What changed in this filing

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Item 1. Financial Statements

2023-05-01 compared with 2022-11-02 · 351 added, 664 removed, 892 unchanged (53% of the section changed)

1 unchanged sentence

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per-share data) 2023 2022

9 unchanged sentences

Selling, administrative and general expenses 407 455

Goodwill impairment 412 — 412 —

Restructuring and related costs, net 2 18

2 unchanged sentences

Total Costs and Expenses 1,630 1,757

(Loss) Income before Income Taxes and Equity Income ( 380 ) 84 ( 474 ) 236

Income (Loss) before Income Taxes and Equity Income 85 ( 89 )

Income tax expense (benefit) 14 ( 31 )

Equity in net income of unconsolidated affiliates — 1

Net (Loss) Income ( 382 ) 89 ( 444 ) 219

Net income (loss) attributable to noncontrolling interests 1 ( 1 ) ( 1 ) ( 1 )

Net (Loss) Income Attributable to Xerox Holdings $ ( 383 ) $ 90 $ ( 443 ) $ 220

Basic (Loss) Earnings per Share $ ( 2.48 ) $ 0.48 $ ( 2.91 ) $ 1.12

Diluted (Loss) Earnings per Share $ ( 2.48 ) $ 0.48 $ ( 2.91 ) $ 1.10

Net Income (Loss) 71 ( 57 )

Net loss attributable to noncontrolling interests — ( 1 )

Net Income (Loss) Attributable to Xerox Holdings $ 71 $ ( 56 )

Basic Earnings (Loss) per Share $ 0.43 $ ( 0.38 )

Diluted Earnings (Loss) per Share $ 0.43 $ ( 0.38 )

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

1 unchanged sentence

XEROX HOLDINGS CORPORATION

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

Net (Loss) Income $ ( 382 ) $ 89 $ ( 444 ) $ 219

Net income (loss) attributable to noncontrolling interests 1 ( 1 ) ( 1 ) ( 1 )

Net (Loss) Income Attributable to Xerox Holdings ( 383 ) 90 ( 443 ) 220

Other Comprehensive (Loss) Income, Net (1)

Net Income (Loss) $ 71 $ ( 57 )

Net loss attributable to noncontrolling interests — ( 1 )

Net Income (Loss) Attributable to Xerox Holdings 71 ( 56 )

Other Comprehensive Income (Loss), Net (1)

Translation adjustments, net 92 ( 72 )

1 unchanged sentence

Changes in defined benefit plans, net ( 14 ) 39

Other Comprehensive Loss, Net Attributable to Xerox Holdings ( 217 ) ( 70 ) ( 559 ) ( 3 )

Comprehensive (Loss) Income, Net ( 599 ) 19 ( 1,003 ) 216

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

Comprehensive (Loss) Income, Net Attributable to Xerox Holdings $ ( 600 ) $ 20 $ ( 1,002 ) $ 217

Other Comprehensive Income (Loss), Net 82 ( 44 )

Other comprehensive loss, net attributable to noncontrolling interests ( 1 ) —

Other Comprehensive Income (Loss), Net Attributable to Xerox Holdings 83 ( 44 )

Comprehensive Income (Loss), Net 153 ( 101 )

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

Comprehensive Income (Loss), Net Attributable to Xerox Holdings $ 154 $ ( 100 )

_____________

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

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

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

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

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

2023 December 31,

10 unchanged sentences

Intangible assets, net 202 208

Goodwill 2,753 3,287

Goodwill, net 2,850 2,820

Deferred tax assets 598 582

17 unchanged sentences

Additional paid-in capital 1,594 1,588

Treasury stock, at cost — ( 177 )

Retained earnings 5,162 5,136

4 unchanged sentences

Total Liabilities and Equity $ 11,046 $ 11,543

Shares of common stock issued 155,570 168,069

Treasury stock — ( 8,675 )

Shares of Common Stock Outstanding 155,570 159,394

Shares of Common Stock Issued and Outstanding 156,958 155,781

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2023 2022

Cash Flows from Operating Activities

Net (Loss) Income $ ( 444 ) $ 219

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

Net Income (Loss) $ 71 $ ( 57 )

Adjustments required to reconcile Net income (loss) to cash flows provided by operating activities

Depreciation and amortization 64 72

Provisions — 19

Net gain on sales of businesses and assets ( 17 ) ( 40 )

Stock-based compensation 14 15

Goodwill impairment 412 —

Restructuring and asset impairment charges 1 20

1 unchanged sentence

Non-service retirement-related costs ( 1 ) ( 7 )

( 18 ) ( 64 )

Contributions to retirement plans ( 17 ) ( 38 )

( 106 ) ( 119 )

Increase in accounts receivable and billed portion of finance receivables ( 48 ) ( 30 )

(Increase) decrease in inventories ( 136 ) 10

Decrease in accounts receivable and billed portion of finance receivables 39 13

Increase in inventories ( 64 ) ( 31 )

Increase in equipment on operating leases ( 40 ) ( 36 )

(Increase) decrease in finance receivables ( 10 ) 33

Decrease in other current and long-term assets 36 64

Increase in accounts payable 198 74

Increase in accrued compensation (1)

(Decrease) increase in other current and long-term liabilities ( 73 ) 80

Decrease in finance receivables 160 41

Decrease (increase) in other current and long-term assets 3 ( 1 )

(Decrease) increase in accounts payable ( 41 ) 111

(Decrease) increase in accrued compensation ( 16 ) 22

Decrease in other current and long-term liabilities ( 128 ) ( 43 )

Net change in income tax assets and liabilities 18 ( 39 )

1 unchanged sentence

Other operating, net 8 5

Net cash (used in) provided by operating activities ( 27 ) 431

Net cash provided by operating activities 78 66

Cash Flows from Investing Activities

5 unchanged sentences

Cash Flows from Financing Activities

Net proceeds from short-term debt — 1

Proceeds from issuance of long-term debt — 668

8 unchanged sentences

Cash, Cash Equivalents and Restricted Cash at End of Period $ 697 $ 1,761

_____________

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

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

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

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

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

1 unchanged sentence

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

9 unchanged sentences

Selling, administrative and general expenses 407 455

Goodwill impairment 412 — 412 —

Restructuring and related costs, net 2 18

2 unchanged sentences

Total Costs and Expenses 1,630 1,757

(Loss) Income before Income Taxes and Equity Income ( 380 ) 84 ( 474 ) 236

Income (Loss) before Income Taxes and Equity Income 85 ( 89 )

Income tax expense (benefit) 14 ( 31 )

Equity in net income of unconsolidated affiliates — 1

Net (Loss) Income ( 382 ) 89 ( 444 ) 219

Net income (loss) attributable to noncontrolling interests 1 ( 1 ) ( 1 ) ( 1 )

Net (Loss) Income Attributable to Xerox $ ( 383 ) $ 90 $ ( 443 ) $ 220

Net Income (Loss) 71 ( 57 )

Net loss attributable to noncontrolling interests — ( 1 )

Net Income (Loss) Attributable to Xerox $ 71 $ ( 56 )

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

1 unchanged sentence

XEROX CORPORATION

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

Net (Loss) Income $ ( 382 ) $ 89 $ ( 444 ) $ 219

Net income (loss) attributable to noncontrolling interests 1 ( 1 ) ( 1 ) ( 1 )

Net (Loss) Income Attributable to Xerox ( 383 ) 90 ( 443 ) 220

Other Comprehensive (Loss) Income, Net (1)

Net Income (Loss) $ 71 $ ( 57 )

Net loss attributable to noncontrolling interests — ( 1 )

Net Income (Loss) Attributable to Xerox 71 ( 56 )

Other Comprehensive Income (Loss), Net (1)

Translation adjustments, net 92 ( 72 )

1 unchanged sentence

Changes in defined benefit plans, net ( 14 ) 39

Other Comprehensive Loss, Net Attributable to Xerox ( 217 ) ( 70 ) ( 559 ) ( 3 )

Comprehensive (Loss) Income, Net ( 599 ) 19 ( 1,003 ) 216

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

Comprehensive (Loss) Income, Net Attributable to Xerox $ ( 600 ) $ 20 $ ( 1,002 ) $ 217

Other Comprehensive Income (Loss), Net 82 ( 44 )

Other comprehensive loss, net attributable to noncontrolling interests ( 1 ) —

Other Comprehensive Income (Loss), Net Attributable to Xerox 83 ( 44 )

Comprehensive Income (Loss), Net 153 ( 101 )

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

Comprehensive Income (Loss), Net Attributable to Xerox $ 154 $ ( 100 )

_____________

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

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions) September 30,

(in millions) March 31,

2023 December 31,

10 unchanged sentences

Intangible assets, net 202 208

Goodwill 2,753 3,287

Goodwill, net 2,850 2,820

Deferred tax assets 598 582

26 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2023 2022

Cash Flows from Operating Activities

Net (Loss) Income $ ( 444 ) $ 219

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

Net Income (Loss) $ 71 $ ( 57 )

Adjustments required to reconcile Net income (loss) to cash flows provided by operating activities

Depreciation and amortization 64 72

Provisions — 19

Net gain on sales of businesses and assets ( 17 ) ( 40 )

Stock-based compensation 14 15

Goodwill impairment 412 —

Restructuring and asset impairment charges 1 20

1 unchanged sentence

Non-service retirement-related costs ( 1 ) ( 7 )

( 18 ) ( 64 )

Contributions to retirement plans ( 17 ) ( 38 )

( 106 ) ( 119 )

Increase in accounts receivable and billed portion of finance receivables ( 48 ) ( 30 )

(Increase) decrease in inventories ( 136 ) 10

Decrease in accounts receivable and billed portion of finance receivables 39 13

Increase in inventories ( 64 ) ( 31 )

Increase in equipment on operating leases ( 40 ) ( 36 )

(Increase) decrease in finance receivables ( 10 ) 33

Decrease in other current and long-term assets 36 64

Increase in accounts payable 198 74

Increase in accrued compensation (1)

(Decrease) increase in other current and long-term liabilities ( 73 ) 80

Decrease in finance receivables 160 41

Decrease (increase) in other current and long-term assets 3 ( 1 )

(Decrease) increase in accounts payable ( 41 ) 111

(Decrease) increase in accrued compensation ( 16 ) 22

Decrease in other current and long-term liabilities ( 128 ) ( 43 )

Net change in income tax assets and liabilities 18 ( 39 )

1 unchanged sentence

Other operating, net 8 5

Net cash (used in) provided by operating activities ( 27 ) 431

Net cash provided by operating activities 78 66

Cash Flows from Investing Activities

2 unchanged sentences

Acquisitions, net of cash acquired ( 7 ) ( 54 )

Other investing, net 1 —

Net cash used in investing activities ( 14 ) ( 70 )

Cash Flows from Financing Activities

Net proceeds from short-term debt — 1

Proceeds from issuance of long-term debt — 668

7 unchanged sentences

Cash, Cash Equivalents and Restricted Cash at End of Period $ 697 $ 1,761

_____________

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

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

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

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

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

17 unchanged sentences

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

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

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

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

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

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

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

Interim Impairment Evaluation

Our Goodwill, net balance was $ 2,850 and $ 2,820 at March 31, 2023 and December 31, 2022, respectively.

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

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

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

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

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

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

In the first quarter 2023 the Company's actual results as well as its latest projections for the full year 2023 were in line with expectations reviewed as part of our fourth quarter 2022 Goodwill qualitative assessment.

In addition, discounts rates and the Company’s market capitalization in the first quarter 2023 remained steady with the fourth quarter 2022.

Accordingly, based on our interim assessment as of March 31, 2023, we determined that we did not have a “triggering event” requiring a quantitative assessment of Goodwill.

If the Company's future performance varies from current expectations, assumptions, or estimates, including assumptions related to the continued unfavorable macro-economic trends and uncertainties, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

We will continue to monitor developments throughout the remainder of 2023 including updates to our forecasts as well as discount rates and our market capitalization, and an update of our assessment and related estimates may be required in the future.

Xerox 2023 Form 10-Q 11

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.

In 2022, the Company continued to encounter operational challenges due to unfavorable product and services mix associated with supply chain constraints as well 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 continue to put downward pressure on the Company’s valuation.

Although the Company expects operating results to improve in the fourth quarter of 2022, and in full-year 2023 as the Company works down its backlog and realizes benefits from price increases and cost actions;

operating results are expected to be below previous forecasts and will continue to be pressured as result of these unfavorable macroeconomic conditions.

As a result of these negative financial impacts and 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 ($ 412 pre-tax) related to our Goodwill in the third quarter 2022.

The estimated fair value of the Print and Other reporting unit is based on estimates and assumptions that are considered Level 3 inputs under the fair value hierarchy.

If the Company's future performance varies from current 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 used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

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

Note 2 – Recent Accounting Pronouncements

3 unchanged sentences

Accounting Standard Updates to be Adopted:

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04 , Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued.

In January 2021, the FASB issued ASU 2021-01 , Reference Rate Reform (Topic 848):

Scope , which provided clarification guidance to ASU 2020-04.

These ASUs were effective commencing with our quarter ended March 31, 2020 through December 31, 2022.

In December 2022, the FASB issued ASU 2022-06 , Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , which defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

There has been no material impact to date as a result of adopting these ASUs on reference rate reform.

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

Accounting Standard Updates Adopted in 2023:

In September 2022, the FASB issued ASU 2022-04 , Liabilities - Supplier Finance Programs (Subtopic 405-50):

1 unchanged sentence

The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.

The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding are effective for all interim and annual periods of our fiscal year beginning on January 1, 2023.

The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding were effective for our fiscal year beginning on January 1, 2023.

The new standard’s requirement to disclose a rollforward of obligations outstanding will be effective for our fiscal year beginning on January 1, 2024.

Early adoption is permitted.

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

Refer to Note 6 - Supplementary Financial Information for the required disclosures effective January 1, 2023.

Financial Instruments

1 unchanged sentence

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

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

Xerox 2022 Form 10-Q 12

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

The disclosure of current-period gross write-offs by year of origination is applicable for financing receivables and net investments in leases that are within the scope of ASC 326-20 , Financial Instruments - Credit Losses - Measured at Amortized Cost .

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

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

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

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

Since this standard primarily relates to new disclosure, we do not expect the adoption to have a material impact on our financial condition, results of operations, and cash flows in future periods.

Reference Rate Reform

GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued.

In January 2021, the FASB issued ASU 2021-01 , Reference Rate Reform (Topic 848):

Scope , which provided clarification guidance to ASU 2020-04.

These ASUs were effective commencing with our quarter ended March 31, 2020 through December 31, 2022.

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

Accounting Standard Updates Adopted in 2022:

Government Assistance

In November 2021, the FASB issued ASU 2021-10 , Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance.

The update increases the transparency surrounding government assistance by requiring disclosure of 1) the types of assistance received, 2) an entity’s accounting for the assistance, and 3) the effect of the assistance on the entity’s financial statements.

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

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

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

Prior to the COVID pandemic, the amounts of government assistance the Company received were not material and since the update is limited to increased disclosures, we do not expect the adoption to have a material impact on our financial condition, results of operations, and cash flows in future periods.

Business Combinations

In October 2021, the FASB issued ASU 2021-08 , Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts.

This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value.

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

The impact of adopting the new standard will depend on the magnitude of future acquisitions.

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

In August 2020, the FASB issued ASU 2020-06 , Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40).

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

This update also amended the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and required the application of the if-converted method for calculating diluted earnings per share.

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

The adoption of this update did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Xerox 2022 Form 10-Q 13

Refer to Note 8 - Finance Receivables, Net for required disclosures regarding gross write-offs by vintage year.

Other Updates

1 unchanged sentence

Those updates are as follows:

• Investments:

ASU 2023-02 , Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force).

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

ASU 2023-01 , Leases (Topic 842):

Common Control Arrangements.

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

Xerox 2023 Form 10-Q 12

• Fair Value Measurement:

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

ASU 2022-03 , Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

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

• Derivatives and Hedging:

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

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

• Equity Instruments:

ASU 2021-04 , Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options).

ASU 2022-01 , Derivatives and Hedging (Topic 815):

Fair Value Hedging - Portfolio Layer Method.

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

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

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

Note 3 – Revenue

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Primary geographical markets (1) :

8 unchanged sentences

Maintenance agreements (3)

420 447 1,295 1,330

Service arrangements (4)

487 493 1,451 1,490

Rental and other 100 108

3 unchanged sentences

Direct equipment lease (5)

$ 146 $ 170 $ 425 $ 506

Distributors & resellers (6)

318 283 877 826

Customer direct 169 196

2 unchanged sentences

(1) Geographic area data is based upon the location of the subsidiary reporting the revenue.

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

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

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

(2) Other sales include revenues associated with IT hardware.

(3) Includes revenues from maintenance agreements on sold equipment as well as IT services and revenues associated with service agreements sold through our channel partners.

(4) Primarily includes revenues from our Print and digital services outsourcing arrangements, including revenues from embedded operating leases in those arrangements, which were not significant.

(5) Primarily reflects sales through bundled lease arrangements.

(6) Primarily reflects sales through our two-tier distribution channels.

Xerox 2022 Form 10-Q 14

Contract Assets and Liabilities:

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

Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advance billings for maintenance and other services to be performed and were approximately $ 131 and $ 144 at September 30, 2022 and December 31, 2021, respectively.

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

Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advance billings for maintenance and other services to be performed and were approximately $ 132 and $ 131 at March 31, 2023 and December 31, 2022, respectively.

The majority of the balance at March 31, 2023 will be amortized to revenue over approximately the next 30 months.

Contract Costs:

Incremental direct costs of obtaining a contract primarily include sales commissions paid to sales people and agents in connection with the placement of equipment with associated post sale services arrangements.

Incremental direct costs of obtaining a contract primarily include sales commissions paid to salespeople and agents in connection with the placement of equipment with associated post sale services arrangements.

These costs are deferred and amortized on the straight-line basis over the estimated contract term, which is currently estimated to be approximately four years .

We pay commensurate sales commissions upon customer renewals, therefore our amortization period is aligned to our initial contract term.

Xerox 2023 Form 10-Q 13

Incremental direct costs are as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Incremental direct costs of obtaining a contract $ 16 $ 13

Amortization of incremental direct costs 16 18

The balance of deferred incremental direct costs net of accumulated amortization at September 30, 2022 and December 31, 2021 was $ 121 and $ 132 , respectively.

The balance of deferred incremental direct costs net of accumulated amortization at March 31, 2023 and December 31, 2022 was $ 125 and $ 125 , respectively.

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

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

As of September 30, 2022 and December 31, 2021, amounts deferred associated with contract fulfillment costs and inducements were $ 11 and $ 15 , respectively, and the related amortization was $ 1 and $ 2 for the three months ended September 30, 2022 and 2021, respectively, and $ 4 and $ 5 for the nine months ended September 30, 2022 and 2021, respectively.

The balance of contract fulfillment costs and inducements net of accumulated amortization at March 31, 2023 and December 31, 2022 was $ 9 and $ 10 , respectively.

The related amortization was $ 0 and $ 1 for the three months ended March 31, 2023 and 2022, respectively.

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

Xerox 2022 Form 10-Q 15

Note 4 – Segment Reporting

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

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

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

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

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

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

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

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

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

We have two reportable segments - Print and Other , and Financing (FITTLE) .

Our two reportable segments are determined based on the information reviewed by the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), together with the Company’s management to evaluate performance of the business and allocate resources.

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

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

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

• “Mid-Range” , which include A3 devices that generally serve large workgroup/work team environments as well as products in the Light Production product groups serving centralized print centers, print for pay and low 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.

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

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

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

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

The Financing (FITTLE) segment provides leasing solutions through either bundled or unbundled lease agreements of Xerox and non-Xerox products.

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

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

The FITTLE segment provides global leasing solutions 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.

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

Segment revenues also include gains/losses from the sale of finance receivables as well as related commission and servicing fees.

Xerox 2023 Form 10-Q 14

Segment Policy

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

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

Xerox 2022 Form 10-Q 16

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

Selected financial information for our reportable segments was as follows:

Three Months Ended September 30,

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

External net revenue $ 1,604 $ 147 $ 1,751 $ 1,590 $ 168 $ 1,758

Intersegment net revenue (1)

37 3 40 46 3 49

Total Segment net revenue $ 1,641 $ 150 $ 1,791 $ 1,636 $ 171 $ 1,807

Segment profit $ 57 $ 8 $ 65 $ 50 $ 24 $ 74

Segment margin (2)

3.6 % 5.4 % 3.7 % 3.1 % 14.3 % 4.2 %

Depreciation and amortization $ 28 $ 27 $ 55 $ 28 $ 38 $ 66

Interest income — 51 51 — 55 55

Interest expense (3)

— 30 30 — 31 31

Nine Months Ended September 30,

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

External net revenue $ 4,716 $ 450 $ 5,166 $ 4,742 $ 519 $ 5,261

Intersegment net revenue (1)

Three Months Ended March 31,

Print and Other FITTLE Total Print and Other FITTLE Total

External revenue $ 1,564 $ 151 $ 1,715 $ 1,513 $ 155 $ 1,668

Intersegment revenue (1)

49 3 52 37 3 40

Total Segment net revenue $ 4,824 $ 459 $ 5,283 $ 4,889 $ 528 $ 5,417

Total Segment revenue $ 1,613 $ 154 $ 1,767 $ 1,550 $ 158 $ 1,708

Segment profit $ 106 $ 12 $ 118 $ ( 20 ) $ 17 $ ( 3 )

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_____________

(1) Intersegment net 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 net revenue only.

(3) Interest expense for the Financing (FITTLE) Segment includes non-financing interest expense on allocated debt associated with Equipment on operating lease of $ 2 and $ 2 for the three months ended September 30, 2022 and 2021, respectively, and $ 6 and $ 6 for the nine months ended September 30, 2022 and 2021, respectively.

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

(2) Segment margin based on External revenue only.

(3) Interest expense for the FITTLE Segment includes non-financing interest expense on allocated debt associated with Equipment on operating lease of $ 3 and $ 2 for the three months ended March 31, 2023 and 2022, respectively.

Xerox 2023 Form 10-Q 15

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Pre-tax (Loss) Income

Pre-tax Income (Loss)

Total reported segments $ 118 $ ( 3 )

Goodwill impairment ( 412 ) — ( 412 ) —

Restructuring and related costs, net ( 2 ) ( 18 )

Amortization of intangible assets ( 11 ) ( 11 )

Accelerated share vesting — — ( 21 ) —

Other expenses, net ( 20 ) ( 57 )

Total Pre-tax (loss) income $ ( 380 ) $ 84 $ ( 474 ) $ 236

Total Pre-tax income (loss) $ 85 $ ( 89 )

Depreciation and Amortization

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Three Months Ended

September 30, Nine Months Ended

September 30,

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

Location in Statements of Income (Loss) 2023 2022

Revenue from sales type leases Sales $ 230 $ 135

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Total Lease income $ 339 $ 251

Profit at lease commencement on sales-type leases was estimated to be $ 39 and $ 51 for the three months ended September 30, 2022 and 2021, respectively, and $ 127 and $ 152 for the nine months ended September 30, 2022 and 2021, respectively.

Profit at lease commencement on sales-type leases was estimated to be $ 80 and $ 44 for the three months ended March 31, 2023 and 2022, respectively.

Xerox 2023 Form 10-Q 16

Note 6 – Acquisitions and Investments

In the first quarter 2022, Xerox acquired Powerland, a leading IT services provider in Canada, for approximately $ 52 (CAD 66 million), net of cash.

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

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

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

In July 2022, Xerox acquired Go Inspire, a U.K.-based print and digital marketing and communication services provider, for approximately $ 41 (GBP 34 million), net of cash.

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

The Goodwill associated with the acquisition of Go Inspire is included in our Print and Other segment.

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

The purchase prices for both acquisitions were all cash for 100 % ownership of the acquired company and were primarily allocated to Intangible assets, net (approximately $ 51 ) and Goodwill (approximately $ 64 ), with the remainder to tangible assets and assumed/recorded liabilities.

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

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

Note 6 – Supplementary Financial Information

Government Assistance

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Cost of services, maintenance and rentals $ — $ 4 $ — $ 17

Selling, administrative and general expenses — 5 — 12

Total Estimated savings $ — $ 9 $ — $ 29

Cash, Cash Equivalents and Restricted Cash

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

September 30,

2023 December 31,

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

Xerox 2022 Form 10-Q 19

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

September 30,

2023 December 31,

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Summarized cash flow information is as follows:

Location in Statement of Cash Flows Nine Months Ended

September 30,

Location in Statement of Cash Flows Three Months Ended

Source/(Use) 2023 2022

Provision for receivables Operating $ ( 5 ) $ 14

Provision for inventory Operating 5 5

Provision for product warranties Operating 5 6

Depreciation of buildings and equipment Operating 16 18

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Amortization of acquired intangible assets Operating 11 11

Amortization of patents (1)

Operating 2 3

Amortization of customer contract costs (2)

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Cost of additions to internal use software Investing ( 2 ) ( 4 )

Payments to acquire noncontrolling interests Investing 13 3

Payments to acquire noncontrolling interests - Xerox Holdings Investing ( 3 ) ( 5 )

Common stock dividends - Xerox Holdings Financing ( 41 ) ( 42 )

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Payments to noncontrolling interests Financing ( 1 ) ( 1 )

Proceeds from noncontrolling interests Financing 6 15

Repurchases related to stock-based compensation - Xerox Holdings Financing ( 6 ) ( 10 )

_____________

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

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

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

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

Xerox 2023 Form 10-Q 17

Supplier Finance Programs

The Company has a program through a financial institution that enables vendors and suppliers, at their option, to receive early payment for their invoices.

The program operates in a similar manner to a purchasing card program, however with this program the Company receives invoices associated with those vendors and suppliers participating in the program and confirms and validates those invoices and amounts due before passing the invoices on to the financial institution for early payment at a discounted amount.

The financial institution subsequently invoices the Company for the stated or full amount of the invoices paid early and we are required to make payment within 45 days of the statement date.

The overall impact of the program generally results in the Company paying its supplier and vendor invoices consistent with their original terms.

This program is generally available to all non-inventory vendors and suppliers.

Spending associated with this program during the three months ended March 31, 2023, totaled approximately $ 30 .

All outstanding amounts related to the program are recorded within Accounts payable in our Condensed Consolidated Balance Sheets, and the associated payments are included in operating activities within our Condensed Consolidated Statements of Cash Flows.

The amount due to vendors and suppliers participating in this program and included in Accounts payable was approximately $ 40 as of March 31, 2023 and December 31, 2022, respectively.

Note 7 – Accounts Receivable, Net

Accounts receivable, net were as follows:

September 30,

2023 December 31,

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Balance at March 31 st

Provision 3 1

Charge-offs ( 2 ) ( 2 )

Recoveries and other (1)

Balance at June 30 th

Provision ( 1 ) 0

Charge-offs ( 5 ) ( 5 )

Recoveries and other (1)

Balance at September 30 th

_____________

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

Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 5.8 % at September 30, 2022 and 6.6 % at December 31, 2021.

The decrease in the allowance is primarily due to a reduction in estimated losses for customer accommodations and other billing adjustments.

Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 6.1 % at March 31, 2023 and 5.7 % at December 31, 2022.

Accounts Receivable Sales Arrangements

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

Of the accounts receivable sold and derecognized from our balance sheet, $ 119 and $ 102 remained uncollected as of September 30, 2022 and December 31, 2021, respectively.

Of the accounts receivable sold and derecognized from our balance sheet, $ 73 and $ 159 remained uncollected as of March 31, 2023 and December 31, 2022, respectively.

Xerox 2023 Form 10-Q 18

Accounts receivable sales activity was as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Accounts receivable sales (1)

$ 164 $ 127 $ 400 $ 359

(1) Losses on sales were not material.

2 unchanged sentences

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

Xerox 2022 Form 10-Q 21

Note 8 – Finance Receivables, Net

2 unchanged sentences

Finance receivables, net were as follows:

September 30,

2023 December 31,

13 unchanged sentences

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

Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 3.9 % at September 30, 2022 and 3.7 % and 4.0 % at December 31, 2021 and 2020, respectively.

In determining the level of reserve required we critically assessed current and forecasted economic conditions and trends to ensure we objectively considered those expected impacts in the determination of our reserve.

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

Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 3.3 % at March 31, 2023 and 3.6 % at December 31, 2022.

Our finance receivable bad debt provision was a $ 12 credit in the first quarter 2023 primarily related to a reserve release in the U.S.

of approximately $ 12 due to the favorable reassessment of the credit exposure on a large customer receivable balance after a contract amendment which improved our credit position as well as a reserve release of approximately $ 5 related to the sale of finance receivables on a non-recourse basis as part of the on-going sales under the Receivable Funding Agreement - see Sales of Receivables below.

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

1 unchanged sentence

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

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

In addition, there continues to be uncertainty regarding the effects from the Russia/Ukraine war and its impact on the macro or global economy.

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

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

We believe our current reserve position remains sufficient to cover expected future losses that may result from current and future macro-economic conditions including higher inflation, interest rates, and the potential for recessions in the geographic areas of our customers.

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

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Balance at March 31, 2023 $ 65 $ 7 $ 29 $ 101

Provision — 1 3 4

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

Recoveries and other (2)

— — ( 2 ) ( 2 )

Balance at June 30, 2022 75 11 30 116

Provision 6 1 2 9

Charge-offs ( 4 ) ( 1 ) ( 1 ) ( 6 )

Recoveries and other (2)

— — ( 2 ) ( 2 )

Balance at September 30, 2022 $ 77 $ 11 $ 29 $ 117

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

$ 1,883 $ 214 $ 920 $ 3,017

Balance at December 31, 2021

3 unchanged sentences

Recoveries and other (2)

1 — ( 2 ) ( 1 )

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

Provision 6 ( 1 ) ( 3 ) 2

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

Recoveries and other (2)

Balance at June 30, 2021 81 15 37 133

Provision — ( 3 ) ( 1 ) ( 4 )

Charge-offs ( 1 ) ( 1 ) — ( 2 )

Recoveries and other (2)

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

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

Finance receivables collectively evaluated for impairment (3)

March 31, 2023 (3)

$ 1,756 $ 233 $ 1,092 $ 3,081

March 31, 2022 (3)

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

_____________

(1) Includes developing market countries.

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

(3) Total Finance receivables exclude the allowance for credit losses of $ 117 and $ 127 at September 30, 2022 and 2021, respectively.

(3) Total Finance receivables exclude the allowance for credit losses of $ 101 and $ 120 at March 31, 2023 and 2022, respectively.

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

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

Xerox 2022 Form 10-Q 23

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

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

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

Xerox 2023 Form 10-Q 20

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

September 30, 2022

March 31, 2023

2023 2022 2021 2020 2019 Prior Total

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Total $ 103 $ 160 $ 185 $ 137 $ 82 $ 29 $ 696

Charge-offs $ — $ — $ — $ — $ — $ 1 $ 1

United States (Indirect)

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Total $ 169 $ 401 $ 276 $ 132 $ 68 $ 14 $ 1,060

Charge-offs $ — $ — $ 1 $ — $ 1 $ 2 $ 4

Low Credit Risk $ 13 $ 30 $ 20 $ 14 $ 9 $ 3 $ 89

2 unchanged sentences

Total $ 33 $ 79 $ 48 $ 40 $ 25 $ 8 $ 233

Charge-offs $ — $ — $ — $ — $ — $ — $ —

Low Credit Risk $ 84 $ 258 $ 155 $ 80 $ 48 $ 18 $ 643

2 unchanged sentences

Total $ 136 $ 423 $ 265 $ 146 $ 91 $ 31 $ 1,092

Charge-offs $ — $ 1 $ — $ — $ — $ 1 $ 2

Total Finance Receivables

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Total $ 441 $ 1,063 $ 774 $ 455 $ 266 $ 82 $ 3,081

Total Charge-offs $ — $ 1 $ 1 $ — $ 1 $ 4 $ 7

Xerox 2023 Form 10-Q 21

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The aging of our billed finance receivables is as follows:

September 30, 2022

March 31, 2023

Current 31-90

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(1) Includes developing market countries

Sales of Receivables

In December 2022, the Company entered into a Receivables Funding Agreement with an affiliate of HPS Investment Partners (the Purchaser) pursuant to which the Company agreed to offer for sale, and Purchaser agreed to purchase, certain eligible pools of finance receivables on a monthly basis in transactions structured as "true sales at law" and bankruptcy remote transfers and we have received an opinion to that effect from outside legal counsel.

Accordingly, the receivables sold were derecognized from our financial statements and the Purchaser does not have recourse back to the Company for uncollectible receivables.

The Receivables Funding Agreement has an initial term through January 31, 2024, with automatic one-year extensions thereafter, unless terminated by either the Company or the Purchaser.

The Receivables Funding Agreement contemplates lease receivable sales totaling approximately $ 600 during the initial term.

Additionally, the Company will continue to service the lease receivables for a specified fee and will also be paid a commission on lease receivables sold under the Receivables Funding Agreement.

Of the finance receivables sold and derecognized from our balance sheet, $ 311 and $ 60 remained uncollected as of March 31, 2023, and December 31, 2022, respectively.

Xerox 2023 Form 10-Q 23

Finance receivable sales activity was as follows:

2023 December 31,

Finance receivable sales - net proceeds (1)

Gain on sale/Commissions (2)

Servicing revenue (2)

_____________

(1) Cash proceeds were reported in Net cash provided by operating activities.

(2) Recorded in Services, maintenance and rentals as Other Revenue.

Secured Borrowings and Collateral

3 unchanged sentences

The following is a summary of Inventories by major category:

September 30,

2023 December 31,

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The transfer of equipment from our inventories to equipment subject to an operating lease is presented in our Condensed Consolidated Statements of Cash Flows in the operating activities section.

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

Xerox 2022 Form 10-Q 26

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

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

September 30,

2023 December 31,

2 unchanged sentences

Equipment on operating leases, net $ 250 $ 235

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 16 and $ 15 for the three months ended September 30, 2022 and 2021, respectively, and $ 47 and $ 46 for the nine months ended September 30, 2022 and 2021, respectively.

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $ 17 and $ 15 for the three months ended March 31, 2023 and 2022, respectively.

Secured Borrowings and Collateral

1 unchanged sentence

Refer to Note 12 - Debt for additional information related to this arrangement.

Xerox 2023 Form 10-Q 24

Note 10 – Lessee

2 unchanged sentences

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 ten years and a variety of renewal and/or termination options.

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

The components of lease expense are as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Operating lease expense $ 23 $ 25

5 unchanged sentences

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

As of September 30, 2022, operating leases that had not yet commenced were not material.

As of March 31, 2023, we had no operating leases that had not yet commenced.

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

September 30,

2023 December 31,

3 unchanged sentences

Total Operating lease liabilities $ 214 $ 229

The assets and the liabilities related to our finance leases were immaterial for all periods presented.

Xerox 2023 Form 10-Q 25

2 unchanged sentences

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

During the nine months ended September 30, 2022, we recorded net restructuring charges of $ 54 , which included $ 59 of severance costs related to headcount reductions of approximately 1,600 employees worldwide, and $ 1 of other contractual termination costs.

During the three months ended March 31, 2023, we recorded net restructuring charges of $ 1 , which included $ 5 of severance costs related to headcount reductions of approximately 100 employees worldwide, and no other contractual termination costs.

These costs were partially offset by $ 4 of net reversals, which primarily reflect changes in estimated reserves from prior period initiatives.

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

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

Information related to our restructuring programs is summarized below:

8 unchanged sentences

Balance at March 31, 2023 $ 34 $ 4 $ 38

Provision 22 1 23

Reversals ( 1 ) ( 1 ) ( 2 )

Net current period charges (1)

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

Balance at June 30, 2022 44 2 46

Provision 15 — 15

Reversals ( 1 ) — ( 1 )

Net current period charges (1)

Charges against reserve and currency ( 19 ) — ( 19 )

Balance at September 30, 2022 $ 39 $ 2 $ 41

_____________ _

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

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

Reversals of prior charges primarily include net changes in estimated reserves from prior period initiatives.

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

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

Nine Months Ended

September 30,

Three Months Ended

Charges against reserve and currency $ ( 6 ) $ ( 7 )

1 unchanged sentence

Restructuring cash payments $ ( 6 ) $ ( 7 )

Charges associated with asset impairments represent the write-down of the related assets to their new cost basis and are recorded concurrently with the recognition of the provision.

Impairments are net of any potential sublease income or other recovery amounts.

Net asset impairment charges were immaterial for both periods presented.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Retention related severance/bonuses (1)

$ ( 1 ) $ 7 $ ( 3 ) $ 6

Contractual severance costs — —

Consulting and other costs (2)

Total $ 1 $ ( 2 )

____________ _

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

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

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

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

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

Cash paid for restructuring related costs were $ 1 and $ 1 for the three months ended March 31, 2023 and 2022, respectively.

The restructuring related costs reserve was $ 12 and $ 12 at March 31, 2023 and December 31, 2022, respectively.

The balance at March 31, 2023 is expected to be paid over the next twelve months.

Xerox 2023 Form 10-Q 26

Cash paid for restructuring related costs were $ 4 and $ 9 for the nine months ended September 30, 2022 and 2021, respectively.

The restructuring related costs reserve was $ 10 and $ 18 at September 30, 2022 and December 31, 2021, respectively.

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

In connection with our restructuring programs, during the nine months ended September 30, 2022, we recorded a net gain of $ 10 associated with initiatives involving the Company's owned and leased facilities, including the exit, abandonment, sale and sublease of those facilities.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Lease right of use assets (1)

$ 1 $ — $ 2 $ 2

Owned assets (1)

Asset impairments 10 — 12 12

Gain on sales of owned assets (2)

( 2 ) — ( 22 ) —

Adjustments/Reversals — — — ( 1 )

Net asset impairment charge (credit) $ 8 $ — $ ( 10 ) $ 11

_____________ _

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

(2) Reflect gain on the sales of exited surplus facilities.

Note 12 – Debt

Early Extinguishment of Senior Notes

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

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

Xerox Holdings Corporation/Xerox Corporation Intercompany Loan

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

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

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

At September 30, 2022 and December 31, 2021, the balance of the Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $ 1,496 and $ 1,494 , respectively, which is net of related debt issuance costs, and the intercompany interest payable was $ 10 and $ 30 , respectively.

Xerox Corporation’s interest expense included interest expense associated with this Intercompany Loan of $ 20 and $ 21 for the three months ended September 30, 2022 and 2021, respectively, and $ 59 and $ 60 for the nine months ended September 30, 2022 and 2021, respectively.

Credit Facility

In July 2022, Xerox Corporation, as borrower, and its parent company, Xerox Holdings Corporation, entered into a new Credit Agreement with several participating lending banks.

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

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

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

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

The new revolving Credit Agreement also includes a $ 150 letter of credit sub-facility.

At September 30, 2022, we had no outstanding borrowings or letters of credit under the new revolving Credit Facility.

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

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

The applicable margin for Base Rate loans, through the quarterly

Xerox 2022 Form 10-Q 29

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

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

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

dollars pursuant to the credit agreement, and such borrowings will bear interest calculated under a construct similar to that described above.

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

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

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

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

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

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

The required Total Net Leverage Ratio is 5.25 :1 at September 30, 2022;

5.00 :1.00 at December 31, 2022;

4.75 :1.00 at March 31, 2023;

4.50 :1:00 at June 30, 2023 and 4.25 :1.00 thereafter.

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

The Interest Coverage Ratio is 2.25 :1:00 at September 30, 2022;

2.50 :1.00 at December 31, 2022;

and 2.75 :1.00 thereafter.

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

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

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

At March 31, 2023 and December 31, 2022, the balance of the Xerox Holdings Corporation Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $ 1,496 and $ 1,496 , respectively, which is net of related debt issuance costs, and the intercompany interest payable was $ 10 and $ 30 , respectively.

Xerox Corporation’s interest expense included interest expense associated with this Intercompany Loan of $ 20 and $ 20 for the three months ended March 31, 2023 and 2022, respectively.

Secured Borrowings and Collateral

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

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

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

In certain transactions, the sales were made to special purpose entities (SPEs), owned and controlled by Xerox where the SPEs funded the purchase through amortizing secured loans from the financial institutions.

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

4 unchanged sentences

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

Xerox 2022 Form 10-Q 30

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

September 30, 2022

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

March 31, 2023

Finance Receivables, Net (1)

Equipment on Operating Leases, Net Secured Debt (2)

Interest Rate Expected Maturity

Interest Rate (3)

Expected Maturity

United States (4)

December 2022 $ 324 $ — $ 232 7.79 % 2025

January 2022 467 — 345 6.33 % 2024

2 unchanged sentences

April 2022 55 — 49 5.86 % 2025

December 2022 201 — 162 4.14 % 2025

Total $ 1,202 $ 4 $ 893

Xerox 2023 Form 10-Q 27

December 31, 2022

1 unchanged sentence

Equipment on Operating Leases, Net Secured Debt (2)

Interest Rate Expected Maturity

Interest Rate (3)

Expected Maturity

United States (4)

December 2022 $ 370 $ — $ 247 7.43 % 2025

January 2022 528 — 407 5.83 % 2024

September 2021 180 5 136 5.65 % 2024

Total 1078 5 790

Secured Borrowing - April 2022 63 — 57 5.45 % 2025

December 2022 235 — 195 3.03 % 2025

1 unchanged sentence

____________ _

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

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

(2) Represents the principal debt balance and excludes debt issuance costs of $ 4 and $ 5 as of March 31, 2023 and December 31, 2022, respectively.

(3) Represents the pre-hedged rate.

Refer to Note 13 - Financial Instruments for additional information regarding hedging of these borrowings.

(4) Secured assets and obligations held by SPEs.

Interest Expense and Income

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Interest expense (1)(2)

$ 49 $ 52 $ 151 $ 156

Interest income (3)

55 56 164 169

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

(2) Interest expense of Xerox Corporation included intercompany interest expense associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan of $ 20 and $ 21 for the three months ended September 30, 2022 and 2021, respectively, and $ 59 and $ 60 for the nine months ended September 30, 2022 and 2021, respectively.

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

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

(2) Interest expense of Xerox Corporation included intercompany interest expense associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan of $ 20 and $ 20 for the three months ended March 31, 2023 and 2022, respectively.

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

Xerox 2023 Form 10-Q 28

3 unchanged sentences

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

Cash Flow Hedges

We use interest rate swaps and caps to manage the exposure to variability in the interest rate payments on our secured loan agreements entered into over the last two years.

The interest rate swaps convert the interest paid on certain loans to a fixed amount while the caps limit the maximum amount of interest paid.

At March 31, 2023 there were four interest rate derivatives outstanding as follows:

Secured Borrowing Derivative Type Principal Debt (1)

Notional Amount

Expected Maturity Pre-Hedged Rate Hedged Rate Net Fair Value

United States N/A $ 345 $ — 2024 6.33 % — % $ —

United States Cap 105 101 2024 6.06 % 0.50 % 3

United States Cap 232 216 2025 7.79 % 4.50 % 1

Canada Swap 49 43 2025 5.86 % 2.57 % 1

France Cap 162 182 2025 4.14 % 3.00 % 1

Total $ 893 $ 542 $ 6

_____________

(1) Excludes debt issuance costs of $ 4 at March 31, 2023.

No amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income (Loss) for these designated cash flow hedges and all components of each derivative's gain or loss were included in the assessment of hedge effectiveness.

Foreign Exchange Risk Management

3 unchanged sentences

• Forecasted purchases and sales in foreign currency

At September 30, 2022 and December 31, 2021, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 1,201 and $ 1,113 respectively, with terms of less than 12 months.

Approximately 83 % of the contracts at September 30, 2022 mature within three months, 8 % mature in three to six months and 9 % in six to twelve months.

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

At March 31, 2023 and December 31, 2022, we had outstanding forward exchange and purchased option contracts with gross notional values of $ 1,301 and $ 1,541 respectively, with terms of less than 12 months.

At March 31, 2023, approximately 87 % of the contracts mature within three months, 7 % mature in three to six months and 6 % in six to twelve months.

Foreign Currency Cash Flow Hedges

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

The net liability fair value of these contracts was $ 21 and $ 3 as of September 30, 2022 and December 31, 2021, respectively.

No amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income (Loss) for these designated cash flow hedges for all periods presented, and all components of each derivative's gain or loss were included in the assessment of hedge effectiveness.

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

The net liability fair value of these contracts was $ 2 and $ 4 as of March 31, 2023 and December 31, 2022, respectively.

Xerox 2023 Form 10-Q 29

Summary of Derivative Instruments Fair Value

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

Designation of Derivatives Balance Sheet Location September 30,

Designation of Derivatives Balance Sheet Location March 31,

2023 December 31,

4 unchanged sentences

Interest rate swap Other long-term assets 1 1

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

Net designated derivative assets $ 4 $ 3

Derivatives NOT Designated as Hedging Instruments

1 unchanged sentence

Accrued expenses and other current liabilities ( 3 ) ( 2 )

Net undesignated derivative liabilities $ ( 3 ) $ ( 4 )

Interest rate cap Other long-term assets 1 —

Net undesignated derivative assets $ 2 $ 12

Summary of Derivatives Total Derivative assets $ 14 $ 26

Total Derivative liabilities ( 8 ) ( 11 )

Net Derivative liabilities $ ( 18 ) $ ( 6 )

Xerox 2022 Form 10-Q 32

Net Derivative assets $ 6 $ 15

Summary of Derivative Instruments Gains (Losses)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

Loss on Derivative Instruments 2022 2021 2022 2021

(Loss) Gain on Derivative Instruments 2023 2022

Cash Flow Hedges - Foreign Exchange Forward Contracts and Options

1 unchanged sentence

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

During the nine months ended September 30, 2022 and 2021, no amount of ineffectiveness was recorded in the Condensed Consolidated Statements of (Loss) Income for these designated cash flow hedges and all components of each derivative’s gain or (loss) were included in the assessment of hedge effectiveness.

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

As of September 30, 2022, a net after-tax loss of $ 21 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

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

Derivative gain reclassified from AOCL to income - Interest (effective portion) 1 —

As of March 31, 2023, no net after-tax gain or loss was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity.

Non-Designated Derivative Instruments Gains (Losses)

3 unchanged sentences

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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Foreign exchange contracts – forwards Other expense – Currency gains (losses), net $ ( 5 ) $ ( 9 )

Currency losses, net were $ 1 and $ 3 for the three months ended September 30, 2022 and 2021, respectively, and $ 2 and $ 6 for nine months ended September 30, 2022 and 2021, respectively.

Currency losses, net were $ 11 and $ 0 for three months ended March 31, 2023 and 2022, respectively.

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

3 unchanged sentences

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

September 30,

2023 December 31,

13 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 591 $ 591 $ 1,045 $ 1,045

14 unchanged sentences

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

Three Months Ended September 30,

Three Months Ended March 31,

Pension Benefits

12 unchanged sentences

Net Periodic Benefit Cost (Credit) 14 20 ( 1 ) ( 12 ) ( 3 ) ( 2 )

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

Net actuarial loss (gain) (1)

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

Net actuarial (gain) loss (1)

( 7 ) 14 — — — ( 7 )

1 unchanged sentence

Amortization of net actuarial (loss) gain ( 8 ) ( 22 ) ( 1 ) ( 6 ) 2 —

Amortization of net prior service credit — — ( 1 ) — 4 16

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

14 ( 31 ) ( 6 ) ( 15 ) ( 18 ) 17

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income $ 34 $ ( 24 ) $ ( 18 ) $ ( 20 ) $ ( 21 ) $ 3

Nine Months Ended September 30,

Pension Benefits

Plans Non-U.S.

Plans Retiree Health

Components of Net Periodic Benefit Costs:

2022 2021 2022 2021 2022 2021

Service cost $ 1 $ 1 $ 12 $ 15 $ 1 $ 1

Interest cost 68 56 94 67 6 6

Expected return on plan assets ( 73 ) ( 84 ) ( 172 ) ( 157 ) — —

Recognized net actuarial loss (gain) 10 13 18 44 ( 2 ) —

Amortization of prior service credit — — ( 1 ) — 4 4

Recognized settlement loss 43 41 — — — —

Defined benefit plans 49 26 ( 47 ) ( 31 ) ( 6 ) ( 42 )

Defined contribution plans 15 — 11 15 n/a n/a

Net Periodic Benefit Cost (Credit) 64 26 ( 36 ) ( 16 ) ( 6 ) ( 42 )

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

Net actuarial loss (gain) (1)

34 ( 83 ) 32 1 ( 20 ) 3

Prior service cost (credit) — — 48 — ( 33 ) —

Amortization of net actuarial (loss) gain ( 53 ) ( 54 ) ( 18 ) ( 44 ) 2 —

Amortization of prior service credit — 1 ( 1 ) — 11 49

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

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

( 15 ) ( 8 ) ( 2 ) ( 6 ) 6 ( 26 )

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income $ 45 $ ( 110 ) $ 25 $ ( 59 ) $ ( 46 ) $ 10

Total Recognized in Net Periodic Benefit (Credit) Cost and Other Comprehensive Income (Loss) $ ( 1 ) $ 12 $ ( 3 ) $ ( 18 ) $ 3 $ ( 28 )

_____________

(1) The 2022 and 2021 net actuarial loss (gain) for U.S.

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

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

The 2022 net actuarial loss for Non-U.S.

Plans reflects the remeasurement related to the second quarter 2022 Pension Plan amendment for our UK Defined Benefit Pension Plan..The 2022 net actuarial gain for Retiree Health plans reflect remeasurements related to the first and third quarter 2022 Plan Amendments for our U.S.

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

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

Xerox 2022 Form 10-Q 35

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

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

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

The 2022 net actuarial gain for Retiree Health plans reflects remeasurements related to the first quarter 2022 Plan Amendment for our U.S.

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

Refer to Note 18 - Other Comprehensive Income (Loss) for related tax effects and the after-tax amounts.

Contributions

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

Nine Months Ended

September 30, Year Ended

Three Months Ended

March 31, Year Ended

2023 2022 Estimated 2023

4 unchanged sentences

Total Retirement plans $ 17 $ 38 $ 105 $ 124

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

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

In addition, further contributions to our U.K.

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

Retiree Health Plan Amendment

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

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

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

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

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

Retiree Health Plan to eliminate Retiree Flex benefits for certain union employees as a result of contract negotiations.

This negative plan amendment resulted in a reduction of approximately $ 10 in the Company's postretirement benefit obligation.

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

Pension Plan Amendment

In April 2022, our U.K.

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

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

The associated impacts from the required remeasurement of the plan assets and obligations for updates to discount rates, actual returns and actuarial experience as of the effective date of the amendment resulted in an additional actuarial loss of $ 31 .

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

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

Approximately $ 30 of the estimated 2023 contributions are for our U.S.

tax-qualified defined benefit plans.

However, once the current actuarial valuations and projected results as of the end of the 2022 measurement year are available, actual contributions required to meet the minimum funding requirements during 2023 may change from the current estimate.

Xerox 2023 Form 10-Q 32

2 unchanged sentences

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

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

Xerox Holdings Shareholders’ Equity Non-controlling Interests Total

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

Comprehensive (loss) income, net — — — ( 383 ) ( 217 ) ( 600 ) 1 ( 599 )

Cash dividends declared - common (3)

— — — ( 40 ) — ( 40 ) — ( 40 )

Cash dividends declared - preferred (4)

— — — ( 4 ) — ( 4 ) — ( 4 )

Stock option and incentive plans, net 1 13 — — — 14 — 14

Investment from noncontrolling interests — — — — — — 1 1

Balance at September 30, 2022 $ 156 $ 1,577 $ — $ 5,057 $ ( 3,547 ) $ 3,243 $ 11 $ 3,254

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

Xerox Holdings Shareholders’ Equity Non- controlling Interests Total

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

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

Cash dividends declared - common (3)

— — — ( 46 ) — ( 46 ) — ( 46 )

Cash dividends declared - preferred (4)

— — — ( 4 ) — ( 4 ) — ( 4 )

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

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

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

Other — 4 — — — 4 — 4

Balance at September 30, 2021 $ 182 $ 2,080 $ ( 87 ) $ 6,348 $ ( 3,335 ) $ 5,188 $ 7 $ 5,195

Treasury Stock Retained

3 unchanged sentences

Balance at December 31, 2022 $ 156 $ 1,588 $ — $ 5,136 $ ( 3,537 ) $ 3,343 $ 10 $ 3,353

Comprehensive loss, net — — — ( 443 ) ( 559 ) ( 1,002 ) ( 1 ) ( 1,003 )

Comprehensive income (loss), net — — — 71 83 154 ( 1 ) 153

Cash dividends declared - common (3)

3 unchanged sentences

Stock option and incentive plans, net 1 6 — — — 7 — 7

Payments to acquire treasury stock, including fees — — ( 113 ) — — ( 113 ) — ( 113 )

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

Investment from noncontrolling interests — — — — — — 6 6

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

Balance at September 30, 2022

Balance at March 31, 2023

$ 157 $ 1,594 $ — $ 5,162 $ ( 3,454 ) $ 3,459 $ 8 $ 3,467

Xerox 2022 Form 10-Q 37

Treasury Stock Retained

2 unchanged sentences

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

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

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

Cash dividends declared - common (3)

5 unchanged sentences

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

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

Balance at September 30, 2021

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

Balance at March 31, 2022

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

1 unchanged sentence

(1) Common Stock has a par value of $ 1 per share.

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

(3) Cash dividends declared on common stock for the three and nine months ended September 30, 2022 and 2021 were $ 0.25 per share, respectively, and $ 0.75 per share, respectively.

(4) Cash dividends declared on preferred stock for the three and nine months ended September 30, 2022 and 2021 were $ 20.00 per share, respectively, and $ 60.00 per share, respectively.

(2) Refer to Note 18 - Other Comprehensive Income (Loss) for the components of AOCL.

(3) Cash dividends declared on common stock for the three months ended March 31, 2023 and 2022 were $ 0.25 per share, respectively.

(4) Cash dividends declared on preferred stock for the three months ended March 31, 2023 and 2022 were $ 20.00 per share, respectively.

Common Stock and Treasury Stock

3 unchanged sentences

Stock based compensation plans, net 1,177 —

Acquisition of Treasury stock — 5,174

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

Balance at March 31, 2023 156,958 —

Stock based compensation plans, net 116 —

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

Balance at June 30, 2022 154,966 —

Stock based compensation plans, net 604 —

Balance at September 30, 2022 155,570 —

Xerox 2023 Form 10-Q 33

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Xerox Shareholder's Equity Non- controlling Interests Total

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

Comprehensive (loss) income, net — ( 383 ) ( 217 ) ( 600 ) 1 ( 599 )

Dividends declared to parent — ( 49 ) — ( 49 ) — ( 49 )

Transfers from parent 13 — — 13 — 13

Investment from noncontrolling interests — — — — 1 1

Balance at September 30, 2022 $ 3,643 $ 3,388 $ ( 3,547 ) $ 3,484 $ 11 $ 3,495

Additional Paid-in Capital Retained Earnings AOCL (1)

Xerox Shareholder's Equity Non-

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

Balance at December 31, 2022 $ 3,693 $ 3,427 $ ( 3,537 ) $ 3,583 $ 10 $ 3,593

Comprehensive income (loss), net — 71 83 154 ( 1 ) 153

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Transfers from parent 2 — — 2 — 2

Balance at September 30, 2021 $ 3,509 $ 5,280 $ ( 3,335 ) $ 5,454 $ 7 $ 5,461

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

Balance at March 31, 2023

$ 3,695 $ 3,455 $ ( 3,454 ) $ 3,696 $ 8 $ 3,704

Additional Paid-in Capital Retained Earnings AOCL (1)

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Transfers from parent 390 — — 390 — 390

Investment from noncontrolling interests — — — — 6 6

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

Balance at September 30, 2022

$ 3,643 $ 3,388 $ ( 3,547 ) $ 3,484 $ 11 $ 3,495

Additional Paid-in Capital Retained Earnings AOCL (1)

Xerox Shareholder's Equity Non- controlling Interests Total

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

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

Dividends declared to parent — ( 774 ) — ( 774 ) — ( 774 )

Intercompany loan capitalization (2)

Balance at March 31, 2022

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

Transfers from parent 114 — — 114 — 114

Investment from noncontrolling interests 1 — — 1 4 5

Balance at September 30, 2021 $ 3,509 $ 5,280 $ ( 3,335 ) $ 5,454 $ 7 $ 5,461

_____________

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

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

(1) Refer to Note 18 - Other Comprehensive Income (Loss) for the components of AOCL.

Xerox 2023 Form 10-Q 34

Note 19 – Stock-Based Compensation

Stock-based compensation expense of $ 63 for the nine months ended September 30, 2022 reflects $ 21 of accelerated expense associated with the vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO.

Stock Options – CareAR Holdings, LLC

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

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

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

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

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

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

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

Note 20 – Other Comprehensive (Loss) Income

Other Comprehensive (Loss) Income is comprised of the following:

Note 18 – Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss) is comprised of the following:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

Translation Adjustments Losses $ ( 280 ) $ ( 277 ) $ ( 129 ) $ ( 125 ) $ ( 646 ) $ ( 636 ) $ ( 126 ) $ ( 122 )

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

Translation Adjustments Gains (Losses) $ 92 $ 92 $ ( 71 ) $ ( 72 )

Unrealized (Losses) Gains

Changes in fair value of cash flow hedges (losses) gains ( 3 ) ( 3 ) 3 2 ( 41 ) ( 32 ) ( 9 ) ( 7 )

Changes in fair value of cash flow hedges losses ( 2 ) ( 2 ) ( 15 ) ( 13 )

Changes in cash flow hedges reclassed to earnings (1)

11 9 2 2 17 13 5 4

Net Unrealized Gains (Losses) 3 4 ( 13 ) ( 11 )

Defined Benefit Plans (Losses) Gains

Net actuarial/prior service (losses) gains ( 5 ) ( 4 ) 13 10 ( 61 ) ( 47 ) 79 59

Defined Benefit Plans Gains (Losses)

Net actuarial/prior service gains 7 5 16 12

Prior service amortization (2)

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Actuarial loss amortization/settlement (2)

18 14 32 23 69 52 98 72

Other gains (3)

Other (losses) gains (3)

( 22 ) ( 22 ) 9 9

Changes in Defined Benefit Plans Gains 57 54 59 51 97 96 155 122

Other Comprehensive (Loss) Income Attributable to Xerox Holdings/Xerox $ ( 215 ) $ ( 217 ) $ ( 65 ) $ ( 70 ) $ ( 573 ) $ ( 559 ) $ 25 $ ( 3 )

Changes in Defined Benefit Plans (Losses) Gains ( 11 ) ( 14 ) 49 39

Other Comprehensive Income (Loss) 84 82 ( 35 ) ( 44 )

Other comprehensive loss attributable to noncontrolling interests ( 1 ) ( 1 ) — —

Other Comprehensive Income (Loss) Attributable to Xerox Holdings/Xerox $ 85 $ 83 $ ( 35 ) $ ( 44 )

(1) Reclassified to Cost of sales - refer to Note 13 - Financial Instruments for additional information regarding our cash flow hedges.

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AOCL is comprised of the following:

September 30,

2023 December 31,

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Xerox 2023 Form 10-Q 35

Note 21 – (Loss) Earnings per Share

Note 19 – Earnings (Loss) per Share

(shares in thousands)

The following table sets forth the computation of basic and diluted (loss) earnings per share of Xerox Holdings Corporation's common stock:

The following table sets forth the computation of basic and diluted earnings (loss) per share of Xerox Holdings Corporation's common stock:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Basic (Loss) Earnings per Share

Net (Loss) Income Attributable to Xerox Holdings $ ( 383 ) $ 90 $ ( 443 ) $ 220

Basic Earnings (Loss) per Share

Net Income (Loss) Attributable to Xerox Holdings $ 71 $ ( 56 )

Accrued dividends on preferred stock ( 4 ) ( 4 )

Adjusted Net (loss) income available to common shareholders $ ( 387 ) $ 86 $ ( 454 ) $ 209

Adjusted Net income (loss) available to common shareholders $ 67 $ ( 60 )

Weighted average common shares outstanding 156,661 156,362

155,697 179,408 155,799 187,549

Basic (Loss) Earnings per Share $ ( 2.48 ) $ 0.48 $ ( 2.91 ) $ 1.12

Diluted (Loss) Earnings per Share

Net (Loss) Income Attributable to Xerox Holdings $ ( 383 ) $ 90 $ ( 443 ) $ 220

Basic Earnings (Loss) per Share $ 0.43 $ ( 0.38 )

Diluted Earnings (Loss) per Share

Net Income (Loss) Attributable to Xerox Holdings $ 71 $ ( 56 )

Accrued dividends on preferred stock ( 4 ) ( 4 )

Adjusted Net (loss) income available to common shareholders $ ( 387 ) $ 86 $ ( 454 ) $ 209

Adjusted Net income (loss) available to common shareholders $ 67 $ ( 60 )

Weighted average common shares outstanding 156,661 156,362

155,697 179,408 155,799 187,549

Common shares issuable with respect to:

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Adjusted weighted average common shares outstanding 157,746 156,362

Diluted (Loss) Earnings per Share $ ( 2.48 ) $ 0.48 $ ( 2.91 ) $ 1.10

Diluted Earnings (Loss) per Share $ 0.43 $ ( 0.38 )

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

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Dividends per Common Share $ 0.25 $ 0.25

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

Xerox 2023 Form 10-Q 36

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Below is a summary of our Brazilian tax contingencies:

September 30,

2023 December 31,

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Liens on Brazilian assets — —

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

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

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

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

Exposures related to labor matters are not material to the financial statements as of September 30, 2022 and December 31, 2021.

Exposures related to labor matters are not material for the periods presented.

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

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Icahn, et al.:

On December 13, 2019, alleged shareholder Miami Firefighters’ Relief & Pension Fund (“Miami Firefighters”) filed a purported derivative complaint in New York State Supreme Court, New York County on behalf of Xerox Holdings Corporation ("Xerox Holdings") (as nominal defendant) against Carl Icahn and his affiliated entities High River Limited Partnership and Icahn Capital LP (the "Icahn defendants"), Xerox Holdings, and all then-current Xerox Holdings directors (the "Directors").

Plaintiff made no demand on the Board before bringing the action, but instead alleges that doing so would be futile because the Directors lack independence due to alleged direct or indirect relationships with Icahn.

Among other things, the complaint alleges that Icahn controls and dominates Xerox Holdings and therefore owes a fiduciary duty of loyalty to Xerox Holdings, which he breached by acquiring HP stock at a time when he knew that Xerox Holdings was considering an offer to acquire HP or had knowledge of the "obvious merits" of such potential acquisition, and that the Icahn defendants’ holdings of HP common stock have risen in market value by approximately $ 128 since disclosure of the offer.

The complaint includes four causes of

Xerox 2022 Form 10-Q 42

On December 13, 2019, alleged shareholder Miami Firefighters’ Relief & Pension Fund (Miami Firefighters) filed a derivative complaint in New York State Supreme Court, New York County on behalf of Xerox Holdings Corporation (Xerox Holdings) against Carl Icahn and his affiliated entities High River Limited Partnership and Icahn Capital LP (the Icahn defendants), Xerox Holdings, and all then-current Xerox Holdings directors (the Directors).

Xerox Holdings was named as a nominal defendant in the case but no monetary damages are sought against it.

Miami Firefighters alleges:

breach of fiduciary duty of loyalty against the Icahn defendants;

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and breach of fiduciary duty of loyalty against the Directors (for any consent to the Icahn defendants’ purchases of HP common stock while Xerox Holdings was considering acquiring HP).

The complaint seeks a judgment of breach of fiduciary duties against the Icahn defendants and the Directors;

a declaration that Icahn breached his confidentiality agreement with Xerox Holdings;

a constructive trust on Icahn Capital and High River's investments in HP securities;

disgorgement to Xerox Holdings of profits Icahn Capital and High River earned from trading in HP stock;

payment of unspecified damages by the Directors for breaching fiduciary duties;

and attorneys' fees, costs, and other relief the Court deems just and proper.

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

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

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

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

On November 18, 2021, the Appellate Division issued its decision and reversed the lower court’s ruling to the extent that it dismissed the claims asserted against the Icahn defendants.

The claims asserted against the Directors remain dismissed.

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

The Court subsequently stayed all discovery until February 28, 2022, except as related to the issue of the alleged damages sustained by Xerox.

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

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

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

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

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

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

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

On September 30, 2022, the Special Litigation Committee, the Icahn Defendants and plaintiffs filed supplemental briefs in support of the Special Litigation Committee’s renewed motion to dismiss and/or for summary judgment and the Icahn Defendants’ renewed motion for summary judgment.

The parties filed response briefs on October 24, 2022.

Oral argument on the motions is scheduled for November 28, 2022.

Miami Firefighters seeks a judgment of breach of fiduciary duties against the Icahn defendants and the Directors, and disgorgement to Xerox Holdings of profits Icahn Capital and High River earned from trading in HP

Xerox 2023 Form 10-Q 37

This action was consolidated with a similar action brought by Steven J.

Reynolds against the same parties in the same court.

Miami Firefighters’ counsel has been designated as lead counsel in the consolidated action.

Claims asserted against the Directors were later dismissed.

In December 2021, the Xerox Holdings Board approved the formation of a Special Litigation Committee (SLC) to investigate and evaluate Miami Firefighters' claims and determine the course of action that would be in the best interests of the Company and its shareholders.

The SLC concluded that the claims were without merit and pursuing them would not be in the best interest of Xerox or its shareholders.

The SLC's request that those claims be dismissed is pending before a New York state appellate court.

Xerox Holdings Corporation v.

Factory Mutual Insurance Company and Related Actions:

On March 10, 2021, Xerox Holdings Corporation (“Xerox Holdings”) filed a complaint for breach of contract and declaratory judgment against Factory Mutual Insurance Company in Rhode Island Superior Court, Providence County seeking insurance coverage for business interruption losses resulting from the coronavirus/COVID-19 pandemic.

The complaint alleges that defendant agreed to provide Xerox Holdings with up to $ 1 billion in per-occurrence coverage for losses resulting from pandemic-related loss or damage to certain real and other property, including business interruption loss resulting from insured property damage;

that the pandemic had inflicted significant physical loss or damage to property of Xerox Holdings and its direct and indirect customers;

that Xerox Holdings’ worldwide actual and projected losses through the end of 2020 totaled in excess of $ 300 (and is still increasing);

and that following Xerox Holdings' timely and proper claim in March 2020 for coverage under the “all risk” commercial property insurance policy it had purchased from defendant, defendant improperly denied and rejected coverage for most of the claim.

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

damages in an amount to be determined at trial;

consequential damages;

attorneys’ fees and costs;

pre- and post-judgment interest;

and other relief the Court deems just and proper.

Also on March 10, 2021, subsidiaries of Xerox Holdings filed similar complaints and related requests for arbitration in Toronto, London, and Amsterdam for Canadian, UK and European losses.

Xerox 2022 Form 10-Q 43

Xerox Holdings consented to defendant’s request for an extension of its time in which to answer or otherwise respond to the complaint.

On May 6, 2021, FMG filed its answer to the complaint.

The parties thereafter agreed to stay all non-U.S.

On March 10, 2021, Xerox Holdings Corporation (Xerox Holdings) filed a complaint for breach of contract and declaratory judgment against Factory Mutual Insurance Company (FM) in Rhode Island Superior Court, Providence County seeking insurance coverage for business interruption losses resulting from the coronavirus/COVID-19 pandemic.

Xerox Holdings alleges that FM agreed to provide Xerox Holdings with up to $ 1 billion in per-occurrence coverage for losses resulting from pandemic-related loss or damage to certain real and other property, including business interruption loss resulting from insured property damage;

that Xerox Holdings’ worldwide actual and projected losses through the end of 2020 totaled in excess of $ 300 ;

and that FM incorrectly denied coverage for those losses.

Xerox Holdings seeks full coverage of costs and losses under FM’s policy.

Subsidiaries of Xerox Holdings filed similar complaints and related requests for arbitration in Toronto, London, and Amsterdam for Canadian, UK and European losses.

The parties have agreed to stay all non-U.S.

proceedings pending the outcome of the U.S.

We have issued or provided approximately $ 253 of guarantees as of September 30, 2022 in the form of letters of credit or surety bonds issued to i) support certain insurance programs;

litigation is in abeyance as the Rhode Island Supreme Court prepares to hear another COVID-19 insurance coverage case against a FM affiliate with overlapping legal issues.

We have issued or provided approximately $ 238 of guarantees as of March 31, 2023 in the form of letters of credit or surety bonds issued to i) support certain insurance programs;

ii) support our obligations related to the Brazil contingencies;

and iii) support certain contracts, primarily with public sector customers, which require us to provide a surety bond as a guarantee of our performance of contractual obligations.

In general, we would only be liable for the amount of these guarantees in the event we defaulted in performing our obligations under each contract, the probability of which we believe is remote.

iii) support our obligations related to our U.K.

pension plans;

and iv) support certain contracts, primarily with public sector customers, which require us to provide a surety bond as a guarantee of our performance of contractual obligations.

In general, we would only be liable for the amount of these guarantees in the event we, or one of our direct or indirect subsidiaries whose obligations we have guaranteed, defaulted in performing our obligations under each contract;

the probability of which we believe is remote.

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

Note 21 – Subsequent Event

Donation of Palo Alto Research Center (PARC)

On April 29, 2023, Xerox completed the donation of its Palo Alto Research Center (PARC) subsidiary to SRI International (SRI), a nonprofit research institute.

The donation enables Xerox to focus on its core businesses and prioritize growth through its business technology solutions for customers in Print, as well as Digital Services and IT Services.

The donation also allows PARC to reach its full potential through SRI’s resources and deep-tech expertise that will enable PARC to focus exclusively on the development of pioneering new technologies.

The majority of patents held by PARC will be retained by Xerox with a perpetual license to use those patents being provided to SRI.

Xerox, at its option, will also continue to receive certain research services from SRI.

At this time, we are still evaluating the financial impact of the donation including the valuation of the business, the required allocation of goodwill and associated income tax benefit, which could result in a material non-cash loss on disposal, net of any related tax benefit.

The donation is not expected to materially impact future results of operations or cash flows of the Company.

Xerox 2023 Form 10-Q 38

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

What changed 10-Q

Item 1. Financial Statements