What changed in this filing

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Item 1. Financial Statements

2022-08-03 compared with 2022-05-03 · 396 added, 212 removed, 1081 unchanged (36% of the section changed)

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

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

14 unchanged sentences

(Loss) Income before Income Taxes and Equity Income ( 5 ) 99 ( 94 ) 152

Income tax (benefit) expense ( 31 ) 14

Income tax expense (benefit) 1 9 ( 30 ) 23

Equity in net income of unconsolidated affiliates 1 1 2 1

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in millions) 2022 2021 2022 2021

6 unchanged sentences

Changes in defined benefit plans, net 3 16 42 71

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

Other Comprehensive (Loss) Income, Net Attributable to Xerox Holdings ( 298 ) 70 ( 342 ) 67

Comprehensive (Loss) Income, Net ( 303 ) 161 ( 404 ) 197

2 unchanged sentences

_____________

(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.

(1) Refer to Note 20 - Other Comprehensive (Loss) Income for gross components of Other comprehensive (loss) income, net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

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

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

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

2022 December 31,

44 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended

(in millions) 2022 2021

1 unchanged sentence

Net (Loss) Income $ ( 62 ) $ 130

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

Adjustments required to reconcile Net (loss) income to Cash flows (used in) provided by operating activities

Depreciation and amortization 140 170

Provisions 35 34

Net gain on sales of businesses and assets ( 1 ) ( 1 )

Stock-based compensation 50 30

Restructuring and asset impairment charges 22 25

Payments for restructuring ( 7 ) ( 27 )

Payments for restructurings ( 21 ) ( 49 )

Non-service retirement-related costs (1)

( 11 ) ( 42 )

Contributions to retirement plans (1)

( 72 ) ( 80 )

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

Increase in inventories ( 31 ) ( 18 )

(Increase) decrease in accounts receivable and billed portion of finance receivables ( 49 ) 37

(Increase) decrease in inventories ( 95 ) 4

Increase in equipment on operating leases ( 47 ) ( 63 )

Decrease in finance receivables 17 12

(Increase) decrease in other current and long-term assets ( 1 ) 18

Decrease in other current and long-term assets 35 66

Increase (decrease) in accounts payable 172 ( 33 )

Increase (decrease) in accrued compensation (1)

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

Increase in accrued compensation (1)

(Decrease) increase in other current and long-term liabilities ( 48 ) 92

Net change in income tax assets and liabilities ( 76 ) 2

1 unchanged sentence

Other operating, net ( 9 ) ( 17 )

Net cash provided by operating activities 66 117

Net cash (used in) provided by operating activities ( 19 ) 331

Cash Flows from Investing Activities

Cost of additions to land, buildings, equipment and software ( 29 ) ( 33 )

Proceeds from sales of businesses and assets 26 1

Acquisitions, net of cash acquired ( 52 ) ( 37 )

13 unchanged sentences

_____________

(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.

(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 in accrued compensation.

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

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

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in millions) 2022 2021 2022 2021

14 unchanged sentences

(Loss) Income before Income Taxes and Equity Income ( 5 ) 99 ( 94 ) 152

Income tax (benefit) expense ( 31 ) 14

Income tax expense (benefit) 1 9 ( 30 ) 23

Equity in net income of unconsolidated affiliates 1 1 2 1

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in millions) 2022 2021 2022 2021

6 unchanged sentences

Changes in defined benefit plans, net 3 16 42 71

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

Other Comprehensive (Loss) Income, Net Attributable to Xerox ( 298 ) 70 ( 342 ) 67

Comprehensive (Loss) Income, Net ( 303 ) 161 ( 404 ) 197

2 unchanged sentences

_____________

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

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions) March 31,

(in millions) June 30,

2022 December 31,

39 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended

(in millions) 2022 2021

1 unchanged sentence

Net (Loss) Income $ ( 62 ) $ 130

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

Adjustments required to reconcile Net (loss) income to Cash flows (used in) provided by operating activities

Depreciation and amortization 140 170

Provisions 35 34

Net gain on sales of businesses and assets ( 1 ) ( 1 )

Stock-based compensation 50 30

2 unchanged sentences

Non-service retirement-related costs (1)

( 11 ) ( 42 )

Contributions to retirement plans (1)

( 72 ) ( 80 )

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

Increase in inventories ( 31 ) ( 18 )

(Increase) decrease in accounts receivable and billed portion of finance receivables ( 49 ) 37

(Increase) decrease in inventories ( 95 ) 4

Increase in equipment on operating leases ( 47 ) ( 63 )

Decrease in finance receivables 17 12

(Increase) decrease in other current and long-term assets ( 1 ) 18

Decrease in other current and long-term assets 35 66

Increase (decrease) in accounts payable 172 ( 33 )

Increase (decrease) in accrued compensation (1)

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

Increase in accrued compensation (1)

(Decrease) increase in other current and long-term liabilities ( 48 ) 92

Net change in income tax assets and liabilities ( 76 ) 2

1 unchanged sentence

Other operating, net ( 9 ) ( 17 )

Net cash provided by operating activities 66 117

Net cash (used in) provided by operating activities ( 19 ) 331

Cash Flows from Investing Activities

Cost of additions to land, buildings, equipment and software ( 29 ) ( 33 )

Proceeds from sales of businesses and assets 26 1

Acquisitions, net of cash acquired ( 52 ) ( 37 )

11 unchanged sentences

_____________

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

(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 in accrued compensation.

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

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

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Interim Impairment Evaluation

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

Our goodwill balance was $ 3.2 billion and $ 3.3 billion at June 30, 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.

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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.

During the first half of 2022, the Company continued to encounter significant operational challenges due to supply chain constraints, inflationary pressure on product and labor costs, geopolitical uncertainty in Europe and the continued impacts from additional COVID-19 variants.

Operating results did improve in the second quarter 2022 as compared to the first quarter 2022 and operating results are expected to improve further in the second half of 2022 .

The Company's latest projections for the full year 2022 as well as for 2023 and 2024 are still within the range of our sensitivity analysis performed as part of the January 1, 2022 interim impairment assessment.

Accordingly, based on our interim assessment as of June 30, 2022, we determined that it was more-likely-than-not that the fair value of the 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.

However, given macroeconomic conditions, specifically rising interest rates and their impact on discount rates, our goodwill excess fair value over carrying value is likely reduced as compared to the impairment test as of January 1, 2022.

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, interest rates, inflationary pressure on product and labor 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.

We will continue to monitor developments in 2022 including updates to our forecasts as well as our market capitalization, and an update of our assessment and related estimates may be required in the future.

Note 2 – Recent Accounting Pronouncements

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

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

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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.

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

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

Accounting Standard Updates Adopted in 2022:

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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.

The standard will not impact contract assets or liabilities acquired in business combinations that occurred prior to the adoption date and the adoption has not had a material impact on acquisitions made year to 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).

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Those updates are as follows:

• Fair Value Measurement:

ASU 2022-03 , Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

This update is effective for our fiscal year beginning January 1, 2024.

• Derivatives and Hedging:

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

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

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

ASU 2021-05 , Leases - Certain Lease Payments with Variable Lease Payments (ASC 842).

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Primary geographical markets (1) :

8 unchanged sentences

Maintenance agreements (2)

446 448 875 883

Service arrangements (3)

478 508 964 997

Rental and other 104 111 212 240

3 unchanged sentences

Direct equipment lease (4)

$ 144 $ 189 $ 279 $ 336

Distributors & resellers (5)

298 289 559 543

Customer direct 225 192 421 393

9 unchanged sentences

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 $ 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.

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 $ 144 and $ 144 at June 30, 2022 and December 31, 2021, respectively.

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

Contract Costs:

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Incremental direct costs of obtaining a contract $ 15 $ 17 $ 28 $ 30

1 unchanged sentence

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

The balance of deferred incremental direct costs net of accumulated amortization at June 30, 2022 and December 31, 2021 was $ 124 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 .

2 unchanged sentences

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

As of March 31, 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.

As of June 30, 2022 and December 31, 2021, amounts deferred associated with contract fulfillment costs and inducements were $ 12 and $ 15 , respectively, and the related amortization was $ 2 and $ 2 for the three months ended June 30, 2022 and 2021, respectively, and $ 3 and $ 3 for the six months ended June 30, 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.

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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:

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

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

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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.

• “Entry” , which include A4 devices and desktop printers and multifunction devices that primarily serve small and medium workgroups/work teams.

• “Mid-Range” , which include A3 devices that generally serve large workgroup/work teams environments as well as products in the Light Production monochrome and color segments serving centralized print centers, print for pay and lower volume production print establishments.

• “High-End” , which include production printing and publishing systems that generally serve the graphic communications marketplace and print centers in large enterprises.

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

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Selected financial information for our reportable segments was as follows:

Three Months Ended March 31,

Three Months Ended June 30,

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

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Total Segment net revenue $ 1,633 $ 151 $ 1,784 $ 1,672 $ 177 $ 1,849

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

Segment profit $ 18 $ 17 $ 35 $ 111 $ 15 $ 126

Segment margin (2)

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— 28 28 — 30 30

Six Months Ended June 30,

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

External net revenue $ 3,112 $ 303 $ 3,415 $ 3,152 $ 351 $ 3,503

Intersegment net revenue (1)

71 6 77 101 6 107

(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.

Total Segment net revenue $ 3,183 $ 309 $ 3,492 $ 3,253 $ 357 $ 3,610

Segment (loss) profit $ ( 2 ) $ 34 $ 32 $ 182 $ 33 $ 215

Segment (loss) margin (2)

( 0.1 ) % 11.2 % 0.9 % 5.8 % 9.4 % 6.1 %

Depreciation and amortization $ 57 $ 62 $ 119 $ 58 $ 83 $ 141

Interest income — 105 105 — 111 111

Interest expense (3)

— 54 54 — 60 60

_____________

(1) Intersegment net revenue is primarily commissions and other payments made by the Financing Segment (FITTLE) 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.

(3) Interest expense for the Financing Segment includes non-financing interest expense on allocated debt associated with Equipment on operating lease of $ 2 and $ 2 for the three months ended June 30, 2022 and 2021, respectively, and $ 4 and $ 4 for the six months ended June 30, 2022 and 2021, respectively.

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1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Pre-tax (Loss) Income

2 unchanged sentences

Amortization of intangible assets ( 10 ) ( 14 ) ( 21 ) ( 29 )

Accelerated share vesting ( 21 ) — ( 21 ) —

Other expenses, net ( 8 ) ( 1 ) ( 65 ) ( 5 )

17 unchanged sentences

Three Months Ended

June 30, Six Months Ended

Location in Statements of (Loss) Income 2022 2021 2022 2021

4 unchanged sentences

Total Lease income $ 256 $ 319 $ 507 $ 596

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.

Profit at lease commencement on sales-type leases was estimated to be $ 44 and $ 57 for the three months ended June 30, 2022 and 2021, respectively, and $ 88 and $ 101 for the six months ended June 30, 2022 and 2021, respectively.

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Cost of services, maintenance and rentals $ — $ 6 $ — $ 13

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Summarized cash flow information is as follows:

Three Months Ended

Six Months Ended

Provision for receivables $ 21 $ 15

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Payments to noncontrolling interests 1 —

Investment from noncontrolling interests 5 5

Repurchases related to stock-based compensation - Xerox Holdings 10 14

_____________

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

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

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

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Balance at March 31 st

Provision 3 1

Charge-offs ( 2 ) ( 2 )

Recoveries and other (1)

Balance at June 30 th

_____________

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

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

Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 6.9 % at June 30, 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.

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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, $ 87 and $ 102 remained uncollected as of March 31, 2022 and December 31, 2021, respectively.

Of the accounts receivable sold and derecognized from our balance sheet, $ 84 and $ 102 remained uncollected as of June 30, 2022 and December 31, 2021, respectively.

Accounts receivable sales activity was as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Accounts receivable sales (1)

$ 120 $ 125 $ 236 $ 232

(1) Losses on sales were not material.

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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.

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 June 30, 2022 and 3.7 % and 4.0 % at December 31, 2021 and 2020, respectively.

In determining the level of reserve required we critically assessed current and forecasted economic conditions and trends to ensure we objectively considered 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.

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

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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.

We continue to believe that uncertainties remain as economies continue to recover from the impacts of the COVID-19 pandemic and deal with recent macro-economic trends including higher interest rates and inflation as well as the prospects of a potential recession.

In addition, there is also 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.

We continue to monitor developments in future economic conditions and trends, 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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Balance at March 31, 2022 78 11 31 120

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

Provision — 1 3 4

Charge-offs ( 3 ) ( 1 ) ( 2 ) ( 6 )

Recoveries and other (2)

— — ( 2 ) ( 2 )

Balance at June 30, 2022 $ 75 $ 11 $ 30 $ 116

Finance receivables as of June 30, 2022 collectively evaluated for impairment (3)

$ 1,861 $ 230 $ 972 $ 3,063

Balance at December 31, 2020

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Balance at March 31, 2021 78 16 41 135

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

Provision 6 ( 1 ) ( 3 ) 2

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

Recoveries and other (2)

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

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

$ 1,845 $ 283 $ 1,122 $ 3,250

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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 $ 120 and $ 135 at March 31, 2022 and 2021, respectively.

(3) Total Finance receivables exclude the allowance for credit losses of $ 116 and $ 133 at June 30, 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 and lease financing to end-user customers who purchased equipment we sold to distributors or resellers.

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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 %.

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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:

March 31, 2022

June 30, 2022

2022 2021 2020 2019 2018 Prior Total

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The aging of our billed finance receivables is as follows:

March 31, 2022

June 30, 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 SPE.

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.

In 2022 and 2021, we sold certain finance receivables to consolidated special purpose entities included in our Condensed Consolidated Balance Sheet as collateral for secured loans.

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

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Note 10 – Inventories and Equipment on Operating Leases, Net

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Equipment on operating leases and similar arrangements consists of our equipment rented to customers and depreciated to estimated salvage value at the end of the lease term.

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

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Equipment on operating leases, net $ 226 $ 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 March 31, 2022 and 2021, respectively.

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 16 and $ 16 for the three months ended June 30, 2022 and 2021, respectively, and $ 31 and $ 31 for the six months ended June 30, 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.

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.

In 2021, we sold the rights to payments under operating leases to a consolidated special purpose entity included in our Condensed Consolidated Balance Sheet as collateral for a secured loan.

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

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Note 11 – Lessee

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Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations.

Our leases have remaining terms of up to eleven years and a variety of renewal and/or termination options.

Our leases have remaining terms of up to ten years and a variety of renewal and/or termination options.

The components of lease expense are as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Operating lease expense $ 24 $ 27 $ 49 $ 54

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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.

As of June 30, 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:

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

During the 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.

During the six months ended June 30, 2022, we recorded net restructuring charges of $ 40 , which included $ 44 of severance costs related to headcount reductions of approximately 1,050 employees worldwide, and $ 1 of other contractual termination costs.

These costs were partially offset by $ 5 of net reversals, which primarily reflect 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:

Information related to our restructuring programs is summarized below:

Severance and

1 unchanged sentence

Other Contractual Termination Costs (2)

Asset Impairments (3)

Balance at December 31, 2021 $ 25 $ 2 $ 27

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Balance at March 31, 2022 37 2 39

Provision 22 1 23

Reversals ( 1 ) ( 1 ) ( 2 )

Net current period charges (1)

Charges against reserve and currency ( 14 ) — ( 14 )

Balance at June 30, 2022 $ 44 $ 2 $ 46

_____________ _

(1) Represents net amount recognized within the Condensed Consolidated Statements of (Loss) 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 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 $ 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

Six Months Ended

Charges against reserve and currency $ ( 21 ) $ ( 62 )

Asset impairments 1 —

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

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Retention related severance/bonuses (1)

$ — $ 3 $ ( 2 ) $ ( 1 )

Contractual severance costs ( 1 ) 3 ( 1 ) 3

Consulting and other costs (2)

Total $ ( 1 ) $ 8 $ ( 3 ) $ 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 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.

The credit for the six months ended June 30, 2022 and 2021 reflects a change in estimate.

Cash paid for restructuring related costs were $ 2 and $ 6 for the six months ended June 30, 2022 and 2021, respectively.

The restructuring related costs reserve was $ 13 and $ 18 at June 30, 2022 and December 31, 2021, respectively.

The balance at June 30, 2022 is expected to be paid over the next twelve months.

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In connection with our restructuring programs, during the six months ended June 30, 2022, we recorded a net gain of $ 18 , which included a gain of $ 20 on the sale of surplus buildings and land.

Information related to our restructuring-related asset impairment activity is summarized below:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Lease right of use assets (1)

Owned assets (1)

Asset impairments 1 2 2 12

Gain on sales of assets (2)

( 20 ) — ( 20 ) —

Adjustments/Reversals — ( 1 ) — ( 1 )

Net asset impairment charges $ ( 19 ) $ 1 $ ( 18 ) $ 11

_____________ _

(1) Primarily related to the exit and abandonment of leased and owned facilities, net of any potential sublease income and recoveries.

(2) Primarily related to the sale of land and a facility during the second quarter of 2022.

Note 13 – Debt

Early Extinguishment of Senior Notes

In June 2022, we completed the early redemption of $ 350 of the $ 1 billion of Xerox Corporation 4.625 % Senior Notes due March 2023, for $ 353 in cash consideration, which included an early redemption premium over par of $ 3 .

The early redemption resulted in a net loss of $ 4 , inclusive of fees and the write-off of debt carrying value adjustments.

Xerox Holdings Corporation / Xerox Corporation Intercompany Loan

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

At 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.

At June 30, 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 $ 30 and $ 30 , respectively.

Xerox Corporation’s interest expense included interest expense associated with this Intercompany Loan of $ 19 and $ 19 for the three months ended June 30, 2022 and 2021, respectively, and $ 39 and $ 39 for the six months ended June 30, 2022 and 2021, 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.

In July 2022, Xerox Corporation entered into an agreement for a new $ 500 revolving Credit Facility.

This new facility replaced our prior $ 1.5 billion Credit Facility.

Refer to Note 23 - Subsequent Events for additional information related to this 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 SPE.

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

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.

In 2022 and 2021, we entered into secured loan agreements with various financial institutions where we sold finance receivables and rights to payments under our equipment on operating leases to special purpose entities (SPEs).

The purchases by the SPEs were funded through amortizing secured loans to the SPEs from the financial institutions.

The loans have variable interest rates and expected lives of approximately 2.5 years, with half projected to be repaid within the first year based on collections of the underlying portfolio of receivables.

For certain loans, we entered into interest rate hedge agreements to either fix or cap the interest rate over the life of the loan.

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

Xerox 2022 Form 10-Q 28

However, the transactions were accounted for as secured borrowings as we fully consolidate the SPEs in our financial statements.

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

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

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

Xerox 2022 Form 10-Q 27

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

June 30, 2022

Finance Receivables, Net (1)

Equipment on Operating Leases, Net Secured Debt (2)

Interest Rate Expected Maturity

United States

January 2022 $ 642 $ — $ 549 3.02 % 2024

September 2021 238 6 207 1.78 % 2024

Total 880 6 756

April 2022 84 0 77 3.32 % 2025

Total $ 964 $ 6 $ 833

December 31, 2021

Assets held by SPEs

Billed portion of finance receivables, net $ 31 $ 27

Finance Receivables, Net (1)

Finance receivables due after one year, net 597 362

Equipment on operating leases, net 7 8

Restricted cash (1)

Total Assets $ 1,074 $ 728

Liabilities held by SPEs

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

Long term debt, net (2)

Total Liabilities $ 883 $ 560

Equipment on Operating Leases, Net Secured Debt (2)

Interest Rate Expected Maturity

United States

September 2021 $ 308 $ 8 $ 293 1.40 % 2024

December 2020 380 — 267 1.74 % 2023

Total $ 688 $ 8 $ 560

____________ _

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

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

(1) Includes (i) Billed portion of finance receivables, net (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

(2) Net of debt issuance costs of $ 2 and $ 1 as of June 30, 2022 and December 31, 2021, respectively.

Interest Expense and Income

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Interest expense (1)(2)

$ 49 $ 52 $ 102 $ 104

Interest income (3)

55 57 109 113

(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.

(2) Interest expense of Xerox Corporation included intercompany interest expense associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan of $ 19 and $ 19 for the three months ended June 30, 2022 and 2021, respectively, and $ 39 and $ 39 for the six months ended June 30, 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.

Xerox 2022 Form 10-Q 28

Note 14 – Financial Instruments

2 unchanged sentences

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

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

Foreign Exchange Risk Management

3 unchanged sentences

• Forecasted purchases and sales in foreign currency

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.

At June 30, 2022 and December 31, 2021, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 1,170 and $ 1,113 respectively, with terms of less than 12 months.

Approximately 81 % of the contracts at June 30, 2022 mature within three months, 9 % mature in three to six months and 10 % in six to twelve months.

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

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

The net liability fair value of these contracts were $ 28 and $ 3 as of June 30, 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 March 31,

Designation of Derivatives Balance Sheet Location June 30,

2022 December 31,

11 unchanged sentences

Net Derivative liabilities $ ( 31 ) $ ( 6 )

Xerox 2022 Form 10-Q 29

Summary of Derivative Instruments Gains (Losses)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

Loss on Derivative Instruments 2022 2021 2022 2021

2 unchanged sentences

Derivative loss reclassified from AOCL to income - Cost of sales (effective portion) ( 4 ) ( 2 ) ( 6 ) ( 3 )

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.

During the six months ended June 30, 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 March 31, 2022, a net after-tax loss of $ 13 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

As of June 30, 2022, a net after-tax loss of $ 27 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.

4 unchanged sentences

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

June 30, Six Months Ended

2022 2021 2022 2021

Foreign exchange contracts – forwards Other expense – Currency losses, net $ ( 14 ) $ ( 4 ) $ ( 23 ) $ ( 22 )

Xerox 2022 Form 10-Q 30

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

Currency losses, net were $ 1 and $ 1 for the three months ended June 30, 2022 and 2021, respectively, and $ 1 and $ 3 for six months ended June 30, 2022 and 2021, respectively.

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

Xerox 2022 Form 10-Q 30

Note 15 – Fair Value of Financial Assets and Liabilities

15 unchanged sentences

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cash and cash equivalents $ 1,151 $ 1,151 $ 1,840 $ 1,840

14 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Pension Benefits

6 unchanged sentences

Expected return on plan assets ( 24 ) ( 27 ) ( 59 ) ( 52 ) — —

Recognized net actuarial loss 4 5 6 15 — —

Recognized net actuarial loss (gain) 3 4 6 14 ( 1 ) —

Amortization of prior service credit — ( 1 ) — — ( 3 ) ( 16 )

4 unchanged sentences

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

Net actuarial (gain) loss (1)

( 7 ) ( 25 ) 31 — — 2

Prior service cost — — 48 — — —

Amortization of net actuarial (loss) gain ( 18 ) ( 17 ) ( 6 ) ( 14 ) 1 —

Amortization of net prior service credit — 1 — — 3 16

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

( 25 ) ( 41 ) 73 ( 14 ) 4 18

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income $ ( 1 ) $ ( 32 ) $ 61 $ ( 20 ) $ 3 $ 4

Six Months Ended June 30,

Pension Benefits

Plans Non-U.S.

Plans Retiree Health

Components of Net Periodic Benefit Costs:

2022 2021 2022 2021 2022 2021

Service cost $ 1 $ 1 $ 8 $ 10 $ 1 $ 1

Interest cost 44 37 62 44 4 4

Expected return on plan assets ( 51 ) ( 55 ) ( 114 ) ( 104 ) — —

Recognized net actuarial loss (gain) 7 9 12 29 ( 1 ) —

Amortization of prior service credit — ( 1 ) — — ( 7 ) ( 33 )

Recognized settlement loss 33 28 — — — —

Defined benefit plans 34 19 ( 32 ) ( 21 ) ( 3 ) ( 28 )

Defined contribution plans 10 — 8 10 n/a n/a

Net Periodic Benefit Cost (Credit) 44 19 ( 24 ) ( 11 ) ( 3 ) ( 28 )

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

Net actuarial loss (gain) (1)

7 ( 69 ) 31 1 ( 7 ) 2

Prior service credit — — — — ( 23 ) —

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

Prior service cost (credit) — — 48 — ( 23 ) —

Amortization of net actuarial (loss) gain ( 40 ) ( 37 ) ( 12 ) ( 29 ) 1 —

Amortization of prior service credit — 1 — — 7 33

4 unchanged sentences

(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.

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.

net actuarial loss reflects remeasurement related to the second quarter 2022 Pension Plan amendment in the UK.

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

Refer to Note 20 - Other Comprehensive (Loss) Income for related tax effects and the after-tax amounts.

Xerox 2022 Form 10-Q 32

Contributions

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

Three Months Ended

March 31, Year Ended

Six Months Ended

June 30, Year Ended

2022 2021 Estimated 2022

11 unchanged sentences

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

Pension Plan Amendment

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 amendment resulted in an increase of approximately $ 48 (GBP 39 million) in the projected benefit obligation (PBO) for this plan (approximately 1.4 % of the plan PBO as of December 31, 2021).

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 resulted in an additional actuarial loss of $ 31 .

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.

Xerox 2022 Form 10-Q 33

2 unchanged sentences

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

Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (2)

Xerox Holdings Shareholders’ Equity Non-controlling Interests Total

Balance at March 31, 2022 $ 156 $ 1,560 $ ( 32 ) $ 5,532 $ ( 3,032 ) $ 4,184 $ 5 $ 4,189

Comprehensive loss, net — — — ( 4 ) ( 298 ) ( 302 ) ( 1 ) ( 303 )

Cash dividends declared - common (3)

— — — ( 41 ) — ( 41 ) — ( 41 )

Cash dividends declared - preferred (4)

— — — ( 3 ) — ( 3 ) — ( 3 )

Stock option and incentive plans, net 1 34 — — — 35 — 35

Cancellation of treasury stock ( 2 ) ( 30 ) 32 — — — — —

Investment from noncontrolling interests — — — — — — 5 5

Balance at June 30, 2022 $ 155 $ 1,564 $ — $ 5,484 $ ( 3,330 ) $ 3,873 $ 9 $ 3,882

Additional Paid-in Capital Treasury Stock Retained Earnings AOCL (2)

Xerox Holdings Shareholders’ Equity Non- controlling Interests Total

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

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

Cash dividends declared - common (3)

— — — ( 47 ) — ( 47 ) — ( 47 )

Cash dividends declared - preferred (4)

— — — ( 3 ) — ( 3 ) — ( 3 )

Stock option and incentive plans, net — 5 — — — 5 — 5

Payments to acquire treasury stock, including fees — — ( 251 ) — — ( 251 ) — ( 251 )

Cancellation of treasury stock ( 10 ) ( 244 ) 254 — — — — —

Investment from noncontrolling interests — 1 — — — 1 4 5

Other — ( 4 ) — — — ( 4 ) — ( 4 )

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

Treasury Stock Retained

11 unchanged sentences

Cancellation of treasury stock ( 14 ) ( 276 ) 290 — — — — —

Investment from noncontrolling interests — — — — — — 5 5

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

Balance at March 31, 2022

Balance at June 30, 2022

$ 155 $ 1,564 $ — $ 5,484 $ ( 3,330 ) $ 3,873 $ 9 $ 3,882

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Treasury Stock Retained

2 unchanged sentences

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

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

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

Cash dividends declared - common (3)

4 unchanged sentences

Payments to acquire treasury stock, including fees — — ( 413 ) — — ( 413 ) — ( 413 )

Balance at March 31, 2021

Cancellation of treasury stock ( 10 ) ( 244 ) 254 — — — — —

Investment from noncontrolling interests — 1 — — — 1 4 5

Other — ( 4 ) — — — ( 4 ) — ( 4 )

Balance at June 30, 2021

$ 189 $ 2,214 $ ( 159 ) $ 6,308 $ ( 3,265 ) $ 5,287 $ 8 $ 5,295

2 unchanged sentences

(2) Refer to Note 20 - Other Comprehensive (Loss) Income for the components of AOCL.

(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.

(3) Cash dividends declared on common stock for the three and six months ended June 30, 2022 and 2021 were $ 0.25 per share, respectively, and $ 0.50 per share, respectively.

(4) Cash dividends declared on preferred stock for the three and six months ended June 30, 2022 and 2021 were $ 20.00 per share, respectively, and $ 40.00 per share, respectively.

Common Stock and Treasury Stock

6 unchanged sentences

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

Stock based compensation plans, net 116 —

Cancellation of Treasury stock ( 1,508 ) ( 1,508 )

Balance at June 30, 2022 154,966 —

Xerox 2022 Form 10-Q 35

3 unchanged sentences

Xerox Shareholder's Equity Non- controlling Interests Total

Balance at March 31, 2022 $ 3,592 $ 3,871 $ ( 3,032 ) $ 4,431 $ 5 $ 4,436

Comprehensive loss, net — ( 4 ) ( 298 ) ( 302 ) ( 1 ) ( 303 )

Dividends declared to parent — ( 47 ) — ( 47 ) — ( 47 )

Transfers from parent 38 — — 38 — 38

Investment from noncontrolling interests — — — — 5 5

Balance at June 30, 2022 $ 3,630 $ 3,820 $ ( 3,330 ) $ 4,120 $ 9 $ 4,129

Additional Paid-in Capital Retained Earnings AOCL (1)

Xerox Shareholder's Equity Non-

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

Comprehensive income, net — 91 70 161 — 161

Dividends declared to parent — ( 358 ) — ( 358 ) — ( 358 )

Transfers from parent 52 — — 52 — 52

Investment from noncontrolling interests 1 — — 1 4 5

Balance at June 30, 2021 $ 3,413 $ 5,405 $ ( 3,265 ) $ 5,553 $ 8 $ 5,561

Additional Paid-in Capital Retained Earnings AOCL (1)

Xerox Shareholder's Equity Non- controlling Interests Total

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

2 unchanged sentences

Transfers from parent 428 — — 428 — 428

Investment from noncontrolling interests — — — — 5 5

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

Balance at March 31, 2022

Balance at June 30, 2022

$ 3,630 $ 3,820 $ ( 3,330 ) $ 4,120 $ 9 $ 4,129

2 unchanged sentences

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

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

Comprehensive income, net — 130 67 197 — 197

Dividends declared to parent — ( 559 ) — ( 559 ) — ( 559 )

Intercompany loan capitalization (2)

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

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

( 1,494 ) — — ( 1,494 ) — ( 1,494 )

Transfers from parent 18 — — 18 — 18

Investment from noncontrolling interests 1 — — 1 4 5

Balance at June 30, 2021 $ 3,413 $ 5,405 $ ( 3,265 ) $ 5,553 $ 8 $ 5,561

_____________

(1) Refer to Note 20 - Other Comprehensive (Loss) Income for the components of AOCL.

(2) Refer to Note 13 - Debt for information regarding capitalization of balance to Intercompany Loan with Xerox Holdings Corporation.

Xerox 2022 Form 10-Q 36

Note 19 – Stock-Based Compensation

Stock-based compensation expense of $ 50 for the six months ended June 30, 2022 reflects $ 21 of accelerated expense associated with the vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO.

Stock Options – CareAR Holdings, LLC

In September 2021, Xerox Holdings Corporation announced the formation of CareAR Holdings, which consolidates CareAR, Inc., Docushare ® and XMPie under a single holding company named CareAR Holdings (CareAR).

In March 2022, the CareAR Holdings, LLC Board approved the CareAR 2022 Equity Compensation Plan (the “Plan”) and authorized the issuance of 105 thousand stock options (SOs) to certain executives and employees of Xerox and CareAR.

Compensation expense of $ 30 associated with 90 thousand SOs currently awarded under the Plan is based upon the grant date fair value, as determined by utilizing a Black-Scholes option-pricing model and is expected to be recorded on a straight-line basis over 4.7 years, based on the vesting period and management’s estimate of the number of SOs expected to vest.

SOs vest on an annual, graduated schedule beginning January 2023 through January 2027 as follows:

10 % in January 2023 and 2024, respectively, 20 % in January 2025 and 2026, respectively, and 40 % in January 2027 based upon continued service.

Options granted under the Plan are subject to terms and conditions as determined by the CareAR Board and become vested and exercisable at any time subsequent to the scheduled vesting dates and may expire 90 days or one year from employee termination, depending on cause, but in no event later than ten years from the May 2022 grant date.

The terms of the awards also include certain provisions that allow for the immediate vesting in the event of a sale of the entity.

Note 20 - Other Comprehensive (Loss) Income

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Three Months Ended

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

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

June 30, Six Months Ended

2022 2021 2022 2021

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

Translation Adjustments (Losses) Gains $ ( 295 ) $ ( 287 ) $ 55 $ 54 $ ( 366 ) $ ( 359 ) $ 3 $ 3

Unrealized (Losses) Gains

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Changes in cash flow hedges reclassed to earnings (1)

4 2 2 1 6 4 3 2

Net Unrealized Losses ( 19 ) ( 14 ) — — ( 32 ) ( 25 ) ( 9 ) ( 7 )

Defined Benefit Plans Gains (Losses)

Net actuarial/prior service gains 16 12 43 32

Defined Benefit Plans (Losses) Gains

Net actuarial/prior service (losses) gains ( 72 ) ( 55 ) 23 17 ( 56 ) ( 43 ) 66 49

Prior service amortization (2)

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Actuarial loss amortization/settlement (2)

Other gains (3)

Changes in Defined Benefit Plans Gains 49 39 70 55

23 17 31 23 51 38 66 49

Other gains (losses) (3)

43 43 ( 11 ) ( 11 ) 52 52 ( 2 ) ( 2 )

Changes in Defined Benefit Plans (Losses) Gains ( 9 ) 3 26 16 40 42 96 71

Other Comprehensive (Loss) Income Attributable to Xerox Holdings/Xerox $ ( 323 ) $ ( 298 ) $ 81 $ 70 $ ( 358 ) $ ( 342 ) $ 90 $ 67

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Basic (Loss) Earnings per Share

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Weighted average common shares outstanding (1)

155,170 187,009 155,897 191,433

Basic (Loss) Earnings per Share $ ( 0.05 ) $ 0.47 $ ( 0.43 ) $ 0.64

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Weighted average common shares outstanding (1)

155,170 187,009 155,897 191,433

Common shares issuable with respect to:

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Dividends per Common Share $ 0.25 $ 0.25 $ 0.50 $ 0.50

Xerox 2022 Form 10-Q 36

(1) Includes unissued shares associated with the accelerated share vesting since all contingencies regarding issuance have lapsed.

Note 22 – Contingencies and Litigation

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We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies.

Should developments in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs.

Xerox 2022 Form 10-Q 38

material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs.

Brazil Contingencies

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Liens on Brazilian assets — —

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

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

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

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

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

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

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breach of fiduciary duty of loyalty against the Icahn defendants;

breach of contract against the Icahn

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

breach of contract against the Icahn 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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and attorneys' fees, costs, and other relief the Court deems just and proper.

On January 15, 2020, the Court entered an order granting plaintiff’s unopposed motion to consolidate with Miami Firefighters a similar action filed on December 26, 2019 by alleged shareholder Steven J.

The Court subsequently granted plaintiff’s unopposed motion to consolidate a similar action filed on December 26, 2019 by alleged shareholder Steven J.

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

Discovery commenced.

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

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

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

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

The motion was fully briefed on January 7, 2021.

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

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

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

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.

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.

Xerox 2022 Form 10-Q 39

Defendants moved to dismiss in August 2020, and the Court granted defendants’ motions and dismissed the action in its entirety, on December 14, 2020.

Plaintiffs appealed the dismissal of the case to the Appellate Division, First Department.

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

The Court subsequently stayed 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.

One week later the Icahn Defendants filed a motion for summary judgment seeking dismissal of all claims against them.

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.

Oral argument on all pending motions took place on July 5, 2022.

After hearing from all parties on the various motions, the Court denied without prejudice the Special Litigation Committee's motion to dismiss, the Icahn defendants' motion for summary judgment and the plaintiffs' cross-motion for summary judgment.

The Court also granted the plaintiffs limited discovery to be completed within 60 days.

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

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determined at trial;

damages in an amount to be determined at trial;

consequential damages;

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proceedings pending the outcome of the U.S.

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;

We have issued or provided approximately $ 258 of guarantees as of June 30, 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.

Xerox 2022 Form 10-Q 40

Note 23 – Subsequent Events

In April 2022, our U.K.

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.

Credit Facility

On July 7, 2022, Xerox Corporation, as borrower, and its parent company, Xerox Holdings Corporation (the Company), entered into a new Credit Agreement with several participating lending banks.

The new Credit Agreement provides Xerox Corporation with a $ 500 Revolving Credit Facility (the New Revolving Credit Facility) and has a maturity date of July 7, 2024.

We deferred $ 3 of debt issuance costs in connection with this agreement, which will be amortized over the two-year term of the arrangement.

The New Revolving Credit Agreement includes an uncommitted accordion feature that allows the Company to increase the facility by a total of up to $ 150 , subject to obtaining additional commitments from existing lenders or new lending institutions.

The New Revolving Credit Agreement also includes a $ 150 letter of credit sub-facility.

At Xerox Corporation’s election, the borrowings under the New Revolving Credit Facility in U.S.

dollars will bear interest at either (i) a rate per annum equal to the highest of Citibank’s prime rate or a rate 0.5 % in excess of the Federal Funds Rate or a rate 1.0 % in excess of one-month Term SOFR (the Base Rate), in each case plus an applicable margin, or (ii) the one-, three-, or six-month per annum Term SOFR (the Term SOFR Rate), as selected by the Company, plus an applicable margin.

The applicable margin for Base Rate loans, through the quarterly reporting for the fiscal quarter ending September 30, 2022, is 1.00 % per annum, and thereafter varies from 0.50 % to 1.25 % depending on the Company’s consolidated total net leverage ratio (as defined in the New Credit Agreement).

The applicable margin for Term SOFR Rate loans, through the quarterly reporting for the fiscal quarter ending September 30, 2022, is 2.00 % per annum, and thereafter varies from 1.50 % to 2.25 % depending on the Company’s consolidated total net leverage ratio.

Xerox Corporation may also borrow in currencies other than U.S.

dollars under the New Revolving Credit Agreement, and such borrowings will bear interest calculated under a construct similar to that described above.

Principal outstanding would be payable in full at maturity on July 7, 2024.

Xerox Corporation’s borrowings under the New Revolving Credit Facility are supported by guarantees from the Company and its subsidiary guarantors, and by security interests in substantially all of the assets of Xerox Corporation, the Company, and its subsidiary guarantors, subject to certain exceptions.

If an event of default occurs under the New Revolving Credit Facility, the entire principal amount outstanding under the New Revolving Credit Facility, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable, subject, in certain instances, to the expiration of applicable cure periods.

The New Revolving Credit Facility requires the Company to comply with the following financial covenants measured as of the end of each fiscal quarter, commencing with the quarter ending September 30, 2022:

(a) Minimum Unrestricted Cash - maintain an Unrestricted Cash balance, as defined in the New Revolving Credit Agreement, in an amount not less than $ 500 as of the last day of the quarter.

(b) Total Net Leverage Ratio - a quarterly test that is calculated as net debt for borrowed money divided by consolidated EBITDA, both as defined in the New Revolving Credit Agreement - with a cap on cash netting of $ 1.0 billion.

(c) Interest Coverage Ratio - a quarterly test that is calculated as consolidated EBITDA divided by consolidated interest expense, both as defined in the New Revolving Credit Agreement.

In addition, the New Revolving Credit Facility requires that no more than $ 300 of the $ 650 2023 Senior Notes is outstanding as of December 15, 2022 in order for the facility to remain in effect.

The New Revolving Credit Facility also imposes restrictions on the Company and its subsidiaries, including on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase.

Under the New Revolving Credit Facility, provided there is no event of default existing, the Company may declare and pay cash dividends on shares of its common stock and its preferred stock, and may repurchase shares of its common stock and its preferred stock (i) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s Total Net Leverage ratio is 3.5 to 1.00 or less or (ii) in an aggregate amount in any fiscal year not to exceed the greater of (x) $ 200 or (y) 50 % of free cash flow, which is operating cash flows less capital expenditures, for the prior fiscal year, commencing with the fiscal year ending December 31, 2022.

In July 2022, Xerox acquired Go Inspire, a U.K.-based print and digital marketing and communication services provider, for approximately $ 48 (GBP 40 million).

The acquisition strengthens Xerox’s strategy to grow its global Digital Services presence in EMEA.

The purchase price was all cash for 100 % ownership of the acquired company and is expected to be primarily allocated to intangible assets and goodwill.

The goodwill associated with the acquisition of Go Inspire will be included in our Print and Other segment.

The operating results of this acquisition are not expected to be material to our financial statements.

Xerox 2022 Form 10-Q 41

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