What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2021-11-03 · 406 added, 560 removed, 887 unchanged (52% of the section changed)

1 unchanged sentence

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per-share data) 2022 2021

11 unchanged sentences

Amortization of intangible assets 11 15

Transaction and related costs, net — ( 6 ) — 18

Other expenses, net 57 4

Total Costs and Expenses 1,757 1,657

Income before Income Taxes and Equity Income 84 119 236 149

(Loss) Income before Income Taxes and Equity Income ( 89 ) 53

Income tax (benefit) expense ( 31 ) 14

Equity in net income of unconsolidated affiliates 1 —

Net Income 89 90 219 115

Net (Loss) Income ( 57 ) 39

Net loss attributable to noncontrolling interests ( 1 ) —

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

Basic Earnings per Share $ 0.48 $ 0.41 $ 1.12 $ 0.49

Diluted Earnings per Share $ 0.48 $ 0.41 $ 1.10 $ 0.49

Net (Loss) Income Attributable to Xerox Holdings $ ( 56 ) $ 39

Basic (Loss) Earnings per Share $ ( 0.38 ) $ 0.18

Diluted (Loss) Earnings per Share $ ( 0.38 ) $ 0.18

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

1 unchanged sentence

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Net Income $ 89 $ 90 $ 219 $ 115

Net (Loss) Income $ ( 57 ) $ 39

Net loss attributable to noncontrolling interests ( 1 ) —

Net Income Attributable to Xerox Holdings 90 90 220 115

Net (Loss) Income Attributable to Xerox Holdings ( 56 ) 39

Other Comprehensive (Loss) Income, Net (1)

Translation adjustments, net ( 72 ) ( 51 )

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

Unrealized losses, net ( 11 ) ( 7 )

Changes in defined benefit plans, net 39 55

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

Comprehensive Income, Net 19 178 216 168

Other Comprehensive Loss, Net Attributable to Xerox Holdings ( 44 ) ( 3 )

Comprehensive (Loss) Income, Net ( 101 ) 36

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

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

Comprehensive (Loss) Income, Net Attributable to Xerox Holdings $ ( 100 ) $ 36

_____________

(1) Refer to Note 18 - Other Comprehensive (Loss) Income for gross components of Other comprehensive (loss) income, net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

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

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

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

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

2022 December 31,

26 unchanged sentences

Commitments and Contingencies (See Note 21)

Noncontrolling Interests (See Note 5) 10 —

Noncontrolling Interests 10 10

Convertible Preferred Stock 214 214

16 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Cash Flows from Operating Activities

Net Income $ 89 $ 90 $ 219 $ 115

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

Net (Loss) Income $ ( 57 ) $ 39

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

Depreciation and amortization 72 86

Provisions 19 20

Net gain on sales of businesses and assets ( 39 ) ( 28 ) ( 40 ) ( 29 )

Stock-based compensation 15 16

Restructuring and asset impairment charges 20 21

Payments for restructurings ( 12 ) ( 11 ) ( 61 ) ( 63 )

Defined benefit pension cost ( 3 ) 9 ( 5 ) 46

Contributions to defined benefit pension plans ( 33 ) ( 33 ) ( 102 ) ( 97 )

(Increase) decrease in accounts receivable and billed portion of finance receivables ( 67 ) ( 96 ) ( 30 ) 332

Decrease (increase) in inventories 6 ( 49 ) 10 ( 274 )

Payments for restructuring ( 7 ) ( 27 )

Non-service retirement-related costs (1)

Contributions to retirement plans (1)

( 38 ) ( 41 )

Decrease in accounts receivable and billed portion of finance receivables 13 92

Increase in inventories ( 31 ) ( 18 )

Increase in equipment on operating leases ( 36 ) ( 28 )

2 unchanged sentences

Increase (decrease) in accounts payable 111 ( 31 )

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

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

Increase (decrease) in accrued compensation (1)

Decrease in other current and long-term liabilities ( 43 ) ( 35 )

Net change in income tax assets and liabilities ( 39 ) 6

4 unchanged sentences

Cost of additions to land, buildings, equipment and software ( 16 ) ( 17 )

Proceeds from sales of businesses and assets 38 27 39 29

Acquisitions, net of cash acquired ( 54 ) —

Other investing, net ( 5 ) —

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

Net cash used in investing activities ( 75 ) ( 17 )

Cash Flows from Financing Activities

Net proceeds from short-term debt 1 1 1 1

Proceeds from issuance of long-term debt 668 —

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Other financing, net ( 12 ) ( 7 )

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

Net cash used in financing activities ( 149 ) ( 318 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 10 ( 12 )

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

Decrease in cash, cash equivalents and restricted cash ( 148 ) ( 230 )

Cash, cash equivalents and restricted cash at beginning of period 1,909 2,691

Cash, Cash Equivalents and Restricted Cash at End of Period $ 1,761 $ 2,461

_____________

(1) Captions were changed in 2022 to reflect the inclusion of expense and contributions for our Retiree Health plans, which were previously reported as part of the Increase (decrease) in accrued compensation.

There was no change to Net cash provided by operating activities as a result of the reclassification.

Prior year amounts have been revised to conform to this presentation.

Refer to Note 16 - Employee Benefit Plans for additional information.

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

1 unchanged sentence

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

11 unchanged sentences

Amortization of intangible assets 11 15

Transaction and related costs, net — ( 6 ) — 18

Other expenses, net 57 4

Total Costs and Expenses 1,757 1,657

Income before Income Taxes and Equity Income 84 119 236 149

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

(Loss) Income before Income Taxes and Equity Income ( 89 ) 53

Income tax (benefit) expense ( 31 ) 14

Equity in net income of unconsolidated affiliates 1 —

Net Income 89 90 219 115

Net (Loss) Income ( 57 ) 39

Net loss attributable to noncontrolling interests ( 1 ) —

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

Net (Loss) Income Attributable to Xerox $ ( 56 ) $ 39

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

1 unchanged sentence

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Net Income $ 89 $ 90 $ 219 $ 115

Net (Loss) Income $ ( 57 ) $ 39

Net loss attributable to noncontrolling interests ( 1 ) —

Net Income Attributable to Xerox 90 90 220 115

Net (Loss) Income Attributable to Xerox ( 56 ) 39

Other Comprehensive (Loss) Income, Net (1)

Translation adjustments, net ( 72 ) ( 51 )

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

Unrealized losses, net ( 11 ) ( 7 )

Changes in defined benefit plans, net 39 55

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

Comprehensive Income, Net 19 178 216 168

Other Comprehensive Loss, Net Attributable to Xerox ( 44 ) ( 3 )

Comprehensive (Loss) Income, Net ( 101 ) 36

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

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

Comprehensive (Loss) Income, Net Attributable to Xerox $ ( 100 ) $ 36

_____________

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

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions) September 30,

(in millions) March 31,

2022 December 31,

27 unchanged sentences

Commitments and Contingencies (See Note 21)

Noncontrolling Interests (See Note 5) 10 —

Noncontrolling Interests 10 10

Additional paid-in capital 3,592 3,202

10 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Cash Flows from Operating Activities

Net Income $ 89 $ 90 $ 219 $ 115

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

Net (Loss) Income $ ( 57 ) $ 39

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

Depreciation and amortization 72 86

Provisions 19 20

Net gain on sales of businesses and assets ( 39 ) ( 28 ) ( 40 ) ( 29 )

Stock-based compensation 15 16

1 unchanged sentence

Payments for restructurings ( 7 ) ( 27 )

Defined benefit pension cost ( 3 ) 9 ( 5 ) 46

Contributions to defined benefit pension plans ( 33 ) ( 33 ) ( 102 ) ( 97 )

(Increase) decrease in accounts receivable and billed portion of finance receivables ( 67 ) ( 96 ) ( 30 ) 332

Decrease (increase) in inventories 6 ( 49 ) 10 ( 274 )

Non-service retirement-related costs (1)

Contributions to retirement plans (1)

( 38 ) ( 41 )

Decrease in accounts receivable and billed portion of finance receivables 13 92

Increase in inventories ( 31 ) ( 18 )

Increase in equipment on operating leases ( 36 ) ( 28 )

2 unchanged sentences

Increase (decrease) in accounts payable 111 ( 31 )

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

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

Increase (decrease) in accrued compensation (1)

Decrease in other current and long-term liabilities ( 43 ) ( 35 )

Net change in income tax assets and liabilities ( 39 ) 6

4 unchanged sentences

Cost of additions to land, buildings, equipment and software ( 16 ) ( 17 )

Proceeds from sales of businesses and assets 38 27 39 29

Acquisitions, net of cash acquired ( 54 ) —

Other investing, net — — — 1

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

Net cash used in investing activities ( 70 ) ( 17 )

Cash Flows from Financing Activities

Net proceeds from short-term debt 1 1 1 1

Proceeds from issuance of long-term debt 668 —

Payments on long-term debt ( 646 ) ( 95 )

Contributions from parent — 1,494 — 1,494

Distributions to parent ( 174 ) ( 220 )

Other financing, net ( 2 ) ( 3 )

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

Net cash used in financing activities ( 154 ) ( 318 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 10 ( 12 )

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

Decrease in cash, cash equivalents and restricted cash ( 148 ) ( 230 )

Cash, cash equivalents and restricted cash at beginning of period 1,909 2,691

Cash, Cash Equivalents and Restricted Cash at End of Period $ 1,761 $ 2,461

_____________

There was no change to Net cash provided by operating activities as a result of the reclassification.

Prior year amounts have been revised to conform to this presentation.

Refer to Note 16 - Employee Benefit Plans for additional information.

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

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

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

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

We expect the pandemic's effects will likely continue to impact our financial results over the remainder of the year.

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

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

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

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

Transfer of CareAR Holdings LLC to Xerox

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

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

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

During the first quarter of 2022, the Company made a change to its reportable segments from one reportable segment to two reportable segments - Print and Other, and Financing (FITTLE) - to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies.

As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments.

Refer to Note 4 - Segment Reporting for additional information regarding this change.

Interim Impairment Evaluation

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

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

Our goodwill balance was $ 3.3 billion at March 31, 2022 and December 31, 2021, respectively.

The balance at December 31, 2021 reflects a pre-tax impairment charge of $ 781 recorded in the fourth quarter 2021 after completion of our fourth quarter annual goodwill impairment assessment.

We assess goodwill for impairment at least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

As noted above, during the first quarter 2022, the Company made a change to its operating and reportable segments from one operating/reportable segment - Printing - to two operating/reportable segments - Print and Other, and Financing (FITTLE).

As a result of the new operating and reportable segments, we also reassessed our reporting units for the evaluation of goodwill.

Prior to this change, consistent with the determination that we had one operating/reportable segment, we determined that we had one reporting unit for goodwill assessment purposes.

Xerox 2022 Form 10-Q 11

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

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

Based on our interim assessment as of September 30, 2021, we determined that it was more-likely-than-not that the fair value of the Company was greater than the net book value and that we did not have a “triggering event” requiring a quantitative or Step 1 assessment of Goodwill.

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

If assumptions or estimates with respect to the Company's future performance vary from what is expected, including those assumptions relating to the duration and severity of the financial impact from the COVID-19 pandemic and the supply chain disruptions, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

As previously disclosed, we normally assess Goodwill for impairment during the fourth quarter, and based on an updated evaluation of the impact of the events and factors noted in 2021 – macroeconomic, industry and company – we plan to utilize a quantitative model for the assessment of the recoverability of our Goodwill balance.

reassessment during the first quarter of 2022 determined that likewise consistent with the determination that we had two operating/reportable segments, we now have two reporting units – Print and Other, and Financing (FITTLE).

As a result of the change in reporting units, effective January 1, 2022, we estimated the fair value of our new reporting units and, based on an assessment of the relative fair values of our new reporting units after the change, we determined that no goodwill was allocable to the Financing (FITTLE) segment.

This determination was largely based on the fact that at this stage in the stand-up of the Financing (FITTLE) business, its separate valuation is constrained and limited because the operation is significantly integrated with the Print and Other segment and is primarily an extension or enabler to facilitate the sale of the Company’s products.

The change in reporting units was also considered a triggering event indicating a test for goodwill impairment was required as of January 1, 2022 before and after the change in reporting units.

The Company performed those impairment tests, which did not result in the identification of an impairment loss as of January 1, 2022.

During the first quarter 2022, the Company encountered significant operational challenges and uncertainties, due to supply chain constraints, inflationary pressure on costs, geopolitical uncertainty in Europe and the threat of additional COVID-19 variants.

Despite these uncertainties, the Company expects to maintain its full year 2022 financial outlook since at this stage in the year we do not have enough information or clarity (positive or negative) on these uncertainties to warrant an adjustment in our outlook.

Accordingly, based on our interim assessment as of March 31, 2022, we determined that it was more-likely-than-not that the fair value of Print and Other reporting unit (the only reporting unit with goodwill) was still greater than its net book value and that we did not have a “triggering event” requiring a quantitative assessment of Goodwill.

Despite indications that our excess fair value is likely reduced as compared to the impairment test as of January 1, 2022, the Company's projections for the full year 2022, reviewed as part of our quantitative analysis, are still within the range of our sensitivity analysis performed as part of our January 1, 2022 interim impairment assessment.

If assumptions or estimates with respect to the Company's future performance vary from what is expected, including those assumptions relating to the supply chain constraints, inflationary pressure on costs, geopolitical uncertainty in Europe and the threat of additional COVID-19 variants, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

Note 2 – Recent Accounting Pronouncements

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Accounting Standard Updates to be Adopted:

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.

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

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

Financial Instruments

In March 2022, the FASB issued ASU 2022-02 , Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures - Gross Write-offs.

The amendments in this update eliminate the accounting guidance for Troubled Debt Restructurings (TDRs) by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty.

The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables.

The update is applicable for financing receivables and net investments in leases that are within the scope of ASC 326-20 , Financial Instruments - Credit Losses - Measured at Amortized Cost .

This update is effective for our fiscal year beginning on January 1, 2023, but early adoption is permitted.

The provisions of this amendment are to be applied on a prospective basis.

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

Reference Rate Reform

5 unchanged sentences

There has been no impact to date as a result of ASU 2020-04 or ASU 2021-01 and subsequent amendments on reference rate reform.

However, we continue to evaluate potential future impacts that may result from the discontinuation of LIBOR or other reference rates as well as the accounting provided in this update on our financial condition, results of operations, and cash flows.

However, we continue to evaluate potential future impacts that may result

Xerox 2022 Form 10-Q 12

from the discontinuation of LIBOR or other reference rates as well as the accounting provided in this update on our financial condition, results of operations, and cash flows.

Accounting Standard Updates Adopted in 2022:

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.

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 adopted this update effective for our fiscal year beginning January 1, 2022.

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

Xerox 2021 Form 10-Q 12

The impact of adoption was not material to our Consolidated Financial Statements.

Impacts on future periods will depend on the amounts of government assistance received.

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 in future periods.

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.

We early adopted this update effective for our fiscal year beginning January 1, 2022.

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.

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 simplified the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock.

This update also amended the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and required 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 update did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Other Updates

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Those updates are as follows:

• Investments:

ASU 2020-01 , Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323) and Derivatives and Hedging (Topic 815).

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

• Derivatives and Hedging:

ASU 2022-01 , Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method.

This update is effective for our fiscal year beginning January 1, 2023.

• Equity Instruments:

3 unchanged sentences

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

Xerox 2022 Form 10-Q 13

Note 3 – Revenue

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Primary geographical markets (1) :

8 unchanged sentences

Maintenance agreements (2)

447 443 1,330 1,338

Service arrangements (3)

493 486 1,490 1,512

Rental and other 108 129

3 unchanged sentences

Direct equipment lease (4)

$ 170 $ 151 $ 506 $ 388

Distributors & resellers (5)

283 245 826 604

Customer direct 196 201

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(2) Includes revenues from maintenance agreements on sold equipment as well as revenues associated with service agreements sold through our channel partners as Xerox Partner Print Services (XPPS).

(3) Primarily includes revenues from our Managed Services offerings.

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

(3) Primarily includes revenues from our Managed Services arrangements.

Also includes revenues from embedded operating leases in our Managed Service arrangements, which were not significant.

(4) Primarily reflects sales through bundled lease arrangements.

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

Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advance billings for maintenance and other services to be performed and were approximately $ 135 and $ 130 at September 30, 2021 and December 31, 2020, respectively.

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

Xerox 2021 Form 10-Q 13

Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advance billings for maintenance and other services to be performed and were approximately $ 138 and $ 144 at March 31, 2022 and December 31, 2021, respectively.

The majority of the balance at March 31, 2022 will be amortized to revenue over approximately the next 30 months.

Contract Costs:

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Incremental direct costs of obtaining a contract $ 13 $ 13

Amortization of incremental direct costs 18 19

The balance of deferred incremental direct costs net of accumulated amortization at September 30, 2021 and December 31, 2020 was $ 133 and $ 145 , respectively.

Xerox 2022 Form 10-Q 14

The balance of deferred incremental direct costs net of accumulated amortization at March 31, 2022 and December 31, 2021 was $ 128 and $ 132 , respectively.

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

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

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

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

As of March 31, 2022 and December 31, 2021, amounts deferred associated with contract fulfillment costs and inducements were $ 14 and $ 15 , respectively, and the related amortization was $ 1 and $ 1 for the three months ended March 31, 2022 and 2021, respectively.

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

Note 4 – Segment Reporting

Our reportable segments are aligned with how we manage the business and view the markets we serve.

During the first quarter of 2022, the Company changed to its reportable segments from one reportable segment to two reportable segments - Print and Other, and Financing (FITTLE) to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies.

Our two reportable segments are based on the information reviewed by the CODM together with the Company’s management to evaluate performance of the business and allocate resources.

As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments.

During 2021 we progressed with the standing up of three new businesses:

Software (CareAR), Financing (FITTLE) and Innovation (PARC).

As a result of this effort, during the first quarter of 2022, we reassessed our operating and reportable segments and determined that, based on the financial information reviewed by our CODM as well as the CEO’s management and assessment of the Company’s operations, we had two operating and reportable segments - Print and Other, and Financing.

• Print and Other - the design, development and sale of document management systems, solutions and services as well as associated technology offerings including IT and software products and services.

• Financing (FITTLE) – primarily provides financing for the sales of Xerox equipment.

We also determined that the other businesses – Software and Innovation - did not meet the requirements to be considered separate operating segments largely due to their continued management through the Print and Other Segment as well as their immateriality to our results at this stage.

Accordingly, those groups will continue to be reported as part of the Print and Other Segment.

Our Print and Other segment includes the sale of document systems, supplies and technical services and managed services.

The segment also includes the delivery of managed services that involve 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.

This segment also includes IT services and software.

Our product groupings range from:

• “Entry,” which includes A4 devices and desktop printers;

• “Mid-range,” which includes A3 devices that generally serve workgroup environments in mid to large enterprises and includes products that fall into the following market categories:

Color 41+ ppm priced at less than $100 thousand and Light Production 91+ ppm priced at less than $100 thousand;

• “ High-end,” which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises.

Customers range from small and mid-sized businesses to large enterprises.

Customers also include graphic communication enterprises as well as channel partners including distributors and resellers.

Segment revenues also include commissions and other payments from the Financing segment for the exclusive right to provide lease financing for Xerox products.

These revenues are reported as part of Intersegment Revenues, which are eliminated in consolidated revenues.

Xerox 2022 Form 10-Q 15

The Financing (FITTLE) segment provides leasing solutions through either bundled or unbundled lease agreements of Xerox products or direct purchases of equipment.

These leasing solutions support a wide range of customers, from government to graphic communications and SMB to Enterprise as well as financing for direct channel customer purchases of both Xerox and non-Xerox equipment.

Segment revenues primarily includes financing income on sales-type leases, operating lease income (including month to month rentals and extensions) and leasing fees.

Segment Policy

We derive the results of our business segments directly from our internal management reporting system.

The accounting policies that the Company uses to derive its segment results are substantially the same as those used by the Company in preparing its consolidated financial statements.

The segment results include a significant level of management estimates regarding the allocation of revenues such as finance income in bundled lease arrangements and other leasing revenues and operating lease revenues embedded in our managed services contracts as well as the allocation of expenses for shared selling and administrative services.

Accordingly, the financial results for the Financing segment may not be indicative of the results the business would have as on a standalone basis or what might be presented for the business in stand-alone financial statements.

The CODM measures the performance of each segment based on several metrics, including segment revenues and profit.

The CODM uses these results, in part, to evaluate the performance of, and to allocate resources to each segment.

The Financing (FITTLE) segment also includes interest expense associated with allocated debt of the Company in support of its Finance assets, while no interest expense is allocated to the Print and Other segment.

Selected financial information for our reportable segments was as follows:

Three Months Ended March 31,

Print and Other Financing (FITTLE) Total Print and Other Financing (FITTLE) Total

External net revenue $ 1,513 $ 155 $ 1,668 $ 1,533 $ 177 $ 1,710

Intersegment net revenue (1)

37 3 40 48 3 51

Total Segment net revenue $ 1,550 $ 158 $ 1,708 $ 1,581 $ 180 $ 1,761

Segment (loss) profit $ ( 20 ) $ 17 $ ( 3 ) $ 71 $ 18 $ 89

Segment margin (2)

( 1.3 ) % 11.0 % ( 0.2 ) % 4.6 % 10.2 % 5.2 %

Depreciation and amortization $ 29 $ 32 $ 61 $ 29 $ 42 $ 71

Interest income — 53 53 — 55 55

Interest expense (3)

— 26 26 — 30 30

_____________

(1) Intersegment net revenue is primarily commissions and other payments made by the Financing Segment to the Print and Other Segment for the lease of Xerox Equipment placements.

(2) Segment margin based on External net revenue only.

(3) Interest expense for the Financing Segment includes $ 2 and $ 2 of non-financing interest expense on allocated debt associated with Equipment on operating lease for the three months ended March 31, 2022 and 2021, respectively.

Xerox 2022 Form 10-Q 16

Selected financial information for our reportable segments was as follows:

Three Months Ended

Pre-tax (Loss) Income

Total reported segments $ ( 3 ) $ 89

Restructuring and related costs, net ( 18 ) ( 17 )

Amortization of intangible assets ( 11 ) ( 15 )

Other expenses, net ( 57 ) ( 4 )

Total Pre-tax (loss) income $ ( 89 ) $ 53

Depreciation and Amortization

Total reported segments $ 61 $ 71

Amortization of intangible assets 11 15

Total Depreciation and amortization $ 72 $ 86

Interest Expense

Total reported segments $ 26 $ 30

Corporate 27 22

Total Interest expense $ 53 $ 52

Interest Income

Total reported segments $ 53 $ 55

Corporate 1 1

Total Interest income $ 54 $ 56

Note 5 – Lessor

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Three Months Ended

September 30, Nine Months Ended

September 30,

Location in Statements of Income 2021 2020 2021 2020

Location in Statements of (Loss) Income 2022 2021

Revenue from sales type leases Sales $ 135 $ 147

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Total Lease income $ 251 $ 284

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

Profit at lease commencement on sales-type leases was estimated to be $ 44 and $ 56 for the three months ended March 31, 2022 and 2021, respectively.

Xerox 2022 Form 10-Q 17

Note 6 – Acquisitions and Investments

In 2021, Xerox continued its strategy of focusing on further penetrating the small-to-medium sized business (SMB) market through acquisitions of local area resellers and partners (including multi-brand dealers).

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

for approximately $ 7 .

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

The purchase prices were all cash for 100 % ownership of the acquired companies and were primarily allocated to Intangible assets, net (approximately $ 21 ) and Goodwill (approximately $ 18 ), with the remainder to tangible assets and assumed/recorded liabilities.

In the first quarter 2022, Xerox acquired Powerland, a leading IT services provider in Canada, for approximately $ 54 (CAD 69 million).

The acquisition also includes contingent consideration up to approximately $ 22 (CAD 28 million) based on future performance of the acquisition over the next two years .

The acquisition strengthens Xerox’s IT services offerings in North America, which include cloud, cyber security, end user computing and managed services.

The goodwill associated with the acquisition of Powerland is included in our Print and Other segment.

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

The purchase price was all cash for 100 % ownership of the acquired company and was primarily allocated to Intangible assets, net (approximately $ 40 ) and Goodwill (approximately $ 41 ), with the remainder to tangible assets and assumed/recorded liabilities.

The allocations are based on preliminary management estimates, which continue to be reviewed, and are expected to be finalized by the end of 2022 and may include input and support from third-party valuations.

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

Joint Venture Formation

In May 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 approximately $ 5 in cash, along with technology and intellectual property for a controlling interest in the entity, whereas VicGov contributed approximately $ 5 in cash, along with technology and intellectual property for a noncontrolling interest in the entity.

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

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

ServiceNow Inc.

Investment in CareAR

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

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

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

business units.

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

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

Note 7 – Supplementary Financial Information

Government Assistance

In response to the COVID-19 pandemic, various governments employed temporary measures to provide aid and economic stimulus to companies through cash grants and credits or indirectly through payments to temporarily furloughed employees.

Estimated savings from these various government assistance programs are recorded as follows in the Condensed Consolidated Statements of (Loss) Income:

Three Months Ended

Cost of services, maintenance and rentals $ — $ 7

Selling, administrative and general expenses — 3

Total Estimated savings $ — $ 10

Cash, Cash Equivalents and Restricted Cash

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

September 30,

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

As more fully discussed in Note 21 - Contingencies and Litigation, various litigation matters in Brazil require us to make cash deposits to escrow as a condition of continuing the litigation.

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

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

2022 December 31,

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

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

Xerox 2021 Form 10-Q 15

escrow as a condition of continuing the litigation.

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

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

September 30,

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

2022 December 31,

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Total Restricted cash $ 80 $ 69

Xerox 2022 Form 10-Q 18

Supplemental Cash Flow Information

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Provision for receivables $ 14 $ 11

Provision for inventory 5 9

Provision for product warranty 2 3 6 6

Provision for product warranties 1 2

Depreciation of buildings and equipment 18 19

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Cost of additions to internal use software 4 9

Common stock dividends - Xerox Holdings Corporation 45 57 146 165

Preferred stock dividends - Xerox Holdings Corporation 4 4 11 11

Repurchases related to stock-based compensation - Xerox Holdings Corporation — 9 14 19

Common stock dividends - Xerox Holdings 42 50

Preferred stock dividends - Xerox Holdings 4 4

Payments to noncontrolling interests 1 —

Repurchases related to stock-based compensation - Xerox Holdings 10 4

_____________

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

Fuji Xerox Technology Agreement (TA)

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

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

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

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

Accordingly, any potential entry by Xerox for Xerographic products into the Fuji Xerox territory under the Xerox brand will 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.

Note 8 – Accounts Receivable, Net

Accounts receivable, net were as follows:

September 30,

2022 December 31,

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

Xerox 2021 Form 10-Q 16

The allowance for doubtful accounts was as follows:

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Balance at March 31 st

Provision 1 9

Charge-offs ( 2 ) ( 8 )

Recoveries and other (1)

Balance at June 30 th

Provision — 7

Charge-offs ( 5 ) ( 6 )

Recoveries and other (1)

Balance at September 30 th

_____________

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

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

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

Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 7.2 % at March 31, 2022 and 6.6 % at December 31, 2021.

The increase in the allowance is primarily due to an increased provision to cover expected write-offs of receivables in our Russian subsidiary.

Xerox 2022 Form 10-Q 19

Accounts Receivable Sales Arrangements

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

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

Of the accounts receivable sold and derecognized from our balance sheet, $ 87 and $ 102 remained uncollected as of March 31, 2022 and December 31, 2021, respectively.

Accounts receivable sales activity was as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Accounts receivable sales (1)

$ 127 $ 115 $ 359 $ 182

(1) Losses on sales were not material.

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The activity associated with these arrangements is not reflected in this disclosure, as payments under these arrangements have not been material and these are customer directed arrangements.

Xerox 2021 Form 10-Q 17

Note 9 - Finance Receivables, Net

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Finance receivables, net were as follows:

September 30,

2022 December 31,

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

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

Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 4.0 % at September 30, 2021 and 4.0 % at December 31, 2020.

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

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

Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 3.8 % at March 31, 2022 and 3.7 % at December 31, 2021.

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

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

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

The level of the allowance is determined on a collective basis by applying 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 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 doubtful 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.

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

Our allowance for doubtful finance receivables is effectively determined by geography.

The risk characteristics in our finance receivable portfolio segments will generally be consistent with the risk factors associated with the economies of the countries/regions included in those geographies.

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

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

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

The risk characteristics in our finance receivable portfolio segments are generally consistent with the risk factors associated with the economies of the countries/regions included in those geographies.

Since EMEA is comprised of various countries and regional

Xerox 2022 Form 10-Q 20

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

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

Accordingly, our reserves as a percent of receivables have remained fairly consistent subsequent to the first quarter 2020 when we recorded a charge of approximately $ 60 to initially record expected losses from the COVID-19 pandemic.

We continue to monitor developments regarding the pandemic, including business 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.

economies, the risk profile within that portfolio segment is somewhat more diversified due to the varying economic conditions among and within the countries.

Although actual finance receivable write-offs incurred to date continue to lag expectations, we believe our current reserve position remains sufficient to cover expected future losses that may result from current and future macro-economic conditions.

We continue to believe that uncertainties remain as economies continue to recover from the impacts of the COVID-19 pandemic including the cessation of government support as well as labor, interest rate and inflation risks and the potential for higher taxes.

In addition, there is also considerable uncertainty regarding the impact the Russia/Ukraine war and related global sanctions will have on the macro or global economy.

As a result of these uncertainties, our reserves as a percent of receivables have remained elevated and fairly consistent subsequent to the first quarter 2020 increase to initially record expected losses from the COVID-19 pandemic.

We continue to monitor developments in future economic conditions, and as a result, our reserves may need to be updated in future periods.

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

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Recoveries and other (2)

1 — ( 2 ) ( 1 )

Balance at March 31, 2022 $ 78 $ 11 $ 31 $ 120

Provision 6 ( 1 ) ( 3 ) 2

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

Recoveries and other (2)

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

Provision — ( 3 ) ( 1 ) ( 4 )

Charge-offs ( 1 ) ( 1 ) — ( 2 )

Recoveries and other (2)

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

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

Finance receivables as of March 31, 2022 collectively evaluated for impairment (3)

$ 1,863 $ 246 $ 1,016 $ 3,125

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

Provision 3 1 — 4

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

Recoveries and other (2)

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

Provision 6 — 3 9

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

Recoveries and other (2)

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

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

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

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

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

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

(3) Total Finance receivables exclude the allowance for credit losses of $ 120 and $ 135 at March 31, 2022 and 2021, respectively.

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

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

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

Xerox 2021 Form 10-Q 19

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

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

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The loss rates in this category in the normal course are generally in the range of 7 % to 10 %.

Xerox 2022 Form 10-Q 21

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

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

September 30, 2021

March 31, 2022

2022 2021 2020 2019 2018 Prior Total

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The aging of our billed finance receivables is as follows:

September 30, 2021

March 31, 2022

Current 31-90

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Secured Borrowings and Collateral

In January 2022, we sold $ 789 of U.S.

based finance receivables to a consolidated special purpose entity (SPE).

At March 31, 2022, the SPE held $ 758 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for a secured loan.

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

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

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

based finance receivables to a consolidated SPE.

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

At March 31, 2022 and December 31, 2021, the SPE held $ 272 and $ 308 , respectively, of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for a secured loan.

Refer to Note 13 - Debt, for additional information related to these arrangements.

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The following is a summary of Inventories by major category:

September 30,

2022 December 31,

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

September 30,

2022 December 31,

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Equipment on operating leases, net $ 254 $ 253

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

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 15 and $ 15 for the three months ended March 31, 2022 and 2021, respectively.

Secured Borrowings and Collateral

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

In September 2021, we sold the rights to payments under operating leases with an equipment net book value of $ 9 to a consolidated SPE.

The SPE held Equipment on operating leases, net of $ 7 and $ 8 as of March 31, 2022 and December 31, 2021, respectively, which are included in our Condensed Consolidated Balance Sheets as collateral for the secured loan agreement.

Refer to Note 13 - Debt, for additional information related to this arrangement.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Operating lease expense $ 25 $ 27

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

As of March 31, 2022, operating leases that had not yet commenced were not material.

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

September 30,

2022 December 31,

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Note 12 – Restructuring Programs

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

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

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

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

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

During the three months ended March 31, 2022, we recorded net restructuring and asset impairment charges of $ 20 , which included $ 22 of severance costs related to headcount reductions of approximately 450 employees worldwide and $ 1 of asset impairment charges, both of which were partially offset by $ 3 of net reversals.

The net reversals primarily resulted from changes in estimated reserves from prior period initiatives.

Charges were primarily related to the Print and Other segment as amounts related to the Financing (FITTLE) segment were immaterial for all periods presented.

Information related to restructuring program activity is outlined below:

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Balance at March 31, 2022 $ 37 $ 2 $ — $ 39

Provision 6 1 2 9

Reversals ( 3 ) ( 1 ) ( 1 ) ( 5 )

Net current period charges (1)

Charges against reserve and currency ( 20 ) ( 1 ) ( 1 ) ( 22 )

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

Provision 5 1 — 6

Reversals ( 3 ) — — ( 3 )

Net current period charges (1)

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

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

_____________ _

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

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

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

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

The charges include the accelerated write-off of $ 3 for leased ROU assets and $ 9 for owned assets upon exit from the facilities, net of any potential sublease income and other recoveries, including potential sales.

The charges include the accelerated write-off of $ 1 for leased ROU assets upon exit from the facilities, net of any potential sublease income and other recoveries, including potential sales.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Charges against reserve and currency $ ( 8 ) $ ( 40 )

Asset impairments 1 —

Effects of foreign currency and other non-cash items — 13

Restructuring cash payments $ ( 7 ) $ ( 27 )

Xerox 2021 Form 10-Q 25

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Retention related severance/bonuses (1)

$ ( 2 ) $ ( 4 )

Contractual severance costs — — 3 4

Consulting and other costs (2)

Total $ ( 2 ) $ ( 4 )

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

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

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

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

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

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

The credit for the three months ended March 31, 2022 and 2021 reflects a change in estimate.

Cash paid for restructuring related costs were $ 1 and $ 3 for the three months ended March 31, 2022 and 2021, respectively.

The restructuring related costs reserve was $ 15 and $ 18 at March 31, 2022 and December 31, 2021, respectively.

The balance at March 31, 2022 is expected to be paid over the next twelve months.

Xerox 2022 Form 10-Q 27

Note 13 – Debt

Xerox Holdings Corporation / Xerox Corporation Intercompany Loan

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

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

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

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

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

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

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

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

At September 30, 2021, the balance of the Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $ 1,494 , which is net of related debt issuance costs, and the intercompany interest payable was $ 10 .

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

At March 31, 2022 and December 31, 2021, the balance of the Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $ 1,495 and $ 1,494 , respectively, which is net of related debt issuance costs, and the intercompany interest payable was $ 10 and $ 30 , respectively.

Xerox Corporation’s interest expense included interest expense associated with this Intercompany Loan of $ 20 and $ 20 for the three months ended March 31, 2022 and 2020, respectively.

Credit Facility

In March 2022, Xerox and Xerox Holdings entered into Amendment No.

4 to the Credit Facility.

The Amendment, which became effective on March 24, 2022, included the following changes:

(1) reduced the aggregate amount of the revolving credit commitments under the Credit Agreement from $ 1.8 billion to $ 1.5 billion;

(2) modified the financial covenants in the Credit Agreement to now require that, during a specified Covenant Modification Period, which began on January 1, 2022 and ends on the earlier of (a) June 30, 2022 and (b) the date on which Xerox Corp.

delivers a written notice to the Administrative Agent electing to end such period:

Xerox Corporation maintain unrestricted cash (as defined in the Amendment) at the end of each fiscal quarter in an amount not less than $ 500 .

With respect to each fiscal quarter ending during the Covenant Modification Period, Xerox Corporation maintain a ratio of Net Debt for Borrowed Money to consolidated EBITDA of not greater than 4.25 x with Net Debt for Borrowed Money including a cash netting with a cap of $ 1,250 for the quarter ending March 31, 2022 and $ 1,000 for the quarter ending June 30, 2022.

This covenant is in lieu of the 4.25 x Net Debt for Borrowed Money to consolidated EBITDA ratio requirement without cash netting applicable prior to the Amendment.

As of March 31, 2022, we were in full compliance with the covenants and other provisions of our Credit Facility.

Secured Borrowings and Collateral

In January 2022, we entered into a secured loan agreement with financial institutions where we sold $ 789 of U.S.

based finance receivables to a special purpose entity (SPE).

The purchase by the SPE was funded through a $ 668 amortizing secured loan to the SPE from the financial institutions.

The SPE is fully consolidated in our financial statements.

The secured loan was an amendment of the December 2020 secured borrowing, which had a remaining balance of $ 248 , and we received the incremental net cash.

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

The new loan has a variable interest rate based on the financial institutions' cost of funds plus a spread (current rate of 1.71 % at March 31, 2022) and an expected life of approximately 2.5 years, with half of the loan projected to be repaid within the first year based on collections of the underlying portfolio of receivables.

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

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

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

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

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

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

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

The debt has a variable interest rate based on LIBOR plus a spread (current rate of 1.75 % at March 31, 2022).

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

Xerox 2021 Form 10-Q 26

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

based finance receivables to an SPE.

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

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

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

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

Xerox 2022 Form 10-Q 28

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

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

September 30,

2022 December 31,

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

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

(2) Net of debt issuance costs of $ 2 and $ 1 as of March 31, 2022 and December 31, 2021, respectively.

Interest Expense and Income

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Interest expense (1)(2)

$ 52 $ 59 $ 156 $ 158

Interest income (3)

56 56 169 182

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

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

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

Xerox 2021 Form 10-Q 27

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

(2) Interest expense of Xerox Corporation included intercompany interest expense associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan of $ 20 and $ 20 for the three months ended March 31, 2022 and 2021, respectively.

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

Note 14 – Financial Instruments

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

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

At March 31, 2022, there was one interest rate cap contract outstanding.

Foreign Exchange Risk Management

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• Forecasted purchases and sales in foreign currency

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

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

At March 31, 2022 and December 31, 2021, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 1,126 and $ 1,113 respectively, with terms of less than 12 months.

Approximately 77 % of the contracts at March 31, 2022 mature within three months, 13 % mature in three to six months and 10 % in six to twelve months.

There have not been any material changes in our hedging strategy.

Xerox 2022 Form 10-Q 29

Foreign Currency Cash Flow Hedges

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

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

The net liability fair value of these contracts were $ 18 and $ 3 as of March 31, 2022 and December 31, 2021, respectively.

Summary of Derivative Instruments Fair Value

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

Designation of Derivatives Balance Sheet Location September 30,

Designation of Derivatives Balance Sheet Location March 31,

2022 December 31,

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Accrued expenses and other current liabilities ( 19 ) ( 6 )

Foreign currency options Other current assets — 1

Net designated derivative (liability) asset $ ( 1 ) $ 2

Interest rate cap Other long-term assets 3 1

Net designated derivative liabilities $ ( 15 ) $ ( 2 )

Derivatives NOT Designated as Hedging Instruments

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Accrued expenses and other current liabilities ( 13 ) ( 5 )

Net undesignated derivative assets $ — $ —

Net undesignated derivative liabilities $ ( 10 ) $ ( 4 )

Summary of Derivatives Total Derivative assets $ 7 $ 5

Total Derivative liabilities ( 32 ) ( 11 )

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

Xerox 2021 Form 10-Q 28

Net Derivative liabilities $ ( 25 ) $ ( 6 )

Summary of Derivative Instruments Gains (Losses)

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Three Months Ended

September 30, Nine Months Ended

September 30,

Gain (Loss) on Derivative Instruments 2021 2020 2021 2020

Fair Value Hedges - Interest Rate Contracts

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

Hedged item gain recognized in interest expense — — — 1

Loss on Derivative Instruments 2022 2021

Cash Flow Hedges - Foreign Exchange Forward Contracts and Options

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

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

During the three and nine months ended September 30, 2021 and 2020, no amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or (loss) were included in the assessment of hedge effectiveness.

Derivative loss recognized in OCI (effective portion) $ ( 15 ) $ ( 10 )

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

During the three months ended March 31, 2022 and 2021, no amount of ineffectiveness was recorded in the Condensed Consolidated Statements of (Loss) Income for these designated cash flow hedges and all components of each derivative’s gain or (loss) were included in the assessment of hedge effectiveness.

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

As of September 30, 2021, a net after-tax loss of $ 1 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

As of March 31, 2022, a net after-tax loss of $ 13 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

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

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

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

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

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

Foreign exchange contracts – forwards Other expense – Currency losses, net $ ( 9 ) $ ( 18 )

Xerox 2022 Form 10-Q 30

Currency losses, net were $ 0 and $ 2 for three months ended March 31, 2022 and 2021, respectively.

Note 15 – Fair Value of Financial Assets and Liabilities

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

September 30,

2022 December 31,

Foreign exchange contracts - forwards $ 4 $ 4

Foreign currency options — 1

Interest rate cap 3 1

Deferred compensation plan investments in mutual funds 17 18

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 1,681 $ 1,681 $ 1,840 $ 1,840

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

Three Months Ended September 30,

Three Months Ended March 31,

Pension Benefits

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

Net actuarial (gain) loss (1)

Net actuarial loss (gain) (1)

14 ( 44 ) — 1 ( 7 ) —

Prior service credit — — — — ( 23 ) —

Amortization of net actuarial loss ( 22 ) ( 20 ) ( 6 ) ( 15 ) — —

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

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

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

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

Nine Months Ended September 30,

Pension Benefits

Plans Non-U.S.

Plans Retiree Health

Components of Net Periodic Benefit Costs:

2021 2020 2021 2020 2021 2020

Service cost $ 1 $ 1 $ 15 $ 15 $ 1 $ 2

Interest cost 56 65 67 84 6 8

Expected return on plan assets ( 84 ) ( 79 ) ( 157 ) ( 142 ) — —

Recognized net actuarial loss (gain) 13 20 44 43 — ( 1 )

Amortization of prior service credit — — — — 4 17

Recognized settlement loss 41 42 — — — —

Recognized curtailment gain — — — ( 1 ) — —

Defined benefit plans 26 48 ( 31 ) ( 2 ) ( 42 ) ( 48 )

Defined contribution plans — 1 15 16 n/a n/a

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

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

Net actuarial (gain) loss (1)

( 83 ) ( 3 ) 1 — 3 ( 6 )

Amortization of net actuarial (loss) gain ( 54 ) ( 62 ) ( 44 ) ( 43 ) — 1

Amortization of prior service credit 1 1 — 1 49 57

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

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_____________

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

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

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

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

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

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

The Retiree Health net actuarial gain reflects remeasurement related to the first quarter 2022 Plan Amendment.

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

Refer to Note 19 - Other Comprehensive (Loss) Income for related tax effects and the after-tax amounts.

Xerox 2021 Form 10-Q 31

Contributions

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

Nine Months Ended

September 30, Year Ended

Three Months Ended

March 31, Year Ended

2022 2021 Estimated 2022

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plans 26 29 110 111

Total Pension $ 102 $ 97 $ 135 $ 139

Total Pension plans 32 35 135 135

Retiree Health 6 6 25 25

Total Retirement plans $ 38 $ 41 $ 160 $ 160

There are no mandatory contributions required in 2022 for our U.S.

tax-qualified defined benefit plans to meet the minimum funding requirements.

Defined Contribution Plans

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

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

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

Retiree Health Plan Amendment

During the first quarter of 2022, we amended our U.S.

Retiree Health Plan to reduce certain benefits for existing union retirees through the reduction or elimination of coverage or cost-sharing subsidies for retiree health care and life insurance costs.

This negative plan amendment resulted in a reduction of approximately $ 23 in the Company's postretirement benefit obligation.

The amount for the plan amendment will be amortized to future net periodic benefit costs as a prior service credit.

Xerox 2022 Form 10-Q 32

Note 17 – Shareholders’ Equity of Xerox Holdings

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Treasury Stock Retained

Xerox Holdings Shareholders’ Equity Non-controlling Interests Total

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

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

Cash dividends declared - common (3)

— — — ( 46 ) — ( 46 ) — ( 46 )

Cash dividends declared - preferred (4)

— — — ( 4 ) — ( 4 ) — ( 4 )

Stock option and incentive plans, net — 14 — — — 14 — 14

Payments to acquire treasury stock, including fees — — ( 87 ) — — ( 87 ) — ( 87 )

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

Other — 4 — — — 4 — 4

Balance at September 30, 2021

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

Treasury Stock Retained

Xerox Holdings Shareholders’ Equity Non- controlling Interests Total

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

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

Cash dividends declared - common (3)

— — — ( 51 ) — ( 51 ) — ( 51 )

Cash dividends declared - preferred (4)

— — — ( 4 ) — ( 4 ) — ( 4 )

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

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

Balance at September 30, 2020

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

Xerox 2021 Form 10-Q 32

Treasury Stock Retained

Xerox Holdings

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Balance at December 31, 2021 $ 168 $ 1,802 $ ( 177 ) $ 5,631 $ ( 2,988 ) $ 4,436 $ 7 $ 4,443

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

Comprehensive loss, net — — — ( 56 ) ( 44 ) ( 100 ) ( 1 ) ( 101 )

Cash dividends declared - common (3)

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Cancellation of treasury stock ( 12 ) ( 246 ) 258 — — — — —

Investment from noncontrolling interests (5)

— 1 — — — 1 4 5

Balance at September 30, 2021

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

Balance at March 31, 2022

$ 156 $ 1,560 $ ( 32 ) $ 5,532 $ ( 3,032 ) $ 4,184 $ 5 $ 4,189

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

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

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

Cash dividends declared - common (3)

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

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

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

Balance at September 30, 2020

Balance at March 31, 2021

$ 199 $ 2,456 $ ( 162 ) $ 6,267 $ ( 3,335 ) $ 5,425 $ 4 $ 5,429

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(2) Refer to Note 19 - Other Comprehensive (Loss) Income for the components of AOCL.

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

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

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

Treasury Stock

The following is a summary of the purchases of Common Stock during 2021:

Shares Amount

(3) Cash dividends declared on common stock for the three months ended March 31, 2022 and 2021 were $ 0.25 per share, respectively.

(4) Cash dividends declared on preferred stock for the three months ended March 31, 2022 and 2021 were $ 20.00 per share, respectively.

Common Stock and Treasury Stock

The following is a summary of the changes in Common and Treasury stock shares:

Common Stock Shares Treasury Stock Shares

Balance at December 31, 2021 168,069 8,675

Purchases (1)

Cancellations ( 17,067 ) ( 413 )

Balance at September 30, 2021

_____________

(1) Includes associated fees.

Stock based compensation plans, net 630 —

Acquisition of Treasury stock — 5,174

Cancellation of Treasury stock ( 12,341 ) ( 12,341 )

Balance at March 31, 2022 156,358 1,508

Xerox 2022 Form 10-Q 33

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Additional Paid-in Capital Retained Earnings AOCL (1)

Xerox Shareholder's Equity Non-

Balance at June 30, 2021 (2)

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

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

Xerox Shareholder's Equity Non- controlling Interests Total

Balance at December 31, 2021 $ 3,202 $ 4,476 $ ( 2,988 ) $ 4,690 $ 7 $ 4,697

Comprehensive loss, net — ( 56 ) ( 44 ) ( 100 ) ( 1 ) ( 101 )

Dividends declared to parent — ( 549 ) — ( 549 ) — ( 549 )

Transfers from parent 390 — — 390 — 390

Balance at September 30, 2021

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

Balance at March 31, 2022

$ 3,592 $ 3,871 $ ( 3,032 ) $ 4,431 $ 5 $ 4,436

1 unchanged sentence

Xerox Shareholder's Equity Non- controlling Interests Total

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

Comprehensive income, net — 90 88 178 — 178

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

Capital contributions from parent (3)

1,494 — — 1,494 — 1,494

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

Balance at September 30, 2020

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

Shareholder's

Balance at December 31, 2020 $ 4,888 $ 5,834 $ ( 3,332 ) $ 7,390 $ 4 $ 7,394

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

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

1 unchanged sentence

Intercompany loan capitalization ( 1,494 ) — — ( 1,494 ) — ( 1,494 )

( 1,494 ) — — ( 1,494 ) — ( 1,494 )

Transfers from parent 114 — — 114 — 114

Investment from noncontrolling interests (5)

Balance at September 30, 2021

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

Shareholder's

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

Comprehensive income, net — 115 53 168 — 168

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

Capital contributions from parent (3)

1,494 — — 1,494 — 1,494

Transfers from parent 99 — — 99 — 99

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

Balance at September 30, 2020

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

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

Balance at March 31, 2021 $ 3,360 $ 5,672 $ ( 3,335 ) $ 5,697 $ 4 $ 5,701

_____________

(1) Refer to Note 19 - Other Comprehensive (Loss) Income for the components of AOCL.

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

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

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

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

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

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

Xerox 2022 Form 10-Q 34

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

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

Unrealized Gains (Losses)

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

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

Translation Adjustments Losses $ ( 71 ) $ ( 72 ) $ ( 52 ) $ ( 51 )

Unrealized (Losses) Gains

Changes in fair value of cash flow hedges losses ( 15 ) ( 13 ) ( 10 ) ( 8 )

Changes in cash flow hedges reclassed to earnings (1)

2 2 — — 5 4 ( 1 ) —

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

Net Unrealized Losses ( 13 ) ( 11 ) ( 9 ) ( 7 )

Defined Benefit Plans Gains (Losses)

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

Net actuarial/prior service gains 16 12 43 32

Prior service amortization (2)

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Actuarial loss amortization/settlement (2)

32 23 31 23 98 72 104 79

Other gains (losses) (3)

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

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

Other gains (3)

Changes in Defined Benefit Plans Gains 49 39 70 55

Other Comprehensive (Loss) Income Attributable to Xerox Holdings/Xerox $ ( 35 ) $ ( 44 ) $ 9 $ ( 3 )

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AOCL is comprised of the following:

September 30,

2022 December 31,

Cumulative translation adjustments $ ( 1,933 ) $ ( 1,861 )

Other unrealized (losses) gains, net ( 1 ) 2

Other unrealized losses, net ( 13 ) ( 2 )

Benefit plans net actuarial losses and prior service credits ( 1,086 ) ( 1,125 )

1 unchanged sentence

Xerox 2022 Form 10-Q 35

Note 19 – Earnings per Share

Note 20 – (Loss) Earnings per Share

(shares in thousands)

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Basic Earnings per Share

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

Basic (Loss) Earnings per Share

Net (Loss) Income Attributable to Xerox Holdings $ ( 56 ) $ 39

Accrued dividends on preferred stock ( 4 ) ( 4 )

Adjusted Net income available to common shareholders $ 86 $ 86 $ 209 $ 104

Adjusted Net (loss) income available to common shareholders $ ( 60 ) $ 35

Weighted average common shares outstanding 156,362 195,985

Basic Earnings per Share $ 0.48 $ 0.41 $ 1.12 $ 0.49

Diluted Earnings per Share

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

Basic (Loss) Earnings per Share $ ( 0.38 ) $ 0.18

Diluted (Loss) Earnings per Share

Net (Loss) Income Attributable to Xerox Holdings $ ( 56 ) $ 39

Accrued dividends on preferred stock ( 4 ) ( 4 )

Adjusted Net income available to common shareholders $ 86 $ 86 $ 209 $ 104

Adjusted Net (loss) income available to common shareholders $ ( 60 ) $ 35

Weighted average common shares outstanding 156,362 195,985

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Adjusted weighted average common shares outstanding 156,362 198,166

Diluted Earnings per Share $ 0.48 $ 0.41 $ 1.10 $ 0.49

Diluted (Loss) Earnings per Share $ ( 0.38 ) $ 0.18

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

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Below is a summary of our Brazilian tax contingencies:

September 30,

2022 December 31,

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Liens on Brazilian assets — —

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

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

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

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

Exposures related to labor matters are not material to the financial statements as of September 30, 2021 and December 31, 2020.

Exposures related to labor matters are not material to the financial statements as of March 31, 2022 and December 31, 2021.

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

Litigation Against the Company

Pending Litigation Relating to the Fuji Transaction:

Jacobson, et al.:

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

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

Visentin, Jonathan Christodoro, Nicholas Graziano, and A.

Scott Letier, and former Board members Jeffrey Jacobson, William Curt Hunter, Robert J.

Keegan, Charles Prince, Ann N.

Reese, Stephen H.

Rusckowski, Gregory Q.

Brown, and Sara Martinez Tucker.

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

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

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

Xerox 2021 Form 10-Q 37

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

Fujifilm Holdings Corp., et al.

and Deason v.

Xerox Corporation, et al.

, against the same defendants as well as, in the first Deason action, former Xerox Chief Executive Officer Ursula M.

Burns (the "Fuji Transaction Shareholder Lawsuits").

Plaintiff alleged that the settlements ceded control of the Board and the Company to Darwin Deason and Carl C.

Icahn without a vote by, or compensation to, other Xerox stockholders;

improperly provided certain benefits and releases to the resigning and continuing directors;

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

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

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

Icahn, and their affiliated entities (the “Ribbe Class”) against the defendants for causing Xerox to enter into the Deason and XCCSL settlements, which plaintiff alleged perpetuated control of Xerox by Mr.

Icahn and Mr.

Deason and denied the voting franchise of Xerox shareholders.

Among other things, plaintiff sought damages in an unspecified amount for the alleged fiduciary breaches in favor of Xerox against defendants jointly and severally;

rescission or reformation of the Deason and XCCSL settlements;

restitution of funds paid to the resigning directors under the Deason settlement;

an injunction against defendants’ engaging in the alleged wrongful practices and equitable relief affording the putative Ribbe Class the ability to determine the composition of the Board;

costs and attorneys’ fees;

and other further relief as the Court may deem proper.

Defendants accepted service of the complaint as of May 16, 2019.

On June 4, 2019, the Court entered an order setting a briefing schedule for defendants’ motions to dismiss the complaint.

On July 12, 2019, plaintiff filed a motion to preclude defendants from referencing in their motions to dismiss the formation of, or work by, the committee of the Board established to investigate plaintiff’s shareholder demand.

On July 18, 2019, the Court denied plaintiff’s motion and adjourned sine die the deadline by which defendants must file any motions to dismiss the complaint.

On January 6, 2020, plaintiff filed his first amended complaint (“FAC”).

The FAC includes many of plaintiff’s original allegations regarding the 2018 shareholder litigation and settlements, as well as additional allegations, including, among others, that the members of the Special Committee of the Board that investigated plaintiff’s demand lacked independence and wrongfully refused to pursue the claims in the demand;

allegations that an agreement announced in November 2019 for, among other things, the sale by Xerox of its interest in Fuji Xerox to Fujifilm and dismissal of Fujifilm’s breach of contract lawsuit against Xerox (the “FX Sale Transaction”), was unfavorable to Xerox;

and allegations about a potential acquisition by Xerox of HP similar to those in the Miami Firefighters derivative action described below.

In addition to the claims in the April 11, 2019 complaint, the FAC adds as defendants Carl C.

Icahn, Icahn Capital LP, and High River Limited Partnership (the “Icahn defendants”) and asserts claims against those defendants and the Board similar to those in Miami Firefighters relating to the Icahn defendants’ purchases of HP stock allegedly with knowledge of material nonpublic information concerning Xerox’s potential acquisition of HP.

In addition to the relief sought in Ribbe’s prior complaint, the FAC seeks relief similar to that sought in Miami Firefighters relating to the Icahn defendants’ alleged purchases of HP stock.

On January 21, 2020, plaintiff in the Miami Firefighters action filed a motion seeking to intervene in Ribbe and to have stayed, or alternatively, severed and consolidated with the Miami Firefighters action, any claims first filed in Miami Firefighters and later asserted by Ribbe.

At a conference held on February 25, 2020, the Court denied the motion to intervene without prejudice.

On March 6, 2020, plaintiff in the Miami Firefighters action renewed its motion.

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

Discovery commenced.

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

On October 1, 2020, plaintiff filed a cross-motion seeking, among other relief, joinder of Xerox Holdings Corporation as a nominal defendant.

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

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

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

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

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

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

Xerox 2021 Form 10-Q 38

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

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

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

As a result, the case is now concluded.

Miami Firefighters’ Relief & Pension Fund v.

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breach of fiduciary duty of loyalty against the Icahn defendants;

breach of contract against the Icahn defendants (for purchasing HP stock in violation of Icahn’s confidentiality agreement with Xerox Holdings);

breach of contract against the Icahn

Xerox 2022 Form 10-Q 37

defendants (for purchasing HP stock in violation of Icahn’s confidentiality agreement with Xerox Holdings);

unjust enrichment against the Icahn defendants;

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Reynolds against the same parties in the same court, and designating Miami Firefighters’ counsel as lead counsel in the consolidated action.

On January 21, 2020, plaintiff filed a motion seeking to intervene in Ribbe v.

Jacobson, et al.

, described above, and to have stayed, or alternatively, severed and consolidated with this action, any claims first filed in this action and later asserted by Ribbe.

At a conference held on February 25, 2020, the Court denied the motion to intervene without prejudice.

On March 6, 2020, plaintiff in the Miami Firefighters action renewed its motion.

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

Discovery commenced.

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

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

Xerox Holdings will vigorously defend against this matter.

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

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

Xerox 2021 Form 10-Q 39

Other Litigation

On November 18, 2021, the Appellate Division issued its decision.

The Court reversed the lower court’s ruling to the extent that it dismissed the claims asserted against the Icahn defendants.

The claims asserted against the Directors remain dismissed.

On December 8, 2021, the Xerox Board approved the formation of a Special Litigation Committee to investigate and evaluate the claims and allegations asserted in the Miami Firefighters’ case and determine the course of action that would be in the best interests of the Company and its shareholders.

The Special Litigation Committee moved to stay the litigation pending its investigation and on January 25, 2022, the Court issued an order staying all discovery until February 28, 2022, except as related to the issue of the alleged damages sustained by Xerox.

On March 18, 2022, following the conclusion of its investigation, the Special Litigation Committee filed a motion to dismiss plaintiffs’ claims on the grounds that the derivative claims are without merit and pursuing the claims would not be in the best interest of Xerox or its shareholders.

One week later the Icahn Defendants filed a motion for summary judgment.

On April 4, 2022, Miami Firefighters filed papers in opposition to the pending motions and cross-moved to, among other things, seek discovery regarding the Special Litigation Committee’s investigation.

Miami Firefighters also cross-moved seeking an order granting partial summary judgment against the Icahn Defendants for disgorgement of alleged unrealized profits in the amount of $ 18.12 .

Oral argument on the pending motions is scheduled for May 26, 2022.

Xerox Holdings Corporation v.

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

damages in an amount to be determined at trial;

damages in an amount to be

Xerox 2022 Form 10-Q 38

determined at trial;

consequential damages;

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proceedings pending the outcome of the U.S.

We have issued or provided approximately $ 295 of guarantees as of September 30, 2021 in the form of letters of credit or surety bonds issued to i) support certain insurance programs;

We have issued or provided approximately $ 279 of guarantees as of March 31, 2022 in the form of letters of credit or surety bonds issued to i) support certain insurance programs;

ii) support our obligations related to the Brazil contingencies;

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

Note 22 – Subsequent Events

In April 2022, our U.K.

defined benefit pension plan was amended, at the sole discretion of the Plan Trustees as legally allowed, to increase the capped inflation indexation for the April 2022 pension increase award to 7.5 % in line with the December 2021 UK Retail Price Index (RPI).

This plan amendment is expected to result in an increase of approximately $ 53 (GBP 40 million) in the projected benefit obligation (PBO) for this plan (approximately 1.4 % of the plan PBO as of December 31, 2021).

However, at this stage, we are still evaluating the full impact of this amendment including the associated impacts from the required remeasurement of the plan assets and obligations for updates to discount rates, actual returns and actuarial experience as of the effective date of the amendment.

Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements included in the 2021 Annual Report for additional information regarding our U.K.

defined benefit pension plan including its funding status as of December 31, 2021.

Secured Borrowing

In April 2022, we entered into a secured loan agreement with a financial institution where we sold $ 94 ( 119 million CAD) of finance receivables of our Canadian subsidiary to a special purpose entity (SPE).

The purchase by the SPE was funded through an $ 85 ( 108 million CAD) amortizing secured loan to the SPE from the financial institution.

The transaction was accounted for as a secured borrowing and the SPE is fully consolidated in our financial statements.

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

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

The loan has a variable interest rate that was swapped to a fixed interest rate of 3.32 % and it has an expected life of less than 3 years, with half of the loan projected to be repaid within the first year based on collections of the underlying portfolio of receivables.

Xerox 2022 Form 10-Q 39

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

What changed 10-Q

Item 1. Financial Statements