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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-23 · 662 added, 617 removed, 687 unchanged (65% of the section changed)

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

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

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

Currently, Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations.

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Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established in 2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies.

Xerox Ventures LLC had investments of approximately $8 million at December 31, 2021.

Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion.

Xerox Ventures LLC had investments of approximately $21 million and $8 million at December 31, 2022 and 2021, respectively.

Due to its immaterial impact to earnings and the balance sheet, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion.

Executive Overview

Our expectation entering 2021 was that in-office work would normalize following 2020's wave of COVID-19 infections and the global rollout of effective vaccines.

However, the emergence of various variants of COVID-19 in 2021 resulted in many of our customers delaying their plans to return employees to the workplace and allowing employees to continue to work remotely or in a hybrid environment.

This impact resulted in a reduction in expected Post sale revenue and profits.

In the second half of the year, we also experienced an unprecedented level of supply chain disruption, in part due to the ongoing effects of the COVID-19 pandemic, with conditions deteriorating throughout the final two quarters of the year.

These disruptions resulted in revenue falling below expectations for the year, with most of the shortfall comprised of high-margin mid-range devices and Post sale revenue.

Supply chain disruptions also drove an increase in our backlog 1 of equipment and IT hardware to nearly $350 million, which is approximately 2.5 times higher than at the end of 2020.

We continue to streamline and optimize our operations and exceeded our target Project Own It savings of $375 million in 2021.

As we head into 2022, demand for our equipment remains strong as evidenced by our backlog 1 of approximately $350 million as of year-end, which is primarily comprised of high-margin office equipment.

We expect to have an elevated backlog 1 at least through the first half of the year.

As the backlog 1 clears, our equipment revenue mix is expected to improve, which should result in improvements in gross margin.

We also expect that there will be a broader return of workers to the office in the second half of 2022 and for Xerox, the correlation between return-to-work trends, page volumes, and post sale revenues remains strong, which suggests employees print when they return to the office and clients continue to value our printing services.

Although our financial results are expected to improve in 2022, our earnings for fourth quarter and full year 2021 includes an after-tax noncash goodwill impairment charge of $750 million ($781 million pre-tax) or $4.38 and $4.08 per share, respectively.

This charge largely reflects the impact that the economic disruption caused by the COVID-19 pandemic has had and is expected to continue to have on the Xerox print business.

Some of this impact is expected to be mitigated by growth of our digital services and offerings targeted for hybrid work business models.

Additionally, the Company is currently pursuing its strategy to develop and expand certain expected growth businesses, such as financing, software and innovation to offset and, eventually, exceed reduced cash flows from the print business, but this strategy will take time to develop.

Refer to the Application of Critical Accounting Policies section of the MD&A as well as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding the Goodwill impairment.

Refer to Financial Overview for further discussion regarding additional impacts of the COVID-19 pandemic on our business in 2021 and 2020.

2022 was a challenging year as revenue and profitability were impacted by an uncertain and unpredictable macroeconomic environment, which included increasing inflation and higher interest rates, supply chain challenges, currency disruption and a war in Ukraine.

These challenges, and particularly the effects of supply chain constraints on product availability and logistics costs, had an overall negative impact on the Company's results, primarily through the first three quarters of 2022.

The supply chain constraints began to ease late in the third quarter of 2022, resulting in revenue growth in fourth quarter 2022 in actual and constant currency 1 for the first time since the second quarter of 2021.

That growth reflected strong demand for our products and services and improved product supply and mix.

Total revenue for full year 2022 of $7.1 billion increased 1.0% and included a 2.6-percentage point benefit from acquisitions, partially offset by a 3.8-percentage point adverse impact from currency.

Total revenues also reflected a 1.3-percentage point adverse impact from halting sales to Russia.

However, fourth quarter 2022 total revenue increased 9.2% as compared to fourth quarter 2021 and included a 3.3-percentage point benefit from acquisitions, partially offset by a 4.7-percentage point adverse impact from currency.

As a result of a strong fourth quarter, our backlog 2 , including equipment and IT Hardware, declined 43% sequentially to $246 million.

Our backlog remains elevated as compared to historic levels but is expected to decline through the first half of 2023 as supply chain conditions further normalize.

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(1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates.

It includes printing devices as well as IT hardware associated with our IT services offerings.

(1) See "Currency Impact" section for description of constant currency.

(2) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be

installed, including orders with future installation dates.

It includes printing devices as well as IT hardware associated with our IT service offerings.

Backlog at December 31, 2022 of $246 million excludes sales orders from Russia and Powerland Computers, Ltd., which was acquired in the first quarter of 2022.

We expect total Revenue in 2023 to be flat to down low-single-digits in constant currency 1 .

We expect demand for our portfolio of products and services to remain resilient amid a challenging macroeconomic environment, particularly for our most material and profitable A3 office devices, and also expect Contractual Print Services 2 – our largest contributor to Post sale revenue to remain steady.

Although we have not yet experienced a meaningful pullback in demand for our products or services due to macroeconomic pressure, our revenue outlook does account for potential deterioration in macroeconomic conditions.

If economic conditions were to degrade further, we believe the most likely effect would be delays in equipment purchases or service implementations, rather than cancellation of orders, and difficulty implementing future price increases.

Offsetting these risks are the steady nature of our contractual post-sale business and the counter-cyclicality of our IT and digital services, for which demand is expected to increase as IT budgets are rationalized.

In 2023, we expect both pre-tax and adjusted 3 operating income and margin to increase over 2022 levels, driven by recently enacted and expected price and cost actions, as well as lower logistics costs.

We also expect 2023

Xerox 2022 Annual Report 28

Operating cash flows to be approximately $550 million, which reflects the expected benefits from our Financing (FITTLE) segment’s Receivables Funding Agreement (See Strategic Priorities below and also Note 8 - Finance Receivables, Net for additional information regarding this agreement).

Capital expenditures are expected to be approximately $50 million.

Finally, our capital allocation policy of returning at least 50% of free cash flow 4 to shareholders remains unchanged.

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(1) See "Currency Impact" section for description of constant currency.

(2) Represents revenues from service, maintenance and rentals.

(3) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure.

(4) Free cash flow is Net cash provided by operating activities less Capital expenditures.

Goodwill Impairment

Our earnings for full year 2022 include an after-tax noncash Goodwill impairment charge recorded in the third quarter of $395 million ($412 million pre-tax) or $2.54 per share.

Our results through the first three quarters of the year, as well as internal forecasts for future periods, indicated that the Company was likely to have a slower than expected recovery from the impacts of the COVID-19 pandemic and supply chain issues experienced over the past few years.

As a result of these impacts, the Company identified a greater risk to our previous outlooks and estimates, at least in the near-term.

These impacts, combined with higher market interest rates in the third quarter 2022 and the resulting effect on valuation discount rates, negatively impacted the Company’s valuation, for purposes of estimating Goodwill, resulting in the Goodwill impairment charge for the third quarter 2022.

Our earnings for the fourth quarter and full year 2021 include an after-tax noncash Goodwill impairment charge of $750 million ($781 million pre-tax) or $4.38 per share and $4.08 per share, respectively.

This charge largely reflected the impact that the economic disruption caused by the COVID-19 pandemic had on the Xerox print business.

Refer to the Application of Critical Accounting Policies section of the MD&A as well as Note 1 - Basis of Presentation in the Consolidated Financial Statements for additional information regarding our Goodwill impairments.

Russia-Ukraine Conflict

With respect to the war in Ukraine, in the first quarter 2022, we halted shipments to Russia and Belarus when sanctions were imposed.

The Eurasian region in total comprised a low single digit percentage of our revenue and operating profits in 2021.

As of December 31, 2022, the net assets of our Eurasian operations were approximately $15 million (approximately $25 million of total assets) and comprised approximately 0.5% of consolidated net assets.

A large majority of our revenues, profits, and net assets in Eurasia were attributable to Russia.

At all times from the imposition of sanctions through the date of the filing of this Form 10-K, we have been compliant with sanctions and government restrictions.

Reportable Segment Change

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 Reportable Segments section of the MD&A and Note 4 – Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information regarding our segments.

Business Overview

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Workplace Solutions, Production Solutions, Xerox Services and FITTLE.

We disclosed at our Investor Conference on February 23, 2022, that we have rebranded our Xerox Financial Services (XFS) business, which is now known as FITTLE.

• Workplace Solutions includes two strategic product groups, Entry and Mid-Range, much of which share common solutions, apps and ConnectKey® software.

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• Production Solutions are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements.

Our broad portfolio of presses and solutions provides full-color, on-demand printing of a wide range of applications.

Xerox 2022 Annual Report 29

• Xerox Services includes a continuum of solutions and services that helps our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security.

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CCS and CES encompass a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services.

• FITTLE (formerly XFS) is a global financing solutions business and currently offers financing for direct channel customer purchases of Xerox equipment through bundled lease agreements and lease financing to end-user customers who purchase Xerox equipment through our indirect channels.

In addition to our four primary offering areas described above, a smaller but growing portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue, as well as from IT Services, CareAR, which is comprised of DocuShare® and XMPie, and PARC (Innovation).

Headquartered in Norwalk, Connecticut, with approximately 23,300 employees, Xerox serves customers in approximately 160 countries.

We have a broad and diverse base of customers by both geography and industry, ranging from small and medium-sized businesses (SMBs) to printing production companies, governmental entities, educational institutions and Fortune 1000 corporations.

Our business does not depend upon a single customer, or a few customers, the loss of which would have a material adverse effect on our business.

• FITTLE is a global financing solutions business and currently offers financing for direct channel customer purchases of Xerox equipment through bundled lease agreements, lease financing to end-user customers who purchase Xerox and non-Xerox equipment through our indirect channels and leasing solutions for OEMs of print and non-print related office equipment and IT services equipment.

Headquartered in Norwalk, Connecticut, with approximately 20,500 employees, Xerox serves customers globally in North America, Central and South America, Brazil, Europe, Eurasia, the Middle East, Africa and India.

We have a broad and diverse base of customers by both geography and industry, ranging from small and mid-sized markets businesses to printing production companies, governmental entities, educational institutions and Fortune 1000 corporations.

Our business does not depend upon a single customer or a few customers, the loss of which, individually or collectively, would have a material adverse effect on our business.

In 2022, approximately 45% of our revenue was generated outside the United States.

Market and Business Strategy

Our market and business strategy is to maintain overall market share leadership in our core market and increase our participation in the growth areas, while expanding into adjacent markets and leveraging our innovation capabilities to enter new markets.

The Company’s four strategic initiatives, summarized below, remain at the core of how we operate and deliver results for all stakeholders.

Optimize Operations for Simplicity

• Continuously improve operating efficiency, revenue flow-through and return on assets

• Invest in augmented reality, robotic process automation, business process outsourcing, analytics and system enhancements to drive efficiencies

Drive Revenue

• Drive increased adoption and utilization of CareAR

• Scale IT Services and robotic process automation in the SMB market

• Grow our financing business as a global financing solutions business

• Expand distribution of digital solutions among existing Print and Services clients

Monetize Innovation

• Leverage $250 million corporate venture fund to bolster investment and innovation

• Add value-added equity partners to accelerate development and market penetration

• Embed PARC’s technology into new and existing businesses

Focus on cash flow and increasing capital returns

• Maximize annual free cash flow 1 generation

• Deploy excess capital for strategic M&A

• Opportunistic share repurchases

Strategic Priorities

Our top 2023 priorities are Customer Success, Profitability and Shareholder Returns;

and we expect these priorities to form the foundation for how we will deliver sustainable growth in profits over the long-term.

• Customer Success :

We will take measures to make it easier to do business with Xerox by employing a holistic, client-centric approach to delivering essential products and services that address the productivity challenges of a hybrid workplace and distributed workforce.

The COVID-19 pandemic has accelerated the transformation of the workplace into a more flexible, hybrid environment.

In response, we continue to invest in innovation to bolster and diversify our portfolio of offerings for hybrid workplace environments, including investments in Workflow Central and Digital Services such as Capture & Content and Customer Engagement Services, which enable work to flow seamlessly between the office and home.

By focusing our sales efforts on providing solutions closely aligned to clients’ needs, rather than products, we believe we can grow our revenue while improving customer outcomes.

• Focus on Profitability:

We plan to implement a more flexible cost base and operating model to expand margins and direct investments towards margin-accretive growth opportunities with nearer-term returns.

Project Own It delivered approximately $2.2 billion of gross cost savings from 2018 to 2022, and the behaviors and processes instilled by this program remain a priority.

Just as we will focus on making it easier to do business with Xerox, we will look to make it easier to do business within Xerox by investing in processes that drive incremental organizational efficiencies and enable the types of collaboration required to offer holistic solutions for our clients.

• Shareholder Returns:

We will manage the business with the aim of optimizing free cash flow generation and return at least 50% of free cash flow to shareholders.

We expect to focus on driving higher profits, but we also remain focused on generating more cash flow per profit dollar.

In 2022, FITTLE entered into a Receivables Funding Agreement that we expect to improve Xerox’s cash flow profile while continuing to support FITTLE’s growth and we also intend to concentrate on inventory efficiency, which we expect to improve as supply chain conditions normalize.

In December 2022, the Company entered into a Receivables Funding Agreement pursuant to which the Company agreed to offer for sale, and the purchaser agreed to purchase certain eligible pools of finance receivables on a monthly basis in transactions intended to be true sales.

The Receivables Funding Agreement, which contemplates receivables sales totaling approximately $600 million, has an initial term until January 31, 2024, with automatic one-year extensions thereafter, unless terminated by either the Company or the purchaser.

The Receivables Funding Agreement provides a committed funding source for FITTLE to originate and service new lease originations without incurring additional debt.

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(1) Free cash flow is defined as Operating cash flow from continuing operations less capital expenditures.

Xerox 2021 Annual Report 28

(1) Free cash flow is Net cash provided by operating activities less Capital expenditures.

Post-sale Based Business Model

In 2021, 78% of our total revenue was post-sale based, which includes contracted services, equipment maintenance, supplies and financing.

In 2022, 77% of our total revenue was post-sale-based, which primarily reflects contracted services, equipment maintenance, supplies and financing.

These revenue streams generally follow equipment placements and provide some stability to our revenue and cash flows.

Key indicators of future post sale revenue include installs and related removals of printers and multifunction devices, the number and type of machines in the field (MIF), page volumes (including the mix of pages printed on our MIF, including color devices) and the type and nature of related software and services provided to customers.

Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization.

Key indicators of future post sale revenue include installs of printers and multifunction devices, the number and type of machines in the field (MIF), page volumes and the type and

Xerox 2022 Annual Report 30

nature of related software and ancillary services provided to customers - e.g., digital services.

Post sale revenue also includes transactional IT hardware sales and implementation services revenues, which is a growing part of our business as a result of recent acquisitions.

Project Own It

During the second half of 2018, we initiated a transformation project - Project Own It - centered on creating a more effective organization to enhance our focus on our customers and our partners, instill a culture of continuous improvement and improve our financial results through on-going cost reductions and savings.

The primary goal of this project is to improve productivity by driving end-to-end transformation of our processes and systems to improve effectiveness and to reduce costs.

These efforts are considered critical to making us more competitive and giving us the capacity to invest in growth and maximize shareholder returns.

Key opportunities under Project Own It include establishing more effective shared service centers (captive and through our outsource partners), rationalizing our IT infrastructure, reducing our real estate footprint, and improving our supply chain management and the productivity of our supplier base.

In 2021, we exceeded our gross savings target of $375 million.

Since its inception, total savings from Project Own It are approximately $1.8 billion.

We expect to generate approximately $300 million of gross savings in 2022.

This project also involves evaluating the sourcing of all of our products to optimize our options.

Our approach is to analyze our potential options both by product category and holistically to determine what sourcing makes the most strategic and economic sense.

In March 2019, as part of Project Own It, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including selected finance functions, from Xerox to HCL.

In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS will provide business processing outsourcing services in support of our global finance organization.

This will include the transition of the finance processes currently being provided by HCL.

The primary goal of this project was to improve productivity by driving end-to-end transformation of our processes and systems to improve effectiveness and to reduce costs.

Key opportunities under Project Own It included establishing more effective shared service centers, rationalizing our IT infrastructure, reducing our real estate footprint, and improving our supply chain management and the productivity of our supplier base.

Since its inception through the end of 2022, we estimate total savings from Project Own It were approximately $2.2 billion.

We incurred Restructuring and related costs, net of $65 million for the year ended December 31, 2022, primarily related to costs incurred to implement initiatives under our business transformation projects including Project Own It.

Refer to Restructuring and Related Costs, Net section of the MD&A and Note 13 - Restructuring Programs in the Consolidated Financial Statements for additional information.

New Businesses Strategy

In 2021, we stood up three new businesses:

CareAR, Xerox Financial Services (now known as FITTLE) and Innovation (PARC).

As a result of this effort, we believe we are positioned to begin reporting separate financial and non-financial information for each business in 2022.

CareAR Holdings (CareAR) is Xerox’s newly formed software business and is comprised of:

CareAR, Inc., an enterprise augmented reality business Xerox acquired in late 2020;

DocuShare®, a cloud-based content management system;

and XMPie, a multi-channel marketing software platform.

Together, these software assets combine to provide an AR and AI-driven visual support platform that provides real-time access to expertise for service companies, field service employees and end-use customers.

FITTLE has historically offered financing for direct channel customer purchases of Xerox equipment through bundled lease agreements and lease financing to end-user customers who purchase Xerox equipment through Xerox indirect dealer channels.

At the outset of 2021, FITTLE changed its strategy to broaden its portfolio of assets financed to include numerous growth opportunities independent of Xerox equipment and services, such as the expansion of its dealer relationships to include an increasing number of non-Xerox dealers, leveraging its existing dealer relationships to finance a wider breadth of products and forming relationships with new vendors.

Additionally, in 2021, FITTLE became the primary equipment lease provider for our XBS business.

Innovation (known as PARC Innovation, or PARC) includes the scientists and engineers located at our facilities in Palo Alto, Calif.;

Webster, N.Y.;

Cary, N.C., and Toronto, Canada.

PARC is focused on incubating, productizing and commercializing disruptive technology aligned with innovation focus areas such as 3D Printing, Sensors and Services for the IoT, AI and clean tech.

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In 2021 we also made progress toward our goal of monetizing and strategically diversifying our investments in innovation.

In May, we announced the formation of Eloque, a joint venture with the government of Victoria, Australia to commercialize IoT sensor-based technology and services for monitoring the structural health of bridges.

In September, we announced the formation of CareAR, in conjunction with a $10 million noncontrolling investment from digital workflow leader ServiceNow, Inc.

Although minimal in terms of revenue, we also began commercializing our 3D liquid metal printing technology through the sales and placements of ElemX 3D printing devices.

Financial Overview

Impact of COVID-19 on Our Business Operations

The COVID-19 pandemic continued to have a significant effect on the Company’s operations in 2021.

Although business results improved in the first half of 2021 and the Company was meeting expectations, the emergence of new COVID-19 variants during the year resulted in many of our customers delaying their plans to return employees to workplaces and allowing employees to continue to work remotely or in a hybrid environment.

This impact combined with the global supply chain and logistic issues, created in part by the COVID-19 pandemic, had a negative effect on the Company’s results particularly in the latter part of the third quarter 2021 and throughout the fourth quarter 2021.

We expect the ongoing effects of the COVID-19 pandemic, including the potential emergence of new variants, as well as the global supply chain disruption, to delay economic recovery and continue to impact our revenues and margins, with improvements anticipated in the second half of 2022.

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

In March 2020, in response to the COVID-19 pandemic, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), and certain provisions from that Act were extended as part of the American Rescue Plan, which was enacted in March 2021.

Similar pay protection programs were enacted in Canada and Europe that primarily provide direct grants to companies to cover the salary and wages of employees (retained or temporarily furloughed).

In 2021, we recognized savings of approximately $34 million from these various government assistance programs as compared to $107 million recognized in 2020.

Estimated savings were recorded as follows in the Consolidated Statements of (Loss) Income:

(in millions) Year Ended December 31, 2021 Year Ended December 31, 2020

Cost of sales $ — $ 1

Cost of services, maintenance and rentals 20 73

Research, development and engineering expenses 1 1

Selling, administrative and general expenses 13 32

Total Estimated savings $ 34 $ 107

We continue to monitor government programs and actions being implemented or expected to be implemented to counter the economic impacts of the COVID-19 pandemic.

2021 Operating Results

Total revenue of $7.0 billion in 2021 increased 0.2% from the prior year, including a 1.6-percentage point favorable impact from currency and an approximate 0.5-percentage point favorable impact from 2021 and 2020 acquisitions.

Total revenue for 2021 reflected the impacts from the COVID-19 pandemic as well as the global product supply and logistics constraints, which limited our ability to fulfill orders and drove an increase in our order backlog in the second half of the year.

Total revenue reflected a 1.1% increase in Equipment sales revenue, including a 1.5-percentage point favorable impact from currency, while Post sale revenue was flat, including a 1.7-percentage point favorable impact from currency.

While the COVID-19 pandemic significantly impacted our 2021 revenues as a result of business closures and office building capacity restrictions, the progress of vaccinations and the gradual reopening of workplaces resulted in higher year-over-year page volumes for most of 2021.

Net (loss) income from continuing operations attributable to Xerox Holdings was as follows:

Total revenue of $7.1 billion in 2022 increased 1.0% and included a 2.6-percentage point benefit from acquisitions, partially offset by a 3.8-percentage point adverse impact from currency as well as a 1.3-percentage point adverse impact from halting sales to Russia.

2022 total revenue reflected an increase in Post sale revenue of 0.5%, which included a 3.4-percentage point benefit from acquisitions, partially offset by a 3.7-percentage point adverse impact from currency.

Post sale revenue reflected increased IT services revenues, which benefited from the recent acquisition of Powerland, as well as higher consumables revenues including from paper and supplies, partially offset by lower financing revenue.

Equipment sales revenue increased 2.7% and included a 3.9-percentage point adverse impact from currency, reflecting higher demand for our products and improvement in product availability as supply chain constraints began to ease late in the third quarter and particularly in the fourth quarter of 2022.

Net (loss) income attributable to Xerox Holdings was as follows:

Year Ended December 31, B/(W)

(in millions) 2022 2021 2020 2022 2021

Net (loss) income from continuing operations attributable to Xerox Holdings $ (455) $ 192 $ 648 $ (647) $ (456)

Adjusted (1) Net income from continuing operations attributable to Xerox Holdings

Net (loss) income attributable to Xerox Holdings $ (322) $ (455) $ 192 $ 133 $ (647)

Adjusted (1) Net income attributable to Xerox Holdings

189 293 313 (104) (20)

Xerox 2021 Annual Report 30

Net loss from continuing operations attributable to Xerox Holdings for 2021 of $(455) million decreased $647 million as compared to Net income from continuing operations attributable to Xerox Holdings of $192 million in 2020.

The decrease primarily reflected the after-tax Goodwill impairment charge of $750 million ($781 million pre-tax), which was partially offset by lower bad debt expense, non-service retirement-related costs, Restructuring and related costs, net, Income tax expense, and Transaction and related costs, net.

These benefits were partially offset by reduced temporary government assistance as well as higher supply chain cost, including higher freight and shipping costs, which accordingly reduced gross profit.

Adjusted 1 net income from continuing operations attributable to Xerox Holdings for 2021 decreased $20 million as compared to the prior year primarily reflecting reduced temporary government assistance and higher supply chain cost, including freight and shipping costs, which were only partially offset by lower bad debt expense and Income tax expense.

Adjustments in 2021 include an after-tax Goodwill impairment charge of $750 million ($781 million pre-tax), Restructuring and related costs, net and Amortization of intangible assets, as well as non-service retirement-related costs.

Operating cash flow provided by continuing operations of Xerox Holdings was $629 million in 2021 as compared to $548 million in 2020.

The increase includes the receipt of an upfront prepaid fixed royalty from FUJIFILM Business Innovation Corp.

(formerly Fuji Xerox Co., Ltd.) of $100 million, and primarily reflects higher cash from working capital 2 and lower accrued compensation, partially offset by a lower run-off of finance receivables and higher cash tax payments.

Cash used in investing activities of continuing operations of Xerox Holdings was $85 million in 2021, reflecting capital expenditures of $68 million and acquisitions of $53 million, which were partially offset by proceeds from sales of non-core business assets of $44 million.

Cash used in financing activities of Xerox Holdings was $1,310 million in 2021, reflecting payments of $518 million on secured borrowing arrangements, partially offset by proceeds of $311 million on a new secured financing arrangement, as well as payments of $888 million for share repurchases and dividend payments of $206 million.

We currently expect 2022 revenue to grow to $7.1 billion in actual currency (and remain flat at $7.0 billion at constant currency 1 ).

We expect revenue growth in 2022 to be weighted to the second half of 2022 as the supply chain is likely to remain challenged through the first half of the year.

Post sale revenue growth is expected to track a return of workers to the office, which we assume will likewise occur in the second half of the year.

Similar to revenue, we expect profitability to be weighted to the second half of 2022.

We expect gross margin to be negatively affected by supply chain disruption through at least the first half of the year.

We began implementing price increases for equipment supplies and services in 2021, which will partially offset elevated shipping and logistic costs.

Furthermore, as supply chain conditions and page volumes improve, we expect gross margin to benefit from a more favorable equipment and revenue mix.

We are confident in our ability to generate cash and plan to continue our capital allocation policy of returning at least 50% of our annual free cash flow to shareholders.

We expect 2022 Operating cash flows from continuing operations to be approximately $475 million, with capital expenditures of approximately $75 million.

During 2022, we expect to opportunistically make share repurchases utilizing our remaining share repurchase authorization of approximately $113 million.

Net loss attributable to Xerox Holdings for 2022 of $(322) million improved by $133 million as compared to Net loss attributable to Xerox Holdings of $(455) million in 2021.

Both periods reflect the impact of an after-tax noncash Goodwill impairment charge - $395 million ($412 million pre-tax) in 2022 versus $750 million ($781 million pre-tax) in 2021.

Net loss attributable to Xerox Holdings for 2022 also reflected a lower gross margin due to unfavorable product and services mix, higher freight costs associated with product supply constraints, as well as higher Other expense, net due to an increase in non-service retirement-related costs and a $33 million charge associated with the termination of a product supply agreement (which was net of an $8 million previously recorded accrual), higher Selling, administrative and general expenses due to higher stock compensation expense and bad debt expense, higher Restructuring and related costs, net, and a lower Income tax benefit.

These negative impacts were partially offset by lower Amortization of intangible assets.

Adjusted 1 net income attributable to Xerox Holdings for 2022 of $189 million decreased $104 million as compared to 2021 primarily reflecting a lower gross margin due to unfavorable product and services mix, and higher freight costs associated with product supply constraints, as well as higher Income tax expense and Selling, administrative and general expenses, reflecting bad debt reserve releases of approximately $31 million in the prior year.

These negative impacts were partially offset by lower Other expenses, net, reflecting higher gains on sales of businesses and assets and a refund of excess employer contributions to a defined contribution plan for one of our Latin American subsidiaries, as well as lower Research, development and engineering expense.

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(1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure.

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A summary of our segment information is as follows:

Year Ended December 31, % Change % of Total

(in millions) 2022 2021 2020 2022 2021 2022 2021

Print and Other $ 6,667 $ 6,548 $ 6,489 1.8 % 0.9 % 94 % 93 %

Financing (FITTLE) 610 695 744 (12.2) % (6.6) % 8 % 10 %

Intersegment Elimination (1)

(170) (205) (211) (17.1) % (2.8) % (2) % (3) %

Total Revenue $ 7,107 $ 7,038 $ 7,022 1.0 % 0.2 % 100 % 100 %

Print and Other $ 238 $ 293 $ 461 (18.8) % (36.4) % 87 % 78 %

Financing (FITTLE)

37 82 3 (54.9) % NM 13 % 22 %

Total Profit $ 275 $ 375 $ 464 (26.7) % (19.2) % 100 % 100 %

_____________

(1) Reflects revenue, primarily commissions and other payments, made by the Financing (FITTLE) segment to the Print and Other segment for the lease of Xerox equipment placements .

NM - change is not meaningful.

Cash from operating activities was $159 million in 2022 as compared to $629 million in 2021.

The decrease was primarily related to lower cash flow from earnings as well as higher working capital 1 , higher net finance receivables originations and lower proceeds from royalties.

The decrease was also attributed to a $41 million one-time payment associated with the termination of a product supply agreement.

These negative impacts were partially offset by lower contributions to retirement plans, and payments for restructurings.

Cash from operating activities also includes $60 million received in connection with the sale of finance receivables in the fourth quarter 2022 under a Receivables Funding Agreement.

Cash used in investing activities of Xerox Holdings was $78 million in 2022, reflecting capital expenditures of $57 million, acquisitions of $93 million and $13 million of noncontrolling investments as part of our corporate venture capital fund, which were partially offset by proceeds of $87 million from the sale of surplus assets including buildings and land in the U.S., as well as non-core business assets.

Cash used in financing activities of Xerox Holdings was $822 million in 2022, reflecting payments of $714 million on existing secured financing arrangements, $300 million on Senior Notes that matured in 2022 and $700 million for the partial early redemption of our 2023 Senior Notes, which was partially offset by proceeds of $1,193 million on new secured financing arrangements, as well as dividend payments of $174 million and $113 million for repurchases of our Common Stock.

_____________

(1) Working capital, net reflects Accounts receivable, net, Inventories and Accounts payable.

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Dollar is normally not the functional currency.

As a result, foreign currency translation had a 1.6-percentage point favorable impact on revenue in 2021 and a 0.2-percentage point favorable impact on revenue in 2020.

As a result, foreign currency translation had a 3.8-percentage point adverse impact on revenue in 2022 and a 1.6-percentage point favorable impact on revenue in 2021.

Xerox 2022 Annual Report 32

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The impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period.

As discussed above (see Impact of COVID-19 on Our Business Operations ), during 2021 the Company continued to be impacted by the economic disruption caused by the COVID-19 pandemic.

This disruption required us to continue our increased review of the majority of our estimates to ensure we appropriately considered the impacts caused by the COVID-19 pandemic.

As the extent and duration of the impacts from the COVID-19 pandemic continue, the Company’s estimates and assumptions may evolve as conditions change.

Specific risks associated with these critical accounting policies are discussed throughout the MD&A, where such policies affect our reported and expected financial results.

For a detailed discussion of the application of these and other accounting policies, refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements.

For a detailed discussion of the application of these and other accounting policies, refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies in the Consolidated Financial Statements.

Revenue Recognition

Application of the various accounting principles in GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates including ASC Topic 606 - Revenue from Contracts with Customers and ASC Topic 842 Leases .

We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606) on January 1, 2018 and ASU 2016-02, Leases (ASC Topic 842) on January 1, 2019.

Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding our revenue recognition and lease revenue recognition policies .

Refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding our revenue recognition and lease revenue recognition policies .

Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting.

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Lease deliverables include the equipment and financing, while the non-lease deliverables generally consist of the services, which include supplies.

Sales made under bundled lease arrangements directly to end customers or through third party leasing companies comprise 42.0% or $664 million of our equipment sales revenue.

Sales made under bundled lease arrangements directly to end customers comprise 44% or $708 million of our equipment sales revenue.

Revenues under these bundled lease arrangements are allocated considering the relative standalone selling prices of the lease and non-lease deliverables included in the bundled arrangement.

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Total sales of equipment, supplies and parts to distributors and resellers were $1,222 million for the year ended December 31, 2022 and provisions, and allowances recorded on these sales were approximately 28% of the associated gross revenues.

Xerox 2021 Annual Report 32

Allowance for Doubtful Accounts and Credit Losses

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We recorded bad debt provisions of $43 million, $7 million and $116 million in Selling, administrative and general (SAG) expenses in our Consolidated Statements of (Loss) Income for the three years ended December 31, 2022, 2021 and 2020, respectively.

Reserves, as a percentage of trade and finance receivables, were 4.3% at December 31, 2021, as compared to 4.8% and 3.0% at December 31, 2020 and 2019, respectively.

We continue to assess our receivables portfolio in light of the current economic environment and its impact on our estimation of the adequacy of the allowance for doubtful accounts.

The significant increase in bad debt provision and reserve percentage in 2020, as compared to 2019, was principally due to the impact of the COVID-19 pandemic on our customers.

In assessing the level of provision and related reserve for 2020, we critically assessed current and forecasted economic conditions as a result of the COVID-19 pandemic at the time to ensure we objectively included those expected impacts in the determination of our reserve.

The reserves, as a percentage of trade and finance receivables, were 4.1% at December 31, 2022, as compared to 4.3% and 4.8% at December 31, 2021 and 2020, respectively.

We continue to

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assess our receivables portfolio in light of the current macroeconomic environment and its impact on our estimation of the adequacy of the allowance for doubtful accounts.

The bad debt provision and related reserve was elevated in 2020 principally due to the impact of the COVID-19 pandemic on our customers.

In assessing the level of provision and related reserve for 2020, we critically assessed current and forecasted economic conditions from the COVID-19 pandemic at the time to ensure we objectively included those expected impacts in the determination of our reserve.

That assessment resulted in the recognition of a $60 million incremental bad debt provision in the first quarter 2020.

This increased provision was primarily related to finance receivables due to their larger balance and long-term nature.

In 2021 we recorded approximately $31 million of bad debt reversals reflecting improvements in the macroeconomic environment as well as lower write-offs as a result of the COVID-19 pandemic.

In 2021 we recorded approximately $31 million of bad debt reversals reflecting improvements in the macroeconomic environment in 2021 as well as lower write-offs as a result of the COVID-19 pandemic.

The bad debt provision in 2022 is more in-line with historical trends but the reserve as a percentage of our trade and finance receivables balance remains elevated to cover expected losses that may result from future macroeconomic conditions including higher inflation and interest rates.

During the five-year period ended December 31, 2022, our reserve for doubtful accounts ranged from 3.0% to 4.8% of gross receivables.

Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the December 31, 2022 rate of 4.1% would change the 2022 provision by approximately $21 million.

Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our policy with respect to the Allowance for Doubtful Accounts and Credit Losses.

Refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies, Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our policy with respect to the Allowance for Doubtful Accounts and Credit Losses.

Pension Plan Assumptions

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plans, we are required to continue to consider salary increases and inflation in determining the benefit obligation related to prior service.

Our pension plan in the Netherlands was changed to a Collective Defined Contribution (CDC) plan.

Our pension plan in the Netherlands for past service was changed to a Collective Defined Contribution (CDC) plan.

From a Company risk perspective, this plan operates just like a defined contribution plan as the Company is only responsible for a contribution for annual benefit accruals under 5-year agreements.

Although the Company risk has been mitigated, under U.S.

GAAP this plan doesn’t meet the definition of a defined contribution plan and therefore is accounted for as a defined benefit plan.

GAAP this plan does not meet the definition of a defined contribution plan and therefore is accounted for as a defined benefit plan.

Several statistical and other factors that attempt to anticipate future events are used in calculating the expense, liability and asset values related to our defined benefit pension plans.

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Differences between these assumptions and actual experiences are reported as net actuarial gains and losses and are subject to amortization to net periodic benefit cost over future periods.

Cumulative net actuarial losses for our defined benefit pension plans of $1.7 billion as of December 31, 2021 decreased by $661 million from December 31, 2020, primarily due to the increase of the discount rates and the resultant decrease in the Projected Benefit Obligation (PBO), excess of actual returns over expected returns, the recognition of actuarial losses through amortization and U.S.

Cumulative net actuarial losses for our defined benefit pension plans of $1.9 billion as of December 31, 2022 increased by $210 million from December 31, 2021, primarily due to losses on plan assets as compared to expected returns as a result of the impact of higher interest rates on the fair value of our fixed income investments, which are the majority of our plan assets, as well as negative equity market returns.

This negative impact was only partially offset by a decrease in the Projected Benefit Obligation (PBO) due to higher discount rates, the recognition of actuarial losses through amortization and U.S.

settlement losses as well as currency.

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We used a consolidated weighted average expected rate of return on plan assets of 3.9% for 2022, 3.9% for 2021 and 4.1% for 2020, on a worldwide basis.

During 2021, the actual return on plan assets was a gain of $504 million as compared to an expected return of $325 million, with the difference largely due to positive equity market returns, the positive impact of decreasing interest rates on our fixed income investments and the impact of our hedging portfolio in the U.S.

When estimating the 2022 expected rate of return, in addition to assessing recent performance, we considered the historical returns earned on plan assets, the rates of return expected in the future, particularly in

Xerox 2021 Annual Report 33

light of current economic conditions, and our investment strategy and asset mix with respect to the plans' funds.

The weighted average expected rate of return on plan assets we will use in 2022 is 3.9% with no change from 2021.

During 2022, the actual return on plan assets was a loss of $(2,595) million as compared to an expected return of $155 million, with the difference largely due to losses on fixed income investments as a result of increasing interest rates as well as negative equity market returns.

When estimating the 2023 expected rate of return, in addition to assessing recent performance, we considered the historical returns earned on plan assets, the rates of return expected in the future, particularly in light of current economic conditions, and our investment strategy and mix with respect to the plans' assets.

The weighted average expected rate of return on plan assets we will use in 2023 is 5.2% with the increase from 2022 largely due to higher interest yields on fixed income investments and the expectation of higher equity returns considering current valuations.

Another significant assumption affecting our defined benefit pension obligations and the net periodic benefit cost is the rate that we use to discount our future anticipated benefit obligations.

and the U.K., which comprise approximately 75% of our PBO, we consider yield curves derived from Moody's Aa or better rated Corporate Bonds and U.K.

and the U.K., which comprise approximately 75% of our PBO, we consider yield curves derived from Moody's Aa or better rated Corporate Bonds

Xerox 2022 Annual Report 34

Corporate bonds rated AA by at least one of the main ratings agencies, respectively, in the determination of the appropriate discount rate assumptions.

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the rate used to calculate our obligations as of December 31, 2021 and our 2022 expense was 2.1%.

The increase reflects higher interest rates in both U.S.

The increase reflects higher interest rates in both the U.S.

Holding all other assumptions constant, the following table summarizes the estimated impacts of a 0.25% change in the discount rate and a 0.25% change in the expected return on plan assets:

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(265) 255 N/A N/A

One of the most significant and volatile elements of our net periodic defined benefit pension plan expense is settlement losses.

One of the most significant elements of our net periodic defined benefit pension plan expense is settlement losses.

Our primary domestic plans allow participants the option of settling their vested benefits through the receipt of a lump-sum payment.

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The pro-rata factor is computed as the percentage reduction in the projected benefit obligation due to the settlement of a participant ' s vested benefit.

Settlement accounting is only applied when the event of settlement occurs - i.e.

the lump-sum payment is made.

Settlement accounting is only applied when the event of settlement occurs - i.e., the lump-sum payment is made.

Since settlement is dependent on an employee's decision and election, the level of settlements and the associated losses can fluctuate significantly from period to period.

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plan settlements were approximately $240 million, $300 million and $220 million, respectively, and the associated settlement losses on those plan settlements were $56 million, $54 million and $53 million, respectively.

In 2022, on average, we estimate that approximately $100 million of plan settlements will result in settlement losses of approximately $20 million.

In 2023, we estimate approximately $200 million of plan settlements and settlement losses of approximately $55 million.

The following is a summary of our benefit plan costs for the three years ended December 31, 2022, 2021 and 2020, as well as estimated amounts for 2023:

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settlement losses.

(2) The decrease in 2021 and 2020 reflects the Company's decision to suspend and not make the 2021 or 2020 employer matching contribution to our U.S.

based 401(k) savings plans for salaried employees.

The employer matching contribution is expected to be resumed and provided for in 2022.

(2) The increase in 2022 reflects the Company's decision to resume the 2022 employer matching contribution to our U.S.

based 401(k) savings plans for salaried employees previously suspended in 2021 and 2020.

(3) The 2018 U.S.

Retiree Health Plan amendment was fully amortized by December 31, 2021.

Accordingly, we estimate amortization of prior service credits in 2022 to decrease by approximately $50 million, as compared to 2021.

Xerox 2021 Annual Report 34

The following is a summary of our benefit plan funding for the three years ended December 31, 2022, 2021 and 2020, as well as estimated amounts for 2023:

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_____________

(1) The difference between the estimated funding amount and the estimated expense in 2022 of $20 million is due to estimated contributions for our U.S.

based 401(k) savings plans for salaried employees expensed in 2022 as earned but which are expected to be contributed in January of 2023.

(1) The difference between the 2022 funded amount and the 2022 expense of $20 million is due to contributions for our U.S.

based 401(k) savings plans for salaried employees being expensed in 2022 as earned and contributed in January of 2023.

Xerox 2022 Annual Report 35

The 2022 U.S.

Defined benefit plans contributions did not include any contributions for our domestic tax-qualified defined benefit plans because none were required to meet the minimum funding requirements.

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

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

Approximately $25 million of estimated contributions are included in 2023 for our U.S.

tax-qualified defined benefit plans.

However, once the January 1, 2023 actuarial valuations and projected results as of the end of the 2023 measurement year are available, actual contributions required to meet minimum funding requirements will be determined and finalized and may change from the current estimate.

In addition, the decrease in non-U.S.

Defined benefit pension plan contributions in 2023 is due to further contributions to our U.K.

defined benefit pension plan not being required after October 2022 following agreement of the triennial valuation of the Plan with the Plan Trustees.

Refer to Note 18 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding defined benefit pension plan assumptions, expense and funding.

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Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the valuation allowance against our deferred tax assets.

Our valuation allowance (decreased) increased through income tax expense by approximately $(9) million, $25 million and $16 million for the years ended December 31, 2021, 2020 and 2019, respectively.

There were other decreases to our valuation allowance, including the effects of currency, of $(30) million, $(28) million and $(14) million for the years ended December 31, 2021, 2020 and 2019, respectively.

Our valuation allowance increased (decreased) through income tax expense by approximately $7 million, $(9) million and $25 million for the years ended December 31, 2022, 2021 and 2020, respectively.

There were other increases (decreases) to our valuation allowance, including the effects of currency, of $2 million, $(30) million and $(28) million for the years ended December 31, 2022, 2021 and 2020, respectively.

These did not affect income tax expense in total as there was a corresponding adjustment to Deferred tax assets or Other comprehensive income.

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Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate, as well as impact our operating results.

Xerox 2021 Annual Report 35

Unrecognized tax benefits were $110 million, $107 million and $115 million at December 31, 2022, 2021 and 2020, respectively.

Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding deferred income taxes and unrecognized tax benefits.

Xerox 2022 Annual Report 36

Business Combinations and Goodwill

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Refer to Note 6 - Acquisitions and Investments in the Consolidated Financial Statements for additional information regarding the allocation of the purchase price consideration for our acquisitions.

Our Goodwill balance was $3.3 billion at December 31, 2021.

Our Goodwill, net balance was $2.8 billion at December 31, 2022.

We assess Goodwill for impairment at least annually, during the fourth quarter based on balances as of October 1st, and more frequently on an interim basis if we believe indicators of impairment exist.

The application of an interim or the annual Goodwill impairment test begins with the identification of reporting units, which requires judgment.

Consistent with the determination that we have one operating segment, we determined that there is one reporting unit and therefore we tested Goodwill for impairment at the Company or entity level.

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, we determined that we had one operating/reportable segment and one reporting unit for Goodwill assessment purposes.

Our reassessment during the first quarter of 2022 determined that, we had two operating/reportable segments and two reporting units – Print and Other, and Financing (FITTLE) for Goodwill assessment purposes.

The process of evaluating the potential impairment of Goodwill is highly subjective and requires significant judgment.

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The selected multiples consider our entity's growth, profitability, size and risk relative to those of the selected publicly traded companies.

The COVID-19 pandemic continued to have a significant effect on the Company’s operations impacting revenues, expenses, cash flows and market capitalization in 2021.

Although business results improved in the first half of 2021 and the Company was meeting expectations, the emergence of new COVID-19 variants during the year resulted in many of our customers delaying their plans to return employees to workplaces and continuing to work remotely and in a hybrid environment.

This impact combined with the global supply chain and logistic issues, created in part by

During 2022, we had events and conditions in the first quarter and third quarter that required an interim assessment of Goodwill.

Xerox 2022 Annual Report 37

the COVID-19 pandemic, had a negative effect on the Company’s results particularly in the third and fourth quarter of 2021.

As a result of these impacts and projections of these impacts on our future operating results, as well as a sustained market capitalization below book value, we elected to utilize a quantitative model for the assessment of the recoverability of our Goodwill balance for our annual fourth quarter 2021 impairment test.

After completing our annual impairment test, we concluded that the estimated fair value of the Company - our single segment and reporting unit - had declined below its carrying value.

As a result, we recognized an after-tax non-cash impairment charge of $750 million ($781 million pre-tax) related to our goodwill for the year ended December 31, 2021.

In estimating the fair value of our single reporting unit, our analysis reflected a 75/25 allocation between the income and market approach and the application of a discount rate applied to our projected cash flows of approximately 7.75%.

The heavier weighting to the income approach was consistent with the prior year and reflects the inherent limitations of a market comparison.

We likewise believe the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflects current market and industry conditions.

We ran sensitivity cases on the discount rate and, although in certain scenarios our fair value declined further, we believe the implied premiums that would be indicated at our estimated fair value are reasonable.

Our current results and our internal future forecasts clearly indicate that Xerox has been and will continue to be significantly impacted by the economic disruption caused by the COVID-19 pandemic.

This includes a recognition that two years into the pandemic, the transition to more remote and hybrid work environments will continue to have an expected impact on the print business as compared to its pre-pandemic levels.

Some of this impact is expected to be mitigated by providing additional digital services and offerings targeted for the hybrid business model.

Our business forecasts reflect these developments, including an easing of the supply chain and logistics issues encountered in 2021 and although our operating results are expected to improve, projected revenues and cash flows are not expected to return to the levels achieved prior to the commencement of the COVID-19 pandemic.

While the Company is currently pursuing a strategy to develop and expand certain expected growth businesses such as financing, software and innovation to offset and eventually exceed the reduced cash flows from the print business, this strategy carries an increased level of implementation risk consistent with all new business pursuits.

In performing its assessment, the Company believes it has made reasonable estimates based on the facts and circumstances that were available as of the reporting date in light of the continuing impacts from the COVID-19 pandemic and other factors noted above.

However, the determination of fair value includes assumptions that are subject to risk and uncertainty.

The discounted cash flow calculations are dependent on subjective factors including the timing and amount of future cash flows and the discount rate.

If assumptions or estimates used in the fair value calculations change, including assumptions related to future cash flows as well as the duration and severity of the COVID-19 pandemic and the supply chain and logistics issues and our ability to initiate management actions to recover from those issues, it may result in a further decline in our estimated fair value and trigger future impairment charges.

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

Subsequent to our fourth quarter impairment test, we did not identify any triggering events that required an update to the annual impairment test.

Refer to Note 13 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding Goodwill.

First Quarter 2022 - Change in Segments

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.

As a result of our impairment charge in the fourth quarter 2021, we elected to bypass the qualitative impairment test and proceed to the quantitative test for the assessment of the recoverability of our Goodwill balance effective January 1, 2022 before and after the change in segments.

In estimating the fair value of our single reporting unit before the change in segments, our analysis reflected a 75/25 allocation between the income and market approach, respectively, and the application of a discount rate applied to our projected cash flows of approximately 7.50%.

The weighting between the income and market approach was consistent with our assessment in the fourth quarter 2021.

The applied discount rate was 25 basis points lower than the rate applied in the fourth quarter 2021 assessment largely due to changes in market inputs with respect to the Cost of Equity as well as a slightly higher Cost of Debt weighting, which carries a lower cost.

We believe that the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflected current market and industry conditions.

In estimating the fair value of our reporting unit with Goodwill after the change in segments (Print and Other), our analysis likewise reflected a 75/25 allocation between the income and market approach, respectively, but the discount rate applied to our projected cash flows was increased to approximately 8.75%.

The increase in the discount rate was largely due to an increase in the company-specific risk premium to balance the overall Company valuation and to reflect an increased risk to Print and Other as a result of the removal of a portion of the steadier annuity financing revenues to the Financing (FITTLE) reporting unit.

As with the assessment before the segment change, we believed that the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflected current market and industry conditions.

Based on our forecast model at the time, which we believed reflected the inherent uncertainty of the future, we estimated that the excess of fair value over carrying value for the reporting unit with Goodwill ranged between 15% and 20% as of January 1, 2022.

Third Quarter 2022 - Goodwill Impairment

In the first nine months of 2022, the Company continued to encounter operational challenges due to unfavorable product and services mix associated with supply chain constraints as well as the impacts of unfavorable macroeconomic conditions including inflationary pressure on product and labor costs, geopolitical uncertainty in Europe and the continued impacts from the COVID-19 recovery.

Additionally, higher interest rates continued to put downward pressure on the Company’s valuation.

Although operating results were expected to improve, they were expected to be below previous forecasts from the beginning of the year and would continue to be pressured as result of these unfavorable macroeconomic conditions.

As a result of these negative financial impacts as well as a sustained market capitalization below our book value, in the third quarter 2022 we determined there was a triggering event requiring an interim quantitative assessment of Goodwill.

After completing our interim impairment test, we concluded that the estimated fair value of the Print and Other reporting unit (the only reporting unit with Goodwill) had declined below its carrying value and we recognized an after-tax non-cash impairment charge of $395 million ($412 million pre-tax) related to our Goodwill in the third quarter 2022.

In estimating the fair value of the Print and Other reporting unit, our analysis reflected a 75/25 allocation between the income and market approach, respectively, and the application of a discount rate applied to our projected cash flows of approximately 10.75%.

The weighting between the income and market approach was consistent with our assessment in the fourth quarter 2021 as well as the first quarter 2022.

The applied discount rate was 200 basis points higher than the rate applied in the first quarter 2022 assessment primarily due to higher market interest rates.

Xerox 2022 Annual Report 38

In performing our quantitative assessment for the third quarter 2022, the Company believes it made reasonable estimates based on the facts and circumstances that were available as of the reporting date.

However, the assessment of fair value includes assumptions that are subject to risk and uncertainty.

Estimated forecasts are dependent on subjective factors including the timing and amount of future cash flows and the discount rate.

If the Company's future performance varies from our expectations, assumptions, or estimates, including those assumptions relating to the supply chain constraints, interest rates, inflationary pressure on product and labor costs, geopolitical uncertainty in Europe, or the continued impacts from the COVID-19 recovery, this may impact the impairment analysis and could reduce the underlying cash flows and result in a decline in fair value that may trigger future impairment charges.

2022 Annual Impairment Summary

Consistent with our policy for an annual review, we also assessed Goodwill in the fourth quarter 2022.

As a result of the quantitative assessment of Goodwill in the third quarter 2022, we performed our annual Goodwill assessment in the fourth quarter 2022 qualitatively.

After completing this qualitative impairment review, we concluded that it is more likely-than-not that the fair value of the Print and Other reporting unit is higher than its carrying amount and that it is not necessary to perform a quantitative Goodwill impairment test.

Our qualitative review indicated that fourth quarter 2022 actual results as well as our latest full year 2023 projections are in line with the projections used in our third quarter 2022 quantitative impairment test, which we believed appropriately addressed macroeconomic uncertainties and challenges.

In addition, discounts rates as well as the Company’s market capitalization in the fourth quarter 2022 remained steady with the third quarter 2022.

We will continue to monitor developments throughout 2023, including updates to our forecasts as well as our market capitalization, and discounts rates to determine if an interim assessment of Goodwill is required.

Refer to Note 12 - Goodwill, Net and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding Goodwill.

Xerox 2022 Annual Report 39

Revenue Results Summary

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Post sale revenue $ 5,483 $ 5,457 $ 5,458 0.5 % — % 4.2 % (1.7) %

Print and Other $ 6,667 $ 6,548 $ 6,489 1.8 % 0.9 % 94 % 93 % 92 %

Financing (FITTLE) 610 695 744 (12.2) % (6.6) % 8 % 10 % 11 %

Intersegment elimination (170) (205) (211) (17.1) % (2.8) % (2) % (3) % (3) %

Total Revenue (1)

$ 7,107 $ 7,038 $ 7,022 1.0 % 0.2 % 100 % 100 % 100 %

Americas $ 4,638 $ 4,432 $ 4,589 4.6 % (3.4) % 5.1 % (4.1) % 65 % 63 % 65 %

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CC - See "Currency Impact" section for description of constant currency.

(1) Refer to the "Geographic Sales Channels and Product and Offerings Definitions" section.

(1) Refer to the "Reportable Segments" section.

(2) Refer to the "Geographic Sales Channels" section.

2022 was a challenging year.

Our results were impacted by an uncertain and unpredictable macroeconomic environment, which included surging inflation and higher interest rates, supply chain challenges, currency disruption and a war in Ukraine.

Despite these challenges, total revenue increased 1.0% for the year ended December 31, 2022 and included a 2.6-percentage point benefit from acquisitions, which was partially offset by a 3.8-percentage point adverse impact from currency.

The increase in revenue reflected growth in equipment sales revenue, due to stable demand and improved product supply availability, particularly in the last third of the year.

Post sale revenue also improved, primarily reflecting the impact from acquisitions as well as growth in IT and digital service revenue and increased paper and supplies sales.

Contractual Print Services 1 , our largest and most stable contributor to post sale revenue, grew low single digits at constant currency 2 , including the benefit of recent acquisitions.

Total revenue increased 0.2% for the year ended December 31, 2021 as compared to the prior year, including a 1.6-percentage point favorable impact from currency, and an approximate 0.5-percentage point favorable impact from 2021 and 2020 acquisitions.

Revenue reflected global product supply logistics constraints which limited our ability to fulfill orders and drove an increase in our order backlog 1 in the second half of the year.

Revenue reflected global product supply and logistics constraints which limited our ability to fulfill orders and drove an increase in our order backlog 3 in the second half of the year.

The COVID-19 pandemic also affected our revenues by limiting office occupancy;

however, the progress of vaccinations and the gradual reopening of workplaces resulted in higher year-over-year page volumes for most of the year.

Total revenue decreased 22.5% for the year ended December 31, 2020 compared to the prior year, including a 0.2-percentage point favorable impact from currency and an approximate 1.2-percentage point favorable impact from 2020 partner dealer acquisitions, partially offset by an approximate 0.6-percentage point unfavorable impact from a one-time upfront OEM license fee of $77 million received in the prior year.

The decline in revenue primarily reflected the effects the global pandemic on IT spending and office attendance.

During 2021, our business continued to be impacted by the COVID-19 pandemic.

The prolonged impact of the virus, including the Delta and Omicron variants, drove many of our customers to delay their plans to return employees to workplaces.

We continued to see a correlation between the roll-out of vaccinations and the return of employees to the workplace, and the gradual recovery of our post sale revenues, but page-volume-driven Post sale revenue was lower than anticipated in the beginning of the year.

In addition, global supply chain issues, created in part by the COVID-19 pandemic, resulted in an unprecedented level of disruption, leading to shortages and delays in the receipt of our products and third-party IT hardware.

Supply chain disruptions resulted in lower than anticipated equipment and IT hardware sales, higher transportation and logistics costs.

Continued strength in demand for our equipment led to a nearly 150% increase in our order backlog 1 .

We expect the effects of the COVID-19 pandemic, including the potential emergence of new variants, as well as global supply chain disruptions, to continue to affect our revenues and margins at least through the first half of 2022.

Geographically, revenue increased in our EMEA region and declined in our Americas region during 2021.

In EMEA, we have a larger presence across SMB businesses, which generally recovered faster and showed greater resiliency against pandemic resurgences than larger enterprises.

Revenue decreased in our North American operations, which were more significantly impacted by shipping and logistics constraints, which were further amplified by labor shortages within the North American transportation industry.

North America also has a higher proportion of large enterprise customers, who are generally experiencing a slower pace of return to workplaces.

Geographically, revenue in our Americas region increased 4.6% for the year ended December 31, 2022, as compared to the prior year, including a 0.5-percentage point adverse impact from currency, primarily reflecting the benefits of recent acquisitions and growth in equipment sales and consumables, such as paper and supplies.

Revenues in our Americas region for the year ended December 31, 2021 declined 3.4%, as compared to the prior year, including a 0.7-percentage point favorable impact from currency, primarily attributed to our North American

Xerox 2022 Annual Report 40

operations, which were more significantly impacted by shipping and logistics constraints which were further amplified by labor shortages within the North American transportation industry.

Revenue in our EMEA operations decreased 5.9% for the year ended December 31, 2022, as compared to the prior year, with a 10.0-percentage point adverse impact from currency.

Absent the adverse impact from currency, revenue increased, driven by strength in equipment sales, reflecting better product availability, and the benefits of recent acquisitions.

Revenue in our EMEA operations increased 8.4% for the year ended December 31, 2021, as compared to the prior year, including a 3.8-percentage point favorable impact from currency.

______________

(1) Reflects revenues from service, maintenance and rentals.

(2) See "Currency Impact" section for description of constant currency.

(3) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be

1 unchanged sentence

It includes printing devices as well as IT hardware associated with our IT service offerings.

Xerox 2021 Annual Report 38

Backlog at December 31, 2022 of $246 million excludes sales orders from Russia and Powerland Computers, Ltd., which was acquired in the first quarter of 2022.

Total revenues included the following:

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These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page.

Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization.

Post sale revenue also includes transactional IT hardware sales and implementation services.

For the year ended December 31, 2022, Post sale revenue increased 0.5% as compared to the prior year and included a 3.4-percentage point benefit from acquisitions, which was partially offset by a 3.7-percentage point adverse impact from currency.

For the year ended December 31, 2021, Post sale revenue was flat as compared to the prior year with a 1.7-percentage point favorable impact from currency.

For the year ended December 31, 2020, Post sale revenue decreased 22.1% as compared to the prior year with no impact from currency and an approximate 0.8-percentage point unfavorable impact from an upfront OEM license fee in the prior year, excluding the impact of currency.

Post sale revenue is comprised of the following:

Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled supplies) as well as the post sale component of the document services revenue from our Xerox Services offerings.

• For the year ended December 31, 2021, these revenues decreased 2.6% as compared to the prior year, including a 1.7-percentage point favorable impact from currency, the decline at constant currency 1 reflected the impact of lower royalty revenue and lower third-party financing commissions (resulting from higher XFS lease penetration of our XBS operations), as well as a lower net population of devices, and higher mix of services with lower per-page revenues, partially offset by modestly higher page volumes corresponding with the gradual reopening of workplaces, and higher IT revenues, driven by higher demand for our offerings, partially offset by IT hardware product constraints.

• For the year ended December 31, 2020, these revenues decreased 22.3% as compared to the prior year, including a 0.2-percentage point favorable impact from currency and an approximate 1.1-percentage point unfavorable impact from the one-time OEM license fee in the prior year.

The decline at constant currency 1 reflected a lower population of devices (which is partially associated with lower installs in prior and current periods), a competitive price environment and lower page volumes (including a higher mix of lower average-page-volume products) that are worse than pre-COVID-19 decline trends due to the impact of business closures since March 2020.

While these revenues are contractual in nature, on average, our bundled services contracts include a minimum fixed charge and a significant variable component based on print volumes.

Supplies, paper and other sales includes unbundled supplies and other sales.

Services, maintenance and rentals revenue includes maintenance revenue (including bundled supplies), document services revenue from our Xerox Services offerings and rentals.

• For the year ended December 31, 2022, these revenues decreased 3.2% as compared to the prior year period, including a 3.8-percentage point adverse impact from currency.

The increase at constant currency 1 was primarily due to increases in contracted price per page and the acquisition of Go Inspire during the third quarter 2022.

Contractual Print Services 2 grew modestly compared to 2021, including benefits of Go Inspire, despite a slower-than expected return of employees to offices and ongoing macroeconomic concerns.

These benefits were partially offset by the impact of lower royalty revenues from FUJIFILM Business Innovation Corp.

(formerly Fuji Xerox Co., Ltd.), lower third-party leasing commissions (resulting from higher FITTLE lease penetration of our XBS operations), and slightly lower page volumes.

• For the year ended December 31, 2021, these revenues decreased 2.6% as compared to the prior year, including a 1.7-percentage point favorable impact from currency.

The decline at constant currency 1 reflected the impact of lower royalty revenue and lower third-party financing commissions (resulting from higher FITTLE lease penetration of our XBS operations), as well as a lower net population of devices, and a higher mix of services with lower per-page revenues, partially offset by modestly higher page volumes corresponding with the gradual reopening of workplaces, and higher IT revenues, driven by higher demand for our offerings, partially offset by IT hardware product constraints.

Supplies, paper and other sales includes unbundled supplies, IT services and other sales.

• For the year ended December 31, 2022, these revenues increased 17.5% as compared to the prior year, including a 3.5-percentage point adverse impact from currency.

The increase at constant currency 1 primarily reflected higher IT Services revenues, which included revenues from the recent acquisition of Powerland as well as higher paper and supplies revenues driven by higher channel demand.

• For the year ended December 31, 2021, these revenues increased 13.1% as compared to the prior year, including a 1.6-percentage point favorable impact from currency.

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Paper revenue increased $18 million in 2021 as compared to 2020.

• For the year ended December 31, 2020, these revenues decreased 24.0% as compared to the prior year, including a 0.4-percentage point unfavorable impact from currency.

The decline at constant currency 1 primarily reflected lower supplies revenues associated with lower page volume trends, partially offset by higher IT revenues from our XBS channel and from recently acquired IT dealers outside of the U.S.

The decrease in supplies was significantly impacted by lower sales through indirect channels, as resellers, in response to the lower demand caused by the pandemic, have reduced their inventory purchases to manage liquidity.

Xerox 2022 Annual Report 41

Financing revenue is generated from financed equipment sale transactions.

For the year ended December 31, 2021, Financing revenue decreased 2.2% as compared to the prior year, including a 1.9-percentage point favorable impact from currency, while Financing revenue for the year ended December 31, 2020 decreased 7.4% as compared to the prior year, including a 0.3-percentage point favorable impact from currency.

The decline at constant currency 1 reflected a lower finance receivables balance due to run-off of our lease portfolio and lower equipment sales in prior periods.

The decline in 2021 also reflected the impact of lower equipment sales in the second half of 2021.

However, lease originations increased in 2021 as compared to the prior year, primarily as a result of higher XFS (renamed FITTLE in 2022) lease penetration from our XBS sales unit.

• For the year ended December 31, 2022, Financing revenue decreased 6.3% as compared to the prior year, including a 3.4-percentage point adverse impact from currency.

The decline at constant currency 1 reflected a lower average finance receivables balance, due to a decrease in equipment sales in prior periods and declines in Xerox channel originations, due primarily to supply constraints, as well as lower interest rates due to an increase in indirect originations.

These declines were partially offset by an increase in originations from third-party dealers and non-Xerox equipment providers as compared to the prior year.

• For the year ended December 31, 2021, Financing revenue decreased 2.2% as compared to the prior year, including a 1.9-percentage point favorable impact from currency.

The decline at constant currency 1 reflected a lower finance receivables balance due to the run-off of our lease portfolio, lower equipment sales in prior periods and the impact of lower equipment sales in the second half of 2021.

However, lease originations increased in 2021 as compared to the prior year, primarily as a result of higher FITTLE lease penetration from our XBS sales unit.

_____________

(1) See "Currency Impact" section for description of constant currency.

Xerox 2021 Annual Report 39

(2) Includes revenues from service, maintenance and rentals.

Equipment sales revenue

Equipment revenue for the three years ended December 31, 2021, 2020 and 2019 was as follows:

Revenue % Change CC % Change % of Equipment Revenue

(in millions) 2021 2020 2019 2021 2020 2021 2020 2021 2020 2019

Entry $ 282 $ 228 $ 217 23.7% 5.1% 22.2% 4.7% 18% 14% 11%

Mid-range 972 986 1,404 (1.4)% (29.8)% (2.9)% (30.3)% 62% 63% 68%

High-end 304 325 421 (6.5)% (22.8)% (7.7)% (23.4)% 19% 21% 20%

Other 23 25 20 (8.0)% 25.0% (8.0)% 25.0% 1% 2% 1%

Equipment sales $ 1,581 $ 1,564 $ 2,062 1.1% (24.2)% (0.4)% (24.6)% 100% 100% 100%

_____________

CC - See "Currency Impact" section for description of constant currency.

Equipment sales revenue increased 1.1% for the year ended December 31, 2021 as compared to the prior year, including a 1.5-percentage point favorable impact from currency.

Equipment sales revenue increased 2.7% for the year ended December 31, 2022 as compared to the prior year, including a 3.9-percentage point adverse impact from currency.

The increase at constant currency 1 reflected higher demand and improvement in product availability, primarily in the last third of the year, as well as higher prices and a more favorable product and geography mix relative to the prior year.

Backlog 2 declined meaningfully on a year-over-year basis exiting 2022 but remained above pre-pandemic levels.

Equipment sales revenue increased across all product categories (entry, mid-range, and high-end), led by strength in mid-range.

For the year ended December 31, 2021, Equipment sales revenue increased 1.1% as compared to the prior year, including a 1.5-percentage point favorable impact from currency.

The decrease at constant currency 1 in Equipment sales revenue in 2021 reflected the significant adverse impact of product supply constraints (consistent with market-wide shortages of computer chips and resins) and global freight disruptions, which were further amplified by labor shortages within the transportation industry.

1 unchanged sentence

The supply chain disruption most significantly impacted the availability of our mid-range and high-end devices, causing a negative mix impact on total Equipment sales revenue.

Equipment sales revenue increased in EMEA, as the impact of supply chain disruptions was offset by higher demand from our indirect channels serving SMB, and from large government deals (in Europe and certain developing market regions).

Equipment sales revenue increased in EMEA, as the impact of supply chain disruptions was offset by higher demand from our indirect channels serving the Small and mid-sized markets, and from large government deals (in Europe and certain developing market regions).

Equipment sales revenue decreased in our Americas operations as shipping and logistics disruptions were more prevalent in the U.S.

than other markets.

We expect supply chain disruptions to affect Equipment sales revenue through the first half of 2022.

For the year ended December 31, 2020, Equipment sales revenue decreased 24.2% as compared to the prior year, including a 0.4-percentage point favorable impact from currency as well as the impact of price declines of less than 5%.

The COVID-19 pandemic significantly impacted our equipment sales revenue during 2020 as a result of business closures and office building capacity restrictions that impacted our customers' purchasing decisions and caused delayed installations.

Additionally, our mix of revenues from lower-end black-and-white devices increased as a result of hybrid workplace trends associated with the COVID-19 pandemic.

The change at constant currency 1 reflected the following:

• For the year ended December 31, 2021, the increase as compared to the prior year was driven by higher demand for our lower-end printers and MFPs through our indirect channels primarily in EMEA as well as in the Americas, which included markedly higher installs related to government deals in the developing regions of EMEA.

We also saw higher demand for entry devices associated with hybrid work environments.

While sales increased across this portfolio, we experienced an unfavorable mix from significantly higher sales of our lower-end black-and-white devices.

• For the year ended December 31, 2020, the increase as compared to the prior year was primarily due to higher installs of our black-and-white devices in developing regions in EMEA, including large-order government deals in Eurasia, partially offset by lower sales of devices in our indirect channels in EMEA, Latin America and the U.S.

affected in part by the COVID-19 pandemic.

• For the year ended December 31, 2021, the decrease as compared to the prior year was primarily driven by the significant impact of global product supply constraints and freight disruptions that had a more severe effect on our U.S.

These negative impacts were partially offset by higher demand consistent with the gradual reopening of workplaces, as compared to business shutdowns that reduced purchases of office devices in the prior year.

• For the year ended December 31, 2020, the decrease as compared to the prior year was primarily driven by the COVID-19 pandemic and related office closures, which significantly impacted our sales through indirect channels in the U.S.

and Europe, as resellers, in response to lower demand caused by the pandemic, reduced their inventory purchases to manage liquidity, partially offset by strong demand for our PrimeLink and new generation ConnectKey® devices.

Xerox 2021 Annual Report 40

• For the year ended December 31, 2021, the decrease as compared to the prior year primarily reflected the impact of global product supply constraints and freight disruptions, resulting in lower sales of color systems in the U.S., as well as lower sales of larger color production engines, which continued to be depressed as a result of our customers' delayed capital investment decisions.

These negative impacts were partially offset by improvement in sales of devices in the lower-end of the range and to SMB customers, as well as higher sales of black-and-white systems corresponding with our customers' refresh cycles.

• For the year ended December 31, 2020, the decrease as compared to the prior year primarily reflected lower installs of our Versant entry-production systems and iGen production presses, as well as lower installs of our Iridesse production presses in EMEA, which were partially offset by demand for our larger Baltoro cut-sheet inkjet press and higher sales in the U.S.

of our continuous-feed color systems.

_____________

(1) See "Currency Impact" section for description of constant currency.

Revenue Metrics

Installs reflect only new placements of devices (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations).

Revenue associated with equipment installations may be reflected up-front in Equipment sales or over time either through rental income or as part of our services revenues (which are both reported within our Post sale revenues), depending on the terms and conditions of our agreements with customers.

Installs include activity for Xerox and non-Xerox branded products installed by our XBS sales unit.

Detail by product group (see Geographic Sales Channels and Products and Offerings Definitions ) is shown below.

Installs for the year ended December 31, 2021 were:

• 7% increase in color multifunction devices reflecting higher installs of color personal devices at the low-end of the portfolio and higher installs of ConnectKey® devices through our indirect channels in EMEA and North America.

• 36% increase in black-and-white multifunction devices reflecting higher activity primarily from low-end devices through indirect channels primarily from developing regions in EMEA, which included large order government deals, and in the Americas.

Mid-Range (1)

• 8% increase in mid-range color installs primarily in EMEA, reflecting higher installs of our recently launched new-generation of ConnectKey® multi-function printers, as well as our PrimeLink entry-production color devices.

• 7% increase in mid-range black-and-white installs reflecting higher installs of our recently launched new-generation of ConnectKey® multi-function devices, as well as our PrimeLink entry production black-and-white devices.

• 12% increase in high-end color installs reflecting primarily growth from our lower-end Versant devices as well as our Iridesse and iGen production systems.

• 19% increase in high-end black-and-white systems reflecting higher installs of our Nuvera devices primarily related to cyclical account refreshes in the U.S and EMEA.

Installs for the year ended December 31, 2020 were:

• 21% decrease in color multifunction devices reflecting lower installs of ConnectKey® devices through our indirect channels in the U.S.

• 20% increase in black-and-white multifunction devices reflecting higher activity primarily from sales in the lower end of the portfolio through indirect channels in our developing regions in EMEA and Latin America associated with work-from-home sales programs, partially offset by lower installs through our indirect channels in the U.S.

Mid-Range (1)

• 26% decrease in mid-range color installs primarily reflecting lower installs of multifunction color devices partially offset by strong demand for our recently launched PrimeLink entry-production color devices and our new generation of ConnectKey® multifunction devices.

• 22% decrease in mid-range black-and-white installs reflecting in part global market trends, partially offset by strong demand for our recently launched PrimeLink light-production multi-function devices and our new generation of ConnectKey® multifunction devices.

Xerox 2021 Annual Report 41

• 42% decrease in high-end color installs primarily reflecting lower installs of our lower-end Versant devices, along with lower installs of our Iridesse and iGen production systems, partially offset by strong demand for our Baltoro cut-sheet inkjet press and higher installs in the U.S.

of our continuous-feed systems.

• 13% decrease in high-end black-and-white systems reflecting lower installs of our Nuvera devices along with market trends.

_____________

(1) Mid-range and High-end color installations exclude FUJIFILM Business Innovation Corp.

digital front-end sales;

including FUJIFILM Business Innovation Corp.

digital front-end sales, Mid-range color devices increased 8% and decreased 26% for the years ended December 31, 2021 and 2020, respectively, while High-end color systems increased 12% and decreased 42% for the years ended December 31, 2021 and 2020, respectively.

Geographic Sales Channels and Product and Offerings Definitions

Our business is aligned to a geographic focus and is primarily organized on the basis of go-to-market sales channels, which are structured to serve a range of customers for our products and services.

In 2019, we changed our geographic structure to create a more streamlined, flatter and more effective organization, as follows:

See Segment Review - Print and Other below for additional discussion on Equipment sales revenue.

Geographic Sales Channels

We also operate a matrix organization that includes a geographic focus that is primarily organized from a sales perspective on the basis of “go-to-market” (GTM) sales channels as follows:

• Americas , which includes our sales channels in the U.S.

and Canada, as well as Mexico, and Central and South America.

and Canada, as well as Mexico, Brazil and Central and South America.

• EMEA , which includes our sales channels in Europe, the Middle East, Africa and India.

• Other, primarily includes sales to and royalties from FUJIFILM Business Innovation Corp., and our licensing revenue.

Our products and offerings include:

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

Prices in this product group can range from approximately $150 to $3,000.

• “Mid-Range”, which includes A3 Office and Light Production devices that generally serve workgroup environments in mid to large enterprises.

Prices in this product group can range from approximately $2,000 to $75,000+.

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

Prices for these systems can range from approximately $30,000 to $1,000,000+.

Equipment Sales Revenue - Classification Update

During first quarter 2021, we revised the classification of equipment sales revenue by category for our XBS sales unit to conform the classification of devices across Xerox sales channels.

The revision had no impact on reported total equipment sales revenue.

For the Year ended December 31, 2020

(in millions) As Reported Change As Revised

Entry $ 188 $ 40 $ 228

Mid-range 1,043 (57) 986

High-end 312 13 325

Other 21 4 25

Equipment Sales $ 1,564 $ — $ 1,564

• Other , primarily includes royalties and licensing revenue.

These GTM sales channels are structured to serve a range of customers for our products and services, including financing.

Accordingly, we will continue to provide information, primarily revenue related, with respect to our principal GTM sales channels.

_____________

(1) See "Currency Impact" section for description of constant currency.

(2) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be

installed, including orders with future installation dates.

It includes printing devices as well as IT hardware associated with our IT service offerings.

Backlog at December 31, 2022 of $246 million excludes sales orders from Russia and Powerland Computers, Ltd., which was acquired in the first quarter of 2022.

Xerox 2022 Annual Report 42

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_____________

(1) 2021 includes a pre-tax non-cash Goodwill impairment charge of $781 million.

(1) 2022 and 2021 include a pre-tax non-cash Goodwill impairment charges of $412 million and $781 million, respectively.

(2) Refer to the "Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure.

Pre-tax (Loss) Income Margin

Pre-tax loss margin for the year ended December 31, 2021 of (6.7)% decreased 10.3-percentage points from the pre-tax income margin of 3.6% in 2020.

The decrease primarily reflected the non-cash Goodwill impairment charge of $781 million ($750 million after-tax), and the impact of lower adjusted 1 operating margin (see below), of 1.3-percentage points, partially offset by lower Restructuring and related costs, net, Transaction and related costs, net and Other expenses, net.

Pre-tax income margin for the year ended December 31, 2020 of 3.6% decreased 5.5-percentage points compared to 2019.

The decrease primarily reflected the impact of lower adjusted 1 operating margin (see below), of 6.5-percentage points, as well as higher Amortization of intangible assets and Transaction and related cost, net, partially offset by lower Restructuring and related costs, net and Other expenses, net.

Pre-tax (loss) income margin includes Restructuring and related costs, net, the Amortization of intangible assets, Transaction and related costs, net and Other expenses, net, all of which are separately discussed in subsequent sections.

Adjusted 1 Operating margin, discussed below, excludes these items.

2021 Adjusted 1 Operating margin also excludes the non-cash Goodwill impairment charge of $781 million ($750 million after-tax).

2022 and 2021 Adjusted 1 Operating margin also excludes the non-cash Goodwill impairment charge of $412 million ($395 million after-tax) and $781 million ($750 million after-tax), respectively.

Pre-tax loss margin for the year ended December 31, 2022 of (4.6)% was a 2.1-percentage point increase from the pre-tax loss margin of (6.7)% in 2021.

Both periods include the impact of a pre-tax non-cash Goodwill impairment charge - $412 million in 2022 or 5.8% versus $781 million in 2021 or 11.1%;

a decrease of 5.3%.

The decrease in the Goodwill impairment charge impact was partially offset by the impact of lower Adjusted 1 Operating margin (see Adjusted 1 Operating Margin discussion below), of 1.4-percentage points, increased Restructuring and related costs, net, and Selling, administrative and general expenses (SAG) due to higher stock compensation and bad debt expense.

Other expenses, net, also were higher primarily due to increased non-service retirement costs and a $33 million charge associated with the termination of a product supply agreement.

Pre-tax loss margin for the year ended December 31, 2021 of (6.7)% decreased 10.3-percentage points compared to 2020.

The decrease primarily reflected the pre-tax non-cash Goodwill impairment charge of $781 million, and the impact of lower Adjusted 1 Operating margin (see Adjusted 1 Operating Margin discussion below), of 1.3-percentage points, partially offset by lower Restructuring and related costs, net, Transaction and related costs, net and Other expenses, net.

Adjusted 1 Operating Margin

Adjusted 1 operating margin for the year ended December 31, 2021 of 5.3% decreased 1.3-percentage points compared to 2020.

The decrease primarily reflects an approximate 1.5-percentage point negative impact of supply chain disruptions, including higher shipping and logistics costs, and an unfavorable mix of equipment revenue due to product constraints, as well as a negative 0.4-percentage points from lower royalty revenue from FUJIFILM Business Innovation Corp.

Adjusted 1 operating margin for the year ended December 31, 2022 of 3.9% decreased 1.4-percentage points as compared to 2021.

The decrease is primarily due to lower gross margin, reflecting the negative impact of supply chain disruption, which caused an unfavorable mix of equipment and services revenue due to product constraints and higher product costs, partially offset by improved logistics costs.

The decrease also reflects investments to support future growth, as well as the adverse impacts from higher bad debt expense, the cessation of sales to Russia, and lower royalty revenues from FUJIFILM Business Innovation Corp.

These negative impacts were partially offset by higher revenues, favorable currency benefits, and productivity and cost savings associated with our Project Own It transformation actions.

Adjusted 1 operating margin for the year ended December 31, 2021 of 5.3% decreased 1.3-percentage points as compared to 2020.

Xerox 2022 Annual Report 43

to product constraints, as well as a negative 0.4-percentage points from lower royalty revenue from FUJIFILM Business Innovation Corp.

Adjusted 1 Operating margin also reflected an approximate 1.1-percentage point negative impact of lower savings from temporary government assistance and furlough measures, and an approximate 0.7-percentage point unfavorable impact from lower third-party lease commissions and incremental costs associated with investments to support future growth.

1 unchanged sentence

Additionally, cost and expense reductions associated with our Project Own It transformation actions favorably impacted Adjusted 1 Operating margin.

Adjusted 1 operating margin for the year ended December 31, 2020 of 6.6% decreased 6.5-percentage points as compared to 2019.

The decrease reflects the impact of lower revenues, primarily as a result of the significant effect of the COVID-19 pandemic on our business and a 0.9-percentage point unfavorable impact due to an increase in bad debt expense of $61 million in the first quarter of 2020 to reflect the expected impact to our customer base and related outstanding trade and finance receivable portfolio as a result of the economic disruption caused by the

Xerox 2021 Annual Report 43

These negative impacts were partially offset by lower costs and expenses, which include savings associated with our Project Own It transformation actions as well as additional savings from various cost reductions actions to mitigate the impact of the pandemic.

These actions include approximately $107 million from temporary government assistance measures and furlough programs and other reductions in discretionary spending such as near-term targeted marketing programs, the use of contract employees and the temporary suspension of 401(k) matching contributions for the year 2020, as well as lower compensation incentives consistent with lower sales and operating results.

The decrease also included an approximate 0.4-percentage point unfavorable impact from transaction currency and was affected by an approximate 0.7-percentage point unfavorable impact from the one-time OEM license fee received in the prior year.

_____________

(1) Refer to Operating Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section.

(1) Refer to Operating (Loss) Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section.

Total gross margin for the year ended December 31, 2022 of 32.6% decreased 1.5-percentage points compared to 2021, primarily reflecting approximately 0.9-percentage points associated with the adverse impacts of higher supply chain costs and capacity restrictions as well as unfavorable product and service mix.

In addition, gross margin was negatively impacted by lower third-party financing commissions, lower royalty revenue, benefits from temporary government assistance and furlough measures in the prior year, and investments to support future growth.

These negative impacts were partially offset by favorable currency and productivity and cost savings associated with Project Own It transformation actions.

Total gross margin for the year ended December 31, 2021 of 34.1% decreased 3.3-percentage points compared to 2020, reflecting unfavorable impacts of approximately 1.5-percentage points associated with supply chain costs and capacity restrictions (including significantly higher freight and shipping costs and constrained availability of higher margin equipment) and 0.8-percentage points associated with investments to support future growth.

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These headwinds were partially offset by the cost savings from our Project Own It transformation actions.

Total gross margin for the year ended December 31, 2020 of 37.4% decreased 2.9-percentage points compared to 2019, primarily reflecting the impact of lower revenues (including from our higher margin post sale stream) primarily as a result of the significant effect of the COVID-19 pandemic due to business closures, as well as price promotion programs, and an approximate 0.5-percentage point adverse combined impact from transaction currency and higher tariffs.

The decrease was also affected by an approximate 0.6-percentage point unfavorable impact from the one-time OEM license fee received in the prior year.

These headwinds were partially offset by the cost savings from our Project Own It transformation actions, as well as additional cost reduction actions to mitigate the impact of the pandemic, including savings of approximately $74 million from temporary government assistance measures and furlough programs and other reductions in discretionary spend such as the use of contract employees and the temporary suspension of 401(k) matching contributions.

Equipment gross margin for the year ended December 31, 2022 of 25.1% increased 0.9-percentage points compared to 2021, primarily reflecting the benefits of price increases, lower freight costs, and favorable mix of products, partially offset by the impact of continued product supply constraints and higher product costs.

Equipment gross margin for the year ended December 31, 2021 of 24.2% decreased 3.2-percentage points compared to 2020, primarily reflecting the impact of higher transportation costs and an unfavorable mix of growth in low-end devices associated with product supply constraints, partially offset by higher revenues and favorable transaction currency.

Equipment gross margin for the year ended December 31, 2020 of 27.4% decreased 5.2-percentage points compared to 2019, primarily reflecting the impact of lower revenues (primarily as a result of COVID-19-related business closures) as well as the adverse impact of price promotion programs, incremental tariff costs and the 0.6-percentage point unfavorable impact from transaction currency partially offset by cost reductions from Project Own It.

Post sale gross margin for the year ended December 31, 2022 of 34.9% decreased 2.1-percentage points compared to 2021, reflecting higher parts costs associated with supply chain disruption, the impacts of recent acquisitions, benefits from temporary government assistance in the prior year, a competitive price environment, and lower royalty revenues and third-party financing commissions.

A higher mix of IT services revenues also contributed to the decrease in margins.

These negative impacts were partially offset by favorable currency as well as productivity and cost savings associated with Project Own It transformation actions.

Post sale gross margin for the year ended December 31, 2021 of 37.0% decreased 3.3-percentage points compared to 2020, reflecting lower savings from temporary government assistance and furlough measures, lower royalty revenues and third-party lease commissions and a higher mix of services with lower per-page revenues, partially offset by restructuring savings associated with Project Own It transformation actions.

Post sale gross margin for the year ended December 31, 2020 of 40.3% decreased 2.2-percentage points compared to 2019, reflecting the impact of lower revenues (primarily as a result of COVID-19-related business closures impacting page volumes) and price erosion on contract renewals, partially offset by productivity and cost savings and restructuring savings associated with Project Own It transformation actions, as well as savings from our additional cost reduction actions to mitigate the impact of the pandemic.

These actions include approximately $73 million of savings from temporary government assistance measures and furlough programs and other reductions in discretionary spend such as the use of contract employees and the temporary suspension of 401(k) matching contributions.

The decrease was also affected by an approximate 0.6-percentage point unfavorable impact from the one-time OEM license fee received in the prior year.

Xerox 2021 Annual Report 44

Research, Development and Engineering Expenses (RD&E)

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Total RD&E Expenses $ 304 $ 310 $ 311 $ (6) $ (1)

RD&E as a percentage of revenue for the year ended December 31, 2021 of 4.4% was flat as compared to 2020.

RD&E of $304 million and 4.3% as a percentage of revenue for the year ended December 31, 2022 decreased $6 million and 0.1-percentage points, respectively, from 2021, primarily due to investment prioritization and rationalization as well as cost savings from restructuring and productivity actions.

Spending in innovation areas was

Xerox 2022 Annual Report 44

lower in the fourth quarter 2022 reflecting the decision to scale back activities in PARC and to spin out or shut down certain other businesses and activities.

RD&E as a percentage of revenue for the year ended December 31, 2021 of 4.4% was flat compared to 2020.

RD&E of $310 million for the year ended December 31, 2021, decreased $1 million from 2020 primarily reflecting savings from restructuring and productivity as well as benefits from the timing of program development cycles, partially offset by investments in our innovation portfolio.

RD&E as a percentage of revenue for the year ended December 31, 2020 of 4.4% was 0.3-percentage points higher compared to 2019, as the impact of revenue declines outpaced the rate of cost reductions.

RD&E of $311 million for the year ended December 31, 2020, decreased $62 million from 2019 reflecting savings from Project Own It that enhanced simplification and rationalization in our core technology spend, and other temporary cost actions, as well as the impact from the timing of investments, partially offset by higher spend in our innovation areas.

Selling, Administrative and General Expenses (SAG)

SAG as a percentage of revenue of 24.8% increased 0.4-percentage points for the year ended December 31, 2022 compared to 2021 primarily due to higher administrative and bad debt expenses, partially offset by lower selling expenses as a result of the favorable impact from currency as well as productivity and cost savings associated with our Project Own It transformation actions, and the impact of higher revenues.

SAG expenses of $1,760 million for the year ended December 31, 2022 were $42 million higher than 2021, primarily reflecting higher bad debt expense due to the prior year reserve releases and higher stock compensation expense of $21 million.

The higher stock compensation expense was primarily due to the accelerated 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.

The increase was also due to acquisitions, investments in FITTLE, as well as benefits from temporary government assistance in the prior year.

These actions were partially offset by lower sales and marketing expenses resulting from lower sales volumes in the first half of 2022, and productivity and cost savings associated with our Project Own It transformation actions, as well as the favorable impact from currency.

Our bad debt expense for the year ended December 31, 2022 of $43 million increased $36 million as compared to the prior year period, primarily due to prior year reserve releases of approximately $31 million as well as increased provisions as a result of current macroeconomic conditions.

We believe our current reserve position remains sufficient to cover expected losses that may result from future macroeconomic conditions including higher inflation and interest rates.

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

On a trailing twelve-month basis (TTM), bad debt expense was approximately 1.0% of total receivables, which is consistent with the pre-pandemic trend.

SAG as a percentage of revenue of 24.4% decreased 2.0-percentage points for the year ended December 31, 2021 compared to 2020 primarily as a result of an approximate 1.5-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year to reflect the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic as well as bad debt reversals in the current year.

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SAG expenses of $1,718 million for the year ended December 31, 2021 were $133 million lower than 2020, primarily reflecting lower bad debt expenses, as well as cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs), partially offset by an approximate $30 million adverse impact from translation currency, higher compensation related accruals (corresponding with higher expected operating results) and other investments in the business to support future growth, as well as the impact of lower benefits from temporary government assistance and furlough measures and higher legal expenses and expenses from prior year acquisitions.

Our bad debt expense for the year ended December 31, 2021 of $7 million decreased $109 million as compared to the prior year period, primarily due to the prior year reflecting an approximate $60 million incremental provision to cover estimated write-offs primarily on our finance receivable portfolio from the COVID-19 pandemic, while 2021 reflected finance receivable reserve reductions of approximately $31 million and lower reserves for trade receivables.

The 2021 reductions in our finance and trade reserves reflect improvements in the macroeconomic environment as well as lower write-offs.

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

We continue to monitor developments regarding the pandemic, including business closures and reopenings and mitigating government support actions as well as future economic conditions, and as a result our reserves may need to be updated in future periods.

On a trailing twelve-month basis (TTM), bad debt expense was approximately 0.9% percent of total receivables (excluding the 2021 reductions of $31 million), which is consistent with the pre-pandemic trend and reflects the consistent level of reserves subsequent to the first quarter 2020 charge.

SAG as a percentage of revenue of 26.4% increased 3.4-percentage points for the year ended December 31, 2020 compared to 2019 and included a 0.9-percentage point unfavorable impact due to the increase in bad debt expense of $61 million in the first quarter 2020.

The increase also reflected the impact of lower revenues, partially offset by the benefits from cost reductions associated with our Project Own It transformation actions and savings from additional cost reduction actions to mitigate the impact of the pandemic.

These actions included approximately $32 million from temporary government assistance measures and furlough programs, and other reductions in discretionary spend such as near-term targeted marketing programs, the use of contract employees and the

Bad debt expense for the year ended December 31, 2021 of $7 million decreased $109 million as compared to the prior year period, primarily due to the prior year reflecting an approximate $60 million incremental provision to cover estimated write-offs primarily on our finance receivable portfolio from the COVID-19 pandemic, while 2021 reflected finance receivable reserve reductions of approximately $31 million and lower reserves for trade receivables.

The 2021 reductions in our finance and trade reserves reflected improvements in the macroeconomic environment as well as lower write-offs.

Xerox 2022 Annual Report 45

temporary suspension of the 401(k) matching contributions, as well as lower compensation incentives consistent with lower sales and operating results.

SAG expenses of $1,851 million for the year ended December 31, 2020 were $234 million lower than 2019, reflecting cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic, as noted above.

These savings were partially offset by higher bad debt expense, as well as expenses from recent acquisitions.

Bad debt expense for the year ended December 31, 2020 was $116 million or $70 million higher than the prior year primarily as a result of the increase in the bad debt provision recorded in first quarter 2020, which reflects the estimated impact on our customer base and related outstanding receivables portfolio as a result of the economic disruption caused by the COVID-19 pandemic.

The majority of the increased provision was related to finance receivables due to their larger balance and longer-term nature.

During the remainder of 2020, write-offs as well as the bad debt reserves for our trade and finance receivables portfolios were in line with our projections and consistent with future expectations regarding our estimated impacts from the COVID-19 pandemic.

Bad debt expense of approximately 2.7% percent of total gross receivables on a trailing-twelve-month basis (TTM) was higher than the 2019 trend of less than one percent, reflecting the significant increase in 2020 due to impacts from the COVID-19 pandemic.

Restructuring and Related Costs, Net

We incurred restructuring and related costs, net of $38 million for the year ended December 31, 2021, as compared to $93 million for the year ended December 31, 2020.

We incurred restructuring and related costs, net of $65 million, $38 million and $93 million for the three years ended December 31, 2022, 2021 and 2020, respectively.

These costs were primarily related to the implementation of initiatives under our business transformation projects, including Project Own It.

The decrease in restructuring and related costs in 2020 is partially due to a higher level of asset impairments and severance and related costs in 2019 for employees transferred as part of an outsourcing arrangement.

The following is a breakdown of costs:

The following is a breakdown of those costs:

Year Ended December 31,

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Other contractual termination costs (3)

Net reversals (4)

Other charges/credits (4)

(32) (21) (29)

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(1) Reflects headcount reductions of approximately 400, 1,850 and 1,000 employees worldwide for the years ended December 31, 2021, 2020 and 2019, respectively.

(1) Reflects gross headcount reductions of approximately 1,940, 525 and 2,000 employees worldwide for the years ended December 31, 2022, 2021 and 2020, respectively.

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

2022 owned assets impairments also reflect approximately $5 million associated with the write-off of internal-use software assets due to the shutdown of certain innovation activities.

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

(4) Reflects net reversals for changes in estimated reserves from prior period initiatives.

Net reversals for 2021 also include a $4 million gain on the sale of surplus land.

(4) Reflects net gains on the sale of owned land and facilities of $22 million and $4 million for the year ended December 31, 2022 and 2021, respectively, as well as net reversals for changes in estimated reserves from prior period initiatives.

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

(6) Primarily reflects severance and other related costs associated with employees transferred (approximately 2,200) as part of a shared service arrangement entered into with HCL Technologies.

(6) Primarily reflects severance and other related costs we are contractually required to pay in connection with employees transferred or terminated as part of a shared service arrangement entered into with third party providers.

The reversals in 2020 reflect a change in estimates.

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

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We expect 2023 pre-tax savings of approximately $57 million from our 2022 restructuring actions.

2020 actions impacted several functional areas, with approximately 55% focused on gross margin improvements and approximately 45% focused on SAG reductions.

2021 actions impacted several functional areas, with approximately 25% focused on gross margin improvements and approximately 70% focused on SAG reductions, and the remainder focused on RD&E optimizations.

The implementation of our Project Own It initiatives as well as other business transformation initiatives is expected to continue to deliver significant cost savings in 2023.

While many initiatives are underway and have yet to yield the full transformation benefits expected upon their completion, the changes implemented thus far have improved our cost structure and are beginning to yield longer-term benefits.

However, expected savings associated with these

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initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until the initiatives are fully implemented and stabilized.

However, expected savings associated with these initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until the initiatives are fully implemented and stabilized.

Restructuring Summary

The restructuring reserve balance as of December 31, 2021 for all programs was $44 million, which is expected to be paid over the next twelve months.

The restructuring reserve balance as of December 31, 2022, for all programs, was $55 million, of which $51 million is expected to be paid over the next twelve months.

Refer to Note 13 - Restructuring Programs in the Consolidated Financial Statements for additional information regarding our restructuring programs.

Amortization of Intangible Assets

Amortization of intangible assets for the three years ended December 31, 2022 , 2021 and 2020 was $42 million, $55 million and $56 million, respectively.

The decreased level of amortization in 2022 was primarily related to the write-off of certain XBS tradenames in prior years as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It, partially offset by intangible amortization related to our recent acquisitions of Powerland and Go Inspire.

Refer to Note 6 - Acquisitions and Investments and Note 12 - Goodwill, Net and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding our intangible assets.

Xerox 2022 Annual Report 46

Transaction and Related Costs, Net

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain major and strategic M&A projects.

There were no Transaction and related costs, net incurred during 2021 as compared to $18 million incurred in 2020 and $12 million in 2019.

There were no Transaction and related costs, net incurred during 2022 or 2021, respectively, as compared to $18 million in 2020.

Transaction and related costs, net in 2020 primarily related to legal and other professional costs associated with the terminated proposal to acquire HP Inc.

in early 2020.

Amortization of Intangible Assets

Amortization of intangible assets for the three years ended December 31, 2021 , 2020 and 2019 was $55 million, $56 million and $45 million, respectively.

The increased level of amortization in 2021 and 2020 was primarily due to intangible assets associated with our 2021 and 2020 acquisitions.

Additionally, the increase in amortization of $11 million in 2020 as compared to 2019 was primarily due to the accelerated write-off of certain XBS tradenames as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It.

Refer to Note 13 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding our intangible assets.

Worldwide Employment

Worldwide employment was approximately 23,300 as of December 31, 2021 and decreased by approximately 1,800 1 from December 31, 2020.

The reduction resulted from net attrition (attrition net of gross hires), a large portion of which is not expected to be backfilled, as well as the impact of organizational changes.

_____________

(1) Decrease based on revised headcount at December 31, 2020 of 25,100 from 24,700 due to the change in definition of full-time equivalent

Worldwide employment was approximately 20,500 as of December 31, 2022, a decrease of approximately 2,800 from December 31, 2021.

The reduction in headcount resulted from net attrition (attrition net of gross hires), restructuring, as well as the impact of organizational changes including employee transfers associated with shared services arrangements.

Other Expenses, Net

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Currency losses, net 13 7 3

Loss on sales of accounts receivable 2 2 3

Loss on early extinguishment of debt 5 — 26

Litigation matters 4 2 (1)

Contract termination costs - IT services — 3 (12)

Contract termination costs 33 — 3

Excess contribution refund (16) — —

Tax indemnification from Conduent — — (9)

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Non-financing interest expense

Non-financing interest expense for the year ended December 31, 2022 of $91 million was $5 million lower than 2021.

When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense of $199 million decreased by $8 million from the prior year period primarily reflecting a lower average debt balance offset slightly by higher average interest rates.

Non-financing interest expense for the year ended December 31, 2021 of $96 million was $2 million higher than 2020.

When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense of $207 million decreased by $8 million from the prior year period primarily reflecting a lower average debt balance.

Non-financing interest expense for the year ended December 31, 2020 of $94 million was $11 million lower than 2019.

When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense of $215 million decreased by $21 million from the prior year period reflecting a lower average debt balance primarily due to the full-year effect of the 2019 debt repayments that were not refinanced.

Xerox 2021 Annual Report 47

For the years ended December 31, 2021 and 2020 both Xerox Holdings and Xerox reported total interest expense of $207 million and $215 million, respectively, however, the amount reported by Xerox includes $80 million and $32 million, respectively, of interest paid to Xerox Holdings on an Intercompany Loan.

The Intercompany Loan represents a loan of the net proceeds Xerox Holdings Corporation received from its Senior Notes to Xerox, which was used to repay existing debt of Xerox Corporation.

For the years ended December 31, 2022, 2021 and 2020, both Xerox Holdings and Xerox reported total interest expense of $199 million, $207 million and $215 million, respectively, however, the amount reported by Xerox includes $80 million, $80 million and $32 million, respectively, of interest expense to Xerox Holdings on an Intercompany Loan.

The Intercompany Loan represents a loan to Xerox of the net proceeds Xerox Holdings Corporation received from its Senior Notes, which was used to repay existing debt of Xerox Corporation.

Xerox's interest expense on the Intercompany Loan matches the interest expense recognized by Xerox Holdings on its Senior Notes.

Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding the Xerox Holdings Corporation/Xerox Corporation Intercompany Loan, our debt activity and information regarding the allocation of interest expense.

Interest Income

Interest income for the year ended December 31, 2021 was $10 million lower than 2020, primarily due to lower interest rates and a lower cash balance.

Interest income for the year ended December 31, 2022 was $7 million higher than 2021 primarily due to higher interest rates, partially offset by a lower cash balance, while interest income for the year ended December 31, 2021 was $10 million lower than 2020 primarily due to lower interest rates and a lower cash balance.

Xerox 2022 Annual Report 47

Non-service retirement-related costs

Non-service retirement-related costs increased $77 million for the year ended December 31, 2022 as compared to 2021 primarily driven by an increase in interest costs due to higher discount rates as well as negative asset returns on certain plan assets.

Non-service retirement-related costs decreased $60 million for the year ended December 31, 2021 as compared to 2020 primarily driven by lower discount rates and higher expected returns on plan assets due to higher asset balances.

Non-service retirement-related costs decreased $47 million for the year ended December 31, 2020 as compared to 2019 primarily driven by lower losses from pension settlements in the U.S.

of $53 million, a $40 million decrease compared to 2019.

Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding non-service retirement-related costs.

Service retirement-related costs, which are included in operating expenses, were $18 million, $24 million and $24 million for December 31, 2022, 2021 and 2020, respectively.

Refer to Note 18 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding service and non-service retirement-related costs.

Gains on sales of businesses and assets

Gains on sales of businesses and assets increased $10 million and $9 million for the years ended December 31, 2021 and 2020, respectively, as compared to the respective prior year periods, and reflect the sales of non-core business assets in all periods presented.

Gains on sales of businesses and assets increased $16 million and $10 million for the years ended December 31, 2022 and 2021, respectively, as compared to the respective prior year periods, primarily due to higher sales of non-core surplus business assets in both periods.

Currency losses, net

Currency losses, net of $13 million in 2022 were $6 million higher than 2021 primarily due to increased volatility in the global exchange rates, particularly in our Eurasia and Middle East operations, which could not be fully hedged.

Refer to Note 16 - Financial Instruments in the Consolidated Financial Statements for additional information regarding our foreign currency derivatives.

Loss on early extinguishment of debt

During 2022, we recorded a loss of $1 million related to the write-off of deferred debt issuance costs as a result of the reduction in the Company's Credit Facility from $500 million to $250 million and $4 million related to the early redemption of $700 million of the $1 billion of Xerox Corporation's 4.625% Senior Notes due March 2023.

During fourth quarter 2020 we recorded a $26 million loss associated with the early extinguishment of $1,062 million of the Senior Notes due May 2021.

The net loss included the payment of a redemption premium of $24 million as well as the write-off of unamortized debt issuance costs and other debt carrying value adjustments.

Contract termination costs - IT services

Contract termination costs were a $3 million charge in 2020 and a $12 million credit in 2019, both of which are adjustments to a $43 million penalty recorded in 2018 related to the termination of an IT services arrangement.

The penalty was associated with a minimum purchase commitment that would not be fulfilled due to the termination of the related IT services arrangement.

The adjustments in 2020 and 2019 reflect changes in the estimate regarding the expected spending in the run-off of this terminated IT services arrangement and the amount due under the minimum purchase agreement.

Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our Senior Notes and Credit Facility.

Contract termination costs

For the year ended December 31, 2022, we recorded contract termination costs of $33 million ($25 million after-tax) associated with the early termination of a product supply agreement.

The charge primarily reflects the payment of the contractual cancellation fee plus interest and related legal fees.

For the year ended December 31, 2020, we recorded contract termination costs of $3 million which was an adjustment to a net $31 million accrual recorded in 2018 and adjusted in 2019 related to a penalty from the early termination of an IT services arrangement in 2018.

The adjustment reflected changes in the estimate regarding the expected amount due under a minimum purchase commitment in the agreement.

The commitment was settled in 2020 for approximately $34 million.

The minimum purchase commitment had originally been entered into in connection with the sale of our Information Technology Outsourcing (ITO) business in 2015.

Excess Contribution Refund

In the second quarter 2022, we received a refund of $16 million, which reflects the return of excess employer contributions to a defined contribution plan for one of our Latin American subsidiaries as a result of employee forfeitures.

The excess contributions accumulated over the past 20 plus years.

Refer to Note 18 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding our defined contribution plans.

Tax indemnification from Conduent

Represents an indemnification payment expected to be received from Conduent as part of the settlement of pre-separation unrecognized tax positions related to Conduent when included in our consolidated return.

The credit of $9 million in 2020, represents an indemnification payment received from Conduent as part of the settlement of pre-separation unrecognized tax positions related to Conduent when included in our consolidated return.

The equal and offsetting charge to this receipt is recorded in Income tax expense, as part of our obligation to pay the taxing authorities.

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The 2022 effective tax rate was 0.9% and was lower than the U.S.

federal statutory tax rate of 21% primarily due to the non-deductibility of the Goodwill impairment charge and the tax expense associated with changes in elections made to certain tax positions for recently filed returns, which were only partially offset by benefits from additional tax incentives and the geographical mix of earnings.

On an adjusted 1 basis, the 2022 effective tax rate was 21.8% and was higher than the U.S.

federal statutory tax rate of 21% primarily due to tax expense associated with changes in elections made to certain tax positions for recently filed returns, offset by benefits from additional tax incentives.

The 2021 effective tax rate was 3.6%.

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statutory tax rate of 21% primarily due to the benefits from tax law changes, additional incentives as a result of changes in elections made with the filed tax returns, the decrease in deferred tax valuation allowances as well as the remeasurement of uncertain tax positions.

The adjusted 1 effective tax rate also reflects partial offsets for the geographical mix of earnings.

The adjusted 1 effective tax rate excludes the tax impacts associated with the following charges:

non-cash Goodwill impairment, Restructuring and related costs, net,

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Amortization of intangible assets and non-service retirement-related costs, as described in our Non-GAAP Financial Measures section.

The reported effective tax rate also reflected the non-deductibility of the Goodwill impairment charge, while the adjusted 1 effective tax rate also reflects partial offsets for the geographical mix of earnings.

The 2020 effective tax rate was 25.4%.

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statutory tax rate of 21% primarily due to state taxes, non-deductible items on lower pre-tax income and an increase in deferred tax asset valuation allowances partially offset by the impact from various tax law changes.

The adjusted 1 effective tax rate excludes the tax impacts associated with the following charges:

Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section.

The 2019 effective tax rate was 21.8% and included a credit of $35 million related to the 2017 Tax Cuts and Jobs Act (the Tax Act).

On an adjusted 1 basis, the 2019 effective tax rate was 26.1%.

Both rates were higher than the U.S.

statutory tax rate of 21% primarily due to state taxes.

In addition to excluding the impact of the Tax Act, the adjusted 1 effective tax rate excludes the tax impacts associated with the following charges:

Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs as well as other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section.

Xerox operations are widely dispersed.

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Equity in Net Income of Unconsolidated Affiliates

In November 2019, Xerox Holdings sold its remaining indirect 25% equity interest in Fuji Xerox, which had been previously accounted for as an equity method investment.

Accordingly, our remaining Investment in Affiliates, at Equity largely consists of several minor investments in entities in the Middle East region.

Year Ended December 31,

(in millions) 2021 2020 2019

Equity in net income of unconsolidated affiliates - Fuji Xerox (1)

$ — $ — $ 147

Equity in net income of unconsolidated affiliates - continuing operations 3 4 8

Total Equity in net income of unconsolidated affiliates $ 3 $ 4 $ 155

Fuji Xerox after-tax restructuring and other charges included in equity income — — 20

_____________

(1) Equity in net income for Fuji Xerox is reported in Income from discontinued operations, net of tax for all years presented.

The equity in net income for Fuji Xerox in 2019 is through the date of sale.

Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information regarding the sale of Fuji Xerox.

Refer to Note 12 - Investment in Affiliates, at Equity in the Consolidated Financial Statements for additional information regarding our equity investments.

Net (Loss) Income from Continuing Operations

Net loss from continuing operations attributable to Xerox Holdings for the year ended December 31, 2021 was $(455) million, or $(2.56) per diluted share, which includes an after-tax Goodwill impairment charge of $750 million (pre-tax charge of $781 million) or ($4.08) per share.

On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $293 million, or $1.51 per diluted share, and includes adjustments for the Goodwill impairment charge, Restructuring and related costs, net, Amortization of intangible assets, as well as non-service retirement-related costs and other discrete, unusual or infrequent items, as described in our Non-GAAP Financial Measures.

Xerox 2021 Annual Report 49

Net income from continuing operations attributable to Xerox Holdings for the year ended December 31, 2020 was $192 million, or $0.84 per diluted share.

On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $313 million, or $1.41 per diluted share, and includes adjustments for Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items, which included a Loss on the early extinguishment of debt, as described in our Non-GAAP Financial Measures.

Net income from continuing operations attributable to Xerox Holdings for the year ended December 31, 2019 was $648 million, or $2.78 per diluted share.

On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $828 million, or $3.55 per diluted share, and includes adjustments for Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items, including the impact from the Tax Act, as described in our Non-GAAP Financial Measures.

Investments in Affiliates, at Equity largely consist of several minor investments in entities in the Middle East region.

Equity in net income of unconsolidated affiliates was $3 million, $3 million, and $4 million for the three years ended December 31, 2022, 2021 and 2020, respectively.

Net (Loss) Income

Net loss attributable to Xerox Holdings for the year ended December 31, 2022 was $(322) million, or $(2.15) per diluted share, which includes an after-tax Goodwill impairment charge of $395 million (pre-tax charge of $412 million) or ($2.54) per share.

On an adjusted 1 basis, Net income attributable to Xerox Holdings was $189 million, or $1.12 per diluted share.

Net loss attributable to Xerox Holdings for the year ended December 31, 2021 was $(455) million, or $(2.56) per diluted share, which includes an after-tax Goodwill impairment charge of $750 million (pre-tax charge of $781 million) or ($4.08) per share.

On an adjusted 1 basis, Net income attributable to Xerox Holdings was $293 million, or $1.51 per diluted share.

Net income attributable to Xerox Holdings for the year ended December 31, 2020 was $192 million, or $0.84 per diluted share.

On an adjusted 1 basis, Net income attributable to Xerox Holdings was $313 million, or $1.41 per diluted share.

Refer to Note 25 - (Loss) Earnings per Share in the Consolidated Financial Statements, for additional information regarding the calculation of basic and diluted earnings per share.

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(1) Refer to the Net (Loss) Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section.

Discontinued Operations

Discontinued operations relate to the November 2019 Sales of our indirect 25% equity interest in Fuji Xerox and our indirect 51% partnership interest in Xerox International Partners (XIP), which had been consolidated.

Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information regarding discontinued operations.

Other Comprehensive Income

Xerox 2022 Annual Report 49

Other Comprehensive (Loss) Income

Other comprehensive loss attributable to Xerox was $(549) million in 2022 and included the following:

i) $377 million of net translation adjustment losses reflecting the weakening of our major foreign currencies against the U.S.

Dollar during 2022;

ii) $171 million of net losses from the changes in defined benefit plans primarily due to actuarial losses as a result of negative asset returns, partially offset by the positive impact of currency and the amortization of actuarial losses and settlement losses;

and iii) $2 million in unrealized losses, net.

Other comprehensive income attributable to Xerox was $344 million in 2021 and included the following:

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and iii) $4 million in unrealized gains, net.

Other comprehensive income attributable to Xerox was $46 million in 2019 and included the following:

i) net translation adjustment gains of $62 million reflecting aggregate translation gains of $45 million from the strengthening of most of our major foreign currencies against the U.S.

Dollar during 2019, as well as a reclassification of $17 million of accumulated translation losses from AOCL into earnings as a result of the divestiture of our investments in FX and XIP;

ii) $10 million of net losses from changes in defined benefit plans reflecting net losses of $138 million associated with defined benefit plan changes during 2019, primarily as a result of lower discount rates, as well as other losses of $21 million, primarily due to unfavorable currency.

These losses were partially offset by the reclassification of $148 million of accumulated losses from AOCL into earnings as a result of the divestiture of our investments in FX and XIP;

and iii) $6 million in unrealized losses, net.

Refer to our discussion of Pension Plan Assumptions in the Application of Critical Accounting Policies section of the MD&A as well as Note 18 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding changes in our defined benefit plans.

Refer to Note 16 - Financial Instruments in the Consolidated Financial Statements for additional information regarding our foreign currency derivatives and associated unrealized gains and losses.

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New Business Strategy/Segment Reporting

In January 2021 we announced our intention to stand up our Software, Financing and Innovation businesses as separate units by 2022.

During 2021, the operations and financial results for these units continued to be primarily managed by and reported in our “go-to-market” (GTM) sales channels and we did not have discrete and complete financial information for these new businesses.

Accordingly, the chief operating decision maker (CODM) continued to manage the Company’s operations, including the products and services from these new units, primarily through the GTM sales channels and as a result, we continued to have one operating and reportable segment.

Based on our efforts in 2021, as of year-end these new businesses have largely been stood-up as separate units and we will proceed with these efforts in 2022 and provide additional information related to these businesses during the year.

Accordingly, as a result of this effort, we will be reassessing our operating and reportable segments in 2022 and a revision of our segment reporting is expected in 2022.

Recent Accounting Pronouncements

Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for a description of recent accounting pronouncements including the respective dates of adoption and the effects on results of operations and financial conditions.

Refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies in the Consolidated Financial Statements for a description of recent accounting pronouncements including the respective dates of adoption and the effects on results of operations and financial conditions.

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Reportable Segments

Our business is organized to ensure we focus on efficiently managing operations while serving our customers and the markets in which we operate.

We have two operating and reportable segments – Print and Other and Financing (FITTLE) .

Refer to Note 4 - Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information regarding our reportable segments.

Segment Review

Year Ended December 31,

(in millions) External Revenue Intersegment Revenue (1)

Total Segment Revenue % of Total Revenue Segment Profit Segment Margin (2)

Print and Other $ 6,509 $ 158 $ 6,667 92 % $ 238 3.7 %

Financing (FITTLE) 598 12 610 8 % 37 6.2 %

Total $ 7,107 $ 170 $ 7,277 100 % $ 275 3.9 %

Print and Other $ 6,355 $ 193 $ 6,548 90 % $ 293 4.6 %

Financing (FITTLE) 683 12 695 10 % 82 12.0 %

Total $ 7,038 $ 205 $ 7,243 100 % $ 375 5.3 %

Print and Other $ 6,290 $ 199 $ 6,489 90 % $ 461 7.3 %

Financing (FITTLE) 732 12 744 10 % 3 0.4 %

Total $ 7,022 $ 211 $ 7,233 100 % $ 464 6.6 %

_____________

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

(2) Segment margin based on external revenue only.

Print and Other

Print and Other includes 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.

Year Ended December 31, % Change

(in millions) 2022 2021 2020 2022 2021

Equipment sales $ 1,602 $ 1,554 $ 1,541 3.1% 0.8%

Post sale revenue 4,907 4,801 4,749 2.2% 1.1%

Intersegment revenue (1)

158 193 199 (18.1)% (3.0)%

Total Print and Other Revenue $ 6,667 $ 6,548 $ 6,489 1.8% 0.9%

_____________

(1) Reflects revenue, primarily commissions and other payments, made by the Financing (FITTLE) segment to the Print and Other segment for the lease of Xerox equipment placements.

Print and Other revenue increased 1.8% for the year ended December 31, 2022, as compared to 2021, primarily due to higher Post sale revenue as well as higher Equipment sales.

Print and Other revenue increased 0.9% for the year ended December 31, 2021, as compared to 2020, primarily due to higher Post sale revenue.

Print and Other segment revenue results included the following:

Equipment Sales Revenue

• For the year ended December 31, 2022, Equipment sales revenue increased 3.1% as compared to 2021, reflecting higher demand, primarily for our Mid-range products, and improvement in product availability in both the Americas and EMEA regions.

Backlog 1 declined meaningfully on a year-over-year basis, but remained above pre-pandemic levels.

• For the year ended December 31, 2021, Equipment sales revenue increased 0.8% as compared to 2020, primarily reflecting higher revenue from EMEA, as the impact of supply chain disruptions was offset by higher demand from our indirect channels serving the small and mid-sized markets, and from large

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government deals (in Europe and certain developing market regions).

These revenues were partially offset by the adverse impact of product supply constraints (consistent with market-wide shortages of computer chips and resins) and global freight disruptions, which were further amplified by labor shortages within the transportation industry, as well as lower revenues from our Americas operations as shipping and logistics disruptions were more prevalent in the U.S.

than other markets.

______________

(1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be

installed, including orders with future installation dates.

It includes printing devices as well as IT hardware associated with our IT service offerings.

Backlog at December 31, 2022 of $246 million excludes sales orders from Russia and Powerland Computers, Ltd., which was acquired in the first quarter of 2022.

Post Sale Revenue

• For the year ended December 31, 2022, Post sale revenue increased by 2.2% as compared to 2021 primarily driven by growth in our IT Services business, including our recent acquisition of Powerland as well as growth in supplies and paper revenue and Contractual Print Services 1 , which includes the acquisition of Go Inspire.

These increases were partially offset by the adverse impacts from currency, lower royalty income and third-party leasing commissions as compared to 2021.

• For the year ended December 31, 2021, Post sale revenue increased 1.1% as compared to 2020 primarily driven by higher supplies and paper revenues as well as modestly higher page volumes consistent with the gradual reopening of workplaces and higher IT revenues.

The positive impacts were partially offset by lower royalty revenue as well as a lower net population of devices.

_____________

(1) Represents revenues from service, maintenance and rentals.

Detail by product group is shown below:

Revenue % Change CC % Change % of Equipment Revenue

(in millions) 2022 2021 2020 2022 2021 2022 2021 2022 2021 2020

Entry $ 280 $ 282 $ 228 (0.7)% 23.7% 3.6% 22.2% 17% 18% 14%

Mid-range 1,030 972 986 6.0% (1.4)% 9.7% (2.9)% 64% 62% 63%

High-end 295 304 325 (3.0)% (6.5)% 0.8% (7.7)% 18% 19% 21%

Other 19 23 25 (17.4)% (8.0)% (17.4)% (8.0)% 1% 1% 2%

Equipment sales (1)(2)

$ 1,624 $ 1,581 $ 1,564 2.7% 1.1% 6.6% (0.4)% 100% 100% 100%

_____________

CC - See "Currency Impact" section for description of constant currency.

(1) Refer to the Products and Offerings Definitions section.

(2) Includes equipment sales related to the Financing (FITTLE) segment of $22 million, $27 million and $23 million for the three years ended December 31, 2022, 2021 and 2020 respectively.

The change at constant currency 1 reflected the following:

• For the year ended December 31, 2022, the increase, as compared to 2021, was driven by growth in color devices, and overall price increases, partially offset by the impacts of supply constraints, which most significantly affected our black-and-white devices, and lower sales in the developing regions of EMEA, including lower sales associated with halting shipments to Russia.

• For the year ended December 31, 2021, the increase, as compared to 2020, was driven by higher demand for our lower-end printers and MFPs through our indirect channels primarily in EMEA as well as in the Americas, which included markedly higher installs related to government deals in the developing regions of EMEA.

We also saw higher demand for entry devices associated with hybrid work environments.

While sales increased across this portfolio, we experienced an unfavorable mix from significantly higher sales of our lower-end black-and-white devices.

• For the year ended December 31, 2022, the increase, as compared to 2021, was primarily driven by improved product availability, price increases, and a more favorable product mix toward color devices in both the Americas and EMEA regions.

• For the year ended December 31, 2021, the decrease, as compared to 2020, was primarily driven by the significant impact of global product supply constraints and freight disruptions that had a more severe effect on our U.S.

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• For the year ended December 31, 2022, the increase, as compared to 2021, was primarily driven by a favorable mix toward color devices, higher sales in our channels in the U.S.

and Canada and increased product availability, partially offset by lower sales of mono devices and lower sales in the developing regions of EMEA, as well as the impact of global product supply constraints and freight disruptions.

• For the year ended December 31, 2021, the decrease, as compared to 2020, primarily reflected the impact of global product supply constraints and freight disruptions, resulting in lower sales of color systems in the U.S., as well as lower sales of larger color production engines, which continued to be depressed as a result of our customers' delayed capital investment decisions.

These negative impacts were partially offset by improvement in sales of devices in the lower-end of the range and to customers in the small and mid-sized markets, as well as higher sales of black-and-white systems corresponding with our customers' refresh cycles.

_____________

(1) See "Currency Impact" section for description of constant currency.

Total Installs

Installs reflect only new placements of devices (i.e., this measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations).

Installs include activity for Xerox and non-Xerox branded products installed by our XBS sales unit.

Detail by product group (see Products and Offerings Definitions ) is shown below.

Installs for the year ended December 31, 2022 were:

• 37% increase in color multifunction devices reflecting higher demand for devices at the lower end of the portfolio and increased product availability, primarily in the EMEA region.

• 34% decrease in black-and-white multifunction devices primarily due to higher prior year installs in the developing regions of EMEA associated with work-from-home demand, resulting from the COVID-19 pandemic, and halting shipments to Russia, as well as ongoing product constraints.

• 9% increase in mid-range color installs primarily in EMEA, reflecting higher installs of our recently launched new-generation of ConnectKey multi-function printers, as well as increased installs of our PrimeLink entry-production color devices in the fourth quarter of 2022.

• 13% decrease in black-and-white installs, primarily in the developing regions of EMEA, reflecting the impact of freight disruption and product supply constraints.

• 3% decrease in color installs, primarily in EMEA, reflecting the impact of global product constraints and freight disruptions, partially offset by higher installations of our Baltoro cut-sheet inkjet devices.

• 15% decrease in black-and-white systems, primarily in the Americas region, reflecting the impact of global product constraints and freight disruptions.

Installs for the year ended December 31, 2021 were:

• 7% increase in color multifunction devices reflecting higher installs of color personal devices at the low-end of the portfolio and higher installs of ConnectKey devices through our indirect channels in EMEA and North America.

• 36% increase in black-and-white multifunction devices reflecting higher activity from low-end devices through indirect channels in developing regions in EMEA, which included large order government deals, and in the Americas.

Mid-Range (1)

• 8% increase in mid-range color installs primarily in EMEA, reflecting higher installs of our recently launched new-generation of ConnectKey multi-function printers, as well as our PrimeLink entry-production color devices.

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• 7% increase in mid-range black-and-white installs reflecting higher installs of our recently launched new generation of ConnectKey multi-function devices, as well as our PrimeLink entry production black-and-white devices.

• 12% increase in high-end color installs reflecting primarily growth from our lower-end Versant devices as well as our Iridesse and iGen production systems.

• 19% increase in high-end black-and-white systems reflecting higher installs of our Nuvera devices primarily related to cyclical account refreshes in the U.S and EMEA.

_____________

(1) Mid-range and High-end color installations exclude FUJIFILM Business Innovation Corp.

digital front-end sales;

including FUJIFILM Business Innovation Corp.

digital front-end sales, Mid-range color devices increased 8% for the year ended December 31, 2021, while High-end color systems increased 12% for the year ended December 31, 2021.

Product and Offerings Definitions

Our Equipment sale product groupings are as follows:

• “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 product groups 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.

Segment Margin

Print and Other segment margin of 3.7% for the year ended December 31, 2022 decreased 0.9-percentage points as compared to 2021.

The decrease is primarily due to lower segment gross profit, which includes the impacts of higher freight and production costs associated with product supply constraints, as well as the benefits from temporary government assistance and furlough measures in the prior year, and lower royalty revenues and third-party leasing commissions, partially offset by higher revenues, lower selling expense, reduced RD&E, and productivity and cost savings associated with Project Own It transformation actions.

Print and Other segment margin of 4.6% for the year ended December 31, 2021 decreased 2.7-percentage points as compared to 2020.

The decrease is primarily due to lower segment gross profit, which reflects the negative impact of supply chain disruptions, including higher shipping and logistics costs and an unfavorable mix of equipment revenue due to product constraints, as well as lower royalty revenue and lower savings from temporary government assistance and furlough measures.

These unfavorable factors were partially offset by lower bad debt expense due to a higher provision in the prior year, as well as cost and expense reductions associated with our Project Own It transformation actions.

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Financing (FITTLE)

Financing (FITTLE) represents a global financing solutions business, primarily enabling the sale of our equipment and services.

Year Ended December 31,

(in millions) 2022 2021 2020 %

Equipment sales $ 22 $ 27 $ 23 (18.5)% 17.4%

Financing 207 221 226 (6.3)% (2.2)%

What changed 10-K

Item 7. Management’s Discussion and Analysis