Xerox Holdings Corp 10-K

xrx-20211231 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________ FORM 10-K _________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31 , 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: ______ to: _______ _________________________________________________ XEROX HOLDINGS CORPORATION XEROX CORPORATION (Exact Name of Registrant as specified in its charter) _________________________________________________ New York 001-39013 83-3933743 New York 001-04471 16-0468020 (State or other jurisdiction of incorporation or organization) (Commission File Number) (IRS Employer Identification No.) P.O. Box 4505, 201 Merritt 7 Norwalk , Connecticut 06851-1056 (Address of principal executive offices and Zip Code) 203 - 849-5216 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Xerox Holdings Corporation Common Stock, $1 par value XRX Nasdaq Global Select Market Title of each class Trading Symbol Name of each exchange on which registered Securities registered pursuant to Section 12(g) of the Act: None ____________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Xerox Holdings Corporation Yes ☒ No ☐ Xerox Corporation Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Xerox Holdings Corporation Yes ☐ No ☒ Xerox Corporation Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Xerox Holdings Corporation Yes ☒ No ☐ Xerox Corporation Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Xerox Holdings Corporation Yes ☒ No ☐ Xerox Corporation Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Xerox Holdings Corporation Xerox Corporation Large accelerated filer ☒ Large accelerated filer ☐ Accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Smaller reporting company ☐ Emerging growth company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Xerox Holdings Corporation ☐ Xerox Corporation ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Xerox Holdings Corporation ☒ Xerox Corporation ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Xerox Holdings Corporation Yes ☐ No ☒ Xerox Corporation Yes ☐ No ☒ The aggregate market value of the voting stock of the registrant held by non-affiliates as of June 30, 2021 was $ 4,279,321,992 . Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Class Outstanding at January 31, 2022 Xerox Holdings Corporation Common Stock, $1 par value 156,354,571 DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document are incorporated herein by reference: Document Part of Form 10-K in which Incorporated Xerox Holdings Corporation Notice of 2022 Annual Meeting of Shareholders and Proxy Statement (to be filed no later than 120 days after the close of the fiscal year covered by this report on Form 10-K) III Table of Contents Cautionary Statement Regarding Forward-Looking Statements This document, and other written or oral statements made from time to time by management contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should”, “targeting”, “projecting”, “driving” and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: the effects pandemics, such as the COVID-19 pandemic, on our and our customers' businesses and the duration and extent to which this will impact our future results of operations and overall financial performance; our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; reliance on third parties, including subcontractors, for manufacturing of products and provision of services and the shared service arrangements entered into by us as part of Project Own It; our ability to attract and retain key personnel; the risk that confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts or that cyberattacks could result in a shutdown of our systems; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring and transformation actions; our ability to manage changes in the printing environment like the decline in the volume of printed pages and extension of equipment placements; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; interest rates, cost of borrowing and access to credit markets; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; funding requirements associated with our employee pension and retiree health benefit plans; changes in foreign currency exchange rates; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; and any impacts resulting from the restructuring of our relationship with Fujifilm Holdings Corporation. Additional risks that may affect Xerox’s operations and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this combined Annual Report on Form 10-K, as well as in Xerox Holdings Corporation’s and Xerox Corporation’s combined Quarterly Reports on Form 10-Q and Xerox Holdings Corporation’s and Xerox Corporation’s Current Reports on Form 8-K filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document or as of the date to which they refer, and we assume no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law. Throughout this combined Annual Report on Form 10-K ("combined Form 10-K"), references to “Xerox Holdings” refer to Xerox Holdings Corporation and its consolidated subsidiaries while references to “Xerox” refer to Xerox Corporation and its consolidated subsidiaries. References herein to “we,” “us,” “our,” or 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 subsidiaries. Xerox Holdings Corporation's primary direct operating subsidiary is Xerox and therefore Xerox reflects nearly all of Xerox Holdings' operations. Table of Contents Xerox Holdings Corporation Xerox Corporation Form 10-K December 31, 2021 Table of Contents Page Part I Item 1. Business 1 Item 1A. Risk Factors 13 Item 1B. Unresolved Staff Comments 23 Item 2. Properties 23 Item 3. Legal Proceedings 23 Item 4. Mine Safety Disclosures 23 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24 Item 6. [Reserved] 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8. Financial Statements and Supplementary Data 64 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 146 Item 9A. Controls and Procedures 146 Item 9B. Other Information 148 Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 148 Part III Item 10. Directors, Executive Officers and Corporate Governance 149 Item 11. Executive Compensation 150 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 150 Item 13. Certain Relationships, Related Transactions and Director Independence 150 Item 14. Principal Accounting Fees and Services 150 Part IV Item 15. Exhibit and Financial Statement Schedules 151 Item 16. Form 10-K Summary 151 Signatures Xerox Holdings Corporation 152 Signatures Xerox Corporation 153 Schedule II Xerox Holdings Corporation Valuation and Qualifying Accounts 154 Schedule II Xerox Corporation Valuation and Qualifying Accounts 155 Index of Exhibits 156 Table of Contents Part I Item 1. Business Xerox is a workplace technology company, building and integrating software and hardware for enterprises large and small. As customers seek to manage information across digital and physical platforms, we deliver a seamless, secure and sustainable experience. Whether inventing the copier, the Ethernet, the laser printer or more, Xerox has long defined the modern work experience and continues to do so with investments in artificial intelligence (AI), augmented reality (AR)-driven service experiences, robotic process automation (RPA), sensors and services for Internet of Things (IoT), 3D printing and Clean Technologies (clean tech). Geographically, our footprint spans approximately 160 countries and allows us to deliver our technology and solutions to customers of all sizes, regardless of complexity or number of customer locations. Recent Changes and Developments In 2021, we proceeded with the standing up of three new businesses: CareAR, Xerox Financial Services (now known as FITTLE) and Innovation (PARC). We will proceed with these efforts in 2022 and provide additional information relating to these businesses during the year. CareAR Holdings (CareAR) is Xerox’s newly formed software business and is comprised of: CareAR, Inc., an enterprise augmented reality business Xerox acquired in late 2020; DocuShare®, a cloud-based content management system; and XMPie, a multi-channel marketing software platform. Together, these software assets combine to provide an AR and AI-driven visual support platform that provides real-time access to expertise for service companies, field service employees and end-use customers. As disclosed at our Investor Conference on February 23, 2022, we have rebranded our Xerox Financial Services (XFS) business, which is now known as FITTLE. The business has historically offered financing for direct channel customer purchases of Xerox equipment through bundled lease agreements and lease financing to end-user customers who purchase Xerox equipment through Xerox indirect dealer channels. At the outset of 2021, FITTLE changed its strategy to broaden its portfolio of assets financed to include numerous growth opportunities independent of Xerox equipment and services, such as the expansion of its dealer relationships to include an increasing number of non-Xerox dealers, leveraging its existing dealer relationships to finance a wider breadth of products and forming relationships with new vendors. Additionally, in 2021, FITTLE became the primary equipment lease provider for our XBS business. Innovation (known as PARC Innovation, or PARC) includes the scientists and engineers located at our facilities in Palo Alto, Calif.; Webster, N.Y.; Cary, N.C., and Toronto, Canada. PARC is focused on commercializing disruptive technology in the following areas: 3D Printing, IoT Sensors and clean tech. In 2021, we also made progress toward our goal of monetizing and strategically diversifying our investments in innovation. In May, we announced the formation of Eloque, a joint venture with the government of Victoria, Australia to commercialize IoT sensor-based technology and services for monitoring the structural health of bridges. In September, we announced the formation of CareAR, in conjunction with a $10 million noncontrolling investment from digital workflow leader ServiceNow, Inc. We also began commercializing our 3D liquid metal printing technology through the sales and placements of ElemX 3D printing devices. Strategy The Company’s four strategic initiatives, summarized below, remain at the core of how we operate and deliver results for all stakeholders. 1. Optimize Operations for Simplicity • Continuously improve operating efficiency, revenue flow-through and return on assets • Invest in augmented reality, robotic process automation, business process outsourcing, analytics and system enhancements to drive efficiencies 2. Drive Revenue • Drive increased adoption and utilization of CareAR • Scale IT Services and robotic process automation in the small and medium-sized business (SMB) market • Grow our financing business as a global financing solutions business • Expand distribution of digital solutions among existing Print and Services clients Xerox 2021 Annual Report 1 Table of Contents 3. Monetize Innovation • Leverage $250 million corporate venture fund to bolster investment and innovation • Add value-added equity partners to accelerate development and market penetration • Embed PARC’s technology into new and existing businesses 4. Focus on cash flow and increasing capital returns • Maximize annual free cash flow 1 generation • Deploy excess capital for strategic M&A • Opportunistic share repurchases _____________ (1) Free cash flow is defined as Operating cash flow from continuing operations less capital expenditures. The COVID-19 pandemic has accelerated the transformation of the workplace into a more flexible, hybrid environment. In response, we continue to invest in innovation to bolster and diversify our portfolio of offerings for hybrid workplace environments, including investments in Digital Services such as Capture & Content and Customer Engagement Services, which enable work to flow seamlessly between the office and home. During the year, we released Workflow Central, which extends the document workflow solutions available through our ConnectKey® multifunction printer interface to all devices, including PCs and smartphones, for easier access to workflow solutions on the go. Additionally, the hybrid work environment has increased SMB needs for IT Services, an area in which we are well positioned to succeed given our direct SMB sales presence. Organic and inorganic growth in digital and IT services, along with continued market share gains in equipment sales, are central to our objective of stabilizing and growing our Print and Services business for the long-term. Optimize Operations for Simplicity Project Own It is Xerox’s enterprise-wide initiative to simplify operations, drive continuous improvement and free up capital to reinvest in the business. Through this initiative, we have delivered approximately $1.8 billion of gross savings during the 42 month-period ending December 31, 2021. We exceeded our gross cost savings target of $375 million for Project Own It in 2021. We expect to deliver $300 million of gross cost savings in 2022. Savings generated by Project Own It will enable us to invest in our operations, targeted adjacencies and innovation focus areas and ultimately help improve our long-term revenue trajectory. Drive Revenue Our roadmap, summarized below, focuses on growing revenue by increasing Xerox’s leadership position in the print market while expanding into targeted adjacent and new markets: • Gain share in Print. Building on our leadership positions in Print is central to gaining market share. In the workplace, we continue to differentiate Xerox multifunction printers with apps and integrated workflow solutions that speed digital transformation and support workers in and out of the office. In production, investments are targeted to push Xerox into growth areas such as embellishments and inkjet. We recently made improvements to FreeFlow®, our software offering for the production print market which helps automate large and complex print workflows. We gained market share in the last five consecutive quarters and are number one in Office and Production Print and Managed Print Services. • Expand penetration of Managed and Digital services. Managed and Digital services leverage the full Xerox portfolio to offer horizontal and vertical offerings that grow our share of our client's IT spend and expand the Company's customer base. Increasingly, our Managed and Digital solutions offerings are targeting opportunities to help clients digitally transform their document workflows and manage the evolving nature of hybrid workplace formats. Our direct relationships with large enterprises, governments and SMB provide us the opportunity to expand our share of our clients' spend with a broad breadth of services that are supported by leading levels of security. • Drive increased adoption and utilization of CareAR. CareAR’s AR-driven service experience platform is in the early stages of customer adoption. To date, client interest and product trials have been positive, and we are seeing traction in the conversion of trials to subscriptions. We are investing in CareAR’s product, people and distribution partners and expect our refined go-to-market approach to drive significant growth in 2022. • Scale IT Services in the SMB market. Ongoing investments in indirect market channels, Xerox Business Solutions (XBS) and similar European sales channels position Xerox to grow in the SMB market, which accounts for the majority of our business. We are expanding our IT Services business geographically and with enhanced capabilities to support growth in this market, including an expansion of our offerings to include cyber security, RPA and other digital solutions. Xerox 2021 Annual Report 2 Table of Contents • Grow FITTLE as a global financing solutions business. As a newly stood up business, FITTLE will be charged with expanding its book of lease receivables beyond Xerox and beyond print and print services. FITTLE’s long-term strategy for growth includes an expansion of dealer relationships, broadening its base of business beyond standard office equipment and signing direct financing arrangements with equipment vendors. • Commercialize research at PARC. Since 2019, PARC’s mandate has been to advance its research efforts through to the commercialization stage. In that time, PARC's most substantially commercialized technology has been its Eloque IoT bridge sensor platform and its 3D print technology through sales of ElemX printers. We expect both Eloque and 3D to grow revenues rapidly in future years. PARC’s clean tech efforts address a large total addressable market (TAM), and our expectation is that this technology will reach commercialization within the next few years. Monetize Innovation In 2021, we delivered on our commitment to monetize innovation by commercializing offerings in 3D print and IoT sensors. For 3D print, we began placing and selling ElemX printers. For industrial IoT sensors and services, we deployed our sensor technology across bridges in Victoria, Australia and have signed orders to significantly expand the number of bridges with our sensor technology in 2022. We are also in discussions with select European countries and multiple U.S. states to deploy pilots in early 2022. To further monetize our innovation and develop disruptive offerings, PARC-developed technologies in AI and AR are being integrated into CareAR’s product roadmaps and other parts of our portfolio. We added equity partners to accelerate the development and market penetration of certain commercial offerings, including: CareAR, with ServiceNow’s $10 million equity investment; and our IoT bridge sensor technology, through the formation of Eloque. In both cases, our investment partners possess specific domain expertise that can drive further development and adoption of our commercialized innovations. We will look to structure more such investments across our portfolio of innovations as part of the commercialization strategy for each. In 2021, Xerox established a $250 million corporate venture capital fund to invest in startups and early and mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. The corporate venture capital fund further enhances the Company’s existing innovation ecosystem and drives growth and financial returns through investment, commercial partnerships and co-development of new technologies. Xerox Ventures made investments totaling approximately $8 million in 2021, and plans to deploy the remainder of its $250 million of planned investment over the next one to five years. Refer to the Research, Development and Engineering Expenses (RD&E) section in Item 7 of this combined Form 10-K as well as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding RD&E spending. Focus on Cash Flow and Increasing Capital Returns Our business is based on a model where a large portion of revenues are generated by multi-year contractual arrangements, with approximately 80 percent coming from post sale revenue, our most profitable revenue stream. Additionally, low annual capital expenditures (less than 1 percent of revenues) are required to support our current business model. These factors contribute to our ability to generate positive cash flow. We will deploy our cash flow to drive shareholder returns through: • A commitment to return at least 50 percent of our free cash flow (defined as Operating cash flows from continuing operations less capital expenditures) to shareholders through a combination of dividends and share repurchases; and • Selective pursuit of acquisitions in targeted growth areas. Acquisitions and Investments Acquisitions We believe our current capital structure and positive cash flow allow us to pursue M&A opportunities to support our growth expectations. We maintain a broad M&A pipeline that includes targets within the print industry and adjacent markets. In 2021, Xerox completed three acquisitions of local area resellers and partners (including multi-brand dealers) including an office equipment dealer in Canada, a document solutions provider in the U.S. and an IT services business in the U.S. Additionally, we acquired the CraftAR and MagicLens businesses in support of CareAR. Xerox 2021 Annual Report 3 Table of Contents Joint Venture Formation In 2021, Xerox and the Victorian Government (AU) (VicGov) announced that they have partnered to launch Eloque, a venture to commercialize new technology that will remotely monitor the structural health of critical infrastructure assets, such as road and railway bridges. Under the terms of the agreement, Xerox contributed cash, along with technology and intellectual property for a controlling interest in the entity, while VicGov contributed cash, along with technology and intellectual property for a noncontrolling interest in the entity. ServiceNow, Inc. Investment in CareAR In 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. Further details about our acquisitions and investments can be found in Note 5 - Acquisitions and Investments, in the Consolidated Financial Statements. Segment Information Our business is organized to ensure we focus on efficiently managing operations while serving our customers and markets in which we operate. As previously noted, during 2021 we proceeded with the standing up of three new businesses: CareAR, FITTLE and Innovation (PARC). However, notwithstanding that effort, the operations and financial results for these units continued to be primarily managed by and reported in our “go-to-market” (GTM) sales channels and we did not have discrete and complete financial information for these new businesses. Accordingly, we continued to have one operating and reportable segment in 2021. We maintain a geographic focus and are primarily organized from a sales perspective on the basis of “go-to-market” sales channels. These sales channels are structured to serve a range of customers for our products and services. As a result of this structure, we recognize that we have one operating and reportable segment - the design, development and sale of printing technology and related solutions. As part of our strategy, we integrate our capabilities across technology, software and services that offer our customers the broadest solutions-enabled portfolio in the industry to address their needs of workflow simplification, security and productivity across their digital and physical document processes. Revenues We have a broad and diverse base of customers by both geography and industry, ranging from SMBs to printing production companies, governmental entities, educational institutions and Fortune 1000 corporations. Our business does not depend upon a single customer, or a few customers, the loss of which would have a material adverse effect on our business. Our business spans four primary offering areas: Workplace Solutions, Production Solutions, Xerox Services and FITTLE. Workplace Solutions is made up of two strategic product groups, Entry and Mid-Range , much of which share common solutions, apps and ConnectKey® software. Workplace Solutions revenues include the sale of products (captured primarily as equipment sales) as well as the supplies and associated technical service and financing of those products through FITTLE (captured as post sale revenue). • Entry comprises desktop monochrome and color printers and multifunction printers (MFPs) ranging from small personal devices to office workgroup printers and MFPs. We recently extended our ConnectKey® system of digital workflow applications to select entry devices. • Mid-Range are larger devices that have more features and can handle higher print volumes and larger paper sizes than entry devices. We are a leader in this area of the market and offer a wide range of MFPs, digital printing presses and light production devices, as well as solutions that deliver flexibility and advanced features. Production Solutions (High-End) are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements. Our broad portfolio of presses and solutions provides full-color, on-demand printing of a wide range of applications. Our xerographic presses provide high-speed, high-volume cut-sheet printing, ideal for publishing, and transactional printing, including variable data for personalized content and one-to-one marketing, to the highest quality of color and embellishment requirements. Our cut-sheet press enables new applications in true high-definition resolution with high fusion ink, AI Powered image quality and advanced productivity technologies. Our portfolio spans a variety of print speeds, image quality, feeding, finishing and media options. Production Solutions revenues include the sale of products (captured primarily in equipment sales) as well as, software, supplies and the associated technical service and financing of those products (captured as post sale revenue). FreeFlow® is a portfolio of software offerings that brings intelligent workflow Xerox 2021 Annual Report 4 Table of Contents automation and integration to the processing of high-end print jobs, from file preparation to final production, helping customers of all sizes address a wide range of business opportunities including automation, personalization and even electronic publishing. Xerox Services includes a continuum of solutions and services that help our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. Xerox has the capability to support integration and document security on a global scale, which are critical factors for large enterprises. Our primary offerings in this area are Managed Print Services (MPS), Capture & Content Services (CCS) and Customer Engagement Services (CES) as well as IT Services. CCS and CES encompass a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services. The COVID-19 pandemic shifted our customers’ focus toward secure, efficient and flexible solutions to operate in a hybrid work environment. As a result, we enhanced our focus on the development and promotion of offerings to help our customers accelerate their digital transformation. • Managed Print Solutions (MPS) utilizes our portfolio of security, analytics, cloud, digitization and ConnectKey® technologies to help companies optimize their print infrastructure, secure their print environment and automate related business processes. We provide the most comprehensive portfolio of MPS services in the industry and are recognized as an industry leader by major analyst firms including IDC and Quocirca. Our MPS offering targets clients ranging from global enterprises to governmental entities to small and medium-sized businesses, including those served via our channel partners. This portfolio includes a suite of services to help clients manage hybrid workforces, including cost effective and secure printing devices along with apps and software tools that enable work from anywhere, cloud server-enabled fleet management, security and automation software and remote customer support. In 2021, we launched Workflow Central, which extends the document workflow solutions available through our ConnectKey® technologies to all devices, including PCs and smartphones, for easier access to workflow solutions in hybrid workplace environments. • Capture & Content Services (CCS) enables content digitization and management, workflow automation and intelligent document processing and includes offerings such as Digital Mailroom , where we use scanning and capture technology combined with AI to extract printed and digital information into usable data that is routed into business workflows (such as accounts payable) or into archives, integrating with cloud-based content management systems such as our DocuShare® software. • Customer Engagement Services (CES) enable the integration of Xerox technology, software and services to securely design and manage our clients’ personalization and customization of targeted communications. These services include Digital Hub and Cloud Print services, a one-stop shop where customers can submit print jobs from anywhere and leverage our Web2Print portal with on and off-site printing networks to meet their printing or marketing collateral needs on demand. Our Customer Communications Management and Campaigns on Demand solutions help drive personalized and meaningful communications and touchpoints. • IT Services , provides SMB customers with cost efficient and secure solutions, including end user computing devices, network infrastructure, communications technology, and a range of managed IT solutions, such as technology product support, professional engineering and commercial RPA. FITTLE is a global financing solutions business and currently offers financing for direct channel customer purchases of Xerox equipment through bundled lease agreements, and lease financing to end-user customers who purchase Xerox equipment through our indirect channels. In addition to our four primary offering areas described above, a smaller but growing portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue, as well as the following key focus areas for investment and growth: • CareAR is Xerox’s newly formed software business and is comprised of: CareAR , an AR and AI-driven visual support software platform that provides real-time access to expertise for service companies, field service employees and end-user customers; DocuShare®, a content management software platform that provides a better way to capture, store and share paper and digital content, either on-premises or in the cloud while automating time-consuming, document-heavy processes like accounts payable, HR onboarding, contract management and mortgage processing; and XMPie, a robust personalization and communication software platform that can support the needs of omni-channel communications customers, from onboarding to retention. • PARC comprises the research efforts undertaken at our facilities located in Palo Alto, Calif.; Webster, N.Y.; Cary, N.C., and Toronto, Canada. PARC is focused on incubating, productizing and commercializing disruptive technology aligned with innovation focus areas such as 3D Printing, Sensors and Services for the IoT, AI and clean tech. Many of the technologies being researched are in early stages of development. Certain technologies, such as IoT sensors, 3D and various government-funded projects currently generate revenue. Xerox 2021 Annual Report 5 Table of Contents Geographic Information Overall, approximately 40% of our revenue is generated by customers outside the U.S. Additional details can be found in Note 3 - Segment and Geographic Area Reporting in the Consolidated Financial Statements. Patents, Trademarks and Licenses In 2021, Xerox and its subsidiaries were awarded 314 U.S. utility and design patents. Our patent portfolio evolves as new patents are awarded to us and older patents expire. As of December 31, 2021, Xerox held approximately 7,930 U.S. utility and design patents. These patents expire at various dates up to 20 years or more from their original filing dates. While we believe that our portfolio of patents and applications has value, in general no single patent is essential to our business. In addition, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide significant competitive advantages. In 2021, we were party to multiple patent-related agreements and, in the majority of them, we licensed or assigned our patents to others in return for revenue and/or access to their patents or to further our business goals. Most patent licenses expire concurrently with the expiration of the last patent identified in the license or after a specified term of years. We were also party to a number of cross-licensing agreements with companies that also hold substantial patent portfolios. These agreements vary in subject matter, scope, compensation, significance and duration. In the U.S., we own approximately 191 U.S. trademarks, either registered or applied for. These trademarks have a perpetual life, subject to renewal every 10 years. We vigorously enforce and protect our trademarks. Environmental, Social, and Governance (ESG) At our core is a deep and long-lasting commitment to ESG, a pledge to inspire and support our people, conduct business ethically across the value chain and preserve our planet. This commitment stems from our corporate values established over sixty years ago, which include: succeeding through satisfied customers; delivering quality and excellence in all we do; requiring a premium return on assets; using technology to develop market leaders; valuing and empowering our employees; and behaving responsibly as a corporate citizen. We continue this legacy by turning investments in innovation into products and services that help our customers be more productive, profitable and sustainable. Driving efficiency in our business operations, smart investments in technologies that afford our customers added agility-personalization, automation and better workflow as part of our customer-centric approach, underpin our corporate social responsibility efforts. We do this in our own operations, as well as in workplaces, communities and cities around the world. We recognize the world’s challenges such as climate change and human rights and understand the role we play. We are focused on how we can simplify work, deliver more personalized experiences and improve productivity through new technologies. We strive to connect the physical and digital worlds without adversely affecting the environment, human health and safety. Our pledge to inspire and support our people, conduct business ethically and protect our planet remains at the core of everything we do. At Xerox, we believe in continuously improving, and we apply this mentality to ensuring we are always finding ways to improve the sustainability of our operations. The Xerox 2021 Corporate Social Responsibility (CSR) Report describes our management approach related to ESG. Our work aligns with the United Nations Sustainable Development Goals (SDGs), which provide a framework to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere. To ensure we are responsive to all stakeholders, Xerox has also been reporting in accordance with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate Change Related Disclosures (TCFD). (The 2021 CSR Report, SASB report and TCFD report are accessible at www.xerox.com/CSR. The content of our website is not incorporated by reference in this combined Form 10-K unless expressly noted.) Environment With climate change being one of the defining issues of our time, we fast-tracked our net zero goal by 10 years to 2040 and integrated climate change-related risks and opportunities into our Enterprise Risk Management. We are sharing our roadmap to reach net zero for the first time in our 2021 CSR Report. Our roadmap covers our full value chain and focuses on improving processes and energy efficiency as well as designing environmentally responsible products and clean technologies that extend beyond print. Our interim goal is to reduce our Scope 1 and Scope 2 GHG emissions at least 60% by 2030, against the Company’s 2016 baseline. This is in line with the ambitious science-based global warming target, validated and approved by the Science Based Targets initiative (SBTi). Our GHG emissions are third-party validated in accordance with ISO 140064-3:2006 and are updated in our progress summary as new data becomes available. Xerox 2021 Annual Report 6 Table of Contents Xerox has long paired its technology with sustainability, influencing not just our industry but others. Serving as an ENERGY STAR Charter Partner, Xerox helped the U.S. Environmental Protection Agency (EPA) create its standards and still works with the agency today. Since 1993, more than 500 Xerox® products have achieved ENERGY STAR registration. In 2021, 100% of our eligible new products have achieved ENERGY STAR and EPEAT registration. ENERGY STAR requirements serve as the foundation for other eco-labels such as Electronic Products Environmental Assessment Tool (EPEAT) that is composed of criteria spanning corporate and product requirements. EPEAT product criteria combine comprehensive requirements for design, production, energy use, and recycling, with ongoing independent verification of manufacturer claims. Circular economy initiatives remain a part of our business strategy. Our first commercial product in 1959, the Xerox 914, introduced electronics remanufacturing long before the term “circular economy” became popular. Our vision was to transform Xerox manufacturing, operations, offices and facilities into waste-free workplaces. We had this same vision for our clients’ workplaces: a world where electronics and supplies at the end of their useful life would come full circle to become raw materials for tomorrow’s technology. In this model, quality and performance are not compromised, precious natural resources are conserved, and waste becomes obsolete. Six decades later, we continue to demonstrate that a circular economy delivers environmental, economic and societal benefits. To meet this commitment, we have developed several collection and waste reduction programs, while also designing technology to align with the circular economy’s key elements. The majority of spent toner cartridges and other consumables returned through Green World Alliance (GWA) are recycled, reused or remanufactured. We have established a product goal of 25% post-consumer recycled content in our eco-label eligible devices and have an intense effort underway for achievement in the short term. Social Our Employees As of December 31, 2021, we had approximately 23,300 employees; a reduction of approximately 1,800 (7.2%) employees since December 31, 2020. The reduction is a result of net attrition (attrition net of gross hires), of which a large portion is not expected to be back filled, as well as the impact from organizational changes. Approximately 11,900 employees were located in the U.S. and approximately 11,400 employees were located outside the U.S. We had approximately 11,800 employees or almost half of our employees engaged in providing services to customers (direct service and managed services) and approximately 2,900 engaged in direct sales. Approximately 20% of our employees are represented by unions or similar organizations, such as worker’s councils, and are covered by collective bargaining agreements, with approximately 90% located outside the U.S. As of December 31, 2021, approximately 30% of our employees were women and 30% of our U.S. employees self-identified as diverse. Employee Safety Throughout the pandemic, our priority has been the health and safety of our employees, clients, partners and their families. We continue to monitor developments around the clock and utilize a 24/7 email box to keep the entire Xerox community safe while minimizing the impact on operations during this public emergency. This year, we expanded the use of the Xerox Team Availability App to track employee vaccination rates in the U.S. and Canada. Employees in the U.S. are required to use the app to indicate whether or not they are vaccinated. Employees in Canada are asked to voluntarily disclose this information to aid decision-making. Starting in May 2021, we ran an internal campaign to encourage employees to get vaccinated once they were able to do so. The campaign kicked off with a message from our CEO, which linked to an intranet feature with employee stories about why it’s important for them to get vaccinated. These included both professional and personal anecdotes. To round out the campaign, we hosted a series of seven vaccination information sessions with independent medical doctors across multiple geographies and in three languages. The doctors provided helpful information and answered employees' questions. The Xerox COVID-19 Response Team - comprised of representatives from Environmental, Health, Safety & Sustainability, Human Resources, Security, Facilities, Legal, Communications and more - meets several times a week. We closely follow government and public health organizations’ guidance. Our business continuity and pandemic preparedness plans contain the latest standards from industry best practices and our own experience to define requirements. Given the variety of operations and activities performed by our employees both in our Xerox workplace and client accounts across the world, we have conducted hazard analysis and put in place control processes including exposure assessments/contract tracing, personal protective equipment, work-from-home measures, safety procedures and COVID-19 testing. These practices control transmission and maximize the safety of our employees Xerox 2021 Annual Report 7 Table of Contents and the clients we support. In 2021, Xerox’s Days Away from Work Case Injury Rate was .37, which was 8% better than the 2020 rate of .40, and better than the 2021 targeted rate of .49 by 24%. For 2022, Xerox has set the targeted Days Away From Work Injury Rate at .44. Optimize Operations for Success Under Project Own It, we have taken steps to ensure we have the right talent in place to support the evolving needs of our business. Steps taken include, but are not limited to: • Realigning the workforce in support of the Company’s strategy; • Right-sizing parts of the business based on shifting customer needs; and • Optimizing shared services. In addition, we utilized government programs to furlough employees to protect both Xerox and our employees' financial wellness. Diversity, Inclusion and Belonging Diversity, inclusion and belonging (DIB) is an essential part of our culture and value system. For over half a century, Xerox has always strived to be a leader in this space and continues to be at the forefront of driving change within our Company and our communities. In 2020, we reaffirmed our commitment to DIB by developing a new roadmap to identify areas where we can have a bigger impact on employees and society. To support this, our roadmap and our actions during 2021 focuses on: • Diverse Pipeline : Building a diverse pipeline and accelerating the careers of underrepresented talent within the organization. • Partnership : Building relationships with external organizations to ensure that our incoming talent better reflects the markets and communities we serve. For example, we are working with AI vendors to increase the pool of women and diverse candidates for our job openings using their unique artificial intelligence algorithms. • Culture Change : Reinforcing a Company-wide culture of belonging. In 2020, we held our first-ever global DIB virtual conference, hosted by our Employee Resources Groups (ERGs), which was open to all Xerox employees. The conference, which was also held in 2021, is an important milestone in our ongoing commitment to cultivating global and diverse teams across the Company. • Community Outreach : Extending our reach into the communities that we serve. For example, in the U.S., we are partnering with A Better Chance (ABC) and the Thurgood Marshall College Fund Leadership Institute to help underrepresented and financially challenged youth pave a better career future. In the U.K., we partner with Black Young Professionals Network to mentor black professionals and provide career opportunities. • Accountability : Measuring our progress against our ESG metrics and continuing to be transparent by utilizing our CSR Report to inform the public about our strategy and progress. We are confident that over time, our efforts will yield sustainable progress in this critical business challenge. Talent Management and Workforce Development Talent management and workforce development are critical for the future of Xerox and fueling business growth and innovation. We use high-impact practices and technology to drive global workforce capability and integrate learning with work. Our organization and talent planning processes include reviews with business leaders to build our talent pipeline. More broadly, Human Resources (HR) provides a forum for management to review the future needs of the organization, noting strengths, gaps and strategies to build strong teams for the next chapter at Xerox. The Company is also committed to accelerating the careers of high-potential, diverse employees and women along with identifying more diverse candidates for open roles. For example, we are currently working with the second cohort of our one-year, intensive development program, Vista, which is designed to accelerate and broaden our highest-potential, earlier-in-career professionals from all over the Company and the world. Our leaders embrace and support the Wilson Rule, named after Joseph Wilson, a former CEO of the Company, which requires that one out of every three final candidates for professional roles be diverse. Finally, we provide diversity training sessions to managers to reinforce the importance of a diverse workforce. Global Learning Innovation The COVID-19 pandemic has accelerated the way HR leaders and organizations must prepare for and anticipate the needs of the business, not just today, but in the near future, and most notably with regard to moving learning out of the live classroom. Our Learning and Development (L&D) function has been using different forms of digital technology to train and reskill employees such as salespeople who are no longer able to be out in the field due to the ongoing COVID-19 pandemic. At the onset of the COVID-19 pandemic, our L&D function pivoted to a digital learning approach to train Xerox 2021 Annual Report 8 Table of Contents and reskill employees across the globe. Our employees have access to a global learning platform that includes hundreds of targeted online courses, virtual classroom events, simulations, job aids, and other learning and development resources. Learning topics include critical job-specific information and technical upskilling, management development and professional effectiveness, productivity tools for project management, client service, negotiations, technology solutions, ethics, diversity and inclusion, and information security. As our business evolves, we will continue to leverage technology and identify new skills or capabilities required to ensure we remain competitive in the global market. Total Rewards Our success depends on attracting, retaining, and motivating a highly productive, global workforce. To achieve this, we take pride in offering our employees a comprehensive Total Rewards program that includes various compensation, benefits, and work-life programs. Our programs are designed to achieve the following objectives: • Drive shareholder value : support our business strategy and culture. • Align with performance : incentivize the right behaviors – when the Company wins, our employees win. • Support our talent strategy : attract, retain and motivate a productive workforce. As with most global companies, our compensation and benefits vary based on employee eligibility, and local practices and regulations. We benchmark our programs to ensure we remain competitive with our peers and the markets we serve, and to maintain alignment with our short-term and long-term business goals. Our compensation offerings include base pay and short-term and long-term incentive programs. Our short-term programs include: a Management Incentive Plan (MIP), designed to drive Xerox’s pay for performance culture and incentivize our leaders to help Xerox achieve sustainable growth; sales compensation programs to tightly align our sales force with business goals; and a Profit Share Plan (PSP), designed to give a broad population of our employees an opportunity to share in the organization’s success. A Long-Term Incentive (LTI) equity-based program reinforces alignment of our leaders and key talent with shareholders. Our benefit offerings provide our employees with choice and flexibility to help them reach their health and financial goals. Our offerings include the following core programs: health care, wellness, retirement, paid time off, life and disability insurance, and access to voluntary benefits. Philanthropy and Community Involvement From our earliest days as a company, Xerox has demonstrated a steadfast commitment to corporate social responsibility. Our greatest goal is to facilitate employee-driven philanthropy. Together, Xerox and our employees are creating real impact and sustainable change for the greater good. In 2021, Xerox employees volunteered for approximately 10,900 hours and we have set our 2022 goal at 15,000 Xerox employee volunteer hours. Our efforts are focused on four strategic areas to maximize change: • Strong vibrant communities: Xerox invests in communities where our people and clients live and work, strengthening ties with our stakeholders and embedding Xerox into the fabric of communities around the world. We encourage our people to give back to the causes they believe in, by providing employees a day each year to volunteer at a cause of their choice. Xerox also offers a limited employee match to certain charitable organizations. • Education and workforce preparedness: Xerox supports the role of education in society—colleges, universities, science, technology, engineering and math (STEM) education programs, and workforce development programs that prepare the next generation of leaders, inventors and scientists. • Science and technology: Xerox invests in scientific research and partnerships to serve the long-term strategic interests of the Company and our world. • Disaster relief: Xerox provides aid to our employees and their neighbors in crises during natural disasters. Governance The Corporate Governance Committee of the Board of Directors has oversight for ESG. The Committee reviews significant shareholder relations issues and environmental and CSR matters, ensuring that our actions align with our core values and citizenship priorities. The CSR Council, comprised of senior executives who manage specific CSR topic areas, has centralized oversight of the Company’s management approach, including policies, goals, strategies and actions to drive progress. The primary mission of the CSR Council is to drive strategies with a client-centric impact, across Xerox globally, to advance our legacy of leadership in corporate citizenship. Actions taken must meet our stakeholders’ expectations, including customers, employees, investors, regulators and communities worldwide. Xerox 2021 Annual Report 9 Table of Contents Demonstrating our BOD's and executive staff's commitment to ESG: • In 2021, we increased the diversity of our board of directors to 40%; • Expanded the criteria for executives’ compensation to include ESG factors; • Integrated climate change-related risks and opportunities into our Enterprise Risk Management. Additionally, Xerox takes data protection very seriously. Adherence to our policies governing data protection is enforced through a combination of technical and manual safeguards over our systems and facilities, disciplinary actions against employees, audit rights and other contractual rights against our vendors. We are aligned with both the ISO 27000 Information Security Management System and the National Institute of Standards and Technology Cybersecurity Framework within Xerox, and many of our systems and data centers have been ISO 27000 certified by independent auditors. Annual training regarding ethics, privacy, and security are required of all our employees. Additional specialized training is required for certain roles and numerous training programs are available for employees to take on their own initiative. In addition, a variety of proprietary and leading industry security features are also used to protect Xerox® devices from malicious attacks. Xerox's robust security and education market solutions were recognized by KeyPoint Intelligence with the Buyers Lab (BLI) 2021-2022 PaceSetter Awards for Worldwide Document Imaging Security for Productions and Office, as well as for the Education Market in North America. Material Government Regulations Our business activities are worldwide and are subject to various federal, state, local, and foreign laws and our products and services are governed by a number of rules and regulations. Currently costs incurred to comply with these governmental regulations are not material to our capital expenditures, results of operations and competitive position. Although there is no assurance that existing or future government laws and regulations applicable to our operations, services or products will not have a material adverse effect on our capital expenditures, results of operations and competitive position, we do not currently anticipate material expenditures for government regulations. However, as a result of increased government focus in the U.S. and globally, we believe that environmental and global trade regulations could potentially materially impact our business in the future. For a discussion of the risks associated with government regulations that may materially impact us, please see Risk Factors included in Item 1A of this combined Form 10-K. Marketing and Distribution We go to market with a customer-centric, services-led approach, selling our products and services directly to customers through our direct sales force or indirectly through independent agents, dealers, value-added resellers, systems integrators and e-commerce marketplaces. In addition, we continue to focus on broadening our distribution and offerings to SMBs primarily through XBS, our wholly-owned U.S. subsidiary comprised of regional core companies that provide office technology and services, including IT Services, to SMB customers in the U.S., and through acquisitions of dealers and IT Services providers internationally. We are structured to serve our customers globally through two primary go-to-market units: the Americas, comprised of the U.S. and Canada along with Mexico, Central and South America; and EMEA, which includes Europe, the Middle East, Africa and India. We have an industry leading and common global delivery model that provides a consistent customer experience worldwide. We believe that this structure creates a leaner and more effective go-to-market model that streamlines our supply chain and provides our customers with best-in-class services. The Technology Agreement (TA) between Fuji Xerox and Xerox was terminated 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 million. Fuji Xerox elected to continue its use the Xerox brand trademark over the two year period and, therefore, in April 2021, made the upfront payment due under the TA. Accordingly, we expect any potential entry by Xerox 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. Xerox 2021 Annual Report 10 Table of Contents Competition Although we encounter competition in all areas of our business, we are the leader - or among the leaders - in our core mid-range and high-end product groups. We compete on the basis of technology, performance, price, quality, reliability, brand reputation, distribution, and customer service and support. The larger competitors in our print business include Canon, HP Inc., Konica Minolta and Ricoh. Our brand recognition, reputation for document management expertise, innovative technology and service delivery excellence are our competitive advantages. These advantages, combined with our breadth of product offerings, global distribution channels and customer relationships, position us as a strong competitor going forward. As we continue our strategy to diversify and grow other businesses, there may be additional non-print competitors. Customer Financing We finance a large portion of our direct channel customer purchases of Xerox equipment through bundled lease agreements. We also provide lease financing to end-user customers who purchase Xerox equipment through our indirect channels. We compete with other third-party leasing companies with respect to the lease financing provided to these end-user customers. In both instances, financing facilitates customer acquisition of Xerox technology and enhances our value proposition, while providing Xerox a reasonable return on our investment in this business. Because our lease contracts allow customers to pay for equipment over time rather than upfront upon installation, we maintain a certain level of debt to support our investment in these lease contracts. We fund our customer financing activity through a combination of cash generated from operations, cash on hand and proceeds from capital market offerings and securitizations. At December 31, 2021, we had approximately $3.1 billion of finance receivables and $253 million of Equipment on operating leases, net, or Total Finance assets of approximately $3.3 billion. We maintain an assumed 7:1 leverage ratio of debt to equity as compared to our Finance assets, which results in approximately $2.9 billion of our $4.2 billion of debt being allocated to our financing business. Refer to "Debt and Customer Financing Activities" in the Capital Resources and Liquidity section of Management's Discussion and Analysis, included in Item 7 of this combined Form 10-K, for additional information. Manufacturing and Supply Our manufacturing and distribution facilities are located around the world. Our largest manufacturing site is in Webster, N.Y., where we produce the Xerox iGen, Nuvera, and Baltoro production printing presses and new 3D printers as well as key components and consumables for our products, such as toner. We have manufacturing operations for materials and components in Dundalk, Ireland; Wilsonville, OR; Venray, Netherlands; Ontario, Canada; and Oklahoma City, OK. We conduct sustainable manufacturing in all of these facilities. In addition, we work with various manufacturing and distribution partners. This diversification of suppliers brings flexibility and cost efficiency to our manufacturing and supply chain, a critical component in our strategic initiative to optimize operations for simplicity. FUJIFILM Business Innovation Corp. (formerly Fuji Xerox Co., Ltd.) is our largest partner with whom we maintain product sourcing agreements for specific products across our entry, mid-range and high-end portfolios. We also acquire products from various third parties to increase the breadth of our product portfolio and meet channel requirements. In addition, we outsource certain specialized manufacturing activities to partners, such as Flex Ltd. and Jabil Inc., which are global contract manufacturers with whom we have long-standing relationships. Our supply chain operations utilize a network of world-class logistics partners who offer warehousing and transportation services. Reverse Logistics is an integral part of our sustainability mission, and we perform these operations at our facility in Cincinnati, OH, and with a network of various partners worldwide. Refer to "Contractual Cash Obligations and Other Commercial Commitments and Contingencies" in the Capital Resources and Liquidity section of Management's Discussion and Analysis, included in Item 7 of this combined Form 10-K for additional information regarding our relationship with FUJIFILM Business Innovation Corp. International Operations The financial measures, by geographical area for 2021, 2020 and 2019, are included in Note 3 - Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information. See also the risk factor entitled “Our business, results of operations and financial condition may be negatively impacted by conditions abroad, including local economic and political environments, fluctuating foreign currencies and shifting regulatory schemes” in Part I, Item 1A Risk Factors of this combined report on Form 10-K. Xerox 2021 Annual Report 11 Table of Contents Seasonality Our revenues may be affected by such factors as the introduction of new products, the length of sales cycles and the seasonality of technology purchases and printing volume. These factors have historically resulted in lower revenues, operating profits and operating cash flows in the first and third quarters. However, the COVID-19 pandemic and related business closures, as well as supply chain disruptions that limited our ability to install orders, impacted demand behaviors and installation timing during 2021, and is expected to have an impact on the seasonal fluctuations in revenue during 2022. For discussion regarding the impact of the COVID-19 pandemic and supply chain disruptions on our business and financial results, see Management's Discussion and Analysis, included in Item 7 of this combined Form 10-K, as well as in Part I, Item 1A Risk Factors of this combined report on Form 10-K. Backlog In prior years, backlog has not been a meaningful indicator of future business prospects because a significant proportion of our revenue was fulfilled from existing inventories or within a short period of order signing. Accordingly, our level of backlog remained fairly consistent period to period. However, in 2021 we experienced an unprecedented level of supply chain disruption, in part due the ongoing effects of the COVID-19 pandemic. These supply chain disruptions resulted in an increase to our backlog 1 of equipment and IT hardware to nearly $350 million, which is approximately 2.5 times higher than at the end of 2020. In 2022, we expect to continue to have an elevated backlog at least through the first half of the year. _____________ (1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT services offerings. Other Information Xerox Holdings Corporation Xerox Holdings is a New York corporation, organized in 2019 and our principal executive offices are located at 201 Merritt 7, P.O. Box 4505, Norwalk, Connecticut 06851-1056. Our telephone number is 203-849-5216. Xerox Corporation Xerox is a New York corporation, organized in 1906 and our principal executive offices are located at 201 Merritt 7, P.O. Box 4505, Norwalk, Connecticut 06851-1056. Our telephone number is 203-849-5216. Within the Investor Relations section of Xerox Holdings' website, you will find our combined Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports. We make these documents available timely after we have filed them with, or furnished them to, the U.S. Securities and Exchange Commission (the SEC). The SEC's Internet address is www.sec.gov. Our Internet address is www.xerox.com . The content of our website is not incorporated by reference in this combined Form 10-K unless expressly noted. Xerox 2021 Annual Report 12 Table of Contents Item 1A. Risk Factors You should carefully consider the following risk factors as well as the other information included, and risks described, in other sections of this combined Form 10-K, including under the headings “Cautionary Statement Regarding Forward-Looking Statements”, “Legal Proceedings”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Consolidated Financial Statements and the related notes thereto. Any of the following risks could materially and adversely affect our business, financial condition, or results of operations. The selected risks described below, however, are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, or results of operations. Summary of Risk Factors These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: • The effects of pandemics, such as the COVID-19 pandemic, on our and our customers' businesses and the duration and extent to which a pandemic may impact our future results of operations and overall financial performance; • Our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; • Our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; • Reliance on third parties, including subcontractors, for manufacturing of products and provision of services and the shared services arrangements entered into by us as part of Project Own It; • Our ability to attract and retain key personnel; • The risk that confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts or that cyberattacks could result in a shutdown of our systems; • The risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; • Actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; • Our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring and transformation actions; • Our ability to manage changes in the printing environment like the decline in the volume of printed pages and extension of equipment placements; • Changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; • The risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; • Interest rates, cost of borrowing and access to credit markets; • The imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; • Funding requirements associated with our employee pension and retiree health benefit plans; • Changes in foreign currency exchange rates; • The risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; • The outcome of litigation and regulatory proceedings to which we may be a party; and • Any impacts resulting from the restructuring of our relationship with FUJIFILM Business Innovation Corp. (formerly Fuji Xerox Co., Ltd.). Xerox 2021 Annual Report 13 Table of Contents Company-Specific Risk Factors The effects of pandemics, such as the COVID-19 pandemic, may materially affect how we and our customers operate our businesses, and the duration and extent to which a pandemic may impact our future results of operations and overall financial performance is uncertain. Since March 2020, when the World Health Organization declared COVID-19 a pandemic, the spread of the virus and its variants throughout the U.S. and the world has prompted authorities to implement numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. The availability of vaccines introduced in 2021 slowed the spread of the virus in many regions, but because vaccination has not been universal and new variants emerged during 2021, surges have continued to arise, leading to further disruptions and uncertainties throughout the world. The COVID-19 pandemic continues to negatively impact the global economy, disrupt customer spending and global supply chains, and create significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives within the expected time frames, will depend on future developments, including the duration and severity of the pandemic and the extent and effectiveness of containment actions , which are uncertain and cannot be predicted. Our operations are being negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many countries, states, and localities continue to impose restrictions to limit the spread of COVID-19, which in turn limit our ability, as well as that of our channel partners, to sell, install and service our equipment for our customers negatively impacting our operations and financial performance. Even when governmental restrictions have ended or eased, COVID-19 surges have caused many businesses to continue or resume requiring or encouraging their office employees to work from home for extended periods of time, which is negatively impacting both sales and use of Xerox products, supplies and services. The longer this persists, the greater effect it will have on our print business. If we are unsuccessful at addressing our business challenges, our business and results of operations may be adversely affected and our ability to invest in and grow our business could be limited. One set of challenges relates to dynamic and accelerating market trends, such as the declines in installations and printed pages, fewer devices per location and an increase in electronic documentation. A second set of challenges relates to changes in the competitive landscape. Our primary competitors are exerting increased competitive pressure in targeted areas and are entering new markets; our emerging competitors are introducing new technologies and business models. These market and competitive trends make it difficult to reverse the decline in revenue experienced over the past several years prior to the challenges brought on by the COVID-19 pandemic. A third set of challenges relates to our continued efforts to reduce costs and increase productivity in light of declining revenues. Given the markets in which we compete and the broad range of geographic regions in which we and our customers and partners operate, the COVID-19 pandemic and related supply chain disruptions have overlaid increased risks on our ongoing efforts to address these cost and productivity challenges. Lastly, political and social conditions in the markets in which our products are sold have been and could continue to be difficult to predict, resulting in adverse effects on our business. The results of elections, referendums or other political conditions (including government shutdowns or hostilities between countries) could adversely affect our business. In connection with our standing up of several businesses, including CareAR and FITTLE, we face additional risks regarding whether these businesses will achieve expectations regarding customer adoption and financial performance, including projected revenue for fiscal year 2022. If we do not succeed in these efforts, or if these efforts are more costly or time-consuming than expected, our business and results of operations may be adversely affected, which could limit our ability to invest in and grow our business. If we fail to successfully develop new products, technologies and service offerings and protect our intellectual property rights, we may be unable to retain current customers and gain new customers and our revenues would decline. The process of developing new products and solutions is inherently complex and uncertain. It requires accurate anticipation of customers' changing needs and emerging technological trends. We must work with our supply partners and commit resources before knowing whether these initiatives will result in products that are commercially successful and generate the revenues required to provide desired returns. In developing these new technologies and products, we rely upon patent, copyright, trademark and trade secret laws in the United States and similar laws in other countries, and agreements with our employees, customers, suppliers and other parties, to establish and maintain our intellectual property rights in technology and products used in our operations. It is possible that our Xerox 2021 Annual Report 14 Table of Contents intellectual property rights could be challenged, invalidated or circumvented, allowing others to use our intellectual property to our competitive detriment. Also, the laws of certain countries may not protect our proprietary rights to the same extent as the laws of the United States and we may be unable to protect our proprietary technology adequately against unauthorized third-party copying or use, which could adversely affect our competitive position. In addition, some of our products rely on technologies developed by third parties. We may not be able to obtain or to continue to obtain licenses and technologies from these third parties at all or on reasonable terms, or such third parties may demand cross-licenses to our intellectual property. If we fail to accurately anticipate and meet our customers' needs through the development of new products, technologies and service offerings or if we fail to adequately protect our intellectual property rights, we could lose market share and customers to our competitors and that could materially adversely affect our results of operations and financial condition. In addition, our strategy requires us to expand into adjacent markets with new products, services and technology such as Digital Packaging and Print, AI Workflow Assistants for Knowledge Workers, 3D Printing / Digital Manufacturing, IT Services and software. Our ability to develop or acquire new products, services and technologies for these adjacent markets requires the investment of significant resources, which may not lead to the development of new technologies, products or services on a timely basis. We must also attract, develop and retain individuals with the requisite technical expertise and understanding of customers' needs to develop new technologies and introduce new products, particularly as we increase investment in these areas of the business. Similar to above, if we fail to accurately anticipate and meet our customers' needs in these adjacent markets through the development of new products, technologies and service offerings or if we fail to adequately protect our intellectual property rights, we could lose market share and customers to our competitors and that could materially adversely affect our results of operations and financial condition. We need to successfully manage changes in the printing environment and market because our operating results may be negatively impacted by lower equipment placements and usage trends. The printing market and environment are changing as a result of the COVID-19 pandemic, development of new technologies, shifts in customer preferences in printing and the expansion of new printing markets as well as ancillary markets. The process of developing new high-technology products, software, services and solutions and enhancing existing hardware and software products, services and solutions is complex, costly and uncertain, and any failure by us to accurately anticipate customers' changing needs and emerging technological trends could significantly harm our market share, results of operations and financial condition. Examples include mobile printing, color printing, packaging, print on objects, continuous-feed inkjet printing and the expansion of the market for entry products (A4 printers) and high-end products as well as electronic delivery, and cloud-based computing and software. These changing market trends are also opening up new ancillary markets for our products, services and software. A significant part of our strategy and ultimate success in this changing market is our ability to develop and market technology that produces products, services and software that meet these changes. We expect that revenue growth can be improved through improving the software features of our multifunction devices, expanding color printing to include metallic, fluorescent, and clear ink and digital packaging, and leveraging a strong base in managed print services with new digital, analytics, and security features. Our software strategy involves software for integrated solutions and delivery of industry-focused services into an existing customer base. We also expect to extend our presence in the SMB market through organic and inorganic investments as well as further expansion into channels and eCommerce and investments in innovation including digital packaging, AI workflow assistants for knowledge workers, 3D printing and digital manufacturing, sensors and services for IoT and clean tech. Our future success in executing on this strategy depends on our ability to make the investments and commit the necessary resources in this highly competitive market. Despite this investment, the process of developing new products or technologies is inherently complex and uncertain and there are a number of risks that we are subject to including the risk that our products or technologies will not successfully satisfy our customers’ needs or gain market acceptance. Additionally, the COVID-19 pandemic has negatively impacted our ability to execute our near-term business strategies and initiatives. The long-term impact will depend on future developments, including the duration and severity of the pandemic and the extent and effectiveness of containment actions, which are uncertain and cannot be predicted. If we are unable to develop and market advanced and competitive technologies, it may negatively impact our future revenue growth and market share as well as our planned expansion into new or alternative markets. Additionally, it may negatively impact expansion of our worldwide equipment placements, as well as sales of services and supplies occurring after the initial equipment placement (post sale revenue) in the key growth markets of digital printing, color and multifunction system. If we are unable to maintain a consistent level of revenue, it could materially adversely affect our results of operations and financial condition. Xerox 2021 Annual Report 15 Table of Contents We face significant competition and our failure to compete successfully could adversely affect our results of operations and financial condition. We operate in an environment of significant competition, driven by rapid technological developments, changes in industry standards, and demands of customers to become more efficient. Our competitors include large international companies some of which have significant financial resources and compete with us globally to provide document processing products and services in each of the markets we serve. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution and customer service and support. Our future success is largely dependent upon our ability to compete in the markets we currently serve, to promptly and effectively react to changing technologies and customer expectations and to expand into additional market segments. To remain competitive, we must develop services, applications and new products; periodically enhance our existing offerings; remain cost efficient; and attract and retain key personnel and management. Our ability to remain competitive through developing new products and services and attracting and retaining key personnel may be adversely impacted by the global economic uncertainty caused by the COVID-19 pandemic. If we are unable to compete successfully, we could lose market share and important customers to our competitors and such loss could materially adversely affect our results of operations and financial condition. Our profitability is dependent upon our ability to obtain adequate pricing for our products and services and to improve our cost structure. Our success depends on our ability to obtain adequate pricing for our products and services that will provide a reasonable return to our shareholders. Depending on competitive market factors, including the negative impacts from the COVID-19 pandemic, future prices we obtain for our products and services may decline from current levels. In addition, pricing actions to offset the effect of currency devaluations may not prove sufficient to offset further devaluations or may not hold in the face of customer resistance and/or competition. If we are unable to obtain adequate pricing for our products and services, it could materially adversely affect our results of operations and financial condition. We continually review our operations with a view towards reducing our cost structure, including reducing our employee base, exiting certain businesses, improving process and system efficiencies and outsourcing some internal functions. Personal protective measures, such as quarantines, restricted access to workplaces, product packaging requirements, and similar requirements put in place by countries, states, municipalities and businesses in response to the COVID-19 pandemic may change the way we interact with our customers and increase our costs of doing business. In addition, substantial supply chain disruption caused by the COVID-19 pandemic has increased the cost of materials and components required to manufacture our products, transportation of components and products, and labor associated with all steps of the supply chain. The extent of the impact of the COVID-19 pandemic on our cost structure will depend on future developments, including the duration and severity of the pandemic and the extent and effectiveness of containment actions, which are uncertain and cannot be predicted. If we are unable to continue to maintain our cost base at or below the current level and maintain process and systems changes resulting from prior cost reduction actions, it could materially adversely affect our results of operations and financial condition. Our ability to sustain and improve profit margins is dependent on a number of factors, including our ability to continue to improve the cost efficiency of our operations through such programs as Project Own It, the level of pricing pressures on our products and services, the additional costs imposed by ongoing supply chain disruptions, the proportion of high-end as opposed to entry-level equipment sales (product mix), the trend in our post-sale revenue growth and our ability to successfully complete information technology initiatives. If any of these factors adversely materialize or if we are unable to achieve and maintain productivity improvements through design efficiency, supplier and manufacturing cost improvements and information technology initiatives, our ability to offset labor cost inflation, potential materials cost increases and competitive price pressures would be impaired, all of which could materially adversely affect our results of operations and financial condition. We have outsourced a significant portion of our manufacturing operations and increasingly rely on third-party manufacturers, subcontractors and suppliers. We have outsourced a significant portion of our manufacturing operations to third parties, such as FUJIFILM Business Innovation Corp. (formerly Fuji Xerox Co., Ltd.) In the normal course of business, we regularly reevaluate our relationships with these third parties and have discussions with other third parties in order to maintain competitive tension and seek more optimal terms. There is no guarantee that such discussions will lead to better arrangements, and our existing suppliers could react negatively to any alternative arrangements we seek to negotiate with other third parties. In addition, we could incur significant costs in order to transition from one third-party manufacturing partner to another. Xerox 2021 Annual Report 16 Table of Contents We face the risk that our third-party manufacturing partners may not be able to develop or manufacture products satisfying all of our requirements, quickly respond to changes in customer demand, and obtain supplies and materials necessary for the manufacturing process. In addition, in the normal course of business and exacerbated by supply chain disruptions resulting from the COVID-19 pandemic, our partners may experience labor shortages and/or disruptions, transportation cost increases, materials cost increases, and/or manufacturing cost increases that could lead to higher prices for our products and/or lower reliability of our products. Further, since certain third parties to whom we have outsourced manufacturing are also our competitors in the print market, or may become competitors in the future, we could experience product disruption as a result of competitive pressures that increase the cost of the products supplied. If any of these risks were to be realized, and similar third-party manufacturing relationships could not be established and/or successfully transitioned to, we could experience supply interruptions or increases in costs that might result in our being unable to meet customer demand for our products, damage our relationships with our customers and reduce our market share, all of which could materially adversely affect our results of operations and financial condition. In addition, in our services business we may partner with other parties, including software and hardware vendors, to provide the complex solutions required by our customers. Therefore, our ability to deliver the solutions and provide the services required by our customers is dependent on both our and our partners' ability to meet our customers' requirements and schedules. If we or our partners fail to deliver services or products as required and on time, our ability to complete the contract may be adversely affected, which may have an adverse impact on our revenue and profits. We may be unable to attract and retain key personnel while our business model undergoes significant changes. Xerox is undergoing significant changes in our business model and, accordingly, current and prospective employees may experience uncertainty about their future, and may have other opportunities available to them given the current highly competitive labor market. Our success is dependent, among other things, on our ability to attract, develop and retain highly qualified senior management and other key employees. Competition for key personnel is intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. Our ability to do so also depends on how well we maintain a strong corporate culture that is attractive to employees. Hiring and training of new employees may be adversely impacted by global economic uncertainty and changes to office environments caused by COVID-19. The departure of existing key employees or the failure of potential key employees to accept employment with Xerox, despite our recruiting efforts, could have a material adverse impact on our business, financial condition and operating results. We may not achieve some or all of the expected benefits of our restructuring and transformation plans and our restructuring may adversely affect our business. We engage in restructuring actions, including Project Own It, as well as other transformation efforts in order to reduce our cost structure, realign it to the changing nature of our business and achieve operating efficiencies. In addition, these actions are expected to simplify our organizational structure, upgrade our IT infrastructure and redesign our business processes. We may not be able to obtain the cost savings and benefits that were initially anticipated in connection with our restructuring actions. Additionally, as a result of our restructuring initiatives, we may experience a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods. Transformation and restructuring may require a significant amount of time and focus from both management and other employees, which may divert attention from operating and growing our business. The wide-ranging nature and number of actions underway at any point in time may become difficult for the organization to satisfactorily manage and implement, as these actions may have impacts across the organization, processes and systems that are not apparent by individual project but may have unintended consequences in the aggregate. Furthermore, the expected savings associated with these initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until such time as the initiatives are fully implemented and stabilized. If we fail to achieve some or all of the expected benefits of restructuring, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. As part of our efforts to streamline operations and reduce costs, we have offshored and outsourced certain of our operations, services and other functions through captive arrangements as well as arrangements with third-parties (e.g., TCS and HCL) and we will continue to evaluate additional offshoring or outsourcing possibilities in the future. If our outsourcing partners or operations fail to perform their obligations in a timely manner or at satisfactory quality levels or if we are unable to attract or retain sufficient personnel with the necessary skill sets to meet our offshoring Xerox 2021 Annual Report 17 Table of Contents or outsourcing needs, the quality of our services, products and operations, as well as our reputation, could suffer. Our success depends, in part, on our ability to manage these potential transitions and issues, which in certain circumstances could be largely outside of our control. In addition, much of our offshoring takes place in developing countries and as a result may also be subject to geopolitical uncertainty. Diminished service quality from offshoring and outsourcing could have an adverse material impact to our operating results due to service interruptions and negative customer reactions. Our government contracts are subject to termination rights, audits and investigations, which, if exercised, could negatively impact our reputation and reduce our ability to compete for new contracts. A significant portion of our revenue is derived from contracts with U.S. federal, state and local governments and their agencies, as well as international governments and their agencies. Government entities typically finance projects through appropriated funds. While these projects are often planned and executed as multi-year projects, government entities usually reserve the right to change the scope of or terminate these projects for lack of approved funding and/or at their convenience. Changes in government or political developments, including budget deficits, shortfalls or uncertainties, government spending reductions (e.g., Congressional sequestration of funds under the Budget Control Act of 2011) or other debt or funding constraints, could result in lower governmental sales and in our projects being reduced in price or scope or terminated altogether, which also could limit our recovery of incurred costs, reimbursable expenses and profits on work completed prior to the termination. Additionally, government agencies routinely audit government contracts. If the government finds that we inappropriately charged costs to a contract, the costs will be non-reimbursable or, to the extent reimbursed, refunded to the government. If the government discovers improper or illegal activities or contractual non-compliance in the course of audits or investigations, we may be subject to various civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government. Any resulting penalties or sanctions could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, the negative publicity that arises from findings in such audits or, investigations could have an adverse effect on our reputation and reduce our ability to compete for new contracts and could also have a material adverse effect on our business, financial condition, results of operations and cash flow. Our ability to fund our customer financing activities at economically competitive levels depends on our ability to borrow and the cost of borrowing in the credit markets. The long-term viability and profitability of our financing business is dependent, in part, on our ability to borrow and the cost of borrowing in the credit markets. This ability and cost, in turn, is dependent on i) our credit rating, which is currently non-investment grade according to credit rating agency assessments that are subject to periodic reviews and can change following a review, and ii) credit market volatility, which has increased as a result of the COVID-19 pandemic. We primarily fund our financing business through a combination of cash generated from operations, cash on hand, capital market offerings, and sales and securitizations of finance receivables. In addition, our ability to continue to offer customer financing and be successful in the placement of equipment, software and IT services with customers seeking to finance those transactions, is largely dependent on our ability to obtain funding at a reasonable cost. If we are unable to continue to offer financing, it could materially adversely affect our results of operations and financial condition. Our significant debt could adversely affect our financial health and pose challenges for conducting our business. Our ability to provide customer financing is a significant competitive advantage. We have and will continue to have a significant amount of debt and other obligations, including that arising from our expanded FITTLE business scope, the majority of which continues to be in support our customer financing activities. Our substantial debt and other obligations could have important consequences. For example, it could (i) increase our vulnerability to general adverse economic and industry conditions; (ii) limit our ability to obtain additional financing for future working capital, capital expenditures, acquisitions and other general corporate requirements; (iii) increase our vulnerability to interest rate fluctuations because a portion of our debt has variable interest rates; (iv) require us to dedicate a substantial portion of our cash flows from operations to service debt and other obligations, thereby reducing the availability of our cash flows from operations for other purposes; (v) limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate; (vi) place us at a competitive disadvantage compared to our competitors that have less debt; and (vii) become due and payable upon a change in control. If new debt is added to our current debt levels, these related risks could increase. Xerox 2021 Annual Report 18 Table of Contents We need to maintain adequate liquidity in order to meet our operating cash flow requirements, repay maturing debt and meet other financial obligations, such as payment of dividends to the extent declared by our Board of Directors. If we fail to comply with the covenants contained in our various borrowing agreements, it may adversely affect our liquidity, results of operations and financial condition. Our liquidity is a function of our cash on-hand and our ability to successfully generate cash flows from a combination of efficient operations and continuing operating improvements, access to capital markets and funding from third parties, which includes securitization of our finance receivables. We believe our liquidity (including operating and other cash flows that we expect to generate) will be sufficient to meet operating requirements as they occur; however, our ability to maintain sufficient liquidity going forward is subject to the general liquidity of and on-going changes in the credit markets as well as general economic, financial, competitive, legislative, regulatory and other market factors that are beyond our control. Our $1.8 billion credit facility (the Credit Facility) contains financial maintenance covenants, including maximum leverage (debt for borrowed money divided by consolidated EBITDA, as defined) and a minimum interest coverage ratio (consolidated EBITDA divided by consolidated interest expense, as defined). At December 31, 2021, we were in full compliance with the covenants and other provisions of the Credit Facility. Failure to comply with material provisions or covenants in the Credit Facility could have a material adverse effect on our liquidity, results of operations and financial condition. The Credit Facility, which terminates in August 2022, contains various investment grade covenants at a time when the Company is not investment grade rated. The Company may seek to renegotiate or replace such facility, including reducing the size of such facility, or may determine not to replace such facility at all and may instead pursue other forms of liquidity. Any new credit agreement may result in higher borrowing costs and may contain non-investment grade covenants, such as those that would place greater restrictions on how the Company can run its businesses and/or limit the Company from taking certain actions that might otherwise be beneficial to the Company and/or its shareholders, customers, suppliers, partners and/or lenders. Our financial condition and results of operations could be adversely affected by employee benefit-related funding requirements. We sponsor several defined benefit pension and retiree-health benefit plans throughout the world. We are required to make contributions to these plans to comply with minimum funding requirements imposed by laws governing these employee benefit plans. Although most of our major defined benefit plans have been amended to freeze current benefits and eliminate benefit accruals for future service, several plans remain unfunded (by design) or are under-funded. The projected benefit obligations for these benefit plans at December 31, 2021 exceeded the value of the assets of those plans by approximately $1.3 billion. The current underfunded status of these plans is a significant factor in determining the ongoing future contributions we will be required to make to these plans. Accordingly, we expect to have additional funding requirements in future years, and we may make additional, voluntary contributions to the plans. Depending on our cash position at the time, any such funding or contributions to our defined benefit plans could impact our operating flexibility and financial position, including adversely affecting our cash flow for the quarter in which such funding or contributions are made. Weak economic conditions, including the negative impacts from the COVID-19 pandemic, and related under-performance of asset markets could also lead to increases in our funding requirements. Our business, results of operations and financial condition may be negatively impacted by conditions abroad, including local economic and political environments, fluctuating foreign currencies and shifting regulatory schemes. A significant portion of our revenue is generated from operations outside of the United States, and we manufacture or acquire many of our products and/or their components, outside the United States. The COVID-19 pandemic has negatively impacted the global economy, disrupted customer spending and global supply chains, and created significant volatility in foreign currency exchange rates. Our future revenues, costs and results of operations could be significantly affected by changes in foreign currency exchange rates - particularly the Japanese yen, the euro and the British pound - as well as by a number of other factors, including changes in local economic and political conditions, trade protection measures, licensing requirements, local tax regulations and other related legal matters. We use currency derivative contracts to hedge foreign currency-denominated assets, liabilities and anticipated transactions. This practice is intended to mitigate or reduce volatility in the results of our foreign operations, but does not completely eliminate it. We do not hedge the translation effect of international revenues and expenses that are denominated in currencies other than the U.S. dollar. If our future revenues, costs and results of operations are significantly affected by economic or political conditions abroad and we are unable to effectively hedge these risks, they could materially adversely affect our results of operations and financial condition. Xerox 2021 Annual Report 19 Table of Contents Tariffs or other restrictions on foreign imports could negatively impact our financial performance. Our business, results of operations and financial condition may be negatively impacted by a potential increase in the cost of our products as a result of new or incremental trade protection measures, such as increased import tariffs; import or export restrictions, including restrictions put in place as a result of the COVID-19 pandemic; and requirements under, or the revocation or material modification of, trade agreements. Changes in U.S. and international trade policy and resultant retaliatory countermeasures, including imposition of increased tariffs, quotas or duties by affected countries and trading partners are difficult to predict and may adversely affect our business. The U.S. government has and could in the future impose trade barriers including tariffs, quotas, duties or other restrictions on foreign imports. The implementation of a border tax, tariff or higher customs duties on our products manufactured abroad or components that we import into the U.S., or any potential corresponding actions by other countries in which we do business, could negatively impact our financial performance. We operate globally and changes in tax laws could adversely affect our results. We operate in the U.S. and globally and changes in tax laws could adversely affect our results. We monitor U.S. and non-U.S. tax law changes that may adversely impact our overall tax costs. From time to time, proposals have been made and/or legislation has been introduced to change tax rates, as well as related tax laws, regulations or interpretations thereof, by various jurisdictions, or to limit tax treaty benefits which, if enacted or implemented could materially increase our tax costs and/or our effective tax rate and could have a material adverse impact on our financial condition and results of operations. The international tax environment continues to change as a result of both coordinated actions by governments and unilateral measures designed by individual countries, both intended to tackle concerns over base erosion and profit shifting and perceived international tax avoidance techniques. The Organization for Economic Cooperation and Development (OECD) is issuing guidelines that are different, in some respects, than long-standing international tax principles. As countries unilaterally amend their tax laws to adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact our income taxes. Taxation at the country, state, provincial or municipal level also may be subject to review and potential override by regional, federal, national or other government authorities. In addition, we are subject to the continuous examination of our income tax returns by the United States Internal Revenue Service and other tax authorities around the world. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these examinations will not have an adverse effect on our provision for income taxes and cash tax liability. General Risk Factors We are subject to breaches of our security systems, cyber-attacks and service interruptions, which could expose us to liability, litigation, regulatory action and damage our reputation. We have implemented security systems with the intent of maintaining and protecting our own, and our customers', clients' and suppliers' confidential information, including information related to identifiable individuals, against unauthorized access or disclosure. Despite such efforts, we may be subject to breaches of our security systems resulting in unauthorized access to our facilities or information systems and the information we are trying to protect. Moreover, the risk of such attacks includes attempted breaches not only of our systems, but also those of our customers, clients and suppliers. The techniques used to obtain unauthorized access are constantly changing, are becoming increasingly more sophisticated and often are not recognized until after an exploitation of information has occurred. Therefore, we may be unable to anticipate these techniques or implement sufficient preventative measures. Threat actors regularly attempt and, from time to time, have been successful in breaching our security systems, to gain access to our information and infrastructure through various techniques, including phishing, ransomware and other targeted attacks. The Company has retained and, in the future, may retain third-party experts to assist with the containment of and response to security incidents and, in coordination with law enforcement, with the investigation of such incidents. The Company has incurred, and expects to continue to incur, costs, including to retain such third-party experts, in connection with such incidents. We may also find it necessary to make significant further investments to protect this information and our infrastructure. These investments, and costs we incur in connection with security incidents, could be material. While we do not believe cybersecurity incidents have resulted in any material impact on our business, operations or financial results or on our ability to service our customers or run our business, past and future incidents resulting in unauthorized access to our facilities or information systems, or those of our suppliers, or accidental loss or disclosure of proprietary or confidential information about us, our clients or our customers could result in, among other things, a total shutdown of our systems that would disrupt our ability to conduct business or pay vendors and Xerox 2021 Annual Report 20 Table of Contents employees. In addition, cybersecurity risks and data security incidents could lead to unfavorable publicity, governmental inquiry and oversight, litigation by affected parties and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our profitability and cash flow. While social distancing measures restricting the ability of our employees to work at our offices are in place to combat the COVID-19 pandemic, it may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us or our customers or other third-parties and we may be more susceptible to security breaches and other security incidents because we have less capability to implement, monitor and enforce our information security and data protection policies. We are subject to laws of the United States and foreign jurisdictions relating to individually identifiable information, and failure to comply with those laws could subject us to legal actions and negatively impact our operations. We receive, process, transmit and store information relating to identifiable individuals, both in our role as a technology provider and as an employer. As a result, we are subject to numerous United States (both federal and state) and foreign jurisdiction laws and regulations designed to protect individually identifiable information. These laws have been subject to frequent changes, and new legislation in this area may be enacted at any time. For example, the General Data Protection Regulation that came into force in the European Union in May 2018. Changes to existing laws, introduction of new laws in this area, or failure to comply with existing laws that are applicable to us may subject us to, among other things, additional costs or changes to our business practices, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to obtain and process information and allegations by our customers and clients that we have not performed our contractual obligations, any of which may have a material adverse effect on our profitability and cash flow. Our business, results of operations and financial condition may be negatively impacted by legal and regulatory matters. We have various contingent liabilities that are not reflected on our balance sheet, including those arising as a result of being involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; tax law; governmental entity contracting, servicing and procurement laws; intellectual property law; environmental law; employment law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations, as discussed in Note 21 - Contingencies and Litigation in the Consolidated Financial Statements. Should developments in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual or materially increase an existing accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts above any existing accruals, it could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs. Due to the international scope of our operations, we are subject to a complex system of commercial and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries. Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or financial condition. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions. For example, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in the countries, states and territories in which we operate. Laws and/or regulatory actions to address concerns about climate change and greenhouse gas emissions could impact our business, including the availability of our products or the cost to obtain or sell those products. Xerox also recognizes transitional risks associated with changes in voluntary standards and customer preferences in connection with concerns about climate change. If Xerox is unable to offer products that are as energy efficient as our competitors, there is a risk of reduced demand for our products and reduced market share. Inability, or a perception of inability, to achieve progress toward our environmental goals could adversely impact our Xerox 2021 Annual Report 21 Table of Contents business or damage our reputation. And, like all organizations, we and our partners and suppliers also may be subject to physical risks associated with climate change, such as increased severity and frequency of extreme weather events and more frequent short-term business disruptions as a result of severe weather such as flooding and winter snow storms, which could impair our ability to effectively deliver products and services to our customers or to keep our operating costs aligned with expectations. If any of these risks were realized, we could experience interruptions in supply or increases in costs that might result in our being unable to meet customer demand for our products and services, damage our relationships with our customers and reduce our market share, all of which could adversely affect our results of operations and financial condition. Our operations and our products are subject to environmental regulations in each of the jurisdictions in which we conduct our business and sell our products. Various countries and jurisdictions have adopted, or are expected to adopt, restrictions on the types and amounts of chemicals that may be present in electronic equipment or other items that we use or sell. Ongoing research and review of chemicals used in our products could lead to further restriction of common chemicals in office equipment and supplies. In the European Union “REACH” Regulation (Registration, Evaluation, Authorization and Restriction of Chemicals), a broad initiative that requires parties throughout the supply chain to register, assess and disclose information regarding many chemicals in their products. Depending on the types, applications, forms and uses of chemical substances in various products, REACH and similar regulatory programs in other jurisdictions could lead to restrictions and/or bans on certain chemical usage. In the United States, the Toxics Substances Control Act (TSCA) was revised in 2016. Xerox continues its efforts toward monitoring and evaluating the applicability of these and numerous other regulatory initiatives in an effort to develop compliance strategies. As these and similar initiatives and programs become regulatory requirements throughout the world and/or are adopted as public or private procurement requirements, we must comply. Failure to comply could result in the company being subject to liability potentially and face market access limitations that could have a material adverse effect on our operations and financial condition. Other potentially relevant initiatives throughout the world include proposals for more extensive chemical registration requirements and/or possible bans on the use of certain chemicals, various efforts to limit energy use in products and other environmentally-related programs impacting products and operations, such as those associated with climate change accords, agreements and regulations. For example, the European Union's Energy-Related Products Directive (ERP) and has led to the adoption of “implementing measures” or "voluntary agreements" that require certain classes of products to achieve certain design and/or performance standards, in connection with energy use and potentially other environmental parameters and impacts. A number of our products are already required to comply with ERP requirements and further regulations are being developed by the EU authorities. The EU Circular Economy Action Plan CEAP) introduced legislative and non-legislative measures focusing on how products are designed, promoting circular economy processes, encouraging sustainable consumption, and ensuring waste is prevented. The implementation of the CEAP is expected to impact the materials used, including chemicals and plastics, in products that are placed in the EU market. Environmentally driven procurement requirements also voluntarily adopted by customers in the marketplace (e.g., U.S. EPA EnergyStar, EPEAT, and EU Green Public Procurement) are constantly evolving and becoming more stringent, presenting further market access challenges if our products fail to comply. Various countries and jurisdictions have adopted or are expected to adopt requirements clarifying manufacturer roles and responsibilities related to the recovery products that were placed on the market and remediation of by-products of the manufacturing process. For example, jurisdictions have adopted or are expected to adopt, programs that make producers of electrical goods, including computers and printers, responsible for certain labeling, collection, recycling, treatment and disposal of these recovered products. If we are unable to collect, recycle, treat and dispose of our products in a cost-effective manner and in accordance with applicable requirements, it could materially adversely affect our results of operations and financial condition. Further, Xerox is party to, or otherwise involved in, proceedings in a limited number of locations brought by U.S. or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as "Superfund," or state laws. Xerox 2021 Annual Report 22 Table of Contents Item 1B. Unresolved Staff Comments None Item 2. Properties We own several manufacturing, engineering and research facilities and lease other facilities. Our principal manufacturing and engineering facilities are located in New York, California, Oklahoma, Oregon, Canada, the U.K., Ireland, and a leased site in the Netherlands. Our principal research facilities are located in California, New York, and Canada. Our Corporate Headquarters is a leased facility located in Norwalk, Connecticut. In 2021, we owned or leased numerous facilities globally, which house general offices, sales offices, service locations, data centers, call centers, warehouses and distribution centers. The size of our property portfolio at December 31, 2021 was approximately 12.9 million square feet, which was comprised of 349 leased facilities and 17 owned properties with 71 facilities (of which 50 are located on our Webster, New York campus). We occupied approximately 9.5 million square feet, 2.4 million square feet were surplus, and approximately 1.0 million square feet are sublet to third parties. It is our opinion that our properties have been well maintained, are in sound operating condition and contain all the necessary equipment and facilities to perform their functions. We believe that our current facilities are suitable and adequate for our current businesses. Refer to Note 11 - Lessee, in the Consolidated Financial Statements, for additional information regarding our leased assets. Item 3. Legal Proceedings Refer to the information set forth under Note 21 - Contingencies and Litigation in the Consolidated Financial Statements. Item 4. Mine Safety Disclosures Not applicable. Xerox 2021 Annual Report 23 Table of Contents Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Corporate Information Stock Exchange Information Xerox Holdings Corporation's common stock (XRX) is listed on the Nasdaq Global Select Market. There is no established public trading market for Xerox Corporation's common stock, as all of the outstanding Xerox common stock is held solely by Xerox Holdings. Common Shareholders of Record As of December 31, 2021, Xerox Holdings Corporation had approximately 21,336 shareholders of record. Dividends For additional information regarding dividends, refer to Item 8 - Financial Statements and Supplementary Data, Xerox Holdings Corporation Statement of Shareholders' Equity, which is incorporated herein by reference. Performance Graph Total Return to Shareholders Year Ended December 31, (Includes reinvestment of dividends) 2016 2017 2018 2019 2020 2021 Xerox Holdings Corporation $ 100.00 $ 130.97 $ 92.48 $ 177.81 $ 118.05 $ 120.39 S&P 500 Index 100.00 121.83 116.49 153.17 181.35 233.41 S&P 500 Information Technology Index 100.00 138.83 138.43 208.05 299.37 402.73 _____________ Source: Standard & Poor's Investment Services Notes: Graph assumes $100 invested on December 31, 2016 in Xerox Holdings, the S&P 500 Index and the S&P 500 Information Technology Index, respectively, and assumes dividends are reinvested. Xerox 2021 Annual Report 24 Table of Contents Sales Of Unregistered Securities During The Quarter Ended December 31, 2021 During the quarter ended December 31, 2021, Xerox Holdings Corporation issued the following securities in transactions that were not registered under the Securities Act of 1933, as amended (the Act). Annual Director Fees (a) Securities issued on November 11, 2021: Xerox Holdings Corporation issued 8,683 deferred stock units (DSUs), representing the right to receive shares of Common Stock, par value $1 per share, at a future date. (b) No underwriters participated. The DSUs were issued to Jesse A. Lynn, a non-employee Director of Xerox Holdings Corporation. Mr. Lynn joined the Board of Directors in November 2021. (c) The DSUs were issued at a deemed purchase price of $19.82 per DSU (aggregate price $172,097), based upon the market value of our Common Stock on the date of issuance, in payment of the Annual Director's fees pursuant to Xerox Holdings Corporation's 2004 Equity Compensation Plan for Non-Employee Directors (as amended and restated in 2021 (the 2021 Restatement)). The number of DSUs awarded was prorated to reflect that Mr. Lynn joined the Board of Directors in November 2021. (d) Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering. Dividend Equivalents (a) Securities issued on November 1, 2021: Xerox Holdings Corporation issued 3,139 deferred stock units (DSUs), representing the right to receive shares of Common Stock, par value $1 per share, at a future date. (b) No underwriters participated. The DSUs were issued to each of the non-employee Directors of Xerox Holdings Corporation, two former non-employee Directors of Xerox Corporation and one former non-employee Director of Xerox Holdings Corporation: Jonathan Christodoro, Keith Cozza, Joseph J. Echevarria, Nicholas Graziano, Aris Kekedjian, Cheryl Gordon Krongard, Scott Letier, Nichelle Maynard-Elliott, Steven D. Miller and Margarita Paláu-Hernández. (c) The DSUs were issued at a deemed purchase price of $20.35 per DSU (aggregate price $63,879), based upon the market value of our Common Stock on the date of record, in payment of the dividend equivalents due to DSU holders pursuant to Xerox Holdings Corporation’s 2004 Equity Compensation Plan for Non-Employee Directors (as amended and restated in 2021 (the 2021 Restatement)). (d) Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering. Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2021 In October 2021, the Xerox Holdings Corporation's Board of Directors authorized a $500 million share repurchase program (exclusive of any commissions and other transaction fees and costs related thereto). This program replaced the approximate $450 thousand of authority remaining under Xerox Holdings Corporation's previously authorized $1.1 billion share repurchase program. Repurchases of Xerox Holdings Corporation’s Common Stock, par value $1 per share, include the following: Board Authorized Share Repurchase Program: Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2)(3) October 1 through 31 — $ — — $ 500,000,000 November 1 through 30 10,725,717 19.59 10,725,717 289,936,457 December 1 through 31 8,675,191 20.43 8,675,191 112,688,535 Total 19,400,908 19,400,908 _____________ (1) Exclusive of fees and expenses. (2) Of the $500 million of share repurchase authority previously granted by the Xerox Holdings Corporation's Board of Directors, exclusive of fees and expenses, approximately $387 million has been used through December 31, 2021. Repurchases may be made on the open market, or through derivative or negotiated contracts. Open-market repurchases will be made in compliance with the Securities and Exchange Commission’s Rule 10b-18, and are subject to market conditions, as well as applicable legal and other considerations. (3) Balances do not include the remaining authority of approximately $450 thousand under Xerox Holdings Corporation's previously authorized share repurchase program, which was cancelled by Xerox Holdings Corporation's Board of Directors in October 2021. Xerox 2021 Annual Report 25 Table of Contents Repurchases Related to Stock Compensation Programs (1) : Total Number of Shares Purchased Average Price Paid per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs October 1 through 31 13,635 $ 21.00 n/a n/a November 1 through 30 — — n/a n/a December 1 through 31 195,562 23.31 n/a n/a Total 209,197 _____________ (1) These repurchases are made under a provision in our restricted stock compensation programs for the indirect repurchase of shares through a net-settlement feature upon the vesting of shares in order to satisfy minimum statutory tax-withholding requirements. (2) Exclusive of fees and expenses. Item 6. [Reserved] Information pertaining to Item 6 is not presented in accordance with amendments to Item 301 of Regulation S-K. Xerox 2021 Annual Report 26 Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Throughout the Management’s Discussion and Analysis (MD&A) that follows, references to "Xerox Holdings" refer to Xerox Holdings Corporation and its consolidated subsidiaries, while references to "Xerox" refer to Xerox Corporation and its consolidated subsidiaries. References herein to “we,” "us," “our,” or 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 subsidiaries. Currently, Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations. Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition. Throughout this combined Form 10-K, references are made to various notes in the Consolidated Financial Statements which appear in Part II, Item 8 of this combined Form 10-K, and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made. Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established in 2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. Xerox Ventures LLC had investments of approximately $8 million at December 31, 2021. Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion. Executive Overview Our expectation entering 2021 was that in-office work would normalize following 2020's wave of COVID-19 infections and the global rollout of effective vaccines. However, the emergence of various variants of COVID-19 in 2021 resulted in many of our customers delaying their plans to return employees to the workplace and allowing employees to continue to work remotely or in a hybrid environment. This impact resulted in a reduction in expected Post sale revenue and profits. In the second half of the year, we also experienced an unprecedented level of supply chain disruption, in part due to the ongoing effects of the COVID-19 pandemic, with conditions deteriorating throughout the final two quarters of the year. These disruptions resulted in revenue falling below expectations for the year, with most of the shortfall comprised of high-margin mid-range devices and Post sale revenue. Supply chain disruptions also drove an increase in our backlog 1 of equipment and IT hardware to nearly $350 million, which is approximately 2.5 times higher than at the end of 2020. We continue to streamline and optimize our operations and exceeded our target Project Own It savings of $375 million in 2021. As we head into 2022, demand for our equipment remains strong as evidenced by our backlog 1 of approximately $350 million as of year-end, which is primarily comprised of high-margin office equipment. We expect to have an elevated backlog 1 at least through the first half of the year. As the backlog 1 clears, our equipment revenue mix is expected to improve, which should result in improvements in gross margin. We also expect that there will be a broader return of workers to the office in the second half of 2022 and for Xerox, the correlation between return-to-work trends, page volumes, and post sale revenues remains strong, which suggests employees print when they return to the office and clients continue to value our printing services. Although our financial results are expected to improve in 2022, our earnings for fourth quarter and full year 2021 includes an after-tax noncash goodwill impairment charge of $750 million ($781 million pre-tax) or $4.38 and $4.08 per share, respectively. This charge largely reflects the impact that the economic disruption caused by the COVID-19 pandemic has had and is expected to continue to have on the Xerox print business. Some of this impact is expected to be mitigated by growth of our digital services and offerings targeted for hybrid work business models. Additionally, the Company is currently pursuing its strategy to develop and expand certain expected growth businesses, such as financing, software and innovation to offset and, eventually, exceed reduced cash flows from the print business, but this strategy will take time to develop. Refer to the Application of Critical Accounting Policies section of the MD&A as well as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding the Goodwill impairment. Refer to Financial Overview for further discussion regarding additional impacts of the COVID-19 pandemic on our business in 2021 and 2020. _____________ (1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT services offerings. Xerox 2021 Annual Report 27 Table of Contents Business Overview With annual revenues of approximately $7.0 billion, we remain a leading global provider of digital print technology and related services, software and solutions. Our primary offerings span four main areas: Workplace Solutions, Production Solutions, Xerox Services and FITTLE. We disclosed at our Investor Conference on February 23, 2022, that we have rebranded our Xerox Financial Services (XFS) business, which is now known as FITTLE. • Workplace Solutions includes two strategic product groups, Entry and Mid-Range, much of which share common solutions, apps and ConnectKey® software. Workplace Solutions revenues include the sale of products (captured primarily as equipment sales) as well as the supplies and associated technical services and the financing of those products through FITTLE (captured as post sale revenue). • Production Solutions are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements. • Xerox Services includes a continuum of solutions and services that helps our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. Our primary offerings in this area are Managed Print Services (MPS), Capture & Content Services (CCS) and Customer Engagement Services (CES) as well as IT Services. CCS and CES encompass a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services. • FITTLE (formerly XFS) is a global financing solutions business and currently offers financing for direct channel customer purchases of Xerox equipment through bundled lease agreements and lease financing to end-user customers who purchase Xerox equipment through our indirect channels. In addition to our four primary offering areas described above, a smaller but growing portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue, as well as from IT Services, CareAR, which is comprised of DocuShare® and XMPie, and PARC (Innovation). Headquartered in Norwalk, Connecticut, with approximately 23,300 employees, Xerox serves customers in approximately 160 countries. We have a broad and diverse base of customers by both geography and industry, ranging from small and medium-sized businesses (SMBs) to printing production companies, governmental entities, educational institutions and Fortune 1000 corporations. Our business does not depend upon a single customer, or a few customers, the loss of which would have a material adverse effect on our business. In 2021, approximately 40% of our revenue was generated outside the United States. Market and Business Strategy Our market and business strategy is to maintain overall market share leadership in our core market and increase our participation in the growth areas, while expanding into adjacent markets and leveraging our innovation capabilities to enter new markets. The Company’s four strategic initiatives, summarized below, remain at the core of how we operate and deliver results for all stakeholders. 1. Optimize Operations for Simplicity • Continuously improve operating efficiency, revenue flow-through and return on assets • Invest in augmented reality, robotic process automation, business process outsourcing, analytics and system enhancements to drive efficiencies 2. Drive Revenue • Drive increased adoption and utilization of CareAR • Scale IT Services and robotic process automation in the SMB market • Grow our financing business as a global financing solutions business • Expand distribution of digital solutions among existing Print and Services clients 3. Monetize Innovation • Leverage $250 million corporate venture fund to bolster investment and innovation • Add value-added equity partners to accelerate development and market penetration • Embed PARC’s technology into new and existing businesses 4. Focus on cash flow and increasing capital returns • Maximize annual free cash flow 1 generation • Deploy excess capital for strategic M&A • Opportunistic share repurchases _____________ (1) Free cash flow is defined as Operating cash flow from continuing operations less capital expenditures. Xerox 2021 Annual Report 28 Table of Contents Post-sale Based Business Model In 2021, 78% of our total revenue was post-sale based, which includes contracted services, equipment maintenance, supplies and financing. These revenue streams generally follow equipment placements and provide some stability to our revenue and cash flows. Key indicators of future post sale revenue include installs and related removals of printers and multifunction devices, the number and type of machines in the field (MIF), page volumes (including the mix of pages printed on our MIF, including color devices) and the type and nature of related software and services provided to customers. Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization. Project Own It During the second half of 2018, we initiated a transformation project - Project Own It - centered on creating a more effective organization to enhance our focus on our customers and our partners, instill a culture of continuous improvement and improve our financial results through on-going cost reductions and savings. The primary goal of this project is to improve productivity by driving end-to-end transformation of our processes and systems to improve effectiveness and to reduce costs. These efforts are considered critical to making us more competitive and giving us the capacity to invest in growth and maximize shareholder returns. Key opportunities under Project Own It include establishing more effective shared service centers (captive and through our outsource partners), rationalizing our IT infrastructure, reducing our real estate footprint, and improving our supply chain management and the productivity of our supplier base. In 2021, we exceeded our gross savings target of $375 million. Since its inception, total savings from Project Own It are approximately $1.8 billion. We expect to generate approximately $300 million of gross savings in 2022. This project also involves evaluating the sourcing of all of our products to optimize our options. Our approach is to analyze our potential options both by product category and holistically to determine what sourcing makes the most strategic and economic sense. In March 2019, as part of Project Own It, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including selected finance functions, from Xerox to HCL. In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS will provide business processing outsourcing services in support of our global finance organization. This will include the transition of the finance processes currently being provided by HCL. We incurred restructuring and related costs, net of $38 million for the year ended December 31, 2021 primarily related to costs incurred to implement initiatives under our business transformation projects including Project Own It. Refer to Restructuring and Related Costs, Net section of the MD&A and Note 14 - Restructuring Programs in the Consolidated Financial Statements for additional information. New Businesses Strategy In 2021, we stood up three new businesses: CareAR, Xerox Financial Services (now known as FITTLE) and Innovation (PARC). As a result of this effort, we believe we are positioned to begin reporting separate financial and non-financial information for each business in 2022. CareAR Holdings (CareAR) is Xerox’s newly formed software business and is comprised of: CareAR, Inc., an enterprise augmented reality business Xerox acquired in late 2020; DocuShare®, a cloud-based content management system; and XMPie, a multi-channel marketing software platform. Together, these software assets combine to provide an AR and AI-driven visual support platform that provides real-time access to expertise for service companies, field service employees and end-use customers. FITTLE has historically offered financing for direct channel customer purchases of Xerox equipment through bundled lease agreements and lease financing to end-user customers who purchase Xerox equipment through Xerox indirect dealer channels. At the outset of 2021, FITTLE changed its strategy to broaden its portfolio of assets financed to include numerous growth opportunities independent of Xerox equipment and services, such as the expansion of its dealer relationships to include an increasing number of non-Xerox dealers, leveraging its existing dealer relationships to finance a wider breadth of products and forming relationships with new vendors. Additionally, in 2021, FITTLE became the primary equipment lease provider for our XBS business. Innovation (known as PARC Innovation, or PARC) includes the scientists and engineers located at our facilities in Palo Alto, Calif.; Webster, N.Y.; Cary, N.C., and Toronto, Canada. PARC is focused on incubating, productizing and commercializing disruptive technology aligned with innovation focus areas such as 3D Printing, Sensors and Services for the IoT, AI and clean tech. Xerox 2021 Annual Report 29 Table of Contents In 2021 we also made progress toward our goal of monetizing and strategically diversifying our investments in innovation. In May, we announced the formation of Eloque, a joint venture with the government of Victoria, Australia to commercialize IoT sensor-based technology and services for monitoring the structural health of bridges. In September, we announced the formation of CareAR, in conjunction with a $10 million noncontrolling investment from digital workflow leader ServiceNow, Inc. Although minimal in terms of revenue, we also began commercializing our 3D liquid metal printing technology through the sales and placements of ElemX 3D printing devices. Financial Overview Impact of COVID-19 on Our Business Operations The COVID-19 pandemic continued to have a significant effect on the Company’s operations in 2021. Although business results improved in the first half of 2021 and the Company was meeting expectations, the emergence of new COVID-19 variants during the year resulted in many of our customers delaying their plans to return employees to workplaces and allowing employees to continue to work remotely or in a hybrid environment. This impact combined with the global supply chain and logistic issues, created in part by the COVID-19 pandemic, had a negative effect on the Company’s results particularly in the latter part of the third quarter 2021 and throughout the fourth quarter 2021. We expect the ongoing effects of the COVID-19 pandemic, including the potential emergence of new variants, as well as the global supply chain disruption, to delay economic recovery and continue to impact our revenues and margins, with improvements anticipated in the second half of 2022. In response to the COVID-19 pandemic, various governments enacted various measures to provide aid and economic stimulus directly to companies through cash grants and credits or indirectly through payments to temporarily furloughed employees. In March 2020, in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), and certain provisions from that Act were extended as part of the American Rescue Plan, which was enacted in March 2021. Similar pay protection programs were enacted in Canada and Europe that primarily provide direct grants to companies to cover the salary and wages of employees (retained or temporarily furloughed). In 2021, we recognized savings of approximately $34 million from these various government assistance programs as compared to $107 million recognized in 2020. Estimated savings were recorded as follows in the Consolidated Statements of (Loss) Income: (in millions) Year Ended December 31, 2021 Year Ended December 31, 2020 Cost of sales $ — $ 1 Cost of services, maintenance and rentals 20 73 Research, development and engineering expenses 1 1 Selling, administrative and general expenses 13 32 Total Estimated savings $ 34 $ 107 We continue to monitor government programs and actions being implemented or expected to be implemented to counter the economic impacts of the COVID-19 pandemic. 2021 Operating Results Total revenue of $7.0 billion in 2021 increased 0.2% from the prior year, including a 1.6-percentage point favorable impact from currency and an approximate 0.5-percentage point favorable impact from 2021 and 2020 acquisitions. Total revenue for 2021 reflected the impacts from the COVID-19 pandemic as well as the global product supply and logistics constraints, which limited our ability to fulfill orders and drove an increase in our order backlog in the second half of the year. Total revenue reflected a 1.1% increase in Equipment sales revenue, including a 1.5-percentage point favorable impact from currency, while Post sale revenue was flat, including a 1.7-percentage point favorable impact from currency. While the COVID-19 pandemic significantly impacted our 2021 revenues as a result of business closures and office building capacity restrictions, the progress of vaccinations and the gradual reopening of workplaces resulted in higher year-over-year page volumes for most of 2021. Net (loss) income from continuing operations attributable to Xerox Holdings was as follows: Year Ended December 31, B/(W) (in millions) 2021 2020 2019 2021 2020 Net (loss) income from continuing operations attributable to Xerox Holdings $ (455) $ 192 $ 648 $ (647) $ (456) Adjusted (1) Net income from continuing operations attributable to Xerox Holdings 293 313 828 (20) (515) Xerox 2021 Annual Report 30 Table of Contents Net loss from continuing operations attributable to Xerox Holdings for 2021 of $(455) million decreased $647 million as compared to Net income from continuing operations attributable to Xerox Holdings of $192 million in 2020. The decrease primarily reflected the after-tax Goodwill impairment charge of $750 million ($781 million pre-tax), which was partially offset by lower bad debt expense, non-service retirement-related costs, Restructuring and related costs, net, Income tax expense, and Transaction and related costs, net. These benefits were partially offset by reduced temporary government assistance as well as higher supply chain cost, including higher freight and shipping costs, which accordingly reduced gross profit. Adjusted 1 net income from continuing operations attributable to Xerox Holdings for 2021 decreased $20 million as compared to the prior year primarily reflecting reduced temporary government assistance and higher supply chain cost, including freight and shipping costs, which were only partially offset by lower bad debt expense and Income tax expense. Adjustments in 2021 include an after-tax Goodwill impairment charge of $750 million ($781 million pre-tax), Restructuring and related costs, net and Amortization of intangible assets, as well as non-service retirement-related costs. Operating cash flow provided by continuing operations of Xerox Holdings was $629 million in 2021 as compared to $548 million in 2020. The increase includes the receipt of an upfront prepaid fixed royalty from FUJIFILM Business Innovation Corp. (formerly Fuji Xerox Co., Ltd.) of $100 million, and primarily reflects higher cash from working capital 2 and lower accrued compensation, partially offset by a lower run-off of finance receivables and higher cash tax payments. Cash used in investing activities of continuing operations of Xerox Holdings was $85 million in 2021, reflecting capital expenditures of $68 million and acquisitions of $53 million, which were partially offset by proceeds from sales of non-core business assets of $44 million. Cash used in financing activities of Xerox Holdings was $1,310 million in 2021, reflecting payments of $518 million on secured borrowing arrangements, partially offset by proceeds of $311 million on a new secured financing arrangement, as well as payments of $888 million for share repurchases and dividend payments of $206 million. 2022 Outlook We currently expect 2022 revenue to grow to $7.1 billion in actual currency (and remain flat at $7.0 billion at constant currency 1 ). We expect revenue growth in 2022 to be weighted to the second half of 2022 as the supply chain is likely to remain challenged through the first half of the year. Post sale revenue growth is expected to track a return of workers to the office, which we assume will likewise occur in the second half of the year. Similar to revenue, we expect profitability to be weighted to the second half of 2022. We expect gross margin to be negatively affected by supply chain disruption through at least the first half of the year. We began implementing price increases for equipment supplies and services in 2021, which will partially offset elevated shipping and logistic costs. Furthermore, as supply chain conditions and page volumes improve, we expect gross margin to benefit from a more favorable equipment and revenue mix. We are confident in our ability to generate cash and plan to continue our capital allocation policy of returning at least 50% of our annual free cash flow to shareholders. We expect 2022 Operating cash flows from continuing operations to be approximately $475 million, with capital expenditures of approximately $75 million. During 2022, we expect to opportunistically make share repurchases utilizing our remaining share repurchase authorization of approximately $113 million. _____________ (1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure. (2) Working capital, net reflects Accounts receivable, net, Inventories and Accounts payable. Currency Impact To understand the trends in the business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as "constant currency", “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate and is calculated for all countries where the functional currency is the local country currency. We do not hedge the translation effect of revenues or expenses denominated in currencies where the local currency is the functional currency. Management believes the constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference between actual growth rates and constant currency growth rates. Approximately 40% of our consolidated revenues are derived from operations outside of the U.S. where the U.S. Dollar is normally not the functional currency. As a result, foreign currency translation had a 1.6-percentage point favorable impact on revenue in 2021 and a 0.2-percentage point favorable impact on revenue in 2020. Xerox 2021 Annual Report 31 Table of Contents Application of Critical Accounting Policies In preparing our Consolidated Financial Statements and accounting for the underlying transactions and balances, we apply various accounting policies. Senior management has discussed the development and selection of the critical accounting policies, estimates and related disclosures included herein with the Audit Committee of the Xerox Holdings Board of Directors. We consider the policies discussed below as critical to understanding our Consolidated Financial Statements, as their application places the most significant demands on management's judgment, since financial reporting results rely on estimates of the effects of matters that are inherently uncertain. In instances where different estimates could have reasonably been used, we disclosed the impact of these different estimates on our operations. In certain instances, such as revenue recognition for leases, the accounting rules are prescriptive; therefore, it would not have been possible to reasonably use different estimates. Changes in assumptions and estimates are reflected in the period in which they occur. The impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period. As discussed above (see Impact of COVID-19 on Our Business Operations ), during 2021 the Company continued to be impacted by the economic disruption caused by the COVID-19 pandemic. This disruption required us to continue our increased review of the majority of our estimates to ensure we appropriately considered the impacts caused by the COVID-19 pandemic. As the extent and duration of the impacts from the COVID-19 pandemic continue, the Company’s estimates and assumptions may evolve as conditions change. Specific risks associated with these critical accounting policies are discussed throughout the MD&A, where such policies affect our reported and expected financial results. For a detailed discussion of the application of these and other accounting policies, refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements. Revenue Recognition Application of the various accounting principles in GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates including ASC Topic 606 - Revenue from Contracts with Customers and ASC Topic 842 Leases . We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606) on January 1, 2018 and ASU 2016-02, Leases (ASC Topic 842) on January 1, 2019. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding our revenue recognition and lease revenue recognition policies . Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, the revenue related to the following areas involves significant judgments and estimates: Bundled Lease Arrangements : We sell our equipment direct to end customers under bundled lease arrangements, which typically include the equipment, service, supplies and a financing component for which the customer pays a single negotiated fixed minimum monthly payment for all elements over the contractual lease term. These arrangements also typically include an incremental, variable component for page volumes in excess of the contractual page volume minimums, which are often expressed in terms of price-per-image or page. Lease deliverables include the equipment and financing, while the non-lease deliverables generally consist of the services, which include supplies. Sales made under bundled lease arrangements directly to end customers or through third party leasing companies comprise 42.0% or $664 million of our equipment sales revenue. Revenues under these bundled lease arrangements are allocated considering the relative standalone selling prices of the lease and non-lease deliverables included in the bundled arrangement. The allocation of revenue among the elements – equipment vs. post sale (service, supplies and financing) – has remained fairly consistent at approximately 25% and 75%, respectively, over the past three years. Sales to Distributors and Resellers : We utilize distributors and resellers to sell many of our products, supplies and parts to end-user customers. Sales to distributors and resellers are generally recognized as revenue when products are shipped to such distributors and resellers. Distributors and resellers participate in various discount, rebate, price-support, cooperative marketing and other programs, and we record provisions and allowances for these programs as a reduction to revenue when the sales occur. Similarly, we also record estimates for sales returns and other discounts and allowances when the sales occur. We consider various factors, including a review of specific transactions and programs, historical experience and market and economic conditions when calculating these provisions and allowances. Total sales of equipment, supplies and parts to distributors and resellers were $1,130 million for the year ended December 31, 2021 and provisions and allowances recorded on these sales were approximately 25% of the associated gross revenues. Xerox 2021 Annual Report 32 Table of Contents Allowance for Doubtful Accounts and Credit Losses The allowance for doubtful accounts and credit losses is based on an assessment of historical collection experience as well as consideration of current and future economic conditions and changes in our customer-specific collection trends. Our methodology includes an expected loss model that incorporates an assessment of current and future economic conditions. We recorded bad debt provisions of $7 million, $116 million and $46 million in Selling, administrative and general (SAG) expenses in our Consolidated Statements of (Loss) Income for the three years ended December 31, 2021, 2020 and 2019, respectively. Reserves, as a percentage of trade and finance receivables, were 4.3% at December 31, 2021, as compared to 4.8% and 3.0% at December 31, 2020 and 2019, respectively. We continue to assess our receivables portfolio in light of the current economic environment and its impact on our estimation of the adequacy of the allowance for doubtful accounts. The significant increase in bad debt provision and reserve percentage in 2020, as compared to 2019, was principally due to the impact of the COVID-19 pandemic on our customers. In assessing the level of provision and related reserve for 2020, we critically assessed current and forecasted economic conditions as a result of the COVID-19 pandemic at the time to ensure we objectively included those expected impacts in the determination of our reserve. That assessment resulted in the recognition of a $60 million incremental bad debt provision in the first quarter 2020. This increased provision was primarily related to finance receivables due to their larger balance and long-term nature. In 2021 we recorded approximately $31 million of bad debt reversals reflecting improvements in the macroeconomic environment as well as lower write-offs as a result of the COVID-19 pandemic. During the five year period ended December 31, 2021, our reserve for doubtful accounts ranged from 3.0% to 4.8% of gross receivables. Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the December 31, 2021 rate of 4.3% would change the 2021 provision by approximately $20 million. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our policy with respect to the Allowance for Doubtful Accounts and Credit Losses. Pension Plan Assumptions We sponsor defined benefit pension plans in various forms in several countries covering employees who meet eligibility requirements. Where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefit accruals for future service, including our primary U.S. defined benefit plan for salaried employees, the Canadian Salary Pension Plan and the U.K. Final Salary Pension Plan. In certain Non-U.S. plans, we are required to continue to consider salary increases and inflation in determining the benefit obligation related to prior service. Our pension plan in the Netherlands was changed to a Collective Defined Contribution (CDC) plan. From a Company risk perspective, this plan operates just like a defined contribution plan as the Company is only responsible for a contribution for annual benefit accruals under 5-year agreements. Although the Company risk has been mitigated, under U.S. GAAP this plan doesn’t meet the definition of a defined contribution plan and therefore is accounted for as a defined benefit plan. Several statistical and other factors that attempt to anticipate future events are used in calculating the expense, liability and asset values related to our defined benefit pension plans. These factors include assumptions we make about the expected return on plan assets, discount rate, lump-sum settlement rates, the rate of future compensation increases and mortality. Differences between these assumptions and actual experiences are reported as net actuarial gains and losses and are subject to amortization to net periodic benefit cost over future periods. Cumulative net actuarial losses for our defined benefit pension plans of $1.7 billion as of December 31, 2021 decreased by $661 million from December 31, 2020, primarily due to the increase of the discount rates and the resultant decrease in the Projected Benefit Obligation (PBO), excess of actual returns over expected returns, the recognition of actuarial losses through amortization and U.S. settlement losses as well as currency. The total actuarial loss at December 31, 2021 is subject to offsetting gains or losses in the future due to both changes in actuarial assumptions and future experience and will be recognized in future periods through amortization or settlement losses. We used a consolidated weighted average expected rate of return on plan assets of 3.9% for 2021, 4.1% for 2020 and 4.6% for 2019, on a worldwide basis. During 2021, the actual return on plan assets was a gain of $504 million as compared to an expected return of $325 million, with the difference largely due to positive equity market returns, the positive impact of decreasing interest rates on our fixed income investments and the impact of our hedging portfolio in the U.S. When estimating the 2022 expected rate of return, in addition to assessing recent performance, we considered the historical returns earned on plan assets, the rates of return expected in the future, particularly in Xerox 2021 Annual Report 33 Table of Contents light of current economic conditions, and our investment strategy and asset mix with respect to the plans' funds. The weighted average expected rate of return on plan assets we will use in 2022 is 3.9% with no change from 2021. Another significant assumption affecting our defined benefit pension obligations and the net periodic benefit cost is the rate that we use to discount our future anticipated benefit obligations. In the U.S. and the U.K., which comprise approximately 75% of our PBO, we consider yield curves derived from Moody's Aa or better rated Corporate Bonds and U.K. Corporate bonds rated AA by at least one of the main ratings agencies, respectively, in the determination of the appropriate discount rate assumptions. The consolidated weighted average discount rate we used to measure our pension obligations as of December 31, 2021 and to calculate our 2022 expense was 2.1%; the rate used to calculate our obligations as of December 31, 2020 and our 2021 expense was 1.6%. The increase reflects higher interest rates in both U.S. and non-U.S. regions. Holding all other assumptions constant, the following table summarizes the estimated impacts of a 0.25% change in the discount rate and a 0.25% change in the expected return on plan assets: Discount Rate Expected Return (in millions) 0.25% Increase 0.25% Decrease 0.25% Increase 0.25% Decrease Increase/(Decrease) 2022 Projected net periodic pension cost $ (5) $ 10 $ (20) $ 20 Projected benefit obligation as of December 31, 2021 (365) 400 N/A N/A One of the most significant and volatile elements of our net periodic defined benefit pension plan expense is settlement losses. Our primary domestic plans allow participants the option of settling their vested benefits through the receipt of a lump-sum payment. We recognize the losses associated with these settlements immediately upon the settlement of the vested benefits. Settlement accounting requires us to recognize a pro-rata portion of the aggregate unamortized net actuarial losses upon settlement. As noted above, cumulative unamortized net actuarial losses were $1.7 billion at December 31, 2021, of which the U.S. primary domestic plans, with a lump-sum feature, represented approximately $590 million. The pro-rata factor is computed as the percentage reduction in the projected benefit obligation due to the settlement of a participant ' s vested benefit. Settlement accounting is only applied when the event of settlement occurs - i.e. the lump-sum payment is made. Since settlement is dependent on an employee's decision and election, the level of settlements and the associated losses can fluctuate significantly from period to period. During the three years ended December 31, 2021, 2020 and 2019, U.S. plan settlements were approximately $300 million, $220 million and $355 million, respectively, and the associated settlement losses on those plan settlements were $54 million, $53 million and $93 million, respectively. In 2022, on average, we estimate that approximately $100 million of plan settlements will result in settlement losses of approximately $20 million. The following is a summary of our benefit plan costs for the three years ended December 31, 2021, 2020 and 2019, as well as estimated amounts for 2022: Estimated Actual (in millions) 2022 2021 2020 2019 Defined benefit pension plans (1) $ (80) $ (64) $ 5 $ 16 U.S. settlement losses 50 54 53 93 Defined contribution plans (2) 40 18 19 49 Retiree health benefit plans (3) (5) (55) (63) (65) Total Benefit Plan Expense $ 5 $ (47) $ 14 $ 93 _____________ (1) Excludes U.S. settlement losses. (2) The decrease in 2021 and 2020 reflects the Company's decision to suspend and not make the 2021 or 2020 employer matching contribution to our U.S. based 401(k) savings plans for salaried employees. The employer matching contribution is expected to be resumed and provided for in 2022. (3) The 2018 U.S. Retiree Health Plan amendment was fully amortized by December 31, 2021. Accordingly, we estimate amortization of prior service credits in 2022 to decrease by approximately $50 million, as compared to 2021. Xerox 2021 Annual Report 34 Table of Contents The following is a summary of our benefit plan funding for the three years ended December 31, 2021, 2020 and 2019, as well as estimated amounts for 2022: Estimated Actual (in millions) 2022 2021 2020 2019 U.S. Defined benefit pension plans $ 25 $ 24 $ 35 $ 26 Non-U.S. Defined benefit pension plans 110 111 104 115 Defined contribution plans (1) 20 18 19 49 Retiree health benefit plans 25 25 25 30 Total Benefit Plan Funding $ 180 $ 178 $ 183 $ 220 _____________ (1) The difference between the estimated funding amount and the estimated expense in 2022 of $20 million is due to estimated contributions for our U.S. based 401(k) savings plans for salaried employees expensed in 2022 as earned but which are expected to be contributed in January of 2023. The 2021 U.S. Defined benefit plans contributions did not include any contributions for our domestic tax-qualified defined benefit plans because none were required to meet the minimum funding requirements. There are no contributions required in 2022 for our U.S. tax-qualified defined benefit plans to meet the minimum funding requirements. Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding defined benefit pension plan assumptions, expense and funding. Income Taxes We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. Our provision is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our provision will change based on discrete or other nonrecurring events such as audit settlements, tax law changes, changes in valuation allowances, etc., that may not be predictable. We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and the amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. We apply judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, we considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the valuation allowance against our deferred tax assets. Our valuation allowance (decreased) increased through income tax expense by approximately $(9) million, $25 million and $16 million for the years ended December 31, 2021, 2020 and 2019, respectively. There were other decreases to our valuation allowance, including the effects of currency, of $(30) million, $(28) million and $(14) million for the years ended December 31, 2021, 2020 and 2019, respectively. These did not affect income tax expense in total as there was a corresponding adjustment to Deferred tax assets or Other comprehensive income. The following is a summary of gross deferred tax assets and the related valuation allowances for the years ended December 31, 2021, 2020 and 2019: Year Ended December 31, (in millions) 2021 2020 2019 Gross deferred tax assets $ 1,062 $ 1,379 $ 1,463 Valuation allowance (357) (396) (399) Net deferred tax assets $ 705 $ 983 $ 1,064 We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based upon our assessment of the more-likely-than-not outcomes of such matters. In addition, when applicable, we adjust the previously recorded tax expense to reflect examination results. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate, as well as impact our operating results. Xerox 2021 Annual Report 35 Table of Contents Unrecognized tax benefits were $107 million, $115 million and $127 million at December 31, 2021, 2020 and 2019, respectively. Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding deferred income taxes and unrecognized tax benefits. Business Combinations and Goodwill We allocate the fair value of purchase consideration to tangible assets, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to Goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows of acquired customers, development of new offerings, acquired technology and trade names from a market participant perspective, as well as estimates of useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable and when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to Goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Refer to Note 5 - Acquisitions and Investments in the Consolidated Financial Statements for additional information regarding the allocation of the purchase price consideration for our acquisitions. Our Goodwill balance was $3.3 billion at December 31, 2021. We assess Goodwill for impairment at least annually, during the fourth quarter based on balances as of October 1st, and more frequently on an interim basis if we believe indicators of impairment exist. The application of an interim or the annual Goodwill impairment test begins with the identification of reporting units, which requires judgment. Consistent with the determination that we have one operating segment, we determined that there is one reporting unit and therefore we tested Goodwill for impairment at the Company or entity level. The process of evaluating the potential impairment of Goodwill is highly subjective and requires significant judgment. Our review of impairment starts with an assessment of qualitative factors to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair value of the Company is less than the net book value. Our qualitative assessment of the recoverability of Goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below our net book value. After assessing the totality of events and circumstances, if we determine that it is not more-likely-than-not that the fair value of the Company is less than its net book value, no further assessment is performed. If we determine that it is more-likely-than-not that the fair value of the Company is less than net book value or if we elect to bypass the qualitative assessment, we proceed to a quantitative assessment or test of Goodwill. If a quantitative assessment of Goodwill is required, the determination of the fair value of the Company will involve the use of significant estimates and assumptions. Our quantitative Goodwill impairment test uses both the income approach and the market approach to estimate fair value. The income approach is based on the discounted cash flow method that uses the Company's estimates of forecasted future financial performance including revenues, gross margins, operating expenses, and taxes, as well as working capital and capital asset requirements. These estimates are developed as part of our long-term planning process based on assumed market segment growth rates and our assumed market segment share, estimated costs based on historical data and various internal estimates. 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 risks unique to the subject cash flows. When performing our market approach, we rely specifically on the guideline public company method. Our guideline public company method incorporates revenues and earnings multiples from publicly traded companies with operations and other characteristics similar to our entity. The selected multiples consider our entity's growth, profitability, size and risk relative to those of the selected publicly traded companies. The COVID-19 pandemic continued to have a significant effect on the Company’s operations impacting revenues, expenses, cash flows and market capitalization in 2021. Although business results improved in the first half of 2021 and the Company was meeting expectations, the emergence of new COVID-19 variants during the year resulted in many of our customers delaying their plans to return employees to workplaces and continuing to work remotely and in a hybrid environment. This impact combined with the global supply chain and logistic issues, created in part by Xerox 2021 Annual Report 36 Table of Contents the COVID-19 pandemic, had a negative effect on the Company’s results particularly in the third and fourth quarter of 2021. As a result of these impacts and projections of these impacts on our future operating results, as well as a sustained market capitalization below book value, we elected to utilize a quantitative model for the assessment of the recoverability of our Goodwill balance for our annual fourth quarter 2021 impairment test. After completing our annual impairment test, we concluded that the estimated fair value of the Company - our single segment and reporting unit - had declined below its carrying value. As a result, we recognized an after-tax non-cash impairment charge of $750 million ($781 million pre-tax) related to our goodwill for the year ended December 31, 2021. In estimating the fair value of our single reporting unit, our analysis reflected a 75/25 allocation between the income and market approach and the application of a discount rate applied to our projected cash flows of approximately 7.75%. The heavier weighting to the income approach was consistent with the prior year and reflects the inherent limitations of a market comparison. We likewise believe the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflects current market and industry conditions. We ran sensitivity cases on the discount rate and, although in certain scenarios our fair value declined further, we believe the implied premiums that would be indicated at our estimated fair value are reasonable. Our current results and our internal future forecasts clearly indicate that Xerox has been and will continue to be significantly impacted by the economic disruption caused by the COVID-19 pandemic. This includes a recognition that two years into the pandemic, the transition to more remote and hybrid work environments will continue to have an expected impact on the print business as compared to its pre-pandemic levels. Some of this impact is expected to be mitigated by providing additional digital services and offerings targeted for the hybrid business model. Our business forecasts reflect these developments, including an easing of the supply chain and logistics issues encountered in 2021 and although our operating results are expected to improve, projected revenues and cash flows are not expected to return to the levels achieved prior to the commencement of the COVID-19 pandemic. While the Company is currently pursuing a strategy to develop and expand certain expected growth businesses such as financing, software and innovation to offset and eventually exceed the reduced cash flows from the print business, this strategy carries an increased level of implementation risk consistent with all new business pursuits. In performing its assessment, the Company believes it has made reasonable estimates based on the facts and circumstances that were available as of the reporting date in light of the continuing impacts from the COVID-19 pandemic and other factors noted above. However, the determination of fair value includes assumptions that are subject to risk and uncertainty. The discounted cash flow calculations are dependent on subjective factors including the timing and amount of future cash flows and the discount rate. If assumptions or estimates used in the fair value calculations change, including assumptions related to future cash flows as well as the duration and severity of the COVID-19 pandemic and the supply chain and logistics issues and our ability to initiate management actions to recover from those issues, it may result in a further decline in our estimated fair value and trigger future impairment charges. We will continue to monitor developments in 2022 including updates to our forecasts as well as our market capitalization and an update of our assessment and related estimates may be required in the future. Subsequent to our fourth quarter impairment test, we did not identify any triggering events that required an update to the annual impairment test. Refer to Note 13 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding Goodwill. Xerox 2021 Annual Report 37 Table of Contents Revenue Results Summary Total Revenue Revenue for the three years ended December 31, 2021, 2020 and 2019 was as follows: Revenue % Change CC % Change % of Total Revenue (in millions) 2021 2020 2019 2021 2020 2021 2020 2021 2020 2019 Equipment sales $ 1,581 $ 1,564 $ 2,062 1.1 % (24.2) % (0.4) % (24.6) % 22 % 22 % 23 % Post sale revenue 5,457 5,458 7,004 — % (22.1) % (1.7) % (22.1) % 78 % 78 % 77 % Total Revenue $ 7,038 $ 7,022 $ 9,066 0.2 % (22.5) % (1.4) % (22.7) % 100 % 100 % 100 % Reconciliation to Consolidated Statements of (Loss) Income: Sales $ 2,582 $ 2,449 $ 3,227 5.4 % (24.1) % 3.9 % (24.3) % Less: Supplies, paper and other sales (1,001) (885) (1,165) 13.1 % (24.0) % 11.5 % (23.6) % Equipment sales $ 1,581 $ 1,564 $ 2,062 1.1 % (24.2) % (0.4) % (24.6) % Services, maintenance and rentals $ 4,235 $ 4,347 $ 5,595 (2.6) % (22.3) % (4.3) % (22.5) % Add: Supplies, paper and other sales 1,001 885 1,165 13.1 % (24.0) % 11.5 % (23.6) % Add: Financing 221 226 244 (2.2) % (7.4) % (4.1) % (7.7) % Post sale revenue $ 5,457 $ 5,458 $ 7,004 — % (22.1) % (1.7) % (22.1) % Americas $ 4,432 $ 4,589 $ 5,963 (3.4) % (23.0) % (4.1) % (22.7) % 63 % 65 % 66 % EMEA 2,434 2,246 2,817 8.4 % (20.3) % 4.6 % (21.5) % 35 % 32 % 31 % Other 172 187 286 (8.0) % (34.6) % (8.0) % (34.6) % 2 % 3 % 3 % Total Revenue (1) $ 7,038 $ 7,022 $ 9,066 0.2 % (22.5) % (1.4) % (22.7) % 100 % 100 % 100 % _____________ CC - See "Currency Impact" section for description of constant currency. (1) Refer to the "Geographic Sales Channels and Product and Offerings Definitions" section. Revenue Total revenue increased 0.2% for the year ended December 31, 2021 as compared to the prior year, including a 1.6-percentage point favorable impact from currency, and an approximate 0.5-percentage point favorable impact from 2021 and 2020 acquisitions. Revenue reflected global product supply logistics constraints which limited our ability to fulfill orders and drove an increase in our order backlog 1 in the second half of the year. The COVID-19 pandemic also affected our revenues by limiting office occupancy; however, the progress of vaccinations and the gradual reopening of workplaces resulted in higher year-over-year page volumes for most of the year. Total revenue decreased 22.5% for the year ended December 31, 2020 compared to the prior year, including a 0.2-percentage point favorable impact from currency and an approximate 1.2-percentage point favorable impact from 2020 partner dealer acquisitions, partially offset by an approximate 0.6-percentage point unfavorable impact from a one-time upfront OEM license fee of $77 million received in the prior year. The decline in revenue primarily reflected the effects the global pandemic on IT spending and office attendance. During 2021, our business continued to be impacted by the COVID-19 pandemic. The prolonged impact of the virus, including the Delta and Omicron variants, drove many of our customers to delay their plans to return employees to workplaces. We continued to see a correlation between the roll-out of vaccinations and the return of employees to the workplace, and the gradual recovery of our post sale revenues, but page-volume-driven Post sale revenue was lower than anticipated in the beginning of the year. In addition, global supply chain issues, created in part by the COVID-19 pandemic, resulted in an unprecedented level of disruption, leading to shortages and delays in the receipt of our products and third-party IT hardware. Supply chain disruptions resulted in lower than anticipated equipment and IT hardware sales, higher transportation and logistics costs. Continued strength in demand for our equipment led to a nearly 150% increase in our order backlog 1 . We expect the effects of the COVID-19 pandemic, including the potential emergence of new variants, as well as global supply chain disruptions, to continue to affect our revenues and margins at least through the first half of 2022. Geographically, revenue increased in our EMEA region and declined in our Americas region during 2021. In EMEA, we have a larger presence across SMB businesses, which generally recovered faster and showed greater resiliency against pandemic resurgences than larger enterprises. Revenue decreased in our North American operations, which were more significantly impacted by shipping and logistics constraints, which were further amplified by labor shortages within the North American transportation industry. North America also has a higher proportion of large enterprise customers, who are generally experiencing a slower pace of return to workplaces. ______________ (1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT service offerings. Xerox 2021 Annual Report 38 Table of Contents Total revenues included the following: Post sale revenue Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page. Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization. For the year ended December 31, 2021, Post sale revenue was flat as compared to the prior year with a 1.7-percentage point favorable impact from currency. For the year ended December 31, 2020, Post sale revenue decreased 22.1% as compared to the prior year with no impact from currency and an approximate 0.8-percentage point unfavorable impact from an upfront OEM license fee in the prior year, excluding the impact of currency. Post sale revenue is comprised of the following: Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled supplies) as well as the post sale component of the document services revenue from our Xerox Services offerings. • For the year ended December 31, 2021, these revenues decreased 2.6% as compared to the prior year, including a 1.7-percentage point favorable impact from currency, the decline at constant currency 1 reflected the impact of lower royalty revenue and lower third-party financing commissions (resulting from higher XFS lease penetration of our XBS operations), as well as a lower net population of devices, and higher mix of services with lower per-page revenues, partially offset by modestly higher page volumes corresponding with the gradual reopening of workplaces, and higher IT revenues, driven by higher demand for our offerings, partially offset by IT hardware product constraints. • For the year ended December 31, 2020, these revenues decreased 22.3% as compared to the prior year, including a 0.2-percentage point favorable impact from currency and an approximate 1.1-percentage point unfavorable impact from the one-time OEM license fee in the prior year. The decline at constant currency 1 reflected a lower population of devices (which is partially associated with lower installs in prior and current periods), a competitive price environment and lower page volumes (including a higher mix of lower average-page-volume products) that are worse than pre-COVID-19 decline trends due to the impact of business closures since March 2020. While these revenues are contractual in nature, on average, our bundled services contracts include a minimum fixed charge and a significant variable component based on print volumes. Supplies, paper and other sales includes unbundled supplies and other sales. • For the year ended December 31, 2021, these revenues increased 13.1% as compared to the prior year, including a 1.6-percentage point favorable impact from currency. This increase at constant currency 1 primarily reflected higher supplies and paper revenues consistent with the gradual reopening of workplaces, which drove higher demand. We also saw a marginal improvement in inventories carried by channel partners, as confidence in the recovery continued to moderately improve. Paper revenue increased $18 million in 2021 as compared to 2020. • For the year ended December 31, 2020, these revenues decreased 24.0% as compared to the prior year, including a 0.4-percentage point unfavorable impact from currency. The decline at constant currency 1 primarily reflected lower supplies revenues associated with lower page volume trends, partially offset by higher IT revenues from our XBS channel and from recently acquired IT dealers outside of the U.S. The decrease in supplies was significantly impacted by lower sales through indirect channels, as resellers, in response to the lower demand caused by the pandemic, have reduced their inventory purchases to manage liquidity. Financing revenue is generated from financed equipment sale transactions. For the year ended December 31, 2021, Financing revenue decreased 2.2% as compared to the prior year, including a 1.9-percentage point favorable impact from currency, while Financing revenue for the year ended December 31, 2020 decreased 7.4% as compared to the prior year, including a 0.3-percentage point favorable impact from currency. The decline at constant currency 1 reflected a lower finance receivables balance due to run-off of our lease portfolio and lower equipment sales in prior periods. The decline in 2021 also reflected the impact of lower equipment sales in the second half of 2021. However, lease originations increased in 2021 as compared to the prior year, primarily as a result of higher XFS (renamed FITTLE in 2022) lease penetration from our XBS sales unit. _____________ (1) See "Currency Impact" section for description of constant currency. Xerox 2021 Annual Report 39 Table of Contents Equipment sales revenue Equipment revenue for the three years ended December 31, 2021, 2020 and 2019 was as follows: Revenue % Change CC % Change % of Equipment Revenue (in millions) 2021 2020 2019 2021 2020 2021 2020 2021 2020 2019 Entry $ 282 $ 228 $ 217 23.7% 5.1% 22.2% 4.7% 18% 14% 11% Mid-range 972 986 1,404 (1.4)% (29.8)% (2.9)% (30.3)% 62% 63% 68% High-end 304 325 421 (6.5)% (22.8)% (7.7)% (23.4)% 19% 21% 20% Other 23 25 20 (8.0)% 25.0% (8.0)% 25.0% 1% 2% 1% Equipment sales $ 1,581 $ 1,564 $ 2,062 1.1% (24.2)% (0.4)% (24.6)% 100% 100% 100% _____________ CC - See "Currency Impact" section for description of constant currency. Equipment sales revenue increased 1.1% for the year ended December 31, 2021 as compared to the prior year, including a 1.5-percentage point favorable impact from currency. The decrease at constant currency 1 in Equipment sales revenue in 2021 reflected the significant adverse impact of product supply constraints (consistent with market-wide shortages of computer chips and resins) and global freight disruptions, which were further amplified by labor shortages within the transportation industry. Demand increased during the year as businesses reopened, resulting in a backlog of orders at the end of 2021 that was nearly 150% higher than the prior year and higher than pre-pandemic levels. The supply chain disruption most significantly impacted the availability of our mid-range and high-end devices, causing a negative mix impact on total Equipment sales revenue. Equipment sales revenue increased in EMEA, as the impact of supply chain disruptions was offset by higher demand from our indirect channels serving SMB, and from large government deals (in Europe and certain developing market regions). Equipment sales revenue decreased in our Americas operations as shipping and logistics disruptions were more prevalent in the U.S. than other markets. We expect supply chain disruptions to affect Equipment sales revenue through the first half of 2022. For the year ended December 31, 2020, Equipment sales revenue decreased 24.2% as compared to the prior year, including a 0.4-percentage point favorable impact from currency as well as the impact of price declines of less than 5%. The COVID-19 pandemic significantly impacted our equipment sales revenue during 2020 as a result of business closures and office building capacity restrictions that impacted our customers' purchasing decisions and caused delayed installations. Additionally, our mix of revenues from lower-end black-and-white devices increased as a result of hybrid workplace trends associated with the COVID-19 pandemic. The change at constant currency 1 reflected the following: Entry • For the year ended December 31, 2021, the increase as compared to the prior year was driven by higher demand for our lower-end printers and MFPs through our indirect channels primarily in EMEA as well as in the Americas, which included markedly higher installs related to government deals in the developing regions of EMEA. We also saw higher demand for entry devices associated with hybrid work environments. While sales increased across this portfolio, we experienced an unfavorable mix from significantly higher sales of our lower-end black-and-white devices. • For the year ended December 31, 2020, the increase as compared to the prior year was primarily due to higher installs of our black-and-white devices in developing regions in EMEA, including large-order government deals in Eurasia, partially offset by lower sales of devices in our indirect channels in EMEA, Latin America and the U.S. affected in part by the COVID-19 pandemic. Mid-range • For the year ended December 31, 2021, the decrease as compared to the prior year was primarily driven by the significant impact of global product supply constraints and freight disruptions that had a more severe effect on our U.S. operations. These negative impacts were partially offset by higher demand consistent with the gradual reopening of workplaces, as compared to business shutdowns that reduced purchases of office devices in the prior year. • For the year ended December 31, 2020, the decrease as compared to the prior year was primarily driven by the COVID-19 pandemic and related office closures, which significantly impacted our sales through indirect channels in the U.S. and Europe, as resellers, in response to lower demand caused by the pandemic, reduced their inventory purchases to manage liquidity, partially offset by strong demand for our PrimeLink and new generation ConnectKey® devices. Xerox 2021 Annual Report 40 Table of Contents High-end • For the year ended December 31, 2021, the decrease as compared to the prior year primarily reflected the impact of global product supply constraints and freight disruptions, resulting in lower sales of color systems in the U.S., as well as lower sales of larger color production engines, which continued to be depressed as a result of our customers' delayed capital investment decisions. These negative impacts were partially offset by improvement in sales of devices in the lower-end of the range and to SMB customers, as well as higher sales of black-and-white systems corresponding with our customers' refresh cycles. • For the year ended December 31, 2020, the decrease as compared to the prior year primarily reflected lower installs of our Versant entry-production systems and iGen production presses, as well as lower installs of our Iridesse production presses in EMEA, which were partially offset by demand for our larger Baltoro cut-sheet inkjet press and higher sales in the U.S. of our continuous-feed color systems. _____________ (1) See "Currency Impact" section for description of constant currency. Revenue Metrics Installs reflect only new placements of devices (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations). Revenue associated with equipment installations may be reflected up-front in Equipment sales or over time either through rental income or as part of our services revenues (which are both reported within our Post sale revenues), depending on the terms and conditions of our agreements with customers. Installs include activity for Xerox and non-Xerox branded products installed by our XBS sales unit. Detail by product group (see Geographic Sales Channels and Products and Offerings Definitions ) is shown below. Installs for the year ended December 31, 2021 were: Entry • 7% increase in color multifunction devices reflecting higher installs of color personal devices at the low-end of the portfolio and higher installs of ConnectKey® devices through our indirect channels in EMEA and North America. • 36% increase in black-and-white multifunction devices reflecting higher activity primarily from low-end devices through indirect channels primarily from developing regions in EMEA, which included large order government deals, and in the Americas. Mid-Range (1) • 8% increase in mid-range color installs primarily in EMEA, reflecting higher installs of our recently launched new-generation of ConnectKey® multi-function printers, as well as our PrimeLink entry-production color devices. • 7% increase in mid-range black-and-white installs reflecting higher installs of our recently launched new-generation of ConnectKey® multi-function devices, as well as our PrimeLink entry production black-and-white devices. High-End (1) • 12% increase in high-end color installs reflecting primarily growth from our lower-end Versant devices as well as our Iridesse and iGen production systems. • 19% increase in high-end black-and-white systems reflecting higher installs of our Nuvera devices primarily related to cyclical account refreshes in the U.S and EMEA. Installs for the year ended December 31, 2020 were: Entry • 21% decrease in color multifunction devices reflecting lower installs of ConnectKey® devices through our indirect channels in the U.S. and EMEA. • 20% increase in black-and-white multifunction devices reflecting higher activity primarily from sales in the lower end of the portfolio through indirect channels in our developing regions in EMEA and Latin America associated with work-from-home sales programs, partially offset by lower installs through our indirect channels in the U.S. Mid-Range (1) • 26% decrease in mid-range color installs primarily reflecting lower installs of multifunction color devices partially offset by strong demand for our recently launched PrimeLink entry-production color devices and our new generation of ConnectKey® multifunction devices. • 22% decrease in mid-range black-and-white installs reflecting in part global market trends, partially offset by strong demand for our recently launched PrimeLink light-production multi-function devices and our new generation of ConnectKey® multifunction devices. Xerox 2021 Annual Report 41 Table of Contents High-End (1) • 42% decrease in high-end color installs primarily reflecting lower installs of our lower-end Versant devices, along with lower installs of our Iridesse and iGen production systems, partially offset by strong demand for our Baltoro cut-sheet inkjet press and higher installs in the U.S. of our continuous-feed systems. • 13% decrease in high-end black-and-white systems reflecting lower installs of our Nuvera devices along with market trends. _____________ (1) Mid-range and High-end color installations exclude FUJIFILM Business Innovation Corp. digital front-end sales; including FUJIFILM Business Innovation Corp. digital front-end sales, Mid-range color devices increased 8% and decreased 26% for the years ended December 31, 2021 and 2020, respectively, while High-end color systems increased 12% and decreased 42% for the years ended December 31, 2021 and 2020, respectively. Geographic Sales Channels and Product and Offerings Definitions Our business is aligned to a geographic focus and is primarily organized on the basis of go-to-market sales channels, which are structured to serve a range of customers for our products and services. In 2019, we changed our geographic structure to create a more streamlined, flatter and more effective organization, as follows: • Americas, which includes our sales channels in the U.S. and Canada, as well as Mexico, and Central and South America. • EMEA, which includes our sales channels in Europe, the Middle East, Africa and India. • Other, primarily includes sales to and royalties from FUJIFILM Business Innovation Corp., and our licensing revenue. Our products and offerings include: • “Entry”, which includes A4 devices and desktop printers. Prices in this product group can range from approximately $150 to $3,000. • “Mid-Range”, which includes A3 Office and Light Production devices that generally serve workgroup environments in mid to large enterprises. Prices in this product group can range from approximately $2,000 to $75,000+. • “High-End”, which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises. Prices for these systems can range from approximately $30,000 to $1,000,000+. Equipment Sales Revenue - Classification Update During first quarter 2021, we revised the classification of equipment sales revenue by category for our XBS sales unit to conform the classification of devices across Xerox sales channels. The revision had no impact on reported total equipment sales revenue. For the Year ended December 31, 2020 (in millions) As Reported Change As Revised Entry $ 188 $ 40 $ 228 Mid-range 1,043 (57) 986 High-end 312 13 325 Other 21 4 25 Equipment Sales $ 1,564 $ — $ 1,564 Xerox 2021 Annual Report 42 Table of Contents Costs, Expenses and Other Income Summary of Key Financial Ratios The following is a summary of our key financial ratios used to assess our performance: Year Ended December 31, (in millions) 2021 2020 2019 2021 B/(W) 2020 B/(W) Gross Profit $ 2,403 $ 2,626 $ 3,650 $ (223) $ (1,024) RD&E 310 311 373 1 62 SAG 1,718 1,851 2,085 133 234 Equipment Gross Margin 24.2 % 27.4 % 32.6 % (3.2) pts. (5.2) pts. Post sale Gross Margin 37.0 % 40.3 % 42.5 % (3.3) pts. (2.2) pts. Total Gross Margin 34.1 % 37.4 % 40.3 % (3.3) pts. (2.9) pts. RD&E as a % of Revenue 4.4 % 4.4 % 4.1 % — pts. (0.3) pts. SAG as a % of Revenue 24.4 % 26.4 % 23.0 % 2.0 pts. (3.4) pts. Pre-tax (Loss) Income (1) $ (475) $ 252 $ 822 $ (727) $ (570) Pre-tax (Loss) Income Margin (1) (6.7) % 3.6 % 9.1 % (10.3) pts. (5.5) pts. Adjusted (2) Operating Profit $ 375 $ 464 $ 1,192 $ (89) $ (728) Adjusted (2) Operating Margin 5.3 % 6.6 % 13.1 % (1.3) pts. (6.5) pts. _____________ (1) 2021 includes a pre-tax non-cash Goodwill impairment charge of $781 million. (2) Refer to the "Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure. Pre-tax (Loss) Income Margin Pre-tax loss margin for the year ended December 31, 2021 of (6.7)% decreased 10.3-percentage points from the pre-tax income margin of 3.6% in 2020. The decrease primarily reflected the non-cash Goodwill impairment charge of $781 million ($750 million after-tax), and the impact of lower adjusted 1 operating margin (see below), of 1.3-percentage points, partially offset by lower Restructuring and related costs, net, Transaction and related costs, net and Other expenses, net. Pre-tax income margin for the year ended December 31, 2020 of 3.6% decreased 5.5-percentage points compared to 2019. The decrease primarily reflected the impact of lower adjusted 1 operating margin (see below), of 6.5-percentage points, as well as higher Amortization of intangible assets and Transaction and related cost, net, partially offset by lower Restructuring and related costs, net and Other expenses, net. Pre-tax (loss) income margin includes Restructuring and related costs, net, the Amortization of intangible assets, Transaction and related costs, net and Other expenses, net , all of which are separately discussed in subsequent sections. Adjusted 1 Operating margin, discussed below, excludes these items. 2021 Adjusted 1 Operating margin also excludes the non-cash Goodwill impairment charge of $781 million ($750 million after-tax). Adjusted 1 Operating Margin Adjusted 1 operating margin for the year ended December 31, 2021 of 5.3% decreased 1.3-percentage points compared to 2020. The decrease primarily reflects an approximate 1.5-percentage point negative impact of supply chain disruptions, including higher shipping and logistics costs, and an unfavorable mix of equipment revenue due to product constraints, as well as a negative 0.4-percentage points from lower royalty revenue from FUJIFILM Business Innovation Corp. Adjusted 1 operating margin also reflected an approximate 1.1-percentage point negative impact of lower savings from temporary government assistance and furlough measures, and an approximate 0.7-percentage point unfavorable impact from lower third-party lease commissions and incremental costs associated with investments to support future growth. These unfavorable factors were partially offset by an approximate 1.5-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year, reflecting the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic. Additionally, cost and expense reductions associated with our Project Own It transformation actions, favorably impacted adjusted 1 operating margin. Adjusted 1 operating margin for the year ended December 31, 2020 of 6.6% decreased 6.5-percentage points as compared to 2019. The decrease reflects the impact of lower revenues, primarily as a result of the significant effect of the COVID-19 pandemic on our business and a 0.9-percentage point unfavorable impact due to an increase in bad debt expense of $61 million in the first quarter of 2020 to reflect the expected impact to our customer base and related outstanding trade and finance receivable portfolio as a result of the economic disruption caused by the Xerox 2021 Annual Report 43 Table of Contents pandemic. These negative impacts were partially offset by lower costs and expenses, which include savings associated with our Project Own It transformation actions as well as additional savings from various cost reductions actions to mitigate the impact of the pandemic. These actions include approximately $107 million from temporary government assistance measures and furlough programs and other reductions in discretionary spending such as near-term targeted marketing programs, the use of contract employees and the temporary suspension of 401(k) matching contributions for the year 2020, as well as lower compensation incentives consistent with lower sales and operating results. The decrease also included an approximate 0.4-percentage point unfavorable impact from transaction currency and was affected by an approximate 0.7-percentage point unfavorable impact from the one-time OEM license fee received in the prior year. _____________ (1) Refer to Operating Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section. Gross Margin Total gross margin for the year ended December 31, 2021 of 34.1% decreased 3.3-percentage points compared to 2020, reflecting unfavorable impacts of approximately 1.5-percentage points associated with supply chain costs and capacity restrictions (including significantly higher freight and shipping costs and constrained availability of higher margin equipment) and 0.8-percentage points associated with investments to support future growth. The remainder of the decline reflects the impact of lower savings from temporary government assistance and furlough measures, lower royalty revenue from FUJIFILM Business Innovation Corp. and higher mix of services with lower per-page revenues. These headwinds were partially offset by the cost savings from our Project Own It transformation actions. Total gross margin for the year ended December 31, 2020 of 37.4% decreased 2.9-percentage points compared to 2019, primarily reflecting the impact of lower revenues (including from our higher margin post sale stream) primarily as a result of the significant effect of the COVID-19 pandemic due to business closures, as well as price promotion programs, and an approximate 0.5-percentage point adverse combined impact from transaction currency and higher tariffs. The decrease was also affected by an approximate 0.6-percentage point unfavorable impact from the one-time OEM license fee received in the prior year. These headwinds were partially offset by the cost savings from our Project Own It transformation actions, as well as additional cost reduction actions to mitigate the impact of the pandemic, including savings of approximately $74 million from temporary government assistance measures and furlough programs and other reductions in discretionary spend such as the use of contract employees and the temporary suspension of 401(k) matching contributions. Equipment gross margin for the year ended December 31, 2021 of 24.2% decreased 3.2-percentage points compared to 2020, primarily reflecting the impact of higher transportation costs and an unfavorable mix of growth in low-end devices associated with product supply constraints, partially offset by higher revenues and favorable transaction currency. Equipment gross margin for the year ended December 31, 2020 of 27.4% decreased 5.2-percentage points compared to 2019, primarily reflecting the impact of lower revenues (primarily as a result of COVID-19-related business closures) as well as the adverse impact of price promotion programs, incremental tariff costs and the 0.6-percentage point unfavorable impact from transaction currency partially offset by cost reductions from Project Own It. Post sale gross margin for the year ended December 31, 2021 of 37.0% decreased 3.3-percentage points compared to 2020, reflecting lower savings from temporary government assistance and furlough measures, lower royalty revenues and third-party lease commissions and a higher mix of services with lower per-page revenues, partially offset by restructuring savings associated with Project Own It transformation actions. Post sale gross margin for the year ended December 31, 2020 of 40.3% decreased 2.2-percentage points compared to 2019, reflecting the impact of lower revenues (primarily as a result of COVID-19-related business closures impacting page volumes) and price erosion on contract renewals, partially offset by productivity and cost savings and restructuring savings associated with Project Own It transformation actions, as well as savings from our additional cost reduction actions to mitigate the impact of the pandemic. These actions include approximately $73 million of savings from temporary government assistance measures and furlough programs and other reductions in discretionary spend such as the use of contract employees and the temporary suspension of 401(k) matching contributions. The decrease was also affected by an approximate 0.6-percentage point unfavorable impact from the one-time OEM license fee received in the prior year. Xerox 2021 Annual Report 44 Table of Contents Research, Development and Engineering Expenses (RD&E) Year Ended December 31, Change (in millions) 2021 2020 2019 2021 2020 R&D $ 251 $ 257 $ 311 $ (6) $ (54) Sustaining engineering 59 54 62 5 (8) Total RD&E Expenses $ 310 $ 311 $ 373 $ (1) $ (62) RD&E as a percentage of revenue for the year ended December 31, 2021 of 4.4% was flat as compared to 2020. RD&E of $310 million for the year ended December 31, 2021, decreased $1 million from 2020, primarily reflecting savings from restructuring and productivity as well as benefits from the timing of program development cycles, partially offset by investments in our innovation portfolio. RD&E as a percentage of revenue for the year ended December 31, 2020 of 4.4% was 0.3-percentage points higher compared to 2019, as the impact of revenue declines outpaced the rate of cost reductions. RD&E of $311 million for the year ended December 31, 2020, decreased $62 million from 2019 reflecting savings from Project Own It that enhanced simplification and rationalization in our core technology spend, and other temporary cost actions, as well as the impact from the timing of investments, partially offset by higher spend in our innovation areas. Selling, Administrative and General Expenses (SAG) SAG as a percentage of revenue of 24.4% decreased 2.0-percentage points for the year ended December 31, 2021 compared to 2020 primarily as a result of an approximate 1.5-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year to reflect the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic as well as bad debt reversals in the current year. The remaining decrease was primarily due to the impact of lower selling expenses, as a result of cost savings and restructuring associated with our Project Own It transformation actions, and savings from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs and employee benefit programs). SAG expenses of $1,718 million for the year ended December 31, 2021 were $133 million lower than 2020, primarily reflecting lower bad debt expenses, as well as cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs), partially offset by an approximate $30 million adverse impact from translation currency, higher compensation related accruals (corresponding with higher expected operating results) and other investments in the business to support future growth, as well as the impact of lower benefits from temporary government assistance and furlough measures and higher legal expenses and expenses from prior year acquisitions. Our bad debt expense for the year ended December 31, 2021 of $7 million decreased $109 million as compared to the prior year period, primarily due to the prior year reflecting an approximate $60 million incremental provision to cover estimated write-offs primarily on our finance receivable portfolio from the COVID-19 pandemic, while 2021 reflected finance receivable reserve reductions of approximately $31 million and lower reserves for trade receivables. The 2021 reductions in our finance and trade reserves reflect improvements in the macroeconomic environment as well as lower write-offs. Although actual finance receivable write-offs incurred to date continued to lag expectations, we believe our current reserve position remains sufficient to cover expected future losses that may result from future economic conditions. We continue to monitor developments regarding the pandemic, including business closures and reopenings and mitigating government support actions as well as future economic conditions, and as a result our reserves may need to be updated in future periods. On a trailing twelve-month basis (TTM), bad debt expense was approximately 0.9% percent of total receivables (excluding the 2021 reductions of $31 million), which is consistent with the pre-pandemic trend and reflects the consistent level of reserves subsequent to the first quarter 2020 charge. SAG as a percentage of revenue of 26.4% increased 3.4-percentage points for the year ended December 31, 2020 compared to 2019 and included a 0.9-percentage point unfavorable impact due to the increase in bad debt expense of $61 million in the first quarter 2020. The increase also reflected the impact of lower revenues, partially offset by the benefits from cost reductions associated with our Project Own It transformation actions and savings from additional cost reduction actions to mitigate the impact of the pandemic. These actions included approximately $32 million from temporary government assistance measures and furlough programs, and other reductions in discretionary spend such as near-term targeted marketing programs, the use of contract employees and the Xerox 2021 Annual Report 45 Table of Contents temporary suspension of the 401(k) matching contributions, as well as lower compensation incentives consistent with lower sales and operating results. SAG expenses of $1,851 million for the year ended December 31, 2020 were $234 million lower than 2019, reflecting cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic, as noted above. These savings were partially offset by higher bad debt expense, as well as expenses from recent acquisitions. Bad debt expense for the year ended December 31, 2020 was $116 million or $70 million higher than the prior year primarily as a result of the increase in the bad debt provision recorded in first quarter 2020, which reflects the estimated impact on our customer base and related outstanding receivables portfolio as a result of the economic disruption caused by the COVID-19 pandemic. The majority of the increased provision was related to finance receivables due to their larger balance and longer-term nature. During the remainder of 2020, write-offs as well as the bad debt reserves for our trade and finance receivables portfolios were in line with our projections and consistent with future expectations regarding our estimated impacts from the COVID-19 pandemic. Bad debt expense of approximately 2.7% percent of total gross receivables on a trailing-twelve-month basis (TTM) was higher than the 2019 trend of less than one percent, reflecting the significant increase in 2020 due to impacts from the COVID-19 pandemic. Restructuring and Related Costs, Net We incurred restructuring and related costs, net of $38 million for the year ended December 31, 2021, as compared to $93 million for the year ended December 31, 2020. These costs were primarily related to the implementation of initiatives under our business transformation projects including Project Own It. The decrease in restructuring and related costs in 2020 is partially due to a higher level of asset impairments and severance and related costs in 2019 for employees transferred as part of an outsourcing arrangement. The following is a breakdown of costs: Year Ended December 31, (in millions) 2021 2020 2019 Restructuring and severance costs (1) $ 30 $ 107 $ 81 Asset impairments - leased right-of-use assets (2) 3 4 39 Asset impairments - owned assets (2) 12 2 22 Other contractual termination costs (3) 3 3 19 Net reversals (4) (21) (29) (34) Restructuring and asset impairment costs 27 87 127 Retention related severance/bonuses (5) 6 4 39 Contractual severance costs (6) 1 (2) 43 Consulting and other costs (7) 4 4 20 Total $ 38 $ 93 $ 229 _____________ (1) Reflects headcount reductions of approximately 400, 1,850 and 1,000 employees worldwide for the years ended December 31, 2021, 2020 and 2019, respectively. (2) Primarily related to the exit and abandonment of leased and owned facilities, net of any potential sublease income and other recoveries. (3) Primarily includes additional costs incurred upon the exit from our facilities including decommissioning costs and associated contractual termination costs. (4) Reflects net reversals for changes in estimated reserves from prior period initiatives. Net reversals for 2021 also include a $4 million gain on the sale of surplus land. (5) Includes retention related severance and bonuses for employees expected to continue working beyond their minimum retention period before termination. (6) Primarily reflects severance and other related costs associated with employees transferred (approximately 2,200) as part of a shared service arrangement entered into with HCL Technologies. (7) Represents professional support services associated with our business transformation initiatives. 2021 actions impacted several functional areas, with approximately 25% focused on gross margin improvements and approximately 70% focused on SAG reductions, and the remainder focused on RD&E optimizations. We expect 2022 pre-tax savings of approximately $15 million from our 2021 restructuring actions. 2020 actions impacted several functional areas, with approximately 55% focused on gross margin improvements and approximately 45% focused on SAG reductions. The implementation of our Project Own It initiatives as well as other business transformation initiatives is expected to continue to deliver significant cost savings in 2022. While many initiatives are underway and have yet to yield the full transformation benefits expected upon their completion, the changes implemented thus far have improved our cost structure and are beginning to yield longer-term benefits. However, expected savings associated with these Xerox 2021 Annual Report 46 Table of Contents initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until the initiatives are fully implemented and stabilized. Restructuring Summary The restructuring reserve balance as of December 31, 2021 for all programs was $44 million, which is expected to be paid over the next twelve months. Refer to Note 14 - Restructuring Programs in the Consolidated Financial Statements for additional information regarding our restructuring programs. Transaction and Related Costs, Net Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain major and strategic M&A projects. There were no Transaction and related costs, net incurred during 2021 as compared to $18 million incurred in 2020 and $12 million in 2019. Transaction and related costs, net in 2020 primarily related to legal and other professional costs associated with the terminated proposal to acquire HP Inc. in early 2020. Amortization of Intangible Assets Amortization of intangible assets for the three years ended December 31, 2021 , 2020 and 2019 was $55 million, $56 million and $45 million, respectively. The increased level of amortization in 2021 and 2020 was primarily due to intangible assets associated with our 2021 and 2020 acquisitions. Additionally, the increase in amortization of $11 million in 2020 as compared to 2019 was primarily due to the accelerated write-off of certain XBS tradenames as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It. Refer to Note 13 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding our intangible assets. Worldwide Employment Worldwide employment was approximately 23,300 as of December 31, 2021 and decreased by approximately 1,800 1 from December 31, 2020. The reduction resulted from net attrition (attrition net of gross hires), a large portion of which is not expected to be backfilled, as well as the impact of organizational changes. _____________ (1) Decrease based on revised headcount at December 31, 2020 of 25,100 from 24,700 due to the change in definition of full-time equivalent employee. Other Expenses, Net Year Ended December 31, (in millions) 2021 2020 2019 Non-financing interest expense $ 96 $ 94 $ 105 Interest income (4) (14) (16) Non-service retirement-related costs (89) (29) 18 Gains on sales of businesses and assets (40) (30) (21) Currency losses, net 7 3 7 Loss on sales of accounts receivable 2 2 3 Loss on early extinguishment of debt — 26 — Litigation matters 2 (1) (8) Contract termination costs - IT services — 3 (12) Tax indemnification from Conduent — (9) — All other expenses, net 2 — 8 Other expenses, net $ (24) $ 45 $ 84 Non-financing interest expense Non-financing interest expense for the year ended December 31, 2021 of $96 million was $2 million higher than 2020. When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense of $207 million decreased by $8 million from the prior year period primarily reflecting a lower average debt balance. Non-financing interest expense for the year ended December 31, 2020 of $94 million was $11 million lower than 2019. When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense of $215 million decreased by $21 million from the prior year period reflecting a lower average debt balance primarily due to the full-year effect of the 2019 debt repayments that were not refinanced. Xerox 2021 Annual Report 47 Table of Contents NOTE : For the years ended December 31, 2021 and 2020 both Xerox Holdings and Xerox reported total interest expense of $207 million and $215 million, respectively, however, the amount reported by Xerox includes $80 million and $32 million, respectively, of interest paid to Xerox Holdings on an Intercompany Loan. The Intercompany Loan represents a loan of the net proceeds Xerox Holdings Corporation received from its Senior Notes to Xerox, which was used to repay existing debt of Xerox Corporation. Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding the Xerox Holdings Corporation/Xerox Corporation Intercompany Loan, our debt activity and information regarding the allocation of interest expense. Interest Income Interest income for the year ended December 31, 2021 was $10 million lower than 2020, primarily due to lower interest rates and a lower cash balance. Non-service retirement-related costs Non-service retirement-related costs decreased $60 million for the year ended December 31, 2021 as compared to 2020 primarily driven by lower discount rates and higher expected returns on plan assets due to higher asset balances. Non-service retirement-related costs decreased $47 million for the year ended December 31, 2020 as compared to 2019 primarily driven by lower losses from pension settlements in the U.S. of $53 million, a $40 million decrease compared to 2019. Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding non-service retirement-related costs. Gains on sales of businesses and assets Gains on sales of businesses and assets increased $10 million and $9 million for the years ended December 31, 2021 and 2020, respectively, as compared to the respective prior year periods, and reflect the sales of non-core business assets in all periods presented. Loss on early extinguishment of debt During fourth quarter 2020 we recorded a $26 million loss associated with the early extinguishment of $1,062 million of the Senior Notes due May 2021. The net loss included the payment of a redemption premium of $24 million as well as the write-off of unamortized debt issuance costs and other debt carrying value adjustments. Contract termination costs - IT services Contract termination costs were a $3 million charge in 2020 and a $12 million credit in 2019, both of which are adjustments to a $43 million penalty recorded in 2018 related to the termination of an IT services arrangement. The penalty was associated with a minimum purchase commitment that would not be fulfilled due to the termination of the related IT services arrangement. The adjustments in 2020 and 2019 reflect changes in the estimate regarding the expected spending in the run-off of this terminated IT services arrangement and the amount due under the minimum purchase agreement. The commitment was settled in 2020 for approximately $34 million. The minimum purchase commitment had originally been entered into in connection with the sale of our Information Technology Outsourcing (ITO) business in 2015. Tax indemnification from Conduent Represents an indemnification payment expected to be received from Conduent as part of the settlement of pre-separation unrecognized tax positions related to Conduent when included in our consolidated return. The equal and offsetting charge to this receipt is recorded in Income tax expense, as part of our obligation to pay the taxing authorities. Income Taxes The 2021 effective tax rate was 3.6%. On an adjusted 1 basis, the 2021 effective tax rate was 6.5%. Both rates were lower than the U.S. statutory tax rate of 21% primarily due to the benefits from tax law changes, additional incentives as a result of changes in elections made with the filed tax returns, the decrease in deferred tax valuation allowances as well as the remeasurement of uncertain tax positions. The adjusted 1 effective tax rate also reflects partial offsets for the geographical mix of earnings. The adjusted 1 effective tax rate excludes the tax impacts associated with the following charges: non-cash Goodwill impairment, Restructuring and related costs, net, Xerox 2021 Annual Report 48 Table of Contents Amortization of intangible assets and non-service retirement-related costs, as described in our Non-GAAP Financial Measures section. The 2020 effective tax rate was 25.4%. On an adjusted 1 basis, the 2020 effective tax rate was 26.3%. These rates were higher than the U.S. statutory tax rate of 21% primarily due to state taxes, non-deductible items on lower pre-tax income and an increase in deferred tax asset valuation allowances partially offset by the impact from various tax law changes. The adjusted 1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section. The 2019 effective tax rate was 21.8% and included a credit of $35 million related to the 2017 Tax Cuts and Jobs Act (the Tax Act). On an adjusted 1 basis, the 2019 effective tax rate was 26.1%. Both rates were higher than the U.S. statutory tax rate of 21% primarily due to state taxes. In addition to excluding the impact of the Tax Act, the adjusted 1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs as well as other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section. Xerox operations are widely dispersed. However, no one country outside of the U.S. is a significant factor in determining our overall effective tax rate. The tax impact from these non-U.S. operations on our full-year effective tax rate for 2021 was (0.9)%. Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the geographic mix of income before taxes and the related impacts on our effective tax rate. Our effective tax rate is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our effective tax rate will change based on discrete or other nonrecurring events that may not be predictable. _____________ (1) Refer to the Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section. Equity in Net Income of Unconsolidated Affiliates In November 2019, Xerox Holdings sold its remaining indirect 25% equity interest in Fuji Xerox, which had been previously accounted for as an equity method investment. Accordingly, our remaining Investment in Affiliates, at Equity largely consists of several minor investments in entities in the Middle East region. Year Ended December 31, (in millions) 2021 2020 2019 Equity in net income of unconsolidated affiliates - Fuji Xerox (1) $ — $ — $ 147 Equity in net income of unconsolidated affiliates - continuing operations 3 4 8 Total Equity in net income of unconsolidated affiliates $ 3 $ 4 $ 155 Fuji Xerox after-tax restructuring and other charges included in equity income — — 20 _____________ (1) Equity in net income for Fuji Xerox is reported in Income from discontinued operations, net of tax for all years presented. The equity in net income for Fuji Xerox in 2019 is through the date of sale. Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information regarding the sale of Fuji Xerox. Refer to Note 12 - Investment in Affiliates, at Equity in the Consolidated Financial Statements for additional information regarding our equity investments. Net (Loss) Income from Continuing Operations Net loss from continuing operations attributable to Xerox Holdings for the year ended December 31, 2021 was $(455) million, or $(2.56) per diluted share, which includes an after-tax Goodwill impairment charge of $750 million (pre-tax charge of $781 million) or ($4.08) per share. On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $293 million, or $1.51 per diluted share, and includes adjustments for the Goodwill impairment charge, Restructuring and related costs, net, Amortization of intangible assets, as well as non-service retirement-related costs and other discrete, unusual or infrequent items, as described in our Non-GAAP Financial Measures. Xerox 2021 Annual Report 49 Table of Contents Net income from continuing operations attributable to Xerox Holdings for the year ended December 31, 2020 was $192 million, or $0.84 per diluted share. On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $313 million, or $1.41 per diluted share, and includes adjustments for Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items, which included a Loss on the early extinguishment of debt, as described in our Non-GAAP Financial Measures. Net income from continuing operations attributable to Xerox Holdings for the year ended December 31, 2019 was $648 million, or $2.78 per diluted share. On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $828 million, or $3.55 per diluted share, and includes adjustments for Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items, including the impact from the Tax Act, as described in our Non-GAAP Financial Measures. Refer to Note 26 - (Loss) Earnings per Share in the Consolidated Financial Statements, for additional information regarding the calculation of basic and diluted earnings per share. _____________ (1) Refer to the Net (Loss) Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section. Discontinued Operations Discontinued operations relate to the November 2019 Sales of our indirect 25% equity interest in Fuji Xerox and our indirect 51% partnership interest in Xerox International Partners (XIP), which had been consolidated. Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information regarding discontinued operations. Other Comprehensive Income Other comprehensive income attributable to Xerox was $344 million in 2021 and included the following: i) $489 million of net gains from the changes in defined benefit plans primarily due to remeasurement and net actuarial gains as a result of higher discount rates, as well as the favorable impact of currency; ii) $141 million of net translation adjustment losses reflecting the weakening of our major foreign currencies against the U.S. Dollar during 2021; and iii) $4 million in unrealized losses, net. Other comprehensive income attributable to Xerox was $314 million in 2020 and included the following: i) net translation adjustment gains of $241 million reflecting the strengthening of our major foreign currencies against the U.S. Dollar during 2020; ii) $69 million of net gains from changes in defined benefit plans primarily reflecting net actuarial gains due to actual returns in excess of expected returns offsetting the impacts from lower discount rates as well as the amortization or recognition through settlement losses of accumulated losses from AOCL. These impacts were partially offset by other losses, primarily due to unfavorable currency; and iii) $4 million in unrealized gains, net. Other comprehensive income attributable to Xerox was $46 million in 2019 and included the following: i) net translation adjustment gains of $62 million reflecting aggregate translation gains of $45 million from the strengthening of most of our major foreign currencies against the U.S. Dollar during 2019, as well as a reclassification of $17 million of accumulated translation losses from AOCL into earnings as a result of the divestiture of our investments in FX and XIP; ii) $10 million of net losses from changes in defined benefit plans reflecting net losses of $138 million associated with defined benefit plan changes during 2019, primarily as a result of lower discount rates, as well as other losses of $21 million, primarily due to unfavorable currency. These losses were partially offset by the reclassification of $148 million of accumulated losses from AOCL into earnings as a result of the divestiture of our investments in FX and XIP; and iii) $6 million in unrealized losses, net. Refer to our discussion of Pension Plan Assumptions in the Application of Critical Accounting Policies section of the MD&A as well as Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding changes in our defined benefit plans. Refer to Note 17 - Financial Instruments in the Consolidated Financial Statements for additional information regarding our foreign currency derivatives and associated unrealized gains and losses. Xerox 2021 Annual Report 50 Table of Contents New Business Strategy/Segment Reporting In January 2021 we announced our intention to stand up our Software, Financing and Innovation businesses as separate units by 2022. During 2021, the operations and financial results for these units continued to be primarily managed by and reported in our “go-to-market” (GTM) sales channels and we did not have discrete and complete financial information for these new businesses. Accordingly, the chief operating decision maker (CODM) continued to manage the Company’s operations, including the products and services from these new units, primarily through the GTM sales channels and as a result, we continued to have one operating and reportable segment. Based on our efforts in 2021, as of year-end these new businesses have largely been stood-up as separate units and we will proceed with these efforts in 2022 and provide additional information related to these businesses during the year. Accordingly, as a result of this effort, we will be reassessing our operating and reportable segments in 2022 and a revision of our segment reporting is expected in 2022. Recent Accounting Pronouncements Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for a description of recent accounting pronouncements including the respective dates of adoption and the effects on results of operations and financial conditions. Xerox 2021 Annual Report 51 Table of Contents Capital Resources and Liquidity Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations. Additional liquidity is also provided through access to the financial capital markets and through secured borrowings on our finance receivable balances. Our 2021 financial results continued to be impacted by the ongoing COVID-19 pandemic and those impacts are expected to continue at least through the first half of 2022. However, we believe we have sufficient liquidity to manage the business through the economic disruption caused by this pandemic. The following is a summary of our liquidity position: • As of December 31, 2021 and 2020, total cash, cash equivalents and restricted cash were $1,909 million and $2,691 million, respectively, and apart from restricted cash of $69 million and $66 million, respectively, was readily accessible for use. • As of December 31, 2021 and 2020, there were no borrowings or letters of credit outstanding under our $1.8 billion Credit Facility. The Credit Facility, which terminates in August 2022, contains various investment grade covenants at a time when the Company is not investment grade rated. The Company may seek to renegotiate or replace such facility, including reducing the size of such facility, or may determine not to replace such facility at all and may instead pursue other forms of liquidity. Any new credit agreement may result in higher borrowing costs and may contain non-investment grade covenants, such as those that would place greater restrictions on how the Company can run its businesses and/or limit the Company from taking certain actions that might otherwise be beneficial to the Company and/or its shareholders, customers, suppliers, partners and/or lenders. • We continue to focus our efforts on incremental actions to prioritize and preserve cash as we manage through the pandemic. • We expect operating cash flows from continuing operations to be approximately $475 million in 2022, reflecting increased investment across each of our new businesses as well as the absence of the upfront prepaid fixed royalty from FX of $100 million. Additionally, we expect that capital expenditures will be approximately $75 million. Cash Flow Analysis The following summarizes our cash flows for the three years ended December 31, 2021, 2020 and 2019, as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements: Year Ended December 31, Change (in millions) 2021 2020 2019 2021 2020 Net cash provided by operating activities of continuing operations $ 629 $ 548 $ 1,244 $ 81 $ (696) Net cash provided by operating activities of discontinued operations — — 89 — (89) Net cash provided by operating activities 629 548 1,333 81 (785) Net cash used in investing activities of continuing operations (85) (246) (85) 161 (161) Net cash provided by investing activities of discontinued operations — — 2,233 — (2,233) Net cash (used in) provided by investing activities (85) (246) 2,148 161 (2,394) Net cash used in financing activities (1,310) (416) (1,834) (894) 1,418 Effect of exchange rate changes on cash, cash equivalents and restricted cash (16) 10 — (26) 10 (Decrease) increase in cash, cash equivalents and restricted cash (782) (104) 1,647 (678) (1,751) Cash, cash equivalents and restricted cash at beginning of year 2,691 2,795 1,148 (104) 1,647 Cash, Cash Equivalents and Restricted Cash at End of Year $ 1,909 $ 2,691 $ 2,795 $ (782) $ (104) Cash Flows from Operating Activities Net cash provided by operating activities of continuing operations was $629 million for the year ended December 31, 2021. The $81 million increase in operating cash from 2020 was primarily due to the following: • $211 million decrease in pre-tax income before depreciation and amortization, provisions, goodwill impairment, restructuring and related costs, net and defined benefit pension costs. • $241 million increase from accounts payable primarily due to higher spending as compared to the prior year and the timing of supplier and vendor payments. • $222 million increase from inventory primarily due to significant cash usage in 2020 as inventory levels increased because of lower demand resulting from the COVID-19 pandemic. Xerox 2021 Annual Report 52 Table of Contents • $136 million increase in other current and long-term liabilities, reflecting higher accruals from the increased level of operations as compared to the prior year. • $94 million increase from accrued compensation primarily related to higher employee incentive accruals and year-over-year timing of employee incentive payments. • $57 million net increase primarily due to the receipt of an upfront prepaid fixed royalty from FX of $100 million for their continued use of the Xerox brand trademark subsequent to the termination of our technology agreement with them. • $22 million increase primarily due to lower payments for restructuring and related costs. • $328 million decrease from accounts receivable primarily due to a lower year-over-year decline in revenues as well as the timing of collections. • $163 million decrease from a lower net run-off of finance receivables due to an increased level of direct lease originations from our XBS sales unit as well as higher equipment sales. Net cash provided by operating activities of continuing operations was $548 million for the year ended December 31, 2020. The $696 million decrease in operating cash from 2019 was primarily due to the following: • $729 million decrease in pre-tax income before depreciation and amortization, provisions, gain on sales of businesses and assets, restructuring and related costs, net, defined benefit pension costs and loss on early extinguishment of debt. • $243 million decrease from higher levels of inventory primarily due to lower sales volume. • $147 million decrease in other current and long-term liabilities, reflecting lower accruals, particularly incentive-related payments associated with our direct channel partners and decrease in deferred revenue reflecting lower sales activity. • $95 million decrease from accrued compensation primarily due to decreased spending and the year-over-year timing of payments. • $76 million decrease from lower accounts payable primarily related to lower inventory and other spending partially offset by the timing of supplier and vendor payments. • $359 million increase from accounts receivable primarily due to lower revenue and the timing of invoicing and collections. • $117 million increase primarily related to a higher level of net run-off due to lower originations of finance receivables of $82 million and lower equipment on operating leases of $35 million. • $57 million increase from net taxes primarily due to lower payments in 2020 as a result of lower pre-tax income. • $51 million increase primarily due to lower payments for restructuring and related costs. Cash Flows from Investing Activities Net cash used in investing activities of continuing operations for Xerox Holdings was $85 million for the year ended December 31, 2021. The $161 million change in cash from 2020 was primarily due to the following: • $150 million change due to three acquisitions completed in the current year for $53 million as compared to five acquisitions in the prior year for $203 million. • $11 million increase due to proceeds from the sales of non-core business assets of $38 million in the current year as compared to $27 million in the prior year. • Other investing, net of Xerox Holdings includes $8 million of noncontrolling investments as part of our corporate venture capital fund. Net cash used in investing activities of continuing operations was $246 million for the year ended December 31, 2020. The $161 million change in cash from 2019 was primarily due to five acquisitions completed for $203 million in the current year compared to two acquisitions in the prior year for $42 million. Cash Flows from Financing Activities Net cash used in financing activities for Xerox Holdings was $1,310 million for the year ended December 31, 2021. The $894 million increase in the use of cash from 2020 was primarily due to the following: • $588 million increase due to share repurchases in the current year of $888 million compared to share repurchases in the prior year of $300 million. • $341 million increase from net debt activity. 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. 2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $16 million of deferred debt issuance costs offset by proceeds of $1,507 million from a Senior Notes offering and $840 million from secured financing arrangements. • $24 million decrease due to lower common stock dividends due to lower outstanding shares. Xerox 2021 Annual Report 53 Table of Contents • Other financing, net includes receipts for noncontrolling investments of $5 million in Eloque, a joint venture for the remote monitoring of critical infrastructure assets and $10 million in CareAR Holdings LLC, a newly formed software business. Net cash used in financing activities for Xerox was $1,318 million for the year ended December 31, 2021. 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. 2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $3 million of deferred debt issuance costs offset by proceeds of $840 million from secured financing arrangements. Distributions to Xerox Holdings were $1,120 million and were primarily used to fund Xerox Holdings continuing dividends to shareholders and share repurchases. Xerox's distributions to the parent are expected to continue with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases. Net cash used in financing activities for Xerox Holdings was $416 million for the year ended December 31, 2020. The $1,418 million decrease in the use of cash from 2019 was primarily due to the following: • $1,083 million decrease from net debt activity. 2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $16 million of deferred debt issuance costs offset by proceeds of $1,507 million from a Senior Notes offering and $840 million from secured financing arrangements. 2019 reflects payments of $960 million on Senior Notes. • $300 million decrease due to lower share repurchases. • $13 million decrease due to lower common stock dividends due to lower outstanding shares. • $11 million decrease from lower distributions of noncontrolling interests. Net cash used in financing activities for Xerox was $416 million for the year ended December 31, 2020. 2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $3 million of deferred debt issuance costs offset by proceeds of $840 million from secured financing arrangements. Distributions to Xerox Holdings were $549 million and were primarily used to fund Xerox Holdings continuing dividends to shareholders and share repurchases. Xerox's distributions to the parent are expected to continue with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases. Contributions from parent of $1,494 million primarily represent the contribution by Xerox Holdings of aggregate net debt proceeds received from its Senior Note offerings in the third quarter of 2020 to Xerox. Cash, Cash Equivalents and Restricted Cash Refer to Note 15 - Supplementary Financial Information in the Consolidated Financial Statements for additional information regarding Cash, cash equivalents and restricted cash. Operating Leases We have operating leases for real estate and vehicles in our domestic and international operations and for certain equipment in our domestic operations. Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations. Our leases have remaining terms of up to eleven years and a variety of renewal and/or termination options. As of December 31, 2021 and 2020, total operating lease liabilities were $283 million and $333 million, respectively. Refer to Note 11 - Lessee in the Consolidated Financial Statements for additional information regarding our right-of-use (ROU) assets and lease obligations associated with our operating leases. Xerox 2021 Annual Report 54 Table of Contents Debt and Customer Financing Activities The following summarizes our total debt: December 31, (in millions) 2021 2020 Xerox Holdings Corporation $ 1,500 $ 1,500 Xerox Corporation 2,200 2,200 Xerox - Other Subsidiaries (1) 561 767 Subtotal - Principal debt balance (2) 4,261 4,467 Debt issuance costs Xerox Holdings Corporation (11) (13) Xerox Corporation (6) (11) Xerox - Other Subsidiaries (1) (1) (3) Subtotal - Debt issuance costs (18) (27) Net unamortized premium 3 3 Fair value adjustments (3) - terminated swaps — 1 Total Debt $ 4,246 $ 4,444 _____________ (1) Represents subsidiaries of Xerox Corporation. (2) There were no Notes Payable at December 31, 2021 and December 31, 2020, respectively. (3) Fair value adjustments include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value adjustment. Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity. Credit Rating Downgrade As a result of the downgrade of our debt ratings in February 2022 by one of the rating agencies, the coupon rate on our $1.0 billion Senior Notes due 2023 of 4.375% will increase by 0.25% to 4.625% effective March 15, 2022. Finance Assets and Related Debt We provide lease equipment financing to our customers. Our lease contracts permit customers to pay for equipment over time rather than at the date of installation. Our investment in these contracts is reflected in total finance assets, net. We primarily fund our customer financing activity through cash generated from operations, cash on hand, sales and securitizations of finance receivables and proceeds from capital markets offerings. We have arrangements, in certain international countries and domestically, with our small and mid-sized customers in which third-party financial institutions independently provide lease financing directly to our customers, on a non-recourse basis to Xerox. In these arrangements, we sell and transfer title of the equipment to these financial institutions. Generally, we have no continuing ownership rights in the equipment subsequent to its sale; therefore, the unrelated third-party finance receivable and debt are not included in our Consolidated Financial Statements. The following represents our total finance assets, net associated with our lease and finance operations: December 31, (in millions) 2021 2020 Total finance receivables, net (1) $ 3,070 $ 3,165 Equipment on operating leases, net 253 296 Total Finance assets, net (2) $ 3,323 $ 3,461 ____________ (1) Includes (i) Billed portion of finance receivables, net, (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in our Consolidated Balance Sheets. (2) The change from December 31, 2020 includes a decrease of $74 million due to currency. Xerox 2021 Annual Report 55 Table of Contents Our lease contracts permit customers to pay for equipment over time rather than at the date of installation; therefore, we maintain a certain level of debt (that we refer to as financing debt) to support our investment in these lease contracts, which are reflected in Total finance receivables, net. For this financing aspect of our business, we maintain an assumed 7:1 leverage ratio of debt to equity as compared to our finance assets. Approximately 35% of our Total Finance assets, net balance at December 31, 2021 include indirect lease financing primarily provided to end-user customers who purchased equipment sold through distributors, resellers and dealers. Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt: December 31, (in millions) 2021 2020 Finance receivables debt (1) $ 2,687 $ 2,769 Equipment on operating leases debt 221 259 Financing debt 2,908 3,028 Core debt 1,338 1,416 Total Debt $ 4,246 $ 4,444 _____________ (1) Finance receivables debt is the basis for our calculation of “Cost of financing” expense in the Consolidated Statements of (Loss) Income. At December 31, 2021, leverage was assessed against the Total Debt of Xerox Holdings Corporation and Xerox Corporation since the debt held by Xerox Holdings Corporation is guaranteed by Xerox Corporation and the funds from that borrowing were contributed in full by Xerox Holdings Corporation to Xerox Corporation. In 2022, we expect to continue leveraging our finance assets on a Total Debt basis at an assumed 7:1 ratio of debt to equity. Capital Market/Debt Activity During 2021 we received $311 million from a secured financing arrangement. The secured loan was an amendment of the July 2020 secured borrowing with the same financial institution, which had a remaining balance of $136 million, and we received the incremental net cash. Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity, as well as Note 27 - Subsequent Events in the Consolidated Financial Statements for additional information related to our secured financing arrangements. Financial Instruments Refer to Note 17 - Financial Instruments in the Consolidated Financial Statements for additional information. Sales of Accounts Receivable The net impact from the sales of accounts receivable on reported net cash flows is summarized below: Year Ended December 31, (in millions) 2021 2020 2019 Estimated (decrease) increase to net cash flows (1) $ (26) $ (41) $ 37 _____________ (1) Represents the difference between current and prior year fourth quarter accounts receivable sales adjusted for the effects of: (i) the deferred proceeds, (ii) collections prior to the end of the year and (iii) currency. The decrease in 2020 reflects a decrease in the level of accounts receivable sold due to lower sales revenue as a result of impacts from the COVID-19 pandemic. Refer to Note 7 - Accounts Receivable, Net in the Consolidated Financial Statements for additional information regarding our accounts receivable sales arrangements. Share Repurchase Programs - Treasury Stock In January 2021, the Xerox Holdings Corporation's Board of Directors authorized an additional $100 million of share repurchase authority, bringing the total authorization of its original share repurchase program, initiated in July 2019, to $1.1 billion (exclusive of any commissions and other transaction fees and costs related thereto). In October 2021, the Xerox Holdings Corporation's Board of Directors authorized a $500 million share repurchase program (exclusive of any commissions and other transaction fees and costs related thereto). This program replaced the approximate $450 thousand of authority remaining under Xerox Holdings Corporation's previously authorized $1.1 billion share repurchase program. During 2021, Xerox Holdings Corporation repurchased 19.4 million shares of our common stock for an aggregate cost of approximately $388 million, including fees. The remaining authorization at December 31, 2021 is approximately $113 million. Xerox 2021 Annual Report 56 Table of Contents Including the shares repurchased under Xerox Holdings Corporation's current and previously authorized share repurchase programs in 2021, Xerox Holdings Corporation repurchased 40.2 million shares of our common stock for an aggregate cost of approximately $888 million, including fees. During 2020, Xerox Holdings Corporation repurchased 15.6 million shares of our common stock for an aggregate cost of $300 million, including fees. During 2019, Xerox Holdings Corporation repurchased 9.1 million shares of our common stock for an aggregate cost of $300 million, including fees. Including the shares repurchased under Xerox Corporation's previously authorized share repurchase program, Xerox Holdings Corporation repurchased 18.3 million shares of our common stock for an aggregate cost of $600 million, including fees, during 2019. Refer to Note 23 - Shareholders' Equity in the Consolidated Financial Statements for additional information regarding our share repurchase program. Dividends Aggregate dividends of $181 million, $209 million and $226 million were declared on common stock in 2021, 2020 and 2019, respectively. The decrease in dividends since 2019 primarily reflects lower shares of common stock outstanding as a result of our share repurchase programs. Aggregate dividends of $14 million were declared on preferred stock in 2021, 2020 and 2019, respectively. Liquidity and Financial Flexibility We manage our worldwide liquidity using internal cash management practices, which are subject to (i) the statutes, regulations and practices of each of the local jurisdictions in which we operate, (ii) the legal requirements of the agreements to which we are a party and (iii) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services. Our principal debt maturities are in line with historical and projected cash flows and are spread over the next five years as follows: (in millions) Xerox Holdings Corporation Xerox Corporation Xerox - Other Subsidiaries (1) Total 2022 - Q1 $ — $ 300 $ 96 $ 396 2022 - Q2 — — 92 92 2022 - Q3 — — 85 85 2022 - Q4 — — 78 78 2023 — 1,000 185 1,185 2024 — 300 25 325 2025 750 — — 750 2026 — — — — 2027 and thereafter 750 600 — 1,350 Total (2) $ 1,500 $ 2,200 $ 561 $ 4,261 _____________ (1) Represents subsidiaries of Xerox Corporation. (2) Includes fair value adjustments. Loan Covenants and Compliance At December 31, 2021, we were in full compliance with the covenants and other provisions of our Credit Facility and Senior Notes. We have the right to terminate the Credit Facility without penalty. Failure to comply with material provisions or covenants of the Credit Facility and Senior Notes could have a material adverse effect on our liquidity and operations and our ability to continue to fund our customers' purchases of Xerox equipment. Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding debt arrangements and our Credit Facility. Xerox 2021 Annual Report 57 Table of Contents Contractual Cash Obligations and Other Commercial Commitments and Contingencies At December 31, 2021, we had the following contractual cash obligations and other commercial commitments and contingencies: (in millions) 2022 2023 2024 2025 2026 Thereafter Total debt (1) $ 651 $ 1,185 $ 325 $ 750 $ — $ 1,350 Interest on debt (1) 178 138 120 100 77 472 Minimum operating lease commitments (2) 98 78 45 31 26 35 Defined benefit pension plans 135 — — — — — Retiree health payments 25 25 24 22 21 87 Estimated Purchase Commitments: FUJIFILM Business Innovation Corp. (3) 1,180 — — — — — Flex (4) 140 — — — — — HCL (5) 215 193 189 186 46 — TCS (6) 36 33 29 26 25 14 Other (7) 150 87 25 19 10 — Total $ 2,808 $ 1,739 $ 757 $ 1,134 $ 205 $ 1,958 _____________ (1) Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding debt and interest on debt. (2) Refer to Note 11 – Lessee in the Consolidated Financial Statements for additional information related to minimum operating lease commitments. (3) FUJIFILM Business Innovation Corp.: The amount included in the table reflects our estimate of purchases over the next year and is not a contractual commitment. (4) Flex: We outsource certain manufacturing activities to Flex. The amount included in the table reflects our estimate of purchases over the next year and is not a contractual commitment. In the past two years, actual purchases from Flex averaged approximately $123 million per year. (5) HCL: Shared services arrangement with HCL Technologies. (6) TCS: Shared services arrangement with Tata Consulting Services. (7) Other purchase commitments: We enter into other purchase commitments with vendors in the ordinary course of business. Our policy with respect to all purchase commitments is to record losses, if any, when they are probable and reasonably estimable. We currently do not have, nor do we anticipate, material loss contracts. Pension and Retiree Health Benefit Plans We sponsor defined benefit pension plans and retiree health plans that require periodic cash contributions. Our 2021 cash contributions for these plans were $135 million for our defined benefit pension plans and $25 million for our retiree health plans. In 2022, based on current actuarial calculations, we expect to make contributions of approximately $135 million to our worldwide defined benefit pension plans and $25 million to our retiree health benefit plans. There are no contributions required in 2022 for our U.S. tax-qualified defined benefit plans to meet the minimum funding requirements. Contributions to our defined benefit pension plans in subsequent years will depend on a number of factors, including the investment performance of plan assets and discount rates as well as potential legislative and plan changes. At December 31, 2021, the net unfunded balance of our defined benefit pension plans was $119 million, which is a $786 million decrease from the balance at December 31, 2020. The decrease is primarily due to contributions, favorable asset returns and higher discount rates, which lowered the benefit obligation. The $119 million net unfunded position at December 31, 2021 includes the following: • $(763) million for certain unfunded plans that by design do not require or allow for advanced funding. • $(571) million for under-funded plans, primarily our U.S. tax qualified plans ($512 million under-funded). • $1,215 million for over-funded plans, primarily our U.K. plan ($1,044 million over-funded). Cash contributions to our retiree health plans are made each year to cover medical claims costs incurred during the year. The amounts reported in the above table as retiree health payments represent our estimate of future benefit payments. Our retiree health benefit plans are non-funded and are primarily related to domestic operations. The unfunded balance of our retiree health plans of $303 million at December 31, 2021 decreased $67 million from the balance at December 31, 2020 primarily due to a plan amendment to our U.S. Retiree Health plan, which reduced future benefits and the benefit obligation by approximately $50 million, as well as benefit payments and higher discount rates. Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding contributions to our defined benefit pension and retiree health plans. Xerox 2021 Annual Report 58 Table of Contents FUJIFILM Business Innovation Corp. As previously disclosed, in November 2019, Xerox Holdings completed the sale of its indirect 25% equity interest in Fuji Xerox (now known as FUJIFILM Business Innovation Corp.). However, arrangements with FUJIFILM Business Innovation Corp. whereby we purchase inventory from and sell inventory to FUJIFILM Business Innovation Corp. continued after the sale. We purchased products, including parts and supplies, from FUJIFILM Business Innovation Corp. totaling $966 million, $1.1 billion and $1.3 billion in 2021, 2020 and 2019, respectively. Our product supply agreements with FUJIFILM Business Innovation Corp. are designed to support the entire product lifecycle, end-to-end, including the availability of spare parts, consumables and technical support throughout the time such products are with our customers. Our purchase orders under such agreements are made in the normal course of business and typically have a lead time of three months. Shared Services Arrangements In March 2019, as part of Project Own It, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including, among others, selected information technology and finance functions, from Xerox to HCL. This transition was expected to be completed during 2020, however, it sustained some delays caused by the COVID-19 pandemic, and it is now expected to be finalized by the end of 2021. HCL is expected to make certain ongoing investments in software, tools and other technology to consolidate, optimize and automate the transferred functions with the goal of providing improved service levels and significant cost savings. The shared services arrangement with HCL includes a remaining aggregate spending commitment of approximately $829 million over the next 5 years. However, we can terminate the arrangement at any time at our discretion, subject to payment of termination fees that decline over the term, or for cause. In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS will provide business processing outsourcing services in support of our global finance organization. This included the transition of all the finance processes currently being provided by HCL. These activities started to transition during the third quarter 2021 and were completed in fourth quarter 2021. The transition does not impact our minimum revenue commitments to HCL and will result in all of our finance business processing outsourcing services being provided by one vendor. TCS will leverage their existing technology and make additional investments as required to consolidate, optimize and automate the supported services with the goal of providing improved service levels and cost savings. The arrangement is initially for 6 years with a total contract value of approximately $163 million. We can terminate the arrangement subject to payment of termination fees that decline over the term. We incurred net charges of $207 million and $185 million for the years ended December 31, 2021 and 2020, respectively, related to these shared services arrangements. The cost has been allocated to the various functional expense lines in the Consolidated Statements of (Loss) Income based on an assessment of the nature and amount of the costs incurred for the various transferred functions prior to their transfer to HCL and TCS. Brazil Contingencies Our Brazilian operations have received or been the subject of numerous governmental assessments related to indirect and other taxes. These tax matters principally relate to claims for taxes on the internal transfer of inventory, municipal service taxes on rentals and gross revenue taxes. We are disputing these tax matters and intend to vigorously defend our positions. Based on the opinion of legal counsel and current reserves for those matters deemed probable of loss, we do not believe that the ultimate resolution of these matters will materially impact our results of operations, financial position or cash flows. Below is a summary of our Brazilian tax contingencies: (in millions) December 31, 2021 December 31, 2020 Tax contingency - unreserved $ 292 $ 355 Escrow cash deposits 32 39 Surety bonds 96 112 Letters of credit 74 78 Liens on Brazilian assets — — The decrease in the unreserved portion of the tax contingency, inclusive of any related interest, was primarily related to closed cases and 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. In connection with the above proceedings, customary local regulations may require us to make escrow cash deposits or post other security of up to half of the total amount in dispute, as well as additional surety bonds Xerox 2021 Annual Report 59 Table of Contents and letters of credit, which include associated indexation. Generally, any escrowed amounts would be refundable and any liens on assets would be removed to the extent the matters are resolved in our favor. 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 December 31, 2021 and 2020. We routinely assess all these matters as to 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. Other Contingencies and Commitments As more fully discussed in Note 21 - Contingencies and Litigation in the Consolidated Financial Statements, we are involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; governmental entity contracting, servicing and procurement law; intellectual property law; environmental law; employment law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations. In addition, guarantees, indemnifications and claims may arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates. Nonperformance under a contract including a guarantee, indemnification or claim could trigger an obligation of the Company. We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Should developments in any of these areas cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on our results of operations, financial position and cash flows in the period or periods in which such change in determination, judgment or settlement occurs. Unrecognized Tax Benefits As of December 31, 2021, we had $107 million of unrecognized tax benefits. This represents the tax benefits associated with various tax positions taken, or expected to be taken, on domestic and foreign tax returns that have not been recognized in our financial statements due to uncertainty regarding their resolution. The resolution or settlement of these tax positions with the taxing authorities is at various stages and, therefore, we are unable to make a reliable estimate of the eventual cash flows by period that may be required to settle these matters. In addition, certain of these matters may not require cash settlement due to the existence of credit and net operating loss carryforwards, as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available. Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding unrecognized tax benefits. Off-Balance Sheet Arrangements We may occasionally utilize off-balance sheet arrangements in our operations (as defined by the SEC Financial Reporting Release 67 (FRR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations”). Accounts receivable sales facilities arrangements that we enter into may have off-balance sheet elements. During 2017, we terminated all accounts receivable sales arrangements in North America and all but one arrangement in Europe. Refer to Note 7 - Accounts Receivable, Net in the Consolidated Financial Statements for further information regarding accounts receivable sales. As of December 31, 2021, we do not believe we have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. In addition, see the preceding table for the Company's contractual cash obligations and other commercial commitments and contingencies and Note 21 - Contingencies and Litigation in the Consolidated Financial Statements for additional information regarding contingencies, guarantees, indemnifications and warranty liabilities. Xerox 2021 Annual Report 60 Table of Contents Non-GAAP Financial Measures We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below. We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below in the following tables. These non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Adjusted Earnings Measures • Net (Loss) income and Earnings per share (EPS) • Effective tax rate The above measures were adjusted for the following items: Restructuring and related costs, net: Restructuring and related costs, net include restructuring and asset impairment charges as well as costs associated with our transformation programs beyond those normally included in restructuring and asset impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other strategic business changes. Additional costs for our transformation programs are primarily related to the implementation of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges since we do not believe they provide meaningful insight into our current or past operating performance nor do we believe they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and savings with respect to our operational performance. Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods. Transaction and related costs, net: Transaction and related costs, net are costs and expenses primarily associated with certain strategic M&A projects. These costs are primarily for third-party legal, accounting, consulting and other similar type professional services as well as potential legal settlements that may arise in connection with those M&A transactions. These costs are considered incremental to our normal operating charges and were incurred or are expected to be incurred solely as a result of the planned transactions. Accordingly, we are excluding these expenses from our Adjusted Earnings Measures in order to evaluate our performance on a comparable basis. Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets as well as those that are predominantly legacy in nature and related to employees who are no longer providing current service to the Company (e.g. retirees and ex-employees). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be outside the operational performance of the business or legacy costs and not necessarily indicative of current or future cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans. Other discrete, unusual or infrequent items: We excluded the following items given their discrete, unusual or infrequent nature and their impact on our results for the period: • Non-cash Goodwill impairment charge. • Losses on early extinguishment of debt. • Contract termination costs - IT services. • Impacts associated with the Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017. Xerox 2021 Annual Report 61 Table of Contents We believe the exclusion of these items allows investors to better understand and analyze the results for the period as compared to prior periods and expected future trends in our business. Adjusted Operating Income and Margin We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax (loss) income and margin amounts. In addition to the costs and expenses noted above as adjustments for our adjusted earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses. We exclude these amounts in order to evaluate our current and past operating performance and to better understand the expected future trends in our business. Constant Currency (CC) Refer to the Currency Impact section in the MD&A for discussion of this measure and its use in our analysis of revenue growth. Summary Management believes that all of these non-GAAP financial measures provide an additional means of analyzing the current period’s results against the corresponding prior period’s results. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Net (Loss) Income and EPS reconciliation Year Ended December 31, 2021 2020 2019 (in millions, except per share amounts) Net (Loss) Income EPS Net Income EPS Net Income EPS Reported (1) $ (455) $ (2.56) $ 192 $ 0.84 $ 648 $ 2.78 Adjustments: Goodwill impairment 781 — — Restructuring and related costs, net 38 93 229 Amortization of intangible assets 55 56 45 Transaction and related costs, net — 18 12 Non-service retirement-related costs (89) (29) 18 Loss on early extinguishment of debt — 26 — Contract termination costs - IT services — 3 (12) Income tax on adjustments (2) (37) (46) (77) Tax Act — — (35) Adjusted $ 293 $ 1.51 $ 313 $ 1.41 $ 828 $ 3.55 Dividends on preferred stock used in adjusted EPS calculation (3) $ 14 $ 14 $ — Weighted average shares for adjusted EPS (3) 185 211 233 Estimated fully diluted shares at December 31, 2021 (4) 162 _____________ (1) Net (loss) income and EPS from continuing operations attributable to Xerox Holdings. 2021 Net (loss) and EPS include an after-tax non-cash goodwill impairment charge of $750 million or $4.08 per share. (2) Refer to Effective Tax Rate reconciliation. (3) For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with Xerox Holdings Corporation's Series A Convertible preferred stock. (4) Represents common shares outstanding at December 31, 2021 plus potential dilutive common shares used for the calculation of adjusted diluted earnings per share for the year ended December 31, 2021. The amount excludes shares associated with Xerox Holdings Corporation's Series A convertible preferred stock as they were anti-dilutive. Xerox 2021 Annual Report 62 Table of Contents Effective Tax Rate reconciliation Year Ended December 31, 2021 2020 2019 (in millions) Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income Income Tax Expense Effective Tax Rate Pre-Tax Income Income Tax Expense Effective Tax Rate Reported (1) $ (475) $ (17) 3.6 % $ 252 $ 64 25.4 % $ 822 $ 179 21.8 % Goodwill impairment (2) 781 31 — — — — Non-GAAP Adjustments (2) 4 6 167 46 292 77 Tax Act — — — — — 35 Adjusted (3) $ 310 $ 20 6.5 % $ 419 $ 110 26.3 % $ 1,114 $ 291 26.1 % _____________ (1) Pre-tax (Loss) Income and Income tax (benefit) expense from continuing operations. (2) Refer to Net (Loss) Income and EPS reconciliation for details. (3) The tax impact on Adjusted Pre-Tax Income from continuing operations is calculated under the same accounting principles applied to the Reported Pre-Tax (Loss) Income under ASC 740, which employs an annual effective tax rate method to the results. Operating (Loss) Income and Margin reconciliation Year Ended December 31, 2021 2020 2019 (in millions) (Loss) Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin Reported (1) $ (475) $ 7,038 (6.7) % $ 252 $ 7,022 3.6 % $ 822 $ 9,066 9.1 % Adjustments: Goodwill impairment 781 — — Restructuring and related costs, net 38 93 229 Amortization of intangible assets 55 56 45 Transaction and related costs, net — 18 12 Other expenses, net (2) (24) 45 84 Adjusted $ 375 $ 7,038 5.3 % $ 464 $ 7,022 6.6 % $ 1,192 $ 9,066 13.1 % _____________ (1) Pre-tax (Loss) Income and revenue from continuing operations. (2) Includes non-service retirement-related costs of $(89) million, $(29) million and $18 million for the years ended December 31, 2021, 2020 and 2019, respectively. Xerox 2021 Annual Report 63 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk Financial Risk Management We are exposed to market risk from changes in foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. We utilized derivative financial instruments to hedge economic exposures, as well as reduce earnings and cash flow volatility resulting from shifts in market rates. Recent market events have not caused us to materially modify or change our financial risk management strategies with respect to our exposures to interest rate and foreign currency risk. Refer to Note 17 - Financial Instruments in the Consolidated Financial Statements for additional discussion on our financial risk management. Foreign Exchange Risk Management Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at December 31, 2021, it would not significantly change the fair value of foreign currency-denominated assets and liabilities as all material currency asset and liability exposures were economically hedged as of December 31, 2021. A 10% appreciation or depreciation of the U.S. Dollar against all currencies from the quoted foreign currency exchange rates at December 31, 2021 would have an impact on our cumulative translation adjustment portion of equity of approximately $393 million. The net amount invested in foreign subsidiaries and affiliates, primarily Xerox Limited and Xerox Canada Inc. and translated into U.S. Dollars using the year-end exchange rates, was approximately $3.9 billion at December 31, 2021. Interest Rate Risk Management The consolidated average interest rate associated with our total debt for 2021, 2020 and 2019 approximated 4.8%, 4.8%, and 4.9%, respectively. Interest expense includes the impact of our interest rate derivatives. Virtually all customer-financing assets earn fixed rates of interest. The interest rates on a significant portion of the Company's term debt are fixed. As of December 31, 2021, of our total debt of $4.2 billion, a total of $560 million of secured borrowings carried variable interest rates, of which $293 million has a variable interest rate based on LIBOR plus a spread and the remaining $267 million has a variable interest rate based on the financial institution's cost of funds plus a spread. The fair market values of our fixed-rate financial instruments are sensitive to changes in interest rates. At December 31, 2021, a 10% change in market interest rates would change the fair values of such financial instruments by approximately $68 million. Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our interest expense and our secured borrowings. Item 8. Financial Statements and Supplementary Data Xerox 2021 Annual Report 64 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Xerox Holdings Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Xerox Holdings Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of (loss) income, of comprehensive (loss) income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Xerox 2021 Annual Report 65 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Realizability of Deferred Tax Assets As described in Note 20 to the consolidated financial statements, the Company has recorded $705 million of deferred tax assets, net of a valuation allowance of $357 million, as of December 31, 2021 . Management records the estimated future tax effects of temporary differences between the tax bases of assets and amounts reported, as well as net operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. Management applied judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances, in particular the realizability of U.S. tax credit carryforwards with a limited life. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, management considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The principal considerations for our determination that performing procedures relating to the realizability of deferred tax assets is a critical audit matter are the significant judgment by management in assessing the realizability of deferred tax assets related to the Company's U.S. tax credit carryforwards with a limited life, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s significant assumptions related to projected future taxable income. In addition, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the realizability of deferred tax assets, including controls over projected future taxable income. These procedures also included, among others, evaluating management’s assessment of the realizability of deferred tax assets related to the Company's U.S. tax credit carryforwards with a limited life, including evaluating the reasonableness of the assumptions related to projected future taxable income. Evaluating management’s assumptions related to projected future taxable income involved evaluating whether the assumptions were reasonable by considering historical profitability as well as other audit evidence related to management’s forecasts. Professionals with specialized skill and knowledge were used to assist in the evaluation of management’s application of income tax law in determining projected future taxable income and the assessment of the realizability of deferred tax assets related to the Company's U.S. tax credit carryforwards with a limited life. Goodwill Impairment Assessment As described in Notes 1 and 13 to the consolidated financial statements, the Company has recorded $3,287 million of goodwill as of December 31, 2021 for its single reporting unit. Management assesses goodwill for impairment at least annually, during the fourth quarter based on balances as of October 1st, and more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. If the fair value exceeds the carrying value, goodwill is not considered impaired. If the carrying value exceeds the fair value, goodwill is considered impaired and management would recognize an impairment loss for the excess. Management performs an assessment of goodwill, utilizing either a qualitative or quantitative impairment test. The qualitative impairment test assesses several factors to determine whether it is more-likely-than-not that the fair value of the entity is less than its carrying amount. In a quantitative impairment test, management assesses goodwill by comparing the carrying amount of the entity to its fair value, and the fair value of the entity is determined by using a weighted combination of an income approach and a market approach. After completing the annual quantitative test in the fourth quarter 2021, management concluded that the fair value of the Company had declined below its carrying value. As a result, the Xerox 2021 Annual Report 66 Table of Contents Company recognized an after-tax non-cash impairment charge of $750 million ($781 million pre-tax) for the year ended December 31, 2021. As disclosed by management, the income approach is based on the discounted cash flow method that uses management's estimates of forecasted future financial performance including revenues, gross margins, operating expenses, taxes, 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. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are the significant judgment by management in determining the fair value estimate of the reporting unit, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s discounted cash flow method and significant assumptions related to forecasted revenues, gross margins and operating expenses, and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting unit and the controls over the development of the assumptions related to forecasted revenues, gross margins and operating expenses, and the discount rate. These procedures also included, among others (i) testing management’s process for determining the fair value estimate; (ii) evaluating the appropriateness of the discounted cash flow method; (iii) testing the completeness and accuracy of underlying data used in the estimate; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the forecasted revenues, gross margins and operating expenses, and the discount rate. Evaluating management’s assumptions related to forecasted revenues, gross margins and operating expenses involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were also used to assist in the evaluation of the Company’s discounted cash flow method and the discount rate assumption. /s/ PricewaterhouseCoopers LLP Stamford, Connecticut February 23, 2022 We have served as the Company’s or its predecessor's auditor since 2001. Xerox 2021 Annual Report 67 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholder of Xerox Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Xerox Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of (loss) income, of comprehensive (loss) income, of shareholder's equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also i ncluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over finan ci al reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Xerox 2021 Annual Report 68 Table of Contents Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Realizability of Deferred Tax Assets As described in Note 20 to the consolidated financial statements, the Company has recorded $705 million of deferred tax assets, net of a valuation allowance of $357 million, as of December 31, 2021 . Management records the estimated future tax effects of temporary differences between the tax bases of assets and amounts reported, as well as net operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. Management applied judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances, in particular the realizability of U.S. tax credit carryforwards with a limited life. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, management considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The principal considerations for our determination that performing procedures relating to the realizability of deferred tax assets is a critical audit matter are the significant judgment by management in assessing the realizability of deferred tax assets related to the Company's U.S. tax credit carryforwards with a limited life, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s significant assumptions related to projected future taxable income. In addition, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the realizability of deferred tax assets, including controls over projected future taxable income. These procedures also included, among others, evaluating management’s assessment of the realizability of deferred tax assets related to the Company's U.S. tax credit carryforwards with a limited life, including evaluating the reasonableness of the assumptions related to projected future taxable income. Evaluating management’s assumptions related to projected future taxable income involved evaluating whether the assumptions were reasonable by considering historical profitability as well as other audit evidence related to management’s forecasts. Professionals with specialized skill and knowledge were used to assist in the evaluation of management’s application of income tax law in determining projected future taxable income and the assessment of the realizability of deferred tax assets related to the Company's U.S. tax credit carryforwards with a limited life. Goodwill Impairment Assessment As described in Notes 1 and 13 to the consolidated financial statements, the Company has recorded $3,287 million of goodwill as of December 31, 2021 for its single reporting unit. Management assesses goodwill for impairment at least annually, during the fourth quarter based on balances as of October 1st, and more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. If the fair value exceeds the carrying value, goodwill is not considered impaired. If the carrying value exceeds the fair value, goodwill is considered impaired and management would recognize an impairment loss for the excess. Management performs an assessment of goodwill, utilizing either a qualitative or quantitative impairment test. The qualitative impairment test assesses several factors to determine whether it is more-likely-than-not that the fair value of the entity is less than its carrying amount. In a quantitative impairment test, management assesses goodwill by comparing the carrying amount of the entity to its fair value, and the fair value of the entity is determined by using a weighted combination of an income approach and a market approach. After completing the annual quantitative test in the fourth quarter 2021, management concluded that the fair value of the Company had declined below its carrying value. As a result, the Company recognized an after-tax non-cash impairment charge of $750 million ($781 million pre-tax) for the year Xerox 2021 Annual Report 69 Table of Contents ended December 31, 2021. As disclosed by management, the income approach is based on the discounted cash flow method that uses management’s estimates of forecasted future financial performance including revenues, gross margins, operating expenses, taxes, 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. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are the significant judgment by management in determining the fair value estimate of the reporting unit, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s discounted cash flow method and significant assumptions related to forecasted revenues, gross margins and operating expenses, and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting unit and the controls over the development of the assumptions related to forecasted revenues, gross margins and operating expenses, and the discount rate. These procedures also included, among others (i) testing management’s process for determining the fair value estimate; (ii) evaluating the appropriateness of the discounted cash flow method; (iii) testing the completeness and accuracy of underlying data used in the estimate; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the forecasted revenues, gross margins and operating expenses, and the discount rate. Evaluating management’s assumptions related to forecasted revenues, gross margins and operating expenses involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were also used to assist in the evaluation of the Company’s discounted cash flow method and the discount rate assumption. /s/ PricewaterhouseCoopers LLP Stamford, Connecticut February 23, 2022 We have served as the Company’s auditor since 2001. Xerox 2021 Annual Report 70 Table of Contents Xerox Holdings Corporation Reports of Management Management's Responsibility for Financial Statements The management of Xerox Holdings Corporation is responsible for the integrity and objectivity of all information presented in this annual report. The Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments. Management believes the Consolidated Financial Statements fairly reflect the form and substance of transactions and that the financial statements fairly represent Xerox Holdings Corporation's financial position and results of operations. The Audit Committee of the Xerox Holdings Corporation Board of Directors, which is composed solely of independent directors, meets regularly with the independent auditors, PricewaterhouseCoopers LLP, the internal auditors and representatives of management to review accounting, financial reporting, internal control and audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the independent auditors. The independent auditors and internal auditors have free access to the Audit Committee. Management's Report on Internal Control Over Financial Reporting The management of Xerox Holdings Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the rules promulgated under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive, financial and accounting officers, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control - Integrated Framework (2013) ” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the above evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein. /s/ G IOVANNI V ISENTIN /s/ X AVIER H EISS /s/ J OSEPH H. M ANCINI , J R . Chief Executive Officer Chief Financial Officer Chief Accounting Officer Xerox 2021 Annual Report 71 Table of Contents Xerox Corporation Reports of Management Management's Responsibility for Financial Statements The management of Xerox Corporation is responsible for the integrity and objectivity of all information presented in this annual report. The Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments. Management believes the Consolidated Financial Statements fairly reflect the form and substance of transactions and that the financial statements fairly represent Xerox Corporation's financial position and results of operations. The Audit Committee of the Xerox Holdings Corporation Board of Directors, which is composed solely of independent directors, meets regularly with the independent auditors, PricewaterhouseCoopers LLP, the internal auditors and representatives of management to review accounting, financial reporting, internal control and audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the independent auditors. The independent auditors and internal auditors have free access to the Audit Committee. Management's Report on Internal Control Over Financial Reporting The management of Xerox Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the rules promulgated under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive, financial and accounting officers, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control - Integrated Framework (2013) ” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the above evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein. /s/ G IOVANNI V ISENTIN /s/ X AVIER H EISS /s/ J OSEPH H. M ANCINI , J R . Chief Executive Officer Chief Financial Officer Chief Accounting Officer Xerox 2021 Annual Report 72 Table of Contents Xerox Holdings Corporation Consolidated Statements of (Loss) Income Year Ended December 31, (in millions, except per-share data) 2021 2020 2019 Revenues Sales $ 2,582 $ 2,449 $ 3,227 Services, maintenance and rentals 4,235 4,347 5,595 Financing 221 226 244 Total Revenues 7,038 7,022 9,066 Costs and Expenses Cost of sales 1,862 1,742 2,097 Cost of services, maintenance and rentals 2,662 2,533 3,188 Cost of financing 111 121 131 Research, development and engineering expenses 310 311 373 Selling, administrative and general expenses 1,718 1,851 2,085 Goodwill impairment 781 — — Restructuring and related costs, net 38 93 229 Amortization of intangible assets 55 56 45 Transaction and related costs, net — 18 12 Other expenses, net ( 24 ) 45 84 Total Costs and Expenses 7,513 6,770 8,244 Income before Income Taxes and Equity (Loss) Income ( 475 ) 252 822 Income tax (benefit) expense ( 17 ) 64 179 Equity in net income of unconsolidated affiliates 3 4 8 (Loss) Income from Continuing Operations ( 455 ) 192 651 Income from discontinued operations, net of tax — — 710 Net (Loss) Income ( 455 ) 192 1,361 Less: Income from continuing operations attributable to noncontrolling interests — — 3 Less: Income from discontinued operations attributable to noncontrolling interests — — 5 Net (Loss) Income Attributable to Xerox Holdings $ ( 455 ) $ 192 $ 1,353 Amounts attributable to Xerox Holdings: (Loss) Income from continuing operations $ ( 455 ) $ 192 $ 648 Income from discontinued operations — — 705 Net (Loss) Income Attributable to Xerox Holdings $ ( 455 ) $ 192 $ 1,353 Basic (Loss) Earnings per Share: Continuing operations $ ( 2.56 ) $ 0.85 $ 2.86 Discontinued operations — — 3.17 Total Basic (Loss) Earnings per Share $ ( 2.56 ) $ 0.85 $ 6.03 Diluted (Loss) Earnings per Share: Continuing operations $ ( 2.56 ) $ 0.84 $ 2.78 Discontinued operations — — 3.02 Total Diluted (Loss) Earnings per Share $ ( 2.56 ) $ 0.84 $ 5.80 The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 73 Table of Contents Xerox Holdings Corporation Consolidated Statements of Comprehensive (Loss) Income Year Ended December 31, (in millions) 2021 2020 2019 Net (Loss) Income $ ( 455 ) $ 192 $ 1,361 Less: Income from continuing operations attributable to noncontrolling interests — — 3 Less: Income from discontinued operations attributable to noncontrolling interests — — 5 Net (Loss) Income Attributable to Xerox Holdings $ ( 455 ) $ 192 $ 1,353 Other Comprehensive (Loss) Income, Net (1) Translation adjustments, net $ ( 141 ) $ 241 $ 62 Unrealized (losses) gains, net ( 4 ) 4 ( 6 ) Changes in defined benefit plans, net 489 69 ( 10 ) Other Comprehensive Income, Net Attributable to Xerox Holdings $ 344 $ 314 $ 46 Comprehensive (Loss) Income, Net $ ( 111 ) $ 506 $ 1,407 Less: Comprehensive income, net from continuing operations attributable to noncontrolling interests — — 3 Less: Comprehensive income, net from discontinued operations attributable to noncontrolling interests — — 5 Comprehensive (Loss) Income, Net Attributable to Xerox Holdings $ ( 111 ) $ 506 $ 1,399 _____________ (1) Refer to Note 25 - Other Comprehensive Income (Loss) for gross components of Other Comprehensive Income, reclassification adjustments out of Accumulated Other Comprehensive Loss and related tax effects. . The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 74 Table of Contents Xerox Holdings Corporation Consolidated Balance Sheets December 31, (in millions, except share data in thousands) 2021 2020 Assets Cash and cash equivalents $ 1,840 $ 2,625 Accounts receivable (net of allowance of $ 58 and $ 69 , respectively) 818 883 Billed portion of finance receivables (net of allowance of $ 4 and $ 4 , respectively) 94 99 Finance receivables, net 1,042 1,082 Inventories 696 843 Other current assets 211 251 Total current assets 4,701 5,783 Finance receivables due after one year (net of allowance of $ 114 and $ 129 , respectively) 1,934 1,984 Equipment on operating leases, net 253 296 Land, buildings and equipment, net 358 407 Intangible assets, net 211 237 Goodwill 3,287 4,071 Deferred tax assets 519 508 Other long-term assets 1,960 1,455 Total Assets $ 13,223 $ 14,741 Liabilities and Equity Short-term debt and current portion of long-term debt $ 650 $ 394 Accounts payable 1,069 983 Accrued compensation and benefits costs 239 261 Accrued expenses and other current liabilities 871 840 Total current liabilities 2,829 2,478 Long-term debt 3,596 4,050 Pension and other benefit liabilities 1,373 1,566 Post-retirement medical benefits 277 340 Other long-term liabilities 481 497 Total Liabilities 8,556 8,931 Commitments and Contingencies (See Note 21) Noncontrolling Interests (See Note 5) 10 — Convertible Preferred Stock 214 214 Common stock 168 198 Additional paid-in capital 1,802 2,445 Treasury stock, at cost ( 177 ) — Retained earnings 5,631 6,281 Accumulated other comprehensive loss ( 2,988 ) ( 3,332 ) Xerox Holdings shareholders’ equity 4,436 5,592 Noncontrolling interests 7 4 Total Equity 4,443 5,596 Total Liabilities and Equity $ 13,223 $ 14,741 Shares of common stock issued 168,069 198,386 Treasury stock ( 8,675 ) — Shares of Common Stock Outstanding 159,394 198,386 The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 75 Table of Contents Xerox Holdings Corporation Consolidated Statements of Cash Flows Year Ended December 31, (in millions) 2021 2020 2019 Cash Flows from Operating Activities Net (loss) income $ ( 455 ) $ 192 $ 1,361 Income from discontinued operations, net of tax — — ( 710 ) (Loss) income from continuing operations ( 455 ) 192 651 Adjustments required to reconcile Net (loss) income to Cash flows from operating activities Depreciation and amortization 327 368 430 Provisions 46 147 73 Deferred tax (benefit) expense ( 89 ) 34 124 Net gain on sales of businesses and assets ( 40 ) ( 30 ) ( 21 ) Stock-based compensation 54 42 50 Goodwill impairment 781 — — Restructuring and asset impairment charges 27 87 127 Payments for restructurings ( 72 ) ( 81 ) ( 93 ) Defined benefit pension cost ( 10 ) 58 109 Contributions to defined benefit pension plans ( 135 ) ( 139 ) ( 141 ) Decrease in accounts receivable and billed portion of finance receivables 41 369 10 Decrease (increase) in inventories 88 ( 134 ) 109 Increase in equipment on operating leases ( 129 ) ( 118 ) ( 153 ) Decrease in finance receivables 20 183 101 Decrease (increase) in other current and long-term assets 68 8 ( 14 ) Increase (decrease) in accounts payable 118 ( 123 ) ( 47 ) Decrease in accrued compensation ( 95 ) ( 189 ) ( 94 ) Increase (decrease) in other current and long-term liabilities 89 ( 165 ) 40 Net change in income tax assets and liabilities 10 ( 2 ) ( 34 ) Net change in derivative assets and liabilities 2 1 11 Other operating, net ( 17 ) 40 6 Net cash provided by operating activities of continuing operations 629 548 1,244 Net cash provided by operating activities of discontinued operations — — 89 Net cash provided by operating activities 629 548 1,333 Cash Flows from Investing Activities Cost of additions to land, buildings, equipment and software ( 68 ) ( 74 ) ( 65 ) Proceeds from sales of businesses and assets 44 30 21 Acquisitions, net of cash acquired ( 53 ) ( 203 ) ( 42 ) Other investing, net ( 8 ) 1 1 Net cash used in investing activities of continuing operations ( 85 ) ( 246 ) ( 85 ) Net cash provided by investing activities of discontinued operations — — 2,233 Net cash (used in) provided by investing activities ( 85 ) ( 246 ) 2,148 Cash Flows from Financing Activities Proceeds from issuance of long-term debt 311 2,359 10 Payments on long-term debt ( 519 ) ( 2,226 ) ( 960 ) Dividends ( 206 ) ( 230 ) ( 243 ) Payments to acquire treasury stock, including fees ( 888 ) ( 300 ) ( 600 ) Other financing, net ( 8 ) ( 19 ) ( 41 ) Net cash used in financing activities ( 1,310 ) ( 416 ) ( 1,834 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 16 ) 10 — (Decrease) increase in cash, cash equivalents and restricted cash ( 782 ) ( 104 ) 1,647 Cash, cash equivalents and restricted cash at beginning of year 2,691 2,795 1,148 Cash, Cash Equivalents and Restricted Cash at End of Year $ 1,909 $ 2,691 $ 2,795 The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 76 Table of Contents Xerox Holdings Corporation Consolidated Statements of Shareholders' Equity (in millions) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (1) Xerox Holdings Shareholders’ Equity Non- controlling Interests Total Equity Balance at December 31, 2018 $ 232 $ 3,321 $ ( 55 ) $ 5,072 $ ( 3,565 ) $ 5,005 $ 34 $ 5,039 Cumulative effect of change in accounting principle — — — 127 ( 127 ) — — — Comprehensive income, net — — — 1,353 46 1,399 8 1,407 Cash dividends declared-common (2) — — — ( 226 ) — ( 226 ) — ( 226 ) Cash dividends declared-preferred (3) — — — ( 14 ) — ( 14 ) — ( 14 ) Stock option and incentive plans, net 1 22 — — — 23 — 23 Payments to acquire treasury stock, including fees — — ( 600 ) — — ( 600 ) — ( 600 ) Cancellation of treasury stock ( 18 ) ( 561 ) 579 — — — — — Distributions to noncontrolling interests — — — — — — ( 3 ) ( 3 ) Divestiture (4) — — — — — — ( 32 ) ( 32 ) Balance at December 31, 2019 $ 215 $ 2,782 $ ( 76 ) $ 6,312 $ ( 3,646 ) $ 5,587 $ 7 $ 5,594 Comprehensive income, net — — — 192 314 506 — 506 Cash dividends declared-common (2) — — — ( 209 ) — ( 209 ) — ( 209 ) Cash dividends declared-preferred (3) — — — ( 14 ) — ( 14 ) — ( 14 ) Stock option and incentive plans, net 1 21 — — — 22 — 22 Payments to acquire treasury stock, including fees — — ( 300 ) — — ( 300 ) — ( 300 ) Cancellation of treasury stock ( 18 ) ( 358 ) 376 — — — — — Distributions to noncontrolling interests — — — — — — ( 3 ) ( 3 ) Balance at December 31, 2020 $ 198 $ 2,445 $ — $ 6,281 $ ( 3,332 ) $ 5,592 $ 4 $ 5,596 Comprehensive (loss) income, net — — — ( 455 ) 344 ( 111 ) — ( 111 ) Cash dividends declared-common (2) — — — ( 181 ) — ( 181 ) — ( 181 ) Cash dividends declared-preferred (3) — — — ( 14 ) — ( 14 ) — ( 14 ) Stock option and incentive plans, net 2 35 — — — 37 — 37 Payments to acquire treasury stock, including fees — — ( 888 ) — — ( 888 ) — ( 888 ) Cancellation of treasury stock ( 32 ) ( 679 ) 711 — — — — — Investment from noncontrolling interests (5) — 1 — — — 1 4 5 Distributions to noncontrolling interests — — — — — — ( 1 ) ( 1 ) Balance at December 31, 2021 $ 168 $ 1,802 $ ( 177 ) $ 5,631 $ ( 2,988 ) $ 4,436 $ 7 $ 4,443 _____________ (1) AOCL - Accumulated other comprehensive loss. (2) Cash dividends declared on common stock for 2021, 2020 and 2019 were $ 0.25 per share on a quarterly basis and $ 1.00 per share on an annual basis. (3) Cash dividends declared on preferred stock for 2021, 2020 and 2019 were $ 20 per share on a quarterly basis and $ 80 per share on an annual basis. (4) Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies and Note 6 - Divestitures for additional information regarding divestitures. (5) Refer to Note 5 - Acquisitions and Investments for additional information regarding this noncontrolling interests. The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 77 Table of Contents Xerox Corporation Consolidated Statements of (Loss) Income Year Ended December 31, (in millions) 2021 2020 2019 Revenues Sales $ 2,582 $ 2,449 $ 3,227 Services, maintenance and rentals 4,235 4,347 5,595 Financing 221 226 244 Total Revenues 7,038 7,022 9,066 Costs and Expenses Cost of sales 1,862 1,742 2,097 Cost of services, maintenance and rentals 2,662 2,533 3,188 Cost of financing 111 121 131 Research, development and engineering expenses 310 311 373 Selling, administrative and general expenses 1,718 1,851 2,085 Goodwill impairment 781 — — Restructuring and related costs, net 38 93 229 Amortization of intangible assets 55 56 45 Transaction and related costs, net — 18 12 Other expenses, net ( 24 ) 45 84 Total Costs and Expenses 7,513 6,770 8,244 Income before Income Taxes and Equity (Loss) Income ( 475 ) 252 822 Income tax (benefit) expense ( 17 ) 64 179 Equity in net income of unconsolidated affiliates 3 4 8 (Loss) Income from Continuing Operations ( 455 ) 192 651 Income from discontinued operations, net of tax — — 710 Net (Loss) Income ( 455 ) 192 1,361 Less: Income from continuing operations attributable to noncontrolling interests — — 3 Less: Income from discontinued operations attributable to noncontrolling interests — — 5 Net (Loss) Income Attributable to Xerox $ ( 455 ) $ 192 $ 1,353 Amounts attributable to Xerox: (Loss) Income from continuing operations $ ( 455 ) $ 192 $ 648 Income from discontinued operations — — 705 Net (Loss) Income Attributable to Xerox $ ( 455 ) $ 192 $ 1,353 The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 78 Table of Contents Xerox Corporation Consolidated Statements of Comprehensive (Loss) Income Year Ended December 31, (in millions) 2021 2020 2019 Net (Loss) Income $ ( 455 ) $ 192 $ 1,361 Less: Income from continuing operations attributable to noncontrolling interests — — 3 Less: Income from discontinued operations attributable to noncontrolling interests — — 5 Net (Loss) Income Attributable to Xerox $ ( 455 ) $ 192 $ 1,353 Other Comprehensive (Loss) Income, Net (1) Translation adjustments, net $ ( 141 ) $ 241 $ 62 Unrealized (losses) gains, net ( 4 ) 4 ( 6 ) Changes in defined benefit plans, net 489 69 ( 10 ) Other Comprehensive Income, Net Attributable to Xerox $ 344 $ 314 $ 46 Comprehensive (Loss) Income, Net $ ( 111 ) $ 506 $ 1,407 Less: Comprehensive income, net from continuing operations attributable to noncontrolling interests — — 3 Less: Comprehensive income, net from discontinued operations attributable to noncontrolling interests — — 5 Comprehensive (Loss) Income, Net Attributable to Xerox $ ( 111 ) $ 506 $ 1,399 _____________ (1) Refer to Note 25 - Other Comprehensive Income (Loss) for gross components of Other Comprehensive Income, reclassification adjustments out of Accumulated Other Comprehensive Loss and related tax effects. The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 79 Table of Contents Xerox Corporation Consolidated Balance Sheets December 31, (in millions) 2021 2020 Assets Cash and cash equivalents $ 1,840 $ 2,625 Accounts receivable (net of allowance of $ 58 and $ 69 , respectively) 818 883 Billed portion of finance receivables (net of allowance of $ 4 and $ 4 , respectively) 94 99 Finance receivables, net 1,042 1,082 Inventories 696 843 Other current assets 211 251 Total current assets 4,701 5,783 Finance receivables due after one year (net of allowance of $ 114 and $ 129 , respectively) 1,934 1,984 Equipment on operating leases, net 253 296 Land, buildings and equipment, net 358 407 Intangible assets, net 211 237 Goodwill 3,287 4,071 Deferred tax assets 519 508 Other long-term assets 1,952 1,455 Total Assets $ 13,215 $ 14,741 Liabilities and Equity Short-term debt and current portion of long-term debt $ 650 $ 394 Accounts payable 1,069 983 Accrued compensation and benefits costs 239 261 Accrued expenses and other current liabilities 823 749 Total current liabilities 2,781 2,387 Long-term debt 2,102 2,557 Related party debt 1,494 — Pension and other benefit liabilities 1,373 1,566 Post-retirement medical benefits 277 340 Other long-term liabilities 481 497 Total Liabilities 8,508 7,347 Commitments and Contingencies (See Note 21) Noncontrolling Interests (See Note 5) 10 — Additional paid-in capital 3,202 4,888 Retained earnings 4,476 5,834 Accumulated other comprehensive loss ( 2,988 ) ( 3,332 ) Xerox shareholder's equity 4,690 7,390 Noncontrolling interests 7 4 Total Equity 4,697 7,394 Total Liabilities and Equity $ 13,215 $ 14,741 The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 80 Table of Contents Xerox Corporation Consolidated Statements of Cash Flows Year Ended December 31, (in millions) 2021 2020 2019 Cash Flows from Operating Activities Net (loss) income $ ( 455 ) $ 192 $ 1,361 Income from discontinued operations, net of tax — — ( 710 ) (Loss) income from continuing operations ( 455 ) 192 651 Adjustments required to reconcile Net (loss) income to Cash flows from operating activities Depreciation and amortization 327 368 430 Provisions 46 147 73 Deferred tax (benefit) expense ( 89 ) 34 124 Net gain on sales of businesses and assets ( 40 ) ( 30 ) ( 21 ) Stock-based compensation 54 42 50 Goodwill impairment 781 — — Restructuring and asset impairment charges 27 87 127 Payments for restructurings ( 72 ) ( 81 ) ( 93 ) Defined benefit pension cost ( 10 ) 58 109 Contributions to defined benefit pension plans ( 135 ) ( 139 ) ( 141 ) Decrease in accounts receivable and billed portion of finance receivables 41 369 10 Decrease (increase) in inventories 88 ( 134 ) 109 Increase in equipment on operating leases ( 129 ) ( 118 ) ( 153 ) Decrease in finance receivables 20 183 101 Decrease (increase) in other current and long-term assets 68 8 ( 14 ) Increase (decrease) in accounts payable 118 ( 123 ) ( 47 ) Decrease in accrued compensation ( 95 ) ( 189 ) ( 94 ) Increase (decrease) in other current and long-term liabilities 89 ( 165 ) 40 Net change in income tax assets and liabilities 10 ( 2 ) ( 34 ) Net change in derivative assets and liabilities 2 1 11 Other operating, net ( 17 ) 40 6 Net cash provided by operating activities of continuing operations 629 548 1,244 Net cash provided by operating activities of discontinued operations — — 89 Net cash provided by operating activities 629 548 1,333 Cash Flows from Investing Activities Cost of additions to land, buildings, equipment and software ( 68 ) ( 74 ) ( 65 ) Proceeds from sales of businesses and assets 44 30 21 Acquisitions, net of cash acquired ( 53 ) ( 203 ) ( 42 ) Other investing, net — 1 1 Net cash used in investing activities of continuing operations ( 77 ) ( 246 ) ( 85 ) Net cash provided by investing activities of discontinued operations — — 2,233 Net cash (used in) provided by investing activities ( 77 ) ( 246 ) 2,148 Cash Flows from Financing Activities Proceeds from issuance of long-term debt 311 852 10 Payments on long-term debt ( 519 ) ( 2,213 ) ( 960 ) Dividends — — ( 181 ) Payments to acquire treasury stock, including fees — — ( 300 ) Contributions from parent — 1,494 — Distributions to parent ( 1,120 ) ( 549 ) ( 373 ) Other financing, net 10 — ( 30 ) Net cash used in financing activities ( 1,318 ) ( 416 ) ( 1,834 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 16 ) 10 — (Decrease) increase in cash, cash equivalents and restricted cash ( 782 ) ( 104 ) 1,647 Cash, cash equivalents and restricted cash at beginning of year 2,691 2,795 1,148 Cash, Cash Equivalents and Restricted Cash at End of Year $ 1,909 $ 2,691 $ 2,795 The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 81 Table of Contents Xerox Corporation Consolidated Statements of Shareholder's Equity (in millions) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (1) Xerox Shareholder's Equity Non- controlling Interests Total Equity Balance at December 31, 2018 $ 232 $ 3,321 $ ( 55 ) $ 5,072 $ ( 3,565 ) $ 5,005 $ 34 $ 5,039 Cumulative effect of change in accounting principle — — — 127 ( 127 ) — — — Comprehensive income, net — — — 1,353 46 1,399 8 1,407 Cash dividends declared-common — — — ( 115 ) — ( 115 ) — ( 115 ) Cash dividends declared-preferred — — — ( 7 ) — ( 7 ) — ( 7 ) Dividends declared to parent — — — ( 183 ) — ( 183 ) — ( 183 ) Transfers to parent — ( 175 ) — — — ( 175 ) — ( 175 ) 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 — — — — — — ( 3 ) ( 3 ) Reorganization ( 221 ) 446 — — — 225 — 225 Divestiture (2) — — — — — — ( 32 ) ( 32 ) Balance at December 31, 2019 $ — $ 3,266 $ — $ 6,247 $ ( 3,646 ) $ 5,867 $ 7 $ 5,874 Comprehensive income, net — — — 192 314 506 — 506 Dividends declared to parent — — — ( 605 ) — ( 605 ) — ( 605 ) Capital contributions from parent (3) — 1,494 — — — 1,494 — 1,494 Transfers from parent — 128 — — — 128 — 128 Distributions to noncontrolling interests — — — — — — ( 3 ) ( 3 ) Balance at December 31, 2020 $ — $ 4,888 $ — $ 5,834 $ ( 3,332 ) $ 7,390 $ 4 $ 7,394 Comprehensive (loss) income, net — — — ( 455 ) 344 ( 111 ) — ( 111 ) Dividends declared to parent — — — ( 903 ) — ( 903 ) — ( 903 ) Intercompany loan capitalization (4) — ( 1,494 ) — — — ( 1,494 ) — ( 1,494 ) Transfers to parent — ( 193 ) — — — ( 193 ) — ( 193 ) Investment from noncontrolling interests (5) — 1 — — — 1 4 5 Distributions to noncontrolling interests — — — — — — ( 1 ) ( 1 ) Balance at December 31, 2021 $ — $ 3,202 $ — $ 4,476 $ ( 2,988 ) $ 4,690 $ 7 $ 4,697 _____________ (1) AOCL - Accumulated other comprehensive loss. (2) Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies and Note 6 - Divestitures for additional information regarding divestitures. (3) Primarily represents the contribution by Xerox Holdings Corporation of aggregate net debt proceeds received from its Senior Notes offerings in the third quarter of 2020 to Xerox Corporation. Refer to Note 16 - Debt for additional information regarding the Senior Notes offerings. (4) Refer to Note 16 - 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. The accompanying notes are an integral part of these Consolidated Financial Statements. Xerox 2021 Annual Report 82 Table of Contents Xerox Holdings Corporation Xerox Corporation Notes to Consolidated Financial Statements (in millions, except per-share data and where otherwise noted) Note 1 – Basis of Presentation and Summary of Significant Accounting Policies References to “Xerox Holdings” refer to Xerox Holdings Corporation and its consolidated subsidiaries while references to “Xerox” refer to Xerox Corporation and its consolidated subsidiaries. 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 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. This is a combined report of Xerox Holdings and Xerox, which includes separate Consolidated Financial Statements for each registrant. The accompanying Consolidated Financial Statements of both Xerox Holdings and Xerox have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Notes to the Consolidated Financial Statements reflect the activity for both Xerox Holdings and Xerox for all periods presented, unless otherwise noted. Description of Business Currently, Xerox Holdings' primary direct operating subsidiary is Xerox and therefore Xerox represents nearly all of Xerox Holdings' operations. Xerox is a global enterprise for document management solutions. We provide advanced document technology, services, software and genuine Xerox supplies for a range of customers including small and mid-size businesses, large enterprises, governments and graphic communications providers, and for our partners who serve them. We operate in approximately 160 countries worldwide. Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established in 2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. Xerox Ventures LLC had investments of approximately $ 8 at December 31, 2021. Basis of Consolidation All significant intercompany accounts and transactions have been eliminated. Investments in business entities in which we do not have control, but we have the ability to exercise significant influence over operating and financial policies (generally 20 % to 50 % ownership) are accounted for using the equity method of accounting. Operating results of acquired businesses are included in the Consolidated Statements of (Loss) Income from the date of acquisition. We consolidate variable interest entities if we are deemed to be the primary beneficiary of the entity. Operating results for variable interest entities in which we are determined to be the primary beneficiary are included in the Consolidated Statements of (Loss) Income from the date such determination is made. For convenience and ease of reference, we refer to the financial statement caption “Income before Income Taxes and Equity Income” as “pre-tax (loss) income” throughout the Notes to the Consolidated Financial Statements. 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. Discontinued Operations 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 (now known as FUJIFILM Business Innovation Corp.) as well as the sale of its indirect 51 % partnership interest in Xerox Xerox 2021 Annual Report 83 Table of Contents International Partners (XIP) (collectively the Sales). As a result of the Sales of FX and XIP 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 2019 are reflected as a discontinued operation and as such, their impact is excluded from continuing operations for 2019. The historical statements of Comprehensive Income and Shareholders' Equity have not been revised to reflect the Sales and instead reflect the Sales as an adjustment to the balances at December 31, 2019. Refer to Note 6 - Divestitures for additional information regarding discontinued operations. Use of Estimates The preparation of our Consolidated Financial Statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be predicted with certainty; accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our Consolidated Financial Statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Our estimates are based on management's best available information including current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. In the ordinary course of accounting for the items discussed above, we make changes in estimates as appropriate and as we become aware of new or revised circumstances surrounding those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements and in Management's Discussion and Analysis of Financial Condition and Results of Operations. As of December 31, 2021, the impact of the COVID-19 pandemic continues to have varying and divergent impacts across various regions and countries in which we operate and a degree of economic uncertainty still remains. We expect the pandemic's effects will likely continue to impact our financial results into at least the first half of 2022. Accordingly, many of our estimates and assumptions continue to require a greater degree of judgment and may change in the future as events continue to evolve and additional information becomes available. New Accounting Standards and Accounting Changes Except for the Accounting Standard Updates (ASUs) discussed below, the new ASUs issued by the FASB during the last two years did not have any significant impact on the Company. Accounting Standard Updates to be Adopted: Government Assistance In November 2021, the FASB issued ASU 2021-10 , Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The update increases the transparency surrounding government assistance by requiring disclosure of 1) the types of assistance received, 2) an entity’s accounting for the assistance, and 3) the effect of the assistance on the entity’s financial statements. We expect to adopt this update effective for our fiscal year beginning January 1, 2022. We are currently evaluating the impact of the adoption of this update on our Consolidated Financial Statements, which will largely depend on the amounts of government assistance expected to be received in the future. However, prior to the COVID pandemic, the amounts of government assistance the Company received were not material and since the update is limited to increased disclosures, we do not expect the adoption to have a material impact on our financial condition, results of operations, and cash flows. Business Combinations In October 2021, the FASB issued ASU 2021-08 , Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC Topic 606, Revenue from Contracts with Customers , as if the acquirer had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. This update is effective for our fiscal year beginning January 1, 2023, with early adoption permitted. The impact of adopting the new standard will depend on the magnitude of future acquisitions. The standard will not impact contract assets or liabilities acquired in business combinations that occurred prior to the adoption date. Xerox 2021 Annual Report 84 Table of Contents Reference Rate Reform 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. In January 2021, the FASB issued ASU 2021-01 , Reference Rate Reform (Topic 848), Scope, which provided clarification to ASU 2020-04. These ASUs were effective commencing with our quarter ended March 31, 2020 and will continue through December 31, 2022. There has been no impact to date as a result of adopting 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 Recently Adopted: Debt In August 2020, the FASB issued ASU 2020-06 , Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. We adopted this update effective for our fiscal year beginning January 1, 2022. The adoption of this standard did not have a material impact on our Consolidated Financial Statements and related disclosures. Income Taxes In December 2019, the FASB issued ASU 2019-12 , Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which was intended to simplify various aspects related to accounting for income taxes . ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted this update effective for our fiscal year beginning January 1, 2021. The adoption did not have a material impact on our results of operations, financial position, cash flows or disclosures. Leases 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), discussed below, 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. Through September 30, 2020 we provided rent deferrals as a Lessor that were primarily offered to customers with sales type lease receivables. This special program was discontinued in the fourth quarter of 2020. 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 was not updated and we retained the balance of the deferral as a receivable and will settle that receivable at the revised payment date or dates. Through September 30, 2020, we approved payment deferrals of up to 3 months for approximately $ 33 or approximately 1 % of our total finance receivable portfolio. 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 Xerox 2021 Annual Report 85 Table of Contents 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 rent concessions provided to Xerox in 2021 or 2020 were not material, individually or in the aggregate. On January 1, 2019, we adopted ASU 2016-02 , Leases (ASC Topic 842). This update, as well as additional amendments and targeted improvements issued in 2018 and early 2019, supersedes existing lease accounting guidance found under ASC 840, Leases (ASC 840) and requires the recognition of right-to-use assets and lease obligations by lessees for those leases originally classified as operating leases under prior lease guidance. Effective with the adoption, leases are classified as either finance or operating, with such classification affecting the pattern of expense recognition. Short-term leases with a term of 12 months or less are not required to be recognized. The update also requires qualitative and quantitative disclosure of key information regarding the amount, timing and uncertainty of cash flows arising from leasing arrangements in order to increase transparency and comparability among companies. The accounting for lessors does not fundamentally change with this update except for changes to conform and align guidance to the lessee guidance, as well as to the revenue recognition guidance in ASU 2014-09. Some of these conforming changes, such as those related to the definition of lease term and minimum lease payments, resulted in certain lease arrangements that would have been previously accounted for as operating leases, to instead be classified and accounted for as sales-type leases with a corresponding up-front recognition of equipment sales revenue. Upon adoption, we applied the transition option, whereby prior comparative periods are not retrospectively presented in the Consolidated Financial Statements. We also elected the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and the lessee practical expedient to combine lease and non-lease components for certain asset classes (real estate lease arrangements for offices and warehouses). Additionally, we made a policy election to not recognize right-of-use assets and lease liabilities for short-term leases for all asset classes. We elected the package of practical expedients from both the Lessee and Lessor prospective, to the extent applicable. Lessee accounting - the adoption of this update resulted in an increase to assets and related liabilities of approximately $ 385 (approximately $ 440 undiscounted) primarily related to leases of facilities. Refer to Note 11 - Lessee for additional information related to our lessee accounting. Lessor accounting - the adoption of this update resulted in an increase to equipment sales by approximately $ 30 in 2019 as compared to 2018. Refer to Note 4 - Lessor for additional information related to our lessor accounting. 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 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, 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. Xerox 2021 Annual Report 86 Table of Contents Other Updates The FASB also issued the following Accounting Standards Updates, which have not had, and are not expected to have, a material impact on our financial condition, results of operations or cash flows upon adoption. • 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 or Exchanges of Freestanding Equity-Classified Written Call Options). This update is effective for our fiscal year beginning January 1, 2022. • Leases: ASU 2021-05 , Leases - Certain Lease Payments with Variable Lease Payments (ASC 842). This update is effective for our fiscal year beginning January 1, 2022. • Investments: ASU 2020-01 , Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) . This update was 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. Summary of Accounting Policies Revenue Recognition We generate revenue through the sale of equipment and supplies and by providing maintenance and printing services. Revenue is measured based on the consideration specified in a contract with a customer and is recognized when we satisfy a performance obligation by transferring control of a product to a customer or in the period the customer benefits from the service. With the exception of our sales-type lease arrangements, our invoices to the customer, which normally have short-term payment terms, are typically aligned to the transfer of goods or as services are rendered to our customers and therefore in most cases we recognize revenue based on our right to invoice customers. As a result of the application of this practical expedient for the substantial portion of our revenue, the disclosure of the value of unsatisfied performance obligations for our services is not required. Significant judgments primarily include the identification of performance obligations in our Document management services arrangements as well the pattern of delivery for those services. More specifically, revenue related to our products and services is generally recognized as follows: Equipment: Revenues from the sale of equipment directly to end-user customers, including those from sales-type leases (see below), are recognized when obligations under the terms of a contract with our customer are satisfied and control has been transferred to the customer. For equipment placements that require us to install the product at the customer location, revenue is normally recognized when the equipment has been delivered and installed at the customer location. Sales of customer installable products are recognized upon shipment or receipt by the customer according to the customer's shipping terms. Revenue from the equipment performance obligation also includes certain analyst training services performed in connection with the installation or delivery of the equipment . Maintenance services: We provide maintenance agreements on our equipment that include service and supplies for which the customer may pay a base minimum plus a price-per-page charge for usage. In arrangements that include minimums, those minimums are normally set below the customer’s estimated page volumes and are not considered substantive. These agreements are sold as part of a bundled lease arrangement or through distributors and resellers. We normally account for these maintenance agreements as a single performance obligation for printing services being delivered in a series with delivery being measured by usage as billed to the customer. Accordingly, revenue on these types of agreements is normally recognized as billed to the customer over the term of the agreements based on page volumes. A substantial portion of our products are sold with full service maintenance agreements, accordingly, other than the product warranty obligations associated with certain of our entry level products, we do not have any significant warranty obligations, including any obligations under customer satisfaction programs. Document management services: Revenues associated with our document management services are generally recognized as printing services are rendered, which is generally on the basis of the number of images produced. Revenues on unit-price contracts are recognized at the contractual selling prices as work is completed by the customer. We account for these arrangements as a single performance obligation for printing services being delivered in a series with delivery being measured by usage as billed to the customer . Xerox 2021 Annual Report 87 Table of Contents Our services contracts may also include the sale or lease of equipment and software. In these instances, we follow the policies noted for Equipment or Software Revenues and separately report the revenue associated with these performance obligations. Certain document management services arrangements may also include an embedded lease of equipment. In these instances, the revenues associated with the lease are recognized in accordance with the requirements for lease accounting. Sales to distributors and resellers: We utilize distributors and resellers to sell our equipment, supplies and maintenance services to end-user customers. We refer to our distributor and reseller network as our two-tier distribution model. Revenues on sales to distributors and resellers are generally recognized when products are shipped to such distributors and resellers. However, revenue is only recognized when the distributor or reseller has economic substance apart from the Company such that collectability is probable and we have no further obligations related to bringing about the resale, delivery or installation of the product that would impact transfer of control. Revenues associated with maintenance agreements sold through distributors and resellers to end-user customers are recognized in a consistent manner for maintenance services. Revenue that may be subject to a reversal of revenue due to contractual terms or uncertainties is not recorded as revenue until the contractual provisions lapse or the uncertainties are resolved. Distributors and resellers participate in various rebate, price-protection, cooperative marketing and other programs. We estimate the variable consideration associated with these programs and record those amounts as a reduction to revenue when sales occur. Similarly, we account for our estimates of sales returns and other allowances when sales occur based on our historical experience. In certain instances, we may provide lease financing to end-user customers who purchased equipment we sold to distributors or resellers. We are not obligated to provide financing and we compete with other third-party leasing companies with respect to the lease financing provided to these end-user customers. Software: Most of our equipment has both software and non-software components that function together to deliver the equipment's essential functionality and therefore they are accounted for together as part of Equipment sales revenues. Software accessories sold in connection with our Equipment sales, as well as free-standing software sales, are accounted for as separate performance obligations if determined to be material in relation to the overall arrangement. Revenue from software is not a significant component of our Total revenues. Supplies: Supplies revenue is recognized upon transfer of control to the customer, generally upon utilization or shipment to the customer in accordance with the sales contract terms. Financing: Finance income attributable to sales-type leases, direct financing leases and installment loans is recognized on the accrual basis using the effective interest method. Bundled Lease Arrangements: A portion of our direct sales of equipment to end-user customers are made through bundled lease arrangements which typically include equipment, services (maintenance and managed services) and financing components, where the customer pays a single negotiated fixed minimum monthly payment for all elements over the contractual lease term. These arrangements also typically include an incremental, variable component for page volumes in excess of the contractual page volume minimums, which are often expressed in terms of price-per-image or page. Revenues under these bundled lease arrangements are allocated considering the relative standalone selling prices of the lease and non-lease deliverables included in the bundled arrangement. Lease deliverables include the equipment and financing, while the non-lease deliverables generally consist of the services, which include supplies. Consistent with the guidance in ASC 842 and ASC 606, regarding the allocation of fixed and variable consideration, we only consider the fixed payments for purposes of allocation to the lease elements of the contract. The fixed minimum monthly payments are multiplied by the number of months in the contract term to arrive at the total fixed lease payments that the customer is obligated to make over the lease term. Amounts allocated to the equipment and financing elements are then subjected to the accounting estimates noted below under Leases to ensure the values reflect standalone selling prices. The remainder of any fixed payments, as well as the variable payments, are allocated to non-lease elements because the variable consideration for incremental page volume or usage is considered attributable to the delivery of those elements. The consideration for the non-lease elements is not dependent on the consideration for equipment and vice versa, and the consideration for the equipment and services is priced at the appropriate standalone values; therefore, the relative standalone selling price allocation method is not necessary. The revenue associated with the non-lease elements are normally accounted for as a single performance obligation being delivered in a series, with delivery being measured as the usage billed to the customer. Accordingly, revenue from these agreements is recognized in a manner consistent with the guidance for Maintenance and Services agreements. Xerox 2021 Annual Report 88 Table of Contents Leases: The two primary accounting provisions we use to classify transactions as sales-type or operating leases are: (i) a review of the lease term to determine if it is for the major part of the economic life of the underlying equipment (defined as greater than 75%); and (ii) a review of the present value of the lease payments to determine if they are equal to or greater than substantially all of the fair market value of the equipment at the inception of the lease (defined as greater than 90%). Equipment placements included in arrangements meeting these conditions are accounted for as sales-type leases and revenue is recognized in a manner consistent with Equipment sales. Equipment placements included in arrangements that do not meet these conditions are accounted for as operating leases and revenue is recognized over the term of the lease. We consider the economic life of most of our products to be five years , since this represents the most frequent contractual lease term for our principal products and only a small percentage of our leases are for original terms longer than five years . There is no significant after-market for our used equipment. We believe five years is representative of the period during which the equipment is expected to be economically usable, with normal service, for the purpose for which it is intended. We perform an analysis of the stand-alone selling price of equipment based on cash selling prices as well as other methodologies including a margin analysis during the applicable period. With respect to the analysis of cash sales, cash selling prices are compared to the range of values determined for our leases. The range of cash selling prices must be reasonably consistent with the lease selling prices in order for us to determine that such lease prices reflect stand-alone value. Our lease pricing interest rates, which are used in determining customer payments in a bundled lease arrangement, are developed based upon a variety of factors including local prevailing rates in the marketplace, cost of funds and the customer’s credit history, industry and credit class. We reassess our pricing interest rates quarterly based on changes in the local prevailing rates in the marketplace. The pricing interest rates generally equal the implicit rates within the leases, as corroborated by our comparisons of cash to lease selling prices and other analyses as noted above. Additional Lease Payments: Certain leases may require the customer to pay property taxes and insurance on the equipment. In these instances, the amounts for property taxes and insurance that we invoice to customers and pay to third parties are considered variable payments and are recorded as other revenues and other cost of revenues, respectively. Amounts related to property taxes and insurance are not material. We exclude from variable payments all lessor costs that are explicitly required to be paid directly by a lessee on behalf of the lessor to a third party. Other Revenue Recognition Policies Revenue-based Taxes: Revenue-based taxes assessed by governmental authorities that are both imposed on and concurrent with specific revenue-producing transactions, and that are collected by the Company from a customer, are excluded from revenue. The primary revenue-based taxes are sales tax and value-added tax (VAT). Shipping and Handling: Shipping and handling costs are accounted for as a fulfillment cost and are included in Cost of sales in the Consolidated Statements of (Loss) Income. Refer to Note 2 - Revenue for additional information regarding revenue recognition policies with respect to contract assets and liabilities as well as contract costs. Other Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, including money market funds, and investments with original maturities of three months or less. Allowance for Doubtful Accounts and Credit Losses The allowance for doubtful accounts and provision for credit losses represents an estimate of the losses expected to be incurred from the Company's trade and finance receivable portfolio. The measurement and recognition of expected credit losses is based on an expected loss model and incorporates an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. The allowance of finance receivables is determined on a collective basis by year of origination through the application of projected loss rates to our different portfolios by country, which represent our portfolio segments. This is the level at which we develop and document our methodology to determine the allowance for credit losses. These projected loss rates are primarily based upon historical loss experience adjusted for judgments about the probable Xerox 2021 Annual Report 89 Table of Contents effects of relevant observable data including current and future economic conditions as well as delinquency trends, resolution rates, the aging of receivables, credit quality indicators and the financial health of specific customer classes or groups. The allowance for finance receivables is inherently more difficult to estimate than the allowance for trade accounts receivable because the underlying lease portfolio has an average maturity, at any time, of approximately two to three years and contains past due billed amounts, as well as unbilled amounts. We consider all available information in our quarterly assessments of the adequacy of the allowance for doubtful accounts. We believe our estimates, including any qualitative adjustments, are reasonable and have considered all reasonably available information about past events, current conditions, and reasonable and supportable forecasts of future events and economic conditions. The identification of account-specific exposure is not a significant factor in establishing the allowance for doubtful finance receivables. Receivable Sales We transfer certain portions of our receivable portfolios to third parties and normally account for those transfers as sales based on meeting the criteria for derecognition in accordance with ASC Topic 860 "Transfer and Servicing" of Financial Assets. Gains or losses on the sale of receivables depend, in part, on both (a) the cash proceeds and (b) the net non-cash proceeds received or paid. When we sell receivables, we normally receive beneficial interests in the transferred receivables from the purchasers as part of the proceeds. We may refer to these beneficial interests as a deferred purchase price. The beneficial interests obtained are initially measured at their fair value. We generally estimate fair value based on the present value of expected future cash flows, which are calculated using management ' s best estimates of the key assumptions including credit losses, prepayment rate and discount rates commensurate with the risks involved. Refer to Note 7 - Accounts Receivable, Net for additional information on our receivable sales . Inventories Inventories are carried at the lower of average cost or net realizable value. Inventories also include equipment that is returned at the end of the lease term. Returned equipment is recorded at the lower of remaining net book value or salvage value, which is normally not significant. We regularly review inventory quantities and record a provision for excess and/or obsolete inventory based primarily on our estimated forecast of product demand, production requirements and servicing commitments. Several factors may influence the realizability of our inventories, including our decision to exit a product line, technological changes and new product development. The provision for excess and/or obsolete raw materials and equipment inventories is based primarily on near-term forecasts of product demand and include consideration of new product introductions, as well as changes in remanufacturing strategies. The provision for excess and/or obsolete service parts inventory is based primarily on projected servicing requirements over the life of the related equipment populations. Refer to Note 9 - Inventories and Equipment on Operating Leases, Net for further discussion. Land, Buildings and Equipment on Operating Leases Land, buildings and equipment are recorded at cost. Buildings and equipment are depreciated over their estimated useful lives. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life. Equipment on operating leases is depreciated to estimated salvage value over the lease term. Depreciation is computed using the straight-line method. Significant improvements are capitalized and maintenance and repairs are expensed. Refer to Note 9 - Inventories and Equipment on Operating Leases, Net and Note 10 - Land, Buildings, Equipment and Software, Net for further discussion. Leased Assets We determine at inception whether an arrangement is a lease. Our leases do not include assets of a specialized nature, or the transfer of ownership at the end of the lease, and the exercise of end-of-lease purchase options, which are primarily in our equipment leases, is not reasonably assured at lease inception. Accordingly, the two primary criteria we use to classify transactions as operating leases or finance leases are: (i) a review of the lease term to determine if it is equal to or greater than 75% of the economic life of the asset, and (ii) a review of the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the asset at the inception of the lease. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We also assess arrangements for goods or services to determine if the arrangement contains a lease at its inception. This assessment first considers whether there is an implicitly or explicitly identified asset in the arrangement and then whether there is a right to control the use of the asset. If there is an embedded lease within a Xerox 2021 Annual Report 90 Table of Contents contract, the Company determines the classification of the lease at the lease inception date consistent with standalone leases of assets. Operating leases are included in Other long-term assets, Accrued expenses and other current liabilities, and Other long-term liabilities in our Consolidated Balance Sheets. Finance leases are included in Land, buildings and equipment, net, Accrued expenses and other current liabilities, and Other long-term liabilities in our Consolidated Balance Sheets. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the implici