Xerox Reports Third-Quarter 2013 Earnings

  Xerox Reports Third-Quarter 2013 Earnings

  *GAAP EPS from continuing operations of 22 cents
  *Adjusted EPS of 26 cents
  *Revenue of $5.3 billion, flat from third quarter 2012
  *Operating margin of 9.4 percent, up 0.5 points YOY
  *Cash from operations of $961 million

Business Wire

NORWALK, Conn. -- October 24, 2013

Xerox (NYSE:XRX) announced today third-quarter 2013 adjusted EPS of 26 cents,
which excludes 4 cents related to the amortization of intangibles, resulting
in GAAP EPS from continuing operations of 22 cents.

In the third quarter, total revenue of $5.3 billion was flat from the prior
year or down 1 percent in constant currency.

Revenue from the company’s services business was up 3 percent with a segment
margin of 9.9 percent. Services revenue now represents 56 percent of Xerox’s
total revenue. The company’s document technology revenue declined 4 percent,
or 5 percent in constant currency, with a segment margin of 12.1 percent.

“This quarter shows how we are successfully capturing the benefits of a
diversified portfolio. Within services we continue to focus on improving our
cost structure while maintaining investments in areas where we see
opportunity, such as healthcare. In document technology, revenue declines
stabilized with continued good profitability. We continue to see demand from
small and midsize businesses in the United States, and positive trends in the
high end of our business,” said Ursula Burns, Xerox chairman and chief
executive officer. “Our approach remains the same: to focus on areas of
differentiation and profitable growth while finding new ways to deliver
operational improvements across the board.”

Third-quarter operating margin of 9.4 percent was up 0.5 points year over
year. Gross margin was 31.5 percent. Selling, administrative and general
expenses were 19.3 percent of revenue.

The company generated $961 million in operating cash flow in the quarter, and
anticipates full year cash flow towards the higher-end of the $2.1 billion to
$2.4 billion range.

Xerox expects fourth quarter 2013 GAAP earnings from continuing operations of
24 to 26 cents per share and adjusted EPS of 28 to 30 cents. Our guidance
includes approximately 2 cents per share of restructuring charges and 2 cents
from higher pension settlement expenses.

The company expects full-year 2013 GAAP EPS from continuing operations in the
range of 93 to 95 cents, and adjusted EPS of $1.08 to $1.10.

About Xerox

Since the invention of Xerography 75 years ago, the people of Xerox (NYSE:
XRX) have helped businesses simplify the way work gets done. Today, we are the
global leader in business process and document management, helping
organizations of any size be more efficient so they can focus on their real
business. Headquartered in Norwalk, Conn., more than 140,000 Xerox employees
serve clients in 160 countries, providing business services, printing
equipment and software for commercial and government organizations. Learn more
at www.xerox.com.

Non- GAAP Measures:

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

  *Adjusted EPS (earnings per share) for the third-quarter 2013 as well as
    for the fourth-quarter and full-year 2013 guidance that excludes certain
    items.
  *Operating margin for the third-quarter 2013 that excludes certain
    expenses.
  *Constant Currency revenue growth for the third quarter 2013 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; 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 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;
interest rates, cost of borrowing and access to credit markets; 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, 2013 and June
30, 2013 and our 2012 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 Corporation
Condensed Consolidated Statements of Income (Unaudited)
                                                                       
                                                                                    
                   Three Months                         Nine Months
                   Ended September 30,                  Ended September 30,
(in millions,
except             2013          2012        %          2013          2012         %
per-share                                    Change                                 Change
data)
                                                                                    
Revenues
Sales              $ 1,372       $ 1,389     (1  %)     $ 4,119        $ 4,268      (3  %)
Outsourcing,
maintenance          3,757         3,726     1   %        11,383         11,255     1   %
and rentals
Financing           133         160       (17 %)      364          451        (19 %)
Total Revenues      5,262       5,275     --          15,866       15,974     (1  %)
                                                                                    
Costs and
Expenses
Cost of sales        869           897       (3  %)       2,618          2,739      (4  %)
Cost of
outsourcing,         2,698         2,668     1   %        8,184          7,983      3   %
maintenance
and rentals
Cost of              40            49        (18 %)       125            153        (18 %)
financing
Research,
development
and                  145           161       (10 %)       448            495        (9  %)
engineering
expenses
Selling,
administrative       1,018         1,032     (1  %)       3,100          3,139      (1  %)
and general
expenses
Restructuring
and asset            35            14        *            60             63         (5  %)
impairment
charges
Amortization
of intangible        83            82        1   %        249            246        1   %
assets
Other               39          58        (33 %)      115          190        (39 %)
expenses, net
Total Costs         4,927       4,961     (1  %)      14,899       15,008     (1  %)
and Expenses
                                                                                    
Income before
Income Taxes &       335           314       7   %        967            966        -
Equity
Income^(1)
Income tax           85            62        37  %        203            201        1   %
expense
Equity in net
income of           43          34        26  %       126          105        20  %
unconsolidated
affiliates
                                                                                    
Income from
Continuing           293           286       2   %        890            870        2   %
Operations
(Loss) income
from
Discontinued        (2    )      2         *           (22    )      10         *
Operations,
net of tax
                                                                                    
Net Income           291           288       1   %        868            880        (1  %)
                                                                                    
Less: Net
income
attributable        5           6         (17 %)      15           20         (25 %)
to
noncontrolling
interests
                                                                                    
Net Income
Attributable       $ 286        $ 282       1   %      $ 853         $ 860        (1  %)
to Xerox
                                                                                    
Amounts
attributable
to Xerox:
Net Income
from               $ 288         $ 280       3   %      $ 875          $ 850        3   %
continuing
operations
Net (loss)
Income from         (2    )      2         *           (22    )      10         *
discontinued
operations
                                                                                    
Net Income
attributable       $ 286        $ 282       1   %      $ 853         $ 860        (1  %)
to Xerox
                                                                                    
                                                                                    
Basic Earnings
per Share:
Continuing         $ 0.23        $ 0.21      10  %      $ 0.70         $ 0.63       11  %
Operations
Discontinued        -           -         -           (0.02  )      0.01       *
Operations
Total Basic
Earnings per       $ 0.23       $ 0.21      10  %      $ 0.68        $ 0.64       6   %
Share
                                                                                    
Diluted
Earnings per
Share:
Continuing         $ 0.22        $ 0.21      5   %      $ 0.68         $ 0.62       10  %
Operations
Discontinued        -           -         -           (0.01  )      -          *
Operations
Total Diluted
Earnings per       $ 0.22       $ 0.21      5   %      $ 0.67        $ 0.62       8   %
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    Nine Months Ended
                                September 30,           September 30,
(in millions)                   2013      2012        2013       2012
                                                                     
Net Income                      $ 291       $ 288       $ 868        $ 880
Less: Net income
attributable to                  5         6         15         20    
noncontrolling interests
Net Income Attributable          286       282       853        860   
to Xerox
                                                                     
Other Comprehensive
Income (Loss), Net:
Translation adjustments,          269         344         (178 )       181
net
Unrealized gains                  14          (2  )       7            (11   )
(losses), net
Changes in defined               (38 )      (10 )      121        -     
benefit plans, net
Other Comprehensive
Income (Loss), Net               245       332       (50  )      170   
Attributable to Xerox
                                                                     
Comprehensive Income, Net         536         620         818          1,050
Less: Comprehensive
income, net attributable         5         6         15         20    
to noncontrolling
interests
Comprehensive Income, Net       $ 531      $ 614      $ 803       $ 1,030 
Attributable to Xerox
                                                                     

                                           
Xerox Corporation

Condensed Consolidated Balance Sheets (Unaudited)
                                               
                                               September 30,   December 31,
(in millions, except share data in          2013              2012
thousands)
Assets
Cash and cash equivalents                      $ 948             $ 1,246
Accounts receivable, net                         2,989             2,866
Billed portion of finance receivables,           138               152
net
Finance receivables, net                         1,584             1,836
Inventories                                      1,152             1,011
Other current assets                            1,259           1,162     
Total current assets                             8,070             8,273
Finance receivables due after one year,          2,957             3,325
net
Equipment on operating leases, net               533               535
Land, buildings and equipment, net               1,485             1,556
Investments in affiliates, at equity             1,329             1,381
Intangible assets, net                           2,586             2,783
Goodwill                                         9,169             9,062
Deferred tax assets, long-term                   643               763
Other long-term assets                          2,244           2,337     
Total Assets                                   $ 29,016         $ 30,015    
                                                                 
Liabilities and Equity
Short-term debt and current portion of         $ 1,135           $ 1,042
long-term debt
Accounts payable                                 1,589             1,913
Accrued compensation and benefits costs          772               741
Unearned income                                  483               438
Other current liabilities                       1,667           1,776     
Total current liabilities                        5,646             5,910
Long-term debt                                   6,406             7,447
Pension and other benefit liabilities            2,833             2,958
Post-retirement medical benefits                 847               909
Other long-term liabilities                     755             778       
Total Liabilities                               16,487          18,002    
                                                                 
Series A Convertible Preferred Stock            349             349       
                                                                 
Common stock                                     1,247             1,239
Additional paid-in capital                       5,630             5,622
Treasury stock, at cost                          (162      )       (104      )
Retained earnings                                8,608             7,991
Accumulated other comprehensive loss            (3,277    )      (3,227    )
Xerox shareholders' equity                       12,046            11,521
Noncontrolling interests                        134             143       
Total Equity                                    12,180          11,664    
Total Liabilities and Equity                   $ 29,016         $ 30,015    
                                                                 
Shares of common stock issued                    1,247,126         1,238,696
Treasury stock                                  (16,012   )      (14,924   )
Shares of common stock outstanding              1,231,114       1,223,772 
                                                                 


Xerox Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

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

Financial Review

Revenues

                                                               
                           Three Months Ended
                           September 30,                    % of Total Revenue
                                                   %
(in millions)              2013       2012                 2013       2012
                                                   Change
                                                                       
Equipment sales            $ 811       $ 805       1   %    15   %     15   %
Annuity revenue             4,451     4,470    --       85   %     85   %
Total Revenue              $ 5,262    $ 5,275    --       100  %     100  %
                                                                       
                                                                       
Reconciliation to Condensed Consolidated Statements of Income:
Sales                      $ 1,372     $ 1,389     (1  %)
Less: Supplies,
paper and other             (561  )    (584  )   (4  %)
sales
Equipment Sales            $ 811      $ 805      1   %
                                                                       
Outsourcing,
maintenance and            $ 3,757     $ 3,726     1   %
rentals
Add: Supplies, paper         561         584       (4  %)
and other sales
Add: Financing              133       160      (17 %)
Annuity Revenue            $ 4,451    $ 4,470    --
                                                                       

Third quarter 2013 total revenues were flat as compared to the third quarter
2012, with a 1-percentage point positive impact from currency, and reflected
the following:

  *Annuity revenue was flat as compared to the third quarter 2012, including
    a 1-percentage point positive impact from currency. Annuity revenue is
    comprised of the following:

       *Outsourcing, maintenance and rentals revenue 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% 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.
       *Supplies, paper and other sales includes unbundled supplies and other
         sales, primarily within our Document Technology segment. A decrease
         of 4% 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% from the third quarter 2012.
         Approximately $15 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. 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.

  *Equipment sales revenue is reported primarily within our Document
    Technology segment and the document outsourcing business within our
    Services segment.  Equipment sales revenue increased 1% as compared to the
    third quarter 2012, including a 1-percentage point positive impact from
    currency.

    Recent product introductions and a positive mix impact were offset by
    price declines in the range of 5% to 10%, which were consistent with prior
    quarters.

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
                             September 30,
                             
                                        2012       B/(W)
                             2013
                                                          
Total Gross Margin           31.5  %     31.5 %     -     pts.
RD&E as a % of Revenue       2.8   %     3.1  %     0.3   pts.
SAG as a % of Revenue        19.3  %     19.6 %     0.3   pts.
Operating Margin ^(1)        9.4   %     8.9  %     0.5   pts.
                                                          
Pre-tax income margin        6.4   %     6.0  %     0.4   pts.
                                                          

Operating Margin

Third quarter 2013 operating margin^1 of 9.4% increased 0.5-percentage points
as compared to the third quarter 2012, driven by a decline in operating
expenses as gross margin remained flat.

Gross Margin

Gross margin of 31.5% was flat as compared to the third quarter 2012. An
increase in the Document Technology gross margin was offset by the impact of a
higher mix of Services revenue.

Services segment gross margin was flat as compared to the third quarter 2012
as productivity improvements and restructuring benefits offset the impact of
price declines.

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

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

Third quarter 2013 RD&E as a percentage of revenue of 2.8% decreased
0.3-percentage points from the third quarter 2012. 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 $145 million was $16 million lower than the third quarter 2012,
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, 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% decreased 0.3-percentage points from
the third quarter 2012. 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.

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

  *$19 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.
  *$5 million increase in bad debt expenses to $27 million, driven primarily
    by increased bad debt levels in Europe. Third quarter 2013 bad debt
    expense remained at less than one percent of receivables.

Restructuring and Asset Impairment Charges

During the third quarter 2013, we recorded net restructuring and asset
impairment charges of $35 million, which included approximately $38 million of
severance costs related to headcount reductions of approximately 2,150
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.

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 million of
net reversals for changes in estimated reserves from prior period initiatives.

The restructuring reserve balance as of September30, 2013 for all programs
was $87 million, of which approximately $78 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 quarter 2013 for actions and initiatives which
have not yet been finalized.

Worldwide Employment

Worldwide employment of approximately 141,900 at September 30, 2013 decreased
approximately 5,700 from year-end 2012, due to restructuring-related actions
and attrition outpacing hiring and acquisitions.

Other Expenses, Net

                                                  
                                                     Three Months Ended
                                                     September 30,
(in millions)                                        2013       2012
                                                                 
Non-financing interest expense                       $  60       $ 56
Interest income                                         (3   )     (3 )
(Gains)/losses on sales of businesses and assets        (24  )     4
Litigation matters                                      -          (1 )
Loss on sales of accounts receivables                   4          4
Deferred compensation investment gains                  (6   )     (5 )
All other expenses, net                                8        3  
Total Other Expenses, Net                            $  39      $ 58 
                                                            
                                                                 

Non-financing interest expense

Third quarter 2013 non-financing interest expense of $60 million was $4
million higher than third quarter 2012. When combined with financing interest
expense (cost of financing), total company interest expense declined by $5
million from the third quarter 2012, primarily driven by a lower average debt
balance.

Gains on sales of businesses and assets

Third quarter 2013 gains on sales of businesses and assets was primarily
comprised of a $23 million gain on the sale of a U.S. facility.

Income Taxes

Third quarter 2013 effective tax rate was 25.4%.On an adjusted basis^1, the
third quarter 2013 tax rate was 27.8%, which was lower than the U.S. statutory
tax rate primarily due to benefits from 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
asset.

Third quarter 2012 effective tax rate was 19.7%. On an adjusted basis^1, third
quarter 2012 tax rate was 23.5%, 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 resolution of certain tax positions, offset
by a similar impact from the 2012 reduction in the U.K. corporate income tax
rate.

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.

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 will be
approximately 25% to 27% for the fourth quarter of 2013. We estimate that
potential discrete items and other future events could result in a reduction
in the rate of approximately 2 to 3 percentage points.

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 $43 million, an increase of $9
million compared to the third quarter 2012. Third quarter 2013 equity income
includes charges of $3 million related to our share of Fuji Xerox after-tax
restructuring compared to $5 million of charges for the third quarter 2012.

Net Income

Third quarter 2013 net income from continuing operations attributable to Xerox
was $288 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. Third quarter 2013 adjustments to net income reflect
the amortization of intangible assets.

Third quarter 2012 net income from continuing operations attributable to Xerox
was $280 million, or $0.21 per diluted share. On an adjusted basis^1, net
income from continuing operations attributable to Xerox was $331 million, or
$0.25 per diluted share. Third quarter 2012 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 third 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.

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
(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 million and were reported as cash flows from
investing activities in the Condensed Consolidated Statements of Cash Flows.

As a result of these transactions, we have reported these paper-related
operations as Discontinued Operations and reclassified their results from the
Other segment to Discontinued Operations in 2013. All prior periods have
accordingly been reclassified to conform to this presentation. The sale of the
European Paper business is expected to be completed 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 receivable
and inventory - utilized in the business. As of September 30, 2013, total
assets held for sale were approximately $47 million and are included in Other
Current Assets in the Condensed Consolidated Balance Sheets.

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

                                                     
                                  Three Months Ended      Nine Months Ended
                                  September 30,           September 30,
(in millions)                     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            (2   )     3            (18   )     15
income taxes
Income tax expense                 -        (1   )      (4    )    (5   )
                                                                      
(Loss) income from
discontinued operations, net      $ (2   )   $ 2         $ (22   )   $ 10   
of tax
                                                                      
Diluted earnings per share        $ -       $ -         $ (0.01 )   $ -    
from discontinued operations
                                                                      
Total diluted earnings per
share, inclusive of               $ 0.22    $ 0.21      $ 0.67     $ 0.62 
discontinued operations


* Third Quarter 2013 revenues from discontinued operations only reflects
revenues from our European Paper business as the sale has not been completed.
Year-to-date 2013 revenues from discontinued operations only reflects five
months of revenues from our North American Paper business as a result of the
completion of the sale to Domtar Corporation on May 31, 2013

Segment Review

                                                             
                          Three Months Ended September 30,
                          
                          Total      % of Total   Segment         Segment
(in millions)                                  
                          Revenues   Revenue      Profit (Loss)   Margin
2013
Services                  $  2,944   56     %     $   292         9.9   %
Document Technology          2,159   41     %         261         12.1  %
Other                       159     3      %        (55   )     (34.6 %)
Total                     $  5,262   100    %     $   498        9.5   %
                                                                  
2012
Services                  $  2,847   54     %     $   269         9.4   %
Document Technology          2,259   43     %         245         10.8  %
Other                       169     3      %        (66   )     (39.1 %)
Total                     $  5,275   100    %     $   448        8.5   %
                                                                  

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

Third quarter 2013 Services total revenue of $2,944 million increased 3% from
the third quarter 2012, with no impact from currency.

  *BPO revenue increased 1% and represented 59% of total Services revenue.
    BPO growth was driven by our healthcare and government businesses,
    partially offset by lower volumes in portions of our commercial BPO
    business as well as our student loan business.
  *DO revenue increased 5% and represented 28% of total Services revenue. DO
    growth was driven primarily by our partner print services offerings as
    well as higher equipment sales.
  *ITO revenue increased 8% and represented 13% of total Services revenue.
    ITO growth was driven by the continued revenue ramp from prior period
    signings.

Segment Margin

Third quarter 2013 Services segment margin of 9.9% increased by 0.5 percentage
points from the third quarter 2012, with gross margin unchanged and continued
SAG improvement which included benefits from restructuring as well as lower
compensation-related expenses. In addition, the third quarter 2012 included a
negative impact from a write-off associated with a government contract.

Metrics
Pipeline

Our total Services sales pipeline grew 5% over the third quarter 2012. 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 $1.8 billion TCV.
  *DO signings of $860 million TCV.
  *ITO signings of $260 million TCV.

Signings on a trailing twelve month basis increased 9% in relation to the
comparable prior year period. Signings decreased 7% as compared to the third
quarter 2012 with fewer eligible renewals offsetting increased new business
signings. The above DO signings amount does not include signings from our
partner print services offerings.

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 third quarter 2013
contract renewal rate for BPO and ITO contracts was 89%, which was at the high
end of our target range of 85%-90%.

Document Technology

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

Revenue

                  Three Months Ended 
                    September 30,
(in millions)       2013      2012      Change
                                         
Equipment sales     $  647     $ 664     (3  %)
Annuity revenue       1,512    1,595   (5  %)
Total Revenue       $  2,159   $ 2,259   (4  %)
                                         

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

  *Equipment sales revenue decreased by 3% from the third quarter 2012,
    including a 1-percentage point positive impact from currency. Equipment
    sales benefitted 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 offering (included in our Services segment) and
    weakness in developing markets. Price declines were in the historical 5%
    to 10% range.
  *Annuity revenue decreased by 5% from the third quarter 2012, including a
    1-percentage point positive impact from currency, driven by a modest
    decline in total pages, 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% mid-range and 21%
    high-end, consistent with recent quarters.

Segment Margin

Third quarter 2013 Document Technology segment margin of 12.1% increased by
1.3-percentage points from the third quarter 2012, largely driven by a
1.0-percentage point increase in gross margin due to benefits from
productivity improvements, including restructuring savings, and from favorable
currency impacts, which more than offset 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

  *41% increase in color multifunction devices driven by demand for the
    WorkCentre^® 6605 and WorkCentre^® 6015 products.
  *1% decrease in color printers.
  *21% decrease in black-and-white multifunction devices driven by declines
    in developing markets.

Mid-Range

  *9% increase in installs of mid-range color devices, driven by demand for
    the ConnectKey products.
  *3% decrease in installs of mid-range black-and-white devices.

High-End

  *92% 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 the iGen as we continue to
    strengthen our market leadership in the Production Color segment. High-End
    color installs increased 14%, excluding the DFE sales to Fuji Xerox.
  *9% 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

Third quarter 2013 Other revenue of $159 million decreased 6% from the third
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. After the
aforementioned discontinued operations treatment of our North American and
European Paper businesses, total paper revenue (all within developing markets)
comprised approximately 1/3 of third quarter 2013 Other segment revenue.

Segment Margin

Third quarter 2013 Other segment loss of $55 million decreased $11 million
from the third quarter 2012, primarily driven by the previously discussed gain
on the sale of a U.S. facility. All non-financing interest expense is
contained within the Other segment.

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. The sale of the European Paper business is expected to be completed
in the fourth quarter 2013.

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

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 September 30, 2013 and 2012:

                                             
                                                Three Months Ended
                                                September 30,
                                                                   
(in millions)                                   2013       2012       Change
                                                                      
Net cash provided by operating activities       $ 961      $ 594      $ 367
Net cash used in investing activities             (82  )     (289 )     207
Net cash used in financing activities             (871 )     (230 )     (641 )
Effect of exchange rate changes on cash and      11       (7   )    18   
cash equivalents
Increase in cash and cash equivalents             19         68         (49  )
Cash and cash equivalents at beginning of        929      814      115  
period
Cash and Cash Equivalents at End of Period      $ 948     $ 882     $ 66   
                                                                      

Cash Flows from Operating Activities

Net cash provided by operating activities was $961 million in the third
quarter 2013. The $367 million increase in operating cash from the third
quarter 2012 was primarily due to the following:

  *$404 million increase from accounts receivable primarily due to the
    benefits from the sales of accounts receivable, improved collections and
    lower revenue.
  *$24 million increase from lower spending for product software and up-front
    costs for outsourcing service contracts.
  *$68 million decrease primarily related to the timing of payments of
    accounts payable and lower accrued compensation.

Cash Flows from Investing Activities

Net cash used in investing activities was $82 million in the third quarter
2013. The $207 million decrease in the use of cash from the third quarter 2012
was primarily due to the following:

  *$132 million decrease in acquisitions. 2013 acquisitions include 2 small
    acquisitions totaling $22 million. 2012 acquisitions include Wireless Data
    Services for $95 million, Martin Whalen Office Solutions for $31 million
    and Lateral Data for $30 million.
  *$40 million decrease primarily due to proceeds from the sale of a U.S.
    facility.
  *$38 million decrease due to lower capital expenditures (including internal
    use software).

Cash Flows from Financing Activities

Net cash used in financing activities was $871 million in the third quarter
2013. The $641 million increase in the use of cash from the third quarter 2012
was primarily due to the following:

  *$809 million increase from net debt activity. Third quarter 2013 reflects
    payments of $600 million of Senior Notes and a decrease of $50 million in
    Commercial Paper offset by net proceeds of $39 million from the sale and
    capital leaseback of a U.S. building. Third quarter 2012 reflects an
    increase of $195 million in Commercial Paper.
  *$25 million increase due to higher distributions to noncontrolling
    interests.
  *$199 million decrease from lower share repurchases.

Customer Financing Activities

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

                                                     
                                        September 30,     December 31,
(in millions)                           2013              2012
                                                          
Total Finance receivables, net ^(1)     $    4,679        $    5,313
Equipment on operating leases, net          533              535
Total Finance Assets, net ^(2)          $    5,212        $    5,848
                                                          

^(1)  Includes (i) billed portion of finance receivables, net, (ii) finance
receivables, net and (iii) finance receivables due after one year, net as
included in our Condensed Consolidated Balance Sheets.
^(2) Change from December 31, 2012 includes an increase of $9 million due to
currency and a decrease due to the sale of finance receivables discussed
further below.

The following summarizes our debt:

                                            
                               September 30,     December 31,
(in millions)                  2013              2012
                                                 
Principal debt balance         $   7,490         $  8,410
Net unamortized discount           (59    )         (63    )
Fair value adjustments^(1)        110            142    
Total Debt                     $   7,541        $  8,489  
_____________
                                                 

(1) Fair value adjustments – during the period from 2004 to 2011, we early
terminated several interest rate swaps that were designated as fair value
hedges of certain debt instruments. The associated net fair value adjustments
to debt are being amortized to interest expense over the remaining term of the
related notes.

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:

                                    
                       September 30,     December 31,
(in millions)          2013              2012
                                         
Financing Debt^(1)     $    4,561        $    5,117
Core Debt                  2,980            3,372
Total Debt             $    7,541        $    8,489
                                              

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

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           Nine Months
                              Ended September 30,      Ended September 30,
(in millions)                 2013      2012         2013        2012
                                                                     
Accounts receivable sales     $ 814       $ 725        $ 2,587       $ 2,816
Deferred proceeds               125         122          384           525
Loss on sale of accounts        4           4            13            16
receivables
Estimated decrease to        (75 )    (266 )    (42   )    (168  )
operating 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. The three months ended September 30, 2012
includes $215 million of cash outflows related to our terminated U.S.
revolving facility.

Sales of Finance Receivables

In September 2013, we sold our entire interest in a group of U.S. lease
finance receivables from our Document Technology segment with a net carrying
value of $419 million to a third-party financial institution for net cash
proceeds of $384 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. lease
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 of $630 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. 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.

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

                                 Three Months          Nine Months
                                   Ended September30,     Ended September30,
(in millions)                      2013       2012        2013       2012
                                                                       
Net cash received for sales of     $  384      $ 311      $  384      $ 311 
finance receivables ^(1)
Impact from prior sales of            (84  )     -            (258 )     -
finance receivables ^(2)
Collections on beneficial            16       -          43       -   
interest
                                                                       
Estimated increase to              $  316     $ 311      $  169     $ 311 
operating cash flows

^(1) Net of beneficial interest, fees and expenses.
^(2) 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; 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 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;
interest rates, cost of borrowing and access to credit markets; 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, 2013 and June
30, 2013 and our 2012 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 2013
third 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 certain items as well as their related income tax effects.

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

In 2013 and 2012 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. 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. 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
                     September 30, 2013             September 30, 2012
(in millions;
except per share     Net Income    EPS             Net Income   EPS
amounts)
Reported^(1)         $   288      $  0.22        $  280      $  0.21   
                                                                  
Adjustments:
Amortization of         52          0.04          51          0.04   
intangible assets
Adjusted             $   340       $  0.26        $  331       $  0.25   
                                                                  
Weighted average
shares for                             1,286                         1,346
adjusted EPS^(2)
Fully diluted
shares at end of                       1,280
period^(3)
__________
(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 as well as
shares associated with our Series A convertible preferred stock plus dilutive
potential common shares as used for the calculation of diluted earnings per
share in the third quarter 2013.


Guidance:

                                       Earnings Per Share Guidance
                                        Q4 2013          FY 2013
                                                          
GAAP EPS from Continuing Operations     $0.24 - $0.26     $0.93 - $0.95
                                                          
Adjustments:
Amortization of intangible assets       0.04              0.15
                                                          
Adjusted EPS                            $0.28 - $0.30     $1.08 - $1.10
                                                          
Note: GAAP and Adjusted EPS guidance includes anticipated restructuring



Effective Tax reconciliation:

                Three Months Ended             Three Months Ended
                 September 30, 2013              September 30, 2012
                 Pre-Tax   Income    Effective   Pre-Tax   Income    Effective
(in millions)    Income   Tax      Tax         Income   Tax      Tax
                           Expense   Rate                  Expense   Rate
                                                                     
Reported^(1)     $ 335    $ 85     25.4   %    $ 314    $  62    19.7   %
                                                                     
Adjustments:
Amortization
of intangible     83      31                 82       31    
assets
Adjusted         $ 418    $ 116    27.8   %    $ 396    $  93    23.5   %
                                                                     
__________
(1) Pre-Tax Income and Income Tax Expense from continuing operations
attributable to Xerox.



Operating Income / Margin reconciliation:

                 Three Months Ended              Three Months Ended
                  September 30, 2013               Septmber 30, 2012
(in millions)     Profit    Revenue     Margin   Profit    Revenue     Margin
Reported
pre-tax           $ 335     $ 5,262    6.4  %   $ 314     $ 5,275    6.0  %
income^(1)
Adjustments:
Amortization of
intangible          83                               82
assets
Xerox
restructuring       35                               14
charge
Other expenses,    39                           58                  
net
Adjusted          $ 492      $ 5,262      9.4  %   $ 468      $ 5,275      8.9  %
Operating
Equity in net
income of           43                               34
unconsolidated
affiliates
Fuji Xerox
restructuring       3                                5
charge
Other expenses,    (40  )                        (59  )               
net*
Segment           $ 498     $ 5,262     9.5  %   $ 448     $ 5,275     8.5  %
Profit/Revenue
_______________
* Includes rounding adjustments.
(1) Profit and Revenue from continuing operations attributable to Xerox.



Services Revenue Breakdown:

                         Three Months Ended September30,  
(in millions)                 2013           2012         Change
                                                                           
Business Processing        $   1,766           $  1,743         1     %
Outsourcing
Document Outsourcing           828                788           5     %
Information Technology         391                361           8     %
Outsourcing
Less: Intra-Segment           (41    )          (45    )      (9    %)
Eliminations
Total Revenue -            $   2,944          $  2,847        3     %
Services
                                                                           
Segment Profit -           $   292            $  269          9     %
Services
                                                                           
Segment Margin -              9.9    %          9.4    %      0.5        pts
Services
                                                            
                                                                           

Note: Third quarter 2012 Business Processing Outsourcing (BPO) and Document
Outsourcing (DO) revenues have been restated by $109M to reflect the transfer
of the Communication & Marketing Services (CMS) business from DO to BPO in
2013. The revenue transfer for the fourth quarter 2012 was $119M.

                                              
                                                 
APPENDIX I

Xerox Corporation
Earnings per Common Share
(in millions, except per share data. Shares in thousands)
                                                 
                 Three Months Ended              Nine Months Ended
                 September 30,                   September 30,
                 2013           2012            2013           2012
Basic Earnings
(Loss) per
Share:
                                                                 
Net income
from
continuing       $ 288           $ 280           $ 875           $ 850
operations
attributable
to Xerox
Accrued
Dividends on      (6        )    (6        )    (18       )    (18       )
preferred
stock
Adjusted net
income from
continuing
operations       $ 282           $ 274           $ 857           $ 832
available to
common
shareholders
Net (loss)
income from
discontinued      (2        )    2             (22       )    10        
operations
attributable
to Xerox
Adjusted net
income
available to     $ 280          $ 276          $ 835          $ 842       
common
shareholders
                                                                 
Weighted
average common    1,236,485     1,293,513     1,230,787     1,320,422 
shares
outstanding
                                                                 
Basic Earnings
(Loss) per
Share:
Continuing       $ 0.23          $ 0.21          $ 0.70          $ 0.63
Operations
Discontinued      -             -             (0.02     )    0.01      
Operations
Total            $ 0.23         $ 0.21         $ 0.68         $ 0.64      
                                                                 
                                                                 
Diluted
Earnings
(Loss) per
Share:
                                                                 
Net income
from
continuing       $ 288           $ 280           $ 875           $ 850
operations
attributable
to Xerox
Accrued
Dividends on       -               (6        )     -               (18       )
preferred
stock
Interest on
Convertible       -             -             1             1         
Securities,
net
Adjusted net
income from
continuing
operations       $ 288           $ 274           $ 876           $ 833
available to
common
shareholders
Net (loss)
income from
discontinued      (2        )    2             (22       )    10        
operations
attributable
to Xerox
Adjusted net
income
available to     $ 286          $ 276          $ 854          $ 843       
common
shareholders
                                                                 
Weighted
average common     1,236,485       1,293,513       1,230,787       1,320,422
shares
outstanding
Common shares
issuable with
respect to:
Stock options      5,225           3,335           5,422           5,369
Restricted
stock and          14,910          20,028          18,429          21,227
performance
shares
Convertible
preferred          26,966          -               26,966          -
stock
Convertible       1,992         1,992         1,992         1,992     
securities
Adjusted
weighted
average common    1,285,578     1,318,868     1,283,596     1,349,010 
shares
outstanding
                                                                 
Diluted
Earnings
(Loss) per
Share:
Continuing       $ 0.22          $ 0.21          $ 0.68          $ 0.62
Operations
Discontinued      -             -             (0.01     )    -         
Operations
Total            $ 0.22         $ 0.21         $ 0.67         $ 0.62      
                                                                 
                                                                 
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
Restricted
stock and          12,016          24,327          8,497           23,128
performance
shares
Convertible
preferred         -             26,966        -             26,966    
stock
                  25,118        89,723        21,402        86,489    
                                                                 

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



                                                    
                                                        
APPENDIX II

Xerox Corporation
Reconciliation of Segment Operating Profit to Pre-Tax Income
                                                        
                                                        Three Months Ended
                                                        September30,
(in millions)                                           2013       2012
Segment Profit                                          $ 498         $ 448
Reconciling items:
Restructuring and asset impairment charges                (35 )         (14 )
Restructuring charges of Fuji Xerox                       (3  )         (5  )
Amortization of intangible assets                         (83 )         (82 )
Equity in net income of unconsolidated affiliates         (43 )         (34 )
Other                                                    1           1   
Pre-Tax Income                                          $ 335        $ 314 
                                                                            

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 paper sales in our developing market
Other:      countries, Wide Format Systems, licensing revenue, GIS network
            integration solutions and electronic presentation systems and
            non-allocated corporate items, including Other expenses, net.
            


APPENDIX III

Xerox Corporation
Discontinued Operations Summary

Detailed below is a summary of the Other segment and Total segment results by
quarter for 2013 and 2012 as a result of the reclassification of the North
American and European Paper business to Discontinued Operations. The entire
restated income statement for 2012 and first quarter 2013 can be found in the
financial model included on our website at
http://news.xerox.com/investors/materials.

                                                                  
     (in          Q1          Q2          Q3          Q4          YTD
       millions)
2013
       Other
       Segment       $ 147      $ 183      $ 159                 $ 489    
       Revenue
       Total
       Performance   $ 5,202    $ 5,402    $ 5,262               $ 15,866 
       Revenue
                                                                         
       Other
       Segment       $ (70   )   $ (61   )   $ (55   )              $ (186   )
       Profit
       Total
       Segment       $ 390      $ 484      $ 498                 $ 1,372  
       Profit
                                                                         
       Other
       Segment        (47.6 %)   (33.3 %)   (34.6 %)              (38.0  %)
       Margin
       Total
       Segment        7.5   %    9.0   %    9.5   %               8.6    %
       Margin
                                                                         
                                                                         
                     Q1          Q2          Q3          Q4          FY
2012
       Other
       Segment       $ 172      $ 192      $ 169      $ 214      $ 747    
       Revenue
       Total
       Performance   $ 5,331    $ 5,368    $ 5,275    $ 5,763    $ 21,737 
       Revenue
                                                                         
       Other
       Segment       $ (57   )   $ (71   )   $ (66   )   $ (62   )   $ (256   )
       Profit
       Total
       Segment       $ 451      $ 495      $ 448      $ 588      $ 1,982  
       Profit
                                                                         
       Other
       Segment        (33.1 %)   (37.0 %)   (39.1 %)   (29.0 %)   (34.3  %)
       Margin
       Total
       Segment        8.5   %    9.2   %    8.5   %    10.2  %    9.1    %
       Margin

Contact:

Media:
Xerox
Ken Ericson, +1-202-520-2388
kenneth.ericson@xerox.com
or
Karen Arena, +1-732-407-8510
karen.arena@xerox.com
or
Investors:
Xerox
Jennifer Horsley, +1-203-849-2656
jennifer.horsley@xerox.com
or
Joe Ketchum, +1-203-849-2672
joseph.ketchum@xerox.com