What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-04 · 300 added, 240 removed, 1147 unchanged (32% of the section changed)

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

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

15 unchanged sentences

Income before Income Taxes and Equity Income 84 119 236 149

Income tax expense 9 8 23 7

Income tax (benefit) expense ( 4 ) 29 19 36

Equity in net income of unconsolidated affiliates 1 — 2 2

Net Income 89 90 219 115

Net income attributable to noncontrolling interests — — — —

Net loss attributable to noncontrolling interests ( 1 ) — ( 1 ) —

Net Income Attributable to Xerox Holdings $ 90 $ 90 $ 220 $ 115

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XEROX HOLDINGS CORPORATION

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

Net Income $ 89 $ 90 $ 219 $ 115

Net income attributable to noncontrolling interests — — — —

Net loss attributable to noncontrolling interests ( 1 ) — ( 1 ) —

Net Income Attributable to Xerox Holdings 90 90 220 115

Other Comprehensive Income (Loss), Net (1)

Other Comprehensive (Loss) Income, Net (1)

Translation adjustments, net ( 125 ) 179 ( 122 ) 7

Unrealized (losses) gains, net — ( 2 ) ( 7 ) 3

Unrealized gains (losses), net 4 1 ( 3 ) 4

Changes in defined benefit plans, net 51 ( 92 ) 122 42

Other Comprehensive Income (Loss), Net Attributable to Xerox Holdings 70 103 67 ( 35 )

Comprehensive Income (Loss), Net Attributable to Xerox Holdings $ 161 $ 130 $ 197 $ ( 10 )

Other Comprehensive (Loss) Income, Net Attributable to Xerox Holdings ( 70 ) 88 ( 3 ) 53

Comprehensive Income, Net 19 178 216 168

Comprehensive loss, net attributable to noncontrolling interests ( 1 ) — ( 1 ) —

Comprehensive Income, Net Attributable to Xerox Holdings $ 20 $ 178 $ 217 $ 168

_____________

(1) Refer to Note 18 - 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 18 - Other Comprehensive (Loss) Income for gross components of Other comprehensive (loss) income, 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) June 30,

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

2021 December 31,

26 unchanged sentences

Commitments and Contingencies (See Note 20)

Noncontrolling Interests (See Note 5) 10 —

Convertible Preferred Stock 214 214

16 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

13 unchanged sentences

Increase in equipment on operating leases ( 29 ) ( 31 ) ( 92 ) ( 86 )

(Increase) decrease in finance receivables ( 25 ) 97 12 190

Decrease (increase) in other current and long-term assets 48 1 66 ( 15 )

Decrease in accounts payable ( 2 ) ( 210 ) ( 33 ) ( 159 )

Increase (decrease) in accrued compensation 1 ( 21 ) ( 35 ) ( 129 )

Increase (decrease) in other current and long-term liabilities 127 ( 92 ) 92 ( 130 )

Decrease in finance receivables 21 31 33 221

(Increase) decrease in other current and long-term assets ( 2 ) 17 64 2

Increase (decrease) in accounts payable 107 90 74 ( 69 )

Decrease in accrued compensation ( 21 ) ( 20 ) ( 56 ) ( 149 )

(Decrease) increase in other current and long-term liabilities ( 12 ) ( 16 ) 80 ( 146 )

Net change in income tax assets and liabilities ( 13 ) 10 ( 11 ) 13

7 unchanged sentences

Other investing, net — — ( 3 ) 1

Net cash used in investing activities ( 55 ) ( 18 ) ( 72 ) ( 232 )

Net cash provided by (used in) investing activities 18 9 ( 54 ) ( 223 )

Cash Flows from Financing Activities

Net proceeds from short-term debt 1 1 1 1

Proceeds from issuance of long-term debt 311 1,849 311 1,854

3 unchanged sentences

Other financing, net 14 ( 10 ) ( 3 ) ( 19 )

Net cash used in financing activities ( 429 ) ( 372 ) ( 747 ) ( 432 )

Net cash (used in) provided by financing activities ( 46 ) 856 ( 793 ) 424

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 13 ) 12 ( 13 ) ( 12 )

Decrease in cash, cash equivalents and restricted cash ( 258 ) ( 351 ) ( 488 ) ( 481 )

Increase (decrease) in cash, cash equivalents and restricted cash 59 983 ( 429 ) 502

Cash, cash equivalents and restricted cash at beginning of period 2,203 2,314 2,691 2,795

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

15 unchanged sentences

Income before Income Taxes and Equity Income 84 119 236 149

Income tax expense 9 8 23 7

Income (benefit) tax expense ( 4 ) 29 19 36

Equity in net income of unconsolidated affiliates 1 — 2 2

Net Income 89 90 219 115

Net income attributable to noncontrolling interests — — — —

Net loss attributable to noncontrolling interests ( 1 ) — ( 1 ) —

Net Income Attributable to Xerox $ 90 $ 90 $ 220 $ 115

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XEROX CORPORATION

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

Net Income $ 89 $ 90 $ 219 $ 115

Net income attributable to noncontrolling interests — — — —

Net loss attributable to noncontrolling interests ( 1 ) — ( 1 ) —

Net Income Attributable to Xerox 90 90 220 115

Other Comprehensive Income (Loss), Net (1)

Other Comprehensive (Loss) Income, Net (1)

Translation adjustments, net ( 125 ) 179 ( 122 ) 7

Unrealized (losses) gains, net — ( 2 ) ( 7 ) 3

Unrealized gains (losses), net 4 1 ( 3 ) 4

Changes in defined benefit plans, net 51 ( 92 ) 122 42

Other Comprehensive Income (Loss), Net Attributable to Xerox 70 103 67 ( 35 )

Comprehensive Income (Loss), Net Attributable to Xerox $ 166 $ 130 $ 204 $ ( 10 )

Other Comprehensive (Loss) Income, Net Attributable to Xerox ( 70 ) 88 ( 3 ) 53

Comprehensive Income, Net 19 178 216 168

Comprehensive loss, net attributable to noncontrolling interests ( 1 ) — ( 1 ) —

Comprehensive Income, Net Attributable to Xerox $ 20 $ 178 $ 217 $ 168

_____________

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

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions) June 30,

(in millions) September 30,

2021 December 31,

27 unchanged sentences

Commitments and Contingencies (See Note 20)

Noncontrolling Interests (See Note 5) 10 —

Additional paid-in capital 3,509 4,888

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

13 unchanged sentences

Increase in equipment on operating leases ( 29 ) ( 31 ) ( 92 ) ( 86 )

(Increase) decrease in finance receivables ( 25 ) 97 12 190

Decrease (increase) in other current and long-term assets 42 1 60 ( 15 )

Decrease in accounts payable ( 2 ) ( 210 ) ( 33 ) ( 159 )

Increase (decrease) in accrued compensation 1 ( 21 ) ( 35 ) ( 129 )

Increase (decrease) in other current and long-term liabilities 128 ( 92 ) 92 ( 130 )

Decrease in finance receivables 21 31 33 221

(Increase) decrease in other current and long-term assets ( 2 ) 17 64 2

Increase (decrease) in accounts payable 107 90 74 ( 69 )

Decrease in accrued compensation ( 21 ) ( 20 ) ( 56 ) ( 149 )

(Decrease) increase in other current and long-term liabilities ( 12 ) ( 16 ) 80 ( 146 )

Net change in income tax assets and liabilities ( 13 ) 10 ( 11 ) 13

7 unchanged sentences

Other investing, net — — — 1

Net cash used in investing activities ( 52 ) ( 18 ) ( 69 ) ( 232 )

Net cash provided by (used in) investing activities 18 9 ( 51 ) ( 223 )

Cash Flows from Financing Activities

Net proceeds from short-term debt 1 1 1 1

Proceeds from issuance of long-term debt 311 342 311 347

Payments on long-term debt ( 236 ) ( 762 ) ( 445 ) ( 1,075 )

Contributions from parent — 1,494 — 1,494

Distributions to parent ( 132 ) ( 218 ) ( 674 ) ( 343 )

Other financing, net 10 ( 1 ) 11 —

Net cash used in financing activities ( 432 ) ( 372 ) ( 750 ) ( 432 )

Net cash (used in) provided by financing activities ( 46 ) 856 ( 796 ) 424

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 13 ) 12 ( 13 ) ( 12 )

Decrease in cash, cash equivalents and restricted cash ( 258 ) ( 351 ) ( 488 ) ( 481 )

Increase (decrease) in cash, cash equivalents and restricted cash 59 983 ( 429 ) 502

Cash, cash equivalents and restricted cash at beginning of period 2,203 2,314 2,691 2,795

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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 (GAAP) 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.

In our opinion, all adjustments, which are necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented, have been made.

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

In our opinion, all adjustments necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented have been made.

These adjustments consist of normal recurring items.

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

As of June 30, 2021 we are seeing improvement in our financial results as regions and countries continue to progress in controlling the COVID-19 pandemic and businesses resume investments in new printing technology and increase their level of printing services as compared to the prior year.

As of September 30, 2021, we are seeing improvement in our financial fundamentals where regions and countries continue to progress in controlling the COVID-19 pandemic and businesses resume investments in new printing technology and increase their level of printing services as compared to the prior year.

However, the pandemic continues to have varying and divergent impacts across various regions and countries and a high degree of economic uncertainty still remains.

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

Transfer of CareAR Holdings LLC to Xerox

In August 2021, in connection with Xerox Holdings Corporation's announcement of the formation of the CareAR software business, the ownership of CareAR Holdings LLC was transferred from Xerox Holdings Corporation to Xerox Corporation.

The transfer was accounted for as a transfer of an entity under common control with retrospective adjustment of Xerox's prior period financial statements to reflect the ownership of the business from its acquisition in the fourth quarter 2020.

The impact of this retrospective adjustment was not material to Xerox as the acquisition value was $ 9 and the entity incurred approximately $ 1 of expenses in 2020.

Interim Impairment Evaluation

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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 six months ended June 30, 2021, although business performance continued 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 June 30, 2021.

Based on our interim qualitative assessment as of June 30, 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 half of 2021 and projections for the full year

Xerox 2021 Form 10-Q 11

2021, were consistent with the expectations and sensitivities assessed as part of our review performed in the fourth quarter 2020.

Further, although our market capitalization remained below our net book value, the Company's market capitalization remained fairly constant in relation to book value during the second 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.

various forecast models, which we believe reflected the inherent uncertainty of the future at that time, we estimated that the excess of fair value over carrying value ranged between 15 % and 20 % as of December 31, 2020.

Although business performance was steady in the third quarter 2021, we determined that the continued negative impacts from the COVID-19 pandemic, the impact of supply chain disruptions, as well as a market capitalization that remains less than book value, required us to qualitatively assess whether a triggering event had occurred as of September 30, 2021.

Based on our interim assessment as of September 30, 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.

Despite indications that our excess fair value is likely reduced as compared to the fourth quarter 2020, the Company's financial results for the nine months ended September 30, 2021 as well as projections for the full year, reviewed as part of our qualitative analysis, are still within the range of our sensitivity analysis performed as part of our 2020 annual impairment assessment.

If assumptions or estimates with respect to the Company's future performance vary from what is expected, including those assumptions relating to the duration and severity of the financial impact from the COVID-19 pandemic and the supply chain disruptions, 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.

As previously disclosed, 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 2021 – 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

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This update is effective for our fiscal year beginning January 1, 2022.

We are currently evaluating the impact of the adoption of this standard on the Company’s consolidated financial statements and related disclosures.

We do not expect the adoption of this update to have a material impact on the Company’s consolidated financial statements and related disclosures.

Reference Rate Reform

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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.

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

Xerox 2021 Form 10-Q 12

Other Updates

5 unchanged sentences

• Equity Instruments:

ASU 2021-04 , Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic470-50), Compensation—Stock Compensation(Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications

Xerox 2021 Form 10-Q 12

or Exchanges of Freestanding Equity-Classified Written Call Options).

ASU 2021-04 , Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options).

This update is effective for our fiscal year beginning January 1, 2022.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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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 $ 129 and $ 130 at June 30, 2021 and December 31, 2020, respectively.

The majority of the balance at June 30, 2021 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 advance billings for maintenance and other services to be performed and were approximately $ 135 and $ 130 at September 30, 2021 and December 31, 2020, respectively.

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

Xerox 2021 Form 10-Q 13

Contract Costs:

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

Xerox 2021 Form 10-Q 13

Incremental direct costs are as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

1 unchanged sentence

Amortization of incremental direct costs 18 19 55 60

The balance of deferred incremental direct costs net of accumulated amortization at June 30, 2021 and December 31, 2020 was $ 139 and $ 145 , respectively.

The balance of deferred incremental direct costs net of accumulated amortization at September 30, 2021 and December 31, 2020 was $ 133 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 .

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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 June 30, 2021 and December 31, 2020 amounts deferred associated with contract fulfillment costs and inducements were $ 16 and $ 13 , respectively.

The related amortization was $ 2 and $ 1 for the three months ended June 30, 2021 and 2020, respectively, and $ 3 and $ 2 for the six months ended June 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, amounts deferred associated with contract fulfillment costs and inducements were $ 16 and $ 13 , respectively.

The related amortization was $ 2 and $ 1 for the three months ended September 30, 2021 and 2020, respectively, and $ 5 and $ 3 for the nine months ended September 30, 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.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Location in Statements of Income 2021 2020 2021 2020

4 unchanged sentences

Total Lease income $ 294 $ 298 $ 890 $ 851

Profit at lease commencement on sales type leases was estimated to be $ 57 and $ 42 for the three months ended June 30, 2021 and 2020, respectively, and $ 101 and $ 86 for the six months ended June 30, 2021 and 2020, respectively.

Profit at lease commencement on sales-type leases was estimated to be $ 51 and $ 52 for the three months ended September 30, 2021 and 2020, respectively, and $ 152 and $ 138 for the nine months ended September 30, 2021 and 2020, respectively.

Xerox 2021 Form 10-Q 14

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In 2021, Xerox continued its 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).

During the second quarter of 2021, business acquisitions associated with this initiative totaled $ 37 , net of cash acquired, and included an office equipment dealer in Canada for approximately $ 30 and a document solutions provider in the U.S.

During the second quarter of 2021, we acquired businesses associated with this initiative, which totaled $ 37 , net of cash acquired, and included an office equipment dealer in Canada for approximately $ 30 and a document solutions provider in the U.S.

for approximately $ 7 .

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 $ 21 ) and Goodwill (approximately $ 18 ), 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 end of 2021 and may include input and support from third-party valuations.

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As a result of Xerox’s controlling interest in the newly formed entity, beginning with the second quarter 2021, Xerox consolidated the new entity and the VicGov investment was reported as a noncontrolling interest.

The revenues and expenses of the new entity post formation did not materially impact the Company’s reported results for the three months ended June 30, 2021.

The revenues and expenses of the new entity post formation did not materially impact the Company’s reported results for the three and nine months ended September 30, 2021.

ServiceNow Inc.

Investment in CareAR

In August 2021, in connection with Xerox Holdings Corporation's announcement of the formation of the CareAR software business, ServiceNow, Inc.

acquired a noncontrolling interest in CareAR Holdings LLC for $ 10 .

CareAR Holdings LLC is a direct operating subsidiary of Xerox Corporation and includes Xerox’s XMPie, Inc., DocuShare LLC and CareAR, Inc.

business units.

ServiceNow’s investment includes a fair value redemption right, which is contingent on the non-occurrence of a future liquidity event (e.g., sale, public offering, spin-off, etc.) within 6 years of the closing of the investment.

As a result of this contingent redemption right, we classified ServiceNow’s noncontrolling interest in CareAR Holdings LLC as temporary equity within Xerox’s Condensed Consolidated Balance Sheet.

Note 6 – Supplementary Financial Information

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

September 30,

2021 December 31,

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

As more fully discussed in Note 20 - Contingencies and Litigation, various litigation matters in Brazil require us to make cash deposits to escrow as a condition of continuing the litigation.

As more fully discussed in Note 20 - Contingencies and Litigation, various litigation matters in Brazil require us to make cash deposits to

Xerox 2021 Form 10-Q 15

escrow as a condition of continuing the litigation.

Restricted cash amounts are classified in our Condensed Consolidated Balance Sheets based on when the cash will be contractually or judicially released.

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

September 30,

2021 December 31,

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Total Restricted cash $ 53 $ 66

Xerox 2021 Form 10-Q 15

Supplemental Cash Flow Information

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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_____________

(1) Amortization of acquired intangible assets of Xerox was $ 13 and $ 27 for the three and six months ended June 30, 2021, respectively.

(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.

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

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

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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 TA of $ 100 in April 2021, which is included in Operating cash flows for the six month period ended June 30, 2021.

Fuji Xerox elected to continue its use of the Xerox brand trademark over the two year period and, therefore, in April 2021, made the $ 100 upfront payment due under the TA, which is included in Operating cash flows for the nine months ended September 30, 2021.

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

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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.

Xerox 2021 Form 10-Q 16

Note 7 – Accounts Receivable, Net

Accounts receivable, net were as follows:

September 30,

2021 December 31,

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(1) Accrued receivables include amounts to be invoiced in the subsequent quarter for current services provided.

Xerox 2021 Form 10-Q 16

The allowance for doubtful accounts was as follows:

Balance at December 31 st

Balance at January 1 st

Provision 4 8

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Balance at June 30 th

Provision — 7

Charge-offs ( 5 ) ( 6 )

Recoveries and other (1)

Balance at September 30 th

_____________

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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 7.4 % at June 30, 2021 and 7.2 % at December 31, 2020.

Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 6.5 % at September 30, 2021 and 7.2 % at December 31, 2020.

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

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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, $ 107 and $ 136 remained uncollected as of June 30, 2021 and December 31, 2020, respectively.

Of the accounts receivable sold and derecognized from our balance sheet, $ 88 and $ 136 remained uncollected as of September 30, 2021 and December 31, 2020, respectively.

Accounts receivable sales activity was as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Finance receivables, net were as follows:

September 30,

2021 December 31,

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The allowance for credit losses is principally determined 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 4.1 % at June 30, 2021 and 4.0 % at December 31, 2020.

Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 4.0 % at September 30, 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.

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

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.

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.

The bad debt provision of $ 2 for the second quarter 2021 included a reserve reduction of approximately $ 6 reflecting improvements in the macroeconomic environment as well as lower write-offs.

Actual write-offs incurred to date have lagged expectations but remain in line with our original projections over the life of the lease portfolio and

The bad debt provision of $( 4 ) in the third quarter 2021 included a reserve reduction of approximately $ 14 reflecting improvements in the macroeconomic environment as well as lower write-offs.

Actual write-offs incurred to date have lagged expectations but remain in line with our original projections over the life of the lease portfolio and are consistent with future expectations regarding our estimated impacts from the COVID-19 pandemic.

Xerox 2021 Form 10-Q 18

are consistent with future expectations regarding our estimated impacts from the COVID-19 pandemic.

Despite improvement in the global economy, economies continue to recover from the impacts of the COVID-19 pandemic including the cessation of government support as well as labor, interest rate and inflation risks and the potential for higher taxes.

improvement in the global economy, local economies continue to recover from the impacts of the COVID-19 pandemic including the cessation of government support as well as labor, interest rate and inflation risks and the potential for higher taxes.

As a result of these uncertainties, we continue to consider various adverse macroeconomic scenarios in our models.

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Balance at June 30, 2021 $ 81 $ 15 $ 37 $ 133

Finance receivables as of June 30, 2021 collectively evaluated for impairment (3)

Provision — ( 3 ) ( 1 ) ( 4 )

Charge-offs ( 1 ) ( 1 ) — ( 2 )

Recoveries and other (2)

Balance at September 30, 2021 $ 80 $ 11 $ 36 $ 127

Finance receivables as of September 30, 2021 collectively evaluated for impairment (3)

$ 1,866 $ 262 $ 1,074 $ 3,202

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

Finance receivables as of June 30, 2020 collectively evaluated for impairment (3)

Provision 6 — 3 9

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

Recoveries and other (2)

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

Finance receivables as of September 30, 2020 collectively evaluated for impairment (3)

$ 1,819 $ 284 $ 1,115 $ 3,218

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(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.

(3) Total Finance receivables exclude the allowance for credit losses of $ 133 and $ 143 at June 30, 2021 and 2020, respectively.

(3) Total Finance receivables exclude the allowance for credit losses of $ 127 and $ 142 at September 30, 2021 and 2020, respectively.

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

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

June 30, 2021

September 30, 2021

2021 2020 2019 2018 2017 Prior Total

58 unchanged sentences

The aging of our billed finance receivables is as follows:

June 30, 2021

September 30, 2021

Current 31-90

18 unchanged sentences

Secured Borrowings and Collateral

In July 2020, we sold $ 355 of U.S.

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 June 30, 2021 the SPE holds $ 214 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for the secured loan agreement.

In September 2021, we sold $ 331 of U.S.

based finance receivables to a consolidated special purpose entity (SPE), which, at September 30, 2021, are included in our Condensed Consolidated Balance Sheet as collateral for a secured loan.

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 June 30, 2021 the SPE holds $ 485 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for the secured loan agreement.

Refer to Note 12 - Debt, for additional information related to this arrangement including the related secured loan agreement.

based finance receivables to a consolidated SPE.

As of September 30, 2021 the SPE holds $ 432 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for a secured loan.

Refer to Note 12 - Debt, for additional information related to these arrangements.

Xerox 2021 Form 10-Q 22

1 unchanged sentence

The following is a summary of Inventories by major category:

September 30,

2021 December 31,

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

September 30,

2021 December 31,

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Equipment on operating leases, net $ 254 $ 296

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 16 and $ 14 for the three months ended June 30, 2021 and 2020, respectively and $ 31 and $ 36 for the six months ended June 30, 2021 and 2020, respectively.

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 15 and $ 15 for the three months ended September 30, 2021 and 2020, respectively and $ 46 and $ 51 for the nine months ended September 30, 2021 and 2020, respectively.

Secured Borrowings and Collateral

In September 2021, we sold the rights to payments under operating leases with an equipment net book value of $ 9 to a consolidated SPE, which are included in our Condensed Consolidated Balance Sheet as collateral for a secured loan.

Refer to Note 12 - Debt, for additional information related to this arrangement .

Xerox 2021 Form 10-Q 23

Note 10 – Lessee

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

7 unchanged sentences

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

September 30,

2021 December 31,

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

During the six months ended June 30, 2021, we recorded net restructuring and asset impairment charges of $ 25 , which included $ 20 of severance costs related to headcount reductions of approximately 400 employees worldwide, $ 2 of other contractual termination costs and $ 12 of asset impairment charges.

During the nine months ended September 30, 2021, we recorded net restructuring and asset impairment charges of $ 28 , which included $ 25 of severance costs related to headcount reductions of approximately 435 employees worldwide, $ 3 of other contractual termination costs and $ 12 of asset impairment charges.

These costs were partially offset by $ 12 of net reversals, primarily resulting from changes in estimated reserves from prior period initiatives.

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Balance at June 30, 2021 $ 42 $ 3 $ — $ 45

Provision 5 1 — 6

Reversals ( 3 ) — — ( 3 )

Net current period charges (1)

Charges against reserve and currency ( 11 ) ( 1 ) — ( 12 )

Balance at September 30, 2021 $ 33 $ 3 $ — $ 36

_____________ _

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

2 unchanged sentences

Restructuring cash payments $ ( 12 ) $ ( 11 ) $ ( 61 ) $ ( 63 )

Xerox 2021 Form 10-Q 25

In connection with our restructuring programs, we also incurred certain related costs as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

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

The credit for the six months ended June 30, 2021 reflects a change in estimate.

The credit for the nine months ended September 30, 2021 reflects a change in estimate.

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

Cash paid for restructuring related costs were approximately $ 3 and $ 8 for the three months ended June 30, 2021 and 2020, respectively, and $ 6 and $ 8 for the six months ended June 30, 2021 and 2020, respectively.

The restructuring related costs reserve was $ 18 and $ 21 at June 30, 2021 and December 31, 2020, respectively.

The balance at June 30, 2021 is expected to be paid over the next twelve months.

Xerox 2021 Form 10-Q 24

Cash paid for restructuring related costs were approximately $ 3 and $ 15 for the three months ended September 30, 2021 and 2020, respectively, and $ 9 and $ 23 for the nine months ended September 30, 2021 and 2020, respectively.

The restructuring related costs reserve was $ 22 and $ 21 at September 30, 2021 and December 31, 2020, respectively.

The balance at September 30, 2021 is expected to be paid over the next twelve months.

Note 12 – Debt

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

At June 30, 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 $ 30 .

Xerox Corporation’s interest expense for the three and six months ended June 30, 2021 included $ 19 and $ 39 , respectively, of interest expense associated with this Intercompany Loan.

At September 30, 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 included interest expense associated with this Intercompany Loan of $ 21 and $ 11 for the three months ended September 30, 2021 and 2020, respectively, and $ 60 and $ 11 for the nine months ended September 30, 2021 and 2020, respectively.

Secured Borrowings and Collateral

In July 2020, we entered into a secured loan agreement with a financial institution where we sold $ 355 of U.S.

In September 2021, we entered into a secured loan agreement with a financial institution where we sold $ 331 of U.S.

based finance receivables and the rights to payments under operating leases with an equipment net book value of $ 9 to a special purpose entity (SPE).

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

The debt has a variable interest rate based on LIBOR plus a spread (current rate of 1.67 % at June 30, 2021).

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

The purchase by the SPE was funded through a $ 311 amortizing secured loan to the SPE from the financial institution.

The secured loan was an amendment of the July 2020 secured borrowing with the same financial institution, which had a remaining balance of $ 136 , and we received the incremental net cash.

The transaction was accounted for as an extinguishment of debt and the issuance of new debt and associated collateral.

The new loan has a variable interest rate based on LIBOR plus a spread (current rate of 1.40 % at September 30, 2021) and an expected life of approximately 2.5 years with half projected to be repaid in the first year based on collections of the underlying portfolio of receivables.

In October 2021, we entered into an interest rate hedge agreement to cap LIBOR over the life of the loan.

Xerox 2021 Form 10-Q 26

In December 2020, we entered into a 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 1.68 % at June 30, 2021).

The debt has a variable interest rate based on the financial institution's cost of funds plus a spread (current rate of 1.66 % at September 30, 2021).

The sales of the receivables to the SPEs were structured as "true sales at law," and we have received opinions to that effect from outside legal counsel.

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

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

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

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.

September 30,

2021 December 31,

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

Xerox 2021 Form 10-Q 25

Interest Expense and Income

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

4 unchanged sentences

(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) Interest expense of Xerox Corporation for the three and six months ended June 30, 2021 includes $ 19 and $ 39 , respectively, of intercompany interest expense for the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan.

(2) Interest expense of Xerox Corporation included intercompany interest expense associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan of $ 21 and $ 11 for the three months ended September 30, 2021 and 2020, respectively, and $ 60 and $ 11 for the nine months ended September 30, 2021 and 2020, respectively.

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

Xerox 2021 Form 10-Q 27

Note 13 – Financial Instruments

2 unchanged sentences

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

At June 30, 2021, there were no interest rate derivative contracts outstanding.

At September 30, 2021, there were no interest rate derivative contracts outstanding.

Foreign Exchange Risk Management

3 unchanged sentences

• Forecasted purchases and sales in foreign currency

At June 30, 2021 and December 31, 2020, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 1,073 and $ 1,161 respectively, with terms of less than 12 months.

Approximately 81 % of the contracts at June 30, 2021 mature within three months, 10 % mature in three to six months and 9 % 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.

At September 30, 2021 and December 31, 2020, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 1,106 and $ 1,161 respectively, with terms of less than 12 months.

Approximately 81 % of the contracts at September 30, 2021 mature within three months, 9 % mature in three to six months and 10 % in six to twelve months.

There have not been any material changes 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 (liability) asset fair value of these contracts were $( 4 ) and $ 2 as of June 30, 2021 and December 31, 2020, respectively.

Xerox 2021 Form 10-Q 26

The net (liability) asset fair value of these contracts were $( 1 ) and $ 2 as of September 30, 2021 and December 31, 2020, respectively.

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 June 30,

Designation of Derivatives Balance Sheet Location September 30,

2021 December 31,

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Accrued expenses and other current liabilities ( 4 ) ( 3 )

Net undesignated derivative liability $ — $ —

Net undesignated derivative assets $ — $ —

Summary of Derivatives Total Derivative assets $ 8 $ 7

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Net Derivative (liability) asset $ ( 1 ) $ 2

Xerox 2021 Form 10-Q 28

Summary of Derivative Instruments Gains (Losses)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Gain (Loss) on Derivative Instruments 2021 2020 2021 2020

3 unchanged sentences

Cash Flow Hedges - Foreign Exchange Forward Contracts and Options

Derivative (loss) gain recognized in OCI (effective portion) $ ( 2 ) $ ( 3 ) $ ( 12 ) $ 4

Derivative gain (loss) recognized in OCI (effective portion) $ 3 $ 1 $ ( 9 ) $ 5

Derivative (loss) gain reclassified from AOCL to income - Cost of sales (effective portion) ( 2 ) — ( 5 ) 1

During the three and six months ended June 30, 2021 and 2020, 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.

During the three and nine months ended September 30, 2021 and 2020, 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.

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

As of June 30, 2021, a net after-tax loss of $ 5 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

As of September 30, 2021, a net after-tax loss of $ 1 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 (Loss) Gain Three Months Ended

June 30, Six Months Ended

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

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Foreign exchange contracts – forwards Other expense – Currency (losses) gains, net $ ( 4 ) $ 3 $ ( 22 ) $ 17

Xerox 2021 Form 10-Q 27

Currency losses, net were $ 1 and $ 2 for the three months ended June 30, 2021 and 2020, respectively and $ 3 and $ 4 for six months ended June 30, 2021 and 2020, respectively.

Foreign exchange contracts – forwards Other expense – Currency gains (losses), net $ 2 $ 2 $ ( 20 ) $ 19

Currency losses, net were $ 3 and $ 0 for the three months ended September 30, 2021 and 2020, respectively and $ 6 and $ 4 for nine months ended September 30, 2021 and 2020, 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.

Xerox 2021 Form 10-Q 29

Note 14 – Fair Value of Financial Assets and Liabilities

1 unchanged sentence

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

September 30,

2021 December 31,

12 unchanged sentences

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Cash and cash equivalents $ 2,209 $ 2,209 $ 2,625 $ 2,625

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

Three Months Ended June 30,

Three Months Ended September 30,

Pension Benefits

6 unchanged sentences

Expected return on plan assets ( 29 ) ( 27 ) ( 53 ) ( 49 ) — —

Recognized net actuarial loss (gain) 4 7 14 14 — ( 1 )

Recognized net actuarial loss 4 6 15 15 — —

Amortization of prior service credit — — — ( 1 ) ( 16 ) ( 19 )

3 unchanged sentences

Net Periodic Benefit Cost (Credit) 7 — ( 5 ) 5 ( 14 ) ( 16 )

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

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

Net actuarial (gain) loss (1)

( 14 ) 77 — — 1 —

Amortization of net actuarial (loss) gain ( 17 ) ( 20 ) ( 14 ) ( 14 ) — 1

Amortization of net actuarial loss ( 17 ) ( 16 ) ( 15 ) ( 15 ) — —

Amortization of net prior service credit — — — 1 16 19

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

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

( 31 ) 61 ( 15 ) ( 14 ) 17 19

Total Recognized in Net Periodic Benefit (Credit) Cost and Other Comprehensive Income (Loss) $ ( 32 ) $ ( 91 ) $ ( 20 ) $ ( 10 ) $ 4 $ ( 2 )

Six Months Ended June 30,

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income $ ( 24 ) $ 61 $ ( 20 ) $ ( 9 ) $ 3 $ 3

Nine Months Ended September 30,

Pension Benefits

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Net Periodic Benefit Cost (Credit) 26 49 ( 16 ) 14 ( 42 ) ( 48 )

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

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

Net actuarial (gain) loss (1)

2 unchanged sentences

Amortization of prior service credit 1 1 — 1 49 57

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

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

( 136 ) ( 64 ) ( 43 ) ( 42 ) 52 52

Total Recognized in Net Periodic Benefit (Credit) Cost and Other Comprehensive Income (Loss) $ ( 86 ) $ ( 76 ) $ ( 39 ) $ ( 19 ) $ 7 $ 1

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income $ ( 110 ) $ ( 15 ) $ ( 59 ) $ ( 28 ) $ 10 $ 4

_____________

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

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

Refer to Note 18 - Other Comprehensive Income (Loss) for related tax effects and the after-tax amounts.

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

Refer to Note 18 - Other Comprehensive (Loss) Income for related tax effects and the after-tax amounts.

Xerox 2021 Form 10-Q 31

1 unchanged sentence

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

Six Months Ended

June 30, Year Ended December 31,

Nine Months Ended

September 30, Year Ended

2021 2020 Estimated 2021

6 unchanged sentences

Defined Contribution Plans

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

based 401(k) saving plans for salaried employees.

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

based 401(k) plan for salaried (non-union) employees.

The suspension is expected to result in savings of approximately $ 20 for the year ending December 31, 2021.

4 unchanged sentences

Xerox Holdings Shareholders’ Equity Non-controlling Interests Total

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

Comprehensive income, net — — — 91 70 161 — 161

Balance at June 30, 2021 $ 189 $ 2,214 $ ( 159 ) $ 6,308 $ ( 3,265 ) $ 5,287 $ 8 $ 5,295

Comprehensive income (loss), net — — — 90 ( 70 ) 20 ( 1 ) 19

Cash dividends declared - common (3)

5 unchanged sentences

Cancellation of treasury stock ( 7 ) ( 152 ) 159 — — — — —

Investment from noncontrolling interests (5)

— 1 — — — 1 4 5

Other — 4 — — — 4 — 4

Balance at June 30, 2021

Balance at September 30, 2021

$ 182 $ 2,080 $ ( 87 ) $ 6,348 $ ( 3,335 ) $ 5,188 $ 7 $ 5,195

1 unchanged sentence

Xerox Holdings Shareholders’ Equity Non- controlling Interests Total

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

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

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

4 unchanged sentences

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

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

Balance at June 30, 2020

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

5 unchanged sentences

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

Comprehensive income, net — — — 130 67 197 — 197

Comprehensive income (loss), net — — — 220 ( 3 ) 217 ( 1 ) 216

Cash dividends declared - common (3)

7 unchanged sentences

— 1 — — — 1 4 5

Other — ( 4 ) — — — ( 4 ) — ( 4 )

Balance at June 30, 2021

Balance at September 30, 2021

$ 182 $ 2,080 $ ( 87 ) $ 6,348 $ ( 3,335 ) $ 5,188 $ 7 $ 5,195

3 unchanged sentences

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

Comprehensive income (loss), net — — — 25 ( 35 ) ( 10 ) — ( 10 )

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

Cash dividends declared - common (3)

3 unchanged sentences

Stock option and incentive plans, net 1 11 — — — 12 — 12

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

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

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

Balance at June 30, 2020

Balance at September 30, 2020

$ 214 $ 2,719 $ ( 150 ) $ 6,258 $ ( 3,593 ) $ 5,448 $ 4 $ 5,452

1 unchanged sentence

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

(2) Refer to Note 18 - Other Comprehensive Income (Loss) for the components of AOCL.

(3) Cash dividends declared on common stock for the three and six months ended June 30, 2021 and 2020 were $ 0.25 per share, respectively, and $ 0.50 per share, respectively.

(4) Cash dividends declared on preferred stock for the three and six months ended June 30, 2021 and 2020 were $ 20.00 per share, respectively, and $ 40.00 per share, respectively.

(2) Refer to Note 18 - Other Comprehensive (Loss) Income for the components of AOCL.

(3) Cash dividends declared on common stock for the three and nine months ended September 30, 2021 and 2020 were $ 0.25 per share, respectively, and $ 0.75 per share, respectively.

(4) Cash dividends declared on preferred stock for the three and nine months ended September 30, 2021 and 2020 were $ 20.00 per share, respectively, and $ 60.00 per share, respectively.

(5) Refer to Note 5 - Acquisitions and Investments for additional information regarding this noncontrolling investment.

5 unchanged sentences

Cancellations ( 17,067 ) ( 413 )

Balance at June 30, 2021

Balance at September 30, 2021

_____________

5 unchanged sentences

Xerox Shareholder's Equity Non-

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

Comprehensive income, net — 96 70 166 — 166

Balance at June 30, 2021 (2)

$ 3,413 $ 5,404 $ ( 3,265 ) $ 5,552 $ 8 $ 5,560

Comprehensive income (loss), net — 90 ( 70 ) 20 ( 1 ) 19

Dividends declared to parent — ( 215 ) — ( 215 ) — ( 215 )

Transfers from parent 96 — — 96 — 96

Investment from noncontrolling interests (2)

Balance at June 30, 2021

Balance at September 30, 2021

$ 3,509 $ 5,279 $ ( 3,335 ) $ 5,453 $ 7 $ 5,460

1 unchanged sentence

Xerox Shareholder's Equity Non- controlling Interests Total

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

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

Comprehensive income, net — 90 88 178 — 178

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

Transfers from parent 11 — — 11 — 11

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

Balance at June 30, 2020

Capital contributions from parent (3)

1,494 — — 1,494 — 1,494

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

Balance at September 30, 2020

$ 4,859 $ 5,960 $ ( 3,593 ) $ 7,226 $ 4 $ 7,230

Shareholder's

Balance at December 31, 2020 (2)

Comprehensive income, net — 137 67 204 — 204

$ 4,888 $ 5,833 $ ( 3,332 ) $ 7,389 $ 4 $ 7,393

Comprehensive income (loss), net — 220 ( 3 ) 217 ( 1 ) 216

Dividends declared to parent — ( 774 ) — ( 774 ) — ( 774 )

3 unchanged sentences

Investment from noncontrolling interests (5)

Balance at June 30, 2021

Balance at September 30, 2021

$ 3,509 $ 5,279 $ ( 3,335 ) $ 5,453 $ 7 $ 5,460

1 unchanged sentence

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

Comprehensive income (loss), net — 25 ( 35 ) ( 10 ) — ( 10 )

Comprehensive income, net — 115 53 168 — 168

Dividends declared to parent — ( 402 ) — ( 402 ) — ( 402 )

Capital contributions from parent (3)

1,494 — — 1,494 — 1,494

Transfers from parent 99 — — 99 — 99

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

Balance at June 30, 2020

Balance at September 30, 2020

$ 4,859 $ 5,960 $ ( 3,593 ) $ 7,226 $ 4 $ 7,230

_____________

(1) Refer to Note 18 - Other Comprehensive Income (Loss) for the components of AOCL.

(2) Refer to Note 5 - Acquisitions and Investments for additional information regarding this noncontrolling investment.

(1) Refer to Note 18 - Other Comprehensive (Loss) Income for the components of AOCL.

(2) Amounts adjusted to reflect the transfer of CareAR Holdings, LLC from Xerox Holdings Corporation to Xerox Corporation.

Refer to Note 1 - Basis of Presentation for additional information regarding the transfer of ownership.

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

Refer to Note 12 - Debt for additional information regarding the Senior Note offerings.

(4) Refer to Note 12 - Debt for information regarding capitalization of balance to Intercompany Loan with Xerox Holdings Corporation.

(5) Refer to Note 5 - Acquisitions and Investments for additional information regarding this investment from noncontrolling interests.

Xerox 2021 Form 10-Q 34

Note 18 - Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss) is comprised of the following:

Note 18 - Other Comprehensive (Loss) Income

Other Comprehensive (Loss) Income is comprised of the following:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

Translation Adjustments Gains (Losses) $ 55 $ 54 $ 26 $ 25 $ 3 $ 3 $ ( 178 ) $ ( 172 )

Unrealized (Losses) Gains

Changes in fair value of cash flow hedges (losses) gains ( 2 ) ( 1 ) ( 3 ) ( 1 ) ( 12 ) ( 9 ) 4 3

Translation Adjustments (Losses) Gains $ ( 129 ) $ ( 125 ) $ 176 $ 179 $ ( 126 ) $ ( 122 ) $ ( 2 ) $ 7

Unrealized Gains (Losses)

Changes in fair value of cash flow hedges gains (losses) 3 2 1 1 ( 9 ) ( 7 ) 5 4

Changes in cash flow hedges reclassed to earnings (1)

2 2 — — 5 4 ( 1 ) —

Net Unrealized (Losses) Gains — — ( 5 ) ( 2 ) ( 9 ) ( 7 ) 3 3

Net Unrealized Gains (Losses) 5 4 1 1 ( 4 ) ( 3 ) 4 4

Defined Benefit Plans Gains (Losses)

Net actuarial/prior service gains 23 17 98 73 66 49 86 64

Net actuarial/prior service gains (losses) 13 10 ( 77 ) ( 58 ) 79 59 9 6

Prior service amortization (2)

2 unchanged sentences

32 23 31 23 98 72 104 79

Other (losses) gains (3)

Other gains (losses) (3)

30 30 ( 42 ) ( 42 ) 28 28 1 1

Changes in Defined Benefit Plans Gains 26 16 107 80 96 71 163 134

Other Comprehensive Income (Loss) Attributable to Xerox Holdings/Xerox $ 81 $ 70 $ 128 $ 103 $ 90 $ 67 $ ( 12 ) $ ( 35 )

Changes in Defined Benefit Plans Gains (Losses) 59 51 ( 108 ) ( 92 ) 155 122 55 42

Other Comprehensive (Loss) Income Attributable to Xerox Holdings/Xerox $ ( 65 ) $ ( 70 ) $ 69 $ 88 $ 25 $ ( 3 ) $ 57 $ 53

(1) Reclassified to Cost of sales - refer to Note 13 - Financial Instruments for additional information regarding our cash flow hedges.

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AOCL is comprised of the following:

September 30,

2021 December 31,

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Below is a summary of our Brazilian tax contingencies:

September 30,

2021 December 31,

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Liens on Brazilian assets — —

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

The decrease in the unreserved portion of the tax contingency, inclusive of any related interest, was due to closed cases and currency, partially offset by new cases and 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.

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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 June 30, 2021 and December 31, 2020.

Exposures related to labor matters are not material to the financial statements as of September 30, 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.

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Jacobson, et al.:

On April 11, 2019, Carmen Ribbe filed a putative derivative and class action stockholder complaint in the Supreme Court of the State of New York for New York County, naming as defendants Xerox, current Board members Joseph J.

Echevarria, Cheryl Gordon Krongard, Keith Cozza, Giovanni G.

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and subjected Xerox to potential breach of contract damages in an action by Fuji relating to Xerox’s termination of the proposed Fuji Transaction.

Plaintiff also alleged that the current Board members breached their fiduciary duties by allegedly rejecting plaintiff’s January 14, 2019 shareholder demand on the Board to remedy harms arising from entry into the Deason and XCCSL settlements.

Plaintiff also alleged that the then-current Board members breached their fiduciary duties by allegedly rejecting plaintiff’s January 14, 2019 shareholder demand on the Board to remedy harms arising from entry into the Deason and XCCSL settlements.

The new complaint further included direct claims for breach of fiduciary duty on behalf of a putative class of current Xerox stockholders other than Mr.

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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.

Upon his application to the Appellate Division, plaintiff’s time to perfect the appeal of the December 14, 2020 dismissal order has been extended to September 13, 2021.

Xerox 2021 Form 10-Q 36

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.

On June 4, 2021, the Court granted plaintiff’s fee application, in part, and awarded plaintiff attorneys’ fees in the amount of $ 125 thousand in the dismissed actions.

On June 4, 2021, the Court granted plaintiff’s fee application, in part, and awarded plaintiff attorneys’ fees in the amount of $ 125 thousand in the dismissed actions, which Xerox paid in July 2021.

The Court denied plaintiff’s request for a service award.

Xerox will vigorously defend against this matter.

At this time, it is premature to make any conclusion regarding the probability of incurring material losses in this litigation.

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 2021 Form 10-Q 38

Plaintiff had six months from January 13, 2021 in which to perfect his appeal of the Court’s December 14, 2020 dismissal order.

Upon his application to the Appellate Division, plaintiff’s time to perfect the appeal was extended.

On September 9, 2021, plaintiff filed a letter with the Appellate Division withdrawing and discontinuing his appeal of the dismissal order.

As a result, the case is now concluded.

Miami Firefighters’ Relief & Pension Fund v.

Icahn, et al.:

On December 13, 2019, alleged shareholder Miami Firefighters’ Relief & Pension Fund (“Miami Firefighters”) filed a purported derivative complaint in New York State Supreme Court, New York County on behalf of Xerox Holdings Corporation ("Xerox Holdings") (as nominal defendant) against Carl Icahn and his affiliated entities High River Limited Partnership and Icahn Capital LP (the "Icahn defendants"), Xerox Holdings, and all current Xerox Holdings directors (the "Directors").

On December 13, 2019, alleged shareholder Miami Firefighters’ Relief & Pension Fund (“Miami Firefighters”) filed a purported derivative complaint in New York State Supreme Court, New York County on behalf of Xerox Holdings Corporation ("Xerox Holdings") (as nominal defendant) against Carl Icahn and his affiliated entities High River Limited Partnership and Icahn Capital LP (the "Icahn defendants"), Xerox Holdings, and all then-current Xerox Holdings directors (the "Directors").

Plaintiff made no demand on the Board before bringing the action, but instead alleges that doing so would be futile because the Directors lack independence due to alleged direct or indirect relationships with Icahn.

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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 10, 2020, the Xerox defendants and the Icahn defendants filed separate motions to dismiss.

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On July 15, 2021, plaintiff filed its brief in connection with the appeals of the December 14, 2020 dismissal order and the January 15, 2021 discovery order.

Xerox 2021 Form 10-Q 37

Briefing on plaintiff's appeal is complete and oral argument took place on October 26, 2021.

Xerox Holdings will vigorously defend against this matter.

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Xerox 2021 Form 10-Q 39

Other Litigation

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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.

On March 10, 2021, Xerox Holdings Corporation (“Xerox Holdings”) 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 Xerox Holdings 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 Xerox Holdings and its direct and indirect customers;

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

and that following Xerox Holdings' 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;

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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 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.

Also on March 10, 2021, subsidiaries of Xerox Holdings filed similar complaints and related requests for arbitration in Toronto, London, and Amsterdam for Canadian, UK and European losses.

Xerox Holdings consented to defendant’s request for an extension of its time in which to answer or otherwise respond to the complaint.

On May 6, 2021, FMG filed its answer to the complaint.

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proceedings pending the outcome of the U.S.

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.

The parties have executed a tolling agreement and will seek an order from the Court staying the action on consent.

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.

On May 20, 2021, the Court entered an order on consent of the parties for a stay of nine months and extensions of 11 and 14 months, respectively, of plaintiffs’ deadline to file and serve their Particulars of Claim and FMG’s deadline to file and serve its Defense.

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.

The parties are in the process of executing a tolling agreement to stay the District Court proceeding until full and final resolution of the U.S.

Xerox 2021 Form 10-Q 38

We have issued or provided approximately $ 306 of guarantees as of June 30, 2021 in the form of letters of credit or surety bonds issued to i) support certain insurance programs;

We have issued or provided approximately $ 295 of guarantees as of September 30, 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;

and iii) support certain contracts, primarily with public sector customers, which require us to provide a surety bond as a guarantee of our performance of contractual obligations.

In general, we would only be liable for the amount of these guarantees in the event we defaulted in performing our obligations under each contract;

the probability of which we believe is remote.

In general, we would only be liable for the amount of these guarantees in the event we defaulted in performing our obligations under each contract, the probability of which we believe is remote.

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.

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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