Xerox 2014 Annual Report Download

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Table of contents

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  • Page 15
    ... Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...Directors, Executive Officers and Corporate Governance...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management...

  • Page 16
    ... met applicable accounting requirements, we reported the ITO business as held for sale and a discontinued operation at December 31, 2014 and reclassified its results from the Services segment to Discontinued Operations. Subsequent to the closing of this transaction, Xerox will no longer directly...

  • Page 17
    ... global brands. Well-recognized and respected, our brand is associated worldwide with delivering innovative solutions, and industry-leading business process and document management services and technology. Xerox has a broad, diverse set of offerings in Services and a strong, well-positioned product...

  • Page 18
    ... the following companies Invoco Holding GmbH (Invoco), a German-based customer care services provider. Smart Data Consulting, a New York-based provider of hosted and on-site e-discovery services. ISG Holdings, Inc. (ISG), a provider of bill review software and services and managed care programs for...

  • Page 19
    ..., manufactured items or an information service, personalization increases the value to the recipient. Our research leads to technologies that improve the efficiency, economics and relevance of business services, such as customer care, benefits and educational services. Our proprietary printing...

  • Page 20
    ... 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, with a special focus on emerging markets. • Investment in...

  • Page 21
    ... cards, tax and revenue systems, eligibility systems and services, unclaimed property services, and a broad range of other business process services. • Government Healthcare: We provide administrative and care management solutions to state Medicaid programs and federally-funded U.S. government...

  • Page 22
    ... and outsourcing, private healthcare exchanges, employee service centers, learning solutions and welfare services, global mobility and relocation, payroll and others. Finance and Accounting: We serve clients in many industries by managing their critical finance, accounting and procurement processes...

  • Page 23
    ... operation for financial reporting purposes. Subsequent to the closing of the ITO sale to Atos, Xerox will no longer directly market stand-alone IT services. Document Technology Segment Document Technology includes the sale of products and supplies, as well as the associated technical service...

  • Page 24
    ... 2013. We increased the number of ConnectKey® enabled devices and continued expanding the security, workflow and software application capabilities to enable superior print quality, mobility and security solutions, and cost control. For example, we introduced Xerox Secure Access Version 5.0, a print...

  • Page 25
    ... sell 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...

  • Page 26
    ... direct employees, including approximately 5,300 sales professionals, approximately 10,200 technical service employees and approximately 102,300 employees serving our customers through on-site operations or off-site delivery centers. Approximately 9,800 of these employees are associated with the ITO...

  • Page 27
    ... agreement with Flextronics, a global electronics manufacturing services company, to outsource portions of manufacturing for our mid-range and entry businesses, continues through December 2015 (exclusive of extension rights). We also acquire products from various third parties in order to increase...

  • Page 28
    ...operations and financial condition. If we fail to successfully develop new products, technologies and service offerings and protect our intellectual property rights, we may be unable to retain current customers and gain new customers and our revenues would decline. The process of developing new high...

  • Page 29
    ... and water, may not be consistently reliable and, while there are backup systems in many of our operating facilities, an extended outage of utility or network services could have a material adverse effect on our operations, revenues, cash flow and profitability. Xerox 2014 Annual Report 14

  • Page 30
    ... operations through such programs as Lean Six Sigma, the level of pricing pressures on our services and products, the proportion of high-end as opposed to low-end equipment sales (product mix), the trend in our post-sale revenue growth and our ability to successfully complete information technology...

  • Page 31
    ... 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 federal...

  • Page 32
    ... perform work for the federal, state and local governments, with respect to which we must file requests for equitable adjustment or claims with the proper agency to seek recovery in whole or in part, for out-of-scope work directed or caused by the government customer in support of its project, and...

  • Page 33
    ...product life cycle communications, enterprise managed print services and document content and imaging. The ability to achieve growth in our equipment placements is subject to the successful implementation of our initiatives to provide advanced systems, industry-oriented global solutions and services...

  • Page 34
    ... involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; governmental entity contracting, servicing and procurement laws; intellectual property law; environmental law; employment law; the Employee Retirement Income Security Act (ERISA); and other laws...

  • Page 35
    ... an agreement to sell our Information Technology Outsourcing (ITO) business to Atos SE (Atos). The transaction is subject to customary closing conditions and regulatory approval and is expected to close in the first half of 2015. As part of the announcement, 9,800 Xerox employees, located in...

  • Page 36

  • Page 37
    ... Equity Compensation Plan for Non-Employee Directors. (d) Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering. Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2014 Repurchases of Xerox Common...

  • Page 38
    ... 31 Total _____ Average Price Paid per Share(2) $ 13.08 - - Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs n/a n/a n/a Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased under the Plans or Programs n/a n/a n/a 16,696 - - 16,696...

  • Page 39
    ...Discontinued Operations. Refer to Note 4 - Divestitures in our Consolidated Financial Statements, which is incorporated here by reference, for additional information. 2010 results include the acquisition of ACS as of February 5, 2010. Includes capital lease obligations. Xerox 2014 Annual Report 24

  • Page 40
    ... management market is estimated at roughly $100 billion and is comprised of the document systems, software, solutions and services that our customers have relied upon for years to help run their businesses and reduce their costs. The remaining market is the global information technology outsourcing...

  • Page 41
    ... run-off of high margin contracts. Document Technology segment revenues declined 6%, reflecting weakness in developing markets, timing of new product introductions, lower financing revenues, price declines, and the continued migration of customers to Xerox managed print services, which is included...

  • Page 42
    ... management, global expansion, sales investments to acquire new customers and increase our revenue with current customers and additional acquisitions which increase our service capabilities and global footprint. Services margins are expected to improve approximately 0.5-percentage points in 2015...

  • Page 43
    ...additional information regarding our revenue recognition policies. Specifically, the revenue related to the following areas involves significant judgments and estimates Bundled Lease Arrangements, Sales to Distributors and Resellers, and Services - Percentage-of-Completion Xerox 2014 Annual Report...

  • Page 44
    ...the contract is recorded immediately in cost of services and results in the contract being recorded at a zero profit margin with recognition of an equal amount of revenues and costs. Allowance for Doubtful Accounts and Credit Losses We continuously monitor collections and payments from our customers...

  • Page 45
    ... retiree health obligation as of December 31, 2014 and to calculate our 2015 expense was 3.8%; the rate used to calculate our obligation at December 31, 2013 and our 2014 expense was 4.5%. Holding all other assumptions constant, a 0.25% increase or decrease in the discount rate would change the 2015...

  • Page 46
    ... contribution plans (1) Retiree health benefit plans Total Benefit Plan Funding _____ (1) Excludes an estimated $7 million for 2015; and $8 million, $7 million and $2 million for the three years ended December 31, 2014, respectively, related to our ITO business, which is held for sale and reported...

  • Page 47
    ...growth rates and discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding the current economic environment, industry factors and the future profitability of our businesses. Xerox 2014 Annual Report 32

  • Page 48
    ... discounted cash flow model: • Document Technology - revenue decline in 2015 moderating in 2016-2017, operating income growth: flat-1%, and operating margin: 10%-11% - as we continue to manage costs as a result of an expected decline in revenues. Services - revenue growth: 5%-6%, operating income...

  • Page 49
    ... 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 segment. Equipment sales revenue decreased 8% from the prior year...

  • Page 50
    ... discussion on Pension Plan Assumptions in the Application of Critical accounting Policies section as well as Note 16 - Employee Benefit Plans in the Consolidated Financial Statements for additional information. Services margins decreased in 2014 due to higher government healthcare platform expenses...

  • Page 51
    ... Gross Margin Services gross margin for the year ended December 31, 2014 decreased 1.1-percentage points as compared to 2013. The decrease is primarily due to higher expenses associated with our public sector and government healthcare businesses, including costs for the Medicaid and Health Insurance...

  • Page 52
    ...and software. During 2014 we managed our investments in R&D 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, 2013 of...

  • Page 53
    ..., 2013, due primarily to the impact of acquisitions and seasonal fluctuations in Services, partially offset by restructuring actions and productivity improvements. Total headcount includes approximately 9,800 employees who are expected to transfer to Atos upon closure of the sale of our ITO business...

  • Page 54
    ... and $8 million related to a sale in the U.S. The 2013 gains on sales of businesses and assets include the following transactions A $29 million gain on the $32.5 million cash sale of a portion of our Wilsonville, Oregon product design, engineering and chemistry group and related assets that were...

  • Page 55
    ..." section for a reconciliation of reported net income from continuing operations to adjusted net income. Discontinued Operations Refer to Note 4 - Divestitures in the Consolidated Financial Statements for additional information regarding Discontinued Operations. Xerox 2014 Annual Report 40

  • Page 56
    ... in 2014 as compared to an increase in rates in 2013. (Refer to our discussion of Pension Plan Assumptions in the Application of Critical Accounting Policies section of the MD&A as well as Note 16 - Employee Benefit Plans in the Consolidated Financial Statements for additional information). The...

  • Page 57
    ... second half of 2015. In 2014, BPO revenue mix across the major business areas was as follows: Commercial - 45%; Government and Transportation - 25%; Commercial Healthcare - 18%; and Government Healthcare 12%. • DO revenue increased 2% and represented 32% of total Services revenue. The increase in...

  • Page 58
    ... in our partner print services offerings as well as higher equipment sales. Segment Margin 2013 Services segment margin of 10.1% decreased 0.5-percentage points from the prior year primarily due to a decrease in gross margin as increased productivity improvements and restructuring benefits were more...

  • Page 59
    ... print services offering (included in our Services segment), weakness in developing markets due to economic instability and, price declines of approximately 5%. 2013 benefited from the ConnectKey midrange product launch, and the refresh cycle for several large accounts. Equipment sales in 2014...

  • Page 60
    .... Equipment sales benefited from our 2013 mid-range product refresh, growth and acquisitions in the small and mid-size business market and increased demand for color digital production presses. These benefits were more than offset by the continued migration of customers to managed print services and...

  • Page 61
    ... leadership in the Production Color segment. High-end color installs increased 7%, excluding the DFE sales to Fuji Xerox. • 8% decrease in installs of high-end black-and-white systems, reflecting continued declines in the overall market. Other Segment Revenue 2014 Other segment revenue of $598...

  • Page 62
    ...the pending sale of our ITO business as well as other smaller divestitures. Refer to Note 4 Divestitures in the Consolidated Financial Statements for additional information regarding Discontinued Operations. 2014 (in millions) Revenues Services Document Technology Other Total Revenues Segment Profit...

  • Page 63
    ... lower spending for product software and up-front costs for outsourcing service contracts. • $34 million increase due to lower net income tax payments primarily due to refunds in 2014 from prior years. • $20 million increase from lower installs of equipment on operating leases. Net cash provided...

  • Page 64
    ... pay discounts. $134 million increase due to lower contributions to our defined benefit pension plans. This was in line with expectations. $106 million increase from lower spending for product software and up-front costs for outsourcing service contracts. Cash flow from operations in 2014 and 2013...

  • Page 65
    ... 31, 2014 and December 31, 2013, respectively, of debt associated with Total finance receivables, net and is the basis for our calculation of "Equipment financing interest" expense. The remainder of the financing debt is associated with Equipment on operating leases. Xerox 2014 Annual Report 50

  • Page 66
    ... reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 - Divestitures in the Consolidated Financial Statements for additional information regarding this pending sale Sales of Accounts Receivable...

  • Page 67
    ... Consolidated Financial Statements for additional information regarding our share repurchase programs. Dividends The Board of Directors declared aggregate dividends of $293 million, $287 million and $226 million on common stock in 2014, 2013 and 2012, respectively. The increase in 2014 as compared...

  • Page 68
    ... acquisition of ACS. In January 2015, the Board of Directors approved an increase in the Company's quarterly cash dividend from 6.25 cents per share to 7.00 cents per share, beginning with the dividend payable on April 30, 2015. Liquidity and Financial Flexibility We manage our worldwide liquidity...

  • Page 69
    ... reported as a discontinued operation at December 31, 2014. Refer to Note 4 Divestitures in the Consolidated Financial Statements for additional information regarding this pending sale. Pension and Other Post-retirement Benefit Plans We sponsor defined benefit pension plans and retiree health plans...

  • Page 70
    ... retiree health payments represent our estimate of future benefit payments. Refer to Note 16 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding contributions to our defined benefit pension and post-retirement plans. Fuji Xerox We purchased products...

  • Page 71
    ... business and make operating decisions. These nonGAAP 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. Xerox 2014 Annual Report...

  • Page 72
    ... period as compared to prior periods as well as expected trends in our business. • Adjustments for 2014, 2013 and 2012 earnings were limited to the amortization of intangible assets. We also calculate and utilize an Operating income and margin earnings measure by adjusting our pre-tax income and...

  • Page 73
    ... 31, 2012 Profit 1,284 Revenue $ 20,421 Margin 6.3% ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Financial Risk Management We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash...

  • Page 74
    ... Xerox Limited, Fuji Xerox and Xerox Canada Inc. and translated into U.S. Dollars using the year-end exchange rates, was approximately $6.4 billion at December 31, 2014. Interest Rate Risk Management The consolidated weighted-average interest rates related to our total debt for 2014, 2013 and...

  • Page 75
    ...statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to...

  • Page 76
    ... 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 77
    ... 43 1,223 28 1,195 Revenues Sales Outsourcing, maintenance and rentals Financing Total Revenues Costs and Expenses Cost of sales Cost of outsourcing, maintenance and rentals Cost of financing Research, development and engineering expenses Selling, administrative and general expenses Restructuring...

  • Page 78
    ...23 969 $ $ 2013 1,179 20 1,159 $ $ 2012 1,223 28 1,195 Net Income Less: Net income attributable to noncontrolling interests Net Income Attributable to Xerox Other Comprehensive (Loss) Income, Net(1): Translation adjustments, net Unrealized gains (losses), net Changes in defined benefit plans, net...

  • Page 79
    ... on operating leases, net Land, buildings and equipment, net Investments in affiliates, at equity Intangible assets, net Goodwill Other long-term assets Total Assets Liabilities and Equity Short-term debt and current portion of long-term debt Accounts payable Accrued compensation and benefits costs...

  • Page 80
    ... charges Payments for restructurings Contributions to defined benefit pension plans Increase in accounts receivable and billed portion of finance receivables Collections of deferred proceeds from sales of receivables Increase in inventories Increase in equipment on operating leases (Increase...

  • Page 81
    ...and $0.0425 in each quarter of 2012. Cash dividends declared on preferred stock of $20 per share in each quarter of 2014, 2013 and 2012. AOCL - Accumulated other comprehensive loss. The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2014 Annual Report 66

  • Page 82
    ... Financial Statements. In December 2014, we announced an agreement to sell our Information Technology Outsourcing (ITO) business to Atos SE (Atos); the sale is expected to close in the first half of 2015. As a result of the pending sale and having met applicable accounting requirements, we reported...

  • Page 83
    ... on operating leases Depreciation of buildings and equipment (1) Amortization of internal use software (1) Amortization of product software Amortization of acquired intangible assets (1) Amortization of customer contract costs (1) Defined pension benefits - net periodic benefit cost Retiree health...

  • Page 84
    ... financial statements. Stock Compensation In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. ASU 2014...

  • Page 85
    ... a variable amount based on usage. As a consequence, other than the product warranty obligations associated with certain of our low end products, we do not have any significant product warranty obligations, including any obligations under customer satisfaction programs. Xerox 2014 Annual Report 70

  • Page 86
    ... with our equipment sales, as well as free-standing software sales are accounted for as separate deliverables or elements. In most cases, these software products are sold as part of multiple element arrangements and include software maintenance agreements for the delivery of technical service, as...

  • Page 87
    ... instances we follow the policies noted above under Equipment-Related Revenue. (1) Our ITO business is held for sale and reported as a discontinued operation at December 31, 2014. Refer to Note 4 - Divestitures for additional information regarding this pending sale. Xerox 2014 Annual Report 72

  • Page 88
    ... types of outsourcing services, as well as professional and value-added services. For instance, we may contract for an implementation or development project and also provide services to operate the system over a period of time; or we may contract to scan, manage and store customer documents. In...

  • Page 89
    ... of software solutions to be sold to our customers upon reaching technological feasibility (Product Software). These costs are amortized on a straight-line basis over the estimated economic life of the software. Amounts expended for Product Software are included in Cash Flows from Operations. We...

  • Page 90
    ... and asset values related to our pension and retiree health benefit plans. These factors include assumptions we make about the discount rate, expected return on plan assets, rate of increase in healthcare costs, the rate of future compensation increases and mortality. Actual returns on plan assets...

  • Page 91
    ... Divestitures, in December 2014 we announced an agreement to sell our Information Technology Outsourcing (ITO) business to Atos; the sale is expected to close in the first half of 2015. As a result of the pending sale and having met applicable accounting requirements, we reported the ITO business as...

  • Page 92
    ... to Discontinued Operations. All prior periods were reclassified to conform to this presentation. Selected financial information for our Reportable segments was as follows: Years Ended December 31, Services 2014 (1) Revenue Finance income Total Segment Revenue Interest expense Segment profit (loss...

  • Page 93
    ... plans stemming from workers' compensation claims. In January 2014, we acquired Invoco Holding GmbH (Invoco), a German company, for approximately $54 (â,¬40 million) in cash. The acquisition of Invoco expands our European customer care services and provides our global customers immediate access...

  • Page 94
    ... business in 2012 for $31 and $61, respectively, in cash primarily related to customer care and software to support our BPO service offerings. Summary - 2013 and 2012 Acquisitions All of our 2013 and 2012 acquisitions reflected 100% ownership of the acquired companies. The operating results...

  • Page 95
    ...activities, such as application management and development, data center operations or testing and quality assurance. Our ITO business includes approximately 9,800 employees in 45 countries. As part of the transaction, Atos will provide IT services for certain of our existing BPO customers as well as...

  • Page 96
    ... for sale at December 31, 2014: 2014 Accounts receivable, net Other current assets Land, buildings and equipment, net Intangible assets, net Goodwill Other long-term assets Total Assets of Discontinued Operations Current portion of long-term debt Accounts payable Accrued pension and benefit costs...

  • Page 97
    ... to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. Refer to Note 4 - Divestitures for additional information regarding this pending sale. Unbilled amounts include amounts associated with percentage-of-completion accounting and other...

  • Page 98
    ...$121 at December 31, 2014 and 2013, 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...

  • Page 99
    ...resolution rates, the aging of receivables, credit quality indicators and the financial health of specific customer classes or groups. The allowance for doubtful finance receivables is inherently more difficult to estimate than the allowance for trade accounts receivable because the underlying lease...

  • Page 100
    ... In the U.S. and Canada, customers are further evaluated or segregated by class based on industry sector. The primary customer classes are Finance & Other Services, Government & Education; Graphic Arts; Industrial; Healthcare and Other. In Europe, customers are further grouped by class based on the...

  • Page 101
    ... industry and credit quality indicators are as follows: December 31, 2014 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...

  • 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, 2014 Current Finance and other services Government and education Graphic arts Industrial Healthcare Other Total United States Canada...

  • Page 103
    ... 5 to 12 3 to 15 4 to 20 (1) Represents net fixed assets related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. Refer to Note 4 - Divestitures for additional information regarding this pending sale. Xerox 2014 Annual Report 88

  • Page 104
    ... our ITO business which is held for sale and reported as a discontinued operation at December 31, 2014. Refer to Note 4 - Divestitures for additional information regarding this pending sale. We lease buildings and equipment, substantially all of which are accounted for as operating leases. Capital...

  • Page 105
    ...of profit associated with intercompany sales. These adjustments may result in recorded equity income that is different from that implied by our 25% ownership interest. Summarized financial information for Fuji Xerox is as follows: Year Ended December 31, 2014 Summary of Operations Revenues Costs and...

  • Page 106
    ... 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 107
    ... 2016, and $300 in years 2017, 2018 and 20191. (1) Excludes amounts related to our ITO business, which is held for sale and reported as a discontinued operation at December 31, 2014. Refer to Note 4 - Divestitures for additional information regarding this pending sale. Xerox 2014 Annual Report 92

  • Page 108
    ...benefits representing a substantive plan, we recognize employee severance costs when they are both probable and reasonably estimable. A summary of our restructuring program activity during the three years ended December 31, 2014 is as follows: Severance and Related Costs Balance at December 31, 2011...

  • Page 109
    ... table summarizes the total amount of costs incurred in connection with these restructuring programs by segment: Year Ended December 31, 2014 Services Document Technology Other Total Net Restructuring Charges $ $ 38 76 14 128 $ $ 2013 38 77 - 115 $ $ 2012 66 83 - 149 Xerox 2014 Annual Report 94

  • Page 110
    ... Prepaid pension costs Net investment in TRG Internal use software, net Product software, net Restricted cash Debt issuance costs, net Customer contract costs, net Beneficial interest - sales of finance receivables Deferred compensation plan investments Other Discontinued operations (1) Total...

  • Page 111
    ... capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 Divestitures for additional information regarding...

  • Page 112
    ...-term capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 Divestitures for additional information regarding...

  • Page 113
    ... payments on capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 Divestitures for additional information...

  • Page 114
    ... on capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 Divestitures for additional information regarding...

  • Page 115
    ... 2021 Foreign Exchange Risk Management As a global company, we are exposed to foreign currency exchange rate fluctuations in the normal course of our business. As a part of our foreign exchange risk management strategy, we use derivative instruments, primarily forward contracts and purchased...

  • Page 116
    ... of hedge effectiveness. The net liability fair value of these contracts was $30 and $50 as of December 31, 2014 and December 31, 2013, respectively. Summary of Derivative Instruments Fair Value The following table provides a summary of the fair value amounts of our derivative instruments: December...

  • Page 117
    ... tables provide a summary of gains (losses) on derivative instruments: Year Ended December 31, Derivatives in Fair Value Relationships Interest rate contracts Location of Gain (Loss) Recognized in Income Interest expense $ Derivative Gain (Loss) Recognized in Income 2014 5 $ 2013 - $ 2012 - $ Hedged...

  • Page 118
    ..., currency exchange rates and forward prices, and therefore are classified as Level 2. Fair value for our deferred compensation plan investments in Company-owned life insurance is reflected at cash surrender value. Fair value for our deferred compensation plan investments in mutual funds is based...

  • Page 119
    ... benefit plans, primarily retiree health care, in our domestic and international operations. December 31 is the measurement date for all of our post-retirement benefit plans. Pension Benefits U.S. Plans 2014 Change in Benefit Obligation: Benefit obligation, January 1 Service cost Interest cost Plan...

  • Page 120
    ... funded U.S. unfunded Total U.S. U.K. Canada Other funded Other unfunded Total Prior to the freeze of current benefits (see below), most of our defined benefit pension plans generally provided employees a benefit, depending on eligibility, calculated under a highest average pay and years of service...

  • Page 121
    ... the benefit obligation related to prior service. Plan Assets Current Allocation As of the 2014 and 2013 measurement dates, the global pension plan assets were $9.2 billion and $8.7 billion, respectively. These assets were invested among several asset classes. Xerox 2014 Annual Report 106

  • Page 122
    ... agency Corporate bonds Asset backed securities Total Fixed Income 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 Plan...

  • Page 123
    ... agency Corporate bonds Asset backed securities Total Fixed Income 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 Plan...

  • Page 124
    .... Peer data and historical returns are reviewed periodically to assess reasonableness and appropriateness. Contributions In 2014, we made cash contributions of $284 ($124 U.S. and $160 Non-U.S.) and $70 to our defined benefit pension plans and retiree health benefit plans, respectively. In 2015...

  • Page 125
    ...6.2% 2.7% Retiree Health 2015 Discount rate _____ 2014 3.8% 4.5% 2013 3.6% 2012 4.5% 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...

  • Page 126
    ... cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: 1% increase Effect on total service and interest cost components Effect on post-retirement benefit...

  • Page 127
    ... - Divestitures for additional information regarding discontinued operations. Unrecognized Tax Benefits and Audit Resolutions We recognize tax liabilities when, despite our belief that our tax return positions are supportable, we believe that certain positions may not be fully sustained upon review...

  • Page 128
    .... We had $17, $20 and $20 accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2014, 2013 and 2012, 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 2009...

  • Page 129
    ... $482 will expire 2015 through 2029 if not utilized. We also had net operating loss carryforwards for income tax purposes of $1.1 billion that will expire 2015 through 2035, if not utilized, and $2.0 billion available to offset future taxable income indefinitely. Xerox 2014 Annual Report 114

  • Page 130
    ... are involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; governmental entity contracting, servicing and procurement law; intellectual property law; environmental law; employment law; the Employee Retirement Income Security Act (ERISA); and other laws...

  • Page 131
    ... The lawsuit alleges that Xerox Corporation, Xerox State Healthcare, LLC, and ACS State Healthcare (collectively "Xerox" or "the Company") violated the Texas Medicaid Fraud Prevention Act in the administration of its contract with the Texas Department of Health and Human Services ("HHSC"). The State...

  • Page 132
    ... generally extend over a period equivalent to the lease term or the expected useful life of the equipment under a cash sale. The service agreements involve the payment of fees in return for our performance of repairs and maintenance. As a consequence, we do not have any significant product warranty...

  • Page 133
    ...value per share. At December 31, 2014, 113 million shares were reserved for issuance under our incentive compensation plans, 48 million shares were reserved for debt to equity exchanges and 27 million shares were reserved for conversion of the Series A convertible preferred stock. Xerox 2014 Annual...

  • Page 134
    ... grant, based on management's estimate of the number of shares expected to vest. Performance Shares: Prior to 2014, we granted officers and selected executives PSs that vest contingent upon meeting pre-determined Revenue, Earnings per Share (EPS) and Cash Flow from Operations targets. If the annual...

  • Page 135
    ... the date of grant, based on management's estimate of the number of shares expected to vest. If the stated targets are not met, any recognized compensation cost would be reversed. Employee Stock Options: With the exception of the conversion of ACS options in connection with the ACS acquisition in...

  • Page 136
    ... Value 117 - 12 Cash Received $ - - 44 $ Tax Benefit 33 - 4 No Performance 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...

  • Page 137
    ... to Total Net Periodic Benefit Cost - refer to Note 16 - Employee Benefit Plans for additional information. Represents our share of Fuji Xerox's benefit plan changes. Primarily represents currency impact on cumulative amount of benefit plan net actuarial losses and prior service credits in AOCL...

  • Page 138
    ... of Intrepid Learning Solutions, Inc. (Intrepid), a Seattle-based company, for $28 in cash. Intrepid provides outsourced learning services primarily in the aerospace manufacturing and technology industries. The acquisition of Intrepid will solidify the position of Xerox's Learning Services unit as...

  • Page 139
    ... additional information. The sum of quarterly earnings per share may differ from the full-year amounts due to rounding, or in the case of diluted earnings per share, because securities that are anti-dilutive in certain quarters may not be anti-dilutive on a full-year basis. Xerox 2014 Annual Report...

  • Page 140
    ... 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 141
    ... 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 142
    ... was Chief Financial Officer with Nalco and before that she held various senior leadership roles during her 16 year career with UAL Corporation. ITEM 11. EXECUTIVE COMPENSATION The information included under the following captions under "Proposal 1-Election of Directors" in our 2015 definitive Proxy...

  • Page 143
    ... contracts or compensatory plans or arrangements listed in the "Index of Exhibits" that are applicable to the executive officers named in the Summary Compensation Table which appears in Registrant's 2015 Proxy Statement or to our directors are preceded by an asterisk (*). Xerox 2014 Annual Report...

  • Page 144
    ...its behalf by the undersigned, thereunto duly authorized. XEROX CORPORATION /s/ URSULA M. BURNS Ursula M. Burns Chairman of the Board and Chief Executive Officer February 24, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 145
    ...payment such as customer accommodations and contract terminations. (2) Deductions and other, net of recoveries primarily relates to receivable write-offs, but also includes the impact of foreign currency translation adjustments and recoveries of previously written off receivables. Xerox 2014 Annual...

  • Page 146
    ...333-142900. See SEC File Number 001-04471. Form of Amended and Restated Credit Agreement dated as of March 18, 2014 between Registrant and the Initial Lenders named therein, Citibank, N.A., as Administrative Agent, and Citigroup Global Markets Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce...

  • Page 147
    ... 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 Retention Award Summary under 2012 ELTIP. Xerox 2014...

  • Page 148
    ... Report on Form 10-K for the fiscal year ended December 31, 2013. See SEC File Number 001-04471. Annual Performance Incentive Plan for 2015 ("2015 APIP") Performance Elements for 2015 Executive Long-Term Incentive Program ("2015 ELTIP") Form of Award Agreement under 2015 ELTIP (Performance Shares...

  • Page 149
    ... Number 001-00471. Participant Agreement for Registrant's Universal Life Plan. Incorporated by reference to Exhibit 10(j)(2) to Registrant's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2013. See SEC File Number 001-00471. Registrant's Deferred Compensation Plan for Directors...

  • Page 150
    ... 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...

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