UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

_______________

(Mark One)



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

For the quarterly period ended: ~~September 30, 2013~~March 31, 2014



o	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		16-0468020
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
P.O. Box 4505, 45 Glover Avenue Norwalk, Connecticut		06856-4505
(Address of principal executive offices)		(Zip Code)

(203) 968-3000

(Registrant’s telephone number, including area code)

_________________________________________________

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý



Class		Outstanding at ~~September 30, 2013~~March 31, 2014
Common Stock, $1 par value		~~1,231,114,281~~1,167,321,219 shares

Xerox ~~2013~~2014 Form 10-Q

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and any exhibits to this Report may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. These factors include but are not limited to: changes in economic conditions, political conditions, trade protection measures, licensing requirements and tax matters in the United States and in the foreign countries in which we do business; changes in foreign currency exchange rates; actions of competitors; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring ~~actions;~~actions and the relocation of our service delivery centers; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term; the risk in the hiring and retention of qualified personnel; the risk that unexpected costs will be incurred; the risk that subcontractors, software vendors and utility and network providers will not perform in a timely, quality manner; our ability to recover capital investments; the risk that ~~multi-year contracts with governmental entities could be terminated prior to the end of the contract term; the risk that~~ our Services business could be adversely affected if we are unsuccessful in managing the ~~ramp-up~~start-up of new contracts; development of new products and services; our ability to protect our intellectual property rights; our ability to expand equipment placements; the risk that individually identifiable information of customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security; service interruptions; interest rates, cost of borrowing and access to credit markets; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; our ability to drive the expanded use of color in printing and copying; the outcome of litigation and regulatory proceedings to which we may be a party; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Quarterly Report on Form 10-Q ~~our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013~~ and our ~~2012~~2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The Company 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.

Xerox ~~2013~~2014 Form 10-Q

XEROX CORPORATION

FORM 10-Q

~~SEPTEMBER 30, 2013~~MARCH 31, 2014

TABLE OF CONTENTS



		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3027
	Capital Resources and Liquidity	4436
	Financial Risk Management	4840
	Non-GAAP Financial Measures	4940
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5142
Item 4.	Controls and Procedures	5142

Part II — Other Information

Item 1.	Legal Proceedings	5243
Item 1A.	Risk Factors	5243
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5243
Item 6.	Exhibits	5344
Signatures		5445
Exhibit Index		5546

For additional information about Xerox Corporation and access to our Annual Reports to Shareholders and SEC filings, free of charge, please visit our website at www.xerox.com/investor. Any information on or linked from the website is not incorporated by reference into this Form 10-Q.

Xerox ~~2013~~2014 Form 10-Q

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
(in millions, except per-share data)	2013			2012		2013			2012		2014		2013
Revenues
Sales	$	1,372		$	1,389	$	4,119		$	4,268	$	1,272	$	1,293
Outsourcing, maintenance and rentals	3,757			3,726		11,383			11,255		3,749		3,792
Financing	133			160		364			451		100		117
Total Revenues	5,262			5,275		15,866			15,974		5,121		5,202
Costs and Expenses
Cost of sales	869			897		2,618			2,739		790		815
Cost of outsourcing, maintenance and rentals	2,698			2,668		8,184			7,983		2,748		2,758
Cost of financing	40			49		125			153		36		43
Research, development and engineering expenses	145			161		448			495		144		154
Selling, administrative and general expenses	1,018			1,032		3,100			3,139		961		1,040
Restructuring and asset impairment charges	35			14		60			63		27		(8		)
Amortization of intangible assets	83			82		249			246		84		83
Other expenses, net	39			58		115			190		40		17
Total Costs and Expenses	4,927			4,961		14,899			15,008		4,830		4,902
Income before Income Taxes and Equity Income	335			314		967			966		291		300
Income tax expense	85			62		203			201		49		50
Equity in net income of unconsolidated affiliates	43			34		126			105		42		47
Income from Continuing Operations	293			286		890			870		284		297
(Loss) income from discontinued operations, net of tax	(2		)	2		(22		)	10
Income from discontinued operations, net of tax											2		3
Net Income	291			288		868			880		286		300
Less: Net income attributable to noncontrolling interests	5			6		15			20		5		4
Net Income Attributable to Xerox	$	286		$	282	$	853		$	860	$	281	$	296

Amounts Attributable to Xerox:
Net income from continuing operations	$	288		$	280	$	875		$	850	$	279	$	293
Net (loss) income from discontinued operations	(2		)	2		(22		)	10
Net income from discontinued operations											2		3
Net Income Attributable to Xerox	$	286		$	282	$	853		$	860	$	281	$	296

Basic Earnings per Share:
Continuing operations	$	0.23		$	0.21	$	0.70		$	0.63	$	0.23	$	0.23
Discontinued operations	—			—		(0.02		)	0.01		—		—
Total Basic Earnings per Share	$	0.23		$	0.21	$	0.68		$	0.64	$	0.23	$	0.23
Diluted Earnings per Share:
Continuing operations	$	0.22		$	0.21	$	0.68		$	0.62	$	0.23	$	0.23
Discontinued operations	—			—		(0.01		)	—		—		—
Total Diluted Earnings per Share	$	0.22		$	0.21	$	0.67		$	0.62	$	0.23	$	0.23

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

Xerox ~~2013~~2014 Form 10-Q

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2013			2012			2013			2012			2014			2013
Net income	$	291		$	288		$	868		$	880		$	286		$	300
Less: Net income attributable to noncontrolling interests	5			6			15			20			5			4
Net Income Attributable to Xerox	286			282			853			860			281			296

Other Comprehensive Income (Loss), Net⁽¹⁾:
Other Comprehensive (Loss) Income, Net⁽¹⁾:
Translation adjustments, net	269			344			(178		)	181			(1		)	(363		)
Unrealized gains (losses), net	14			(2		)	7			(11		)	26			(8		)
Changes in defined benefit plans, net	(38		)	(10		)	121			—			(84		)	103
Other Comprehensive Income (Loss), Net Attributable to Xerox	245			332			(50		)	170
Other Comprehensive Loss, Net Attributable to Xerox													(59		)	(268		)

Comprehensive Income, Net	536			620			818			1,050			227			32
Less: Comprehensive income, net attributable to noncontrolling interests	5			6			15			20			5			4
Comprehensive Income, Net Attributable to Xerox	$	531		$	614		$	803		$	1,030		$	222		$	28

(1) Refer to Note 16 - Other Comprehensive Income for gross components of Other Comprehensive Income, reclassification adjustments out of Accumulated Other Comprehensive Loss and related tax effects.

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

Xerox ~~2013~~2014 Form 10-Q

XEROX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Assets
Cash and cash equivalents	$	948		$	1,246		$	1,567		$	1,764
Accounts receivable, net	2,989			2,866			3,032			2,929
Billed portion of finance receivables, net	138			152			134			113
Finance receivables, net	1,584			1,836			1,501			1,500
Inventories	1,152			1,011			1,044			998
Other current assets	1,259			1,162			1,184			1,207
Total current assets	8,070			8,273			8,462			8,511
Finance receivables due after one year, net	2,957			3,325			2,844			2,917
Equipment on operating leases, net	533			535			541			559
Land, buildings and equipment, net	1,485			1,556			1,438			1,466
Investments in affiliates, at equity	1,329			1,381			1,384			1,285
Intangible assets, net	2,586			2,783			2,436			2,503
Goodwill	9,169			9,062			9,243			9,205
Deferred tax assets, long-term	643			763
Other long-term assets	2,244			2,337			2,520			2,590
Total Assets	$	29,016		$	30,015		$	28,868		$	29,036
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	1,135		$	1,042		$	2,109		$	1,117
Accounts payable	1,589			1,913			1,568			1,626
Accrued compensation and benefits costs	772			741			803			734
Unearned income	483			438			517			496
Other current liabilities	1,667			1,776			1,603			1,713
Total current liabilities	5,646			5,910			6,600			5,686
Long-term debt	6,406			7,447			5,896			6,904
Pension and other benefit liabilities	2,833			2,958			2,310			2,136
Post-retirement medical benefits	847			909			766			785
Other long-term liabilities	755			778			611			757
Total Liabilities	16,487			18,002			16,183			16,268
Series A Convertible Preferred Stock	349			349			349			349
Common stock	1,247			1,239			1,186			1,210
Additional paid-in capital	5,630			5,622			5,040			5,282
Treasury stock, at cost	(162		)	(104		)	(204		)	(252		)
Retained earnings	8,608			7,991			9,039			8,839
Accumulated other comprehensive loss	(3,277		)	(3,227		)	(2,838		)	(2,779		)
Xerox shareholders’ equity	12,046			11,521			12,223			12,300
Noncontrolling interests	134			143			113			119
Total Equity	12,180			11,664			12,336			12,419
Total Liabilities and Equity	$	29,016		$	30,015		$	28,868		$	29,036
Shares of common stock issued	1,247,126			1,238,696			1,186,278			1,210,321
Treasury stock	(16,012		)	(14,924		)	(18,957		)	(22,001		)
Shares of common stock outstanding	1,231,114			1,223,772			1,167,321			1,188,320

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

Xerox ~~2013~~2014 Form 10-Q

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2013			2012			2013			2012			2014			2013
Cash Flows from Operating Activities:
Net income	$	291		$	288		$	868		$	880		$	286		$	300
Adjustments required to reconcile net income to cash flows from operating activities:
Depreciation and amortization	340			339			1,012			965			345			329
Provision for receivables	27			23			86			83			16			26
Provision for inventory	10			9			22			26			10			9
Net (gain) loss on sales of businesses and assets	(25		)	5			(15		)	2
Net gain on sales of businesses and assets													(30		)	—
Undistributed equity in net income of unconsolidated affiliates	(41		)	(32		)	(85		)	(67		)	(42		)	(47		)
Stock-based compensation	19			30			78			92			26			31
Restructuring and asset impairment charges	35			14			60			63			27			(8		)
Payments for restructurings	(34		)	(30		)	(107		)	(113		)	(36		)	(38		)
Contributions to defined benefit pension plans	(64		)	(73		)	(162		)	(310		)	(37		)	(45		)
Increase in accounts receivable and billed portion of finance receivables	(55		)	(413		)	(557		)	(1,021		)	(239		)	(363		)
Collections of deferred proceeds from sales of receivables	140			94			371			350			120			115
Increase in inventories	(41		)	(44		)	(182		)	(128		)	(60		)	(107		)
Increase in equipment on operating leases	(79		)	(65		)	(207		)	(200		)	(57		)	(59		)
Decrease in finance receivables	400			412			519			687			36			96
Collections on beneficial interest from sales of finance receivables	16			—			43			—			21			2
Increase in other current and long-term assets	(38		)	(34		)	(158		)	(196		)	(94		)	(101		)
(Decrease) increase in accounts payable and accrued compensation	(61		)	7			(123		)	(230		)
Increase (decrease) in other current and long-term liabilities	77			36			(34		)	(126		)
Increase (decrease) in accounts payable and accrued compensation													8			(94		)
Decrease in other current and long-term liabilities													(26		)	(66		)
Net change in income tax assets and liabilities	56			32			95			93			29			17
Net change in derivative assets and liabilities	13			7			(28		)	(2		)	(1		)	(47		)
Other operating, net	(25		)	(11		)	(89		)	(41		)	(16		)	(37		)
Net cash provided by operating activities	961			594			1,407			807
Net cash provided by (used in) operating activities													286			(87		)
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment	(84		)	(110		)	(253		)	(283		)	(84		)	(85		)
Proceeds from sales of land, buildings and equipment	41			1			52			8			33			3
Cost of additions to internal use software	(18		)	(30		)	(63		)	(100		)	(19		)	(22		)
Proceeds from sale of businesses	—			—			11			—
Acquisitions, net of cash acquired	(24		)	(156		)	(158		)	(243		)	(54		)	(53		)
Other investing, net	3			6			9			17			4			4
Net cash used in investing activities	(82		)	(289		)	(402		)	(601		)	(120		)	(153		)
Cash Flows from Financing Activities:
Net (payments) proceeds on debt	(610		)	199			(931		)	742
Net proceeds on debt													4			57
Common stock dividends	(77		)	(63		)	(201		)	(177		)	(68		)	(52		)
Preferred stock dividends	(6		)	(6		)	(18		)	(18		)	(6		)	(6		)
Proceeds from issuances of common stock	43			33			96			43			20			22
Excess tax benefits from stock-based compensation	12			10			13			10			3			1
Payments to acquire treasury stock, including fees	(162		)	(361		)	(172		)	(718		)	(275		)	(10		)
Repurchases related to stock-based compensation	(44		)	(40		)	(54		)	(41		)	(1		)	(10		)
Distributions to noncontrolling interests	(27		)	(2		)	(32		)	(63		)	(16		)	(3		)
Other financing													(10		)	—
Net cash used in financing activities	(871		)	(230		)	(1,299		)	(222		)	(349		)	(1		)
Effect of exchange rate changes on cash and cash equivalents	11			(7		)	(4		)	(4		)	(14		)	(12		)
Increase (decrease) in cash and cash equivalents	19			68			(298		)	(20		)
Decrease in cash and cash equivalents													(197		)	(253		)
Cash and cash equivalents at beginning of period	929			814			1,246			902			1,764			1,246
Cash and Cash Equivalents at End of Period	$	948		$	882		$	948		$	882		$	1,567		$	993

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

Xerox ~~2013~~2014 Form 10-Q

XEROX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per-share data and where otherwise noted)

Note 1 – Basis of Presentation

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

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the accounting policies described in our ~~2012 Annual Report to Shareholders, which is incorporated by reference in our 2012~~2013 Annual Report on Form 10-K ~~(2012~~(2013 Annual Report), and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. You should read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements included in our ~~2012~~2013 Annual Report.

In our opinion, all adjustments which are necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented have been made. These adjustments consist of normal recurring items. Interim results of operations are not necessarily indicative of the results of the full year.

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

In the second quarter 2013 we completed the sale of our North American paper business and entered into an agreement to sell our European paper business, which is expected to be completed in the fourth quarter of 2013. Results from these paper-related businesses are reported as discontinued operations and all prior period results have been reclassified to reflect this change. Refer to Note 5 - Divestitures for additional information regarding discontinued operations.

Note 2 – Recent Accounting Pronouncements

~~Presentation of Comprehensive Income:In February 2013,~~Except for the Accounting Standard Updates (ASU's) discussed below, the new ASU's issued by the FASB ~~issued~~ ~~ASU 2013-02, Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires an entity to provide additional information about~~during the ~~amounts reclassified out of Accumulated Other Comprehensive Income by component. This update was effective for us beginning January 1, 2013 and~~last year did not have any significant impact on the ~~additional information required by this ASU is included in Note 16 - Other Comprehensive Income.~~

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

Cumulative Translation Adjustments: In March 2013, the FASB issued ASU 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign ~~Entity.~~Entity. The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. ~~The guidance from this~~This update iswas effective prospectively for our fiscal year beginning January 1, ~~2014. We do~~2014, and did not ~~anticipate that the adoption of this standard will~~have nor is it expected to have a material impact on our financial condition, or results of ~~operations.~~

~~Xerox 2013 Form 10-Q~~

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

Income Taxes: In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward ~~Exists.~~Exists. This update provides ~~that under certain circumstances,~~guidance on the financial statement presentation of unrecognized tax benefits ~~should be presented in the financial statements as a reduction to a deferred tax asset for~~when a net operating loss carryforward, a similar tax loss or a tax credit ~~carryforward.~~carryforward, exists. This update was effective prospectively for our fiscal year beginning January 1, 2014. Upon adoption of this standard, we reclassified approximately $180 of liabilities for unrecognized tax benefits against deferred tax assets.

Service Concession Arrangements:In January 2014, the FASB issued ASU 2014-05, Service Concession Arrangements (Topic 853). This update specifies that an entity should not account for a service concession arrangement within the scope of this update as a lease in accordance with Topic 840, Leases. The update does not provide specific accounting guidance ~~from~~for various aspects of service concession arrangements but rather indicates that an entity should refer to other Topics as applicable to account for various aspects of a service concession arrangement. The update is effective for our fiscal year beginning January 1, 2015. The adoption of this standard is not expected to have a material effect on our financial condition, results of operation or cash flows.

Discontinued Operations:In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The update changes the requirements for reporting discontinued operations in Subtopic 205-20. A discontinued operation may include a component of an entity or a group of components of an entity, or a business. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business or a major equity method investment.

Xerox 2014 Form 10-Q

Additionally, the update requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. This update is effective prospectively for our fiscal year beginning January 1, ~~2014. Retrospective application~~2015 and early adoption is permitted. ~~We are currently assessing the impact, if any, from this update; the principal impact~~The standard primarily involves presentation and disclosure and therefore is not expected to ~~be related to the presentation and annual disclosures~~have a material impact on our financial condition, results of ~~our Unrecognized Tax Benefits.~~operations or cash flows.

Note 3 – Segment Reporting

Our reportable segments are aligned with how we manage the business and view the markets we serve. We report our financial performance based on the following two primary reportable segments – Services and Document Technology. Our Services segment operations involve delivery of a broad range of services, including business process, document and IT outsourcing. Our Document Technology segment includes the sale and support of a broad range of document systems from entry level to high-end.

The Services segment is comprised of three outsourcing service offerings:

Business Process Outsourcing (BPO)

Document Outsourcing (which includes Managed Print Services) (DO)

Information Technology Outsourcing (ITO)

Business process outsourcing services include service arrangements where we manage a customer’s business activity or process. Document outsourcing services include service arrangements that allow customers to streamline, simplify and digitize document-intensive business processes through automation and deployment of software applications and tools and the management of their printing needs. Document outsourcing services also include revenues from our partner print services offerings. Information technology outsourcing services include service arrangements where we manage a customer’s IT-related activities, such as application management and application development, data center operations or testing and quality assurance.

Our Document Technology segment includes the sale of products that share common technology, manufacturing and product platforms. Our products groupings range from:

“Entry,” which includes A4 devices and desktop printers; to

“Mid-range,” which includes A3 devices that generally serve workgroup environments in midsize to large enterprises and includes products that fall into the following market categories: Color 41+ ppm priced at less than $100K and Light Production 91+ ppm priced at less than $100K; to

“High-end,” which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises.

Customers range from small and mid-sized businesses to large enterprises. Customers also include graphic communication enterprises as well as channel partners including distributors and resellers. Segment revenues reflect the sale of document systems and supplies, technical services and product financing.

~~Xerox 2013 Form 10-Q~~

The segment classified as Other includes several units, none of which meet the thresholds for separate segment reporting. This group includes paper sales in our developing market countries, Wide Format Systems, licensing revenues, ~~GIS~~Global Imaging Systems network integration solutions and electronic presentation systems, ~~and~~ non-allocated corporate items including non-financing interest, ~~as well as~~and other items included in Other expenses, net.

As discussed in Note 5 - Divestitures, during the second quarter 2013, we completed the sale of our North American Paper business and entered into an agreement to sell our European Paper business. As a result of these transactions, in the second quarter 2013 we began to report these paper-related operations as Discontinued Operations and reclassified their results from the Other segment to Discontinued Operations. All prior periods have been reclassified to conform to this presentation.

Xerox 2014 Form 10-Q

Operating segment revenues and profitability were as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	Segment Revenue		Segment Profit (Loss)			Segment Revenue		Segment Profit (Loss)			Segment Revenue		Segment Profit(Loss)
2014
Services											$	2,923	$	251
Document Technology											2,045		250
Other											153		(51		)
Total											$	5,121	$	450
2013
Services	$	2,944	$	292		$	8,820	$	866		$	2,920	$	273
Document Technology	2,159		261			6,557		692			2,135		187
Other	159		(55		)	489		(186		)	147		(70		)
Total	$	5,262	$	498		$	15,866	$	1,372		$	5,202	$	390
2012
Services	$	2,847	$	269		$	8,474	$	830
Document Technology	2,259		245			6,967		758
Other	169		(66		)	533		(194		)
Total	$	5,275	$	448		$	15,974	$	1,394


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Reconciliation to Pre-tax Income	2013			2012			2013			2012			2014			2013
Segment Profit	$	498		$	448		$	1,372		$	1,394		$	450		$	390
Reconciling items:
Restructuring and asset impairment charges	(35		)	(14		)	(60		)	(63		)
Restructuring and related costs⁽¹⁾													(30		)	8
Restructuring charges of Fuji Xerox	(3		)	(5		)	(8		)	(15		)	(3		)	(4		)
Amortization of intangible assets	(83		)	(82		)	(249		)	(246		)	(84		)	(83		)
Litigation matters (Q1 2013 only)	—			—			37			—			—			37
Equity in net income of unconsolidated affiliates	(43		)	(34		)	(126		)	(105		)	(42		)	(47		)
Other	1			1			1			1			—			(1		)
Pre-tax Income	$	335		$	314		$	967		$	966		$	291		$	300

__________________________


(1)	First quarter 2014 includes Restructuring and asset impairment charges of $27 and Business transformation costs of $3. Business transformation costs represent incremental costs incurred directly in support of our business transformation and restructuring initiatives.

~~Xerox 2013 Form 10-Q~~

Note 4 – Acquisitions

In ~~April 2013, we acquired Florida-based~~ ~~Zeno Office Solutions, Inc. (Zeno), one of the Southeast's largest and fastest growing providers of print and IT solutions to small and mid-sized businesses, for approximately~~ ~~$59~~ in cash. This acquisition furthers our coverage in Florida, building on our strategy of expanding our network of locally-based companies focused on customers' requirements to improve their performance through efficiencies.

In ~~February 2013~~,January 2014, we acquired ~~Impika~~Invoco Holding GmbH (Invoco), a ~~leader in the design, manufacture and sale of production inkjet printing solutions used for industrial, commercial, security, label and package printing,~~German company, for approximately ~~$53~~$54 (€40 million) in cash. ~~Impika, which is based in Aubagne, France, offers a portfolio~~The acquisition of ~~aqueous (water-based) inkjet presses based on proprietary technology. Through the addition of Impika's aqueous technology~~Invoco expands our European customer care services and provides our global customers immediate access to German-language customer care services and provides Invoco's existing customers access to our ~~offerings, we expect to go to market with the industry's broadest range of digital presses, strengthening our leadership in digital color production printing.~~

~~Zeno and Impika are~~broad business process outsourcing capabilities. Invoco is included in our ~~Document Technology~~Services segment. ~~Additionally, our Document Technology segment acquired~~ ~~one~~ ~~business for approximately~~ ~~$11~~ ~~in cash and our Services segment acquired~~ ~~three~~ ~~businesses for a total of~~ ~~$31~~ ~~in cash during the~~ ~~nine months ended September 30, 2013~~.

The operating results of ~~these acquisitions~~this acquisition are not material to our financial statements and are included within our results from the ~~respective~~ acquisition ~~dates.~~date. The purchase ~~prices were~~price was allocated primarily to intangible assets and goodwill based on third-party valuations and management’s estimates.

Note 5 – Divestitures

~~During the second quarter~~In 2013, in connection with our decision to exit from the Paper distribution business, we completed the sale of our North American ~~(N.A.) Paper business~~ and ~~entered into an agreement to sell our~~ European Paper business. The decision to exit from the Paper distribution business was largely the result of management's objective to focus more on Services and innovative Document Technology. Net proceeds from the sale of the N.A. Paper business were approximately ~~$10~~ ~~and are reported as cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows.~~

businesses. As a result of these transactions, we reported these paper-related operations as Discontinued Operations and reclassified their results from the Other segment to Discontinued ~~Operations. All prior periods have accordingly been reclassified to conform to this presentation. The sale of the European Paper business is expected to be completed~~Operations in ~~the fourth quarter of~~ 2013. The net assets sold or expected to be sold in connection with these transactions are primarily related to working capital (accounts receivables and inventory) utilized in the business. As of September 30, 2013, total net assets held for sale were approximately ~~$47~~ ~~and are included in Other current assets in the Condensed Consolidated Balance Sheets.~~

~~In the second quarter of 2013 we~~We recorded a net pre-tax loss on disposal of $2325 in 2013 for the disposition of ~~our N.A.~~these businesses - $23 in third quarter 2013 and ~~European Paper businesses. The loss is~~$2 in the fourth quarter 2013. In the first quarter 2014, we recorded net income of $2 in Discontinued Operation primarily ~~related~~representing adjustments of amounts previously recorded due to ~~exit and disposal costs associated with these businesses. The disposals are expected to result~~changes in ~~a reduction in headcount of approximately~~ ~~300~~ ~~employees, primarily in Europe.~~estimates.

Xerox 2014 Form 10-Q

The components of Discontinued Operations for the periods presented are as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
2013 2012 2013 2012
Revenues $ 82
$ 149
$ 369
$ 493
(Loss) Income from operations $ (2 ) $ 3
$ 5
$ 15
Loss on disposal —
—
(23 ) —
Net (Loss) Income Before Income Taxes (2 ) 3
(18 ) 15
Income tax expense —
(1 ) (4 ) (5 )
(Loss) Income From Discontinued Operations, Net of Tax $ (2 ) $ 2
$ (22 ) $ 10



	Three Months Ended March 31,
	2014		2013
Revenues	$	—	$	154
Income from operations	$	—	$	5
Gain on disposal	2		—
Net Income Before Income Taxes	2		5
Income tax expense	—		(2		)
Income From Discontinued Operations, Net of Tax	$	2	$	3

* Revenues from discontinued operations for the three months ended September 30, 2013 only reflects revenues from our European Paper business as the sale has not been completed. Revenues from discontinued operations for the nine months ended September 30, 2013 only reflects five months of revenues from our North American Paper business as a result of the completion of the sale on May 31, 2013.

~~Xerox 2013 Form 10-Q~~

Note 6 – Accounts Receivable, Net

Accounts receivable, net were as follows:


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Amounts billed or billable	$	2,705		$	2,639		$	2,772		$	2,651
Unbilled amounts	395			335			364			390
Allowance for doubtful accounts	(111		)	(108		)	(104		)	(112		)
Accounts Receivable, Net	$	2,989		$	2,866		$	3,032		$	2,929

Unbilled amounts include amounts associated with percentage-of-completion accounting and other earned revenues not currently billable due to contractual provisions. Amounts to be invoiced in the subsequent month for current services provided are included in amounts billable, and at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 were approximately $~~1,045~~1,049 and $~~1,049~~1,054, respectively.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. The allowance for uncollectible accounts ~~receivables~~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. We have facilities in the U.S., Canada and several countries in Europe that enable us to sell certain accounts receivable without recourse to third-parties. The accounts ~~receivables~~receivable sold are generally short-term trade receivables with payment due dates of less than 60 days.

All of our arrangements involve the sale of our entire interest in groups of accounts ~~receivables~~receivable for cash. In most instances a portion of the sales proceeds are held back by the purchaser and payment is deferred until collection of the related receivables sold. Such holdbacks are not considered legal securities nor are they certificated. We report collections on such receivables as operating cash flows in the Condensed Consolidated Statements of Cash Flows because such receivables are the result of an operating activity and the associated interest rate risk is de minimis due to its short-term nature. Our risk of loss following the sales of accounts receivable is limited to the outstanding deferred purchase price receivable. These receivables are included in the caption “Other current assets” in the accompanying Condensed Consolidated Balance Sheets and were $~~129~~125 and $~~116~~121 at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively.

Under most of the arrangements, we continue to service the sold accounts receivable. When applicable, a servicing liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability were not material.

Xerox 2014 Form 10-Q

Of the accounts receivable sold and derecognized from our balance sheet, $~~740~~736 and $~~766~~723 remained uncollected as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively. Accounts ~~receivables~~receivable sales were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014		2013
Accounts receivable sales	$	814		$	725		$	2,587		$	2,816		$	822	$	854
Deferred proceeds	125			122			384			525			124		115
Loss on sales of accounts receivable	4			4			13			16			4		4
Estimated decrease to operating cash flows⁽¹⁾	(75		)	(266		)	(42		)	(168		)
Estimated increase to operating cash flows⁽¹⁾													11		16

__________________________


(1)	Represents the difference between current and prior period receivable sales adjusted for the effects of: (i) the deferred proceeds, (ii) collections prior to the end of the quarter and (iii) currency. ~~The three months ended September 30, 2012 includes $215 of cash outflows related to our terminated U.S. revolving facility.~~

~~Xerox 2013 Form 10-Q~~

Note 7 - Finance Receivables, Net

Sale of Finance Receivables

~~2013 Sales:~~

In ~~September~~the third and fourth quarters of 2013 and 2012, we ~~sold~~transferred our entire interest in ~~a group~~certain groups of ~~U.S.~~ lease finance receivables ~~with a net carrying value of~~ ~~$419~~to a third-party ~~financial institution~~entities for cash proceeds ofand beneficial interests. The transfers met the requirements for derecognition according to ASC Topic 860, ~~$384~~Transfers and Servicing and therefore were accounted for as sales with derecognition of the associated lease receivables. There were no finance receivable transfers in the three months ending March 31, 2014 and 2013. We continue to service the sold receivables and record servicing fee income over the expected life of the associated receivables. The following is a ~~beneficial interest from the purchaser~~summary of our prior sales activity:



	Year Ended December 31,
(in millions)	2013		2012
Net carrying value (NCV) sold	$	676	$	682
Allowance included in NCV	17		18
Cash proceeds received	635		630
Beneficial interests received	86		101
Pre-tax gain on sales	40		44
Net fees and expenses	5		5

~~$60~~. The lease contracts, including associated service and supply elements, were initially sold to a wholly-owned consolidated bankruptcy-remote limited purpose subsidiary, which in turn sold the principal and interest portions of such contracts to the third-party financial institution (the “ultimate purchaser”). As of September 30, 2013, the principal value of the finance receivables ~~sold and~~ derecognized from our balance sheet was $~~416~~874 and $1,006 at March 31, 2014 and December 31, 2013, respectively (sale value of approximately ~~$456~~)$952 and $1,098, respectively).

~~A pre-tax gain of~~ ~~$25~~ ~~was recognized on this sale and is net of fees and expenses of approximately~~ $3~~. We will continue to service the sold receivables for which we will receive a 1% servicing fee. We have concluded that the~~ 1% ~~servicing fee (approximately~~ $7 ~~over the expected life of the associated receivables) is adequate compensation and, accordingly, no servicing asset or liability was recorded.~~Summary

The beneficial interest represents our right to receive future cash flows from the sold receivables, which exceed the servicing fee as well as the ultimate purchaser's initial investment and associated return on that investment. The beneficial interest was initially recognized at an estimate of fair value based on the present value of the expected future cash flows. The present value of the expected future cash flows was calculated using management's best estimate of key assumptions including credit losses, prepayment rate and an appropriate risk adjusted discount rate (all unobservable Level 3 inputs) for which we utilized annualized rates of ~~2.1%~~, ~~9.3%~~ ~~and~~ ~~10.0%~~, respectively. These assumptions are supported by both our historical experience and anticipated trends relative to the particular portfolio of receivables sold. However, to assess the sensitivity on the fair value of the beneficial interest, we adjusted the credit loss rate, prepayment rate and discount rate assumptions individually by 10% and 20% while holding the other assumptions constant. Although the effect of multiple assumption changes was not considered in this analysis, a ~~10%~~ or ~~20%~~ ~~adverse variation in any one of these three individual assumptions would each decrease the recorded beneficial interest by approximately~~ $3 ~~or less.~~

~~2012 Sales:~~

~~In 2012, we sold our entire interest in two separate portfolios of U.S. lease finance receivables with a combined net carrying value of~~ ~~$682~~ ~~to a third-party financial institution for cash proceeds of~~ ~~$630~~ ~~and beneficial interests from the purchaser of~~ ~~$101. A pre-tax gain of~~ ~~$44~~ (~~$23~~ ~~in the third quarter 2012) was recognized on these sales and is net of additional fees and expenses of approximately~~ $5~~. As of~~ ~~September 30, 2013, the principal value of the receivables sold and derecognized from our balance sheet was~~ ~~$445~~ ~~(sales value of approximately~~ ~~$485~~).

~~Summary:~~

The lease portfolios transferred and sold were all from our Document Technology segment and the gains on these sales ~~are~~were reported in Financing revenues within ~~our~~the Document Technology segment. The ultimate purchaser has no recourse to our other assets for the failure of customers to pay principal and interest when due beyond our beneficial interests ofwhich were $~~133, of which~~ ~~$58~~130 and ~~$75~~ is$150 at March 31, 2014 and December 31, 2013, respectively, and are included in Other current assets and Other long-term assets ~~respectively,~~ in the accompanying Condensed Consolidated Balance ~~Sheets~~Sheets. Beneficial interests of $108 and $124 at ~~September 30, 2013. The beneficial interests~~March 31, 2014 and December 31, 2013, respectively, are held by a bankruptcy-remote ~~subsidiary~~subsidiaries and therefore are not available to satisfy any of our creditor obligations. We report collections on the beneficial interests as operating cash flows in the ~~Condensed~~ Consolidated Statements of Cash Flows because such beneficial interests are the result of an operating activity and the associated interest rate risk is de minimis considering ~~it has a~~their weighted average ~~life~~lives of less than 2 years. ~~Collections on the beneficial interest were~~ ~~$16~~ ~~and~~ ~~$43~~ ~~for the three and nine months ended September 30, 2013, respectively.~~

Xerox ~~2013~~2014 Form 10-Q

1211

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


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	2013			2012		2013			2012		2014			2013
Net cash received for sales of finance receivables⁽¹⁾	$	384		$	311	$	384		$	311	$	—		$	—
Impact from prior sales of finance receivables⁽²⁾⁽¹⁾	(84		)	—		(258		)	—		(149		)	(91		)
Collections on beneficial interest	16			—		43			—		26			2
Estimated Increase to Operating Cash Flows	$	316		$	311	$	169		$	311
Estimated Decrease to Operating Cash Flows											$	(123	)	$	(89	)

____________________________


(1)	~~Net of beneficial interest, fees and expenses.~~


~~(2)~~	Represents cash that would have been collected if we had not sold finance receivables.

Finance Receivables – Allowance for Credit Losses and Credit Quality

Finance receivables include sales-type leases, direct financing leases and installment loans. 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. Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented.

~~Xerox 2013 Form 10-Q~~

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:	United States			Canada			Europe			Other⁽³⁾			Total			United States			Canada			Europe			Other⁽³⁾			Total
Balance at December 31, 2013																$	45		$	22		$	81		$	6		$	154
Provision																3			2			7			3			15
Charge-offs																(1		)	(4		)	(5		)	(2		)	(12		)
Recoveries and other⁽¹⁾																1			—			—			—			1
Balance at March 31, 2014																$	48		$	20		$	83		$	7		$	158
Finance receivables as of March 31, 2014 collectively evaluated for impairment⁽²⁾																$	1,676		$	402		$	2,242		$	316		$	4,636

Balance at December 31, 2012	$	50		$	31		$	85		$	4		$	170		$	50		$	31		$	85		$	4		$	170
Provision	2			2			9			—			13			2			2			9			—			13
Charge-offs	(2		)	(4		)	(15		)	—			(21		)	(2		)	(4		)	(15		)	—			(21		)
Recoveries and other⁽¹⁾	1			—			(3		)	—			(2		)	1			—			(3		)	—			(2		)
Balance at March 31, 2013	$	51		$	29		$	76		$	4		$	160		$	51		$	29		$	76		$	4		$	160
Provision	6			3			10			2			21
Charge-offs	(2		)	(3		)	(14		)	(1		)	(20		)
Recoveries and other⁽¹⁾	(1		)	—			2			—			1
Balance at June 30, 2013	$	54		$	29		$	74		$	5		$	162
Provision	3			3			12			1			19
Charge-offs	(3		)	(4		)	(12		)	—			(19		)
Recoveries and other⁽¹⁾	1			2			2			(1		)	4
Sale of finance receivables	(12		)	—			—			—			(12		)
Balance at September 30, 2013	$	43		$	30		$	76		$	5		$	154
Finance receivables as of September 30, 2013 collectively evaluated for impairment⁽²⁾	$	1,587		$	696		$	2,279		$	270		$	4,832

Balance at December 31, 2011	$	75		$	33		$	91		$	2		$	201
Provision	2			1			12			—			15
Charge-offs	(4		)	(3		)	(12		)	—			(19		)
Recoveries and other⁽¹⁾	1			2			2			1			6
Balance at March 31, 2012	$	74		$	33		$	93		$	3		$	203
Provision	3			2			11			1			17
Charge-offs	(5		)	(4		)	(15		)	—			(24		)
Recoveries and other⁽¹⁾	1			—			(6		)	(1		)	(6		)
Balance at June 30, 2012	$	73		$	31		$	83		$	3		$	190
Provision	3			3			9			—			15
Charge-offs	(8		)	(5		)	(11		)	—			(24		)
Recoveries and other⁽¹⁾	—			2			3			—			5
Sale of finance receivables	(9		)	—			—			—			(9		)
Balance at September 30, 2012	$	59		$	31		$	84		$	3		$	177
Finance receivables as of September 30, 2012 collectively evaluated for impairment⁽²⁾	$	2,384		$	811		$	2,466		$	168		$	5,829
Finance receivables as of March 31, 2013 collectively evaluated for impairment⁽²⁾																$	1,991		$	756		$	2,304		$	211		$	5,262

__________________


(1)	Includes the impacts of foreign currency translation and adjustments to reserves necessary to reflect events of non-payment such as customer accommodations and contract terminations.


(2)	Total Finance receivables exclude residual values of $1 and $32, and the allowance for credit losses of $~~154~~158 and $~~177~~160 at ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, respectively.


(3)	Includes developing market countries and smaller units.

We evaluate our customers based on the following credit quality indicators:

Investment grade: This rating includes accounts with excellent to good business credit, asset quality and the capacity to meet financial obligations. These customers are less susceptible to adverse effects due to shifts in economic conditions or changes in circumstance. The rating generally equates to a Standard & Poors (S&P) rating of BBB- or better. Loss rates in this category are normally minimal at less than 1%.

~~Xerox 2013 Form 10-Q~~

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 on such leases. Loss rates in this category are generally in the range of 2% to 4%.

Xerox 2014 Form 10-Q

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, ~~and~~ etc. Accounts in this category include customers who were downgraded during the term of the lease from investment and non-investment grade status when the lease was originated. Accordingly, there is a distinct possibility for a loss of principal and interest or customer default. The loss rates in this category are around 10%.

Credit quality indicators are updated at least annually and the credit quality of any given customer can change during the life of the portfolio. Details about our finance receivables portfolio based on industry and credit quality indicators are as follows:


	September 30, 2013								December 31, 2012								March 31, 2014								December 31, 2013
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and other services	$	182	$	75	$	35	$	292	$	252	$	147	$	59	$	458	$	191	$	112	$	46	$	349	$	189	$	102	$	34	$	325
Government and education	666		7		5		678		750		15		4		769		632		8		4		644		656		12		3		671
Graphic arts	118		58		100		276		92		90		137		319		138		70		102		310		142		59		108		309
Industrial	93		20		15		128		115		31		17		163		93		30		16		139		92		28		15		135
Healthcare	77		17		16		110		109		37		14		160		73		24		20		117		74		25		16		115
Other	53		21		29		103		70		39		34		143		58		29		30		117		55		27		29		111
Total United States	1,189		198		200		1,587		1,388		359		265		2,012		1,185		273		218		1,676		1,208		253		205		1,666
Finance and other services	128		102		31		261		151		116		40		307		45		19		11		75		46		18		11		75
Government and education	99		10		2		111		117		10		2		129		87		8		2		97		96		9		1		106
Graphic arts	34		32		23		89		37		34		30		101		53		54		41		148		56		52		48		156
Industrial	61		39		18		118		66		40		29		135		21		12		4		37		23		12		6		41
Other	67		39		11		117		75		43		11		129		31		10		4		45		29		9		5		43
Total Canada(1)	389		222		85		696		446		243		112		801		237		103		62		402		250		100		71		421
France	268		299		117		684		274		294		134		702		279		304		145		728		282		314		122		718
U.K./Ireland	194		159		43		396		215		155		50		420		201		162		39		402		199		171		42		412
Central⁽¹⁾⁽²⁾	285		407		45		737		315		445		56		816		260		391		44		695		287		394		43		724
Southern⁽²⁾⁽³⁾	120		191		59		370		139		230		73		442		105		178		47		330		102		187		58		347
Nordics⁽³⁾⁽⁴⁾	46		43		3		92		49		36		9		94		26		60		1		87		46		42		3		91
Total Europe	913		1,099		267		2,279		992		1,160		322		2,474		871		1,095		276		2,242		916		1,108		268		2,292
Other	215		51		4		270		148		39		7		194		214		86		16		316		226		69		9		304
Total	$	2,706	$	1,570	$	556	$	4,832	$	2,974	$	1,801	$	706	$	5,481	$	2,507	$	1,557	$	572	$	4,636	$	2,600	$	1,530	$	553	$	4,683

_____________________________

(1)

Historically the Company has included certain Canadian customers with graphic arts activity in their industry sector. In 2014, these customers were reclassified to Graphic Arts to better reflect their primary business activity. The December 31, 2013 amounts have been reclassified to move $33 of graphic arts customers out of Finance and Other Services and to move $38 out of Industrial to be consistent with the March 31, 2014 presentation.


(2)	Switzerland, Germany, Austria, Belgium and Holland.


~~(2)~~(3)	Italy, Greece, Spain and Portugal.


~~(3)~~(4)	Sweden, Norway, Denmark and Finland.

Xerox ~~2013~~2014 Form 10-Q

1513

The aging of our billed finance receivables is based upon the number of days an invoice is past due and is as follows:


	September 30, 2013														March 31, 2014
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing		Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	9	$	2	$	1	$	12	$	280	$	292	$	16	$	9	$	2	$	1	$	12	$	337	$	349	$	12
Government and education	21		4		3		28		650		678		27		17		4		3		24		620		644		29
Graphic arts	14		2		1		17		259		276		10		13		2		1		16		294		310		9
Industrial	4		1		1		6		122		128		6		4		1		1		6		133		139		6
Healthcare	3		1		1		5		105		110		5		4		1		—		5		112		117		5
Other	3		1		—		4		99		103		5		3		1		—		4		113		117		4
Total United States	54		11		7		72		1,515		1,587		69		50		11		6		67		1,609		1,676		65
Canada	2		3		3		8		688		696		31		3		3		3		9		393		402		20
France	1		—		—		1		683		684		34		2		1		3		6		722		728		42
U.K./Ireland	2		2		2		6		390		396		4		—		3		1		4		398		402		3
Central⁽¹⁾	5		2		4		11		726		737		25		3		3		3		9		686		695		20
Southern⁽²⁾	19		8		13		40		330		370		65		26		5		6		37		293		330		32
Nordics⁽³⁾	2		—		—		2		90		92		—		2		—		—		2		85		87		3
Total Europe	29		12		19		60		2,219		2,279		128		33		12		13		58		2,184		2,242		100
Other	6		1		—		7		263		270		—		8		1		—		9		307		316		—
Total	$	91	$	27	$	29	$	147	$	4,685	$	4,832	$	228	$	94	$	27	$	22	$	143	$	4,493	$	4,636	$	185

	December 31, 2012														December 31, 2013
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing		Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	12	$	3	$	2	$	17	$	441	$	458	$	18	$	7	$	2	$	1	$	10	$	315	$	325	$	12
Government and education	21		5		3		29		740		769		42		17		4		3		24		647		671		34
Graphic arts	16		1		1		18		301		319		12		12		1		—		13		296		309		5
Industrial	5		2		1		8		155		163		6		3		1		1		5		130		135		6
Healthcare	6		2		1		9		151		160		9		3		1		—		4		111		115		5
Other	5		1		1		7		136		143		6		3		1		—		4		107		111		3
Total United States	65		14		9		88		1,924		2,012		93		45		10		5		60		1,606		1,666		65
Canada	2		3		2		7		794		801		30		4		3		3		10		411		421		19
France	—		5		1		6		696		702		22		—		—		—		—		718		718		40
U.K./Ireland	2		—		2		4		416		420		2		1		1		—		2		410		412		2
Central⁽¹⁾	3		2		4		9		807		816		30		3		2		3		8		716		724		23
Southern⁽²⁾	20		8		14		42		400		442		72		21		5		7		33		314		347		45
Nordics⁽³⁾	1		—		—		1		93		94		—		2		—		—		2		89		91		—
Total Europe	26		15		21		62		2,412		2,474		126		27		8		10		45		2,247		2,292		110
Other	2		1		—		3		191		194		—		8		1		—		9		295		304		—
Total	$	95	$	33	$	32	$	160	$	5,321	$	5,481	$	249	$	84	$	22	$	18	$	124	$	4,559	$	4,683	$	194

_____________________________


(1)	Switzerland, Germany, Austria, Belgium and Holland.


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.

Xerox ~~2013~~2014 Form 10-Q

1614

Note 8 – Inventories

The following is a summary of Inventories by major category:


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Finished goods	$	961	$	844	$	872	$	837
Work-in-process	76		61		65		60
Raw materials	115		106		107		101
Total Inventories	$	1,152	$	1,011	$	1,044	$	998

Note 9 – Investment in Affiliates, at Equity

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2013		2012		2013		2012		2014		2013
Fuji Xerox	$	40	$	32	$	117	$	97	$	39	$	44
Other investments	3		2		9		8		3		3
Total Equity in Net Income of Unconsolidated Affiliates	$	43	$	34	$	126	$	105	$	42	$	47

Fuji Xerox

Equity in net income of Fuji Xerox is affected by certain adjustments required 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.

Condensed financial data of Fuji Xerox was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2013		2012		2013		2012		2014		2013
Summary of Operations:
Revenues	$	2,909	$	3,192	$	8,653	$	9,586	$	3,021	$	3,028
Costs and expenses	2,670		2,988		7,960		8,928		2,801		2,784
Income before income taxes	239		204		693		658		220		244
Income tax expense	72		68		197		246		58		61
Net Income	167		136		496		412		162		183
Less: Net income – noncontrolling interests	1		2		4		4		1		1
Net Income – Fuji Xerox	$	166	$	134	$	492	$	408	$	161	$	182
Weighted Average Exchange Rate⁽¹⁾	98.89		78.61		96.61		79.47		102.67		92.64

_____________________________


(1)	Represents Yen/U.S. Dollar exchange rate used to translate.

~~Xerox 2013 Form 10-Q~~

Note 10 – Restructuring Programs

During the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014, we recorded net restructuring and asset impairment charges ~~from continuing operations~~ of $6027, which included approximately $7828 of severance costs related to headcount reductions of approximately ~~3,300~~1,250 employees ~~primarily in North America.~~worldwide, $1 of lease cancellations and $4 of asset impairments. These costs were offset by ~~$18~~$6 of net reversals, primarily resulting from changes in estimated reserves from prior period initiatives.

Xerox 2014 Form 10-Q

Information related to restructuring program activity during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 is outlined below:

Severance and
Related Costs

Lease Cancellation
and Other Costs

Asset Impairments⁽²⁾
Total
Balance at December 31, 2012 $ 123
$ 7
$ —
$ 130
Provision 78
—
—
78
Reversals (18 ) —
—
(18 )
Net Current Period Charges - Continuing Operations⁽¹⁾
60
—
—
60
Discontinued operations⁽³⁾
4
—
—
4
Total Net Current Period Charges 64
—
—
64
Charges against reserve and currency (105 ) (2 ) —
(107 )
Balance at September 30, 2013 $ 82
$ 5
$ —
$ 87



	Severance and Related Costs			Lease Cancellation and Other Costs			Asset Impairments⁽²⁾			Total
Balance at December 31, 2013	$	109		$	7		$	—		$	116
Provision	28			1			4			33
Reversals	(6		)	—			—			(6		)
Net Current Period Charges⁽¹⁾	22			1			4			27
Charges against reserve and currency	(35		)	(2		)	(4		)	(41		)
Balance at March 31, 2014	$	96		$	6		$	—		$	102

_____________________________


(1)	Represents net amount recognized within the Condensed Consolidated Statements of Income for the period shown.


(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.


~~(3)~~	~~Refer to Note 5 - Divestitures for additional information regarding discontinued operations.~~

Reconciliation to the Condensed Consolidated Statements of Cash Flows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
Charges against reserve	$	(34	)	$	(29	)	$	(107	)	$	(114	)	$	(41	)	$	(37	)
Asset impairment	—			—			—			2
Asset impairments													4			—
Effects of foreign currency and other non-cash items	—			(1		)	—			(1		)	1			(1		)
Restructuring Cash Payments	$	(34	)	$	(30	)	$	(107	)	$	(113	)	$	(36	)	$	(38	)

The following table summarizes the total amount of costs incurred in connection with these restructuring programs by segment:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2013		2012		2013		2012		2014		2013
Services	$	10	$	6	$	18	$	25	$	10	$	(2	)
Document Technology	25		8		42		37		16		(6		)
Other	—		—		—		1		1		—
Total Net Restructuring Charges	$	35	$	14	$	60	$	63	$	27	$	(8	)

~~Xerox 2013 Form 10-Q~~

Note 11 – Debt

Credit facility

On March 18, 2014, we entered into an Amended and Restated Credit Agreement that extended the maturity date of our $2.0 billion unsecured revolving Credit Facility to March 18, 2019 from December 2016. The amendment also included modest improvements in pricing and minor changes in the composition of the group of lenders. The amended and restated Credit Facility retains certain provisions from the existing Credit Facility including the $300 letter of credit sub-facility and the accordion feature that would allow us to increase (from time to time, with willing lenders) the overall size of the facility up to an aggregate amount not to exceed $2.75 billion. We also have the right to request a one year extension on each of the first and second anniversary of the amendment date.

We deferred $7 of debt issuance costs in connection with this amendment, which includes approximately $4 of unamortized deferred debt issue costs associated with the existing Credit Facility. The write-off of debt issuance costs associated with lenders that reduced their participation in the amended and restated Credit Facility was not material.

At March 31, 2014, we had no outstanding borrowings or letters of credit under our Credit Facility.

Xerox 2014 Form 10-Q

Interest Expense and Income

Interest expense and interest income were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2013		2012		2013		2012		2014		2013
Interest expense⁽¹⁾	$	100	$	105	$	308	$	325	$	100	$	104
Interest income⁽²⁾	136		163		373		461		102		120

~~____________________________~~____________


(1)	Includes Equipment financing interest, as well as non-financing interest expense that is included in Other expenses, net in the Condensed Consolidated Statements of Income.


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

Net (Payments) Proceeds on Debt

Net proceeds on debt as shown on the Condensed Consolidated Statements of Cash Flows was as follows:


	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
Net proceeds on short-term debt	$	6		$	742		$	1		$	36
Proceeds from issuance of long-term debt⁽¹⁾	102			1,112			18			25
Payments on long-term debt(1)	(1,039		)	(1,112		)	(15		)	(4		)
Net (Payments) Proceeds on Debt	$	(931	)	$	742
Net Proceeds on Debt							$	4		$	57

~~____________________________~~____________


(1)	Includes ~~net proceeds of~~ ~~$39~~ ~~from the sale and capital leaseback of a building in the U.S.~~ current maturities.

Note 12 – Financial Instruments

Interest Rate Risk Management

We ~~may~~ use interest rate swap agreements to manage our interest rate exposure and to achieve a desired proportion of variable and fixed rate debt. These derivatives may be designated as fair value hedges or cash flow hedges depending on the nature of the risk being hedged.

Fair Value Hedges

At ~~September 30,2013~~As of March 31, 2014, pay variable/receive fixed interest rate swaps with notional amounts of $300 and ~~December 31, 2012, we~~net liability fair value of $3 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 during 2014. We did not have any interest rate swaps ~~outstanding.~~outstanding at December 31, 2013.

The following is a summary of our fair value hedges at March 31, 2014:



Debt Instrument	Year First Designated	Notional Amount		Net Fair Value			Weighted Average Interest Rate Paid		Interest Rate Received		Basis	Maturity
Senior Note 2021	2014	$	300	$	(3	)	2.42	%	4.5	%	Libor	2021

Xerox 2014 Form 10-Q

Foreign Exchange Risk Management

We are a global company that is 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

~~Xerox 2013 Form 10-Q~~

Summary of Foreign Exchange Hedging Positions

At ~~September 30, 2013~~March 31, 2014, we had outstanding forward exchange and purchased option contracts with gross notional values of $~~2,826~~2,994, which is reflective of the amounts that are normally outstanding at any point during the year. Approximately ~~81%~~68% of these contracts mature within three months, ~~10%~~9% in three to six months and 9%23% in six to twelve months.

The following is a summary of the primary hedging positions and corresponding fair values as of ~~September 30, 2013~~March 31, 2014:


Currency Hedged (Buy/Sell)	Gross Notional Value		Fair Value Asset (Liability)⁽¹⁾			Gross Notional Value		Fair Value Asset (Liability)⁽¹⁾
Euro/U.K. Pound Sterling						$	769	$	(4	)
Japanese Yen/U.S. Dollar	$	574	$	(10	)	487		(8		)
Canadian Dollar/Euro						409		(4		)
U.S. Dollar/Euro	513		(9		)	397		(1		)
Euro/U.K. Pound Sterling	383		(2		)
Japanese Yen/Euro	367		(16		)	378		(11		)
U.K. Pound Sterling/U.S. Dollar	242		—
U.K. Pound Sterling/Euro	146		2			167		—
Canadian Dollar/Euro	97		—
Euro/U.S. Dollar	92		1
Philippine Peso/U.S. Dollar						52		—
Mexican Peso/U.S. Dollar	67		(1		)	47		1
Swiss Franc/Euro						44		—
Indian Rupee/U.S. Dollar	54		(1		)	41		3
Philippine Peso/U.S. Dollar	47		—
U.S. Dollar/Japanese Yen	38		—
Euro/Danish Krone	28		—			29		—
U.S. Dollar/Peruvian Nuevo Sol	26		—
Mexican Peso/Euro						24		—
All Other	152		—			150		(1		)
Total Foreign Exchange Hedging	$	2,826	$	(36	)	$	2,994	$	(25	)

__________________


(1)	Represents the net receivable (payable) amount included in the Condensed Consolidated Balance Sheet at ~~September 30,~~ ~~2013.~~ March 31, 2014.

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 Condensed Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or loss was included in the assessment of hedge effectiveness. The net liability fair value of these contracts was $3316 and $4850 as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively.

Xerox ~~2013~~2014 Form 10-Q

2018

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	September 30, 2013			December 31, 2012				Balance Sheet Location	March 31, 2014			December 31, 2013
Derivatives Designated as Hedging Instruments	Derivatives Designated as Hedging Instruments								Derivatives Designated as Hedging Instruments
Foreign exchange contracts – forwards		Other current assets	$	4		$	3			Other current assets	$	4		$	1
		Other current liabilities	(37		)	(51		)		Other current liabilities	(20		)	(51		)
Interest rate swaps										Other long-term liabilities	(3		)	—
		Net Designated Derivative Liability	$	(33	)	$	(48	)		Net Designated Derivative Liability	$	(19	)	$	(50	)

Derivatives NOT Designated as Hedging Instruments	Derivatives NOT Designated as Hedging Instruments								Derivatives NOT Designated as Hedging Instruments
Foreign exchange contracts – forwards		Other current assets	$	7		$	8			Other current assets	$	5		$	5
		Other current liabilities	(10		)	(31		)		Other current liabilities	(14		)	(19		)
		Net Undesignated Derivative Asset (Liability)	$	(3	)	$	(23	)		Net Undesignated Derivative Liability	$	(9	)	$	(14	)

Summary of Derivatives		Total Derivative Assets	$	11		$	11			Total Derivative Assets	$	9		$	6
		Total Derivative Liabilities	(47		)	(82		)		Total Derivative Liabilities	(37		)	(70		)
		Net Derivative Liability	$	(36	)	$	(71	)		Net Derivative Liability	$	(28	)	$	(64	)

Summary of Derivative Instruments Gains (Losses)

Derivative gains (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 (losses).

Designated Derivative Instruments Gains (Losses):

The following tables provide a summary of gains (losses) on derivative instruments:



Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	Derivative Gain (Loss) Recognized in income					Hedged Item Gain (Loss) Recognized in Income
		Three Months Ended March 31,					Three Months Ended March 31,
		2014			2013		2014		2013
Interest Rate Contracts	Interest Expense	$	(3	)	$	—	$	3	$	—


Derivatives in Cash Flow Hedging Relationships	Derivative Gain (Loss) Recognized in OCI (Effective Portion) Three Months Ended September 30,					Location of Derivative Gain (Loss) Reclassified from AOCI into Income (Effective Portion)		Gain (Loss) Reclassified from AOCI to Income (Effective Portion) Three Months Ended September 30,							Derivative Gain (Loss) Recognized in OCI (Effective Portion)							Location of Derivative Gain (Loss) Reclassified from AOCI into Income (Effective Portion)		Gain (Loss) Reclassified from AOCI to Income (Effective Portion)
	2013			2012			2013				2012			Three Months Ended March 31,									Three Months Ended March 31,
Foreign exchange contracts – forwards	$	(13	)	$	8		Cost of sales		$	(35	)	$	8

Derivatives in Cash Flow Hedging Relationships	Derivative Gain (Loss) Recognized in OCI (Effective Portion) Nine Months Ended September 30,					Location of Derivative Gain (Loss) Reclassified from AOCI into Income (Effective Portion)		Gain (Loss) Reclassified from AOCI to Income (Effective Portion) Nine Months Ended September 30,
	2013			2012			2013				2012			2014				2013			Location of Derivative Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			2014				2013
Foreign exchange contracts – forwards	$	(81	)	$	16		Cost of sales		$	(89	)	$	29			$	18		$	(34		)			$	(21	)		$	(17	)

~~Xerox 2013 Form 10-Q~~

No amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain (loss) was 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.

At ~~September 30,~~March 31, ~~2013,~~2014, net after-tax losses of $3311 were recorded in accumulated other comprehensive loss associated with our cash flow hedging activity. The entire balance is expected to be reclassified into net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Xerox 2014 Form 10-Q

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 re-measurement of the underlying foreign currency-denominated asset or liability.

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


Derivatives NOT Designated as Hedging Instruments		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
Derivatives NOT Designated as Hedging Instruments	Location of Derivative Gain (Loss)	2013			2012			2013			2012			Location of Derivative Gain (Loss)	2014		2013
Foreign exchange contracts – forwards	Other expense – Currency losses, net	$	(12	)	$	(6	)	$	(45	)	$	(1	)	Other expense – Currency losses, net	$	—	$	(15	)

During the ~~three and~~ ~~nine~~three months ended ~~September 30,~~March 31, 2014 and March 31, 2013, Currency (loss) gains, net were $0(1) and $7~~, respectively. During the three and~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ ~~2012, Currency gains/losses, net were less than~~ $14, respectively. Net Currency gains and losses are included in Other expenses, net and 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 re-measurement of foreign currency-denominated assets and liabilities.

Note 13 – Fair Value of Financial Assets and Liabilities

The following table represents assets and liabilities measured at fair value on a recurring basis. The basis for the measurement at fair value in all cases is Level 2 – Significant Other Observable Inputs.


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Assets:
Foreign exchange contracts-forwards	$	11	$	11	$	9	$	6
Deferred compensation investments in cash surrender life insurance	85		77		90		88
Deferred compensation investments in mutual funds	27		23		30		28
Total	$	123	$	111	$	129	$	122
Liabilities:
Foreign exchange contracts-forwards	$	47	$	82	$	34	$	70
Interest rate swaps					3		—
Deferred compensation plan liabilities	120		110		127		125
Total	$	167	$	192	$	164	$	195

We utilize the income approach to measure the fair value for our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices, and therefore are classified as Level 2.

Fair value for our deferred compensation plan investments in Company-owned life insurance is reflected at cash surrender value. Fair value for our deferred compensation plan investments in mutual funds is based on quoted market prices for actively traded investments similar to those held by the plan. Fair value for deferred compensation plan liabilities is based on the fair value of investments corresponding to employees’ investment selections, based on quoted prices for similar assets in actively traded markets.

Xerox ~~2013~~2014 Form 10-Q

2220

Summary of Other Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis

The estimated fair values of our other financial assets and liabilities not measured at fair value on a recurring basis were as follows:


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	948	$	948	$	1,246	$	1,246	$	1,567	$	1,567	$	1,764	$	1,764
Accounts receivable, net	2,989		2,989		2,866		2,866		3,032		3,032		2,929		2,929
Short-term debt	1,135		1,137		1,042		1,051		2,109		2,114		1,117		1,126
Long-term debt	6,406		6,857		7,447		8,040		5,896		6,374		6,904		7,307

The fair value amounts for Cash and cash equivalents and Accounts receivable, net, approximate carrying amounts due to the short maturities of these instruments. The fair value of Short- and Long-term debt was estimated based on quoted market prices for publicly-traded securities or on the current rates offered to us for debt of similar maturities. The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at such date.

Note 14 – Employee Benefit Plans

The components of Net periodic benefit cost and other changes in plan assets and benefit obligations were as follows for the three months ended ~~September 30:~~March 31:


	Pension Benefits																		Pension Benefits
	U.S. Plans						Non-U.S. Plans						Retiree Health						U.S. Plans						Non-U.S. Plans						Retiree Health
	2013			2012			2013			2012			2013			2012			2014			2013			2014			2013			2014			2013
Components of Net Periodic Benefit Costs:
Service cost	$	2		$	28		$	24		$	21		$	2		$	3		$	2		$	2		$	9		$	22		$	2		$	2
Interest cost	37			47			64			66			8			9			40			37			69			64			9			9
Expected return on plan assets	(41		)	(53		)	(78		)	(76		)	—			—			(38		)	(44		)	(87		)	(77		)	—			—
Recognized net actuarial loss	2			12			20			14			—			—			2			7			14			19			—			1
Amortization of prior service credit	(1		)	(6		)	(1		)	—			(10		)	(10		)	—			—			(1		)	—			(11		)	(11		)
Recognized settlement loss	20			25			—			—			—			—			12			48			—			—			—			—
Defined Benefit Plans	19			53			29			25			—			2			18			50			4			28			—			1
Defined contribution plans	15			7			7			10			—			—			16			19			11			7			—			—
Net Periodic Benefit Cost	34			60			36			35			—			2			34			69			15			35			—			1

Other changes in plan assets and benefit obligations recognized in Other Comprehensive Income:	Other changes in plan assets and benefit obligations recognized in Other Comprehensive Income:
Net actuarial gain	—			—			—			—			—			(31		)
Net actuarial loss⁽¹⁾																			197			—			—			—			—			—
Amortization of prior service credit	1			6			1			—			10			10			—			—			1			—			11			11
Amortization of net actuarial loss	(22		)	(37		)	(20		)	(14		)	—			—			(14		)	(55		)	(14		)	(19		)	—			(1		)
Total Recognized in Other Comprehensive Income⁽¹⁾⁽²⁾	(21		)	(31		)	(19		)	(14		)	10			(21		)	183			(55		)	(13		)	(19		)	11			10
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income	$	13		$	29		$	17		$	21		$	10		$	(19	)	$	217		$	14		$	2		$	16		$	11		$	11

_____________________________


(1)	The net actuarial loss for U.S. Plans in the first quarter 2014 is related to the remeasurement of our primary U.S. pension plans as a result of the payment of periodic settlements. The loss in the first quarter 2014 primarily reflects the decrease in discount rates during the period as compared to the discount rates from our annual measurement of the plans at December 31, 2013.


(2)	Amounts represent the pre-tax effect included within Other comprehensive income. Refer to Note 16 - Other Comprehensive Income for related tax effects and the after-tax amounts.

~~Xerox 2013 Form 10-Q~~

Contributions

~~The components of Net periodic benefit cost and other changes in plan assets and benefit obligations were as follows for the nine months ended September 30:~~

Pension Benefits
U.S. Plans Non-U.S. Plans Retiree Health
2013 2012 2013 2012 2013 2012
Components of Net Periodic Benefit Costs:
Service cost $ 7
$ 84
$ 69
$ 62
$ 7
$ 7
Interest cost 109
139
193
202
25
31
Expected return on plan assets (130 ) (157 ) (235 ) (229 ) —
—
Recognized net actuarial loss 16
39
58
40
1
1
Amortization of prior service credit (1 ) (17 ) (1 ) —
(32 ) (31 )
Recognized curtailment gain —
—
(6 ) —
—
—
Recognized settlement loss 99
55
—
—
—
—
Defined Benefit Plans 100
143
78
75
1
8
Defined contribution plans 53
22
20
26
—
—
Net Periodic Benefit Cost 153
165
98
101
1
8

Other changes in plan assets and benefit obligations recognized in Other Comprehensive Income:
Net actuarial gain 11
(19 ) —
—
(36 ) (31 )
Amortization of prior service credit 1
17
1
—
32
31
Amortization of net actuarial loss (115 ) (94 ) (58 ) (40 ) (1 ) (1 )
Total Recognized in Other Comprehensive Income⁽¹⁾
(103 ) (96 ) (57 ) (40 ) (5 ) (1 )
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income $ 50
$ 69
$ 41
$ 61
$ (4 ) $ 7

~~_____________________________~~


~~(1)~~	~~Amounts represent the pre-tax effect included within Other comprehensive income. Refer to Note 16 - Other Comprehensive Income for related tax effects and the after-tax amounts.~~

~~Contributions:~~During the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014, we made cash contributions of $~~162~~37 ($206 U.S. and $~~142~~31 Non-U.S.) to our defined benefit pension plans and ~~and~~ $5225 to our retiree health benefit plans. We presently anticipate additional cash contributions of $33213 ($684 U.S. and $27129 Non-U.S.) to our defined benefit pension plans and $2846 to our

Xerox 2014 Form 10-Q

retiree health benefit plans in ~~2013~~2014 for total full-year cash contributions of approximately $~~195~~250 ($2690 U.S. and $~~169~~160 Non-U.S.) to our defined benefit pension plans and $8071 to our retiree health benefit plans.

~~Xerox 2013 Form 10-Q~~

Note 15 – Shareholders’ Equity


	Common Stock			Additional Paid-in Capital			Treasury Stock			Retained Earnings			AOCL⁽¹⁾			Xerox Shareholders’ Equity			Non- controlling Interests			Total Equity			Common Stock			Additional Paid-in Capital			Treasury Stock			Retained Earnings			AOCL⁽¹⁾			Xerox Shareholders’ Equity			Non- controlling Interests			Total Equity
Balance at December 31, 2012	$	1,239		$	5,622		$	(104	)	$	7,991		$	(3,227	)	$	11,521		$	143		$	11,664
Balance at December 31, 2013																									$	1,210		$	5,282		$	(252	)	$	8,839		$	(2,779	)	$	12,300		$	119		$	12,419
Comprehensive income (loss), net	—			—			—			853			(50		)	803			15			818			—			—			—			281			(59		)	222			5			227
Cash dividends declared- common stock⁽²⁾	—			—			—			(218		)	—			(218		)	—			(218		)	—			—			—			(75		)	—			(75		)	—			(75		)
Cash dividends declared - preferred stock⁽³⁾	—			—			—			(18		)	—			(18		)	—			(18		)	—			—			—			(6		)	—			(6		)	—			(6		)
Conversion of notes to common stock																									1			8			—			—			—			9			—			9
Stock option and incentive plans, net	24			106			—			—			—			130			—			130			3			45			—			—			—			48			—			48
Payments to acquire treasury stock, including fees	—			—			(172		)	—			—			(172		)	—			(172		)	—			—			(275		)	—			—			(275		)	—			(275		)
Cancellation of treasury stock	(16		)	(98		)	114			—			—			—			—			—			(28		)	(295		)	323			—			—			—			—			—
Distributions to noncontrolling interests	—			—			—			—			—			—			(24		)	(24		)	—			—			—			—			—			—			(11		)	(11		)
Balance at September 30, 2013	$	1,247		$	5,630		$	(162	)	$	8,608		$	(3,277	)	$	12,046		$	134		$	12,180
Balance at March 31, 2014																									$	1,186		$	5,040		$	(204	)	$	9,039		$	(2,838	)	$	12,223		$	113		$	12,336


	Common Stock			Additional Paid-in Capital			Treasury Stock			Retained Earnings			AOCL⁽¹⁾			Xerox Shareholders’ Equity			Non- controlling Interests			Total Equity			Common Stock			Additional Paid-in Capital			Treasury Stock			Retained Earnings			AOCL⁽¹⁾			Xerox Shareholders’ Equity			Non- controlling Interests			Total Equity
Balance at December 31, 2011	$	1,353		$	6,317		$	(124	)	$	7,046		$	(2,716	)	$	11,876		$	149		$	12,025
Comprehensive income, net	—			—			—			860			170			1,030			20			1,050
Balance at December 31, 2012																									$	1,239		$	5,622		$	(104	)	$	7,991		$	(3,227	)	$	11,521		$	143		$	11,664
Comprehensive income (loss), net																									—			—			—			296			(268		)	28			4			32
Cash dividends declared-common stock⁽²⁾	—			—			—			(172		)	—			(172		)	—			(172		)	—			—			—			(73		)	—			(73		)	—			(73		)
Cash dividends declared-preferred stock⁽³⁾	—			—			—			(18		)	—			(18		)	—			(18		)	—			—			—			(6		)	—			(6		)	—			(6		)
Contribution of common stock to U.S. pension plan	15			115			—			—			—			130			—			130
Stock option and incentive plans, net	17			81			—			—			—			98			—			98			5			36			—			—			—			41			—			41
Payments to acquire treasury stock, including fees	—			—			(718		)	—			—			(718		)	—			(718		)	—			—			(10		)	—			—			(10		)	—			(10		)
Cancellation of treasury stock	(63		)	(418		)	481			—			—			—			—			—			(16		)	(98		)	114			—			—			—			—			—
Distributions to noncontrolling interests	—			—			—			—			—			—			(29		)	(29		)	—			—			—			—			—			—			(2		)	(2		)
Balance at September 30, 2012	$	1,322		$	6,095		$	(361	)	$	7,716		$	(2,546	)	$	12,226		$	140		$	12,366
Balance at March 31, 2013																									$	1,228		$	5,560		$	—		$	8,208		$	(3,495	)	$	11,501		$	145		$	11,646

_____________________________


(1)	Refer to Note 16 - Other Comprehensive Income for components of AOCL.


(2)	Cash dividends declared on common stock of $0.0625 per share in the first quarter of 2014 and $0.0575 per share in ~~all quarters~~the first quarter of ~~2013 and~~ ~~$0.0425~~ ~~per share in all quarters of 2012.~~2013.


(3)	Cash dividends declared on preferred stock of $20.00 per share in ~~all quarters~~the first quarter of ~~2013~~2014 and ~~2012.~~2013.

~~Xerox 2013 Form 10-Q~~

Treasury Stock

The following is a summary of the purchases of common stock made during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 under our authorized stock repurchase programs (shares in thousands):


	Shares		Amount			Shares		Amount
December 31, 2012	14,924		$	104
December 31, 2013						22,001		$	252
Purchases⁽¹⁾	17,372		172			24,950		275
Cancellations	(16,284	)	(114		)	(27,994	)	(323		)
September 30, 2013	16,012		$	162
March 31, 2014						18,957		$	204

____________________________


(1)	Includes associated fees.

Xerox 2014 Form 10-Q

Note 16 - Other Comprehensive Income

Other Comprehensive Income is comprised of the following:


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
	2013						2012						2013						2012						2014						2013
	Pre-tax			Net of Tax			Pre-tax			Net of Tax			Pre-tax			Net of Tax			Pre-tax			Net of Tax			Pre-tax			Net of Tax			Pre-tax			Net of Tax
Translation Adjustments Gains (Losses)	$	266		$	269		$	343		$	344		$	(185	)	$	(178	)	$	176		$	181		$	2		$	(1	)	$	(363	)	$	(363	)
Unrealized (Losses) Gains:
Changes in fair value of cash flow hedges - (losses) gains	(13		)	(11		)	8			4			(81		)	(57		)	16			11
Unrealized Gains (Losses):
Changes in fair value of cash flow hedges - gains (losses)																									18			13			(34		)	(22		)
Changes in cash flow hedges reclassed to earnings⁽¹⁾	35			24			(8		)	(6		)	89			62			(29		)	(22		)	21			14			17			12
Other gains	1			1			—			—			2			2			—			—
Other (losses) gains																									(1		)	(1		)	2			2
Net Unrealized Gains (Losses)	23			14			—			(2		)	10			7			(13		)	(11		)	38			26			(15		)	(8		)

Defined Benefit Plans Gains (Losses):
Net actuarial gain	—			—			31			19			25			15			50			31
Defined Benefit Plans (Losses) Gains:
Net actuarial losses																									(197		)	(122		)	—			—
Prior service amortization⁽²⁾	(12		)	(7		)	(16		)	(10		)	(34		)	(21		)	(48		)	(30		)	(12		)	(7		)	(11		)	(7		)
Actuarial loss amortization⁽²⁾	42			29			51			33			174			116			135			88			28			19			75			49
Fuji Xerox changes in defined benefit plans, net⁽³⁾	11			11			7			7			7			7			(34		)	(34		)	27			27			(16		)	(16		)
Other (losses) gains⁽⁴⁾	(71		)	(71		)	(59		)	(59		)	4			4			(55		)	(55		)	(1		)	(1		)	77			77
Change in Defined Benefit Plans (Losses) Gains	(30		)	(38		)	14			(10		)	176			121			48			—			(155		)	(84		)	125			103

Other Comprehensive Income (Loss) Attributable to Xerox	$	259		$	245		$	357		$	332		$	1		$	(50	)	$	211		$	170
Other Comprehensive Loss Attributable to Xerox																									$	(115	)	$	(59	)	$	(253	)	$	(268	)

_____________________________


(1)	Reclassified to Cost of sales - refer to Note 12 - Financial Instruments for additional information regarding our cash flow hedges.


(2)	Reclassified to Total Net Periodic Benefit Cost - refer to Note 14 - Employee Benefit Plans for additional information.


(3)	Represents our share of Fuji Xerox's benefit plan changes.


(4)	Primarily represents currency impact on cumulative amount of benefit plan net actuarial losses and prior service credits included in AOCL.

Accumulated Other Comprehensive Loss (AOCL)

AOCL is comprised of the following:


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Cumulative translation adjustments	$	(1,004	)	$	(826	)	$	(1,011	)	$	(1,010	)
Benefit plans net actuarial losses and prior service credits⁽¹⁾	(2,243		)	(2,364		)	(1,816		)	(1,732		)
Other unrealized losses, net	(30		)	(37		)	(11		)	(37		)
Total Accumulated Other Comprehensive Loss Attributable to Xerox	$	(3,277	)	$	(3,227	)	$	(2,838	)	$	(2,779	)

_____________________________


(1)	Includes our share of Fuji Xerox.

Xerox ~~2013~~2014 Form 10-Q

2623

Note 17 – Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share of common stock (shares in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
Basic Earnings per Share:
Net income from continuing operations attributable to Xerox	$	288		$	280		$	875		$	850		$	279		$	293
Accrued dividends on preferred stock	(6		)	(6		)	(18		)	(18		)	(6		)	(6		)
Adjusted Net Income From Continuing Operations Available to Common Shareholders	282			274			857			832			273			287
Net (loss) income from discontinued operations attributable to Xerox	(2		)	2			(22		)	10
Net income from discontinued operations attributable to Xerox													2			3
Adjusted Net Income Available to Common Shareholders	$	280		$	276		$	835		$	842		$	275		$	290
Weighted-average common shares outstanding	1,236,485			1,293,513			1,230,787			1,320,422			1,178,828			1,225,271
Basic Earnings (Loss) per Share:
Basic Earnings per Share:
Continuing operations	$	0.23		$	0.21		$	0.70		$	0.63		$	0.23		$	0.23
Discontinued operations	—			—			(0.02		)	0.01			—			—
Total	$	0.23		$	0.21		$	0.68		$	0.64		$	0.23		$	0.23

Diluted Earnings per Share:
Net income from continuing operations attributable to Xerox	$	288		$	280		$	875		$	850		$	279		$	293
Accrued dividends on preferred stock	—			(6		)	—			(18		)	—			—
Interest on convertible securities, net	—			—			1			1			—			—
Adjusted Net Income From Continuing Operations Available to Common Shareholders	$	288		$	274		$	876		$	833		$	279		$	293
Net (loss) income from discontinued operations attributable to Xerox	(2		)	2			(22		)	10
Net income from discontinued operations attributable to Xerox													2			3
Adjusted Net Income Available to Common Shareholders	$	286		$	276		$	854		$	843		$	281		$	296
Weighted-average common shares outstanding	1,236,485			1,293,513			1,230,787			1,320,422			1,178,828			1,225,271
Common shares issuable with respect to:
Stock options	5,225			3,335			5,422			5,369			3,580			4,854
Restricted stock and performance shares	14,910			20,028			18,429			21,227			15,021			21,372
Convertible preferred stock	26,966			—			26,966			—			26,966			26,966
Convertible securities	1,992			1,992			1,992			1,992			332			1,992
Adjusted Weighted Average Common Shares Outstanding	1,285,578			1,318,868			1,283,596			1,349,010			1,224,727			1,280,455
Diluted Earnings (Loss) per Share:
Diluted Earnings per Share:
Continuing operations	$	0.22		$	0.21		$	0.68		$	0.62		$	0.23		$	0.23
Discontinued operations	—			—			(0.01		)	—			—			—
Total	$	0.22		$	0.21		$	0.67		$	0.62		$	0.23		$	0.23

The following securities were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive (shares in thousands):
Stock options	13,102			38,430			12,905			36,395			7,742			25,230
Restricted stock and performance shares	12,016			24,327			8,497			23,128			19,183			18,412
Convertible preferred stock	—			26,966			—			26,966
Total Anti-Dilutive Securities	25,118			89,723			21,402			86,489			26,925			43,642

Dividends per Common Share	$	0.0575		$	0.0425		$	0.1725		$	0.1275		$	0.0625		$	0.0575

Xerox ~~2013~~2014 Form 10-Q

2724

Note 18 – Contingencies and Litigation

Legal Matters

As more fully discussed below, we are involved in a variety of claims, lawsuits, investigations and proceedings concerning securities law, intellectual property law, environmental law, employment law and the Employee Retirement Income Security Act (ERISA). 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.

Brazil Tax and Labor Contingencies

Our Brazilian operations are involved in various litigation matters and have received or been the subject of numerous governmental assessments related to indirect and other taxes, as well as disputes associated with former employees and contract labor. The tax matters, which comprise a significant portion of the total contingencies, principally relate to claims for taxes on the internal transfer of inventory, municipal service taxes on rentals, gross revenue taxes and import taxes and duties. We are disputing these tax matters and intend to vigorously defend our position. Based on the opinion of legal counsel and current reserves for those matters deemed probable of loss, we do not believe that the ultimate resolution of these matters will materially impact our results of operations, financial position or cash flows.The labor matters principally relate to claims made by former employees and contract labor for the equivalent payment of all social security and other related labor benefits, as well as consequential tax claims, as if they were regular employees.

As of ~~September 30, 2013~~March 31, 2014, the total amounts related to the unreserved portion of the tax and labor contingencies, inclusive of any related interest, amounted to approximately $~~979~~1 billion with the ~~decrease~~increase from December 31, ~~2012~~2013 balance of approximately $~~1,010~~933, ~~resulting from~~primarily related to currency ~~and the adjustments for closed cases offset by a new case~~ and interest. With respect to the unreserved balance of $~~979~~1 billion, 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 ~~September 30, 2013~~March 31, 2014, we had $~~179~~171 of escrow cash deposits for matters we are disputing, and there are liens on certain Brazilian assets with a net book value of $8 and additional letters of credit of approximately $~~238~~254, which include associated indexation. Generally, any escrowed amounts would be refundable and any liens would be removed to the extent the matters are resolved in our favor. We routinely assess all these matters as to probability of ultimately incurring a liability against our Brazilian operations and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable.

Litigation Against the Company

In re Xerox Corporation Securities Litigation: A consolidated securities law action (consisting of 17 cases) is pending in the United States District Court for the District of Connecticut. Defendants are the Company, Barry Romeril, Paul Allaire and G. Richard Thoman. The consolidated action is a class action on behalf of all persons and entities who purchased Xerox Corporation common stock during the period October 22, 1998 through October 7, 1999 inclusive (Class Period) and who suffered a loss as a result of misrepresentations or omissions by Defendants as alleged by Plaintiffs (the “Class”). The Class alleges that in violation of Section 10(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended (1934 Act), and SEC Rule 10b-5 thereunder, each of the defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of the Company’s common stock during the Class Period by disseminating materially false and misleading statements and/or concealing material facts relating to the defendants’ alleged failure to disclose the material negative impact that the April 1998 restructuring had on the Company’s operations and revenues. The complaint further alleges that the alleged scheme: (i) deceived the investing public regarding the economic capabilities, sales proficiencies, growth, operations and the intrinsic value of the Company’s common stock; (ii) allowed several corporate insiders, such as the named individual defendants, to sell shares of privately held common stock of the Company while in possession of materially adverse, non-public information; and (iii) caused

Xerox ~~2013~~2014 Form 10-Q

2825

the individual plaintiffs and the other members of the purported class to purchase common stock of the Company at inflated prices. The complaint seeks unspecified compensatory damages in favor of the plaintiffs and the other members of the purported class against all defendants, jointly and severally, for all damages sustained as a result of defendants’ alleged wrongdoing, including interest thereon, together with reasonable costs and expenses incurred in the action, including counsel fees and expert fees. In 2001, the Court denied the defendants’ motion for dismissal of the complaint. The plaintiffs’ motion for class certification was denied by the Court in 2006, without prejudice to refiling. In February 2007, the Court granted the motion of the International Brotherhood of Electrical Workers Welfare Fund of Local Union No. 164, Robert W. Roten, Robert Agius (Agius) and Georgia Stanley to appoint them as additional lead plaintiffs. In July 2007, the Court denied plaintiffs’ renewed motion for class certification, without prejudice to renewal after the Court holds a pre-filing conference to identify factual disputes the Court will be required to resolve in ruling on the motion. After that conference and Agius’s withdrawal as lead plaintiff and proposed class representative, in February 2008 plaintiffs filed a second renewed motion for class certification. In April 2008, defendants filed their response and motion to disqualify Milberg LLP as a lead counsel. On September 30, 2008, the Court entered an order certifying the class and denying the appointment of Milberg LLP as class counsel. Subsequently, on April 9, 2009, the Court denied defendants’ motion to disqualify Milberg LLP. On November 6, 2008, the defendants filed a motion for summary judgment. On March 29, 2013, the Court granted defendants' motion for summary judgment in its entirety. On April 26, 2013, plaintiffs filed a notice of appeal to the United States Court of Appeals for the Second Circuit. The appeal process is ongoing. The individual defendants and we deny any wrongdoing and are vigorously defending the action. At this time, we do not believe it is reasonably possible that we will incur additional material losses in excess of the amount we have already accrued for this matter. In the course of litigation, we periodically engage in discussions with plaintiffs’ counsel for possible resolution of this matter. Should developments cause a change in our determination as to an unfavorable outcome, or result in a final adverse judgment or a settlement for a significant amount, there could be a material adverse effect on our results of operations, cash flows and financial position in the period in which such change in determination, judgment or settlement occurs.

Other Contingencies

We have issued or provided the following guarantees as of ~~September 30, 2013~~March 31, 2014:

$~~451~~490 for letters of credit issued to (i) guarantee our performance under certain services contracts; (ii) support certain insurance programs; and (iii) support our obligations related to the Brazil tax and labor contingencies.

$~~759~~740 for outstanding surety bonds. Certain contracts, primarily those involving public sector customers, require us to provide a surety bond as a guarantee of our performance of contractual obligations.

In general, we would only be liable for the amount of these guarantees in the event of default in our performance of our obligations under each contract; the probability of which we believe is remote. We believe that our capacity in the surety markets as well as under various credit arrangements (including our Credit Facility) is sufficient to allow us to respond to future requests for proposals that require such credit support.

We have service arrangements where we service third party student loans in the Federal Family Education Loan program (FFEL) on behalf of various financial institutions. We service these loans for investors under outsourcing arrangements and do not acquire any servicing rights that are transferable by us to a third party. At ~~September 30, 2013~~March 31, 2014, we serviced a FFEL portfolio of approximately ~~3.3~~3.1 million loans with an outstanding principal balance of approximately $~~47.2~~44.5 billion. Some servicing agreements contain provisions that, under certain circumstances, require us to purchase the loans from the investor if the loan guaranty has been permanently terminated as a result of a loan default caused by our servicing error. If defaults caused by us are cured during an initial period, any obligation we may have to purchase these loans expires. Loans that we purchase may be subsequently cured, the guaranty reinstated and the loans repackaged for sale to third parties. We evaluate our exposure under our purchase obligations on defaulted loans and establish a reserve for potential losses, or default liability reserve, through a charge to the provision for loss on defaulted loans purchased. The reserve is evaluated periodically and adjusted based upon management’s analysis of the historical performance of the defaulted loans. As of ~~September 30, 2013~~March 31, 2014, other current liabilities include reserves of approximately $32 for losses on defaulted loans purchased.

Xerox ~~2013~~2014 Form 10-Q

2926

ITEM 2 — 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 Condensed Consolidated Financial Statements and the accompanying notes.

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.

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 “currency impact” or “the impact from currency.” This includes translating the most recent financial results of operations using foreign currency of the earliest period presented. Currencies for our developing market countries (Latin America, Brazil, the Middle East, India, Eurasia and Central-Eastern Europe) are reflected at actual exchange rates for all periods presented, since these countries generally have volatile currency and inflationary environments, and our operations in these countries have historically implemented pricing actions to recover the impact of inflation and devaluation. We do not hedge the translation effect of revenues or expenses denominated in currencies where the local currency is the functional currency.

Overview

First quarter 2014 results reflect the benefits of our diversified portfolio of businesses as well as improved performance across a number of areas including Document Technology, Document Outsourcing and Commercial Business Processing Outsourcing (BPO), including Commercial Healthcare. These improvements were partially offset by challenges in our Government Healthcare business.

Total revenue of ~~$5.3~~$5.1 billion for the three months ended ~~September 30, 2013 was flat~~March 31, 2014 declined 2% from the prior year with ~~a 1% positive~~no impact from currency. Services segment revenues ~~increased 3% reflecting~~were flat as compared to the prior year as growth in ~~all three of our outsourcing service offerings.~~Document Outsourcing (DO) and Information Technology Outsourcing (ITO) was offset by lower BPO revenue. Services segment revenues represent ~~56%~~57% of total revenues. Services segment margin of ~~9.9% increased 0.5-percentage~~8.6% decreased 0.7-percentage points as compared to the prior year ~~reflecting cost improvements from restructuring as well as lower compensation-related expenses. During the third quarter, signings decreased 7% as compared to the prior year~~primarily due to ~~a lower value of renewals, and~~incremental costs associated with the ~~renewal rate for our BPO/ITO contracts was 89%, which is at the high-end~~implementation of our ~~target range of 85% to 90%.~~new Medicaid and health insurance exchange platforms. Document Technology segment revenues declined by 4% with a 1% positive impact from currency. The decline reflects the continued migration of customers to Xerox managed print services (included in our Services segment), weakness in developing markets and price declines ~~partially offset by~~as well as the ~~benefits~~impacts from the ~~recent refresh~~prior period sales of ~~our mid-range products and improving trends on our high-end products.~~finance receivables. Document Technology segment margin of ~~12.1%~~12.2% increased by ~~1.3-percentage~~3.4-percentage points as compared to the prior year, reflecting the benefits from productivity improvements ~~including~~and restructuring, ~~savings~~lower pension expense and favorable currency impacts.

Total revenue of $15.9 billion for the nine months ended September 30, 2013 decreased 1% from the prior year with no impact from currency. Services segment revenues increased 4% reflecting growth in all three of our outsourcing service offerings. Services segment margin of 9.8% was flat as compared to the prior year. Document Technology segment revenues declined by 6% primarily due to the continued migration of customers to Xerox managed print services and price declines. Document Technology segment margin of 10.6% decreased by 0.3-percentage points as compared to the prior year.

Net income from continuing operations attributable to Xerox for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 was ~~$288~~$279 million ~~and $875 million, respectively,~~ and included $52 million ~~and $154 million, respectively,~~ of after-tax amortization of intangibles. Net income from continuing operations attributable to Xerox for the three ~~and nine~~ months ended ~~September 30, 2012~~March 31, 2013 was ~~$280~~$293 million ~~and $850 million, respectively,~~ and included $51 million ~~and $152 million, respectively,~~ of after-tax amortization of intangibles.

~~Xerox 2013 Form 10-Q~~

Cash flow from operations was ~~$1,407~~$286 million for the ~~nine~~three months ended ~~September 30, 2013,~~March 31, 2014, as compared to ~~$807~~an $87 million ~~from~~use in the prior year ~~period, reflecting lower cash usage~~period. The increase reflects improvements from accounts receivables and accounts payables, in part reflecting timing, as well as ~~lower pension contributions.~~an improvement in inventory due to a higher level of inventory in 2013 related to our ConnectKey product launch. Cash used in investing activities of ~~$402~~$120 million reflects capital expenditures of ~~$316~~$103 million and acquisitions of ~~$158~~$54 million partially offset by ~~$52~~$33 million of proceeds ~~primarily~~ from ~~building sales.~~the sale of surplus real estate. Cash used in financing activities was ~~$1,299~~$349 million, reflecting ~~$931 million net payments on debt, $219~~$74 million for dividends and ~~$172~~$275 million for share repurchases. ~~The debt repayments include~~

As a result of the ~~payment of $1 billion of Senior Notes.~~

~~In summary, the third quarter 2013 results reflect solid performance for our~~slower than anticipated start in Services ~~and Document Technology segments. Although year-to-date services signings were strong and the renewal rate for contracts is within our target range,~~revenue, we do expect ~~pressure on segment~~full year 2014 revenue ~~and margin~~ in the ~~fourth quarter 2013 as compared~~range of flat to slightly down with contributions from acquisitions coming later in the ~~prior~~ year. ~~Our~~Full year 2014 earnings are expected to be impacted by a lower than previously expected Services segment margin partially offset by a modest upside in Document Technology segment ~~results benefited from the transition to new products~~margin and ~~sales of high-end products; however, segment margin~~a lower full-year tax rate. We will ~~likewise be pressured in the fourth quarter 2013 as compared to the prior year. We~~ continue to ~~focus on improving~~improve our cost infrastructure and ~~aligning~~align our investments and capital consistent with expected market opportunities.

During the second quarter 2013, we completed the sale of our North American paper business to Domtar Corporation and entered into an agreement to sell our European paper business to Antalis. The sale of our European paper business is expected to be completed in the fourth quarter 2013. As a result of these transactions, in the second quarter 2013 we began to report the results from these businesses as discontinued operations. Refer to Note 5 - Divestitures in the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.

Xerox 2014 Form 10-Q

Financial Review

Revenues


	Three Months Ended September 30,								Nine Months Ended September 30,								Nine Months Ended September 30,				Three Months Ended March 31,								Three Months Ended March 31,
(in millions)	2013			2012			% Change		2013			2012			% Change		% of Total Revenue 2013		% of Total Revenue 2012		2014			2013			% Change		% of Total Revenue 2014		% of Total Revenue 2013
Equipment sales	$	811		$	805		1	%	$	2,390		$	2,462		(3	)%	15	%	15	%	$	715		$	724		(1	)%	14	%	14	%
Annuity revenue	4,451			4,470			—	%	13,476			13,512			—	%	85	%	85	%	4,406			4,478			(2	)%	86	%	86	%
Total Revenue	$	5,262		$	5,275		—	%	$	15,866		$	15,974		(1	)%	100	%	100	%	$	5,121		$	5,202		(2	)%	100	%	100	%
Reconciliation to Condensed Consolidated Statements of Income:
Sales	$	1,372		$	1,389		(1	)%	$	4,119		$	4,268		(3	)%					$	1,272		$	1,293		(2	)%
Less: Supplies, paper and other sales	(561		)	(584		)	(4	)%	(1,729		)	(1,806		)	(4	)%					(557		)	(569		)	(2	)%
Equipment Sales	$	811		$	805		1	%	$	2,390		$	2,462		(3	)%					$	715		$	724		(1	)%
Outsourcing, maintenance and rentals	$	3,757		$	3,726		1	%	$	11,383		$	11,255		1	%					$	3,749		$	3,792		(1	)%
Add: Supplies, paper and other sales	561			584			(4	)%	1,729			1,806			(4	)%					557			569			(2	)%
Add: Financing	133			160			(17	)%	364			451			(19	)%					100			117			(15	)%
Annuity Revenue	$	4,451		$	4,470		—	%	$	13,476		$	13,512		—	%					$	4,406		$	4,478		(2	)%

~~Third~~First quarter ~~2013~~2014 Total revenues ~~was flat~~decreased 2% as compared to the ~~third~~first quarter ~~2012,~~2013, with ~~a 1-percentage point positive~~no impact from currency, and reflected the following:

~~Xerox 2013 Form 10-Q~~

Annuity revenue ~~was flat~~decreased 2% as compared to the ~~third~~first quarter ~~2012, including a 1-percentage point positive~~2013, with no impact from currency. Annuity revenue is comprised of the following:

◦

Outsourcing, maintenance and rentals revenue of ~~$3,757~~$3,749 million includes outsourcing revenue within our Services segment and maintenance revenue (including bundled supplies) and rental revenue, both primarily within our Document Technology ~~segment. An increase~~segment.The decrease of 1% was primarily driven by an ~~increase~~decrease in ~~outsourcing revenue in our Services segment, partially offset by a decline in maintenance revenue due to moderately lower page volumes.~~the Document Technology segment.


◦	Supplies, paper and other sales of ~~$561~~$557 million includes unbundled supplies and other sales, primarily within our Document Technology segment. AThe decrease of 4%2% was driven by ~~a lowering of channel supplies inventories in the U.S. as well as~~ moderately lower supplies demand.

◦

Financing revenue ~~declined by 17%~~is generated from ~~the third quarter 2012. Approximately $15 million~~financed sale transactions primarily within our Document Technology segment. The decrease of ~~the decrease in revenue was related to the 2012~~15% reflects a lower finance receivable balance primarily as a result of prior period sales of finance receivables ~~with the remainder of the decrease~~and lower originations due to ~~lower volume~~decreased equipment sales. See "Sales of new finance receivables. The third quarter 2013 included a gain of $25 million from the sale of finance receivables from our Document Technology segment while the third quarter 2012 included a gain of $23 million from a similar sale of finance receivables.Finance Receivables" section for further discussion.

Equipment sales revenue is reported primarily within our Document Technology segment and the document outsourcing business within our Services segment. Equipment sales revenue ~~increased~~decreased 1% as compared to the ~~third~~first quarter ~~2012,~~2013, including a 1-percentage point positive impact from currency. ~~Recent~~Benefits from product introductions and a positive mix impact were more than offset by lower sales in developing markets and overall price declines ~~in the range of~~ranging from 5% to 10%, which ~~were~~is consistent with prior periods.

~~Total revenues~~ ~~for the nine months ended September 30, 2013 decreased 1% compared to the prior year period, with no impact from currency, and reflected the following:~~

~~Annuity revenue~~ ~~was flat compared to the prior year period and is comprised of the following:~~

◦

~~Outsourcing, maintenance and rentals revenue~~ of $11,383 million includes outsourcing revenue within our Services segment and maintenance revenue (including bundled supplies) and rental revenue, both primarily within our Document Technology segment. An increase of 1% from the prior year period was driven by an increase in outsourcing revenue in our Services segment, partially offset by a decline in maintenance revenue, due to moderately lower page volumes and revenue per page.


◦	~~Supplies, paper and other sales~~ of $1,729 million includes unbundled supplies and other sales, primarily within our Document Technology segment. A decrease of 4% from the prior period was driven by a decrease in supplies sales to OEM partners, a general lowering of channel inventories and moderately lower supplies demand.

◦

~~Financing revenue~~declined by 19% from the prior year period. Approximately $40 million of the decrease in revenue was related to the 2012 sales of finance receivables with the remainder of the decrease due to lower volume of new finance receivables. Year-to-date 2013 included a gain of $25 million on the sale of finance receivables while year-to-date 2012 included a gain of $23 million on a similar sale of receivables.

~~Equipment sales revenueis reported primarily within our Document Technology segment and the document outsourcing business within our Services segment.~~Equipment sales revenue declined 3% as compared to the prior year period. Declines were driven primarily by the weak macro-economic environment and mix impact in the first half of the year. Year-to-date price declines were in the range of 5% to 10% and are consistent in all quarters.

Additional analysis of the change in revenue for each business segment is included in the “Segment Review” section.

Xerox ~~2013~~2014 Form 10-Q

3228

Costs, Expenses and Other Income

Summary of Key Financial Ratios


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2013		2012		Change	2013		2012		Change	2014		2013		Change
Total Gross Margin	31.5	%	31.5	%	—	31.1	%	31.9	%	(0.8) pts	30.2	%	30.5	%	(0.3) pts
RD&E as a % of Revenue	2.8	%	3.1	%	(0.3) pts	2.8	%	3.1	%	(0.3) pts	2.8	%	3.0	%	(0.2) pts
SAG as a % of Revenue	19.3	%	19.6	%	(0.3) pts	19.5	%	19.7	%	(0.2) pts	18.8	%	20.0	%	(1.2) pts
Operating Margin⁽¹⁾	9.4	%	8.9	%	0.5 pts	8.8	%	9.2	%	(0.4) pts	8.6	%	7.5	%	1.1 pts
Pre-tax Income Margin	6.4	%	6.0	%	0.4 pts	6.1	%	6.0	%	0.1 pts	5.7	%	5.8	%	(0.1) pts

Operating Margin

~~Third~~First quarter ~~2013~~2014 operating margin¹ of ~~9.4%~~8.6% increased ~~0.5-percentage~~1.1-percentage points as compared to the ~~third~~first quarter ~~2012. This increase was~~2013, driven primarily by a ~~decline~~1.4-percentage point improvement in operating expenses as ~~gross margin remained flat.~~

~~Operating margin~~¹ ~~for the nine months ended September 30, 2013~~a percent of ~~8.8% decreased 0.4-percentage points as compared to the prior year period. This decrease was driven primarily~~revenue partially offset by a decline in gross margin of 0.3-percentage points. This operating margin improvement reflects continued productivity and restructuring benefits partially offset by pressure on Services margins from higher government healthcare platform expenses and the run-off of the student loan business. As anticipated, gross margin, SAG and RD&E benefited from lower year-over-year pension expense and settlement losses and we expect these benefits to continue throughout 2014, but at a ~~decline~~lower amount than in ~~operating expenses.~~the first quarter.


~~(1)~~	~~Refer to the Operating Margin reconciliation table in the Non-GAAP Financial Measures section.~~

(1)Refer to the Operating Margin reconciliation table in the Non-GAAP Financial Measures section.

Gross Margins

~~Total Gross Margin~~

Total gross margin for the ~~third~~first quarter ~~2013~~2014 of ~~31.5% was flat~~30.2% decreased 0.3-percentage points as compared to the ~~third~~first quarter ~~2012. An increase in~~2013. While the Document Technology segment gross margin ~~was offset by~~increased 1.2-percentage points, a decrease of 0.7-percentage points in the Services segment gross margin, along with the impact of a higher mix of Services ~~revenue.~~

~~Total~~revenue, resulted in the overall decrease in gross margin for the nine months ended September 30, 2013 of 31.1% decreased 0.8-percentage points as compared to the prior year period. This decrease was driven by revenue mix within the Services segment, contract ramp, as well as the continued increase of Services revenue as a percent of total revenue.margin.

~~Services Gross Margin~~

Services segment gross margin for the third quarter 2013 was flat as compared to the third quarter 2012 as productivity improvements and restructuring benefits offset the impact of price declines and lower volumes in some areas of the business.

Services segment gross margin for the nine months ended September 30, 2013 decreased by 0.5-percentage points as compared to the prior year period. The decrease was driven by the revenue mix within the segment and contract ramp within document outsourcing. Productivity improvement and restructuring savings more than offset the impact of price declines.

~~Document Technology Gross Margin~~

Document Technology segment gross margin for the third quarter 2013 increased 1.0-percentage points as compared to the third quarter 2012. The increase was driven by cost productivities and the benefit from currency on our Yen based purchases that more than offset price declines.

Document Technology segment gross margin for the nine months ended September 30, 2013 increased 0.2-percentage points as compared to the prior year period. The increase was primarily driven by cost productivities and the benefit from currency on our Yen based purchases which more than offset the impact of price declines.

~~Xerox 2013 Form 10-Q~~

Research, Development and Engineering Expenses (RD&E)


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
(in millions)	2013		2012		Change			2013		2012		Change			2014		2013		Change
R&D	$	115	$	133	$	(18	)	$	358	$	411	$	(53	)	$	113	$	126	$	(13	)
Sustaining engineering	30		28		2			90		84		6			31		28		3
Total RD&E Expenses	$	145	$	161	$	(16	)	$	448	$	495	$	(47	)	$	144	$	154	$	(10	)

~~Third~~First quarter ~~2013~~2014 RD&E as a percentage of revenue of 2.8% ~~decreased 0.3-percentage~~was lower by 0.2-percentage points from the ~~third~~first quarter ~~2012. In addition to lower spending and improved productivity, this decrease was driven by~~2013. Benefits from the ~~positive~~higher mix ~~impact~~ of ~~the continued growth in~~ Services revenue ~~which~~(which historically has a lower RD&E as a percentage of ~~revenue.~~revenue), lower spending and productivity improvements exceeded the overall revenue decline on a percentage basis.

RD&E of ~~$145~~$144 million was ~~$16~~$10 million lower than the ~~third~~first quarter ~~2012, reflecting the impact of restructuring and productivity improvements.~~

~~RD&E as a percentage of revenue for the nine months ended September 30,~~ 2013, of 2.8% decreased 0.3-percentage points from the prior year period. In addition to lower spending and improved productivity, this decrease was driven by the positive mix impact of the continued growth in Services revenue, which historically has a lower RD&E as a percentage of revenue.

~~RD&E of $448 million for the nine months ended September 30, 2013 was $47 million lower than the prior year period,~~ reflecting the impact of restructuring and productivity improvements.

Innovation continues to be a core strength and we continue to invest at levels that enhance our innovation, particularly in ~~services,~~Services, color and software. Xerox R&D is strategically coordinated with Fuji Xerox.

Selling, Administrative and General Expenses (SAG)

SAG as a percentage of revenue of ~~19.3%~~18.8% decreased ~~0.3-percentage~~1.2-percentage points from the ~~third~~first quarter ~~2012.~~2013. The decrease was driven primarily by ~~spending reductions reflecting benefits from restructuring and productivity improvements, lower compensation-related expenses as well as~~ the ~~positive~~higher mix ~~impact from the continued growth in~~of Services revenue ~~which~~(which historically has a lower SAG as a percentage of ~~revenue.~~revenue), restructuring and productivity improvements, lower compensation and benefit related expenses and lower bad debt expense. The net reduction in SAG spending exceeded the overall revenue decline on a percentage basis.

Xerox 2014 Form 10-Q

SAG of ~~$1,018~~$961 million was ~~$14~~$79 million lower than the ~~third~~first quarter ~~2012 and~~2013. This included a $1$3 million unfavorable impact from currency for the quarter. SAG expenses reflect the following:

$1932 million decrease in selling ~~expenses, driven primarily by benefits from restructuring and productivity improvements as well as lower compensation-related~~ expenses. ~~These decreases were partially offset by the impact of acquisitions and advertising programs.~~

~~General and administrative expenses were flat as savings from restructuring and productivity improvements were offset by the impact of acquisitions.~~

$537 million ~~increase~~decrease in general and administrative expenses.

$10 million decrease in bad debt expenses to ~~$27~~$14 million, ~~driven~~ primarily ~~by increased bad debt levels in Europe.~~ due to a recovery against a prior period write-off. Bad debt expense for the quarter remained at less than one percent of receivables.

SAG as a percentage of revenue for the nine months ended September 30, 2013 of 19.5% decreased 0.2-percentage points from the prior year period. The decrease was driven by spending reductions reflecting benefits from restructuring and productivity improvements, lower compensation related expenses as well as the positive mix impact from the continued growth in Services revenue, which historically has a lower SAG as a percentage of revenue. This was partially offset by lower revenue in our Document Technology segment.

SAG of $3,100 million for the nine months ended September 30, 2013 was $39 million lower than the prior year period and included a $2 million favorable impact from currency. SAG expenses reflect the following:

$60 million decrease in selling expenses, driven primarily by benefits from restructuring and productivity improvements as well as lower compensation-related expenses. These decreases were partially offset by the impact of acquisitions and investments associated with our mid-range product launch.

~~$12 million increase in general and administrative expenses, as restructuring savings and productivity improvements were more than offset by the impact of acquisitions.~~

~~$9 million increase in bad debt expenses to $85 million.~~

~~Xerox 2013 Form 10-Q~~

Restructuring and Asset Impairment Charges

During the ~~third~~first quarter ~~2013,~~2014, we recorded net restructuring and asset impairment charges of ~~$35~~$27 million, which included approximately ~~$38~~$28 million of severance costs related to headcount reductions of approximately ~~2,150~~1,250 employees ~~primarily~~worldwide, $1 million of lease cancellation costs and $4 million of asset impairments. Included within these amounts are approximately $4 million of severance costs and asset impairments associated with the decision to shut down a Services business in ~~North~~Latin America. These costs were partially offset by ~~$3 million of net reversals and adjustments in estimated reserves from prior period initiatives.~~

During the nine months ended September 30, 2013, we recorded net restructuring and asset impairment charges of $60 million, reflecting $78 million of severance costs related to headcount reductions of approximately 3,300 employees primarily in North America. These costs were partially offset by $18 million of net reversals and adjustment in estimated reserves from prior period initiatives.

During the third quarter 2012, we recorded net restructuring and asset impairment charges of $14 million, which included approximately $17 million of severance costs related to headcount reductions of approximately 870 employees primarily in North America. These costs were partially offset by $3$6 million of net reversals for changes in estimated reserves from prior period initiatives.

During the ~~nine months ended September 30, 2012 ,~~first quarter 2013, we recorded net restructuring and asset impairment ~~charges~~credits of ~~$63~~$8 million, ~~which included approximately $67 million of severance costs related to headcount reductions of approximately 2,000 employees~~ primarily ~~in North America and $7 million of lease cancellation and asset impairment charges. These costs were partially offset by $11 million of~~resulting from net reversals ~~for changes~~and adjustments in estimated reserves from prior period initiatives.

The restructuring reserve balance as of ~~September 30, 2013,~~March 31, 2014, for all programs was ~~$87~~$102 million, of which approximately ~~$78~~$96 million is expected to be spent over the next twelve months.

We expect to incur additional restructuring charges of approximately $0.02 per diluted share in the ~~fourth~~second quarter of ~~2013~~2014, for actions and initiatives which have not yet been finalized.

Refer to Note 10 - Restructuring Programs, in the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

Worldwide Employment

Worldwide employment of approximately ~~141,900~~141,400 at ~~September 30, 2013~~March 31, 2014 decreased by approximately ~~5,700~~1,700 from December 31, ~~2012~~2013, primarily due to restructuring-related actions and normal attrition outpacing hiring and ~~a slower pace~~the impact of acquisitions.

Other Expenses, Net


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2013			2012			2013			2012			2014			2013
Non-financing interest expense	$	60		$	56		$	183		$	172		$	64		$	61
Interest income	(3		)	(3		)	(9		)	(10		)	(2		)	(2		)
Gains on sales of businesses and assets	(24		)	4			(33		)	1			(30		)	—
Currency (gains) losses, net	—			—			(7		)	—
Currency losses (gains), net													1			(4		)
Litigation matters	—			(1		)	(37		)	(2		)	(1		)	(37		)
Loss on sales of accounts receivable	4			4			13			16			4			4
Deferred compensation investment gains	(6		)	(5		)	(11		)	(9		)	(2		)	(6		)
All other expenses, net	8			3			16			22			6			1
Total Other Expenses, Net	$	39		$	58		$	115		$	190		$	40		$	17

Note: Total Other Expenses, Net with the exception of Deferred compensation investment gains are included in the Other segment. Deferred compensation investment gains are included in the Services segment together with the related deferred compensation expense.

~~Xerox 2013 Form 10-Q~~

Non-Financing Interest Expense: Non-financing interest expense for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 of ~~$60~~$64 million ~~and $183~~was $3 million ~~respectively, were $4 million and $11 million~~ higher ~~respectively,~~ than the prior year comparable ~~periods.~~period. However, when non-financing interest expense is combined with financing interest expense (cost of financing), total company interest expense declined by $5$4 million ~~and $17 million, respectively,~~ from the prior year comparable ~~periods,~~period, primarily driven by a lower average debt ~~balance.~~balance partially offset by a moderately higher average cost of debt.

Xerox 2014 Form 10-Q

Gains on Sales of Businesses and Assets: Gains on sales of businesses and assets in the ~~third~~first quarter ~~2013~~2014 was primarily the result of a ~~$23~~$30 million gain on the sale of a ~~U.S. facility. Gains on sales of businesses and assets for the nine months ended September 30, 2013 included the gain on the sale of a facility in the U.S. and a~~ surplus facility in Latin ~~America in the second quarter 2013 of approximately $8 million.~~America.

Litigation Matters: Litigation matters for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 of $(37) million primarily reflects the benefit resulting from a reserve reduction related to litigation developments in the first quarter 2013.

~~Loss on Sales of Accounts Receivable:~~ ~~The loss on sales of accounts receivable for the nine months ended September 30, 2013 was $3 million lower than the prior year comparable period primarily due to lower sales of receivables in 2013.~~

Income Taxes

~~Third~~First quarter ~~2013~~2014 effective tax rate was ~~25.4%~~16.8%. On an adjusted basis¹, the ~~third~~first quarter ~~2013~~2014 tax rate was ~~27.8%~~21.6%, which was lower than the U.S. statutory tax rate primarily due to ~~benefits~~a net benefit of approximately $33 million resulting from the redetermination of certain unrecognized tax positions upon conclusion of several audits as will as foreign tax credits ~~which were partially offset by the discrete impact of $12 million for the U.K. corporate income tax rate reduction and the corresponding adjustment to our deferred tax assets.~~from anticipated dividends.

The effective tax rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 was ~~21.0%~~16.7%. On an adjusted basis¹, the tax rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 was ~~24.5%~~21.4%. The adjusted tax ~~rate~~rates for the ~~year-to date 2013 period was~~three months were lower than the U.S. statutory tax rate primarily due to ~~the benefit of~~ foreign tax credits resulting from anticipated dividends and other foreign transactions and the retroactive tax benefits from the American Taxpayer Relief Act of 2012 tax law change of approximately $19 million, which were partially offset by the discrete impact of $12 million for the U.K. corporate income tax rate reduction and the corresponding adjustment to our U.K. deferred tax assets. The adjusted tax rate for the year-to-date 2013 period also included a 2-percentage point benefit as a result of the increase in foreign tax credits from certain foreign transactions.

~~The effective tax rate for the three and nine months ended September 30, 2012 was 19.7% and 20.8%, respectively. On an adjusted basis~~¹ the tax rate for the three and nine months ended September 30, 2012 was 23.5% and 24.3%, respectively. The adjusted tax rates for the three and nine months were lower than the U.S. statutory tax rate primarily due to foreign tax credits from anticipated dividends and other foreign transactions. In addition, a net tax benefit from adjustments of certain unrecognized tax positions was offset by a similar impact from the 2012 reduction in the U.K. corporate income tax rate.million.

Xerox operations are widely dispersed. The statutory tax rate in most non-U.S. jurisdictions is lower than the combined U.S. and state tax rate. The amount of income subject to these lower foreign rates relative to the amount of U.S. income will impact our effective tax rate. However, no one country outside of the U.S. is a significant factor to our overall effective tax rate. Certain foreign income is subject to U.S. tax net of any available foreign tax credits. Our full-year effective tax rate includes a benefit of approximately 10 ~~to 12~~ percentage points from these non-U.S. operations, which is comparable to ~~2012.~~2013.

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 intangibles amortization, ~~and other discrete items,~~ we anticipate that our effective tax rate for the remaining quarters of 2014 will be approximately 25% to 27% and for the ~~fourth quarter of 2013. We estimate that potential discrete items and other future events could result in a reduction of~~full year we anticipate it will be approximately 224% to ~~3 percentage points in the estimated fourth quarter 2013 rate.~~26%.


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

~~Xerox 2013 Form 10-Q~~

Equity in Net Income of Unconsolidated Affiliates


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(in millions)	2013		2012		2013		2012		2014		2013
Total equity in net income of unconsolidated affiliates	$	43	$	34	$	126	$	105	$	42	$	47
Fuji Xerox after-tax restructuring costs	3		5		8		15
Fuji Xerox after-tax restructuring costs included in equity income									3		4

Equity in net income of unconsolidated affiliates primarily reflects our 25% share of Fuji Xerox net income. The ~~increase~~decrease in equity income ~~reflects higher Fuji Xerox net income.~~is due primarily to negative translation currency impact.

Net Income from Continuing Operations

~~Third~~First quarter ~~2013~~2014 net income from continuing operations attributable to Xerox was ~~$288~~$279 million, or ~~$0.22 per diluted share. On an adjusted basis~~¹~~, net income from continuing operations attributable to Xerox was $340 million, or $0.26 per diluted share and reflects the adjustment for amortization of intangible assets.~~

~~Third quarter 2012 net income from continuing operations attributable to Xerox was $280 million, or $0.21~~$0.23 per diluted share. On an adjusted basis¹, net income from continuing operations attributable to Xerox was $331 million, or ~~$0.25~~$0.27 per diluted share and ~~reflected~~reflects the adjustment for ~~the~~ amortization of intangible assets.

~~Net~~First quarter 2013 net income from continuing operations attributable to Xerox ~~for the nine months ended September 30, 2013~~ was ~~$875~~$293 million, or ~~$0.68~~$0.23 per diluted share. On an adjusted basis¹, net income from continuing operations attributable to Xerox was ~~$1,029~~$344 million, or ~~$0.80 per diluted share and reflects the adjustment for amortization of intangible assets.~~

~~Net income from continuing operations attributable to Xerox for the nine months ended September 30, 2012 was $850 million, or $0.62 per diluted share. On an adjusted basis~~¹~~, net income from continuing operations attributable to Xerox was $1,002 million, or $0.74~~$0.27 per diluted share and reflected ~~adjustment~~adjustments for the amortization of intangible assets.


(1)	Refer to the Net Income and EPS reconciliation table in the Non-GAAP Financial Measures section.

Xerox 2014 Form 10-Q

Discontinued Operations

~~During the second quarter~~In 2013, in connection with our decision to exit from the Paper distribution business, we completed the sale of our North American (N.A.) ~~Paper business~~ and ~~entered into an agreement to sell our~~Western European Paper ~~business.~~

businesses. As a result of these transactions, ~~in the second quarter 2013~~ we ~~began to report~~reported these paper-related operations as Discontinued Operations and reclassified their results from the Other segment to Discontinued ~~Operations. All prior periods have accordingly been reclassified to conform to this presentation.~~

~~In the second quarter of 2013 we~~Operations in 2013. We recorded a net pre-tax loss on disposal of ~~$23~~$25 million in 2013 for the disposition of ~~our N.A. and European Paper businesses. The loss is primarily related to exit and disposal costs associated with~~ these businesses. ~~The disposals are expected to result~~In the first quarter 2014, we recorded income of $2 million in ~~a reduction in headcount of approximately 300 employees, primarily in Europe.~~

~~The aggregate net loss from~~ discontinued operations ~~attributable~~primarily representing adjustments to ~~Xerox for~~ the ~~three and nine months ended September 30,~~loss on disposal recorded in 2013 was $2 million and $22 million, respectively. There was no impact per diluted share for three months and a loss of $0.01 per diluted share for the nine months ended September 30, 2013. The aggregate net income from discontinued operations attributabledue to ~~Xerox for the three and nine months ended September 30, 2012 was $2 million and $10 million, respectively. There was no impact per diluted share for the three and nine months ended September 30, 2012.~~changes in estimates.

Refer to Note 5 - Divestitures, in the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.

~~Xerox 2013 Form 10-Q~~

Net Income

~~Third~~First quarter 2014 net income attributable to Xerox was $281 million, or $0.23 per diluted share. First quarter 2013 net income attributable to Xerox was ~~$286~~$296 million, or ~~$0.22 per diluted share. third quarter 2012 net income attributable to Xerox was $282 million, or $0.21 per diluted share.~~

Net income attributable to Xerox for the nine months ended September 30, 2013 was $853 million, or $0.67 per diluted share. Net income attributable to Xerox for the nine months ended September 30, 2012 was $860 million, or $0.62$0.23 per diluted share.

Other Comprehensive Income

~~Third~~First quarter ~~2013~~2014 Other comprehensive ~~income~~loss attributable to Xerox was $~~245~~59 million as compared to a $~~332~~268 million loss in the ~~third~~first quarter ~~2012.~~2013. The ~~decrease~~decreased loss of $87209 million was primarily due to a ~~lower amount of gains~~significant decrease in the losses from the translation of our foreign currency denominated net assets in ~~2013~~the first quarter 2014 as compared to ~~2012.~~the first quarter 2013, which was only partially offset by net changes in our defined benefit plans. The lower amount of translation ~~gains~~losses are ~~lower in 2013~~ primarily ~~as a~~the result of a relatively ~~less strengthening~~flat movement of our major foreign currencies against the U.S. Dollar in ~~2013~~the first quarter of 2014 as compared to ~~2012.~~

~~Other comprehensive loss attributable to Xerox for the nine months ended September 30, 2013 was $~~50 ~~million as compared to income of~~ ~~$170~~ ~~million~~a significant weakening in the ~~prior year period. The decrease~~first quarter of $220 million was primarily due to losses of $178 million from the translation of our foreign currency denominated net assets in 2013 as compared to translation gains of $181 million in 2012. The translation losses in 2013 are the result of an overall weakening of our major foreign currencies against the U.S. Dollar while the translation gains in 2012 were the result of an overall strengthening of those same foreign currencies in 2012. The increase in translation losses were partially offset by a benefit from the net changes in defined benefit plans.2013. Refer to Note 14 - Employee Benefit Plans, in the Condensed Consolidated Financial Statements for additional information regarding net changes in our defined benefit plans.

Segment Review


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(in millions)	Total Revenue		% of Total Revenue		Segment Profit (Loss)			Segment Margin		Total Revenue		% of Total Revenue		Segment Profit (Loss)			Segment Margin		Equipment Sales Revenue		Annuity Revenue		Total Revenue		% of Total Revenue		Segment Profit (Loss)			Segment Margin
2014
Services																			$	116	$	2,807	$	2,923	57	%	$	251		8.6	%
Document Technology																			576		1,469		2,045		40	%	250			12.2	%
Other																			23		130		153		3	%	(51		)	(33.3	)%
Total																			$	715	$	4,406	$	5,121	100	%	$	450		8.8	%

2013
Services	$	2,944	56	%	$	292		9.9	%	$	8,820	56	%	$	866		9.8	%	$	100	$	2,820	$	2,920	56	%	$	273		9.3	%
Document Technology	2,159		41	%	261			12.1	%	6,557		41	%	692			10.6	%	597		1,538		2,135		41	%	187			8.8	%
Other	159		3	%	(55		)	(34.6	)%	489		3	%	(186		)	(38.0	)%	27		120		147		3	%	(70		)	(47.6	)%
Total	$	5,262	100	%	$	498		9.5	%	$	15,866	100	%	$	1,372		8.6	%	$	724	$	4,478	$	5,202	100	%	$	390		7.5	%

2012
Services	$	2,847	54	%	$	269		9.4	%	$	8,474	53	%	$	830		9.8	%
Document Technology	2,259		43	%	245			10.8	%	6,967		44	%	758			10.9	%
Other	169		3	%	(66		)	(39.1	)%	533		3	%	(194		)	(36.4	)%
Total	$	5,275	100	%	$	448		8.5	%	$	15,974	100	%	$	1,394		8.7	%

~~Xerox 2013 Form 10-Q~~

Services

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

Xerox 2014 Form 10-Q

Revenue


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
(in millions)	2013			2012			Change		2013			2012			Change		2014			2013			Change
Business Processing Outsourcing	$	1,766		$	1,743		1	%	$	5,357		$	5,208		3	%	$	1,767		$	1,802		(2	)%
Document Outsourcing	828			788			5	%	2,448			2,354			4	%	823			788			4	%
Information Technology Outsourcing	391			361			8	%	1,154			1,037			11	%	378			375			1	%
Less: Intra-segment elimination	(41		)	(45		)	(9	)%	(139		)	(125		)	11	%	(45		)	(45		)	—	%
Total Services Revenue	$	2,944		$	2,847		3	%	$	8,820		$	8,474		4	%	$	2,923		$	2,920		—	%

_______________

Note:

The ~~2012 Business Process Outsourcing (BPO)~~2013 BPO and ~~Document Outsourcing (DO)~~ITO revenues have been ~~restated~~revised to ~~reflect~~conform to the ~~transfer~~2014 presentation of the Communication & Marketing Services (CMS) business from DO to BPO in 2013. The revenue transfers by quarter were: $108 million for the first quarter; $114 million for the second quarter; $109 million for the third quarter; and $119 million for the fourth quarter.revenues.

~~Third~~First quarter ~~2013~~2014 Services total revenue of ~~$2,944~~$2,923 million ~~increased 3% from~~was 57% of total revenue and was essentially flat with the ~~third~~first quarter ~~2012,~~2013, with no impact from currency.

BPO revenue ~~increased 1%~~decreased 2% and represented 59% of total Services revenue. The anticipated run-off of the student loan business had a 2% negative impact on BPO revenue growth ~~was driven by our healthcare~~in the quarter. Growth in the commercial and government healthcare businesses ~~partially~~and in the commercial European BPO businesses was offset by lower volumes in portions of our ~~commercial BPO business as well as our student loan business.~~customer care and government and transportation businesses.


◦	First quarter 2014 BPO revenue mix across the major business areas was as follows: commercial 45%, government and transportation 25%. commercial healthcare 17% and government healthcare 13%.

DO revenue increased 5%4% and represented 28% of total Services revenue. DO growth was driven primarily by our partner print services offerings ~~as well as higher equipment sales.~~and improvement in Europe.

ITO revenue increased 8%1% and represented 13% of total Services revenue. ITO growth was driven by the continued revenue ramp ~~on prior period signings.~~

~~Services total revenue for the nine months ended September 30, 2013 of $8,820 million increased 4%~~ from ~~the comparable prior year period, with no impact from currency.~~

BPO revenue increased 3% and represented 60% of total Services revenue. BPO growth was driven by our government healthcare, healthcare payer and customer care businesses as well as the benefits from recent acquisitions. Growth in these areas was partially offset by the elimination and runoff of our government and commercial student loan businesses.

~~DO revenue increased 4% and represented 28% of total Services revenue. DO growth was driven primarily by our new partner print services offerings as well as higher equipment sales.~~

~~ITO revenue increased 11% and represented 12% of total Services revenue. ITO growth was driven by the continued revenue ramp on~~ prior period signings ~~including several large deals signed~~and strength in ~~2011.~~our healthcare offerings. As expected, ITO growth continues to decelerate as compared to prior quarters

Considering the slower than anticipated start in Services revenue ~~growth rates are consistent with expectations with DO reflecting stable mid-single digit growth, ITO growth beginning to moderate and BPO growth being pressured from lower acquisition levels~~in the first quarter 2014 and the ~~elimination and runoff of our government and commercial student loan businesses. We~~delayed contribution from acquisitions, we expect ~~these growth dynamics to continue and result in relatively flat year-over-year services revenue growth in~~Services revenues will grow approximately 3% for the ~~fourth quarter 2013.~~full year 2014. However, we expect ~~services~~ revenue growth to ~~improve~~average in ~~2014 driven by favorable~~the mid-single digits in the second half of the year reflecting a ramp in signings, renewals, a strong pipeline and ~~acquisitions.~~

~~Xerox 2013 Form 10-Q~~

acquisitions as well as the lessening impact from the run-off of the student loan business.

Segment Margin

~~Third~~

First quarter ~~2013~~2014 Services segment margin of ~~9.9% increased 0.5-percentage~~8.6% decreased 0.7-percentage points from the first quarter 2013, driven primarily by a gross margin decline of 0.7-percentage points, as ~~compared~~margin improvements in DO, commercial BPO and commercial healthcare were more than offset by decreased margin in government healthcare. Productivity improvements and restructuring benefits were not enough to offset higher expenses in the ~~third quarter 2012,~~government healthcare business associated with ~~gross margin unchanged~~the implementation of our Medicaid and ~~continued~~Health Insurance Exchange platforms, the anticipated run-off of the student loan business and price declines that were consistent with prior periods. SAG ~~improvements which included benefits from restructuring~~and RD&E combined improved moderately overall and as ~~well as lower compensation-related expenses. In addition, the third quarter 2012 included~~ a percent of revenue. The higher than anticipated government healthcare platform costs had a 0.7-percentage point negative impact ~~from the write-off of up-front investments associated with a government contract.~~on segment margin.

~~Services segment margin for the nine months ended September 30, 2013 of 9.8% was flat compared to the prior~~Full year ~~period, as the decline in gross margin was offset by continued focus on SAG improvements which included benefits from restructuring and lower compensation-related expenses.~~

2014 Services segment margin is expected to ~~continue~~be flat to ~~be pressured in the fourth~~0.4-percentage points lower as compared to full year 2013 segment margin of 9.8%, reflecting our first quarter ~~2013, as we attempt to manage the negative impacts from the run-off of our student loan business as well as a lower level of inorganic growth. In addition, we are incurring~~2014 performance and expectations for continued higher costs ~~including amortization expense associated with the roll-out of our new healthcare platforms. As a result, we expect Services margin will decline from a relatively strong 11.2%~~ in ~~the fourth quarter 2012 to about 10% in the fourth quarter 2013.~~government healthcare. Longer term, we expect to continue to take actions to improve our mix to higher value offerings while ~~reducing our overall~~continuing to drive productivity and cost ~~structure.~~structure improvements.

Xerox 2014 Form 10-Q

Metrics

~~Pipeline~~

Pipeline:Our total Services sales pipeline grew 5%9% over the ~~third~~first quarter ~~2012.~~2013. This sales pipeline includes the Total Contract Value (TCV) of new business opportunities that potentially could be contracted within the next six months and excludes business opportunities with estimated annual recurring revenue in excess of $100 million.

~~Signings~~

Signings:Signings are defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts.

Signings were as follows:


(in millions)	Three Months Ended September 30, 2013		Nine Months Ended September 30, 2013		Three Months Ended March 31, 2014
BPO	$	1,760	$	7,150	$	2.1
DO	860		2,430		0.7
ITO	260		680		0.2
Total Signings	$	2,880	$	10,260	$	3.0

~~Signings decreased~~ 7% ~~as compared to the third quarter 2012 with fewer eligible renewals offsetting increased new business signings.~~ Signings on a trailing twelve month basis increased 9%1% in relation to the comparable prior year period. Signings decreased 20% as compared to the first quarter 2013, primarily due to a much lower level of renewal decisions than in first quarter 2013, and lower new business signings which were partially impacted by customer decision delays. New business annual recurring revenue (ARR) and non-recurring revenue (NRR) decreased 7% from the first quarter 2013, partially attributable to customer decision delays in the quarter. The above DO signings amount does not include signings from our partner print services offerings.

Note: TCV is the estimated total revenue for future contracts for the pipeline or signed contracts for signings, as applicable.

Renewal Rate (BPO and ITO)

: Renewal rate is defined as the ~~annual recurring revenue (ARR)~~ARR on contracts that are renewed during the period as a percentage of ARR on all contracts on which a renewal decision was made during the period. The ~~third~~first quarter ~~2013~~2014 contract renewal rate for BPO and ITO contracts was ~~89%~~91%, which ~~is at~~was 2-percentage points higher than the ~~high end of our~~first quarter 2013 and exceeded target range of 85% to 90%. Although the renewal rate was higher, total renewal decisions were lower than the first quarter 2013.

~~Xerox 2013 Form 10-Q~~

Document Technology

Our Document Technology segment includes the sale of products and supplies, as well as the associated maintenance and financing of those products. ~~Document Technology revenue excludes the impact of growth in the Xerox document outsourcing business.~~

Revenue


	Three Months Ended September 30,				Change		Nine Months Ended September 30,				Change		Three Months Ended March 31,				Change
(in millions)	2013		2012		Change		2013		2012		Change		2014		2013		Change
Equipment sales	$	647	$	664	(3	)%	$	1,937	$	2,052	(6	)%	$	576	$	597	(4	)%
Annuity revenue	1,512		1,595		(5	)%	4,620		4,915		(6	)%	1,469		1,538		(4	)%
Total Revenue	$	2,159	$	2,259	(4	)%	$	6,557	$	6,967	(6	)%	$	2,045	$	2,135	(4	)%

Xerox 2014 Form 10-Q

~~Third~~34

First quarter ~~2013~~2014 Document Technology revenue of ~~$2,159~~$2,045 million decreased 4% from the ~~third~~first quarter ~~2012,~~2013, including a 1-percentage point positive impact from currency. Document Technology revenue excludes the impact of growth in Document Outsourcing. Inclusive of Document Outsourcing, ~~third~~first quarter ~~2013~~2014 aggregate document-related revenue decreased 2% from the ~~third~~first quarter ~~2012.~~2013. Document Technology segment revenue results included the following:

Equipment sales revenue decreased by 3%4% from the ~~third~~first quarter ~~2012, including a 1-percentage point positive~~2013 with no impact from currency. Equipment sales ~~benefited~~continue to benefit from ~~our recent mid-range~~ product ~~refresh~~refreshes in 2013, growth and acquisitions in the small and mid-sized business market and increased demand for color digital production presses. These benefits were more than offset by the continued migration of customers to our ~~rapidly~~ growing partner print services offering (included in our Services segment) ~~and~~, weakness in developing ~~markets. Price~~markets and price declines, which were in the historical 5% to 10% range.

Annuity revenue decreased by 5%4% from the ~~third~~first quarter ~~2012,~~2013, including a 1-percentage point positive impact from ~~currency, driven by~~currency. The decrease reflects a modest decline in total pages, weakness in developing markets and a continued decline in financing revenue as a result of prior period sales of finance receivables and lower originations. Annuity revenue is also impacted by the continued migration of customers to our partner print services offering (included in our Services segment)~~, and a continued decline in financing revenue.~~.

Document Technology revenue mix was ~~21% entry, 58%~~57% mid-range, 22% high-end and 21% ~~high-end, consistent with recent quarters.~~

Document Technology revenue for the nine months ended September 30, 2013 of $6,557 million decreased 6% from the prior year period, with no impact from currency. Inclusive of Document Outsourcing, nine months ended September 30, 2013 aggregate document-related revenue decreased 3% from the prior year period. Document Technology segment revenue results included the following:

~~Equipment sales revenue~~ decreased by 6% from the prior year period. Equipment sales benefited from our recent mid-range product refresh and increased demand for color digital production presses. These benefits were more than offset by the continued migration of customers to our rapidly growing partner print services offerings (included in our Services segment) as well as the weak macro-economic environment. Price declines were in the historical 5% to 10% range.

~~Annuity revenue~~ decreased by 6% from the prior year period, driven by a modest decline in total pages and revenue per page, the continued migration of customers to our partner print services offering (included in our Services segment), a decrease in supplies sales to our OEM partners and a decline in financing revenue.

~~Document Technology revenue mix~~ ~~was 21%~~ entry, ~~58% mid-range and 21% high-end,~~ consistent with recent quarters.

Total revenue declines are expected to remain at the mid-single digit level for the Document Technology ~~segment, reflecting stabilization in the U.S. and continued economic weakness in Europe and some developing market economies.~~segment. The ~~2013~~2014 expected revenue decline for the Document Technology segment is consistent with the trend we have experienced for this segment over the past two years as we continue to transform the company from a technology-based equipment company to a document outsourcing services-based entity and customers continue to migrate their business to more services-based offerings. These services-based offerings are reported within our Services segment. This business is also heavily impacted by price and page declines. Consistent with this trend, annual revenue declines are expected in future years. ~~However, we expect to manage the impact of those declines through measures to improve productivity and reduce costs and expenses.~~

~~Xerox 2013 Form 10-Q~~

Segment Margin

~~Third~~

First quarter ~~2013~~2014 Document Technology segment margin of ~~12.1%~~12.2% increased by ~~1.3-percentage~~3.4-percentage points from the ~~third~~first quarter ~~2012. The increase was largely~~2013, driven by a ~~1.0-percentage~~1.2-percentage point increase in gross margin ~~due to~~as the benefits from ~~productivity improvements including~~ restructuring, ~~savings~~cost productivities, lower pension expense and settlement losses, and favorable currency ~~impacts, which~~on Yen-based purchases more than offset ~~pricing~~price declines.

~~Document Technology segment margin for~~ SAG and RD&E benefits from restructuring, productivity improvements and lower pension and settlement losses more than offset the ~~nine months ended September 30, 2013~~impact of ~~10.6% decreased by 0.3-percentage points from the prior year period. The decline was primarily driven by an increase in SAG as~~overall lower revenues on a ~~percent of revenue due to lower revenue and the timing of our restructuring actions.~~percentage basis.

We expect Document Technology segment margin ~~will decline in~~to remain strong and be at the ~~fourth quarter 2013 from a relatively strong 12.3% in the fourth quarter 2012 to the higher~~high end of our target range of 9 to 11%~~. The~~ for the full-year 2014. We continue to maintain our focus on productivity and cost improvements in light of the expected decline ~~reflects higher pension settlement losses as well as lower finance receivable sales versus the prior year, the gains of which are included~~ in ~~finance income (See Sales of Finance Receivables in the Capital Resources and Liquidity section).~~revenues.

Total Installs ~~(Technology~~(Document Technology and Document Outsourcing¹)

Install activity includes installations for document outsourcing and Xerox-branded products shipped to Global Imaging ~~Systems (GIS).~~Systems. Details by product groups is shown below:

~~Entry~~

Entry:Installs for the ~~third~~first quarter ~~2013~~2014:


•	~~41%~~20% increase in color multifunction devices driven by demand for the ~~recently introduced~~ WorkCentre^® ~~6605 and WorkCentre~~^® ~~6015.~~products.

1%2% ~~decrease~~increase in color printers.

~~21%~~4% decrease in black-and-white multifunction devices driven by ~~declines in~~ developing markets.

~~Installs for the~~ Mid-Range:~~nine months ended September 30, 2013~~:


•	~~35%~~ ~~increase in color multifunction devices driven by demand for the recently introduced WorkCentre~~^® ~~6605, WorkCentre~~^® ~~6015 and ColorQube 8700/8900.~~

1% ~~increase in color printers driven by demand for the Phaser 6600 family of products as well as an increase in sales to OEM partners.~~

~~17%~~ ~~decrease in black-and-white multifunction devices driven by declines in all geographies.~~

~~Mid-Range~~

Installs for the ~~third~~first quarter ~~2013~~2014 :

9%7% increase in ~~installs of~~ mid-range color devices driven by demand for the ConnectKey products.

3%14% decrease in ~~installs~~ of mid-range black-and-white devices.

~~Installs for the~~ High-End:~~nine months ended September 30, 2013~~:

7% ~~increase in installs of mid-range color devices driven by demand for the ConnectKey products.~~

4% ~~decrease in installs of mid-range black-and-white devices.~~

~~High-End~~

Installs for the ~~third~~first quarter ~~2013~~2014:

~~92%~~33% increase in ~~installs of~~ high-end color systems driven by growth in the ~~sale of digital front-ends (DFE's) to Fuji Xerox as well as strong customer demand for the~~ Color J75 ~~Press~~and C75 Presses and the iGen as we continue to strengthen our market leadership in the Production Color segment. ~~High-end~~Excluding Fuji Xerox DFE sales, high-end color installs increased ~~14%, excluding the DFE sales to Fuji Xerox.~~47%.

9%14% decrease in ~~installs of~~ high-end black-and-white systems, reflecting ~~continued declines in the overall market.~~decreased demand across our DocuPrint and Nuvera product lines.

Xerox ~~2013~~2014 Form 10-Q

4235

~~Installs for the~~ ~~nine months ended September 30, 2013~~:

~~54%~~ increase in installs of high-end color systems driven by growth across several product areas, including sale of digital front-ends (DFE's) to Fuji Xerox, Color J75 Press and iGen, as we continue to strengthen our market leadership in the Production Color segment. High-end color installs increased 20%, excluding the DFE sales to Fuji Xerox.

~~13%~~ ~~decrease in installs of high-end black-and-white systems, reflecting continued declines in the overall market.~~

Note: Install activity percentages include installations for Document Outsourcing and the Xerox-branded product shipments to ~~GIS.~~Global Imaging Systems. Descriptions of “Entry”, “Mid-range” and “High-end” are defined in Note 3 - Segment Reporting, in the Condensed Consolidated Financial Statements.

____________________


(1)	Equipment sales associated with Document Outsourcing are reported in our Services segment revenue.

Other

Revenue

~~Third~~First quarter ~~2013~~2014 Other revenue of ~~$159~~$153 million ~~decreased 6%~~increased 4% from the ~~third~~first quarter ~~2012, with a 2-percentage point positive impact from currency. The decline is due primarily to lower revenue in our wide format business in addition to lower paper sales within developing markets.~~

~~Other revenue for the nine months ended September 30,~~ 2013, ~~of $489 million decreased 8% from the prior year period,~~ with a 1-percentage point positive impact from currency. The ~~decline~~increase is due primarily to ~~lower revenue in our wide format business in addition to lower paper~~higher sales ~~within developing markets.~~of electronic presentation systems. After the ~~previously discussed discontinued operations reporting for~~aforementioned presentation of our ~~North American~~N.A. and European Paper distribution businesses as discontinued operations, total paper revenue (all within developing markets) comprised approximately ~~1/3~~40% of the first quarter 2014 Other segment revenue.

Segment Margin

~~Third~~

First quarter ~~2013~~2014 Other segment loss of ~~$55~~$51 million decreased ~~$11~~$19 million from the ~~third~~first quarter ~~2012,~~2013, primarily driven by the previously discussed gain on the sale of ~~a U.S. facility.~~

~~Other segment loss for~~ the ~~nine months ended September 30, 2013 of $186 million decreased $8 million from the prior year period, primarily driven by the gain on the sale of a~~surplus facility in ~~the U.S.,~~Latin America partially offset by ~~profit declines in our wide format business~~increased non-financing interest expense and currency impacts. Non-financing interest expense as well as ~~an increase in non-financing interest expense. All non-financing interest expense is contained~~all Other expenses, net (excluding Deferred compensation investment gains) are reported within the Other segment.

~~Discontinued Operations~~

During the second quarter 2013, in connection with our decision to exit from the Paper distribution business, we completed the sale of our North American Paper business and entered into an agreement to sell our European Paper business.

As a result of these transactions, in the second quarter 2013 we began to report these paper-related operations as Discontinued Operations and reclassified their results from the Other segment to Discontinued Operations. All prior periods have accordingly been reclassified to conform to this presentation.

~~Xerox 2013 Form 10-Q~~

Detailed below is the restatement for our Other segment and Total segment results for the first quarter of 2013 and all four quarters and the full year of 2012 related to the reclassification of the North American and European Paper business to Discontinued Operations.

2012 2013
(in millions) Q1 Q2 Q3 Q4 YTD Q1
Other segment revenue $ 172
$ 192
$ 169
$ 214
$ 747
$ 147
Total revenue 5,331
5,368
5,275
5,763
21,737
5,202

Other segment profit $ (57 ) $ (71 ) $ (66 ) $ (62 ) $ (256 ) $ (70 )
Total segment profit 451
495
448
588
1,982
390

Other segment margin (33.1 )% (37.0 )% (39.1 )% (29.0 )% (34.3 )% (47.6 )%
Total segment margin 8.5 % 9.2 % 8.5 % 10.2 % 9.1 % 7.5 %

Capital Resources and Liquidity

Our ability to maintain positive liquidity going forward depends on our ability to continue to generate cash from operations and access the financial capital markets, both of which are subject to general economic, financial, competitive, legislative, regulatory and other market factors that are beyond our control.

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, total cash and cash equivalents were $~~948~~1,567 million and $~~1,246~~1,764 million, respectively. There were no borrowings under our Commercial Paper Program or letters of credit under our $2 billion Credit Facility at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

Operating cash flow for the nine months ended September 30, 2013 was $1,407 million and we continue to expect full-year operating cash flow towards the higher-end of the range from $2.1 billion to $2.4 billion. Cash flows from operations were $2,580 million, $1,961 million and $2,726 million for 2012, 2011 and 2010, respectively (year-to-date 2013 and full year 2012 cash flows from operations included a benefit of approximately $169 million and $580 million, respectively, from the sale of finance receivables).

Cash Flow Analysis

The following table summarizes our cash and cash equivalents:


	Nine Months Ended September 30,						Change			Three Months Ended March 31,						Change
(in millions)	2013			2012			Change			2014			2013			Change
Net cash provided by operating activities	$	1,407		$	807		$	600
Net cash provided by (used in) operating activities										$	286		$	(87	)	$	373
Net cash used in investing activities	(402		)	(601		)	199			(120		)	(153		)	33
Net cash used in financing activities	(1,299		)	(222		)	(1,077		)	(349		)	(1		)	(348		)
Effect of exchange rate changes on cash and cash equivalents	(4		)	(4		)	—			(14		)	(12		)	(2		)
Decrease in cash and cash equivalents	(298		)	(20		)	(278		)	(197		)	(253		)	56
Cash and cash equivalents at beginning of period	1,246			902			344			1,764			1,246			518
Cash and Cash Equivalents at End of Period	$	948		$	882		$	66		$	1,567		$	993		$	574

Cash Flows from Operating Activities

Net cash provided by operating activities was ~~$1,407~~$286 million ~~for~~in the ~~nine months ended September 30, 2013.~~first quarter 2014. The ~~$600~~$373 million increase in operating cash from the ~~prior year period~~first quarter 2013 was primarily due to the following:

$~~485~~82 million increase in pre-tax income before depreciation and amortization, restructuring and litigation.

$129 million increase from accounts receivable primarily due to ~~the year over year improved collections and~~ lower ~~revenue~~year-end 2013 accelerated collection programs such as ~~well as the sales of accounts receivable.~~early pay discounts.

$~~148~~102 million increase ~~due to lower contributions to our defined benefit pension plans. This was~~ in ~~line with expectations.~~

~~$107 million increase~~accounts payable and accrued compensation primarily related to the timing of ~~payments of~~ accounts payable ~~and lower accrued compensation.~~

~~Xerox 2013 Form 10-Q~~payments.

$7647 million increase ~~from lower spending for product software and up-front costs for outsourcing service contracts.~~

~~$125 million decrease in finance receivables~~ primarily due to ~~the sale~~higher levels of ~~finance receivables~~inventory in the ~~prior year.~~first quarter 2013 to support the ConnectKey product launch.

$5446 million ~~decrease due to higher growth in inventory reflecting lower sales as well as the launch of new products.~~

~~$26 million decrease~~increase due to the timing of settlements of ~~our~~ foreign currency derivative contracts. These derivatives primarily relate to ~~our~~ hedges of Yen inventory purchases.

$41 million decrease due to lower net run-off of finance receivables primarily related to the impact from the prior period sales of receivables. See "Sales of Finance Receivables" for further discussion.

Xerox 2014 Form 10-Q

We continue to expect that cash flows from operations will be between $1.8 and $2.0 billion for 2014, which includes the adverse impact of prior period sales of finance receivables of approximately $400 million. No sales of finance receivables are planned for 2014.

Cash Flows from Investing Activities

Net cash used in investing activities was ~~$402~~$120 million ~~for~~in the ~~nine months ended September 30, 2013.~~first quarter 2014. The ~~$199~~$33 million decrease in the use of cash from the ~~prior year period~~first quarter 2013 was ~~primarily due to the following:~~

$85 million decrease in acquisitions. 2013 acquisitions include Zeno Office Solutions, Inc., for $59 million, Impika for $53 million and four smaller acquisitions totaling $43 million. 2012 acquisitions include Wireless Data Services for $95 million, RK Dixon for $58 million, Martin Whalen Office Solutions for $31 million, Lateral Data for $30 million and two smaller acquisitions totaling $29 million.

~~$67 million decrease from lower capital expenditures (including internal use software).~~

~~$44 million decrease~~ primarily due to proceeds from the sale of a ~~U.S. facility.~~surplus facility in Latin America.

Cash Flows from Financing Activities

Net cash used in financing activities was ~~$1,299~~$349 million ~~for~~in the ~~nine months ended September 30, 2013.~~first quarter 2014. The ~~$1,077~~$348 million increase in the use of cash from the ~~prior year period~~first quarter 2013 was primarily due to the following:

$~~1,673~~53 million ~~increase from net debt activity. 2013 reflects payments of $1 billion of Senior Notes offset by~~lower net proceeds ~~of $39 million from~~on debt primarily due to the ~~sale and capital leaseback of a building in the U.S. 2012 reflects an~~prior year increase of ~~$744~~$40 million in Commercial Paper.

$24265 million increase ~~primarily due to an increase~~ in ~~the quarterly common stock dividend in 2013 partially offset by lower average shares outstanding.~~share repurchase activity.

$~~546~~29 million ~~decrease from lower share repurchases.~~

~~$53 million decrease~~increase due to higher ~~proceeds from the issuances of~~ common stock ~~under our stock option plans.~~

~~$31~~dividends of $16 million ~~decrease due to lower~~as well as distributions to noncontrolling ~~interests.~~interests of $13 million.

Customer Financing Activities and Debt

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


(in millions)	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Total Finance receivables, net⁽¹⁾	$	4,679	$	5,313	$	4,479	$	4,530
Equipment on operating leases, net	533		535		541		559
Total Finance Assets, net⁽²⁾	$	5,212	$	5,848	$	5,020	$	5,089

___________________________


(1)	Includes (i) billed portion of finance receivables, net, (ii) finance receivables, net and (iii) finance receivables due after one year, net as included in our Condensed Consolidated Balance Sheets.


(2)	The change from December 31, ~~2012~~2013 includes an ~~increase~~decrease of $9$22 million due to currency ~~and a decrease~~across all Finance Assets, with the remainder due primarily to ~~the sale of finance receivables discussed further below.~~repayments exceeding new originations.

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


(in millions)	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Financing debt⁽¹⁾	$	4,561	$	5,117	$	4,393	$	4,453
Core debt	2,980		3,372		3,612		3,568
Total Debt	$	7,541	$	8,489	$	8,005	$	8,021

____________________________


(1)	Financing debt includes $~~4,094~~3,919 million and $~~4,649~~3,964 million as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, of debt associated with Total finance receivables, net and is the basis for our calculation of “Equipment financing interest” expense. The remainder of the financing debt is associated with Equipment on operating leases.

Xerox ~~2013~~2014 Form 10-Q

4537

The following summarizes the components of our debt:


(in millions)	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Principal debt balance(1)	$	7,490		$	8,410		$	7,975		$	7,979
Net unamortized discount	(59		)	(63		)	(56		)	(58		)
Fair value adjustments⁽¹⁾⁽²⁾	110			142			86			100
Total Debt	$	7,541		$	8,489		$	8,005		$	8,021

____________________________


(1)	Includes Notes Payable of $6 million and $5 million as of March 31, 2014 and December 31, 2013, respectively.

(2)

Fair value adjustments include the following - ~~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~~(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.~~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.

Credit Facility

In March 2014, we entered into an Amended and Restated Credit Agreement that extended the maturity date of our $2.0 billion unsecured revolving Credit Facility to March 2019 from December 2016. The amendment also included modest improvements in pricing and minor changes in the composition of the group of lenders.

At March 31, 2014 we had no outstanding borrowings or letters of credit under our Credit Facility.

Refer to Note 11 - Debt in the Condensed Consolidated Financial Statements for additional information.

Sales of Accounts Receivable

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

Accounts receivables sales were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2013			2012			2013			2012			2014		2013
Accounts receivable sales	$	814		$	725		$	2,587		$	2,816		$	822	$	854
Deferred proceeds	125			122			384			525			124		115
Loss on sales of accounts receivable	4			4			13			16			4		4
Estimated decrease to operating cash flows⁽¹⁾	(75		)	(266		)	(42		)	(168		)
Estimated increase to operating cash flows⁽¹⁾													11		16

____________________________


(1)	Represents the difference between current and prior period receivable sales adjusted for the effects of: (i) the deferred proceeds, (ii) collections prior to the end of the quarter, and (iii) currency. ~~The three months ended September 30, 2012 includes $215 of cash outflows related to our terminated U.S. revolving facility.~~

Refer to Note 6 - Accounts Receivable, Net in the Condensed Consolidated Financial Statements for additional information.

Sales of Finance Receivables

In ~~September~~the third and fourth quarters of 2013 and 2012, we ~~sold~~transferred our entire interest in ~~a group~~certain groups of ~~U.S.~~ lease finance receivables ~~from our Document Technology segment~~to third-party entities. The transfers were accounted for as sales and resulted in the derecognition of the lease receivables with a net carrying value of ~~$419 million to a third-party financial institution for net cash proceeds of $384~~$676 million and ~~a beneficial interest from the purchaser of $60 million. A pre-tax gain of $25 million was recognized on this sale and is net of additional fees and expenses of approximately $3 million.~~

~~In 2012, we sold our entire interest in two separate portfolios of U.S. finance receivables from our Document Technology segment with a combined net carrying value of~~ $682 million, ~~to a third-party financial institution for cash proceeds~~respectively, and associated pre-tax gains of ~~$630~~$40 million and ~~beneficial interests from the purchaser of $101 million. A pre-tax gain of~~ $44 million, ~~($23 million in the third quarter 2012) was recognized on these sales and is net of additional fees and expenses of approximately $5 million.~~

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

Xerox ~~2013~~2014 Form 10-Q

4638

The net impact ~~of the the sales of finance receivables~~ on operating cash flows from these transactions for the periods presented is summarized below:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	2013			2012		2013			2012		2014			2013
Net cash received for sales of finance receivables⁽¹⁾	$	384		$	311	$	384		$	311	$	—		$	—
Impact from prior sales of finance receivables⁽²⁾⁽¹⁾	(84		)	—		(258		)	—		(149		)	(91		)
Collections on beneficial interest	16			—		43			—		26			2
Estimated Increase to Operating Cash Flows	$	316		$	311	$	169		$	311
Estimated Decrease to Operating Cash Flows											$	(123	)	$	(89	)

~~____________________________~~______________


(1)	~~Net of beneficial interest, fees and expenses.~~


~~(2)~~	Represents cash that would have been collected if we had not sold finance receivables.

Refer to Note 7 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information.

We expect to do additional sales of finance receivables in the fourth quarter 2013 however the level of sales are expected to be lower than the sale completed in the fourth quarter 2012. In the fourth quarter 2012 we sold finance receivables with a net carrying value of $341 million for net cash proceeds of $314 million.

Liquidity and Financial Flexibility

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

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


Year	Amount		Amount
2013 Q4	$	22
2014	1,111
2014 Q2			$	1,070
2014 Q3			12
2014 Q4			11
2015	1,280		1,287
2016	971		979
2017	1,016		1,022
2018	1,010		1,013
2019	656		1,157
2020	7		7
2021	1,067		1,067
2022 and thereafter	350
2022			—
2023 and thereafter			350
Total	$	7,490	$	7,975

Treasury Stock

During the ~~third~~first quarter ~~2013,~~2014, we repurchased ~~16.0~~24.9 million shares for an aggregate cost of ~~$162~~$275 million, including fees. Through ~~October~~April 28, ~~2013,~~2014, we repurchased an additional ~~7.2~~5.2 million shares at an aggregate cost of ~~$75.1~~$59.2 million, including fees, for a cumulative total of ~~452.9~~523.6 million shares at a cost of ~~$4.9~~$5.7 billion, including fees.

~~Contractual Cash Obligations and Other Commercial Commitments and Contingencies~~

~~In June 2013, we entered into an agreement with a third-party service provider for software application development and systems integration services. The third-party is~~We increased our expected to perform services as a subcontractor on our larger outsourcing service arrangements where we provide system development and implementation services. The agreement is for seven years and requires us to purchasefull year 2014 total share repurchases from at least ~~$100~~$500 million, ~~in services per year for an aggregate contract value of~~previously disclosed, to at least $700 million.

Xerox ~~2013~~2014 Form 10-Q

4739

Financial Risk Management

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 Yen, Euro and Pound Sterling. The fair market values of all our derivative contracts change with fluctuations in interest rates and/or currency 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.

We are required to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. As permitted, certain of these derivative contracts have been designated for hedge accounting treatment. Certain of our derivatives that do not qualify for hedge accounting are effective as economic hedges. These derivative contracts are likewise required to be recognized each period at fair value and therefore do result in some level of volatility. The level of volatility will vary with the type and amount of derivative hedges outstanding, as well as fluctuations in the currency and interest rate markets during the period. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange and interest rate movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a diversified group of major financial institutions. Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The current market events have not required 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 12 – Financial Instruments in the Condensed Consolidated Financial Statements for further discussion and information on our financial risk management strategies.

~~Xerox 2013 Form 10-Q~~

Non-GAAP Financial Measures

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

These non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

Adjusted Earnings Measures

To better understand the trends in our business, we believe it is necessary to adjust the following amounts determined in accordance with GAAP to exclude the effects of certain items as well as their related income tax effects.

Net income and Earnings per share (EPS)

Effective tax rate

Our adjustments are limited to the amortization of intangible assets which is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. Accordingly, due to the incomparability of acquisition activity among companies and from period to period, we believe exclusion of the amortization associated with intangible assets acquired through our acquisitions allows investors to better compare and understand our results. The use of intangible assets contributed to our revenues

Xerox 2014 Form 10-Q

earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

We also calculate and utilize an operating income and margin earnings measure by adjusting our pre-tax income and margin amounts to exclude certain expenses. In addition to the above excluded item, operating income and margin also exclude Other expenses, net as well as Restructuring and asset impairment charges. Other expenses, net is primarily composed of non-financial interest expense and other non-operating costs and expenses. Restructuring and asset impairment charges consist of costs primarily related to severance and benefits for employees pursuant to formal restructuring and workforce reduction plans. Such charges are expected to yield future benefits and savings with respect to our operational performance. 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.

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

A reconciliation of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth on the following tables:

~~Xerox 2013 Form 10-Q~~

Net Income and EPS reconciliation:


	Three Months Ended September 30, 2013				Three Months Ended September 30, 2012				Nine Months Ended September 30, 2013				Nine Months Ended September 30, 2012				Three Months Ended March 31, 2014				Three Months Ended March 31, 2013
(in millions; except per share amounts)	Net Income		EPS		Net Income		EPS		Net Income		EPS		Net Income		EPS		Net Income		EPS		Net Income		EPS
As Reported⁽¹⁾	$	288	$	0.22	$	280	$	0.21	$	875	$	0.68	$	850	$	0.62	$	279	$	0.23	$	293	$	0.23
Adjustments:
Amortization of intangible assets	52		0.04		51		0.04		154		0.12		152		0.12		52		0.04		51		0.04
Adjusted	$	340	$	0.26	$	331	$	0.25	$	1,029	$	0.80	$	1,002	$	0.74	$	331	$	0.27	$	344	$	0.27
Weighted average shares for adjusted EPS⁽²⁾			1,286				1,346				1,284				1,376				1,225				1,280
Fully diluted shares at end of period⁽³⁾											1,280								1,213

____________________________


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


(2)	Average shares for the calculation of adjusted EPS include 27 million of shares associated with the Series A convertible preferred stock and therefore the related quarterly dividend was excluded.


(3)	Represents common shares outstanding at ~~September 30, 2013,~~March 31, 2014, as well as shares associated with our Series A convertible preferred stock plus dilutive potential common shares as used for the calculation of diluted earnings per share for the ~~third~~first quarter ~~2013.~~2014.

Xerox 2014 Form 10-Q

Effective Tax reconciliation:


	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012						Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012						Three Months Ended March 31, 2014						Three Months Ended March 31, 2013
(in millions)	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		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
As Reported⁽¹⁾	$	335	$	85	25.4	%	$	314	$	62	19.7	%	$	967	$	203	21.0	%	$	966	$	201	20.8	%	$	291	$	49	16.8	%	$	300	$	50	16.7	%
Adjustments:
Amortization of intangible assets	83		31				82		31				249		95				246		94				84		32				83		32
Adjusted	$	418	$	116	27.8	%	$	396	$	93	23.5	%	$	1,216	$	298	24.5	%	$	1,212	$	295	24.3	%	$	375	$	81	21.6	%	$	383	$	82	21.4	%

____________________________


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

Operating Income / Margin reconciliation:


	Three Months Ended September 30, 2013							Three Months Ended September 30, 2012							Nine Months Ended September 30, 2013							Nine Months Ended September 30, 2012							Three Months Ended March 31, 2014							Three Months Ended March 31, 2013
(in millions)	Profit			Revenue		Margin		Profit			Revenue		Margin		Profit			Revenue		Margin		Profit			Revenue		Margin		Profit			Revenue		Margin		Profit			Revenue		Margin
Reported Pre-tax Income⁽¹⁾	$	335		$	5,262	6.4	%	$	314		$	5,275	6.0	%	$	967		$	15,866	6.1	%	$	966		$	15,974	6.0	%	$	291		$	5,121	5.7	%	$	300		$	5,202	5.8	%
Adjustments:
Amortization of intangible assets	83							82							249							246							84							83
Xerox restructuring charge	35							14							60							63							27							(8		)
Other expenses, net	39							58							115							190							40							17
Adjusted Operating Income/Margin	$	492		$	5,262	9.4	%	$	468		$	5,275	8.9	%	$	1,391		$	15,866	8.8	%	$	1,465		$	15,974	9.2	%	$	442		$	5,121	8.6	%	$	392		$	5,202	7.5	%
Equity in net income of unconsolidated affiliates	43							34							126							105							42							47
Business transformation costs																													3							—
Fuji Xerox restructuring charge	3							5							8							15							3							4
Litigation matters	—							—							(37		)					—							—							(37		)
Other expenses, net*	(40		)					(59		)					(116		)					(191		)					(40		)					(16		)
Segment Profit / Revenue	$	498		$	5,262	9.5	%	$	448		$	5,275	8.5	%	$	1,372		$	15,866	8.6	%	$	1,394		$	15,974	8.7	%	$	450		$	5,121	8.8	%	$	390		$	5,202	7.5	%

____________________________

* Includes rounding adjustments.


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

~~Xerox 2013 Form 10-Q~~

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the caption “Financial Risk Management” of this Quarterly Report on Form 10-Q is hereby incorporated by reference in answer to this Item.

ITEM 4 — CONTROLS AND PROCEDURES

(a)Evaluation of 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.

(b)Changes in Internal Controls

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.

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PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

The information set forth under Note 18 – Contingencies and Litigation contained in the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q is incorporated by reference in answer to this Item.

ITEM 1A — RISK FACTORS

Reference is made to the Risk Factors set forth in Part I, Item 1A of our ~~2012~~2013 Annual Report. The Risk Factors remain applicable from our ~~2012~~2013 Annual Report.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(a)	Sales of Unregistered Securities during the Quarter ended ~~September 30, 2013~~March 31, 2014

During the quarter ended ~~September 30, 2013~~March 31, 2014, Registrant issued the following securities in transactions that were not registered under the Securities Act of 1933, as amended (the “Act”).

Semi-Annual Director Fees:


a.	Securities issued on ~~July~~January 15, ~~2013~~2014: Registrant issued ~~59,490~~47,376 deferred stock units (DSUs), representing the right to receive shares of Common stock, par value $1 per share, at a future date.


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


c.	The DSUs were issued at a deemed purchase price of $~~9.835~~12.35 per DSU (aggregate price $~~585,084~~585,094), based upon the market value on the date of issuance, in payment of the semi-annual Director's fees pursuant to Registrant’s 2004 Equity Compensation Plan for Non-Employee Directors.


d.	Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering.

Dividend Equivalent:


a.	Securities issued on ~~July~~January 31, ~~2013~~2014: Registrant issued ~~4,584~~3,753 DSUs, representing the right to receive shares of Common stock, par value $1 per share, at a future date.


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


c.	The DSUs were issued at a deemed purchase price of $~~9.11~~12.18 per DSU (aggregate price $~~41,760~~45,712), 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.


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.


(b)	Issuer Purchases of Equity Securities during the Quarter ended ~~September 30, 2013~~March 31, 2014

Repurchases of Xerox Common Stock, par value $1.00 per share include the following:

Board Authorized Share Repurchase Programs:

Total Number of Shares Purchased
Average Price Paid per Share⁽¹⁾

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

Maximum Approximate Dollar Value of Share That May Yet Be Purchased Under the Plans or Programs⁽²⁾
July 1 through 31 —
$ —
—
$ 1,299,242,447
August 1 through 31 7,300,882
10.06
7,300,882
1,225,767,837
September 1 through 30 8,711,128
10.18
8,711,128
1,137,057,176
Total 16,012,010
16,012,010



	Total Number of Shares Purchased	Average Price Paid per Share⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Approximate Dollar Value of Share That May Yet Be Purchased Under the Plans or Programs⁽²⁾
January 1 through 31	5,993,439	$	11.67	5,993,439	$	1,044,331,819
February 1 through 28	11,711,100	10.69		11,711,100	919,172,063
March 1 through 31	7,245,910	10.91		7,245,910	840,121,791
Total	24,950,449			24,950,449

____________________________


(1)	Exclusive of fees and costs.


(2)	Of the cumulative $~~6.0~~6.5 billion of share repurchase authority previously granted by our Board of Directors, exclusive of fees and expenses, approximately $~~4.9~~5.7 billion has been used through ~~September 30, 2013.~~March 31, 2014. Repurchases may be made on the open market, or through derivative

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5243

or negotiated transactions. Open-market repurchases will be made in compliance with the Securities and Exchange Commission’s Rule 10b-18, and are subject to market conditions, as well as applicable legal and other considerations.

Repurchases Related to Stock Compensation Programs⁽¹⁾:

Total Number of Shares Purchased
Average Price Paid per Share⁽²⁾
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum That May Be Purchased under the Plans or Programs
July 1 through 31 5,016,567
$ 9.24
n/a n/a
August 1 through 31 —
—
n/a n/a
September 1 through 30 33,023
9.98
n/a n/a
Total 5,049,590



	Total Number of Shares Purchased	Average Price Paid per Share⁽²⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum That May Be Purchased under the Plans or Programs
January 1 through 31	84,977	$	12.17	n/a	n/a
February 1 through 28	—	—		n/a	n/a
March 1 through 31	—	—		n/a	n/a
Total	84,977

____________________________


(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.~~

(2)Exclusive of fees and costs.

ITEM 6 — EXHIBITS



3(a)		Restated Certificate of Incorporation of Registrant filed with the Department of State of New York on February 21, 2013.

		Incorporated by reference to Exhibit 3(a) to Registrant’s Annual Report on Form 10-K dated for the fiscal year ended December 31, 2012.

3(b)		By-Laws of Registrant, as amended through May 21, 2009.

		Incorporated by reference to Exhibit 3(b) to Registrant’s Current Report on Form 8-K dated May 21, 2009.
4(c)
~~10(j)(1)~~		~~2013 Amendment~~Form of Amended and ~~Restatement~~Restated Credit Agreement dated as of ~~Registrant's Universal Life Plan.~~

~~10(j)(2)~~		~~Participation Agreement for Registrant's Universal Life Plan.~~
		March 18, 2014 between Registrant and the Initial Lenders named therein; Citibank, N.A., as Administrative Agent, and Citigroup Global Markets Inc., JPMorgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and BNP Paribas Securities Corp., as Joint Lead Arrangers and joint Bookrunners.
12		Computation of Ratio of Earnings to Fixed Charges.

31(a)		Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).

31(b)		Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).

32		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		XBRL Taxonomy Extension Definition Linkbase.

101.INS		XBRL Instance Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

101.SCH		XBRL Taxonomy Extension Schema Linkbase.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



XEROX CORPORATION (Registrant)

By:	/S/ JOSEPH H. MANCINI, JR.
	Joseph H. Mancini, Jr. Vice President and Chief Accounting Officer (Principal Accounting Officer)

Date: ~~October 31, 2013~~May 1, 2014

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5445

EXHIBIT INDEX



3(a)		Restated Certificate of Incorporation of Registrant filed with the Department of State of New York on February 21, 2013.

		Incorporated by reference to Exhibit 3(a) to ~~Registrant’s~~Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

3(b)		By-Laws of Registrant, as amended through May 21, 2009.

		Incorporated by reference to Exhibit 3(b) to ~~Registrant’s~~Registrant's Current Report on Form 8-K dated May 21, 2009.
4(c)
~~10(j)(1)~~		~~2013 Amendment~~Form of Amended and ~~Restatement~~Restated Credit Agreement dated as of ~~Registrant's Universal Life Plan.~~

~~10(j)(2)~~		~~Participation Agreement for Registrant's Universal Life Plan.~~
		March 18, 2014 between Registrant and the Initial Lenders named therein; Citibank, N.A., as Administrative Agent, and Citigroup Global Markets Inc., JPMorgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and BNP Paribas Securities Corp., as Joint Lead Arrangers and joint Bookrunners.
12		Computation of Ratio of Earnings to Fixed Charges.

31(a)		Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).

31(b)		Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).

32		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		XBRL Taxonomy Extension Definition Linkbase.

101.INS		XBRL Instance Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

101.SCH		XBRL Taxonomy Extension Schema Linkbase.

Xerox ~~2013~~2014 Form 10-Q

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