What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-04-30 compared with 2020-11-04 · 354 added, 632 removed, 864 unchanged (53% of the section changed)

1 unchanged sentence

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per-share data) 2021 2020

9 unchanged sentences

Selling, administrative and general expenses 448 541

Restructuring and related costs 20 27 64 176

Restructuring and related costs, net 17 41

Amortization of intangible assets 15 11

2 unchanged sentences

Total Costs and Expenses 1,657 1,865

Income before Income Taxes and Equity Income 119 223 149 486

Income tax expense 29 66 36 106

Income (Loss) before Income Taxes and Equity Income 53 ( 5 )

Income tax expense (benefit) 14 ( 1 )

Equity in net income of unconsolidated affiliates — 2

Income from Continuing Operations 90 158 115 385

Income from discontinued operations, net of tax — 64 — 157

Net Income 90 222 115 542

Income from continuing operations attributable to noncontrolling interests — 1 — 3

Income from discontinued operations attributable to noncontrolling interests — — — 4

Net Income Attributable to Xerox Holdings $ 90 $ 221 $ 115 $ 535

Amounts Attributable to Xerox Holdings:

Income from continuing operations $ 90 $ 157 $ 115 $ 382

Income from discontinued operations — 64 — 153

Net Income Attributable to Xerox Holdings $ 90 $ 221 $ 115 $ 535

Basic Earnings per Share:

Continuing operations $ 0.41 $ 0.70 $ 0.49 $ 1.66

Discontinued operations — 0.29 — 0.68

Total Basic Earnings per Share $ 0.41 $ 0.99 $ 0.49 $ 2.34

Diluted Earnings per Share:

Continuing operations $ 0.41 $ 0.68 $ 0.49 $ 1.62

Discontinued operations — 0.28 — 0.65

Total Diluted Earnings per Share $ 0.41 $ 0.96 $ 0.49 $ 2.27

Net Income (Loss) 39 ( 2 )

Net income attributable to noncontrolling interests — —

Net Income (Loss) Attributable to Xerox Holdings $ 39 $ ( 2 )

Basic Earnings (Loss) per Share $ 0.18 $ ( 0.03 )

Diluted Earnings (Loss) per Share $ 0.18 $ ( 0.03 )

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1 unchanged sentence

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020

Net Income $ 90 $ 222 $ 115 $ 542

Income from continuing operations attributable to noncontrolling interests — 1 — 3

Income from discontinued operations attributable to noncontrolling interests — — — 4

Net Income Attributable to Xerox Holdings 90 221 115 535

Other Comprehensive Income (Loss), Net (1)

Net Income (Loss) $ 39 $ ( 2 )

Net income attributable to noncontrolling interests — —

Net Income (Loss) Attributable to Xerox Holdings 39 ( 2 )

Other Comprehensive (Loss) Income, Net (1)

Translation adjustments, net ( 51 ) ( 197 )

Unrealized gains, net 1 1 4 3

Unrealized (losses) gains, net ( 7 ) 5

Changes in defined benefit plans, net 55 54

Other Comprehensive Income (Loss), Net 88 ( 202 ) 53 ( 157 )

Other comprehensive income, net from continuing operations attributable to noncontrolling interests — 1 — 1

Other Comprehensive Income (Loss), Net Attributable to Xerox Holdings 88 ( 203 ) 53 ( 158 )

Comprehensive Income, Net 178 20 168 385

Comprehensive income, net from continuing operations attributable to noncontrolling interests — 2 — 4

Comprehensive income, net from discontinued operations attributable to noncontrolling interests — — — 4

Comprehensive Income, Net Attributable to Xerox Holdings $ 178 $ 18 $ 168 $ 377

Other Comprehensive Loss, Net Attributable to Xerox Holdings ( 3 ) ( 138 )

Comprehensive Income (Loss), Net Attributable to Xerox Holdings $ 36 $ ( 140 )

_____________

(1) Refer to Note 19 - Other Comprehensive Income (Loss) for gross components of Other comprehensive income (loss), net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

(1) Refer to Note 17 - Other Comprehensive Income (Loss) for gross components of Other comprehensive loss, net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands) September 30,

(in millions, except share data in thousands) March 31,

2021 December 31,

Cash and cash equivalents $ 2,379 $ 2,625

Accounts receivable (net of allowances of $ 63 and $ 55 , respectively) (1)

Billed portion of finance receivables (net of allowances of $ 4 and $ 3 , respectively) (1)

Accounts receivable (net of allowance of $ 68 and $ 69 , respectively)

Billed portion of finance receivables (net of allowance of $ 4 and $ 4 , respectively)

Finance receivables, net 1,065 1,082

2 unchanged sentences

Total current assets 5,420 5,783

Finance receivables due after one year (net of allowances of $ 138 and $ 86 , respectively) (1)

Finance receivables due after one year (net of allowance of $ 131 and $ 129 , respectively)

Equipment on operating leases, net 277 296

30 unchanged sentences

Shares of Common Stock Outstanding 191,947 198,386

_____________

(1) Allowances at September 30, 2020 determined in accordance with ASU 2016-13 adopted effective January 1, 2020 - refer to Notes 2, 8 and 9 for additional information.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020

Cash Flows from Operating Activities

Net income $ 90 $ 222 $ 115 $ 542

Income from discontinued operations, net of tax — ( 64 ) — ( 157 )

Income from continuing operations 90 158 115 385

Adjustments required to reconcile Net income to Cash flows from operating activities

Net Income (Loss) $ 39 $ ( 2 )

Adjustments required to reconcile Net income (loss) to Cash flows from operating activities

Depreciation and amortization 86 94

6 unchanged sentences

Contributions to defined benefit pension plans ( 35 ) ( 33 )

(Increase) decrease in accounts receivable and billed portion of finance receivables ( 96 ) 51 332 60

(Increase) decrease in inventories ( 49 ) 15 ( 274 ) 31

Decrease in accounts receivable and billed portion of finance receivables 92 166

Increase in inventories ( 18 ) ( 126 )

Increase in equipment on operating leases ( 28 ) ( 32 )

1 unchanged sentence

Decrease (increase) in other current and long-term assets 18 ( 16 )

Increase (decrease) in accounts payable 90 22 ( 69 ) ( 24 )

(Decrease) increase in accounts payable ( 31 ) 51

Decrease in accrued compensation ( 36 ) ( 108 )

(Decrease) increase in other current and long-term liabilities ( 16 ) 26 ( 146 ) 19

Decrease in other current and long-term liabilities ( 35 ) ( 38 )

Net change in income tax assets and liabilities 6 ( 10 )

1 unchanged sentence

Other operating, net ( 11 ) 18

Net cash provided by operating activities of continuing operations 106 348 313 846

Net cash provided by operating activities of discontinued operations — 8 — 49

Net cash provided by operating activities 117 173

3 unchanged sentences

Acquisitions, net of cash acquired — ( 193 )

Other investing, net — 1 1 1

Net cash provided by (used in) investing activities 9 4 ( 223 ) ( 68 )

Net cash used in investing activities ( 17 ) ( 214 )

Cash Flows from Financing Activities

Net proceeds from short-term debt 1 — 1 —

Proceeds from issuance of long-term debt — 2

3 unchanged sentences

Other financing, net ( 7 ) ( 4 )

Net cash provided by (used in) financing activities 856 ( 137 ) 424 ( 983 )

Net cash used in financing activities ( 318 ) ( 60 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 12 ) ( 29 )

Increase (decrease) in cash, cash equivalents and restricted cash 983 203 502 ( 169 )

Decrease in cash, cash equivalents and restricted cash ( 230 ) ( 130 )

Cash, cash equivalents and restricted cash at beginning of period 2,691 2,795

Cash, Cash Equivalents and Restricted Cash at End of Period $ 2,461 $ 2,665

$ 3,297 $ 979 $ 3,297 $ 979

_____________

(1) Balance at September 30, 2019 includes $ 1 associated with discontinued operations.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1 unchanged sentence

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020

9 unchanged sentences

Selling, administrative and general expenses 447 541

Restructuring and related costs 20 27 64 176

Restructuring and related costs, net 17 41

Amortization of intangible assets 14 11

2 unchanged sentences

Total Costs and Expenses 1,655 1,865

Income before Income Taxes and Equity Income 130 223 160 486

Income tax expense 29 66 36 106

Income (Loss) before Income Taxes and Equity Income 55 ( 5 )

Income tax expense (benefit) 14 ( 1 )

Equity in net income of unconsolidated affiliates — 2

Income from Continuing Operations 101 158 126 385

Income from discontinued operations, net of tax — 64 — 157

Net Income 101 222 126 542

Income from continuing operations attributable to noncontrolling interests — 1 — 3

Income from discontinued operations attributable to noncontrolling interests — — — 4

Net Income Attributable to Xerox $ 101 $ 221 $ 126 $ 535

Amounts Attributable to Xerox:

Net income from continuing operations $ 101 $ 157 $ 126 $ 382

Net income from discontinued operations — 64 — 153

Net Income Attributable to Xerox $ 101 $ 221 $ 126 $ 535

Net Income (Loss) 41 ( 2 )

Net income attributable to noncontrolling interests — —

Net Income (Loss) Attributable to Xerox $ 41 $ ( 2 )

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1 unchanged sentence

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020

Net Income $ 101 $ 222 $ 126 $ 542

Income from continuing operations attributable to noncontrolling interests — 1 — 3

Income from discontinued operations attributable to noncontrolling interests — — — 4

Net Income Attributable to Xerox 101 221 126 535

Other Comprehensive Income (Loss), Net (1)

Net Income (Loss) $ 41 $ ( 2 )

Net income attributable to noncontrolling interests — —

Net Income (Loss) Attributable to Xerox 41 ( 2 )

Other Comprehensive (Loss) Income, Net (1)

Translation adjustments, net ( 51 ) ( 197 )

Unrealized gains, net 1 1 4 3

Unrealized (losses) gains, net ( 7 ) 5

Changes in defined benefit plans, net 55 54

Other Comprehensive Income (Loss), Net 88 ( 202 ) 53 ( 157 )

Other comprehensive income, net from continuing operations attributable to noncontrolling interests — 1 — 1

Other Comprehensive Income (Loss), Net Attributable to Xerox 88 ( 203 ) 53 ( 158 )

Comprehensive Income, Net 189 20 179 385

Comprehensive income, net from continuing operations attributable to noncontrolling interests — 2 — 4

Comprehensive income, net from discontinued operations attributable to noncontrolling interests — — — 4

Comprehensive Income, Net Attributable to Xerox $ 189 $ 18 $ 179 $ 377

Other Comprehensive Loss, Net Attributable to Xerox ( 3 ) ( 138 )

Comprehensive Income (Loss), Net Attributable to Xerox $ 38 $ ( 140 )

_____________

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions) September 30,

(in millions) March 31,

2021 December 31,

Cash and cash equivalents $ 2,379 $ 2,625

Accounts receivable (net of allowances of $ 63 and $ 55 , respectively) (1)

Billed portion of finance receivables (net of allowances of $ 4 and $ 3 , respectively) (1)

Accounts receivable (net of allowance of $ 68 and $ 69 , respectively)

Billed portion of finance receivables (net of allowance of $ 4 and $ 4 , respectively)

Finance receivables, net 1,065 1,082

2 unchanged sentences

Total current assets 5,421 5,783

Finance receivables due after one year (net of allowances of $ 138 and $ 86 , respectively) (1)

Finance receivables due after one year (net of allowance of $ 131 and $ 129 , respectively)

Equipment on operating leases, net 277 296

12 unchanged sentences

Long-term debt 2,180 2,557

Related party debt 1,494 —

Pension and other benefit liabilities 1,473 1,566

6 unchanged sentences

Accumulated other comprehensive loss ( 3,335 ) ( 3,332 )

Xerox shareholders’ equity 7,237 5,867

Xerox shareholder's equity 5,690 7,381

Noncontrolling interests 4 4

1 unchanged sentence

Total Liabilities and Equity $ 14,264 $ 14,730

_____________

(1) Allowances at September 30, 2020 determined in accordance with ASU 2016-13 adopted effective January 1, 2020 - refer to Notes 2, 8 and 9 for additional information.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020

Cash Flows from Operating Activities

Net Income $ 101 $ 222 $ 126 $ 542

Income from discontinued operations, net of tax — ( 64 ) — ( 157 )

Income from continuing operations 101 158 126 385

Adjustments required to reconcile Net income to Cash flows from operating activities

Net Income (Loss) $ 41 $ ( 2 )

Adjustments required to reconcile Net income (loss) to Cash flows from operating activities

Depreciation and amortization 85 94

6 unchanged sentences

Contributions to defined benefit pension plans ( 35 ) ( 33 )

(Increase) decrease in accounts receivable and billed portion of finance receivables ( 96 ) 51 332 60

(Increase) decrease in inventories ( 49 ) 15 ( 274 ) 31

Decrease in accounts receivable and billed portion of finance receivables 92 166

Increase in inventories ( 18 ) ( 126 )

Increase in equipment on operating leases ( 28 ) ( 32 )

1 unchanged sentence

Decrease (increase) in other current and long-term assets 18 ( 16 )

Increase (decrease) in accounts payable 90 22 ( 69 ) ( 24 )

(Decrease) increase in accounts payable ( 31 ) 51

Decrease in accrued compensation ( 36 ) ( 108 )

(Decrease) increase in other current and long-term liabilities ( 27 ) 26 ( 157 ) 19

Decrease in other current and long-term liabilities ( 36 ) ( 38 )

Net change in income tax assets and liabilities 6 ( 10 )

1 unchanged sentence

Other operating, net ( 11 ) 18

Net cash provided by operating activities of continuing operations 106 348 313 846

Net cash provided by operating activities of discontinued operations — 8 — 49

Net cash provided by operating activities 117 173

3 unchanged sentences

Acquisitions, net of cash acquired — ( 193 )

Other investing, net — 1 1 1

Net cash provided by (used in) investing activities 9 4 ( 223 ) ( 68 )

Net cash used in investing activities ( 17 ) ( 214 )

Cash Flows from Financing Activities

Net proceeds from short-term debt 1 — 1 —

Proceeds from issuance of long-term debt — 2

Payments on long-term debt ( 95 ) —

Dividends — ( 59 ) — ( 181 )

Payments to acquire treasury stock, including fees — — — ( 300 )

Contributions from parent 1,494 — 1,494 —

Distributions to parent ( 220 ) ( 58 )

Other financing, net ( 3 ) ( 4 )

Net cash provided by (used in) financing activities 856 ( 137 ) 424 ( 983 )

Net cash used in financing activities ( 318 ) ( 60 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 12 ) ( 29 )

Increase (decrease) in cash, cash equivalents and restricted cash 983 203 502 ( 169 )

Decrease in cash, cash equivalents and restricted cash ( 230 ) ( 130 )

Cash, cash equivalents and restricted cash at beginning of period 2,691 2,795

Cash, Cash Equivalents and Restricted Cash at End of Period $ 2,461 $ 2,665

$ 3,297 $ 979 $ 3,297 $ 979

_____________

(1) Balance at September 30, 2019 includes $ 1 associated with discontinued operations.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

7 unchanged sentences

References herein to “we,” “us,” “our,” the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise.

References to "Xerox Holdings Corporation" refer to the stand-alone parent company and do not include its subsidiaries.

References to "Xerox Corporation" refer to the stand-alone company and do not include its subsidiaries.

The accompanying unaudited Condensed Consolidated Financial Statements and footnotes represent the respective, consolidated results and financial results of Xerox Holdings and Xerox and all respective companies that each registrant directly or indirectly controls, either through majority ownership or otherwise.

1 unchanged sentence

The accompanying unaudited Condensed Consolidated Financial Statements of both Xerox Holdings and Xerox have been prepared in accordance with the accounting policies described in the Combined 2020 Annual Report on Form 10-K ("2020 Annual Report"), except as noted herein, and the interim reporting requirements of Form 10-Q.

Accordingly, certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.

You should read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements included in the Combined 2020 Annual Report.

2 unchanged sentences

Interim results of operations are not necessarily indicative of the results of the full year.

As of September 30, 2020, the impact of the outbreak of COVID-19 continues to unfold.

As a result, many of our estimates and assumptions have required increased judgment and carry a higher degree of variability and volatility.

As events continue to evolve and additional information becomes available, our estimates may change materially in the future.

For convenience and ease of reference, we refer to the financial statement caption “Income before Income Taxes and Equity Income” as “pre-tax income.”

As of March 31, 2021, although we did see certain improvement in our financial results as businesses gained confidence in the progress to control the COVID-19 pandemic and resumed investments in new printing technology and services, the pandemic continues to progress and impact our financial results.

Accordingly, many of our estimates and assumptions continue to require an increased level of judgment and may have to change in the future as events continue to evolve and additional information becomes available.

For convenience and ease of reference, we refer to the financial statement caption “Income (Loss) before Income Taxes and Equity Income” as “pre-tax income (loss)”.

Notes to the Condensed Consolidated Financial Statements reflect the activity for both Xerox Holdings and Xerox for all periods presented, unless otherwise noted.

Interim Impairment Evaluation

During the quarter ended June 30, 2020, we evaluated whether events or circumstances had changed such that it would indicate it is more likely than not that our Goodwill was impaired (trigger event).

Factors considered in this evaluation included, among other things, the negative financial impacts from the COVID-19 pandemic on current and near-term future operations, the expected slower recovery during the latter half of 2020 as businesses return to their respective offices, as well as a sustained market capitalization below our book value.

Based on this assessment, we concluded that a trigger event had occurred related to Goodwill and we completed an interim quantitative evaluation of Goodwill.

As a result of limited market compares due to companies not providing guidance in this current economic environment, our interim quantitative evaluation of Goodwill was based on the income approach to estimate fair value.

The income approach is based on the discounted cash flow method that uses the Company's estimates for future forecasted financial performance including revenues, operating expenses, and taxes, as well as working capital and capital asset requirements.

Projected cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated market weighted-average cost of capital, as well as any risk unique to the subject cash flows.

Our estimates regarding future forecasted cash flows accordingly reflected consideration of the continued negative financial impacts from the COVID-19 pandemic on our current and future operations as well expected recovery scenarios.

After completing our interim impairment review, we concluded that Goodwill was not impaired in the second quarter because the Company’s estimated fair value exceeded the carrying value as of June 30, 2020.

We perform our annual goodwill impairment testing in the fourth quarter of each year.

After completing our quantitative impairment review in the fourth quarter 2020, we concluded that Goodwill was not impaired.

Based on various forecast models, which we believe reflected the inherent uncertainty of the future, we estimated that the excess of fair value over carrying value ranged between 15 % and 20 %.

During the quarter ended March 31, 2021, although business performance continues to improve, we determined that the continued negative impacts on our current operations resulting from the COVID-19 pandemic as well as a market capitalization that remains less than book value required us to qualitatively assess whether a triggering event had occurred and whether it was more likely than not that our goodwill was impaired as of March 31, 2021.

Based on our interim qualitative assessment as of March 31, 2021, we determined that it was more-likely-than-not that the fair value of the Company was greater than the net book value and that we did not have a “triggering event” requiring a quantitative or Step 1 assessment of goodwill.

Our review of macroeconomic and industry considerations, as well as the Company's financial results for the first quarter 2021 and projections for the full year 2021, were consistent with the expectations and sensitivities assessed as part of our review performed in the fourth

Xerox 2021 Form 10-Q 11

During the quarter ended September 30, 2020, although business performance improved, we determined that the continued negative impacts on our current operations resulting from the COVID-19 pandemic and the impacts expected on our future operations as well as a market capitalization that remains less than book value required us to qualitatively assess whether a triggering event had occurred and whether it was more likely than not that our goodwill was impaired as of September 30, 2020.

Based on our interim qualitative assessment as of September 30, 2020, we determined that it was more-likely-than-not that the fair value of the Company was greater than the net book value and that we did not have a “triggering event” requiring a quantitative or Step 1 assessment of goodwill.

Our review of macroeconomic and industry considerations, as well as the Company's financial results for the third quarter 2020, were consistent with the expectations and sensitivities assessed as part of our interim review performed in the second quarter 2020.

Further, although our market capitalization remained below our net book value, the Company's market capitalization did improve in the third quarter 2020.

quarter 2020.

Further, although our market capitalization remained below our net book value, the Company's market capitalization did improve in the first quarter 2021.

If assumptions or estimates in the fair value calculations change or if future cash flows vary from what was expected, including those assumptions relating to the duration and severity of the financial impact from the COVID-19 pandemic, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

We normally assess goodwill for impairment during the fourth quarter and based on an updated evaluation of the impact of the events and factors noted in 2020 – macroeconomic, industry and company – we plan to utilize a quantitative model for the assessment of the recoverability of our goodwill balance.

Note 2 – Recent Accounting Pronouncements

9 unchanged sentences

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04 , Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying U.S.

In March 2020, the FASB issued ASU 2020-04 , Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued.

The amendments are effective for all entities as of March 12, 2020 through December 31, 2022.

There has been no impact to date as a result of ASU 2020-04, however we continue to evaluate potential future impacts that may result from the discontinuation of LIBOR or other reference rates as well as the accounting provided in this update on our financial condition, results of operations, and cash flows.

In January 2021, the FASB issued ASU 2021-01 , Reference Rate Reform (Topic 848):

Scope , which provided clarification guidance to ASU 2020-04.

These ASUs were effective commencing with our quarter ended March 31, 2020 through December 31, 2022.

There has been no impact to date as a result of ASU 2020-04 or ASU 2021-01 and subsequent amendments on reference rate reform, however we continue to evaluate potential future impacts that may result from the discontinuation of LIBOR or other reference rates as well as the accounting provided in this update on our financial condition, results of operations, and cash flows.

Accounting Standard Updates Adopted in 2021:

In December 2019, the FASB issued ASU 2019-12 , Income Taxes (Topic 740):

1 unchanged sentence

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This update is effective for our fiscal year beginning January 1, 2021.

Although we continue to evaluate the effects of this update on our Consolidated Financial Statements, at this stage we do not expect the adoption to have a material impact on our results of operations, financial position or disclosures.

Xerox 2020 Form 10-Q

Accounting Standard Updates Adopted in 2020:

In April 2020, the FASB staff issued a question and answer (Q&A) document on the application of lease accounting guidance related to lease concessions provided as a result of the economic disruption caused by the COVID-19 pandemic (Topic 842 Q&A).

Topic 842 Q&A provides interpretive guidance allowing companies the option to account for lease concessions related to the COVID-19 pandemic consistent with how those concessions would be accounted for under ASU 2016-02, Leases (Topic 842), as though enforceable rights and obligations for those concessions existed at the beginning of the contract (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract).

This interpretive guidance was issued in order to reduce the costs and complexities of applying lease modification accounting under Topic 842 to leases impacted by the effects of the COVID-19 pandemic.

This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

We have elected to apply the interpretive guidance provided in Topic 842 Q&A to rent concessions related to the COVID-19 pandemic provided as a Lessor to our customers and as received as a Lessee.

Rent deferrals provided as a Lessor were primarily offered to customers with sales type lease receivables.

We elected to account for the deferrals in the timing of lease payments as if there were no changes in the lease contracts.

Under this approach, assuming that collectibility of future lease payments is still probable, the classification of the leases is not updated and we retain the balance of the deferral as a receivable and will settle that receivable at the revised payment date or dates.

As of September 30, 2020, we approved payment deferrals of up to three months of approximately $ 33 or approximately 1 % of our total finance receivable portfolio.

The outstanding principal balance of receivables for customers with an approved payment deferral was approximately $ 337 .

Rent abatements to the extent provided were not material and were accounted for as write-offs as part of our normal bad debt reserve assessment.

With respect to rent deferrals and abatements received as a Lessee, we elected to account for the deferrals and abatements as a resolution of a contingency within the lease.

Under this approach, we follow the resolution of a contingency model in ASC 842 without reclassifying the lease or updating the discount rate.

We remeasure the remaining consideration in the contract, reallocate it to the lease and non-lease components as applicable, and remeasure the lease liability with an adjustment to the right-of-use asset for the same amount.

If the total lease payments remain exactly the same, the lease cost remains unchanged.

The impact of this election was not material to our financial condition, results of operations or cash flows, as no rent concessions provided to Xerox in the second or third quarters of 2020 were material, individually or in the aggregate.

Government Grants/Assistance

As a result of the significant increase in governmental assistance during 2020, we updated our significant accounting policies as summarized in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies to the Consolidated Financial Statements included on Form 10-K for the year ended December 31, 2019, as follows for the accounting associated with government assistance.

Government grants related to income are recognized as a reduction of related expenses in the Condensed Consolidated Statements of Income when there is a reasonable assurance that the entity will comply with the conditions attached to the grant and that the grants will be received.

The timing and pattern of recognition of government grants is made on a systematic basis over the periods in which the Company recognizes the related expenses or losses that the grants are intended to compensate.

Financial Instruments - Credit Losses

On January 1, 2020, we adopted ASU 2016-13 , Financial Instruments Credit Losses - Measurement of Credit Losses on Financial Instruments.

This update was issued by the FASB in June 2016, with additional updates and amendments being issued in 2018, 2019 and 2020 and requires measurement and recognition of expected credit losses for financial assets on an expected loss model rather than an incurred loss model.

The update impacted financial assets including net investment in leases that are not accounted for at fair value through Net Income.

The adoption of ASU 2016-13 primarily impacted the estimation of our Allowance for doubtful accounts for Accounts Receivable and Finance Receivables.

The impact recorded on our initial adoption of ASU 2016-13 was not material as our previous methodology for assessing the adequacy of our Allowance for doubtful accounts for Finance Receivables, the larger component of our receivable reserves, incorporated an expected loss model and the methodology for both allowances included an assessment of current economic conditions.

However, as previously disclosed, the future impact from this update is highly dependent on future economic conditions.

Refer to Note 8 -

Xerox 2020 Form 10-Q

Accounts Receivable, Net and Note 9 - Finance Receivable, Net for additional discussion regarding the impacts from the adoption of this update during the first quarter 2020.

Intangibles - Internal-Use Software

On January 1, 2020, we adopted ASU 2018-15 , Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

This update was issued by the FASB in August 2018 and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The update provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense.

The capitalized implementation costs are required to be expensed over the term of the hosting arrangement.

The update also clarifies the presentation requirements for reporting such costs in the entity’s financial statements.

The adoption of ASU 2018-15 did not have a material impact on our financial condition, results of operations or cash flows as we had previously capitalized these implementation costs and such amounts were not material.

We adopted this update effective for our fiscal year beginning January 1, 2021.

The adoption did not have nor is expected to have a material impact on our results of operations, financial position or disclosures.

Other Updates

4 unchanged sentences

This update is effective for our fiscal year beginning January 1, 2021.

• Compensation - Stock Compensation and Revenue from Contracts with Customers:

ASU 2019-08 , (Topic 718) and (Topic 606) Codification Improvements - Share-Based Consideration Payable to a Customer.

This update was effective for our fiscal year beginning January 1, 2020.

• Collaborative Arrangements:

ASU 2018-18 , (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606.

This update was effective for our fiscal year beginning January 1, 2020.

• Fair Value Measurement:

ASU 2018-13 , (Topic 820) Disclosure Framework.

This update was effective for our fiscal year beginning January 1, 2020.

Xerox 2021 Form 10-Q 12

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Primary geographical markets (1) :

8 unchanged sentences

Maintenance agreements (2)

443 567 1,338 1,774

Service arrangements (3)

486 611 1,512 1,883

Rental and other 129 141

3 unchanged sentences

Direct equipment lease (4)

$ 151 $ 200 $ 388 $ 484

Distributors & resellers (5)

245 301 604 949

Customer direct 201 216

5 unchanged sentences

Also includes revenues from embedded operating leases, which were not significant.

(4) Primarily reflects direct sales through bundled lease arrangements.

(4) Primarily reflects sales through bundled lease arrangements.

(5) Primarily reflects sales through our two-tier distribution channels.

1 unchanged sentence

We normally do not have contract assets, which are primarily unbilled accounts receivable that are conditional on something other than the passage of time.

Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advanced billings for maintenance and other services to be performed and were approximately $ 130 and $ 137 at September 30, 2020 and December 31, 2019, respectively.

The balance at September 30, 2020 is expected to be amortized to revenue over approximately the next 30 months.

Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advanced billings for maintenance and other services to be performed and were approximately $ 126 and $ 130 at March 31, 2021 and December 31, 2020, respectively.

The majority of the balance at March 31, 2021 is expected to be amortized to revenue over approximately the next 30 months.

Contract Costs:

Incremental direct costs of obtaining a contract primarily include sales commissions paid to sales people and agents in connection with the placement of equipment with associated post sale services arrangements.

These costs are deferred and amortized on the straight-line basis over the estimated contract term of the post sale services arrangement, which is currently estimated to be approximately four years .

These costs are deferred and amortized on the straight-line basis over the estimated contract term, which is currently estimated to be approximately four years .

We pay commensurate sales commissions upon customer renewals, therefore our amortization period is aligned to our initial contract term.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Incremental direct costs of obtaining a contract $ 13 $ 15

Amortization of incremental direct costs 19 21

The balance of deferred incremental direct costs net of accumulated amortization at September 30, 2020 and December 31, 2019 was $ 145 and $ 163 , respectively.

This amount is expected to be amortized over its estimated period of benefit, which we currently estimate to be approximately four years .

Xerox 2021 Form 10-Q 13

The balance of deferred incremental direct costs net of accumulated amortization at March 31, 2021 and December 31, 2020 was $ 140 and $ 145 , respectively.

This amount is expected to be amortized over its estimated period of benefit, which we currently estimate to be approximately four years .

We may also incur costs associated with our services arrangements to generate or enhance resources and assets that will be used to satisfy our future performance obligations included in these arrangements.

These costs are considered contract fulfillment costs and are amortized over the contractual service period of the arrangement to cost of services.

In addition, we also provide inducements to certain customers in various forms, including contractual credits, which are capitalized and amortized as a reduction of revenue over the term of the contract.

As of September 30, 2020 and December 31, 2019 amounts deferred associated with contract fulfillment costs and inducements were $ 12 and $ 13 , respectively.

The related amortization was $ 1 and $ 1 for the three months ended September 30, 2020 and 2019, respectively, and $ 3 and $ 4 for the nine months ended September 30, 2020 and 2019, respectively.

In addition, we provide inducements to certain customers in various forms, including contractual credits, which are capitalized and amortized as a reduction of revenue over the term of the contract.

As of March 31, 2021 and December 31, 2020 amounts deferred associated with contract fulfillment costs and inducements were $ 17 and $ 13 , respectively.

The related amortization was $ 1 and $ 1 for the three months ended March 31, 2021 and 2020, respectively.

Equipment and software used in the fulfillment of service arrangements and where the Company retains control are capitalized and depreciated over the shorter of their useful life or the term of the contract if an asset is contract specific.

3 unchanged sentences

The components of lease income are as follows:

Location in Three Months Ended

September 30, Nine Months Ended

September 30,

Statements of Income 2020 2019 2020 2019

Three Months Ended

Location in Statements of Income (Loss) 2021 2020

Revenue from sales type leases Sales $ 147 $ 126

3 unchanged sentences

Total Lease income $ 284 $ 293

Profit at lease commencement on sales type leases was estimated to be approximately $ 52 and $ 86 for the three months ended September 30, 2020 and 2019, respectively and $ 138 and $ 206 for the nine months ended September 30, 2020 and 2019, respectively.

Xerox 2020 Form 10-Q

Note 5 – Acquisitions

In 2020, Xerox continued its focus on further penetrating the small-to-medium sized business (SMB) market through acquisitions of local area resellers and partners (including multi-brand dealers).

During the first quarter of 2020, business acquisitions associated with this initiative totaled $ 193 , net of cash acquired, and included three acquisitions in the U.K.

for $ 171 (GBP 132 million) - Arena Group, Altodigital Networks and ITEC Connect, as well an acquisition in Canada for approximately $ 22 (CAD 29 million).

These acquisitions are expected to expand Xerox's presence in the SMB market in both Western Europe and Canada.

The operating results of these acquisitions are not material to our financial statements and are included within our results from the acquisition date.

The purchase prices were all cash for 100 % ownership of the acquired companies and were primarily allocated to Intangible assets, net (approximately $ 70 ) and Goodwill (approximately $ 105 ), with the remainder to tangible net assets.

The allocations are based on preliminary management estimates, which continue to be reviewed, and are expected to be finalized by the fourth quarter 2020 and may include input and support from third-party valuations.

Any adjustments to the preliminary allocations are not expected to be material.

Termination of Proposed Transaction with HP Inc.

In November 2019, Xerox Holdings commenced a proposed business combination transaction with HP Inc.

HP rejected our initial and subsequent proposals and refused to engage in mutual due diligence or negotiations.

In January 2020, Xerox Holdings nominated a slate of directors to HP’s board to be voted on at HP’s 2020 annual meeting of stockholders and shortly thereafter, it launched a tender offer to acquire all outstanding shares of HP, as it intended to continue to pursue the proposed business combination transaction.

However, the ongoing COVID-19 pandemic and resulting macroeconomic and market turmoil created an environment that the company determined was not conducive to Xerox Holdings continuing an acquisition of HP.

Accordingly, on March 31, 2020 Xerox Holdings withdrew its tender offer to acquire HP and terminated its proxy solicitation to nominate a slate of candidates to HP’s board of directors.

In 2020, Xerox Holdings had obtained $ 24 billion in financing commitments from several banks to support the cash portion of the proposed business combination transaction with HP.

On March 31, 2020, following the withdrawal of Xerox Holdings' tender offer to acquire HP, notice was provided to the banks of the immediate termination of the financing commitment.

No termination penalties were paid as a result of termination .

Note 6 – Divestitures

Sales of Ownership Interests in Fuji Xerox Co., Ltd.

and Xerox International Partners

In November 2019, Xerox Holdings completed a series of transactions to restructure its relationship with FUJIFILM Holdings Corporation (FH), including the sale of its indirect 25 % equity interest in Fuji Xerox (FX), as well as the sale of its indirect 51 % partnership interest in Xerox International Partners (XIP) (collectively the Sales).

As a result of the Sales and the related strategic shift in our business, the historical financial results of our equity method investment in FX and our XIP business (which was consolidated) for the periods prior to the Sales are reflected as a discontinued operation and as such, their impact is excluded from continuing operations for all periods presented.

Summarized financial information for our Discontinued operations is as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Revenue $ — $ 21 $ — $ 73

Income from operations (1)

$ — $ 64 $ — $ 159

Gain on disposal — — — —

Income before income taxes — 64 — 159

Income tax expense — — — 2

Income from discontinued operations, net of tax — 64 — 157

Income from discontinued operations attributable to noncontrolling interests, net of tax — — — 4

Income from discontinued operations, attributable to Xerox Holdings, net of tax $ — $ 64 $ — $ 153

_____________

(1) Includes Equity in net income for FX of $ 57 and $ 132 for the three and nine months ended September 30, 2019, respectively.

Profit at lease commencement on sales type leases was estimated to be $ 56 and $ 43 for the three months ended March 31, 2021 and 2020, respectively.

Xerox 2021 Form 10-Q 14

2 unchanged sentences

Cash, cash equivalents and restricted cash amounts were as follows:

September 30,

2021 December 31,

2 unchanged sentences

Litigation deposits in Brazil 38 42

Escrow and cash collections related to secured borrowing arrangements (1)

Other restricted cash 1 2

1 unchanged sentence

Cash, cash equivalents and restricted cash $ 2,461 $ 2,691

Restricted cash primarily relates to escrow cash deposits made in Brazil associated with ongoing litigation.

_____________

(1) Represents collections on finance receivables pledged for secured borrowings that will be remitted to lenders in the following month.

Restricted cash primarily relates to cash collections on finance receivables that were pledged for secured borrowings as well as escrow cash deposits made in Brazil associated with ongoing litigation.

As more fully discussed in Note 19 - Contingencies and Litigation, various litigation matters in Brazil require us to make cash deposits to escrow as a condition of continuing the litigation.

1 unchanged sentence

Restricted cash was reported in the Condensed Consolidated Balance Sheets as follows:

September 30,

2021 December 31,

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Provision for receivables $ 11 $ 74

8 unchanged sentences

Cost of additions to internal use software 9 5

Common stock dividends - Xerox Holdings 57 57 165 172

Preferred stock dividends - Xerox Holdings 4 4 11 11

Repurchases related to stock-based compensation - Xerox Holdings 9 10 19 20

Common stock dividends - Xerox Holdings Corporation 50 54

Preferred stock dividends - Xerox Holdings Corporation 4 4

Repurchases related to stock-based compensation - Xerox Holdings Corporation 4 7

_____________

(1) Amortization of acquired intangible assets of Xerox is $ 14 for the three months ended March 31, 2021.

(2) Amortization of customer contract costs is reported in Decrease (increase) in other current and long-term assets in the Condensed Consolidated Statements of Cash Flows.

Refer to Note 3 - Revenue for additional information on contract costs.

Refer to Note 3 - Revenue - Contract Costs for additional information.

Xerox 2021 Form 10-Q 15

1 unchanged sentence

Accounts receivable, net were as follows:

September 30,

2021 December 31,

5 unchanged sentences

The allowance for doubtful accounts was as follows:

Balance at December 31, 2019 $ 55

Charge-offs ( 2 )

Recoveries and other (1)

Balance at March 31, 2020 $ 60

Charge-offs ( 8 )

Recoveries and other (1)

Balance at June 30, 2020 $ 60

Balance at December 31 st

Provision 4 8

Charge-offs ( 5 ) ( 2 )

Recoveries and other (1)

Balance at September 30, 2020 $ 63

Balance at March 31 st

_____________

1 unchanged sentence

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness.

Consistent with our adoption of ASU 2016-13 effective January 1, 2020 (refer to Note 2 - Recent Accounting Pronouncements), the allowance for uncollectible accounts receivable is determined based on an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends.

Based on that assessment, and primarily as a result of the macroeconomic and market disruption caused by COVID-19, the allowance for doubtful accounts as a percent of gross accounts receivable increased to 6.6 % at September 30, 2020 from 4.3 % at December 31, 2019.

The allowance for uncollectible accounts receivable is determined based on an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends.

Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 8.0 % at March 31, 2021 and 7.2 % at December 31, 2020.

The allowance for doubtful accounts as a percent of gross accounts receivable remain at an elevated level as compared to historical levels primarily as a result of the macroeconomic and market disruption caused by COVID-19.

Accounts Receivable Sales Arrangements

3 unchanged sentences

Under this arrangement, we sell our entire interest in the related accounts receivable for cash and no portion of the payment is held back or deferred by the purchaser.

Of the accounts receivable sold and derecognized from our balance sheet, $ 83 and $ 165 remained uncollected as of September 30, 2020 and December 31, 2019, respectively.

Of the accounts receivable sold and derecognized from our balance sheet, $ 93 and $ 136 remained uncollected as of March 31, 2021 and December 31, 2020, respectively.

Accounts receivable sales activity was as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Accounts receivable sales (1)

$ 115 $ 67 $ 182 $ 265

____________ _

(1) Losses on sales were not material.

7 unchanged sentences

Finance receivables, net were as follows:

September 30,

2021 December 31,

12 unchanged sentences

Customer credit limits are based upon an initial evaluation of the customer's credit quality and we adjust that limit accordingly based upon ongoing credit assessments of the customer, including payment history and changes in credit quality.

Consistent with our adoption of ASU 2016-13 effective January 1, 2020 (refer to Note 2 - Recent Accounting Pronouncements), the allowance for credit losses is determined principally based on an assessment of origination year and past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends.

Based on that assessment, and primarily as a result of the macroeconomic and market turmoil caused by COVID-19, the allowance for doubtful credit losses increased to 4.4 % of gross finance receivables (net of unearned income) at September 30, 2020 from 2.6 % at December 31, 2019.

In assessing the level of reserve required as of September 30, 2020, we had to critically assess current and forecasted economic conditions in light of the COVID-19 pandemic to ensure we objectively included those expected impacts in the determination of our reserve.

Our assessment also included current portfolio credit metrics and the level of reserves and write-offs we recorded on our receivable’s portfolio during the credit crisis in 2008/09 as additional reference points to objectively determine the adequacy of our allowance.

The allowance for credit losses is determined principally based on an assessment of origination year and past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends.

Based on that assessment the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 4.2 % at March 31, 2021 and 4.0 % at December 31, 2020.

In determining the level of reserve required we had to critically assess current and forecasted economic conditions in light of the COVID-19 pandemic to ensure we objectively included those expected impacts in the determination of our reserve.

Our assessment also included a review of current portfolio credit metrics and the level of write-offs incurred over the past year of the COVID-19 pandemic.

The allowance for doubtful accounts and provision for credit losses represents an estimate of the losses expected to be incurred from the Company's finance receivable portfolio.

6 unchanged sentences

The identification of account-specific exposure is not a significant factor in establishing the allowance for doubtful finance receivables.

Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented, with the exception of the updates required as part of our adoption of ASU 2016-13 effective January 1, 2020.

Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented.

Since our allowance for doubtful finance receivables is effectively determined by geography, the risk characteristics in our finance receivable portfolio segments will generally be consistent with the risk factors associated with the economies of the countries/regions included in those geographies.

Since EMEA is comprised of various countries and regional economies, the risk profile within that portfolio segment is somewhat more diversified due to the varying economic conditions among and within the countries.

Charge-offs in the U.S.

and EMEA remained fairly

The first quarter 2020 reflected an incremental $ 60 provision to cover estimated write-offs on our finance receivable portfolio from the economic disruption caused by the COVID-19 pandemic.

Subsequent to the first quarter of 2020 provision and through the first quarter of 2021, actual write-offs incurred to date have lagged expectations but

Xerox 2021 Form 10-Q 17

steady during the first, second and third quarters of 2020 and as compared to the prior year.

However, as reflected in our allowance for doubtful receivables, charge-offs are expected to increase over the remainder of the year and into 2021 as a result of the economic disruption related to the COVID-19 pandemic.

Amounts disclosed below for the nine months ended and at September 30, 2020 reflect the adoption of ASU 2016-13 in January 2020.

Amounts disclosed below for comparable periods in 2019 reflect superseded guidance.

remain in line with our original projections over the life of the lease portfolio and consistent with future expectations regarding our estimated impacts from the COVID-19 pandemic.

Accordingly, our total reserve as a percent of receivables has remained fairly consistent subsequent to the first quarter 2020 charge at around 4 %.

The allowance for doubtful accounts as well as the related investment in finance receivables were as follows:

United States Canada (1)

United States Canada EMEA (1)

Balance at December 31, 2020

$ 77 $ 15 $ 41 $ 133

Provision 2 1 3 6

3 unchanged sentences

Balance at March 31, 2021 $ 78 $ 16 $ 41 $ 135

Provision 3 1 — 4

Charge-offs ( 5 ) ( 1 ) ( 2 ) ( 8 )

Recoveries and other (3)

Balance at June 30, 2020 $ 89 $ 16 $ 38 $ 143

Provision 6 — 3 9

Charge-offs ( 6 ) ( 2 ) ( 5 ) ( 13 )

Recoveries and other (3)

Balance at September 30, 2020 $ 89 $ 15 $ 38 $ 142

Finance receivables as of September 30, 2020 collectively evaluated for impairment (4)

Finance receivables as of March 31, 2021 collectively evaluated for impairment (3)

$ 1,806 $ 288 $ 1,118 $ 3,212

Balance at December 31, 2019

$ 59 $ 10 $ 20 $ 89

Provision 35 6 25 66

1 unchanged sentence

Recoveries and other (2)

— — ( 1 ) ( 1 )

Balance at March 31, 2020 $ 91 $ 15 $ 40 $ 146

Provision 4 1 3 8

Charge-offs ( 5 ) ( 3 ) ( 3 ) ( 11 )

Recoveries and other (3)

Balance at June 30, 2019 $ 53 $ 12 $ 28 $ 93

Provision 6 — 2 8

Charge-offs ( 5 ) ( 1 ) ( 3 ) ( 9 )

Recoveries and other (3)

Balance at September 30, 2019 $ 55 $ 11 $ 27 $ 93

Finance receivables as of September 30, 2019 collectively evaluated for impairment (4)

Finance receivables as of March 31, 2020 collectively evaluated for impairment (3)

$ 1,866 $ 289 $ 1,132 $ 3,287

_____________

(1) Prior year amounts have been recasted to include the Other geographic region, which was previously disclosed as a separate grouping, conforming to the current year's presentation.

(1) Includes developing market countries.

(2) Includes the impacts of foreign currency translation and adjustments to reserves necessary to reflect events of non-payment such as customer accommodations and contract terminations.

(4) Total Finance receivables exclude the allowance for credit losses of $ 142 and $ 93 at September 30, 2020 and 2019, respectively.

(3) Total Finance receivables exclude the allowance for credit losses of $ 135 and $ 146 at March 31, 2021 and 2020, respectively.

In the U.S., customers are further evaluated by class based on the type of lease origination.

The primary categories are direct, which primarily includes leases originated directly with end customers through bundled lease arrangements, and indirect, which includes lease financing to end-user customers who purchased equipment we sold to distributors or resellers.

Indirect also includes leases originated through our XBS sales channel, which utilizes a combination of internal and third party leasing in its lease arrangements with end customers.

The primary categories are direct, which primarily includes leases originated directly with end customers through bundled lease arrangements, and indirect, which primarily includes leases originated through our XBS sales channel that utilizes a combination of internal and third party leasing in its lease arrangements with end customers.

Indirect also includes lease financing to end-user customers who purchased equipment we sold to distributors or resellers.

We evaluate our customers based on the following credit quality indicators:

4 unchanged sentences

Loss rates in this category in the normal course are generally less than 1 %.

Xerox 2020 Form 10-Q

• Average Credit Risk:

11 unchanged sentences

Credit quality indicators are updated at least annually, or more frequently to the extent required by economic conditions, and the credit quality of any given customer can change during the life of the portfolio.

Xerox 2021 Form 10-Q 18

Details about our finance receivables portfolio based on geography, origination year and credit quality indicators are as follows:

September 30, 2020 December 31, 2019

March 31, 2021

2021 2020 2019 2018 2017 Prior Total

Receivables Total

United States (Direct):

21 unchanged sentences

Total $ 337 $ 1,058 $ 901 $ 574 $ 262 $ 80 $ 3,212

Xerox 2021 Form 10-Q 19

December 31, 2020

2020 2019 2018 2017 2016 Prior Total

United States (Direct):

Low Credit Risk $ 164 $ 151 $ 128 $ 71 $ 32 $ 4 $ 550

Average Credit Risk 54 95 52 26 8 2 237

High Credit Risk 90 42 27 13 5 3 180

Total $ 308 $ 288 $ 207 $ 110 $ 45 $ 9 $ 967

United States (Indirect):

Low Credit Risk $ 193 $ 140 $ 79 $ 33 $ 7 $ — $ 452

Average Credit Risk 129 124 71 31 8 — 363

High Credit Risk 19 9 9 3 1 — 41

Total $ 341 $ 273 $ 159 $ 67 $ 16 $ — $ 856

Low Credit Risk $ 37 $ 34 $ 24 $ 10 $ 5 $ 1 $ 111

Average Credit Risk 46 39 26 17 6 1 135

High Credit Risk 18 10 10 10 3 — 51

Total $ 101 $ 83 $ 60 $ 37 $ 14 $ 2 $ 297

Low Credit Risk $ 197 $ 177 $ 131 $ 62 $ 20 $ 4 $ 591

Average Credit Risk 170 160 108 51 17 4 510

High Credit Risk 23 24 15 10 4 1 77

Total $ 390 $ 361 $ 254 $ 123 $ 41 $ 9 $ 1,178

Total Finance Receivables

Low Credit Risk $ 591 $ 502 $ 362 $ 176 $ 64 $ 9 $ 1,704

Average Credit Risk 399 418 257 125 39 7 1,245

High Credit Risk 150 85 61 36 13 4 349

Total $ 1,140 $ 1,005 $ 680 $ 337 $ 116 $ 20 $ 3,298

_____________

(1) Prior year amounts have been recasted to include the Other geographic region, which was previously disclosed as a separate grouping, conforming to the current year's presentation.

(1) Includes developing market countries.

7 unchanged sentences

The aging of our billed finance receivables is as follows:

September 30, 2020

March 31, 2021

Current 31-90

3 unchanged sentences

Total United States 48 11 11 70 1,736 1,806 70

7 2 1 10 274 284 19

Canada 6 2 1 9 279 288 13

12 3 2 17 1,101 1,118 17

6 unchanged sentences

Total United States 54 10 12 76 1,747 1,823 74

8 2 1 11 315 326 17

Canada 8 2 — 10 287 297 12

12 3 2 17 1,161 1,178 23

2 unchanged sentences

(1) Includes developing market countries

(2) Prior year amounts have been recasted to include the Other geographic region, which was previously disclosed as a separate grouping, conforming to the current year's presentation.

Secured Borrowings and Collateral

1 unchanged sentence

based finance receivables to a consolidated special purpose entity (SPE), which funded the purchase through a secured loan agreement with a financial institution.

As of September 30, 2020 the SPE holds $ 314 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for the secured loan agreement.

As of March 31, 2021 the SPE holds $ 248 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for the secured loan agreement.

In December 2020, we sold $ 610 of U.S.

based finance receivables to a consolidated SPE, which funded the purchase through a secured loan agreement with a financial institution.

As of March 31, 2021 the SPE holds $ 543 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for the secured loan agreement.

Refer to Note 11 - Debt, for additional information related to this arrangement including the related secured loan agreement.

Xerox 2021 Form 10-Q 21

Note 8 – Inventories and Equipment on Operating Leases, Net

The following is a summary of Inventories by major category:

September 30,

2021 December 31,

3 unchanged sentences

Total Inventories $ 841 $ 843

Xerox 2020 Form 10-Q

The transfer of equipment from our inventories to equipment subject to an operating lease is presented in our Condensed Consolidated Statements of Cash Flows in the operating activities section.

1 unchanged sentence

Equipment on operating leases and the related accumulated depreciation were as follows:

September 30,

2021 December 31,

2 unchanged sentences

Equipment on operating leases, net $ 277 $ 296

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 15 and $ 25 for the three months ended September 30, 2020 and 2019, respectively, and $ 51 and $ 80 for the nine months ended September 30, 2020 and 2019, respectively.

Secured Borrowings and Collateral

In July 2020, we sold the rights to payments under operating leases with an equipment net book value of $ 10 to a consolidated SPE, which funded the purchase through a secured loan agreement with a financial institution.

As of September 30, 2020 the SPE holds $ 9 of Equipment on operating leases, net, which are included in our Condensed Consolidated Balance Sheet as collateral for the secured loan agreement.

Refer to Note 13 - Debt, for additional information related to this arrangement including the related secured loan agreement.

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 15 and $ 22 for the three months ended March 31, 2021 and 2020, respectively.

Xerox 2021 Form 10-Q 22

Note 9 – Lessee

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Operating lease expense $ 27 $ 28

5 unchanged sentences

(1) Variable lease expense is related to our leased real estate for offices and warehouses and primarily includes labor and operational costs as well as taxes and insurance.

Operating leases right-of-use (ROU) assets, net and operating lease liabilities were reported in the Condensed Consolidated Balance Sheets as follows:

September 30,

As of March 31, 2021, we have one additional real estate operating lease that has not yet commenced.

This operating lease has an obligation and corresponding right-of-use (ROU) asset of $ 8 and commenced in April 2021 with a lease term of approximately 6 years and a one -time option to terminate the lease after 3 years.

Operating lease ROU assets, net and operating lease liabilities were reported in the Condensed Consolidated Balance Sheets as follows:

2021 December 31,

4 unchanged sentences

Xerox 2021 Form 10-Q 23

Supplemental information related to operating leases is as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Cash paid for amounts included in the measurement of lease liabilities - Operating cash flows $ 31 $ 31 $ 89 $ 95

ROU assets obtained in exchange for new lease liabilities (1)

$ 17 $ 5 $ 73 $ 28

Weighted-average remaining lease term 5 years 4 years

Weighted-average discount rate 5.06 % 5.63 %

_____________

(1) Includes the impact of new leases as well as remeasurements and modifications to existing leases.

Finance Leases

Xerox has finance leases for equipment and related infrastructure within outsourced warehouse supply arrangements in the U.S.

The leases have varying maturities up to six years with a maximum expiration date through December 2026.

As of September 30, 2020 the remaining lease obligation for all finance leases is $ 9 , based on a weighted-average discount rate of 4.41 %.

The Right-of-use asset balance associated with these finance leases of $ 11 is included in Land, buildings and equipment, net in the Condensed Consolidated Balance Sheet.

Note 10 – Restructuring Programs

We engage in restructuring actions, including Project Own It, as well as other transformation efforts in order to reduce our cost structure and realign it to the changing nature of our business and to achieve operating efficiencies through a number of opportunities, including reduction of our real estate footprint.

During the nine months ended September 30, 2020, we recorded net restructuring and asset impairment charges of $ 47 , which included $ 57 of severance costs related to headcount reductions of approximately 1,100 employees worldwide, $ 2 of other contractual termination costs and $ 6 of asset impairment charges.

We engage in restructuring actions through Project Own It as well as other transformation efforts in order to reduce our cost structure and realign it to the changing nature of our business.

As part of our efforts to reduce costs, our restructuring actions may also include the off-shoring or outsourcing of certain operations, services and other functions, as well as reducing our real estate footprint.

During the three months ended March 31, 2021, we recorded net restructuring and asset impairment charges of $ 21 , which included $ 14 of severance costs related to headcount reductions of approximately 350 employees worldwide, $ 1 of other contractual termination costs and $ 10 of asset impairment charges.

These costs were partially offset by $ 4 of net reversals, primarily resulting from changes in estimated reserves from prior period initiatives.

10 unchanged sentences

Balance at March 31, 2021 $ 59 $ 4 $ — $ 63

Provision 7 — — 7

Reversals ( 6 ) ( 1 ) ( 2 ) ( 9 )

Net current period charges (1)

_____________ _

Charges against reserve and currency ( 14 ) ( 1 ) 2 ( 13 )

Balance at June 30, 2020 $ 44 $ 5 $ — $ 49

Provision 18 1 4 23

Reversals ( 2 ) — ( 1 ) ( 3 )

Net current period charges (1)

Charges against reserve and currency ( 8 ) ( 2 ) ( 3 ) ( 13 )

Balance at September 30, 2020 $ 52 $ 4 $ — $ 56

_____________ _

(1) Represents net amount recognized within the Condensed Consolidated Statements of Income for the period shown for restructuring and asset impairment charges.

(1) Represents net amount recognized within the Condensed Consolidated Statements of Income (Loss) for the period shown for restructuring and asset impairment charges.

(2) Primarily includes additional costs incurred upon the exit from our facilities including decommissioning costs and associated contractual termination costs.

Charges against reserve and currency for first quarter 2020 include a reclassification of $ 4 related to expected recovery from sublease.

(3) Primarily related to the exit and abandonment of leased and owned facilities.

The charge includes the accelerated write-off of $ 3 for leased right-of-use assets and $ 3 for owned assets upon exit from the facilities, net of any potential sublease income and other recoveries.

Xerox 2020 Form 10-Q

(3) Primarily relates to the exit and abandonment of leased and owned facilities.

The charge includes the accelerated write-off of $ 1 for leased ROU assets and $ 9 for owned assets upon exit from the facilities, net of any potential sublease income and other recoveries, including potential sales, in the first quarter of 2021.

The following table summarizes the reconciliation to the Condensed Consolidated Statements of Cash Flows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Charges against reserve and currency $ ( 40 ) $ ( 35 )

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Retention related severance/bonuses (1)

$ ( 2 ) $ 11 $ 9 $ 31

Contractual severance costs — 4

3 unchanged sentences

(1) Includes retention related severance and bonuses for employees expected to continue working beyond their minimum notification period before termination.

(2) Amounts for nine months ended September 30, 2019 include approximately $ 38 for estimated severance and other related costs we were contractually required to pay in connection with employees transferred as part of the shared service arrangement entered into with HCL Technologies in the first quarter 2019.

The credit of $ 4 in the first quarter 2021 reflects a change in estimate.

(2) Represents professional support services associated with our business transformation initiatives.

The restructuring related costs reserve as of September 30, 2020 was $ 33 , which is expected to be paid over the next twelve months, as compared to $ 37 at December 31, 2019.

Note 13 – Debt

On August 6, 2020, Xerox Holdings issued $ 550 of 5.000 % Senior Notes due August 2025 (the "2025 Senior Notes") at par and $ 550 of 5.500 % Senior Notes due August 2028 (the "2028 Senior Notes") at par resulting in aggregate net proceeds (after fees and expenses) of approximately $ 1,089 .

On August 24, 2020, Xerox Holdings issued an additional $ 200 of the 2025 Senior Notes at 100.75 % of par and an additional $ 200 of the 2028 Senior Notes at 102.50 % of par resulting in additional aggregate net proceeds (after premium, fees and expenses) of approximately $ 405 for total aggregate net proceeds from both issuances of approximately $ 1,494 .

The Notes are fully and unconditionally guaranteed by Xerox Corporation.

In addition, the notes and the related guarantees were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and have not been registered for sale under the Securities Act or any state securities laws.

Interest on the 2025 and 2028 Senior Notes is payable semi-annually.

Debt issuance costs of approximately $ 13 were paid and deferred in connection with the issuance of the 2025 and 2028 Senior Notes and will be amortized over the term of the Senior Notes.

The net debt proceeds were contributed by Xerox Holdings to Xerox Corporation and used to repay $ 362 aggregate principal amount of 3.500 % senior notes of Xerox Corporation and $ 376 aggregate principal amount of 2.750 % senior notes of Xerox Corporation, which were both due in third quarter 2020.

Xerox Corporation also used the balance of the net proceeds to prepay a portion of the 4.500 % senior notes due 2021 in October 2020 (Refer to Note 18 – Shareholder's Equity of Xerox for additional information regarding the contribution and Note 22 - Subsequent Event for additional information regarding this prepayment).

Credit Facility

On July 31, 2020, Xerox and Xerox Holdings entered into Amendment No.

3 to the Credit Facility, which modified the financial covenants to require that, during a specified covenant modification period (which begins on the effective date of the Amendment and ends on the earlier of (1) December 31, 2021 and (2) the date on which Xerox delivers a written notice to the Administrative Agent electing to end such period (the “Financial Covenant Modification Period”), Xerox must maintain unrestricted cash (as defined in the Amendment) in an amount not less than $ 1.0 billion.

Further, the Amendment relaxed the financial maintenance leverage covenant in the Credit Agreement by requiring that, during the Financial Covenant Modification Period, Xerox maintain a ratio of net debt

Cash paid for restructuring related costs were approximately $ 3 and $ 0 for the three months ended March 31, 2021 and 2020, respectively, while the reserve was $ 13 and $ 21 at March 31, 2021 and December 31, 2020.

The balance at March 31, 2021 is expected to be paid over the next twelve months.

Xerox 2021 Form 10-Q 24

for borrowed money to consolidated EBITDA of not greater than 4.25 :1.00 (with a cap on cash netting of $ 1.75 billion), in lieu of the 4.25 :1.00 total debt for borrowed money to consolidated EBITDA ratio requirement applicable prior to the Amendment.

Note 11 – Debt

Xerox Holdings Corporation / Xerox Corporation Intercompany Loan

In August 2020, Xerox Holdings Corporation issued $ 550 of 5.00 % Senior Notes due August 2025 (the "2025 Senior Notes") at par and $ 550 of 5.50 % Senior Notes due August 2028 (the "2028 Senior Notes") at par resulting in aggregate net proceeds (after fees and expenses) of approximately $ 1,089 .

On August 24, 2020, Xerox Holdings Corporation issued an additional $ 200 of the 2025 Senior Notes at 100.75 % of par and an additional $ 200 of the 2028 Senior Notes at 102.50 % of par resulting in additional aggregate net proceeds (after premium, fees and expenses) of approximately $ 405 for total aggregate net proceeds from both issuances of approximately $ 1,494 .

In 2020, the net debt proceeds were contributed by Xerox Holdings Corporation to Xerox Corporation and recorded as Additional paid-in capital by Xerox Corporation.

In February 2021, Xerox Holdings Corporation and Xerox Corporation entered into an Intercompany Loan agreement for the net proceeds of $ 1,494 contributed by Xerox Holdings Corporation to Xerox Corporation in 2020.

The intercompany loan, which did not involve the exchange of cash in the current period, resulted in the capitalization of the amount as Related Party Debt for Xerox Corporation as of March 31, 2021.

The amount was originally recorded as Additional paid-in capital in 2020 when the cash was contributed by Xerox Holdings Corporation.

The intercompany loan was established to mirror the terms included in Xerox Holdings Corporation’s 2025 and 2028 Senior Notes, including interest rates and payment dates.

The intercompany interest expense also includes a ratable amount to reimburse Xerox Holdings Corporation for its debt issuance costs and premium.

At March 31, 2021, the balance of the Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $ 1,494 , which is net of related debt issuance costs, and the intercompany interest payable was $ 10 .

Xerox Corporation’s interest expense for the three months ended March 31, 2021 included $ 20 of interest expense associated with this Intercompany Loan.

Secured Borrowings and Collateral

2 unchanged sentences

The purchase by the SPE was funded through an amortizing secured loan to the SPE from the financial institution of $ 340 .

The sale of the receivables to the SPE was structured as a "true sale at law," and we have received an opinion to that effect from outside legal counsel.

However, the transaction was accounted for as a secured borrowing as we consolidate the SPE since we have both the power to direct the activities that most significantly impact the SPE's economic performance through our role as servicer of all the receivables held by the SPE, and the obligation through variable interests in the SPE to absorb losses or receive benefits that could potentially be significant to the SPE.

As a result, the assets of the SPE are not available to satisfy any of our other obligations.

Conversely, the credit holder of this SPE does not have legal recourse to the Company’s general credit.

The debt has a variable interest rate based on LIBOR plus a spread (current rate of 1.73 % at September 30, 2020) and an expected life of less than three years with half projected to be repaid within the first year based on collections of the underlying portfolio of receivables.

We also entered into an interest rate hedge agreement to cap LIBOR over the life of the loan.

The proceeds from this debt funded the cash used in May 2020 to repay the $ 313 aggregate principal amount of 2.80 % Senior Notes due 2020 of Xerox Corporation.

Below are the assets and liabilities held by the consolidated SPE, which are included in our Condensed Consolidated Balance Sheet:

September 30,

Assets held by SPE

The debt has a variable interest rate based on LIBOR plus a spread (current rate of 1.69 % at March 31, 2021).

In December 2020, we entered into a second secured loan agreement with a financial institution where we sold $ 610 of U.S.

based finance receivables to an SPE.

The purchase by the SPE was funded through an amortizing secured loan to the SPE from the financial institution of $ 500 .

The debt has a variable interest rate based on the financial institution's cost of funds plus a spread (current rate of 1.73 % at March 31, 2021).

Below are the assets and liabilities held by the consolidated SPEs, which are included in our Condensed Consolidated Balance Sheets.

As a result of the above sales, the assets of the SPEs are not available to satisfy any of our other obligations.

Conversely, the credit holders of these SPEs borrowings do not have legal recourse to the Company’s general credit or other assets.

2021 December 31,

Assets held by SPEs

Billed portion of finance receivables, net $ 25 $ 28

Finance receivables, net 326 350

1 unchanged sentence

Equipment on operating leases, net 6 8

Restricted cash (1)

Total Assets $ 840 $ 918

Liabilities held by SPE

Liabilities held by SPEs

Current portion of long-term debt, net (2)

2 unchanged sentences

____________ _

(1) Amounts net of unamortized debt issuance costs of $ 1 .

(2) Amounts net of unamortized debt issuance costs of $ 1 .

(1) Restricted cash is included in Other current assets in our Condensed Consolidated Balance Sheet.

(2) Net of debt issuance costs of $ 3 .

Xerox 2021 Form 10-Q 25

Interest Expense and Income

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Interest expense (1)(2)

$ 59 $ 60 $ 158 $ 179

Interest income (3)

____________ _

(1) Includes Cost of financing as well as non-financing interest expense that is included in Other expenses, net in the Condensed Consolidated Statements of Income.

(2) Includes Financing revenue as well as other interest income that is included in Other expenses, net in the Condensed Consolidated Statements of Income.

Xerox 2020 Form 10-Q

(1) Includes Cost of financing as well as non-financing interest expense that is included in Other expenses, net in the Condensed Consolidated Statements of Income (Loss).

(2) Interest expense for the three month ended March 31, 2021 for Xerox Corporation includes $ 20 of intercompany interest expense for the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan.

(3) Includes Financing revenue as well as other interest income that is included in Other expenses, net in the Condensed Consolidated Statements of Income (Loss).

Note 12 – Financial Instruments

Interest Rate Risk Management

We use interest rate swap agreements to manage our interest rate exposure and to achieve a desired proportion of variable and fixed rate debt.

We use interest rate swap and interest rate cap agreements to manage our interest rate exposure and to achieve a desired proportion of variable and fixed rate debt.

These derivatives may be designated as fair value hedges or cash flow hedges depending on the nature of the risk being hedged.

Fair Value Hedges

During the first quarter 2020, we terminated our remaining pay variable/receive fixed interest rate swaps with notional amounts of $ 200 and net asset fair value of $ 4 prior to termination.

The swaps had been designated and accounted for as fair value hedges prior to termination.

The swaps were structured to hedge the fair value of related debt by converting them from fixed rate instruments to variable rate instruments.

No ineffective portion was recorded to earnings for the nine months ended September 30, 2020 prior to termination.

The corresponding net fair value adjustment to the hedged debt of $( 4 ) will be amortized to interest expense over the remaining term of the related notes.

At March 31, 2021 there were no material interest rate derivative contracts outstanding.

Foreign Exchange Risk Management

1 unchanged sentence

As a part of our foreign exchange risk management strategy, we use derivative instruments, primarily forward contracts and purchased option contracts, to hedge the following foreign currency exposures, thereby reducing volatility of earnings or protecting fair values of assets and liabilities:

• Forecasted purchases and sales in foreign currency

• Foreign currency-denominated assets and liabilities

At September 30, 2020 and December 31, 2019, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 958 and $ 1,091 respectively, with terms of less than 12 months.

Approximately 80 % of the contracts at September 30, 2020 mature within three months, 9 % mature in three to six months and 11 % in six to twelve months.

The associated currency exposures being hedged at September 30, 2020 were lower by 12 % as compared to our year-end currency exposures.

• Forecasted purchases and sales in foreign currency

At March 31, 2021 and December 31, 2020, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 968 and $ 1,161 respectively, with terms of less than 12 months.

Approximately 78 % of the contracts at March 31, 2021 mature within three months, 11 % mature in three to six months and 11 % in six to twelve months.

The decrease in hedge position from December 31, 2020 is primarily for GBP and YEN exposures due to lower requirements.

There has not been any material change in our hedging strategy.

1 unchanged sentence

We designate a portion of our foreign currency derivative contracts as cash flow hedges of our foreign currency-denominated inventory purchases, sales and expenses.

The net asset (liability) fair value of these contracts were $ 1 and $( 4 ) as of September 30, 2020 and December 31, 2019, respectively.

The net (liability) asset fair value of these contracts were $( 7 ) and $ 2 as of March 31, 2021 and December 31, 2020, respectively.

Xerox 2021 Form 10-Q 26

Summary of Derivative Instruments Fair Value

The following table provides a summary of the fair value amounts of our derivative instruments:

Designation of Derivatives Balance Sheet Location September 30,

Designation of Derivatives Balance Sheet Location March 31,

2021 December 31,

2 unchanged sentences

Accrued expenses and other current liabilities ( 8 ) ( 2 )

Interest rate swaps Other long-term assets — 1

Net designated derivative asset (liability) $ 1 $ ( 3 )

Foreign currency options Other current assets — 1

Net designated derivative (liability) asset $ ( 7 ) $ 2

Derivatives NOT Designated as Hedging Instruments

1 unchanged sentence

Accrued expenses and other current liabilities ( 6 ) ( 3 )

Net undesignated derivative asset (liability) $ 3 $ ( 2 )

Net undesignated derivative liability $ ( 3 ) $ —

Summary of Derivatives Total Derivative assets $ 4 $ 7

Total Derivative liabilities ( 14 ) ( 5 )

Net Derivative asset (liability) $ 4 $ ( 5 )

Xerox 2020 Form 10-Q

Net Derivative (liability) asset $ ( 10 ) $ 2

Summary of Derivative Instruments Gains (Losses)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

Gain (Loss) on Derivative Instruments 2021 2020

Fair Value Hedges - Interest Rate Contracts

Derivative (loss) gain recognized in interest expense $ — $ — $ ( 1 ) $ 4

Hedged item gain (loss) recognized in interest expense — — 1 ( 4 )

Derivative loss recognized in interest expense $ — $ ( 1 )

Hedged item gain recognized in interest expense — 1

Cash Flow Hedges - Foreign Exchange Forward Contracts and Options

Derivative gain recognized in OCI (effective portion) $ 1 $ 4 $ 5 $ 10

Derivative gain reclassified from AOCL to income - Cost of sales (effective portion) — 3 1 6

During the three and nine months ended September 30, 2020 and 2019, no amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or (loss) were included in the assessment of hedge effectiveness.

Derivative (loss) gain recognized in OCI (effective portion) $ ( 10 ) $ 7

Derivative loss reclassified from AOCL to income - Cost of sales (effective portion) ( 1 ) ( 1 )

During the three months ended March 31, 2021 and 2020, no amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income (Loss) for these designated cash flow hedges and all components of each derivative’s gain or (loss) were included in the assessment of hedge effectiveness.

In addition, no amount was recorded for an underlying exposure that did not occur or was not expected to occur.

As of September 30, 2020, a net after-tax gain of $ 2 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

As of March 31, 2021, a net after-tax loss of $ 5 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

The entire balance is expected to be reclassified into net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

3 unchanged sentences

The following table provides a summary of gains and (losses) on non-designated derivative instruments:

Derivatives NOT Designated as Hedging Instruments Location of Derivative Gain Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Foreign exchange contracts – forwards Other expense – Currency gain, net $ 2 $ 2 $ 19 $ 3

For the three and nine months ended September 30, 2020 currency losses, net were $ 0 and $ 4 , respectively, and for the three and nine months ended September 30, 2019 were $ 4 and $ 6 , respectively.

Derivatives NOT Designated as Hedging Instruments Location of Derivative (Loss) Gain Three Months Ended

Foreign exchange contracts – forwards Other expense – Currency (losses) gains, net $ ( 18 ) $ 14

For the three months ended March 31, 2021 and 2020 currency losses, net were $ 2 and $ 2 , respectively.

Net currency gains and losses include the mark-to-market adjustments of the derivatives not designated as hedging instruments and the related cost of those derivatives as well as the remeasurement of foreign currency-denominated assets and liabilities and are included in Other expenses, net.

3 unchanged sentences

The basis for the measurement at fair value in all cases is Level 2 – Significant Other Observable Inputs.

September 30,

2021 December 31,

Foreign exchange contracts - forwards $ 4 $ 6

Interest rate swaps — 1

Deferred compensation investments in mutual funds 18 19

Foreign currency options — 1

Deferred compensation plan investments in mutual funds 17 18

Total $ 21 $ 25

8 unchanged sentences

The estimated fair values of our other financial assets and liabilities were as follows:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cash and cash equivalents $ 2,379 $ 2,379 $ 2,625 $ 2,625

2 unchanged sentences

Long-term Debt

Xerox Holdings Corporation 1,494 1,558 1,493 1,596

Xerox Corporation 1,890 1,992 2,187 2,298

Xerox - Other Subsidiaries (1)

290 292 370 372

Long-term debt $ 3,674 $ 3,842 $ 4,050 $ 4,266

____________ _

(1) Represents subsidiaries of Xerox Corporation

The fair value amounts for Cash and cash equivalents and Accounts receivable, net, approximate carrying amounts due to the short maturities of these instruments.

4 unchanged sentences

The components of Net periodic benefit cost and other changes in plan assets and benefit obligations were as follows:

Three Months Ended September 30,

Pension Benefits

Plans Non-U.S.

Plans Retiree Health

Components of Net Periodic Benefit Costs:

2020 2019 2020 2019 2020 2019

Service cost $ — $ 1 $ 5 $ 5 $ 1 $ —

Interest cost 21 25 29 37 2 3

Expected return on plan assets ( 27 ) ( 26 ) ( 49 ) ( 56 ) — —

Recognized net actuarial loss (gain) 6 7 15 10 — ( 1 )

Amortization of prior service credit — — ( 1 ) — ( 19 ) ( 19 )

Recognized settlement loss 10 18 — — — —

Defined benefit plans 10 25 ( 1 ) ( 4 ) ( 16 ) ( 17 )

Defined contribution plans ( 10 ) 6 6 5 n/a n/a

Net Periodic Benefit Cost (Credit) — 31 5 1 ( 16 ) ( 17 )

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss):

Net actuarial loss (gain) (1)

77 135 — — — ( 9 )

Amortization of net actuarial (loss) gain ( 16 ) ( 25 ) ( 15 ) ( 10 ) — 1

Amortization of net prior service credit — — 1 — 19 19

Total Recognized in Other Comprehensive Income (Loss) (2)

61 110 ( 14 ) ( 10 ) 19 11

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive Income (Loss) $ 61 $ 141 $ ( 9 ) $ ( 9 ) $ 3 $ ( 6 )

Nine Months Ended September 30,

Three Months Ended March 31,

Pension Benefits

6 unchanged sentences

Expected return on plan assets ( 28 ) ( 26 ) ( 52 ) ( 47 ) — —

Recognized net actuarial loss (gain) 20 18 43 32 ( 1 ) ( 3 )

Recognized net actuarial loss 5 7 15 14 — —

Amortization of prior service credit — — — — ( 17 ) ( 19 )

7 unchanged sentences

( 44 ) 12 1 — — —

Amortization of net actuarial (loss) gain ( 62 ) ( 94 ) ( 43 ) ( 32 ) 1 3

Amortization of net actuarial loss ( 20 ) ( 26 ) ( 15 ) ( 14 ) — —

Amortization of prior service credit — — — — 17 19

4 unchanged sentences

(1) The net actuarial (gain) loss for U.S.

Plans primarily reflects (i) the remeasurement of our primary U.S.

pension plans as a result of the payment of periodic settlements and (ii) adjustments for the actuarial valuation results based on January 1st plan census data.

Plans primarily reflects the remeasurement of our primary U.S.

pension plans as a result of the payment of periodic settlements.

(2) Amounts represent the pre-tax effect included within Other Comprehensive Income (Loss).

Refer to Note 17 - Other Comprehensive Income (Loss) for related tax effects and the after-tax amounts.

Xerox 2020 Form 10-Q

Contributions

The following table summarizes cash contributions to our defined benefit pension plans and retiree health benefit plans.

Nine Months Ended

September 30, Year Ended December 31,

Three Months Ended

March 31, Year Ended December 31,

2021 2020 Estimated 2021

6 unchanged sentences

Defined Contribution Plans

In the third quarter 2020, the Company temporarily suspended and will not make its full year 2020 employer match/contribution for its U.S.

In the first quarter 2021, the Company temporarily suspended and will not make its full year 2021 employer match/contribution for its U.S.

based 401(k) saving plans for salaried employees.

4 unchanged sentences

The shareholders' equity information presented below reflects the consolidated activity of Xerox Holdings.

Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (1)

Xerox Holdings Shareholders’ Equity Non-controlling Interests Total

Balance at June 30, 2020 $ 213 $ 2,722 $ — $ 6,223 $ ( 3,681 ) $ 5,477 $ 4 $ 5,481

Comprehensive income, net — — — 90 88 178 — 178

Cash dividends declared - common (2)

— — — ( 51 ) — ( 51 ) — ( 51 )

Cash dividends declared - preferred (3)

— — — ( 4 ) — ( 4 ) — ( 4 )

Stock option and incentive plans, net 1 ( 3 ) — — — ( 2 ) — ( 2 )

Payments to acquire treasury stock, including fees — — ( 150 ) — — ( 150 ) — ( 150 )

Balance at September 30, 2020 $ 214 $ 2,719 $ ( 150 ) $ 6,258 $ ( 3,593 ) $ 5,448 $ 4 $ 5,452

Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (1)

Xerox Holdings Shareholders’ Equity Non- controlling Interests Total

Balance at June 30, 2019 $ 225 $ 3,124 $ ( 131 ) $ 5,391 $ ( 3,647 ) $ 4,962 $ 30 $ 4,992

Comprehensive income (loss), net — — — 221 ( 203 ) 18 2 20

Cash dividends declared - common (2)

— — — ( 56 ) — ( 56 ) — ( 56 )

Cash dividends declared - preferred (3)

— — — ( 4 ) — ( 4 ) — ( 4 )

Stock option and incentive plans, net — 3 — — — 3 — 3

Payments to acquire treasury stock, including fees — — ( 68 ) — — ( 68 ) — ( 68 )

Cancellation of treasury stock ( 4 ) ( 127 ) 131 — — — — —

Distributions to noncontrolling interests — — — — — — ( 1 ) ( 1 )

Balance at September 30, 2019 $ 221 $ 3,000 $ ( 68 ) $ 5,552 $ ( 3,850 ) $ 4,855 $ 31 $ 4,886

Treasury Stock Retained

3 unchanged sentences

Balance at December 31, 2020 $ 198 $ 2,445 $ — $ 6,281 $ ( 3,332 ) $ 5,592 $ 4 $ 5,596

Comprehensive income, net — — — 115 53 168 — 168

Comprehensive income (loss), net — — — 39 ( 3 ) 36 — 36

Cash dividends declared - common (3)

4 unchanged sentences

Payments to acquire treasury stock, including fees — — ( 162 ) — — ( 162 ) — ( 162 )

Cancellation of treasury stock ( 2 ) ( 74 ) 76 — — — — —

Distributions to noncontrolling interests — — — — — — ( 3 ) ( 3 )

Balance at September 30, 2020 $ 214 $ 2,719 $ ( 150 ) $ 6,258 $ ( 3,593 ) $ 5,448 $ 4 $ 5,452

Xerox 2020 Form 10-Q

Balance at March 31, 2021 $ 199 $ 2,456 $ ( 162 ) $ 6,267 $ ( 3,335 ) $ 5,425 $ 4 $ 5,429

Treasury Stock Retained

2 unchanged sentences

Balance at December 31, 2019 $ 215 $ 2,782 $ ( 76 ) $ 6,312 $ ( 3,646 ) $ 5,587 $ 7 $ 5,594

Cumulative effect of change in accounting principle — — — 127 ( 127 ) — — —

Comprehensive income (loss), net — — — 535 ( 158 ) 377 8 385

Comprehensive loss, net — — — ( 2 ) ( 138 ) ( 140 ) — ( 140 )

Cash dividends declared - common (3)

3 unchanged sentences

Stock option and incentive plans, net — 4 — — — 4 — 4

Payments to acquire treasury stock, including fees — — ( 368 ) — — ( 368 ) — ( 368 )

Cancellation of treasury stock ( 2 ) ( 74 ) 76 — — — — —

Distributions to noncontrolling interests — — — — — — ( 11 ) ( 11 )

Balance at September 30, 2019 $ 221 $ 3,000 $ ( 68 ) $ 5,552 $ ( 3,850 ) $ 4,855 $ 31 $ 4,886

Balance at March 31, 2020 $ 213 $ 2,712 $ — $ 6,252 $ ( 3,784 ) $ 5,393 $ 7 $ 5,400

_____________

(1) Common Stock has a par value of $ 1 per share.

(2) Refer to Note 17 - Other Comprehensive Income (Loss) for the components of AOCL.

(2) Cash dividends declared on common stock for the three and nine months ended September 30, 2020 and 2019 were $ 0.25 per share and $ 0.75 per share, respectively.

(3) Cash dividends declared on preferred stock for the three and nine months ended September 30, 2020 and 2019 were $ 20.00 per share and $ 60.00 per share, respectively.

(3) Cash dividends declared on common stock for the three months ended March 31, 2021 and 2020 were $ 0.25 per share, respectively.

(4) Cash dividends declared on preferred stock for the three months ended March 31, 2021 and 2020 were $ 20.00 per share, respectively.

Treasury Stock

4 unchanged sentences

Cancellations — —

Balance at September 30, 2020 8,007 $ 150

Balance at March 31, 2021 6,704 $ 162

_____________

(1) Includes associated fees.

Note 18 – Shareholders' Equity of Xerox

The shareholders' equity information presented below reflects the consolidated activity of Xerox.

Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (1)

Xerox Shareholder's Equity Non-controlling Interests Total

Balance at June 30, 2020 $ — $ 3,515 $ — $ 5,925 $ ( 3,681 ) $ 5,759 $ 4 $ 5,763

Comprehensive income, net — — — 101 88 189 — 189

Dividends declared to parent — — — ( 55 ) — ( 55 ) — ( 55 )

Capital contributions from parent (2)

— 1,494 — — — 1,494 — 1,494

Transfers to parent — ( 150 ) — — — ( 150 ) — ( 150 )

Balance at September 30, 2020 $ — $ 4,859 $ — $ 5,971 $ ( 3,593 ) $ 7,237 $ 4 $ 7,241

Xerox 2021 Form 10-Q 30

Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (1)

Xerox Shareholders’ Equity Non- controlling Interests Total

Balance at June 30, 2019 $ 225 $ 3,124 $ ( 131 ) $ 5,391 $ ( 3,647 ) $ 4,962 $ 30 $ 4,992

Comprehensive income (loss), net — — — 221 ( 203 ) 18 2 20

Dividends declared to parent — — — ( 58 ) ( 58 ) — ( 58 )

Stock option and incentive plans, net — ( 2 ) — — — ( 2 ) — ( 2 )

Cancellation of treasury stock ( 4 ) ( 127 ) 131 — — — — —

Distributions to noncontrolling interests — — — — — — ( 1 ) ( 1 )

Reorganization ( 221 ) 446 — — — 225 — 225

Balance at September 30, 2019 $ — $ 3,441 $ — $ 5,554 $ ( 3,850 ) $ 5,145 $ 31 $ 5,176

Treasury Stock Retained

Note 16 – Shareholder's Equity of Xerox

The shareholder's equity information presented below reflects the consolidated activity of Xerox.

Shareholder's

1 unchanged sentence

Balance at December 31, 2020 $ 4,879 $ 5,834 $ ( 3,332 ) $ 7,381 $ 4 $ 7,385

Comprehensive income, net — — — 126 53 179 — 179

Comprehensive income (loss), net — 41 ( 3 ) 38 — 38

Dividends declared to parent — ( 201 ) — ( 201 ) — ( 201 )

Capital contributions from parent (2)

Intercompany loan capitalization (2)

( 1,494 ) — — ( 1,494 ) — ( 1,494 )

Transfers from parent — 99 — — — 99 — 99

Distributions to noncontrolling interests — — — — — — ( 3 ) ( 3 )

Balance at September 30, 2020 $ — $ 4,859 $ — $ 5,971 $ ( 3,593 ) $ 7,237 $ 4 $ 7,241

Treasury Stock Retained

Shareholders’

Transfers to parent ( 34 ) — — ( 34 ) — ( 34 )

Balance at March 31, 2021 $ 3,351 $ 5,674 $ ( 3,335 ) $ 5,690 $ 4 $ 5,694

Shareholder's

Equity Non-controlling

Balance at December 31, 2019 $ 3,266 $ 6,247 $ ( 3,646 ) $ 5,867 $ 7 $ 5,874

Cumulative effect of change in accounting principle — — — 127 ( 127 ) — — —

Comprehensive income (loss), net — — — 535 ( 158 ) 377 8 385

Cash dividends declared - common — — — ( 115 ) — ( 115 ) — ( 115 )

Cash dividends declared - preferred — — — ( 7 ) — ( 7 ) — ( 7 )

Comprehensive loss, net — ( 2 ) ( 138 ) ( 140 ) — ( 140 )

Dividends declared to parent — ( 290 ) — ( 290 ) — ( 290 )

Stock option and incentive plans, net — 18 — — — 18 — 18

Payments to acquire treasury stock, including fees — — ( 300 ) — — ( 300 ) — ( 300 )

Cancellation of treasury stock ( 11 ) ( 344 ) 355 — — — — —

Distributions to noncontrolling interests — — — — — — ( 11 ) ( 11 )

Reorganization ( 221 ) 446 — — — 225 — 225

Balance at September 30, 2019 $ — $ 3,441 $ — $ 5,554 $ ( 3,850 ) $ 5,145 $ 31 $ 5,176

Transfers from parent 238 — — 238 — 238

Balance at March 31, 2020 $ 3,504 $ 5,955 $ ( 3,784 ) $ 5,675 $ 7 $ 5,682

_____________

(1) Refer to Note 17 - Other Comprehensive Income (Loss) for the components of AOCL.

(2) Primarily represents the contribution of aggregate net debt proceeds received from Senior Note offerings in the third quarter 2020 from Xerox Holdings to Xerox Corporation.

Refer to Note 13 - Debt for additional information regarding the Senior Note offerings.

(2) Refer to Note 11- Debt for information regarding capitalization of balance to Intercompany Loan with Xerox Holdings Corporation.

Xerox 2021 Form 10-Q 31

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Pre-tax Net of Tax Pre-tax Net of Tax Pre-tax Net of Tax Pre-tax Net of Tax

Translation adjustments gains (losses) $ 176 $ 179 $ ( 153 ) $ ( 155 ) $ ( 2 ) $ 7 $ ( 121 ) $ ( 122 )

Unrealized gains (losses)

Changes in fair value of cash flow hedges gains 1 1 4 4 5 4 10 8

Pre-tax Net of Tax Pre-tax Net of Tax

Translation Adjustments Losses $ ( 52 ) $ ( 51 ) $ ( 204 ) $ ( 197 )

Unrealized (Losses) Gains

Changes in fair value of cash flow hedges (losses) gains ( 10 ) ( 8 ) 7 4

Changes in cash flow hedges reclassed to earnings (1)

— — ( 3 ) ( 3 ) ( 1 ) — ( 6 ) ( 5 )

Net Unrealized gains 1 1 1 1 4 4 4 3

Defined benefit plans (losses) gains

Net actuarial/prior service (losses) gains ( 77 ) ( 58 ) ( 126 ) ( 95 ) 9 6 ( 162 ) ( 122 )

Net Unrealized (Losses) Gains ( 9 ) ( 7 ) 8 5

Defined Benefit Plans Gains (Losses)

Net actuarial/prior service gains (losses) 43 32 ( 12 ) ( 9 )

Prior service amortization (2)

1 unchanged sentence

Actuarial loss amortization/settlement (2)

31 23 34 26 104 79 123 93

Fuji Xerox changes in defined benefit plans, net (3)

— — ( 3 ) ( 3 ) — — ( 1 ) ( 1 )

Other (losses) gains (4)

( 42 ) ( 42 ) 38 38 1 1 36 36

Changes in defined benefit plans (losses) gains ( 108 ) ( 92 ) ( 76 ) ( 48 ) 55 42 ( 63 ) ( 38 )

Other Comprehensive Income (Loss) 69 88 ( 228 ) ( 202 ) 57 53 ( 180 ) ( 157 )

Other comprehensive income attributable to noncontrolling interests — — 1 1 — — 1 1

Other gains (3)

Changes in Defined Benefit Plans Gains 70 55 56 54

Other Comprehensive Income (Loss) Attributable to Xerox Holdings/Xerox $ 9 $ ( 3 ) $ ( 140 ) $ ( 138 )

1 unchanged sentence

(2) Reclassified to Total Net Periodic Benefit Cost - refer to Note 14 - Employee Benefit Plans for additional information.

(3) Represents our share of Fuji Xerox's benefit plan changes.

(3) Primarily represents currency impact on cumulative amount of benefit plan net actuarial losses and prior service credits in AOCL.

1 unchanged sentence

AOCL is comprised of the following:

September 30,

2021 December 31,

Cumulative translation adjustments $ ( 1,771 ) $ ( 1,720 )

Other unrealized gains (losses), net 2 ( 2 )

Other unrealized (losses) gains, net ( 5 ) 2

Benefit plans net actuarial losses and prior service credits ( 1,559 ) ( 1,614 )

1 unchanged sentence

Xerox 2021 Form 10-Q 32

Note 20 – Earnings per Share

Note 18 – Earnings (Loss) per Share

(shares in thousands)

The following table sets forth the computation of basic and diluted earnings per share of common stock of Xerox Holdings:

The following table sets forth the computation of basic and diluted earnings (loss) per share of Xerox Holdings Corporation's common stock:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Basic Earnings per Share

Net Income from Continuing Operations Attributable to Xerox Holdings $ 90 $ 157 $ 115 $ 382

Basic Earnings (Loss) per Share

Net Income (Loss) Attributable to Xerox Holdings $ 39 $ ( 2 )

Accrued dividends on preferred stock ( 4 ) ( 4 )

Adjusted Net income from continuing operations available to common shareholders 86 153 104 371

Income from discontinued operations attributable to Xerox Holdings, net of tax — 64 — 153

Adjusted Net income available to common shareholders $ 86 $ 217 $ 104 $ 524

Adjusted Net income (loss) available to common shareholders $ 35 $ ( 6 )

Weighted average common shares outstanding 195,985 212,750

Basic Earnings per Share:

Continuing operations $ 0.41 $ 0.70 $ 0.49 $ 1.66

Discontinued operations — 0.29 — 0.68

Basic Earnings per Share $ 0.41 $ 0.99 $ 0.49 $ 2.34

Diluted Earnings per Share

Net Income from Continuing Operations Attributable to Xerox Holdings $ 90 $ 157 $ 115 $ 382

Basic Earnings (Loss) per Share $ 0.18 $ ( 0.03 )

Diluted Earnings (Loss) per Share

Net Income (Loss) Attributable to Xerox Holdings $ 39 $ ( 2 )

Accrued dividends on preferred stock ( 4 ) ( 4 )

Adjusted Net income from continuing operations available to common shareholders 86 157 104 382

Income from discontinued operations attributable to Xerox Holdings, net of tax — 64 — 153

Adjusted Net income available to common shareholders $ 86 $ 221 $ 104 $ 535

Adjusted Net income (loss) available to common shareholders $ 35 $ ( 6 )

Weighted average common shares outstanding 195,985 212,750

4 unchanged sentences

Adjusted weighted average common shares outstanding 198,166 212,750

Diluted Earnings per Share:

Continuing operations $ 0.41 $ 0.68 $ 0.49 $ 1.62

Discontinued operations — 0.28 — 0.65

Diluted Earnings per Share $ 0.41 $ 0.96 $ 0.49 $ 2.27

Diluted Earnings (Loss) per Share $ 0.18 $ ( 0.03 )

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive:

26 unchanged sentences

Below is a summary of our Brazilian tax contingencies:

September 30,

2021 December 31,

4 unchanged sentences

Liens on Brazilian assets — —

The decrease in the unreserved portion of the tax contingency, inclusive of any related interest, was primarily related to currency.

The decrease in the unreserved portion of the tax contingency, inclusive of any related interest, was primarily related to currency, partially offset by interest.

With respect to the unreserved tax contingency, the majority has been assessed by management as being remote as to the likelihood of ultimately resulting in a loss to the Company.

2 unchanged sentences

We are also involved in certain disputes with contract and former employees.

Exposures related to labor matters are not material to the financial statements as of September 30, 2020 and December 31, 2019.

Exposures related to labor matters are not material to the financial statements as of March 31, 2021 and December 31, 2020.

We routinely assess all these matters as to the probability of ultimately incurring a liability against our Brazilian operations and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable.

11 unchanged sentences

Plaintiff previously filed a putative shareholder derivative lawsuit on May 24, 2018 against certain of these defendants, as well as others, in the same court;

that lawsuit was dismissed without prejudice on December 6, 2018.

The new complaint included putative derivative claims on behalf of Xerox for breach of fiduciary duty against the then members of the Xerox Board who approved Xerox’s entry into agreements to settle shareholder actions filed in 2018 in the same court against Xerox, its then directors, and FUJIFILM Holdings Corporation (“Fujifilm”) in connection with a proposed transaction announced in January 2018 to combine Xerox and Fuji Xerox (the “Fuji Transaction”), including a consolidated putative class action, In re Xerox Corporation Consolidated Shareholder

that lawsuit was dismissed without prejudice on December 6, 2018 ( "Ribbe I" ).

Xerox 2021 Form 10-Q 34

Litigation (“XCCSL”) , and actions filed by Darwin Deason, Deason v.

Transaction”), including a consolidated putative class action, In re Xerox Corporation Consolidated Shareholder Litigation (“XCCSL”) , and actions filed by Darwin Deason, Deason v.

Fujifilm Holdings Corp., et al.

33 unchanged sentences

On July 23, 2020, after hearing oral argument, the Court issued an order denying the motion and setting certain case deadlines.

Discovery has commenced.

Discovery commenced.

On August 7, 2020, Xerox, the director defendants, and the Icahn defendants filed separate motions to dismiss.

1 unchanged sentence

Briefing on the motions to dismiss and plaintiff’s cross-motion was completed on October 16, 2020.

On December 14, 2020, following oral argument, the Court issued a decision and order denying plaintiff’s cross-motion and granting defendants’ motions, dismissing the action in its entirety as to all defendants.

Dismissal as to the Icahn defendants was conditioned on the filing of an affidavit, which the Icahn defendants filed on December 16, 2020, indicating whether defendant Icahn gained a profit or incurred a loss on purchases of HP stock during the relevant time period.

On January 13, 2021, plaintiff filed a notice of appeal of the December 14, 2020 dismissal order to the Appellate Division, First Department.

Xerox 2021 Form 10-Q 35

On April 7, 2021, plaintiff filed in the previously dismissed Ribbe I and XCCSL actions a motion seeking an award of attorneys’ fees of $ 1.5 and a service award of $ 10 thousand for benefits he allegedly obtained for Xerox and its stockholders.

Xerox will vigorously defend against this matter.

1 unchanged sentence

Should developments cause a change in our determination as to an unfavorable outcome, or result in a final adverse judgment or settlement, there could be a material adverse effect on our results of operations, cash flows and financial position in the period in which such change in determination, judgment, or settlement occurs.

Xerox 2020 Form 10-Q

Miami Firefighters’ Relief & Pension Fund v.

25 unchanged sentences

Briefing on the motions was completed on October 21, 2020.

On December 14, 2020, following oral argument, the Court issued a decision and order granting defendants’ motions and dismissing the action in its entirety as to all defendants.

On December 23, 2020, plaintiff filed a motion seeking discovery related to the Icahn defendants’ losses resulting from their investment in HP.

The motion was fully briefed on January 7, 2021.

On January 15, 2021, the Court issued a decision and order denying the motion.

Also on January 15, 2021, plaintiff filed a notice of appeal of the December 14, 2020 dismissal order to the Appellate Division, First Department.

On January 20, 2021, plaintiff filed a notice of appeal of the January 15, 2021 order denying its motion for discovery to the Appellate Division, First Department.

Xerox Holdings will vigorously defend against this matter.

1 unchanged sentence

We have issued or provided approximately $ 273 of guarantees as of September 30, 2020 in the form of letters of credit or surety bonds issued to i) support certain insurance programs;

Xerox 2021 Form 10-Q 36

Other Litigation

Xerox Holdings Corporation v.

Factory Mutual Insurance Company and Related Actions:

On March 10, 2021, Xerox Holdings Corporation (“XHC”) filed a complaint for breach of contract and declaratory judgment against Factory Mutual Insurance Company in Rhode Island Superior Court, Providence County seeking insurance coverage for business interruption losses resulting from the coronavirus/COVID-19 pandemic.

The complaint alleges that defendant agreed to provide XHC with up to $ 1 billion in per-occurrence coverage for losses resulting from pandemic-related loss or damage to certain real and other property, including business interruption loss resulting from insured property damage;

that the pandemic had inflicted significant physical loss or damage to property of XHC and its direct and indirect customers;

that XHC’s worldwide actual and projected losses through the end of 2020 totaled in excess of $ 300 (and is still increasing);

and that following XHC’s timely and proper claim in March 2020 for coverage under the “all risk” commercial property insurance policy it had purchased from defendant, defendant improperly denied and rejected coverage for most of the claim.

The complaint seeks a jury trial, a declaratory judgment against defendant declaring that Xerox is entitled to full coverage of costs and losses under defendant’s policy and declaring that defendant is required to pay for such costs and losses, subject to any applicable limits;

damages in an amount to be determined at trial;

consequential damages;

attorneys’ fees and costs;

pre- and post-judgment interest;

and other relief the Court deems just and proper.

Also on March 10, 2021, subsidiaries of XHC filed similar complaints and related requests for arbitration in Toronto, London, and Amsterdam (see below).

XHC consented to defendant’s request for an extension until May 6, 2021 of its time in which to answer or otherwise respond to the complaint.

The parties consented to assignment to the Court’s business calendar.

At an initial conference on April 8, 2021, both parties informed the Court that they anticipate filing motions for judgment on the pleadings.

Canadian action

On March 10, 2021, plaintiffs Xerox Canada Inc.

and Xerox Canada Ltd.

filed a Notice of Action against Factory Mutual Insurance Company in the Ontario Superior Court of Justice in Toronto.

On April 9, 2021, plaintiffs filed their Statement of Claim.

Plaintiffs must serve both filings by September 10, 2021.

On March 10, 2021, plaintiffs Concept Group Limited, Continua Limited, Xerox Limited, and Xerox UK Limited filed a Claim Form against F.M.

Insurance Company Limited in the High Court of Justice, Commercial Court, in London.

Also on March 10, 2021, plaintiffs submitted two Requests for Arbitration, which were withdrawn after the parties agreed on March 31, 2021 that both liability and quantum of plaintiffs’ claims would be litigated in the Commercial Court proceeding.

Netherlands action

On March 10, 2021, plaintiffs Xerox Corporation and 20 of its European subsidiaries filed a Writ of Summons against FM Insurance Europe S.A.

in the Amsterdam District Court.

Also on March 10, 2021, plaintiffs submitted a Request for Arbitration, which was withdrawn after the parties agreed on April 12, 2021, that both liability and quantum of plaintiffs’ claims would be litigated in the District Court proceeding.

We have issued or provided approximately $ 277 of guarantees as of March 31, 2021 in the form of letters of credit or surety bonds issued to i) support certain insurance programs;

ii) support our obligations related to the Brazil contingencies;

3 unchanged sentences

We believe that our capacity in the surety markets as well as under various credit arrangements (including our Credit Facility) is sufficient to allow us to respond to future requests for proposals that require such credit support.

Note 22 – Subsequent Event

In October 2020, we completed the early redemption of $ 750 of the $ 1,062 of 4.50 % Senior Notes due May 2021, for $ 769 in cash consideration, which included a redemption premium of $ 19 .

The early redemption resulted in a net loss $ 18 (which included the write-off of debt carrying value adjustments) that was recorded in the fourth quarter 2020.

After completion of the early redemption, approximately $ 312 of the 4.50 % Senior Notes due May 2021 remain outstanding.

Xerox 2021 Form 10-Q 37

Note 20 – Subsequent Events

Fuji Xerox Technology Agreement (TA)

As previously disclosed, our TA with Fuji Xerox (now known as FUJIFILM Business Innovation Corp.((Fuji Xerox)) expired on March 31, 2021.

The TA included a provision that allowed Fuji Xerox continued use of the Xerox brand trademark for two years after the date of termination of the TA as it transitions to a new brand in exchange for an upfront prepaid fixed royalty of $ 100 .

Fuji Xerox elected to continue its use of the Xerox brand trademark over the next two years and, therefore, made the upfront payment due under the amended agreement of $ 100 in April 2021.

We expect to recognize the revenue associated with this extended brand license ratably over the two year transition period.

Accordingly, we expect any potential entry by Xerox for Xerographic products into the Fuji Xerox territory under the Xerox brand to be deferred to at least April 1, 2023.

The product supply agreements with Fuji Xerox will continue to be effective despite the termination of the TA, and Fuji Xerox and Xerox will continue to operate as each other’s product supplier under existing or new purchase/supply agreements.

In April 2021, Xerox acquired an office equipment dealer in Canada for approximately $ 30 .

This acquisition is part of Xerox's strategy of focusing on further penetrating the small-to-medium sized business (SMB) market through acquisitions of local area resellers and partners (including multi-brand dealers).

We are currently assessing the purchase price allocation but expect the majority to be allocated to intangible assets and goodwill.

Xerox 2021 Form 10-Q 38

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements