Xerox 2013 Annual Report Download

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Xerox IT mega-centers
instructions
per second
process over
57K million
The Next 75
2013
Annual
Report
is awarded
about
patents
per week
Xerox
Xerox has been named
one of the top
IT innovators
on this year’s Information
Week
500
Xerox has been on
Ethisphere Institute’s
Most Ethical
seven
years
running
Company list
Xerox is one of only
5 companies
named an EPA
Corporate
Leader
Xerox has
119,000
customer
facing
employees

Table of contents

  • Page 1
    ...'s Xerox IT mega-centers named an EPA Corporate Most Ethical Xerox has been named process over 119,000 customer facing employees Leader one of the top IT innovators on this year's Information Xerox is awarded about patents Company list seven years running 57K million instructions per...

  • Page 2
    ... them throughout this annual report. Over 12,000 Xerox people participated in 2012 Xerox naturally invented Xerox Xerox ColorQube two-sided copying in devices work like a charm even in the world's 1970 A subsidiary of Xerox provided Community Involvement solar power generators for the...

  • Page 3
    ...of our North American (Canada and U.S.) and Western European Paper business as Discontinued Operations. Xerox recycled CSI light blue Xerox ranked 3rd in FORTUNE magazine's 2013 (forensic DNA investigation) technology is derived from Xerox World's Most Admired Companies imaging technology of...

  • Page 4
    ...our customers, shareholders, employees and communities around the world. At Xerox, there's inspiration and innovation around every corner, and we're on a mission to move it forward another 75 years. The company that became Xerox supplied Xerox enabled over black & white copiers for the production...

  • Page 5
    ... transportation, healthcare, education, graphic communications and customer care. In doing so, we successfully supported the launch of new health insurance exchanges in a half dozen states, helping them comply with the U.S. Affordable Care Act. We simplified services in government healthcare with...

  • Page 6
    .... In our Document Technology business we acquired Impika to advance our presence in the high-growth production inkjet segment and added distribution capacity in the U.S. And we're off to a fast start in 2014 with the acquisition of the European customer care services company, Invoco, and a healthy...

  • Page 7
    ... focused on care and education. For example, we are providing our customer creating services and care agents with innovative call technologies that reduce center technology to give them the impact on the easier access to information to environment and showcase address customer needs more sustainable...

  • Page 8
    ... commercials School of all time Xerox was the 1st to deploy mobile Xerox 100 languages for our communication Top Xerox scientists are safer thanks to our CrossSafe camera system buses show science faxes using cell phones in 1985 over supports experiments students throughout the year...

  • Page 9
    ... federal state & local governments Xerox provides services Centre of Canada developed laser expert the world's .S. U alone in the As an EPA Energy Star Charter Partner fingerprint detection in 1976 Xerox developed certification criteria for office equipment Xerox 2013 Annual Report...

  • Page 10
    ... processes over 695 million checks annually Xerox In 2007 Xerox received the processes Institution Smithsonian American history in the as part of National Medal of Technology the highest U.S. honor for $2.7 billion in electronic toll transactions every year than more for our clients...

  • Page 11
    ...: 2009 through 2012 have been restated to reï¬,ect the 2013 disposition of our North American (Canada and U.S.) and Western European Paper business as Discontinued Operations. In 1969 the Xerox received received an Every year Xerox manages 1st Xerox caucus group (Bay Area Black Employees) 37...

  • Page 12
    ... are supported frequent Greek words meaning dry and 2.5 million contact interactions daily Xerox annually by Xerox writing Xerox has been doing business in the in 160 centers globally developing markets for more than five decades 1 00 on the Corporate Equality Index every year since...

  • Page 13
    ..., Xerox Innovation Group Leslie F. Varon Vice President Vice President, Finance and Corporate Controller Ann Vezina Vice President Vice President, Human Resources Xerox Services Kevin M. Warren Vice President President, Growth Opportunities, Global Imaging Systems, Xerox Canada Xerox Technology...

  • Page 14
    ....849.2453 Mark Conlin, President Global Diversity & Inclusion Programs and EE0-1 Reports 585.423.3150 www.xerox.com/diversity Minority and Women Owned Business Suppliers www.xerox.com/supplierdiversity Ethics Helpline 866.XRX.0001 North America; International numbers and Web submission tool on www...

  • Page 15
    ... (Address of principal executive offices) (203) 968-3000 (Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1 par value New York Stock Exchange Chicago Stock...

  • Page 16
    ... of our security; service interruptions; interest rates, cost of borrowing and access to credit markets; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; our ability to drive the expanded use of color in printing and copying; the outcome...

  • Page 17
    ... Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...Directors, Executive Officers and Corporate Governance...Executive Compensation ...Security Ownership of...

  • Page 18
    ...the world. Xerox has changed greatly in size and scope since the invention of the copier. However, the company's basic principles have remained the same. From printers and multifunction devices, to business services and solutions for transportation, education and healthcare our engineers, scientists...

  • Page 19
    ... and services offerings. For instance, in 2013: we launched Xerox® ConnectKey®, a major new software and solutions capability, across a number of multifunction printers in our product portfolio; we enhanced our competitive position in high-end color printing through our acquisition of Impika; and...

  • Page 20
    ... we acquired LearnSomething, Inc., a Florida-based provider of custom e-learning solutions and consumer education for the food, drug and healthcare industries. This acquisition broadens the services Xerox offers to these industries, providing retail companies with Web-based information programs that...

  • Page 21
    ... in the design, production and sale of production inkjet printing solutions used for industrial, commercial, security, label and package printing. Impika, based in Aubagne, France, offers a portfolio of aqueous (water-based) inkjet presses utilizing proprietary technology. Since 2011, Xerox has been...

  • Page 22
    ... for digital manufacturing. Xerox Research Center Webster (XRCW): Located in Webster, New York, XRCW focuses on innovation for our document technology business and in areas that impact our healthcare, transportation and the overall Services segment. Our work here includes data and video analytics...

  • Page 23
    ... imaging, text and data analytics, with insights from its ethnographic studies to create and design innovative and disruptive technology. Xerox Research Center India (XRCI): Located in Bangalore, India, XRCI explores, develops, and incubates innovative solutions and services for our global customers...

  • Page 24
    ... delivery model and domestic payer service centers. We support the top 20 U.S. commercial health plans, touching nearly two-thirds of the insured population in the U.S. Our services include data capture, claims processing, customer care, inside sales, recovery services and healthcare communications...

  • Page 25
    ... to deliver and manage programs at all levels of government. Information Technology Outsourcing We specialize in designing, developing and delivering effective IT solutions. Our secure data centers, help desks and managed storage facilities around the world provide a reliable IT infrastructure...

  • Page 26
    ...: On-site print center support which consists of on-demand printing and copying, transactional printing, complete finishing, track and trace, global governance and mainframe production printing; external print procurement; mail and distribution; creative and design; cross-media; and epublishing...

  • Page 27
    ... product groups that share common technology, manufacturing and product platforms. The strategic product groups are: Entry, Mid-Range and High-End. In 2013, we launched Xerox® ConnectKey® which is a software system and set of solutions embedded in our Entry and Mid-Range multifunction printers...

  • Page 28
    ... are designed for customers in the graphic communications industry and for large enterprises. Our High-End products comprised 21 percent of our total Document Technology segment revenue in 2013. These High-End solutions enable digital, full-color, on-demand printing of a wide range of applications...

  • Page 29
    .... The IJP 2000 helps customers produce a variety of high-quality, high-value jobs on a wide range of media, including papers, vinyl and banner fabric. Xerox® CiPress Single Engine Duplex: The Single Engine Duplex configurations of the CiPress 500 and 325 Production Inkjet Systems were launched...

  • Page 30
    ... our products and services directly to customers through our world-wide sales force and through a network of independent agents, dealers, value-added resellers, systems integrators and the Web. In addition, our wholly-owned subsidiary, Global Imaging Systems (GIS), an office technology dealer which...

  • Page 31
    ... and Romania. These locations are comprised of Customer Care Centers, Mega IT Data Centers, Finance and Accounting Centers, Human Resource Centers and Document Process Centers. Our global production model is enabled by the use of proprietary technology, which allows us to securely distribute client...

  • Page 32
    ... is a New York corporation, organized in 1906, and our principal executive offices are located at 45 Glover Avenue, P.O. Box 4505, Norwalk, Connecticut 06856-4505. Our telephone number is (203) 968-3000. In the Investor Information section of our Internet website, you will find our Annual Reports on...

  • Page 33
    ... international companies have significant financial resources and compete with us globally to provide document processing products and services and/or business process services in each of the markets we serve. We compete primarily on the basis of technology, performance, price, quality, reliability...

  • Page 34
    ... security risks, labor disruptions and rising labor rates. These risks could impair our ability to effectively provide services to our customers and keep our costs aligned to our associated revenues and market requirements. Our ability to sustain and improve profit margins is dependent on a number...

  • Page 35
    ...customer acceptance and generate the revenues required to provide desired returns. In developing these new technologies and products, we rely upon patent, copyright, trademark and trade secret laws in the United States and similar laws in other countries, and agreements with our employees, customers...

  • Page 36
    ... and Accountability Act of 1996 (HIPAA) and the HIPAA regulations governing, among other things, the privacy, security and electronic transmission of individually identifiable health information, and the European Union Directive on Data Protection (Directive 95/46/EC). Other United States (both...

  • Page 37
    ... maintained worldwide and on a 24/7 basis. Although we endeavor to ensure that there is adequate back-up and maintenance of these systems and centers, we could experience service interruptions that could result in curtailed operations and loss of customers, which would reduce our revenue and profits...

  • Page 38
    ... produced on offset devices to Xerox technology represent key growth opportunities. A significant part of our strategy and ultimate success in this changing market is our ability to develop and market technology that produces color prints and copies quickly, easily, with high quality and at reduced...

  • Page 39
    ... principal research facilities are located in California, New York, Canada, France and India. The research activities in our principal research centers benefit all of our operating segments. We lease and own several facilities worldwide to support our Services segment with larger concentrations of...

  • Page 40
    ... OF EQUITY SECURITIES Stock Exchange Information Xerox common stock (XRX) is listed on the New York Stock Exchange and the Chicago Stock Exchange. Xerox Common Stock Prices and Dividends New York Stock Exchange composite prices * 2013 High Low Dividends declared per share 2012 High Low Dividends...

  • Page 41
    ... Return To Shareholders Year Ended December 31, (Includes reinvestment of dividends) Xerox Corporation S&P 500 Index S&P 500 Information Technology Index $ 2008 100.00 100.00 100.00 $ 2009 108.98 126.46 161.72 $ 2010 151.00 145.51 178.20 $ 2011 106.39 148.59 182.50 $ 2012 93.24 172.37 209.55 $ 2013...

  • Page 42
    ... 4(2) as a sale by an issuer not involving a public offering. Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2013 Repurchases of Xerox Common Stock, par value $1 per share include the following: Board Authorized Share Repurchase Program: Total Number of Shares Purchased...

  • Page 43
    ... Capitalization Selected Data and Ratios Common shareholders of record at year-end Book value per common share Year-end common stock market price Employees at year-end Gross margin Sales gross margin Outsourcing, maintenance and rentals gross margin Finance gross margin _____ 2012(1) 2011(1) 2010...

  • Page 44
    ... heart of most office printers and copiers around the world. From printers and multifunction devices, to business services and solutions for transportation, education, and healthcare, the Company's engineers, scientists and researchers are continuing to invent ways that make work, and life, a little...

  • Page 45
    ... offset by productivity improvements and restructuring benefits. Document Technology segment revenues declined 6% with no impact from currency reflecting the continued migration of customers to Xerox managed print services, which is included in our Services segment, lower supplies sales, weakness in...

  • Page 46
    ... as productivity and cost improvements. In our Document Technology business, we expect a mid-single digit revenue decline. We expect to partially offset the projected declines in black-and-white printing by capitalizing on the most advantaged segments of the market including color, high-end graphic...

  • Page 47
    ... upon our historical experience adjusted for current conditions. We recorded bad debt provisions of $120 million, $119 million and $157 million in SAG expenses in our Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011, respectively. Xerox 2013 Annual Report 30

  • Page 48
    ... future events are used in calculating the expense, liability and asset values related to our defined benefit pension plans. These factors include assumptions we make about the expected return on plan assets, discount rate, the rate of future compensation increases and mortality. Differences between...

  • Page 49
    ... Defined contribution plans Retiree health benefit plans Total Benefit Plan Funding Refer to Note 15 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding defined benefit pension plan assumptions, expense and funding. Xerox 2013 Annual Report 32

  • Page 50
    ... tax rate, as well as impact our operating results. Unrecognized tax benefits were $267 million, $201 million and $225 million at December 31, 2013, 2012 and 2011, respectively. Refer to Note 16 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding...

  • Page 51
    ... our 2013 impairment test, the following were the 3-year assumptions for Document Technology and the four reporting units within our Services segment with respect to revenue, operating income and margins, which formed the basis for estimating future cash flows used in the discounted cash flow model...

  • Page 52
    .... Equipment sales revenue is reported primarily within our Document Technology segment and the Document Outsourcing business within our Services segment. Equipment sales revenue decreased 3% from the prior year, including a 1-percentage point positive impact from currency. Benefits from new product...

  • Page 53
    ... Capital Resources and Liquidity section as well as to Note 5 - Finance Receivables, Net in the Consolidated Financial Statements for additional information. Equipment sales revenue is reported primarily within our Document Technology segment and the document outsourcing business within our Services...

  • Page 54
    ... to align with growth opportunities in areas like business services, color printing and customized communication. Our R&D is also strategically coordinated with Fuji Xerox. RD&E as a percent of revenue for the year ended December 31, 2012 of 3.0% decreased 0.3-percentage points. In addition to lower...

  • Page 55
    ... costs were focused on gross margin improvements, 31% on SAG and 6% on the optimization of RD&E investments. $5 million for lease termination costs primarily reflecting continued optimization of our worldwide operating locations. $2 million of asset impairment losses. Xerox 2013 Annual Report 38

  • Page 56
    ...-year acquisitions. Refer to Note 9 - Goodwill and Intangible assets, Net in the Consolidated Financial Statements for additional information regarding our intangible assets. Curtailment Gain In December 2011, we amended all of our primary non-union U.S. defined benefit pension plans for salaried...

  • Page 57
    ... the prior year. (Gains) Losses on Sales of Businesses and Assets: The 2013 gains on sales of businesses and assets include the following transactions: • A $29 million gain on the sale of a portion of our Wilsonville, Oregon product design, engineering and chemistry group and related assets that...

  • Page 58
    ... of the adjusted effective tax rate non-GAAP financial measure. Equity in Net Income of Unconsolidated Affiliates Year Ended December 31, (in millions) 2013 $ 169 9 $ 2012 152 16 $ 2011 149 19 Total equity in net income of unconsolidated affiliates Fuji Xerox after-tax restructuring costs...

  • Page 59
    ... discount rates used to measure our benefit obligations (Refer to our discussion of Pension Plan Assumptions in the Application of Critical Accounting Policies section of the MD&A as well as Note 15 - Employee Benefit Plans in the Consolidated Financial Statements for additional information). These...

  • Page 60
    ... offerings: Business Process Outsourcing (BPO), Document Outsourcing (DO) and Information Technology Outsourcing (ITO). Services segment revenues for the three years ended December 31, 2013 were as follows: Revenue (in millions) Change 2011 $ 6,470 3,149 1,326 (108) $ 10,837 2013 1% 4% 9% * 3% 2012...

  • Page 61
    ... 57% of total Services revenue. BPO growth was driven by the government healthcare, healthcare payer, customer care, financial services, retail, travel and insurance businesses and other state government solutions, as well as the benefits from recent acquisitions. Xerox 2013 Annual Report 44

  • Page 62
    ... benefits from restructuring and lower SAG, primarily in DO. Document Technology Segment Our Document Technology segment includes the sale of products and supplies, as well as the associated maintenance and financing of those products. Revenue Year Ended December 31, (in millions) Change 2011 2013...

  • Page 63
    ...the ConnectKey® enabled products. • 3% decrease in installs of mid-range black-and-white devices. High-End • 43% increase in installs of high-end color systems driven by growth in the sale of digital front-ends (DFE's) to Fuji Xerox, as well as strong customer demand for the Color J75 Press and...

  • Page 64
    ... of the office color market. • 10% decrease in installs of mid-range black-and-white devices. High-End • 34% increase in installs of high-end color systems driven by strong demand for the Xerox® Color 770. This product has enabled large market share gains in the Entry Production Color market...

  • Page 65
    ... generate strong cash flows from operations. Additional liquidity is also provided through access to the financial capital markets, including the Commercial Paper market, as well as a committed global credit facility. The following is a summary of our liquidity position: • As of December 31, 2013...

  • Page 66
    ... spending associated primarily with new services contracts. • $390 million decrease due to a lower benefit from accounts receivable sales as well as growth in services revenue. • $45 million decrease from higher net income tax payments primarily due to refunds in the prior year. In 2012 and 2011...

  • Page 67
    ... customers to pay for equipment over time rather than at the date of installation. Our investment in these contracts is reflected in Total finance assets, net. We primarily fund our customer financing activity through cash generated from operations, cash on hand, commercial paper borrowings, sales...

  • Page 68
    ...the remaining term of the related notes. Sales of Accounts Receivable Accounts receivable sales arrangements are utilized in the normal course of business as part of our cash and liquidity management. We have financial facilities in the U.S., Canada and several countries in Europe that enable us to...

  • Page 69
    ... in the Consolidated Financial Statements for additional information. The net impact on operating cash flows from the sales of finance receivables is summarized below: Year Ended December 31, (in millions) 2013 $ 631 (392) 58 $ 297 $ $ (2) 2012 625 (45) - 580 $ $ 2011 - - - - Net cash received...

  • Page 70
    ... Financial Statements for additional information regarding our share repurchase programs. Dividends The Board of Directors declared aggregate dividends of $287 million, $226 million and $241 million on common stock in 2013, 2012 and 2011, respectively. The increase in 2013 as compared to prior years...

  • Page 71
    ... and are almost entirely related to domestic operations. Cash contributions are made each year to cover medical claims costs incurred during the year. The amounts reported in the above table as retiree health payments represent our estimate of future benefit payments. Xerox 2013 Annual Report 54

  • Page 72
    ... Consolidated Financial Statements for additional information regarding contributions to our defined benefit pension and post-retirement plans. Fuji Xerox We purchased products, including parts and supplies, from Fuji Xerox totaling $1.9 billion, $2.1 billion and $2.2 billion in 2013, 2012 and 2011...

  • Page 73
    ... with GAAP to exclude the effects of the certain items as well as their related income tax effects. For our 2013 reporting year, adjustments were limited to the amortization of intangible assets. • • Net income and Earnings per share (EPS), and Effective tax rate. Xerox 2013 Annual Report 56

  • Page 74
    ... December 31, 2013(3) _____ (1) (2) (3) Net income and EPS from continuing operations attributable to Xerox. Average shares for the calculation of adjusted EPS include 27 million of shares associated with the Series A convertible preferred stock and therefore the related annual dividend was excluded...

  • Page 75
    ...approximately $655 million. The net amount invested in foreign subsidiaries and affiliates, primarily Xerox Limited, Fuji Xerox and Xerox Canada Inc. and translated into U.S. Dollars using the year-end exchange rates, was approximately $6.6 billion at December 31, 2013. Xerox 2013 Annual Report 58

  • Page 76
    ... related to our total debt for 2013, 2012 and 2011 approximated 5.0%, 4.7%, and 5.2%, respectively. Interest expense includes the impact of our interest rate derivatives. Virtually all customer-financing assets earn fixed rates of interest. The interest rates on a significant portion of the Company...

  • Page 77
    ... the financial position of Xerox Corporation and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States...

  • Page 78
    ... under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive, financial and accounting officers, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on...

  • Page 79
    ... Share $ $ 0.93 (0.02) 0.91 $ $ 0.87 0.01 0.88 $ $ 0.88 0.02 0.90 $ $ 0.95 (0.02) 0.93 $ $ 0.89 0.01 0.90 $ $ 0.90 0.02 0.92 $ $ 1,185 (26) 1,159 $ $ 1,184 11 1,195 $ $ 1,274 21 1,295 The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2013 Annual Report...

  • Page 80
    ... OF COMPREHENSIVE INCOME Year Ended December 31, (in millions) 2013 $ $ 1,179 20 1,159 $ $ 2012 1,223 28 1,195 $ $ 2011 1,328 33 1,295 Net Income Less: Net income attributable to noncontrolling interests Net Income Attributable to Xerox Other Comprehensive (Loss) Income, Net(1): Translation...

  • Page 81
    ... loss Xerox shareholders' equity Noncontrolling interests Total Equity Total Liabilities and Equity Shares of common stock issued Treasury stock Shares of common stock outstanding The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2013 Annual Report 64

  • Page 82
    ... loss on sales of businesses and assets Undistributed equity in net income of unconsolidated affiliates Stock-based compensation Restructuring and asset impairment charges Payments for restructurings Contributions to defined benefit pension plans Increase in accounts receivable and billed portion of...

  • Page 83
    ... in each quarter of 2012 and 2011. Cash dividends declared on preferred stock of $20 per share in each quarter of 2013, 2012 and 2011. AOCL - Accumulated other comprehensive loss. The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2013 Annual Report 66

  • Page 84
    .... We offer business process outsourcing and IT outsourcing services, including data processing, healthcare solutions, human resource benefits management, finance support, transportation solutions and customer relationship management services for commercial and government organizations worldwide. We...

  • Page 85
    ... of customer contract costs Defined pension benefits - net periodic benefit cost(1) Retiree health benefits - net periodic benefit cost Income tax expense _____ (1) 2011 includes $107 pre-tax curtailment gain - refer to Note 15 - Employee Benefit Plans for additional information. $ 2013 116...

  • Page 86
    ... our fiscal year beginning January 1, 2012. This update did not have a material effect on financial condition or results of operations. Summary of Accounting Policies Revenue Recognition We generate revenue through services, the sale and rental of equipment, supplies and income associated with the...

  • Page 87
    ... the company, the sales price is not contingent upon resale or payment by the end user customer and we have no further obligations related to bringing about the resale, delivery or installation of the product. Distributors and resellers participate in various rebate, price-protection, cooperative...

  • Page 88
    ... prices are indicative of fair value. Financing: Finance income attributable to sales-type leases, direct financing leases and installment loans is recognized on the accrual basis using the effective interest method. Services-Related Revenue Outsourcing: Revenues associated with outsourcing services...

  • Page 89
    ... revenue-based taxes are sales tax and value-added tax (VAT). Other Significant Accounting Policies Shipping and Handling Costs related to shipping and handling are recognized as incurred and included in Cost of sales in the Consolidated Statements of Income. Research, Development and Engineering...

  • Page 90
    ... reporting units in 2013 exceeded their carrying values and no impairments were identified. Other intangible assets primarily consist of assets obtained in connection with business acquisitions, including installed customer base and distribution network relationships, patents on existing technology...

  • Page 91
    ... used in calculating the expense, liability and asset values related to our pension and retiree health benefit plans. These factors include assumptions we make about the discount rate, expected return on plan assets, rate of increase in healthcare costs, the rate of future compensation increases and...

  • Page 92
    ... product financing. The segment classified as Other includes several units, none of which meet the thresholds for separate segment reporting. This group includes paper sales in our developing market countries, Wide Format Systems, licensing revenues, GIS network integration solutions and electronic...

  • Page 93
    ... financial information for our Reportable segments was as follows: Years Ended December 31, Services 2013 (1) Revenue Finance income Total Segment Revenue Interest expense Segment profit (loss)(2) Equity in net income of unconsolidated affiliates 2012 (1) Revenue Finance income Total Segment Revenue...

  • Page 94
    ... our network of locally-based companies focused on customers' requirements to improve their performance through efficiencies. In February 2013, we acquired Impika, a leader in the design, manufacture and sale of production inkjet printing solutions used for industrial, commercial, security, label...

  • Page 95
    ... in the telecommunications industry strengthens our broad portfolio of customer care solutions. In February 2012, we acquired R.K. Dixon, a leading provider of IT services, copiers, printers and managed print services for approximately $58 in cash. The acquisition furthers our coverage of central...

  • Page 96
    ... three additional business in 2011 for $61 and $25, respectively, in cash primarily related to customer care and software to support our BPO service offerings. Summary - 2012 and 2011 Acquisitions All of our 2012 and 2011 acquisitions reflected 100% ownership of the acquired companies. The operating...

  • Page 97
    ... 2012, respectively. Under most of the agreements, we continue to service the sold accounts receivable. When applicable, a servicing liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability were not material. Xerox 2013 Annual Report...

  • Page 98
    ... Transactions - In 2013 and 2012, we transferred our entire interest in certain groups of U.S. lease finance receivables to a third-party financial institution for cash proceeds and a beneficial interest from the purchaser. The lease contracts, including associated service and supply elements, were...

  • Page 99
    ... compensation and, accordingly, no servicing asset or liability was recorded. Canada Lease Finance Receivables Transfer: In December 2013, our Canadian subsidiary transferred its entire interest in a group of lease finance receivables to a third-party trust. The transfer was accounted for as a sale...

  • Page 100
    ... quality indicators and the financial health of specific customer classes or groups. The allowance for doubtful finance receivables is inherently more difficult to estimate than the allowance for trade accounts receivable because the underlying lease portfolio has an average maturity, at any time...

  • Page 101
    ... credit quality indicators are as follows: • December 31, 2013 Investment Grade Finance and other services $ Government and education Graphic arts Industrial Healthcare Other Total United States Finance and other services Government and education Graphic arts Industrial Other Total Canada France...

  • Page 102
    ... revenue for such billings is only recognized if collectability is deemed reasonably assured. The aging of our billed finance receivables is as follows: December 31, 2013 Current Finance and other services Government and education Graphic arts Industrial Healthcare Other Total United States Canada...

  • Page 103
    ... leases, consisting principally of usage charges in excess of minimum contracted amounts, for the years ended December 31, 2013, 2012 and 2011 amounted... 2013 50 1,086 483 1,493 1,826 83 66 5,087 (3,621) 1,466 $ $ 2012 61 1,135 506 1,571 1,681 83 74 5,111 (3,555) 1,556 Xerox 2013 Annual Report ...

  • Page 104
    ...at Equity $ $ 1,224 61 1,285 $ $ 2012 1,317 64 1,381 Our equity in net income of our unconsolidated affiliates was as follows: Year Ended December 31, 2013 Fuji Xerox Other investments Total Equity in Net Income of Unconsolidated Affiliates $ $ 156 13 169 $ $ 2012 139 13 152 $ $ 2011 137 12 149 87

  • Page 105
    ... a Technology Agreement with Fuji Xerox whereby we receive royalty payments for their use of our Xerox brand trademark, as well as rights to access our patent portfolio in exchange for access to their patent portfolio. These payments are included in Outsourcing, maintenance and rental revenues in...

  • Page 106
    ... follows: Year Ended December 31, 2013 Dividends received from Fuji Xerox Royalty revenue earned Inventory purchases from Fuji Xerox Inventory sales to Fuji Xerox R&D payments received from Fuji Xerox R&D payments paid to Fuji Xerox $ 60 118 1,903 145 2 21 $ 2012 52 132 2,069 147 2 15 $ 2011 58 128...

  • Page 107
    ...and $5 of indefinite-lived assets within trademarks and technology, respectively, related to the 2010 acquisition of ACS. Amortization expense related to intangible assets was $332, $328, and $401 for the years ended December 31, 2013, 2012 and 2011, respectively. Excluding the impact of additional...

  • Page 108
    ... Restructuring Cash Payments $ $ (136) $ 1 (1) (136) $ 2012 (146) $ 1 1 (144) $ 2011 (233) 5 10 (218) The following table summarizes the total amount of costs incurred in connection with these restructuring programs by segment: Year Ended December 31, 2013 Services Document Technology Other Total...

  • Page 109
    ...: December 31, 2013 Other Current Assets Deferred taxes and income taxes receivable Royalties, license fees and software maintenance Restricted cash Prepaid expenses Derivative instruments Deferred purchase price from sales of accounts receivables Beneficial interests - sales of finance receivables...

  • Page 110
    ... be recovered in annual cash distributions through 2017. The performance-based instrument is pledged as security for our future funding obligations to our U.K. Pension Plan for salaried employees. Note 12 - Debt Short-term borrowings were as follows: December 31, 2013 Commercial paper Notes Payable...

  • Page 111
    ... 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. Represents weighted average effective...

  • Page 112
    ...have any grace period), (iii) cross-defaults and acceleration to certain of our other obligations and (iv) a change of control of Xerox. Interest Interest paid on our short-term and long-term debt amounted to $435, $464 and $538 for the years ended December 31, 2013, 2012 and 2011, respectively. 95

  • Page 113
    ...desired proportion of variable and fixed rate debt. These derivatives may be designated as fair value hedges or cash flow hedges depending on the nature of the risk being hedged. We did not have any interest rate swap agreements outstanding at December 31, 2013 or 2012. Xerox 2013 Annual Report 96

  • Page 114
    ... related notes. In 2013, 2012 and 2011, the amortization of these fair value adjustments reduced interest expense by $42, $49 and $53, respectively, and we expect to record a net decrease in interest expense of $100 in future years through 2018. Foreign Exchange Risk Management As a global company...

  • Page 115
    ...31, Derivatives in Fair Value Relationships Interest rate contracts Location of Gain (Loss) Recognized in Income Interest expense $ Derivative Gain (Loss) Recognized in Income 2013 - $ 2012 - $ 2011 15 $ Hedged Item Gain (Loss) Recognized in Income 2013 - $ 2012 - $ 2011 (15) Year Ended December 31...

  • Page 116
    ...liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices, and therefore are classified as Level 2. Fair value for our deferred compensation plan investments in Company-owned life insurance is reflected...

  • Page 117
    ... service credits Total Pre-tax Loss (Gain) Accumulated Benefit Obligation $ $ $ 672 (15) 657 3,887 $ $ $ 2012 1,255 (17) 1,238 5,027 $ $ $ Non-U.S. Plans 2013 1,741 (20) 1,721 6,368 $ $ $ 2012 2,013 - 2,013 6,359 $ $ Retiree Health 2013 6 (85) (79) $ $ 2012 97 (128) (31) Xerox 2013 Annual Report...

  • Page 118
    ... defined benefit pension plans provided a benefit at the greater of (i) the highest average pay and years of service formula, (ii) the benefit calculated under a formula that provides for the accumulation of salary and interest credits during an employee's work life or (iii) the individual account...

  • Page 119
    ...in future periods. In certain plans we are required to continue to consider salary increases in determining the benefit obligation related to prior service. The following is a discussion of these amendments and their impact on our primary defined benefit pension plans. Xerox 2013 Annual Report 102

  • Page 120
    ...In 2011, the Canadian Salary Pension Plan was amended to close the plan to future service accrual effective January 1, 2014. Benefits earned up to January 1, 2014 will not be affected and participants will continue to receive the benefit of future salary increases to the extent applicable; therefore...

  • Page 121
    ... agency Corporate Bonds Asset backed securities Total Debt Securities Derivatives: Interest rate contracts Foreign exchange contracts Equity contracts Other Contracts Total Derivatives Real estate Private equity/Venture capital Guaranteed insurance contracts Other(1) Total Fair Value Of Plans...

  • Page 122
    ... Debt Securities Common/Collective trust Derivatives: Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Total Derivatives Hedge funds Real estate Private equity/Venture capital Guaranteed insurance contracts Other(1) Total Fair Value Of Plans Assets...

  • Page 123
    ... through careful consideration of plan liabilities, plan funded status and corporate financial condition. This consideration involves the use of long-term measures that address both return and risk. The investment portfolio contains a diversified blend of equity and fixed income investments...

  • Page 124
    ... 4.8% 3.5% 2011 Non-U.S. 4.6% 2.7% Retiree Health 2013 Discount rate 4.5% 2012 3.6% 2011 4.5% Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31: Pension Benefits 2014 U.S. Discount rate Expected return on plan assets Rate of compensation increase...

  • Page 125
    ...2013 4.5% 3.6% 2012 4.5% 2011 4.9% Note: Expected return on plan assets is not applicable to retiree health benefits as these plans are not funded. Rate of compensation increase is not applicable to retiree health benefits as compensation levels do not impact earned benefits. Assumed health care...

  • Page 126
    ... allowance for deferred tax assets State taxes, net of federal benefit Audit and other tax return adjustments Tax-exempt income, credits and incentives Foreign rate differential adjusted for U.S. taxation of foreign profits Other Effective Income Tax Rate _____ (1) Year Ended December 31, 2012 35...

  • Page 127
    ... $28 accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2013, 2012 and 2011, respectively. In the U.S., with the exception of ACS, we are no longer subject to U.S. federal income tax examinations for years before 2007. ACS is no longer subject...

  • Page 128
    ... Post-retirement medical benefits Anticipated foreign repatriations Net operating losses Operating reserves and accruals Tax credit carryforwards Deferred compensation Pension Other Subtotal Valuation allowance Total Deferred Tax Liabilities Unearned income and installment sales Intangibles...

  • Page 129
    ... financial position or cash flows. The labor matters principally relate to claims made by former employees and contract labor for the equivalent payment of all social security and other related labor benefits,...alleges that in violation of Section 10(b) and/or 20(a) of the Xerox 2013 Annual Report 112

  • Page 130
    ... income taxes arising prior to the date of acquisition. Guarantees on behalf of our subsidiaries with respect to real estate leases. These lease guarantees may remain in effect subsequent to the sale of the subsidiary. Agreements to indemnify various service providers, trustees and bank agents...

  • Page 131
    ...current directors, officers and employees of those businesses in accordance with pre-acquisition by-laws and/or indemnification agreements and/or applicable state law. Product Warranty Liabilities In connection with our normal sales of equipment, including those under sales-type leases, we generally...

  • Page 132
    ... such credit support. We have service arrangements where we service third-party student loans in the Federal Family Education Loan program (FFEL) on behalf of various financial institutions. We service these loans for investors under outsourcing arrangements and do not acquire any servicing rights...

  • Page 133
    ... 50 million shares, respectively, were available for grant of awards. Stock-based compensation expense was as follows: 2013 Stock-based compensation expense, pre-tax Income tax benefit recognized in earnings $ Year Ended December 31, 2012 90 34 $ 125 48 $ 2011 123 47 Xerox 2013 Annual Report 116

  • Page 134
    ... years. Unvested ACS options at December 31, 2013 will become fully vested by August 2014. Summary of Stock-based Compensation Activity 2013 Weighted Average Grant Date Fair Value $ 9.19 9.09 8.43 8.77 9.62 2012 Weighted Average Grant Date Fair Value $ 8.70 7.82 6.89 8.97 9.19 2011 Weighted Average...

  • Page 135
    ... Shares vested in 2012 since the 2009 primary award grant that normally would have vested in 2012 was replaced with a grant of Restricted Stock Units with a market based condition and therefore were accounted and reported for as part of Restricted Stock Units. Xerox 2013 Annual Report 118

  • Page 136
    ... of sales - refer to Note 13 - Financial Instruments for additional information regarding our cash flow hedges. Reclassified to Total Net Periodic Benefit Cost - refer to Note 15 - Employee Benefit Plans for additional information. Represents our share of Fuji Xerox's benefit plan changes. Primarily...

  • Page 137
    ... our global customers immediate access to German-language customer care services and provides Invoco's existing customers access to our broad business process outsourcing capabilities. We are in the process of determining the purchase price allocation for this acquisition. Xerox 2013 Annual Report...

  • Page 138
    ...of our North American (Canada and U.S.) and Western European Paper Businesses as Discontinued Operations. Refer to Note 3 - Acquisitions and Divestitures in our Consolidated Financial Statements for additional information. The sum of quarterly earnings per share may differ from the full-year amounts...

  • Page 139
    ... the time periods specified in the Securities and Exchange Commission's rules and forms relating to Xerox Corporation, including our consolidated subsidiaries, and was accumulated and communicated to the Company's management, including the principal executive officer and principal financial officer...

  • Page 140
    ... have adopted a code of ethics applicable to our principal executive officer, principal financial officer and principal accounting officer. The Finance Code of Conduct can be found on our website at: http://www.xerox.com/ investor and then clicking on Corporate Governance. Information concerning our...

  • Page 141
    ... Operating Officer of ACS from 2005-2006 and before that he served as Executive Vice President and Group President - Commercial Solutions of ACS since July 1999. Prior to joining Xerox in 2013, Ms. Mikells was with ADT Corporation where she was Chief Financial Officer from April 2012 to 2013. Prior...

  • Page 142
    ... or filed as part of this report: Report of Independent Registered Public Accounting Firm including Report on Financial Statement Schedule; Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2013; Consolidated Statements of Comprehensive Income for...

  • Page 143
    ...by the undersigned, thereunto duly authorized. XEROX CORPORATION /s/ URSULA M. BURNS Ursula M. Burns Chairman of the Board and Chief Executive Officer February 21, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 144
    ...For the three years ended December 31, 2013 Amounts (credited) charged to other income statement accounts (1) 39 81 $ 120 $ $ (in millions) Balance at beginning of period $ $ 108 170 278 $ Additions charged to bad debt provision (1) Deductions and other, net of recoveries (2) (33) $ (102) $ (135...

  • Page 145
    ... Location 3(a) Restated Certificate of Incorporation of Registrant filed with the Department of State of the State of New York on February 21, 2013. Incorporated by reference to Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012. See SEC File Number...

  • Page 146
    ...6, 2005 Indenture between Boulder Acquisition Corp., the successor to ACS, and The Bank of New York Trust Company, N.A. Incorporated by reference to Exhibit 4(j)(4) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2009. See SEC File Number 001-04471. Instruments with...

  • Page 147
    ... Program Award Summary under 2012 ELTIP (Performance Shares). Incorporated by reference to Exhibit 10(e)(23) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2011. See SEC File Number 001-04471. Form of Executive Long-Term Incentive Program Restricted Stock Unit...

  • Page 148
    ...'s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. See SEC File Number 001-04471. Amendment No. 1 dated as of December 11, 2013 to 2012 PIP. Annual Performance Incentive Plan for 2014. Performance Elements for 2014 Executive Long-Term Incentive Plan. Form of Award Agreement...

  • Page 149
    ... to Exhibit 10.15 to ACS's Annual Report on Form 10-K for the fiscal year ended June 30, 2004. See SEC File Number 001-12665. Letter Agreement dated March 25, 2013 between Registrant and Kathryn A. Mikells, Executive Vice President and Chief Financial Officer of Registrant. Incorporated by reference...

  • Page 150
    .... XBRL Taxonomy Extension Schema Linkbase. **Pursuant to the Freedom of Information Act and/or a request for confidential treatment filed with the Securities and Exchange Commission under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, the confidential portion of this material...

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    ... Avenue P.O. Box 4505 Norwalk, CT 06856-4505 United States 203.968.3000 www.xerox.com Over 900 million In four five years of the last healthcare program claims are processed annually Xerox invented Xerox was named to Canada's Best Diversity Employers The Xerox Through our Heroes@Home...