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    ¿ALL | 2019 Annual Report \ Making Every Day Work Better ™


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    I III III IV


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    Table of Contents 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, 2019 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: ______ to: _______ _________________________________________________ XEROX HOLDINGS CORPORATION XEROX CORPORATION (Exact Name of Registrant as specified in its charter) _________________________________________________ New York 001-39013 83-3933743 New York 001-04471 16-0468020 (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation or organization) Identification No.) P.O. Box 4505, 201 Merritt 7 Norwalk, Connecticut 06851-1056 (Address of principal executive offices and Zip Code) (203) 968-3000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $1 par value XRX New York Stock Exchange Title of each class Trading Symbol Name of each exchange on which registered 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. Xerox Holdings Corporation Yes No Xerox Corporation 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. Xerox Holdings Corporation Yes No Xerox Corporation Yes No


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    Table of Contents 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. Xerox Holdings Corporation Yes No Xerox Corporation Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Xerox Holdings Corporation Yes No Xerox Corporation Yes No 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Xerox Holdings Corporation Xerox Corporation Large accelerated filer Large accelerated filer Accelerated filer Accelerated filer Non-accelerated filer Non-accelerated filer Smaller reporting company Smaller reporting company Emerging growth company Emerging growth 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. Xerox Holdings Corporation Xerox Corporation Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Xerox Holdings Corporation Yes No Xerox Corporation Yes No The aggregate market value of the voting stock of the registrant held by non-affiliates as of June 30, 2019 was $7,818,052,585. 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, 2020 Xerox Holdings Corporation Common Stock, $1 par value 212,789,134 DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document are incorporated herein by reference: Document Part of Form 10-K in which Incorporated Xerox Holdings Corporation Notice of 2020 Annual Meeting of Shareholders and Proxy Statement (to be filed no later than 120 days after III the close of the fiscal year covered by this report on Form 10-K)


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    Table of Contents 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”, “targeting”, “projecting”, “driving” and similar expressions, as they relate to us, our performance and/or our technology, 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; our ability to attract and retain key personnel; 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; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; 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 confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; the exit of the United Kingdom from the European Union; 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; any impacts resulting from the restructuring of our relationship with Fujifilm Holdings Corporation; the shared services arrangements entered into by us as part of Project Own It; the ultimate outcome of any possible transaction between Xerox Holdings Corporation (Xerox) and HP Inc. (HP), including the possibility that the parties will not agree to pursue a business combination transaction or that the terms of any definitive agreement will be materially different from those proposed; uncertainties as to whether HP will cooperate with Xerox regarding the proposed transaction; the ultimate result should Xerox determine to commence a proxy contest for election of directors to HP’s board of directors; Xerox’s ability to consummate the proposed transaction with HP; the conditions to the completion of the proposed transaction, including the receipt of any required shareholder approvals and any required regulatory approvals; Xerox’s ability to finance the proposed transaction with HP; Xerox’s indebtedness, including the substantial indebtedness Xerox expects to incur in connection with the proposed transaction with HP and the need to generate sufficient cash flows to service and repay such debt; the possibility that Xerox may be unable to achieve expected synergies and operating efficiencies within the expected time-frames or at all and to successfully integrate HP’s operations with those of Xerox; that such integration may be more difficult, time-consuming or costly than expected; that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers or suppliers) may be greater than expected following the proposed transaction or the public announcement of the proposed transaction; the retention of certain key employees may be difficult; and general economic conditions that are less favorable than expected. Additional risks that may affect Xerox’s operations 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 Xerox Corporation’s and Xerox Holdings Corporation’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document or as of the date to which they refer, and 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.


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    Table of Contents Xerox Holdings Corporation Xerox Corporation Form 10-K December 31, 2019 Table of Contents Page Part I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . 54 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Part III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . 141 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Item 13. Certain Relationships, Related Transactions and Director Independence . . . . . . . . . . 142 Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Part IV Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Signatures Xerox Holdings Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Signatures Xerox Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Schedule II . Xerox Holdings Corporation Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . 146 Schedule II . Xerox Corporation Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 147 Index of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148


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    Table of Contents Part I Item 1. Business Recent Changes and Developments: Company Reorganization On March 6, 2019, the Xerox Board of Directors approved a reorganization (the Reorganization) of the Company's corporate structure into a holding company structure. The Reorganization was subject to the approval of shareholders, which was obtained at the annual shareholders meeting held May 21, 2019. On July 31, 2019, the Reorganization was completed, pursuant to which Xerox Corporation (Xerox - the predecessor publicly held parent company) became a direct, wholly-owned subsidiary of Xerox Holdings Corporation (Xerox Holdings). The business operations, directors and executive officers of the Company did not change as a result of the Reorganization. In this Reorganization, shareholders of Xerox became shareholders of Xerox Holdings on a one-for- one basis; maintaining the same number of shares and ownership percentage as held in Xerox immediately prior to the Reorganization. Shares of Xerox Holdings common stock trade on the New York Stock Exchange under the ticker symbol XRX, formerly used by Xerox. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Corporate Reorganization, in the Consolidated Financial Statements, for additional information regarding the Reorganization. Currently, Xerox Holdings' sole direct operating subsidiary is Xerox and therefore Xerox reflects the entirety of Xerox Holdings' operations. Accordingly, the following Item 1. Business description solely focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and strategy. Throughout this section references are made to various notes in the Consolidated Financial Statements which appear in Part II, Item 8 of this Form 10-K, and the information contained in such notes is incorporated by reference into the places where such references are made. Throughout the Business description that follows, references to “we,” “our,” the “Company,” and “Xerox” refer to Xerox Corporation and its subsidiaries. References to “Xerox Corporation” refer to the stand-alone company and do not include subsidiaries. References to “Xerox Holdings Corporation” refer to the stand-alone parent company and do not include its subsidiaries. Sales of Ownership Interests in Fuji Xerox Co., Ltd. and Xerox International Partners In November 2019, Xerox Holdings completed a series of transactions to restructure its relationship with FUJIFILM Holdings Corporation (FH), including the sale of its indirect 25% equity interest in Fuji Xerox (FX) for approximately $2.2 billion as well as the sale of its indirect 51% partnership interest in Xerox International Partners (XIP) for approximately $23 million (collectively the Sales). As a result of the Sales and the related strategic shift in our business, the historical financial results of our equity method investment in FX and our XIP business (which was consolidated) are reflected as a discontinued operation for the periods prior to the Sales, and their impact is excluded from continuing operations for all periods presented. The arrangements with FX, whereby we purchase inventory from and sell inventory to FX, will continue after the Sales and, as a result of our 2006 Technology Agreement (Technology Agreement) with Fuji Xerox which remains in effect through March 2021, we will continue to receive royalty payments for FX’s use of our Xerox brand trademark, as well as rights to access our patent portfolio in exchange for access to their patent portfolio. Refer to the Executive Overview section in Item 7 to this 2019 Form 10-K as well as Note 7 - Divestitures and Note 12 - Investments in Affiliates, at Equity, in the Consolidated Financial Statements, for additional information regarding the Sales and other transactions with FH and FX, and Note 27 - Subsequent Events, in the Consolidated Financial Statements, for additional information regarding our Technology Agreement with FX. Prior to the completion of the sale, Fuji Xerox was an unconsolidated subsidiary of Xerox. Fuji Xerox develops, manufactures and distributes document processing products in Japan, China, Hong Kong, other areas of the Pacific Rim, Australia and New Zealand. Xerox 2019 Annual Report 1


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    Table of Contents Business Overview Xerox is a workplace technology company, building and integrating software and hardware for enterprises large and small. As customers seek to manage information across digital and physical platforms, we deliver a seamless, secure and sustainable experience. Whether inventing the copier, the Ethernet, the laser printer or more, Xerox has long defined the modern work experience and continues to do so with investments in artificial intelligence (AI), sensors and services for Internet of Things (IoT), digital packaging, 3-D printing and Clean Technologies (cleantech). 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. Xerox Strategy We are focused on growing the company’s revenue and portfolio by increasing our position as a leader in the printer market while investing in key areas of growth including software and services, as well as focused areas of innovation. Our core printer market is estimated at approximately $68 billion1, while our adjacent growth markets of Software and Services are estimated at approximately $34 billion1. Under an enterprise-wide initiative called Project Own It, we are streamlining our operations and increasing efficiency and speed to market while reducing costs. Project Own It objectives are designed to enable us to increase our cash flow and profits while reinvesting in our business and returning capital to shareholders. We have four strategic initiatives that we believe will position Xerox for success: 1. Optimize operations for simplicity • Continuously improve operating model for greater efficiency • Optimize the supply chain and supplier competitiveness • Leverage digital technologies to make it easier to do business with Xerox 2. Drive Revenue • Enhance the customer experience • Expand integrated solutions comprised of hardware, software and services • Focus on driving growth within the small and midsize businesses (SMB) 3. Re-energize the innovation engine • Invest in growing market segments such as 3D printing, AI and IoT • Leverage software capability to launch new services • Monetize new innovations 4. Focus on cash flow and increasing capital returns • Maximize cash flow generation • Return at least 50 percent of free cash flow to shareholders (Operating cash flows from continuing operations less capital expenditures) • Focus on ROI and internal rate of return to make capital allocation decisions _______ (1) Market estimates are derived from third-party forecasts produced by major industry research firms. Optimize Operations for Simplicity Through Project Own It, we have delivered approximately $1 billion of savings during the 18 month-period ending December 31, 2019 (including $640 million of savings during fiscal year 2019), consistent with our expectations. We expect to deliver approximately $450 million of cost savings in 2020, and a total of $1.5 billion for the full 3-year program ending in 2021. We expect savings generated by Project Own It to continue to support the expansion of our margins while allowing us to invest in areas of the business that will help us improve our revenue trajectory. Drive Revenue We are a leader in our industry and have a strong, and valuable global brand. We have a three-year revenue roadmap that was outlined in 2019 to deliver flat year-over-year revenue in 2021. This roadmap focuses on five key areas to drive revenue improvement, including: • Improve our core technology business by building on our leadership positions in the market. Within the workplace, our ConnectKey technology and productivity apps transform Xerox multi-function printers (MFPs) into workplace assistants that help users automate time-consuming processes. Within production print, Xerox is unique in being able to pair its industry-leading presses with its ability to offer software that takes clients from document creation to distribution. Xerox 2019 Annual Report 2


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    Table of Contents • Expand our services and software business by building on our leadership in the Managed Print Services (MPS) market to deliver more intelligent workplace solutions and digital services targeted at specific industry needs, and by growing our software business with a focus on personalization and content management software solutions. • Capitalize on the opportunity in the SMB market by increasing our investments in indirect market channels and in our Xerox Business Solutions (XBS) and similar European sales channels. • Transform the customer experience by building a digital experience and enhancing our e-commerce sales platforms. • Drive innovation and new growth businesses by increasing focus and investment in our four innovation programs: digital packaging and print, AI workflow assistants for knowledge workers, 3D printing and digital manufacturing, sensors and services for IoT, and cleantech. Re-energize the Innovation Engine Xerox has long defined the workplace experience and we are continuing to invest in key areas of technology that position us to do so for decades to come. In addition to investing in our core printing technology, we also are investing in key adjacencies that include digital packaging and print, AI workflow assistants for knowledge workers, 3D printing and digital manufacturing, sensors and services for IoT, and cleantech. We also see opportunity in expanding our core into areas such as workflow automation, IT services, customized communication and security technologies. We expect our investments in innovation for our core and adjacent growth markets will deliver incremental value for our customers and drive profitable revenue growth for our business. Our innovation goals are supported by cross disciplinary research programs in our different research centers. Palo Alto Research Center (PARC), the most prominent of these centers, is a wholly-owned subsidiary of Xerox located in Silicon Valley, California. It provides our 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 artificial intelligence, intelligent sensing, computer vision, printed electronics, energy and cleantech, and digital design and manufacturing. Refer to the Research, Development and Engineering Expenses (RD&E) section in Item 7 to this 2019 Form 10-K as well as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding RD&E spending. Focus on Cash Flow and Increasing Capital Returns Our business is based on a model where a large portion of revenues are generated by multi-year contractual arrangements, with approximately 75 percent coming from post-sale revenue, our most profitable revenue stream. Additionally, there is low annual capital expenditures (less than 2 percent of revenues) required to support our current business model. These factors result in stable gross margins and operating margins as well as strong and stable cash flow generation. We will deploy our substantial cash flow to drive shareholder returns through: • A commitment to return at least 50 percent of our free cash flow (Operating cash flows from continuing operations less capital expenditures) to shareholders through a combination of dividends and share repurchases; and • Selective pursuit of acquisitions in targeted growth areas. We target to manage our core debt (debt excluding financing related debt) to under two times expected annual free cash flow. Acquisitions Our strong balance sheet and cash flow generation allow us to pursue M&A opportunities to support our growth expectations. We maintain a broad M&A pipeline that includes targets within the industry and adjacent markets. Our current acquisition strategy has been focused on further penetrating the SMB market through acquisitions of local area resellers and partners (including multi-brand dealers). During 2019, Xerox acquired Rabbit Office Automation and Heritage Business Systems, Inc., two multi-brand dealers that further our penetration of the SMB market. Further details about our acquisitions can be found in Note 6 - Acquisitions, in the Consolidated Financial Statements. In November 2019, Xerox proposed a business combination transaction with HP Inc. (HP). Further details regarding this proposal can be found within the Executive Overview in Item 7 - Management's Discussion and Analysis on Financial Condition and Results of Operations. Xerox 2019 Annual Report 3


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    Table of Contents Segment Information Our business is organized to ensure we focus on efficiently managing our operations and serving the customers and markets in which we operate. We maintain 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 structure, we recognize that we have one operating and reportable segment - the design, development and sale of printing technology and related solutions. As part of our strategy, we integrate our capabilities across technology, software and services which offer our customers the broadest solutions-enabled portfolio in the industry to address their needs of workflow simplification, security and productivity across their digital and physical document processes. Revenues We have a broad and diverse base of customers by both geography and industry, ranging from SMBs to printing production 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: Xerox Services, Workplace Solutions and Graphic Communications and Production Solutions. Xerox Services includes a continuum of solutions and services that helps our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. Our primary offerings in this area are Intelligent Workplace Services (IWS) and a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services. In 2019, Xerox was the only cloud-based MPS provider with FedRAMP authorization. Xerox has the capability to support integration and document security on a global scale, which are critical factors for large enterprises. • Intelligent Workplace Services (IWS), which transcends the traditional MPS offering, utilizes our portfolio of analytics, cloud, digitization and ConnectKey® technologies to help companies optimize their print infrastructure, secure their print environment and automate related 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 IDC, Quocirca and Keypoint Intelligence-InfoTrends. Our IWS offering targets clients ranging from global enterprises to governmental entities and to small and medium-sized businesses, including those served via our channel partners. • Digital Services enables the integration of Xerox technology, software and services to securely design and manage the digitization and workflow of our clients’ content. We utilize our domain expertise and technology to enable efficient and compliant business processing and communications in the demanding regulatory environments and markets of our Healthcare, Insurance, Public Sector and Retail clients. For healthcare, we enable healthcare organizations to provide an improved patient experience, from admission to discharge. For insurance, we help insurance organizations to connect numerous touch points across the client journey, from acquisition to onboarding. For public sector, we assist government agencies in improving the citizen experience, from public assistance to benefits. For retail, we enable retailers drive brand engagement and loyalty through an enhanced experience at every stage of the consumer experience, from point-of-sales to campaigns on demand. Workplace Solutions 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 office workgroup printers and MFPs. • Mid-Range are larger devices that have more features and can handle higher print volumes and larger paper sizes than entry devices. We are a leader in this area of the market and offer a wide range of MFPs, digital printing presses and light production devices, as well as solutions that deliver flexibility and advanced features. Graphic Communications and Production Solutions (High-End) are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements. Our broad portfolio of presses and solutions provides full-color, on-demand printing of a wide range of applications. Our xerographic presses provide high-speed, high-volume cut-sheet printing, ideal for publishing, transactional printing, including variable data for personalized content and one-to-one marketing, to the highest quality of color and embellishment requirements. 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 Xerox 2019 Annual Report 4


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    Table of Contents speeds, image quality, feeding, finishing and media options. We are a worldwide leader in the cut-sheet color and monochrome production industry. Graphic Communications and Production Solutions revenues include the sale of products, software and supplies, as well as the associated technical service and financing of those products. In addition to our three primary offering areas described above, a smaller portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue, software and IT services. Our strategy includes expanding our software business with a focus on personalization and communication software and content management solutions, and growing our IT services in the SMB. Personalization and Communications Software and Content Management Solutions are XMPie, DocuShare and FreeFlow. XMPie is a robust personalization and communication software that can support the needs of omni-channel communications customers, from onboarding to retention. DocuShare is a content management platform that provides a better way to capture, store and share paper and digital content, either on-premise or in the cloud while automating time-consuming, document-heavy processes like accounts payable, HR onboarding, contract management and mortgage processing. In addition, we operate a network of centers that digitize and automate paper and digital workflows, enabling our customers to operate cost-efficiently in a fully-digitized environment with speed, quality and 24x7 availability. FreeFlow is a portfolio of software offerings that brings intelligent workflow automation and integration to the processing of print jobs, from file preparation to final production, helping customers of all sizes address a wide range of business opportunities including automation, personalization and even electronic publishing. IT Services provide our SMB customers with cost efficient solutions to manage their IT needs including PC and network infrastructure, communications technology, and network administration. Our services include cloud and on-server support. Geographic Information Overall, approximately 40% of our revenue is generated by customers outside the U.S. Additional details can be found in Note 5 - Segment and Geographic Area Reporting in the Consolidated Financial Statements. Patents, Trademarks and Licenses In 2019, Xerox and its subsidiaries were awarded 429 U.S. utility patents. Under the terms of the Technology Agreement, with Fuji Xerox, which remains in effect through March 2021, we will continue to receive royalty payments for FX’s use of our Xerox brand trademark, as well as rights to access our patent portfolio in exchange for access to their patent portfolio. Including our research partner Fuji Xerox, we were awarded 974 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, 2019, Xerox held approximately 9,274 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. We are party to multiple 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 196 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. Environmental Social Governance (ESG) At our core is a deep and long-lasting commitment to ESG, a pledge to inspire and support our people, conduct business ethically across the value chain and preserve our planet. This commitment stems from the corporate values established over sixty years ago which include: succeeding through satisfied customers; delivering quality and excellence in all we do; requiring a premium return on assets; using technology to develop market leaders; valuing and empowering our employees; and behaving responsibly as a corporate citizen. We continue this legacy by turning investments in innovation into products and services that help our customers be more productive, profitable and sustainable. Driving efficiency in our business operations, smart investments in technologies that afford our customers added agility-personalization, automation and better workflow as part of our customer-centric approach, will underpin our corporate social responsibility efforts. We do this in our own operations, as well as in workplaces, communities and cities around the world. We recognize the world’s challenges such as climate change and human rights and understand the role we play. Xerox 2019 Annual Report 5


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    Table of Contents We are constantly thinking about how we can simplify work, deliver more personalized experiences and improve productivity through new technologies. We strive to connect the physical and digital worlds without adversely affecting the environment, human health and safety. Our pledge to inspire and support our people, conduct business ethically and protect our planet remains at the core of everything we do. At Xerox, we believe in continuously improving, and we apply this mentality to ensuring we are always finding ways to improve the sustainability of our operations. The Xerox 2019 Corporate Social Responsibility (CSR) Report (available at www.xerox.com) describes our management approach for ESG. Xerox’s CSR report highlights include: Environment • 99.7% of supplies and consumables returned by customers at end-of-life were diverted from entering landfills. Instead, we remanufactured, reused, recycled, or provided the waste to suppliers who converted it into an energy source. • 1 billion pages offset through the PrintReleaf program. • 100% of newly-launched, eligible Xerox products satisfied the Electronic Product Environmental Assessment Tool (EPEAT®) and EPA ENERGY STAR® eco-labels. • 16% reduction in Greenhouse gas emissions from our operations using a 2016 baseline; moving us closer to our goal of 25% reduction by 2025. Social • Worldwide employee matching gift program for any qualified non-profit. • Worldwide Total Recordable Injuries (TRI) rate of our employees in the U.S. decreased 11%. • Supplier spend with suppliers representing small Tier I, minority, woman or veteran-owned businesses accounted for 10% of our total spend. • Details on award winning diversity and inclusion programs coupled with global affinity groups. Governance • All Xerox ESG Priorities 3rd party validated by Business for Social Responsibility (BSR). • 100% of production suppliers required to adhere to Responsible Business Alliance (RBA) Code of Conduct. • Board oversight of corporate social responsibility. • Disclosure of all political activities and trade association memberships. Marketing and Distribution We go to market with a services-led approach and sell our products and services directly to customers through our direct sales force and through independent agents, dealers, value-added resellers, systems integrators and the Web. In addition, our wholly-owned subsidiary, XBS, an office technology organization comprised of regional core companies in the U.S., sells document management and IT services. We also continue to focus on broadening our distribution to small and mid-sized businesses through the expansion of our network of multi-brand resellers. We are structured to serve our customers globally into two units: the Americas, comprised of the U.S. and Canada along with Mexico, Central and South America; and EMEA, which includes Europe, the Middle East, Africa and India. We have also implemented a common global delivery model that aims to provide a consistent customer experience worldwide. We believe that these changes create a leaner and more effective go-to-market model that will streamline our supply chain and provide our customers with best-in-class services. In EMEA 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 2019, total Xerox revenues of $9.1 billion included approximately $6 thousand attributable to Sudan. On January 5, 2020, Fuji Xerox Co., Ltd. (Fuji Xerox) notified Xerox that it does not intend to renew the Technology Agreement on its expiration date, March 31, 2021. The Technology Agreement (TA) governs the technology and brand Xerox 2019 Annual Report 6


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    Table of Contents licenses, and sales territories in which each company can engage. Refer to Note 27 - Subsequent Events in the Consolidated Financial Statements for additional information. Competition Although we encounter competition in all areas of our business, we are the leader - or among the leaders - in each of our core offering areas. We compete on the basis of technology, performance, price, quality, reliability, brand reputation, distribution, and customer service and support. Our larger competitors include Canon, HP 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 provided 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, 2019, we had approximately $3.4 billion of finance receivables and $364 million of equipment on operating leases, or Total Finance assets of $3.7 billion. We maintain an assumed 7:1 leverage ratio of debt to equity as compared to our Finance assets, which results in approximately $3.3 billion of our $4.3 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 2019 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, and Baltoro printer systems, as well as key components and consumables for our products such as toner. We also have manufacturing operations in Dundalk, Ireland, for components, consumables and printer systems sustainable manufacturing, and in Wilsonville, OR, for solid ink consumables and components. Other Xerox manufacturing plants are located in Venray, Netherlands; Ontario, Canada; and Oklahoma City, OK, where we manufacture materials and components. Additionally, we work with various manufacturing and distribution partners. This diversification of suppliers brings flexibility in our manufacturing and supply chain and supports our cost efficiency goals, which are both objectives of Project Own It as well as one of our strategic initiatives to optimize operations for simplicity. Fuji Xerox is our largest partner, with whom we maintain product sourcing agreements for specific products across our entry, mid-range and high-end portfolios, some of which are the result of mutual research and development agreements. We also outsource certain manufacturing activities to FLEX LTD (Flex), a global contract manufacturer with whom we maintain a longstanding relationship, and we acquire products from various third parties in order to increase the breadth of our product portfolio and meet channel requirements and in 2019 we entered into a supply agreement with HP Inc. Refer to "Contractual Cash Obligations and Other Commercial Commitments and Contingencies" in the Capital Resources and Liquidity section of Management's Discussion and Analysis, included in Item 7 of this 2019 Form 10- K, as well as Note 12 - Investments in Affiliates, at Equity in the Consolidated Financial Statements for additional information regarding our relationship with Fuji Xerox. International Operations The financial measures, by geographical area for 2019, 2018 and 2017, are included in Note 5 - 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. Xerox 2019 Annual Report 7


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    Table of Contents 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 may be affected by such factors as the introduction of new products, the length of sales cycles and the seasonality of technology purchases and printing volume. These factors have historically resulted in lower revenues, operating profits and operating cash flows in the first and third quarter. Employees We had approximately 27,000 employees worldwide at December 31, 2019. Other Information Xerox Holdings Xerox Holdings is a New York corporation, organized in 2019 and our principal executive offices are located at 201 Merritt 7, P.O. Box 4505, Norwalk, Connecticut 06851-1056. Our telephone number is (203) 968-3000. Xerox Corporation 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 06851-1056. Our telephone number is (203) 968-3000. Within the Investor Relations section of Xerox Holdings' 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 timely after we have filed them with, or furnished them to, the U.S. Securities and Exchange Commission (the SEC). The SEC's Internet address is www.sec.gov. Our Internet address is www.xerox.com. The content of our website is not incorporated by reference in this Form 10- K unless expressly noted. Xerox 2019 Annual Report 8


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    Table of Contents Item 1A. Risk Factors You should carefully consider the following risk factors as well as the other information included, and risks described, in other sections of this Form 10-K, including under the headings “Cautionary Statement Regarding Forward-Looking Statements”, “Legal Proceedings”, “Selected Financial Data”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Consolidated Financial Statements and the related notes thereto. Any of the following risks could materially and adversely affect our business, financial condition, or results of operations. The selected risks described below, however, are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, or results of operations. 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. We may be unable to attract and retain key personnel while our business model undergoes significant changes. Xerox is undergoing significant changes in our business model and, accordingly, current and prospective employees may experience uncertainty about their future. Our success is dependent, among other things, on our ability to attract, develop and retain highly qualified senior management and other key employees. Competition for key personnel is intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. The departure of existing key employees or the failure of potential key employees to accept employment with Xerox, despite our recruiting efforts, could have a material adverse impact on our business, financial condition and operating results. 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. Tariffs or other restrictions on foreign imports could negatively impact our financial performance. Our business, results of operations and financial condition may be negatively impacted by a potential increase in the cost of our products as a result of new or incremental trade protection measures such as, increased import tariffs, import or export restrictions and requirements and the revocation or material modification of trade agreements. Changes in U.S. and international trade policy and resultant retaliatory countermeasures, including imposition of increased tariffs, quotas or duties by affected countries, and trading partners are difficult to predict and may adversely affect our business. The U.S. government has and could in the future impose trade barriers including tariffs, quotas, duties or other restrictions on foreign imports. The implementation of a border tax, tariff or higher customs duties on our products Xerox 2019 Annual Report 9


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    Table of Contents manufactured abroad or components that we import into the U.S., or any potential corresponding actions by other countries in which we do business, could negatively impact our financial performance. 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 Organization for Economic Cooperation and Development (OECD) is issuing guidelines that are different, in some respects, than long-standing international tax principles. As countries unilaterally amend their tax laws to adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact our income taxes. Local country, state, provincial or municipal taxation may also be subject to review and potential override by regional, federal, national or similar forms of government. In addition, we are subject to the continuous examination of our income tax returns by the United States Internal Revenue Service and other tax authorities around the world. We regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. There can be no assurance that the outcomes from these examinations will not have an adverse effect on the our provision for income taxes and cash tax liability. 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. In addition, our strategy requires us to expand into adjacent markets with new products, services and technology such as Digital Packaging and Print, AI Workflow Assistants for Knowledge Workers, 3D Printing / Digital Manufacturing, IT services and software. Our ability to develop or acquire new products, services and technologies for these adjacent markets requires the investment of significant resources, which may not lead to the development of new technologies, products or services on a timely basis. We must also attract, develop and retain individuals with the requisite technical expertise and understanding of customers' needs to develop new technologies and introduce new products, particularly as we increase investment in these areas of the business. Similar to above if we fail to accurately anticipate and meet our customers' needs in these adjacent markets 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 Xerox 2019 Annual Report 10


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    Table of Contents 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. 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. 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 cost reduction 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 Project Own It, 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 may not achieve some or all of the expected benefits of our restructuring plans and our restructuring may adversely affect our business. We engage in restructuring actions, including Project Own It, as well as other transformation efforts in order to reduce our cost structure, realign it to the changing nature of our business and achieve operating efficiencies. In addition, these actions are expected to simplify our organizational structure, upgrade our IT infrastructure and redesign business processes. We may not be able to obtain the cost savings and benefits that were initially anticipated in connection with Xerox 2019 Annual Report 11


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    Table of Contents our restructuring actions. Additionally, as a result of our restructuring initiatives, we may experience a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods. Transformation and restructuring may require a significant amount of time and focus from both management and other employees, which may divert attention from operating and growing our business. Furthermore, the expected savings associated with these initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until the initiatives are fully implemented and stabilized. If we fail to achieve some or all of the expected benefits of restructuring, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. As part of our efforts to streamline operations and reduce costs, we have offshored and outsourced certain of our operations, services and other functions through captive arrangements as well as with third-parties (e.g. HCL) and we will continue to evaluate additional offshoring or outsourcing possibilities in the future. If our outsourcing partners or operations fail to perform their obligations in a timely manner or at satisfactory quality levels or if we are unable to attract or retain sufficient personnel with the necessary skill sets to meet our offshoring or outsourcing needs, the quality of our services, products and operations, as well as our reputation, could suffer. Our success depends, in part, on our ability to manage these potential transitions and issues, which in certain circumstances could be largely outside of our control. In addition, much of our offshoring takes place in developing countries and as a result may also be subject to geopolitical uncertainty. Diminished service quality from offshoring and outsourcing could have an adverse material impact to our operating results due to service interruptions and negative customer reactions. 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 that came 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. Moreover, the risk of such attacks includes attempted breaches 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. Xerox 2019 Annual Report 12


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    Table of Contents 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, such as Fuji Xerox Co., Ltd. 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 lead to higher prices for our products and the reliability of our products could decline. Further, since certain third parties we have outsourced manufacturing to also are our competitors in the print market, or may be in the future, we could experience product disruption as a result of competitive pressures that increase the cost of the products supplied. 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 printing and the expansion of new printing markets as well as ancillary markets. The process of developing new high- technology products, software, services and solutions and enhancing existing hardware and software products, services and solutions is complex, costly and uncertain, and any failure by us to anticipate customers' changing needs and emerging technological trends accurately could significantly harm our market share, results of operations and financial condition. 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 as well as electronic delivery, and cloud-based computing and software. These changing market trends are also opening up new ancillary markets for our products, services and software. A significant part of our strategy and ultimate success in this changing market is our ability to develop and market technology that produces products, services and software that meet these changes. We expect that revenue growth can be improved through improvements in the software features of our multifunction devices, increases in the color printer through expansion to metallic, fluorescent, and clear ink and digital packaging, and leveraging a strong base in managed print services with new digital, analytics, security features. Our software strategy involves software for integrated solutions and delivery of industry-focused services into an existing customer base. We also expect to extend our presence in the SMB market through organic and inorganic investments as well as further expansion into channels and eCommerce and invest in innovation including digital packaging, AI workflow assistants for knowledge workers, 3D printing and digital manufacturing, sensors and services for IoT and cleantech. 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. Despite this investment, the process of developing new products or technologies is inherently complex and uncertain and there are a number of risks that we are subject to including the risk that our products or technologies will successfully satisfy our customers’ needs or gain market acceptance. If we are unable to develop and market advanced and competitive technologies, it may negatively impact our future revenue growth and market share as well as our planned expansion into new or alternative markets. Additionally, 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 system. If we are unable to maintain a consistent level of revenue, it could materially adversely affect our results of operations and financial condition. 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 non-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 Xerox 2019 Annual Report 13


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    Table of Contents 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, or find an economic alternative, 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, 2019 exceeded the value of the assets of those plans by approximately $1.2 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, 2019, 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. 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 Xerox 2019 Annual Report 14


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    Table of Contents 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. Xerox is party to, or otherwise involved in, proceedings brought by U.S. or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as "Superfund," or state laws. 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 effect 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 E.U. 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 efforts 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 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. Xerox 2019 Annual Report 15


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    Table of Contents The United Kingdom leaving the E.U. could adversely affect us. In 2016, the U.K. approved an exit from the E.U., commonly referred to as Brexit and the U.K. withdrew from the E.U. on January 31, 2020. The future relationship between the U.K. and the E.U. remains uncertain as the U.K. and the E.U. work through the transition period that provides time for them to negotiate the details of their future relationship. The transition period is currently expected to end on December 31, 2020, and, if no agreement is reached, the default scenario would be a “no-deal” Brexit. In the event of a no-deal Brexit, the U.K. will leave the E.U. with no agreements in place beyond any temporary arrangements that have or may be put in place by the E.U. or individual E.U. Member States, and the U.K. as part of no-deal contingency efforts and those conferred by mutual membership of the World Trade Organization. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the U.K. leaving the E.U. with no agreements in place would have and how such withdrawal would affect us. We have operations and customers in the United Kingdom and the E.U. , and as a result, we face risks associated with the potential uncertainty and disruptions that may follow Brexit, including with respect to volatility in exchange rates and interest rates and potential material changes to the regulatory regime applicable to our operations in the United Kingdom as well as potential for disruptions in our supply chain in the United Kingdom. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets. For example, depending on the terms of Brexit, the United Kingdom could also lose access to the single E.U. market and to the global trade deals negotiated by the E.U. on behalf of its members. Disruptions and uncertainty caused by Brexit may also cause our customers to closely monitor their costs and reduce their spending budget on our products and services. Any of these effects of Brexit, and others we cannot anticipate or that may evolve over time, could adversely affect our business, operating results and financial condition. 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 a leased site in 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. In an effort to reduce our cost structure and align it to the changing nature of our business and to achieve operating efficiencies, we have reduced our real estate footprint as part of our restructuring programs, including Project Own It, as well as other transformational efforts (refer to Note 14 - Restructuring Programs in the Consolidated Financial Statements). As a result of implementing these programs, 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 2019, we owned or leased numerous facilities globally, which house general offices, sales offices, service locations, data centers, call centers, warehouses and distribution centers. The size of our property portfolio at December 31, 2019 was approximately 15 million square feet, comprised of 442 leased facilities and 20 owned properties with 73 facilities (of which 50 are located on our Webster, New York campus). We occupied approximately 10.5 million square feet and 4.5 million square feet was surplus. 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. Refer to Note 2 - Adoption of New Leasing Standard - Lessee, in the Consolidated Financial Statements, for additional information regarding our leased assets. Item 3. Legal Proceedings Refer to the information set forth under Note 21 - Contingencies and Litigation in the Consolidated Financial Statements. Item 4. Mine Safety Disclosures Not applicable. Xerox 2019 Annual Report 16


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    Table of Contents Part II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Corporate Information Stock Exchange Information As previously discussed, on July 31, 2019 Xerox completed its Reorganization into a holding company structure. As a result, Xerox became a direct, wholly owned subsidiary of Xerox Holdings. Xerox Holdings Corporation common stock (XRX) is listed on the New York Stock Exchange. There is no established public trading market for Xerox Corporation's common stock, as all of the outstanding Xerox common stock is solely held by Xerox Holdings. Common Shareholders of Record See Item 6 - Selected Financial Data, Xerox Holdings Corporation Five Years in Review - Common Shareholders of Record at Year-End, for additional information. Performance Graph Total Return to Shareholders Year Ended December 31, (Includes reinvestment of dividends) 2014 2015 2016 2017 2018 2019 Xerox Holdings Corporation $ 100.00 $ 79.74 $ 68.69 $ 89.96 $ 63.52 $ 122.14 S&P 500 Index 100.00 101.38 113.51 138.29 132.23 173.86 S&P 500 Information Technology Index 100.00 105.92 120.59 167.42 166.94 250.89 _____________ Source: Standard & Poor's Investment Services Notes: Graph assumes $100 invested on December 31, 2014 in Xerox Holdings, the S&P 500 Index and the S&P 500 Information Technology Index, respectively, and assumes dividends are reinvested. Xerox 2019 Annual Report 17


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    Table of Contents Sales Of Unregistered Securities During The Quarter Ended December 31, 2019 During the quarter ended December 31, 2019, Xerox Holdings Corporation 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, 2019: Xerox Holdings Corporation issued 1,331 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 Xerox Holdings Corporation and to two former non-employee Directors of Xerox Corporation: Gregory Q. Brown, Jonathan Christodoro, Keith Cozza, Joseph J. Echevarria, Nicholas Graziano, Cheryl Gordon Krongard, Scott Letier and Sara Martinez Tucker. (c) The DSUs were issued at a deemed purchase price of $30.295 per DSU (aggregate price $40,323), based upon the market value on the date of record, in payment of the dividend equivalents due to DSU holders pursuant to Xerox Holdings Corporation’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, 2019 In connection with the reorganization of Xerox Corporation’s corporate structure into a holding company structure, in July 2019, Xerox Holdings Corporation’s Board of Directors authorized a $1.0 billion share repurchase program (exclusive of any commissions and other transaction fees and costs related thereto). This program replaced the $1.0 billion of authority remaining under Xerox Corporation’s previously authorized $2.0 billion share repurchase program. Shares of Xerox Holdings Corporation’s common stock may be repurchased on the open market, or through derivative or negotiated transactions. Open-market repurchases will be made in compliance with the Securities and Exchanges Commission’s Rule 10b-18, and are subject to market conditions, as well as applicable legal and other considerations. Repurchases of Xerox Holdings Corporation’s Common Stock, par value $1, per share include the following: Board Authorized Share Repurchase Program: Maximum Approximate Total Number of Shares Dollar Value of Shares Purchased as Part of That May Yet Be Total Number of Average Price Publicly Announced Purchased Under the Shares Purchased Paid per Share(1) Plans or Programs(2) Plans or Programs(2) October 1 through 31 2,790,055 $ 29.94 2,790,055 $ 849,042,178 November 1 through 30 1,947,038 37.32 1,947,038 776,371,390 December 1 through 31 2,030,752 37.59 2,030,752 700,027,664 Total 6,767,845 6,767,845 _____________ (1) Exclusive of fees and costs. (2) Of the $1.0 billion of share repurchase authority previously granted by the Xerox Holdings Corporation Board of Directors, exclusive of fees and expenses, approximately $300 million has been used through December 31, 2019. Repurchases may be made on the open market, or through derivative or negotiated contracts. 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): Maximum Approximate Total Number of Shares Dollar Value of Shares Purchased as Part of That May Yet Be Total Number of Average Price Publicly Announced Purchased Under the Shares Purchased Paid per Share(2) Plans or Programs Plans or Programs October 1 through 31 8,962 $ 29.47 n/a n/a November 1 through 30 — — n/a n/a December 1 through 31 289,901 37.00 n/a n/a Total 298,863 _____________ (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 2019 Annual Report 18


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    Table of Contents Item 6. Selected Financial Data Xerox Holdings Corporation Five Years in Review (in millions, except per-share data) 2019 2018 2017 2016 2015 Per-Share Data Income from continuing operations Basic $ 2.86 $ 1.17 $ 0.20 $ 1.81 $ 2.52 Diluted 2.78 1.16 0.20 1.79 2.49 Net Income (Loss) Attributable to Xerox Holdings Basic 6.03 1.40 0.71 (1.95) 1.59 Diluted 5.80 1.38 0.71 (1.93) 1.58 Common stock dividends declared 1.00 1.00 1.00 1.24 1.12 Operations Revenues $ 9,066 $ 9,662 $ 9,991 $ 10,440 $ 11,090 Sales 3,227 3,454 3,412 3,532 3,890 Services, maintenance and rentals 5,595 5,940 6,285 6,583 6,854 Financing 244 268 294 325 346 Income from continuing operations 651 310 70 486 701 Income from continuing operations - Xerox Holdings 648 306 66 483 694 Net income (loss) 1,361 374 207 (468) 455 Net income (loss) - Xerox Holdings 1,353 361 195 (471) 448 (1)(2) Financial Position Working capital $ 2,705 $ 1,462 $ 2,507 $ 2,357 $ 1,448 Total Assets 15,047 14,874 15,946 18,051 25,442 Consolidated Capitalization(1) Short-term debt and current portion of long-term debt $ 1,049 $ 961 $ 282 $ 1,011 $ 985 Long-term debt 3,233 4,269 5,235 5,305 6,382 Total Debt(2) 4,282 5,230 5,517 6,316 7,367 Convertible preferred stock 214 214 214 214 349 Xerox Holdings shareholders' equity 5,587 5,005 5,256 4,709 8,975 Noncontrolling interests 7 34 37 38 43 Total Consolidated Capitalization $ 10,090 $ 10,483 $ 11,024 $ 11,277 $ 16,734 Selected Data and Ratios Common shareholders of record at year-end 25,398 26,742 28,752 31,803 33,843 Book value per common share(3) $ 26.28 $ 21.80 $ 20.64 $ 18.57 $ 35.45 (3) Year-end common stock market price $ 36.87 $ 19.76 $ 29.15 $ 23.00 $ 42.52 _____________ (1) Balance sheet amounts prior to 2019 include balances related to our investments in XIP and Fuji Xerox, which were sold in November 2019. Balance sheet amounts for 2015 include amounts for Conduent, which was spun-off in December 2016. Refer to Note 7 - Divestitures in our Consolidated Financial Statements for additional information. (2) As a result of the adoption of ASC 842, Leases effective January 1, 2019, finance lease obligations are reported in Other current and non- current liabilities. Prior to 2019, finance lease obligations are included in Debt. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Note 2 - Adoption of New Leasing Standard - Lessee, Note 15 - Supplementary Financial Information and Note 16 - Debt, in our Consolidated Financial Statements for additional information. (3) Per share price and computation for 2015 are on a pre-separation basis. Refer to Note 7 - Divestitures in our Consolidated Financial Statements for further information. Xerox 2019 Annual Report 19


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    Table of Contents Xerox Corporation Five Years in Review (in millions) 2019 2018 2017 2016 2015 Operations Revenues $ 9,066 $ 9,662 $ 9,991 $ 10,440 $ 11,090 Sales 3,227 3,454 3,412 3,532 3,890 Services, maintenance and rentals 5,595 5,940 6,285 6,583 6,854 Financing 244 268 294 325 346 Income from continuing operations 651 310 70 486 701 Income from continuing operations - Xerox 648 306 66 483 694 Net income (loss) 1,361 374 207 (468) 455 Net income (loss) - Xerox 1,353 361 195 (471) 448 Financial Position(1)(2) Working capital $ 2,771 $ 1,462 $ 2,507 $ 2,357 $ 1,448 Total Assets 15,047 14,874 15,946 18,051 25,442 Consolidated Capitalization(1) Short-term debt and current portion of long-term debt $ 1,049 $ 961 $ 282 $ 1,011 $ 985 Long-term debt 3,233 4,269 5,235 5,305 6,382 Total Debt(2) 4,282 5,230 5,517 6,316 7,367 Convertible preferred stock — 214 214 214 349 Xerox shareholders' equity 5,867 5,005 5,256 4,709 8,975 Noncontrolling interests 7 34 37 38 43 Total Consolidated Capitalization $ 10,156 $ 10,483 $ 11,024 $ 11,277 $ 16,734 _____________ (1) Balance sheet amounts prior to 2019 include balances related to our investments in XIP and Fuji Xerox, which were sold in November 2019. Balance sheet amounts for 2015 include amounts for Conduent, which was spun-off in December 2016. Refer to Note 7 - Divestitures in our Consolidated Financial Statements for additional information. (2) As a result of the adoption of ASC 842, Leases effective January 1, 2019, finance lease obligations are reported in Other current and non- current liabilities. Prior to 2019, finance lease obligations are included in Debt. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Note 2 - Adoption of New Leasing Standard - Lessee, Note 15 - Supplementary Financial Information and Note 16 - Debt, in our Consolidated Financial Statements for additional information. Xerox 2019 Annual Report 20


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    Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In March 2019, Xerox Corporation (Xerox) announced plans to create a new public holding company, Xerox Holdings Corporation (Xerox Holdings), by implementing a holding company reorganization (the Reorganization). On July 31, 2019, Xerox completed the Reorganization. In the Reorganization, Xerox (the predecessor publicly held parent company) became a direct, wholly owned subsidiary of Xerox Holdings and Xerox Holdings became the successor public company. We believe implementation of a holding company structure will provide us with flexibility to develop and realize a range of strategic growth opportunities, including by pursuing different capital structures for new businesses, whether incubated or acquired. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies - Corporate Reorganization, in the Consolidated Financial Statements for additional information regarding the Reorganization. Currently, Xerox Holdings' sole direct operating subsidiary is Xerox and therefore Xerox reflects the entirety of Xerox Holdings' operations. Accordingly, the following Management’s Discussion and Analysis (MD&A) solely focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition. Throughout this Annual Report on Form 10-K, references are made to various notes in the Consolidated Financial Statements which appear in Part II, Item 8 of this 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 the MD&A that follows, references to “we,” “our,” the “Company,” and “Xerox” refer to Xerox Corporation and its subsidiaries. References to “Xerox Corporation” refer to the stand-alone company and do not include subsidiaries, unless otherwise noted. References to “Xerox Holdings Corporation” refer to the stand-alone parent company and do not include its subsidiaries, unless otherwise noted. Executive Overview With annual revenues of approximately $9 billion, we are a leading global provider of digital print technology and related services, software and solutions. We operate in a core market estimated at approximately $68 billion. Our primary offerings span three main areas: Xerox Services, Workplace Solutions and Graphic Communications and Production Solutions: • Xerox Services includes solutions and services that helps customers to optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of related security. • Workplace Solutions includes 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. • Graphic Communications and Production Solutions are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements. We also have digital solutions and software assets to compete in an adjacent Software and Services market that is estimated at approximately $34 billion. Our main offerings for this market are focused on: industry-specific Digital Solutions, Personalization & Communication Software and Content Management Software. In addition, a smaller portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide- format systems and revenue from the license or sale of our technology. Headquartered in Norwalk, Connecticut, with approximately 27,000 employees, Xerox serves customers in approximately 160 countries. We have a broad and diverse base of customers by both geography and industry, ranging from SMBs to printing production (including 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. In 2019, approximately 40% of our revenue was generated outside the United States. Xerox 2019 Annual Report 21


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    Table of Contents Market and Business Strategy Our market and business strategy is to maintain overall leadership in our core market and increase our participation in the growth areas, while expanding into adjacent markets and leveraging our innovation capabilities to enter new markets. We have four strategic initiatives that we believe will position Xerox for success: • Optimize operations for simplicity – Continuously improve operating model for greater efficiency – Optimize the supply chain and supplier competitiveness – Leverage digital technologies to make it easier to do business with Xerox • Drive Revenue – Enhance the customer experience – Expand integrated solutions comprised of hardware, software and services – Focus on driving growth within the small and midsize businesses (SMB) • Re-energize the innovation engine – Invest in growing market segments such as 3D printing, AI and IoT – Leverage software capability to launch new services – Monetize new innovations • Focus on cash flow and increasing capital returns – Maximize cash flow generation – Return at least 50% of free cash flow to shareholders (Operating cash flows from continuing operations less capital expenditures) – Focus on ROI and internal rate of return to make capital allocation decisions Post-sale Based Business Model In 2019, 77% of our total revenue was post-sale based, which includes contracted 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 and cash flows. Key indicators of future post sale revenue include installs and related removals of printers and multifunction devices, the number and type of machines in the field (MIF), page volumes (including the mix of pages printed on color devices) and the type and nature of related software and services provided to customers. Project Own It During the second half of 2018, we initiated a transformation project - Project Own It - centered on creating a more effective organization to enhance our focus on our customers and our partners, instill a culture of continuous improvement and improve our financial results. The primary goal of this project is to improve productivity by driving end-to-end transformation of our processes and systems to create greater focus, speed, accountability and effectiveness and to reduce costs. These efforts are considered critical to making us more competitive and giving us the capacity to invest in growth and maximize shareholder returns. Key opportunities under Project Own It include establishing more effective shared service centers (captive and through our outsource partners), rationalizing our IT infrastructure, reducing our real estate footprint, creating greater velocity in our supply chain and unlocking greater productivity in our supplier base. This project is also evaluating the sourcing of all of our products in an effort to optimize our options. Our approach is to analyze our potential options both by product category and holistically to determine what sourcing makes the most strategic and economic sense. An example of this effort is the expanded arrangement we recently entered into with HP Inc. in June 2019, which not only diversifies our supply chain but also enables us to add volume to our toner operations and broaden our software and services portfolio (See Supply Agreement with HP Inc. below). We incurred restructuring and related costs of $229 million for the year ended December 31, 2019 primarily related to costs incurred to implement initiatives under our business transformation projects including Project Own It. Refer to Restructuring and Related Costs section of the MD&A and Note 14 - Restructuring Programs in the Consolidated Financial Statements for additional information. Shared Services Arrangement with HCL Technologies In March 2019, as part of Project Own It, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including, among others, selected information technology and finance functions (excluding accounting), from Xerox to HCL. The transition is expected to continue into 2020 and HCL is expected to make certain up-front and ongoing investments in software, tools and other technology to consolidate, optimize and automate the transferred functions with the goal of providing Xerox 2019 Annual Report 22


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    Table of Contents improved service levels and significant cost savings. The shared services arrangement with HCL includes a total aggregate spending commitment by us of approximately $1.3 billion over the next 7 years (includes approximately $100 million spent in 2019). However, we can terminate the arrangement at any time at our discretion, subject to payment of termination fees that decline over the term, or for cause. The spending commitment excludes restructuring and related costs we are expected to incur in connection with the transition of the contemplated functions - refer to Restructuring and Related Costs section of the MD&A and Note 14 - Restructuring Programs in the Consolidated Financial Statements for additional information. The transfer of employees associated with the HCL arrangement in certain countries was subject to compliance with works council and other employment regulatory requirements in those countries, which delayed the transfer as well as the expected savings from the arrangement. We incurred net charges of approximately $100 million for the year ended December 31, 2019 for services associated with this arrangement, which only reflects the cost associated with the employees transferred to date. The cost has been allocated to the various functional expense lines in the Consolidated Statements of Income based on an assessment of the nature and amount of the costs incurred for the various transferred functions prior to their transfer to HCL. Supply Agreement with HP Inc. In June 2019, we entered into an arrangement to expand our existing sourcing relationship with HP Inc. (HP). As part of the new arrangement, we will start sourcing certain A4 and entry-level A3 products from HP to diversify our supply chain. Many of these devices will operate with our ConnectKey software, a key differentiator in the marketplace. In addition, we will provide toner for both our printers included in this agreement and certain HP printers, which will allow us to add volume to our emulsion aggregation (EA) toner plant in Webster, NY. Further, as part of our growth strategy to increase our penetration of the small-to-medium size business (SMB) market, Xerox will also become a Device as a Service (DaaS) partner for HP in the U.S. We will be able to sell HP PCs, displays and accessories, with or without DaaS, to our U.S. SMB clients. Lastly, HP will also make DocuShare Flex, Xerox's cloud-based content management platform, available on commercial PCs distributed in the U.S., giving a major lift to our software growth strategy. Sales of Ownership Interests in Fuji Xerox Co., Ltd. and Xerox International Partners In November 2019, Xerox Holdings completed a series of transactions to restructure its relationship with FUJIFILM Holdings Corporation (FH), including the sale of its indirect 25% equity interest in Fuji Xerox (FX) for approximately $2.2 billion as well as the sale of its indirect 51% partnership interest in Xerox International Partners (XIP) for approximately $23 million (collectively the Sales). As a result of the Sales and the related strategic shift in our business, the historical financial results of our equity method investment in FX and our XIP business (which was consolidated) for the periods prior to the Sales, are reflected as a discontinued operation and their impact is excluded from continuing operations for all periods presented. The transactions with FH also included an OEM license agreement by and between FX and Xerox, granting FX the right to use specific Xerox Intellectual Property (IP) in providing certain named original equipment manufacturers (OEM’s) with products (such as printer engines) in exchange for an upfront license fee of $77 million. The license fee is recorded within Rental and other revenues (Services, maintenance and rentals). In addition, arrangements with FX whereby we purchase inventory from and sell inventory to FX, will continue after the Sales and, as a result of our Technology Agreement with Fuji Xerox which remains in effect through March 2021, we will continue to receive royalty payments for FX’s use of our Xerox brand trademark, as well as rights to access our patent portfolio in exchange for access to their patent portfolio. Lastly, the transactions included the dismissal of the $1 billion lawsuit FH had filed against Xerox after the termination in May 2018 of the proposed merger among FH/ FX and Xerox announced in January 2018. Refer to Note 7 - Divestitures and Note 21 - Contingencies and Litigation for additional information regarding the divestiture and other transactions with FH, as well as Note 27 - Subsequent Events for additional information regarding our Technology Agreement with FX, in the Consolidated Financial Statements. Xerox 2019 Annual Report 23


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    Table of Contents The $77 million ($58 million after-tax) OEM license had the following impact on our financial results for the Fourth Quarter 2019 and Full Year 2019: Three Months Ended Year Ended (in millions, except per share amounts) December 31, 2019 December 31, 2019 OEM As Reported OEM As Reported Financial Results from Continuing License Excluding OEM License Excluding OEM Operations As Reported Impact License Impact As Reported Impact License Impact Total Revenue (2.2)% 3.1% (5.2)% (6.2)% 0.8% (7.0)% Total Revenue - CC (1) (1.6)% 3.1% (4.7)% (4.7)% 0.8% (5.5)% Post sale revenue (2.2)% 4.1% (6.3)% (6.4)% 1.0% (7.4)% Post sale revenue - CC (1) (1.7)% 4.1% (5.8)% (4.9)% 1.0% (5.9)% Gross Margin 41.6 % 1.9% 39.7 % 40.3 % 0.6% 39.7 % Adjusted Operating Margin(1) 16.8 % 2.7% 14.1 % 13.1 % 0.7% 12.4 % EPS - GAAP $ 1.17 $ 0.25 $ 0.92 $ 2.78 $ 0.25 $ 2.53 EPS - Adjusted(1) $ 1.33 $ 0.25 $ 1.08 $ 3.55 $ 0.25 $ 3.30 Operating Cash Flow $ 398 $ 58 $ 340 $ 1,244 $ 58 $ 1,186 _____________ CC - See "Currency Impact" section for description of Constant Currency. (1) Refer to the "Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure. Proposed Transaction with HP Inc. In November 2019, Xerox proposed a business combination transaction with HP Inc. (HP) in which HP shareholders would receive $22 per share comprised of $17 per share in cash, and 0.137 shares of Xerox for each HP share. In January 2020, Xerox obtained $24 billion in financing commitments to support the proposed business combination transaction with HP. HP has rejected the proposal and refused to engage in mutual due diligence or negotiations regarding the proposal. In January 2020, Xerox nominated a slate of directors to HP’s board to be voted on at HP’s 2020 annual meeting of stockholders. Xerox intends to continue to pursue the proposed business combination transaction. In February 2020, Xerox increased its offer to HP shareholders to $24 per share comprised of $18.40 per share in cash and 0.149 shares of Xerox for each HP share. Refer to Note 27 - Subsequent Events in the Consolidated Financial Statements for additional information regarding the committed financing obtained in January 2020. Financial Overview Total revenue of $9.1 billion in 2019 decreased 6.2% from the prior year, including a 1.5-percentage point unfavorable impact from currency and a 0.8-percentage point favorable impact from the upfront OEM license fee of $77 million. The decrease in revenue reflected a 6.4% decrease in Post sale revenue, including a 1.5-percentage point unfavorable impact from currency and a 1.0-percentage point favorable impact from the OEM license; and a 5.3% decrease in Equipment sales revenue, including a 1.3-percentage point unfavorable impact from currency. The decline in Post sale revenue reflected the continuing trends of lower page volumes, an ongoing competitive price environment and a lower population of devices, as well as lower transactional revenue from unbundled supplies and paper primarily in our Latin America region. The decline in Equipment sales primarily reflected the impact of lower revenues from our mid-range products, which were partially impacted by organizational changes within the XBS sales organization that included the transition of a significant number of customer accounts from U.S. Enterprise in the first half of 2019. The impacts from the XBS organizational changes began to lessen in the second half of 2019. Net income from continuing operations attributable to Xerox was as follows: Year Ended December 31, B/(W) (in millions) 2019 2018 2017 2019 2018 Net income from continuing operations attributable to Xerox $ 648 $ 306 $ 66 $ 342 $ 240 Adjusted(1) Net income from continuing operations attributable to Xerox 828 745 770 83 (25) Xerox 2019 Annual Report 24


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    Table of Contents Net income from continuing operations attributable to Xerox for 2019 increased $342 million as compared to the prior year reflecting lower Other expenses, net, Transaction and related costs, net and Income taxes, partially offset by higher Restructuring and related costs. In addition, lower revenues were more than offset by cost and expense savings from our Project Own It transformation actions. Adjusted1 net income from continuing operations attributable to Xerox for 2019 increased $83 million as compared to the prior year primarily related to increased operating profits reflecting the continued benefits of cost and expense savings from Project Own It, which more than offset revenue declines. Adjustments in 2019 include Restructuring and related costs, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement- related costs and other discrete, unusual or infrequent items. Operating cash flow provided by continuing operations was $1,244 million in 2019 as compared to $1,082 million in 2018. The increase is primarily due to higher profits, which includes the benefit of the one-time upfront OEM license fee of $77 million, lower cash payments for restructuring, lower cash payments for Transaction and related costs, net, improved working capital2 and lower placements of equipment on operating leases, all of which were partially offset by lower run-off of finance receivables. Cash used in investing activities of continuing operations was $85 million in 2019 reflecting capital expenditures of $65 million and acquisitions of $42 million, which were partially offset by $21 million from the sale of non-core business assets. Cash used in financing activities was $1,834 million in 2019 reflecting payments of $960 million on Senior Notes, $600 million for share repurchases and dividend payments of $243 million. _____________ (1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure. (2) Working capital reflects Accounts receivable, net, Inventories, Accounts payable and Accrued compensation and benefits cost. 2020 Outlook We expect total revenues to decline in 2020 by approximately 5.0%, or approximately 4.0% excluding the impact of revenue from the $77 million OEM license fee in 2019. We expect a minimal impact from translation currency on total revenues in 2020 based on January 2020 exchange rates. Both reported and adjusted1 earnings are expected to improve slightly from 2019, after excluding the impact of the OEM license, reflecting the continued benefits of cost reductions, which are expected to offset the impact of the projected decline in revenues. We expect 2020 operating cash flows from continuing operations to be approximately $1.3 billion, with capital expenditures of approximately $100 million. Our capital allocation plan for 2020 includes expected share repurchase by Xerox Holdings of at least $300 million. Macro Economic and Market Factors Tariffs - Our business, results of operations and financial condition may be negatively impacted by a potential increase in the cost of our products as a result of new or incremental trade protection measures such as, increased import tariffs, import or export restrictions and requirements and the revocation or material modification of trade agreements. In 2019, incremental tariff costs negatively impacted gross margin but the impact was minimal on a full year basis since the new tariffs were not effective until the fourth quarter. However, we do expect margins to be negatively impacted in future periods as a result of an increase in the cost of our imported products due to higher import tariffs. We are taking actions to mitigate the impact of these tariffs, such as raising prices on certain products, however, we currently estimate a year-over-year cost impact of approximately $20 million from higher tariffs in 2020. Brexit - In 2016, the U.K. approved an exit from the E.U., commonly referred to as Brexit and the U.K. withdrew from the E.U. on January 31, 2020. The future relationship between the U.K. and the E.U. remains uncertain as the U.K. and the E.U. work through the transition period that provides time for them to negotiate the details of their future relationship. The transition period is currently expected to end on December 31, 2020, and, if no agreement is reached, the default scenario would be a “no-deal” Brexit. In the event of a no-deal Brexit, the U.K. will leave the E.U. with no agreements in place beyond any temporary arrangements that have or may be put in place by the E.U. or individual E.U. Member States, and the U.K. as part of no-deal contingency efforts and those conferred by mutual membership of the World Trade Organization. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the U.K. leaving the E.U. with no agreements in place would have and how such withdrawal would affect us. Brexit creates global political and economic uncertainty, which may cause, among other consequences, volatility in exchange rates and interest rates and changes in regulations. Additionally, there may be potential risks to our supply chain including additional administrative requirements, customs delays, and possibly tariffs. We currently do not believe that these and other related effects will have a material impact on the Company’s consolidated financial position or operating results. However, we continue to assess the situation and expect to take any necessary steps to mitigate Xerox 2019 Annual Report 25


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    Table of Contents the potential volatility, increased costs or disruptions to our supply chain that may result from this matter. For the year ended December 31, 2019, revenues and assets in Europe, including the U.K., represented approximately 25% of our consolidated revenues and total assets, respectively. Coronavirus (COVID-19) - Xerox has no sales operations in China or South Korea, but sources a significant amount of product and/or components there. At this time, the coronavirus outbreak in China and South Korea has not impacted the company’s operations. Xerox is actively assessing possible implications to its supply chain and planned customer delivery on a daily basis to minimize any potential disruption and impact. Our suppliers in the affected regions are slowly resuming their operations. We continue to regularly communicate with suppliers and transportation partners and are currently activating business continuity plans and mitigation strategies as appropriate, including but not limited to premium airfreight, alternate sourcing, asset recovery and reverse logistics covering equipment, supplies and parts. If the coronavirus becomes more prevalent in the western hemisphere and businesses require their office employees to work from home for an extended period of time, sales and use of Xerox products and services could decline. 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 and is calculated for all countries where the functional currency is the local country currency. We do not hedge the translation effect 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, foreign currency translation had a 1.5-percentage point unfavorable impact on revenue in 2019 and a 0.7-percentage point favorable impact on revenue in 2018. 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. On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606), which superseded nearly all existing revenue recognition guidance under U.S. GAAP. Refer to Note 4 - Revenue, in the Consolidated Financial Statements as well as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies - Revenue Recognition - 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 direct to end customers 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 minimum monthly payment for all elements over the contractual lease term. Sales made under bundled lease arrangements directly to end customers comprise approximately 35% of our equipment Xerox 2019 Annual Report 26


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    Table of Contents sales revenue. Revenues under bundled arrangements are allocated considering the relative standalone selling prices of the lease and non-lease deliverables included in the bundled arrangement. Lease deliverables include the equipment, financing, maintenance and other executory costs, while non-lease deliverables generally consist of the supplies and non-maintenance services. 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 shipped to such distributors and resellers. Distributors and resellers participate in various discount, rebate, price-support, 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. Total sales of equipment, supplies and parts to distributors and resellers were $1,343 million for the year ended December 31, 2019 and provisions and allowances recorded on these sales were approximately 25% 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 $46 million, $36 million and $33 million in Selling, administrative and general (SAG) expenses in our Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017, respectively. Although bad debt provisions increased in 2019, the provision continues to reflect the maintenance of a prudent credit policy. Reserves, as a percentage of trade and finance receivables, were 3.0% at December 31, 2019, as compared to 3.0% and 3.2% at December 31, 2018 and 2017, 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 five year period ended December 31, 2019, our reserve for doubtful accounts ranged from 3.0% to 3.7% of gross receivables. Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the December 31, 2019 rate of 3.0% would change the 2019 provision by approximately $24 million. Refer to Note 8 - Accounts Receivable, Net and Note 9 - 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. Where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefit 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. 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 $2.5 billion as of December 31, 2019 increased by $131 million from December 31, 2018, primarily due to the impact of lower discount rates and the resultant increase in the Pension Benefit Obligation as well as negative currency, partially offset by the excess of actual returns over expected returns and the recognition of actuarial losses through amortization and U.S. settlement losses. The total actuarial loss at December 31, 2019 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 4.6% for 2019, 4.5% for 2018 and 5.0% for 2017, on a worldwide basis. During 2019, the actual return on plan assets was a $1.2 billion gain as compared Xerox 2019 Annual Report 27


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    Table of Contents to an expected return of $443 million, with the difference largely due to positive equity market returns and the positive impact of decreasing interest rates on our fixed income investments. When estimating the 2020 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 2020 is 4.1% with the decrease from 2019 in our non-U.S. plans. 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, 2019 and to calculate our 2020 expense was 2.3%; the rate used to calculate our obligations as of December 31, 2018 and our 2019 expense was 3.2%. The decrease reflects lower interest rates in both U.S. and non-U.S. regions. 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) 2020 Projected net periodic pension cost $ (15) $ 15 $ (20) $ 20 Projected benefit obligation as of December 31, 2019 (365) 405 N/A N/A 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 $2.5 billion at December 31, 2019, of which the U.S. primary domestic plans, with a lump-sum feature, represented approximately $910 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, 2019, 2018 and 2017, U.S. plan settlements were $355 million, $660 million and $550 million, respectively, and the associated settlement losses on those plan settlements were $93 million, $173 million and $133 million, respectively. In 2020, 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, 2019, 2018 and 2017, as well as estimated amounts for 2020: Estimated Actual (in millions) 2020 2019 2018 2017 Defined benefit pension plans(1) $ 25 $ 16 $ 2 $ 61 U.S. settlement losses 110 93 173 133 Defined contribution plans 45 49 66 67 Retiree health benefit plans (65) (65) 8 30 Total Benefit Plan Expense $ 115 $ 93 $ 249 $ 291 _____________ (1) Excludes U.S. settlement losses. Xerox 2019 Annual Report 28


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    Table of Contents The following is a summary of our benefit plan funding for the three years ended December 31, 2019, 2018 and 2017, as well as estimated amounts for 2020: Estimated Actual (in millions) 2020 2019 2018 2017 U.S. Defined benefit pension plans $ 25 $ 26 $ 27 $ 675 Non-U.S. Defined benefit pension plans 110 115 117 161 Defined contribution plans 45 49 66 67 Retiree health benefit plans 35 30 57 64 Total Benefit Plan Funding $ 215 $ 220 $ 267 $ 967 Contributions to our U.S. defined benefit plans in 2019 and estimated for 2020 are primarily for payments associated with our non-qualified plan in the U.S. and do not include any contributions for our tax-qualified defined benefit plans because none were required to meet the minimum funding requirements. Refer to Note 19 - 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. We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards. We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the valuation of our allowance against our deferred tax assets. Increases to our valuation allowance, through income tax expense, were $16 million, $3 million and $6 million for the years ended December 31, 2019, 2018 and 2017, respectively. There were other (decreases) increases to our valuation allowance, including the effects of currency, of $(14) million, $(41) million and $13 million for the years ended December 31, 2019, 2018 and 2017, respectively. These did not affect income tax expense in total as there was a corresponding adjustment to Deferred tax assets or Other comprehensive (loss) income. The following is a summary of gross deferred tax assets and the related valuation allowances for the three years ended December 31, 2019: Year Ended December 31, (in millions) 2019 2018 2017 Gross deferred tax assets $ 1,706 $ 1,566 $ 2,051 Valuation allowance (399) (397) (435) Net deferred tax assets $ 1,307 $ 1,169 $ 1,616 We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based upon our assessment of the more-likely-than-not outcomes of such matters. In addition, when applicable, we adjust the previously recorded tax expense to reflect examination results. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate, as well as impact our operating results. Unrecognized tax benefits were $127 million, $108 million and $125 million at December 31, 2019, 2018 and 2017, respectively. On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted in the U.S. The Tax Act significantly revised 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 one-time transition tax on deemed repatriated earnings of foreign subsidiaries. Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding deferred income taxes, unrecognized tax benefits and the estimated impacts of the Tax Act. Xerox 2019 Annual Report 29


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    Table of Contents Business Combinations and Goodwill We allocate the fair value of purchase consideration to tangible assets, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to Goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows of acquired customers, acquired technology and trade names from a market participant perspective, as well as estimates of useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable and when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to Goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Refer to Note 6 - Acquisitions in the Consolidated Financial Statements for additional information regarding the allocation of the purchase price consideration for our acquisitions. Our Goodwill balance was $3.9 billion at December 31, 2019. We assess Goodwill for impairment at least annually, during the fourth quarter based on balances as of October 1st, and more frequently if we believe indicators of impairment exist. The application of the annual Goodwill impairment test begins with the identification of reporting units, which requires judgment. Consistent with the determination that we had one operating segment, we determined that there is one reporting unit and therefore we tested Goodwill for impairment at the Company or entity level. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. Our review of impairment starts with an assessment of qualitative factors to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair value of the Company is less than net book value. Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below our net book value. After assessing the totality of events and circumstances, if we determine that it is not more-likely-than-not that the fair value of the Company is less than its net book value, no further assessment is performed. If we determine that it is more likely-than-not that the fair value of the Company is less than net book value, we move to a quantitative assessment or test of goodwill. If a quantitative test of goodwill is required, the determination of the fair value of the Company will involve the use of significant estimates and assumptions. Our quantitative goodwill impairment test uses both the income approach and the market approach to estimate fair value. The income approach is based on the discounted cash flow method that uses the Company's estimates for forecasted future financial performance including revenues, operating expenses, and taxes, as well as working capital and capital asset requirements. These estimates are developed as part of our long-term planning process based on assumed market segment growth rates and our assumed market segment share, estimated costs based on historical data and various internal estimates. Projected cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated market weighted-average cost of capital, as well as any risk unique to the subject cash flows. When performing our market approach, we rely specifically on the guideline public company method. Our guideline public company method incorporates revenues and earnings multiples from publicly traded companies with operations and other characteristics similar to our entity. The selected multiples consider entity's relative growth, profitability, size and risk relative to the selected publicly traded companies. In performing our 2019 annual Goodwill impairment test as of October 1st, we qualitatively assessed our Goodwill balance for impairment and concluded that Goodwill was not impaired. In performing the qualitative assessment, we considered the prior year excess of fair value over carrying value and, as noted previously, relevant events and conditions, including but not limited to, macroeconomic trends, industry and market conditions, overall financial performance, cost factors, company-specific events, and legal and regulatory factors including our current market capitalization in relation to our net book value. Our assessment indicated that consistent with the prior year assessment, we expect to offset revenue declines over the next year with cost reductions and productivity improvements. Accordingly, expected net cash flows were consistent with prior period projections. Subsequent to our fourth quarter impairment test, we did not identify any indicators of potential impairment that required an update to the annual impairment test. Refer to Note 13 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding Goodwill. Xerox 2019 Annual Report 30


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    Table of Contents Revenue Results Summary Total Revenue Revenue for the three years ended December 31, 2019, 2018 and 2017 was as follows: Revenue % Change CC % Change % of Total Revenue (in millions) 2019 2018 2017 2019 2018 2019 2018 2019 2018 2017 Equipment sales $ 2,062 $ 2,178 $ 2,196 (5.3)% (0.8)% (4.0)% (1.2)% 23% 23% 22% Post sale revenue 7,004 7,484 7,795 (6.4)% (4.0)% (4.9)% (4.7)% 77% 77% 78% Total Revenue $ 9,066 $ 9,662 $ 9,991 (6.2)% (3.3)% (4.7)% (4.0)% 100% 100% 100% Reconciliation to Consolidated Statements of Income: Sales(1) $ 3,227 $ 3,454 $ 3,412 (6.6)% 1.2 % (5.3)% 1.1 % Less: Supplies, paper and other sales(1) (1,165) (1,276) (1,260) (8.7)% 1.3 % (7.4)% 1.4 % Add: Equipment-related training(2) — — 44 NM NM NM NM Equipment sales $ 2,062 $ 2,178 $ 2,196 (5.3)% (0.8)% (4.0)% (1.2)% Services, maintenance and rentals(1) $ 5,595 $ 5,940 $ 6,285 (5.8)% (5.5)% (4.4)% (5.7)% Add: Supplies, paper and other sales(1) 1,165 1,276 1,260 (8.7)% 1.3 % (7.4)% 1.4 % Add: Financing 244 268 294 (9.0)% (8.8)% (7.5)% (10.0)% Less: Equipment-related training(2) — — (44) NM NM NM NM Post sale revenue $ 7,004 $ 7,484 $ 7,795 (6.4)% (4.0)% (4.9)% (4.7)% Americas $ 5,963 $ 6,308 $ 6,146 (5.5)% 2.6 % (5.2)% 2.6 % 66% 65% 62% EMEA 2,817 3,137 3,736 (10.2)% (16.0)% (6.4)% (17.8)% 31% 33% 37% Other 286 217 109 31.8 % 99.1 % 31.8 % 99.1 % 3% 2% 1% Total Revenue(3) $ 9,066 $ 9,662 $ 9,991 (6.2)% (3.3)% (4.7)% (4.0)% 100% 100% 100% Memo: Xerox Services(4) $ 3,406 $ 3,621 $ 3,610 (5.9)% 0.3 % (4.0)% (0.3)% 38% 37% 36% _____________ CC - See "Currency Impact" section for description of Constant Currency. (1) Certain prior year amounts have been conformed to the current year presentation. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information. (2) In 2018, upon adoption of ASU 2014-09 Revenue Recognition, revenue from training related to equipment installation is now included in Equipment Sales. In 2017, this revenue was reported as Services, maintenance and rentals. (3) Refer to the "Geographic Sales Channels and Product and Offerings Definitions" section. (4) Includes equipment sale revenue of $433 million, $484 million and $458 million for the three years ended December 31, 2019, 2018 and 2017 respectively. Revenue Total revenue decreased 6.2% for the year ended December 31, 2019 including a 1.5-percentage point unfavorable impact from currency and an approximate 0.8-percentage point favorable impact from the OEM license fee. Total revenue decreased 3.3% for the year ended December 31, 2018 compared to the prior year, including a 0.7-percentage point favorable impact from currency. Total revenues included the following: Post sale revenue Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by page volumes generated by the usage of such devices, and the revenue per printed page. Post sale revenue also includes transactional IT hardware sales and implementation services from our XBS organization. For the year ended December 31, 2019, Post sale revenue decreased 6.4% compared to the prior year including a 1.5-percentage point unfavorable impact from currency and an approximate 1.0-percentage point favorable impact from the OEM license fee. For the year ended December 31, 2018, Post sale revenue decreased 4.0% compared to the prior year including a 0.7-percentage point favorable impact from currency. Xerox 2019 Annual Report 31


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    Table of Contents Post sale revenue is comprised of the following: • Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled supplies) as well as the post sale component of the document services revenue from our Xerox Services offerings. For the year ended December 31, 2019, these revenues decreased 5.8%, including a 1.4-percentage point unfavorable impact from currency and an approximate 1.3-percentage point favorable impact from the OEM license fee. The decline at constant currency1 reflected the continuing trends of lower page volumes (including a higher mix of lower usage products), an ongoing competitive price environment and a lower population of devices, which are partially associated with continued lower Enterprise signings and lower installs from prior and current periods. These declines were larger in the U.S. during the first half as a result of organizational changes being implemented as part of our Project Own It transformation actions. The impact began to moderate late in the second quarter, and was much less in the second half of 2019. For the year ended December 31, 2018, these revenues decreased 5.5%, including a 0.2-percentage point favorable impact from currency. The decline at constant currency1 reflected the continuing trends of lower page volumes (including a higher mix of lower usage products), an ongoing competitive price environment and a lower population of devices, which are partially associated with continued lower signings and installs from prior periods. The lower population of devices is partially due to the loss of market share for multiple quarters leading up to the ConnectKey launch in mid-2017. Additionally, the prior year included $20 million of higher revenues associated with a licensing agreement. These impacts were partially offset by higher revenues from Xerox Services (formerly Managed Document Services) and our Xerox Business Solutions (XBS) business, formerly known as Global Imaging Systems, inclusive of acquisitions. • Supplies, paper and other sales includes unbundled supplies and other sales. For the year ended December 31, 2019, these revenues decreased 8.7%, including a 1.3-percentage point unfavorable impact from currency. The decline at constant currency1 primarily reflected the impact of lower supplies revenues, primarily associated with lower page volume trends as well as the impact of lower paper sales from developing markets (primarily from the Latin America region). For the year ended December 31, 2018, these revenues increased 1.3%, including a 0.1-percentage point unfavorable impact from currency. The increase reflects higher paper sales and higher IT sales from our XBS business. • Financing revenue is generated from financed equipment sale transactions. For the year ended December 31, 2019, Financing revenue decreased 9.0%, including a 1.5-percentage point unfavorable impact from currency, while Financing revenue for the year ended December 31, 2018 decreased 8.8% including a 1.2-percentage point favorable impact from currency. The decline in both periods reflected a continued decline in finance receivables balance due to lower equipment sales in prior periods and a greater mix of equipment sales to channels where our financing penetration rate and return is lower. Equipment sales revenue Equipment revenue for the three years ended December 31, 2019 was as follows: Revenue % Change CC % Change % of Equipment Revenue (in millions) 2019 2018 2017 2019 2018 2019 2018 2019 2018 2017 Entry $ 217 $ 237 $ 231 (8.4)% 2.6% (6.9)% 2.0% 11% 11% 10% Mid-range 1,404 1,493 1,468 (6.0)% 1.7% (4.9)% 1.1% 68% 69% 67% High-end 421 423 473 (0.5)% (10.6)% 1.2% (10.7)% 20% 19% 22% Other 20 25 24 (20.0)% 4.2% (20.0)% 4.2% 1% 1% 1% Equipment sales(1) $ 2,062 $ 2,178 $ 2,196 (5.3)% (0.8)% (4.0)% (1.2)% 100% 100% 100% _____________ CC - See "Currency Impact" section for description of Constant Currency. (1) In 2018, upon adoption of ASU 2014-09 Revenue Recognition, revenue from training related to equipment installation is now included in Equipment sales (previously included in Post sale revenue). Prior year amounts have been adjusted to conform to this change. Equipment sales revenue Equipment sales revenue decreased 5.3% for the year ended December 31, 2019 including a 1.3-percentage point unfavorable impact from currency. The decline at constant currency1 was primarily driven by lower sales of our office- centric devices (entry and mid-range products) partially offset by higher sales of our production-centric devices (high- end) as well as the benefit of targeted price actions. For the year ended December 31, 2018, Equipment sales decreased 0.8% including a 0.4-percentage point favorable impact from currency. Equipment sales revenue in both years was impacted by price declines of approximately 5% (which were in-line with our historic declines). Xerox 2019 Annual Report 32


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    Table of Contents The change at constant currency1 reflected the following: • Entry For the year ended December 31, 2019, the decrease reflected lower sales of devices primarily in the indirect channels in EMEA, reflecting continued weakness and delayed decisions as a result of uncertainty in the economic environment, as well as lower revenues from our indirect channels in the U.S., reflecting targeted price investments in the fourth quarter of 2019, partially offset by higher installs. For the year ended December 31, 2018, the increase reflected higher sales of our ConnectKey devices through our indirect channels in the U.S. and developing markets. • Mid-range For the year ended December 31, 2019, the decrease reflected lower sales from our XBS sales organization, which continued to recover from the impact of organizational changes in the first half of 2019 that were implemented as part of our Project Own It transformation actions (including the transitioning of accounts to implement coverage changes, consolidation of real estate location and reduction of management layers), as well as lower revenues from our indirect channels in the U.S. and EMEA. The decrease was partially offset by higher revenues from our U.S. Enterprise organization, which had higher activity from light-production devices associated with the recent launch of PrimeLink (an entry-level production printer) and the benefit of a large account refresh in the second half. For the year ended December 31, 2018, the increase reflected higher sales of our ConnectKey devices through our Enterprise channel in the U.S., higher sales of lower-end devices in developing markets and higher sales from our XBS business. • High-end For the year ended December 31, 2019, the increase primarily reflected higher sales of color systems associated with continued demand for our Iridesse production press, as well as global demand for our newly-launched Baltoro inkjet press. The increase also reflected higher revenues from our U.S. Enterprise organization and from our indirect channels in the U.S., which was partially offset by lower revenues in EMEA, as well as lower sales from Versant (our lower-end production devices) and iGen print production systems. For the year ended December 31, 2018, the decrease primarily reflected lower sales from iGen, along with lower revenues from black-and-white systems consistent with market decline trends. These declines were only partially mitigated by demand for the Iridesse production press, as well as higher sales from our recently upgraded Brenva cut-sheet inkjet press. Revenue Metrics Installs reflect new placement of devices only (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations). Revenue associated with equipment installations may be reflected up-front Equipment sales or over time through rental income or as part of our Xerox Services revenues (which are both reported within our Post sale revenues), depending on the terms and conditions of our agreements with customers. Install activity includes Xerox Services and Xerox-branded products shipped to our XBS sales unit. Detail by product group (see Geographic Sales Channels and Product and Offerings Definitions) is shown below: Installs for the year ended December 31, 2019 were: Entry • Color multifunction devices were flat, reflecting higher installs of ConnectKey products primarily from our indirect channels in the U.S., offset by lower installs of devices from EMEA. • 4% decrease in black-and-white multifunction devices, reflecting lower activity primarily from U.S. Enterprise and EMEA, as well as from our developing regions in the Americas, partially offset by higher activity from our indirect channels in Canada, as well as XBS. Mid-Range(1) • 7% decrease in mid-range color installs, primarily reflecting lower installs of multifunction color devices through our U.S. enterprise, partially offset by higher installs of light-production devices that sit at the higher end of the portfolio range. • 17% decrease in mid-range black-and-white, reflecting, in part, global market trends. High-End(1) • 4% decrease in high-end color installs primarily reflecting lower activity from iGen and Versant production systems, partially offset by global demand for our newly-launched Baltoro inkjet press and continued strong demand for our Iridesse production press. • 14% decrease in high-end black-and-white systems reflecting global market trends. Xerox 2019 Annual Report 33


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    Table of Contents Installs for the year ended December 31, 2018 were: Entry • 12% increase in color multifunction devices, reflecting higher installs of our ConnectKey products through our indirect channels in the U.S. and Europe, as well as through our XBS business. • 17% increase in black-and-white multifunction devices, driven largely by higher activity from low-end devices in developing markets as well as higher installs of our ConnectKey devices through our indirect channels in the U.S. and Europe. Mid-Range(1) • 10% increase in mid-range color installs, reflecting higher demand from our ConnectKey devices through our large enterprise channel and our XBS business, as well as lower-end A3 devices in developing markets. • 8% increase in mid-range black-and-white, reflecting higher demand for our ConnectKey devices in our XBS business and developing markets. High-End(1) • 9% decrease in high-end color systems, as demand for our new Iridesse production press and cut-sheet inkjet products was offset by lower installs of iGen and lower-end production systems including Versant systems. • 18% decrease in high-end black-and-white systems reflecting market trends, partially offset by increased demand in our indirect U.S. channels and our developing markets. _____________ (1) Mid-range and High-end color installations exclude Fuji Xerox digital front-end sales; including Fuji Xerox digital front-end sales, Mid-range color devices decreased 7% and increased 9% for the years ended December 31, 2019 and 2018, respectively, while High-end color systems decreased 4% and 9% for the years ended December 31, 2019 and 2018, respectively. Geographic Sales Channels and Product and Offerings Definitions Our business is aligned to a geographic focus and is primarily organized on the basis of go-to-market sales channels, which are structured to serve a range of customers for our products and services. In 2019, we changed our geographic structure to create a more streamlined, flatter and more effective organization, as follows: • Americas, which includes our sales channels in the U.S. and Canada, as well as Mexico, and Central and South America. • EMEA, which includes our sales channels in Europe, the Middle East, Africa and India. • Other, which primarily includes sales to and royalties from Fuji Xerox, and our licensing revenue. Our products and offerings include: • “Entry”, which includes A4 devices and desktop printers. Prices in this product group can range from approximately $150 to $3,000. • “Mid-Range”, which includes A3 Office and Light Production devices that generally serve workgroup environments in mid to large enterprises. Prices in this product group can range from approximately $2,000 to $75,000+. • “High-End”, which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises. Prices for these systems can range from approximately $30,000 to $1,000,000+. • Xerox Services which includes solutions and services that span from managing print to automating processes to managing content. Our primary offerings are Intelligent Workplace Services (IWS), which is our rebranded Managed Print Services, as well as Digital and Cloud Print Services (including centralized print services). Xerox Services also includes Communications and Marketing Solutions. Xerox 2019 Annual Report 34


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    Table of Contents Costs, Expenses and Other Income Summary of Key Financial Ratios The following is a summary of our key financial ratios used to assess our performance: Year Ended December 31, (in millions) 2019 2018 2017 2019 B/(W) 2018 B/(W) Gross Profit $ 3,650 $ 3,869 $ 4,071 $ (219) $ (202) RD&E 373 397 424 24 27 SAG 2,085 2,379 2,514 294 135 Equipment Gross Margin 32.6% 33.9% 31.5% (1.3) pts. 2.4 pts. Post sale Gross Margin 42.5% 41.8% 43.3% 0.7 pts. (1.5) pts. Total Gross Margin 40.3% 40.0% 40.7% 0.3 pts. (0.7) pts. RD&E as a % of Revenue 4.1% 4.1% 4.2% — pts. 0.1 pts. SAG as a % of Revenue 23.0% 24.6% 25.2% 1.6 pts. 0.6 pts. Pre-tax Income $ 822 $ 549 $ 525 $ 273 $ 24 Pre-tax Income Margin 9.1% 5.7% 5.3% 3.4 pts. 0.4 pts. Adjusted(1) Operating Profit $ 1,192 $ 1,093 $ 1,133 $ 99 $ (40) Adjusted(1) Operating Margin 13.1% 11.3% 11.3% 1.8 pts. — pts. _____________ (1) Refer to the "Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure. Pre-tax Income Margin Pre-tax income margin for the year ended December 31, 2019 of 9.1% increased 3.4-percentage points compared to 2018, including an approximate 0.8-percentage point favorable impact from the $77 million OEM license fee. This increase was primarily driven by lower Other expenses, net, and Transaction and related costs, net. The increase also reflected lower operating costs, primarily associated with the net benefits from our Project Own It transformation actions, which more than offset the adverse impact of lower revenues. These improvements were partially offset by higher Restructuring and related costs. Transaction currency had a 0.3-percentage point unfavorable impact. Pre-tax income margin for the year ended December 31, 2018 of 5.7% increased 0.4-percentage points compared to 2017. This increase was primarily driven by lower Restructuring and related costs and lower Other expenses, net, including lower non-service retirement-related costs. These improvements were partially offset by lower revenues, which were only partially offset by cost reductions from our business transformation actions and higher Transaction and related costs, net. Transaction currency had a 0.5-percentage point favorable impact. Pre-tax income margin includes Restructuring and related costs, the Amortization of intangible assets, Transaction and other related costs and Other expenses, net, all of which are separately discussed in subsequent sections. Adjusted1 Operating margin, discussed below, excludes these items. Adjusted1 Operating Margin Adjusted1 operating margin for the year ended December 31, 2019 of 13.1% increased 1.8-percentage points compared to 2018, primarily reflecting an approximate 0.7-percentage point favorable impact from the $77 million OEM license fee, as well as the impact of cost and expense reductions associated with our Project Own It transformation actions, which more than offset the pace of revenue decline. The increase also reflected a $44 million favorable impact from higher costs in the prior year related to the exit of a surplus real estate facility and the termination of certain IT projects. Adjusted1 operating margin also included a 0.3-percentage point unfavorable impact from transaction currency. Adjusted1 operating margin for the year ended December 31, 2018 of 11.3% was flat as compared to 2017, primarily reflecting cost reductions from our business transformation actions and lower compensation expense. Entirely offsetting these improvements was lower revenues and a 0.4-percentage point unfavorable impact within SAG expenses primarily associated with the exit of a surplus real estate facility (0.2-percentage point) and the termination of certain IT projects (0.2-percentage point). Adjusted1 operating margin also included a 0.4-percentage point favorable impact from transaction currency. _____________ (1) Refer to Operating Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section. Xerox 2019 Annual Report 35


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    Table of Contents Gross Margin Total gross margin for the year ended December 31, 2019 of 40.3% increased 0.3-percentage points compared to 2018, primarily reflecting an approximate 0.6-percentage point favorable impact from the $77 million OEM license fee, as well as an unfavorable impact from transaction currency of 0.3-percentage points. Gross margin also reflects cost reductions from our business transformation actions as part of Project Own It, which were entirely offset by the impact of targeted pricing actions. Total gross margin for the year ended December 31, 2018 of 40.0% decreased 0.7-percentage points compared to 2017, primarily reflecting a less profitable mix of revenues and the impact of pricing, as well as lower post sale margin, partially offset by higher equipment margin and cost reductions from our business transformation actions. Gross margin includes the favorable impact from transaction currency of 0.4-percentage points. Equipment gross margin for the year ended December 31, 2019 of 32.6% decreased 1.3-percentage points compared to 2018, primarily as a result of targeted pricing actions, which were partially offset by savings from cost productivity, as well as a more profitable mix of revenues from the higher end of the portfolio. Equipment gross margin included the unfavorable impact from transaction currency of 0.8-percentage points. Equipment gross margin for the year ended December 31, 2018 of 33.9% increased 2.4-percentage points compared to 2017, reflecting savings from cost reduction initiatives, partially offset by the impact of pricing and a less profitable mix of revenues. Equipment gross margin included the favorable impact from transaction currency of 1.5-percentage points. Post sale gross margin for the year ended December 31, 2019 of 42.5% increased 0.7-percentage points compared to 2018, including an approximate 0.6-percentage point favorable impact from the $77 million OEM license fee, as well as cost reductions from our business transformation actions, offset by lower revenues and lower pricing on contract renewals. Post sale gross margin for the year ended December 31, 2018 of 41.8% decreased 1.5-percentage points compared to 2017, reflecting lower revenues, including an unfavorable mix of lower maintenance revenues and licensing revenues, as well as the impact of pricing, partially offset by cost reductions. Gross margins are expected to continue to be negatively impacted in future periods as a result of an increase in the cost of our imported products due to higher import tariffs. We are taking actions to mitigate the impact of these tariffs, such as raising prices on certain products, however, we currently estimate a year-over-year cost impact of approximately $20 million from higher tariffs in 2020. Research, Development and Engineering Expenses (RD&E) Year Ended December 31, Change (in millions) 2019 2018 2017 2019 2018 R&D $ 311 $ 325 $ 334 $ (14) $ (9) Sustaining engineering 62 72 90 (10) (18) Total RD&E Expenses $ 373 $ 397 $ 424 $ (24) $ (27) RD&E as a percentage of revenue for the year ended December 31, 2019 of 4.1% was flat compared to 2018. RD&E of $373 million for the year ended December 31, 2019, decreased $24 million from 2018, reflecting cost reductions from our Project Own It transformation actions, including lower sustaining engineering expenses, partially offset by modest investments in innovation in complementary market areas. RD&E as a percentage of revenue for the year ended December 31, 2018 of 4.1% was 0.1-percentage points lower compared to 2017. RD&E of $397 million for the year ended December 31, 2018 decreased $27 million from 2017 and reflected lower sustaining engineering expenses as well as cost reductions and lower expenses from the sale of a business and associated transfers of resources to third parties during the prior year. These impacts were partially offset by modest investments in innovation in complementary market areas. Xerox 2019 Annual Report 36


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    Table of Contents Selling, Administrative and General Expenses (SAG) SAG as a percentage of revenue of 23.0% decreased 1.6-percentage points for the year ended December 31, 2019 compared to 2018 primarily reflecting expense reductions from our business transformation actions. The decrease in SAG as a percentage of revenue includes the benefit from a 0.4-percentage point unfavorable impact from the exit of a real estate facility and the cancellation of certain IT projects in 2018. SAG expenses of $2,085 million for the year ended December 31, 2019 were $294 million lower than 2018, including an approximate $30 million unfavorable impact from currency. The decrease primarily reflected expense reductions from our Project Own It transformation actions as well as lower compensation expense; the reduction also includes the favorable impact of $44 million higher costs in 2018 related to the accelerated depreciation associated with the exit of a surplus real estate facility and the termination of certain IT projects. Bad debt expense for the year ended December 31, 2019 was $46 million or $10 million higher than the prior year primarily due to an increased level of sales-type leases as a result of our adoption of ASC Topic 842 - Leases and associated changes in the collectibility assessment of certain leases as well as an increased mix of high-end equipment sales (Refer to Note 3 - Adoption of New Leasing Standard - Lessor in the Consolidated Financial Statements for additional information regarding our adoption of ASC 842). On a trailing twelve-month basis (TTM), bad debt expense remained at less than one percent of total receivables. SAG as a percentage of revenue of 24.6% decreased 0.6-percentage points for the year ended December 31, 2018 compared to 2017 primarily reflecting the expense reductions associated with our business transformation actions. SAG as a percentage of revenue includes a 0.4-percentage point unfavorable impact associated with the exit of a surplus real estate facility and the termination of certain IT projects in 2018. SAG expenses of $2,379 million for the year ended December 31, 2018 were $135 million lower than 2017, including an approximate $14 million unfavorable impact from currency. The reduction primarily reflected expense reductions associated with our business transformation actions along with lower annual performance incentive compensation expense. These improvements were partially offset by $44 million of charges related to the accelerated depreciation from the early termination of a capital lease associated with a surplus facility ($22 million) and the cancellation of certain IT projects ($22 million) as we continue to evaluate the returns on our IT investments. Bad debt expense for the year ended December 31, 2018 was $36 million and was $3 million higher than the prior year and on a trailing twelve month basis (TTM) remained at less than one percent of receivables. Restructuring and Related Costs During the second half of 2018, we started our Project Own It transformation initiative. The primary goal of this initiative is to improve productivity by driving end-to-end transformation of our processes and systems to create organizational effectiveness and to reduce costs. We incurred restructuring and related costs of $229 million for the year ended December 31, 2019, primarily related to costs to implement initiatives under our business transformation projects including Project Own It. The following is a breakdown of those costs: Year Ended (in millions) December 31, 2019 Restructuring and severance costs(1) $ 81 Asset impairments(2) 61 Other contractual termination costs(3) 19 Net reversals(4) (34) Restructuring and asset impairment costs 127 Retention related severance/bonuses(5) 39 Contractual severance costs(6) 43 Consulting and other costs(7) 20 Total $ 229 ____________________________ (1) Reflects headcount reductions of approximately 1,000 employees worldwide for the year ended December 31, 2019. (2) Primarily related to the exit and abandonment of leased and owned facilities. For the year ended December 31, 2019, the charge includes the accelerated write-off of $39 million for leased right-of-use assets and $22 million for owned assets upon exit from the facilities, net of any potential sublease income and other recoveries. (3) Primarily includes additional costs incurred upon the exit from our facilities including decommissioning costs and associated contractual termination costs. (4) Reflects net reversals for changes in estimated reserves from prior period initiatives as well as $10 million in favorable adjustments from the early termination of prior period impaired leases for the year ended December 31, 2019. (5) Includes retention related severance and bonuses for employees expected to continue working beyond their minimum retention period before termination. (6) Reflects severance costs and other related costs we are contractually required to pay on employees transferred (approximately 2,200) as part of the shared service arrangement entered into with HCL Technologies. (7) Represents professional support services associated with our business transformation initiatives. Xerox 2019 Annual Report 37


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    Table of Contents 2019 actions impacted several functional areas, with approximately 15% focused on gross margin improvements, approximately 80% focused on SAG reductions, and the remainder focused on RD&E optimization. Restructuring and asset impairment costs were $161 million for the year ended December 31, 2019 and included $81 million of severance costs related to headcount reductions of approximately 1,000 employees worldwide, $19 million of other contractual termination costs and $61 million of asset impairment charges. These costs were partially offset by $34 million of net reversals, primarily resulting from changes in estimated reserves from prior period initiatives as well as $10 million in favorable adjustments from the early termination of prior period impaired leases. The implementation of our Project Own It initiatives as well as other business transformation initiatives is expected to continue to deliver significant cost savings in 2020. While many initiatives are underway and have yet to yield the full transformation benefits expected upon their completion, the changes implemented thus far have improved our cost structure and are beginning to yield longer term benefits. However, expected savings associated with these initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until the initiatives are fully implemented and stabilized. We expect 2020 pre-tax savings of approximately $90 million from our 2019 restructuring actions. Restructuring and related costs of $157 million for the year ended December 31, 2018 include net restructuring and asset impairment charges of $156 million and $1 million of additional costs, primarily related to professional support services associated with the business transformation initiatives. Net restructuring and asset impairment charges included the following: • $175 million of severance costs related to headcount of approximately 2,700 employees globally. The average restructuring cost per employee was lower in 2018 as compared to 2017 due to the geographic mix of actions as well as reductions in benefits under our employee severance programs particularly with respect to actions in the U.S. The actions impacted multiple functional areas, with approximately 25% of the costs focused on gross margin improvements, 70% focused on SAG reductions and the remainder focused on RD&E optimization. • $14 million for lease termination costs primarily reflecting continued optimization of our worldwide operating locations. The above charges were partially offset by $33 million of net reversals for changes in estimated reserves from prior period initiatives, primarily reflecting unanticipated attrition and other job changes prior to completion of the restructuring initiatives. Restructuring Summary The restructuring reserve balance as of December 31, 2019 for all programs was $70 million, which is expected to be paid over the next twelve months. During 2020, we expect to incur additional restructuring and related charges of approximately $175 million for actions and initiatives that have not yet been finalized. Approximately $75 million of the full year charges are expected to be recognized in the first quarter of the year. Refer to Note 14 - Restructuring Programs in the Consolidated Financial Statements for additional information regarding our restructuring programs. Transaction and Related Costs, Net Transaction and related costs, net, were $12 million in 2019 and reflect approximately $5 million of costs associated with our announced proposal to acquire HP (refer to the “Proposed Transaction with HP Inc.” section in the Executive Overview for additional information). These costs are primarily related to legal costs and other related professional services and are expected to continue in future periods and may include additional types of costs. The remainder of the costs in 2019 related to the proposed combination transaction with Fuji Xerox, which was terminated in May 2018, and primarily include on-going costs for litigation associated with the terminated transaction as well as adjustments and recoveries associated with costs incurred in 2018 (refer to the “Sales of Ownership Interests in Fuji Xerox Co., Ltd. and Xerox International Partners" section in the Executive Overview for additional information regarding the FX transaction litigation). We continue to pursue additional recoveries from insurance carriers and other parties for costs and expenses related to the terminated transaction and therefore additional recoveries and adjustments may be recorded in future periods, when finalized. Transaction and related costs, net, were $68 million in 2018 and reflect costs related to the proposed combination transaction with Fuji Xerox primarily for third-party accounting, legal, consulting and other similar types of services as well as financing costs and costs associated with litigation that resulted from the proposed transaction. These costs were partially offset by insurance recoveries and a settlement refund from a financial adviser that had been associated with the terminated transaction. Xerox 2019 Annual Report 38


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    Table of Contents Amortization of Intangible Assets Amortization of intangible assets for the three years ended December 31, 2019, 2018 and 2017 was $45 million, $48 million and $53 million, respectively. The decrease of $3 million and $5 million in 2019 and 2018, respectively, as compared to prior year periods is primarily the result of a lower level of acquisitions over the past several years. In 2019, this impact was partially offset by the accelerated write-off of trade names associated with our realignment and consolidation of certain XBS sales units as part of Project Own It. Refer to Note 13 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding our intangible assets. Worldwide Employment Worldwide employment was approximately 27,000 as of December 31, 2019 and decreased by approximately 5,400 from December 31, 2018. The reduction resulted from net attrition (attrition net of gross hires), a large portion of which is not expected to be backfilled, as well as the impact of organizational changes, including employees transferred as part of the shared service arrangement entered into with HCL Technologies earlier this year. Refer to the Shared Services Arrangement with HCL Technologies section in the Executive Overview for additional information. Other Expenses, Net Year Ended December 31, (in millions) 2019 2018 2017 Non-financing interest expense $ 105 $ 114 $ 119 Non-service retirement-related costs 18 150 188 Interest income (16) (15) (8) Gains on sales of businesses and assets (21) (35) (15) Litigation matters (8) 1 2 Contract termination costs - IT services (12) 43 — Currency losses, net 7 5 4 Loss on sales of accounts receivable 3 3 10 Loss on early extinguishment of debt — — 20 All other expenses, net 8 5 10 Other expenses, Net $ 84 $ 271 $ 330 Non-financing interest expense Non-financing interest expense for the year ended December 31, 2019 of $105 million was $9 million lower than 2018. When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense decreased by $10 million from the prior year. The decrease is primarily due to a lower debt balance reflecting the repayment of approximately $960 million of debt maturing in 2019. Non-financing interest expense for the year ended December 31, 2018 of $114 million was $5 million lower than 2017. When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense decreased by $6 million from the prior year. The decrease is primarily due to a lower debt balance reflecting the repayments of approximately $265 million of debt in 2018 and $800 million in 2017. Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity as well as information regarding the allocation of interest expense. Non-service retirement-related costs Non-service retirement-related costs decreased $132 million for the year ended December 31, 2019 as compared to the prior year primarily due to the favorable impact of a 2018 amendment to our U.S. Retiree Health Plan and lower losses from pension settlements in the U.S. of $93 million, an $80 million decrease compared to the prior year. Non-service retirement-related costs decreased $38 million for the year ended December 31, 2018 as compared to the prior year primarily due to the favorable impact of higher pension contributions and asset returns in the prior year, as well as the favorable impact of an amendment to our U.S. Retiree Health Plan. The favorable impacts were partially offset by higher losses from pension settlements in the U.S. of $173 million, a $40 million increase compared to the prior year. The higher level of settlements was primarily due to an expected increase in interest rates. Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding non-service retirement-related costs. Xerox 2019 Annual Report 39


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    Table of Contents Gain on sales of businesses and assets The gain on sales of businesses and assets in both 2019 and 2018 reflect the sales of non-core business assets. The gain in 2017 includes a gain of $13 million from the sale of a research facility in Grenoble, France. Litigation matters Litigation matters for 2019 were $9 million lower than the prior year reflecting the favorable resolution of certain litigation matters in 2019. Contract termination costs Contract termination costs for 2019 were a $12 million credit reflecting an adjustment to a $43 million penalty recorded in the fourth quarter 2018 associated with the termination of a related IT services arrangement. The penalty was associated with a minimum purchase commitment that would not be fulfilled due to the termination of a related IT services arrangement. The credit in 2019 reflects a change in estimate regarding the expected spending in the run- off of this terminated IT services arrangement and the amount due under the minimum purchase agreement. The minimum purchase commitment had originally been entered into in connection with the sale of our Information Technology Outsourcing (ITO) business in 2015. Loss on sales of accounts receivable Represents the loss incurred on our sales of accounts receivable. The decrease in loss reflects the termination of several receivable sale programs in 2017. Refer to Sales of Accounts Receivable in the Capital Resources and Liquidity section and Note 8 - Accounts Receivable, Net in the Consolidated Financial Statements for additional information regarding our sales of receivables. Loss on early extinguishment of debt During 2017, we recorded a $7 million net loss associated with the repayment of $475 million in Senior Notes, as well as a $13 million loss associated with the tender and exchange of certain Senior Notes. Income Taxes The 2019 effective tax rate was 21.8% and includes a credit of $35 million related to the 2017 Tax Act (the Tax Act) which is discussed below. On an adjusted1 basis, the 2019 effective tax rate was 26.1%. Both rates were higher than the U.S. statutory tax rate of 21% primarily due to state taxes. In addition to excluding the impact of the Tax Act, the adjusted1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, Amortization of intangible assets, Transaction and related costs, net, non-service retirement related costs as well as other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section. The 2018 effective tax rate was 45.0% and included a charge of $89 million related to the 2017 Tax Act which is discussed below. On an adjusted1 basis, the 2018 effective tax rate was 27.0%. Both rates were higher than the U.S. statutory tax rate of 21% primarily due to the geographical mix of profits. In addition to excluding the impact of the Tax Act, the adjusted1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, Amortization of intangible assets, Transaction and related costs, net, non-service retirement related costs as well as other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section. The 2017 effective tax rate was 89.1% and included a charge of $400 million related to the 2017 Tax Act which is discussed below. On an adjusted1 basis, the 2017 effective tax rate was 24.7%. This rate was lower than the U.S. statutory tax rate of 35% primarily due to foreign tax credits, the redetermination of certain unrecognized tax positions upon conclusion of several audits and the geographical mix of profits. In addition to excluding the impact of the Tax Act, the adjusted1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, Amortization of intangible assets, non-service retirement related costs and other discrete items. Xerox operations are widely dispersed. However, no one country outside of the U.S. is a significant factor in determining our overall effective tax rate. The tax impact from these non U.S. operations on our full year effective tax rate for 2019 was not material. Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the geographic mix of income before taxes and the related impacts on our effective tax rate. Our effective tax rate is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our effective tax rate will change based on discrete or other nonrecurring events that may not be predictable. Excluding the effects of the Restructuring and related costs, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs and other discrete items, we anticipate that our adjusted 1 effective tax rate will be approximately 24% to 27% for full year 2020. _____________ (1) Refer to the Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section. Xerox 2019 Annual Report 40

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