Xerox Reports Fourth-Quarter Earnings

  Xerox Reports Fourth-Quarter Earnings

  *Q4 GAAP earnings per share of 26 cents; adjusted EPS of 30 cents
  *Revenue of $5.9 billion down 1 percent, flat constant currency
  *Operating margin of 10.3 percent
  *Operating cash flow of $1.8 billion; $2.6 billion for full-year 2012

Business Wire

NORWALK, Conn. -- January 24, 2013

Xerox (NYSE: XRX) announced today fourth-quarter 2012 results that include
adjusted earnings per share of 30 cents. As planned, the company’s
fourth-quarter earnings include 5 cents of restructuring. Adjusted EPS
excludes 4 cents related to amortization of intangibles, resulting in GAAP EPS
of 26 cents.

In the fourth quarter, total revenue of $5.9 billion was down 1 percent or
flat in constant currency. Revenue from the company’s services business was up
7 percent and represented 52 percent of total revenue. Revenue from the
company’s document technology business, which represents 42 percent of
revenue, was down 8 percent as economic and market conditions continued to put
pressure on sales of document systems, supplies and related service.

“Strong growth in services and the consistent profitability of our document
technology business generated significant operating cash flow and contributed
to fourth-quarter earnings that met our expectations,” said Ursula Burns,
Xerox chairman and chief executive officer.

“Throughout 2012, we focused on scaling our services business and adjusting
our business model to align with growth opportunities in the $600 billion
market we serve,” she added. “Our fourth-quarter results reflect steady
progress. We increased our services segment margin by 0.9 points while growing
business process outsourcing revenue by 8 percent, IT outsourcing by 15
percent and document outsourcing by 2 percent. In document technology, our
fourth-quarter segment margin of 12.3 percent improved, reflecting effective
execution in reducing our cost base and maximizing profitability.”

Fourth-quarter operating margin was up 0.3 points to 10.3 percent. Gross
margin was 31.5 percent, and selling, administrative and general expenses were
18.5 percent of revenue.

The company generated $1.8 billion in cash from operations during the fourth
quarter, which includes $269 million of net cash from the sale of certain
finance receivables.

For first-quarter 2013, Xerox expects GAAP earnings of 19 to 21 cents per
share and adjusted EPS of 23 to 25 cents per share. The company reiterated its
full-year 2013 guidance of GAAP earnings per share in the range of 94 cents to
$1.00, and adjusted EPS of $1.09 to $1.15. Xerox expects to generate operating
cash flow of $2.1 billion to $2.4 billion in 2013.

Full-year 2012 results include:

  *GAAP earnings per share of 88 cents per share; adjusted earnings per share
    of $1.03.
  *Total revenue of $22.4 billion, down 1 percent or flat in constant
    currency from full-year 2011. Total services revenue of $11.5 billion, up
    6 percent or up 7 percent in constant currency. Total document technology
    revenue of $9.5 billion, down 8 percent or down 6 percent in constant
    currency.
  *Operating margin of 9.3 percent, down 0.5 points from full-year 2011.
  *Operating cash flow of $2.6 billion, up $600 million from full-year 2011.
  *Net income of $1.2 billion, adjusted net income of $1.4 billion, down 11
    percent.
  *Share repurchase of $1.05 billion.

About Xerox

With sales approaching $23 billion, Xerox (NYSE: XRX) is the world’s leading
enterprise for business process and document management. Its technology,
expertise and services enable workplaces – from small businesses to large
global enterprises – to simplify the way work gets done so they operate more
effectively and focus more on what matters most: their real business.
Headquartered in Norwalk, Conn., Xerox offers business process outsourcing and
IT outsourcing services, including data processing, healthcare solutions, HR
benefits management, finance support, transportation solutions, and customer
relationship management services for commercial and government organizations
worldwide. The company also provides extensive leading-edge document
technology, services, software and genuine Xerox supplies for graphic
communication and office printing environments of any size. The 140,000 people
of Xerox serve clients in more than 160 countries. For more information, visit
http://www.xerox.com, http://news.xerox.com or http://www.realbusiness.com.
For investor information, visit http://www.xerox.com/investor.

Non- GAAP Measures:

This release refers to the following non-GAAP financial measures:

  *Adjusted EPS (earnings per share) for the fourth quarter and full-year
    2012 as well as for the first quarter and full-year 2013 guidance that
    excludes the amortization of intangible assets.
  *Operating margin for the fourth quarter and full-year 2012 that excludes
    certain expenses.
  *Constant Currency revenue growth for the fourth quarter and full-year 2012
    that excludes the effects of currency translation.

Refer to the “Non-GAAP Financial Measures” section of this release for a
discussion of these non-GAAP measures and their reconciliation to the reported
GAAP measure.

Forward-Looking Statements

This release contains "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; the risk that unexpected costs will be
incurred; our ability to expand equipment placements; the risk that
subcontractors, software vendors and utility and network providers will not
perform in a timely, quality manner; 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; our ability to
recover capital investments; development of new products and services; our
ability to protect our intellectual property rights; interest rates, cost of
borrowing and access to credit markets; the risk that multi-year contracts
with governmental entities could be terminated prior to the end of the
contract term; reliance on third parties 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 our Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 and our
2011 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.

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XEROX^®, XEROX and Design^® are trademarks of Xerox in the United States
and/or other countries.

                                                                   
Xerox Corporation
Condensed Consolidated Statements of Income (Unaudited)
                                                                              
                 Three Months Ended             Year Ended
                 December 31,                   December 31,
(in millions,
except           2012      2011        %        2012        2011         %
per-share                              Change                             Change
data)
                                                                              
Revenues
Sales            $ 1,818   $ 1,997     (9  %)   $ 6,578     $ 7,126      (8  %)
Outsourcing,
service and        3,958     3,816     4   %      15,215       14,868     2   %
rentals
Finance income    147      151      (3  %)    597        632       (6  %)
Total Revenues    5,923    5,964    (1  %)    22,390     22,626    (1  %)
                                                                              
Costs and
Expenses
Cost of sales      1,192     1,314     (9  %)     4,362        4,697      (7  %)
Cost of
outsourcing,       2,819     2,672     6   %      10,802       10,269     5   %
service and
rentals
Equipment
financing          45        55        (18 %)     198          231        (14 %)
interest
Research,
development
and                160       179       (11 %)     655          721        (9  %)
engineering
expenses
Selling,
administrative     1,094     1,150     (5  %)     4,288        4,497      (5  %)
and general
expenses
Restructuring
and asset          93        61        52  %      153          33            *
impairment
charges
Amortization
of intangible      82        139       (41 %)     328          398        (18 %)
assets
Curtailment        -         (107  )      *      -            (107   )      *
gain
Other             71       54       31  %     256        322       (20 %)
expenses, net
Total Costs       5,556    5,517    1   %     21,042     21,061    --
and Expenses
                                                                              
Income before
Income Taxes &     367       447       (18 %)     1,348        1,565      (14 %)
Equity
Income^(1)
Income tax         71        102       (30 %)     277          386        (28 %)
expense
Equity in net
income of         47       38       24  %     152        149       2   %
unconsolidated
affiliates
                                                                              
Net Income         343       383       (10 %)     1,223        1,328      (8  %)
                                                                              
Less: Net
income
attributable      8        8        -         28         33        (15 %)
to
noncontrolling
interests
                                                                              
Net Income
Attributable     $ 335     $ 375      (11 %)   $ 1,195     $ 1,295     (8  %)
to Xerox
                                                                              
Basic Earnings   $ 0.26    $ 0.27      (4  %)   $ 0.90       $ 0.92       (2  %)
per Share
Diluted
Earnings per     $ 0.26    $ 0.26      -        $ 0.88       $ 0.90       (2  %)
Share
                                                                              
* Percent change not meaningful.
^(1) Referred to as "Pre-Tax Income" throughout the remainder of this document.
                                                                              

                        
Xerox Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
                                                             
                                                                     
                           Three Months Ended          Year Ended
                           December 31,                December 31,
(in millions)              2012         2011           2012          2011
                                                                     
Net Income                 $ 343        $ 383          $ 1,223       $ 1,328
Less: Net income
attributable to             8          8            28          33    
noncontrolling
interests
Net Income                 $ 335       $ 375         $ 1,195      $ 1,295 
Attributable to Xerox
                                                                     
Other Comprehensive
(Loss) Income, Net:
Translation                $ (68  )     $ (172 )       $ 113         $ (105  )
adjustments, net
Unrealized (losses)          (52  )       (1   )         (63   )       12
gains, net
Changes in defined          (561 )      (658 )        (561  )      (636  )
benefit plans, net
Other Comprehensive          (681 )       (831 )         (511  )       (729  )
Loss, Net
Less: Other
comprehensive loss,
net attributable to         -          (1   )        -           (1    )
noncontrolling
interests
Other Comprehensive
Loss, Net Attributable     $ (681 )     $ (830 )       $ (511  )     $ (728  )
to Xerox
                                                                     
Comprehensive (Loss)       $ (338 )     $ (448 )       $ 712         $ 599
Income, Net
Less: Comprehensive
income, net
attributable to             8          7            28          32    
noncontrolling
interests
Comprehensive (Loss)
Income, Net                $ (346 )     $ (455 )       $ 684        $ 567   
Attributable to Xerox
                                                                     

                                       
Xerox Corporation
Condensed Consolidated Balance Sheets (Unaudited)
                                                          
(in millions, except share data in           December 31,        December 31,
thousands)                                   2012                2011
Assets
Cash and cash equivalents                    $ 1,246             $ 902
Accounts receivable, net                       2,866               2,600
Billed portion of finance receivables,         152                 166
net
Finance receivables, net                       1,836               2,165
Inventories                                    1,011               1,021
Other current assets                          1,162             1,058     
Total current assets                           8,273               7,912
Finance receivables due after one              3,325               4,031
year, net
Equipment on operating leases, net             535                 533
Land, buildings and equipment, net             1,556               1,612
Investments in affiliates, at equity           1,381               1,395
Intangible assets, net                         2,783               3,042
Goodwill                                       9,062               8,803
Deferred tax assets, long-term                 763                 672
Other long-term assets                        2,337             2,116     
Total Assets                                 $ 30,015           $ 30,116    
                                                                 
Liabilities and Equity
Short-term debt and current portion of       $ 1,042             $ 1,545
long-term debt
Accounts payable                               1,913               2,016
Accrued compensation and benefits              741                 757
costs
Unearned income                                438                 432
Other current liabilities                     1,776             1,631     
Total current liabilities                      5,910               6,381
Long-term debt                                 7,447               7,088
Pension and other benefit liabilities          2,958               2,487
Post-retirement medical benefits               909                 925
Other long-term liabilities                   778               861       
Total Liabilities                             18,002            17,742    
                                                                 
Series A Convertible Preferred Stock          349               349       
                                                                 
Common stock                                   1,239               1,353
Additional paid-in capital                     5,622               6,317
Treasury stock, at cost                        (104      )         (124      )
Retained earnings                              7,991               7,046
Accumulated other comprehensive loss          (3,227    )        (2,716    )
Xerox shareholders' equity                     11,521              11,876
Noncontrolling interests                      143               149       
Total Equity                                  11,664            12,025    
Total Liabilities and Equity                 $ 30,015           $ 30,116    
                                                                 
Shares of common stock issued                  1,238,696           1,352,849
Treasury stock                                (14,924   )        (15,508   )
Shares of common stock outstanding            1,223,772         1,337,341 
                                                                 

                    
Xerox Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
                                                             
                                                                    
                       Three Months Ended            Year Ended
                       December 31,                  December 31,
(in millions)          2012           2011           2012           2011
                                                                    
Cash Flows from
Operating
Activities:
Net income             $ 343          $ 383          $ 1,223        $ 1,328
Adjustments
required to
reconcile net
income to cash
flows from
operating
activities:
Depreciation and         336            361            1,301          1,251
amortization
Provision for            44             55             127            154
receivables
Provision for            4              7              30             39
inventory
Undistributed
equity in net
income of                (23    )       (3     )       (90    )       (86    )
unconsolidated
affiliates
Stock-based              33             31             125            123
compensation
Restructuring and
asset impairment         93             61             153            33
charges
Payments for             (31    )       (56    )       (144   )       (218   )
restructurings
Contributions to
defined benefit          (54    )       (78    )       (364   )       (426   )
pension plans
Decrease
(increase) in
accounts
receivable and           245            252            (776   )       (296   )
billed portion of
finance
receivables
Collections of
deferred proceeds        120            93             470            380
from sales of
receivables
Decrease
(increase) in            128            154            -              (124   )
inventories
Increase in
equipment on             (76    )       (93    )       (276   )       (298   )
operating leases
Decrease
(increase) in            260            (144   )       947            90
finance
receivables
Increase in other
current and              (69    )       (65    )       (265   )       (249   )
long-term assets
Increase in
accounts payable         350            279            120            82
and accrued
compensation
Increase
(decrease) in
other current and        55             75             (71    )       (22    )
long-term
liabilities
Net change in
income tax assets        45             72             138            292
and liabilities
Net change in
derivative assets        13             (4     )       11             39
and liabilities
Other operating,        (43    )      (102   )      (79    )      (131   )
net
Net cash provided
by operating            1,773        1,278        2,580        1,961  
activities
                                                                    
Cash Flows from
Investing
Activities:
Cost of additions
to land, buildings       (105   )       (93    )       (388   )       (338   )
and equipment
Proceeds from
sales of land,           1              19             9              28
buildings and
equipment
Cost of additions
to internal use          (25    )       (41    )       (125   )       (163   )
software
Acquisitions, net        (33    )       (24    )       (276   )       (212   )
of cash acquired
Other investing,        2            (1     )      19           10     
net
Net cash used in
investing               (160   )      (140   )      (761   )      (675   )
activities
                                                                    
Cash Flows from
Financing
Activities:
Net (payments)           (850   )       (553   )       (108   )       49
proceeds on debt
Payment of
liability to
subsidiary trust         -              -              -              (670   )
issuing preferred
securities
Common stock             (54    )       (59    )       (231   )       (241   )
dividends
Preferred stock          (6     )       (6     )       (24    )       (24    )
dividends
Proceeds from
issuances of             1              3              44             44
common stock
Excess tax
benefits from            -              1              10             6
stock-based
compensation
Payments to
acquire treasury         (334   )       (392   )       (1,052 )       (701   )
stock, including
fees
Repurchases
related to               (1     )       -              (42    )       (27    )
stock-based
compensation
Distributions to
noncontrolling          (6     )      (7     )      (69    )      (22    )
interests
Net cash used in
financing               (1,250 )      (1,013 )      (1,472 )      (1,586 )
activities
Effect of exchange
rate changes on         1            (8     )      (3     )      (9     )
cash and cash
equivalents
                                                                    
Increase
(decrease) in cash       364            117            344            (309   )
and cash
equivalents
Cash and cash
equivalents at          882          785          902          1,211  
beginning of
period
Cash and Cash
Equivalents at End     $ 1,246       $ 902         $ 1,246       $ 902    
of Period
                                                                    

                                                              
Financial Review
                                                                         
Revenues
                                                                         
                     Three Months Ended                    % of Total Revenue
                     December 31,
(in millions)        2012          2011          %          2012         2011
                                                 Change
                                                                         
Equipment sales      $ 1,014       $ 1,167       (13 %)     17   %       20  %
Annuity revenue       4,909       4,797      2   %      83   %       80  %
Total Revenue        $ 5,923      $ 5,964      (1  %)     100  %       100 %
                                                                         
                                                                         
Reconciliation to Condensed Consolidated Statements of Income:
Sales                $ 1,818       $ 1,997
Less: Supplies         (597  )       (622  )
and other sales
Less: Paper           (207  )      (208  )
sales
Equipment Sales      $ 1,014      $ 1,167 
                                                                         
Outsourcing,
service and          $ 3,958       $ 3,816
rentals
Add: Finance           147           151
income
Add: Supplies          597           622
and other sales
Add: Paper sales      207         208   
Annuity Revenue      $ 4,909      $ 4,797 
                                                                         

Fourth quarter 2012 total revenues decreased by 1% compared to the fourth
quarter 2011, including a 1-percentage point negative impact from currency,
and reflected the following:

  *Annuity revenue increased by 2% compared to the fourth quarter 2011,
    including a 1-percentage point negative impact from currency. Annuity
    revenue is comprised of the following:

       *Outsourcing, service and rentals revenue, which includes outsourcing
         revenue within our Services segment and technical service revenue
         (including bundled supplies) and rental revenue, both primarily
         within our Document Technology segment. An increase of 4%, with no
         impact from currency, was driven by an increase in outsourcing
         revenue in our business process outsourcing, document outsourcing and
         information technology outsourcing offerings, partially offset by a
         decline in technical service revenue.
       *Supplies and other sales, which includes unbundled supplies and other
         sales, primarily within our Document Technology segment. A decrease
         of 4%, with no impact from currency, was driven by moderately lower
         demand.
       *Paper sales, primarily within our Other segment, were flat as
         compared to the fourth quarter 2011, with no impact from currency.
       *Finance income includes a $21 million gain from the sale of finance
         receivables from our Document Technology segment (discussed further
         in the Capital Resources and Liquidity section).

  *Equipment sales revenue is reported primarily within our Document
    Technology segment and the document outsourcing business within our
    Services segment.  Equipment sales revenue declined 13% as compared to the
    fourth quarter 2011, with no impact from currency. This was driven by
    delayed customer decision-making due to widespread concerns about the
    macro environment as well as a difficult compare in the U.S. in the fourth
    quarter 2011, especially in our mid-range color product area. Consistent
    with prior quarters, price declines were in the range of 5% to 10%.

Throughout 2012 we maintained market leadership in the fastest growing, most
attractive segments while our focus on productivity and costs preserved our
Document Technology margins. During the first quarter 2013, we will be
investing in our portfolio with significant product announcements in the
mid-range and entry production color spaces.

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

Costs, Expenses and Other Income

Summary of Key Financial Ratios

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

                                                   
                             Three Months Ended
                             December 31,
                                                              
                             2012       2011        B/(W)
                                                              
Total Gross Margin           31.5%        32.2%       (0.7) pts.
RD&E as a % of Revenue       2.7%         3.0%        0.3 pts.
SAG as a % of Revenue        18.5%        19.3%       0.8 pts.
Operating Margin ^(1)        10.3%        10.0%       0.3 pts.
                                                      
Pre-Tax income margin        6.2%         7.5%        (1.3) pts.
                                                      

Operating Margin

Fourth quarter 2012 operating margin^1 of 10.3% increased 0.3-percentage
points as compared to the fourth quarter 2011. This increase, primarily in our
Services segment, was driven by savings from restructuring as well as lower
SAG.

Gross Margin

Gross margin of 31.5% decreased 0.7-percentage points as compared to the
fourth quarter 2011. This decrease was driven primarily by the higher overall
mix of Services revenue.

Services segment gross margin was flat as compared to the fourth quarter 2011.
The gross margin increased on a sequential basis by over 1-percentage point
driven by the positive impact of contract ramp and restructuring savings.

Document Technology segment gross margin increased by 0.3-percentage points as
compared to the fourth quarter 2011. Productivity improvements, restructuring
savings and a gain recognized on the sale of U.S. finance receivables
(discussed further in the Capital Resources and Liquidity section) more than
offset the impact of price declines.

Research, Development and Engineering Expenses (“RD&E”)

Fourth quarter 2012 RD&E as a percentage of revenue of 2.7% decreased
0.3-percentage points from the fourth quarter 2011. In addition to lower
spending, 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 $160 million was $19 million lower than the fourth quarter 2011,
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 color, software and services.
Xerox R&D is strategically coordinated with Fuji Xerox.

Selling, Administrative and General Expenses (“SAG”)

SAG as a percentage of revenue of 18.5% decreased 0.8-percentage points from
the fourth quarter 2011. This decrease was driven by spending reductions,
reflecting benefits from restructuring and productivity improvements, lower
compensation-related expenses and the positive mix impact from the continued
growth in Services revenue, which historically has a lower SAG as a percentage
of revenue.

SAG of $1,094 million was $56 million lower than the fourth quarter 2011. This
included a $2 million favorable impact from currency for the quarter. SAG
expenses reflect the following:

  *$74 million decrease in selling expenses, driven primarily by benefits
    from restructuring, productivity improvements and lower
    compensation-related expenses, partially offset by the impact of
    acquisitions.
  *$27 million increase in general and administrative expenses, as
    restructuring savings and productivity improvements were more than offset
    by the impact of acquisitions.
  *$9 million decrease in bad debt expenses to $43 million, driven primarily
    by lower write-offs in Europe. Fourth quarter 2012 bad debt expense
    remained at less than one percent of receivables.

Restructuring and Asset Impairment Charges

During the fourth quarter 2012, we recorded $93 million of net restructuring
and asset impairment charges ($59 million after tax), which included $96
million of severance costs equally related to our Services and Document
Technology segments, and represents headcount reductions of approximately
4,300 employees, primarily in North America. These costs were partially offset
by $3 million of net reversals for changes in estimated reserves from prior
period initiatives. The restructuring reserve balance as of December31, 2012,
for all programs was $130 million, of which approximately $122 million is
expected to be spent over the next twelve months.

During the fourth quarter 2011, we recorded $61 million of net restructuring
and asset impairment charges ($39 million after tax), which included $66
million of severance costs related to headcount reductions of approximately
1,000 employees primarily in North America and $5 million of asset impairment
losses from the disposition of two aircraft associated with the restructuring
of our Corporate Aviation operations. These costs were partially offset by $10
million of net reversals for changes in estimated reserves from prior period
initiatives.

Amortization of Intangible Assets

During the fourth quarter 2012, we recorded $82 million of expense related to
the amortization of intangible assets. This was $57 million lower than the
fourth quarter 2011 primarily due to the accelerated write-off of the ACS
brand name in the fourth quarter 2011.

Worldwide Employment

Worldwide employment of approximately 147,600 at December 31, 2012 increased
approximately 8,000 from year-end 2011, primarily due to the impact of
acquisitions.

                                          
Other Expenses, Net
                                              Three Months Ended
                                              December 31,
(in millions)                                 2012      2011
                                                           
Non-financing interest expense                $ 59         $ 56
Interest income                                 (3 )         (4 )
Gains on sales of businesses and assets         -            (1 )
Currency losses, net                            3            1
Litigation matters                              1            (4 )
Fees - Sales of receivables                     5            6
Deferred compensation investment gains          (1 )         (2 )
All other expenses, net                        7          2  
Total Other Expenses, Net                     $ 71        $ 54 
                                                   
Note: Other Expenses, Net are included in the Other segment


Non-financing interest expense

Fourth quarter 2012 non-financing interest expense of $59 million was $3
million higher than fourth quarter 2011, driven by an increase in the core
debt balance from December 31, 2011.

All other expenses, net

The increase was driven by miscellaneous charges incurred during the fourth
quarter 2012.

Income Taxes

Fourth quarter 2012 effective tax rate was 19.3%. On an adjusted basis^1,
fourth quarter 2012 tax rate was 22.7%, which was lower than the U.S.
statutory tax rate primarily due to foreign tax credits resulting from
anticipated dividends and other foreign transactions and geographical mix of
profits.

Fourth quarter 2011 effective tax rate was 22.8%. On an adjusted basis^1,
fourth quarter 2011 tax rate was 26.3%, which was lower than the U.S.
statutory tax rate primarily due to geographical mix of profits as well as a
higher foreign tax credit benefit as a result of our decision to repatriate
current year income from certain non U.S. subsidiaries.

Xerox operations are widely dispersed. The statutory tax rate in most non-U.S.
jurisdictions is lower than the combined U.S. and state tax rate. The amount
of income subject to these lower foreign rates relative to the amount of U.S.
income will impact our effective tax rate. However, no one country outside of
the U.S. is a significant factor to our overall effective tax rate. Certain
foreign income is subject to U.S. tax net of any available foreign tax
credits. Our full year effective tax rate includes a benefit of approximately
10-percentage points from these non-U.S. operations, which is comparable to
2011.

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. We anticipate that our effective tax rate for 2013 will be
approximately 28%, excluding the effects of intangibles amortization and other
discrete events.

Equity in Net Income of Unconsolidated Affiliates

Equity in net income of unconsolidated affiliates, which primarily reflects
our 25% share of Fuji Xerox net income, was $47 million, an increase of $9
million compared to the fourth quarter 2011.

Fourth quarter 2012 equity income includes charges of $1 million related to
our share of Fuji Xerox after-tax restructuring, compared to $3 million of
charges for the fourth quarter 2011.

Net Income

Fourth quarter 2012 net income attributable to Xerox was $335 million, or
$0.26 per diluted share. On an adjusted basis^1, net income attributable to
Xerox was $386 million, or $0.30 per diluted share. Fourth quarter 2012
adjustments to net income reflect the amortization of intangible assets.

Fourth quarter 2011 net income attributable to Xerox was $375 million, or
$0.26 per diluted share. On an adjusted basis^1, net income attributable to
Xerox was $462 million, or $0.33 per diluted share. Fourth quarter 2011
adjustments to net income reflect the amortization of intangible assets.

The Net Income and EPS reconciliation table in the Non-GAAP Financial Measures
section contains the fourth quarter adjustments to net income.

The calculations of basic and diluted earnings per share are included as
Appendix I. See Non-GAAP financial measures for calculation of adjusted EPS.

Segment Review

                          Three Months Ended December 31,
(in millions)              Total      % of Total  Segment        Segment
                           Revenues    Revenue      Profit (Loss)   Margin
2012
     Services              $ 3,054    52     %     $   343         11.2  %
     Document Technology     2,495     42     %         307         12.3  %
     Other                  374      6      %        (59   )     (15.8 %)
     Total                 $ 5,923    100    %     $   591        10.0  %
                                                                    
2011
     Services              $ 2,864     48     %     $   296         10.3  %
     Document Technology     2,712     45     %         316         11.7  %
     Other                  388      7      %        (30   )     (7.7  %)
     Total                 $ 5,964    100    %     $   582        9.8   %

Refer to Appendix II for the reconciliation of Segment Profit to Pre-tax
Income.

Services

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

Revenue

Fourth quarter 2012 Services total revenue of $3,054 million increased 7% from
the fourth quarter 2011, with no impact from currency.

  *BPO revenue increased 8%, with no impact from currency, and represented
    56% of total Services revenue. BPO growth was driven by the government
    healthcare, other state government solutions, transportation and customer
    care businesses.
  *DO revenue increased 2%, with no impact from currency, and represented 32%
    of total Services revenue. Growth was driven primarily by our new partner
    print services offerings. Xerox continues as the market leader in this
    segment of the Document Technology market.
  *ITO revenue increased 15%, including a 1-percentage point negative impact
    from currency, and represented 12% of total Services revenue. ITO growth
    was driven by the revenue ramp resulting from strong signings growth in
    recent quarters and also includes 1-percentage point of growth related to
    intercompany services, which is eliminated in total Services segment
    revenue.

Segment Margin

Fourth quarter 2012 Services segment margin of 11.2% increased 0.9-percentage
points from fourth quarter 2011, driven primarily by the benefits from
restructuring and lower SAG, primarily in Document Outsourcing. On a
sequential basis, segment margin improved by 1.8-percentage points from the
third quarter 2012, driven by the positive impact of contract ramp, benefits
from restructuring and typical seasonality within Document Outsourcing.

Metrics

Pipeline

Our total Services sales pipeline, including synergy opportunities, grew 6%
over the fourth quarter 2011. This sales pipeline includes the Total Contract
Value (“TCV”) of new business opportunities that potentially could be
contracted within the next six months and excludes business opportunities with
estimated annual recurring revenue in excess of $100 million.

Signings

Signings are defined as estimated future revenues from contracts signed during
the period, including renewals of existing contracts. Services signings were
an estimated $2.9 billion in TCV for the quarter.

  *BPO signings of $1.4 billion TCV.
  *DO signings of $1.1 billion TCV.
  *ITO signings of $400 million TCV.

Signings on a trailing twelve month basis declined 25% in relation to the
comparable prior year period. This decline was driven by a decrease in
megadeals from the prior year as well as customer decision delays. While the
total number of BPO/ITO contracts signed in 2012 increased from 2011, the
decline in megadeals drove a reduction in the average contract length of new
business signings in the fourth quarter and full year 2012. The above DO
signings figure represents Enterprise signings only and does not include
signings from our partner print services offerings, which is driving the
revenue growth in Document Outsourcing.

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

Renewal rate (for BPO and ITO)

Renewal rate is defined as the annual recurring revenue (“ARR”) on contracts
that are renewed during the period as a percentage of ARR on all contracts on
which a renewal decision was made during the period. The fourth quarter 2012
contract renewal rate for BPO and ITO contracts was 79%, which is below our
target range of 85%-90%. This reflects the impact of timing as well as price
discipline. Our full year 2012 renewal rate was 85%, which was within our
target range and five points higher than full year 2011.

Document Technology

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

Revenue

                                         
                    Three Months Ended
                    December 31,
(in millions)       2012          2011          Change
                                                
Equipment sales     $ 827        $ 966        (14 %)
Annuity revenue      1,668       1,746      (4  %)
Total Revenue       $ 2,495      $ 2,712      (8  %)

Fourth quarter 2012 Document Technology revenue of $2,495 million decreased 8%
from the fourth quarter 2011, with no impact from currency. Document
Technology revenues exclude the impact of growth in our document outsourcing
services. Inclusive of document outsourcing services, fourth quarter 2012
aggregate document-related revenue decreased 5% from the fourth quarter 2011,
with no impact from currency. Full year 2012 aggregate document-related
revenue decreased 5% from 2011, with a 2-percentage point negative impact from
currency. Document Technology segment revenue results included the following:

  *Equipment sales revenue decreased by 14%, with no impact from currency.
    This decline, primarily in mid-range and high-end equipment, was driven by
    delayed customer decision-making due to a weak macro-environment. In
    addition, the decline was driven by a difficult compare in the U.S. in the
    fourth quarter 2011, especially in our mid-range color product area. Price
    declines were in the historical 5% to 10% range.
  *Annuity revenue decreased by 4%, with no impact from currency, driven by a
    modest decline in total pages and the continued migration of customers to
    our partner print services offering, which is included in our Services
    segment.
  *Document Technology revenue mix was 21% entry, 58% mid-range and 21%
    high-end, which was consistent with the fourth quarter 2011.

Segment Margin

Fourth quarter 2012 Document Technology segment margin of 12.3% increased by
0.6-percentage points from the fourth quarter 2011. Productivity improvements,
restructuring savings and a gain recognized on the sale of finance receivables
(discussed further in the Capital Resources and Liquidity section) more than
offset the impact of price declines.

Total Installs (Document Technology and Document Outsourcing^2)

Install activity includes installations for document outsourcing and
Xerox-branded products shipped to Global Imaging Systems (“GIS”). Detail by
product group is shown below:

Entry

  *24% increase in black-and-white multifunction devices driven by demand for
    the recently launched WorkCentre^® 3045.
  *34% increase in color multifunction devices driven by demand for the
    WorkCentre^® 6015, WorkCentre^® 6605 and the ColorQube 8700/8900.
  *28% decrease in color printers driven by a decrease in sales to OEM
    partners.

Mid-Range

  *13% decrease in installs of mid-range color devices. A decline in North
    America was driven primarily by a difficult compare in the U.S. in the
    fourth quarter 2011.
  *19% decrease in installs of mid-range black-and-white devices.

High-End

  *15% increase in installs of high-end color systems driven by strong demand
    for the Xerox Color 770, which has enabled large market share gains in the
    Entry Production Color market segment.
  *36% decrease in installs of high-end black-and-white systems, reflecting
    continued declines in the overall market.

Note: “Entry”, “Mid-Range” and “High-End” are defined in Appendix II.

Other

Revenue

Fourth quarter 2012 Other revenue of $374 million decreased 4% from the fourth
quarter 2011, including a 1-percentage point negative impact from currency.
The decline is due primarily to lower patent sales and licensing revenue.
Paper comprised approximately 55% of the fourth quarter 2012 Other segment
revenue.

Segment Margin

Fourth quarter 2012 Other segment loss of $59 million increased $29 million
from the fourth quarter 2011, primarily driven by higher Other Expenses, Net
as well as lower profits from patent sales and licensing.

Notes

^(1)See the “Non-GAAP Financial Measures” section for an explanation of the
non-GAAP financial measure.

^(2)Equipment sales associated with Document Outsourcing are reported as
revenue in our Services segment revenues.

Capital Resources and Liquidity

The following table summarizes our cash and cash equivalents for the three
months ended December 31, 2012 and 2011:

                                                               
                                        Three Months Ended
                                        December 31,
                                                                      
(in millions)                           2012           2011           Change
                                                                      
Net cash provided by operating          $ 1,773        $ 1,278        $ 495
activities
Net cash used in investing                (160   )       (140   )       (20  )
activities
Net cash used in financing                (1,250 )       (1,013 )       (237 )
activities
Effect of exchange rate changes on       1            (8     )      9    
cash and cash equivalents
Increase in cash and cash                 364            117            247
equivalents
Cash and cash equivalents at             882          785          97   
beginning of period
Cash and Cash Equivalents at End of     $ 1,246       $ 902         $ 344  
Period


Cash Flows from Operating Activities

Net cash provided by operating activities was $1,773 million in the fourth
quarter 2012. The $495 million increase in cash from the fourth quarter 2011
was primarily due to the following:

  *$421 million increase from finance receivables primarily due to a sale of
    receivables, as well as higher net run-off of finance receivables as a
    result of lower equipment sales.
  *$71 million increase primarily related to the timing of payments of
    accounts payable and accrued compensation.
  *$25 million increase due to lower restructuring payments.

Cash Flows from Investing Activities

Net cash used in investing activities was $160 million in the fourth quarter
2012. The $20 million increase in the use of cash from the fourth quarter 2011
was primarily due to lower cash receipts from asset sales.

Cash Flows from Financing Activities

Net cash used in financing activities was $1,250 million in the fourth quarter
2012. The $237 million increase in the use of cash from the fourth quarter
2011 was primarily due to the following:

  *$297 million increase from net debt activity. Fourth quarter 2012 reflects
    a decrease of $844 million in Commercial Paper as compared to a decrease
    of $551 million in Commercial Paper in the fourth quarter of 2011.
  *$58 million decrease resulting from lower share repurchases.

Customer Financing Activities

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

(in millions)                         December 31,   December 31,
                                        2012             2011
                                                         
Total Finance receivables, net ^(1)     $  5,313        $  6,362  
Equipment on operating leases, net        535            533    
Total Finance Assets, net ^(2)          $  5,848        $  6,895  
                                                         


^(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) Change from December 31, 2011 includes an increase of $83 million due to
currency and a decrease due to the sale of finance receivables discussed
further below.

The following summarizes our debt:

(in millions)                December 31,   December 31,
                               2012             2011
                                                
Principal debt balance^(1)     $  8,410         $  8,450
Net unamortized discount          (63    )         (7     )
Fair value adjustments           142            190    
Total Debt                     $  8,489        $  8,633  
_____________

(1) December 31, 2011 includes Commercial Paper of $100 million.

The decrease in total debt from December 31, 2011 is primarily a result of a
decrease in Commercial Paper.

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

(in millions)        December 31,   December 31,
                       2012             2011
                                        
Financing Debt^(1)     $  5,117        $  6,033  
Core Debt                3,372          2,600  
Total Debt             $  8,489        $  8,633  

^(1)Financing debt includes $4,649 million and $5,567 million as of December
31, 2012 and December 31, 2011, 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.

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 receivable without
recourse. The accounts receivables sold are generally short-term trade
receivables with payment due dates of less than 60 days. Accounts receivable
sales were as follows:

                             Three Months          Year
                               Ended December 31,      Ended December 31,
(in millions)                  2012      2011        2012        2011
                                                                     
Accounts receivable sales      $ 883      $ 915      $ 3,699       $ 3,218 
Deferred proceeds                114         96          639           386
Fees associated with sales       5           6           21            20
Estimated increase
(decrease) to operating          89          165         (78   )       133
cash flows ^(1)
______________

^(1) Represents the difference between current and prior period receivable
sales adjusted for the effects of the deferred proceeds, collections prior to
the end of the quarter and currency.

Sales of Finance Receivables

In December 2012, we sold our entire interest in a group of U.S. finance
receivables from our Document Technology segment with a net carrying value of
$341 million to a third-party financial institution for net cash proceeds of
$314 million and a beneficial interest from the purchaser of $49 million. This
transaction enabled us to lower the cost associated with our financing
portfolio.

A pre-tax gain of $21 million was recognized on this sale and is net of
additional fees and expenses of $2 million. The gain on the sale is reported
in Finance Income in Document Technology segment revenues. We will continue to
service the sold receivables and expect to record servicing fee income of
approximately $6 million over the expected life of the associated receivables.
A similar sale was completed in the third quarter 2012.

The net fourth quarter and full year 2012 impact on operating cash flow of the
accounts receivable and finance receivable sales is presented below:

(in millions)                    Three Months Ended    Year Ended
                                   December31,            December31,
                                   2012      2011        2012      2011
Cash received from finance         $ 314       $ -        $ 625       $ -   
receivables sales
Collections on sold finance         (45 )      -         (45 )      -   
receivables*
Net cash impact of finance           269         -           580         -
receivable sales
                                                                       
Net cash impact of accounts         89        165       (78 )      133 
receivable sales
Net cash impact on cash flows      $ 358      $ 165      $ 502      $ 133 
from operating activities

* Represents cash that would have been collected if we had not sold finance
receivables

Forward-Looking Statements

This release contains "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; the risk that unexpected costs will be
incurred; our ability to expand equipment placements; the risk that
subcontractors, software vendors and utility and network providers will not
perform in a timely, quality manner; 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; our ability to
recover capital investments; development of new products and services; our
ability to protect our intellectual property rights; interest rates, cost of
borrowing and access to credit markets; the risk that multi-year contracts
with governmental entities could be terminated prior to the end of the
contract term; reliance on third parties 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 our Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 and our
2011 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.

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 as well as in the 2012
fourth quarter presentation slides available at www.xerox.com/investor.

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

Adjusted Earnings Measures

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

  *Net income and Earnings per share (“EPS”)
  *Effective tax rate

In 2012 and 2011 we adjusted for the amortization of intangible assets. The
amortization of intangible assets is driven by our acquisition activity which
can vary in size, nature and timing as compared to other companies within our
industry and from period to period. Accordingly, due to the incomparability of
acquisition activity among companies and from period to period, we believe
exclusion of the amortization associated with intangible assets acquired
through our acquisitions allows investors to better compare and understand our
results. The use of intangible assets contributed to our revenues earned
during the periods presented and will contribute to our future period revenues
as well. Amortization of intangible assets will recur in future periods.

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

Constant Currency

To better understand trends in our business, we believe that it is helpful to
adjust revenue to exclude the impact of changes in the translation of foreign
currencies into U.S. dollars. We refer to this adjusted revenue as “constant
currency.” Currencies for developing market countries (Latin America, Brazil,
Middle East, India, Eurasia and Central-Eastern Europe) that we operate in are
reported at actual exchange rates for both actual and constant revenue growth
rates because (1) these countries historically have had volatile currency and
inflationary environments and (2) our subsidiaries in these countries have
historically taken pricing actions to mitigate the impact of inflation and
devaluation. Management believes the constant currency measure provides
investors an additional perspective on revenue trends. Currency impact can be
determined as the difference between actual growth rates and constant currency
growth rates.

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

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

Net Income and EPS reconciliation:

                                                            

                         Three Months Ended           Three Months Ended
                         December 31, 2012            December 31, 2011
(in millions; except     Net Income     EPS           Net Income     EPS
per share amounts)
Reported                 $  335        $ 0.26       $  375        $ 0.26  
                                                                     
Adjustments:
Amortization of            51          0.04         87          0.07  
intangible assets
Adjusted                 $  386        $ 0.30       $  462        $ 0.33  
                                                                     
Weighted average
shares for adjusted                       1,296                        1,415
EPS^(1)
                                                                     
                                                                     
                         Year Ended                   Year Ended
                         December 31, 2012            December 31, 2011
(in millions; except     Net Income     EPS           Net Income     EPS
per share amounts)
Reported                 $  1,195       $ 0.88        $  1,295       $ 0.90
                                                                     
Adjustments:
Amortization of             203           0.15           248           0.17
intangible assets
Loss on early
extinguishment of          -           -            20          0.01  
liability
Adjusted                 $  1,398      $ 1.03       $  1,563      $ 1.08  
                                                                     
Weighted average
shares for adjusted                       1,356                        1,444
EPS^(1)
Fully diluted shares
at December 31,                           1,271
2012^(2)
                        

(1) Average shares for the calculation of adjusted EPS for the three and
twelve months ended December 31, 2012 and 2011 include 27 million of shares
associated with the Series A convertible preferred stock and therefore the
related quarterly dividends of $6 million and year-to-date dividends of $24
million are excluded. We evaluate the dilutive effect of the Series A
convertible preferred stock on an "if-converted" basis.

(2) Represents common shares outstanding at December 31, 2012 as well as
shares associated with our Series A convertible preferred stock plus dilutive
potential common shares as used in the calculation of earnings per share for
the three months ended December 31, 2012.

Guidance:

                                    Earnings Per Share guidance
                                      Q1 2013         FY 2013
                                                        
GAAP EPS                              $0.19 - $0.21     $0.94 - $1.00
                                                        
Adjustments:
Amortization of intangible assets     0.04              0.15
                                                        
Adjusted EPS                          $0.23 - $0.25     $1.09 - $1.15
                                                        

Effective Tax reconciliation:

              Three Months Ended             Three Months Ended
               December 31, 2012               December 31, 2011
(in            Pre-Tax   Income    Effective   Pre-Tax   Income    Effective
millions)      Income   Tax      Tax         Income   Tax      Tax
                         Expense   Rate                  Expense   Rate
                                                                             
Reported       $ 367    $ 71     19.3   %    $ 447    $ 102    22.8   %
                                                                             
Adjustments:
Amortization
of              82      31                 139     52     
intangible
assets
Adjusted       $ 449    $ 102    22.7   %    $ 586    $ 154    26.3   %
                                                                             
                                                                             

Operating Income / Margin reconciliation:

                Three Months Ended               Three Months Ended
                 December 31, 2012                 December 31, 2011
(in millions)    Profit     Revenue     Margin   Profit     Revenue     Margin
Reported         $ 367       $ 5,923     6.2  %   $ 447       $ 5,964     7.5  %
pre-tax income
Adjustments:
Amortization
of intangible      82                                139
assets
Xerox
restructuring      93                                61
charge
Curtailment        -                                 (107  )
gain
Other             71                            54                   
expenses, net
Adjusted         $ 613       $ 5,923      10.3 %   $ 594       $ 5,964      10.0 %
Operating
Equity in net
income of          47                                38
unconsolidated
affiliates
Fuji Xerox
restructuring      1                                 3
charge
Other             (70   )                        (53   )               
expenses, net*
Segment          $ 591      $ 5,923     10.0 %   $ 582      $ 5,964     9.8  %
Profit/Revenue
_______________
* Includes rounding adjustments.
                                                                            
                 Year Ended                        Year Ended
                 December 31, 2012                 December 31, 2011
(in millions)    Profit      Revenue      Margin   Profit      Revenue      Margin
Reported         $ 1,348     $ 22,390     6.0  %   $ 1,565     $ 22,626     6.9  %
pre-tax income
Adjustments:
Amortization
of intangible      328                               398
assets
Xerox
restructuring      153                               33
charge
Curtailment        -                                 (107  )
gain
Other             256                           322                  
expenses, net
Adjusted         $ 2,085     $ 22,390     9.3  %   $ 2,211     $ 22,626     9.8  %
Operating
Equity in net
income of          152                               149
unconsolidated
affiliates
Loss on early
extinguishment     -                                 33
of liability
Fuji Xerox
restructuring      16                                19
charge
Other             (256  )                        (320  )               
expenses, net*
Segment          $ 1,997    $ 22,390    8.9  %   $ 2,092    $ 22,626    9.2  %
Profit/Revenue
_______________
* Includes rounding adjustments.



Services Revenue Breakdown:

                                    Three Months Ended December31,
(in millions)                        2012        2011       Change
                                                                     
Business Processing Outsourcing      $  1,734     $ 1,607     8%
Document Outsourcing                    975         954       2%
Information Technology Outsourcing      389         337       15%
Less: Intra-Segment Eliminations       (44   )    (34   )   29%
Total Revenue - Services             $  3,054    $ 2,864    7%
                                                                     
Segment Profit - Services            $  343      $ 296      16%
                                                                     
Segment Margin - Services              11.2  %    10.3  %   0.9    pts
                                                                     
* Percent change not meaningful.

Note: ITO growth includes 1 pt of growth from intercompany services which is
eliminated in total services.

                                                           

APPENDIX I

Xerox Corporation
Earnings per Common Share
(in millions, except per share data. Shares in thousands)

                 Three Months Ended              Year Ended
                 December 31,                    December 31,
                 2012            2011            2012            2011
                                                                 
Basic Earnings
per Share:
                                                                 
Net income
attributable     $ 335           $ 375           $ 1,195         $ 1,295
to Xerox
Accrued
Dividends on      (6        )    (6        )    (24       )    (24       )
preferred
stock
                                                                 
Adjusted net
income
available to     $ 329          $ 369          $ 1,171        $ 1,271     
common
shareholders
                                                                 
Weighted
average common    1,248,784     1,360,982     1,302,053     1,388,096 
shares
outstanding
                                                                 
Basic Earnings   $ 0.26         $ 0.27         $ 0.90         $ 0.92      
per Share
                                                                 
Diluted
Earnings per
Share:
                                                                 
Net income
attributable     $ 335           $ 375           $ 1,195         $ 1,295
to Xerox
Accrued
Dividends on       -               -               (24       )     -
preferred
stock
Interest on
Convertible        -               -               1               1
Securities,
net
                                                              
Adjusted net
income
available to     $ 335          $ 375          $ 1,172        $ 1,296     
common
shareholders
                                                                 
Weighted
average common     1,248,784       1,360,982       1,302,053       1,388,096
shares
outstanding
Common shares
issuable with
respect to:
Stock options      1,154           6,209           4,335           9,727
Restricted
stock and          17,322          18,877          20,804          16,993
performance
shares
Convertible
preferred          26,966          26,966          -               26,966
stock
Convertible       1,992         1,992         1,992         1,992     
securities
Adjusted
weighted
average common    1,296,218     1,415,026     1,329,184     1,443,774 
shares
outstanding
                                                                 
Diluted
Earnings per     $ 0.26         $ 0.26         $ 0.88         $ 0.90      
Share
                                                                 
The following
securities
were not
included in
the
computation of
diluted
earnings per
share because
to do so would
have been
anti-dilutive
(in thousands
of shares):
Stock options      32,578          43,861          29,397          40,343
Restricted
stock and          26,911          24,134          23,430          26,018
performance
shares
Convertible
preferred         -             -             26,966        -         
stock
                  59,489        67,995        79,793        66,361    

                                                                 
Dividends per    $ 0.0425       $ 0.0425       $ 0.1700       $ 0.1700    
Common Share





APPENDIX II
Xerox Corporation
Reconciliation of Segment Operating Profit to Pre-Tax Income

                                                   Three Months Ended
                                                    December 31,
(in millions)                                       2012     2011
Segment Profit                                      $ 591     $ 582
Reconciling items:
Restructuring and asset impairment charges            (93 )     (61  )
Restructuring charges of Fuji Xerox                   (1  )     (3   )
Amortization of intangible assets                     (82 )     (139 )
Equity in net income of unconsolidated affiliates     (47 )     (38  )
Curtailment gain                                      -         107
Other                                                 (1  )     (1   )
                                                             
Pre-Tax Income                                      $ 367    $ 447  

Our reportable segments are aligned to how we manage the business and view the
markets we serve. Our reportable segments are Services, Document Technology,
and Other.

Services:
          The Services segment comprises three service offerings:
            *Business Process Outsourcing.
            *Document Outsourcing, which includes Managed Print Services and
              revenues from our partner print services offerings.
            *Information Technology Outsourcing.
Document Technology:
          The Document Technology segment is centered around strategic product
          groups, which share common technology, manufacturing and product
          platforms. This segment includes the sale of document systems and
          supplies, provision of technical service and financing of products.
          Our products range from:
            *“Entry”, which includes A4 devices and desktop printers.
            *“Mid-Range”, which includes A3 devices that generally serve
              workgroup environments in mid to large enterprises. This
              includes products that fall into the market categories, Color
              41+ppm <$100K and Light Production 91+ppm <$100K.
            *“High-End”, which includes production printing and publishing
              systems that generally serve the graphic communications
              marketplace and large enterprises.

          
          The Other segment includes Xerox Supplies Business Group (“XSBG”)
Other:    (predominantly paper), Wide Format Systems, licensing revenue, GIS
          network integration solutions and electronic presentation systems,
          and non-allocated corporate items, including Other expenses, net.

Contact:

Xerox
Media:
Karen Arena, +1-203-849-5521
karen.arena@xerox.com
or
Ken Ericson, +1-410-571-0161
kenneth.ericson@xerox.com
 
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