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 
became a direct, wholly owned subsidiary of Xerox Holdings and Xerox Holdings 
became the successor issuer to Xerox. 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. 
Currently, Xerox Holdings' sole direct 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 the results of operations 
and financial condition of Xerox. The MD&A is provided as a supplement to, and 
should be read in conjunction with, the Condensed Consolidated Financial 
Statements and the accompanying notes.s are made. References to “Xerox Holdings 
Corporation” refer to the stand-alone parent company and do not include its 
subsidiaries. Currency Impact To understand the trends in our business, we 
believe that it is helpful to analyze the impact of changes in the translation 
of foreign currencies into U.S. Dollars on revenue and expenses. We refer to 
this analysis as "constant currency", “currency impact” or “the impact from 
currency.” This impact is calculated by translating current period activity in 
local currency using the comparable prior year period's currency translation 
rate. This impact is calculated for all countries where the functional currency 
is the local country currency. We do not hedge the translation 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.

Overview Third Quarter 2019 Review Total revenue of $2.20 billion for third 
quarter 2019 declined 6.5% from third quarter 2018, including a 1.2-percentage 
point unfavorable impact from currency. The decrease in revenue reflected a 
decrease of 7.3% in Post sale revenue, including a 1.1-percentage point 
unfavorable impact from currency, and a decrease of 3.3% in Equipment sales 
revenue, including a 1.1-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, a lower population of 
devices, as well as lower transactional revenue from unbundled supplies and 
paper in our Latin America region. These declines were partially offset by the 
implementation of a large transactional IT sales arrangement from our XBS 
organization. The decline in Equipment sales primarily reflected lower sales of 
our office-centric devices (entry and mid-range products) partially offset by 
higher sales of our production-centric systems (high-end). Total revenue of 
$6.70 billion for the nine months ended September 30, 2019 declined 8.2% as 
compared to the prior year period, including a 1.7-percentage point unfavorable 
impact from currency. The decrease in revenue reflected a decrease of 8.3% in 
Post sale revenue, including a 1.7-percentage point unfavorable impact from 
currency, and a decrease of 8.0% in Equipment sales revenue, including a 
1.6-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 in our Latin 
America region. The decline in Equipment sales primarily reflected lower 
revenues from our mid-range products, which were impacted by organizational 
changes within the XBS sales organization, that continue to stabilize, as we 
transitioned a significant number of accounts from U.S. Enterprise in the first 
half of 2019.

Third quarter 2019 Net income attributable to Xerox Holdings increased $132 
million as compared to third quarter 2018 primarily due to lower non-service 
retirement-related costs and Income tax expense as well as higher Equity in net 
income of unconsolidated affiliates. In addition, lower revenues were more than 
offset by the continued benefits of cost savings and productivity improvements 
from our Project Own It transformation actions. Third quarter 2019 Adjusted1 
net income attributable to Xerox Holdings increased $26 million as compared to 
third quarter 2018. The increase reflected increased operating profits as a 
result of the continued benefits from cost savings and productivity 
improvements from Project Own It, which more than offset the pace of revenue 
decline, as well as higher Equity in net income of unconsolidated affiliates. 
Net income attributable to Xerox Holdings for the nine months ended September 
30, 2019 increased $311 million as compared to the prior year period primarily 
due to higher Equity in net income of unconsolidated affiliates as well as 
lower Income tax expense and non-service retirement-related costs. The increase 
also reflected the continued benefits of cost savings and productivity 
improvements from our Project Own It transformation actions, which more than 
offset the impact of lower revenues. These benefits were partially offset by 
higher Restructuring and related costs. Adjusted1 net income attributable to 
Xerox Holdings for the nine months ended September 30, 2019 increased $87 
million as compared to the prior year period. The increase was primarily 
related to higher Equity in net income of unconsolidated affiliates as well as 
increased operating profits reflecting the continued benefits of cost savings 
and productivity improvements from Project Own It, which more than offset the 
decline in revenues. Cash flows provided by operating activities for the nine 
months ended September 30, 2019 were $895 million, as compared to $725 million 
in the prior year period primarily reflecting lower working capital2, increased 
dividends from equity investments, and lower cash payments for Transaction and 
related costs, net. These benefits were partially offset by higher payments for 
restructuring related costs as well as taxes. Cash used in investing activities 
for the nine months ended September 30, 2019 was $68 million including capital 
expenditures of $48 million and acquisitions of $42 million partially offset by 
proceeds from the sale of non-core assets. Cash used in financing activities 
for the nine months ended September 30, 2019 was $983 million reflecting 
payments of $406 million on Senior Notes, $368 million for share repurchases 
and dividend payments of $183 million.

Outlook Revenues in the first half of 2019 were impacted by organizational 
changes, primarily in North America. This impact gradually mitigated during the 
latter part of the second quarter and was much less of an impact in the third 
quarter. We expect total revenues to decline approximately 7.9% in 2019, 
including an approximate 1.5-percentage point unfavorable impact from currency. 
Additionally, we continue to expect share repurchases of at least $600 million 
and dividend payments to shareholders of $250 million in 2019 and we increased 
our expectations for full year 2019 cash flows from operations to be between 
$1,175 million and $1,275 million, up from between $1,150 million to $1,250 
million, and decreased our expectations for capital expenditures to $75 
million, down from $150 million. ____________________________

Working capital, net reflects Accounts receivable, net, Inventories and 
Accounts payable. HP Inc. Agreement During second quarter 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 US. We will be able to sell HP PCs, displays and 
accessories, with or without DaaS, to our US 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. Restructure of Fujifilm Relationship On November 5, 2019, 
Xerox Holdings Corporation (the “Company”) announced that it had restructured 
its relationship with FUJIFILM Holdings Corporation (“FH”) through a series of 
agreements intended to simplify and set a new course for the companies’ 
strategic sourcing relationship going forward. As further described below, the 
Company entered into definitive agreements relating, among other things, to: 
sales to indirect subsidiaries of FH of the Company’s indirect 25% equity 
interest in Fuji Xerox Co., Ltd., a Japanese company (“FX”), and of the 
Company’s indirect 51% partnership interest in Xerox International Partners 
(“XIP”); modified sourcing terms for future product programs; the grant of a 
trademark license to enable FX to transition to a new brand while compensating 
the Company for continued use of its name; the grant of an IP license to allow 
FX to provide certain OEM products to certain named parties on a worldwide 
basis in exchange for a fixed royalty; and dismissal of a pending lawsuit FH 
filed against Xerox Corporation (“XC”).

Financial Review Revenues

Three Months Ended September 30,

Nine Months Ended September 30,

Excluding Equipment revenue, Xerox Services for the three months ended 
September 30, 2019 and 2018 was $719 million and $760 million, respectively, 
representing a decrease of 5.4% including a 1.6-percentage point unfavorable 
impact from currency, and for the nine months ended September 30, 2019 and 2018 
was $2,222 million and $2,352 million, respectively, representing a decrease of 
5.5% including a 2.3-percentage point unfavorable impact from currency Total 
revenue for the three months ended September 30, 2019 decreased 6.5%, as 
compared to the third quarter 2018, including a 1.2-percentage point 
unfavorable impact from currency, while total revenues for the nine months 
ended September 30, 2019 decreased 8.2% as compared to the prior year period, 
including a 1.7-percentage point unfavorable impact from currency. For the 
three and nine months ended September 30, 2019, total revenue included an 
approximate 0.7-percentage point and 0.6-percentage point unfavorable impact, 
respectively, from lower OEM sales. Total revenue reflected 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 the page volumes generated from 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 three months ended September 30, 2019 Post sale revenue 
decreased 7.3% as compared to the third quarter 2018, including a 
1.1-percentage point unfavorable impact from currency, while Post sale revenue 
for the nine months ended September 30, 2019 decreased 8.3% as compared to the 
prior year period, including a 1.7-percentage point unfavorable impact from 
currency and reflected 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 three months ended September 30, 2019 these revenues decreased 6.6% as 
compared to the third quarter 2018, including a 1.0-percentage point 
unfavorable 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 
Enterprise signings and installs in prior periods.

?

For the nine months ended September 30, 2019 these revenues decreased 7.5% as 
compared to the prior year period, including a 1.9-percentage point unfavorable 
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 Enterprise 
signings and installs in prior 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 of an impact in third 
quarter 2019.

•

Supplies, paper and other sales includes unbundled supplies and other sales.

?

For the three months ended September 30, 2019 these revenues decreased 10.1% as 
compared to the third quarter 2018, including a 0.9-percentage point 
unfavorable impact from currency and a 3.9-percentage point unfavorable impact 
from lower OEM sales. Excluding OEM sales, the decline at constant currency1 
reflected lower paper sales from developing markets (primarily from the Latin 
America region), as well as the impact of lower supplies revenues primarily 
associated with lower page volume trends. These declines were partially offset 
by the implementation of a large transactional IT sales arrangement from our 
XBS organization.

?

For the nine months ended September 30, 2019 these revenues decreased 11.7% as 
compared to the prior year period, including a 1.4-percentage point unfavorable 
impact from currency and a 2.8-percentage point unfavorable impact from lower 
OEM sales. Excluding OEM sales, the decline at constant currency1 reflected the 
impact of lower supplies revenues primarily from our developing market regions 
and indirect channels in the U.S., which is associated with lower page volume 
trends, as well as lower paper sales from developing markets (primarily from 
the Latin America region).

•

Financing revenue is generated from financed equipment sale transactions. For 
the three months ended September 30, 2019 these revenues decreased 7.7% as 
compared to the third quarter 2018, including a 0.7-percentage point 
unfavorable impact from currency, while Financing revenues for the nine months 
ended September 30, 2019 decreased 9.8% as compared to the prior year period, 
including a 1.7-percentage point unfavorable impact from currency. The decrease 
in both periods reflected the continued decline in the finance receivables 
balance due to lower equipment sales in prior periods.

Equipment sales revenue

Three Months Ended September 30,

Nine Months Ended September 30,

Equipment sales revenue decreased 3.3% for the three months ended September 30, 
2019 as compared to the third quarter 2018, including a 1.1-percentage point 
unfavorable impact from currency. Equipment sales revenues also decreased 8.0% 
for the nine months ended September 30, 2019 as compared to the prior year 
period and included a 1.6-percentage point unfavorable impact from currency. 
For the three and nine months ended September 30, 2019, these revenues were 
impacted by price declines of approximately 5%, respectively, and included 
unfavorable impacts of 0.3-percentage point and 1.4-percentage point, 
respectively, from the absence of OEM equipment sales. The decline at constant 
currency1 was primarily impacted by lower sales of our office-centric devices 
(entry and mid-range products) and reflected the following:

•

Entry - The decrease in both the three and nine months ended September 30, 2019 
as compared to the respective prior year periods, reflected lower sales of 
devices primarily from developing market regions in EMEA reflecting in part 
continued weakness and delayed decisions as a result of uncertainty in the 
economic environment. Revenues from entry products through our indirect 
channels in the U.S. also declined as they were further impacted by price 
investments and lower sales of devices from the lower end of the portfolio.

•

Mid-range - The decrease for the three months ended September 30, 2019 as 
compared to third quarter 2018, reflected lower sales from EMEA, primarily from 
developing market regions reflecting in part continued weakness and delayed 
decisions as a result of uncertainty in the economic environment. Revenues from 
our Americas region were flat as compared to the prior year, reflecting the 
favorable impact of a large account order (part of a refresh cycle), some of 
which occurred earlier than anticipated, offsetting lower sales from our U.S. 
indirect channels and from our XBS sales organization, which continued to 
gradually stabilize from the impact of organizational changes that were part of 
our Project Own It transformation actions, (including the transitioning of 
accounts to implement coverage changes, consolidation of real estate locations 
and the reduction of management layers). The decrease for the nine months ended 
September 30, 2019 as compared to the prior year period, was driven by lower 
sales in North America, primarily reflecting the transitional impact associated 
with recently implemented organizational changes in our XBS sales organization, 
which continued to gradually stabilize in the third quarter 2019. The 
organizational changes were part of our Project Own It transformation actions 
and include the transitioning of accounts to implement coverage changes, 
consolidation of real estate locations and the reduction of management layers. 
The decrease also reflected lower revenues from our indirect channels in the 
U.S. and lower installs, primarily in our Americas region, as well as a lack of 
large deals in EMEA.

•

High-end - The increase in both the three and nine months ended September 30, 
2019 as compared to the respective prior year periods, reflected higher sales 
of color systems associated with continued demand for our Iridesse production 
press and installs of our Versant production systems, as well as higher sales 
of iGen press in the U.S. in third quarter 2019. These increases were partially 
offset by continued lower sales of black-and-white systems. Additionally, 
revenues for the nine months ended September 30, 2019 were impacted by lower 
sales from our XBS sales organization, which continued to gradually stabilize 
from the impact of organizational changes that were part of our Project Own It 
transformation actions, (including the transitioning of accounts to implement 
coverage changes, consolidation of real estate locations and the reduction of 
management layers). Total Installs Installs reflect new placement of devices 
only. Revenue associated with equipment installations may be reflected up-front 
in Equipment sales or over time either 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. Installs include activity from 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 
in the third quarter of 2019: Entry(1)

•

10% increase in color multifunction devices reflecting higher installs of 
ConnectKey devices primarily from our indirect channels in the U.S. partially 
offset by lower installs from EMEA.

•

6% decrease in black-and-white multifunction devices driven by lower activity 
primarily from our indirect channels in the U.S. and from EMEA. Mid-Range(2)

•

2% increase in mid-range color installs primarily reflecting installs 
associated with a large account's refresh cycle order.

•

20% decrease in mid-range black-and-white reflecting lower installs of 
ConnectKey devices primarily from developing market regions and from our 
indirect channels in the U.S. The decline also reflected global market trends. 
High-End(2)

•

12% increase in high-end color installs reflecting continued demand for our 
Iridesse production press and higher installs of our lower-end Versant 
production systems as well as higher activity from iGen in North America.

•

22% decrease in high-end black-and-white systems. Installs for the nine months 
ended September 30, 2019: Entry(1)

•

1% increase in color multifunction devices reflecting higher installs of 
ConnectKey devices primarily from our indirect channels in the U.S. partially 
offset by lower installs from EMEA.

•

2% decrease installs of black-and-white multifunction devices reflecting lower 
activity primarily from U.S. Enterprise and from EMEA, partially offset by 
higher activity from our indirect channels in the U.S., as well as from XBS.


Mid-Range(2)

•

6% decrease in mid-range color installs reflecting lower installs of ConnectKey 
devices primarily in our Americas region. The decrease was significantly 
impacted by lower activity as a result of the transactional impact associated 
with recently implemented organizational changes in our XBS sales organization 
(as part of our Project Own It transformation actions), which included the 
transitioning of accounts to implement coverage changes, consolidation of real 
estate locations and the reduction of management layers.

•

16% decrease in mid-range black-and-white reflecting lower installs of 
ConnectKey devices primarily from indirect channels in the U.S. and from EMEA. 
High-End(2)

•

1% decrease in high-end color installs reflecting lower activity from iGen 
primarily in EMEA, partially offset by continued strong demand for our Iridesse 
production press and higher installs of our Versant production and inkjet 
cut-sheet systems.

•

22% decrease in high-end black-and-white systems reflecting market trends. 
_______________

(1)

When combined with OEM sales, Entry color multifunction devices for the three 
and nine months ended September 30, 2019, increased 10% and decreased 17%, 
respectively, while Entry black-and-white multifunction devices decreased 7% 
and 13%, respectively.

(2)

Mid-range and High-end color installations exclude Fuji Xerox digital front-end 
sales; including Fuji Xerox digital front-end sales for the three and nine 
months ended September 30, 2019, Mid-range color devices increased 2% and 
decreased 6%, respectively, while High-end color systems increased 12% and 
decreased 1%, 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, primarily includes our OEM business, as well as 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, formerly known as Managed Document Services (MDS), 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 Communication and Marketing Solutions that were 
previously excluded from our former MDS definition.

Costs, Expenses and Other Income

Pre-tax Income Margin Third quarter 2019 pre-tax income margin of 10.5% 
increased 2.3-percentage points as compared to third quarter 2018. The increase 
was primarily driven by lower operating expenses, primarily reflecting the net 
benefit from our Project Own It transformation actions, which more than offset 
the adverse impact of lower revenues. The increase also reflected lower Other 
Expenses, net, partially offset by higher Transaction and related costs, net, 
due to a prior year credit associated with recoveries from insurance and other 
vendors. Pre-tax income margin for the nine months ended September 30, 2019 of 
7.7% increased 1.4-percentage points as compared to the prior year period. The 
increase was primarily driven by lower Transaction and related costs, net and 
lower Other Expenses, net as well lower operating expenses, primarily 
reflecting the net benefit from our Project Own It transformation actions. 
These benefits more than offset the adverse impact of higher Restructuring and 
related costs and lower revenues.

Adjusted1 Operating Margin Third quarter 2019 adjusted1 operating margin of 
12.1% increased 1.2-percentage points as compared to third quarter 2018 
primarily reflecting the impact of SAG reductions and cost productivity 
associated with our Project Own It transformation actions, which more than 
offset the pace of revenue decline and an approximate 0.2-percentage point 
unfavorable impact from transaction currency. The increase also reflected a $5 
million favorable impact from higher costs in the prior year related to the 
termination of certain IT projects. Adjusted1 operating margin for the nine 
months ended September 30, 2019 of 12.0% increased 1.4-percentage points as 
compared to the prior year period primarily reflecting the impact of SAG 
reductions and cost productivity associated with our Project Own It 
transformation actions, which more than offset the pace of revenue decline and 
an approximate 0.3-percentage point unfavorable impact from transaction 
currency. The increase also reflected a $34 million favorable impact from 
higher costs in the prior year related to the termination of certain IT 
projects and the accelerated depreciation associated with the exit of a surplus 
real estate facility. ______________

Gross Margin

Third quarter 2019 gross margin of 40.0% decreased 0.1-percentage points as 
compared to third quarter 2018, and reflected an approximate 0.2-percentage 
point unfavorable impact from transaction currency, and the impact of lower 
equipment and supplies sales revenues as well as lower page volumes offset by 
cost productivity and restructuring savings associated with our Project Own It 
transformation actions.

Gross margin for the nine months ended September 30, 2019 of 39.8% decreased 
0.1-percentage points as compared to the prior year period, and reflected an 
approximate 0.3-percentage point unfavorable impact from transaction currency, 
due to lower equipment and post sale margin, which reflected the unfavorable 
volume and mix impacts of lower sales, primarily from mid-range equipment in 
our XBS organization, as well as targeted price actions almost entirely offset 
by cost productivity. Third quarter 2019 equipment gross margin of 34.4% 
decreased 0.2-percentage points as compared to third quarter 2018, reflecting 
cost productivity and the favorable mix impact of higher sales of high-end 
production systems offset by an approximate 0.6-percentage point unfavorable 
impact from transaction currency and selective price investments. Equipment 
gross margin for the nine months ended September 30, 2019 of 32.9% decreased 
0.1-percentage points as compared to the prior year period, including an 
approximate 0.8-percentage point unfavorable impact from transaction currency 
reflecting cost productivity, partially offset by the unfavorable volume and 
mix impacts of lower sales, primarily from mid-range equipment in our XBS 
organization, as well as selective price investments. Third quarter 2019 post 
sale gross margin of 41.6% was flat as compared to third quarter 2018 as a 
result of productivity and restructuring savings associated with our Project 
Own It transformation actions, which entirely offset the impact of lower 
revenues, including lower pricing on contract renewals. Post sale gross margin 
for the nine months ended September 30, 2019 of 41.7% decreased 0.1-percentage 
points as compared to the prior year period, driven by the impact of lower 
revenues, including lower pricing, almost entirely offset by productivity and 
restructuring savings associated with our Project Own It transformation 
actions. Gross margins are expected to be negatively impacted in future periods 
as a result of an increase in the cost of our imported products from higher 
import tariffs. We are taking actions to mitigate the impacts of these tariffs, 
such as raising prices on certain products, however, we currently estimate 
approximately $24 million of gross cost impacts from these higher tariffs in 
2019, with a significant portion impacting the fourth quarter 2019.

Research, Development and Engineering Expenses (RD&E)

Third quarter 2019 RD&E as a percentage of revenue of 4.5% increased by 
0.2-percentage points as compared to third quarter 2018, primarily due to lower 
revenues as expenses were essentially flat year-over-year. RD&E of $100 million 
decreased $2 million as compared to third quarter 2018 and reflected cost 
productivity and restructuring savings from our Project Own It transformation 
actions, partially offset by the timing of investments that started to ramp up 
during the quarter. RD&E as a percentage of revenue for the nine months ended 
September 30, 2019 of 4.2% was flat as compared to the prior year period. RD&E 
of $280 million for the nine months ended September 30, 2019 decreased $23 
million as compared to the prior year period and reflected cost productivity 
and restructuring savings from our Project Own It transformation actions, 
including savings in sustaining engineering, partially offset by modest 
investments in innovation in complementary market areas. Selling, 
Administrative and General Expenses (SAG) SAG as a percentage of revenue of 
23.3% decreased by 1.5-percentage points as compared to third quarter 2018, 
primarily reflecting the benefit from productivity and restructuring associated 
with our Project Own It transformation actions. SAG of $513 million decreased 
$70 million as compared to third quarter 2018, reflecting productivity and 
restructuring savings associated with our Project Own It transformation actions 
as well as lower compensation and incentives (consistent with lower revenues); 
the decrease also includes the favorable impacts of approximately $6 million 
from translation currency and $5 million from higher costs in the prior year 
associated with the termination of certain IT projects. Bad debt expense of $13 
million was $3 million higher compared to third quarter 2018 and on a trailing 
twelve month basis (TTM) remained at less than one percent of total 
receivables.

SAG as a percentage of revenue for the nine months ended September 30, 2019 of 
23.6% decreased by 1.5-percentage points as compared to the prior year period, 
primarily reflecting the benefit from productivity and restructuring associated 
with our Project Own It transformation actions. SAG for the nine months ended 
September 30, 2019 of $1,580 million decreased $255 million as compared to the 
prior year period, reflecting productivity and restructuring savings associated 
with our Project Own It transformation actions as well as lower compensation 
and incentives (consistent with lower revenues); the decrease also includes 
favorable impacts of approximately $28 million from translation currency and 
$34 million from higher costs in the prior year related to the termination of 
certain IT projects and the accelerated depreciation associated with the exit 
of a surplus real estate facility. Bad debt expense of $38 million was $3 
million higher compared to the prior year period and on a trailing twelve month 
basis (TTM) remained at less than one percent of total 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 greater focus, speed, accountability and 
effectiveness and to reduce costs. We incurred restructuring and related costs 
of $27 million and $176 million for the three and nine months ended September 
30, 2019, respectively, primarily related to costs to implement initiatives 
under our business transformation Third quarter 2019 actions impacted several 
functional areas, with approximately 50% focused on gross margin improvements, 
approximately 45% focused on SAG reductions, and the remainder focused on RD&E 
optimization.

Restructuring and asset impairment costs were $80 million for the nine months 
ended September 30, 2019 and included $37 million of severance costs related to 
headcount reductions of approximately 450 employees worldwide, $18 million of 
other contractual termination costs and $48 million of asset impairment 
charges. These costs were partially offset by $23 million of net reversals, 
primarily resulting from changes in estimated reserves from prior period 
initiatives as well as $6 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 result in significant cost savings in 2019 and future years. 
However, expected savings associated with these initiatives may be offset to 
some extent by business disruption during the implementation phase and until 
the initiatives are fully implemented and stabilized. Third quarter 2018 
Restructuring and related costs of $29 million included $40 million of 
severance costs related to headcount reductions of approximately 900 employees 
worldwide and $1 million of lease cancellation costs. These costs were 
partially offset by $12 million of net reversals for changes in estimated 
reserves from prior period initiatives. Third quarter 2018 actions impacted 
several functional areas, with approximately 30% focused on gross margin 
improvements, approximately 65% on SAG reductions and the remainder focused on 
RD&E optimization. Restructuring and related costs were $91 million for the 
nine months ended September 30, 2018 and included $104 million of severance 
costs related to headcount reductions of approximately 1,850 employees 
worldwide and $13 million of lease cancellation costs partially offset by $26 
million of net reversals for changes in estimated reserves from prior period 
initiatives. The restructuring reserve balance as of September 30, 2019 for all 
programs was $57 million, which is expected to be paid over the next twelve 
months. . Transaction and Related Costs, Net Transaction and related costs, net 
are expenses incurred in connection with Xerox's planned transaction with Fuji, 
which was terminated in May 2018, net of recoveries and settlements, as well as 
costs associated with certain litigation as a result of the terminated 
transaction and other shareholder actions. Transaction and related costs, net 
for the nine months ended September 30, 2019 were $8 million as compared to $63 
million in the prior year period. The costs in 2019 primarily relate to ongoing 
costs for litigation associated with the terminated Fuji transaction, which are 
expected to continue. We also continue to pursue additional recoveries from 
insurance carriers and other parties for costs and expenses related to the 
terminated Fuji transaction and related shareholder litigation and therefore 
additional recoveries and adjustments may be recorded in future periods, when 
finalized. Amortization of Intangible Assets Amortization of intangible assets 
for the nine months ended September 30, 2019 of $35 million decreased by $1 
million as compared to the prior year period.

Worldwide Employment Worldwide employment was approximately 27,600 as of 
September 30, 2019 and decreased by approximately 4,800 from December 31, 2018. 
The reduction resulted from net attrition (attrition net of gross hires), of 
which a large portion is not expected to be backfilled, as well as the impact 
of organizational changes including employees transferred as part of the shared 
services arrangement entered into with HCL Technologies earlier this year.

Other Expenses, Net

Three Months Ended September 30,

Nine Months Ended September 30,

Non-Financing Interest Expense Third quarter non-financing interest expense of 
$27 million was $1 million lower than third quarter 2018. When combined with 
financing interest expense (Cost of financing), total interest expense 
decreased by $1 million from third quarter 2018 primarily due to a lower debt 
balance. Non-financing interest expense for the nine months ended September 30, 
2019 of $80 million was $4 million lower than the prior year period. When 
combined with financing interest expense (Cost of financing), total interest 
expense decreased by $6 million from the prior year period primarily due to a 
lower debt balance.

Non-Service Retirement-Related Costs Non-service retirement-related costs for 
the three and nine months ended September 30, 2019 decreased $35 million and 
$62 million, respectively, as compared to the prior year periods, primarily 
driven by the favorable impact of a 2018 amendment to our U.S. Retiree Health 
Plan and lower losses from pension settlements in the U.S.

Gains on Sales of Businesses and Assets Gains on sales of businesses and assets 
for the three months ended September 30, 2019 increased $16 million as compared 
to the third quarter 2018, reflecting the sale of non-core business assets in 
the third quarter 2019. Gains on sales of businesses and assets for the nine 
months ended September 30, 2019 decreased by $15 million as compared to the 
prior year period, reflecting the higher sales of non-core business assets in 
the prior year.

Litigation Matters Litigation matters for the nine months ended September 30, 
2019 were $9 million lower than the prior year period, reflecting the favorable 
resolution of certain litigation matters in third quarter 2019. Contract 
Termination Costs - IT Services Contract termination costs for the nine months 
ended September 30, 2019 were an $8 million credit reflecting an adjustment to 
a $43 million penalty recorded in fourth quarter 2018, associated with the 
termination of an IT service arrangement.

Income Taxes Third quarter 2019 effective tax rate was 28.7%. On an adjusted1 
basis, third quarter 2019 effective tax rate was 26.5%. These rates were higher 
than the U.S. federal statutory tax rate of 21% primarily due to state taxes 
and the geographical mix of profits. 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 as well as non-service retirement-related costs and other discrete, 
unusual or infrequent items as described in our Non-GAAP Financial Measures 
section. The effective tax rate for the nine months ended September 30, 2019 
was 21.1% and includes a benefit of $31 million related to the January 2019 
finalization of regulations that govern the repatriation tax from the 2017 Tax 
Cuts and Jobs Act (the "Tax Act"). On an adjusted1 basis, the effective tax 
rate for the nine months ended September 30, 2019 was 26.0%. This rate was 
higher than the U.S. federal statutory tax rate of 21% primarily due to state 
taxes 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, Transaction and related costs, net as well 
as non-service retirement-related costs and other discrete, unusual or 
infrequent items as described in our Non-GAAP Financial Measures section. Third 
quarter 2018 effective tax rate was 74.0% and included an additional charge of 
$95 million related to the change in the provisional estimated impact from the 
2017 Tax Cuts and Jobs Act (the "Tax Act"). On an adjusted1 basis, third 
quarter 2018 effective tax rate was 24.5%. This rate was higher than the U.S. 
federal statutory tax rate of 21% primarily due to state taxes 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, Transaction and related costs, net, and non-service 
retirement-related costs. The effective tax rate for the nine months ended 
September 30, 2018 was 47.9% and included an additional charge of $95 million 
related to the change in the provisional estimated impact from the Tax Act. On 
an adjusted1 basis, the effective tax rate for the nine months ended September 
30, 2018 was 26.5%. This rate was higher than the U.S. federal 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, and non-service retirement-related. 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. 
______________

Equity in Net Income (Loss) of Unconsolidated Affiliates

Three Months Ended September 30,

Nine Months Ended September 30, (in millions)

Equity in net income (loss) of unconsolidated affiliates primarily reflects our 
25% share of Fuji Xerox Net income (loss). For the three and nine months ended 
September 30, 2019, equity income increased $15 million and $143 million as 
compared to the prior year periods, primarily reflecting savings from Fuji 
Xerox restructuring. Equity income for the three and nine months ended 
September 30, 2019, also increased as a result of $7 million and $71 million of 
lower year-over-year charges related to our share of Fuji Xerox after-tax 
restructuring and other charges, as compared to the respective prior year 
periods. Additionally, equity income for the nine months ended September 30, 
2019 increased as a result of an approximate $28 million charge related to an 
out-of-period charge at Fuji Xerox in the prior year.

Net Income Third quarter 2019 Net income attributable to Xerox Holdings was 
$221 million, or $0.96 per diluted share. On an adjusted1 basis, Net income 
attributable to Xerox Holdings was $248 million, or $1.08 per diluted share and 
includes adjustments for 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 as 
described in our Non-GAAP Financial Measures section. Net income attributable 
to Xerox Holdings for the nine months ended September 30, 2019 was $535 
million, or $2.27 per diluted share. On an adjusted1 basis, Net income 
attributable to Xerox Holdings was $700 million, or $2.97 per diluted share and 
includes adjustments for 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 as 
described in our Non-GAAP Financial Measures section. Third quarter 2018 Net 
income attributable to Xerox Holdings was $89 million, or $0.34 per diluted 
share, which included an estimated non-cash charge of $95 million or $0.37 per 
diluted share associated with the Tax Act. On an adjusted1 basis, Net income 
attributable to Xerox Holdings was $222 million, or $0.85 per diluted share and 
includes adjustments for 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 as 
described in our Non-GAAP Financial Measures section. Net income attributable 
to Xerox Holdings for the nine months ended September 30, 2018 was $224 
million, or $0.83 per diluted share, which included an estimated non-cash 
charge of $95 million or $0.37 per diluted share associated with the Tax Act. 
On an adjusted1 basis, Net income attributable to Xerox Holdings was $613 
million, or $2.33 per diluted share and includes adjustments for 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 as described in our Non-GAAP Financial Measures 
section. Refer to Note 21 - Earnings per Share in the Condensed Consolidated 
Financial Statements, for additional information regarding the calculation of 
basic and diluted earnings per share. ___________

Other Comprehensive (Loss) Income Third quarter 2019 Other Comprehensive Loss, 
Net Attributable to Xerox Holdings was $203 million and included the following: 
i) net translation adjustment losses of $155 million reflecting the significant 
weakening of our major foreign currencies against the U.S. Dollar during the 
third quarter 2019 and ii) $48 million of net losses from the changes in 
defined benefit plans, primarily due to net actuarial losses as a result of 
lower discount rates in the U.S., partially offset by settlements and the 
positive impacts from currency. This compares to Other Comprehensive Income, 
Net Attributable to Xerox Holdings of $61 million for the third quarter 2018, 
which reflected the following: i) $83 million of net gains from the changes in 
defined benefit plans, primarily due to net actuarial gains and settlements; 
ii) $13 million of net translation adjustment losses, reflecting the weakening 
of our major foreign currencies against the U.S. Dollar during third quarter 
2018; and iii) $9 million of net unrealized losses on derivatives.

Other Comprehensive Loss, Net Attributable to Xerox Holdings for the nine 
months ended September 30, 2019 was $158 million and included the following: i) 
net translation adjustment losses of $122 million reflecting the significant 
weakening of our major foreign currencies against the U.S. Dollar during 2019; 
ii) $38 million of net losses from the changes in defined benefit plans; and 
iii) $3 million of net unrealized gains. This compares to Other Comprehensive 
Income, Net Attributable to Xerox Holdings of $37 million for the nine months 
ended September 30, 2018, which reflected the following: i) $191 million of net 
gains from the changes in defined benefit plans, primarily due to settlements 
and the impact of currency on net actuarial losses, partially offset by our 
share of the negative impacts from changes in Fuji Xerox's benefit plans; ii) 
$5 million of net unrealized gains on derivatives; and iii) $159 million of net 
translation adjustment losses, reflecting the weakening of our major foreign 
currencies against the U.S. Dollar during 2018. Refer to Note 20 - Other 
Comprehensive (Loss) Income in the Condensed Consolidated Financial Statements, 
for the components of Other Comprehensive (Loss) Income, Note 14 - Financial 
Instruments in the Condensed Consolidated Financial Statements, for additional 
information regarding unrealized gains (losses), net, and Note 16 - Employee 
Benefit Plans in the Condensed Consolidated Financial Statements, for 
additional information regarding net changes in our defined benefit plans. 
Capital Resources and Liquidity As of September 30, 2019 and December 31, 2018, 
total cash, cash equivalents and restricted cash were $979 million and $1,148 
million, respectively. There were no borrowings under our Credit Facility at 
September 30, 2019 or December 31, 2018, respectively. The decrease in total 
cash, cash equivalents and restricted cash primarily reflects the repayment of 
$406 million of maturing Senior Notes in first quarter 2019. We have updated 
our expectations for operating cash flows from continuing operations to be 
between $1,175 million and $1,275 million from our original expectation of 
between $1,150 million and $1,250 million, as well as our expectation for 
capital expenditures to be approximately $75 million from our original 
expectation of $150 million. We continue to expect dividend payments to 
shareholders of approximately $250 million and share repurchases of at least 
$600 million in 2019.

Cash Flow Analysis

Cash Flows from Operating Activities Net cash provided by operating activities 
was $895 million for the nine months ended September 30, 2019. The $170 million 
increase in operating cash from the prior year period was primarily due to the 
following:

•

$31 million decrease in pre-tax income before Transaction and related costs, 
net, Depreciation and amortization, Net gain on sales of businesses and assets, 
Restructuring and asset impairment charges, Defined benefit pension costs and 
Retiree Health costs.

•

$124 million increase primarily due to lower levels of inventories partially 
reflecting lower sales volume and improved inventory management.

•

$69 million increase due to lower placements of equipment on operating leases.

•

$59 million increase from lower restructuring payments primarily due to timing 
of initiatives and actions.

•

$45 million increase due to lower net payments for transaction and related 
costs as current year payments are primarily limited to costs related to 
on-going litigation.

•

$32 million increase in dividends received from equity investments primarily 
due to increased net income from Fuji Xerox.

•

$28 million increase from the settlements of foreign currency derivative 
contracts associated with our Yen-denominated inventory purchases.

•

$25 million increase from accounts receivable primarily due to the timing of 
collections and lower revenues.

Xerox 2019 Form 10-Q 61

•

$61 million decrease due to payments associated with restructuring related 
costs primarily for our contractual severance obligation incurred as part of 
the shared service arrangement with HCL Technologies and professional support 
services associated with our business transformation initiatives.

•

$57 million decrease due to a lower net run-off of finance receivables 
reflecting a lower balance of receivables as well as an increased level of 
originations.

•

$32 million decrease from the change in accounts payable primarily related to 
lower inventory and other spending as well as the year-over-year timing of 
supplier and vendor payments.

•

$26 million decrease due to higher net tax payments Cash Flows from Investing 
Activities Net cash used in investing activities was $68 million for the nine 
months ended September 30, 2019. The $28 million change from the prior year 
period was primarily due to the following:

•

$42 million decrease primarily due to two acquisitions.

•

$11 million decrease primarily due to lower proceeds from the sales of assets.

•

$25 million increase reflecting lower capital expenditures. Cash Flows from 
Financing Activities Net cash used in financing activities was $983 million for 
the nine months ended September 30, 2019. The $168 million increase in the use 
of cash from the prior year period was primarily due to the following:

•

$93 million increase from net debt activity. 2019 reflects payments of $406 
million on Senior Notes compared to prior year payments of $265 million on 
Senior Notes, $25 million related to the termination of a capital lease 
obligation and $19 million of bridge facility costs.

•

$84 million increase due to share repurchases. Adoption of New Leasing Standard 
On January 1, 2019, we adopted ASU 2016-02, Leases (ASC Topic 842). This 
update, as well as additional amendments and targeted improvements issued in 
2018 and early 2019, supersedes existing lease accounting guidance found under 
ASC 840, Leases (ASC 840) and requires the recognition of right-of-use (ROU) 
assets and lease obligations by lessees for those leases originally classified 
as operating leases under prior lease guidance. Refer to the following Notes in 
the Condensed Consolidated Financial Statements for additional information 
related to the adoption of this standard:

•

Potential Customer Financing Transaction In connection with the Company's 
strategic initiative to simplify and optimize its operations, the Company 
conducted a thorough evaluation of its customer financing business, including 
consideration of strategic alternatives for the business. The Company received 
multiple bids to purchase all or a portion of the business at an attractive 
premium, but has determined that retaining and optimizing the business through 
Project Own It will generate the greatest return for shareholders. Cash, Cash 
Equivalents and Restricted Cash Refer to Note 7 - Supplementary Financial 
Information in the Condensed Consolidated Financial Statements for additional 
information regarding Cash, cash equivalents and restricted cash.

Debt and Customer Financing Activities

September 30, 2019

December 31, 2018

Fair value adjustments include the following: (i) fair value adjustments to 
debt associated with terminated interest rate swaps, which are being amortized 
to interest expense over the remaining term of the related notes; and (ii) 
changes in fair value of hedged debt obligations attributable to movements in 
benchmark interest rates. Hedge accounting requires hedged debt instruments to 
be reported inclusive of any fair value adjustment.

Finance Assets and Related Debt The change from December 31, 2018 includes a 
decrease of $40 million due to currency. Our lease contracts permit customers 
to pay for equipment over time rather than at the date of installation; 
therefore, we maintain a certain level of debt (that we refer to as financing 
debt) to support our investment in these lease contracts, which are reflected 
in total finance assets, net. For this financing aspect of our business, we 
maintain an assumed 7:1 leverage ratio of debt to equity as compared to our 
finance assets. Approximately 35% of our finance receivables, net balance 
include lease financing provided to end-user customers who purchased equipment 
we sold to distributors and resellers.

Finance receivables debt is the basis for our calculation of "Cost of 
financing" expense in the Condensed Consolidated Statements of Income.

Debt Activity Senior Notes Repayment In first quarter 2019, we repaid 
approximately $406 million of maturing Senior Notes.

Sales of Accounts Receivable

Liquidity and Financial Flexibility We manage our worldwide liquidity using 
internal cash management practices, which are subject to i) the statutes, 
regulations and practices of each of the local jurisdictions in which we 
operate, ii) the legal requirements of the agreements to which we are a party 
and iii) the policies and cooperation of the financial institutions we utilize 
to maintain and provide cash management services.

Treasury Stock 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. Xerox Holdings repurchased 2.4 million shares of our common 
stock for an aggregate cost of $68 million, including fees, in third quarter 
2019. Xerox Holdings repurchased 11.6 million shares of our common stock for an 
aggregate cost of $368 million, including fees, during the nine months ended 
September 30, 2019. The full year repurchases include the shares repurchased 
under Xerox Corporation's previously authorized share repurchase program. The 
cumulative total shares repurchased by Xerox Holdings, including the shares 
repurchased under Xerox Corporation's previously authorized program from July 
2018, is 37.7 million shares at a cost of $1.1 billion, including fees through 
September 30, 2019. Xerox Holdings repurchased an additional 2.8 million shares 
with an aggregate cost of $83 million, including fees, from October 1, 2019 
through October 31, 2019. We continue to expect full year 2019 share 
repurchases of at least $600 million.

Financial Risk Management We are exposed to market risk from foreign currency 
exchange rates and interest rates, which could affect operating results, 
financial position and cash flows. We manage our exposure to these market risks 
through our regular operating and financing activities and, when appropriate, 
through the use of derivative financial instruments. We utilize derivative 
financial instruments to hedge economic exposures, as well as to reduce 
earnings and cash flow volatility resulting from shifts in market rates. We 
enter into limited types of derivative contracts, including interest rate swap 
agreements, foreign currency spot, forward and swap contracts and net purchased 
foreign currency options to manage interest rate and foreign currency 
exposures. Our primary foreign currency market exposures include the Japanese 
Yen, Euro and U.K. Pound Sterling. The fair market values of all our derivative 
contracts change with fluctuations in interest rates and/or currency exchange 
rates and are designed so that any changes in their values are offset by 
changes in the values of the underlying exposures. Derivative financial 
instruments are held solely as risk management tools and not for trading or 
speculative purposes. The related cash flow impacts of all of our derivative 
activities are reflected as cash flows from operating activities. We are 
required to recognize all derivative instruments as either assets or 
liabilities at fair value in the balance sheet. As permitted, certain of these 
derivative contracts have been designated for hedge accounting treatment. 
Certain of our derivatives that do not qualify for hedge accounting are 
effective as economic hedges. These derivative contracts are likewise required 
to be recognized each period at fair value and therefore do result in some 
level of volatility. The level of volatility will vary with the type and amount 
of derivative hedges outstanding, as well as fluctuations in the currency and 
interest rate markets during the period. The related cash flow impacts of all 
of our derivative activities are reflected as cash flows from operating 
activities. By their nature, all derivative instruments involve, to varying 
degrees, elements of market and credit risk. The market risk associated with 
these instruments resulting from currency exchange and interest rate movements 
is expected to offset the market risk of the underlying transactions, assets 
and liabilities being hedged. We do not believe there is significant risk of 
loss in the event of non-performance by the counterparties associated with 
these instruments because these transactions are executed with a diversified 
group of major financial institutions. Further, our policy is to deal with 
counterparties having a minimum investment grade or better credit rating. 
Credit risk is managed through the continuous monitoring of exposures to such 
counterparties. The current market events have not required us to materially 
modify or change our financial risk management strategies with respect to our 
exposures to interest rate and foreign currency risk. Refer to Note 14 – 
Financial Instruments in the Condensed Consolidated Financial Statements for 
further discussion and information on our financial risk management strategies.

Non-GAAP Financial Measures We have reported our financial results in 
accordance with generally accepted accounting principles (GAAP). In addition, 
we have discussed our financial results using the non-GAAP measures described 
below. We believe these non-GAAP measures allow investors to better understand 
the trends in our business and to better understand and compare our results. 
Accordingly, we believe it is necessary to adjust several reported amounts, 
determined in accordance with GAAP, to exclude the effects of certain items as 
well as their related income tax effects. A reconciliation of these non-GAAP 
financial measures to the most directly comparable financial measures 
calculated and presented in accordance with GAAP are set forth below as well as 
in the third quarter 2019 presentation slides available at 
www.xerox.com/investor. These non-GAAP financial measures should be viewed in 
addition to, and not as a substitute for, the Company’s reported results 
prepared in accordance with GAAP.

Adjusted Earnings Measures

•

Net income and Earnings per share (EPS)

•

Effective tax rate The above measures were adjusted for the following items: 
Restructuring and related costs: Restructuring and related costs include 
restructuring and asset impairment charges as well as costs associated with our 
transformation programs beyond those normally included in restructuring and 
asset impairment charges. Restructuring consists of costs primarily related to 
severance and benefits paid to employees pursuant to formal restructuring and 
workforce reduction plans. Asset impairment includes costs incurred for those 
assets sold, abandoned or made obsolete as a result of our restructuring 
actions, exiting from a business or other strategic business changes. 
Additional costs for our transformation programs are primarily related to the 
implementation of strategic actions and initiatives and include third-party 
professional service costs as well as one-time incremental costs. All of these 
costs can vary significantly in terms of amount and frequency based on the 
nature of the actions as well as the changing needs of the business. 
Accordingly, due to that significant variability, we will exclude these charges 
since we do not believe they provide meaningful insight into our current or 
past operating performance nor do we believe they are reflective of our 
expected future operating expenses as such charges are expected to yield future 
benefits and savings with respect to our operational performance. Amortization 
of intangible assets: The amortization of intangible assets is driven by our 
acquisition activity which can vary in size, nature and timing as compared to 
other companies within our industry and from period to period. The use of 
intangible assets contributed to our revenues earned during the periods 
presented and will contribute to our future period revenues as well. 
Amortization of intangible assets will recur in future periods. Transaction and 
related costs, net: Transaction and related costs, net are expenses incurred in 
connection with Xerox's planned transaction with Fuji, which was terminated in 
May 2018, as well as costs and expenses related to the previously disclosed 
settlement agreement reached with certain shareholders and litigation related 
to the terminated transaction and other shareholder actions. These costs are 
considered incremental to our normal operating charges and were incurred or are 
expected to be incurred solely as a result of the planned combination 
transaction and the related shareholder settlement agreement and litigation. 
Accordingly, we are excluding these expenses from our Adjusted Earnings 
Measures in order to evaluate our performance on a comparable basis. 
Non-service retirement-related costs: Our defined benefit pension and retiree 
health costs include several elements impacted by changes in plan assets and 
obligations that are primarily driven by changes in the debt and equity markets 
as well as those that are predominantly legacy in nature and related to 
employees who are no longer providing current service to the company (e.g. 
retirees and ex-employees). These elements include (i) interest cost, (ii) 
expected return on plan assets, (iii) amortization of prior plan amendments, 
(iv) amortized actuarial gains/losses and (v) the impacts of any plan 
settlements/curtailments. Accordingly, we consider these elements of our 
periodic retirement plan costs to be outside the operational performance of the 
business or legacy costs and not necessarily indicative of current or future 
cash flow requirements. This approach is consistent with the classification of 
these costs as non-operating in Other expenses, net. Adjusted earnings will 
continue to include the service cost elements of our retirement costs, which is 
related to current employee service as well as the cost of our defined 
contribution plans. Restructuring and other charges - Fuji Xerox: We adjust our 
25% share of Fuji Xerox’s net income for similar items noted above such as 
Restructuring and related costs and Transaction and related costs, net based on 
the same rationale discussed above. Other discrete, unusual or infrequent 
items: We excluded the following items given their discrete, unusual or 
infrequent nature and their impact on our results for each period:

•

Contract termination costs - IT Services

•

Impacts associated with the Tax Cuts and Jobs Act (the "Tax Act") enacted in 
December 2017 We believe the exclusion of these items allows investors to 
better understand and analyze the results for the period as compared to prior 
periods and expected future trends in our business. Adjusted Operating Income 
and Margin We calculate and utilize adjusted operating income and margin 
measures by adjusting our reported pre-tax income and margin amounts. In 
addition to the costs and expenses noted as adjustments for our Adjusted 
Earnings measures, adjusted operating income and margin also exclude the 
remaining amounts included in Other expenses, net, which are primarily 
non-financing interest expense and certain other non-operating costs and 
expenses. We exclude these amounts in order to evaluate our current and past 
operating performance and to better understand the expected future trends in 
our business. Constant Currency (CC)

Summary Management believes that all of these non-GAAP financial measures 
provide an additional means of analyzing the current period’s results against 
the corresponding prior period’s results. However, these non-GAAP financial 
measures should be viewed in addition to, and not as a substitute for, the 
Company’s reported results prepared in accordance with GAAP. Our non-GAAP 
financial measures are not meant to be considered in isolation or as a 
substitute for comparable GAAP measures and should be read only in conjunction 
with our consolidated financial statements prepared in accordance with GAAP. 
Our management regularly uses our supplemental non-GAAP financial measures 
internally to understand, manage and evaluate our business and make operating 
decisions. These non-GAAP measures are among the primary factors management 
uses in planning for and forecasting future periods. Compensation of our 
executives is based in part on the performance of our business based on these 
non-GAAP measures.

CONTROLS AND PROCEDURES In March 2019, the Company entered into a shared 
services arrangement with HCL Technologies (HCL) pursuant to which we are 
outsourcing certain global administrative and support functions, including, 
among others, selected information technology, order to collection and finance 
functions (excluding accounting). The transition of these functions to HCL is 
expected to take up to 18 months. 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. This arrangement is not in 
response to any identified deficiency or weakness in the Company’s internal 
control over financial reporting. In response to this arrangement, the Company 
has and will continue to align and streamline the design and operation of its 
financial control environment.