Xerox Holdings Corp 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Throughout the Management’s Discussion and Analysis (MD&A) that follows, references to "Xerox Holdings" refer to Xerox Holdings Corporation and its consolidated subsidiaries, while references to "Xerox" refer to Xerox Corporation and its consolidated subsidiaries. References herein to “we,” "us," “our,” or the “Company,” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise. References to “Xerox Holdings Corporation” refer to the stand-alone parent company and do not include its subsidiaries. References to “Xerox Corporation” refer to the stand-alone company and do not include its subsidiaries. Currently, Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations. Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition. Throughout this combined Form 10-K, references are made to various notes in the Consolidated Financial Statements which appear in Part II, Item 8 of this combined Form 10-K, and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made. Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established in 2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. Xerox Ventures LLC had investments of approximately $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 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. ______________ (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. 2023 Outlook 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 Table of Contents 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. _____________ (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 With annual revenues of approximately $7.1 billion, we remain a leading global provider of digital print technology and related services, software and solutions. Our primary offerings span four main areas: Workplace Solutions, Production Solutions, Xerox Services and FITTLE. • Workplace Solutions includes two strategic product groups, Entry and Mid-Range, much of which share common solutions, apps and ConnectKey® software. Workplace Solutions revenues include the sale of products (captured primarily as equipment sales) as well as the supplies and associated technical services and the financing of those products through FITTLE (captured as post sale revenue). • Production Solutions are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements. Our broad portfolio of presses and solutions provides full-color, on-demand printing of a wide range of applications. Xerox 2022 Annual Report 29 Table of Contents • Xerox Services includes a continuum of solutions and services that helps our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. Our primary offerings in this area are Managed Print Services (MPS), Capture & Content Services (CCS) and Customer Engagement Services (CES) as well as IT Services. CCS and CES encompass a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services. • FITTLE 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. 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. _____________ (1) Free cash flow is Net cash provided by operating activities less Capital expenditures. Post-sale Based Business Model 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 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 Table of Contents 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 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. Financial Overview 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 attributable to Xerox Holdings $ (322) $ (455) $ 192 $ 133 $ (647) Adjusted (1) Net income attributable to Xerox Holdings 189 293 313 (104) (20) 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. _____________ (1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure. Xerox 2022 Annual Report 31 Table of Contents 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 Revenue 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 % Profit 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. Currency Impact To understand the trends in the business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as "constant currency", “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate and is calculated for all countries where the functional currency is the local country currency. We do not hedge the translation effect of revenues or expenses denominated in currencies where the local currency is the functional currency. Management believes the constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference between actual growth rates and constant currency growth rates. Approximately 45% of our consolidated revenues are derived from operations outside of the U.S. where the U.S. Dollar is normally not the functional currency. As a result, foreign currency translation had a 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 Table of Contents Application of Critical Accounting Policies In preparing our Consolidated Financial Statements and accounting for the underlying transactions and balances, we apply various accounting policies. Senior management has discussed the development and selection of the critical accounting policies, estimates and related disclosures included herein with the Audit Committee of the Xerox Holdings Board of Directors. We consider the policies discussed below as critical to understanding our Consolidated Financial Statements, as their application places the most significant demands on management's judgment, since financial reporting results rely on estimates of the effects of matters that are inherently uncertain. In instances where different estimates could have reasonably been used, we disclosed the impact of these different estimates on our operations. In certain instances, such as revenue recognition for leases, the accounting rules are prescriptive; therefore, it would not have been possible to reasonably use different estimates. Changes in assumptions and estimates are reflected in the period in which they occur. The impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period. 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 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 . 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. Specifically, the revenue related to the following areas involves significant judgments and estimates: Bundled Lease Arrangements : We sell our equipment direct to end customers under bundled lease arrangements, which typically include the equipment, service, supplies and a financing component for which the customer pays a single negotiated fixed minimum monthly payment for all elements over the contractual lease term. These arrangements also typically include an incremental, variable component for page volumes in excess of the contractual page volume minimums, which are often expressed in terms of price-per-image or page. Lease deliverables include the equipment and financing, while the non-lease deliverables generally consist of the services, which include supplies. Sales made under bundled lease arrangements directly to end customers 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. The allocation of revenue among the elements – equipment vs. post sale (service, supplies and financing) – has remained fairly consistent at approximately 25% and 75%, respectively, over the past three years. Sales to Distributors and Resellers : We utilize distributors and resellers to sell many of our products, supplies and parts to end-user customers. Sales to distributors and resellers are generally recognized as revenue when products are shipped to such distributors and resellers. Distributors and resellers participate in various discount, rebate, price-support, cooperative marketing and other programs, and we record provisions and allowances for these programs as a reduction to revenue when the sales occur. Similarly, we also record estimates for sales returns and other discounts and allowances when the sales occur. We consider various factors, including a review of specific transactions and programs, historical experience and market and economic conditions when calculating these provisions and allowances. Total sales of equipment, supplies and parts to distributors and resellers were $1,222 million for the year ended December 31, 2022 and provisions, and allowances recorded on these sales were approximately 28% of the associated gross revenues. Allowance for Doubtful Accounts and Credit Losses The allowance for doubtful accounts and credit losses is based on an assessment of historical collection experience as well as consideration of current and future economic conditions and changes in our customer-specific collection trends. Our methodology includes an expected loss model that incorporates an assessment of current and future economic conditions. We recorded bad debt provisions of $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. 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 Xerox 2022 Annual Report 33 Table of Contents 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. 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 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 We sponsor defined benefit pension plans in various forms in several countries covering employees who meet eligibility requirements. Where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefit accruals for future service, including our primary U.S. defined benefit plan for salaried employees, the Canadian Salary Pension Plan and the U.K. Final Salary Pension Plan. In certain Non-U.S. plans, we are required to continue to consider salary increases and inflation in determining the benefit obligation related to prior service. Our pension plan in the Netherlands 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 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. These factors include assumptions we make about the expected return on plan assets, discount rate, lump-sum settlement rates, the rate of future compensation increases and mortality. Differences between these assumptions and actual experiences are reported as net actuarial gains and losses and are subject to amortization to net periodic benefit cost over future periods. Cumulative net actuarial losses for our defined benefit pension plans of $1.9 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. The total actuarial loss at December 31, 2022 is subject to offsetting gains or losses in the future due to both changes in actuarial assumptions and future experience and will be recognized in future periods through amortization or settlement losses. We used a consolidated weighted average expected rate of return on plan assets of 3.9% for 2022, 3.9% for 2021 and 4.1% for 2020, on a worldwide basis. 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. In the U.S. and the U.K., which comprise approximately 75% of our PBO, we consider yield curves derived from Moody's Aa or better rated Corporate Bonds Xerox 2022 Annual Report 34 Table of Contents and U.K. Corporate bonds rated AA by at least one of the main ratings agencies, respectively, in the determination of the appropriate discount rate assumptions. The consolidated weighted average discount rate we used to measure our pension obligations as of December 31, 2022 and to calculate our 2023 expense was 4.7%; 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 the U.S. and non-U.S. regions. Holding all other assumptions constant, the following table summarizes the estimated impacts of a 0.25% change in the discount rate and a 0.25% change in the expected return on plan assets: Discount Rate Expected Return (in millions) 0.25% Increase 0.25% Decrease 0.25% Increase 0.25% Decrease Increase/(Decrease) 2023 Projected net periodic pension cost $ (2) $ 1 $ (15) $ (15) Projected benefit obligation as of December 31, 2022 (265) 255 N/A N/A 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. We recognize the losses associated with these settlements immediately upon the settlement of the vested benefits. Settlement accounting requires us to recognize a pro-rata portion of the aggregate unamortized net actuarial losses upon settlement. As noted above, cumulative unamortized net actuarial losses were $1.9 billion at December 31, 2022, of which the U.S. primary domestic plans, with a lump-sum feature, represented approximately $600 million. The pro-rata factor is computed as the percentage reduction in the projected benefit obligation due to the settlement of a participant ' s vested benefit. Settlement accounting is only applied when the event of settlement occurs - i.e., the lump-sum payment is made. Since settlement is dependent on an employee's decision and election, the level of settlements and the associated losses can fluctuate significantly from period to period. During the three years ended December 31, 2022, 2021 and 2020, U.S. 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 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: Estimated Actual (in millions) 2023 2022 2021 2020 Defined benefit pension plans (1) $ (10) $ (47) $ (64) $ 5 U.S. settlement losses 55 56 54 53 Defined contribution plans (2) 35 37 18 19 Retiree health benefit plans (3) (15) (3) (55) (63) Total Benefit Plan Expense $ 65 $ 43 $ (47) $ 14 _____________ (1) Excludes U.S. settlement losses. (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. 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: Estimated Actual (in millions) 2023 2022 2021 2020 U.S. Defined benefit pension plans $ 50 $ 24 $ 24 $ 35 Non-U.S. Defined benefit pension plans 25 81 111 104 Defined contribution plans (1) 35 17 18 19 Retiree health benefit plans 25 19 25 25 Total Benefit Plan Funding $ 135 $ 141 $ 178 $ 183 _____________ (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 Table of Contents 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. 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. Income Taxes We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. Our provision is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our provision will change based on discrete or other nonrecurring events such as audit settlements, tax law changes, changes in valuation allowances, etc., that may not be predictable. We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and the amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. We apply judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, we considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Refer to Note 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 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. The following is a summary of gross deferred tax assets and the related valuation allowances for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, (in millions) 2022 2021 2020 Gross deferred tax assets $ 1,138 $ 1,062 $ 1,379 Valuation allowance (366) (357) (396) Net deferred tax assets $ 772 $ 705 $ 983 We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based upon our assessment of the more-likely-than-not outcomes of such matters. In addition, when applicable, we adjust the previously recorded tax expense to reflect examination results. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate, as well as impact our operating results. 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 Table of Contents Business Combinations and Goodwill We allocate the fair value of purchase consideration to tangible assets, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to Goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows of acquired customers, development of new offerings, acquired technology and trade names from a market participant perspective, as well as estimates of useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable and when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to Goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Refer to Note 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, 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. 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. Our review of impairment starts with an assessment of qualitative factors to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair value of the Company is less than the net book value. Our qualitative assessment of the recoverability of Goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below our net book value. After assessing the totality of events and circumstances, if we determine that it is not more-likely-than-not that the fair value of the Company is less than its net book value, no further assessment is performed. If we determine that it is more-likely-than-not that the fair value of the Company is less than net book value or if we elect to bypass the qualitative assessment, we proceed to a quantitative assessment or test of Goodwill. If a quantitative assessment of Goodwill is required, the determination of the fair value of the Company will involve the use of significant estimates and assumptions. Our quantitative Goodwill impairment test uses both the income approach and the market approach to estimate fair value. The income approach is based on the discounted cash flow method that uses the Company's estimates of forecasted future financial performance including revenues, gross margins, operating expenses, and taxes, as well as working capital and capital asset requirements. These estimates are developed as part of our long-term planning process based on assumed market segment growth rates and our assumed market segment share, estimated costs based on historical data and various internal estimates. Projected cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated market weighted-average cost of capital, as well as any risks unique to the subject cash flows. When performing our market approach, we rely specifically on the guideline public company method. Our guideline public company method incorporates revenues and earnings multiples from publicly traded companies with operations and other characteristics similar to our entity. The selected multiples consider our entity's growth, profitability, size and risk relative to those of the selected publicly traded companies. 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 Table of Contents 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. 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. Xerox 2022 Annual Report 38 Table of Contents 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 Table of Contents Revenue Results Summary Total Revenue Revenue for the three years ended December 31, 2022, 2021 and 2020 was as follows: Revenue % Change CC % Change % of Total Revenue (in millions) 2022 2021 2020 2022 2021 2022 2021 2022 2021 2020 Equipment sales $ 1,624 $ 1,581 $ 1,564 2.7 % 1.1 % 6.6 % (0.4) % 23 % 22 % 22 % Post sale revenue 5,483 5,457 5,458 0.5 % — % 4.2 % (1.7) % 77 % 78 % 78 % Total Revenue $ 7,107 $ 7,038 $ 7,022 1.0 % 0.2 % 4.8 % (1.4) % 100 % 100 % 100 % Reconciliation to Consolidated Statements of (Loss) Income: Sales $ 2,800 $ 2,582 $ 2,449 8.4 % 5.4 % 12.2 % 3.9 % Less: Supplies, paper and other sales (1,176) (1,001) (885) 17.5 % 13.1 % 21.0 % 11.5 % Equipment sales $ 1,624 $ 1,581 $ 1,564 2.7 % 1.1 % 6.6 % (0.4) % Services, maintenance and rentals $ 4,100 $ 4,235 $ 4,347 (3.2) % (2.6) % 0.6 % (4.3) % Add: Supplies, paper and other sales 1,176 1,001 885 17.5 % 13.1 % 21.0 % 11.5 % Add: Financing 207 221 226 (6.3) % (2.2) % (2.9) % (4.1) % Post sale revenue $ 5,483 $ 5,457 $ 5,458 0.5 % — % 4.2 % (1.7) % Segments 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 % EMEA 2,291 2,434 2,246 (5.9) % 8.4 % 4.1 % 4.6 % 32 % 35 % 32 % Other 178 172 187 3.5 % (8.0) % 3.5 % (8.0) % 3 % 2 % 3 % Total Revenue (2) $ 7,107 $ 7,038 $ 7,022 1.0 % 0.2 % 4.8 % (1.4) % 100 % 100 % 100 % _____________ CC - See "Currency Impact" section for description of constant currency. (1) Refer to the "Reportable Segments" section. (2) Refer to the "Geographic Sales Channels" section. Revenue 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 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. 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 Table of Contents 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 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. Total revenues included the following: Post sale revenue Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page. Post sale revenue also includes transactional IT hardware sales and implementation services. 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. Post sale revenue is comprised of the following: 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. This increase at constant currency 1 primarily reflected higher supplies and paper revenues consistent with the gradual reopening of workplaces, which drove higher demand. We also saw a marginal improvement in inventories carried by channel partners, as confidence in the recovery continued to moderately improve. Paper revenue increased $18 million in 2021 as compared to 2020. Xerox 2022 Annual Report 41 Table of Contents Financing revenue is generated from financed equipment sale transactions. • 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. (2) Includes revenues from service, maintenance and rentals. Equipment sales revenue 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. Demand increased during the year as businesses reopened, resulting in a backlog 2 of orders at the end of 2021 that was nearly 150% higher than the prior year and higher than pre-pandemic levels. The supply chain disruption most significantly impacted the availability of our mid-range and high-end devices, causing a negative mix impact on total Equipment sales revenue. Equipment sales revenue increased in EMEA, as the impact of supply chain disruptions was offset by higher demand from our indirect channels serving 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. 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, Brazil and Central and South America. • EMEA , which includes our sales channels in Europe, the Middle East, Africa and India. • 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 Table of Contents Costs, Expenses and Other Income Summary of Key Financial Ratios The following is a summary of our key financial ratios used to assess our performance: Year Ended December 31, (in millions) 2022 2021 2020 2022 B/(W) 2021 B/(W) Gross Profit $ 2,318 $ 2,403 $ 2,626 $ (85) $ (223) RD&E 304 310 311 6 1 SAG 1,760 1,718 1,851 (42) 133 Equipment Gross Margin 25.1 % 24.2 % 27.4 % 0.9 pts. (3.2) pts. Post sale Gross Margin 34.9 % 37.0 % 40.3 % (2.1) pts. (3.3) pts. Total Gross Margin 32.6 % 34.1 % 37.4 % (1.5) pts. (3.3) pts. RD&E as a % of Revenue 4.3 % 4.4 % 4.4 % 0.1 pts. — pts. SAG as a % of Revenue 24.8 % 24.4 % 26.4 % (0.4) pts. 2.0 pts. Pre-tax (Loss) Income (1) $ (328) $ (475) $ 252 $ 147 $ (727) Pre-tax (Loss) Income Margin (1) (4.6) % (6.7) % 3.6 % 2.1 pts. (10.3) pts. Adjusted (2) Operating Profit $ 275 $ 375 $ 464 $ (100) $ (89) Adjusted (2) Operating Margin 3.9 % 5.3 % 6.6 % (1.4) pts. (1.3) pts. _____________ (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) 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. 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, 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. 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 Xerox 2022 Annual Report 43 Table of Contents to product constraints, as well as a negative 0.4-percentage points from lower royalty revenue from FUJIFILM Business Innovation Corp. Adjusted 1 Operating margin also reflected an approximate 1.1-percentage point negative impact of lower savings from temporary government assistance and furlough measures, and an approximate 0.7-percentage point unfavorable impact from lower third-party lease commissions and incremental costs associated with investments to support future growth. These unfavorable factors were partially offset by an approximate 1.5-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year, reflecting the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic. Additionally, cost and expense reductions associated with our Project Own It transformation actions favorably impacted Adjusted 1 Operating margin. _____________ (1) Refer to Operating (Loss) Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section. Gross Margin 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. The remainder of the decline reflects the impact of lower savings from temporary government assistance and furlough measures, lower royalty revenue from FUJIFILM Business Innovation Corp. and higher mix of services with lower per-page revenues. These headwinds were partially offset by the cost savings from our Project Own It transformation actions. 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. 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. Research, Development and Engineering Expenses (RD&E) Year Ended December 31, Change (in millions) 2022 2021 2020 2022 2021 R&D $ 246 $ 251 $ 257 $ (5) $ (6) Sustaining engineering 58 59 54 (1) 5 Total RD&E Expenses $ 304 $ 310 $ 311 $ (6) $ (1) 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 Table of Contents 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. 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. The remaining decrease was primarily due to the impact of lower selling expenses, as a result of cost savings and restructuring associated with our Project Own It transformation actions, and savings from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs and employee benefit programs). SAG expenses of $1,718 million for the year ended December 31, 2021 were $133 million lower than 2020, primarily reflecting lower bad debt expenses, as well as cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs), partially offset by an approximate $30 million adverse impact from translation currency, higher compensation related accruals (corresponding with higher expected operating results) and other investments in the business to support future growth, as well as the impact of lower benefits from temporary government assistance and furlough measures and higher legal expenses and expenses from prior year acquisitions. 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 Table of Contents Restructuring and Related Costs, Net 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 following is a breakdown of those costs: Year Ended December 31, (in millions) 2022 2021 2020 Restructuring and severance costs (1) $ 74 $ 30 $ 107 Asset impairments - leased right-of-use assets (2) 2 3 4 Asset impairments - owned assets (2) 15 12 2 Other contractual termination costs (3) 3 3 3 Other charges/credits (4) (32) (21) (29) Restructuring and asset impairment costs 62 27 87 Retention-related severance/bonuses (5) — 6 4 Contractual severance costs (6) 3 1 (2) Consulting and other costs (7) — 4 4 Total $ 65 $ 38 $ 93 _____________ (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 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 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. 2022 actions impacted several functional areas, with approximately 40% focused on gross margin improvements and approximately 55% focused on SAG reductions, and the remainder focused on RD&E optimizations. We expect 2023 pre-tax savings of approximately $57 million from our 2022 restructuring actions. 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 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, 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 Table of Contents 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 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. Worldwide Employment 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 Year Ended December 31, (in millions) 2022 2021 2020 Non-financing interest expense $ 91 $ 96 $ 94 Interest income (11) (4) (14) Non-service retirement-related costs (12) (89) (29) Gains on sales of businesses and assets (56) (40) (30) Currency losses, net 13 7 3 Loss on early extinguishment of debt 5 — 26 Litigation matters 4 2 (1) Contract termination costs 33 — 3 Excess contribution refund (16) — — Tax indemnification from Conduent — — (9) All other expenses, net 12 4 2 Other expenses, net $ 63 $ (24) $ 45 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. NOTE : 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, 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 Table of Contents 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. NOTE: 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 $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. 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. 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 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. Xerox 2022 Annual Report 48 Table of Contents Income Taxes 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%. On an adjusted 1 basis, the 2021 effective tax rate was 6.5%. Both rates were lower than the U.S. statutory tax rate of 21% primarily due to the benefits from tax law changes, additional incentives as a result of changes in elections made with the filed tax returns, the decrease in deferred tax valuation allowances as well as the remeasurement of uncertain tax positions. The 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%. On an adjusted 1 basis, the 2020 effective tax rate was 26.3%. These rates were higher than the U.S. statutory tax rate of 21% primarily due to state taxes, non-deductible items on lower pre-tax income and an increase in deferred tax asset valuation allowances partially offset by the impact from various tax law changes. Xerox operations are widely dispersed. However, no one country outside of the U.S. is a significant factor in determining our overall effective tax rate. The tax impact from these non-U.S. operations on our full-year effective tax rate for 2022 was (0.1)%. Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the geographic mix of income before taxes and the related impacts on our effective tax rate. Our effective tax rate is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our effective tax rate will change based on discrete or other nonrecurring events that may not be predictable. _____________ (1) Refer to the Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section. Equity in Net Income of Unconsolidated Affiliates 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. _____________ (1) Refer to the Net (Loss) Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section. Xerox 2022 Annual Report 49 Table of Contents 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: i) $489 million of net gains from the changes in defined benefit plans primarily due to remeasurement and net actuarial gains as a result of higher discount rates, as well as the favorable impact of currency; ii) $141 million of net translation adjustment losses reflecting the weakening of our major foreign currencies against the U.S. Dollar during 2021; and iii) $4 million in unrealized losses, net. Other comprehensive income attributable to Xerox was $314 million in 2020 and included the following: i) net translation adjustment gains of $241 million reflecting the strengthening of our major foreign currencies against the U.S. Dollar during 2020; ii) $69 million of net gains from changes in defined benefit plans primarily reflecting net actuarial gains due to actual returns in excess of expected returns offsetting the impacts from lower discount rates as well as the amortization or recognition through settlement losses of accumulated losses from AOCL. These impacts were partially offset by other losses, primarily due to unfavorable currency; and iii) $4 million in unrealized gains, net. 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. Recent Accounting Pronouncements 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. Xerox 2022 Annual Report 50 Table of Contents 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) 2022 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 % 2021 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 % 2020 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. Revenue 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 Xerox 2022 Annual Report 51 Table of Contents 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: Entry • 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. Mid-range • 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. operations. These negative impacts were partially offset by higher demand consistent with the gradual reopening of workplaces, as compared to business shutdowns that reduced purchases of office devices in the prior year. Xerox 2022 Annual Report 52 Table of Contents High-end • 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). 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 Products and Offerings Definitions ) is shown below. Installs for the year ended December 31, 2022 were: Entry • 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. Mid-Range • 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. High-End • 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: Entry • 7% increase in color multifunction devices reflecting higher installs of color personal devices at the low-end of the portfolio and higher installs of ConnectKey devices through our indirect channels in EMEA and North America. • 36% increase in black-and-white multifunction devices reflecting higher activity 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. Xerox 2022 Annual Report 53 Table of Contents • 7% increase in mid-range black-and-white installs reflecting higher installs of our recently launched new generation of ConnectKey multi-function devices, as well as our PrimeLink entry production black-and-white devices. High-End (1) • 12% increase in high-end color installs reflecting primarily growth from our lower-end Versant devices as well as our Iridesse and iGen production systems. • 19% increase in high-end black-and-white systems reflecting higher installs of our Nuvera devices primarily related to cyclical account refreshes in the U.S and EMEA. _____________ (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. Xerox 2022 Annual Report 54 Table of Contents Financing (FITTLE) Financing (FITTLE) represents a global financing solutions business, primarily enabling the sale of our equipment and services. Revenue Year Ended December 31, (in millions) 2022 2021 2020 % Change % Change Equipment sales $ 22 $ 27 $ 23 (18.5)% 17.4% Financing 207 221 226 (6.3)% (2.2)% Other Post sale revenue (1) 369 435 483 (15.2)% (9.9)% Intersegment revenue (2) 12 12 12 —% —% Total Financing (FITTLE) Revenue $ 610 $ 695 $ 744 (12.2)% (6.6)% _____________ (1) Other Post sale revenue includes operating lease/rental revenues as well as lease renewal and fee income. (2) 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. Financing (FITTLE) revenue decreased 12.2% for the year ended December 31, 2022, as compared to 2021, and decreased 6.6% for the year ended December 31, 2021 as compared to 2020. The decrease in revenue for both years was primarily due to lower Other Post sale revenue. Financing (FITTLE) segment revenues included the following: Equipment Sales • For the year ended December 31, 2022, revenue from used equipment sales decreased 18.5%, as compared to 2021, primarily due to reduced end of lease equipment inventory. • For the year ended December 31, 2021, used equipment sales revenue increased 17.4%, as compared to 2020, primarily due to a rebound in economic activity. Financing Revenue • For the year ended December 31, 2022, Financing revenue decreased 6.3%, as compared to 2021, due to a lower average finance receivables balance, as collections continue to outpace originations, and lower Print and Other equipment sales in prior periods. Originations have been impacted by the global product supply constraints and freight disruptions. • For the year ended December 31, 2021, Financing revenue decreased 2.2%, as compared to 2020, primarily reflecting a lower finance receivables balance due to the run-off of our lease portfolio and lower equipment sales in prior periods, as well as 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 lease penetration from our XBS sales unit. Other Post sale revenue • For the year ended December 31, 2022, Other Post sale revenue decreased 15.2%, as compared to 2021, primarily due to a decline in operating lease rental income, which is consistent with lower equipment installs. • For the year ended December 31, 2021, Other Post sale revenue decreased 9.9%, as compared to 2020, primarily due to a decline in operating lease rental income, which is consistent with lower equipment installs. Segment Margin Financing (FITTLE) segment margin of 6.2% for the year ended December 31, 2022 decreased 5.8-percentage points, as compared to 2021, primarily due to lower revenues, higher bad debt expense, including reserve releases of approximately $31 million in 2021, and incremental costs associated with standing up the business, including the Receivables Funding Agreement, partially offset by a reduction in commissions paid to equipment suppliers (primarily the Print and Other segment). Financing (FITTLE) segment margin of 12.0% for the year ended December 31, 2021 increased 11.6-percentage points, as compared to 2020, primarily due to the release of COVID-19 related reserves and improved economic activity in 2021 driving up activity-based revenues. Xerox 2022 Annual Report 55 Table of Contents Capital Resources and Liquidity Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations. Additional liquidity is also provided through access to the financial capital markets and a committed revolving credit facility, as well as through secured borrowings on our finance receivable balances and the sales and assignment of finance lease receivables. 2022 was a challenging year as revenue and profitability were impacted by an uncertain and unpredictable macroeconomic environment, which included increasing supply chain challenges through the third quarter of 2022, amongst other challenges. However, we believe we have sufficient liquidity to manage the business. The following is a summary of our liquidity position: • As of December 31, 2022, total cash, cash equivalents and restricted cash were $1,139 million and apart from restricted cash of $94 million, was readily accessible for use. • Total debt at December 31, 2022 was $3,726 million of which $2,920 million is allocated to and supports the Company's finance assets. The remaining debt of $806 million is attributable to the core business. Debt consists of senior unsecured bonds and secured borrowings through the securitization of finance assets. The Company has a balanced bond maturity ladder over the next few years and expects to repay the remaining $300 million of debt maturing this year in March 2023 with cash on hand. • During 2022, we entered into four new secured borrowing arrangements in support of our financing business increasing our secured debt borrowings to $1,042 million at December 31, 2022, from $561 million at December 31, 2021. In addition, we entered into a $600 million lease receivables sale agreement that provides a committed funding arrangement for new financed lease originations through the sale of those receivables to a third-party funder (Refer to Note 8 - Finance Receivables, Net for additional information regarding this agreement). • As of December 31, 2022, there were no borrowings or letters of credit outstanding under our $250 million Credit Facility and we were in full compliance with the covenants and other provisions of the Credit Facility. • We expect Operating cash flows to be approximately $550 million in 2023, reflecting the benefits of FITTLE's Receivables Funding Agreement. Additionally, we expect that capital expenditures will be approximately $50 million. Cash Flow Analysis The following summarizes our cash flows for the three years ended December 31, 2022, 2021 and 2020, as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements: Year Ended December 31, Change (in millions) 2022 2021 2020 2022 2021 Net cash provided by operating activities $ 159 $ 629 $ 548 $ (470) $ 81 Net cash used in investing activities (78) (85) (246) 7 161 Net cash used in financing activities (822) (1,310) (416) 488 (894) Effect of exchange rate changes on cash, cash equivalents and restricted cash (29) (16) 10 (13) (26) Decrease in cash, cash equivalents and restricted cash (770) (782) (104) 12 (678) Cash, cash equivalents and restricted cash at beginning of year 1,909 2,691 2,795 (782) (104) Cash, Cash Equivalents and Restricted Cash at End of Year $ 1,139 $ 1,909 $ 2,691 $ (770) $ (782) Cash Flows from Operating Activities Net cash provided by operating activities was $159 million for the year ended December 31, 2022. The $470 million decrease in operating cash from 2021 was primarily due to the following: • $151 million decrease in pre-tax income before depreciation and amortization, provisions, gains on sales of businesses and assets, stock-based compensation, Goodwill impairment, Restructuring and related costs, net and non-service retirement-related costs. • $231 million decrease due to higher inventory levels in anticipation of increased sales activity in the first half of 2023 as the Company continues to work down its backlog and manage continued supply chain challenges. • $144 million decrease due to a current year increase in net finance receivables of $161 million reflecting improved equipment sale activity and the financing business growth strategy offset by lower equipment on operating leases of $17 million. The $161 million use of cash in 2022 is net of $60 million received in connection with the sale of finance receivables in the fourth quarter 2022 under a Receivables Funding Agreement. Refer to Note 8 – Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding the sale of finance receivables. Xerox 2022 Annual Report 56 Table of Contents • $146 million decrease primarily due to lower royalty income as the prior year includes receipts of an upfront prepaid fixed royalty from Fuji Xerox (now known as FUJIFILM Business Innovation Corp.) of $100 million for their continued use of the Xerox brand trademark after the termination of our technology agreement with them and $46 million of royalty payments under the technology agreement prior to its termination. • $89 million decrease from accounts receivable primarily due to higher revenues partially offset by the timing of collections. • $160 million increase from accounts payable primarily due to the timing of supplier and vendor payments and higher spending as compared to the prior year. • $36 million increase from lower contributions to retirement plans primarily as a result of a $30 million decrease in required contributions to our non-U.S. plans, particularly the U.K. pension plan, as well as a $6 million decrease in retiree-health contributions. • $25 million increase from accrued compensation primarily related to the year-over-year timing of payments. • $24 million increase primarily due to lower payments associated with restructuring and related costs as a result of the timing of actions. Net cash provided by operating activities was $629 million for the year ended December 31, 2021. The $81 million increase in operating cash from 2020 was primarily due to the following: • $203 million decrease in pre-tax income before depreciation and amortization, provisions, Goodwill impairment, restructuring and related costs, net and non-service retirement-related costs. • $241 million increase from accounts payable primarily due to higher spending as compared to the prior year and the timing of supplier and vendor payments. • $222 million increase from inventory primarily due to significant cash usage in 2020 as inventory levels increased because of lower demand resulting from the COVID-19 pandemic. • $136 million increase in other current and long-term liabilities, reflecting higher accruals from the increased level of operations as compared to the prior year. • $86 million increase from accrued compensation primarily related to higher employee incentive accruals and year-over-year timing of employee incentive payments. • $57 million net increase primarily due to the receipt of an upfront prepaid fixed royalty from Fuji Xerox of $100 million for their continued use of the Xerox brand trademark subsequent to the termination of our technology agreement with them. • $22 million increase primarily due to lower payments for restructuring and related costs. • $328 million decrease from accounts receivable primarily due to a lower year-over-year decline in revenues as well as the timing of collections. • $163 million decrease from a lower net run-off of finance receivables due to an increased level of direct lease originations from our XBS sales unit as well as higher equipment sales. Cash Flows from Investing Activities Net cash used in investing activities was $78 million for the year ended December 31, 2022. The $7 million decrease in the use of cash from 2021 was primarily due to the following: • $28 million decrease from the sales of surplus buildings and land in 2022 of $25 million in the U.S and $7 million in Europe as compared to $4 million in the U.S. in the prior year. • $11 million decrease reflecting lower capital expenditures. • $10 million decrease from the sales of non-core business assets of $48 million in 2022 as compared to $38 million in the prior year. • $40 million increase from acquisitions. • Other investing, net of Xerox Holdings includes $13 million of noncontrolling investments as part of our corporate venture capital fund for 2022 as compared to $8 million in the prior year. Net cash used in investing activities was $85 million for the year ended December 31, 2021. The $161 million change in cash from 2020 was primarily due to the following: • $150 million change due to three acquisitions completed in the current year for $53 million as compared to five acquisitions in the prior year for $203 million. • $11 million increase due to proceeds from the sales of non-core business assets of $38 million in the current year as compared to $27 million in the prior year. • Other investing, net of Xerox Holdings includes $8 million of noncontrolling investments as part of our corporate venture capital fund. Xerox 2022 Annual Report 57 Table of Contents Cash Flows from Financing Activities Net cash used in financing activities for Xerox Holdings was $822 million for the year ended December 31, 2022. The $488 million decrease in the use of cash from 2021 was primarily due to the following: • $775 million decrease due to lower share repurchases in the current year. • $32 million decrease due to lower common stock dividends due to lower outstanding shares. • $321 million increase from net debt activity. 2022 reflects proceeds of $1,193 million on secured financing arrangements offset by payments of $714 million, $300 million on maturing 2022 Senior Notes and $703 million for the early partial redemption of 2023 Senior Notes, which includes a premium payment of $3 million. 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. • Other financing, net includes receipts for noncontrolling investments of $6 million in 2022 as compared to $15 million in the prior year. Net cash used in financing activities for Xerox was $835 million for the year ended December 31, 2022. 2022 reflects proceeds of $1,193 million on secured financing arrangements offset by payments of $714 million, $300 million on maturing 2022 Senior Notes and $703 million for the early partial redemption of 2023 Senior Notes, which includes a premium payment of $3 million. 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. Distributions to Xerox Holdings were $312 million and were primarily used to fund Xerox Holdings' continuing dividends to shareholders and share repurchases. Xerox's distributions to the parent are expected to continue with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases. Net cash used in financing activities for Xerox Holdings was $1,310 million for the year ended December 31, 2021. The $894 million increase in the use of cash from 2020 was primarily due to the following: • $588 million increase due to share repurchases in the current year of $888 million compared to share repurchases in the prior year of $300 million. • $341 million increase from net debt activity. 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. 2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $16 million of deferred debt issuance costs offset by proceeds of $1,507 million from a Senior Notes offering and $840 million from secured financing arrangements. • $24 million decrease due to lower common stock dividends due to lower outstanding shares. • Other financing, net includes receipts for noncontrolling investments of $5 million in Eloque, a joint venture for the remote monitoring of critical infrastructure assets and $10 million in CareAR Holdings LLC. Net cash used in financing activities for Xerox was $1,318 million for the year ended December 31, 2021. 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. 2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $3 million of deferred debt issuance costs offset by proceeds of $840 million from secured financing arrangements. Distributions to Xerox Holdings were $1,120 million and were primarily used to fund Xerox Holdings continuing dividends to shareholders and share repurchases. Xerox's distributions to the parent are expected to continue with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases. Cash, Cash Equivalents and Restricted Cash Refer to Note 14 - Supplementary Financial Information in the Consolidated Financial Statements for additional information regarding Cash, cash equivalents and restricted cash. Operating Leases We have operating leases for real estate and vehicles in our domestic and international operations and for certain equipment in our domestic operations. Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations. Our leases have remaining terms of up to twelve years and a variety of renewal and/or termination options. As of December 31, 2022 and 2021, total operating lease liabilities were $229 million and $283 million, respectively. Refer to Note 11 - Lessee in the Consolidated Financial Statements for additional information regarding our right-of-use (ROU) assets and lease obligations associated with our operating leases. Xerox 2022 Annual Report 58 Table of Contents Debt and Customer Financing Activities The following summarizes our total debt: December 31, (in millions) 2022 2021 Xerox Holdings Corporation $ 1,500 $ 1,500 Xerox Corporation 1,200 2,200 Xerox - Other Subsidiaries (1) 1,042 561 Subtotal - Principal debt balance 3,742 4,261 Debt issuance costs Xerox Holdings Corporation (9) (11) Xerox Corporation (4) (6) Xerox - Other Subsidiaries (1) (5) (1) Subtotal - Debt issuance costs (18) (18) Net unamortized premium 2 3 Total Debt $ 3,726 $ 4,246 _____________ (1) Represents secured debt issued by subsidiaries of Xerox Corporation as part of the securitization of finance receivables. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity. Finance Assets and Related Debt We provide lease equipment financing to our customers. Our lease contracts permit customers to pay for equipment over time rather than at the date of installation. Our investment in these contracts is reflected in total finance assets, net. We primarily fund our customer financing activity through cash generated from operations, cash on hand, sales and securitizations of finance receivables and proceeds from capital markets offerings. We have arrangements, in certain international countries where third-party leasing companies or financial institutions independently provide lease financing directly to our customers, on a non-recourse basis to Xerox. In these arrangements, we sell and transfer title of the equipment to these entities. Generally, we have no continuing ownership rights in the equipment subsequent to its sale; therefore, the unrelated third-party finance receivable and debt are not included in our Consolidated Financial Statements. The following represents our total finance assets, net associated with our lease and finance operations: December 31, (in millions) 2022 2021 Total finance receivables, net (1) $ 3,102 $ 3,070 Equipment on operating leases, net 235 253 Total Finance assets, net (2) $ 3,337 $ 3,323 ____________ (1) Includes (i) Billed portion of finance receivables, net, (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in our Consolidated Balance Sheets. (2) The change from December 31, 2021 includes a decrease of $92 million due to currency. Our lease contracts permit customers to pay for equipment over time rather than at the date of installation; therefore, we maintain a certain level of debt (that we refer to as financing debt) to support our investment in these lease contracts, which are reflected in Total finance receivables, net. For this financing aspect of our business, we maintain an assumed 7:1 leverage ratio of debt to equity as compared to our finance assets. Approximately 40% of our Total Finance assets, net balance at December 31, 2022 includes indirect lease financing primarily provided to end-user customers who purchased Xerox and non-Xerox equipment sold through distributors, resellers and dealers. Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt: December 31, (in millions) 2022 2021 Finance receivables debt (1) $ 2,714 $ 2,687 Equipment on operating leases debt 206 221 Financing debt 2,920 2,908 Core debt 806 1,338 Total Debt $ 3,726 $ 4,246 _____________ (1) Finance receivables debt is the basis for our calculation of “Cost of financing” expense in the Consolidated Statements of (Loss) Income. Xerox 2022 Annual Report 59 Table of Contents At December 31, 2022, leverage was assessed against the total debt of Xerox Holdings Corporation and Xerox Corporation since the debt held by Xerox Holdings Corporation is guaranteed by Xerox Corporation and the funds from that borrowing were contributed in full by Xerox Holdings Corporation to Xerox Corporation. In 2023, we expect to continue leveraging our finance assets on a total debt basis at an assumed 7:1 ratio of debt to equity. Capital Market/Debt Activity During 2022 we received $1,193 million from new secured financing arrangements and paid $714 million on existing secured financing arrangements, which included $248 million associated with the early extinguishment of an existing arrangement that was funded through a new secured financing arrangement. We also repaid $1,000 million of Senior Notes in 2022 with $700 million related to the early payment of our $1,000 million Senior Notes due in March 2023. As a result of the downgrade of our debt ratings in February 2022 by one of the rating agencies, the coupon rate on our Senior Notes due 2023 increased by 0.25% to 4.625% effective March 15, 2022. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity, as well as our secured financing arrangements. Financial Instruments Refer to Note 16 - Financial Instruments in the Consolidated Financial Statements for additional information. Sales of Accounts Receivable The net impact from the sales of accounts receivable on reported net cash flows is summarized below: Year Ended December 31, (in millions) 2022 2021 2020 Estimated increase (decrease) to net cash flows (1) $ 67 $ (26) $ (41) _____________ (1) Represents the difference between current and prior year accounts receivable sales adjusted for the effects of currency. Refer to Note 7 - Accounts Receivable, Net in the Consolidated Financial Statements for additional information regarding our accounts receivable sales arrangements. Share Repurchase Programs - Treasury Stock In October 2021, the Xerox Holdings Corporation's Board of Directors authorized a $500 million share repurchase program (exclusive of any commissions and other transaction fees and costs related thereto). During 2022, Xerox Holdings Corporation repurchased 5.2 million shares of our common stock for an aggregate cost of $113 million, including fees. There is no remaining authorization at December 31, 2022. During 2021, Xerox Holdings Corporation repurchased 40.2 million shares of our common stock for an aggregate cost of approximately $888 million, including fees. During 2020, Xerox Holdings Corporation repurchased 15.6 million shares of our common stock for an aggregate cost of $300 million, including fees. Refer to Note 22 - Shareholders' Equity in the Consolidated Financial Statements for additional information regarding our share repurchase program. Dividends Aggregate dividends of $159 million, $181 million and $209 million were declared on common stock in 2022, 2021 and 2020, respectively. The decrease in dividends since 2020 primarily reflects lower shares of common stock outstanding as a result of our share repurchase programs. Aggregate dividends of $14 million were declared on preferred stock in 2022, 2021 and 2020, respectively. Xerox 2022 Annual Report 60 Table of Contents Liquidity and Financial Flexibility We manage our worldwide liquidity using internal cash management practices, which are subject to (i) the statutes, regulations and practices of each of the local jurisdictions in which we operate, (ii) the legal requirements of the agreements to which we are a party and (iii) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services. Our principal debt maturities are in line with historical and projected cash flows and are spread over the next five years as follows: (in millions) Xerox Holdings Corporation Xerox Corporation Xerox - Other Subsidiaries (1) Total 2023 - Q1 $ — $ 300 $ 147 $ 447 2023 - Q2 — — 146 146 2023 - Q3 — — 139 139 2023 - Q4 — — 130 130 2024 — 300 368 668 2025 750 — 112 862 2026 — — — — 2027 — — — — 2028 and thereafter 750 600 — 1,350 Total $ 1,500 $ 1,200 $ 1,042 $ 3,742 _____________ (1) Represents subsidiaries of Xerox Corporation. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our debt. Contractual Cash Obligations and Other Commercial Commitments and Contingencies At December 31, 2022, we had the following contractual cash obligations and other commercial commitments and contingencies: (in millions) 2023 2024 2025 2026 2027 Thereafter Total debt (1) $ 862 $ 668 $ 862 $ — $ — $ 1,350 Interest on debt (1) 177 145 126 87 78 396 Minimum operating lease commitments (2) 86 54 38 32 17 30 Defined benefit pension plans 75 — — — — — Retiree health payments 25 21 20 18 17 68 Estimated Purchase Commitments: FUJIFILM Business Innovation Corp. (3) 1,175 — — — — — Flex (4) 115 — — — — — HCL (5) 230 188 185 46 — — TCS (6) 66 38 33 31 20 — Other (7) 117 47 31 11 1 — Total $ 2,928 $ 1,161 $ 1,295 $ 225 $ 133 $ 1,844 _____________ (1) Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding debt and interest on debt. (2) Refer to Note 11 – Lessee in the Consolidated Financial Statements for additional information related to minimum operating lease commitments. (3) FUJIFILM Business Innovation Corp.: The amount included in the table reflects our estimate of purchases over the next year and is not a contractual commitment. (4) Flex: We outsource certain manufacturing activities to Flex. The amount included in the table reflects our estimate of purchases over the next year and is not a contractual commitment. In the past two years, actual purchases from Flex averaged approximately $127 million per year. (5) HCL: Shared services arrangement with HCL Technologies. (6) TCS: Shared services arrangement with Tata Consulting Services. (7) Other purchase commitments: We enter into other purchase commitments with vendors in the ordinary course of business. Our policy with respect to all purchase commitments is to record losses, if any, when they are probable and reasonably estimable. We currently do not have, nor do we anticipate, material loss contracts. Pension and Retiree Health Benefit Plans We sponsor defined benefit pension plans and retiree health plans that require periodic cash contributions. Our 2022 cash contributions for these plans were $105 million for our defined benefit pension plans and $19 million for our retiree health plans. In 2023, based on current actuarial calculations, we expect to make contributions of approximately $75 million to our worldwide defined benefit pension plans and $25 million to our retiree health benefit plans. Approximately $25 million Xerox 2022 Annual Report 61 Table of Contents 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, non-U.S. Defined benefit pension plan contributions in 2023 do not include further contributions to our U.K. defined benefit pension plan since none are required after October 2022 following agreement of the triennial valuation of the Plan with the Plan Trustees. Contributions to our defined benefit pension plans in subsequent years will depend on a number of factors, including the investment performance of plan assets and discount rates as well as potential legislative and plan changes. Although most of our major defined benefit plans have been amended to freeze current benefits and eliminate benefit accruals for future service, several plans remain unfunded (by design) or are under-funded. The projected benefit obligations for these benefit plans at December 31, 2022 exceeded the fair value of the assets of those plans by $1,142 million, which is a decrease of $192 million from the balance at December 31, 2021, of $1,334 million. The decrease is largely due to increased discount rates and the resultant decrease in projected benefit obligations. Cash contributions to our retiree health plans are made each year to cover medical claims costs incurred during the year. The amounts reported in the above table as retiree health payments represent our estimate of future benefit payments. Our retiree health benefit plans are non-funded and are primarily related to domestic operations. The unfunded balance of our retiree health plans of $209 million at December 31, 2022 decreased $94 million from the balance at December 31, 2021, primarily due to increased discount rates, benefit payments and plan amendments to our U.S. Retiree Health plan, which further reduced future benefits and the benefit obligation. Refer to Note 18 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding contributions to our defined benefit pension and retiree health plans. FUJIFILM Business Innovation Corp. We purchased products, including parts and supplies, from FUJIFILM Business Innovation Corp. totaling $1,175 million, $966 million and $1,077 million in 2022, 2021 and 2020, respectively. Our product supply agreements with FUJIFILM Business Innovation Corp. are designed to support the entire product lifecycle, end-to-end, including the availability of spare parts, consumables and technical support throughout the time such products are with our customers. Our purchase orders under such agreements are made in the normal course of business and typically have a lead time of three months. Shared Services Arrangements In March 2019, as part of Project Own It, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including, among others, selected information technology and finance functions, from Xerox to HCL. The shared services arrangement with HCL includes a remaining aggregate spending commitment of approximately $649 million over the next 4 years. However, we can terminate the arrangement at any time at our discretion, subject to payment of termination fees that decline over the term, or for cause. In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS will provide business processing outsourcing services in support of our global finance and accounting organization. The shared services arrangement with TCS includes a remaining aggregate spending commitment of approximately $188 million over the next 5 years. We can terminate the arrangement subject to payment of termination fees that decline over the term. We incurred net charges of $220 million, $207 million and $185 million for the three years ended December 31, 2022, 2021, and 2020, respectively, related to these shared services arrangements. The cost has been allocated to the various functional expense lines in the Consolidated Statements of (Loss) Income based on an assessment of the nature and amount of the costs incurred for the various transferred functions. Brazil Contingencies Our Brazilian operations have received or been the subject of numerous governmental assessments related to indirect and other taxes. These tax matters principally relate to claims for taxes on the internal transfer of inventory, municipal service taxes on rentals and gross revenue taxes. We are disputing these tax matters and intend to vigorously defend our positions. Based on the opinion of legal counsel and current reserves for those matters deemed probable of loss, we do not believe that the ultimate resolution of these matters will materially impact our results of operations, financial position or cash flows. Refer to Note 20 - Contingencies and Litigation in the Consolidated Financial Statements for additional information regarding our Brazil Contingencies. Xerox 2022 Annual Report 62 Table of Contents Other Contingencies and Commitments As more fully discussed in Note 20 - Contingencies and Litigation in the Consolidated Financial Statements, we are involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; governmental entity contracting, servicing and procurement law; intellectual property law; environmental law; employment law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations. In addition, guarantees, indemnifications and claims may arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates. Nonperformance under a contract including a guarantee, indemnification or claim could trigger an obligation of the Company. We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Should developments in any of these areas cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on our results of operations, financial position and cash flows in the period or periods in which such change in determination, judgment or settlement occurs. Unrecognized Tax Benefits As of December 31, 2022, we had $110 million of unrecognized tax benefits. This represents the tax benefits associated with various tax positions taken, or expected to be taken, on domestic and foreign tax returns that have not been recognized in our financial statements due to uncertainty regarding their resolution. The resolution or settlement of these tax positions with the taxing authorities is at various stages and, therefore, we are unable to make a reliable estimate of the eventual cash flows by period that may be required to settle these matters. In addition, certain of these matters may not require cash settlement due to the existence of credit and net operating loss carryforwards, as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available. Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding unrecognized tax benefits. Off-Balance Sheet Arrangements We may occasionally utilize off-balance sheet arrangements in our operations (as defined by the SEC Financial Reporting Release 67 (FRR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations”). We enter into the following arrangements that have off-balance sheet elements: • We have a facility in Europe where we sell certain accounts receivables on a recurring basis. Refer to Note 7 - Accounts Receivable, Net in the Consolidated Financial Statements for further information regarding accounts receivable sales. • During 2022, the Company entered into a Master Agreement for the Sale and Assignment of Lease Receivables that establishes a committed sale and purchase facility pursuant to which the Company agreed to offer for sale certain eligible pools of finance receivables relating to equipment leases on a monthly basis in transactions intended to be true sales. In December 2022, the Company sold approximately $60 million in principal balances of lease receivables under this agreement and will continue to service those receivables for which we will earn a servicing fee. Refer to Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for further information regarding this arrangement. As of December 31, 2022, we do not believe we have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. In addition, see the preceding table for the Company's contractual cash obligations and other commercial commitments and contingencies and Note 20 - Contingencies and Litigation in the Consolidated Financial Statements for additional information regarding contingencies, guarantees, indemnifications and warranty liabilities. Xerox 2022 Annual Report 63 Table of Contents Non-GAAP Financial Measures We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below. We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below. Adjusted Earnings Measures • Adjusted Net (Loss) Income and Earnings per share ( Adjusted EPS) • Adjusted Effective Tax Rate The above measures were adjusted for the following items: Restructuring and related costs, net: Restructuring and related costs, net include restructuring and asset impairment charges as well as costs associated with our transformation programs beyond those normally included in restructuring and asset impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other strategic business changes. Additional costs for our transformation programs are primarily related to the implementation of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges since we do not believe they provide meaningful insight into our current or past operating performance, nor do we believe they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and savings with respect to our operational performance. Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods. Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets as well as those that are predominantly legacy in nature and related to employees who are no longer providing current service to the Company (e.g., retirees and ex-employees). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be outside the operational performance of the business or legacy costs and not necessarily indicative of current or future cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans. Transaction and related costs, net: Transaction and related costs, net are costs and expenses primarily associated with certain major or significant strategic M&A projects. These costs are primarily for third-party legal, accounting, consulting and other similar type professional services as well as potential legal settlements that may arise in connection with those M&A transactions. These costs are considered incremental to our normal operating charges and were incurred or are expected to be incurred solely as a result of the planned transactions. Accordingly, we are Xerox 2022 Annual Report 64 Table of Contents excluding these expenses from our Adjusted Earnings Measures in order to evaluate our performance on a comparable basis. Discrete, unusual or infrequent items: We excluded the following items given their discrete, unusual or infrequent nature and their impact on our results for the period: • Non-cash Goodwill impairment charge • Contract termination costs • Accelerated share vesting - stock compensation expense associated with 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 • Losses on early extinguishment of debt Adjusted Operating Income and Margin We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax (loss) income and margin amounts. In addition to the costs and expenses noted above as adjustments for our adjusted earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses. We exclude these amounts in order to evaluate our current and past operating performance and to better understand the expected future trends in our business. Constant Currency (CC) Refer to the Currency Impact section in the MD&A for a discussion of this measure and its use in our analysis of revenue growth. Net (Loss) Income and EPS reconciliation Year Ended December 31, 2022 2021 2020 (in millions, except per share amounts) Net (Loss) Income EPS Net (Loss) Income EPS Net Income EPS Reported (1) $ (322) $ (2.15) $ (455) $ (2.56) $ 192 $ 0.84 Adjustments: Goodwill impairment 412 781 — Restructuring and related costs, net 65 38 93 Amortization of intangible assets 42 55 56 Non-service retirement-related costs (12) (89) (29) Transaction and related costs, net — — 18 Contract termination costs 33 — 3 Accelerated share vesting 21 — — Loss on early extinguishment of debt 5 — 26 Income tax on adjustments (2) (55) (37) (46) Adjusted $ 189 $ 1.12 $ 293 $ 1.51 $ 313 $ 1.41 Dividends on preferred stock used in adjusted EPS calculation (3) $ 14 $ 14 $ 14 Weighted average shares for adjusted EPS (3) 157 185 211 Estimated fully diluted shares at December 31, 2022 (4) 165 _____________ (1) Net (loss) income and EPS attributable to Xerox Holdings. (2) Refer to Effective Tax Rate reconciliation. (3) For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with Xerox Holdings Corporation's Series A Convertible preferred stock. (4) Represents common shares outstanding at December 31, 2022, plus potential dilutive common shares used for the calculation of adjusted diluted earnings per share for the year ended December 31, 2022. The amount includes shares associated with Xerox Holdings Corporation's Series A convertible preferred stock. Xerox 2022 Annual Report 65 Table of Contents Effective Tax Rate reconciliation Year Ended December 31, 2022 2021 2020 (in millions) Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income Income Tax Expense Effective Tax Rate Reported (1) $ (328) $ (3) 0.9 % $ (475) $ (17) 3.6 % $ 252 $ 64 25.4 % Goodwill impairment (2) 412 17 781 31 — — Non-GAAP Adjustments (2) 154 38 4 6 167 46 Adjusted (3) $ 238 $ 52 21.8 % $ 310 $ 20 6.5 % $ 419 $ 110 26.3 % _____________ (1) Pre-tax (Loss) Income and Income tax (benefit) expense. (2) Refer to Net (Loss) Income and EPS reconciliation for details. (3) The tax impact on Adjusted Pre-Tax Income is calculated under the same accounting principles applied to the Reported Pre-Tax (Loss) Income under ASC 740, which employs an annual effective tax rate method to the results. Operating (Loss) Income and Margin reconciliation Year Ended December 31, 2022 2021 2020 (in millions) (Loss) Profit Revenue Margin (Loss) Profit Revenue Margin Profit Revenue Margin Reported (1) $ (328) $ 7,107 (4.6) % $ (475) $ 7,038 (6.7) % $ 252 $ 7,022 3.6 % Adjustments: Goodwill impairment 412 781 — Restructuring and related costs, net 65 38 93 Amortization of intangible assets 42 55 56 Transaction and related costs, net — — 18 Accelerated share vesting 21 — — Other expenses, net (2) 63 (24) 45 Adjusted $ 275 $ 7,107 3.9 % $ 375 $ 7,038 5.3 % $ 464 $ 7,022 6.6 % _____________ (1) Pre-tax (Loss) Income. (2) Includes non-service retirement-related costs. Xerox 2022 Annual Report 66 Table of Contents