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    2017 Annual Report Xerox is innovating the way the world communicates, connects and works.


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    2 Letter to Shareholders 6 At the Intersection of Physical and Digital 8 Financial Measures 9 Non-GAAP Measures 10 Board of Directors 11 Officers 12 FYI 2017 Form 10-K Insert Financial Highlights (in millions, except EPS) 2017 2016 Total revenue $10,265 $10,771 Equipment sales 2,251 2,419 Post-sale revenue 8,014 8,352 Net income from continuing operations – Xerox 192 622 Adjusted net income – Xerox(1) 915 927 Diluted earnings per share from continuing operations 0.70 2.33 Adjusted earnings per share(1) 3.48 3.53 Net cash provided by operating activities of continuing operations 122 1,018 Adjusted operating margin(1) 12.8% 12.5% (1) See Non-GAAP Measures on page 9 for the reconciliation of the difference between this financial measure that is not in compliance with Generally Accepted Accounting Principles (GAAP) and the most directly comparable financial measure calculated in accordance with GAAP.


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    A Global Leader Our customers appreciate industry leadership and expertise. With the broadest portfolio of office and production printing technology and award-winning managed document services, we help organizations of all sizes drive their business forward. Number 3 in Fortune’s most admired survey in the Computers category Most JUST company $10.3 billion recognition with listing by Forbes global business with the and JUST Capital most comprehensive portfolio in the industry 11,470 ≈ 35,300 active patents employees serving customers in 160 countries Xerox 2017 Annual Report 1


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    Fellow Shareholders: “For generations, Xerox has stood for innovation, quality and an excellent customer experience.” Keith Cozza John Visentin Chairman of the Board Vice Chairman of the Board and Chief Executive Officer 2


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    “… we are helping define the future of work and enabling printing beyond paper with new technologies that will disrupt the market and change the way we think about workflows and information processes.” For generations, Xerox has stood for innovation, quality and an excellent customer experience. We are the company that revolutionized the office, created printing-on- demand, and repeatedly reinvented and transformed to keep pace with the demands of our customers and the market. Today, we honor this heritage by turning investments in innovation into products and services that help our customers be more productive and profitable. With five research and development sites – including world-renowned PARC – and 2,000 scientists and engineers, we are helping define the future of work and enabling printing beyond paper with new technologies that will disrupt the market and change the way we think about workflows and information processes. Our portfolio of ConnectKeyTM-enabled products has transformed traditional printing devices into smart and secure workplace assistants that enable workflows to be simplified and automated via standard or customized apps and integrated with market-leading office solutions. McMaster University, one of Canada’s largest and oldest institutions of higher education, will utilize the security features on its fleet of ConnectKey-enabled AltaLink® multifunction printers to protect its information. Students, faculty and administration will take advantage of apps to simplify how they work – such as the Easy Translator app that makes translations in over 40 languages instantly. – Continued Xerox 2017 Annual Report 3


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    “We see opportunity as we look at our industry … from segments of the market that are growing, to the rapid developments in technology, to the continuing evolution of how work gets done.” We are an industry leader in managed print services – many of the manual paper handling and document processing services that help our customers save money, automate steps. The results include reduced application processing steps, boost productivity, and improve document security time and error rates, increased customer satisfaction, and and environmental sustainability by gaining control of their greater oversight and control over the process. document processes and print infrastructure. For example, Xerox will deploy our managed print services to help the U.S. Commercial print, in-plant and packaging print customers Air Force focus on its missions and not worry about document rely on our graphic communications solutions to enable management. We will provide a help desk and management high-quality on-demand production of an extensive range of servers to deliver an efficient and comprehensive document of applications that drive growth and increase profitability. infrastructure and effectively save the government more than Software offerings bring automation and integration to the 20 percent in costs by decreasing the number of devices by up processing of print jobs for a touchless – and more productive to 2,000 units over the course of the following four years. – workflow. Going one step further, Vistaprint Corporate, an international provider of custom print and promotional Our content management and workflow automation solutions products, uses Xerox’s XMPie® software to offer its business transform manual, error-prone processes into automated and customers private web “storefronts” that allow employees accurate approaches that take minutes instead of days. We use to choose, customize and order brand collateral, marketing analytics to bring operational excellence to routine workflows, materials and promotional products. Vistaprint can set up a as well as industry-specific processes. In retail banking, storefront for a new company in days, and its customers automating the processing of loan applications – from first save time and money ordering products that represent their engagement to loan disbursement – simplifies or removes unique brands. The people of Xerox help our customers communicate, connect and work better by creating great products and solutions and delivering great service. We apply our collective skills to figure 4


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    “We will continue to drive change – disrupting current paradigms by developing new technologies that drive more efficient and cost-effective workflows and enable growth opportunities.” out how to always be ahead of the market – identifying and service. Ultimately, our long-term success will be measured addressing the evolving needs of our customers and partners. on our ability to satisfy our customers and deliver value to our shareholders. We see opportunity as we look at our industry … from segments of the market that are growing, to the rapid developments We are proud to be part of the Xerox team and excited about in technology, to the continuing evolution of how work gets the bright future ahead for this storied company. done. We will continue to drive change – disrupting current paradigms by developing new technologies that drive more efficient and cost-effective workflows and enable growth opportunities. Our product road maps include frequent releases of new apps, software and firmware upgrades, as well as new products to ensure we remain at the forefront of the industry. We are expanding and modernizing our software offerings – through our own development efforts, as well as partnerships Keith Cozza Chairman of the Board – to cover the entire life cycle of documents and content. Finally, we continue to capitalize on our intellectual property by embedding it in our products and software, developing new businesses and licensing or selling patents where appropriate. Our vision for the future requires smart investments in the John Visentin Vice Chairman of the Board and business. We will continuously improve our operations while Chief Executive Officer maintaining our focus on delivering superior customer Xerox 2017 Annual Report 5


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    At the Intersection of AltaLink® and VersaLink® Physical and Digital True workplace assistants Xerox brings breakthrough experiences to life, whether on a piece of paper or a digital page. Our office solutions make moving in and out of the digital and physical worlds intuitive and seamless. Our graphic communications solutions enable personalized, engaging and highly effective print and digital communications. Just like your smartphone, now there are apps, solutions and workflows to do just about anything on your multi- function printer. Printing is just the beginning. 6


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    Since our founding, Xerox has been delivering technologies and solutions that transform how people connect and work – and that is at the core of what we do today. Managed Document Services Graphic Communications Solutions Digital change agents Print innovators Customers are using our services to drive their digital We’re automating across the print process – from order transformation. Our security, workflow and automation entry to finishing – with more media, more options and solutions push the boundaries of what’s possible. more opportunities to help our customers thrive and grow. Xerox 2017 Annual Report 7


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    Financial Measures Total Revenue Adjusted (in millions) Operating Margin(1) 17 10,265 17 12.8% 16 10,771 16 12.5% 15 11,465 15 12.5% 14 12,679 14 13.2% Post-Sale Revenue Net Income from Continuing Operations – Xerox (in millions – percent of total revenue) (in millions) 17 78% 8,014 17 192 915(1) 16 78% 8,352 16 622 927(1) 15 77% 8,776 15 822 952(1) 14 76% 9,673 14 1,011 1,130(1) Equipment Revenue Net Cash from Operating Activities – (in millions – percent of total revenue) Continuing Operations (in millions) 17 22% 2,251 17 122 972(1) 16 22% 2,419 16 1,018 15 23% 2,689 15 1,078 14 24% 3,006 14 1,333 (1) See Non-GAAP Measures on page 9 for the reconciliation of the difference between this financial measure that is not in compliance with Generally Accepted Accounting Principles (GAAP) and the most directly comparable financial measure calculated in accordance with GAAP. 8


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    Non-GAAP Measures Adjusted Earnings per Share (EPS) Year Ended December 31, 2017 2016 2015 2014 Net Net Net Net (in millions, except per share amounts) Income EPS Income EPS Income EPS Income Reported(1) $ 192 $ 0.70 $ 622 $ 2.33 $ 822 $ 2.97 $ 1,011 Adjustments: Restructuring and related costs – Xerox 220 264 27 106 Amortization of intangible assets 53 58 60 65 Non-service retirement-related costs 198 131 116 79 Loss on extinguishment of debt 20 — — — Transaction and proxy-related fees 9 — — — Income tax on adjustments (171) (151) (77) (90) U.S. Tax Act 400 — — — Remeasurement of unrecognized tax positions (16) — — — Deferred tax liability adjustment — — — (44) Restructuring and other charges – Fuji Xerox(2) 10 3 4 3 Adjusted $ 915 $ 3.48 $ 927 $ 3.53 $ 952 $ 3.45 $ 1,130 Dividends on preferred stock used in adjusted EPS calculation(3) $ — $ 24 $ 24 Weighted average shares for adjusted EPS(3) 263 256 269 (1) Net income and EPS from continuing operations attributable to Xerox. (2) Other charges in 2017 represent audit and other fees associated with the independent investigation of Fuji Xerox’s accounting practices. (3) For those periods that exclude the preferred stock dividend, the average shares for the calculations of diluted EPS include 7 million shares associated with our Series A or Series B convertible preferred stock, as applicable. Operating Income/Margin Reconciliation Year Ended December 31, 2017 2016 2015 2014 (in millions) Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin Reported(1) $ 570 $ 10,265 5.6% $ 568 $ 10,771 5.3% $ 924 $ 11,465 8.1% $ 1,090 $ 12,679 8.6% Adjustments: Restructuring and related costs – Xerox 220 264 27 106 Amortization of intangible assets 53 58 60 65 Non-service retirement-related costs 198 131 116 79 Transaction and proxy-related fees 9 — — — Equity in net income of unconsolidated affiliates 115 127 109 145 Restructuring and other costs – Fuji Xerox(2) 10 3 4 3 Other expenses, net 141 200 195 185 Adjusted $ 1,316 $ 10,265 12.8% $ 1,351 $ 10,771 12.5% $ 1,435 $ 11,465 12.5% $ 1,673 $ 12,679 13.2% (1) Pre-tax income and revenue from continuing operations. (2) Other charges in 2017 represent audit and other fees associated with the independent investigation of Fuji Xerox’s accounting practices. Operating Cash Flow Reconciliation Year Ended December 31, (in millions) 2017 Reported (1) $ 122 Adjustments: Voluntary contribution to U.S. defined benefit pension plans 500 Elimination of certain accounts receivable sales programs 350 Adjusted $ 972 (1) Net cash provided by operating activities of continuing operations. Xerox 2017 Annual Report 9


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    Board of Directors Jonathan Christodoro B, D, H Private Investor (not pictured) Keith Cozza E John Visentin Gregory Q. Brown D, H Joseph J. Echevarria A, H Chairman of the Board, Vice Chairman of the Board Chairman and Chief Executive Former Chief Executive Officer, Xerox Corporation and Chief Executive Officer, Officer, Motorola Solutions, Inc. Deloitte LLP President and Chief Executive Xerox Corporation Officer, Icahn Enterprises L.P. A: Chairman of the Audit Committee B: Member of the Audit Committee C: Chairman of the Compensation Committee D: Member of the Compensation Committee E: Chairman of the Corporate Governance Committee F: Member of the Corporate Governance Committee G: Chairman of the Finance Committee H: Member of the Finance Committee Nicholas Graziano B, G Cheryl Gordon Krongard C, F A. Scott Letier D, F Sara Martinez Tucker B, F Portfolio Manager, Icahn Capital Private investor and former Chief Managing Director, Retired Chief Executive Executive Officer, Rothschild Deason Capital Services, LLC Officer, National Math and Asset Management Science Initiative; former Under Secretary of Education in the U.S. Department of Education 10


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    Officers John Visentin Xavier Heiss Farooq A. Muzaffar Vice Chairman of the Board Vice President Senior Vice President Chief Executive Officer Controller Chief Strategy and Marketing Officer Robert Birkenholz Sarah E. Hlavinka William F. Osbourn, Jr. Vice President Executive Vice President Executive Vice President Treasurer General Counsel and Corporate Secretary Chief Financial Officer Kathleen S. Fanning Stephen P. Hoover Hervé N. Tessler Vice President, Worldwide Tax Senior Vice President Executive Vice President Chief Technology Officer President, International Operations Michael D. Feldman Executive Vice President Yehia A. Maaty Douglas H. Marshall President, North America Operations Senior Vice President Assistant Secretary Chief Delivery Officer Darrell L. Ford Executive Vice President Joseph H. Mancini, Jr. Chief Human Resources Officer Vice President As of June 1, 2018 Chief Accounting Officer Xerox 2017 Annual Report 11


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    FYI Shareholder Information How to Reach Us Additional Information For investor information, including Xerox Corporation Global Diversity and Inclusion comprehensive earnings releases: www.xerox.com Programs and EE0-1 Reports www.xerox.com/investor or call 201 Merritt 7 www.xerox.com/diversity 888.979.8378. Norwalk, CT 06851-1056 Beverly Stallings-Johnson United States Global Diversity and Inclusion Leader For shareholder services, call 203.968.3000 503.582.6308 800.828.6396 (TDD: 800.368.0328) beverly.stallings-johnson@xerox.com or 781.575.3222; or write to Xerox International Operations Computershare Trust Company, N.A., Minority and Women-Owned Riverview P.O. Box 505000, Louisville, KY 40233; Business Suppliers Oxford Road or use email available at Uxbridge www.xerox.com/supplierdiversity www.computershare.com. United Kingdom UB8 1HS Ethics Helpline Investor Contacts +44.1895.251133 Online submission tool: Jennifer Horsley www.xeroxethicshelpline.com jennifer.horsley@xerox.com Fuji Xerox Co., Ltd. Phone numbers: Tokyo Midtown West • North America: 866.XRX.0001 Maria Fernanda Cala 9-7-3, Akasaka Minato-ku • International numbers located at: maria.cala@xerox.com Tokyo, Japan 107-0052 www.xerox.com/ethics +81.3.6271.5111 This annual report also is available online Environment, Health, Safety at www.xerox.com/investor. Products and Services and Sustainability Electronic Delivery Enrollment www.xerox.com or by phone: www.xerox.com/environment 800.ASK.XEROX (800.275.9376) Xerox offers shareholders the convenience of Global Citizenship electronic delivery, including: • Immediate receipt of the Proxy Statement and www.xerox.com/citizenship Annual Report • Online proxy voting Governance www.xerox.com/governance Registered Shareholders, visit: www.computershare.com/investor Students and Educators You are a registered shareholder if you have your View openings/internships and apply: stock certificate in your possession or if the shares are www.xerox.com/careers being held by our transfer agent, Computershare. Xerox Innovation Beneficial Shareholders, visit: www.xerox.com/innovation http://enroll.icsdelivery.com/xrx You are a beneficial shareholder if you maintain your Independent Auditors position in Xerox within a brokerage account. PricewaterhouseCoopers LLP 300 Atlantic Street Stamford, CT 06901 203.539.3000 12


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    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________ FORM 10-K _________________________________________________ (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2017 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: ______ to: _______ Commission File Number 001-04471 _________________________________________________ XEROX CORPORATION (Exact Name of Registrant as specified in its charter) _________________________________________________ New York 16-0468020 (State of incorporation) (IRS Employer Identification No.) P.O. Box 4505, 201 Merritt 7 Norwalk, Connecticut 06851-1056 (203) 968-3000 (Address of principal executive offices) (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 Exchange Securities registered pursuant to Section 12(g) of the Act: None ____________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No


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    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated Accelerated Non-accelerated filer Smaller reporting Emerging growth filer filer (Do not check if smaller company company reporting company) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of the voting stock of the registrant held by non-affiliates as of June 30, 2017 was $7,302,297,923. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Class Outstanding at January 31, 2018 Common Stock, $1 par value 254,673,473 DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document are incorporated herein by reference: Document Part of Form 10-K in which Incorporated Xerox Corporation Notice of 2018 Annual Meeting of Shareholders and III Proxy Statement (to be filed no later than 120 days after the close of the fiscal year covered by this report on Form 10-K)


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    Cautionary Statement Regarding Forward-Looking Statements This document, and other written or oral statements made from time to time by management contain “forward- looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that individually identifiable information of customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; our ability to manage changes in the printing environment and expand equipment placements; interest rates, cost of borrowing and access to credit markets; funding requirements associated with our employee pension and retiree health benefit plans; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; the risk that we do not realize all of the expected strategic and financial benefits from the separation and spin- off of our Business Process Outsourcing business; the effects on our business resulting from actions of activist shareholders; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K filed with the SEC. Furthermore, the actual results of the Transactions could vary materially as a result of a number of factors, including, but not limited to: (i) the risk that the transactions may not be completed in a timely manner or at all, which may adversely affect Xerox’s business and the price of Xerox’s common stock, (ii) the failure to satisfy the conditions to the consummation of the transactions, including the receipt of certain approvals from Xerox’s shareholders and certain governmental and regulatory approvals, (iii) the parties may be unable to achieve expected synergies and operating efficiencies in the transactions within the expected time frames or at all, (iv) the transactions may not result in the accretion to Xerox’s earnings or other benefits, (v) the occurrence of any event, change or other circumstance that could give rise to the termination of the transaction agreements, (vi) the effect of the announcement or pendency of the transactions on Xerox’s and/or Fujifilm business relationships, operating results, and business generally, risks related to the proposed transactions disrupting Xerox’s current plans and operations and potential difficulties in Xerox’s employee retention as a result of the transactions, (vii) risks related to diverting management’s attention from Xerox’s ongoing business operations, (viii) the outcome of any legal proceedings that may be instituted against Xerox, its officers or directors related to the transaction agreements or the transactions and (ix) the possibility that competing offers or acquisition proposals for Xerox will be made. Xerox assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law. Fuji Xerox Co., Ltd. (“Fuji Xerox”) is a joint venture between Xerox Corporation and Fujifilm in which Xerox holds a noncontrolling 25% equity interest and Fujifilm holds the remaining equity interest. In April 2017, Fujifilm formed an independent investigation committee (“IIC”) to primarily conduct a review of the appropriateness of the accounting practices at Fuji Xerox’s New Zealand subsidiary and at other subsidiaries. The IIC completed its review during the second quarter 2017 and identified aggregate adjustments to Fuji Xerox’s financial statements of approximately JPY 40 billion (approximately $360 million) primarily related to misstatements at Fuji Xerox’s New Zealand and Australian subsidiaries. We determined that our share of the total adjustments identified as part of the investigation was approximately $90 million and impacted our fiscal years 2009 through 2017. We concluded that we should revise our previously issued annual and interim consolidated financial statements for 2014, 2015 and 2016 and the first quarter of 2017 the next time they are filed. Our review of this matter has been completed. However, Fujifilm and Fuji Xerox continue to review Fujifilm’s oversight and governance of Fuji Xerox as well as Fuji Xerox’s oversight and governance over its businesses in light of the findings of the IIC. At this time, we can provide no assurance


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    relative to the outcome of any potential governmental investigations or any consequences thereof that may happen as a result of this matter.


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    Xerox Corporation Form 10-K December 31, 2017 Table of Contents Page Part I Item 1. Business 1 Item 1A. Risk Factors 8 Item 1B. Unresolved Staff Comments 18 Item 2. Properties 18 Item 3. Legal Proceedings 18 Item 4. Mine Safety Disclosures 18 Part II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19 Item 6. Selected Financial Data 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 59 Item 8. Financial Statements and Supplementary Data 59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 127 Item 9A. Controls and Procedures 127 Item 9B. Other Information 127 Part III Item 10. Directors, Executive Officers and Corporate Governance 128 Item 11. Executive Compensation 129 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 129 Item 13. Certain Relationships, Related Transactions and Director Independence 129 Item 14. Principal Auditor Fees and Services 129 Part IV Item 15. Exhibits and Financial Statement Schedules 130 Item 16. Form 10-K Summary 130 Signatures 131 Schedule II Valuation and Qualifying Accounts 132 Index of Exhibits 133


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    Part I Item 1. Business Transaction to Combine Xerox and Fuji Xerox On January 31, 2018, Xerox entered into a Redemption Agreement with FUJIFILM Holdings Corporation, a Japanese company (“Fujifilm”), and Fuji Xerox Co., Ltd, a Japanese company in which Xerox indirectly holds a 25 percent equity interest and Fujifilm holds the remaining 75 percent equity interest (“Fuji Xerox”) (the “Redemption Agreement”), pursuant to which, among other things, (i) Fuji Xerox shall redeem for cash most or all of Fujifilm’ s 75 percent equity interest in Fuji Xerox and (ii) Fuji Xerox shall become an indirect majority or wholly owned subsidiary of Xerox (the “Redemption”). The combined company resulting from the Fujifilm Transactions (as defined below) shall hereinafter be referred to as “New Fuji Xerox”. Concurrently with the execution and delivery of the Redemption Agreement, Xerox entered into a Share Subscription Agreement with Fujifilm (the “Subscription Agreement” and together with the Redemption Agreement, the “Fujifilm Transaction Agreements”), pursuant to which, among other things, (i) Fujifilm shall subscribe for and purchase from Xerox, and Xerox shall issue to Fujifilm, a number of shares of common capital stock of Xerox (and after Closing, of New Fuji Xerox, “Common Stock”) representing 50.1 percent of (i) the aggregate number of issued and outstanding shares of Common Stock (excluding any performance shares issued under the Company’s existing employee incentive plans) plus (ii) such additional shares of Common Stock that would be issued and outstanding assuming the exercise of in-the-money options as of 5:00 p.m. New York time two business days prior to closing of the Fujifilm Transactions (as defined below) (the “Closing”) plus (iii) any shares of Common Stock reserved for issue relating to restricted stock units outstanding as of the Closing that are fully vested as of 5:00 p.m. New York time two business days prior to the Closing (collectively, the “Fully Diluted Capital Stock”) of Xerox in exchange for (A) cash and (B) all of the issued and outstanding equity interests of Fuji Xerox not held by Xerox or its wholly owned subsidiaries and (ii) Xerox shall become a direct, majority owned subsidiary of Fujifilm (the “Issuance” and together with the Redemption, the “Fujifilm Transactions”). In addition, pursuant to the terms of the Subscription Agreement, at Closing, an aggregate number of shares equal to the “True-Up Shares” (as defined in the Subscription Agreement) shall be held in escrow and released to Fujifilm as and if necessary for Fujifilm to maintain its ownership percentage. In connection with the Fujifilm Transactions, Xerox expects to pay a special pro rata cash dividend to its shareholders in an amount equal to $2.5 billion in the aggregate (the “Special Dividend”), which is expected to be financed through the issuance of debt that will be incurred by New Fuji Xerox. Fujifilm will not be a shareholder of Xerox as of the record date for the Special Dividend and therefore will not receive any payment in respect thereof. As noted above, immediately following the Closing, Fujifilm is expected to own approximately 50.1 percent of the Fully Diluted Capital Stock of New Fuji Xerox and Xerox shareholders are expected to own approximately 49.9 percent. Further, pursuant to that certain Shareholders Agreement, to be entered into by Xerox and Fujifilm at Closing (the “Shareholders Agreement”), the Board of Directors of New Fuji Xerox will have twelve directors, which will initially be composed of seven individuals designated by Fujifilm and five individuals from among the members of the Board of Directors of the Company immediately prior to Closing designated by Xerox in consultation with and subject to reasonable approved by Fujifilm. Accordingly, the Fujifilm Transactions are expected to be accounted for as a reverse acquisition. Xerox must pay to Fujifilm a $183 million termination fee in the event that the Subscription Agreement is terminated (i) by either party because the applicable shareholder approvals are not obtained if an alternative acquisition proposal is publicly announced prior to the Xerox shareholder meeting duly called for the purpose of obtaining the applicable shareholder approvals and Xerox enters into a definitive agreement with respect to, or otherwise consummates, an alternative acquisition proposal within 12 months after the termination of the Subscription Agreement; (ii) by Fujifilm (A) in connection with a material and intentional breach by Xerox of its non-solicitation obligations resulting in a third party making an alternate acquisition proposal that is reasonably likely to materially interfere with the Fujifilm Transactions or (B) following a change in the recommendation by the Board of Directors of Xerox; or (iii) by Xerox in order to enter into a definitive agreement with a third party with respect to a superior proposal, in each case as set forth in, and subject to the conditions of, the Fujifilm Transaction Agreements. We expect the Fujifilm Transactions, which require Xerox shareholder approval, to close in the second half of 2018 subject to customary regulatory approvals, filings with the U.S. Securities and Exchange Commission, tax considerations, and securing any necessary financing. Until the combination is complete, each of Xerox, Fuji Xerox and Fujifilm will continue to be separate, independent organizations and will operate as usual. Xerox 2017 Annual Report 1


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    Company Separation On December 31, 2016, Xerox Corporation completed the Separation of its Business Process Outsourcing (BPO) business from its Document Technology and Document Outsourcing (DT/DO) business (the “Separation”). The Separation was accomplished through the transfer of the BPO business into a new legal entity, Conduent Incorporated (“Conduent”), and then distributing one hundred percent (100%) of the outstanding common stock of Conduent to Xerox Corporation stockholders (the “Distribution”). As a result of the Separation and Distribution, the BPO business is presented as discontinued operations and, as such, has been excluded from continuing operations for all periods presented. Accordingly, continuing operations represents the ongoing DT/DO business. Refer to Note 5 - Divestitures for additional information regarding discontinued operations. Our Business Xerox is a print technology and intelligent work solutions leader focused on helping people communicate and work better. We apply our expertise in imaging and printing, data analytics, and the development of secure and automated solutions to help our customers improve productivity and increase client satisfaction. We operate in a market estimated at approximately $85 billion(1). Our primary offerings span three main areas: Managed Document Services, Workplace Solutions and Graphic Communications. Our Managed Document Services offerings help customers, ranging from small businesses to global enterprises, optimize their printing and related document workflow and business processes. Xerox led the establishment of this expanding market and continues as the industry leader. Our Workplace Solutions and Graphic Communications products and solutions support the work processes of our customers by providing them with efficient and cost effective printing and workflow solutions. _____________ (1) Market estimates are derived from third-party forecasts produced by firms such as International Data Corporation (IDC). Our Strategy and Business Model Our strategy is to increase our participation in the growth areas of our industry while maintaining leadership in the more mature areas through innovation in digital print technology and services. Our Strategic Transformation program (see: Accelerate Productivity and Cost Initiatives through Strategic Transformation section below) is intended to enable us to make investments to improve our revenue trajectory while expanding our margins. Our post-sale business model enables us to deliver sustainable cash flows. We believe the combination of an improving revenue trajectory along with expanding operating margins and strong cash flow will enable us to deliver positive shareholder returns over time. To accomplish this, we focus on the following areas: Maintain Leadership and Focus on Strategic Growth Areas We are a leader in our industry and have a strong and valuable global brand. We systematically evaluate our competition and the needs of our customers and partners to maintain our leadership position and make the portfolio and distribution investments to further penetrate growth areas of the market. We expect to focus on the following: • Expand leadership in Managed Document Services by leveraging our strength in large enterprises and broadening our SMB (small to mid-sized business) offerings. • Increase SMB coverage through resellers and partners (including multi-brand dealers) and continued distribution acquisitions. • Gain share in the A4 product segment of the market, where historically we have been underrepresented, by strengthening our product portfolio and increasing our distribution capacity. • Extend leadership in digital color production through continued innovation and growth in new markets. Geographically, our footprint spans approximately 160 countries and allows us to deliver our technology and solutions to customers of all sizes, regardless of complexity or number of customer locations. Innovate to Differentiate Our Offerings We direct our research and development (R&D) investments to areas such as workflow automation, color printing and customized communication, as well as improving the quality and reducing the environmental impact of digital printing. We believe that a critical role of our research is to identify new competency areas for the future. Accordingly, we are investing in new and novel printing technology applications that could offer attractive opportunities in adjacent markets. We expect this will deliver incremental value for our customers and drive profitable revenue growth for our business. 2


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    Accelerate Productivity and Cost Initiatives through Strategic Transformation We have a proven track record of maintaining strong margins through ongoing cost and productivity initiatives. As markets shift, we undertake restructuring to optimize our workforce and facilities to best align our resources with the growth areas of our business, and to maximize profitability and cash flow in businesses that are declining. In 2016, we initiated a three-year Strategic Transformation program to simplify and create a significantly more effective organization that delivers productivity and cost reduction beyond our historical range of $300 to $350 million of annual savings. The program targets areas such as delivery, remote connectivity, sales productivity, pricing optimization, design efficiency and supply chain optimization. We believe that the program will enable us to reinvest in our business to improve the revenue trajectory and margin expansion. During the first two years, the program delivered over $1.2 billion in gross productivity gains and cost savings and we expect it to provide approximately $475 million of additional cost reductions in 2018. Our goal is to achieve approximately $1.7 billion in savings over the three-year period, outperforming our initial $1.5 billion target. Engage, Develop and Support Our People Our offerings are supported by a global workforce focused on delivering value to our customers. We continue to develop our employees by investing in the processes and systems that enable them to perform their jobs more effectively. We had approximately 35,300 employees worldwide at December 31, 2017. Post-Sale Driven Business Model and Shareholder-Centered Capital Allocation Our business is based on a post-sale, or annuity, model that provides significant recurring revenue and cash generation. In 2017, over 75% of our total revenue was related to post-sale revenue streams including document services, equipment maintenance, consumable supplies and financing, among other elements. The remainder of our revenue was from equipment sales, either from lease agreements that qualify as sales for accounting purposes or outright cash sales. Our post-sale model supports ongoing strong cash flows, and we have a balanced capital allocation approach with the following objectives: • Maintaining an investment grade credit profile, • Selectively pursue acquisitions in targeted growth areas, and • Return capital to shareholders, targeting to deliver over 50% of free cash flow back to shareholders through dividends and share repurchases over time. Acquisitions and Divestitures As part of our strategy, we are focused on increasing our Small and Mid-sized (SMB) coverage through resellers and partners (including multi-brand dealers) and continued distribution acquisitions. Details about our acquisitions and divestitures in 2017 can be found in Note 4 - Acquisitions and Note 5 - Divestitures, in the Consolidated Financial Statements. Innovation and Research Xerox has a rich heritage of innovation, which continues to be a core strength of the company as well as a competitive differentiator. Our aim is to create value for our customers, our shareholders and our employees by driving innovation in key areas. Our investments in innovation align with our growth opportunities in areas like workflow automation, color printing, customized communication and new and novel applications of printing technology. Our research efforts can be categorized under four themes: Digital Printing - Improve the cost and capability of digital printing for documents and beyond Advances in digital printing are enabling mass customization at a run cost approaching the cost of analog printing. We are continuously investing in research to reduce the cost of digital printing consumables while maintaining the high print quality that our customers expect. Our research is also focused on developing new printing technologies that enable us to print digitally on a broader range of media and substrates such as foils, cartons, and directly on end-use products, which will open up new growth markets such as digital packaging. Printing with functional inks will also allow us to add intelligence to packaging, such as sensors, memory, and interactive features, which will enable new analytic-based services, higher security and new consumer experiences. As a responsible corporate citizen, we are also investing in research to lower the environmental impact of our products and consumables. Xerox 2017 Annual Report 3


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    Personalization at Scale - Enhance value by providing secure, real-time, context-aware personalized products, solutions and services Whether business correspondence, personal communication, manufactured items or information services, personalization increases the value of communication. Our research leads to technologies that improve the efficiency, economics, relevance and security of our customers' products and services. We help customers improve the impact of their communications by leveraging vast information resources available from private databases or public sources including social media and delivering personalized messages, products and services. Examples of innovation focus areas include creating new capabilities in imaging, multi-media marketing campaign management, workflow automation and augmented reality to deliver personalization at scale. Agile Enterprise - Create simple, automated and touch-less business workflows resulting in lower cost, higher quality and increased agility Enterprises of all sizes require agility in order to quickly respond to market changes and new requirements. To enable greater business process agility, our research goals are to simplify, automate and enable business processes on the cloud via flexible platforms that run on robust and scalable infrastructures. We continue to invest in new capabilities to help people better leverage and integrate paper and digital workflows. And we go beyond that to develop innovations for the automation of business workflows. These capabilities leverage our research in image, video and natural language processing, as well as machine learning. Application of these methods to business workflows enables technology automate tasks, thus allowing workers to focus on higher value activities. Usable Analytics - Transform big data into useful information resulting in better business decisions Competitive advantage can be achieved by better utilizing available and real-time information. Today, information resides in an ever-increasing universe of servers, repositories and formats. The vast majority of information is unstructured, including text, images, voice and videos. One of our key research areas is making sense of unstructured information using natural language processing and semantic analysis. A second major research area focuses on developing proprietary methods for prescriptive analytics applied to business processes. Here, we seek to better manage very large data systems in order to extract business insights and use those insights to provide our clients with actionable recommendations. Tailoring these methods to various vertical applications leads to new customer value propositions. Our innovation goals are supported by cross disciplinary research programs in our different research centers. PARC, the most prominent of these centers, is a wholly-owned subsidiary of Xerox located in Silicon Valley, California. It provides Xerox commercial and government clients with R&D and open innovation services. PARC scientists have deep technological expertise in areas that we consider fundamental to bring high-impact innovations to our customers and the world; such areas include big data analytics, intelligent sensing, computer vision, networking, printed electronics, energy, and digital design and manufacturing. Investment in R&D is critical for competitiveness in our fast-paced markets. One of the ways that we maintain our market leadership is through coordination of our R&D with Fuji Xerox (an equity investment in which we maintain a 25% ownership interest). Our total research, development and engineering expenses (RD&E), which include sustaining engineering expenses for hardware engineering and software development after we launch a product, totaled $446 million in 2017, $476 million in 2016 and $511 million in 2015. Fuji Xerox R&D expenses were $536 million in 2017, $628 million in 2016 and $569 million in 2015. Segment Information Following the separation of the BPO business, we realigned our operations to better manage the business and serve our customers and the markets in which we operate. In 2017, we transitioned to a geographic focus and are primarily organized from a sales perspective on the basis of “go-to-market” sales channels. These sales channels are structured to serve a range of customers for our products and services. As a result of this transition and change in structure, we concluded that we have one operating and reportable segment - the design, development and sale of printing technology and related solutions. Accordingly, the section below primarily discusses the business based on our primary offerings (Managed Document Services, Workplace Solutions and Graphic Communications) that are brought to the market through these geographic-based sales channels. 4


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    Revenues We have a broad and diverse base of customers by both geography and industry, ranging from SMBs to graphic communications companies, governmental entities, educational institutions and Fortune 1000 corporations. Our business does not depend upon a single customer, or a few customers, the loss of which would have a material adverse effect on our business. Our business spans three primary offering areas: Managed Document Services (MDS), Workplace Solutions and Graphic Communications. In addition, a smaller portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue and Global Imaging Systems network integration solutions. Our Managed Document Services includes a continuum of solutions and services that helps our customers optimize their print and communications infrastructure, ensure the highest levels of security & productivity, and enable their digital business objectives. Our primary offerings within Managed Document Services are Managed Print Services (MPS), Multi-Channel Communication Services and a range of Digital Solutions including Workflow Automation Services, Content Management and Digitization Services. MDS excludes legacy printing sourcing contracts that transferred to us upon the spin-off of the BPO business. In our MPS business, we help companies assess and optimize their print infrastructure, secure and integrate their environment and automate and simplify their business processes. We provide the most comprehensive portfolio of MPS services in the industry and are recognized as an industry leader by major analyst firms including Gartner, IDC, Quocirca, InfoTrends and Forrester. Our MPS offering targets clients ranging from large, global enterprises to governmental entities and to small and medium-sized businesses, including those served via our channel partners . Our Next Generation Xerox Partner Print Services is a comprehensive suite of services that allows channel partners to support their SMB customers with some of our best-in-class tools, processes, and workflow solutions developed by Xerox for large enterprises. In our Multi-Channel Communications Services business, we help large enterprise and global clients drive ef fective communications across a range of digital and physical touch points. We offer a range of platform-enabled digital services that deliver relevant and timely communications focused on customer acquisition, onboarding or retention. Our portfolio includes Collateral Management Services, Demand Generation Services, Product Information Management Services and Centralized Print Production Services. Our Digital Solutions portfolio features our Workflow Automation solutions, Content Management solutions and Digitization Services. Our Xerox Workflow Automation Services help our customers assess, optimize and automate their workflow in a secure and integrated IT environment. By eliminating ineffective processes, we bring our clients operational excellence in routine workflows as well as industry-specific processes. These offerings are enhanced and complemented by our proprietary content management software solutions including DocuShare 7 and our cloud-based DocuShare Flex platform. In addition, we operate a network of centers that digitize and automate paper & digital workflows enabling our customers to operate cost-efficiently in a fully-digitized environment with speed, quality and 24x7 availability. Our Workplace Solutions area is made up of two strategic product groups, Entry and Mid-Range, which share common technology, manufacturing and product platforms. Workplace Solutions revenues include the sale of products and supplies, as well as the associated technical service and financing of those products. • Entry comprises desktop monochrome and color printers and multifunction printers (MFPs) ranging from small personal devices to workgroup printers and MFPs that serve the needs of office workgroups. Entry products are sold to customers in all segments from SMB to enterprise, principally through a global network of reseller partners and service providers, as well as through our direct sales force. • Mid-Range are larger devices that have more features and can handle higher print volumes and larger paper sizes than Entry devices. These products are sold through dedicated partners, our direct sales force, multi- branded channel partners and resellers worldwide. We are a leader in this area of the market and offer a wide range of MFPs, copiers, digital printing presses and light production devices, and solutions that deliver flexibility and advanced features. Our Graphic Communications Solutions are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements. These solutions enable full-color, on-demand printing of a wide range of applications, including variable data for personalized content and one-to-one marketing. Graphic Communications Solutions revenues include the sale of products, software and supplies, as well as the associated technical service and financing of those products. • Our cut-sheet presses provide graphic communications and commercial printers with high speed, high-volume printing. They are ideal for publishing, transaction printing, print on demand and one-to-one marketing, offering Xerox 2017 Annual Report 5


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    the best in high speed, productivity and resolution and color. We are the worldwide leader in the cut-sheet color and monochrome production industry. • Our inkjet presses offer a broad range of roll fed, continuous feed printing technologies, including waterless inkjet and aqueous inkjet for vivid color, and toner-based flash fusing for black and white. Our portfolio spans a variety of print speeds, image quality, feeding, finishing and media options. We continue to develop and integrate our production inkjet business to bring the high-end capabilities of toner-based presses such as speed and inline color correction to the more price sensitive market of inkjet. • Our FreeFlow portfolio of software offerings brings intelligent automation and integration to the processing of print jobs, from file preparation to final production, for a touchless workflow. It helps customers of all sizes address a wide range of business opportunities including automation, personalization and even electronic publishing. In 2017, we sold our FreeFlow Print Server (FFPS) DFE business to Electronics for Imaging (EFI). Under the terms of the deal, we established a strategic partnership that will bring to market a next generation digital front end (DFE) solution with more efficiencies, performance and quality to meet the most demanding production requirements. Additionally, EFI will continue to supply and support the current range of FFPS. It should be noted that the sale agreement comprises only the small FFPS business and does not impact our FreeFlow portfolio of software solutions which remains a key plank for our customers’ workflow strategy. Geographic Information Overall, approximately 40% of our revenue is generated by customers outside the U.S. Additional details can be found in Note 3 - Segment and Geographic Area Reporting. Patents, Trademarks and Licenses In 2017, Xerox and its subsidiaries were awarded 544 U.S. utility patents. Including our research partner Fuji Xerox, we were awarded 1,116 U.S. utility patents during the period. Our patent portfolio evolves as new patents are awarded to us and as older patents expire. As of December 31, 2017, Xerox held approximately 11,470 U.S. design and utility patents. These patents expire at various dates up to 20 years or more from their original filing dates. While we believe that our portfolio of patents and applications has value, in general no single patent is essential to our business. In addition, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide significant competitive advantages. In 2017, we were party to numerous patent-licensing agreements and, in a majority of them, we licensed or assigned our patents to others in return for revenue and/or access to their patents or to further our business goals. Most patent licenses expire concurrently with the expiration of the last patent identified in the license. We were also party to a number of cross-licensing agreements with companies that also hold substantial patent portfolios. These agreements vary in subject matter, scope, compensation, significance and duration. In the U.S., we own about 210 U.S. trademarks, either registered or applied for. These trademarks have a perpetual life, subject to renewal every 10 years. We vigorously enforce and protect our trademarks. Marketing and Distribution We go to market with a services-led approach and sell our products and services directly to customers through our worldwide sales force and through 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 comprised of regional core companies in the U.S., sells document management and network integration systems and services. We continued to broaden our distribution to small and mid-sized businesses in 2017 through expanding our network of resellers and partners (including multi-brand dealers) as well as GIS's acquisition of three equipment and document services dealer companies. In Europe, Africa, the Middle East and parts of Asia, we distribute our products through Xerox Limited, a company established under the laws of England, as well as through related non-U.S. companies. Xerox Limited enters into distribution agreements with unaffiliated third parties to distribute our products in many of the countries located in these regions, and previously entered into agreements with unaffiliated third parties who distribute our products in Sudan. Sudan, among others, has been designated as a state sponsor of terrorism by the U.S. Department of State and is subject to U.S. economic sanctions. We maintain an export and sanctions compliance program, and believe that we have been, and are in compliance with, U.S. laws and government regulations for Sudan. We have no assets, liabilities or operations in Sudan other than liabilities under the distribution agreements. After observing required prior notice periods, Xerox Limited terminated its distribution agreements with distributors servicing Sudan in August 2006. Now, Xerox has only legacy obligations to third parties, such as providing spare parts and supplies to these third parties. In 2017, total Xerox revenues of $10.3 billion included approximately $11 thousand attributable to Sudan. 6


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    Competition Although we encounter competition in all areas of our business, we are the leader - or among the leaders - in each of our primary offering areas. We compete on the basis of technology, performance, price, quality, reliability, brand, distribution and customer service and support. Our larger competitors include Canon, Hewlett-Packard Inc., Konica Minolta and Ricoh. Our brand recognition, reputation for document management expertise, innovative technology and service delivery excellence are our competitive advantages. These advantages, combined with our breadth of product offerings, global distribution channels and customer relationships, position us as a strong competitor going forward. Customer Financing We finance a large portion of our direct channel customer purchases of Xerox equipment through bundled lease agreements. We also provide lease financing to end-user customers who purchased Xerox equipment through our indirect channels. We compete with other third-party leasing companies with respect to the lease financing provide to these end-user customers. In both instances, financing facilitates customer acquisition of Xerox technology and enhances our value proposition, while providing Xerox a reasonable return on our investment in this business. Additionally, because we primarily finance our own products and have a long history of providing financing to our customers, we are able to minimize much of the risk normally associated with a finance business. Because our lease contracts allow customers to pay for equipment over time rather than upfront upon installation, we maintain a certain level of debt to support our investment in these lease contracts. We fund our customer financing activity through a combination of cash generated from operations, cash on hand and proceeds from capital market offerings. At December 31, 2017, we had approximately $3.7 billion of finance receivables and $0.5 billion of equipment on operating leases, or Total Finance assets of $4.2 billion. We maintain an assumed 7:1 leverage ratio of debt to equity as compared to our Finance assets, which results in approximately $3.7 billion of our $5.5 billion of debt being allocated to our financing business. Refer to "Debt and Customer Financing Activities" in the Capital Resources and Liquidity section of Management's Discussion and Analysis, included in Item 7 of this 2017 Form 10-K, for additional information. Manufacturing and Supply Our manufacturing and distribution facilities are located around the world. Our largest manufacturing site is in Webster, N.Y., where we produce the Xerox iGen, Nuvera, Brenva and Direct to Object Inkjet Printer systems, components, EA Toner, consumables, fusers and other products. Our other primary manufacturing operations are located in Dundalk, Ireland, for our High-End production products and consumables; Wilsonville, OR, for solid ink consumable supplies and components; and Aubagne, France, for Impika aqueous ink-jet production systems. W e also have a facility in Venray, Netherlands, that manufactures supplies and provides supply chain management for our international operations. We have arrangements with Fuji Xerox under which we purchase and sell products, some of which are the result of mutual research and development agreements. Refer to Note 10 - Investments in Affiliates, at Equity in the Consolidated Financial Statements for additional information regarding our relationship with Fuji Xerox. We maintain a long-standing relationship of over 15 years with FLEX LTD (Flex) (formerly Flextronics), a global electronics manufacturing services company, for our mid-range and entry businesses. Our master supply agreement with Flex renews on an annual basis. We also acquire products from various third parties in order to increase the breadth of our product portfolio and meet channel requirements. Fuji Xerox Fuji Xerox is an unconsolidated entity in which we own a 25% interest and FUJIFILM Holdings Corporation (Fujifilm) owns a 75% interest. Fuji Xerox develops, manufactures and distributes document processing products in Japan, China, Hong Kong, other areas of the Pacific Rim, Australia and New Zealand. We retain significant rights as a minority shareholder. Our technology licensing agreements with Fuji Xerox ensure that the two companies retain uninterrupted access to each other's portfolio of patents, technology and products. Refer to Note 10 - Investment in Affiliates, at Equity in the Consolidated Financial Statements for additional information regarding our investment in Fuji Xerox. Xerox 2017 Annual Report 7


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    International Operations The financial measures by geographical area for 2017, 2016 and 2015 that are included in Note 3 - Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information. See also the risk factor entitled “Our business, results of operations and financial condition may be negatively impacted by conditions abroad, including local economic and political environments, fluctuating foreign currencies and shifting regulatory schemes” in Part I, Item 1A included herein. Backlog Backlog, or the value of unfilled equipment orders, is not a meaningful indicator of future business prospects because a significant proportion of our revenue is fulfilled from existing inventories or within a short period of order signing. Seasonality Our revenues are affected by such factors as the introduction of new products, the length of sales cycles and the seasonality of technology purchases and printing volumes. These factors have historically resulted in lower revenues, operating profits and operating cash flows in the first and third quarter. Other Information Xerox is a New York corporation, organized in 1906 and our principal executive offices are located at 201 Merritt 7, 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 Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports. We make these documents available as soon as we can after we have filed them with, or furnished them to, the U.S. Securities and Exchange Commission. Our Internet address is www.xerox.com. Item 1A. Risk Factors If we are unsuccessful at addressing our business challenges, our business and results of operations may be adversely affected and our ability to invest in and grow our business could be limited. We are in the process of addressing many challenges facing our business. One set of challenges relates to dynamic and accelerating market trends, such as the declines in installations and printed pages, fewer devices per location and an increase in electronic documentation. A second set of challenges relates to changes in the competitive landscape. Our primary competitors are exerting increased competitive pressure in targeted areas and are entering new markets; our emerging competitors are introducing new technologies and business models. These market and competitive trends make it difficult to reverse the current declines in revenue over the past several years. A third set of challenges relates to our continued efforts to reduce costs and increase productivity in light of declining revenues. In addition, we are vulnerable to increased risks associated with our efforts to address these challenges given the markets in which we compete, as well as, the broad range of geographic regions in which we and our customers and partners operate. If we do not succeed in these efforts, or if these efforts are more costly or time-consuming than expected, our business and results of operations may be adversely affected, which could limit our ability to invest in and grow our business. Our business, results of operations and financial condition may be negatively impacted by conditions abroad, including local economic and political environments, fluctuating foreign currencies and shifting regulatory schemes. A significant portion of our revenue is generated from operations, and we manufacture or acquire many of our products and/or their components, outside the United States. Our future revenues, costs and results of operations could be significantly affected by changes in foreign currency exchange rates - particularly the Japanese yen, the euro and the British pound - as well as by a number of other factors, including changes in local economic and political conditions, trade protection measures, licensing requirements, local tax regulations and other related legal matters. We use currency derivative contracts to hedge foreign currency denominated assets, liabilities and anticipated transactions. This practice is intended to mitigate or reduce volatility in the results of our foreign operations, but does not completely eliminate it. We do not hedge the translation effect of international revenues and expenses that are denominated in currencies other than the U.S. dollar. If our future revenues, costs and results of operations are significantly affected by economic or political conditions abroad and we are unable to effectively hedge these risks, they could materially adversely affect our results of operations and financial condition. 8


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    We operate globally and changes in tax laws could adversely affect our results. We operate globally and changes in tax laws could adversely affect our results. We operate in approximately 160 countries and generate substantial revenues and profits in foreign jurisdictions. The international tax environment continues to change as a result of both coordinated actions by governments and unilateral measures designed by individual countries, both intended to tackle concerns over base erosion and profit shifting and perceived international tax avoidance techniques. The recommendations of the BEPS Project led by the Organization for Economic Cooperation and Development (OECD) are involved in much of the coordinated activity, although the timing and methods of implementation vary. Additionally, the U.S. government recently enacted comprehensive tax reform in December of 2017 through the passage and signing of the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act significantly revised the U.S. corporate income tax system. The exact ramifications of the legislation is subject to interpretation and could have a material impact on our financial position and/or results of operations. Although our 2017 results of operations reflect our best estimate of the impact of the new tax law, future regulatory direction associated with the new tax law as well as new legislative developments could adversely affect our future effective tax rate and results. 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 products and solutions is inherently complex and uncertain. It requires accurate anticipation of customers' changing needs and emerging technological trends. We must work with our supply partners and commit resources before knowing whether these initiatives will result in products that are commercially successful 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, suppliers and other parties, to establish and maintain our intellectual property rights in technology and products used in our operations. It is possible that our intellectual property rights could be challenged, invalidated or circumvented, allowing others to use our intellectual property to our competitive detriment. Also, the laws of certain countries may not protect our proprietary rights to the same extent as the laws of the United States and we may be unable to protect our proprietary technology adequately against unauthorized third-party copying or use, which could adversely affect our competitive position. In addition, some of our products rely on technologies developed by third parties. We may not be able to obtain or to continue to obtain licenses and technologies from these third parties at all or on reasonable terms, or such third parties may demand cross-licenses to our intellectual property. If we fail to accurately anticipate and meet our customers' needs through the development of new products, technologies and service offerings or if we fail to adequately protect our intellectual property rights, we could lose market share and customers to our competitors and that could materially adversely affect our results of operations and financial condition. Our government contracts are subject to termination rights, audits and investigations, which, if exercised, could negatively impact our reputation and reduce our ability to compete for new contracts. A significant portion of our revenues is derived from contracts with U.S. federal, state and local governments and their agencies, as well as international governments and their agencies. Government entities typically finance projects through appropriated funds. While these projects are often planned and executed as multi-year projects, government entities usually reserve the right to change the scope of or terminate these projects for lack of approved funding and/or at their convenience. Changes in government or political developments, including budget deficits, shortfalls or uncertainties, government spending reductions (e.g., Congressional sequestration of funds under the Budget Control Act of 2011) or other debt or funding constraints, could result in lower governmental sales and in our projects being reduced in price or scope or terminated altogether, which also could limit our recovery of incurred costs, reimbursable expenses and profits on work completed prior to the termination. Additionally, government agencies routinely audit government contracts. If the government finds that we inappropriately charged costs to a contract, the costs will be non-reimbursable or, to the extent reimbursed, refunded to the government. If the government discovers improper or illegal activities or contractual non-compliance in the course of audits or investigations, we may be subject to various civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government. Any resulting penalties or sanctions could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, the negative publicity that arises from findings in such audits or, investigations could have an adverse effect on our reputation and reduce our ability to compete for new contracts and could also have a material adverse effect on our business, financial condition, results of operations and cash flow. Xerox 2017 Annual Report 9


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    We face significant competition and our failure to compete successfully could adversely affect our results of operations and financial condition. We operate in an environment of significant competition, driven by rapid technological developments, changes in industry standards, and demands of customers to become more efficient. Our competitors include large international companies some of which have significant financial resources and compete with us globally to provide document processing products and services in each of the markets we serve. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution and customer service and support. Our future success is largely dependent upon our ability to compete in the markets we currently serve, to promptly and effectively react to changing technologies and customer expectations and to expand into additional market segments. To remain competitive, we must develop services, applications and new products; periodically enhance our existing offerings; remain cost efficient; and attract and retain key personnel and management. If we are unable to compete successfully, we could lose market share and important customers to our competitors and such loss could materially adversely affect our results of operations and financial condition. Our profitability is dependent upon our ability to obtain adequate pricing for our products and services and to improve our cost structure. Our success depends on our ability to obtain adequate pricing for our products and services that will provide a reasonable return to our shareholders. Depending on competitive market factors, future prices we obtain for our products and services may decline from current levels. In addition, pricing actions to offset the effect of currency devaluations may not prove sufficient to offset further devaluations or may not hold in the face of customer resistance and/or competition. If we are unable to obtain adequate pricing for our products and services, it could materially adversely affect our results of operations and financial condition. We continually review our operations with a view towards reducing our cost structure, including reducing our employee base, exiting certain businesses, improving process and system efficiencies and outsourcing some internal functions. We engage in restructuring actions to reduce our cost structure. If we are unable to continue to maintain our cost base at or below the current level and maintain process and systems changes resulting from prior restructuring actions, it could materially adversely affect our results of operations and financial condition. Our ability to sustain and improve profit margins is dependent on a number of factors, including our ability to continue to improve the cost efficiency of our operations through such programs as the Strategic Transformation program, the level of pricing pressures on our products and services, 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 initiatives. If any of these factors adversely materialize or if we are unable to achieve and maintain productivity improvements through design efficiency, supplier and manufacturing cost improvements and information technology initiatives, our ability to offset labor cost inflation, potential materials cost increases and competitive price pressures would be impaired, all of which could materially adversely affect our results of operations and financial condition. We are subject to laws of the United States and foreign jurisdictions relating to individually identifiable information, and failure to comply with those laws could subject us to legal actions and negatively impact our operations. We receive, process, transmit and store information relating to identifiable individuals, both in our role as a technology provider and as an employer. As a result, we are subject to numerous United States (both federal and state) and foreign jurisdiction laws and regulations designed to protect individually identifiable information. These laws have been subject to frequent changes, and new legislation in this area may be enacted at any time. For example, the General Data Protection Regulation will come into force in the European Union in May 2018. Changes to existing laws, introduction of new laws in this area, or failure to comply with existing laws that are applicable to us may subject us to, among other things, additional costs or changes to our business practices, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to obtain and process information and allegations by our customers and clients that we have not performed our contractual obligations, any of which may have a material adverse effect on our profitability and cash flow. We are subject to breaches of our security systems, cyber attacks and service interruptions which could expose us to liability, litigation, and regulatory action and damage our reputation. We have implemented security systems with the intent of maintaining and protecting our own, and our customers', clients' and suppliers' confidential information, including information related to identifiable individuals, against unauthorized access or disclosure. Despite such efforts, we may be subject to breaches of our security systems resulting in unauthorized access to our facilities or information systems and the information we are trying to protect. 10


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    Moreover, the risk of such attacks includes attempted breeches not only of our systems, but also those of our customers, clients and suppliers. The techniques used to obtain unauthorized access are constantly changing, are becoming increasingly more sophisticated and often are not recognized until after an exploitation of information has occurred. Therefore, we may be unable to anticipate these techniques or implement sufficient preventative measures. Unauthorized access to our facilities or information systems, or those of our suppliers, or accidental loss or disclosure of proprietary or confidential information about us, our clients or our customers could result in, among other things, a total shutdown of our systems that would disrupt our ability to conduct business or pay vendors and employees. In the event of such actions, we could be exposed to unfavorable publicity, governmental inquiry and oversight, litigation by affected parties and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our profitability and cash flow. While from time to time attempts are made to access our systems, these attempts have not resulted in any material release of information, degradation or disruption to our systems. We may also find it necessary to make significant further investments to protect this information and our infrastructure. We have outsourced a significant portion of our manufacturing operations and increasingly rely on third- party manufacturers, subcontractors and suppliers. We have outsourced a significant portion of our manufacturing operations to third parties. We face the risk that those manufacturers may not be able to develop manufacturing methods appropriate for our products, quickly respond to changes in customer demand, and obtain supplies and materials necessary for the manufacturing process. In addition, they may experience labor shortages and/or disruptions, manufacturing costs could be higher than planned and the reliability of our products could decline. If any of these risks were to be realized, and similar third-party manufacturing relationships could not be established, we could experience interruptions in supply or increases in costs that might result in our being unable to meet customer demand for our products, damage our relationships with our customers and reduce our market share, all of which could materially adversely affect our results of operations and financial condition. In addition, in our services business we may partner with other parties, including software and hardware vendors, to provide the complex solutions required by our customers. Therefore, our ability to deliver the solutions and provide the services required by our customers is dependent on our and our partners' ability to meet our customers' requirements and schedules. If we or our partners fail to deliver services or products as required and on time, our ability to complete the contract may be adversely affected, which may have an adverse impact on our revenue and profits. We need to successfully manage changes in the printing environment and market because our operating results may be negatively impacted by lower equipment placements and usage trends. The printing market and environment is changing as a result of new technologies, shifts in customer preferences in office printing and the expansion of new printing markets. Examples include mobile printing, color printing, packaging, print on objects, continuous feed inkjet printing and the expansion of the market for entry products (A4 printers) and high-end products. A significant part of our strategy and ultimate success in this changing market is our ability to develop and market technology that produces products and services that meet these changes. Our future success in executing on this strategy depends on our ability to make the investments and commit the necessary resources in this highly competitive market. If we are unable to develop and market advanced and competitive technologies, it may negatively impact expansion of our worldwide equipment placements, as well as sales of services and supplies occurring after the initial equipment placement (post sale revenue) in the key growth markets of digital printing, color and multifunction systems. We expect that revenue growth can be improved through our document management and consulting services in the areas of personalized and 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 for major customers, improve direct and indirect sales efficiency and expand and successfully manage our indirect distribution channels in the face of global competition and pricing pressures. Our ability to preserve our post sale revenue streams is largely dependent on our ability to increase the volume of pages printed, the mix and price of color pages, equipment utilization and color adoption, as well as our ability to retain a high level of supplies sales in unbundled contracts. There will be a lag between the increase in equipment placements and an increase in post-sale revenues. In addition, with respect to our indirect distribution channels, many of our partners sell competing products, further increasing the need to successfully manage our relationships with our partners to ensure they meet our specific sale and distribution requirements for equipment placements and post sale revenues. If we are unable to maintain a consistent level of revenue, it could materially adversely affect our results of operations and financial condition. Xerox 2017 Annual Report 11


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    Our ability to fund our customer financing activities at economically competitive levels depends on our ability to borrow and the cost of borrowing in the credit markets. The long-term viability and profitability of our customer financing activities is dependent, in part, on our ability to borrow and the cost of borrowing in the credit markets. This ability and cost, in turn, is dependent on our credit rating, which is currently investment grade, and is subject to credit market volatility. We primarily fund our customer financing activity through a combination of cash generated from operations, cash on hand, capital market offerings, sales and securitizations of finance receivables and commercial paper borrowings. Our ability to continue to offer customer financing and be successful in the placement of equipment with customers is largely dependent on our ability to obtain funding at a reasonable cost. If we are unable to continue to offer customer financing, it could materially adversely affect our results of operations and financial condition. Our significant debt could adversely affect our financial health and pose challenges for conducting our business. Our ability to provide customer financing is a significant competitive advantage. We have and will continue to have a significant amount of debt and other obligations, the majority of which support our customer financing activities. Our substantial debt and other obligations could have important consequences. For example, it could (i) increase our vulnerability to general adverse economic and industry conditions; (ii) limit our ability to obtain additional financing for future working capital, capital expenditures, acquisitions and other general corporate requirements; (iii) increase our vulnerability to interest rate fluctuations because a portion of our debt has variable interest rates; (iv) require us to dedicate a substantial portion of our cash flows from operations to service debt and other obligations thereby reducing the availability of our cash flows from operations for other purposes; (v) limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate; (vi) place us at a competitive disadvantage compared to our competitors that have less debt; and (vii) become due and payable upon a change in control. If new debt is added to our current debt levels, these related risks could increase. Our financial condition and results of operations could be adversely affected by employee benefit-related funding requirements. We sponsor several defined benefit pension and retiree-health benefit plans throughout the world. We are required to make contributions to these plans to comply with minimum funding requirements imposed by laws governing these employee benefit plans. Although most of our major defined benefit plans have been amended to freeze current benefits and eliminate benefit accruals for future service, the projected benefit obligations under these benefit plans is measured annually and at December 31, 2017 exceeded the value of the assets of those plans by approximately $1.4 billion. The current underfunded status of these plans is a significant factor in determining the ongoing future contributions we will be required to make to these plans. Accordingly, we expect to have additional funding requirements in future years and we may make additional, voluntary contributions to the plans. Depending on our cash position at the time, any such funding or contributions to our defined benefit plans could impact our operating flexibility and financial position, including adversely affecting our cash flow for the quarter in which such funding or contributions are made. Weak economic conditions and related under-performance of asset markets could also lead to increases in our funding requirements. We need to maintain adequate liquidity in order to meet our operating cash flow requirements, repay maturing debt and meet other financial obligations, such as payment of dividends to the extent declared by our Board of Directors. If we fail to comply with the covenants contained in our various borrowing agreements, it may adversely affect our liquidity, results of operations and financial condition. Our liquidity is a function of our ability to successfully generate cash flows from a combination of efficient operations and continuing operating improvements, access to capital markets and funding from third parties. We believe our liquidity (including operating and other cash flows that we expect to generate) will be sufficient to meet operating requirements as they occur; however, our ability to maintain sufficient liquidity going forward subject to the general liquidity of and on-going changes in the credit markets as well as general economic, financial, competitive, legislative, regulatory and other market factors that are beyond our control. Our $1.8 billion credit facility (the "Credit Facility") contains financial maintenance covenants, including maximum leverage (debt for borrowed money divided by consolidated EBITDA, as defined) and a minimum interest coverage ratio (consolidated EBITDA divided by consolidated interest expense, as defined). At December 31, 2017, we were in full compliance with the covenants and other provisions of the Credit Facility. Failure to comply with material provisions or covenants in the Credit Facility could have a material adverse effect on our liquidity, results of operations and financial condition. 12


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    Our business, results of operations and financial condition may be negatively impacted by legal and regulatory matters. We have various contingent liabilities that are not reflected on our balance sheet, including those arising as a result of being 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 and regulations, as discussed in the “Contingencies” note in the Consolidated Financial Statements. Should developments in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual or materially increase an existing accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts above any existing accruals, it could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs. Due to the international scope of our operations, we are subject to a complex system of commercial and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries. Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or financial condition. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. Our operations and our products are subject to environmental regulations in each of the jurisdictions in which we conduct our business and sell our products. Some of our manufacturing operations use, and some of our products contain, substances that are regulated in various jurisdictions. For example, various countries and jurisdictions have adopted, or are expected to adopt, restrictions on the types and amounts of chemicals that may be present in electronic equipment or other items that we use or sell. Recently, a number of studies have been published by third parties regarding chemicals utilized in our industry, as well as potential health/safety impacts of machine emissions. Additional studies are planned, and depending on the results of such studies, regulatory initiatives could follow. We are monitoring these developments. If we do not comply with applicable rules and regulations in connection with the use of such substances and the sale of products containing such substances, then we could be subject to liability and could be prohibited from selling our products in their existing forms, which could have a material adverse ef fect on our results of operations and financial condition. Further, various countries and jurisdictions have adopted or are expected to adopt, programs that make producers of electrical goods, including computers and printers, responsible for certain labeling, collection, recycling, treatment and disposal of these recovered products. If we are unable to collect, recycle, treat and dispose of our products in a cost-effective manner and in accordance with applicable requirements, it could materially adversely affect our results of operations and financial condition. Other potentially relevant initiatives throughout the world include proposals for more extensive chemical registration requirements and/or possible bans on the use of certain chemicals, various efforts to limit energy use in products and other environmentally related-programs impacting products and operations, such as those associated with climate change accords, agreements and regulations. For example, the European Union's Energy-Related Products Directive (ERP) has led to the adoption of “implementing measures” or "voluntary agreements" that require certain classes of products to achieve certain design and/or performance standards, in connection with energy use and potentially other environmental parameters and impacts. A number of our products are already required to comply with ERP requirements and further regulations are being developed by the EU authorities. Another example is the European Union “REACH” Regulation (Registration, Evaluation, Authorization and Restriction of Chemicals), a broad initiative that requires parties throughout the supply chain to register, assess and disclose information regarding many chemicals in their products. Depending on the types, applications, forms and uses of chemical substances in various products, REACH and similar regulatory programs in other jurisdictions could lead to restrictions and/or bans on certain chemical usage. In the United States, the Toxics Substances Control Act (“TSCA”) is undergoing a major overhaul with similar potential for regulatory challenges. Xerox continues its ef forts toward monitoring and evaluating the applicability of these and numerous other regulatory initiatives in an effort to develop compliance strategies. As these and similar initiatives and programs become regulatory requirements throughout the world and/or are adopted as public or private procurement requirements, we must comply or potentially face market access limitations that could have a material adverse effect on our operations and financial condition. Similarly, environmentally driven procurement requirements voluntarily adopted by customers in the Xerox 2017 Annual Report 13


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    marketplace (e.g., U.S. EPA EnergyStar, EPEAT) are constantly evolving and becoming more stringent, presenting further market access challenges if our products fail to comply. Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions. For example, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in the countries, states and territories in which we operate. Enacted laws and/or regulatory actions to address concerns about climate change and greenhouse gas emissions could negatively impact our business, including the availability of our products or the cost to obtain or sell those products. The separation of our Business Process Outsourcing (“BPO”) business from our Document Technology and Document Outsourcing business into two independent, publicly-traded companies may not yield the expected benefits. The separation of our BPO business from our Document Technology and Document Outsourcing business into two independent, publicly-traded companies was completed on December 31, 2016. The Company may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The expected increased focus of management exclusively on the Company’s own business and its distinct needs, may not yield expected long-term growth and profitability. In addition, the separation has resulted in the Company becoming a smaller, less diversified enterprise with a narrower market focus, which could make it more vulnerable to changing market conditions and other adverse events. Further, although we have received an opinion from outside counsel as to the tax-free nature of the Separation, there can be no assurance that the United States Internal Revenue Service will not challenge this position or that a court would not sustain such a challenge. The potential negative impact of these events could have a material adverse impact on our business, financial condition, results of operations and prospects. Our business and reputation could be negatively affected as a result of activist shareholders. Certain of our shareholders have expressed views with respect to the operation of our business, our business strategy, corporate governance considerations or other matters that may not be fully aligned with our own. Responding to actions by activist shareholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. Perceived uncertainties as to our future direction may result in the loss of potential business opportunities, damage to our reputation and may make it more difficult to attract and retain qualified directors, personnel and business partners. These actions could also cause our stock price to experience periods of volatility. Risk Factors Related to the Fujifilm Transactions Our expectations regarding our business may be impacted by the following risk factors related to the pending Fujifilm Transactions: The pendency of the Fujifilm Transactions could adversely affect our business. In connection with the Fujifilm Transactions, some of our suppliers and customers may delay or defer sales and purchasing decisions, which could negatively impact revenues, earnings and cash flows regardless of whether the Fujifilm Transactions are completed. We have agreed in the Fujifilm Transaction Agreements to refrain from taking certain actions with respect to our business and financial affairs during the pendency of the Fujifilm Transactions, which restrictions could be in place for an extended period of time if completion of the Fujifilm Transactions is delayed and could adversely impact our financial condition, results of operations or cash flows. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Fujifilm Transactions or termination of the Fujifilm Transaction Agreements. The process of seeking to accomplish the Fujifilm Transactions could also divert the focus of our management from pursuing other opportunities that could be beneficial to us. The pursuit of the Fujifilm Transactions and the preparation for the integration of Xerox and Fuji Xerox have placed, and will continue to place, a significant burden on our management and internal resources. There is a significant degree of difficulty and management distraction inherent in the process of seeking to close the Fujifilm Transactions and integrate Xerox and Fuji Xerox, which could cause an interruption of, or loss of momentum in, the activities of our existing business, regardless of whether the Fujifilm Transactions are eventually completed. Our management team will be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our existing businesses, service existing customers, attract new customers and develop new products, services or strategies. One potential consequence of such distractions could be the failure of management to realize other strategic opportunities that could be beneficial to us. If our senior management is not able to effectively manage the process leading up to and immediately following Closing, or if any significant business activities are interrupted as a result of the integration process, then our business could suffer. 14


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    We may be unable to attract and retain key employees during the pendency of the Fujifilm Transactions. In connection with the Fujifilm Transactions, current and prospective employees of Xerox may experience uncertainty about their future roles with New Fuji Xerox following the Fujifilm Transactions, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Fujifilm Transactions. Key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with New Fuji Xerox following the Fujifilm Transactions. The departure of existing key employees or the failure of potential key employees to accept employment with New Fuji Xerox, despite our recruiting efforts, could have a material adverse impact on our business, financial condition and operating results, regardless of whether the Fujifilm Transactions are eventually completed. The Fujifilm Transactions may not be completed on the terms or timeline currently contemplated, or at all, and failure to complete the Fujifilm Transactions may result in material adverse consequences to our business and operations. The Fujifilm Transactions are subject to several closing conditions, including (i) the absence of any law or order issued or enacted by any governmental authority of competent jurisdiction in which any of Xerox, Fuji Xerox or their respective subsidiaries has material operations, which enjoins or otherwise prohibits the consummation of the Fujifilm Transactions; (ii) the approval by our shareholders of (A) the Issuance; (B) the issuance of certain true-up shares to Fujifilm pursuant to the terms set forth in the Subscription Agreement; and (C) the Certificate of Amendment to our Certificate of Incorporation (collectively, the “Applicable Shareholder Approvals”), (iii) expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and under any other applicable antitrust, competition, trade regulation or merger control law, (iv) the filing of notices and receipt of applicable national security approvals, including with respect to the Committee on Foreign Investment in the United States, the U.S. Department of Defense’s Defense Security Service, the Department of Energy and the U.S. State Department Directorate of Defense Trade Controls pursuant to the International Traffic in Arms Regulations and (v) Xerox’s declaration of the Special Dividend. The closing conditions also include the delivery to us of the audited financial statements and interim financial statements of Fuji Xerox for the fiscal years ended March 31, 2016, March 31, 2017 and March 31, 2018 that (x) are GAAP compliant, (y) fairly present in all material respects the consolidated financial position of Fuji Xerox and its consolidated subsidiaries as of the dates thereof and the interim financial statements of Fuji Xerox and (z) do not deviate, in any material respect, from the unaudited financial statements of Fuji Xerox and its subsidiaries provided to us prior to the date of the Fujifilm Transaction Agreements. If any one of these conditions is not satisfied or waived, the Fujifilm Transactions may not be completed. There is no assurance that the Fujifilm Transactions will be completed on the terms or timeline currently contemplated, or at all. The parties have not yet obtained all regulatory clearances, consents and approvals required to complete the Fujifilm Transactions. Governmental or regulatory agencies could still seek to block or challenge the Fujifilm Transactions or could impose restrictions they deem necessary or desirable in the public interest as a condition to approving the Fujifilm Transactions. These restrictions could include a requirement to sell or hold separate certain specified businesses to obtain such regulatory approvals. If these approvals are not received, then neither we nor Fujifilm will be obligated to complete the Fujifilm Transactions. If the Applicable Shareholder Approvals are not obtained or if the Fujifilm Transactions are not completed for any other reason, we would be subject to a number of risks, including the following: • we and our shareholders would not realize the anticipated benefits of the Fujifilm Transactions, including payment of the Special Dividend to holders of our Common Stock as of the applicable record date and any expected synergies and operating efficiencies from the Fujifilm Transactions; • the attention of our management may have been diverted to the Fujifilm Transactions instead of on our ongoing business operations and pursuit of other opportunities that may have been beneficial to us; • resulting negative reactions from our customers, regulators and employees; • we may be required to pay a termination fee of $183 million (the “Termination Fee”) if the Fujifilm Transaction Agreements are terminated in the case of certain events described in the Fujifilm Transaction Agreements, including due to an adverse change in our Board of Directors’ recommendation to our shareholders to approve the Fujifilm Transactions; Xerox 2017 Annual Report 15


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    • we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Fujifilm Transactions, for which we will have received little or no benefit if the Fujifilm Transactions are not completed. Many of these fees and costs will be payable by us even if the Fujifilm Transactions are not completed and may relate to activities that we would not have undertaken other than to complete the Fujifilm Transactions; • resulting negative reactions from the financial markets, including a decline in our stock price (which may reflect a market assumption that the Fujifilm Transactions will be completed); or • Xerox could be subject to litigation from shareholders related to the Fujifilm Transaction Agreements. The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations or the trading price of our Common Stock. Even if the Fujifilm Transactions close, the integration of Xerox and Fuji Xerox following the Closing will present significant challenges that may result in a decline in the anticipated benefits of the Fujifilm Transactions. Historically, Xerox and Fuji Xerox have operated as independent companies, and they will continue to do so until the completion of the Fujifilm Transactions. There can be no assurance that their businesses can be integrated successfully. New Fuji Xerox will be required to devote management attention and resources to integrating its business practices and operations, and prior to the Fujifilm Transactions, management attention and resources will be required to plan for such integration. Specifically, the following issues, among others, must be addressed in integrating the operations of Xerox and Fuji Xerox in order to realize the anticipated benefits of the Fujifilm Transactions: • the potential inability (i) to successfully integrate the two businesses, including operations, technologies, products, customer services and offerings and corporate functions and/or (ii) to identify and eliminate redundant and underperforming functions and assets, in a manner that permits New Fuji Xerox to achieve the synergies and operating efficiencies expected to result from the Fujifilm Transactions, which could result in the expected benefits of the Fujifilm Transactions not being realized partly or wholly in the time frame currently anticipated or at all; • consolidating and rationalizing the companies’ information technology platforms and administrative infrastructures as well as accounting systems; • integrating the companies’ financial reporting and internal control systems, including compliance by New Fuji Xerox with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the U.S. Securities and Exchange Commission; • coordinating geographically separated organizations, systems and facilities; • integrating personnel with diverse business backgrounds, business cultures and management philosophies, while maintaining focus on providing consistent, high-quality products and services; • maintaining existing agreements with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors; • coordinating distribution and marketing efforts; • lost sales and customers as a result of certain customers of either or both of the two businesses deciding not to do business with New Fuji Xerox, or deciding to decrease their amount of business in order to reduce their reliance on a single company; • preserving important relationships of both Xerox and Fuji Xerox and resolving potential conflicts that may arise; • performance shortfalls at one or both of Xerox and Fuji Xerox as a result of the diversion of management’s attention caused by completing the Fujifilm Transactions and integrating the two businesses’ operations; • potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Fujifilm Transactions; and • effecting actions that may be required in connection with obtaining regulatory approvals. 16


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    Combining the businesses of Xerox and Fuji Xerox may be more difficult, costly or time-consuming than expected, which may adversely affect New Fuji Xerox’s results and negatively affect the value of its Common Stock following the Fujifilm Transactions. Xerox and Fuji Xerox have entered into the Fujifilm Transaction Agreements because each believes that the Fujifilm Transactions will be beneficial to its respective companies and shareholders and that combining the businesses of Xerox and Fuji Xerox will produce benefits and cost savings. If New Fuji Xerox is not able to successfully combine the businesses of Xerox and Fuji Xerox in an efficient and effective manner, the anticipated benefits and cost savings of the Fujifilm Transactions may not be realized fully, or at all, or may take longer to realize than expected, and the value of New Fuji Xerox Common Stock may be affected adversely. An inability to realize the full extent of the anticipated benefits of the Fujifilm Transactions and the other transactions contemplated by the Fujifilm Transaction Agreements, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of New Fuji Xerox, which may adversely affect the value of New Fuji Xerox Common Stock following the Fujifilm Transactions. In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual growth and cost savings, if achieved, may be lower than what New Fuji Xerox expects and may take longer to achieve than anticipated. If New Fuji Xerox is not able to adequately address integration challenges, it may be unable to successfully integrate Xerox’s and Fuji Xerox’s operations or to realize the anticipated benefits of the integration of the two companies. We may not realize the anticipated synergies, net cost reductions and growth opportunities from the Fujifilm Transactions. The benefits that we expect to achieve as a result of the Fujifilm Transactions will depend, in part, on the ability of New Fuji Xerox to realize anticipated growth opportunities, net cost reductions and synergies. Our success in realizing these growth opportunities, net cost reductions and synergies, and the timing of this realization, depends on the successful integration of our historical business and operations and the historical business and operations of Fuji Xerox. Even if we are able to integrate the businesses and operations of Xerox and Fuji Xerox successfully, this integration may not result in the realization of the full benefits of the growth opportunities, net cost reductions and synergies that we currently expect from this integration within the anticipated time frame or at all. For example, we may be unable to eliminate duplicative costs. Moreover, we may incur substantial expenses in connection with the integration of our business and Fuji Xerox’s business. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately and may exceed current estimates. Accordingly, the benefits from the Transactions may be offset by costs or delays incurred in integrating the businesses. In connection with the Fujifilm Transactions, we are acquiring entities that may have potential liabilities, including entities that have previously undergone a financial audit. In connection with the Fujifilm Transactions, we are acquiring entities that may have potential liabilities relating to their businesses, including entities for which audited financial statements have not yet been provided. In addition, as previously disclosed, Fujifilm previously formed an independent investigation committee to conduct a review of the accounting practices at Fuji Xerox’s New Zealand subsidiary and at other subsidiaries that identified aggregate adjustments to Fuji Xerox’s financial statements of approximately JPY 40 billion, which primarily related to misstatements at Fuji Xerox’s New Zealand and Australian subsidiaries as well as certain other adjustments. While Fujifilm and Fuji Xerox continue to review Fujifilm’s oversight and governance of Fuji Xerox as well as Fuji Xerox’s oversight and governance over its businesses in light of the findings of the independent investigation committee, there may be governmental investigations and additional consequences related thereto. To the extent we have not identified such liabilities or miscalculated their potential financial impact, these liabilities could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. Following the completion of the Fujifilm Transactions, New Fuji Xerox will be controlled by Fujifilm. The interests of Fujifilm may differ from the interests of other shareholders. Immediately following Closing, Fujifilm is expected to own approximately 50.1 percent of the Fully Diluted Capital Stock of New Fuji Xerox and Xerox shareholders are expected to own approximately 49.9 percent. Pursuant to the Shareholders Agreement, the Board of Directors of New Fuji Xerox will have twelve directors, which will initially be composed of seven individuals designated by Fujifilm and five individuals from among the members of the Board of Directors of Xerox immediately prior to Closing designated by Xerox in consultation with and subject to reasonable approved by Fujifilm. As a result of Fujifilm’s ownership of a majority of the voting power of Common Stock, New Fuji Xerox will be a “controlled company” as defined in NYSE listing rules and will, therefore, not be subject to NYSE requirements that would otherwise require New Fuji Xerox to have (i) a majority of independent Xerox 2017 Annual Report 17


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    directors, (ii) a nominating committee composed solely of independent directors, (iii) a compensation committee composed solely of independent directors, and (iv) director nominees selected, or recommended to the Board of Directors by a nominating committee composed solely of independent directors. Fujifilm may have different interests than other holders of Common Stock and may make decisions adverse to your interests. Subject to the terms and restrictions set forth in the Shareholders Agreement, Fujifilm would have control over matters submitted to the shareholders that require the affirmative vote of a majority or more of the outstanding shares of New Fuji Xerox. This concentrated control could discourage a potential investor from seeking to acquire Common Stock and, as a result, might harm the market price of that Common Stock. Given Fujifilm’s ownership of the majority of the Common Stock of New Fuji Xerox and the interactions that will take place between New Fuji Xerox and Fujifilm, the success of New Fuji Xerox will depend in part on the reputation and success of Fujifilm. The Fujifilm Transaction Agreements contain provisions that may discourage other companies from trying to acquire us. The Fujifilm Transaction Agreements contain provisions that may discourage third parties from submitting business combination proposals to us that might result in greater value to our shareholders than the Fujifilm Transactions. The Fujifilm Transaction Agreements generally prohibit us from soliciting, initiating and facilitating or encouraging any inquiries regarding, or the making of any proposal or offer that constitutes, or that could reasonably be expected to lead to, an alternative acquisition proposal from any third party. This provision prevents us from seeking offers from other possible acquirers that may be superior to the Fujifilm Transactions. In addition, if the Fujifilm Transaction Agreements are terminated by us or Fujifilm in circumstances that obligate us to pay a Termination Fee, our financial condition may be adversely affected as a result of the payment of the Termination Fee, which might deter third parties from proposing alternative business combination proposals. Item 1B. Unresolved Staff Comments None Item 2. Properties We own several manufacturing, engineering and research facilities and lease other facilities. Our principal manufacturing and engineering facilities are located in New York, California, Oklahoma, Oregon, Canada, the U.K., Ireland, and the Netherlands. Our principal research facilities are located in California, New York, and Canada. Our Corporate Headquarters is a leased facility located in Norwalk, Connecticut. As a result of implementing our restructuring programs (refer to Note 12 - Restructuring and Asset Impairment Charges in the Consolidated Financial Statements) as well as various productivity initiatives, several leased and owned properties became surplus. We are obligated to maintain our leased surplus properties through required contractual periods. We have disposed or subleased certain of these properties and are actively pursuing the successful disposition of remaining surplus properties. In 2017, we owned or leased numerous facilities globally, which house general offices, sales offices, service locations, data centers, call centers and distribution centers. The size of our property portfolio at December 31, 2017 was approximately 14 million square feet and comprised of 687 leased properties and 108 owned properties (of which 73 are located on our Webster, New York campus). It is our opinion that our properties have been well maintained, are in sound operating condition and contain all the necessary equipment and facilities to perform their functions. We believe that our current facilities are suitable and adequate for our current businesses. Item 3. Legal Proceedings Refer to the information set forth under Note 19 "Contingencies and Litigation" in the Consolidated Financial Statements. Item 4. Mine Safety Disclosures Not applicable. 18


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    Part II ITEM 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Corporate Information 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 First Second Third Fourth New York Stock Exchange composite prices * Quarter(1) Quarter Quarter Quarter 2017 High $ 30.16 $ 29.29 $ 33.95 $ 33.46 Low 27.56 27.52 28.35 28.08 Dividends declared per share 0.25 0.25 0.25 0.25 2016(1) High $ 44.64 $ 45.00 $ 41.20 $ 40.48 Low 34.76 35.84 36.96 34.88 Dividends declared per share 0.31 0.31 0.31 0.31 _____________ * Price as of close of business. (1) Reflects our one-for-four reverse stock split that became effective on June 14, 2017. Stock prices for 2016 and prior are on a pre- separation basis. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further information. Common Shareholders of Record See Item 6 - Selected Financial Data, Five Years in Review, Common Shareholders of Record at Year-End, for additional information. Xerox 2017 Annual Report 19


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    Performance Graph Total Return To Shareholders Year Ended December 31, (Includes reinvestment of dividends) 2012 2013 2014 2015 2016 2017 Xerox Corporation $ 100.00 $ 184.83 $ 216.99 $ 173.02 $ 149.04 $ 195.21 S&P 500 Index 100.00 132.39 150.51 152.59 170.84 208.14 S&P 500 Information Technology Index 100.00 128.43 154.26 163.40 186.03 258.28 _____________ Source: Standard & Poor's Investment Services Notes: Graph assumes $100 invested on December 31, 2012 in Xerox, the S&P 500 Index and the S&P 500 Information Technology Index, respectively, and assumes dividends are reinvested. 20


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    Sales Of Unregistered Securities During The Quarter Ended December 31, 2017 During the quarter ended December 31, 2017, Registrant issued the following securities in transactions that were not registered under the Securities Act of 1933, as amended (the “Act”). Dividend Equivalent (a) Securities issued on October 31, 2017: Registrant issued 2,457 deferred stock units (DSUs), representing the right to receive shares of Common stock, par value $1 per share, at a future date. (b) No underwriters participated. The shares were issued to each of the non-employee Directors of Registrant: Gregory Q. Brown, Jonathan Christodoro, Joseph J. Echevarria, Richard J. Harrington, William Curt Hunter, Robert J. Keegan, Cheryl Gordon Krongard, Charles Prince, Ann N. Reese, Stephen H. Rusckowski and Sara Martinez Tucker. (c) The DSUs were issued at a deemed purchase price of $33.555 per DSU (aggregate price $82,445), based upon the market value on the date of record, in payment of the dividend equivalents due to DSU holders pursuant to Registrant’s 2004 Equity Compensation Plan for Non-Employee Directors. (d) Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering. Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2017 Board Authorized Share Repurchase Program Repurchases of Xerox Common Stock, par value $1 per share include the following: Total Number of Maximum Approximate Shares Purchased Dollar Value of Shares Total Number of as Part of Publicly That May Yet Be Shares Average Price Announced Plans or Purchased Under the Purchased Paid per Share(1) Programs(2) Plans or Programs (2) October 1 through 31 — $ — — $ 244,710,381 November 1 through 30 — — — 244,710,381 December 1 through 31 — — — 244,710,381 Total — — _____________ (1) Exclusive of fees and costs. (2) Of the cumulative $8.0 billion of share repurchase authority granted by our Board of Directors, exclusive of fees and expenses, approximately $7.8 billion has been used through December 31, 2017. Repurchases may be made on the open market, or through derivative or negotiated transactions. Open-market repurchases will be made in compliance with the Securities and Exchange Commission’s Rule 10b-18, and are subject to market conditions, as well as applicable legal and other considerations. Repurchases Related to Stock Compensation Programs(1): Total Number of Shares Total Number of Purchased as Part of Maximum That May Be Shares Average Price Publicly Announced Purchased under the Plans or Purchased Paid per Share(2) Plans or Programs Programs October 1 through 31 2,686 $ 33.29 n/a n/a November 1 through 30 — — n/a n/a December 1 through 31 — — n/a n/a Total 2,686 _____________ (1) These repurchases are made under a provision in our restricted stock compensation programs for the indirect repurchase of shares through a net-settlement feature upon the vesting of shares in order to satisfy minimum statutory tax-withholding requirements. (2) Exclusive of fees and costs. Xerox 2017 Annual Report 21


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    Item 6. Selected Financial Data Five Years in Review (in millions, except per-share data) 2017 2016(1) 2015(1) 2014(1) 2013(1) Per-Share Data Income from continuing operations Basic $ 0.70 $ 2.36 $ 3.00 $ 3.42 $ 2.99 Diluted 0.70 2.33 2.97 3.37 2.94 Net Income (Loss) Attributable to Xerox Basic 0.71 (1.95) 1.59 3.37 3.63 Diluted 0.71 (1.93) 1.58 3.32 3.57 Common stock dividends declared 1.00 1.24 1.12 1.00 0.92 Operations Revenues $ 10,265 $ 10,771 $ 11,465 $ 12,679 $ 13,194 Sales 4,073 4,319 4,674 5,214 5,496 Services, maintenance and rentals 5,898 6,127 6,445 7,078 7,215 Financing 294 325 346 387 483 Income from continuing operations 204 633 840 1,034 959 Income from continuing operations - Xerox 192 622 822 1,011 939 Net income (loss) 207 (460) 466 1,018 1,155 Net income (loss) - Xerox 195 (471) 448 995 1,135 (2) Financial Position Working capital $ 2,489 $ 2,338 $ 1,431 $ 2,798 $ 2,825 Total Assets 15,946 18,051 25,442 27,576 28,966 Consolidated Capitalization(2) Short-term debt and current portion of long-term debt $ 282 $ 1,011 $ 985 $ 1,427 $ 1,117 Long-term debt 5,235 5,305 6,382 6,314 6,904 Total Debt(3) 5,517 6,316 7,367 7,741 8,021 Convertible preferred stock 214 214 349 349 349 Xerox shareholders' equity 5,256 4,709 8,975 10,596 12,230 Noncontrolling interests 37 38 43 75 119 Total Consolidated Capitalization $ 11,024 $ 11,277 $ 16,734 $ 18,761 $ 20,719 Selected Data and Ratios Common shareholders of record at year-end 28,752 31,803 33,843 35,307 37,552 Book value per common share(4) $ 20.64 $ 18.57 $ 35.45 $ 37.95 $ 41.17 (4) Year-end common stock market price $ 29.15 $ 34.92 $ 42.52 $ 55.44 $ 48.68 _____________ (1) Reflects the revisions related to the Fuji Xerox misstatement disclosed in Note 2 - Correction of Fuji Xerox Misstatement in Prior Period Financial Statements in our Consolidated Financial Statements. (2) Balance sheet amounts at December 31, 2016 exclude Conduent Incorporated (Conduent) balances as a result of the Separation and Distribution while balance sheet amounts prior to December 31, 2016 include amounts for Conduent. Refer to Note 5 - Divestitures in our Consolidated Financial Statements for additional information. (3) Includes capital lease obligations. (4) Per-share computations reflect the impact of our one-for-four reverse stock split effective June 14, 2017. Stock prices for 2016 and prior are on a pre-separation basis. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further information. 22


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    Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of Xerox Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes. Throughout the MD&A, we refer to various notes to our Consolidated Financial Statements which appear in Item 8 of this 2017 Form 10-K, and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made. Throughout this document, references to “we,” “our,” the “Company,” and “Xerox” refer to Xerox Corporation and its subsidiaries. References to “Xerox Corporation” refer to the stand-alone parent company and do not include its subsidiaries. Executive Overview With annual revenues of $10.3 billion we are a leading global provider of digital print technology and related solutions; we operate in a market estimated at approximately $85 billion. Our primary offerings span three main areas: Managed Document Services, Workplace Solutions and Graphic Communications. Our Managed Document Services offerings help customers, ranging from small businesses to global enterprises, optimize their printing and related document workflow and business processes. Our Workplace Solutions and Graphic Communications products and solutions support the work processes of our customers by providing them with an efficient, cost effective printing and communications infrastructure. Headquartered in Norwalk, Connecticut, with 35,300 employees, Xerox serves customers in approximately 160 countries providing advanced document technology, services, software and genuine Xerox supplies for a range of customers including small and mid-size businesses ("SMB"), large enterprises, governments and graphic communications providers, and for our partners who serve them. In 2017, approximately 40% of our revenue was generated outside the United States. Market and Business Strategy Our strategy is to apply innovation in digital print technology and services in order to increase our participation in the growth areas of our market while maintaining leadership in the more mature areas. To accomplish this, we focus on the following areas: • Maintain Market Leadership and Focus on Strategic Growth Areas - i) Expand leadership in Managed Document Services; ii) Increase SMB coverage through resellers and partners; iii) Gain share in the entry A4 product segment of the market; and iv) Extend leadership in digital color production. • Innovate to Differentiate Our Offerings - Make investments in areas such as workflow automation and color printing, as well as improving the quality and reducing the environmental impact of digital printing. • Accelerate Productivity and Cost Initiatives through Strategic Transformation - As markets shift, we need to undertake restructuring to optimize our workforce and facilities to best align our resources with the growth areas of our business and to maximize profitability and cash flow in businesses that are declining. Post-sale Based Business Model In 2017, 78% of our total revenue was post-sale based, which includes document services, equipment maintenance services, consumable supplies and financing, among other elements. These revenue streams generally follow equipment placements and provide some stability to our revenue. Some of the key indicators of future post sale revenue include: • Installations of printers and multifunction devices as well as the number of machines in the field (MIF) and the page volume and mix of pages printed on color devices, where available. • Managed Document Services - i) signings, which reflects the estimated future revenues from contracts, mostly from Enterprise deals, signed during the period, i.e., Total Contract Value (TCV) and; ii) renewal rate, which is defined as the annual recurring revenue (ARR) on contracts that are renewed during the period, calculated as a percentage of ARR on all contracts where a renewal decision was made during the period. Xerox 2017 Annual Report 23


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    Transaction to Combine Xerox and Fuji Xerox On January 31, 2018, Xerox entered into a Redemption Agreement with FUJIFILM Holdings Corporation, a Japanese company (“Fujifilm”), and Fuji Xerox Co., Ltd, a Japanese company in which Xerox indirectly holds a 25 percent equity interest and Fujifilm holds the remaining 75 percent equity interest (“Fuji Xerox”) (the “Redemption Agreement”), pursuant to which, among other things, (i) Fuji Xerox shall redeem for cash most or all of Fujifilm’s 75 percent equity interest in Fuji Xerox and (ii) Fuji Xerox shall become an indirect majority or wholly owned subsidiary of Xerox (the “Redemption”). The combined company resulting from the Fujifilm Transactions (as defined below) shall hereinafter be referred to as “New Fuji Xerox”. Concurrently with the execution and delivery of the Redemption Agreement, Xerox entered into a Share Subscription Agreement with Fujifilm (the “Subscription Agreement” and together with the Redemption Agreement, the “Fujifilm Transaction Agreements”), pursuant to which, among other things, (i) Fujifilm shall subscribe for and purchase from Xerox, and Xerox shall issue to Fujifilm, a number of shares of common capital stock of Xerox (and after Closing, of New Fuji Xerox, “Common Stock”) representing 50.1 percent of (i) the aggregate number of issued and outstanding shares of Common Stock (excluding any performance shares issued under the Company’s existing employee incentive plans) plus (ii) such additional shares of Common Stock that would be issued and outstanding assuming the exercise of in-the-money options as of 5:00 p.m. New York time two business days prior to closing of the Fujifilm Transactions (as defined below) (the “Closing”) plus (iii) any shares of Common Stock reserved for issue relating to restricted stock units outstanding as of the Closing that are fully vested as of 5:00 p.m. New York time two business days prior to the Closing (collectively, the “Fully Diluted Capital Stock”) of Xerox in exchange for (A) cash and (B) all of the issued and outstanding equity interests of Fuji Xerox not held by Xerox or its wholly owned subsidiaries and (ii) Xerox shall become a direct, majority owned subsidiary of Fujifilm (the “Issuance” and together with the Redemption, the “Fujifilm Transactions”). In addition, pursuant to the terms of the Subscription Agreement, at Closing, an aggregate number of shares equal to the “True-Up Shares” (as defined in the Subscription Agreement) shall be held in escrow and released to Fujifilm as and if necessary for Fujifilm to maintain its ownership percentage. In connection with the Fujifilm Transactions, Xerox expects to pay a special pro rata cash dividend to its shareholders in an amount equal to $2.5 billion in the aggregate (the “Special Dividend”), which is expected to be financed through the issuance of debt that will be incurred by New Fuji Xerox. Fujifilm will not be a shareholder of Xerox as of the record date for the Special Dividend and therefore will not receive any payment in respect thereof. As noted above, immediately following the Closing, Fujifilm is expected to own approximately 50.1 percent of the Fully Diluted Capital Stock of New Fuji Xerox and Xerox shareholders are expected to own approximately 49.9 percent. Further, pursuant to that certain Shareholders Agreement, to be entered into by Xerox and Fujifilm at Closing (the “Shareholders Agreement”), the Board of Directors ofNew Fuji Xerox will have twelve directors, which will initially be composed of seven individuals designated by Fujifilm and five individuals from among the members of the Board of Directors of the Company immediately prior to Closing designated by Xerox in consultation with and subject to reasonable approved by Fujifilm. Accordingly, the Fujifilm Transactions are expected to be accounted for as a reverse acquisition. Xerox must pay to Fujifilm a $183 million termination fee (the “Termination Fee”) in the event that the Subscription Agreement is terminated (i) by either party because the applicable shareholder approvals are not obtained if an alternative acquisition proposal is publicly announced prior to the Xerox shareholder meeting duly called for the purpose of obtaining the applicable shareholder approvals and Xerox enters into a definitive agreement with respect to, or otherwise consummates, an alternative acquisition proposal within 12 months after the termination of the Subscription Agreement; (ii) by Fujifilm (A) in connection with a material and intentional breach by Xerox of its non- solicitation obligations resulting in a third party making an alternate acquisition proposal that is reasonably likely to materially interfere with the Fujifilm Transactions or (B) following a change in the recommendation by the Board of Directors of Xerox; or (iii) by Xerox in order to enter into a definitive agreement with a third party with respect to a superior proposal, in each case as set forth in, and subject to the conditions of, the Fujifilm Transaction Agreements. We expect the Fujifilm Transactions, which require Xerox shareholder approval, to close in the second half of 2018 subject to customary regulatory approvals, filings with the U.S. Securities and Exchange Commission, tax considerations, and securing any necessary financing. Until the combination is complete, each of Xerox, Fuji Xerox and Fujifilm will continue to be separate, independent organizations and will operate as usual. 24


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    Strategic Transformation Program Despite the decline in revenues, we have maintained our margins primarily through ongoing cost and productivity initiatives. In 2016, we initiated a three-year Strategic Transformation program to accelerate cost productivity beyond our historical range of $300 to $350 million of annual savings. The program is expected to deliver gross productivity improvements and cost savings of at least $1.7 billion over the three-year period, which include our historical savings of approximately $900 to $1,050 million. The program targets areas such as delivery, remote connectivity, sales productivity, pricing optimization, design efficiency and supply chain optimization. During the first two years, the program delivered over $1.2 billion of gross productivity improvements and cost savings, and we expect it to provide approximately $475 million of additional improvements and cost savings in 2018. Tax Cuts and Jobs Act (the “Tax Act”) On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the U.S. The Tax Act significantly revises the U.S. corporate income tax system by, among other things, lowering the U.S. statutory corporate income tax rate from 35% to 21% and implementing a territorial tax system that includes a transition tax on deemed repatriated earnings of foreign subsidiaries. During the fourth quarter 2017, we recorded an estimated non-cash provisional charge of $400 million reflecting the impact associated with the provisions of the Tax Act based on currently available information. Refer to Income Taxes section of the MD&A and Note 18 - Income and Other Taxes in the Consolidated Financial Statements for additional information. Correction of Fuji Xerox Misstatement in Prior Period Financial Statements In April 2017, Fujifilm publicly announced it had formed an independent investigation committee (IIC) to conduct a review of the appropriateness of the accounting practices at Fuji Xerox’s New Zealand subsidiary related to the recovery of receivables associated with certain bundled leasing transactions that occurred in, or prior to, Fuji Xerox’s fiscal year ending March 31, 2016. The IIC’s review, completed during the second quarter 2017, identified total aggregate adjustments to Fuji Xerox’s prior period financial statements of approximately JPY 40 billion (approximately $360 million based on the Yen/U.S. Dollar spot exchange rate at March 31, 2017 of 111.89). The adjustments identified by the IIC primarily related to misstatements at Fuji Xerox’s New Zealand subsidiary as well as their Australian subsidiary and certain other adjustments. We determined that our cumulative share of the total adjustments identified as part of the IIC's investigation was approximately $90 million and impacted our fiscal years 2009 through 2017. In the second quarter 2017, we determined that the misstatements to our equity income in prior years and in first quarter 2017 resulting from the IIC’s review were immaterial to our previously issued financial statements. However , we concluded that the cumulative correction of these misstatements would have had a material effect on our current year consolidated financial statements. Accordingly, we have revised our previously issued annual and interim consolidated financial statements for 2015 and 2016 and the first quarter of 2017. Certain of the corrections discussed above affected periods prior to fiscal year 2015, and this effect was reflected as a cumulative, net of tax adjustment to reduce retained earnings as of January 1, 2015 by $87 million. Amounts throughout this filing have been adjusted to incorporate the revised amounts, where applicable. Refer to Note 2 - Correction of Fuji Xerox Misstatement in Prior Period Financial Statements in the Consolidated Financial Statements for additional information regarding this correction. Reverse Stock Split On May 23, 2017, the Board of Directors authorized and shareholders approved a reverse stock split of outstanding Xerox common stock at a ratio of one-for-four shares, together with the proportionate reduction in the authorized shares of its common stock from 1,750,000,000 shares to 437,500,000 shares. The reverse stock split became effective on June 14, 2017. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding the reverse stock split. Xerox 2017 Annual Report 25


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    Segment Changes Following the separation of the BPO business, we realigned our operations to better manage the business and serve our customers and the markets in which we operate. In 2017 we transitioned to a geographic focus and are primarily organized from a sales perspective on the basis of “go-to-market” sales channels. These sales channels are structured to serve a range of customers for our products and services. As a result of this transition and change in structure, we concluded that we have one operating and reportable segment - the design, development and sale of document management systems and solutions. Our chief executive officer was identified as the chief operating decision maker (“CODM”). All of the company’s activities are interrelated, and each activity is dependent upon and supportive of the other, including product development, supply chain and back-office support services. In addition, all significant operating decisions, by management and the Board, are largely based upon an analysis of Xerox on a total Company basis, including assessments related to the company’s incentive compensation plans. Refer to Note 3 - Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information. Separation Update On December 31, 2016, Xerox Corporation completed the separation of its BPO business from its Document Technology and Document Outsourcing (DT/DO) business (the “Separation”). The Separation was accomplished through the transfer of the BPO business into a new legal entity, Conduent Incorporated ("Conduent"), and then distributing one hundred percent (100%) of the outstanding common stock of Conduent to Xerox Corporation stockholders (the “Distribution”). As a result of the Separation and Distribution, the BPO business is presented as a discontinued operation and, as such, has been excluded from continuing operations for all periods presented. Refer to Note 5 - Divestitures in the Consolidated Financial Statements for additional information regarding the Separation. Financial Overview During 2017 the Company focused on delivering on its commitments established post-separation. • Revenue - Successful launch of 29 new workplace devices and 65 new dealer partners signed. Improvements in identified strategic growth areas of the business. • Cost Transformation - Second year Strategic Transformation savings of $680 million exceeded full-year target and enabled investment in the business to offset revenue declines. • Capital Structure - Reduced debt by $800 million; contributed $836 million to our defined benefit pension plans, significantly reducing our net underfunded obligation; and eliminated our accounts receivable sales programs for cost savings and simplification. Total revenue of $10.3 billion in 2017 declined 4.7% from the prior year, with no impact from currency. The revenue decline reflects a 6.9% decline in equipment sales, with a 0.3-percentage point positive impact from currency and a 4.0% decline in post sale revenue with a 0.1-percentage point negative impact from currency. While equipment revenues improved in the fourth quarter 2017, the full-year decline was primarily driven by the impact of transitioning to our ConnectKey portfolio and ongoing black-and-white revenue declines that reflected overall market trends and unfavorable mix. The decline in post sale revenue was largely due to lower maintenance service revenues, supply sales and financing revenues, reflecting lower print volumes and lower equipment sales in prior periods. 2017 Net Income from continuing operations attributable to Xerox was $192 million and included after-tax costs of $723 million related to the amortization of intangible assets, restructuring and related costs, non-service retirement- related costs, and other discrete adjustments including the $400 million impact of implementing the Tax Act resulting in adjusted1 net income from continuing operations of $915 million. Net income from continuing operations attributable to Xerox for 2016 was $622 million and included after-tax costs of $305 million related to the amortization of intangible assets, restructuring and related costs and non-service retirement-related costs, resulting in adjusted1 net income of $927 million. The decrease in net income from continuing operations attributable to Xerox was primarily due to the $400 million impact from the Tax Act. Both net income amounts in 2017 - reported and adjusted1 - as compared to 2016 were also impacted by lower revenues, which were offset by cost savings from our Strategic Transformation program and lower interest expense, and a higher tax expense in 2017 before the impacts of the Tax Act. 26


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    Operating cash flow from continuing operations was $122 million in 2017 as compared to $1,018 million in 2016. The decrease is primarily due to higher pension contributions of $658 million, which reflect an incremental $500 million contribution to our U.S. defined benefit pension plans that was funded through a $1.0 billion Senior Note offering and an additional contribution of approximately $105 million (GBP 80 million) to our U.K. Pension Plan for salaried employees. The U.K. contribution was funded through the cash received from an investment associated with our 1997 sale of The Resolution Group (TRG), a discontinued insurance business, and reported in investing cash flows. The decrease is also due to the one-time impact of approximately $350 million from the termination of certain accounts receivable sales programs in the fourth quarter of 2017. Cash used in investing activities of continuing operations of $31 million decreased $115 million as compared to 2016 primarily due to the cash receipt of $127 million from the TRG investment previously noted. Cash used in financing activities was $985 million in 2017 as compared to cash provided by financing activities of $584 million in 2016. The increase in the use of cash primarily reflects payments of $1.5 billion on Senior Notes, net payments of $326 million on the tender and exchange of certain Senior Notes and dividend payments of $291 million, partially offset by proceeds from the issuance of $1.0 billion of Senior Notes and $161 million from the final cash adjustment with Conduent. 2018 Outlook We expect total revenues to decline in 2018 in the 2% to 4% range, excluding the impact of currency. At January 2018 exchange rates, we expect translation currency to have about a 1.4-percentage point positive impact on total revenues in 2018, reflecting the weakening of the U.S. dollar against our major foreign currencies as compared to prior year. Reported earnings should improve in 2018 due to the inclusion of the $400 million charge in 2017 related to the enactment of the Tax Act. In addition, both reported and adjusted1 earnings are expected to reflect the continued benefits of cost savings and productivity improvements from our Strategic Transformation program, which are expected to offset the projected decline in revenues. We expect 2018 operating cash flows from continuing operations to be between $900 and $1,100 million and capital expenditures to be approximately $150 million. Our capital allocation plan for 2018 includes the following: • Debt – committed to maintaining our investment grade rating and we expect to repay approximately $265 million of maturing debt. • Dividends - expect dividend payments to be approximately $260 million, which reflects the current annualized dividend of $1.00 per share. • Acquisitions – we expect to invest about $150 to $200 million, focusing on acquiring companies that will expand our portfolio mix and distribution channels. The 2018 outlook discussed above does not include any impacts associated with the proposed transaction to combine Xerox and Fuji Xerox. Currency Impact To understand the trends in the business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as "constant currency", “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate. This impact is calculated for all countries where the functional currency is the local country currency. We do not hedge the translation ef fect of revenues or expenses denominated in currencies where the local currency is the functional currency. Management believes the constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference between actual growth rates and constant currency growth rates. Approximately 40% of our consolidated revenues are derived from operations outside of the United States where the U.S. Dollar is normally not the functional currency. As a result, the foreign currency translation had no impact on revenue in 2017 and 1.8-percentage point negative impact on revenue in 2016. Xerox 2017 Annual Report 27


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    Application of Critical Accounting Policies In preparing our Consolidated Financial Statements and accounting for the underlying transactions and balances, we apply various accounting policies. Senior management has discussed the development and selection of the critical accounting policies, estimates and related disclosures included herein with the Audit Committee of the Board of Directors. We consider the policies discussed below as critical to understanding our Consolidated Financial Statements, as their application places the most significant demands on management's judgment, since financial reporting results rely on estimates of the effects of matters that are inherently uncertain. In instances where different estimates could have reasonably been used, we disclosed the impact of these different estimates on our operations. In certain instances, such as revenue recognition for leases, the accounting rules are prescriptive; therefore, it would not have been possible to reasonably use different estimates. Changes in assumptions and estimates are reflected in the period in which they occur. The impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period. Specific risks associated with these critical accounting policies are discussed throughout the MD&A, where such policies affect our reported and expected financial results. For a detailed discussion of the application of these and other accounting policies, refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements. Revenue Recognition Application of the various accounting principles in GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies - Revenue Recognition, in the Consolidated Financial Statements for additional information regarding our revenue recognition policies. Specifically, the revenue related to the following areas involves significant judgments and estimates: Bundled Lease Arrangements: We sell our equipment under bundled lease arrangements, which typically include the equipment, service, supplies and a financing component for which the customer pays a single negotiated monthly fixed price for all elements over the contractual lease term. Sales made under bundled lease arrangements comprise approximately 41% of our equipment sales revenue. Recognizing revenues under these arrangements requires us to allocate the total consideration received to the lease and non-lease deliverables included in the bundled arrangement, based upon the estimated fair values of each element. Sales to Distributors and Resellers: We utilize distributors and resellers to sell many of our technology products, supplies and services to end-user customers. Sales to distributors and resellers are generally recognized as revenue when products are sold to such distributors and resellers. Distributors and resellers participate in various rebate, price-protection, cooperative marketing and other programs, and we record provisions and allowances for these programs as a reduction to revenue when the sales occur. Similarly, we also record estimates for sales returns and other discounts and allowances when the sales occur. We consider various factors, including a review of specific transactions and programs, historical experience and market and economic conditions when calculating these provisions and allowances. Approximately 17% of our total revenues are sales of equipment and supplies to distributors and resellers, and provisions and allowances recorded on these sales are approximately 22% of the associated gross revenues. Allowance for Doubtful Accounts and Credit Losses We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience adjusted for current conditions. We recorded bad debt provisions of $33 million, $37 million and $49 million in Selling, Administrative and General Expenses (SAG) expenses in our Consolidated Statements of Income (Loss) for the years ended December 31, 2017, 2016 and 2015, respectively. Bad debt provisions declined in 2017 primarily as a result of lower revenues as well as continued strong credit policies. Reserves, as a percentage of trade and finance receivables, were 3.2% at December 31, 2017, as compared to 3.6% and 3.7% at December 31, 2016 and 2015, respectively. We continue to assess our receivable portfolio in light of the current economic environment and its impact on our estimation of the adequacy of the allowance for doubtful accounts. As discussed above, we estimated our provision for doubtful accounts based on historical experience and customer-specific collection issues. This methodology was consistently applied for all periods presented. During the three year period ended December 31, 2017, our reserve for doubtful accounts ranged from 3.2% to 3.7% of gross 28


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    receivables. Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the December 31, 2017 rate of 3.2% would change the 2017 provision by approximately $26 million. Refer to Note 6 - Accounts Receivables, Net and Note 7 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our allowance for doubtful accounts. Pension Plan Assumptions We sponsor defined benefit pension plans in various forms in several countries covering employees who meet eligibility requirements. Over the past several years, where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefits accruals for future service, including our primary U.S. defined benefit plan for salaried employees, the Canadian Salary Pension Plan and the U.K. Final Salary Pension Plan. The freeze of current benefits is the primary driver of the reduction in pension service costs since 2012. In certain Non-U.S. plans we are required to continue to consider salary increases and inflation in determining the benefit obligation related to prior service. The Netherlands defined benefit pension plan has also been amended to reflect the Company's ability to reduce the indexation of future pension benefits within the plan in scenarios when the returns on plan assets are insufficient to cover that indexation. Several statistical and other factors that attempt to anticipate 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, lump-sum settlement rates, the rate of future compensation increases and mortality. Differences between these assumptions and actual experiences are reported as net actuarial gains and losses and are subject to amortization to net periodic benefit cost over future periods. Cumulative net actuarial losses for our defined benefit pension plans of $2.7 billion as of December 31, 2017 decreased by $95 million from December 31, 2016, primarily due to actual plan asset returns being more than expected returns in 2017, as well as the recognition of actuarial losses through amortization and U.S. settlement losses. These impacts were partially offset by currency and lower discount rates in 2017 as compared to 2016. The total actuarial loss at December 31, 2017 is subject to offsetting gains or losses in the future due to changes in actuarial assumptions and will be recognized in future periods through amortization or settlement losses. We used a consolidated weighted average expected rate of return on plan assets of 5.0% for 2017, 5.8% for 2016 and 6.0% for 2015, on a worldwide basis. During 2017, the actual return on plan assets was $834 million as compared to an expected return of $448 million, with the difference largely due to positive returns in the equity markets in 2017. When estimating the 2018 expected rate of return, in addition to assessing recent performance, we considered the historical returns earned on plan assets, the rates of return expected in the future, particularly in light of current economic conditions, and our investment strategy and asset mix with respect to the plans' funds. The weighted average expected rate of return on plan assets we will use in 2018 is 4.5%. The decline in the 2018 rate primarily reflects an increased investment allocation to fixed income securities as we reposition our investment portfolios in light of the improved funding status and the freeze of plan benefits for our major qualified plans. As the qualified pension plans reach set funded status milestones, the assets will be continue to be rebalanced to shift more assets from equity to fixed income securities. Another significant assumption affecting our defined benefit pension obligations and the net periodic benefit cost is the rate that we use to discount our future anticipated benefit obligations. In the U.S. and the U.K., which comprise approximately 75% of our projected benefit obligation, we consider the Moody's Aa Corporate Bond Index and the International Index Company's iBoxx Sterling Corporate AA Cash Bond Index, respectively, in the determination of the appropriate discount rate assumptions. The consolidated weighted average discount rate we used to measure our pension obligations as of December 31, 2017 and to calculate our 2018 expense was 2.8%; the rate used to calculate our obligations as of December 31, 2016 and our 2017 expense was 3.1%. The weighted average discount rate we used to measure our retiree health obligation as of December 31, 2017 and to calculate our 2018 expense was 3.5%; the rate used to calculate our obligation at December 31, 2016 and our 2017 expense was 3.9%. Holding all other assumptions constant, the following table summarizes the estimated impacts of a 0.25% change in the discount rate and a 0.25% change in the expected return on plan assets: Discount Rate Expected Return 0.25% 0.25% 0.25% 0.25% (in millions) Increase Decrease Increase Decrease Increase/(Decrease) 2018 Projected net periodic pension cost $ (30) $ 35 $ (20) $ 20 Projected benefit obligation as of December 31, 2017 (440) 490 N/A N/A Xerox 2017 Annual Report 29


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    One of the most significant and volatile elements of our net periodic defined benefit pension plan expense is settlement losses. Our primary domestic plans allow participants the option of settling their vested benefits through the receipt of a lump-sum payment. We recognize the losses associated with these settlements immediately upon the settlement of the vested benefits. Settlement accounting requires us to recognize a pro rata portion of the aggregate unamortized net actuarial losses upon settlement. As noted above, cumulative unamortized net actuarial losses were $2.7 billion at December 31, 2017, of which the U.S. primary domestic plans, with a lump-sum feature, represented approximately $1,035 million. The pro rata factor is computed as the percentage reduction in the projected benefit obligation due to the settlement of a participant's vested benefit. Settlement accounting is only applied when the event of settlement occurs - i.e. the lump-sum payment is made. Since settlement is dependent on an employee's decision and election, the level of settlements and the associated losses can fluctuate significantly from period to period. During the three years ended December 31, 2017, U.S. plan settlements were $550 million, $229 million and $340 million, respectively, and the associated settlement losses on those plan settlements were $133 million, $65 million and $88 million, respectively. In 2018, on average, we estimate that approximately $100 million of plan settlements will result in settlement losses of approximately $25 million. The following is a summary of our benefit plan costs for the three years ended December 31, 2017 as well as estimated amounts for 2018: Estimated Actual (in millions) 2018 2017 2016 2015 Defined benefit pension plans(1) $ 13 $ 61 $ 62 $ 53 U.S. settlement losses 127 133 65 88 Defined contribution plans 54 54 61 66 Retiree health benefit plans(2) 26 30 35 24 U.S. Retiree health curtailment gain — — — (22) Total Benefit Plan Expense $ 220 $ 278 $ 223 $ 209 _____________ (1) Excludes U.S. settlement losses. (2) Excludes U.S. retiree health curtailment gain in 2015. Our estimated 2018 defined benefit pension plan cost is expected to be approximately $55 million lower than 2017, primarily driven by lower projected expense for our U.K. Final Salary Pension Plan, which is largely due to actuarial gains in 2017 as well as an improved funding status. The following is a summary of our expected benefit plan funding for the three years ended December 31, 2017 as well as estimated amounts for 2018: Estimated Actual (in millions) 2018 2017 2016 2015 U.S. Defined benefit pension plans $ 76 $ 675 $ 24 $ 173 Non-U.S. Defined benefit pension plans 116 161 154 128 Defined contribution plans 54 54 61 66 Retiree health benefit plans 62 64 61 63 Total Benefit Plan Funding $ 308 $ 954 $ 300 $ 430 The increase in contributions to our U.S. defined benefit plans in 2017 was largely due to $650 million of contributions to our domestic tax-qualified defined benefit plans, comprised of $15 million required to meet minimum funding requirements and $635 million of additional voluntary contributions. The original estimate of 2017 voluntary contributions of $135 million was increased by $500 million as a result of funding provided from a Senior Note offering in 2017. Refer to Note 17 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding defined benefit pension plan assumptions, expense and funding. Income Taxes We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. Our provision is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our provision will change based on discrete or other nonrecurring events such as audit settlements, tax law changes, changes in valuation allowances, etc., that may not be predictable. 30

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