenues declined 3.7%, including no impact from currency.
The decline at constant currency1 reflected lower signings and installs from prior periods and the continuing
decline in page volumes. These declines were partially mitigated by $20 million of higher revenues associated
with a licensing agreement as well as growth in MDS, developing markets and acquisitions within our XBS
business.

• Supplies, paper and other sales includes unbundled supplies and other sales.

For the year ended December 31, 2018, these revenues declined 2.7%, including a 0.1-percentage point
unfavorable impact from currency. The decline at constant currency1 reflected the impact from lower supplies
sales (both in U.S. and European channels). These declines were partially offset by higher paper sales and
higher IT network integration solutions sales from our XBS business. The decline also reflected an approximate
1.5-percentage point unfavorable impact from lower original equipment manufacturer (OEM) sales.

For the year ended December 31, 2017, these revenues declined 4.1%, including a 0.3-percentage point
unfavorable impact from currency. The decline was driven by lower network integration solutions sales from
our XBS business, reduced OEM supplies and lower supplies demand (both in U.S. and European channels)
consistent with declining equipment sales in prior periods. The decline was partially offset by higher supplies
sales from our XBS business and our developing markets.

• Financing revenue is generated from financed equipment sale transactions. For the year ended December 31,
2018, Financing revenue decreased 8.8%, including a 1.2-percentage point favorable impact from currency, while
Financing revenue for the year ended December 31, 2017 decreased 9.5% including no impact from currency.
The decline in both periods reflected a continued decline in finance receivables balance due to lower equipment
sales in prior periods and a greater mix of sales to channels where our financing penetration rate is lower.

Equipment sales revenue
Equipment revenue for the three years ended December 31, 2018 was as follows:

Revenue

% Change

CC % Change

% of Equipment Revenue

(in millions)
Entry(1)
Mid-range

High-end
Other(1)
Equipment sales(2)(3)
_____________

2018

2017

2016

237
1,493

424
46
$ 2,200

231
1,468

473
123
$ 2,295

231
1,596

502
142
$ 2,471

2018

2.6%
1.7%

2017

—%
(8.0)%

2018

2.0%
1.1%

2017

—%
(8.3)%

(10.4)% (5.8)% (10.5)% (5.7)%
(62.6)% (13.4)% (62.6)% (12.4)%
(7.3)%
(4.1)%

(7.1)%

(4.5)%

2018

11%
68%

19%
2%
100%

2017

10%
64%

21%
5%
100%

2016

9%
65%

20%
6%
100%

CC - See "Currency Impact" section for description of Constant Currency.
(1)

In 2018, revenues from our OEM business are included in Other, which had historically been reported in Entry. This reclassification was made
to provide better transparency to our business results. Prior year amounts have been adjusted to conform to this change.
In 2018, upon adoption of ASU 2014-09 Revenue Recognition, revenue from training related to equipment installation is now included in
Equipment Sales (previously included in Post sale revenue). Prior year amounts have been adjusted to conform to this change.

(2)

(3) Equipment sales revenue in 2016 has been revised to reclassify certain XBS IT-related equipment sales to other sales, which are included in

Post sale revenue.

Equipment sales revenue

Equipment sales revenue decreased 4.1% for the year ended December 31, 2018 including a 0.4-percentage point
favorable impact from currency. For the year ended December 31, 2017, Equipment sales decreased 7.1% including
a 0.2-percentage point favorable impact from currency. Equipment sales revenue in both years was impacted by price
declines of approximately 5% (which were in-line with our historic declines). For the year ended December 31, 2018,
the decline at constant currency1 included a 3.3-percentage point unfavorable impact from lower OEM Equipment
sales. Equipment sales revenue is comprised of the following:

Xerox 2018 Annual Report 31

Table of Contents

• Entry

For the year ended December 31, 2018, the increase reflected higher sales of our ConnectKey devices through

our channels in the U.S. and developing markets.

For the year ended December 31, 2017, entry sales were flat and reflected lower OEM activity and an
unfavorable mix caused by higher install activity from lower-end and monochrome devices in our developing
markets as well as the timing of our new ConnectKey products.

• Mid-range

For the year ended December 31, 2018, the increase reflected higher sales of our ConnectKey devices through
our Enterprise channel in the U.S., higher sales of lower-end devices in developing markets and higher sales
from our XBS business.

For the year ended December 31, 2017, the decrease reflected, in part, the mid-year transition to our new
product portfolio and was further impacted by the longer sales cycles in certain areas of the business, as well
as lower revenue from color devices and black-and-white systems reflecting market trends. These declines
were partially offset by higher revenues from our developing markets.

• High-end

For the year ended December 31, 2018, the decrease primarily reflected lower sales from iGen, along with
lower revenues from black-and-white systems consistent with market decline trends. These declines were only
partially mitigated by demand for the Iridesse production press, as well as higher sales from our recently
upgraded Brenva cut-sheet inkjet press.

For the year ended December 31, 2017, the decrease in high-end sales primarily reflected lower revenues
from our black-and-white systems, consistent with market trends, along with the impact of higher sales of iGen
and Color Press in the prior year associated with the drupa trade show; these declines were only partially
mitigated by higher sales of our continuous feed inkjet color systems and the recently launched Versant
products. High-end color sales also included lower digital front-end (DFE) sales to Fuji Xerox.

Revenue Metrics
Installs reflect new placement of devices only. Revenue associated with equipment installations (discussed below)
may be reflected up-front Equipment sales or over time through rental income or as part of our Managed Document
Services revenues (which are both reported within our Post sale revenues), depending on the terms and conditions
of our agreements with our customers. Install activity includes Managed Document Services and Xerox-branded
products shipped to our XBS business. Detail by product group (see Geographic Sales Channels and Product and
Offerings Definitions) is shown below:
Installs for the year ended December 31, 2018 were:
Entry(1)
•

12% increase in color multifunction devices, reflecting higher installs of our ConnectKey products through our
indirect channels in the U.S. and Europe, as well as through our XBS business.
17% increase in black-and-white multifunction devices, driven largely by higher activity from low-end devices in
developing markets as well as higher installs of our ConnectKey devices through our indirect channels in the U.S.
and Europe.

•

Mid-Range(2)
•

•

High-End(2)
•

10% increase in mid-range color installs, reflecting higher demand from our ConnectKey devices through our large
enterprise channel and our XBS business, as well as lower-end A3 devices in developing markets.
8% increase in mid-range black-and-white, reflecting higher demand for our ConnectKey devices in our XBS
business and developing markets.

9% decrease in high-end color systems, as demand for our new Iridesse production press and cut-sheet inkjet
products was offset by lower installs of iGen and lower-end production systems including Versant systems.
18% decrease in high-end black-and-white systems reflecting market trends, partially offset by increased demand
in our indirect U.S. channels and our developing markets.

Xerox 2018 Annual Report 32

Table of Contents

Installs for the year ended December 31, 2017 were:
Entry(1)
•

24% increase in color multifunction devices, reflecting demand for recently launched products as well as the
migration from printers to multifunction devices, consistent with market trends.
18% increase in black-and-white multifunction devices, driven largely by higher activity for low-end printers in
developing markets.

•

Mid-Range(2)
• Mid-range color installs were flat, reflecting demand for recently launched products including strong activity in
developing markets and U.S. Channels, offset by longer large account sales cycles that were affected by the timing
of our product roll out.
12% decrease in mid-range black-and-white, reflecting overall market decline as well as the impact of transitioning
to the new product portfolio, partly offset by growth in developing markets.

•

High-End(2)
•

•
_____________

8% decrease in high-end color systems, as growth from continuous feed color and the recently launched Versant
products was more than offset by higher iGen and Color Press installs in the prior year, following the drupa trade
show.
25% decrease in high-end black-and-white systems reflects overall market decline and trends.

(1) Entry installations exclude OEM sales; including OEM sales, Entry color multifunction devices decreased 16% and 2% for the years ended
December 31, 2018 and 2017, respectively. Entry black-and-white multifunction devices increased 3% and 10% for the years ended December
31, 2018 and 2017, respectively.

(2) Mid-range and High-end color installations exclude Fuji Xerox digital front-end sales; including Fuji Xerox digital front-end sales, Mid-range
color devices increased 9% and were flat for the years ended December 31, 2018 and 2017, respectively, while High-end color systems
decreased 9% and 14% for the years ended December 31, 2018 and 2017, respectively.

Signings

Signings are defined as estimated future revenues from contracts signed during the period, including renewals of
existing contracts. 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 for which a renewal decision was made during the period. Our
reported signings primarily represent those from our Enterprise deals, as we do not currently include signings from
our growing partner print services offerings or those from our XBS business. Total Contract Value (TCV) is the estimated
contractual revenue related to signed contracts. Signings expressed in TCV were as follows:

(in millions)

Signings

_____________

Year Ended December 31,
2017

2016

2018

2,366

2,714

2,734

(12.8)%

% Change

CC % Change

2018

2017

(0.7)%

2018

(13.9)%

2017

1.0%

CC - See "Currency Impact" section for description of Constant Currency.

Signings for the year ended December 31, 2018 decreased 12.8% compared to the prior year, including a 1.1-percentage
point favorable impact from currency primarily reflecting lower new business and fewer renewal opportunities as a
result of ongoing competitive pressure in the market and longer decision cycles. Signings for the year ended December
31, 2017 decreased 0.7% compared to the prior year, with a 1.7-percentage point unfavorable impact from currency
primarily reflecting a lower contribution from new business, partially offset by higher contributions from renewals.

New business TCV for the year ended December 31, 2018, decreased 5.0%, including a 1.0-percentage point favorable
impact from currency.

Renewal Rate

Contract renewal rate for the year ended December 31, 2018 was 82%, as compared to the renewal rate of 84% for
the year ended December 31, 2017. The decrease in the renewal rate since 2017 is a result of the inherent volatility
in the timing of signings as well as the recently instituted enhanced discipline, ensuring that we are not diminishing
our return on investment by renewing too early.

Xerox 2018 Annual Report 33

Table of Contents

Geographic Sales Channels and Product and Offerings Definitions

Our business is aligned to a geographic focus and is primarily organized on the basis of go-to-market sales channels,
which are structured to serve a range of customers for our products and services:
• North America, which includes our sales channels in the U.S. and Canada.
International, which includes our sales channels in Europe, Eurasia, Latin America, Middle East, Africa and India.
•
• Other, primarily includes our OEM business, as well as sales to and royalties from Fuji Xerox, and our licensing

revenue.

Our products and offerings include:

•

“Entry”, which includes A4 devices and desktop printers. Prices in this product group can range from approximately
$150 to $3,000.

“Mid-Range”, which includes A3 Office and Light Production devices that generally serve workgroup environments
in mid to large enterprises. Prices in this product group can range from approximately $2,000 to $75,000+.

“High-End”, which includes production printing and publishing systems that generally serve the graphic
communications marketplace and large enterprises. Prices for these systems can range from approximately
$30,000 to $1,000,000+.

• Managed Document Services (MDS) revenue, which includes solutions and services that span from managing
print to automating processes to managing content. Our primary offerings within MDS are Managed Print Services
(including from XBS), as well as workflow automation services, and Centralized Print Services and Solutions (CPS).
MDS excludes Communications and Marketing Solutions (CMS).

Xerox 2018 Annual Report 34

Table of Contents

Costs, Expenses and Other Income

Summary of Key Financial Ratios

The following is a summary of our key financial ratios used to assess our performance:

(178)
39
110

(2.1) pts.
pts.
1.3

0.2

pts.

pts.
0.2
(0.1) pts.

0.3
(34)
0.3

pts.

(in millions)

Gross Profit

RD&E

SAG

Equipment Gross Margin

Post sale Gross Margin

Total Gross Margin

RD&E as a % of Revenue

SAG as a % of Revenue

2018

2017

2016

2018 B/(W)

2017 B/(W)

Year Ended December 31,

3,927

4,127

4,305

397

2,390

32.9%

42.0%

39.9%

4.0%

24.3%

424

2,526

29.1%
43.4%
40.2%
4.1%
24.6%

463

2,636

31.2%
42.1%
40.0%
4.3%
24.5%

(200)
27
136

3.8
pts.
(1.4) pts.
(0.3) pts.
pts.
0.1

0.3

pts.

Pre-tax Income

598

570

568

Pre-tax Income Margin
Adjusted(1) Operating Profit
Adjusted(1) Operating Margin
_____________
(1) Refer to the "Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure.

0.5
(34)
0.2

12.4%

12.7%

12.9%

1,268

1,302

1,336

5.3%

5.6%

6.1%

pts.

Pre-tax Income Margin

Pre-tax income margin for the year ended December 31, 2018 of 6.1% increased 0.5-percentage points compared to
2017. This increase was primarily driven by lower Restructuring and related costs and lower Other expenses, net,
including lower non-service retirement-related costs. These improvements were partially offset by lower revenues,
which were only partially offset by cost savings and productivity from our business transformation actions and higher
Transaction and related costs, net. Transaction currency had a 0.5-percentage point favorable impact.

Pre-tax income margin for the year ended December 31, 2017 of 5.6% increased 0.3-percentage points compared to
2016. This increase was primarily driven by cost productivity and savings from strategic transformation, lower
Restructuring and related costs and lower Other expenses, net, largely reflecting lower interest expense. These
improvements more than offset the pace of revenue declines, higher non-service retirement-related costs and adverse
transaction currency of 0.7-percentage points.

Pre-tax income margin includes the Amortization of intangible assets, Restructuring and related costs, Transaction
and other related costs and Other expenses, net, all of which are separately discussed in subsequent sections. Adjusted1
Operating margin, discussed below, excludes all of these items and includes Equity in net income of unconsolidated
affiliates before restructuring.
Adjusted1 Operating Margin
Adjusted1 operating margin for the year ended December 31, 2018 of 12.9% increased 0.2-percentage points compared
to 2017, including a 0.5-percentage point favorable impact from transaction currency, primarily reflecting cost
productivity and savings from our business transformation actions and lower compensation expense. Partially offsetting
these improvements was lower revenues and a 0.4-percentage point unfavorable impact within SAG expenses primarily
related to the exit of a real estate facility (0.2-percentage point) and the cancellation of certain IT projects (0.2-percentage
point). Adjusted1 operating margin was also unfavorably impacted by lower equity income from our Fuji Xerox joint
venture.

Adjusted1 operating margin for the year ended December 31, 2017 of 12.7% increased 0.3-percentage points compared
to 2016, reflecting productivity and savings from strategic transformation as well as higher licensing revenue, which
more than offset the pace of revenue declines and the impact of revenue generating and SAG investments along with
adverse transaction currency of 0.7-percentage points. Adjusted1 operating margin was also unfavorably impacted by
higher compensation and benefit expense as well as lower equity income from our Fuji Xerox joint venture.
_____________
(1) Refer to Operating Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section.

Xerox 2018 Annual Report 35

Table of Contents

Gross Margin

Total gross margin for the year ended December 31, 2018 of 39.9% decreased 0.3-percentage points compared to
2017, primarily reflecting a less profitable mix of revenues and the impact of pricing, as well as lower post sale margin,
partially offset by higher equipment margin and cost productivity and savings associated with our business
transformation actions. Gross margin includes the favorable impact from transaction currency of 0.4-percentage points.

Total gross margin for year ended December 31, 2017 of 40.2% increased 0.2-percentage points compared to 2016.
The increase reflects cost productivity and savings from strategic transformation, as well as improvement in the rate
of revenue decline that more than offset adverse transaction currency of 0.7-percentage points.

Equipment gross margin for the year ended December 31, 2018 of 32.9% increased 3.8-percentage points compared
to 2017, reflecting the mix benefit from lower OEM sales (which carry a negative upfront margin), favorable transaction
currency as well as savings from cost productivity initiatives, partially offset by the impact of pricing and a less profitable
mix of revenues.

Equipment gross margin for the year ended December 31, 2017 of 29.1% decreased 2.1-percentage points compared
to 2016, as product cost productivity was more than offset by adverse transaction currency and price declines.

Post sale gross margin for the year ended December 31, 2018 of 42.0% decreased 1.4-percentage points compared
to 2017, reflecting lower revenues, including an unfavorable mix of lower maintenance revenues and licensing revenues
as well as the impact of pricing, partially offset by productivity and restructuring savings.

Post sale gross margin for the year ended December 31, 2017 of 43.4% increased 1.3-percentage points compared
to 2016, reflecting cost savings and productivity improvements from strategic transformation and higher licensing
revenue, which more than offset the pace of revenue declines.

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,

Change

2018

2017

2016

2018

2017

325
72
397
586

$
$

334
90
424
536

$
$

368
95
463
628

$
$

(9) $

(18)
(27) $
$
50

(34)
(5)
(39)
(92)

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

RD&E as a percentage of revenue for the year ended December 31, 2018 of 4.0% was 0.1-percentage points lower
compared to 2017.

RD&E of $397 million for the year ended December 31, 2018, decreased $27 million from 2017 and reflected lower
sustaining engineering expenses as well as restructuring and cost productivity savings and lower expenses from the
sale of a business and associated transfers of resources to third parties during the prior year. These impacts were
partially offset by modest investments in innovation in complementary market areas.

RD&E as a percentage of revenue for the year ended December 31, 2017 of 4.1% was 0.2-percentage points lower
compared to 2016.

RD&E of $424 million for the year ended December 31, 2017 decreased $39 million from 2016 and reflected savings
from strategic transformation including restructuring savings and lower expenses as a result of the transfer of resources
to Electronics for Imaging (EFI), a third party high-end print server supplier, and the sale of our Xerox Research Centre
Europe in Grenoble, France, which was mainly dedicated to supporting the discontinued BPO business.

We coordinate our R&D investments with Fuji Xerox.

Selling, Administrative and General Expenses (SAG)

SAG as a percentage of revenue of 24.3% decreased 0.3-percentage points for the year ended December 31, 2018
compared to 2017 primarily reflecting the savings from productivity and restructuring associated with our business
transformation actions. SAG as a percentage of revenue includes a 0.4-percentage point unfavorable impact from the
exit of a real estate facility and the cancellation of certain IT projects in 2018.

SAG expenses of $2,390 million for the year ended December 31, 2018 were $136 million lower than 2017, including
an approximate $14 million unfavorable impact from currency. The reduction primarily reflected productivity and
restructuring savings associated with our business transformation actions along with lower annual performance

Xerox 2018 Annual Report 36

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incentive compensation expense. These improvements were partially offset by $44 million of charges related to the
accelerated depreciation from the early termination of a capital lease associated with a surplus facility ($22 million)
and the cancellation of certain IT projects ($22 million) as we continue to evaluate the returns on our IT investments.
Bad debt expense for the year ended December 31, 2018 was $36 million and was $3 million higher than the prior
year and on a trailing twelve month basis (TTM) remained at less than one percent of receivables.

SAG as a percentage of revenue of 24.6% increased 0.1-percentage points for the year ended December 31, 2017
compared to 2016 primarily reflecting the impact of lower revenues that were partly mitigated by productivity and cost
savings from strategic transformation, which include restructuring savings.

SAG expenses of $2,526 million for the year ended December 31, 2017 were $110 million lower than 2016, including
an approximate $9 million favorable impact from currency. The reduction primarily reflected costs savings, including
savings from restructuring, as well as a decrease in selling expenses related to lower incentives and marketing expenses
consistent with lower revenues. These savings were partly offset by higher compensation and benefit expenses, as
well as expenses from our XBS acquisitions. Bad debt expense for the year ended December 31, 2017 was $33 million
and was $4 million lower than the prior year and on a trailing twelve month basis (TTM) remained at less than one
percent of receivables.

Restructuring and Related Costs

Restructuring and related costs of $158 million for the year ended December 31, 2018 include net restructuring and
asset impairment charges of $157 million and $1 million of additional costs, primarily related to professional support
services associated with the business transformation initiatives. Net restructuring and asset impairment charges
included the following:

•

$176 million of severance costs related to headcount of approximately 2,700 employees globally. The average
restructuring cost per employee was lower in 2018 as compared to 2017 due to the geographic mix of actions as
well as reductions in our employee severance programs particularly with respect to actions in the U.S. The actions
impacted multiple functional areas, with approximately 25% of the costs focused on gross margin improvements,
70% focused on SAG reductions and the remainder focused on RD&E optimization.

$14 million for lease termination costs primarily reflecting continued optimization of our worldwide operating
locations.

The above charges were partially offset by $33 million of net reversals for changes in estimated reserves from prior
period initiatives, primarily reflecting unanticipated attrition and other job changes prior to completion of the restructuring
initiatives.

We expect 2019 pre-tax savings of approximately $140 million from our 2018 restructuring actions.

Restructuring and related costs of $216 million for the year ended December 31, 2017 included net restructuring and
asset impairment charges of $197 million and $19 million of additional costs, primarily related to professional support
services associated with strategic transformation. Net restructuring and asset impairment charges included the
following:

•

$221 million of severance costs related to headcount reductions of approximately 2,600 employees globally. The
actions impacted multiple functional areas, with approximately 30% of the costs focused on gross margin
improvements and 70% on SAG improvements.

$4 million for lease termination costs primarily reflecting continued optimization of our worldwide operating locations.

$7 million of asset impairment losses related to the closure of a manufacturing site in Latin America.

The above charges were partially offset by $35 million of net reversals for changes in estimated reserves from prior
period initiatives, primarily reflecting unanticipated attrition and other job changes prior to completion of the restructuring
initiatives, which included a $5 million favorable adjustment on the early termination of the lease for our corporate
airplane.

Restructuring Summary

The restructuring reserve balance as of December 31, 2018 for all programs was $95 million, of which $93 million is
expected to be spent over the next twelve months. During 2019, we expect to incur additional restructuring and related
charges of approximately $225 million for actions and initiatives that have not yet been finalized. Approximately $75
million of the full year charges are expected to be recognized in the first quarter of the year.

Refer to Note 12 - Restructuring and Asset Impairment Charges in the Consolidated Financial Statements for additional
information regarding our restructuring programs.

Xerox 2018 Annual Report 37

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Transaction and Related Costs, Net

For the year ended December 31, 2018, we recorded $68 million of Transaction and related costs, net, which increased
$59 million from the prior year and included the following:
• Costs related to the proposed combination transaction with Fuji Xerox, which was terminated in May 2018, primarily

for third-party accounting, legal, consulting and other similar types of services.

• Costs related to the settlement agreement reached with certain shareholders in the second quarter of 2018 as well
as third-party legal and other related costs associated with on-going litigation resulting from the terminated
combination transaction and other related shareholder actions.

•

$19 million of costs related to the commitment for a $2.5 billion unsecured bridge loan facility, which was terminated
concurrent with the termination of the Fuji Xerox combination transaction.

• Recoveries of approximately $45 million, which included insurance recoveries for litigation and related settlement
costs of approximately $30 million and a settlement refund from a financial adviser, associated with the terminated
combination transaction, for approximately $13 million. We continue to pursue additional recoveries from insurance
carriers and other parties for costs and expenses related to the terminated transaction and related shareholder
litigation and therefore additional recoveries and adjustments may be recorded in future periods, when finalized.

Amortization of Intangible Assets

Amortization of intangible assets for the three years ended December 31, 2018 was $48 million, $53 million, and $58
million, respectively. The decrease of $5 million in both 2018 and 2017, as compared to the respective prior year
periods, reflected a lower level of acquisitions.

Refer to Note 11 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information
regarding our intangible assets.

Worldwide Employment

Worldwide employment was approximately 32,400 as of December 31, 2018 and decreased by approximately 2,900
from December 31, 2017 largely driven by our business transformation. Approximately half of the reduction was
associated with restructuring actions, while the remainder resulted from net attrition (attrition net of gross hires), of
which a large portion is not expected to be backfilled.

Other Expenses, Net

(in millions)

Non-financing interest expense
Non-service retirement-related costs

Interest income

Gains on sales of businesses and assets

Currency losses, net

Loss on sales of accounts receivable

Contract termination costs - IT services

Loss on early extinguishment of debt

All other expenses, net

Other expenses, Net

Non-financing interest expense

Year Ended December 31,

2018

2017

2016

112
150
(15)
(35)
5

—
5

268

119
188

(8)
(15)
4

10
—

11
329

181
121

(5)
(22)
13

16
—

—

17
321

Non-financing interest expense for the year ended December 31, 2018 of $112 million was $7 million lower than 2017.
When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest
expense decreased by $8 million from the prior year. The decrease is primarily due to a lower debt balance reflecting
net debt repayments of approximately $265 million in 2018 and $800 million in 2017.

Non-financing interest expense for the year ended December 31, 2017 of $119 million was $62 million lower than 2016.
When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest
expense decreased by $57 million from the prior year. The decrease is primarily due to a lower debt balance reflecting
the repayment of approximately $1.8 billion of debt in 2017 and $1.0 billion in 2016. These decreases were partially
offset by the issuance of approximately $1.0 billion of new debt in 2017, of which $500 million of the proceeds were
used for an incremental voluntary contribution to our U.S. defined benefit pension plans.

Refer to Note 14 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity
as well as information regarding the allocation of interest expense.

Xerox 2018 Annual Report 38

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Non-Service retirement-related costs

Non-service retirement-related costs decreased $38 million for the year ended December 31, 2018 as compared to
the prior year primarily due to the favorable impact of higher pension contributions and asset returns in the prior year,
as well as the favorable impact of an amendment to our U.S. Retiree Health Plan. The favorable impacts were partially
offset by higher losses from pension settlements in the U.S. of $173 million, a $40 million increase compared to the
prior year. The higher level of settlements was primarily due to an expected increase in interest rates.

Non-service retirement-related costs increased $67 million for the year ended December 31, 2017 as compared to the
prior year primarily due to losses from pension settlements in the U.S. of $133 million, a $68 million increase compared
to the prior year. The higher level of settlements was primarily due to an expected increase in interest rates.

Net gain on sales of businesses and assets

The 2018 net gain on sales of businesses and assets of $35 million reflects sales of non-core business assets in 2018.

The 2017 net gain on sales of businesses and assets of $15 million includes a gain of $13 million from the sale of a
research facility in Grenoble, France.

The 2016 net gain on sales of businesses and assets of $22 million reflected gains on the sale of surplus technology
assets of $17 million.

Currency losses, net

Currency losses and gains primarily result from the remeasurement 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 $9 million decrease
in 2017 currency losses, net, was largely due to the significant movement in exchange rates during 2016.

Loss on sales of accounts receivable

Represents the loss incurred on our sales of accounts receivable. The decrease in loss reflects the termination of
several receivable sale programs in 2017. Refer to Sales of Accounts Receivable section below and Note 6 - Accounts
Receivable, Net in the Consolidated Financial Statements for additional information regarding our sales of receivables.

Contract termination costs

During 2018, we recorded a $43 million penalty associated with a minimum purchase commitment that will not be
fulfilled due to the termination of a related IT services arrangement. The minimum purchase commitment had originally
been entered into in connection with the sale of our Information Technology Outsourcing (ITO) business in 2015.

Loss on early extinguishment of debt

During 2017, we recorded a $7 million net loss associated with the repayment of $475 million in Senior Notes, as well
as a $13 million loss associated with the tender and exchange of certain Senior Notes.

Income Taxes

The 2018 effective tax rate was 43.0% and includes an additional charge of $89 million related to the 2017 Tax Act
(the "Tax Act") which is discussed below. On an adjusted1 basis, the 2018 effective tax rate was 26.9%. Both rates
were higher than the U.S. statutory tax rate of 21% primarily due to the geographical mix of profits. The adjusted1
effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs,
Amortization of intangible assets, Transaction and related costs, net, Non-service retirement related costs as well as
other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section, including the
impact of the Tax Act discussed below.

The 2017 effective tax rate was 84.4% and included our estimated impact of $400 million related to the 2017 Tax Act
which is discussed below. On an adjusted1 basis, the 2017 effective tax rate was 24.9%. This rate was lower than the
U.S. statutory tax rate of 35% primarily due to foreign tax credits, the redetermination of certain unrecognized tax
positions upon conclusion of several audits and the geographical mix of profits. The adjusted1 effective tax rate excludes
the tax impacts associated with the following charges: Restructuring and related costs, Amortization of intangible
assets, Non-service retirement related costs and other discrete items including the impact of the Tax Act, discussed
below.

Xerox 2018 Annual Report 39

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The 2016 effective tax rate was 10.9% and on an adjusted1 basis, the 2016 effective tax rate was 20.6%. Both rates
were lower than the U.S. statutory tax rate of 35% primarily due to foreign tax credits resulting from anticipated dividends
from our foreign subsidiaries, the redetermination of certain unrecognized tax positions upon conclusion of several
audits and the geographical mix of profits. The adjusted1 effective tax rate excludes the tax impacts associated with
the following charges: Restructuring and related costs, Amortization of intangible assets and Non-service retirement
related costs.

Xerox operations are widely dispersed. However, no one country outside of the U.S. is a significant factor in determining
our overall effective tax rate. Our full year effective tax rate for 2018 includes an expense of 4.4-percentage points
from these non-U.S. operations. Refer to Note 18 - 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 that may not be
predictable. Excluding the effects of the Restructuring and related costs, Amortization of intangible assets, Non-service
retirement-related costs and other discrete items, we anticipate that our adjusted1 effective tax rate will be approximately
24% to 27% for full year 2019.
_____________

(1) Refer to the Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section.

Tax Cuts and Jobs Act (the “Tax Act”)

During 2017, we recorded an estimated non-cash provisional charge of $400 million reflecting our provisional estimated
impact associated with the provisions of the Tax Act based on currently available information. Our estimated charge
incorporated assumptions made based on our interpretation of the Tax Act as well as information available at that time
and was subject to change, possibly materially, as we completed our analysis and received additional clarification and
implementation guidance. During 2018, we adjusted our provisional estimate by an additional charge of $89 million,
reflecting certain positions taken on our filed 2017 income tax return as well as consideration of additional guidance
from the U.S. Treasury and Internal Revenue Service (IRS). The adjustments include changes to the determination of
the one-time deemed repatriation tax as well as additional remeasurement of our U.S. deferred tax assets and liabilities
to the lower enacted statutory tax rate. The total charge of $489 million reflects our current estimate of the impact of
the Tax Act and may change in the future based on new guidance being issued or changes in our expected filing
positions.

Effective January 1, 2018, we became subject to various provisions of the Tax Act including computations related to
Global Intangible Low Taxed Income ("GILTI"), Foreign Derived Intangible Income ("FDII"), Base Erosion and AntiAbuse
Tax ("BEAT"), and IRC Section 163(j) interest limitation (Interest Limitation). Accordingly, our 2018 effective tax rate
includes the impact for these items, which was approximately $15 million on a full year basis. The estimates for these
additional provisions of the Tax Act were made based on our current interpretation of the Tax Act as well as currently
available information and may change as we receive additional clarification and implementation guidance.

Refer to Note 18 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding
the estimated impacts of Tax Act.

Equity in Net Income of Unconsolidated Affiliates

(in millions)

Year Ended December 31,

2018

2017

2016

Total equity in net income of unconsolidated affiliates

Fuji Xerox after-tax restructuring and other costs included in equity income

115

127

Equity in net income of unconsolidated affiliates primarily reflects our 25% share of Fuji Xerox Net income. For the
year ended December 31, 2018 equity income decreased $82 million as compared to 2017, primarily reflecting lower
Fuji Xerox Net income and included an approximate $28 million charge related to out-of-period adjustments.

Xerox 2018 Annual Report 40

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For the year ended December 31, 2017 equity income decreased $12 million as compared to 2016, primarily reflecting
lower Fuji Xerox Net income including $6 million of costs related to audit and other fees associated with the independent
investigation of Fuji Xerox's accounting practices.

Equity in net income of unconsolidated affiliates for the years ended December 31, 2018 and 2017 included $85 million
and $7 million, respectively, of higher year-over-year charges related to our share of Fuji Xerox after-tax restructuring
and other charges. Other charges include costs associated with the terminated combination transaction. During 2018,
Fuji Xerox announced a restructuring initiative that is expected to generate approximately $450 million of cost savings
on an annualized basis.

Refer to Note 10 - Investment in Affiliates, at Equity in the Consolidated Financial Statements for additional information
regarding the 2018 out-of-period adjustment as well as information regarding our investment in Fuji Xerox and Note
25 - Fuji Xerox Transaction in the Consolidated Financial Statements for additional information regarding the terminated
combination transaction.

Net Income from Continuing Operations

Net income from continuing operations attributable to Xerox for the year ended December 31, 2018 was $361 million,
or $1.38 per diluted share. On an adjusted1 basis, Net income from continuing operations attributable to Xerox was
$893 million, or $3.46 per diluted share, and includes adjustments for Restructuring and related costs, Amortization of
intangible assets, Transaction and related costs, net as well as Non-service retirement-related costs and other discrete,
unusual or infrequent items, including the impact from the Tax Act, as describe in our Non-GAAP Financial Measures.

Net income from continuing operations attributable to Xerox for the year ended December 31, 2017 was $192 million,
or $0.70 per diluted share and includes an estimated non-cash charge of $400 million or $1.55 per diluted share impact
for the provisions associated with the Tax Act. Refer to the Tax Cuts and Jobs Act (the "Tax Act") section above, as
well as Note 18 - Income and Other Taxes in the Consolidated Financial Statements for additional information.
On an adjusted1 basis, Net income from continuing operations attributable to Xerox was $906 million, or $3.45 per
diluted share, and includes adjustments for Restructuring and related costs, Amortization of intangible assets,
Transaction and related costs, net as well as Non-service retirement-related costs and other discrete, unusual or
infrequent items, including the impact from the Tax Act, as describe in our Non-GAAP Financial Measures.

Net income from continuing operations attributable to Xerox for the year ended December 31, 2016 was $622 million,
or $2.33 per diluted share. On an adjusted1 basis, Net income from continuing operations attributable to Xerox was
$918 million, or $3.49 per diluted share, and includes adjustments for Restructuring and related costs, Amortization of
intangible assets and Non-service retirement-related costs, as describe in our Non-GAAP Financial Measures.

Refer to Note 24 - Earnings (Loss) per Share in the Consolidated Financial Statements, for additional information
regarding the calculation of basic and diluted earnings per share.
_____________
(1) Refer to the Net Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section.

Discontinued Operations

Discontinued operations primarily relate to our Business Process Outsourcing (BPO) business, which was separated
effective December 31, 2016. Refer to Note 5 - Divestitures in the Consolidated Financial Statements for additional
information regarding discontinued operations.

Other Comprehensive Income (Loss)

The historical Consolidated Statement of Comprehensive Loss for 2016 has not been revised to reflect the separation
of our BPO business. Accordingly, all reported amounts in 2016 reflect movements in Accumulated Other
Comprehensive Loss for both Continuing Operations and Discontinued Operations. Refer to Note 5 - Divestitures in
the Consolidated Financial Statements for additional information regarding the separation of our BPO business.

Other comprehensive income attributable to Xerox was $183 million in 2018 and included the following: i) $409 million
of net gains from the changes in defined benefit plans primarily due to prior service credits resulting from an amendment
to our U.S. and Canadian Retiree Health plans, settlements and the positive impacts from currency on accumulated
net actuarial losses, as well as a $43 million out-of-period adjustment related to actuarial gains (refer to Note 1 - Basis
of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional
information on the out-of-period adjustment); ii) $16 million in unrealized gains, net, and iii) net translation adjustment
losses of $242 million reflecting the weakening of most of our major foreign currencies against the U.S. Dollar in 2018.

Xerox 2018 Annual Report 41

Table of Contents

Other comprehensive income attributable to Xerox was $589 million in 2017 and included the following: i) net translation
adjustment gains of $483 million reflecting the strengthening of most of our major foreign currencies against the U.S.
Dollar, partially offset by the weakening of the Brazilian Real; and ii) $106 million of net gains from the changes in
defined benefit plans primarily due to net actuarial gains and settlements partially offset by the negative impacts from
currency on accumulated net actuarial losses.

Other comprehensive loss attributable to Xerox was $233 million in 2016 and included the following: i) net translation
adjustment losses of $347 million reflecting the weakening of the Euro and Pound Sterling against the U.S. Dollar,
which were only partially offset by strengthening of the Canadian Dollar, Japanese Yen and Brazilian Real; ii) $15
million in unrealized losses, net; and iii) $126 million of net gains from the changes in defined benefit plans primarily
due to the positive impacts from currency on accumulated net actuarial losses and settlements partially offset by net
actuarial losses.

Refer to our discussion of Pension Plan Assumptions in the Application of Critical Accounting Policies section of
the MD&A as well as Note 17 - Employee Benefit Plans in the Consolidated Financial Statements for additional
information regarding changes in our defined benefit plans. Refer to Note 15 - Financial Instruments in the Consolidated
Financial Statements for additional information regarding our foreign currency derivatives and associated unrealized
gains and losses.

Recent Accounting Pronouncements

Refer to Note 1 - Basis of Presentation and 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 2018 Annual Report 42

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Capital Resources and Liquidity

Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations. Additional
liquidity is also provided through access to the financial capital markets and a committed global credit facility. The
following is a summary of our liquidity position:

• As of December 31, 2018 and 2017, total cash, cash equivalents and restricted cash were $1,148 million and $1,368

million, respectively.

• We expect operating cash flows from continuing operations to be between $1,150 million and $1,250 million in

2019, reflecting continued improvements in working capital and increased earnings.

• As of December 31, 2018 and 2017, there were no borrowings or letters of credit under our $1.8 billion Credit Facility
or under our Commercial Paper Program. The company did not borrow under its Credit Facility or utilize its
Commercial Paper program during 2018. At this time, based on our current credit rating, the Commercial Paper
program is not available for use.

• We have consistently delivered positive cash flows from operations driven by our post-sale-based revenue model
and cost productivity initiatives, such as Project Own It. Operating cash flows from continuing operations were
$1,140 million, $(179) million and $716 million for the three years ended December 31, 2018, respectively. Operating
cash flows from continuing operations in 2017 reflect the impact of certain one-time actions to improve our capital
structure and simplify certain processes including $500 million of additional voluntary contributions to our U.S. tax-
qualified defined benefit plans as well as the impact of approximately $350 million from the termination of certain
accounts receivable sales programs. In addition, both 2017 and 2016 Operating Cash Flows include the impacts
of certain reporting changes as discussed in 2018 Reporting Changes below and Note 1 – Basis of Presentation
and Summary of Significant Accounting Policies - New Accounting Standards and Accounting Changes in the
Consolidated Financial Statements.

Operating cash flows adjusted for the above noted impacts are included in the following reconciliation:

(in millions)
Reported(1)
Incremental voluntary contributions to U.S. defined benefit pension plans

Elimination of certain accounts receivable sales programs

Collections on beneficial interests received in sales of receivables
Restricted cash - classification change(2)
Operating Cash Flow - Adjusted

2018

Year Ended December 31,
2017

2016

1,140

—

—
—

1,140

(179) $
500

350

234

67
972

716

—

270
32

1,018

_____________
(1) Net cash provided by (used in) operating activities from continuing operations.
(2) Per ASU 2016-18, Statement of Cash Flows - Restricted Cash, restricted cash and restricted cash equivalents should be included with Cash
and cash equivalents when reconciling beginning and end-of-period amounts per the Statement of Cash Flows. Refer to Note 1 - Basis of
Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements.

Credit Rating Downgrade

In 2018, Xerox’s credit ratings were downgraded by Moody’s Investors Service (“Moody’s”), Standard and Poors (“S&P”)
and FitchRatings one notch, from Baa3, BBB- and BBB- to Ba1, BB+ and BB+, respectively. Although the downgrades
resulted in Xerox’s credit rating falling below investment grade, our liquidity remains strong, with $1,084 million in cash
and cash equivalents, an undrawn Credit Facility of $1.8 billion, which matures in August 2022, and 2018 operating
cash flows of $1,140 million with the expectation for at least $1,150 million in 2019. Additionally, we expect to continue
to have access to the Credit Markets and we expect to maintain our current finance business and provide financing of
Xerox equipment to our customers on substantially the same terms and conditions as before the downgrades.

The impact of the downgrades on Xerox’s debt agreements include the following:
• The annual facility fee under the Company’s $1.8 billion Credit Facility increased from 0.200% to 0.250% on the
total facility amount and the spread to LIBOR for borrowings under the Credit Facility will increase from 1.175% to
1.375%. The Company currently has no outstanding borrowings under the Credit Facility and had none at December
31, 2018.

• The Company’s $1.0 billion Senior Notes due 2023 include a provision that requires an increase in the coupon rate
for rating downgrades by Moody’s and/or S&P. Accordingly, the coupon rate of 3.625% will increase by 0.50% to
4.125% effective March 15, 2019.

• Our Commercial Paper program is not available for use. We have not held a period-end balance under this facility

since 2015.

The above impacts are expected to result in an increase in 2019 total interest expense of approximately $5 million.

Xerox 2018 Annual Report 43

Table of Contents

Cash Flow Analysis

The following summarizes our cash flows for the three years ended December 31, 2018, as reported in our
Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:

(in millions)

Net cash provided by (used in) operating activities of continuing
operations
Net cash (used in) provided by operating activities of discontinued
operations

Net cash provided by (used in) operating activities

Net cash (used in) provided by investing activities of continuing
operations
Net cash used in investing activities of discontinued operations
Net cash (used in) provided by investing activities

Year Ended December 31,
2017

2016

2018

Change

2018

2017

1,140

(179) $

716

1,319

(895)

—

1,140

(29)

—
(29)

(88)

(267)

165

—
165

798

166

(251)
(85)

1,407

(170)

(1,065)

(194)

—
(194)

(1)

251
250

Net cash (used in) provided by financing activities

(1,301)

(985)

584

(316)

(1,569)

Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Increase in cash of discontinued operations

(Decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of year

(30)

—
(220)
1,368

—

(1,034)
2,402

(17)

(262)
1,018

1,384

(83)

—
814
(1,034)

Cash, Cash Equivalents and Restricted Cash at End of Year

1,148

1,368

2,402

(220) $

262
(2,052)
1,018
(1,034)

Cash Flows from Operating Activities

Net cash provided by operating activities of continuing operations was $1,140 million for the year ended December 31,
2018. The $1,319 million increase in operating cash from 2017 was primarily due to the following:

•

•
•

$692 million increase due to prior year contributions of $635 million to our domestic tax-qualified defined benefit
plans, which included an incremental voluntary contribution of $500 million.
$559 million increase from accounts receivable primarily due to the prior year termination of all accounts receivable
sales arrangements in North America and all but one arrangement in Europe and the prior year reclassification of
$213 million of collections of deferred proceeds from the sales of accounts receivable to investing.
$104 million increase from lower inventory levels primarily due to a decline in equipment sales and the impact of
the product launch in the prior year.
$65 million increase due to the prior year payment of restricted cash balances in connection with the termination
of our accounts receivable sales arrangements.
$50 million increase from lower restructuring payments.
$66 million decrease due to dividends received in the prior year of $43 million from equity investments other than
Fuji Xerox representing the accumulation of earnings over multiple years and $23 million due to lower income from
Fuji Xerox.
$45 million decrease due to net payments for transaction and related costs.
$31 million decrease due to higher equipment on operating leases.

Net cash used in operating activities of continuing operations was $179 million for the year ended December 31, 2017.
The $895 million decrease in operating cash from 2016 was primarily due to the following:

•

•
•
•

•

$658 million decrease primarily from voluntary contributions of $635 million to domestic tax-qualified defined benefit
plans in 2017.
$378 million decrease from accounts receivable primarily as a result of the termination of all accounts receivable
sales arrangements in North America and all but one arrangement in Europe.
$181 million decrease primarily related to the prior year settlements of foreign currency derivative contracts.
$107 million decrease from higher restructuring payments.
$76 million decrease from higher inventory levels primarily due to a lower volume of equipment and supplies sales
and the impact of new product launches.
$39 million decrease due to the payment of restricted cash balances in connection with the termination of our
accounts receivable sales arrangements.
$231 million increase from the change in accounts payable primarily related to the year-over-year timing of supplier
and vendor payments.

Xerox 2018 Annual Report 44

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•

•
•

•

$182 million increase due to higher net tax payments in prior year partially attributable to our tax sharing arrangement
with Conduent.
$51 million increase due to lower placements of equipment on operating leases reflecting decreased installs.
$43 million increase in dividends received from equity investments (other than Fuji Xerox) representing the
accumulation of earnings over multiple years.
$36 million increase from finance receivables primarily related to a higher level of run-off due to lower originations.

The $635 million of voluntary contributions to our domestic tax-qualified defined benefit plans included an
incremental $500 million that was funded through a Senior Note offering in 2017. See Cash Flows from Financing
Activities below.

Cash Flows from Investing Activities

Net cash used in investing activities of continuing operations was $29 million for the year ended December 31, 2018.
The $194 million decrease in cash from 2017 was primarily due to the following:

•

•
•

$213 million decrease is primarily a result of the termination of certain accounts receivable sales arrangements in
fourth quarter 2017.
$127 million decrease due to the prior year receipt of the final payment on the performance-based instrument
associated with our 1997 sale of The Resolution Group (TRG).
$20 million decrease due to proceeds from the prior year sale of the Xerox Research Centre in Grenoble, France.
$57 million increase from the sale of non-core business assets of $31 million and the sale of surplus buildings in
Ireland of $26 million in 2018.
$87 million increase due to no acquisitions in 2018.
$29 million increase due to the prior year refund of cash received in 2016 for a cancelled business agreement.

Net cash provided by investing activities of continuing operations was $165 million for the year ended December 31,
2017. The $1 million decrease in cash from 2016 was primarily due to the following:

•

•
•
•

•

•
•

$58 million decrease due to the year-over-year impact from the 2017 refund of cash received in 2016 for a cancelled
business agreement.
$57 million decrease due to a higher level of acquisitions.
$33 million decrease due to the timing of collections from accounts receivable sales arrangements.
$22 million decrease from lower proceeds from the sale of assets. Prior year included proceeds from the sale of
surplus technology assets.
$127 million increase due to the receipt of the final payment on the performance-based instrument associated with
our 1997 sale of The Resolution Group (TRG).
$33 million increase due to lower capital expenditures.
$20 million increase due to proceeds from the sale of the Xerox Research Centre in Grenoble, France in 2017.

Cash Flows from Financing Activities

Net cash used in financing activities was $1,301 million for the year ended December 31, 2018. The $316 million increase
in the use of cash from 2017 was primarily due to the following:

•
•
•

•

$700 million increase due to the resumption of share repurchases in 2018.
$161 million increase resulting from the prior year final cash adjustment with Conduent.
$515 million decrease from net debt activity. 2018 reflects payments of $265 million on Senior Notes, $25 million
related to the termination of a capital lease obligation and $19 million of bridge facility costs. 2017 reflects proceeds
of $1.0 billion on new Senior Notes offset by payments of $1,475 million on Senior Notes, net payments of $326
million on the tender and exchange of certain Senior Notes and other payments and transaction costs of $24 million.
$22 million decrease due to lower common stock dividends of $19 million and preferred stock dividends of $3 million.

Net cash used in financing activities was $985 million for the year ended December 31, 2017. The $1,569 million
decrease in cash from 2016 was primarily due to the following:

•

•
•
•

$1,747 million decrease from net debt activity. 2017 reflects proceeds of $1.0 billion on new Senior Notes offset by
payments of $1,475 million on Senior Notes, net payments of $326 million on the tender and exchange of certain
Senior Notes and other payments and transaction costs of $24 million. 2016 reflects net proceeds of $1.9 billion
from debt incurred by Conduent in connection with the Separation partially offset by payments of $700 million on
Senior Notes and $250 million on Notes.
$14 million decrease due to the absence of a stock-based award vesting in 2016 and the related tax impact.
$161 million increase reflecting the final cash adjustment with Conduent, included in Other financing, net.
$40 million increase due to lower common stock dividends of $33 million and preferred stock dividends of $7 million.

Xerox 2018 Annual Report 45

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Statements of Cash Flows Reporting Changes

In 2018, we adopted the following Accounting Standard Updates (ASUs), which required the revision of previously
reported amounts in the 2017 and 2016 Statements of Cash Flows:
• ASU 2016-15 - Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments.
• ASU 2016-18 - Statement of Cash Flows - Restricted Cash.

Refer to Note 1 – Basis of Presentation and Summary of Significant Accounting Policies in our Consolidated Financial
Statements for additional information regarding the adoption of these standards. The following table reflects the
adjustments of selected lines from our 2017 and 2016 Consolidated Statements of Cash Flows to the revised amounts
as a result of the adoption of these updates:

(in millions)

Cash Flows from Operating Activities
Collections of deferred proceeds from sales of
receivables
Collections on beneficial interest from sales of finance
receivables
(Increase) decrease in other current and long-term
assets
Decrease in other current and long-term liabilities

Net cash provided by (used in) operating activities of
continuing operations
Net cash (used in) provided by operating activities of
discontinued operations
Net cash provided by (used in) operating activities

Cash Flows from Investing Activities
Collections of deferred proceeds from sales of
receivables
Collections on beneficial interest from sales of finance
receivables
Other investing, net

Net cash (used in) provided by investing activities of
continuing operations
Net cash used in investing activities of discontinued
operations
Net cash (used in) provided by investing activities

Effect of exchange rate changes on cash, cash
equivalents and restricted cash
Increase in cash, cash equivalents and restricted cash
of discontinued operations

(Decrease) increase in cash, cash equivalents and
restricted cash
Cash, cash equivalents and restricted cash at beginning
of year
Cash, Cash Equivalents and Restricted Cash at End
of Year

Year Ended December 31, 2017

Year Ended December 31, 2016

As
Reported

Adjustment

As
Recasted

As
Reported

Adjustment

As
Recasted

213

(213) $

— $

246

(246) $

(17)

(15)

122

(88)

—

138

(31)

—

(31)

—

(21)

(2)

(65)

(301)

—

(301)

213

(38)

196

—

196

—

(19)

(80)

(179)

(88)

(267)

213

100

165

—

165

—

(930)

(104)

(1,034)

(51)

1,018

1,095

—

(3)

(146)

(251)

(397)

(30)

(257)

995

(24)

(6)

(26)

(302)

(297)

246

312

—

312

(5)

2,223

179

2,402

1,228

156

—

(77)

716

798

246

166

(251)

(85)

(17)

(262)

1,018

1,384

1,293

1,368

2,223

179

2,402

Cash, Cash Equivalents and Restricted Cash

Refer to Note 13 - Supplementary Financial Information in the Consolidated Financial Statements for additional
information regarding Cash, cash equivalents and restricted cash.

Xerox 2018 Annual Report 46

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Debt and Customer Financing Activities

The following summarizes our total debt:

(in millions)
Principal debt balance(1)
Net unamortized discount
Debt issuance costs
Fair value adjustments(2)
- terminated swaps
- current swaps

Total Debt

December 31,

2018

2017

5,281
(25)
(25)

(3)
5,230

5,579
(35)
(32)

5,517

Includes Notes Payable of $6 million as of December 31, 2017. There were no Notes Payable as of December 31, 2018.

_____________
(1)
(2) Fair value adjustments include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being
amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable
to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value
adjustment.

Refer to Note 14 - Debt in the Consolidated Financial Statements for additional information regarding our debt.

Finance Assets and Related Debt

We provide lease equipment financing to our customers. 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, 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 in
which third-party financial institutions independently provide lease financing directly to our customers, on a non-recourse
basis to Xerox. 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:

December 31,

2018

2017

3,472

442

3,914

3,752

454

4,206

(in millions)
Total finance receivables, net(1)
Equipment on operating leases, net
Total Finance assets, net (2)
____________
(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.

(2) The change from December 31, 2017 includes a decrease of $94 million due to currency.

Our lease contracts permit customers to pay for equipment over time rather than at the date of installation; therefore,
we maintain a certain level of debt (that we refer to as financing debt) to support our investment in these lease contracts,
which are reflected in total finance receivables, net. For this financing aspect of our business, we maintain an assumed
7:1 leverage ratio of debt to equity as compared to our finance assets.

Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt:

(in millions)
Finance receivables debt(1)
Equipment on operating leases debt

Financing debt

Core debt

Total Debt

December 31,

2018

2017

3,038

387

3,425

1,805

5,230

3,283

397

3,680

1,837

5,517

_____________
(1) Finance receivables debt is the basis for our calculation of “Cost of financing” expense in the Consolidated Statements of Income (Loss).

In 2019, we expect to continue leveraging our finance assets at an assumed 7:1 ratio of debt to equity.

Xerox 2018 Annual Report 47

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Capital Market Activity

Refer to Note 14 - Debt in the Consolidated Financial Statements for additional information.

Refer to Note 5 - Divestitures in the Consolidated Financial Statements for additional information regarding capital
activity associated with the Separation and Distribution of Conduent.

Financial Instruments

Refer to Note 15 - Financial Instruments in the Consolidated Financial Statements for additional information.

Sales of Accounts Receivable

The net impact from the sales of accounts receivable on reported net cash flows is summarized below:

(in millions)
Estimated (decrease) increase to net cash flows(1)(2)
_____________
(1) Represents the difference between current and prior year fourth quarter accounts receivable sales adjusted for the effects of: (i) the deferred

(341) $

(23) $

2018

2016

Year Ended December 31,
2017

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

(2) 2017 includes a decrease of approximately $350 million associated with the termination of certain accounts receivable sale programs in the

fourth quarter 2017.

Refer to Note 6 - Accounts Receivable, Net in the Consolidated Financial Statements for additional information regarding
our accounts receivable sales arrangements.

Sales of Finance Receivables
In 2013 and 2012, we sold our entire interest in certain groups of lease finance receivables to third-party entities for
cash proceeds and beneficial interests. There have been no transfers or sales of finance receivables since 2013. The
net impact from those prior period sales of finance receivables on reported net cash flows is summarized below:

(in millions)
Impact from prior sales of finance receivables(1)
Collections on beneficial interests
Estimated decrease to net cash flows

Year Ended December 31,

2018

2017

2016

— $
—
— $

(81) $
26
(55) $

(186)
30
(156)

_____________
(1) Represents cash that would have been collected if we had not sold finance receivables.

Refer to Note 7 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding
our sales of finance receivables.

Share Repurchase Programs - Treasury Stock

During 2018, we repurchased 26.1 million shares of our common stock for an aggregate cost of $700 million, including
fees. Through February 25, 2019, we repurchased an additional 0.9 million in shares with an aggregate cost of $28
million, including fees, for a cumulative total of 27.0 million shares at a cost of $728 million, including fees. No shares
were repurchased during 2017 or 2016.

In January 2019, the Board of Directors authorized an incremental $1.0 billion share repurchase program (exclusive of
any commissions and other transaction fees and costs). We expect to repurchase at least $300 million of shares during
2019.

Refer to Note 21 - Shareholders’ Equity – Treasury Stock in the Consolidated Financial Statements for additional
information regarding our share repurchase program.

Xerox 2018 Annual Report 48

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Dividends

The Board of Directors declared aggregate dividends of $251 million, $259 million and $317 million on common stock
in 2018, 2017 and 2016, respectively. The decrease in 2017 as compared to 2016 is primarily due to the decrease of
the quarterly dividend to 25 cents per share from 31 cents per share following the separation of Conduent in 2016.

The Board of Directors declared aggregate dividends of $14 million in 2018 and 2017 on the Series B Convertible
Preferred Stock and $24 million in 2016 on the Series A Convertible Preferred Stock.

Liquidity and Financial Flexibility

We manage our worldwide liquidity using internal cash management practices, which are subject to (i) the statutes,
regulations and practices of each of the local jurisdictions in which we operate, (ii) the legal requirements of the
agreements to which we are a party and (iii) 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 five years
as follows (in millions):

Year
2019 - Q1(1)
2019 - Q2

2019 - Q3

2019 - Q4

2020

2021

2022

2023

2024 and thereafter

Total

_____________
(1)
(2)

Includes no Notes Payable.
Includes fair value adjustments.

Foreign Cash

Amount(2)

407
—

—

554

1,052

1,064

302

1,002

900

5,281

At December 31, 2018, we had $1.1 billion of cash and cash equivalents on a consolidated basis of which approximately
$450 million was held outside of the U.S. by our foreign subsidiaries. As a result of the Tax Act enacted in December
2017, the estimated tax impacts associated with future repatriation of our foreign cash have been reflected in our financial
statements as of December 31, 2018.

Refer to Note 18 - Income and Other Taxes in our Consolidated Financial Statements for additional information.

Loan Covenants and Compliance

At December 31, 2018, 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' purchases of Xerox equipment.

Refer to Note 14 - Debt in the Consolidated Financial Statements for additional information regarding debt arrangements.

Xerox 2018 Annual Report 49

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Contractual Cash Obligations and Other Commercial Commitments and Contingencies

At December 31, 2018, 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)
Flex(4)
Other(5)

Total(6)
_____________

2019

2020

2021

2022

2023

Thereafter

961

207

114

135

1,501

346

286

1,052

1,064

302

1,002

162

—

132

113

—

900

515

—

130

—

3,585

1,467

1,307

484

1,129

1,575

(1) Total debt for 2018 includes no Notes Payable. Refer to Note 14 - Debt in the Consolidated Financial Statements for additional information

regarding debt and interest on debt.

(2) Refer to Note 9 - 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. Refer
to Note 10 - Investments in Affiliates, at Equity in the Consolidated Financial Statements for additional information related to transactions with
Fuji Xerox.

(4) Flex: We outsource certain manufacturing activities to Flex (formerly "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 Flex averaged approximately
$365 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.

(6) Total obligations do not include payments for the deemed repatriation tax recorded as part of the estimated charge for the Tax Act as we expect
to utilize our existing foreign tax credit carryforwards to settle this obligation. Refer to Note 18 - Income and Other Taxes in the Consolidated
Financial Statements for additional information regarding the estimated charge associated with the Tax Act.

Pension and Retiree Health Benefit Plans

We sponsor defined benefit pension plans and retiree health plans that require periodic cash contributions. Our 2018
cash contributions for these plans were $144 million for our defined benefit pension plans and $57 million for our retiree
health plans.

In 2019, based on current actuarial calculations, we expect to make contributions of approximately $135 million to our
worldwide defined benefit pension plans and $35 million to our retiree health benefit plans. There are no contributions
required in 2019 for our U.S. tax-qualified defined benefit plans to meet the minimum funding requirements.

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, 2018, the net unfunded balances of our U.S. and Non-U.S. defined benefit pension plans were $876
million and $278 million, respectively, or $1,154 million in the aggregate, which is a $197 million decrease from the
balance at December 31, 2017. The decrease is primarily due to 2018 contributions and the reduction of the benefit
obligation due to the impact of higher discount rates. Approximately $775 million of the $1,154 million net unfunded
balance is attributable to certain plans that do not require funding.

Cash contributions to our retiree health plans 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. Our retiree health benefit plans are non-funded and are primarily related to domestic operations. The unfunded
balance of our retiree health plans is $385 million at December 31, 2018, which is a $338 million decrease from the
unfunded balance at December 31, 2017. The decrease primarily reflects the impact of an amendment to our U.S.
Retiree Health Plan in 2018 as well as the reduction of the benefit obligation due to the impact of higher discount rates
and cash contributions.

Refer to Note 17 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding
contributions to our defined benefit pension and retiree health plans.

Xerox 2018 Annual Report 50

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Fuji Xerox

We purchased products, including parts and supplies, from Fuji Xerox totaling $1.5 billion, $1.6 billion and $1.6 billion
in 2018, 2017 and 2016, respectively. Our product supply agreements with Fuji Xerox are designed to support the entire
product lifecycle, end-to-end, including the availability of spare parts, consumables and technical support throughout
the time such products are with our customers. Our purchase orders under such agreements are made 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 10 - Investments in Affiliates, at Equity in the Consolidated Financial Statements.

Brazil Contingencies

Our Brazilian operations have received or been the subject of numerous governmental assessments related to indirect
and other taxes. The tax matters 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.

As of December 31, 2018, the total amounts related to the unreserved portion of the tax contingencies, inclusive of
related interest, amounted to approximately $500 million with the decrease from the December 31, 2017 balance of
approximately $585 million, primarily related to currency and closed cases partially offset by interest. With respect to
the unreserved balance of approximately $500 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, 2018, we had $58 million of escrow cash deposits for the tax matters we are disputing
and additional letters of credit and surety bonds of $104 million and $106 million, respectively, which include associated
indexation. There were no liens on Brazilian assets as of December 31, 2018. Generally, any escrowed amounts would
be refundable and any liens would be removed to the extent the matters are resolved in our favor. We are also involved
in certain disputes with contract and former employees. Exposures related to labor matters are not material to the
financial statements as of December 31, 2018. 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 19 - 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, financial position and cash flows in the period or periods in which such change in
determination, judgment or settlement occurs.

Unrecognized Tax Benefits

As of December 31, 2018, we had $108 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 18 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding
unrecognized tax benefits.

Xerox 2018 Annual Report 51

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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 or have entered 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

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

• Accounts receivable sales facilities. During 2017, we terminated all accounts receivable sales arrangements in
North America and all but one arrangement in Europe. Refer to Note 6 - Accounts Receivable, Net in the Consolidated
Financial Statements for further information regarding accounts receivable sales.

• Sales of finance receivables. During 2013 and 2012, we entered into arrangements to transfer and sell finance
receivables. During 2017, we exercised the various clean-up calls we, as the servicer, held on the sold receivables
and accordingly repurchased the remaining balances of the previously derecognized receivables and terminated
the programs. Refer to Note 7 - Finance Receivables, Net in the Consolidated Financial Statements for further
information regarding these sales. There were no sales of finance receivables since 2013.

As of December 31, 2018, 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 preceding table for the Company's contractual cash obligations and other commercial commitments
and Note 19 - 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 the non-GAAP measures described below. We believe these non-GAAP measures
allow investors to better understand the trends in our business and to better understand and compare our results.
Accordingly, we believe it necessary to adjust several reported amounts, determined in accordance with GAAP, to
exclude the effects of certain items as well as their related income tax effects.

A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated
and presented in accordance with GAAP are set forth below in the following tables as well as the fourth quarter 2018
presentation slides available at www.xerox.com/investor.

Adjusted Earnings Measures

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

The above measures were adjusted for the following items:

Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can
vary in size, nature and timing as compared to other companies within our industry and from period to period. The use
of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future
period revenues as well. Amortization of intangible assets will recur in future periods.

Restructuring and related costs: Restructuring and related costs include restructuring and asset impairment charges
as well as costs associated with our transformation programs beyond those normally included in restructuring and asset
impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees
pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those
assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other
strategic business changes. Additional costs for our transformation programs are primarily related to the implementation
of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental
costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as
well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges
since we do not believe they provide meaningful insight into our current or past operating performance nor do we believe
they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and
savings with respect to our operational performance.

Xerox 2018 Annual Report 52

Table of Contents

Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements
impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets
as well as those that are predominantly legacy in nature and related to employees who are no longer providing current
service to the company (e.g. retirees and ex-employees). These elements include (i) interest cost, (ii) expected return
on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of
any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be
outside the operational performance of the business or legacy costs and not necessarily indicative of current or future
cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other
expenses, net as a result of our adoption of ASU 2017-07 - Reporting of Retired Related Benefit Costs in 2018. Adjusted
earnings will continue to include the service cost elements of our retirement costs, which is related to current employee
service as well as the cost of our defined contribution plans.

Transaction and related costs, net: Transaction and related costs, net are expenses incurred in connection with Xerox's
planned combination transaction with Fuji Xerox, which was terminated in May 2018, as well as costs and expenses
related to the previously disclosed settlement agreement reached with certain shareholders and litigation related to the
terminated transaction and other shareholder actions. These costs are considered incremental to our normal operating
charges and were incurred or are expected to be incurred solely as a result of the planned combination transaction and
the related shareholder settlement agreement and litigation. Accordingly, we are excluding these expenses from our
Adjusted Earnings Measures in order to evaluate our performance on a comparable basis.

Restructuring and other charges - Fuji Xerox: We adjust our 25% share of Fuji Xerox's net income for similar items
noted above such as Restructuring and related costs and Transaction and related costs, net based on the same rationale
discussed above.

Other discrete, unusual or infrequent items: In addition, we have also excluded the following additional items given their
discrete, unusual or infrequent nature and their impact on our results for the period:

•
•
•
•

2018 - Contract termination costs associated with a minimum purchase commitment for IT services.
2017 - Losses on early extinguishment of debt.
2017 - A benefit from the remeasurement of a tax matter that related to a previously adjusted item.
2018 and 2017 - The impacts associated with the Tax Cuts and Jobs Act (the "Tax Act") enacted in December 2017.
See the Income Taxes section in the MD&A for further explanation.

We believe the exclusion of these items allows investors to better understand and analyze the results for the period as
compared to prior periods and expected future trends in our business.

Adjusted Operating Income and Margin

We also calculate and utilize adjusted operating income and margin measures by adjusting our pre-tax income and
margin amounts. In addition to the costs and expenses noted as adjustments for our Adjusted Earnings measures,
adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are
primarily comprised of Non-financing interest expense and certain other non-operating costs and expenses. We exclude
these amounts in order to evaluate our current and past operating performance and to better understand the expected
future trends in our business. Adjusted operating income and margin also include Equity in net income of unconsolidated
affiliates. Equity in net income of unconsolidated affiliates primarily reflects our 25% share of Fuji Xerox's net income.
In 2019, we plan on modifying the definition of Adjusted operating margin to exclude Equity in net income of
unconsolidated affiliates - accordingly in 2019 adjusted operating margin will be compared to a revised full-year 2018
adjusted operating margin on the same basis.

Constant Currency (CC)

Refer to the Currency Impact section in the MD&A for discussion of this measure and its use in our analysis of revenue
growth.

Xerox 2018 Annual Report 53

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Summary

Management believes that all of these non-GAAP financial measures provide an additional means of analyzing the
current period's results against the corresponding prior period's results. However, these non-GAAP financial measures
should be viewed in addition to, and not as a substitute for, the company’s reported results prepared in accordance with
GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable
GAAP measures and should be read only in conjunction with our Consolidated Financial Statements prepared in
accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to
understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among
the primary factors management uses in planning for and forecasting future periods. Compensation of our executives
is based in part on the performance of our business based on these non-GAAP measures.

Net Income and EPS reconciliation

(in millions, except per share amounts)
Reported(1)
Adjustments:
Restructuring and related costs
Amortization of intangible assets
Transaction and related costs, net
Non-service retirement related costs
Contract termination costs - IT services

Loss on early extinguishment of debt
Income tax on adjustments(2)
Restructuring and other charges - Fuji Xerox(3)
Tax Act
Remeasurement of unrecognized tax positions

Year Ended December 31,

2018

2017

2016

Net Income

EPS

361

1.38

Net Income
192

EPS

0.70

Net Income
622

EPS

2.33

158
48
68

150
43

—
(119)
95
89

—

216

53
9
188

—

20
(166)
10
400
(16)
906

259

58
—
121

—

—
(145)
3

—

—
918

893

Adjusted
Dividends on preferred stock used in adjusted EPS
calculation(4)
Weighted average shares for adjusted EPS(4)
Fully diluted shares at December 31, 2018(5)
_____________
(1) Net income and EPS from continuing operations attributable to Xerox.
(2) Refer to Effective Tax Rate reconciliation.
(3) Other charges in 2018 represent costs associated with the terminated combination transaction.
(4) For those periods that exclude the preferred stock dividend, the average shares for the calculations of diluted EPS include 7 million shares

256

263

258

240

—

3.49

3.46

3.45

associated with our Series B convertible preferred stock, as applicable.

(5) Represents common shares outstanding at December 31, 2018 as well as shares associated with our Series B convertible preferred stock plus

potential dilutive common shares used for the calculation of diluted earnings per share for the year ended December 31, 2018.

Effective Tax Rate reconciliation

(in millions)
Reported(1)
Non-GAAP Adjustments(2)
Tax Act

Year Ended December 31,

2018

2017

2016

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

598

467

—

257

119

(89)

43.0% $

570

486

—

481

166
(400)

84.4% $

568

438

—

62
145

—

10.9%

Remeasurement of unrecognized
tax positions
Adjusted(3)
_____________
(1) Pre-tax Income and Income tax expense from continuing operations.
(2) Refer to Net Income and EPS reconciliation for details.
(3) The tax impact on Adjusted Pre-Tax Income from continuing operations is calculated under the same accounting principles applied to the

24.9% $ 1,006

26.9% $ 1,056

$ 1,065

20.6%

287

263

207

—

Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results.

Xerox 2018 Annual Report 54

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Operating Income and Margin reconciliation

(in millions)
Reported(1)
Adjustments:
Restructuring and related costs

Amortization of intangible assets

Transaction and related costs, net

Equity in net income of
unconsolidated affiliates
Restructuring and other costs - Fuji
Xerox(2)
Other expenses, net(3), (4)
Adjusted
Equity in net income of
unconsolidated affiliates
Fuji Xerox restructuring charge

Adjusted (Effective for 2019)

2018

Profit

598

Revenue
$ 9,830

Year Ended December 31,

2017

2016

Margin

Profit

Revenue

Margin

Profit

Revenue

Margin

6.1% $

570

$ 10,265

5.6% $

568

$ 10,771

5.3%

158

268
$ 1,268

(33)

(95)
$ 1,140

216

115

329

$ 9,830

12.9% $ 1,302

$ 10,265

(115)

(10)

$ 9,830

11.6% $ 1,177

$ 10,265

259

—

127

321
12.7% $ 1,336

(127)

(3)
11.5% $ 1,206

$ 10,771

12.4%

$ 10,771

11.2%

_____________
(1) Pre-tax Income and revenue from continuing operations.
(2) Other charges in 2017 represent costs associated with the terminated combination transaction.
(3)

Includes Non-service retirement-related costs of $150 million, $188 million and $121 million for the years ended December 31, 2018, 2017 and
2016, respectively.
Includes a $43 million penalty associated with the termination of an IT services arrangement for the year ended December 31, 2018.

(4)

Xerox 2018 Annual Report 55

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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 15 - 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, 2018, it would not significantly change the fair value of foreign currency-denominated
assets and liabilities as all material currency asset and liability exposures were economically hedged as of December 31,
2018. A 10% appreciation or depreciation of the U.S. Dollar against all currencies from the quoted foreign currency
exchange rates at December 31, 2018 would have an impact on our cumulative translation adjustment portion of equity
of approximately $419 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
$4.2 billion at December 31, 2018.

Interest Rate Risk Management

The consolidated average interest rate associated with our total debt for 2018, 2017 and 2016 approximated 4.6%,
4.6%, and 4.7%, respectively. Interest expense includes the impact of our interest rate derivatives. The average interest
rate for 2016 excludes interest associated with the $1.0 billion Term Loan Facility that was required to be repaid upon
completion of the Separation and therefore was reported in discontinued operations in 2016.

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, 2018, $301 million of our total debt of $5.2 billion carried variable interest rates, including the effect
of pay variable interest rate swaps, if any, which 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,
2018, 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

Xerox 2018 Annual Report 56

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Xerox Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Xerox Corporation and its subsidiaries (the
"Company") as of December 31, 2018 and 2017, and the related consolidated statements of income (loss),
comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2018, including the related notes and financial statement schedule listed in the index appearing under
Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts
for revenues from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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

Xerox 2018 Annual Report 57

Table of Contents

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 25, 2019

We have served as the Company’s auditor since 2001.

Xerox 2018 Annual Report 58

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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 (2013)” 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, 2018. The effectiveness of our internal control over financial reporting as of December
31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report, which is included herein.

/s/ GIOVANNI VISENTIN

/s/ WILLIAM F. OSBOURN, JR.

/s/ JOSEPH H. MANCINI, JR.

Chief Executive Officer

Chief Financial Officer

Chief Accounting Officer

Xerox 2018 Annual Report 59

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Xerox Corporation
Consolidated Statements of Income (Loss)

(in millions, except per-share data)

Revenues

Sales

Services, maintenance and rentals

Financing

Total Revenues

Costs and Expenses

Cost of sales

Cost of services, maintenance and rentals

Cost of financing

Research, development and engineering expenses

Selling, administrative and general expenses

Restructuring and related costs

Amortization of intangible assets

Transaction and related costs, net

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

Income (loss) from discontinued operations, net of tax

Net Income (Loss)

Less: Net income attributable to noncontrolling interests

Net Income (Loss) Attributable to Xerox

Amounts attributable to Xerox:

Net income from continuing operations

Net income (loss) from discontinued operations

Net Income (Loss) Attributable to Xerox

Basic Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Total Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Diluted Earnings (Loss) per Share

Year Ended December 31,

2018

2017

2016

3,972

4,073

5,590

268

9,830

2,412

3,359

132

397

2,390

158

268

9,232

598

257

374

—

374

5,898

294

10,265

2,487

3,518

133

424

2,526

216

329

9,695

570

481

115

204

207

361

195

361

—

361

1.40

—

1.40

1.38

—

1.38

192

195

0.70

0.01

0.71

0.70

0.01

0.71

4,319

6,127

325

10,771

2,656

3,682

128

463

2,636

259

—

321

10,203

568

127

633

(1,093)

(460)

(471)

622

(1,093)

(471)

2.36

(4.31)

(1.95)

2.33

(4.26)

(1.93)

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

Xerox 2018 Annual Report 60

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Xerox Corporation
Consolidated Statements of Comprehensive Income (Loss)

(in millions)

Net Income (Loss)

Less: Net income attributable to noncontrolling interests

Net Income (Loss) Attributable to Xerox

Other Comprehensive (Loss) Income, Net(1)

Translation adjustments, net

Unrealized gains (losses), net

Changes in defined benefit plans, net

Other Comprehensive Income (Loss), Net

Less: Other comprehensive income (loss), net attributable to
noncontrolling interests

Other Comprehensive Income (Loss), Net Attributable to Xerox

Comprehensive Income (Loss), Net

Less: Comprehensive income, net attributable to noncontrolling
interests

Comprehensive Income (Loss), Net Attributable to Xerox

_____________

Year Ended December 31,

2018

2017

2016

374

361

207

195

(242) $

483

409

183

—

106

590

183

589

557

544

797

784

(460)

(471)

(347)

(15)

126

(236)

(3)

(233)

(696)

(704)

(1) Refer to Note 23 - Other Comprehensive Income (Loss) for gross components of Other Comprehensive Income (Loss), reclassification

adjustments out of Accumulated Other Comprehensive Loss and related tax effects.

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

Xerox 2018 Annual Report 61

Table of Contents

Xerox Corporation
Consolidated Balance Sheets

(in millions, except share data in thousands)

Assets

Cash and cash equivalents

Accounts receivable, net

Billed portion of finance receivables, net

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

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

Accrued expenses and other current liabilities

Total current liabilities

Long-term debt

Pension and other benefit liabilities

Post-retirement medical benefits

Other long-term liabilities

Total Liabilities

Commitments and Contingencies (See Note 19)

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,

2018

2017

1,084

1,276

105

1,218

818

194

4,695

2,149

442

499

1,403

220

3,867

740

859

1,293

1,357

112

1,317

915

236

5,230

2,323

454

629

1,404

268

3,930

1,026

682

14,874

15,946

961

1,091

349

850

3,251

4,269

1,482

350

269

9,621

282

1,108

444

907

2,741

5,235

1,595

662

206

10,439

214

232

3,321

(55)

5,072

(3,565)

5,005

5,039

14,874

231,690

(2,067)

229,623

255

3,893

—

4,856

(3,748)

5,256

5,293

15,946

254,613

—

254,613

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

Xerox 2018 Annual Report 62

Table of Contents

Xerox Corporation
Consolidated Statements of Cash Flows

(in millions)

Cash Flows from Operating Activities
Net income (loss)

(Income) loss from discontinued operations, net of tax
Income from continuing operations

Adjustments required to reconcile Net income (loss) to Cash flows from
operating activities

Depreciation and amortization
Provisions
Deferred tax expense (benefit)
Net gain 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
Defined benefit pension cost
Contributions to defined benefit pension plans
Decrease (increase) in accounts receivable and billed portion of finance

receivables

Decrease (increase) in inventories
Increase in equipment on operating leases
Decrease in finance receivables
Decrease (increase) in other current and long-term assets
Decrease in accounts payable
(Decrease) increase in accrued compensation
Increase (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 (used in) operating activities of continuing
operations

Net cash (used in) provided by operating activities of discontinued
operations
Net cash provided by (used in) operating activities

Cash Flows from Investing Activities

Cost of additions to land, buildings, equipment and software
Proceeds from sales of businesses and assets
Acquisitions, net of cash acquired
Collections of deferred proceeds from sales of receivables
Collections on beneficial interest from sales of finance receivables
Other investing, net

Net cash (used in) provided by investing activities of continuing
operations

Net cash used in investing activities of discontinued operations
Net cash (used in) provided by investing activities

Cash Flows from Financing Activities

Net (payments) proceeds on short-term debt
Proceeds from issuance of long-term debt
Payments on long-term debt
Dividends
Payments to acquire treasury stock, including fees
Other financing, net
Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted
cash
Increase in cash, cash equivalents and restricted cash of discontinued
operations
(Decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, Cash Equivalents and Restricted Cash at End of Year

Year Ended December 31,

2018

2017

2016

374
—
374

207
(3)
204

(460)
1,093
633

526
70
135
(35)
(7)
57
157
(170)
175
(144)

35
(248)
166
29
(18)
(112)
51
41
(14)
42

1,140

—

1,140

(90)
59
—
—
—
2

(29)

—
(29)

(5)
9
(311)
(269)
(700)
(25)
(1,301)

(30)

—

527
73
399
(15)
(18)
52
197
(220)
194
(836)

(529)

(69)
(217)
162
(19)
(15)
(27)
(80)
11
75
(28)

(179)

(88)

(267)

(105)
23
(87)
213
21
100

165

—
165

2
1,008
(1,832)
(291)
—
128
(985)

—

(220)
1,368
1,148

(1,034)
2,402
1,368

563
71
(9)
(22)
(75)
50
225
(113)
127
(178)

(151)

7
(268)
126
76
(250)
6
(77)
(182)
(30)
187

716

798

(138)
25
(30)
246
24
39

166

(251)
(85)

1,888
25
(988)
(331)
—
(10)
584

(17)

(262)

1,018
1,384
2,402

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

Xerox 2018 Annual Report 63

Table of Contents

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, 2015

253

3,777

— $

9,575

$ (4,630) $

8,975

9,018

Comprehensive (loss) income, net
Cash dividends declared- common(1)
Cash dividends declared - preferred(2)
Stock option and incentive plans, net

Distributions to noncontrolling interests

Separation of Conduent

—

—
—

—

—
—

—

—
—

—

(471)

(317)
(24)

—

(233)

—
—

—

(704)

(317)
(24)

—

(3,829)

526

(3,303)

Balance at December 31, 2016

254

3,858

— $

4,934

$ (4,337) $

4,709

Comprehensive income, net
Cash dividends declared- common(1)
Cash dividends declared - preferred(2)
Stock option and incentive plans, net

Distributions and purchase -
noncontrolling interests

—

—
—

—

—
—

(1)

—

—
—

—

195

(259)
(14)

—

589

—
—

—

784

(259)
(14)

—
—

—

(13)

—

—
—

—

(696)

(317)
(24)

(13)

(3,303)

4,747

797

(259)
(14)

(1)

(14)

(15)

Balance at December 31, 2017

255

3,893

— $

4,856

$ (3,748) $

5,256

5,293

Cumulative effect of change in
accounting principles(4)

Comprehensive income, net
Cash dividends declared- common(1)
Cash dividends declared - preferred(2)
Stock option and incentive plans, net

Payments to acquire treasury stock,
including fees

Cancellation of treasury stock

Distributions to noncontrolling interests

—

—
—

—

(24)

—

—
—

—

(621)

—

—
—

—

(700)

645

—

120

361

(251)
(14)

—

183

—
—

—

120

544

(251)
(14)

(700)

—

—
—

—

(16)

120

557

(251)
(14)

(700)

—

(16)

Balance at December 31, 2018

232

3,321

(55) $

5,072

$ (3,565) $

5,005

5,039

_____________
(1) Cash dividends declared on common stock of $0.25 per share in each quarter of 2018, $0.25 per share in each quarter of 2017 and $0.31 per

share in each quarter of 2016.

(2) Cash dividends declared on preferred stock of $20 per share in each quarter of 2018, 2017 and 2016.
(3) AOCL - Accumulated other comprehensive loss.
(4)

Includes $117 related to the adoptions of the new Revenue Recognition Standard, see Note 2 - Revenue for additional information, and $3
related to our share of Fuji Xerox's adoption of ASU 2016-01 - Financial Instruments - Classification and Measurement.

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

Xerox 2018 Annual Report 64

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Xerox Corporation
Notes to Consolidated Financial Statements
(in millions, except per-share data and where otherwise noted)

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

The accompanying Consolidated Financial Statements and footnotes of Xerox Corporation have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP).

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

Xerox is a $9.8 billion global enterprise for document management solutions. We provide advanced document technology,
services, software and genuine Xerox supplies for a range of customers including small and mid-size businesses, large
enterprises, governments and graphic communications providers, and for our partners who serve them. We operate in
approximately 160 countries worldwide.

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 (Loss) 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 (Loss) 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.

Discontinued Operations

On December 31, 2016, we completed the separation of our Business Process Outsourcing (BPO) business through
the distribution of all of the issued and outstanding stock of Conduent Incorporated to Xerox Corporation
stockholders. As a result of the separation and distribution, the financial position and results of operations of the BPO
Business are presented as discontinued operations and, as such, have been excluded from continuing operations for
all periods presented.

Refer to Note 5 - Divestitures for additional information regarding discontinued operations and other divestitures.

Prior Period Adjustments

In third quarter 2018, we determined that the Pension Benefit Obligation (PBO) for our UK funded pension plan at
December 31, 2017 was overstated by approximately GBP 40 million (approximately USD $53 or $43 after-tax). The
error was the result of the plan administrator under-reporting benefit payments. The correction of the PBO was recorded
as an out-of-period adjustment in the third quarter 2018 with the offset to the balance sheet recorded as a credit to
Changes in defined benefit plans, net in Other comprehensive income for the period. We assessed the impact of this
error and concluded that it was not material to the financial statements previously issued for any interim or annual period
and the correction was not material to the annual financial statements for 2018.

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 available information including 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.

Xerox 2018 Annual Report 65

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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 (ASUs) discussed below, the new ASUs issued by the FASB during the
last two years did not have any significant impact on the Company.

Accounting Standard Updates to be Adopted:

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842), with additional amendments and targeted
improvements being issued during 2018. This update supersedes existing lease accounting guidance found under ASC
840, Leases (“ASC 840”) and requires the recognition of right-to-use assets and lease obligations by lessees for those
leases currently classified as operating leases under existing lease guidance. Leases will be classified as either finance
or operating, with classification affecting the pattern of expense recognition. Short term leases with a term of 12 months
or less are not required to be recognized. The update also requires qualitative and quantitative disclosure of key
information regarding the amount, timing and uncertainty of cash flows arising from leasing arrangements to increase
transparency and comparability among companies. The accounting for lessors does not fundamentally change with
this update except for changes to conform and align guidance to the lessee guidance as well as to the new revenue
recognition guidance in ASU 2014-09. Some of these conforming changes such as those related to the definition of
lease term and minimum lease payments, may potentially result in certain lease arrangements, which are currently
accounted for as operating leases, being classified and accounted for as sales-type leases with a corresponding up-
front recognition of equipment sales revenue. This update is effective for our fiscal year beginning January 1, 2019.

We will adopt the guidance as of January 1, 2019 and will apply the transition option, whereby prior comparative
periods will not be retrospectively presented in the Consolidated Financial Statements. We will also elect the
package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease
classification and initial direct costs and the lessee practical expedient to combine lease and non-lease components
for certain asset classes (real estate and embedded lease arrangements). We will also make a policy election to not
recognize right-of-use assets and lease liabilities for short-term leases for all asset classes. We will elect the
package of practical expedients from both the Lessee and Lessor prospective, to the extent applicable.

Lessee accounting - we estimate the adoption of this update will result in an increase to assets and related liabilities of
approximately $385 (approximately $440 undiscounted), which is consistent with prior period disclosures regarding our
lease obligations and primarily related to leases of facilities. Lessor accounting - we estimate the adoption to increase
equipment sales by approximately $35 in 2019 as compared to 2018.

Financial Instruments - Credit Losses and Derivatives

In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses - Measurement of Credit Losses on
Financial Instruments, with additional amendments being issued in 2018. This update requires measurement and
recognition of expected credit losses for financial assets. The update impacts financial assets and net investment in
leases that are not accounted for at fair value through Net income. This update is effective for our fiscal year beginning
January 1, 2020. We are currently evaluating the impact of the adoption of ASU 2016-13 on our Consolidated Financial
Statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities. The amendments in this update expand and refine hedge accounting for both financial
and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments with
the same income statement line item that the hedged item is reported and includes certain targeted improvements to
ease the application of current guidance related to the assessment of hedge effectiveness. This update is effective for
our fiscal year beginning January 1, 2019. The adoption of this update is not expected to have a material impact on our
financial condition, results of operations or cash flows.

Xerox 2018 Annual Report 66

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Intangibles - Internal-Use Software

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic
350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service
Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement
that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use software (and hosting arrangements that include an internal-use software license). The update provides
criteria for determining which implementation costs to capitalize as an asset related to the service contract and which
costs to expense. The capitalized implementation costs are required to be expensed over the term of the hosting
arrangement. The update also clarifies the presentation requirements for reporting such costs in the entity’s financial
statements. This update is effective for our fiscal year beginning January 1, 2020. We are currently evaluating the impact
of the adoption of ASU 2018-15 on our Consolidated Financial Statements.

Income Taxes

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The update allows the
reclassification from Accumulated other comprehensive income to Retained earnings for stranded tax effects resulting
from the Tax Cuts and Jobs Act ("Tax Act") enacted in December 2017. Consequently, the update eliminates the stranded
tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users.
However, because the update only relates to the reclassification of the income tax effects of the Tax Act, the underlying
guidance that requires that the effect of a change in tax laws or rates be included in Income from continuing operations
is not affected. The update also requires certain disclosures about stranded tax effects. The update is effective for our
fiscal year beginning January 1, 2019. We are still evaluating the impact of the adoption of ASU 2018-02 and the amount
of the reclassification from AOCL to retained earnings for the stranded tax effects resulting from the Tax Act. We expect
the tax impact to be primarily related to the amounts in AOCL from our retirement-related benefit plans.

Accounting Standard Updates Adopted in 2018:

Revenue Recognition

Refer to Note 2 - Revenue for a summary of the impacts from our adoption of ASU 2014-09, Revenue from Contracts
with Customers (ASC Topic 606), effective for our fiscal year beginning January 1, 2018.

Cash Flows

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts
and Cash Payments. This update provides specific guidance on eight cash flow classification issues where previous
guidance is either unclear or did not include specific requirements. We adopted ASU 2016-15 effective for our fiscal
year beginning January 1, 2018. This update includes specific guidance that requires cash collected on beneficial
interests received in a sale of receivables be classified as inflows from investing activities. Formerly, those collections
were reported in operating cash flows. We reported $234 and $270 of collections on beneficial interests as operating
cash inflows on the Statement of Cash Flows for the two years ended December 31, 2017, respectively. Since the
update is required to be applied retrospectively, our reported 2017 and 2016 operating and investing cash flows were
revised accordingly in 2018 to report these amounts as investing cash flows. There was no impact to our 2018 cash
flows from this reporting change, due to the termination of all accounts receivable sales arrangements with an associated
beneficial interest component during the fourth quarter of 2017. The other seven issues noted in this update did not
have a material impact on our Consolidated Statements of Cash Flows.

Additionally, in November 2016 the FASB issued ASU 2016-18, Statement of Cash Flows - Restricted Cash. The update
requires that amounts generally described as restricted cash and restricted cash equivalents should be included with
Cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. We adopted ASU 2016-18 effective for our fiscal year beginning January 1, 2018 and applied
it retrospectively through a revision of previously reported amounts. We held $64, $75 and $179 of restricted cash,
currently reported in Other current or long-term assets at December 31, 2018, December 31, 2017 and December 31,
2016, respectively. In the prior year, the changes in our restricted cash balances were primarily related to our accounts
receivable sales programs, which were terminated during the fourth quarter of 2017. Accordingly, this update did not
have a material impact on our financial condition, results of operations or cash flows. Refer to Note 13 - Supplementary
Financial Information for additional information.

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Retirement Benefits

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update changes how
employers that sponsor defined benefit pension plans and other postretirement plans present net periodic benefit costs
in the income statement. An employer is required to report the service cost component in the same line item or items
as other compensation costs arising from services rendered by the affected employees during the period. Other
components of net retirement benefit cost are required to be presented in the income statement separately from the
service cost component and outside a subtotal of Income from operations, if one is presented. We elected to report
these costs as a separate item within Other expenses, net. The update also allows only the service cost component to
be eligible for capitalization, when applicable. We adopted ASU 2017-07 effective January 1, 2018. The presentation
requirements of this update were required to be applied retrospectively through a revision of previously reported amounts.
The requirement to limit capitalization to the service cost component was required to be applied prospectively. The
adoption of this update did not have a material impact on our financial condition, results of operations or cash flows.
Refer to Note 17 - Employee Benefit Plans for the service cost component and other components of net retirement
benefit cost.

The following table reflects the adjustment of selected lines from our Consolidated Statements of Income (Loss) to the
recasted amounts as a result of the adoption of this update:

Cost of sales
Cost of services, maintenance and rentals

Research, development and engineering
expenses
Selling, administrative and general expenses(1)
Restructuring and related costs
Other expenses, net

Year Ended December 31, 2017

Year Ended December 31, 2016

As
Reported

2,491
3,580

446

2,622

220
141

Adjustment

(4) $

(62)

(22)

(96)
(4)
188

As
Recasted

As
Reported

2,487
3,518

424

2,526

216
329

2,657
3,725

476

2,695

264
200

Adjustment

(1) $

(43)

(13)

(59)
(5)
121

As
Recasted

2,656
3,682

463

2,636

259
321

____________
(1) The 2017 reported amount for Selling, administrative and general expenses reflects the reclass of $9 for Transaction and related costs, net, in

order to conform to the separate presentation of these costs in the 2018 Consolidated Statements of Income (Loss).

Business Combinations

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. We adopted ASU 2017-01 effective for our fiscal
year beginning January 1, 2018, and the adoption did not have nor is it expected to have a material impact on our
financial condition, results of operations or cash flows.

Income Taxes

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other than Inventory.
This update requires recognition of the income-tax consequences of an intra-entity transfer of assets other than inventory
when the transfer occurs. Under current GAAP, recognition of the income tax consequences for asset transfers other
than inventory could not be recognized until the asset was sold to a third party. We adopted ASU 2016-16 effective for
our fiscal year beginning January 1, 2018 and the adoption did not have nor is it expected to have a material impact on
our financial condition, results of operations or cash flows.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 118 (as
further clarified by the FASB's ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 118) to provide guidance for companies that may not have completed their accounting
for the income tax effects of the Tax Act. SAB No. 118 provides for a provisional one-year measurement period for
entities to finalize their accounting for certain income tax effects related to the Tax Act. SAB No. 118 provides guidance
where: (i) the accounting for the income tax effect of the Tax Act is complete and reported in the Tax Act's enactment
period, (ii) the accounting for the income tax effect of the Tax Act is incomplete and reported as provisional amounts
based on reasonable estimates (to the extent determinable) subject to adjustments during a limited measurement period
until complete, and (iii) accounting for the income tax effect of the Tax Act is not reasonably estimable (no related
provisional amounts are reported in the enactment period) and entities would continue to apply accounting based on
tax law provisions in effect prior to the Tax Act enactment until provisional amounts are reasonably estimable. SAB No.
118 requires disclosure of the reasons for incomplete accounting additional information or analysis needed, among
other relevant information.

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During the fourth quarter 2017, we recorded an estimated non-cash charge of $400 reflecting our provisional estimated
impact associated with the provisions of the Tax Act based on currently available information. In 2018, we adjusted our
provisional estimate by an additional charge of $89 reflecting certain positions taken on our filed 2017 U.S. income tax
return as well as consideration of additional guidance from the U.S. Treasury and Internal Revenue Service (IRS). The
adjustment includes changes to the determination of the one-time deemed repatriation tax as well as additional
remeasurement of our U.S. deferred tax assets and liabilities to the lower enacted statutory tax rate. The total charge
of $489 related to the Tax Act may change in the future based on new guidance being issued or changes in our expected
filing positions.

Other Updates

In 2018 and 2017, the FASB also issued the following Accounting Standards Updates, which have not had, and are not
expected to have, a material impact on our financial condition, results of operations or cash flows upon adoption. Those
updates are as follows:
• Collaborative Arrangements: ASU 2018-18, (Topic 808) Clarifying the Interaction between Topic 808 and Topic

606. This update is effective for our fiscal year beginning January 1, 2020, early adoption is permitted.

• Compensation - Retirement Benefits - Defined Benefit Plans - General: ASU 2018-14, (Topic 715-20) Changes
to the Disclosure Requirements for Defined Benefit Plans. This update is effective for our fiscal year ended December
31, 2020, early adoption is permitted.

• Fair Value Measurement: ASU 2018-13, (Topic 820) Disclosure Framework. This update is effective for our fiscal

year beginning January 1, 2020, early adoption is permitted.

• Service Concession Arrangements: ASU 2017-10, (Topic 853) Determining the Customer of the Operation
Services (a consensus of the FASB Emerging Issues Task Force). This update is effective for our fiscal year beginning
January 1, 2018.

• Compensation - Stock Compensation: ASU 2017-09, (Topic 718) Scope of Modification Accounting. This update

was effective for our fiscal year beginning January 1, 2018.

• Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets: ASU 2017-05, (Subtopic
610-20) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial
Assets. This update was effective for our fiscal year beginning January 1, 2018.

• Financial Instruments - Classification and Measurement: ASU 2016-01, Financial Instruments - Recognition
and Measurement of Financial Instruments and Financial Liabilities. This update was effective for our fiscal year
beginning January 1, 2018.

Summary of Accounting Policies

Refer to Note 2 - Revenue for a summary of our Revenue Recognition policies subsequent to the adoption of ASU
2014-09, Revenue from Contracts with Customers (ASC Topic 606), effective for our fiscal year beginning January 1,
2018.

Revenue Recognition (Policies prior to the adoption of ASU 2014-09 - ASC Topic 606)

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: 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.

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Maintenance Services: Maintenance 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 rate last 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,
supplies and services 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.

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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 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: Revenues associated with our document management services are generally recognized as services are
rendered, which is generally on the basis of the number of transactions processed. In service arrangements where final
acceptance of a printing solution by the customer is required, revenue is deferred until all acceptance criteria have been
met. Revenues on unit-price contracts are recognized at the contractual selling prices as work is completed and accepted
by the customer.

In connection with our services arrangements, we may 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. These capitalized costs are 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.

Long-lived assets used in the fulfillment of service 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 services contracts may also include the sale of equipment and software. In these instances, we follow the policies
noted above under Equipment-Related Revenues.

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 document related services including professional and value-added services. For
instance, we may contract for an implementation of a printing solution and also provide services to operate the
solution 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 vendor-specific objective evidence (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).

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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 (Loss).

Other Significant Accounting Policies

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 $72, $90 and $95 in for the years ended December 31, 2018, 2017 and 2016, 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 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 6 - Accounts Receivable, Net and Note 7 - Finance Receivables, Net for additional information on our
receivable sales.

Inventories

Inventories are carried at the lower of average cost or net realizable value. 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 is normally 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 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. Refer to Note 8 - Inventories and Equipment on Operating Leases, Net for further discussion.

Land, Buildings 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 8 - Inventories and Equipment on Operating Leases, Net and Note 9 - 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 on a straight-line basis 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

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charged to Costs of services as incurred. Refer to Note 9 - 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, whenever events or changes in circumstances indicate that the carrying value of the asset may not be
recoverable an impairment loss may have been incurred.

We normally assess goodwill for impairment at least annually, during the fourth quarter, based on balances as of October
1st, or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. 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. Consistent with the
determination that we had one operating segment, we determined that there is one reporting unit and tested goodwill
for impairment at the entity level.

We perform an assessment of goodwill, utilizing either a qualitative or quantitative impairment test. The qualitative
impairment test assesses several factors to determine whether it is more likely than not that the fair value of the
entity is less than its carrying amount. If we conclude it is more likely than not that the fair value of the entity is less
than its carrying amount, a quantitative fair value test is performed. In certain circumstances, we may also bypass
the qualitative test and proceed directly to a quantitative impairment test. In a quantitative impairment test, we assess
goodwill by comparing the carrying amount of the entity to its fair value. Fair value of the entity is determined by
using a weighted combination of an income approach and a market approach. If the fair value exceeds the carrying
value, goodwill is not considered impaired. If the carrying value exceeds the fair value, goodwill is considered
impaired and we would recognize an impairment loss for the excess.

Other intangible assets primarily consist of assets obtained in connection with business acquisitions, including installed
customer base and distribution network relationships, existing technology, trademarks and non-compete agreements.
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 11 - 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 various forms of defined benefit pension plans 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

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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 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 17 - Employee Benefit Plans for further information regarding our Pension and Post-Retirement Benefit
Obligations.

Foreign Currency Translation and Remeasurement

The functional currency for most of our 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 as well as foreign subsidiaries operating in highly inflationary economies. For these subsidiaries, non-monetary
foreign currency assets and liabilities are translated using historical rates, while monetary assets and liabilities are
translated at current rates, with the U.S. dollar effects of rate changes recorded in Currency (gains) and losses within
Other expenses, net together with other foreign currency remeasurements.

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Note 2 – Revenue

Adoption of ASU 2014-09:

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606), which
superseded nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASC Topic 606
is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the
consideration that is expected to be received for those goods or services. ASC Topic 606 defines a five-step process
to recognize revenue and requires more judgment and estimates within the revenue recognition process than required
under previous U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price and allocating the transaction price to each separate
performance obligation.

We adopted this standard using the modified retrospective method of adoption. Under ASC Topic 606, based on the
nature of our contracts and consistent with prior practice, we recognize revenue upon invoicing the customer for the
large majority of our revenue. Additionally, the unit of accounting, that is, the identification of performance obligations,
is consistent with prior revenue recognition practice. Accordingly, the adoption of this standard did not have a material
impact for the large majority of our revenues. Lastly, a significant portion of our Equipment sales are either recorded
as sales-type leases or through direct sales to distributors and resellers and these revenue streams are not impacted
by the adoption of ASC Topic 606. The only change of significance identified in our adoption involves a change in the
classification of certain revenues that were previously reported in Services revenues. These revenues relate to certain
analyst services performed in connection with the installation of equipment that are being considered part of the
equipment sale performance obligation in 2018. Accordingly, in 2018 these revenues are now reported as part of Sales.
As a result of this change, $34 of revenue was recorded, for the year ended December 31, 2018, as Sales, which
would have been previously recorded as Services revenue in prior periods.

Another change identified upon adoption was with respect to deferred contract costs, which include incremental costs
of obtaining a contract and costs to fulfill a contract. Deferred contract costs had been minimal under our prior practices
as most costs to obtain a contract and fulfill a contract were expensed as incurred. However, as a result of the contract
cost guidance included in ASC Topic 606 and ASC Topic 340-40 "Contracts with Customers", upon adoption, we
recorded a transition asset of $153, and a net of tax increase of $117 to Retained earnings, related to the incremental
cost to obtain contracts. Substantially all of this adjustment is related to the deferral of sales commissions paid to sales
people and agents in connection with the placement of equipment with post sale service arrangements.

The impacts of adopting ASC Topic 606 on our Consolidated Balance Sheets were as follows:

Deferred tax assets

Other long-term assets

Retained earnings

Year Ended December 31, 2018

Superseded Revenue
Guidance(1)

Adjustments

As Reported

773

717

4,963

(33) $
142

109

740

859

5,072

____________
(1) Reflects balance of account under revenue recognition guidance superseded by ASC Topic 606.

Revenue Recognition Summary:

We generate revenue through the sale of equipment, supplies and maintenance and printing services. Revenue is
measured based on consideration specified in a contract with a customer and is recognized when we satisfy a
performance obligation by transferring control of a product to a customer or in the period the customer benefits from
the service. With the exception of our sales-type lease arrangements, our invoices to the customer, which normally
have short-term payment terms, are typically aligned to the transfer of goods or as services are rendered to our
customers and therefore in most cases we recognize revenue based on our right to invoice customers. As a result of
the application of this practical expedient for the substantial portion of our revenue, the disclosure of the value of
unsatisfied performance obligations for our services is not required.

Significant judgments primarily include the identification of performance obligations in our Document management
services arrangements as well the pattern of delivery for those services.

More specifically, revenue related to our products and services is generally recognized as follows:

Equipment: Revenues from the sale of equipment directly to end customers, including those from sales-type leases
(see below), are recognized when obligations under the terms of a contract with our customer are satisfied and control
has been transferred to the customer. For equipment placements that require us to install the product at the customer

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location, revenue is normally 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. Revenue from the equipment performance obligation also includes certain analyst training
services performed in connection with the installation or delivery of the equipment.

Maintenance services: We provide maintenance agreements on our equipment that include service and supplies for
which the customer may pay a base minimum plus a price-per-page charge for usage. In arrangements that include
minimums, those minimums are normally set below the customer’s estimated page volumes and are not considered
substantive. These agreements are sold as part of a bundled lease arrangement or through distributors and resellers.
We normally account for these maintenance agreements as a single performance obligation for printing services being
delivered in a series with delivery being measured by usage as billed to the customer. Accordingly, revenue on these
agreements are normally recognized as billed to the customer over the term of the agreements based on page volumes.
A substantial portion of our products are sold with full service maintenance agreements, accordingly, other than the
product warranty obligations associated with certain of our entry level products, we do not have any significant warranty
obligations, including any obligations under customer satisfaction programs.

Document management services: Revenues associated with our document management services are generally
recognized as printing services are rendered, which is generally on the basis of the number of images produced.
Revenues on unit-price contracts are recognized at the contractual selling prices as work is completed by the customer.
We account for these arrangements as a single performance obligation for printing services being delivered in a series
with delivery being measured by usage as billed to the customer.

Our services contracts may also include the sale or lease of equipment and software. In these instances, we follow
the policies noted for Equipment or Software Revenues and separately report the revenue associated with these
performance obligations. Certain document management services arrangements may also include an embedded lease
of equipment. In these instances, the revenues associated with the lease are recognized in accordance with the
requirements for lease accounting.

Sales to distributors and resellers: We utilize distributors and resellers to sell our equipment, supplies and
maintenance services to end-user customers. We refer to our distributor and reseller network as our two-tier distribution
model. Revenues on sales to distributors and resellers are generally recognized when products are shipped to such
distributors and resellers. However, revenue is only recognized when the distributor or reseller has economic substance
apart from the Company such that collectability is probable and we have no further obligations related to bringing about
the resale, delivery or installation of the product that would impact transfer of control. Revenues associated with
maintenance agreements sold through distributors and resellers to end customers are recognized in a consistent
manner to maintenance services. Revenue that may be subject to a reversal of revenue due to contractual terms or
uncertainties is not recorded as revenue until the contractual provisions lapse or the uncertainties are resolved.

Distributors and resellers participate in various rebate, price-protection, cooperative marketing and other programs,
and we estimate the variable consideration associated with these programs and record those amounts 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 are not obligated to provide financing and we compete with other third-party leasing
companies with respect to the lease financing provided to these end-user customers.

Bundled Lease Arrangements: A significant portion of our direct sales of equipment to end customers are made
through bundled lease arrangements that typically include equipment, maintenance 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. 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.

Revenues under bundled arrangements are allocated considering the relative standalone 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

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service revenue. The remaining amounts are allocated to the equipment and financing elements, which are subjected
to the accounting estimates noted below under “Leases”.

Leases: The two primary lease accounting provisions we assess for the classification of 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. Equipment
placements included in arrangements meeting these conditions are accounted for as sales-type leases and revenue
is recognized as noted above for Equipment. Equipment placements included in arrangements that do not meet these
conditions are accounted for as operating leases and revenue is recognized over the term of the lease.

Our lease 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 rate last 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.

Supplies: Supplies revenue is recognized upon transfer of control to the customer, generally upon utilization or shipment
to the customer in accordance with the sales contract terms.

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.

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Revenues disaggregated by primary geographic markets, major product lines, and sales channels are as follows:

Primary geographical markets(1)
United States

Europe

Canada

Other

Total Revenues

Major product and services lines
Equipment(2)
Supplies, paper and other sales
Maintenance agreements(3)
Service arrangements(4)
Rental and other

Financing

Total Revenues

Sales channels:
Direct equipment lease(5)
Distributors & resellers(6)
Customer direct

Total Sales

Year Ended December 31,

2018

2017

5,778

2,625
569

858

9,830

2,200

1,772
2,469

2,426
695

268

9,830

699

1,394

1,879

3,972

6,064

2,697

648

856

10,265

2,251

1,822
2,586

2,558

754

294
10,265

718

1,433

1,922

4,073

_____________
(1) Geographic area data is based upon the location of the subsidiary reporting the revenue.
(2) For the year ended December 31, 2017, Equipment sale revenues excluded $44 of equipment-related training revenue, which was classified

(3)

as Services under previous revenue guidance - see "Adoption Summary" above.
Includes revenues from maintenance agreements on sold equipment as well as revenues associated with service agreements sold in our small
and mid-sized business (SMB) focused channels and through our channel partners as Xerox Partner Print Services (XPPS).

(4) Primarily includes revenues from our Managed Document Services (MDS) offerings. Also includes revenues from embedded operating leases,

which were not significant.

(5) Primarily reflects direct sales through bundled lease arrangements.
(6) Primarily reflects sales through our two-tier distribution channels.

Other Revenue Recognition Policies

Contract assets and liabilities: We normally do not have contract assets, which are primarily unbilled accounts
receivable that are conditional on something other than the passage of time. Our contract liabilities, which represent
billings in excess of revenue recognized, are primarily related to advanced billings for maintenance and other services
to be performed and were approximately $116 and $91 at December 31, 2018 and January 1, 2018, respectively. The
majority of the balance at December 31, 2018 will be amortized to revenue over approximately the next 30 months.

Contract Costs: Incremental direct costs of obtaining a contract primarily include sales commissions paid to sales
people and agents in connection with the placement of equipment with associated post sale services arrangements.
These costs are deferred and amortized on the straight-line basis over the estimated contract term, which is currently
estimated to be approximately four years. We pay commensurate sales commissions upon customer renewals,
therefore our amortization period is aligned to our initial contract term.

For the year ended December 31, 2018, the incremental direct costs of obtaining a contract of $84 were deferred and
the related amortization was $95. The balance of deferred incremental direct costs net of accumulated amortization
at December 31, 2018 was $172. This amount is expected to be amortized over its estimated period of benefit, which
we currently estimate to be approximately four years.

We may also incur costs associated with our services arrangements to generate or enhance resources and assets
that will be used to satisfy our future performance obligations included in these arrangements. These costs are
considered contract fulfillment costs and are amortized over the contractual service period of the arrangement to cost
of services. In addition, we also provide inducements to certain customers in various forms, including contractual
credits, which are capitalized and amortized as a reduction of revenue over the term of the contract. Amounts deferred
associated with contract fulfillment costs and inducements were $12 at December 31, 2018 and related amortization
was $5 for the year ended December 31, 2018.

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Equipment and software used in the fulfillment of service arrangements and where the Company retains control are
capitalized and depreciated over the shorter of their useful life or the term of the contract if an asset is contract specific.

Revenue-based Taxes: Revenue-based taxes assessed by governmental authorities that are both imposed on and
concurrent with specific revenue-producing transactions, and that are collected by the Company from a customer, are
excluded from revenue. The primary revenue-based taxes are sales tax and value-added tax (VAT).

Shipping and Handling: Shipping and handling costs are accounted for as a fulfillment cost and are included in Cost
of sales in the Consolidated Statements of Income (Loss).

Note 3 – Segment and Geographic Area Reporting

Segment Discussion

We manage our operations on a geographic basis and are primarily organized from a sales perspective on the basis
of “go-to-market” sales channels. These sales channels are structured to serve a range of customers for our products
and services. As a result of this structure, we concluded that we have one operating and reportable segment - the
design, development and sale of document management systems and solutions. Our chief executive officer was
identified as the chief operating decision maker (“CODM”). All of the company’s activities are interrelated, and each
activity is dependent upon and supportive of the other, including product development, supply chain and back-office
support services. In addition, all significant operating decisions, by management and the Board, are largely based
upon an analysis of Xerox on a total company basis, including assessments related to the Company’s incentive
compensation plans.

Geographic Area Data

Geographic area data is based upon the location of the subsidiary reporting the revenue or long-lived assets and is
as follows:

Revenues

Year Ended December 31,

Long-Lived Assets (1)
As of December 31,

2018

2017

2016

2018

2017

5,778

6,064

6,403

2,625

1,427

2,697

1,504

2,861

1,507

671

278

146

9,830

10,265

10,771

1,095

770

355

167

1,292

United States

Europe

Other areas

Total

_____________

(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 4 – Acquisitions

2018 Acquisitions

During 2018, Xerox did not acquire any businesses.

2017 and 2016 Acquisitions

Acquisitions in 2017 totaled $87, in cash, and included the acquisition of MT Business Technologies, Inc. (MT Business),
an Ohio-based multi-brand dealer, and two smaller multi-brand dealers in Iowa and North and South Carolina.
Acquisitions in 2016 were $30, in cash, and related to the acquisition of two equipment dealers. The acquisitions in
2017 and 2016 were part of the strategy to increase our small and mid-sized (SMB) coverage through resellers and
partners (including multi-brand dealers) and continued distribution acquisitions.

2017 and 2016 Summary

All of our 2017 and 2016 acquisitions resulted in 100% ownership of the acquired companies. The operating results
of the 2017 and 2016 acquisitions described above are not material to our financial statements and were included
within our results from the respective acquisition dates. The purchase prices for these 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. Refer to Note
11 - Goodwill and Intangible Assets, Net for additional information. Our 2017 acquisitions contributed aggregate
revenues from their respective acquisition dates of approximately $79 and $54 to our 2018 and 2017 total revenues,
respectively. Our 2016 acquisitions contributed aggregate revenues from their respective acquisition dates of
approximately $27, $26 and $14 to our 2018, 2017 and 2016 total revenues, respectively.

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Note 5 – Divestitures

Discontinued Operations

Business Process Outsourcing (BPO)

On December 31, 2016, Xerox completed the Separation of its BPO business through the Distribution of all of the
issued and outstanding stock of Conduent Incorporated to Xerox Corporation stockholders. As a result of the Separation
and Distribution, the financial position and results of operations of the BPO Business are presented as discontinued
operations and, as such, have been excluded from continuing operations results for all periods presented. Prior to the
Separation and Distribution of Conduent, in connection with the annual goodwill impairment test, a pre-tax goodwill
impairment charge of $935 was recorded in the fourth quarter 2016 associated with the Commercial Services reporting
unit of the BPO business. This charge is reported in the Loss from discontinued operations, net of tax, for the year
ended December 31, 2016.

In connection with the Separation, Conduent made a net cash distribution to Xerox of approximately $1.8 billion prior
to the Distribution Date. Xerox used a portion of the cash distribution proceeds to repay the $1.0 billion Senior Unsecured
Term Facility in January 2017, which was required to be repaid upon completion of the Separation.

Summarized financial information for our Discontinued Operations is as follows:

Revenue

Loss from operations(1)
Loss on disposal

Net loss before income taxes

Income tax benefit(2)

Income (Loss) from discontinued operations, net of tax

2018

Year Ended December 31,
2017

2016

— $

— $
—

—
—
— $

— $

6,355

(9) $
—

(9)
12
3

(1,343)
—
(1,343)
250
(1,093)

_____________
(1) 2017 includes $9 of Separation related costs. 2016 includes $159 of Separation related costs and $18 of interest on a $1.0 billion Senior

Unsecured Term Facility, which was required to be repaid upon completion of the Separation.

(2) 2017 primarily reflects changes in estimates.

The following is a summary of selected financial information for our Discontinued Operations:

Cost and Expenses:
Cost of services
Other Expenses

Total Costs and Expenses

Selected amounts included in Costs and Expenses:
Depreciation of buildings and equipment

Amortization of internal use software

Amortization of product software

Amortization of acquired intangible assets

Amortization of customer contract costs

Operating lease rent expense

Defined contribution plans
Interest expense(1)
Goodwill impairment charge(2)
Expenditures:

Cost of additions to land, buildings and equipment

Cost of additions to internal use software

Customer-related deferred set-up/transition and inducement costs

Year Ended
December 31, 2016

5,456
2,065
7,521

130

61
280

93
378

13
935

150

_____________
(1) Represents interest on third-party borrowings only that were transferred to Conduent as part of the Distribution. Excludes $18 of interest
associated with the $1.0 billion Senior Unsecured Term Facility noted above. No additional interest expense was allocated to discontinued
operations for the year ended December 31, 2016.

(2) Prior to the Separation and Distribution of Conduent, in connection with the annual goodwill impairment test, a pre-tax goodwill impairment

charge was recorded in the fourth quarter 2016 associated with the Commercial Services reporting unit of the BPO business.

Xerox 2018 Annual Report 80

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Other Divestitures

Xerox Research Centre Europe in Grenoble

In August 2017, we completed the sale of the Xerox Research Centre Europe in Grenoble, France to Naver Corporation
(Naver). The selling price was approximately $23 and included a license agreement and the transfer of liabilities. The
net assets and expenses of the sale were approximately $10, including approximately $6 of Goodwill, resulting in a
pre-tax gain of $13 ($4 after-tax), which is included in Other expenses, net in the Consolidated Statements of Income
(Loss) for the year ended December 31, 2017. The sale included the transfer of approximately 80 researchers and
administrative staff who became part of Naver.

Note 6 – Accounts Receivable, Net

Accounts receivable, net were as follows:

Invoiced
Accrued (1)
Allowance for doubtful accounts

Accounts receivable, net

December 31,

2018

2017

999
333
(56)
1,276

1,048
368
(59)
1,357

_____________
(1) Accrued amounts are normally invoiced to customers in the subsequent quarter.

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 receivable 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. The accounts receivable sold are generally short-term trade receivables with payment due dates of less
than 60 days. During 2017, we terminated all accounts receivable sales arrangements in North America and all but
one arrangement in Europe, which resulted in a one-time reduction in our operating cash flows. The remaining accounts
receivable sales facility in Europe enables us to sell receivables associated with our distributor network on an ongoing
basis without recourse. Under this remaining arrangement, we sell our entire interest in the related accounts receivable
for cash and no portion of the payment is held back or deferred by the purchaser.

Of the accounts receivable sold and derecognized from our balance sheet, $131 and $161 remained uncollected as
of December 31, 2018 and 2017, respectively. Accounts receivable sales activity was as follows:

Accounts receivable sales(1)
Deferred proceeds (2)
Loss on sale of accounts receivable

2018

Year Ended December 31,
2017

2016

405
—

1,733
164

2,267
233

_____________
(1) Customers may also enter into structured-payable arrangements that require us to sell our receivables from that customer to a third-party
financial institution, which then makes payments to us to settle the customer's receivable. In these instances, we ensure the sale of the
receivables are bankruptcy-remote and the payment made to us is without recourse. The activity associated with these arrangements is not
reflected in this disclosure, as payments under these arrangements have not been material and these are customer directed arrangements.

(2) For sales arrangements terminated in the fourth quarter 2017, a portion of the sales proceeds was normally held back by the purchaser and

payment was deferred until collection of the related sold receivables.

Xerox 2018 Annual Report 81

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Note 7 – 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,

2018

2017

4,003
(439)
3,564
—
(92)
3,472
105
1,218
2,149

4,354
(494)
3,860
—
(108)
3,752
112
1,317
2,323

Contractual maturities of our gross finance receivables as of December 31, 2018 were as follows (including those
already billed of $107):

2019

2020

2021

2022

2023

Thereafter

Total

1,543

1,108

755

425

158

4,003

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 in the U.S. remained steady and did not change significantly during 2018 and 2017.
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 and within the countries.
Charge-offs in Europe were $18 in 2018 as compared to $11 in 2017.

Xerox 2018 Annual Report 82

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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, 2016(1)
Provision

Charge-offs
Recoveries and other(3)
Balance at December 31, 2017
Provision

Charge-offs
Recoveries and other(3)
Balance at December 31, 2018

Finance Receivables Collectively Evaluated for
Impairment:
December 31, 2017(4)
December 31, 2018(4)
_____________

United States

Canada

Europe

Other(2)

Total

11
(12)
2

12
(17)
2

(5)

(6)

—

2,029

1,932

397

335

4
(11)
5

9
(18)
(1)

1,362

1,239

—

—
2

—

—
2

110

17
(28)
9

108

24
(41)
1

3,860

3,564

(1)

(2)
(3)

In the first quarter 2016, as a result of an internal reorganization, a U.S. leasing unit previously classified as Other was reclassified to the
U.S. Prior year amounts have been reclassified to conform to current year presentation.
Includes developing market countries and smaller units.
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.

(4) Total Finance receivables exclude the allowance for credit losses of $92 and $108 at December 31, 2018 and 2017, respectively.

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 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 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 5%.

• 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 generally in the range of 7% to 10%.

Xerox 2018 Annual Report 83

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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:

Investment
Grade

December 31, 2018
Non-
investment
Grade

Sub-
standard

December 31, 2017

Total
Finance
Receivables

Investment
Grade

Non-
investment
Grade

Sub-
standard

Total
Finance
Receivables

177

330

594

199

345

619

451

82
85
86
63
944

162

221

132
179

606

1,746

131
81
47
89
740

180

105
136

148

586

21
1,446

86
16

9
41

248

9
15

7
12

—
47

372

522

299
182
142
193
1,932

105

70
335

418

244
327

205

45
1,239

58
3,564

490

84
82
88
68
1,011

36
192

234

106
189

29
610

97
84
48
98
733

25
119

226

150
149

144

21
690

38
1,851

28
1,570

141

14
9

40
285

10
16

13
1

62
6

439

557

322
180
145
206
2,029

123

77
397

482

266
354

209

51
1,362

72
3,860

Finance and other
services
Government and
education
Graphic arts
Industrial
Healthcare
Other

Total United States
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

_____________

(1) Switzerland, Germany, Austria, Belgium and Holland.
(2)
Italy, Greece, Spain and Portugal.
(3) Sweden, Norway, Denmark and Finland.

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.

Xerox 2018 Annual Report 84

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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

15
17
10
5
4
5
56
7
5
2
1

—

Current

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

_____________

3
1
4

—

December 31, 2018

31-90
Days
Past Due

>90 Days
Past Due

Total Billed

Unbilled

Total
Finance
Receivables

>90 Days
and
Accruing

4
4
1
2
2
2
15

2
—
—
1

—

—
19

2
3
1
1
1
1
9
1
—
—
1

—

21
24
12
8
7
8
80
10
5
2
3

—

2
107

573
498
287
174
135
185
1,852
325
413
242
324

200

45
1,224

56
3,457

594
522
299
182
142
193
1,932
335
418
244
327

205

45
1,239

58
3,564

11
24
5
5
5
4

54
22
14
—
6

—

—
102

December 31, 2017

31-90
Days
Past Due

>90 Days
Past Due

Total Billed

Unbilled

Total
Finance
Receivables

>90 Days
and
Accruing

1
10

—

—
2
1

—

—
15

—

—
—
1

—

3
3
6

—

3
115

597

533

309

172

138

197

619

557

322

180

145

206

1,946

2,029

386

476

263
351
203

51
1,344

69
3,745

397

482

266
354
209

51
1,362

72
3,860

21
6

—
6
6

—

—
102

(1) Switzerland, Germany, Austria, Belgium and Holland.
(2)
Italy, Greece, Spain and Portugal.
(3) Sweden, Norway, Denmark and Finland.

Sale of Finance Receivables
In 2013 and 2012, we transferred our entire interest in certain groups of lease finance receivables to third-party entities
for cash proceeds and beneficial interests. The transfers were accounted for as sales with derecognition of the
associated lease receivables. There have been no transfers or sales of finance receivables since 2013. We continued
to service the sold receivables and record servicing fee income over the expected life of the associated receivables.
During 2017, we exercised the various clean-up calls we, as the servicer, held on the sold receivables and, accordingly,
repurchased the remaining balances of the previously derecognized receivables and terminated the programs. The
amounts repurchased were not material. Due to the repurchase, there was no remaining balance of beneficial interests
at December 31, 2017.

Xerox 2018 Annual Report 85

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Note 8 – 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,

2018

2017

699

70
818

777

89
915

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,

2018

2017

1,519

(1,077)
442

1,546
(1,092)
454

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.
Estimated minimum future revenues associated with Equipment on operating leases are as follows:

2019

2020

2021

2022

2023

Thereafter

260

178

111

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted
amounts, for the years ended December 31, 2018, 2017 and 2016 amounted to $120, $119 and $132, respectively.

Note 9 - Land, Buildings, Equipment and Software, Net

Land, buildings and equipment, net were as follows:

Land
Building 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

Land, buildings and equipment, net

Depreciation expense and operating lease rent expense were as follows:

December 31,

2018

2017

12
793
179
1,143
611

45
26
2,809
(2,310)
499

22
909
192
1,214
651
54
30
3,072
(2,443)
629

Depreciation expense

Operating lease rent expense

Year Ended December 31,

2018

2017

2016

148

147

136

161

148

157

We lease buildings and equipment, substantially all of which are accounted for as operating leases. Capital leased
assets were $9 and $35 at December 31, 2018 and 2017, respectively.

Xerox 2018 Annual Report 86

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Future minimum operating lease commitments that have initial or remaining non-cancelable lease terms in excess of
one year at December 31, 2018 were as follows:

2019

2020

2021

2022

2023

Thereafter

114

Internal Use Software

As of December 31, 2018 and 2017, capitalized costs related to internal use software, net of accumulated amortization,
were $154 and $209, respectively. Useful lives of our internal use software generally vary from three to seven years.

Note 10 – 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

Other

Investments in affiliates, at equity

Our equity in net income of our unconsolidated affiliates was as follows:

December 31,

2018

2017

1,360

43
1,403

Fuji Xerox
Other

Total Equity in net income of unconsolidated affiliates

Fuji Xerox

2018

Year Ended December 31,
2017

2016

25
8

102

13
115

1,366

38
1,404

114

13
127

Fuji Xerox is headquartered in Tokyo and operates in Japan, China, Australia, New Zealand, Vietnam and other areas
of the Pacific Rim. Our investment in Fuji Xerox of $1,360 at December 31, 2018, differs from our implied 25% interest
in the underlying net assets, or $1,452, 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. In addition, the Equity in net income of Fuji Xerox for the three years ended December 31,
2018 includes after-tax restructuring and other charges of $95, $10 and $3, respectively.

In 2018, in connection with the audits of Fuji Xerox’s fiscal year-end financial statements as of and for the years ended
March 31, 2016, 2017 and 2018 out-of-period adjustments and misstatements were identified. These adjustments and
misstatements were to the previously reported Net income of Fuji Xerox for the period from 2010 through 2017 and
were incremental to the items that had been identified by the IIC (or Fujifilm's independent investigation committee
completed in June 2017). These incremental adjustments primarily related to Fuji Xerox’s Asia Pacific subsidiaries and
involved improper revenue recognition, including revenue associated with leasing transactions, additional provisions
for bad debt allowances and other asset impairments. In certain instances, some of the adjustments related to
inappropriate accounting and reporting practices in the Fuji Xerox Asia Pacific subsidiaries where previous
misstatements were identified.

Fuji Xerox recorded a cumulative charge of JPY 12 billion (approximately $110 based on the Yen/U.S. Dollar average
exchange rate for the quarter ended March 31, 2018 of 108.07) in their net loss for the quarter ended March 31, 2018
(our first quarter 2018) related to the correction of these adjustments and misstatements. Our recognition of 25% of
Fuji Xerox’s net loss for Xerox’s first quarter 2018 included an approximately $28 charge related to these adjustments
and misstatements. We determined that the impact of the out-of-period misstatements was not material to Xerox’s
Consolidated Financial Statements for any individual prior quarter or year and the adjustment to correct the
misstatements was not material to our full year 2018 results.

Xerox 2018 Annual Report 87

Table of Contents

Summarized financial information for Fuji Xerox is as follows:

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

Short-term debt

Other current liabilities

Long-term debt

Other long-term liabilities

Noncontrolling interests
Fuji Xerox shareholders' equity

Total Liabilities and Equity

Year Ended December 31,

2018

2017

2016

9,161

8,880

9,638

9,072

281

160

121
2

119

4,179

4,034

8,213

130

1,827

24
395

30
5,807

566

144

422
5

417

4,315

4,488

8,803

428

2,079

76
369

33
5,818

8,213

8,803

10,149

9,460

689

206

483
8

475

4,313

4,516

8,829

681

2,001

283

587

31
5,246

8,829

Yen/U.S. Dollar exchange rates used to translate are as follows:

Financial Statement
Summary of Operations

Balance Sheet

Exchange Basis
Weighted average rate

Year-end rate

2018

2017

2016

110.28

110.26

112.14

112.87

108.76

116.53

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 Services, maintenance and rentals revenues in the Consolidated Statements of Income (Loss). 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.

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,

2018

2017

2016

96
1,501

43
1

46
103
1,585

58
1

47
110
1,641

80
1

As of December 31, 2018 and 2017, net amounts due to Fuji Xerox were $320 and $331, respectively.

Xerox 2018 Annual Report 88

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Note 11 - Goodwill and Intangible Assets, Net

Goodwill

The following table presents the changes in the carrying amount of goodwill:

Balance at December 31, 2015
Foreign currency translation

Acquisitions:

Imagetek

Other

Balance at December 31, 2016
Foreign currency translation

Acquisitions:

MT Business

Other
Divestiture(1)
Balance at December 31, 2017
Foreign currency translation

Balance at December 31, 2018

Total

3,951
(183)

10
9

3,787

105

(6)
3,930
(63)
3,867

_____________
(1) Relates to the sale of Xerox Research Centre Europe in Grenoble, France to Naver. Refer to Note 5 - Divestitures for additional information

regarding this divestiture.

Intangible Assets, Net

Net intangible assets were $220 at December 31, 2018. Intangible assets were comprised of the following:

December 31, 2018

December 31, 2017

Weighted
Average
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Net
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Amount

10 years

25 years
20 years

14 years

317

123
260

263

93
133

30
127

319

123
261

236

89
120

715

495

220

719

451

34
141

268

Customer relationships

Distribution network
Trademarks

Technology and non-
compete

Total Intangible Assets

Amortization expense related to intangible assets was $48, $53, and $58 for the three years ended December 31,
2018, 2017 and 2016, respectively. Excluding the impact of additional acquisitions, amortization expense is expected
to approximate $48 in 2019, $45 in 2020, and $19 in each of the years 2021, 2022 and 2023.

Xerox 2018 Annual Report 89

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Note 12 – Restructuring and Asset Impairment Charges

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.

A summary of our restructuring program activity for the three years ended December 31, 2018 is as follows:

Severance and
Related Costs

Lease Cancellation
and Other Costs

Asset
Impairments(2)

Total

Balance at December 31, 2015

Restructuring provision
Reversals of prior accruals
Net Current Period Charges(1)

Charges against reserve and currency

Balance at December 31, 2016

Restructuring provision
Reversals of prior accruals
Net Current Period Charges(1)

Charges against reserve and currency

Balance at December 31, 2017

Restructuring provision
Reversals of prior accruals
Net Current Period Charges(1)

Charges against reserve and currency

Balance at December 31, 2018

_____________

18
219
(16)
203
(117)
104
221
(29)
192
(188)
108
176
(33)
143
(157)
94

28
(1)
27
(5)
23
4

(6)

(2)
(20)
1

14
—

14
(14)
1

— $
—

(5)
(5)
5
— $
7
—

(7)
— $
—
—

—
—
— $

19
247
(22)
225
(117)
127
232
(35)
197
(215)
109
190
(33)
157
(171)
95

(1) Represents net amount recognized within the Consolidated Statements of Income (Loss) for the years shown for restructuring and asset

impairment charges.

(2) 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.

The following table summarizes the reconciliation to the Consolidated Statements of Cash Flows:

Charges against reserve and currency

Asset impairments
Effects of foreign currency and other non-cash items

Restructuring Cash Payments

2018

Year Ended December 31,
2017

2016

(171) $
—

1
(170) $

(215) $
7
(12)
(220) $

(117)
—

4
(113)

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Note 13 - Supplementary Financial Information

The components of Other assets and liabilities were as follows:

December 31,

2018

2017

Other Current Assets
Income taxes receivable

Royalties, license fees and software maintenance
Restricted cash
Prepaid expenses

Derivative instruments
Advances and deposits

Other

Total Other Current Assets
Other Current Liabilities
Income taxes payable

Other taxes payable
Interest payable
Restructuring reserves

Derivative instruments
Product warranties

Dividends payable
Distributor and reseller rebates/commissions

Unearned income and other revenue deferrals

Other

Total Other Current Liabilities
Other Long-term Assets
Income taxes receivable
Prepaid pension costs

Derivative instruments

Internal use software, net

Restricted cash
Debt issuance costs, net
Customer contract costs, net
Deferred compensation plan investments
Other

Total Other Long-term Assets

Other Long-term Liabilities
Deferred taxes
Income taxes payable
Environmental reserves
Restructuring reserves
Other

Total Other Long-term Liabilities

Cash, Cash Equivalents and Restricted Cash

Restricted cash amounts were as follows:

Cash and cash equivalents

Restricted cash
Litigation deposits in Brazil

Other restricted cash

Total Restricted Cash
Cash, cash equivalents and restricted cash

20
1

15
28

85
194

77
41
93
1
5

69
158

156

217

850

8
281
—

154

63
4

184

16
149

859

51
18
9

189

269

18
1

43
2

27
102

236

91
43
106

25
6

73
175

170

211

907

10
193
1

209

74
5

10
18
162

682

42
21
9

131

206

December 31,

2018

2017

1,084

61
3

64
1,148

1,293

72
3

75
1,368

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Restricted cash primarily relates to escrow cash deposits made in Brazil associated with tax litigation. As more fully
discussed in Note 19 - Contingencies and Litigation, various litigation matters in Brazil require us to make cash
deposits to escrow as a condition of continuing the litigation. Restricted cash amounts are classified in our
Consolidated Balance Sheets based on when the cash will be contractually or judicially released.

Restricted cash was reported in the Consolidated Balance Sheets as follows:

Other current assets

Other long-term assets

Total Restricted cash

Pension and Other Benefit Liabilities

December 31,

2018

2017

December 31,

2018

2017

Pension liabilities(1)
Accrued compensation liabilities
Deferred compensation liabilities(2)
Pension and other benefit liabilities
__________________________
(1) Refer to Note 17 - Employee Benefit Plans for additional information regarding pension liabilities.
(2) As of December 31, 2018 and 2017, deferred compensation liabilities include amounts that are measured at fair value on a recurring basis of
$16 and $19, respectively and amounts related to executive deferred compensation of $7 and $11, respectively. Refer to Note 16 - Fair Value
of Financial Assets and Liabilities for additional information regarding deferred compensation liabilities.

23
1,482

30
1,595

1,493

1,386

Summarized Cash Flow Information

Summarized cash flow information is as follows:

Provision for receivables

Provision for inventory

Provision for product warranty

Depreciation of buildings and equipment

Depreciation and obsolescence of equipment on operating leases

Amortization of internal use software

Amortization of product software
Amortization of acquired intangible assets
Amortization of customer contract costs(1)
Cost of additions to land, buildings and equipment

Cost of additions to internal use software

Common stock dividends

Preferred stock dividends

Year Ended December 31,

2018

2017

2016

14
148

249

81
—

48
100

35
255

15
136

265

65
4

53
4

36
274

15
148

276

73
4

58
4

45
307

Payments to noncontrolling interests
__________________________
(1) Amortization of customer contract costs for the year ended December 31, 2018 is reported in Decrease (increase) in other current and long-

term assets. Refer to Note 2 - Revenue - Contract Costs for additional information.

Note 14 – Debt

Short-term borrowings were as follows:

Notes Payable

Current maturities of long-term debt

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

December 31,

2018

2017

— $

961

276

282

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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 (Loss).

Long-term debt was as follows:

Stated Rate

Weighted Average
Interest Rates at
December 31, 2018(2)

December 31,

2018

2017

Xerox Corporation
Notes due 2018

Senior Notes due 2018

Senior Notes due 2019

Senior Notes due 2020

Senior Notes due 2021
Senior Notes due 2022
Senior Notes due 2023(3)
Senior Notes due 2024
Senior Notes due 2035

Senior Notes due 2039

Subtotal - Notes

Capital lease obligations

Principal debt balance

Unamortized discount
Debt issuance costs
Fair value adjustments(1)
Terminated swaps
Current swaps

Less: current maturities

Total Long-term Debt

2.75%
5.63%
2.80%
3.50%
2.75%
4.50%
4.07%
3.63%
3.80%
4.80%
6.75%

2.58%
5.48%
2.50%
3.47%
2.67%
5.39%
4.07%
3.64%
3.84%
4.84%
6.78%

4.08% $

— $
—

406

554

313

362

375
1,062
300
1,000
300

250
350

5,272

5,281
(25)
(25)

(3)
(961)
4,269

265

406

554

313

362

375
1,062
300
1,000
300

250
350

5,538

5,573
(35)
(32)

1
(276)
5,235

_____________
(1) Fair value adjustments include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being
amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable
to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value
adjustment.

(2) Represents the weighted average effective interest rate, which includes the effect of discounts and premiums on issued debt.
(3) As a result of the downgrade of our debt rating, the original coupon rate of 3.625% will increase by 0.50% to 4.125% effective March 15, 2019.

Scheduled principal payments due on our long-term debt for the next five years and thereafter are as follows:

2019(1)

2020

2021

2022

2023

Thereafter

Total

961

1,052

1,064

302

1,002

900

5,281

_____________
(1) Quarterly long-term debt maturities from continuing operations for 2019 are $407, $0, $0 and $554 for the first, second, third and fourth quarters,

respectively.

Bridge Facility

Refer to Note 25 - Fuji Xerox Transaction for additional information regarding the bridge loan facility that was terminated
during the second quarter 2018.

Credit Facility

We have a $1.8 billion unsecured revolving Credit Facility with a group of lenders, which matures in August 2022. The
Credit Facility includes a $250 letter of credit sub-facility as well as an accordion feature that allows us to increase
(from time to time, with willing lenders) the overall size of the facility by $750. We also have the right to request a one
year extension on any anniversary of the restated amendment date.

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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. 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. At December 31, 2018 and 2017, we had no outstanding
borrowings or letters of credit under the amended and restated Credit Facility.

Borrowings under the Credit Facility bear interest at our choice, at either (a) a Base Rate as defined in the new Credit
Facility agreement, plus a spread that varies between 0.000% and 0.700% depending on our credit rating at the time
of borrowing, or (b) LIBOR plus an all-in spread that varies between 1.000% and 1.700% depending on our credit
rating at the time of borrowing. Based on our credit rating as of December 31, 2018, the applicable all-in spreads for
the Base Rate and LIBOR borrowing were 0.375% and 1.375%, respectively.

An annual facility fee is payable to each lender in the Credit Facility at a rate that varies between 0.125% and 0.300%
depending on our credit rating. Based on our credit rating as of December 31, 2018 the applicable rate is 0.25%.

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, both

as defined in the amended and restated Credit Facility) of 4.25x.

(b) Minimum interest coverage ratio (a quarterly test that is calculated as consolidated EBITDA divided by consolidated
interest expense, both as defined in the amended and restated Credit Facility) may not be less than 3.00x.
(c) Limitations on (i) liens securing debt, (ii) mergers, consolidations and liquidations, (iii) limitations on debt incurred
by certain subsidiaries, (iv) sale of all or substantially all our assets, (v) payment restrictions affecting subsidiaries,
(vi) non-arm's length transactions with affiliates, (vii) change in nature of business, (viii) actions that may violate
OFAC and anti-corruption laws.

The Credit Facility contains various events of default that are substantially similar to those included in the prior, 2014
$2.0 billion Credit Facility, the occurrence of which could result in termination of the lenders' commitments to lend and
the acceleration of all our obligations under the amended and restated Credit Facility. These events of default include,
without limitation: (i) payment defaults, (ii) breaches of covenants under the amended and restated 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.

On February 15, 2018, the Credit Facility was amended to modify the “change of control” provisions to permit the
consummation of the Fuji Xerox Transaction. Refer to Note 25 - Fuji Xerox Transaction for additional details regarding
the transaction.

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 $1.8 billion. At this time, based on our current debt credit rating, this program is not available for
use.

Interest

Interest paid on our short-term and long-term debt amounted to $231, $268 and $352 for the years ended December 31,
2018, 2017 and 2016, respectively.

Interest paid - continuing operations
Interest paid - discontinued operations

Total interest paid on debt

Year Ended December 31,

2018

2017

2016

231
—
231

268
—
268

332

20
352

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Interest expense and interest income was as follows:

Interest expense(1)
Interest income(2)
_____________

Year Ended December 31,

2018

2017

2016

244
283

252
302

309
330

(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 (Loss).
Includes Finance income, as well as other interest income that is included in Other expenses, net in the Consolidated Statements of Income
(Loss).

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 the interest cost
associated with actual borrowings determined to be in support of the leasing business. The estimated level of debt
continues to be based on an assumed 7 to 1 leverage ratio of debt/equity as compared to our average finance receivable
balance during the applicable period.

Note 15 – Financial Instruments

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 only 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 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.

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 2018, 2017 and 2016, the amortization of these fair
value adjustments reduced interest expense by $3, $13 and $19, respectively. The remaining unamortized balance
associated with terminated swaps was $2 at December 31, 2018.

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Fair Value Hedges

As of December 31, 2018 and 2017, pay variable/received fixed interest rate swaps with notional amounts of $300 and
$300, respectively, and net (liability) asset fair value of $(3) and $1, respectively, were designated and accounted for
as fair value hedges. The swaps were structured to hedge the fair value of related debt by converting them from fixed
rate instruments to variable rate instruments. No ineffective portion was recorded to earnings for the three years ended
December 31, 2018.
The following is a summary of our fair value hedges at December 31, 2018:

Debt Instrument

Senior Note 2021

Year First
Designated

Notional
Amount

Net Fair
Value

Weighted
Average
Interest
Rate Paid

Interest
Rate
Received

Basis

Maturity

2014

300

(3)

3.12%

4.50%

Libor

2021

The downgrade of the Company to non-investment grade is a termination event under one of our interest rate swap
agreements with a notional amount of $100 and net liability fair value of $(1). While the counterparty has not
provided a notice of a termination event, we are discussing potential actions regarding this interest rate swap.

Foreign Exchange Risk Management

We are 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

At December 31, 2018, we had outstanding forward exchange and purchased option contracts with gross notional
values of $1,103, with terms of less than 12 months. Approximately 79% of these contracts at December 31, 2018
mature within three months, 10% in three to six months and 11% in six to twelve months.

The following is a summary of the primary hedging positions and corresponding fair values as of December 31, 2018:

Currencies Hedged (Buy/Sell)

Japanese Yen/U.S. Dollar

Japanese Yen/Euro

U.S. Dollar/Euro

Euro/U.K. Pound Sterling

U.S. Dollar/Canadian Dollar

Euro/U.S. Dollar

U.K. Pound Sterling/Euro

Euro/Danish Krone

U.S. Dollar/Russian Ruble

Euro/Swiss Franc

U.S. Dollar/Japanese Yen

Mexican Peso/U.S. Dollar

All Other

Gross
Notional
Value

399

239

107

101

14
7

62
1,103

Fair Value
Asset(1)

—
2

—

Total Foreign exchange hedging
____________
(1) Represents the net receivable (payable) amount included in the Consolidated Balance Sheet at December 31, 2018.

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 (Loss) 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 asset (liability) fair value of these contracts were
$8 and $(14) as of December 31, 2018 and December 31, 2017, respectively.

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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,

2018

2017

Derivatives Designated as Hedging Instruments
Foreign exchange contracts – forwards

Foreign currency options

Interest rate swaps

Other current assets
Other current liabilities
Other current assets
Other current liabilities
Other long-term assets

Other long-term liabilities

Net Designated Derivative Asset (Liability)

Derivatives NOT Designated as Hedging Instruments
Foreign exchange contracts – forwards

Other current assets
Other current liabilities

Summary of Derivatives

Net Undesignated Derivative Asset
(Liability)

Total Derivative Assets

Total Derivative Liabilities

Net Derivative Asset (Liability)

7
—
1
—
—

(3)
5

(1)

(4)

(15)
—
—
1

—
(13)

(10)

(9)

(25)

(22)

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 Loss
Recognized in Income

Hedged Item Gain Recognized in
Income

2018

2017

2016

2018

2017

2016

Interest rate contracts

Interest expense

(3) $

Derivatives in Cash Flow
Hedging Relationships

Foreign exchange contracts –
forwards/options

Derivative Gain (Loss) Recognized in
OCI (Effective Portion)

2018

2017

2016

Year Ended December 31,

Location of Derivative
Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)

(Loss) Gain Reclassified from AOCI to
Income (Effective Portion)

2018

2017

2016

(28) $

20 Cost of sales

(14) $

(35) $

For the three years ended December 31, 2018 no amount of ineffectiveness was recorded in the Consolidated Statements
of Income (Loss) for these designated cash flow hedges. 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, 2018, a net after-tax gain of $4 was 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 Gains (Losses)

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 remeasurement of the underlying
foreign currency-denominated asset or liability.

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The following table provides a summary of gains (losses) on non-designated derivative instruments:

Derivatives NOT Designated as
Hedging Instruments

Location of Derivative Gain (Loss)

2018

2017

2016

Foreign exchange contracts –
forwards

Other expense – Currency gains
(losses), net

(44) $

172

Year Ended December 31,

For the three years ended December 31, 2018, we recorded Currency losses, net of $5, $4 and $13, respectively.
Net currency gains and losses include the mark-to-market adjustments of the derivatives not designated as hedging
instruments and the related cost of those derivatives, as well as the remeasurement of foreign currency-denominated
assets and liabilities and are included in Other expenses, net.

Note 16 – 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

Foreign currency options

Interest rate swaps

Deferred compensation investments in mutual funds

Total

Liabilities
Foreign exchange contracts - forwards

Interest rate swaps
Deferred compensation plan liabilities

Total

As of December 31,

2018

2017

14
1
—

1
3

2
—
1

25
—

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 mutual funds is based on quoted market prices for those
funds. Fair value for deferred compensation plan liabilities is based on the fair value of investments corresponding to
employees’ investment selections.

Summary of Other Financial Assets and Liabilities

The estimated fair values of our other financial assets and liabilities were as follows:

December 31, 2018

December 31, 2017

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Cash and cash equivalents

Accounts receivable, net

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

Long-term debt

1,084

1,276

961

4,269

1,084

1,276

966

3,922

1,293

1,357

282

5,235

1,293

1,357

283

5,373

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-term debt, including the current portion of long-
term debt, and Long-term debt was estimated based 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.

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Note 17 – 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.

Over the past several years, where legally possible, we have amended our major defined benefit pension plans to
freeze current benefits and eliminate benefits accruals for future service, including our primary U.S. defined benefit
plan for salaried employees, the Canadian Salary Pension Plan and the U.K. Final Salary Pension Plan. The freeze
of current benefits is the primary driver of the reduction in pension service costs since 2012. In certain Non-U.S. plans,
we are required to continue to consider salary increases and inflation in determining the benefit obligation related to
prior service. The Netherlands defined benefit pension plan has also been amended to reflect the Company's ability
to reduce the indexation of future pension benefits within the plan in scenarios when the returns on plan assets are
insufficient to cover that indexation.

Prior to the freeze of current benefits, 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).
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
below 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.

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Change in Benefit Obligation:
Benefit obligation, January 1

Service cost

Interest cost

Plan participants' contributions
Actuarial (gain) loss

Currency exchange rate changes

Plan Amendments/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 contributions

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

Accumulated Benefit Obligation

_____________
(1)

Includes under-funded and unfunded plans.

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

2018

2017

2018

2017

2018

2017

4,180

4,161

6,703

6,160

2
63

—
(288)
—

—
(723)
—
3,234

3,224
(170)
27

—

—
(723)
—
2,358

2
226

—
392

—

—
(606)
5
4,180

2,774

381

675

—

—
(606)
—
3,224

27
149

4
(293)
(339)
41
(281)
(4)
6,007

6,308
(85)
117

4
(329)
(281)
(5)
5,729

29
158

4
(29)
635

(4)
(246)
(4)
6,703

723
4

23
3
(63)
(11)
(234)
(60)
—
385

5,384

— $

453

161

4
557
(246)
(5)
6,308

—

57
3

—
(60)
—

— $

761
5

28
2
(16)
10

—
(66)
(1)
723

—

64
2

—
(66)
—

—

(876) $

(956) $

(278) $

(395) $

(385) $

(723)

— $

(25)
(851)
—
(876) $

— $
(26)
(930)
—
(956) $

281
(24)
(535)
—
(278) $

193
(25)
(563)
—
(395) $

— $
(35)
—
(350)
(385) $

—
(61)
—
(662)
(723)

3,234

4,179

5,847

6,483

Benefit plans pre-tax amounts recognized in AOCL at December 31:

Net actuarial loss (gain)

Prior service (credit) cost

Total Pre-tax loss (gain)

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

2018

2017

2018

2017

2018

2017

933
(5)
928

1,178

(7)
1,171

1,457

19
1,476

1,562
(28)
1,534

(42) $

(240)
(282) $

22
(26)
(4)

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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, 2018

December 31, 2017

Projected
benefit
obligation

Accumulated
benefit
obligation

Fair value of
plan assets

Projected
benefit
obligation

Accumulated
benefit
obligation

Fair value of
plan assets

2,918

725

2,918
713

316
456

3,234
1,181
4,415

316
446

3,234
1,159
4,393

2,358
624

3,830
814

— $
—

350
496

2,358
624
2,982

4,180
1,310
5,490

3,829
799

350
485

4,179
1,284
5,463

3,224
723

—

3,224
723
3,947

Our pension plan assets and benefit obligations at December 31, 2018 were as follows:

U.S. funded

U.S. unfunded

Total U.S.

U.K.

Netherlands

Canada

Germany

Other

Total

Fair Value of
Pension Plan
Assets

Pension Benefit
Obligations

Net Funded Status

2,358

2,918

—

2,358

3,730

968

653

—

378

316

3,234

3,501

1,040

656

355

455

8,087

9,241

(560)
(316)
(876)
229
(72)
(3)
(355)
(77)
(1,154)

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The components of Net periodic benefit cost and other changes in plan assets and benefit obligations were as follows:

Year Ended December 31,

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

2018

2017

2016

2018

2017

2016

2018

2017

2016

2
63
(67)

(2)

173

—
191

228

(50)
—
(195)

—

(243)

2
226
(227)
21
(2)
133

—
153
38

191

238
—
(154)

—

4
184
(190)

27
149
(244)

29
158
(221)

31
195
(249)

(2)

—
87

130

84
—

(92)

—

(6)

(4)

(1)
(16)

33
41

(57)

(4)

(2)
41

(273)
(1)

(81)

—

(351)

(3)

1
—
40

76
—

(66)

—

4
23
—

—

(19)

—
—
8

n/a

(63)
(234)

—

5
28
—

(4)

—
—
30

n/a

(16)
—

(1)

—

6
32
—

(5)

—
—
35

n/a

(75)
—

(2)

—

(278)

(13)

(72)

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(3)
Net Periodic Benefit Cost

Other changes in plan assets and
benefit obligations recognized in
Other Comprehensive Income
(Loss):
Net actuarial (gain) loss(4)
Prior service cost (credit)

Amortization of net actuarial loss
Amortization of net prior service
credit
Curtailment gain

Total Recognized in Other
Comprehensive Income (Loss)(5)
Total Recognized in Net Periodic
Benefit Cost and Other
Comprehensive Income (Loss)
_____________
(1)

(15) $

277

124

(281) $

(270) $

(37)

Interest cost for Pension Benefits includes interest expense on non-TRA obligations of $258, $257 and $296 and interest (income) expense
directly allocated to TRA participant accounts of $(46), $127 and $83 for the years ended December 31, 2018, 2017 and 2016, respectively.
(2) Expected return on plan assets includes expected investment (loss) income on non-TRA assets of $(357), $321 and $356 and actual investment

(loss) income on TRA assets of $(46), $127 and $83 for the years ended December 31, 2018, 2017 and 2016, respectively.

(3) Prior year amounts have been revised to reflect additional cost for previously excluded plans.
(4) The non-U.S. plans Net actuarial (gain) loss for 2018 reflects an out-of-period adjustment in third quarter 2018 of $(53) to correct an overstated
benefit obligation for our U.K. Final Salary Pension Plan at December 31, 2017. Refer to Note 1 - Basis of Presentation and Summary of
Significant Accounting Policies for additional information regarding this adjustment.

(5) Amounts represent the pre-tax effect included in Other Comprehensive Income (Loss). Refer to Note 23 - Other Comprehensive Income (Loss)

for the related tax effects and the net of tax amounts.

The net actuarial loss and prior service credit for the defined benefit pension plans that will be amortized from
Accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $(63) and $4,
respectively, excluding amounts that may be recognized through settlement losses. The net actuarial gain and prior
service credit for the retiree health benefit plans that will be amortized from Accumulated other comprehensive loss
into net periodic benefit cost over the next fiscal year are $3 and $76, respectively.

Plan Amendments

Pension:

On October 26, 2018, the High Court of Justice in the United Kingdom (the "High Court") ruled that Lloyds Bank PLC
was required to equalize benefits payable to men and women under its U.K. defined benefit pension plans by amending
those plans to increase the pension benefits payable to participants that accrued such benefits during the period from
1990 to 1997. The inequalities arose from statutory differences in the retirement ages and rates of accrual of benefits
for men and women related to Guaranteed Minimum Pension ("GMP") benefits that are included in U.K. defined benefit
pension plans.

Based on the above ruling, we currently estimate the cost of equalization under the minimum cost approach permitted
by the High Court’s ruling to be approximately 1.2% of our U.K. defined benefit plan obligation at December 31, 2018
or approximately GBP 33 million (approximately USD $42). This increase in the benefit obligation was recorded as a

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plan amendment in 2018 and will be amortized as prior service cost over 24 years (approximately USD $2 per year)
through 2019 and future years’ Net periodic benefit costs. Although the recorded impact reflects our best estimate,
there are several significant uncertainties in our estimate and therefore it is subject to future change and adjustment.
In particular, the cost is very sensitive to i) the method of GMP equalization; ii) actuarial assumptions and market
conditions; iii) the benefit structure of our plan and operational practices; and iv) the demographic profile of our plan.
In addition, we are continuing to evaluate the acceptable methodologies that the High Court has determined, and we
still need to discuss and agree upon the appropriate methodology to use with our plan trustees.

Retiree Health Plans:

In December 2018, we amended our Canadian Retiree Health Plan to eliminate coverage for certain future and existing
retirees. This negative plan amendment resulted in a reduction in the postretirement benefit obligation of $19, which
is expected to be amortized to future net periodic benefit costs as a prior service credit and is expected to reduce 2019
costs by approximately $2. The amendment also resulted in an immaterial curtailment gain and is not expected to have
a material impact on 2019 cash contributions from Xerox.

In October 2018, we amended our U.S. Retiree Health Plan effective January 1, 2019, to reduce certain benefits for
existing non-union retirees through the reduction or elimination of coverage or cost-sharing subsidies for retiree health
care and life insurance costs. This negative plan amendment resulted in a reduction in the postretirement benefit
obligation of $283, which consisted of $216 for the plan amendment and an actuarial gain of $67 related to the required
plan remeasurement upon amendment. The amount for the plan amendment is expected to be amortized to future net
periodic benefit costs as a prior service credit and is expected to reduce 2019 costs by approximately $70 (approximately
$15 for the fourth quarter of 2018). The plan amendment is also expected to reduce 2019 cash contributions from
Xerox by approximately $20.

Plan Assets

Current Allocation

As of the 2018 and 2017 measurement dates, the global pension plan assets were $8,087 and $9,532, respectively.
These assets were invested among several asset classes.

The following tables present the defined benefit plans assets measured at fair value and the basis for that measurement.

Asset Class

Level 1

Level 2

Level 3

Assets
measured
at NAV(1)

Total

Level 1

Level 2

Level 3

Assets
measured
at NAV(1)

Total

U.S. Plans

Non-U.S. Plans

December 31, 2018

Cash and cash equivalents
Equity Securities:

U.S.
International

Fixed Income Securities:

U.S. treasury securities

Debt security issued by
government agency
Corporate bonds

Asset backed securities

Derivatives

Real estate

Private equity/venture
capital

Guaranteed insurance
contracts
Other(2)
Total Fair Value of Plan
Assets
_____________

— $

370

— $

— $ 370

82
97

—

—
—

—

—
—

248

1,363

—
(26)

—

—
—

—

—
—

—

35
52

—

—
—

117
149

248

1,363

—
(26)

353

—

103
359

—

—
—

—

42
111

1,861

736

—
99

—

—
—

—

—
—

210

—

—
112

—

—
—
157

145
582

1,861

736

—
99

367

1,386

1,392

—

211

$ 1,666

— $

481

$ 2,358

837

$ 2,929

308

1,655

$ 5,729

(1) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the

fair value hierarchy.

(2) Other Level 1 includes net non-financial (liabilities) assets of $12 U.S. and $5 Non-U.S., respectively, such as due to/from broker, interest

receivables and accrued expenses.

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Asset Class

Cash and cash
equivalents
Equity Securities:

U.S.

International

Fixed Income Securities:

U.S. treasury
securities

Debt security issued
by government agency
Corporate bonds

Asset backed
securities

Derivatives

Real estate

U.S. Plans

Non-U.S. Plans

December 31, 2017

Level 1

Level 2

Level 3

Assets
measured
at NAV(1)

Total

Level 1

Level 2

Level 3

Assets
measured
at NAV(1)

Total

— $

686

— $

— $ 686

104

134

—

384

127

1,866

—

(20)

—

135

186

384

127

— 1,866

—

(20)

310

441

676

—

1,938

784

—

137

—
127

334

1,244

—

—
176

1,938

784

—

313

—

Private equity/venture
capital
Guaranteed insurance
contracts
Other(2)
Total Fair Value of Plan
Assets
_____________
(1) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the

$ 2,357

$ 1,443

$ 3,656

$ 3,224

$ 6,308

— $

244

100

727

297

965

570

433

662

433

100

—

fair value hierarchy.

(2) Other Level 1 includes net non-financial (liabilities) assets of $33 U.S. and $15 Non-U.S., respectively, such as due to/from broker, interest

receivables and accrued expenses.

The following tables represents a roll-forward of the defined benefit plans assets measured at fair value using significant
unobservable inputs (Level 3 assets):

U.S.

Real Estate

Non-U.S.

Private Equity/
Venture Capital

Guaranteed
Insurance
Contracts

Total

121

Balance at December 31, 2016
Purchases

Transfers out of Level 3
Sales
Realized losses

Unrealized gains (losses)
Currency translation

Balance at December 31, 2017
Purchases

Sales

Realized losses

Unrealized gains (losses)

Currency translation

12
—

(7)
(5)
(9)

9
—

— $

—

(4)

—

Balance at December 31, 2018

— $

Level 3 Valuation Method

1
—

—

(1)

7
9
137

(1)
—

62
(10)
210

6
—

—

—
(16)
17

7
—

—
—

(4)

104
—

—

(2)
—
(15)
13
100

(6)
—

—

(3)

231
1

—

(2)
(1)
(24)
39
244

(7)
—

58
(10)
308

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 (or expected to be reported)
in their audited financial statements. The valuation techniques and inputs for our Level 3 assets have been consistently
applied for all periods presented.

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Investment Strategy

The target asset allocations for our worldwide defined benefit pension plans were:

Equity investments
Fixed income investments
Real estate
Private equity/venture capital
Other

Total Investment Strategy

2018

2017

U.S.
12%
73%
3%
6%
6%
100%

Non-U.S.
13%
46%
6%
24%
11%
100%

U.S.
12%
73%
3%
6%
6%
100%

Non-U.S.
24%
45%
5%
12%
14%
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. 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.

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

The following table summarizes cash contributions to our defined benefit pension plans and retiree health benefit
plans.

U.S. Plans

Non-U.S. Plans

Total

Retiree Health

Year Ended December 31,

2018

Estimated
2019

27
117

144

25
110

135

The 2018 U.S. pension plan contributions did not include any contributions for our domestic tax-qualified defined
benefit plans because none were required to meet the minimum funding requirements. There are no contributions
required in 2019 for our U.S. tax-qualified defined benefit plans to meet the minimum funding requirements.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid
during the following years:

2019

2020

2021

2022

2023
Years 2024-2028

Pension Benefits

U.S.

Non-U.S.

Total

Retiree Health

394

273

260

267

269
1,195

276

281

287

293

301
1,595

670

554

547

560

570
2,790

30
130

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Assumptions

Weighted-average assumptions used to determine benefit obligations at the plan measurement dates:

Discount rate
Rate of compensation increase

Discount rate

2018

Pension Benefits

2017

2016

U.S.

Non-U.S.

U.S.

Non-U.S.

U.S.

Non-U.S.

4.2%
0.2%

2.6%
2.6%

3.6%
0.2%

2.3%
2.6%

4.0%
0.2%

2.5%
2.6%

Retiree Health

2018

2017

2016

4.1%

3.5%

3.9%

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:

Discount rate
Expected return on plan assets
Rate of compensation increase

Discount rate

_____________

Pension Benefits

2019

2018

2017

2016

U.S.

Non-U.S.

U.S.

Non-U.S.

U.S.

Non-U.S.

U.S.

Non-U.S.

4.2%
6.0%
0.2%

2.6%
4.0%
2.6%

3.6%
5.8%
0.2%

2.3%
3.8%
2.6%

4.0%
7.0%
0.2%

2.5%
4.1%
2.6%

4.3%
7.5%
0.2%

3.3%
4.8%
2.7%

Retiree Health

2019

2018

2017

2016

4.1%

3.5%

3.9%

4.1%

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,

2018

2017

6.3%
4.7%
2025

6.8%
4.8%
2026

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 post-retirement savings and investment plans in several countries, including the U.S., the U.K. and Canada.
In many instances, employees who participated in the defined benefit pension plans that have been amended to freeze
future service accruals were transitioned to an enhanced defined contribution plan. In these plans employees are
allowed to 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 $66 in 2018, $67 in 2017 and $74 in
2016. Prior year amounts have been revised to reflect additional cost for previously excluded plans.

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Note 18 - Income and Other Taxes

Income before income taxes and equity income (pre-tax income) from continuing operations was as follows:

Domestic income
Foreign income

Income before Income Taxes and Equity Income

Year Ended December 31,
2017

2018

2016

380

218
598

399

171
570

Provisions for income taxes from continuing operations were as follows:

Federal Income Taxes

Current
Deferred

Foreign Income Taxes

Current

Deferred

State Income Taxes

Current
Deferred

Total Provision

Year Ended December 31,

2018

2017

2016

45
83

31
(5)
257

411

62
(21)

13
9

481

415

153
568

(15)
(4)

71
(13)

15
8

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

2018

Year Ended December 31,
2017

2016

21.0 %
3.4 %
13.3 %
0.5 %
2.4 %
(2.0)%
(2.0)%

4.4 %
2.0 %
43.0 %

35.0 %
1.2 %
70.2 %
1.0 %
2.3 %
(8.0)%
(2.9)%

(15.2)%
0.8 %
84.4 %

35.0 %
2.9 %
1.2 %
(1.4)%
3.0 %
(4.1)%
(4.0)%

(22.6)%
0.9 %
10.9 %

_____________
(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, including discontinued operations, we paid a total of $80, $84 and $130 in income taxes to
federal, foreign and state jurisdictions during the three years ended December 31, 2018, respectively.

Total income tax expense (benefit) was allocated to the following items:

Pre-tax income
Discontinued operations(1)
Common shareholders' equity:

Changes in defined benefit plans

Cash flow hedges

Translation adjustments
Retained Earnings(2)

Total Income Tax Expense (Benefit)

Year Ended December 31,

2018

2017

2016

257
—

481
(12)

131

(9)

36
420

63
5
1

—

538

62
(250)

(8)
2

—
(179)

_____________
(1) Refer to Note 5 - Divestitures for additional information regarding discontinued operations.
(2) Refer to Note 2 - Revenue for additional information regarding our adoption of ASU 2014-09.

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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, 2018,
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.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at January 1
Additions (Reductions) 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
Tax Positions assumed in Conduent Separation

Balance at December 31

_____________
(1) The majority of settlements did not result in the utilization of cash.

2018

2017

2016

125

165

3
(13)
(6)

(3)
—
—
108

10
(46)
(5)

(3)
3
—
125

222

(9)
—
(31)
—

(2)

(2)
(13)
165

Included in the balances at December 31, 2018, 2017 and 2016 are $8, $8 and $5, 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.

Within income tax expense, we recognize interest and penalties accrued on unrecognized tax benefits, as well as
interest received from favorable settlements. We had $2, $5 and $10 accrued for the payment of interest and penalties
associated with unrecognized tax benefits at December 31, 2018, 2017 and 2016, respectively.

In the U.S., we are no longer subject to U.S. federal income tax examinations for years before 2012. With respect to
our major foreign jurisdictions, we are no longer subject to tax examinations by tax authorities for years before 2011.

Tax Cuts and Jobs Act (the "Tax Act")

During 2017, we recorded an estimated non-cash provisional charge of $400 reflecting our provisional estimated impact
associated with the provisions of the Tax Act based on currently available information. Our estimated charge
incorporated assumptions made based on our interpretation of the Tax Act as well as information available at that time
and was subject to change, possibly materially, as we completed our analysis and received additional clarification and
implementation guidance. During 2018, we adjusted our provisional estimate by an additional charge of $89 reflecting
certain positions taken on our filed 2017 income tax return as well as consideration of additional guidance from the
U.S. Treasury and Internal Revenue Service (IRS). The adjustments include changes to the determination of the one-
time deemed repatriation tax as well as additional remeasurement of our U.S. deferred tax assets and liabilities to the
lower enacted statutory tax rate. The total charge of $489 reflects our current estimate of the impact of the Tax Act and
may change in the future based on new guidance being issued or changes in our expected filing positions. The $489
charge included the following components:

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Foreign tax effects: The deemed repatriation tax is based on total post-1986 earnings and profits (E&P) that have
previously been deferred from U.S. income taxes. We recorded an estimated charge for our deemed repatriation tax
of $195. We expect to utilize our existing foreign tax credit carryforwards to settle the estimated deemed repatriation
tax. Our estimated charge for the Tax Act also included a charge of $99 for other tax liabilities and adjustments resulting
from our estimate of the actual and anticipated distributions of our net accumulated foreign E&P. As a consequence
of the Tax Act, we now no longer consider our post 1986 E&P indefinitely reinvested. On January 15, 2019, the IRS
finalized regulations that govern the repatriation tax. We are in the process of analyzing the impacts of these regulations
on our financial statements.

Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the new statutory
income tax rate of 25%, inclusive of estimated state taxes. We recorded an estimated amount related to the
remeasurement of our deferred tax balance of approximately $195.

In addition, effective January 1, 2018, we became subject to various provisions of the Tax Act including computations
related to Global Intangible Low Taxed Income ("GILTI"), Foreign Derived Intangible Income ("FDII"), Base Erosion
and Anti-Abuse Tax ("BEAT"), and IRC Section 163(j) interest limitation (Interest Limitation). Accordingly, our 2018
effective tax rate includes the impacts for these items, which was approximately $15 on a full year basis. The estimates
for these additional provisions of the Tax Act were made based on our current interpretation of the Tax Act as well as
currently available information and may change as we receive additional clarification and implementation guidance.

Deferred Income Taxes

We completed our analysis of the impacts of U.S. tax reform in the fourth quarter of 2018. Accordingly, we have
recognized the tax consequences of our estimated deemed repatriated foreign earnings based on post-1986 E&P and
management has no specific plans to indefinitely reinvest these foreign earnings as of the balance sheet date. However,
we have not provided deferred taxes on our undistributed pre-1987 E&P of approximately $1.5 billion 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. Additionally, we have also not provided deferred taxes on the outside
basis differences in our investments in foreign subsidiaries that are unrelated to undistributed earnings. These basis
differences are also indefinitely reinvested. A determination of the unrecognized deferred taxes related to these
components is not practicable.

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The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:

Deferred Tax Assets
Research and development
Post-retirement medical benefits
Net operating losses
Operating reserves, accruals and deferrals
Tax credit carryforwards
Deferred and share-based compensation
Pension
Depreciation
Other

Subtotal
Valuation allowance

Total

Deferred Tax Liabilities
Unearned income and installment sales

Intangibles and goodwill

Unremitted earnings of foreign subsidiaries

Other

Total

Total Deferred Taxes, Net

Reconciliation to the Consolidated Balance Sheets
Deferred tax assets
Deferred tax liabilities(1)
Total Deferred Taxes, Net

December 31,

2018

2017

252

99
389
138
254

32
266

90
46
1,566
(397)
1,169

291

129

59
1

480

689

740
(51)
689

143
183
432
128
646

43
308
106

62
2,051
(435)
1,616

344

134

140

14
632

984

1,026
(42)
984

_____________
(1) Represents the deferred tax liabilities recorded in Other long-term liabilities - refer to Note 13 - Supplementary Financial Information.

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, 2018, 2017 and 2016
was a decrease of $38, an increase of $19 and an increase of $33, 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, 2018, we had tax credit carryforwards of $254 available to offset future income taxes, of which $1
are available to carryforward indefinitely while the remaining $253 will expire 2019 through 2039 if not utilized. We also
had net operating loss carryforwards for income tax purposes of $517 that will expire 2019 through 2039, if not utilized,
and $1.7 billion available to offset future taxable income indefinitely.

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Note 19 – 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, as well as through divestitures and sales of businesses, 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,
2018, we have accrued our estimate of liability incurred under our indemnification arrangements and guarantees.

Brazil Contingencies

Our Brazilian operations have received or been the subject of numerous governmental assessments related to indirect
and other taxes. These tax matters 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.

As of December 31, 2018, the total amounts related to the unreserved portion of the tax contingencies, inclusive of
related interest, amounted to approximately $500 with the decrease from the December 31, 2017 balance of
approximately $585, primarily related to currency and closed cases partially offset by interest. With respect to the
unreserved balance of approximately $500, 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, 2018, we had $58 of escrow cash deposits for the tax matters we are disputing and
additional letters of credit and surety bonds of $104 and $106, respectively, which include associated indexation. There
were no liens on Brazilian assets as of December 31, 2018. Generally, any escrowed amounts would be refundable
and any liens would be removed to the extent the matters are resolved in our favor. We are also involved in certain
disputes with contract and former employees. Exposures related to labor matters are not material to the financial
statements as of December 31, 2018. 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

Pending Litigation Relating to the Fuji Transaction:

1. Deason v. Fujifilm Holdings Corp., et al.; Deason v. Xerox Corp., et al.; In re Xerox Corporation Consolidated

Shareholder Litigation:

In February 2018, five complaints (the "Fuji Transaction Shareholder Lawsuits"), including four putative class actions
(which have been consolidated), were filed by Xerox shareholders in the Supreme Court of the State of New York,
County (the "Court") in connection with the proposed transaction to combine Xerox and Fuji Xerox (the “Fuji Transaction”)
(refer to Note 25 - Fuji Xerox Transaction). All of the complaints name as defendants Xerox, its directors, and FUJIFILM
Holdings Corporation (“Fujifilm”). The complaint in one of the actions also names as a defendant Ursula M. Burns, the
former Chief Executive Officer of Xerox. The plaintiffs allege, among other things, that Xerox's directors breached their

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fiduciary duties in negotiating, approving, and purportedly making false and misleading disclosures about the Fuji
Transaction, and that Fujifilm aided and abetted those breaches. The complaint in one of the actions further alleges
that Xerox and the director defendants engaged in common law fraud by purportedly failing to disclose information
about the joint venture agreements between Xerox and Fujifilm. The Fuji Transaction Shareholder Lawsuits seek
injunctive relief preventing the previously proposed transactions, and/or additional disclosures by Xerox’s directors,
unspecified damages from Xerox’s directors, costs and attorneys’ fees, as well as other relief.

One of the Fuji Transaction Shareholder Lawsuits was brought by Darwin Deason, a Xerox shareholder ("Deason I").
Another complaint was filed by Mr. Deason against Xerox and its directors in the same Court on March 2, 2018 ("Deason
II") alleging that defendants breached their fiduciary duties by refusing Mr. Deason’s request for a waiver of the deadline
for nomination of a new slate of Xerox directors. In Deason II, Mr. Deason sought to enjoin Xerox and its directors from
enforcing Xerox’s advance notice by-laws, thereby allowing Mr. Deason to proceed with the nominations, as well as
costs, fees, and other relief.

On April 27, 2018, the Court issued decisions and orders granting plaintiffs’ preliminary injunction motions, which (i)
enjoined Xerox from “taking any further action to consummate the change of control transaction between Xerox and
Fuji that was announced on January 31, 2018 pending a final determination of the claims asserted in the underlying
action;” (ii) enjoined Xerox from enforcing its advance notice bylaw provision requiring shareholders to nominate
directors for election at the 2018 annual shareholder meeting by December 11, 2017; and (iii) required Xerox to waive
such advance notice bylaw provision to permit the noticing of a slate of director nominees for election at the 2018
annual shareholder meeting, and denying defendants’ motions to dismiss.

On May 1, 2018, Xerox entered into a Director Appointment, Nomination and Settlement Agreement (the “Initial
Settlement Agreement”) with Mr. Deason and Carl C. Icahn and certain of his affiliates who were also Xerox shareholders
(the "Icahn Group"), among others, that would have resolved Deason I, Deason II and the pending proxy contest in
connection with Xerox’s 2018 Annual Meeting of Shareholders. The Initial Settlement Agreement expired by its terms
on May 3, 2018 without becoming effective.

On May 7, 2018, defendants filed with the Supreme Court of the State of New York, Appellate Division, First Judicial
Department, notices of appeal of, and motions to stay pending appeal, the lower Court’s decision and order. Defendants
also moved the appellate court for interim relief ordering that the appeal be heard on an expedited basis. At a hearing
before the appellate court on May 7, 2018, the appellate court ruled that the appeals would be heard on an expedited
basis and granted a partial interim stay allowing Xerox and Fujifilm to take steps to seek regulatory approvals related
to the Fuji Transaction pending a ruling from the appellate court on defendants’ motions to stay pending appeal.

On May 13, 2018, a second Director Appointment, Nomination and Settlement Agreement (the "Final Settlement
Agreement") with respect to Deason I, Deason II and the pending proxy contest in connection with Xerox's 2018 Annual
Meeting of Shareholders that was initiated by the Icahn Group was signed on behalf of Mr. Deason, the Icahn Group
and all defendants except Fujifilm, and a memorandum of understanding regarding settlement of the putative class
case was signed by all defendants except Fujifilm. Pursuant to the settlements, the settling defendants withdrew their
appeal and motion to stay in Deason I and Deason II. The settling defendants also withdrew their motion to stay in
the putative class case. The Court entered a stipulation of discontinuance as to the settling parties in Deason II on
May 14, 2018, and agreed on June 22, 2018 to do the same in Deason I.

On June 14, 2018, Fujifilm filed answers in Deason I and the putative class case, along with cross-claims against the
members of the Xerox Board (as constituted before May 13, 2018) and a third-party complaint against Xerox director
Jonathan Christodoro, seeking contribution for any potential award against Fujifilm for aiding and abetting purported
breaches of fiduciary duties.

On June 19, 2018, the putative class plaintiffs filed a motion for preliminary approval of a stipulation of settlement that
would resolve the claims asserted by the plaintiffs in the putative class case against all defendants, other than Fujifilm.
Carmen Ribbe, the plaintiff in the below derivative action, and Fujifilm filed oppositions to the motion on July 10, 2018.

On June 22, 2018, the Court entered an order denying a joint motion by the putative class plaintiffs and the settling
defendants to dissolve the injunction in the putative class case as against the settling defendants, and entered an
order denying Fujifilm’s motion to dissolve the injunctions in the putative class case and Deason I in their entirety.

On July 16, 2018, the Court held a hearing concerning the putative class plaintiffs’ motion for preliminary approval of
the settlement in the putative class case. The Court indicated that it was not inclined to consider motions for approval
of the settlement prior to considering whether the putative class should be certified.

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On August 2, 2018, the Appellate Division entered orders recognizing the Xerox defendants’ withdrawal of their appeal
in the Deason cases and denying all appellants’ motions to stay pending determination of appeals in the Deason and
putative class cases.

On August 2, 2018, the Appellate Division entered orders (i) at their request, deeming withdrawn the Xerox defendants’
appeal and motion to stay in the Deason cases; (ii) upon their request, deeming withdrawn the Xerox defendants’
motion to stay, pending determination of appeal, the putative class case; and (iii) denying Fujifilm’s motion to stay
pending determination of its appeals in the Deason and putative case cases.

On September 21, 2018, putative class plaintiffs filed a motion for certification of a settlement class and a motion to
transmit notice of the proposed settlement to the proposed class. On October 17, 2018, derivative plaintiff Carmen
Ribbe and Fujifilm filed oppositions to the putative class plaintiffs’ motion to transmit notice to the proposed class. The
class has not yet been certified, and preliminary approval has not been granted.

The Appellate Division heard oral argument on September 25, 2018 on Fujifilm’s appeal of the Court’s decision. On
October 16, 2018, the Appellate Division entered a decision and order reversing the Court’s rulings, ordering that the
claims brought against Fujifilm in the cases by Mr. Deason and the purported class be dismissed, and further ordering
that the preliminary injunction of the proposed Fuji Transaction be dissolved (the “Appellate Decision and Order”).

On November 15, 2018, the putative class plaintiffs filed with the Appellate Division a motion seeking the opportunity
to reargue Fujifilm’s appeal or, in the alternative, for leave to appeal the Appellate Decision and Order to the New York
State Court of Appeals.

On December 6, 2018, pursuant to the Appellate Decision and Order, the Court entered a judgment dismissing the
complaints against Fujifilm in Deason I and the putative class case. The Court further issued orders denying the putative
class plaintiffs’ motion for class certification, without prejudice to renewing the motion after the outcome of any appeals
of the Appellate Decision and Order.

On January 8, 2019, the Court entered an order staying all further proceedings in Deason I and the putative class case
until thirty days after exhaustion of appeals, including any appeals to the New York State Court of Appeals, of the
Appellate Decision and Order. On January 9, 2019, the Court entered an order denying the putative class plaintiffs’
motion to transmit notice to the proposed class, without prejudice to renewal of their motion at a later time.

On October 31, 2018 and January 3, 2019, respectively, Xerox and the Xerox director defendants in the putative class
case filed with the Appellate Division a request and motion seeking an extension, until after any decision regarding
approval of settlement of the putative class action, of the deadline by which to perfect their appeal of the Court’s April
27, 2018 decision and order.

On February 21, 2019, the Appellate Division issued an order denying the putative class plaintiffs’ motion seeking to
reargue Fujifilm’s appeal or, in the alternative, for leave to appeal the Appellate Decision and Order to the New York
State Court of Appeals.

Xerox will vigorously defend these lawsuits to the extent that the proceedings continue as to Xerox. At this time, however,
it is premature to make any conclusion regarding the probability of incurring material losses in these lawsuits. Should
developments cause a change in our determination as to an unfavorable outcome, or result in a final adverse judgment
or settlement, 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.

2. Ribbe v. Jacobson, et al.:

On May 24, 2018, a shareholder derivative complaint was filed with the Court by Carmen Ribbe against all defendants
in the putative class action described above, as well as Centerview Partners, LLC ("Centerview"). Plaintiff made no
pre-complaint demand. The Ribbe complaint contains allegations of breaches of fiduciary duty similar to those in the
Fuji Transaction Shareholder Lawsuits, and further alleges that, among other things, Fujifilm and Centerview aided
and abetted those breaches, and that the directors breached their fiduciary duties and wasted corporate assets by,
among other things, agreeing to releases of claims against them and allowing certain alleged payments in the Initial
Settlement Agreement and the Final Settlement Agreement. It seeks unspecified damages for Xerox, rescission or
reformation of the Final Settlement Agreement, restitution of funds allegedly paid to the directors, injunctive relief
against wrongful practices, costs and attorneys’ fees, as well as other relief.

On August 13, 2018, the Xerox defendants and Fujifilm filed motions to dismiss or stay the complaint.

On or about August 10, 2018, the parties filed a stipulated proposed order of discontinuance without prejudice as to
Centerview in light of a recent agreement between Centerview and Xerox. On August 27, 2018, the Court declined to

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so-order the discontinuance absent Xerox’s providing notice thereof to shareholders, and ordered the parties to confer
regarding notice publication.

On December 6, 2018, the Court granted the Xerox defendants’ motion to dismiss and dismissed the complaint without
prejudice.

3. Fujifilm Holdings Corp. v. Xerox Corporation:

On June 18, 2018, Fujifilm filed a complaint against Xerox in the U.S. District Court for the Southern District of New
York, relating to the Fuji Transaction agreements. The complaint alleges that Xerox: (1) willfully breached the Fuji
Transaction agreements by purporting to terminate them to appease Messrs. Icahn and Deason and using as a pretext
issues with Fujifilm’s untimely submitted financials, and by settling Deason I and Deason II without notice to or consent
by Fujifilm; (2) willfully breached the implied covenant of good faith and fair dealing by failing to support and use best
efforts to conclude the Fuji Transaction, thus depriving Fujifilm of the benefit of its bargain; and (3) effected a change
in Xerox’s recommendation regarding the Fuji Transaction, entitling Fujifilm to terminate the Fuji Transaction agreements
and to receive from Xerox a $183 termination fee. Fujifilm seeks a judgment for damages to be determined at trial in
an amount in excess of $1.0 billion plus punitive damages; a declaration regarding the alleged change in
recommendation such that Fujifilm may terminate the transaction and Xerox must pay the $183 termination fee and
other remedies; costs and attorneys’ fees; and other relief the court may deem appropriate.

At a conference on September 24, 2018, the Court stayed all discovery pending resolution of Xerox’s motion to dismiss.
Xerox filed its motion to dismiss on October 1, 2018. On February 22, 2019, following oral argument, the Court denied
the motion to dismiss.

Xerox believes the lawsuit is meritless and will vigorously defend it. At this time, however, it is premature to make any
conclusion regarding the probability of incurring material losses in this litigation. Should developments cause a change
in our determination as to an unfavorable outcome, or result in a final adverse judgment or settlement, 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.

State of Texas v. Xerox Corporation, Xerox State Healthcare, LLC, and ACS State Healthcare, LLC: On May 9,
2014, the State of Texas, via the Texas Office of Attorney General (the “State”), filed a lawsuit in the 53rd Judicial
District Court of Travis County, Texas. The lawsuit alleged that Xerox Corporation, Xerox State Healthcare, LLC and
ACS State Healthcare (collectively “the Defendants”) violated the Texas Medicaid Fraud Prevention Act in the
administration of ACS State Healthcare’s contract with the Texas Department of Health and Human Services (“HHSC”).
Xerox Corporation provided a guaranty of contractual performance with respect to the ACS State Healthcare contract.
The State alleged that the Defendants made false representations of material facts regarding the processes, procedures,
implementation and results regarding the prior authorization of orthodontic claims. The State sought recovery of actual
damages, two times the amount of any overpayments made as a result of alleged unlawful acts, civil penalties, pre-
and post-judgment interest and all costs and attorneys’ fees. The State referenced the amount in controversy as
exceeding hundreds of millions of dollars. The Defendants filed their Answer in June 2014 denying all allegations. In
August 2017, the State of Texas filed a Second Amended Petition, which made substantially similar allegations and
sought similar remedies as the original lawsuit. On October 23, 2017, Xerox Corporation filed a Motion for Summary
Judgment seeking judgment in Xerox's favor on all claims against it. On July 2, 2018, the Court denied the State of
Texas’ motion for a determination of the adequacy of its pleadings as to Xerox or in the alternative, seeking leave to
amend its petition to bring additional claims against Xerox.

On February 15, 2019, The State filed, without opposition, its Third Amended Petition against Conduent Business
Services, LLC (f/k/a Xerox Business Services, LLC), Conduent State Healthcare, LLC (f/k/a Xerox State Healthcare,
LLC, f/k/a ACS State Healthcare, LLC) and Conduent Incorporated (collectively, the “Conduent Entities”) and Xerox
Corporation to add claims for breach of contract and negligence. On February 18, 2019, Xerox and the Conduent
Entities entered into a Settlement Agreement and Release (“Agreement”) with the State and the HHSC to settle all
claims arising from alleged failures by the defendants or Texas Medicaid & Healthcare Partnership to comply with
obligations under two contracts between Conduent State Healthcare, LLC and the HHSC entered into in 2003 and
2010. Xerox is not required to make any payment under the Agreement. Pursuant to the terms of the Agreement, the
Conduent Entities will pay the State $235.9 payable in installments through no later than July 31, 2021. Also pursuant
to the Agreement, all proceedings in the lawsuit are suspended, as confirmed by an order issued by the Court on
February 19, 2018, and the State and the HHSC will dismiss the lawsuit with prejudice and release all of the defendants
from all of the State’s claims after the settlement amount has been paid in full. No defendant made any admission of
liability or wrongdoing in entering into the Agreement.

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This matter is a “Conduent Liability”, as defined in the Separation and Distribution Agreement dated as of December
31, 2016 between Xerox Corporation and Conduent Incorporated, for which Conduent is required to indemnify Xerox.
Conduent is entitled to direct the defense of this matter.

Oklahoma Firefighters Pension and Retirement System v. Xerox Corporation, Ursula M. Burns, Luca Maestri,
Kathryn A. Mikells, Lynn R. Blodgett, Robert K. Zapfel, David H. Bywater and Mary Scanlon: On October 21,
2016, the Oklahoma Firefighters Pension and Retirement System (“plaintiff”) filed a purported securities class action
complaint against Xerox Corporation, Ursula Burns, Luca Maestri, Kathryn Mikells, Lynn Blodgett and Robert Zapfel
(collectively, “defendants”) in the U.S. District Court for the Southern District of New York on behalf of the plaintiff and
certain purchasers or acquirers of Xerox common stock. The complaint alleged that defendants made false and
misleading statements, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5,
relating to the operations and prospects of Xerox’s Health Enterprise business. Plaintiff sought, among other things,
unspecified monetary damages and attorneys’ fees. Other, similar lawsuits may follow. On December 28, 2016, the
Court entered a stipulated order setting out a schedule for amendment of the complaint and for defendants’ response
to that complaint following the Court’s appointment of lead plaintiff under the Private Securities Litigation Reform Act.
On February 28, 2017, the Court issued an opinion and order appointing the Arkansas Public Employees Retirement
System ("APERS") as lead plaintiff. On May 1, 2017, APERS filed an amended complaint, alleging substantially similar
claims and seeking substantially similar relief, but adding David Bywater and Mary Scanlon as defendants. On June
30, 2017, defendants moved to dismiss the amended complaint, and the motions were fully briefed on October 13,
2017. On March 20, 2018, the Court entered an opinion and order granting the motions, and on March 23, 2018, the
Court entered a judgment of dismissal and closed the case. On April 20, 2018, plaintiffs filed a notice of appeal in the
U.S. Court of Appeals for the Second Circuit, and the appeal was fully briefed as of November 28, 2018. Xerox will
vigorously defend against this matter. At this time, it is premature to make any conclusion regarding the probability of
incurring material losses in this litigation. Should developments cause a change in our determination as to an unfavorable
outcome, or result in a final adverse judgment or settlement, 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

Acquisitions/Divestitures:

We have indemnified, subject to certain deductibles and limits, the purchasers of businesses or divested assets for
the occurrence of specified events under certain of our divestiture agreements. In addition, we customarily agree to
hold the other party harmless against losses arising from a breach of representations and covenants, including 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. Where appropriate, an obligation for such indemnifications is recorded as
a liability at the time of the acquisition or divestiture. Since the obligated amounts of these types of indemnifications
are often not explicitly stated and/or are contingent on the occurrence of future events, the overall maximum amount
of the obligation under such indemnifications cannot be reasonably estimated. Other than obligations recorded as
liabilities at the time of divestiture, we have not historically made significant payments for these indemnifications.
Additionally, under certain of our acquisition agreements, we have provided for additional consideration to be paid to
the sellers if established financial targets are achieved post-closing. We have recognized liabilities for these contingent
obligations based on an estimate of the fair value of these contingencies at the time of acquisition. Contingent obligations
related to indemnifications arising from our divestitures and contingent consideration provided for by our acquisitions
are not expected to be material to our financial position, results of operations or cash flows.

Other Agreements:

We are also party to the following types of agreements pursuant to which we may be obligated to indemnify the other
party with respect to certain matters:
• 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 a 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.
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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,
2018 were $14, $15 and $15, respectively. Total product warranty liabilities as of December 31, 2018 and 2017 were
$6 and $7, respectively.

Guarantees

We have issued or provided approximately $334 of guarantees as of December 31, 2018 in the form of letters of credit
or surety bonds issued to i) support certain insurance programs; ii) support our obligations related to the Brazil tax and
labor contingencies (see "Brazil Contingencies); and iii) support certain contracts, primarily with public sector customers,
which require us to provide a surety bond as a guarantee of our performance of contractual obligations.

In general, we would only be liable for the amount of these guarantees in the event we defaulted in performing 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.

Note 20 - Preferred Stock

Series B Convertible Perpetual Preferred Stock

As of December 31, 2018, we had one class of preferred stock outstanding. We have issued 180,000 shares of Series
B Convertible Perpetual Preferred Stock that have an aggregate liquidation value of $180 and a carrying value of $214.
The Series B Convertible Preferred Stock pays quarterly cash dividends at a rate of 8% per year ($14 per year). Each
share of Preferred Stock is convertible at any time, at the option of the holder, into 37.4532 shares of common stock
for a total of 6,742 thousand shares (reflecting an initial conversion price of approximately $26.70 per share of common
stock), subject to customary anti-dilution adjustments.

Xerox 2018 Annual Report 116

Table of Contents

If the closing price of our common stock exceeds $39.00 or 146.1% of the initial conversion price of $26.70 per share
of common stock for 20 out of 30 consecutive trading days, we have the right to cause any or all of the Series B
Convertible Perpetual Preferred Stock to be converted into shares of common stock at the then applicable conversion
rate. The 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 up 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 21 – Shareholders’ Equity

Preferred Stock

We are authorized to issue approximately 22 million shares of cumulative preferred stock, $1.00 par value per share.
Refer to Note 20 - Preferred Stock for additional information.

Common Stock

We have 437.5 million authorized shares of common stock, $1.00 par value per share. At December 31, 2018, 23
million shares were reserved for issuance under our incentive compensation plans, 12 million shares were reserved
for debt to equity exchanges and 7 million shares were reserved for conversion of the Series B convertible perpetual
preferred stock.

Treasury Stock

We account for the repurchased common stock under the cost method and include such treasury stock as a component
of our common shareholders' 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.

In July 2018, the Board of Directors authorized a $1.0 billion share repurchase program (exclusive of any commissions
and other transaction fees and costs). The program replaced the $245 of authority remaining under the Company's
previously authorized share repurchase program. In January 2019, the Board of Directors authorized an incremental
$1.0 billion share repurchase program (exclusive of any commissions and other transaction fees and costs).

The following provides cumulative information relating to our share repurchase program from its inception in July 2018
through December 31, 2018 (shares in thousands):

Authorized share repurchase program
Share repurchase cost
Share repurchase fees
Number of shares repurchased

$
$
$

1,000
700
—

26,093

Of the $1.0 billion of share repurchase granted in 2018 by our Board of Directors, approximately $300 of that authority
remained available as of December 31, 2018.

The following table reflects the changes in Common and Treasury stock shares (shares in thousands):

Balance at December 31, 2015
Stock based compensation plans, net

Balance at December 31, 2016
Stock based compensation plans, net

Balance at December 31, 2017
Stock based compensation plans, net

Acquisition of Treasury stock

Cancellation of Treasury stock

Balance at December 31, 2018

Common Stock
Shares

Treasury Stock
Shares

253,209
385

253,594
1,019

254,613
1,103

—

(24,026)

231,690

—

26,093

(24,026)
2,067

Xerox 2018 Annual Report 117

Table of Contents

Note 22 – Stock-Based Compensation
(shares in thousands)

We have a long-term incentive plan whereby eligible employees may be granted restricted stock units (RSUs),
performance shares (PSs) and stock options (SOs). We grant stock-based compensation awards in order to continue
to attract and retain qualified employees and to better align employees' interests with those of our shareholders. We
grant RSUs and PSs to officers, selected executives and middle managers, and SOs to officers and selected executives
only. Each of these awards is subject to settlement with newly issued shares of our common stock. At December 31,
2018 and 2017, 14 million and 16 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

Year Ended December 31,

2018

2017

2016

In 2018, the timing of our annual grant of awards was changed from July to April to better align our grant date with the
underlying performance period related to PSs.

Restricted Stock Units: Compensation expense for RSUs is based upon the grant date market price and is recognized
on a straight-line basis over the vesting period, based on management's estimate of the number of shares expected
to vest. The 2018 grant vests as follows: 25% after one year of service, 25% after two years of service and 50% after
three years of service from the date of grant. Prior to the 2018 grant, RSUs vested on a three-year cliff basis from the
date of grant. Shares awarded to employees who are retirement-eligible at the date of grant, become retirement-eligible
during the vesting period, or are terminated not-for-cause (e.g. as part of a restructuring initiative), vest based on
service provided from the date of grant to the date of separation.

Performance Shares: PS awards granted in 2018 were comprised of the following components: a performance-based
component that included metrics for Revenue Growth and Free Cash Flow and a market-based component that included
a Total Shareholder Return (TSR) metric. The metrics are equally weighted; accordingly, each PS grant is two-thirds
performance-based (revenue and free cash flow) and one-third market-based (TSR). The performance metrics are
independent of each other and depending on the achievement of these metrics, a recipient of a PS award is entitled
to receive a number of shares equal to a percentage, ranging from 0% to 200% of the PS award granted. PSs vest on
a three-year cliff basis from the date of grant. Prior to the 2018 grant, PSs were exclusively performance based and
included metrics for Revenue Growth, Earnings per Share and Cash Flow from Operations, typically over a three-year
performance period.

Performance-Based Component: PSs vest contingent upon meeting pre-determined cumulative performance
metrics. The fair value of our PSs is based upon the grant-date market price. Compensation expense is recognized
on a straight-line basis over the vesting period, based on management's estimate of the number of shares expected
to vest. If the cumulative three-year actual results exceed the stated targets, all plan participants have the potential to
earn additional shares of common stock up to a maximum overachievement of 100% of the original grant. If the stated
targets are not met, any recognized compensation cost would be reversed.

As a result of the change in management in the second quarter 2018, the Board did not finalize the performance
measures and corresponding weightings for the 2018 PS grant and therefore the plan remained discretionary through
November 2018. Accordingly, we determined that the criteria needed to establish a grant date had not been met and
therefore the fair value of the 2018 PS grant was revalued based on the period-end stock price for each subsequent
reporting period. In December 2018, the Board approved and modified the performance-based metrics to a one-year
performance period (2018), and a two-year time-based requirement (2019 and 2020). As a result of this action, we
determined that the grant date criteria was met in December 2018, and the fair value of the award was finalized.

Market-Based Component: The TSR metric, included as part of the 2018 PS grant, was based on the percentage
change in the Company’s stock price plus the dividends paid over the three-year measurement period. Payout for this
portion of the PS was to be determined based on Xerox’s percentage change compared to the shareholder returns of
the peer group of companies approved by the compensation committee of the Board (as disclosed in the 2018 annual
proxy statement). Since the TSR portion of the PS award represents a market condition, a Monte Carlo simulation was
used to determine the grant-date fair value. In conjunction with the Board’s approval to modify the performance-based
metrics of the 2018 PS grant, the Board also approved a modification to the market-based metric of the award to a
one-year performance period (2018), and a two-year time-based requirement (2019 and 2020). A summary of the key
valuation input assumptions used in the Monte Carlo simulation relative to PS awards granted were as follows:

Xerox 2018 Annual Report 118

Table of Contents

2018 Award

Term
Risk-free interest rate(1)
Dividend yield(2)
Xerox’s historical volatility(3)
Weighted average fair value(4)
____________
(1) The risk-free interest rate was based on the zero-coupon U.S. Treasury yield curve from the valuation date, with a maturity matched to the

3 years
2.39%
3.24%
29.12%
32.01

TSR performance period.

(2) The dividend yield was calculated as the expected quarterly dividend divided by Xerox’s three-month average stock price as of the valuation

date.

(3) Xerox’s historical volatility is calculated from daily stock returns over a three-year look-back term from the valuation date.
(4) The weighted average of fair values used to record compensation expense as determined by the Monte Carlo simulation.

Our TSR compared to the peer group TSR will determine the payout as follows:

Percentile
80th and above
50th
25th
Below 25th
____________
(1) For performance between the levels described above, the degree of vesting is interpolated on a linear basis.

Payout as a
Percent of Target(1)
200%
100%
35%
0%

Compensation expense is recognized on a straight-line basis over the vesting period based on the fair value determined
by the Monte Carlo simulation and, except in cases of employee forfeiture, cannot be reversed regardless of
performance. There was no impact to compensation expense as a result of the Board’s approval to modify the 2018
TSR metric to a one-year performance period (2018) and a two-year time-based requirement (2019 and 2020).

Stock Options: The Board approved the granting of SOs as part of the 2018 plan design. Except for the conversion
of options relating to our acquisition of Affiliated Computer Systems in 2010, we had not issued any SOs since 2004.
Compensation expense associated with SOs is based upon the grant date fair value determined by utilizing the Black-
Scholes (BS) option-pricing model and is recognized on a straight-line basis over the vesting period, based on
management's estimate of the number of SOs expected to vest. The 2018 SOs have a contractual term of 10 years
from the date of grant and vest as follows: 25% after one year of service, 25% after two years of service, and 50%
after three years of service from the date of grant. Similar to RSUs, SOs awarded to employees who are retirement-
eligible at the date of grant, become retirement-eligible during the vesting period, or are terminated not-for-cause (e.g.
as part of a restructuring action), vest based on service provided from the date of grant to the date of separation.

The weighted average assumptions used in the BS option-pricing model relative to SO awards were as follows:

2018 Award

Expected term(1)
Expected volatility(2)
Expected dividend yield(3)
Risk-free interest rate(4)
Weighted average fair value(5)
____________
(1) Since these SO grants are effectively part of a new program, the expected term was calculated using the "Simplified Method” under the SEC
guidance based on the SOs vesting schedule and contractual term. We did not have sufficient historical exercise data to provide a reasonable
basis to estimate an expected term.

6.13 years
27.25%
3.25%
2.63%
5.71

(2) The expected volatility was calculated based on a combination of Xerox's term-matched historical volatility and implied volatility from traded

options.

(3) The dividend yield was calculated as the expected quarterly dividend divided by Xerox’s three-month average stock price as of the grant date.
(4) The risk-free interest rate was based on the zero-coupon U.S. Treasury yield curve with a maturity matched to the expected term of the SOs.
(5) The weighted average of fair values used to record compensation expense as determined by the BS option-pricing model.

Note: Management’s estimate of the number of shares expected to vest at the time of grant reflects an estimate for
forfeitures based on our historical forfeiture rate to date. Should actual forfeitures differ from management’s estimate,
the activity will be reflected in a subsequent period.

Xerox 2018 Annual Report 119

Table of Contents

Summary of Stock-based Compensation Activity

2018

Weighted
Average Grant
Date Fair Value(2)

2017

Weighted
Average Grant
Date Fair Value

2016

Weighted
Average Grant
Date Fair Value(2)

Restricted Stock Units(1)
Outstanding at January 1
Granted
Vested
Cancelled
Separation of Conduent
Shares granted in equity
conversion

Outstanding at December 31

Performance Shares
Outstanding at January 1
Granted

Vested

Cancelled
Separation of Conduent

Shares granted in equity
conversion

Outstanding at December 31

Stock Options
Outstanding at January 1

Granted
Canceled/expired

Exercised
Separation of Conduent

Outstanding at December 31

Exercisable at December 31

2,856
1,595
(214)
(678)
—

—

3,559

3,117
1,060
(853)
(862)
—

—

2,462

— $

1,414
(392)
—
—
1,022

30.65
27.82
30.39
30.04
—

—

29.51

31.54
27.36

32.59

30.26
—

—

29.83

—

27.88
27.98

—
—

27.84
27.98

1,807
1,436
(117)
(270)
—

—

2,856

5,054
1,349

(1,413)

(1,873)
—

—

3,117

— $

—
—

30.10
31.39
36.99
29.03
—

—

30.65

33.98
32.80

37.44

34.59
—

—

31.54

—

—
—

598
1,793
(79)
(137)
(786)

418

1,807

5,802
1,320

(8)

(1,234)
(1,974)

1,148

5,054

780

—
(98)
(306)
(376)
—
—

44.20
38.28
38.48
40.48
40.28

30.10

46.68
37.40

45.32

47.36
44.36

33.98

27.48

—
27.96

28.12
26.80

—
—

____________
(1)
(2) Exercise price for stock options.

Includes a Restricted Stock Award (RSA) of 351 shares with a corresponding grant date fair value of $28.51.

Unrecognized compensation cost related to non-vested stock-based awards at December 31, 2018 was as follows:

Awards
Restricted Stock Units(1)
Performance Shares
Stock Options

Total

Unrecognized Compensation

Remaining Weighted-Average
Vesting Period (Years)

29
4

1.7

1.8
2.3

December 31, 2018

The aggregate intrinsic value of outstanding RSU and PS awards was as follows:

Awards
Restricted Stock Units(1)
Performance Shares

____________
(1)

Includes a RSA of 351 shares with a corresponding grant date fair value of $28.51.

The intrinsic value and actual tax benefit realized for all vested and exercised stock-based awards was as follows:

Awards

December 31, 2018

December 31, 2017

December 31, 2016

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

6
21

—

— $
—

—

2
4

—

3
40

—

— $
—

—

1
12

—

—
3

— $
—
9

—
1

Xerox 2018 Annual Report 120

Table of Contents

Note 23 – Other Comprehensive Income (Loss)
The historical statement of Comprehensive Loss has not been revised to reflect the Separation and instead reflects
the Separation as a final adjustment to the balances at December 31, 2016. Refer to Note 5 - Divestitures for additional
information regarding the Separation.
Other Comprehensive Income (Loss) is comprised of the following:

Translation Adjustments (Losses) Gains

(251) $

(242) $

484

Pre-tax

Net of Tax

Pre-tax

Net of Tax
483

Pre-tax

Net of Tax

(345) $

(347)

Year Ended December 31,

2018

2017

2016

Unrealized Gains (Losses)

Changes in fair value of cash flow hedges gains
(losses)

Changes in cash flow hedges reclassed to
earnings(1)
Other losses

Net Unrealized Gains (Losses)

Defined Benefit Plans Gains (Losses)

Net actuarial/prior service gains (losses)
Prior service amortization/curtailment(2)
Actuarial loss amortization/settlement(2)
Fuji Xerox changes in defined benefit plans, net(3)
Other gains (losses)(4)

Changes in Defined Benefit Plans Gains

Other Comprehensive Income (Loss)

Less: Other comprehensive income (loss)
attributable to noncontrolling interests

Other Comprehensive Income (Loss) Attributable
to Xerox

(2)
21

273
(26)
252
(25)
66

540

310

—

(2)

198
(20)
190
(25)
66
409

183

—

(28)

(1)

52
(10)
236

29
(138)
169

659

(23)

(1)

64
(7)
158

29
(138)
106

590

(40)

(1)
(23)

(118)
(10)
160
(93)
202
141

(28)

(1)
(15)

(87)
(6)
109
(93)
203
126

(227)

(236)

(3)

310

183

658

589

(224) $

(233)

_____________
(1) Reclassified to Cost of sales - refer to Note 15 - Financial Instruments for additional information regarding our cash flow hedges.
(2) Reclassified to Total Net Periodic Benefit Cost - refer to Note 17 - 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 in AOCL.

Accumulated Other Comprehensive Loss (AOCL)

AOCL is comprised of the following:

Cumulative translation adjustments

Other unrealized gains (losses), net
Benefit plans net actuarial losses and prior service credits(1)
Total Accumulated Other Comprehensive Loss Attributable to Xerox

_____________
(1)

Includes our share of Fuji Xerox.

2018

December 31,
2017

2016

(2,023) $

4
(1,546)

(3,565) $

(1,781) $
(12)
(1,955)
(3,748) $

(2,263)
(13)
(2,061)
(4,337)

Xerox 2018 Annual Report 121

Table of Contents

Note 24 – Earnings (Loss) per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock (shares
in thousands):

Basic Earnings (Loss) per Share:
Net Income from continuing operations attributable to Xerox

Accrued dividends on preferred stock

Adjusted Net income from continuing operations available to common
shareholders

Income (loss) from discontinued operations attributable to Xerox, net of tax

Adjusted Net income (loss) available to common shareholders

Weighted-average common shares outstanding

Basic Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share:
Net Income from continuing operations attributable to Xerox

Accrued dividends on preferred stock
Adjusted Net income from continuing operations available to common
shareholders
Income (loss) from discontinued operations attributable to Xerox, net of tax
Adjusted Net income (loss) available to common shareholders
Weighted-average common shares outstanding

Common shares issuable with respect to:

Stock options

Restricted stock and performance shares

Adjusted Weighted average common shares outstanding

Diluted Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Diluted Earnings (Loss) per Share

Year Ended December 31,

2018

2017

2016

361
(14)

347

—

347

192
(14)

178

181

248,707

254,341

1.40

—

1.40

361
(14)

347

—
347

0.70

0.01

0.71

192
(14)

178

3
181

248,707

254,341

—

2,953

251,660

—

2,229

256,570

1.38

—
1.38

0.70

0.01
0.71

622
(24)

598

(1,093)
(495)
253,391

2.36
(4.31)
(1.95)

622
(24)

598

(1,093)
(495)
253,391

174

2,430

255,995

2.33
(4.26)
(1.93)

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or
shares that if included would have been anti-dilutive (shares in thousands):
Stock options

1,022

202

—

Restricted stock and performance shares

Convertible preferred stock
Total Anti-Dilutive Securities

3,068
6,742
10,832

3,706
6,742
10,448

5,430
6,742
12,374

Dividends per Common Share

1.00

1.24

Xerox 2018 Annual Report 122

Table of Contents

Note 25 – Fuji Xerox Transaction

Pending Litigation Relating to the Fuji Transaction

Refer to Note 19 - Contingencies and Litigation for discussion of the Pending Litigation Relating to the Fuji Xerox
Transaction.

Fuji Xerox Transaction Overview and Termination of Agreement

On January 31, 2018, Xerox entered into (i) a Redemption Agreement with FUJIFILM Holdings Corporation, a Japanese
company (“Fujifilm”), and Fuji Xerox Co., Ltd., a Japanese company, in which Xerox indirectly holds a 25% equity
interest while Fujifilm holds the remaining 75% equity interest (“Fuji Xerox”), and (ii) a Subscription Agreement with
Fujifilm (collectively, the “Transaction Agreements”). Under the terms of the Transaction Agreements, Fuji Xerox would
have become a wholly-owned subsidiary of Xerox, Xerox shareholders would have received a $2.5 billion special cash
dividend and Xerox would have become owned 49.9% by Xerox's shareholders as of the closing date for the transaction
and 50.1% by Fujifilm.
The terms of the Subscription Agreement provided the Company with certain terminations rights, including (a) if the
audited financial statements of FX deviated in any material respect from the unaudited financial statements of FX and
its subsidiaries provided to the Company prior to the date of the Subscription Agreement and (b) if Fujifilm or FX failed
to perform any covenant or agreement set forth in the Subscription Agreement that would cause certain conditions to
the consummation of the transactions contemplated by the Subscription Agreement not to be satisfied, which breach
or failure to perform could not be cured or, if capable of cure, had not been cured by the earlier of 30 days following
written notice thereof from the Company to Fujifilm.
As a result of the failure by Fujifilm to deliver the audited financial statements of FX by April 15, 2018 and the material
deviations reflected in the audited financial statements of FX, when delivered, the Company determined that it was in
the best interest of the Company and its shareholders to terminate the Subscription Agreement in accordance with the
termination rights set forth therein, taking into account other circumstances limiting the ability of the Company, Fujifilm
and FX to consummate a transaction. On May 13, 2018, prior to entry into the Settlement Agreement discussed in
Note 19 - Contingencies and Litigation, the Company delivered written notice of termination of the Subscription
Agreement to Fujifilm. By virtue of the termination of the Subscription Agreement, the Redemption Agreement terminated
automatically. The Company's termination of the Transaction Agreements is the subject of pending litigation.
The Company continues to maintain existing commercial relationships with FX and Fujifilm, including, as part of the
following agreements: (i) the Joint Enterprise Contract, between the Company and Fujifilm, dated March 30, 2001, (ii)
the Technology Agreement, dated April 1, 2006, by and between the Company and FX and (iii) the Master Program
Agreement made and entered into as of September 9, 2013 by and between the Company and FX. On June 25, 2018,
the Company disclosed to Fujifilm that it does not currently plan to renew the Technology Agreement when it expires
in 2021. Xerox’s goals include sourcing products, parts and supplies from the most competitive suppliers to support
the needs of its customers.

Bridge Facility Termination

On January 31, 2018, Xerox entered into a Commitment Letter with Citigroup Global Markets Inc. and Morgan Stanley
Senior Funding, Inc., which provided a commitment for a $2.5 billion unsecured bridge loan facility that would have
been available for Xerox to pay the special one-time cash dividend of $2.5 billion to existing shareholders of Xerox in
connection with the Transaction Agreements, as described above.

Concurrent with the termination of the Transaction Agreements, the commitment to provide the unsecured bridge loan
facility was terminated in the second quarter 2018 and, as a result, the remaining unamortized debt issuance costs of
$16 were written-off.

Xerox 2018 Annual Report 123

Table of Contents

Quarterly Results of Operations (Unaudited)

(in millions, except per-share data)

2018

Revenues

Costs and Expenses

Income before Income Taxes and Equity Income

Income tax expense
Equity in net (loss) income of unconsolidated affiliates(1)

Income from Continuing Operations

(Loss) 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 (Loss) per Share(2):
Continuing operations

Discontinued operations

Total Diluted Earnings per Share

2017

Revenues

Costs and Expenses

(Loss) Income before Income Taxes and Equity Income

Income tax (benefit) expense

Equity in net income of unconsolidated affiliates

Income (Loss) from Continuing Operations

(Loss) income from discontinued operations, net of tax

Net Income (Loss)

Less: Net income - noncontrolling interests

Net Income (Loss) Attributable to Xerox

Basic Earnings (Loss) per Share(2):
Continuing operations

Discontinued operations

Total Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share(2):
Continuing operations

Discontinued operations

Total Diluted Earnings (Loss) per Share

_____________

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Full
Year

2,435

2,510

2,352

2,533

2,301

134

(68)

—

2,377

133

114

—

114

2,160

192

142

—

2,394

139

141

—

141

112

137

0.08

0.42

0.34

0.56

—

0.08

0.42

0.34

0.56

0.08

0.42

0.34

0.56

—

0.08

0.42

0.34

0.56

9,830

9,232

598

257

374

—

374

361

1.40

—

1.40

1.38

—

1.38

2,454

2,567

2,497

2,747

10,265

2,521

9,695

2,470

(16)

(24)

(6)

2,374

193

170

—

170

2,330

167

179

182

226

444

(193)

(187)

166

179

(190) $

0.17

0.64

(0.03)

—

0.14

0.64

0.16

0.63

(0.02)

—

0.14

0.63

0.68

0.01

0.69

0.67

0.01

0.68

(0.78) $

0.02

(0.76) $

(0.78) $

0.02

(0.76) $

570

481

115

204

207

195

0.70

0.01

0.71

0.70

0.01

0.71

(1) First quarter 2018 included an out-of-period charge of approximately $28 million related to our investment in Fuji Xerox. Refer to Note 10 -

Investment in Affiliates, at Equity in the Consolidated Financial Statements for additional information.

(2) 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.

Xerox 2018 Annual Report 124

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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 (2013)” 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, 2018.

The effectiveness of our internal control over financial reporting as of December 31, 2018 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.

Xerox 2018 Annual Report 125

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Item 9B. Other Information

Board of Directors

On February 20, 2019, Gregory Q. Brown and Sara Martinez Tucker informed the Board of Directors that they would
not stand for election as directors at the Company’s 2019 annual meeting of shareholders, currently scheduled to be
held on May 21, 2019. Their respective decisions not to stand for election were not due to any disagreement with
respect to the operations, policies or practices of the Company. The Company thanks them for their many significant
contributions over the years.

The size of the Company’s Board of Directors has been reduced from nine to seven effective the day of the Company’s
2019 annual meeting of shareholders.

Xerox 2018 Annual Report 126

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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 (2019 Proxy Statement) to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, in connection with our Annual Meeting of Stockholders. The Proxy
Statement will be filed within 120 days after the end of our fiscal year ended December 31, 2018.

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 2019
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 2019 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 2019 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

Age

Present Position

Giovanni (John) Visentin

Steven J. Bandrowczak

Michael Feldman

Suzan Morno-Wade

William F. Osbourn, Jr.

Louis J. Pastor

Herve N. Tessler

Stephen P. Hoover

Joseph H. Mancini, Jr.

Vice Chairman and Chief Executive Officer

President and Chief Operations Officer

Executive Vice President, President Americas Operations

Executive Vice President, Chief Human Resources Officer

Executive Vice President, Chief Financial Officer

Executive Vice President, General Counsel

Executive Vice President, President EMEA Operations

Senior Vice President, Chief Technology Officer

Vice President, Chief Accounting Officer

Year Appointed
to Present
Position

Xerox Officer
Since

2018

2017

2018

2017

2018

2017

2013

2018

2013

2018

2017

2018

2010

2017

2010

Of the officers named above, Messrs. Feldman, Hoover, Mancini, Jr., and Tessler have been officers or executives of
Xerox, or its subsidiaries, for at least the past five years.

Mr. Visentin joined Xerox as Vice Chairman and CEO in May 2018. Prior to joining Xerox, Mr. Visentin served as a
senior advisor to the chairman of Exela Technologies from August 2017 to May 2018, an operating partner for Advent
International from September 2017 to May 2018 and a consultant to Icahn Capital in connection with a proxy contest
at Xerox from March 2018 to May 2018. From 2013 to 2017, he served as the executive chairman and chief executive
officer of Novitex Enterprise Solutions and as an advisor with Apollo Global Management. Mr. Visentin was also a
director and chairman of the board of Presidio, Inc. from 2015 to 2017. From 2011 to 2012, he served as executive
vice president and general manager of Hewlett Packard Company’s enterprise services business. From 2007 to 2011,
Mr. Visentin served as general manager of integrated technology services for IBM.

Mr. Bandrowczak joined Xerox in 2018 after 2 years at Alight Solutions, a spin-out of AON, where he was the chief
operating officer and chief information officer, responsible for the application portfolio and technical infrastructure of
the organization. Prior to his experience at Alight Solutions, Mr. Bandrowczak was the president of Telecommunication
Media and Technology at Sutherland Global Services for 6 months. He previously served as the senior vice president
for Global Business Services at Hewlett-Packard Enterprises for 4 years. He has also held senior positions at Avaya,
Nortel, Lenovo, DHL and Avnet.

Xerox 2018 Annual Report 127

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Ms. Morno-Wade joined Xerox in 2016 after 11 years as vice president, compensation, benefits and HR information
systems at Hess Corporation. She has also held senior HR positions at Quantum, Mitsubishi, General Electric and
Quaker Oats.

Mr. Osbourn joined Xerox in 2016 following 13 years at Time Warner Cable Inc. (TWC). After serving in a variety of
roles, including controller and chief accounting officer for eight years, he was co-chief financial officer of TWC. Prior,
he spent two years as executive director for External Financial Reporting and Accounting Policy at Time Warner Inc.
Before Time Warner, he spent 14 years at PricewaterhouseCoopers LLP in roles of increasing responsibility and was
admitted to partnership in 2000.

Mr. Pastor joined Xerox in 2018 after 5 years at Icahn Enterprises L.P., where he was most recently the deputy general
counsel, responsible for, among other things, numerous long-term strategic initiatives, including the acquisitions and
dispositions of various operating companies, and investments in and engagements with various public and private
companies. Prior to Icahn Enterprises, Mr. Pastor was an associate at Simpson, Thacher & Bartlett LLP, where he
advised public companies on mergers and acquisitions, securities offerings, corporate governance and other general
corporate matters.

Item 11. Executive Compensation

The information included under the following captions under “Proposal 1-Election of Directors” in our 2019 definitive
Proxy Statement is incorporated herein by reference: “Compensation Discussion and Analysis”, “Summary
Compensation Table”, “Grants of Plan-Based Awards in 2018”, “Outstanding Equity Awards at 2018 Fiscal Year-End”,
“Option Exercises and Stock Vested in 2018”, “Pension Benefits for the 2018 Fiscal Year”, “Nonqualified Deferred
Compensation for the 2018 Fiscal Year”, “Potential Payments upon Termination or Change in Control”, "CEO Pay
Ratio", “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 2019 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
2019 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 2019
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 2019 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 2019 definitive Proxy
Statement.

Xerox 2018 Annual Report 128

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Part IV

Item 15. Exhibits and Financial Statements Schedules

(a)

(1) Index to Financial Statements filed as part of this report:

Report of Independent Registered Public Accounting Firm;

Consolidated Statements of Income (Loss) for each of the years in the three-year period ended

December 31, 2018;

Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period

ended December 31, 2018;

Consolidated Balance Sheets as of December 31, 2018 and 2017;

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,

2018;

Consolidated Statements of Shareholders' Equity for each of the three years in the period ended

December 31, 2018;

Notes to the Consolidated Financial Statements; 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) Financial Statement Schedule:

Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended

December 31, 2018.

(3) The exhibits filed herewith 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 2019 Proxy Statement or to our directors are preceded by an asterisk (*).

Item 16. Form 10-K Summary

None

Xerox 2018 Annual Report 129

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.

Table of Contents

XEROX CORPORATION
/s/ GIOVANNI VISENTIN
XEROX CORPORATION
Giovanni Visentin
/s/ GIOVANNI VISENTIN
Vice Chairman and
Chief Executive Officer
Giovanni Visentin
Vice Chairman and
February 25, 2019
Chief Executive Officer
February 25, 2019

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 25, 2019

February 25, 2019
Signature
Principal Executive Officer:
/S/ GIOVANNI VISENTIN
Giovanni Visentin

Signature
Principal Executive Officer:
/S/ GIOVANNI VISENTIN
Giovanni Visentin

Principal Financial Officer:
/S/ WILLIAM F. OSBOURN, JR.
William F. Osbourn, Jr.

Principal Accounting Officer:
/S/ JOSEPH H. MANCINI, JR.
Principal Accounting Officer:
/S/ JOSEPH H. MANCINI, JR.

Joseph H. Mancini, Jr.

Directors:
/S/ KEITH COZZA

Directors:
Keith Cozza
/S/ KEITH COZZA
/S/ GREGORY Q. BROWN

Keith Cozza
/S/ GREGORY Q. BROWN

Gregory Q. Brown
/S/ JONATHAN CHRISTODORO

Gregory Q. Brown
Jonathan Christodoro
/S/ JONATHAN CHRISTODORO
/S/ JOSEPH J. ECHEVARRIA

Jonathan Christodoro
/S/ JOSEPH J. ECHEVARRIA

Joseph J. Echevarria
/S/ NICHOLAS GRAZIANO

Joseph J. Echevarria
Nicholas Graziano
/S/ NICHOLAS GRAZIANO
/S/ CHERYL GORDON KRONGARD

Nicholas Graziano
/S/ CHERYL GORDON KRONGARD

Cheryl Gordon Krongard
/S/ A. SCOTT LETIER

A. Scott Letier
/S/ SARA MARTINEZ TUCKER

Sara Martinez Tucker

Title

Vice Chairman, Chief Executive Officer and Director

Executive Vice President and Chief Financial Officer

Vice President and Chief Accounting Officer

Chairman and Director

Director

Sara Martinez Tucker

Xerox 2018 Annual Report 130

Table of Contents

Schedule II
Valuation and Qualifying Accounts
For the three years ended December 31, 2018

(in millions)

2018 Allowance for Losses:

Accounts Receivable

Finance Receivables

2017 Allowance for Losses:

Accounts Receivable

Finance Receivables

2016 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

167

110

174

118

192

(2) $

(17) $

(42)

(59) $

(19) $

(34)

(53) $

(25) $

(36)

(61) $

148

108

167

110

174

_____________
(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.

Xerox 2018 Annual Report 131

Table of Contents

Index of Exhibits

Document and Location

2.3

3(a)

3(b)

4(a)(1)

4(a)(2)

4(a)(3)

4(a)(4)

4(b)(1)

4(b)(2)

4(c)

4(d)

Separation and Distribution Agreement dated as of December 30, 2016 by and between
Registrant and Conduent Incorporated.

Incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated
December 30, 2016. See SEC File Number 001-04471.
Restated Certificate of Incorporation of Registrant filed with the Department of State of New York
on August 20, 2018.
Incorporated by reference to Exhibit 3.1(B) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2018. See SEC File Number 001-04471.
By-Laws of Registrant as amended through May 14, 2018.

Incorporated by reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2018. 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 Amended and Restated Credit Agreement dated as of August 9, 2017 between
Registrant and the Initial Lenders named therein, Citibank, N.A., as Administrative Agent, and
Citigroup Global Markets Inc., J.P. Morgan Chase Bank. N.A., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BNP Paribas Securities Corp., Mizuho Bank, Ltd. and The Bank of Tokyo-
Mitsubishi UFJ, Ltd., as Joint Lead Arrangers and Joint Bookrunners.

Incorporated by reference to Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2017. See SEC File Number 001-04471.

Amendment No. 1 to Credit Agreement, dated as of February 15, 2018, among Xerox
Corporation, certain Lenders signatory thereto, Citibank, N.A., as administrative agent.
Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated
February 20, 2018. See SEC File Number 001-04471.
Form of Indenture dated as of December 4, 2009 between Registrant 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.

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 2019 Proxy Statement or to our directors are preceded by an asterisk (*).

Xerox 2018 Annual Report 132

Table of Contents

*10(a)(1)

*10(a)(2)

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.

*10(a)(3)

Registrant’s Executive Salary Continuance Program effective March 1, 2017.

*10(a)(4)

*10(b)

Incorporated by reference to paragraph 10(a)(3) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2016. See SEC File Number 001-04471.

Officer Severance Program, effective July 18, 2018.
Incorporated by reference to Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2018. See SEC File Number 001-04471.
Letter Agreement dated May 14, 2018 between Registrant and Giovanni (John) Visentin.
Incorporated by reference to Exhibit 10.4 to Registrant's Current Report on Form 8-K for the
dated May 13, 2018. See SEC File Number 001-04471.

10(c)

Letter Agreement dated May 20, 2016 between Registrant and Ursula M. Burns.

*10(d)(1)

*10(d)(2)

*10(d)(3)

Incorporated by reference to Exhibit 10(c) to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2016. 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”).
Incorporated by reference to Exhibit 10(d)(1) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2013. See SEC File Number 001-04471.
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.

*10(d)(4)

Form of DSU Deferral under 2004 ECPNED.

*10(d)(5)
*10(e)(1)

*10(e)(2)

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.

Amendment No.1 dated as of February 21, 2019 to 2004 ECPNED.

Registrant's 2004 Performance Incentive Plan, as amended and restated as of May 24, 2012
("2012 PIP").
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.
Amendment No. 1 dated as of December 11, 2013 to 2012 PIP.

Incorporated by reference to Exhibit 10(e)(23) to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2013. See SEC File Number 001-04471.

*10(e)(7)

Annual Performance Incentive Plan for 2016 (“2016 APIP”).

*10(e)(8)

*10(e)(9)

Incorporated by reference to Exhibit 10(e)(13) to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File number 001-04471.
Performance Elements for 2016 Executive Long-Term Incentive Program

Incorporated by reference to Exhibit 10(e)(20) to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. See SEC File number 001-04471.
Form of Award Agreement under 2016 ELTIP (Performance Shares)
Incorporated by reference to Exhibit 10(e)(21) to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. See SEC File number 001-04471.

*10(e)(10)

Form of Award Agreement under 2016 ELTIP (Restricted Stock Units)

Incorporated by reference to Exhibit 10(e)(22) to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. See SEC File number 001-04471.

Xerox 2018 Annual Report 133

Table of Contents

*10(e)(11)

*10(e)(12)

*10(e)(13)

Form of Award Agreement under 2016 ELTIP (Retention Restricted Stock Units).
Incorporated by reference to Exhibit 10(e)(23) to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. See SEC File number 001-04471.

Form of Award Agreement under 2016 ELTIP (Performance Shares and Restricted Stock Units).
Incorporated by reference to Exhibit 10(e)(24) to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. See SEC File number 001-04471.
Amendment No. 2 dated as of February 24, 2016 to 2012 APIP.
Incorporated by reference to Exhibit 10(e)(25) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 2016. See SEC File Number 001-04471.

*10(e)(14)

Form of Award Agreement under 2016 ELTIP (Performance Shares and Restricted Stock Units -
CEO).

*10(e)(15)

*10(e)(16)

*10(e)(17)

*10(e)(18)

Incorporated by reference to Exhibit 10(e)(26) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 2016. See SEC File Number 001-04471.

Registrant’s 2004 Performance Incentive Plan, as amended and restated effective as of May 20,
2016.
Incorporated by reference to Exhibit 10(e)(27) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 2016. See SEC File Number 001-04471.
Registrant's 2004 Performance Incentive Plan, as amended and restated as of June 30, 2017
("2017 PIP").
Incorporated by reference to Exhibit 10(e)(1) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 2017. See SEC File Number 001-04471.
Performance Elements for 2017 Executive Long-Term Incentive Program.

Incorporated by reference to Exhibit 10(e)(2) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 2017. See SEC File Number 001-04471.
Amendment No. 1 dated February 1, 2018 to 2017 PIP.

Incorporated by reference to Exhibit 10(e)(18) to Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017. See SEC File Number 001-04471.

*10(e)(19)

Amendment to Certain Restricted Stock Unit award agreements under Registrant’s 2004
Performance Incentive Plan, as amended to date.

*10(e)(20)

*10(e)(21)

*10(e)(22)

*10(e)(23)

*10(e)(24)

*10(e)(25)

*10(e)(26)

Incorporated by reference to Exhibit 10(e)(28) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 2016. See SEC File Number 001-04471.
2016 CEO Executive Long-Term Incentive Program Award Agreement (Performance Shares and
Restricted Stock Units).
Incorporated by reference to Exhibit 10(e)(29) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 2016. See SEC File Number 001-04471.
2017 CEO Executive Long-Term Incentive Program Award Agreement (Restricted Stock Units).

Incorporated by reference to Exhibit 10(e)(30) to Registrant's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 2016. See SEC File Number 001-04471.
Annual Performance Incentive Plan for 2017 ("2017 APIP").

Incorporated by reference to Exhibit 10(e)(22) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.
Form of Omnibus Award Agreement under ELTIP (1-year graded Restricted Stock Units).
Incorporated by reference to Exhibit 10(e)(27) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File Number 001-04471.
Form of Omnibus Award Agreement under ELTIP (2-year graded Restricted Stock Units).

Incorporated by reference to Exhibit 10(e)(28) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File Number 001-04471.

Form of Omnibus Award Agreement under ELTIP (3-year graded Restricted Stock Units).
Incorporated by reference to Exhibit 10(e)(29) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File Number 001-04471.

Form of Omnibus Award Agreement under ELTIP (Restricted Stock Units).
Incorporated by reference to Exhibit 10(e)(30) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File Number 001-04471.

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*10(e)(27)

Form of Omnibus Award Agreement under ELTIP (Retention Restricted Stock Units).

*10(e)(28)

*10(e)(29)

Incorporated by reference to Exhibit 10(e)(31) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File Number 001-04471.
Form of Omnibus Award Agreement under ELTIP (Performance Shares).
Incorporated by reference to Exhibit 10(e)(32) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File Number 001-04471.
Form of Omnibus Award Agreement under ELTIP (Performance Shares and Restricted Stock
Units).

Incorporated by reference to Exhibit 10(e)(33) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2016. See SEC File Number 001-04471.

*10(e)(30)
*10(e)(31)

Annual Performance Incentive Plan for 2018 ("2018 APIP").
Performance Elements for 2018 Executive Long-Term Incentive Program ("2018 ELTIP").

*10(e)(32)

Incorporated by reference to Exhibit 10(e)(31) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.
Form of Omnibus Award Agreement under PIP; ELTIP; PSU & RSU (ratable).
Incorporated by reference to Exhibit 10(e)(32) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.

*10(e)(33)

Form of Award Summary Under PIP; ELTIP; PSU & RSU (ratable).

Incorporated by reference to Exhibit 10(e)(33) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.
Form of Omnibus Award Agreement under PIP; ELTIP; RSU (ratable).

Incorporated by reference to Exhibit 10(e)(34) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.
Form of Award Summary Under PIP; ELTIP; RSU (ratable).

Incorporated by reference to Exhibit 10(e)(35) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.
Form of Omnibus Award Agreement under PIP; ELTIP: Stock Options.
Incorporated by reference to Exhibit 10(e)(36) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.

Form of Award Summary under PIP; ELTIP: Stock Options.
Incorporated by reference to Exhibit 10(e)(37) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2017. See SEC File Number 001-04471.
Amendment No. 2 dated May 14, 2018 to 2017 PIP.

Incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2018. See SEC File Number 001-04471.

Form of CEO Restricted Stock Award Agreement.
Incorporated by reference to Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2018. See SEC File Number 001-04471.
Amendment to CEO Option and Performance Share / Restricted Stock Unit Award Agreements.

Incorporated by reference to Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2018. See SEC File Number 001-04471.

Form of Restricted Stock Award Agreement.
Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2018. See SEC File Number 001-04471.

Amendment No. 3 dated January 14, 2019 to 2017 PIP.
Annual Performance Incentive Plan for 2019 (“2019 APIP”).

Performance Elements for 2019 Executive Long-Term Incentive Program (“2019 ELTIP”).
Form of Omnibus Award Agreement under PIP; ELTIP; PSU & RSU (ratable).
Form of Omnibus Award Agreement under PIP; ELTIP; RSU (ratable).
Form of Omnibus Award Agreement under PIP; ELTIP; Stock Options.

*10(e)(34)

*10(e)(35)

*10(e)(36)

*10(e)(37)

*10(e)(38)

*10(e)(39)

*10(e)(40)

*10(e)(41)

*10(e)(42)
*10(e)(43)

*10(e)(44)
*10(e)(45)
*10(e)(46)
*10(e)(47)

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10(f)

Director Appointment, Nomination and Settlement Agreement dated as of May 13, 2018 by and
among Registrant, Darwin Deason, the persons and entities listed on Schedule A thereto, William
Curt Hunter, Jeffrey Jacobson, Robert J. Keegan, Charles Prince, Ann N. Reese, Stephen H.
Rusckowski, Sara Martinez Tucker, Gregory Q. Brown, Joseph J. Echevarria and Cheryl Gordon
Krongard.

Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated May
13, 2018. See SEC File Number 001-04471.

*10(g)(1)

2004 Restatement of Registrant's Unfunded Supplemental Executive Retirement Plan, as
amended and restated December 4, 2007 (“2007 USERP”).

*10(g)(2)

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.

*10(g)(3)

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.

*10(g)(4)

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.

*10(g)(6)

Modification to vesting under Registrant’s 2007 USERP.

Incorporated by reference to paragraph (B) in Registrant's Current Report on Form 8-K dated
March 25, 2016. See SEC File Number 001-04471.

*10(h)

1996 Amendment and Restatement of Registrant's Restricted Stock Plan for Directors, as
amended through February 4, 2002.

*10(i)

*10(j)(1)

*10(j)(2)

*10(k)

10(l)

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.

Letter Agreement dated June 8, 2018 between Registrant and Steven J. Bandrowczak.

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 Executives, 2004 Restatement, as amended
through August 11, 2004.

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.

*10(m)

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.

*10(n)

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.

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*10(o)

*10(p)

10(q)

10(r)

10(s)

10(t)

10(u)

10(v)

10(w)

10(x)

10(y)

10(z)

31(a)

31(b)
32

Letter Agreement dated November 21, 2016 between Registrant and William F. Osbourn, Jr.
Incorporated by reference to Exhibit 10(v) to Registrant's Current Report on Form 8-K dated
December 2, 2016. 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.

2001 Joint Enterprise Contract dated as of March 30, 2001 by and between Registrant and Fuji
Photo Film Co., Ltd.

Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K dated
January 31, 2018. See SEC File Number 001-04471.
Side Letter dated March 30, 2001 by and between Registrant and Fuji Photo Film Co., Ltd.

Incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K dated
January 31, 2018. See SEC File Number 001-04471.
Amendment No. 1 dated January 2, 2002 to 2001 Joint Venture Contract by and between
Registrant and Fuji Photo Film Co., Ltd.
Incorporated by reference to Exhibit 99.3 to Registrant's Current Report on Form 8-K dated
January 31, 2018. See SEC File Number 001-04471.

2006 Technology Agreement dated as of April 1, 2006 by and between Registrant and Fuji Xerox
Co., Ltd.
Incorporated by reference to Exhibit 99.4 to Registrant's Current Report on Form 8-K dated
January 31, 2018. See SEC File Number 001-04471.
Master Program Agreement dated as of September 9, 2013 by and between Registrant and Fuji
Xerox Co., Ltd.
Incorporated by reference to Exhibit 99.5 to Registrant's Current Report on Form 8-K dated
January 31, 2018. See SEC File Number 001-04471.

Transition Services Agreement dated as of December 30, 2016 by and between Registrant and
Conduent Incorporated.
Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated
December 30, 2016. See SEC File Number 001-04471.

Tax Matters Agreement dated as of December 30, 2016 by and between Registrant and
Conduent Incorporated.
Incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K dated
December 30, 2016. See SEC File Number 001-04471.

Employee Matters Agreement dated as of December 30, 2016 by and between Registrant and
Conduent Incorporated.
Incorporated by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K dated
December 30, 2016. See SEC File Number 001-04471.
Intellectual Property Agreement dated as of December 30, 2016 by and between Registrant and
Conduent Incorporated.
Incorporated by reference to Exhibit 10.4 to Registrant's Current Report on Form 8-K dated
December 30, 2016. See SEC File Number 001-04471.
Trademark License Agreement dated as of December 30, 2016 by and between Registrant and
Conduent Incorporated.
Incorporated by reference to Exhibit 10.5 to Registrant's Current Report on Form 8-K dated
December 30, 2016. See SEC File Number 001-04471.

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.

101.CAL

101.DEF

XBRL Taxonomy Extension Calculation Linkbase.

XBRL Taxonomy Extension Definition Linkbase.

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101.INS

101.LAB

101.PRE

101.SCH

XBRL Instance Document.

XBRL Taxonomy Extension Label Linkbase.

XBRL Taxonomy Extension Presentation Linkbase.

XBRL Taxonomy Extension Schema Linkbase.

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Xerox Corporation
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