Ursula Burns – Chief Executive Officer Kathy Mikells – Executive Vice President & Chief Financial Officer Jim Firestone – Executive Vice President & President, Corporate Strategy and Asia Operations Bob Zapfel – Executive Vice President & President, Xerox Services.

Tien-tsin Huang – JPMorgan Shannon Cross – Cross Research Ben Reitzes – Barclays Capital George Tong – Piper Jaffray Keith Bachman – BMO Capital Markets Ananda Baruah – Brean Capital Markets Brian Essex – Morgan Stanley Jamie Friedman – Susquehanna Financial Group Jim Suva – Citigroup Kulbinder Garcha – Credit Suisse.

Good morning and welcome to the Xerox Corporation Q3 2014 Earnings Release Conference Call, hosted by Ursula Burns, Chairman of the Board and Chief Executive Officer. She is joined by Kathy Mikells, Executive Vice President and Chief Financial Officer.

During this call Xerox executives will refer to slides that are available on the web, at www.xerox.com/investor. At the request of Xerox Corporation today’s conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without the express permission of Xerox.

(Operator instructions.) During this conference call Xerox executives will make comments that contain forward-looking statements, which by their nature address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein.

At this time I would like to turn the meeting over to Ms. Burns. Ms. Burns, you may begin..

we’re reporting adjusted EPS of $0.27 which is at the high end of the range that we set. Our Document Technology business came in above expectations while Services margin results were lower than planned. On the revenue side Services grew modestly and Document Technology declined in line with our expectations.

Our operating margin is up year-over-year driven by strong margins in Document Technology. Services margins was up sequentially but lower than we anticipated as a result of higher cost in government healthcare as well as ongoing strategic investments.

And we continue to use our strong cash flow, almost $600 million in the quarter, to deliver value to stakeholders through dividends and share repurchases. We’re raising full-year guidance for share repurchases to approximately $1 billion, and we are making disciplined acquisitions targeted at enhancing our Services capabilities.

Most recently we acquired Consilience Software, Inc., a case management and workflow automation software provider for government agencies. We have a talented and dedicated team which we continue to strengthen. Our goal remains to provide leading products and services for our clients and deliver the operational results expected of us.

With that I’ll turn it over to Kathy, then I’ll wrap up and we’ll open the call to your questions.

Kathy?.

Thanks, Ursula, and good morning everyone. There were a number of plusses and minuses in the quarter but overall we delivered roughly in-line revenue and EPS at the high end of our range with strong cash flow.

We took a bit of a different path to achieve that outcome with document technology profitability coming in stronger and offsetting lower services profitability. I’ll cover both segment results as well as cash flow separately, but first let’s walk through earnings. Revenue in the quarter was down 2% at both actual and constant currency.

In total segment revenue trends were largely as expected, with Services up modestly and Document Technology down mid-single digits. Gross margin of 30.8% was down 70 basis points year-over-year, driven by a decline in Services as well as the greater mix of services at a lower margin.

Our D&E was lower year-over-year as increases in Services were more than offset by productivity-driven reductions in Document Technology. SAG was lower in both segments as we benefited from productivity initiatives as well as lower pension expense.

These improvements more than offset the lower gross margin and resulted in operating margin expansion of 10 basis points year-over-year. Operating profit in total was roughly flat as margin expansion basically offset the impact of the revenue decline. Moving down the income statement, adjusted other net was $29 million higher year-over-year.

Within that, OID was $35 million higher, reflecting a real estate gain in the prior year as well as higher litigation reserves this year. Restructuring of $28 million was $7 million lower year-over-year and in line with our guidance.

Adjusted tax rate of 26.8% was one point lower year-over-year and at the high end of our guidance range of 25.0% to 27.0%. Adjusted EPS of $0.27 was $0.01 higher year-over-year as growth in Document Technology’s operating profit roughly offset the decline in Services; and below the line, higher OID expense was more than offset by lower share count.

I’ll now move to Services Segment’s slide to review our results in more detail. Services revenue grew 1% and was flat in constant currency, which was about a point lower sequentially reflecting the impact of the Texas Medicaid loss that we discussed last quarter.

Within Services, BPO growth increased to 2% from 1% in Q2 with good growth in Commercial Healthcare, Litigation Services, and International. ITO declined 3% due to the impact of lower prior ITO signings as we’ve become more selective in where we participate in that business, with our main focus on improving our margins and profit there.

Document Outsourcing was flat year-over-year, with continued strong growth in our SMB offerings offset by lower equipment sales in enterprise.

We expect Services top line growth to remain constrained in Q4 as several large new deals that have been awarded are taking longer to get to contract, and some new businesses decisions that have been deferred are also delaying the ramp of new work. This is negatively impacting signings as well, which were down year-over-year.

We had previously anticipated better signings results throughout the second half but are now seeing the shift to Q4 and early 2015 reflecting the decision and contracting delays. We have a strong pipeline up 7% year-over-year and are continuing to ramp up sales hiring and training.

Renewal rate in the quarter was 82%, which was modestly below our target range of 85% to 90% driven by a lower ITO renewal rate. The BPO renewal rate was above 90% in the quarter, albeit with less renewal opportunity.

We have a large BPO contract renewal that’s been awarded and is in the process of being contracted, so that should help our Q4 renewal rate and signings. Shifting to profitability, segment margin was 8.9% in Q3 which was up 30 basis points sequentially but fell short of our target to get something north of 9.2%.

We did see solid sequential margin expansion in BPO even with adjusting out the government healthcare Nevada-Hicks impairment charge from last quarter.

In Document Outsourcing, our margins are quite good but are seasonally lower in Q3; and in ITO we took a temporary hit in margin as we proactively restructured a few contracts, seeking to improve the mix and profitability of that business.

Within Government Healthcare we’re making good progress but expense levels are still high as we continue to invest to improve the performance of the first platform implementations of our new Medicaid platform. These impacts were more constrained ni Q3 but are still a headwind year-over-year.

We’ve been realigning the Services organization to better leverage our scale, gain efficiencies, and improve customer value. We’re aligning the organization to specific industries to improve our go to market approach and have consolidated management of operational capabilities to achieve scale benefits.

We believe this structure will also enable improved execution. We continue to bring in additional new talent under Bob’s leadership and are focused on accelerating productivity gains and de-layering our old SBU management structure.

In Q4 we expect further sequential margin improvement; however, we’re moderating our expectations in light of our Q3 results and investments required as we push forward with our Services strategy. We expect margin to be between 9% and 10% for the quarter. With that I’ll review Document Technology.

Revenue in Document Technology was down 6% in actual and constant currency and was in line with expectations. Equipment revenue declines moderated versus Q2, and although annuity declines were a bit higher this was due entirely to the impact of finance receivables sales in the prior year which had a one point impact to revenue growth.

From a geographic perspective trends were generally consistent with last quarter, with the US stable, Europe improving and developing markets weak but with moderating declines. Looking at the product groups we’re seeing very positive results in the high end, with growth in both equipment and annuity revenue.

High-end annuity revenue grew the past two quarters which is encouraging as it reflects increases in [MIF] and pages in this important segment. Mid-range was in line with overall Document Technology declines while Entry Performance was weaker.

Q3 was a very strong quarter for new products with 17 products launched and an additional three launched in October. We extended our very successful ConnectKey platform into a number of entry multifunctional devices as well as into color and mono mid-range products.

By further extending the platform we provide even more options for our customers looking to leverage our strong mobile, security, and app development. This should position us well in Q4 and as we enter 2015. Document Technology margin in the quarter was 14% resulting in operating profit growth of 9% despite the revenue decline.

The strong margin performance reflects benefits from restructuring and cost initiatives as well as continued favorable mix, positive transaction currency, and lower pension expense. Although mix may not be as favorable in Q4 we expect continued strong margin performance, down sequentially but up year-over-year.

As we look to 2015 based on today’s rates we’d expect currency transaction benefits to continue. However, pension expense will be a significant headwind. Pension settlement expense this year is expected to come in even lower than we previously anticipated, declining about $100 million year-over-year.

The further decline relates to changes in the discount rate used to determine benefits with the rate recently published for 2015 coming in lower than 2014. This naturally motivates individuals to wait to take their lump sum in 2015 when the benefit will be higher and will shift more cost for us into next year.

This is the opposite phenomenon from what we experienced from 2013 to 2014 where the discount rate increased and it adds noncash volatility to our earnings. With the discount rate declining we expect about $105 million of additional noncash settlements expenses next year.

Our Technology segment margins have been running well above our long-term guidance of 9% to 11%, and even with the pension headwind we expect we will be above the high end of the range again next year. I’ll turn now to cash flow. Cash flow from operations was $595 million in the quarter and $1.2 billion through September.

As expected cash flow in the quarter was lower than prior year due to the positive impact of $316 million last year from the finance receivables sales versus a net negative impact of $102 million this year due to the loss of collections from previous sales.

Underlying cash flow, which excludes the impact from prior-year financed receivables sales, was $697 million in Q3 and $1.5 billion through September. With cash from operations we continue to see the benefit from working capital, which included some timing benefits within accounts payable this quarter.

So overall it was another strong operating cash flow quarter. Moving down the cash flow statement, investing cash flows were a $128 million use in the quarter.

We spent $112 million on CAPEX and $25 million on acquisitions for the recently announced Consilience acquisition, a provider of case management and workflow automation software that’ll strengthen Xerox’s suite of offerings to state governments.

Additionally in Q3 we exited the Xerox Audio/Visual Solutions business, a small audio/visual business that was non-core and flowed into our other segment results. Cash from financing was a use of $417 million and included $251 million in share repurchases and $83 million in preferred and common stock dividends.

So to wrap up cash flow, with three quarters done we’re well positioned to deliver on our full-year cash flow guidance of $1.8 billion to $2.0 billion of operating cash flow, which equates to $1.3 billion to $1.5 billion of free cash flow.

And as a reminder we have no financed receivables sales planned in Q4 as compared to proceeds of $247 million in Q4 2013. Now I’ll quickly cover capital structure. We ended the quarter with $7.7 billion in debt and in line with our original guidance we continue to expect to end the year with about $7.8 billion in total debt.

Applying 7:1 leverage on customer financing assets, our allocated financing debt is $4.2 billion leaving core debt of $3.5 billion.

We manage our core debt to maintain a leverage ratio consistent with our investment-grade credit rating, while financing debt has come down over the past few years driven by the financed receivables transactions as well as lower origination.

So we have a pretty stable capital structure, and if we move to the next slide I’ll review where we’re at on share repurchases and dividends. With our strong cash flow to date and taking advantage of our high beginning-of-year cash position we’ve steadily repurchased shares this year for a total of $730 million or 61 million shares through September.

We continue to view our shares as a good investment and we’re increasing our full-year share repurchases to approximately $1 billion. Our full-year guidance for dividend payments remains about $300 million and reflects our current quarterly dividend of $0.0625 per share.

When combined with the share repurchases we now expect approximately $1.3 billion to be returned to shareholders this year. Before I turn it back to Ursula I’d like to summarize our expectations for Q4 and the fully year.

We expect Document Technology to continue to deliver strong margin, up year-over-year in Q4 but down sequentially driven by the new product launch timing and mix with full-year margin above 13%.

Revenue declines remain down mid-single digits in constant currency, and down an additional two points in actual currency in Q4 given the recent strengthening of the dollar relative to the Euro.

As I detailed earlier we’re continuing our investments and improvement actions and services, and expect our Q4 margins to expand sequentially to approximately 9% to 10%, with revenue growth flat to up 1% with about a point of negative currency impact.

At the consolidated level for Q4 we expect revenue will decline about three points, including one to two points of negative currency with adjusted earnings per share of $0.30 to $0.32 which includes about $0.02 of restructuring. And for the full year we now expect adjusted earnings per share of $1.11 to $1.13.

As we look to 2015 our EPS expansion will be constrained due to the volatility of nonoperational pension settlement expenses that I discussed earlier. With that I’ll hand it back to you, Ursula..

in Services improving growth and profit through portfolio management and improved productivity; in Document Technology, capitalizing on the most advantaged segments of the business to maintain our leadership position in the industry while maintaining strong profitability. And we’ll continue to generate healthy cash flow to deliver shareholder value.

Thank you and now over to you, Jim..

Thanks, Ursula. Joining Ursula and Kathy today is Bob Zapfel, head of our Services business. Also let me point out that there’s several supplemental slides at the end of our deck that provide more financial detail to support today’s presentation and complement our prepared remarks.

For the Q&A I ask participants to please limit follow-on and multipart questions so that we can get to everyone, and at the end of our Q&A session I’ll turn it back to Ursula for closing comments. Operator, please open the line for questions now. .

Thank you. (Operator instructions.) Our first question comes from the line of Tien-tsin Huang of JPMorgan..

Hi, good morning, thank you. I just wanted to first ask about the signings and the visibility there. What’s driving the push out on the project ramps in the signings? Is it a cyclical issue or maybe are client priorities changing? Any color there would be great..

Thanks Tien-tsin, this is Bob. I think you have to break it into big deals versus more traditional and I think on the big deals side of it we have seen an elongated process largely associated with, really with competitors protesting and those cycles running longer.

So on the big deal components we’re very happy with our success rate; they are taking longer to get to closure. On the more traditional kind of volume of pursuits, our win rate remains very strong.

In Q3 of the top 20 deals we were pursuing we didn’t lose a single one, but our in-quarter conversion rate was lower than typical – and I would say that’s a little bit of a function of there’s more that we need to do and that we’re investing in relative to our sales force and helping them get the larger deals, or those top 20 deals over the goal line.

So hopefully that’s responsive to your question..

Sure. As we think about Q4 and I guess for the full year is there a new view on your signings target for this year, what needs to be achieved in order to see growth next year? And also just trying to understand a little bit more as a follow-on to ITO, and within ITO it sounds like you did some contract restructurings.

Can you size that and is there more to do there? That’s all I had, thank you..

So if you look overall at the trends as I mentioned in my prepared remarks, we’ve basically seen a slippage of when we were expecting to see year-over-year improvements in signings. And so as we look to Q4 we’d expect to see year-over-year improvement.

I mentioned that we had one large renewal that should occur in Q4 – that should help both our renewal rate as well as our overall signings.

With regard to ITO which I think was the second part of your question, we’re really managing ITO as a niche business, looking to really have deals where we’re partnering ITO with BPO and we’re getting an overall I’d say good margin performance from that support but not really chasing what I’d call bigger commoditized deals in ITO.

And as a consequence of that we certainly expect that we’re going to have a lower overall growth rate in ITO. Now we are still winning new business in ITO. We won a new contract this quarter in ITO so it’s a business that we absolutely are continuing to pursue, but we’re being more selective in terms of what we’re pursuing..

Thanks Tien-tsin.

Can we have the next question, please?.

Thank you. Our next question comes from the line of Shannon Cross with Cross Research..

Thank you very much. I had a question with regard to restructuring both on the Document Technology side as well as on services.

Just how are you thinking about restructuring as you go into 2015? What kind of opportunities do you think you’re seeing, because it basically seems like you reinvested some of the upside this quarter on the Document Technology side into Services.

So how do we think that all flows through and we see the opportunities in 2015? And then I have a follow-up, thanks..

Sure, Shannon. So if you look at restructuring, the first thing I’d say is we don’t ex item restructuring, right? A big part of the reason we don’t ex item restructuring is especially within our Technology business it is the regular course of our business. I think we’re incredibly disciplined and very good about it.

So when you look at what we’ve done so far this year we’ve done about $0.02 every quarter; we just guided to doing another $0.02 in Q4. And so I think you can continue to expect as you look forward that we’re going to have those kinds of restructuring charges regularly.

In terms of the mix of restructuring charges I’d actually expect that we’re going to see a little bit higher mix towards Services. Clearly one of the things that we need to do is further ramp up productivity initiatives.

And so I would expect to see that mix change a little bit, but I’ll just remind you that from an expense perspective we’re always going to be technology heavy because those tend to be our higher-cost workers. And we’ll continue to do a lot of work there..

And maybe Bob, can you talk about specific areas where you think you can improve within Services, and again, how we think… Like what have you seen over the last several months that you’ve been there and how are you sort of thinking about opportunities in ’15?.

Yes, Shannon, I think from an improvement standpoint at the macro level the two areas I would call out most visibly is we really do think that we can improve our sales conversion and we’re taking a number of actions there.

One is beefing up the sales team in terms of adding to the hiring; the second is a more aggressive sales training program that we’re leveraging. So I would say one thing that I’ve kind of concluded after seven months is that there was more that we could do there.

Ursula says to me if you’re winning all the time you’re not covering enough because you should have a mix of wins and losses in the marketplace so we’re trying to broaden our coverage.

And then I think the second area that I would call out that we’ve been on but that we will be ramping up the pace is that we have moved to a global capability model around our delivery teams and kind of moving away from a 2500 strategic business unit structure to more managing delivery globally.

And we believe that we can leverage that to drive productivity increases. That is part of what Kathy shared as we think about going forward. So those would be the two main things. .

Thanks, Shannon. If we could have the next question please..

Thank you. Our next question comes from the line of Ben Reitzes with Barclays..

Hi, good morning. My question is around some of the things you said around 2015.

It seems like there’s a $0.06 hit year-over-year due to pension vis-à-vis the prior expectation and I was wondering if we could talk about at today’s rate what currency, if there’s a bottom line hit to currency what that is heading into next year and the next quarter; and potentially if you have to have lower Services margins than expected what that hit would be.

Basically I know you guys want us to wait for November 11th. What I’m getting at is the street’s at $1.20 for next year and if I pile these hits up then the EPS starts to look pretty flat unless the share count’s materially lower for 2015.

And I know you’re going to want to say that at the Analyst’s Day but I’m wondering what you’re trying to message with 2015 on this call given all those puts and takes I just articulated. So if you can just explain that, Kathy, that would be great. Thanks..

Sure. Okay, so I’m going to start by saying you’ve just articulated a whole lot of puts and takes and so I’ll try and cut a little bit to the bottom line. And we’re still obviously ramping things up and are going to talk in a lot more detail as you mentioned at our November investor conference.

So first you’re right – with regard to pension settlement expense I think we’re trying to articulate a couple of things. So we now have visibility to this, right? We print a discount rate once a year in Q3. We do our actuarial work and then we get visibility to pension expense.

Importantly this is a highly volatile thing, our pension settlement expense. It has to do with nuances of our pension plan, the fact that we offer a lump sum and lots of people taker it, etc., but it’s a noncash item.

I think if you look overall at Xerox’s cash conversion rate, net income to free cash flow, we have a cash conversion rate above 100% and we have very, very strong cash flow.

If I look to currency which is the other large item that you mentioned, which we’re getting benefits from this year, if I look at where rates are today with our currency transaction benefits really flowing from the Yen – if I look at where rates are at today our currency benefit should hold next year.

If anything I’d say maybe a little bit positive, but certainly as I look at rates right now they should hold next year. I talked about currency for Q4 from a translation perspective and so that’s putting some headwinds overall on top line. Those headwinds don’t have a real material impact in terms of bottom line results for us.

So that gives you I think a little bit of a feel for some of the puts and takes, and I’d come back and say importantly I think you continue to see our very strong cash flow results this year, our reiteration of guidance on strong cash this year. And as we look forward next year we expect to have continued very good conversion rate and cash flow..

Just did I miss it – did you reiterate the long-term Services ranges in terms of margins or are we going to address that at the Analyst’s Day in terms of where we’re going to be in the future on the long-term Services margins and your ability to be in that range?.

Yeah, so we’ll address that at Investor Day but we haven’t changed the expectation long-term for our Services business..

Thanks, Ben. If we can have the next question, please..

Thank you. Our next question comes from the line of George Tong with Piper Jaffray. .

Good morning, thanks for taking my questions.

On Services margins, can you discuss what positive or negative surprises you saw in the quarter and what provides confidence Services margins can step up in Q4?.

Okay, it’s Bob. From a negative surprises standpoint obviously we came in a little bit short of where we had committed we’d come in.

And I would say from a negative surprise standpoint we did make choices to invest more in a couple of the MMIS contracts and as Kathy referenced, we had a couple of IT outsourcing restructurings that we felt we could stay within the envelope of what the firm had committed in terms of overall earnings and position ourselves for better profit downstream in IT outsourcing.

On the positive side we are really having really strong success in our Commercial Healthcare business, both in terms of revenue growth and margin.

And as Kathy mentioned I think in the prepared some of our other, Europe in particular had strong revenue growth and margin improvement and our HR and Learning and Litigation business also performed exceptionally well. So it was a mix of upsides and downsides..

If I can, George, one other thing that Bob has done is we have kind of loosened the reigns on his ability to hire at all levels of the company – kind of a little bit independent of matching cost decreases to the labor increases. So he’s hiring at the high levels, at the intermediate levels and as he said earlier at the sales.

We need to get the talent in across the board and we’re not being cheap on that or we’re not skimping on that..

That’s very helpful. We’ve seen several quarters now of margin improvement in your commercial BPO business.

Can you go into a little bit more detail on what drove that improvement and what levers you have for further expansion?.

Well I think the main levers for future expansion are what we’re doing relative to these global capability organizations that we’ve formed to really drive best practices sharing across our delivery model. So that’s been a multi-quarter initiative on our part.

We are largely complete and we see that as a way to capitalize on productivity initiatives right at the delivery model which is the vast majority of our resources. I mean sales is a relatively small portion of our headcount and a vast majority of our team is in delivery, so I would say going forward that’s where we would get the yield.

The previous improvement really related more to the labor initiatives around Optimus that you had visibility to from our investor meeting and previous calls..

Thanks, George.

If we could have the next question, please?.

Thank you. Our next question comes from the line of Keith Bachman from Bank of Montreal..

the first one is can you win in BPO with subscale ITO? A lot of the vendors, Accenture and Genpact and others are starting to talk about bundling their IT capabilities with BPO to lead for successful engagements and market share wins. Xerox has a bit of a different strategy where your ITO is candidly subscale.

If more of the business does get aggregated does Xerox have the platform to be successful? And I understand your BPO’s a little bit different than some of the vendors but I just wanted to hear your thoughts on strategy as you look at the parts that Xerox brings to the table relative to the competition. I have a follow-up, thank you..

Yes, I do believe we can win because in our BPO business, when ITO is a component of it the competitors that we face are not generally stronger in that ITO element. And I would say, Keith, that the decision is made on the platform and the strength of the BPO offering.

So ITO in an integrated BPO play is really not the determinative or decisional characteristic, and again, when we’re competing in our BPO business our win rate is very, very strong.

And ITO is an underlying element of that, and as either Ursula or Kathy mentioned previously we had a nice, new logo ITO win in the quarter as well that was not directly tied to a BPO value prop but was a pure IT outsourcing play in the marketplace..

Okay, and thanks for that answer. My follow-up is your trailing twelve-month signings are down about 17%.

Can you grow Services next year?.

Yes, but we’re concerned about trailing twelve-month signings being down at that level as well.

So part of what’s happened though is that when you are not signing the really big deals your term on signings shortens, because it’s these half a billion dollar deals that tend to have a long term; and we have been winning much more with the shorter-term deals.

So the correlation of revenue and signings is not quite the way that maybe we would have seen or modeled in the past. We are focused on driving signings improvement but even with the trailing twelve-month dynamics that you reference we believe we can grow revenue and improve our revenue performance.

And as we’ve said, BPO, we’re now on our third consecutive quarter of improvement in our revenue dynamics even with the signings results that you referenced..

Yeah, and the only other thing I’d mention is that on new business our trailing twelve-month is down about 6%..

Thanks, Keith. If we could have the next question please..

Thank you. Our next question comes from the line of Ananda Baruah from Brean Capital..

Hi, thanks for taking the question and congrats, guys, on a pretty solid quarter. Two if I could – I guess the first is a follow-up on Services for Bob and for Ursula.

I guess in the context of how you expected the environment to feel, I guess specifically BPO, as we entered the year does the environment still feel the same? And there was a comment earlier that you’re not changing your long-term view of your Services business model but has there been anything that’s shifted in the context, in the environment of I guess your mid-single digit, your 5% to 7% long-term single-digit revenue growth model is predicated upon? I’d love to get your thoughts there and then I have a follow-up..

I’ll just start with the environment question. I think that overall at the high level we are not seeing major shifts in the business environment from a Services perspective.

I mean clearly at the big deal, I think that Bob talked about some of the dynamics that you have with some of the very large deals where there is more of a propensity, at least we’ve seen it, for people who move to actually protest and to actually hang in there a little bit longer.

That’s not what we have seen in the past but I think that’s maybe what we’ll be living with in the future. We’re still confident in our ability to pull those deals out, we’ve been awarded them but that’s one thing. But the rest of the business I think is operating pretty much like we would have expected it to.

We are refining our approach particularly in ITO. We’ve spent a couple of questions on this already. ITO can grow but the margin contribution of ITO is something that is lower than the range that we actually want to play in and we are actually smaller there, so we’re being very selective about how we approach ITO.

And our change in that market space will actually change some of the revenue dynamics and for the positive we think, some of the margin dynamics on a go-forward basis. And then I’ll have Bob take a crack at it..

Yeah, the only thing I would add is I think when I’m out in the marketplace with the teams and with the clients there is still a very good in my view high level of interest in leveraging partners in what I would call shared services.

So ITO, I think the dynamics are a little bit different in terms of kind of trailing growth rates based on market dynamics. BPO, when you look at the areas that we have leadership positions in I would view that as still… I’m pleased but I wouldn’t have a view that the overall client interest is less than I expected when I joined the firm..

Got it, thanks for that. And then just quickly for Kathy, the raise on the buyback – you’ve had capacity over the last couple of years to do something in the neighborhood of $1 billion and you sort of entered the year with a similar guidance of about $700 million.

What is it about sort of raising the guidance to $1 billion right now in this quarter that gives you… You have the cash flow to do it so I know that gives you confidence but I guess I’m asking has there been a philosophical shift within your approach to capital allocation that could continue forward as we move along here? Thanks..

Yeah, so no overall philosophy change whatsoever. If you look at where we’re at in terms of acquisitions we’ve done a little over $300 million for the year.

I expect that we’ll get at least one or two things over the finish line before the end of the year but they’re small, and so right now I think we will end up under-spending against our up to $500 million.

We’re not going to end up spending $500 million as I look out now, and clearly we have a very good history on to the extent we under-spend we shift that under-spending towards share repurchases. And that’s clearly part of what we’ve done.

As I mentioned we entered the year with a quite strong cash balance that put us in a nice position to have a much more I’d say consistent approach to share repurchases this year relative to last year.

You’ll recall we were very backend loaded but overall I think our philosophy is very consistent and we will continue to have a very balanced approach with regard to capital allocation..

Thanks, Ananda.

If we can have the next question, please?.

Hi, good morning and thank you for taking the question. I was wondering if I could point a little more towards the printing side of the business and it looks like we’ve had a few quarters of accelerated decline in that business. And I’m just kind of taking a look at how it’s lumpy from quarter to quarter.

And given the new product releases and how you’re positioning and restructuring in that business do you think you could hit an environment where you have low-single digit declines as opposed to mid-single digit declines, and if so what would it take for that to happen?.

So right now we’re consistently saying we expect mid-single digits. If you look at what’s going on year-over-year, specifically Q3 and Q4 we have a little bit of headwind because last year we did these financed receivables sales and that generated a $20 million gain in each of Q3 and Q4 last year.

So that was worth about a point of revenue growth or kind of headwind on growth this year. We do have I’d say quarter-to-quarter timing differences largely associated with things like product launches with people kind of waiting for a new product launch and so we certainly get quarter-to-quarter differences.

But at this point we see pretty stable declines in the mid-single digit range on an actual currency basis. I mentioned that’ll be a little bit higher in Q4 as a result of the dollar strengthening against the Euro. But we’re seeing pretty consistent trends in the business..

And I think if you look at it from a share perspective you’ll see us marching along pretty consistently from a share perspective as well. So I don’t think that there’s anything that you can read into, or that we read into market dynamic changes and our positioning in the market.

We’re a strong leader and I don’t think that we are losing any position in the marketplace..

it sounded like you had a pretty strong pipeline growth and I know the commentary was around there was some large deal elongation of signing cycles.

Is that pretty much a concentrated, whether it’s in terms of the government healthcare business or it’s a larger secular trend? Or is there a situation where you get past a glut of some of these large deals and then maybe those signings accelerate and lead to better bookings through the end of the year? Maybe if you can provide a little more of the context of the mix of what’s occurring in those signings..

Yes, I would say on the larger deals it’s not concentrated in government healthcare but it is public sector. So it’s both our government healthcare business and our broader public sector business where we’ve had relatively large opportunities that again we’re pleased with being selected but getting to contract is taking longer..

Thank you.

If we can have the next question, please?.

Thank you. Our next question comes from the line of Jamie Friedman from Susquehanna..

Thanks, Jim. I wanted to ask first, Bob, there’s a distinction between push-outs and protests, and protests seem to be the way of the world these days.

So my question is if you were to add back the two large protests plus the renewal can you give us an estimate of where signings would have been in the quarter?.

Well each of the three large opportunities that we’re referencing is over $500 million in total contract value and they would aggregate to close to $2 billion. But I would be careful to not now kind of add that to Q3. We were not expecting all of that yield in-quarter but that’s the size of the three large transactions that we’ve been talking about..

Okay, thank you. And then Kathy, with regard to the discount rate for people with a longer-term investment horizon, rates move around each year – I realize that they’re down in the discount rate that you’re calculating for Q3.

Could you share with us some sensitivity analysis, say that we’re up 100 basis points next year – where would that leave the pension obligation? Thank you..

Sure. So where we see the most volatility in our pension expense is in the pension settlement expense line item, and that’s where people can really change their behavior – either delay or accelerate the timing of taking their lump sum.

If discount rates were more stable I’d expect to see something closer to about $100 million of pension settlement expense annually..

Got it, thank you..

Thanks very much.

If we could have the next question please, Operator?.

Thank you. Our next question comes from the line of Jim Suva with Citi..

Thank you. Our next question comes from the line of Brian Essex with Morgan Stanley..

Thanks very much and I have one question and I guess it’s hard for me to direct if it should go to Ursula, Kathy or Bob, but feel free all of you to chime in. On one hand I’m very pleased to hear that Bob has the ability to hire more talent and invest in Services because I think that’s what’s really needed.

But then on the other hand when I see the trailing twelve-month signings down, thinking about the ramping of the New York Medical contract – and I’m sure you don’t want to have issues when that ramps or stands up – it makes me start to think that does this mean that Service margins, should they continue to be under pressure? Or is it more, and I’d kind of like Bob’s view on this – is it more an issue that Xerox has like misaligned costs or too many low-end contracts, or contracts that are non-accretive with variables to protect Xerox’s profits and therefore you have some changes and Xerox has to eat the costs because they weren’t appropriately contracted out with more details? If you can kind of help us around this big strategy question around strategy for Xerox, and Bob you’re new, and Ursula and Kathy have been striving to get Xerox Services up.

Just kind of this whole big topic of strategy and what’s going on, what’s going forward with Services..

Yeah Jim, this is Bob. Let me go first and then obviously Ursula or Kathy can add color as well. I would not say that we have severe contract misaligned costs challenges.

Any services business is going to have a little bit of a bell curve of higher-margin deals that are further in the maturity cycle and entry deals that take a little bit of time to ramp up. We had a handful of situations in IT outsourcing that we tried to address in Q3 but I wouldn’t have a point of view that we’re out of balance on that score.

And if I go back to just your initial observations about adding talent I would add one piece of color, which is we’re really pleased – I mean this, really pleased that while we have a very strong team in place today broadly, as we’re trying to grow we are trying to add some incremental leadership to the firm.

And the interest level and accept rate when we have been out trying to add a person to help us in this new area or that new area has been phenomenal.

So I feel good about both the existing talent that I had the pleasure of joining and in the selective places where we’re looking to add to our leadership a very, very strong interest level and accept level of the people that we’ve offered roles to..

My only add is the revenue engine is going; the cost base perfected by our move to this global capability. There’s no other magic here; there’s no structural contract issues or anything like that. It is a fairly normal business. It’s hard to kind of get it totally contained.

We’re focused on the mouth – how much can we bring through these capacities, these capabilities that we have and making sure that we sign more business. And that’s where Bob’s energy and efforts are focused..

Great, thanks so much for the clarity..

Thanks, Jim.

If we could have time for one last question please?.

Thank you. Our final question for today comes from the line of Kulbinder Garcha from Credit Suisse..

Thanks, most of my questions have been answered. It was just on Services margins – this year what are approximately the Medicaid kind of costs that are being assumed or that you’re facing? And how long do those kind of last? Is that a headwind into next year as well? Thanks..

The Medicaid costs, let me have Kathy get a little bit more specific but they have been a big headwind for us. A major portion of the shortage we see in margins is driven by Medicaid investments. But we are seeing sequential improvement in those investments even though they are high..

Yeah, the investments have been incredibly large. I’ll just point to the impairment that we took last quarter which was $20 million. I mean if we look at this year-over-year it has been a big headwind for us every single quarter. In total we’re probably approaching a $100 million number year-over-year.

It’s been a huge investment for us and it’s been a big expense year-over-year. Now as we look forward to 2015 the fact that we’ve invested so much in 2014 should help us in 2015, which doesn’t at all suggest that we’re not going to need to continue some level of higher investment as we have a few more implementations that are still underway.

But from a year-over-year basis this should start to become a tailwind for us..

And I would just add so we are driving for significant year-over-year improvement in that component of our portfolio, but it will not be at our target long-term margins next year. So we will be coming off of an unfortunately poor compare that we are delivering this year.

We expect to drive visible improvement in 2015 but not already be to our long-term kind of target margins against that portfolio of our business..

Thank you..

Thanks, Kulbinder. Okay, that’s all the time we have for questions today.

We thank you for your interest, and Ursula, anything more to wrap up?.

Our goal is to have the solid foundation in place so that we can support our changing business and the changing needs of our clients while still delivering value for our shareholders. I believe that we’re on track to do just that..

Thanks, Ursula. That concludes our call today. If you have any further questions please contact me or any member of our Investor Relations team. Thanks so much..

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a good day..