At Xerox Annual Meeting: Chairman Details Strong Financial Position, Successful Transformation and Growth Strategy

At its annual meeting of shareholders held here today, Ursula Burns, chairman and CEO of Xerox Corporation (NYSE:XRX), highlighted the company’s strong financial position, its services-led, technology-driven strategy, and the steps Xerox is taking to capitalize on a growing market opportunity.

In her address to shareholders, Burns said, “With the acquisition of ACS, we have become the world’s leading enterprise for business process and document management. Lots of people talk about transforming their business. We have done it. We are confident that we have the right strategy, the competitive strength, a skilled and proven leadership team and a disciplined focus to continue to deliver on the progress of the past year.”

Burns noted that in 2010 Xerox successfully delivered value for shareholders by:

• Growing revenue on a pro-forma basis by 3 percent to $22 billion.
• Increasing operating margin to 9.6 percent on a pro-forma basis, up 1 point from 2009.
• Capturing more than $100 million in synergies from the ACS acquisition.
• Generating $2.7 billion in operating cash flow.

She also outlined how the company’s revenue mix is now approximately 50 percent services, compared to 25 percent two years ago, and that the company’s market opportunity has expanded from $132 billion to more than $500 billion. Through the most diverse set of services in the industry and a broad portfolio of document technology, Xerox has a more advantaged view into how business gets done so it can better help clients reduce costs, increase efficiency and focus on their core business.

Also at the annual meeting, shareholders elected by an overwhelming majority vote 10 members of the Xerox board of directors: Glenn A. Britt, Ursula M. Burns, Richard J. Harrington, William Curt Hunter, Robert J. Keegan, Robert A. McDonald, N. J. Nicholas, Jr., Charles Prince, Ann N. Reese and Mary Agnes Wilderotter.

Shareholders also approved the selection of PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm for 2011. In addition, shareholders approved, on an advisory basis, the 2010 compensation of Xerox’s named executive officers, and selected one year as the frequency of an advisory shareholder vote to approve the compensation of the company’s named executive officers.

About Xerox

Xerox Corporation is a $22 billion leading global enterprise for business process and document management. Through its broad portfolio of technology and services, Xerox provides the essential back-office support that clears the way for clients to focus on what they do best: their real business. Headquartered in Norwalk, Conn., Xerox provides leading-edge document technology, services, software and genuine Xerox supplies for graphic communication and office printing environments of any size. Through ACS, A Xerox Company, which Xerox acquired in February 2010, Xerox also offers extensive business process outsourcing and IT outsourcing services, including data processing, HR benefits management, finance support, and customer relationship management services for commercial and government organizations worldwide. The 134,000 people of Xerox serve clients in more than 160 countries. For more information, visit http://www.xerox.com, http://news.xerox.com, http://www.realbusiness.com or http://www.acs-inc.com. For investor information, visit http://www.xerox.com/investor.

Non- GAAP Measures: This release refers to the following non-GAAP financial measures for 2010 -- pro-forma revenue growth and pro-forma operating margin. Actual revenue growth for 2010 was 43 percent and the 2010 pre-tax income margin was 3.8 percent or a decrease of 0.3 points from 2009; determined in accordance with GAAP.

Refer to the APPENDIX entitled “Non-GAAP Financial Measures” for a discussion of these non-GAAP measures.

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APPENDIX: Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles (“GAAP”). In addition, we have discussed the non-GAAP measures described below.

Pro-forma Basis

To better understand the trends in our business, we discuss our 2010 operating results by comparing them against adjusted 2009 results which include ACS historical results for the comparable period. Accordingly, we have included ACS’s 2009 estimated results for the comparable period, February 6th through December 31st, in our reported 2009 results. We refer to comparisons against these adjusted 2009 results as “pro-forma” basis comparisons. ACS 2009 historical results have been adjusted to reflect fair value adjustments related to property, equipment and computer software as well as customer contract costs. In addition, adjustments were made for deferred revenue, exited businesses and other material non-recurring costs associated with the acquisition. We believe comparisons on a pro-forma basis are more meaningful than the actual comparisons given the size and nature of the ACS acquisition. We believe the pro-forma basis comparisons allow investors to have a better understanding and additional perspective of the expected trends in our business as well as the impact of the ACS acquisition on the Company’s operations.

Operating margin

To better understand the trends in our business and the impact of the ACS acquisition, we believe it is necessary to adjust pre-tax income margin determined in accordance with GAAP to exclude the effects of certain items:

• Restructuring and asset impairment: Restructuring and asset impairment charges consist of costs primarily related to severance and benefits for employees terminated pursuant to formal restructuring and workforce reduction plans. We exclude these charges because we believe that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of our current or past operating performance. In addition, such charges are inconsistent in amount and frequency. Such charges are expected to yield future benefits and savings with respect to our operational performance.

• Acquisition-related costs: We incurred significant expenses in connection with our acquisition of ACS which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition-related costs include transaction and integration costs, which represent external incremental costs directly related to completing the acquisition and the integration of ACS and Xerox. We believe it is useful for investors to understand the effects of these costs on our total operating expenses.

• 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. Accordingly, due to the incomparability of acquisition activity among companies and from period to period, we believe exclusion of the amortization associated with intangible assets acquired through our acquisitions allows investors to better compare and understand our results. 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.

• Other expenses, net: In addition, we have also excluded Other expenses, net generally due to the non-operating nature of these expenses.

Management believes that these non-GAAP financial measures provide an additional means of analyzing the current periods’ results against the corresponding prior periods’ 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.