What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-23 · 481 added, 642 removed, 707 unchanged (61% of the section changed)

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

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

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

Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition.

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

The investments are primarily equity or equity-linked securities and for less than 20% ownership.

Xerox Ventures LLC had investments of approximately $26 million and $21 million at December 31, 2023 and 2022, respectively.

In January 2024, Myriad Ventures Fund I LP was established, and the investments held by Xerox Ventures LLC were transferred to this new entity, which will continue to be fully consolidated by Xerox Holdings.

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

Executive Overview

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

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

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

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

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

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

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

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

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

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

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

installed, including orders with future installation dates.

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

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

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

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

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

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

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

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

We also expect 2023

2023 was a pivotal year for Xerox and marked the first full year of our Reinvention, a multi-year strategy to reposition our business for long-term, sustainable growth.

We took structural and foundational actions to improve our core business and simplify operations, resulting in greater operational focus and a clear path for more transformative Reinvention actions in 2024 and beyond.

For the full year, the Company delivered growth in earnings and operating cash flows despite a modest decline in revenue, reflecting the successful implementation of a more flexible cost structure and rigorous operating discipline.

Total revenue for full year 2023 of $6.9 billion decreased 3.1% and included a 0.8-percentage point benefit from acquisitions, as well as a 0.2-percentage point benefit from currency.

Recent Changes and Developments

2023 was the first full year of our Reinvention, which is expected to transform the way we operate, strengthening our core business and improving our flexibility so we can invest in the solutions, initiatives, and capabilities that will position Xerox as a leading services-led, software-enabled technology solutions provider and deliver long-term, sustainable growth.

In January 2024, we announced a significant reorganization of our business, including the adoption of a business unit-led operating model, a greater focus on partner-led distribution and the establishment of a Global Business Services (GBS) organization to enable enterprise-wide efficiencies and productivity gains.

These changes are expected to both strengthen our core business and position us to capture new, ancillary revenue opportunities over time.

Reinvention is expected to deliver at least $300 million of annual net adjusted 1 operating income improvement above 2023 levels through 2026 and we expect to achieve more than one-third of that improvement in 2024, due in large part to organizational cost savings associated with the restructuring action announced in January 2024.

Operating profit improvement will be driven by three concurrent efforts over the next three years:

• Operating Model Simplification:

– Continuous, tech-driven operating efficiencies enabled by GBS.

• Geographic and Offering Simplification:

– Replace direct to end-customer with partner-led distribution model in current markets with lower levels of profitability;

– Narrow product and service offering focus to areas where we have strategic differentiation.

• Reposition for Growth:

– Tactical investments in Digital and IT Services, driving expanded services penetration among existing and new clients.

Xerox 2023 Annual Report 27

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

Capital expenditures are expected to be approximately $50 million.

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

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

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

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

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

Goodwill Impairment

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

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

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

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

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

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

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

During 2023, we also divested several businesses that were non-core to Print, Digital and IT Services, including PARC, Xerox Research Center of Canada (XRCC), and Elem, our 3D printing business.

We also expanded our partnership with PEAC Solutions, an affiliate of HPS Investment Partners, allowing FITTLE to focus exclusively on financial solutions that support the direct sales of Xerox equipment and solutions.

We also reduced our presence in certain non-strategic markets with lower levels of profitability, such as paper and low margin endpoint IT hardware.

Refer to Restructuring and Related Costs, Net section of the MD&A and Note 13 - Restructuring Programs in the Consolidated Financial Statements for additional information regarding costs incurred to implement initiatives under our business transformation projects including Reinvention and the impacts from other divestitures.

Refer to Note 6 - Acquisitions and Divestitures in the Consolidated Financial Statements for additional information regarding the donation of PARC.

Russia-Ukraine Conflict

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

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

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

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

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

Reportable Segment Change

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

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

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

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

Finally, in October 2023, we completed the sale of our Russian subsidiary, fully exiting from this market.

Refer to Note 13 - Restructuring Programs in the Consolidated Financial Statements for additional information regarding this divestiture.

Segment Reporting Change

During the second quarter of 2023, the Company recast FITTLE’s segment revenues and profits measures to reflect the strategic shift in the Company’s approach to funding FITTLE through finance receivable funding agreements that involve the sale of lease receivables.

Refer to Note 4 - Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information regarding this reporting change.

Business Overview

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

Workplace Solutions revenues include the sale of products (captured primarily as equipment sales) as well as the supplies and associated technical services and the financing of those products through FITTLE (captured as post sale revenue).

Workplace Solutions revenues include the sale of products (captured primarily as equipment sales) as well as the supplies and associated maintenance services and the financing of those products through FITTLE (captured as post sale revenue).

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

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

Xerox 2022 Annual Report 29

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

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

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

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

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

Headquartered in Norwalk, Connecticut, with approximately 20,100 employees, Xerox serves customers globally in North America, Central and South America, Brazil, Europe, Eurasia, the Middle East, Africa and India.

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

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

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

In 2023, approximately 45% of our revenue was generated outside the United States.

Strategic Priorities

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

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

• Customer Success :

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

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

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

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

• Focus on Profitability:

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

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

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

• Shareholder Returns:

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

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

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

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

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

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

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

Post-sale Based Business Model

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

In 2023, 76% of our total revenue was post-sale-based, which primarily reflects contractual print services 2 , supplies and financing.

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

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

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

Xerox 2023 Annual Report 28

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

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

Project Own It

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

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

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

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

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

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

Post sale revenue also includes transactional IT hardware sales and other Managed IT services revenues, a growing part of our business as a result of recent acquisitions, as well as gains and commissions, and servicing revenue on the sale of finance receivables.

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

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

Financial Overview

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

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

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

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

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

Total revenue of $6.9 billion in 2023 decreased 3.1% and included a 0.8-percentage point benefit from acquisitions, as well as a 0.2-percentage point benefit from currency.

The decrease in revenue was attributable to lower post sale revenue reflecting the intentional reduction of non-strategic revenue - paper and IT endpoint device placement sales, as well as the termination of Fuji royalty income and the donation of PARC.

2023 total revenue reflected a decrease in Post sale revenue of 4.6%, which included a 1.1-percentage point benefit from acquisitions, as well as a 0.2-percentage point benefit from currency.

Equipment sales revenue increased 1.9% and included a 0.2-percentage point benefit from currency.

Net income (loss) was as follows:

Year Ended December 31, B/(W)

(in millions) 2023 2022 2021 2023 2022

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

Adjusted (1) Net income attributable to Xerox Holdings

Net income (loss) $ 1 $ (322) $ (455) $ 323 $ 133

Adjusted (1) Net income

287 189 293 98 (104)

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

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

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

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

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

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

Net income for 2023 of $1 million improved by $323 million as compared to Net (loss) of $(322) million in 2022.

The increase in Net income is primarily due to the Goodwill impairment charge of $395 million ($412 million pre-tax) in 2022, as well as the impact of lower supply chain-related costs, lower RD&E expenses and Selling, administrative and general expenses, and a higher benefit from Income taxes.

These favorable impacts were partially offset by the after-tax PARC donation charge of $92 million ($132 million pre-tax) in the second quarter 2023, lower revenue, Restructuring and related costs, net, which were $102 million higher than 2022, and higher Other expenses, net.

Adjusted 1 net income for 2023 of $287 million increased $98 million as compared to 2022 primarily reflecting the impact of lower supply chain-related costs, as well as lower RD&E expenses and Selling, administrative and general expenses, which were primarily due to divestitures, cost reduction and productivity actions.

These favorable impacts were partially offset by lower revenue, and higher Other expenses, net.

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

Xerox 2022 Annual Report 31

A summary of our segment information is as follows:

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Print and Other $ 6,571 $ 6,804 $ 6,729 (3.4) % 1.1 % 95 % 96 %

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

401 393 401 2.0 % (2.0) % 6 % 5 %

Intersegment Elimination (1)

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Print and Other $ 360 $ 258 $ 311 39.5 % (17.0) % 93 % 94 %

Financing (FITTLE)

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

29 17 64 70.6 % (73.4) % 7 % 6 %

Total Profit $ 389 $ 275 $ 375 41.5 % (26.7) % 100 % 100 %

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

NM - change is not meaningful.

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

Cash from operating activities was $686 million in 2023 as compared to $159 million in 2022.

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

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

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

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

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

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

The increase of $527 million was primarily related to reductions in finance receivables due to on-going sales of finance receivables under our finance receivables funding agreement, as well as higher net income, partially offset by an increased use of cash for working capital 1 , particularly accounts payable.

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

Xerox 2023 Annual Report 29

Core print and services business revenue is expected to be roughly flat year-over-year, reflecting stable Print demand, growth in Digital and IT Services and neutral macroeconomic conditions.

However, total revenue trends in 2024 are expected to be moderately impacted negatively by the effects of prior year backlog reductions as well as the exit or deemphasis of non-strategic businesses – all of which are unrelated to the performance of our core businesses.

We expect profit margins to improve in 2024 primarily driven by structural simplification actions enabled by our reorganization, including the effects of the workforce reduction decisions announced in January 2024.

We expect Operating cash flows to be approximately $650 million, which is expected to benefit from a reduction in our finance receivables balance.

Improvements in cash flow from underlying operations are expected to be offset by restructuring payments, higher cash taxes and an increase in pension contributions.

Capital expenditures are expected to be approximately $50 million.

Currency Impact

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Dollars on revenue and expenses.

We refer to this analysis as "constant currency", “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate and is calculated for all countries where the functional currency is the local country currency.

This impact is calculated for all countries where the functional currency is the local country currency.

We do not hedge the translation effect of revenues or expenses denominated in currencies where the local currency is the functional currency.

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Dollar is normally not the functional currency.

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

As a result, foreign currency translation had a 0.2-percentage point favorable impact on revenue in 2023 and a 3.8-percentage point adverse impact on revenue in 2022.

Xerox 2023 Annual Report 30

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

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

Sales made under bundled lease arrangements directly to end customers comprise approximately 56% or $920 million of our equipment sales revenue.

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

The allocation of revenue among the elements – equipment vs.

post sale (service, supplies and financing) – has remained fairly consistent at approximately 25% and 75%, respectively, over the past three years.

The allocation of revenue among the elements – equipment versus post sale (service, supplies and financing) – has remained fairly consistent at approximately 25% and 75%, respectively, over the past three years.

Sales to Distributors and Resellers :

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Our methodology includes an expected loss model that incorporates an assessment of current and future economic conditions.

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

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

We continue to

We recorded bad debt provisions of $28 million, $43 million and $7 million in Selling, administrative and general (SAG) expenses in our Consolidated Statements of Income (Loss) for the three years ended December 31, 2023, 2022 and 2021, respectively.

The reserves, as a percentage of trade and finance receivables, were 4.4% at

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

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

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

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

December 31, 2023, as compared to 4.1% and 4.3% at December 31, 2022 and 2021, respectively.

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

In 2023, we recorded approximately $12 million of bad debt reversals related to our finance receivable provision, primarily related to a reserve release in the U.S.

due to the favorable reassessment of the credit exposure on a large customer receivable balance after a contract amendment, which improved our credit position.

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

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

The bad debt provision in 2022 and 2023 has been more in-line with historical trends but the reserve as a percentage of our trade and finance receivables balance remains elevated to cover expected losses that may result from future macroeconomic conditions including higher inflation and interest rates.

During the five-year period ended December 31, 2023, our reserve for doubtful accounts ranged from 3.0% to 4.8% of gross receivables.

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We sponsor defined benefit pension plans in various forms in several countries covering employees who meet eligibility requirements.

Where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefit accruals for future service, including our primary U.S.

defined benefit plan for salaried employees, the Canadian Salary Pension Plan and the U.K.

Where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefit accruals for future service, including our U.S.

defined benefit plans, the Canadian Salary Pension Plan and the U.K.

Final Salary Pension Plan.

In certain Non-U.S.

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

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

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

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

Our pension plan in the Netherlands for past service is a Collective Defined Contribution (CDC) plan with future service benefits provided in a defined contribution plan for 2023 and later years.

From a Company risk perspective, this CDC plan operates just like a defined contribution plan as the Company was only responsible for a contribution for annual benefit accruals under 5-year agreements through 2022.

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

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

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

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

In December 2023, the Trustees for the U.K.

pension plan entered an insurance buy-in contract, in accordance with U.K.

pension regulations.

The insurance buy-in contract is a group annuity contract that is expected to provide an income stream to cover a significant majority of the cash flows arising for the plan population with future contracted payments.

However, the benefit obligation remains with the plan and the Company.

This arrangement further mitigates the company's risk associated with these obligations.

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

These factors include assumptions we make about the expected return on plan assets, discount rate, lump-sum settlement rates, the rate of future compensation increases and mortality.

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

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

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

settlement losses as well as currency.

Cumulative net actuarial losses for our defined benefit pension plans of $2.3 billion as of December 31, 2023 increased by $388 million from December 31, 2022, primarily due to the impact of lower discount rates and the resultant increase of the Projected Benefit Obligation (PBO), the excess of expected returns over actual returns as well as the impact from unfavorable currency, partially offset by the recognition of actuarial losses through amortization and U.S.

settlement losses.

The total actuarial loss at December 31, 2023 is subject to offsetting gains or losses in the future due to both changes in actuarial assumptions and future experience and will be recognized in future periods through amortization or settlement losses.

We used a consolidated weighted average expected rate of return on plan assets of 5.2% for 2023, 3.9% for 2022 and 3.9% for 2021, on a worldwide basis.

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

During 2023, the actual return on plan assets was a gain of $193 million as compared to an expected return of $320 million, with the difference primarily due to lower returns than expected in our U.K.

Plan as we managed and repositioned plan assets in anticipation of entering in the buy-in contract.

When estimating the 2024 expected rate of return, in addition to assessing recent performance, we considered the historical returns earned on plan assets, the rates of return expected in the future, particularly in light of current economic conditions, and our investment strategy and mix with respect to the plans' assets.

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

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

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

The weighted average expected rate of return on plan assets we will use in 2024 is 5.2% which is flat as compared to 2023.

Xerox 2023 Annual Report 32

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

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

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

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the rate used to calculate our obligations as of December 31, 2022 and our 2023 expense was 4.7%.

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

The decrease reflects lower interest rates in both the U.S.

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

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(in millions) 0.25% Increase 0.25% Decrease 0.25% Increase 0.25% Decrease

Increase/(Decrease)

(Decrease)/Increase

2024 Projected net periodic pension cost

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In 2024, we estimate approximately $185 million of plan settlements and settlement losses of approximately $50 million.

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

The following is a summary of our benefit plan expenses for the three years ended December 31, 2023, 2022 and 2021, as well as estimated amounts for 2024:

Estimated Actual

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

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

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

(3) The 2018 U.S.

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

Subsequent amendments have further increased the amortization credits and the postretirement benefit (income).

(4) The increase in 2024 expense is primarily due to an increase in actuarial losses subject to amortization and the resultant increase in the amortization of these prior period losses.

Xerox 2023 Annual Report 33

The following is a summary of our benefit plan funding for the three years ended December 31, 2023, 2022 and 2021, as well as estimated amounts for 2024:

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_____________

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

(1) The difference of $20 million between the 2022 funded amount of $17 million and the 2022 expense of $37 million is due to contributions for our U.S.

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

Xerox 2022 Annual Report 35

The 2022 U.S.

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

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

tax-qualified defined benefit plans.

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

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

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

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

Approximately $30 million of the U.S.

pension contributions in 2023 were for our tax-qualified defined benefit plans.

Approximately $80 million of estimated U.S.

pension contributions for 2024 are for our tax-qualified defined benefit plans.

However, once the next actuarial valuations and projected results are available, actual contributions required to meet minimum funding requirements will be determined and finalized and may change from the current estimate.

The decrease in non-U.S.

Defined benefit pension plan contributions in 2023 is due to no further contributions to our U.K.

defined benefit pension plan being required after October 2022 following agreement of the triennial valuation of the Plan with the Plan Trustees.

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

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

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

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

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

Our valuation allowance changed through income tax expense by approximately $(4) million, $7 million and $(9) million for the years ended December 31, 2023, 2022 and 2021, respectively.

There were other changes to our valuation allowance, including the effects of currency, of $13 million, $2 million and $(30) million for the years ended December 31, 2023, 2022 and 2021, respectively.

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

The following is a summary of gross deferred tax assets and the related valuation allowances for the years ended December 31, 2023, 2022 and 2021:

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Net deferred tax assets $ 892 $ 772 $ 705

Xerox 2023 Annual Report 34

We are subject to ongoing tax examinations and assessments in various jurisdictions.

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

Xerox 2022 Annual Report 36

Business Combinations and Goodwill

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Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

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

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

Our Goodwill, net balance was $2.7 billion at December 31, 2023.

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

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

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

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

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

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

A reporting unit is the same as, or one level below, an operating segment.

The Company has two operating/reportable segments - Print and Other, and FITTLE.

We determined that the Print and Other, and FITTLE operating segments were also our reporting units for Goodwill assessment purposes.

The Goodwill, net balance is fully allocated to the Print and Other reporting unit and no Goodwill has been allocated to the FITTLE reporting unit.

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

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When performing our market approach, we rely specifically on the guideline public company method.

Our guideline public company method incorporates revenues and earnings multiples from publicly traded companies with operations and other characteristics similar to our entity.

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

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

Xerox 2022 Annual Report 37

First Quarter 2022 - Change in Segments

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

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

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

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

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

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

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

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

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

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

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

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

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

Third Quarter 2022 - Goodwill Impairment

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

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

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

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

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

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

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

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

Our guideline public company method incorporates revenues and earnings multiples from publicly traded companies

Xerox 2023 Annual Report 35

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

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

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

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

2022 Annual Impairment Summary

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

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

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

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

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

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

with operations and other characteristics similar to our entity.

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

In 2023, as a result of favorable operating results as compared to prior projections and a fairly stable market capitalization, we performed our annual Goodwill assessment in the fourth quarter 2023 qualitatively.

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

Our qualitative review indicated that our 2023 actual results as well as our latest full year 2024 projections are in line with the projections used in our third quarter 2022 quantitative impairment test, which was when we last performed a quantitative assessment and recorded a goodwill impairment charge.

In addition, discounts rates as well as the Company’s market capitalization in the fourth quarter 2023 have remained consistent with the third quarter 2022.

If the Company's future performance varies from current expectations, assumptions, or estimates, including assumptions related to current macro-economic uncertainties as well as the expected benefits from the Company’s Reinvention project, this may impact impairment analysis in future periods.

The impact could result in a reduction in the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

We will continue to monitor developments in 2024 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.

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

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Total Revenue $ 6,886 $ 7,107 $ 7,038 (3.1) % 1.0 % (3.3) % 4.8 % 100 % 100 % 100 %

Reconciliation to Consolidated Statements of (Loss) Income:

Reconciliation to Consolidated Statements of Income (Loss):

Sales $ 2,720 $ 2,800 $ 2,582 (2.9) % 8.4 % (3.4) % 12.2 %

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Print and Other $ 6,571 $ 6,804 $ 6,729 (3.4) % 1.1 % 95 % 96 % 95 %

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

FITTLE 401 393 401 2.0 % (2.0) % 6 % 5 % 6 %

Intersegment elimination (1)

(86) (90) (92) (4.4) % (2.2) % (1) % (1) % (1) %

Total Revenue (2)

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

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

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

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

2022 was a challenging year.

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

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

2023 results were affected by uneven macroeconomic conditions, current and prior year reductions in equipment backlog 1 and the intentional reduction of certain non-strategic revenue.

Total revenue decreased 3.1% for the year ended December 31, 2023 and included a 0.8-percentage point benefit from acquisitions and a 0.2-percentage point benefit from currency.

Contractual print services 2 declined modestly, due to lower production print activity, our exit from Russ ia and a shift in distribution strategy for one of our European markets, partially offset by Digital and Managed IT Services revenue growth, which includes the benefits from an acquisition.

The decrease in Post sale revenue was partially offset by growth in equipment sales revenue, reflecting stable demand, higher pricing, and favorable mix, as well as improved product supply availability and the associated year-over-year reduction in backlog.

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

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

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

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

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

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

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

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

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

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

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

Contractual print services 2 grew low single digits at constant currency 3 , including the benefit of recent acquisitions.

Xerox 2023 Annual Report 37

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

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

Geographically, revenue in our Americas region decreased 2.5% for the year ended December 31, 2023, as compared to the prior year, including a 0.1-percentage point adverse impact from currency.

The decline in revenue reflects lower post sale revenue, partially offset by higher equipment sales, resulting from increased product availability.

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

Revenue in our EMEA operations decreased 2.2% for the year ended December 31, 2023, as compared to the prior year, with a 0.7-percentage point benefit from currency, driven by lower equipment sales revenue, due to prior year backlog reductions, which was partially offset by higher post sale revenue.

The increase in post sale revenue primarily reflected the benefits of a recent acquisition, partially offset by lower paper sales.

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

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

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

______________

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

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

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

installed, including orders with future installation dates.

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

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

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

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

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

Total revenues included the following:

Post sale revenue

Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing.

Post sale revenue reflects revenues from Contractual print services 1 , supplies and financing.

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

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

Post sale revenue also includes transactional IT hardware sales and other Managed IT services, as well as gains and commissions, and servicing revenue on the sale of finance receivables.

For the year ended December 31, 2023, Post sale revenue decreased 4.6% as compared to the prior year, which included a 1.1-percentage point benefit from an acquisition, as well as a 0.2-percentage point benefit from currency.

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

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

Post sale revenue is comprised of the following:

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

Services, maintenance and rentals revenue includes maintenance revenue (including bundled supplies), print and digital services revenue from our Services offerings, rentals and other revenues.

• For the year ended December 31, 2023, these revenues decreased 3.0% as compared to the prior year period and included no impact from currency.

The decline in revenues was due in part to the termination of Fuji royalty income and the donation of PARC.

Contractual print services 1 revenue decreased modestly as compared to the prior year period, primarily reflecting declines in production print activity, our exit from Russia and the shift in distribution strategy for one of our European markets.

These declines were partially offset by revenue growth in Digital and Managed IT Services, which includes the benefits of a recent acquisition, and price increases, as well as gains and commissions, and servicing revenue on sales of finance receivables.

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

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

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

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

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

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

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

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

• For the year ended December 31, 2023, these revenues decreased 9.4% as compared to the prior year, including a 1.1-percentage point benefit from currency, primarily reflecting lower paper sales, as well as IT hardware, particularly endpoint devices, and unbundled supplies revenue.

Paper and IT endpoint sales are low margin and non-strategic, and are expected to be reduced further over time.

Xerox 2023 Annual Report 38

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

The increase at constant currency 2 primarily reflected higher IT Services revenues, which included revenues from the recent acquisition of Powerland as well as higher paper and supplies revenues driven by higher channel demand.

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

This increase at constant currency 1 primarily reflected higher supplies and paper revenues consistent with the gradual reopening of workplaces, which drove higher demand.

We also saw a marginal improvement in inventories carried by channel partners, as confidence in the recovery continued to moderately improve.

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

Xerox 2022 Annual Report 41

Financing revenue is generated from financed equipment sale transactions.

Financing revenue is generated from direct and indirect financing of Xerox equipment.

• For the year ended December 31, 2023, Financing revenue decreased 7.7% as compared to the prior year, including a 0.3-percentage point benefit from currency.

The decline at constant currency 2 reflects a reduction of the average finance receivables balance during 2023 as a result of the sales of finance receivables to HPS Investment Partners (HPS).

Finance receivables were approximately $600 million lower in December of 2023 as compared to December of 2022.

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

1 unchanged sentence

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

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

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

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

_____________

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

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

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

Equipment sales revenue

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

Equipment sales revenue increased 1.9% for the year ended December 31, 2023 as compared to the prior year, including a 0.2-percentage point benefit from currency.

The increase in constant currency 1 reflects improvement in product availability for higher-margin mid-range and high-end devices, in the Americas region, as well as recent pricing actions and stable demand conditions.

These increases were partially offset by lower revenue from the Entry product group, primarily in EMEA, as compared to the prior year period.

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

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

1 unchanged sentence

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

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

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

Demand increased during the year as businesses reopened, resulting in a backlog 2 of orders at the end of 2021 that was nearly 150% higher than the prior year and higher than pre-pandemic levels.

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

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

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

than other markets.

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

Geographic Sales Channels

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

In 2023 our geographic sales channels were as follows:

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

2 unchanged sentences

• Other , primarily includes royalties and licensing revenue.

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

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

_____________

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

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

installed, including orders with future installation dates.

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

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

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

Xerox 2023 Annual Report 39

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SAG as a % of Revenue 24.6 % 24.8 % 24.4 % 0.2 pts.

Pre-tax (Loss) Income (1)

Pre-tax Loss (1)

$ (28) $ (325) $ (472) $ 297 $ 147

Pre-tax (Loss) Income Margin (1)

Pre-tax Loss Margin (1)

(0.4) % (4.6) % (6.7) % 4.2 pts.

4 unchanged sentences

_____________

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

(1) 2023 includes the pre-tax PARC donation charge of $132 million, while 2022 and 2021 include pre-tax non-cash Goodwill impairment charges of $412 million and $781 million, respectively.

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

Pre-tax (Loss) Income Margin

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

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

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

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

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

a decrease of 5.3%.

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

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

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

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

Adjusted 1 Operating Margin

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

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

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

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

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

The decrease primarily reflects an approximate 1.5-percentage point negative impact of supply chain disruptions, including higher shipping and logistics costs, and an unfavorable mix of equipment revenue due

Xerox 2022 Annual Report 43

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

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

These unfavorable factors were partially offset by an approximate 1.5-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year, reflecting the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic.

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

_____________

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

Total gross margin for the year ended December 31, 2023 of 33.6% increased 1.0-percentage points compared to 2022, primarily reflecting lower supply chain-related costs, favorable equipment mix, and the benefits associated with recent pricing and cost and productivity actions, as well as gains and commissions, and servicing revenues on sales of finance receivables.

These favorable impacts were partially offset by lower revenue, which includes the termination of Fuji royalty income, and price increases from a product supplier, as well as lower financing margin.

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

1 unchanged sentence

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

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

The remainder of the decline reflects the impact of lower savings from temporary government assistance and furlough measures, lower royalty revenue from FUJIFILM Business Innovation Corp.

and higher mix of services with lower per-page revenues.

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

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

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

Equipment gross margin for the year ended December 31, 2023 of 33.7% increased 8.6-percentage points compared to 2022, primarily reflecting higher revenue, a favorable product and channel mix, lower supply chain-related costs, and the benefits associated with recent pricing actions.

These favorable impacts were partially offset by price increases from a product supplier.

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

Post sale gross margin for the year ended December 31, 2023 of 33.6% decreased 1.3-percentage points compared to 2022, reflecting lower revenue due to the termination of Fuji royalty income, and lost revenues as a result of the donation of PARC, as well as a lower financing margin.

Financing margin decreased primarily due to higher interest costs.

These impacts were partially offset by the benefits associated cost and productivity actions and lower supply chain-related costs, as well as gains and commissions, and servicing revenues on sales of finance receivables.

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

1 unchanged sentence

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

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

Xerox 2023 Annual Report 40

Research, Development and Engineering Expenses (RD&E)

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Total RD&E Expenses $ 229 $ 304 $ 310 $ (75) $ (6)

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

Spending in innovation areas was

Xerox 2022 Annual Report 44

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

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

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

RD&E as a percentage of revenue for the year ended December 31, 2023 of 3.3% decreased 1.0-percentage points as compared to 2022, and RD&E of $229 million for the year ended December 31, 2023 decreased $75 million as compared to 2022.

The decrease was primarily due to the strategic decision to donate PARC and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses.

The lower spending in innovation reflects decisions which provide greater focus and financial flexibility to pursue growth opportunities adjacent to our core operations within Print, Digital and Managed IT services.

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

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

Selling, Administrative and General Expenses (SAG)

SAG as a percentage of revenue of 24.6% decreased 0.2-percentage points for the year ended December 31, 2023 as compared to 2022.

SAG expenses of $1,696 million for the year ended December 31, 2023 were $64 million lower than 2022 primarily reflecting the prior year stock compensation expense of $21 million associated with the accelerated vesting of all outstanding equity awards in connection with the passing of Xerox Holding's former CEO.

SAG also benefited from productivity and cost savings, including savings related to restructuring actions, the strategic decision to donate PARC and other dispositions as well as a reduced investment in new businesses.

Additionally, the decrease in SAG also reflected lower bad debt expense, lower supply chain-related costs, and the favorable true-up of prior year shared services contract costs.

These benefits were partially offset by higher incentive compensation expense and marketing expenses, and the impact of an acquisition.

Bad debt expense for the year ended December 31, 2023 of $28 million decreased $15 million as compared to the prior year, primarily due a lower finance receivable provision of $20 million partially offset by higher provision for trade receivables of $5 million.

The decrease in the 2023 finance receivable provision reflected a reserve release of approximately $12 million as a result of a favorable reassessment of the credit exposure on a large customer receivable balance as well as the benefits related to the sale of finance receivables on a non-recourse basis as part of our on-going finance receivables funding agreement.

The increase in the trade receivable provisions is partly due to an increase in aged receivables in the U.S.

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

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

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

The higher stock compensation expense was primarily due to the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO.

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

The increase in SAG expenses was also due to acquisitions, investments in FITTLE, as well as benefits from temporary government assistance in 2021.

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

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

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

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

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

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

The remaining decrease was primarily due to the impact of lower selling expenses, as a result of cost savings and restructuring associated with our Project Own It transformation actions, and savings from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs and employee benefit programs).

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

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

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

Bad debt expense for the year ended December 31, 2022 of $43 million increased $36 million as compared to the prior year period, primarily due to reserve releases of approximately $31 million in 2021 as well as increased provisions as a result of macroeconomic conditions during the year.

Refer to Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our bad debt provision and related reserves.

Xerox 2023 Annual Report 41

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We incurred restructuring and related costs, net of $167 million, $65 million and $38 million for the three years ended December 31, 2023, 2022 and 2021, respectively.

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

The following is a breakdown of those costs:

These costs were primarily related to the implementation of initiatives under our business transformation projects to reduce and realign our cost structure to the changing nature of our business.

Restructuring and related costs, net reflect the following components:

Year Ended December 31,

(in millions) 2022 2021 2020

Restructuring and severance costs (1)

2023 2022 2021

Asset impairments - leased right-of-use assets (2)

Asset impairments - owned assets (2)

Other contractual termination costs (3)

Other charges/credits (4)

(32) (21) (29)

Restructuring and asset impairment costs 62 27 87

Retention-related severance/bonuses (5)

Contractual severance costs (6)

Consulting and other costs (7)

Total $ 65 $ 38 $ 93

Restructuring charges, net (1)

$ 114 $ 68 $ 18

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

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

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

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

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

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

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

The reversals in 2020 reflect a change in estimates.

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

2022 actions impacted several functional areas, with approximately 40% focused on gross margin improvements and approximately 55% focused on SAG reductions, and the remainder focused on RD&E optimizations.

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

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

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

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

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

Restructuring Summary

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

Asset impairment charges, net 32 (6) 9

Related costs, net 21 3 11

Total Restructuring and related costs, net $ 167 $ 65 $ 38

(1) Reflects net headcount reductions of approximately 2,125, 1,940, and 525 for the three years ended 2023, 2022 and 2021, respectively.

2023 Restructuring charges, net includes a pre-tax charge of $104 million associated with the workforce reduction announced in January 2024 as part of the reorganization of our business and the establishment of a Global Business Services (GBS) organization to enable enterprise-wide efficiencies and productivity gains.

2023 actions impacted several functional areas, with approximately 25% focused on gross margin improvements, approximately 65% focused on SAG reductions, and the remainder focused on RD&E optimization.

We expect 2024 pre-tax savings of approximately $165 million from our 2023 restructuring actions, with a significant portion related to the workforce reduction announced in January 2024.

2023 activity also include asset impairment charges of $32 million primarily associated with the following:

• The sale of our Russian subsidiary, which was completed in October 2023;

• The sale of our Xerox Research Center of Canada (XRCC), which was completed in July 2023;

• The strategic actions taken as a result of the Company's Reinvention, including the outsourcing of certain back-office functions and geographic simplification.

Restructuring and related costs for 2023 also included related costs of $21 million primarily related to consulting and other costs associated with our initiatives.

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

The restructuring reserve balance as of December 31, 2023, for all programs, was $137 million, of which $127 million is expected to be paid over the next twelve months.

Amortization of Intangible Assets

Amortization of intangible assets for the three years ended December 31, 2023 , 2022 and 2021 was $43 million, $42 million and $55 million, respectively.

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

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

Xerox 2022 Annual Report 46

Transaction and Related Costs, Net

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

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

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

in early 2020.

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

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

Worldwide Employment

Worldwide employment was approximately 20,100 as of December 31, 2023, a decrease of approximately 400 from December 31, 2022.

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

The reduction in headcount resulted from net attrition (attrition net of gross hires) and restructuring.

Xerox 2023 Annual Report 42

Other Expenses, Net

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Loss on early extinguishment of debt 10 5 —

Litigation matters 4 2 (1)

Contract termination costs 33 — 3

Contract termination costs - product supply — 33 —

Excess contribution refund (6) (16) —

2 unchanged sentences

Other expenses, net $ 75 $ 60 $ (27)

_____________

(1) Includes Equity income of $(4) million, $(3) million and $(3) million and Noncontrolling interest charge of $3 million, $0 million and $0 million for the three years ended December 31, 2023, 2022 and 2021, respectively.

Non-Financing Interest Expense

Non-financing interest expense for the year ended December 31, 2023 of $68 million was $23 million lower than 2022.

The decrease was related to lower average non-financing debt as a result of the repayment of Senior Notes in 2022 and the first quarter 2023, partially offset by higher interest rates on new debt.

When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense of $198 million decreased by $1 million from the prior year period primarily reflecting a lower average debt balance mostly offset by the impact of higher average interest rates.

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

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

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

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

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

For the years ended December 31, 2023, 2022 and 2021, both Xerox Holdings and Xerox reported total interest expense of $198 million, $199 million and $207 million, respectively, however, the amount reported by Xerox includes $80 million of interest expense, in each of the three years, paid to Xerox Holdings on an Intercompany Loan.

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

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Interest Income

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

Xerox 2022 Annual Report 47

Interest income for the year ended December 31, 2023 was $5 million higher than 2022, and for the year ended December 31, 2022 was $7 million higher than 2021.

The increase in both years was due to higher interest rates, partially offset by a lower cash balance.

Non-Service Retirement-Related Costs

Non-service retirement-related costs increased $31 million for the year ended December 31, 2023 as compared to 2022.

The increase primarily reflects higher interest cost associated with higher discount rates as well as a decrease in the expected return on plan assets, partially offset by lower settlement losses.

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

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

Service retirement-related costs, which are included in operating expenses, were $6 million, $18 million and $24 million for December 31, 2023, 2022 and 2021, respectively.

The decrease in service-related costs for the year ended December 31, 2023 as compared to 2022 is primarily due to the transition of our pension plan in the Netherlands to a Defined Contribution Plan for future service at the end of 2022.

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

Xerox 2023 Annual Report 43

Gains on Sales of Businesses and Assets

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

Gains on sales of businesses and assets primarily relate to sales of non-core surplus business assets.

Currency Losses, Net

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

Currency losses, net of $28 million for the year ended December 31, 2023 were $15 million higher as compared to 2022 due to continued volatility in the global exchange rates, particularly in the Middle East and Argentina, which could not be fully hedged, as well as an increase in the cost of hedging.

Currency losses, net of $13 million for the year ended December 31, 2022 were $6 million higher than 2021 primarily due to increased volatility in the global exchange rates, particularly in our Eurasia and Middle East operations, which could not be fully hedged.

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

Loss on Early Extinguishment of Debt

During 2023, we recorded losses of $10 million on the extinguishment of debt related to the early repayment on secured borrowings, the termination of our $250 million Credit Facility prior to entering into the new 5-year Asset Based Lending Facility (ABL), and the write-off of deferred debt issuance costs associated with the early extinguishment of the $555 million Bridge Loan Facility, that was replaced with the Term Loan B facility.

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

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

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

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

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

Contract Termination Costs

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

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

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

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

Excess Contribution Refund

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

The excess contributions accumulated over the past 20 plus years.

During 2023 and 2022, we received a refund of $6 million and $16 million, respectively, reflecting the return of excess employer contributions to a defined contribution plan for one of our Latin American subsidiaries as a result of employee forfeitures.

The excess contributions had accumulated over the past 20 plus years.

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

Tax indemnification from Conduent

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

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

Tax Indemnification - Conduent

The credit of $7 million for the year ended December 31, 2023 represents the reversal of a payable to Conduent of an IRS refund Xerox was expected to receive with the settlement of a pre-separation unrecognized tax position.

The matter was resolved during the third quarter 2023 and both the receivable from the IRS and the payable to Conduent were no longer required.

The reversal of the offsetting IRS refund receivable is recorded as a charge in Income tax benefit.

Pre-tax (Loss) Margin

Pre-tax (loss) margin for the year ended December 31, 2023 of (0.4)% was a 4.2-percentage point improvement from the pre-tax (loss) margin of (4.6)% in 2022.

The improvement is primarily due to the Goodwill impairment charge of $412 million in 2022.

In addition, the improvement also reflects the impacts of lower supply chain-related costs and the benefits of price increases and favorable mix as well as lower RD&E expenses and Selling, administrative and general expenses.

These favorable impacts were partially offset by lower revenue, which includes the termination of Fuji royalty income, lost revenue associated with the donation of PARC and the intentional reduction in non-strategic revenue.

Pre-tax margin was also negatively impacted by the PARC donation charge of $132 million in the second quarter 2023, which had a 1.9-percentage point adverse impact on pre-tax margin, as well as higher Restructuring and related costs, net, which includes the workforce reduction announced in connection with Reinvention, and Other expenses, net.

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

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

a decrease of 5.3%.

Xerox 2023 Annual Report 44

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

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

Adjusted 1 Operating Margin

Adjusted 1 operating margin for the year ended December 31, 2023 of 5.6% increased 1.7-percentage points as compared to 2022.

The increase primarily reflects higher gross margin, which includes the impacts of lower supply chain-related costs, the benefits of price increases and favorable mix.

The increase also reflects lower RD&E expense, and Selling, administrative and general expenses, which includes benefits associated with structural cost reductions and ongoing operating efficiencies.

Partially offsetting these benefits was lower revenue, which includes the termination of Fuji royalty income, lost revenue associated with the donation of PARC, and the intentional reduction in non-strategic revenue, as well as price increases from a product supplier, and higher Other expenses, net.

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

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

_____________

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

The 2023 effective tax rate was 103.6% and includes the loss on the PARC donation as well as the associated tax benefits.

Excluding this impact, the effective tax rate was 10.6%.

On an adjusted 1 basis, the 2023 effective tax rate was 14.6%.

Both rates were lower than the U.S.

federal statutory tax rate of 21% primarily due to the tax benefits related to the redetermination of certain unrecognized tax positions upon the conclusion of several audits, as well as the remeasurement of deferred tax assets and change in tax filing positions, partially offset by the geographical mix of earnings.

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

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

The 2020 effective tax rate was 25.4%.

On an adjusted 1 basis, the 2020 effective tax rate was 26.3%.

These rates were higher than the U.S.

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

Xerox operations are widely dispersed.

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is a significant factor in determining our overall effective tax rate.

The tax impact from these non-U.S.

operations on our full-year effective tax rate for 2022 was (0.1)%.

Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the geographic mix of income before taxes and the related impacts on our effective tax rate.

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_____________

(1) Refer to the Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section.

Equity in Net Income of Unconsolidated Affiliates

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

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

Net (Loss) Income

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

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

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

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

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

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

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

_____________

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

(1) Refer to the Adjusted Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section.

Xerox 2023 Annual Report 45

Net Income (Loss)

Net income for the year ended December 31, 2023 was $1 million, or $(0.09) per diluted share, which included the after-tax PARC donation charge of $92 million ($132 million pre-tax), or $0.58 per diluted share.

On an adjusted 1 basis, Net Income was $287 million, or $1.82 per diluted share.

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

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

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

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

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

_____________

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

Other Comprehensive (Loss) Income

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

Other comprehensive loss was $139 million in 2023 and included the following:

i) $331 million of net losses from the changes in defined benefit plans primarily due to actuarial losses as a result of a decrease in discount rates and lower asset returns as compared to expected returns, as well as the negative impact of currency, partially offset by the amortization of actuarial losses and settlement losses;

ii) $191 million of net translation adjustment gains reflecting the strengthening of most of our major foreign currencies against the U.S.

Dollar during 2023;

and iii) $1 million in unrealized gains, net.

Other comprehensive loss was $549 million in 2022 and included the following:

i) $376 million of net translation adjustment losses reflecting the weakening of our major foreign currencies against the U.S.

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

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

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

i) $489 million of net gains from the changes in defined benefit plans primarily due to remeasurement and net actuarial gains as a result of higher discount rates, as well as the favorable impact of currency;

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

Other comprehensive income attributable to Xerox was $314 million in 2020 and included the following:

i) net translation adjustment gains of $241 million reflecting the strengthening of our major foreign currencies against the U.S.

Dollar during 2020;

ii) $69 million of net gains from changes in defined benefit plans primarily reflecting net actuarial gains due to actual returns in excess of expected returns offsetting the impacts from lower discount rates as well as the amortization or recognition through settlement losses of accumulated losses from AOCL.

These impacts were partially offset by other losses, primarily due to unfavorable currency;

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

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

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

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

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

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

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Print and Other $ 6,485 $ 86 $ 6,571 94 % $ 360 5.6 %

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

FITTLE 401 — 401 6 % 29 7.2 %

Total $ 6,886 $ 86 $ 6,972 100 % $ 389 5.6 %

Print and Other $ 6,714 $ 90 $ 6,804 95 % $ 258 3.8 %

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

FITTLE 393 — 393 5 % 17 4.3 %

Total $ 7,107 $ 90 $ 7,197 100 % $ 275 3.9 %

Print and Other $ 6,637 $ 92 $ 6,729 94 % $ 311 4.7 %

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

FITTLE 401 — 401 6 % 64 16.0 %

Total $ 7,038 $ 92 $ 7,130 100 % $ 375 5.3 %

_____________

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

(1) Reflects revenue, 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.

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_____________

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

Print and Other revenue increased 1.8% for the year ended December 31, 2022, as compared to 2021, primarily due to higher Post sale revenue as well as higher Equipment sales.

Print and Other revenue increased 0.9% for the year ended December 31, 2021, as compared to 2020, primarily due to higher Post sale revenue.

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

Print and Other segment revenue results included the following:

Equipment Sales Revenue

• For the year ended December 31, 2023, Equipment sales revenue increased 2.0% as compared to 2022, driven by improvement in product availability for higher-margin mid-range and high-end devices in the Americas, as well as recent pricing actions and stable demand conditions, both of which were partially offset by lower revenue from the Entry product group, primarily in EMEA, due to backlog 1 reductions in the prior year.

• For the year ended December 31, 2022, Equipment sales revenue increased 3.1% as compared to 2021, reflecting higher demand, primarily for our Mid-range products, and improvement in product availability in both the Americas and EMEA regions.

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

• For the year ended December 31, 2021, Equipment sales revenue increased 0.8% as compared to 2020, primarily reflecting higher revenue from EMEA, as the impact of supply chain disruptions was offset by higher demand from our indirect channels serving the small and mid-sized markets, and from large

Xerox 2022 Annual Report 51

government deals (in Europe and certain developing market regions).

These revenues were partially offset by the adverse impact of product supply constraints (consistent with market-wide shortages of computer chips and resins) and global freight disruptions, which were further amplified by labor shortages within the transportation industry, as well as lower revenues from our Americas operations as shipping and logistics disruptions were more prevalent in the U.S.

than other markets.

_____________

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

installed, including orders with future installation dates.

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

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

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

Xerox 2023 Annual Report 47

Post Sale Revenue

• For the year ended December 31, 2022, Post sale revenue increased by 2.2% as compared to 2021 primarily driven by growth in our IT Services business, including our recent acquisition of Powerland as well as growth in supplies and paper revenue and Contractual Print Services 1 , which includes the acquisition of Go Inspire.

• For the year ended December 31, 2023, Post sale revenue decreased by 5.1% as compared to 2022 due primarily to lower sales of lower-margin, non-strategic paper and IT endpoint devices, as well as the termination of Fuji royalty income and PARC revenue.

Supplies, paper and other, and Contractual print services 1 revenue declined modestly as compared to the prior year period.

The decline in Contractual print services 1 is mainly driven by lower production print activity, the exit from Russ ia and a shift in distribution strategy for one of our European markets, partially offset by Digital and Managed IT Services revenue growth, which includes the benefits of a recent acquisition.

These declines were partially offset by price increases, as well as gains and commissions, and servicing revenue on sales of finance receivables.

• For the year ended December 31, 2022, Post sale revenue increased 0.6% as compared to 2021 primarily driven by growth in our IT Services business, including our recent acquisition of Powerland as well as growth in supplies and paper revenue and Contractual Print Services 1 , which includes the acquisition of Go Inspire.

These increases were partially offset by the adverse impacts from currency, lower royalty income and third-party leasing commissions as compared to 2021.

• For the year ended December 31, 2021, Post sale revenue increased 1.1% as compared to 2020 primarily driven by higher supplies and paper revenues as well as modestly higher page volumes consistent with the gradual reopening of workplaces and higher IT revenues.

The positive impacts were partially offset by lower royalty revenue as well as a lower net population of devices.

_____________

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(1) Refer to the Products and Offerings Definitions section.

(2) Includes equipment sales related to the Financing (FITTLE) segment of $22 million, $27 million and $23 million for the three years ended December 31, 2022, 2021 and 2020 respectively.

(2) Includes equipment sales related to the FITTLE segment of $21 million, $22 million and $27 million for the three years ended December 31, 2023, 2022 and 2021, respectively.

The change at constant currency 1 reflected the following:

• For the year ended December 31, 2023, the decrease, as compared to 2022, primarily reflects backlog reductions in the prior year, and the normalization of work-from-home demand, offset by price increases.

• For the year ended December 31, 2022, the increase, as compared to 2021, was driven by growth in color devices, and overall price increases, partially offset by the impacts of supply constraints, which most significantly affected our black-and-white devices, and lower sales in the developing regions of EMEA, including lower sales associated with halting shipments to Russia.

• For the year ended December 31, 2021, the increase, as compared to 2020, was driven by higher demand for our lower-end printers and MFPs through our indirect channels primarily in EMEA as well as in the Americas, which included markedly higher installs related to government deals in the developing regions of EMEA.

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

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

• For the year ended December 31, 2023, the increase, as compared to 2022, reflects improved product availability primarily in the Americas and price increases, partially offset by declines in EMEA due to backlog reductions in the prior year.

• For the year ended December 31, 2022, the increase, as compared to 2021, was primarily driven by improved product availability, price increases, and a more favorable product mix toward color devices in both the Americas and EMEA regions.

• For the year ended December 31, 2021, the decrease, as compared to 2020, was primarily driven by the significant impact of global product supply constraints and freight disruptions that had a more severe effect on our U.S.

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

Xerox 2022 Annual Report 52

• For the year ended December 31, 2023, the increase, as compared to 2022, was driven by revenue growth in the Americas, as well as higher revenue and higher installs of both Entry Production Color devices and iGens, due to improved product availability and benefits from price increases.

• For the year ended December 31, 2022, the increase, as compared to 2021, was primarily driven by a favorable mix toward color devices, higher sales in our channels in the U.S.

and Canada and increased product availability, partially offset by lower sales of mono devices and lower sales in the developing regions of EMEA, as well as the impact of global product supply constraints and freight disruptions.

• For the year ended December 31, 2021, the decrease, as compared to 2020, primarily reflected the impact of global product supply constraints and freight disruptions, resulting in lower sales of color systems in the U.S., as well as lower sales of larger color production engines, which continued to be depressed as a result of our customers' delayed capital investment decisions.

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

_____________

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

Xerox 2023 Annual Report 48

Total Installs

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

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

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

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Installs for the year ended December 31, 2023 were:

• 37% decrease in entry color installs driven by declines in entry color printers and A4 Color MFPs, reflecting backlog reductions in the prior year.

• 16% decrease in entry black-and-white installs driven by declines in A4 mono MFPs, primarily in EMEA, which was partially offset by higher entry mono printer installs.

• Mid-range color installs were flat, reflecting higher light production installations offset by a slight decline in A3 color MFPs.

• 7% increase in mid-range black-and-white installs, driven by A3 mono MFPs, reflecting increased product availability primarily in the Americas.

• 25% increase in high-end color installs reflecting higher demand for iGen and Versant products, primarily in the Americas.

• 16% decrease in high-end black-and-white installs reflecting a market shift toward color production equipment.

_____________

(1) Reflects install activity for total Entry product group.

Installs for the year ended December 31, 2022 were:

• 37% increase in color multifunction devices reflecting higher demand for devices at the lower end of the portfolio and increased product availability, primarily in the EMEA region.

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• 15% decrease in black-and-white systems, primarily in the Americas region, reflecting the impact of global product constraints and freight disruptions.

Installs for the year ended December 31, 2021 were:

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

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

Mid-Range (1)

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

Xerox 2022 Annual Report 53

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

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

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

_____________

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

digital front-end sales;

including FUJIFILM Business Innovation Corp.

digital front-end sales, Mid-range color devices increased 8% for the year ended December 31, 2021, while High-end color systems increased 12% for the year ended December 31, 2021.

Product and Offerings Definitions

Our Equipment sale product groupings are as follows:

Our product groups range from:

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

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

Xerox 2023 Annual Report 49

Segment Margin

Print and Other segment margin of 5.6% for the year ended December 31, 2023 increased 1.8-percentage points as compared to 2022.

The increase is primarily due to higher segment gross profit, which includes reduced RD&E, lower selling expense, lower freight costs, as well as the benefits from pricing and cost and productivity actions.

These benefits were partially offset by lower revenue.

Print and Other segment margin of 3.8% for the year ended December 31, 2022 decreased 0.9-percentage points as compared to 2021.

The decrease is primarily due to lower segment gross profit, which includes the impacts of higher freight and production costs associated with product supply constraints, as well as the benefits from temporary government assistance and furlough measures in the prior year, and lower royalty revenues and third-party leasing commissions, partially offset by higher revenues, lower selling expense, reduced RD&E, and productivity and cost savings associated with Project Own It transformation actions.

Print and Other segment margin of 4.6% for the year ended December 31, 2021 decreased 2.7-percentage points as compared to 2020.

The decrease is primarily due to lower segment gross profit, which reflects the negative impact of supply chain disruptions, including higher shipping and logistics costs and an unfavorable mix of equipment revenue due to product constraints, as well as lower royalty revenue and lower savings from temporary government assistance and furlough measures.

These unfavorable factors were partially offset by lower bad debt expense due to a higher provision in the prior year, as well as cost and expense reductions associated with our Project Own It transformation actions.

Xerox 2022 Annual Report 54

Financing (FITTLE)

Financing (FITTLE) represents a global financing solutions business, primarily enabling the sale of our equipment and services.

Year Ended December 31,

FITTLE represents a global financing solutions business, primarily enabling the sale of our equipment and services.

Year Ended December 31, % Change

(in millions) 2023 2022 2021 2023 2022

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189 164 153 15.2% 7.2%

Intersegment revenue (2)

12 12 12 —% —%

Total Financing (FITTLE) Revenue $ 610 $ 695 $ 744 (12.2)% (6.6)%

Total FITTLE Revenue $ 401 $ 393 $ 401 2.0% (2.0)%

_____________

(1) Other Post sale revenue includes operating lease/rental revenues as well as lease renewal and fee income.

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

Financing (FITTLE) revenue decreased 12.2% for the year ended December 31, 2022, as compared to 2021, and decreased 6.6% for the year ended December 31, 2021 as compared to 2020.

The decrease in revenue for both years was primarily due to lower Other Post sale revenue.

Financing (FITTLE) segment revenues included the following:

Equipment Sales

• For the year ended December 31, 2022, revenue from used equipment sales decreased 18.5%, as compared to 2021, primarily due to reduced end of lease equipment inventory.

• For the year ended December 31, 2021, used equipment sales revenue increased 17.4%, as compared to 2020, primarily due to a rebound in economic activity.

(1) Other Post sale revenue includes lease renewal and fee income as well as gains, commissions and servicing revenue associated with sold finance receivables.

FITTLE segment revenues included the following:

Financing Revenue

• For the year ended December 31, 2023, Financing revenue decreased 7.7%, as compared to 2022 and is primarily due to a reduction of the average finance receivables balance as a result of the sales of finance receivables under our finance receivables funding agreement.

Finance receivables were approximately $600 million lower as of December 2023 as compared to December 2022.

• For the year ended December 31, 2022, Financing revenue decreased 6.3%, as compared to 2021, due to a lower average finance receivables balance, as collections continue to outpace originations, and lower Print and Other equipment sales in prior periods.

Originations have been impacted by the global product supply constraints and freight disruptions.

• For the year ended December 31, 2021, Financing revenue decreased 2.2%, as compared to 2020, primarily reflecting a lower finance receivables balance due to the run-off of our lease portfolio and lower equipment sales in prior periods, as well as the impact of lower equipment sales in the second half of 2021.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis