Xerox Holdings Corp 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Throughout the Management’s Discussion and Analysis (MD&A) that follows, references to "Xerox Holdings" refer to Xerox Holdings Corporation and its consolidated subsidiaries, while references to "Xerox" refer to Xerox Corporation and its consolidated subsidiaries. References herein to “we,” "us," “our,” or the “Company,” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise. References to “Xerox Holdings Corporation” refer to the stand-alone parent company and do not include its subsidiaries. References to “Xerox Corporation” refer to the stand-alone company and do not include its subsidiaries. Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations. Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition. Throughout this combined Form 10-K, references are made to various notes in the Consolidated Financial Statements which appear in Part II, Item 8 of this combined Form 10-K, and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made. Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established in 2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. 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 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; and – 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 Table of Contents 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. 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 With annual revenues of approximately $6.9 billion, we remain a leading global provider of digital print technology and related services, software and solutions. Our primary offerings span four main areas: Workplace Solutions, Production Solutions, Xerox Services and FITTLE. • Workplace Solutions includes two strategic product groups, Entry and Mid-Range, much of which share common solutions, apps and ConnectKey® software. Workplace Solutions revenues include the sale of products (captured primarily as equipment sales) as well as the supplies and associated 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 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. Our primary offerings in this area are Managed Print Services (MPS), Capture & Content Services (CCS) and Customer Engagement Services (CES) as well as IT Services. CCS and CES encompass a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services. • FITTLE is a global financing solutions business and currently offers financing for direct channel customer purchases of Xerox equipment through bundled lease agreements, lease financing to end-user customers who purchase Xerox 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 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. Post-sale Based Business Model 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, revenue per page, and the type and Xerox 2023 Annual Report 28 Table of Contents nature of related software and ancillary services provided to customers - e.g., digital services. Post sale revenue also includes transactional IT hardware sales and 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. _____________ (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 $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 income (loss) $ 1 $ (322) $ (455) $ 323 $ 133 Adjusted (1) Net income 287 189 293 98 (104) 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. _____________ (1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure. A summary of our segment information is as follows: Year Ended December 31, % Change % of Total (in millions) 2023 2022 2021 2023 2022 2023 2022 Revenue Print and Other $ 6,571 $ 6,804 $ 6,729 (3.4) % 1.1 % 95 % 96 % FITTLE 401 393 401 2.0 % (2.0) % 6 % 5 % Intersegment Elimination (1) (86) (90) (92) (4.4) % (2.2) % (1) % (1) % Total Revenue $ 6,886 $ 7,107 $ 7,038 (3.1) % 1.0 % 100 % 100 % Profit Print and Other $ 360 $ 258 $ 311 39.5 % (17.0) % 93 % 94 % FITTLE 29 17 64 70.6 % (73.4) % 7 % 6 % Total Profit $ 389 $ 275 $ 375 41.5 % (26.7) % 100 % 100 % _____________ (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 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. _____________ (1) Working capital, net reflects Accounts receivable, net, Inventories and Accounts payable. Xerox 2023 Annual Report 29 Table of Contents 2024 Outlook 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 To understand the trends in the business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as "constant currency", “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate. 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. Management believes the constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference between actual growth rates and constant currency growth rates. Approximately 45% of our consolidated revenues are derived from operations outside of the U.S. where the U.S. Dollar is normally not the functional currency. As a result, foreign currency translation had a 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 Table of Contents Application of Critical Accounting Policies In preparing our Consolidated Financial Statements and accounting for the underlying transactions and balances, we apply various accounting policies. Senior management has discussed the development and selection of the critical accounting policies, estimates and related disclosures included herein with the Audit Committee of the Xerox Holdings Board of Directors. We consider the policies discussed below as critical to understanding our Consolidated Financial Statements, as their application places the most significant demands on management's judgment, since financial reporting results rely on estimates of the effects of matters that are inherently uncertain. In instances where different estimates could have reasonably been used, we disclosed the impact of these different estimates on our operations. In certain instances, such as revenue recognition for leases, the accounting rules are prescriptive; therefore, it would not have been possible to reasonably use different estimates. Changes in assumptions and estimates are reflected in the period in which they occur. The impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period. Specific risks associated with these critical accounting policies are discussed throughout the MD&A, where such policies affect our reported and expected financial results. For a detailed discussion of the application of these and other accounting policies, refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies in the Consolidated Financial Statements. Revenue Recognition Application of the various accounting principles in GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates including ASC Topic 606 - Revenue from Contracts with Customers and ASC Topic 842 Leases . Refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding our revenue recognition and lease revenue recognition policies . Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, the revenue related to the following areas involves significant judgments and estimates: Bundled Lease Arrangements : We sell our equipment direct to end customers under bundled lease arrangements, which typically include the equipment, service, supplies and a financing component for which the customer pays a single negotiated fixed minimum monthly payment for all elements over the contractual lease term. These arrangements also typically include an incremental, variable component for page volumes in excess of the contractual page volume minimums, which are often expressed in terms of price-per-image or page. Lease deliverables include the equipment and financing, while the non-lease deliverables generally consist of the services, which include supplies. Sales made under bundled lease arrangements directly to end customers comprise 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 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 : We utilize distributors and resellers to sell many of our products, supplies and parts to end-user customers. Sales to distributors and resellers are generally recognized as revenue when products are shipped to such distributors and resellers. Distributors and resellers participate in various discount, rebate, price-support, cooperative marketing and other programs, and we record provisions and allowances for these programs as a reduction to revenue when the sales occur. Similarly, we also record estimates for sales returns and other discounts and allowances when the sales occur. We consider various factors, including a review of specific transactions and programs, historical experience and market and economic conditions when calculating these provisions and allowances. Total sales of equipment, supplies and parts to distributors and resellers were $1,044 million for the year ended December 31, 2023 and provisions, and allowances recorded on these sales were approximately 26% of the associated gross revenues. Allowance for Doubtful Accounts and Credit Losses The allowance for doubtful accounts and credit losses is based on an assessment of historical collection experience as well as consideration of current and future economic conditions and changes in our customer-specific collection trends. Our methodology includes an expected loss model that incorporates an assessment of current and future economic conditions. We recorded bad debt provisions of $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 Xerox 2023 Annual Report 31 Table of Contents 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 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. Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the December 31, 2023 rate of 4.4% would change the 2023 provision by approximately $18 million. Refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies, Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our policy with respect to the Allowance for Doubtful Accounts and Credit Losses. Pension Plan Assumptions We sponsor defined benefit pension plans in various forms in several countries covering employees who meet eligibility requirements. Where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefit accruals for future service, including our 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 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 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 $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 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 2024 is 5.2% which is flat as compared to 2023. Xerox 2023 Annual Report 32 Table of Contents Another significant assumption affecting our defined benefit pension obligations and the net periodic benefit cost is the rate that we use to discount our future anticipated benefit obligations. In the U.S. and the U.K., which comprise approximately 75% of our PBO, we consider yield curves derived from Moody's Aa or better rated Corporate Bonds and U.K. Corporate bonds rated AA by at least one of the main ratings agencies, respectively, in the determination of the appropriate discount rate assumptions. The consolidated weighted average discount rate we used to measure our pension obligations as of December 31, 2023 and to calculate our 2024 expense was 4.4%; the rate used to calculate our obligations as of December 31, 2022 and our 2023 expense was 4.7%. The decrease reflects lower interest rates in both the U.S. and non-U.S. regions. Holding all other assumptions constant, the following table summarizes the estimated impacts of a 0.25% change in the discount rate and a 0.25% change in the expected return on plan assets: Discount Rate Expected Return (in millions) 0.25% Increase 0.25% Decrease 0.25% Increase 0.25% Decrease (Decrease)/Increase 2024 Projected net periodic pension cost $ (4) $ 6 $ (15) $ (15) Projected benefit obligation as of December 31, 2023 (195) 210 N/A N/A One of the most significant elements of our net periodic defined benefit pension plan expense is settlement losses. Our primary domestic plans allow participants the option of settling their vested benefits through the receipt of a lump-sum payment. We recognize the losses associated with these settlements immediately upon the settlement of the vested benefits. Settlement accounting requires us to recognize a pro-rata portion of the aggregate unamortized net actuarial losses upon settlement. As noted above, cumulative unamortized net actuarial losses were $2.3 billion at December 31, 2023, of which the U.S. primary domestic plans, with a lump-sum feature, represented approximately $630 million. The pro-rata factor is computed as the percentage reduction in the projected benefit obligation due to the settlement of a participant ' s vested benefit. Settlement accounting is only applied when the event of settlement occurs - i.e., the lump-sum payment is made. Since settlement is dependent on an employee's decision and election, the level of settlements and the associated losses can fluctuate significantly from period to period. During the three years ended December 31, 2023, 2022 and 2021, U.S. plan settlements were approximately $70 million, $240 million and $300 million, respectively, and the associated settlement losses on those plan settlements were $19 million, $56 million and $54 million, respectively. 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 expenses for the three years ended December 31, 2023, 2022 and 2021, as well as estimated amounts for 2024: Estimated Actual (in millions) 2024 2023 2022 2021 Defined benefit pension plans (1)(4) $ 90 $ 22 $ (47) $ (64) U.S. settlement losses 50 19 56 54 Defined contribution plans (2) 35 40 37 18 Retiree health benefit plans (3) (20) (16) (3) (55) Total Benefit Plan Expense $ 155 $ 65 $ 43 $ (47) _____________ (1) Excludes U.S. settlement losses. (2) The increase in 2022 reflects the Company's decision to resume the 2022 employer matching contribution to our U.S. based 401(k) savings plans for salaried employees previously suspended in 2021. (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 Table of Contents 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: Estimated Actual (in millions) 2024 2023 2022 2021 U.S. Defined benefit pension plans $ 100 $ 53 $ 24 $ 24 Non-U.S. Defined benefit pension plans 30 28 81 111 Defined contribution plans (1) 35 40 17 18 Retiree health benefit plans 20 21 19 25 Total Benefit Plan Funding $ 185 $ 142 $ 141 $ 178 _____________ (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. 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. Income Taxes We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. Our provision is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our provision will change based on discrete or other nonrecurring events such as audit settlements, tax law changes, changes in valuation allowances, etc., that may not be predictable. We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and the amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. We apply judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, we considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the valuation allowance against our deferred tax assets. Our valuation allowance 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: Year Ended December 31, (in millions) 2023 2022 2021 Gross deferred tax assets $ 1,267 $ 1,138 $ 1,062 Valuation allowance (375) (366) (357) Net deferred tax assets $ 892 $ 772 $ 705 Xerox 2023 Annual Report 34 Table of Contents We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based upon our assessment of the more-likely-than-not outcomes of such matters. In addition, when applicable, we adjust the previously recorded tax expense to reflect examination results. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate, as well as impact our operating results. Unrecognized tax benefits were $140 million, $110 million and $107 million at December 31, 2023, 2022 and 2021, respectively. Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding deferred income taxes and unrecognized tax benefits. Business Combinations and Goodwill We allocate the fair value of purchase consideration to tangible assets, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to Goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows of acquired customers, development of new offerings, acquired technology and trade names from a market participant perspective, as well as estimates of useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable and when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to Goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Refer to Note 6 - Acquisitions and 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 an impairment exist. The application of an interim or the annual Goodwill impairment test begins with the identification of reporting units, which requires judgment. 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. Our review of impairment starts with an assessment of qualitative factors to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair value of the Company is less than the net book value. Our qualitative assessment of the recoverability of Goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below our net book value. After assessing the totality of events and circumstances, if we determine that it is not more-likely-than-not that the fair value of the Company is less than its net book value, no further assessment is performed. If we determine that it is more-likely-than-not that the fair value of the Company is less than net book value or if we elect to bypass the qualitative assessment, we proceed to a quantitative assessment or test of Goodwill. If a quantitative assessment of Goodwill is required, the determination of the fair value of the Company will involve the use of significant estimates and assumptions. Our quantitative Goodwill impairment test uses both the income approach and the market approach to estimate fair value. The income approach is based on the discounted cash flow method that uses the Company's estimates of forecasted future financial performance including revenues, gross margins, operating expenses, and taxes, as well as working capital and capital asset requirements. These estimates are developed as part of our long-term planning process based on assumed market segment growth rates and our assumed market segment share, estimated costs based on historical data and various internal estimates. Projected cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated market weighted-average cost of capital, as well as any risks unique to the subject cash flows. When performing our market approach, we rely specifically on the guideline public company method. Our guideline public company method incorporates revenues and earnings multiples from publicly traded companies Xerox 2023 Annual Report 35 Table of Contents 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. Xerox 2023 Annual Report 36 Table of Contents Revenue Results Summary Total Revenue Revenue for the three years ended December 31, 2023, 2022 and 2021 was as follows: Revenue % Change CC % Change % of Total Revenue (in millions) 2023 2022 2021 2023 2022 2023 2022 2023 2022 2021 Equipment sales $ 1,655 $ 1,624 $ 1,581 1.9 % 2.7 % 1.7 % 6.6 % 24 % 23 % 22 % Post sale revenue 5,231 5,483 5,457 (4.6) % 0.5 % (4.8) % 4.2 % 76 % 77 % 78 % Total Revenue $ 6,886 $ 7,107 $ 7,038 (3.1) % 1.0 % (3.3) % 4.8 % 100 % 100 % 100 % Reconciliation to Consolidated Statements of Income (Loss): Sales $ 2,720 $ 2,800 $ 2,582 (2.9) % 8.4 % (3.4) % 12.2 % Less: Supplies, paper and other sales (1,065) (1,176) (1,001) (9.4) % 17.5 % (10.5) % 21.0 % Equipment sales $ 1,655 $ 1,624 $ 1,581 1.9 % 2.7 % 1.7 % 6.6 % Services, maintenance and rentals $ 3,975 $ 4,100 $ 4,235 (3.0) % (3.2) % (3.0) % 0.6 % Add: Supplies, paper and other sales 1,065 1,176 1,001 (9.4) % 17.5 % (10.5) % 21.0 % Add: Financing 191 207 221 (7.7) % (6.3) % (8.0) % (2.9) % Post sale revenue $ 5,231 $ 5,483 $ 5,457 (4.6) % 0.5 % (4.8) % 4.2 % Segments Print and Other $ 6,571 $ 6,804 $ 6,729 (3.4) % 1.1 % 95 % 96 % 95 % 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) $ 6,886 $ 7,107 $ 7,038 (3.1) % 1.0 % 100 % 100 % 100 % Americas $ 4,524 $ 4,638 $ 4,432 (2.5) % 4.6 % (2.4) % 5.1 % 66 % 65 % 63 % EMEA 2,241 2,291 2,434 (2.2) % (5.9) % (2.9) % 4.1 % 32 % 32 % 35 % Other 121 178 172 (32.0) % 3.5 % (32.0) % 3.5 % 2 % 3 % 2 % Total Revenue (3) $ 6,886 $ 7,107 $ 7,038 (3.1) % 1.0 % (3.3) % 4.8 % 100 % 100 % 100 % _____________ 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. Revenue 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. 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. 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 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 Table of Contents 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. ______________ (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. (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 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 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. Post sale revenue is comprised of the following: 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. The increase at constant currency 2 was primarily due to increases in contracted price per page and the acquisition of Go Inspire during the third quarter 2022. Contractual print services 1 grew modestly compared to 2021, including benefits of Go Inspire, despite a slower-than expected return of employees to offices and ongoing macroeconomic concerns. These benefits were partially offset by the impact of lower royalty revenues from FUJIFILM Business Innovation Corp. 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 Table of Contents • 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. 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. The decline at constant currency 2 reflected a lower average finance receivables balance, due to a decrease in equipment sales in prior periods and declines in Xerox channel originations, due primarily to supply constraints, as well as lower interest rates due to an increase in indirect originations. These declines were partially offset by an increase in originations from third-party dealers and non-Xerox equipment providers as compared to the prior year. _____________ (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 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. Backlog 2 declined meaningfully on a year-over-year basis exiting 2022 but remained above pre-pandemic levels. Equipment sales revenue increased across all product categories (entry, mid-range, and high-end), led by strength in mid-range. See Segment Review - Print and Other below for additional discussion on Equipment sales revenue. Geographic Sales Channels In 2023 our geographic sales channels were as follows: • Americas , which includes our sales channels in the U.S. and Canada, as well as Mexico, Brazil and Central and South America. • EMEA , which includes our sales channels in Europe, the Middle East, Africa and India. • Other , primarily includes royalties and licensing revenue. _____________ (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. Xerox 2023 Annual Report 39 Table of Contents Costs, Expenses and Other Income Summary of Key Financial Ratios The following is a summary of our key financial ratios used to assess our performance: Year Ended December 31, (in millions) 2023 2022 2021 2023 B/(W) 2022 B/(W) Gross Profit $ 2,314 $ 2,318 $ 2,403 $ (4) $ (85) RD&E 229 304 310 75 6 SAG 1,696 1,760 1,718 64 (42) Equipment Gross Margin 33.7 % 25.1 % 24.2 % 8.6 pts. 0.9 pts. Post sale Gross Margin 33.6 % 34.9 % 37.0 % (1.3) pts. (2.1) pts. Total Gross Margin 33.6 % 32.6 % 34.1 % 1.0 pts. (1.5) pts. RD&E as a % of Revenue 3.3 % 4.3 % 4.4 % 1.0 pts. 0.1 pts. SAG as a % of Revenue 24.6 % 24.8 % 24.4 % 0.2 pts. (0.4) pts. Pre-tax Loss (1) $ (28) $ (325) $ (472) $ 297 $ 147 Pre-tax Loss Margin (1) (0.4) % (4.6) % (6.7) % 4.2 pts. 2.1 pts. Adjusted (2) Operating Profit $ 389 $ 275 $ 375 $ 114 $ (100) Adjusted (2) Operating Margin 5.6 % 3.9 % 5.3 % 1.7 pts. (1.4) pts. _____________ (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. Gross Margin 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. In addition, gross margin was negatively impacted by lower third-party financing commissions, lower royalty revenue, benefits from temporary government assistance and furlough measures in the prior year, and investments to support future growth. These negative impacts were partially offset by favorable currency and productivity and cost savings associated with Project Own It transformation actions. 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. A higher mix of IT services revenues also contributed to the decrease in margins. These negative impacts were partially offset by favorable currency as well as productivity and cost savings associated with Project Own It transformation actions. Xerox 2023 Annual Report 40 Table of Contents Research, Development and Engineering Expenses (RD&E) Year Ended December 31, Change (in millions) 2023 2022 2021 2023 2022 R&D $ 174 $ 246 $ 251 $ (72) $ (5) Sustaining engineering 55 58 59 (3) (1) Total RD&E Expenses $ 229 $ 304 $ 310 $ (75) $ (6) 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 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 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. 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 Table of Contents Restructuring and Related Costs, Net 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 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, 2023 2022 2021 Restructuring charges, net (1) $ 114 $ 68 $ 18 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; and • 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 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) and restructuring. Xerox 2023 Annual Report 42 Table of Contents Other Expenses, Net Year Ended December 31, (in millions) 2023 2022 2021 Non-financing interest expense $ 68 $ 91 $ 96 Interest income (16) (11) (4) Non-service retirement-related costs 19 (12) (89) Gains on sales of businesses and assets (39) (56) (40) Currency losses, net 28 13 7 Loss on early extinguishment of debt 10 5 — Contract termination costs - product supply — 33 — Excess contribution refund (6) (16) — Tax indemnification from Conduent (7) — — All other expenses, net (1) 18 13 3 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. 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. Xerox's interest expense on the Intercompany Loan matches the interest expense recognized by Xerox Holdings on its Senior Notes. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding the Xerox Holdings Corporation/Xerox Corporation Intercompany Loan, our debt activity and information regarding the allocation of interest expense. Interest Income Interest income for the year ended December 31, 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. 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 Table of Contents Gains on Sales of Businesses and Assets Gains on sales of businesses and assets primarily relate to sales of non-core surplus business assets. Currency Losses, Net 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. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our Senior Notes and Credit Facilities. Contract Termination Costs For the year ended December 31, 2022, we recorded contract termination costs of $33 million ($25 million after-tax) associated with the early termination of a product supply agreement. The charge primarily reflects the payment of the contractual cancellation fee plus interest and related legal fees. Excess Contribution Refund 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 - 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%. The Xerox 2023 Annual Report 44 Table of Contents 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. 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. _____________ (1) Refer to the Adjusted Operating Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section. Income Taxes 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. federal statutory tax rate of 21% primarily due to the non-deductibility of the Goodwill impairment charge and the tax expense associated with changes in elections made to certain tax positions for recently filed returns, which were only partially offset by benefits from additional tax incentives and the geographical mix of earnings. On an adjusted 1 basis, the 2022 effective tax rate was 21.6% and was higher than the U.S. federal statutory tax rate of 21% primarily due to tax expense associated with changes in elections made to certain tax positions for recently filed returns, offset by benefits from additional tax incentives. The 2021 effective tax rate was 3.6%. On an adjusted 1 basis, the 2021 effective tax rate was 6.4%. Both rates were lower than the U.S. statutory tax rate of 21% primarily due to the benefits from tax law changes, additional incentives as a result of changes in elections made with the filed tax returns, the decrease in deferred tax valuation allowances as well as the remeasurement of uncertain tax positions. The reported effective tax rate also reflected the non-deductibility of the Goodwill impairment charge, while the adjusted 1 effective tax rate also reflects partial offsets for the geographical mix of earnings. Xerox operations are widely dispersed. However, no one country outside of the U.S. is a significant factor in determining our overall effective tax rate. Refer to Note 19 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the geographic mix of income before taxes and the related impacts on our effective tax rate. Our effective tax rate is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our effective tax rate will change based on discrete or other nonrecurring events that may not be predictable. _____________ (1) Refer to the Adjusted Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section. Xerox 2023 Annual Report 45 Table of Contents 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 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. Dollar during 2022; ii) $171 million of net losses from the changes in defined benefit plans primarily due to actuarial losses as a result of negative asset returns, partially offset by the positive impact of currency and the amortization of actuarial losses and settlement losses; and iii) $2 million in unrealized losses, net. Other comprehensive income was $344 million in 2021 and included the following: i) $489 million of net gains from the changes in defined benefit plans primarily due to remeasurement and net actuarial gains as a result of higher discount rates, as well as the favorable impact of currency; ii) $141 million of net translation adjustment losses reflecting the weakening of our major foreign currencies against the U.S. Dollar during 2021; and iii) $4 million in unrealized losses, net. Refer to our discussion of Pension Plan Assumptions in the Application of Critical Accounting Policies section of the MD&A as well as Note 18 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding changes in our defined benefit plans. Refer to Note 16 - Financial Instruments in the Consolidated Financial Statements for additional information regarding our foreign currency derivatives and associated unrealized gains and losses. Recent Accounting Pronouncements Refer to Note 2 - Recent Accounting Pronouncements and Summary of Significant Accounting Policies in the Consolidated Financial Statements for a description of recent accounting pronouncements including the respective dates of adoption and the effects on results of operations and financial conditions. Xerox 2023 Annual Report 46 Table of Contents Reportable Segments Our business is organized to ensure we focus on efficiently managing operations while serving our customers and the markets in which we operate. We have two operating and reportable segments – Print and Other and FITTLE . Refer to Note 4 - Segment and Geographic Area Reporting in the Consolidated Financial Statements for additional information regarding our reportable segments. Segment Review Year Ended December 31, (in millions) External Revenue Intersegment Revenue (1) Total Segment Revenue % of Total Revenue Segment Profit Segment Margin (2) 2023 Print and Other $ 6,485 $ 86 $ 6,571 94 % $ 360 5.6 % FITTLE 401 — 401 6 % 29 7.2 % Total $ 6,886 $ 86 $ 6,972 100 % $ 389 5.6 % 2022 Print and Other $ 6,714 $ 90 $ 6,804 95 % $ 258 3.8 % FITTLE 393 — 393 5 % 17 4.3 % Total $ 7,107 $ 90 $ 7,197 100 % $ 275 3.9 % 2021 Print and Other $ 6,637 $ 92 $ 6,729 94 % $ 311 4.7 % FITTLE 401 — 401 6 % 64 16.0 % Total $ 7,038 $ 92 $ 7,130 100 % $ 375 5.3 % _____________ (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. Print and Other Print and Other includes the design, development and sale of document management systems, solutions and services as well as associated technology offerings including IT and software products and services. Revenue Year Ended December 31, % Change (in millions) 2023 2022 2021 2023 2022 Equipment sales $ 1,634 $ 1,602 $ 1,554 2.0% 3.1% Post sale revenue 4,851 5,112 5,083 (5.1)% 0.6% Intersegment revenue (1) 86 90 92 (4.4)% (2.2)% Total Print and Other Revenue $ 6,571 $ 6,804 $ 6,729 (3.4)% 1.1% _____________ (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. _____________ (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. Xerox 2023 Annual Report 47 Table of Contents Post Sale Revenue • 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. _____________ (1) Represents revenues from service, maintenance and rentals. Detail by product group is shown below: Revenue % Change CC % Change % of Equipment Revenue (in millions) 2023 2022 2021 2023 2022 2023 2022 2023 2022 2021 Entry $ 237 $ 280 $ 282 (15.4)% (0.7)% (15.9)% 3.6% 14% 17% 18% Mid-range 1,084 1,030 972 5.2% 6.0% 5.1% 9.7% 66% 64% 62% High-end 316 295 304 7.1% (3.0)% 6.8% 0.8% 19% 18% 19% Other 18 19 23 (5.3)% (17.4)% (5.3)% (17.4)% 1% 1% 1% Equipment sales (1)(2) $ 1,655 $ 1,624 $ 1,581 1.9% 2.7% 1.7% 6.6% 100% 100% 100% _____________ CC - See "Currency Impact" section for description of constant currency. (1) Refer to the Products and Offerings Definitions section. (2) Includes equipment sales related to the 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: Entry • 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. Mid-range • 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. High-end • 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. _____________ (1) See "Currency Impact" section for description of constant currency. Xerox 2023 Annual Report 48 Table of Contents Total Installs 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. Installs include activity for Xerox and non-Xerox branded products installed by our XBS sales unit. Detail by product group (see Products and Offerings Definitions ) is shown below. Installs for the year ended December 31, 2023 were: Entry 1 • 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 • 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. High-End • 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: Entry • 37% increase in color multifunction devices reflecting higher demand for devices at the lower end of the portfolio and increased product availability, primarily in the EMEA region. • 34% decrease in black-and-white multifunction devices primarily due to higher prior year installs in the developing regions of EMEA associated with work-from-home demand, resulting from the COVID-19 pandemic, and halting shipments to Russia, as well as ongoing product constraints. Mid-Range • 9% increase in mid-range color installs primarily in EMEA, reflecting higher installs of our recently launched new-generation of ConnectKey multi-function printers, as well as increased installs of our PrimeLink entry-production color devices in the fourth quarter of 2022. • 13% decrease in black-and-white installs, primarily in the developing regions of EMEA, reflecting the impact of freight disruption and product supply constraints. High-End • 3% decrease in color installs, primarily in EMEA, reflecting the impact of global product constraints and freight disruptions, partially offset by higher installations of our Baltoro cut-sheet inkjet devices. • 15% decrease in black-and-white systems, primarily in the Americas region, reflecting the impact of global product constraints and freight disruptions. Product and Offerings Definitions 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. • “Mid-Range” , which include A3 devices that generally serve large workgroup/work teams environments as well as products in the Light Production product groups serving centralized print centers, print for pay and lower volume production print establishments. • “High-End” , which include production printing and publishing systems that generally serve the graphic communications marketplace and print centers in large enterprises. Xerox 2023 Annual Report 49 Table of Contents 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. FITTLE FITTLE represents a global financing solutions business, primarily enabling the sale of our equipment and services. Revenue Year Ended December 31, % Change (in millions) 2023 2022 2021 2023 2022 Equipment sales $ 21 $ 22 $ 27 (4.5)% (18.5)% Financing 191 207 221 (7.7)% (6.3)% Other Post sale revenue (1) 189 164 153 15.2% 7.2% Total FITTLE Revenue $ 401 $ 393 $ 401 2.0% (2.0)% _____________ (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. Other Post sale revenue • For the year ended December 31, 2023, Other Post sale revenue increased 15.2%, as compared to 2022, primarily due to higher commissions and servicing revenue on increased sales of finance receivables under our finance receivables funding agreement, which was $34 million for the year ended December 31, 2023, as compared to $2 million for the year ended December 31, 2022. • For the year ended December 31, 2022, Other Post sale revenue increased 7.2%, as compared to 2021, primarily due to an increase in renewal income from a higher level of end of lease extensions for equipment as a result of supply constraints delaying the installation of new devices. Segment Margin FITTLE segment margin of 7.2% for the year ended December 31, 2023 increased 2.9-percentage points, as compared to 2022, primarily due to higher revenues, lower bad debt expense, and a reduction in commissions paid to equipment suppliers (primarily the Print and Other segment), partially offset by higher funding costs. FITTLE segment margin of 4.3% for the year ended December 31, 2022 decreased 11.7-percentage points, as compared to 2021, primarily reflects higher bad debt expense due to 2021 including reserve releases of approximately $31 million, and incremental costs associated with standing up the business, including the receivables funding agreement. These negative impacts were partially offset by a reduction in commissions paid to the Print and Other segment due to lower new lease originations for Xerox equipment. Xerox 2023 Annual Report 50 Table of Contents Capital Resources and Liquidity Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations. Additional liquidity is also provided through access to the financial capital markets and a committed asset-based revolving credit agreement (the ABL Facility), as well as through secured borrowings on our finance receivable balances and the sales and assignment of finance lease receivables. Accordingly, we believe we have sufficient liquidity to manage the business and settle obligations as they come due. The following is a summary of our liquidity position: • As of December 31, 2023, total cash, cash equivalents and restricted cash were $617 million and apart from restricted cash of $98 million, was readily accessible for use. • Total debt at December 31, 2023 was $3,277 million of which $2,428 million is internally allocated to and supports the Company's finance assets. The remaining debt of $849 million is attributable to the core business. Debt consists of senior unsecured notes, secured borrowings through the securitization of finance assets, and borrowings of $550 million under a Term Loan B credit facility (the TLB). The TLB was entered into in the fourth quarter 2023 to repay a bridge Loan Facility which was used to initially fund a share repurchase from Icahn and affiliates. The Company has a balanced bond maturity ladder over the next few years with $300 million of senior note debt maturing in the second quarter of 2024. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional details regarding our debt. • During 2023, we refinanced our French and Canadian secured borrowing arrangements, which resulted in additional net proceeds of $107 million and $52 million, respectively. • In May 2023, we entered into a five-year senior secured revolving credit facility of up to $300 million (the ABL Facility). Our previous $250 million Credit Facility due July 2024 was terminated prior to entering into the ABL Facility. As of December 31, 2023, there were no borrowings under the ABL Facility, and no letters of credits were issued under the facility. During 2023, maximum borrowings under the ABL Facility were $220 million. We are in full compliance with the covenants and other provisions of the ABL Facility. • In December 2022, Xerox entered into a finance receivables funding agreement with an affiliate of HPS Investment Partners (HPS) that provides a committed funding arrangement for new financed lease originations through the sale of those receivables. During the second quarter 2023, the finance receivables funding agreement was amended to expand the pools of finance receivables eligible for sale and to include the sale of the underlying leased equipment to HPS. We sold approximately $1,100 million of finance receivables to HPS during 2023, which included sales of leases originated in prior years. • We expect Operating cash flows in 2024 to be approximately $650 million and capital expenditures to be approximately $50 million. Refer to Note 8 – Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding the sale of finance receivables, Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity and Note 22 – Shareholders’ Equity in the Consolidated Financial Statements for additional information regarding the Icahn share repurchase. Cash Flow Analysis The following summarizes our cash flows for the three years ended December 31, 2023, 2022 and 2021, as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements: Year Ended December 31, Change (in millions) 2023 2022 2021 2023 2022 Net cash provided by operating activities $ 686 $ 159 $ 629 $ 527 $ (470) Net cash used in investing activities (5) (78) (85) 73 7 Net cash used in financing activities (1,202) (822) (1,310) (380) 488 Effect of exchange rate changes on cash, cash equivalents and restricted cash (1) (29) (16) 28 (13) Decrease in cash, cash equivalents and restricted cash (522) (770) (782) 248 12 Cash, cash equivalents and restricted cash at beginning of year 1,139 1,909 2,691 (770) (782) Cash, Cash Equivalents and Restricted Cash at End of Year $ 617 $ 1,139 $ 1,909 $ (522) $ (770) Xerox 2023 Annual Report 51 Table of Contents Cash Flows from Operating Activities Net cash provided by operating activities was $686 million for the year ended December 31, 2023. The $527 million increase in operating cash from 2022 was primarily due to the following: • $116 million increase in pre-tax income before depreciation and amortization, provisions, gains on sales of businesses and assets, PARC donation, stock-based compensation, goodwill impairment, restructuring and related costs, net and non-service retirement-related costs. • $755 million increase from finance receivables reflecting the sale of approximately $1,100 million of finance receivables under the finance receivables funding agreement in the current year as well as lower indirect originations due to the change in FITTLE’s strategy to focus on leasing of Xerox equipment. These impacts were partially offset by higher originations from increased equipment sales. Refer to Note 8 – Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding the sale of finance receivables. • $266 million increase from inventory primarily due to the prior year increase in inventory as compared to reductions in inventory in the current year reflecting increased sales of equipment and supplies. • $43 million increase from accounts receivable due to the lower quarterly revenues partially offset by the timing of collections. • $22 million increase from lower contributions to our retirement plans mainly due to additional contributions to our U.K. defined benefit pension plan not required in 2023. • $14 million increase from accrued compensation related to the year-over-year timing of payments. • $568 million decrease from accounts payable primarily due to the timing of supplier and vendor payments and lower year-over-year spending. • $141 million decrease from other current and long-term liabilities mainly attributable to the timing of payments of higher year-end accruals. • $29 million decrease from higher installs of equipment on operating leases. Net cash provided by operating activities was $159 million for the year ended December 31, 2022. The $470 million decrease in operating cash from 2021 was primarily due to the following: • $151 million decrease in pre-tax income before depreciation and amortization, provisions, gains on sales of businesses and assets, stock-based compensation, goodwill impairment, restructuring and related costs, net and non-service retirement-related costs. • $231 million decrease due to higher inventory levels in anticipation of increased sales activity in the first half of 2023 as the Company continues to work down its backlog 1 and manage continued supply chain challenges. • $146 million decrease primarily due to lower royalty income as the prior year includes receipts of an upfront prepaid fixed royalty from Fuji Xerox (now known as FUJIFILM Business Innovation Corp.) of $100 million for their continued use of the Xerox brand trademark after the termination of our technology agreement with them and $46 million of royalty payments under the technology agreement prior to its termination. • $144 million decrease due to a current year increase in net finance receivables of $161 million reflecting improved equipment sale activity and the financing business growth strategy offset by lower equipment on operating leases of $17 million. The $161 million use of cash in 2022 is net of $60 million received in connection with the sale of finance receivables in the fourth quarter 2022 under a Receivables Funding Agreement. Refer to Note 8 – Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding the sale of finance receivables. • $89 million decrease from accounts receivable primarily due to higher revenues partially offset by the timing of collections. • $160 million increase from accounts payable primarily due to the timing of supplier and vendor payments and higher spending as compared to the prior year. • $36 million increase from lower contributions to retirement plans primarily as a result of a $30 million decrease in required contributions to our non-U.S. plans, particularly the U.K. pension plan, as well as a $6 million decrease in retiree-health contributions. • $25 million increase from accrued compensation primarily related to the year-over-year timing of payments. • $24 million increase primarily due to lower payments associated with restructuring and related costs as a result of the timing of actions. _____________ (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. Xerox 2023 Annual Report 52 Table of Contents Cash Flows from Investing Activities Net cash used in investing activities was $5 million for the year ended December 31, 2023. The $73 million decrease in the use of cash from 2022 was primarily due to lower acquisitions, capital expenditures and corporate venture capital investments, partially offset by lower proceeds from the sale of surplus buildings and other assets. Net cash used in investing activities was $78 million for the year ended December 31, 2022. The $7 million decrease in the use of cash from 2021 was primarily due to the following: • $28 million decrease from the sales of surplus buildings and land in 2022 of $25 million in the U.S and $7 million in Europe as compared to $4 million in the U.S. in the prior year. • $11 million decrease reflecting lower capital expenditures. • $10 million decrease from the sales of non-core business assets of $48 million in 2022 as compared to $38 million in the prior year. • $40 million increase from acquisitions. • Other investing, net of Xerox Holdings includes $13 million of noncontrolling investments as part of our corporate venture capital fund for 2022 as compared to $8 million in the prior year. Cash Flows from Financing Activities Net cash used in financing activities for Xerox Holdings was $1,202 million for the year ended December 31, 2023. The $380 million increase in the use of cash from 2022 was due to the following: • $431 million increase due to the share repurchase from Icahn and Affiliated Parties for $544 million in 2023 compared to $113 million of share repurchases in the prior year under the Company’s open-market share repurchase program. • $51 million decrease from net debt activity. 2023 reflects net proceeds of $524 million from the TLB, which is net of an original issue discount of $17 million and debt issuance costs payments of $9 million, and net proceeds of $107 million and $52 million from the refinance of our French and Canadian secured loans, respectively. These borrowings were offset by payments of $846 million on secured financing arrangements, $300 million on Senior Notes and deferred debt issuance costs payments of $14 million on the ABL Facility and the bridge Loan Facility used to initially fund the Icahn share repurchase, which was repaid in the fourth quarter 2023. The $846 million of payments on secured financing arrangements includes the early repayments of $270 million for U.S. secured borrowings. 2022 reflects proceeds of $1,193 million on secured financing arrangements offset by payments of $714 million, $300 million on maturing 2022 Senior Notes and $703 million for the early partial redemption of 2023 Senior Notes, which includes a premium payment of $3 million. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding debt activity and Note 22 – Shareholders’ Equity in the Consolidated Financial Statements for additional information regarding the Icahn share repurchase. Net cash used in financing activities for Xerox was $1,207 million for the year ended December 31, 2023. 2023 reflects net proceeds of $524 million from the TLB, which is net of an original issue discount of $17 million and debt issuance costs payments of $9 million, and net proceeds of $107 million and $52 million from the refinance of our French and Canadian secured loans, respectively. These borrowings were offset by payments of $846 million on secured financing arrangements, $300 million on Senior Notes and deferred debt issuance costs payments of $14 million on the ABL Facility and the bridge Loan Facility used to initially fund the Icahn share repurchase, which was repaid in the fourth quarter 2023. The $846 million of payments on secured financing arrangements includes the early repayments of $270 million for U.S. secured borrowings. 2022 reflects proceeds of $1,193 million on secured financing arrangements offset by payments of $714 million, $300 million on maturing 2022 Senior Notes and $703 million for the early partial redemption of 2023 Senior Notes, which includes a premium payment of $3 million. Distributions to Xerox Holdings were $722 million and were primarily used to fund Xerox Holdings continuing dividends to shareholders and share repurchases. Xerox's distributions to the parent are expected to continue with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases. Net cash used in financing activities for Xerox Holdings was $822 million for the year ended December 31, 2022. The $488 million decrease in the use of cash from 2021 was primarily due to the following: • $775 million decrease due to lower share repurchases in the current year. • $32 million decrease due to lower common stock dividends due to lower outstanding shares. • $321 million increase from net debt activity. 2022 reflects proceeds of $1,193 million on secured financing arrangements offset by payments of $714 million, $300 million on maturing 2022 Senior Notes and $703 million for the early partial redemption of 2023 Senior Notes, which includes a premium payment of $3 million. Xerox 2023 Annual Report 53 Table of Contents 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. • Other financing, net includes receipts for noncontrolling investments of $6 million in 2022 as compared to $15 million in the prior year. Net cash used in financing activities for Xerox was $835 million for the year ended December 31, 2022. 2022 reflects proceeds of $1,193 million on secured financing arrangements offset by payments of $714 million, $300 million on maturing 2022 Senior Notes and $703 million for the early partial redemption of 2023 Senior Notes, which includes a premium payment of $3 million. 2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement. Distributions to Xerox Holdings were $312 million and were primarily used to fund Xerox Holdings' continuing dividends to shareholders and share repurchases. Xerox's distributions to the parent are expected to continue with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases. Cash, Cash Equivalents and Restricted Cash Refer to Note 14 - Supplementary Financial Information in the Consolidated Financial Statements for additional information regarding restricted cash. Operating Leases We have operating leases for real estate and vehicles in our domestic and international operations and for certain equipment in our domestic operations. Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations. Our leases have remaining terms of up to eleven years and a variety of renewal and/or termination options. As of December 31, 2023 and 2022, total operating lease liabilities were $182 million and $229 million, respectively. Refer to Note 11 - Lessee in the Consolidated Financial Statements for additional information regarding our right-of-use (ROU) assets and lease obligations associated with our operating leases. Debt and Customer Financing Activities The following summarizes our total debt: December 31, (in millions) 2023 2022 Xerox Holdings Corporation $ 1,500 $ 1,500 Xerox Corporation 1,450 1,200 Xerox - Other Subsidiaries (1) 361 1,042 Subtotal - Principal debt balance 3,311 3,742 Debt issuance costs Xerox Holdings Corporation (6) (9) Xerox Corporation (12) (4) Xerox - Other Subsidiaries (1) (1) (5) Subtotal - Debt issuance costs (19) (18) Net unamortized (discount) premium (15) 2 Total Debt $ 3,277 $ 3,726 _____________ (1) Represents secured debt issued by subsidiaries of Xerox Corporation as part of the securitization of finance receivables. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity. Finance Assets and Related Debt We provide lease equipment financing to our customers. Our lease contracts permit customers to pay for equipment over time rather than at the date of installation. Our investment in these contracts is reflected in total finance assets, net. We primarily fund our customer financing activity through cash generated from operations, cash on hand, sales and securitizations of finance receivables and proceeds from capital markets offerings. We have arrangements, in certain international countries where third-party leasing companies or financial institutions independently provide lease financing directly to our customers, on a non-recourse basis to Xerox. In these arrangements, we sell and transfer title of the equipment to these entities. Generally, we have no continuing Xerox 2023 Annual Report 54 Table of Contents ownership rights in the equipment subsequent to its sale; therefore, the unrelated third-party finance receivable and debt are not included in our Consolidated Financial Statements. The following represents our total finance assets, net associated with our lease and finance operations: December 31, (in millions) 2023 2022 Total finance receivables, net (1) $ 2,510 $ 3,102 Equipment on operating leases, net 265 235 Total Finance assets, net (2) $ 2,775 $ 3,337 ____________ (1) Includes (i) Billed portion of finance receivables, net, (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in our Consolidated Balance Sheets. (2) The change from December 31, 2022 includes an increase of $55 million due to currency. Our lease contracts permit customers to pay for equipment over time rather than at the date of installation; therefore, we maintain a certain level of debt (that we refer to as financing debt) to support our investment in these lease contracts, which are reflected in Total finance receivables, net. For this financing aspect of our business, we maintain an assumed 7:1 leverage ratio of debt to equity as compared to our finance assets. Approximately 45% of our Total Finance assets, net balance at December 31, 2023 includes indirect lease financing primarily provided to end-user customers who purchased Xerox and non-Xerox equipment sold through distributors, resellers and dealers. Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt: December 31, (in millions) 2023 2022 Finance receivables debt (1) $ 2,196 $ 2,714 Equipment on operating leases debt 232 206 Financing debt 2,428 2,920 Core debt 849 806 Total Debt $ 3,277 $ 3,726 _____________ (1) Finance receivables debt is the basis for our calculation of “Cost of financing” expense in the Consolidated Statements of Income (Loss). At December 31, 2023, leverage was assessed against the total debt of Xerox Holdings Corporation and Xerox Corporation since the debt held by Xerox Holdings Corporation is guaranteed by Xerox Corporation and the funds from that borrowing were contributed in full by Xerox Holdings Corporation to Xerox Corporation. In 2024, we expect to continue leveraging our finance assets on a total debt basis at an assumed 7:1 ratio of debt to equity. Sale of Finance Receivables In December 2022, the Company entered into a finance receivables funding agreement with an affiliate of HPS Investment Partners (HPS) pursuant to which the Company agreed to offer for sale, and HPS agreed to purchase, certain eligible pools of finance receivables on a monthly basis in transactions structured as "true sales at law" and bankruptcy remote transfers. Accordingly, the receivables sold were derecognized from our financial statements and HPS does not have recourse back to the Company for uncollectible receivables. During the second quarter 2023, the finance receivables funding agreement with HPS was amended to expand the pools of finance receivables eligible for sale and to include the sale of the underlying leased equipment to HPS. The effect of these transactions has accordingly reduced financing debt as funding for certain new finance receivable originations is through the direct sale to HPS. Refer to Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our sales of finance receivables. Third Party Leasing Programs In the third quarter 2023, the Company entered into an agreement with PEAC Solutions (a subsidiary of HPS) that named PEAC as the provider of certain leasing and financial services programs for Xerox and non-Xerox equipment sold through our U.S. network of independent dealers and resellers. In the fourth quarter 2023, our partnership with PEAC Solutions was further expanded to include the transition of some FITTLE U.S. employees in risk, IT, and operations to PEAC Solutions. Upon completion of this transition, PEAC Solutions will become the preferred financing partner, primary funder, and service provider for XBS leases in the U.S. Xerox 2023 Annual Report 55 Table of Contents Capital Market/Debt Activity During 2023 we received net proceeds of $524 million from the Term Loan B Facility, and approximately $159 million from the refinancing of our Canadian and French secured financing arrangements. We paid $846 million on existing secured financing arrangements, which includes the early repayment of $185 million on a U.S. secured borrowing, and also repaid $300 million of Senior Notes that matured in 2023. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity, as well as our secured financing arrangements. Financial Instruments Refer to Note 16 - Financial Instruments in the Consolidated Financial Statements for additional information. Share Repurchase Programs - Treasury Stock On September 28, 2023, Xerox Holdings Corporation entered into a share purchase agreement with Carl C. Icahn and certain of his affiliates pursuant to which the Company agreed to purchase an aggregate of approximately 34 million shares of the Company’s common stock for an aggregate purchase price of approximately $542 million, exclusive of fees and expenses. Refer to Note 22 - Shareholders' Equity in the Consolidated Financial Statements for additional information regarding our share repurchases. Dividends Aggregate dividends of $146 million, $159 million, and $181 million were declared on common stock in 2023, 2022 and 2021, respectively. The decrease in dividends since 2021 primarily reflects lower shares of common stock outstanding as a result of our share repurchase programs. Aggregate dividends of $14 million were declared on preferred stock in 2023, 2022 and 2021, respectively. Liquidity and Financial Flexibility We manage our worldwide liquidity using internal cash management practices, which are subject to (i) the statutes, regulations and practices of each of the local jurisdictions in which we operate, (ii) the legal requirements of the agreements to which we are a party and (iii) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services. Our principal debt maturities are in line with historical and projected cash flows and are spread over the next five years as follows: (in millions) Xerox Holdings Corporation Xerox Corporation Xerox - Other Subsidiaries (1) Total 2024 - Q1 $ — $ 7 $ 106 $ 113 2024 - Q2 — 307 71 378 2024 - Q3 — 7 34 41 2024 - Q4 — 7 33 40 2025 750 27 102 879 2026 — 41 15 56 2027 — 55 — 55 2028 750 55 — 805 2029 and thereafter — 944 — 944 Total $ 1,500 $ 1,450 $ 361 $ 3,311 _____________ (1) Represents subsidiaries of Xerox Corporation. Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our debt. Xerox 2023 Annual Report 56 Table of Contents Pension and Retiree Health Benefit Plans We sponsor defined benefit pension plans and retiree health plans that require periodic cash contributions. Our 2023 cash contributions for these plans were $81 million for our defined benefit pension plans and $21 million for our retiree health plans. In 2024, based on current actuarial calculations, we expect to make contributions of approximately $130 million to our worldwide defined benefit pension plans and $20 million to our retiree health benefit plans. Approximately $80 million of estimated contributions for 2024 are for our U.S. 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. Contributions to our defined benefit pension plans in subsequent years will depend on multiple factors, including the investment performance of plan assets and discount rates as well as potential legislative and plan changes. Although most of our major defined benefit plans have been amended to freeze current benefits and eliminate benefit accruals for future service, several plans remain under-funded or unfunded by design. The projected benefit obligations for these benefit plans at December 31, 2023 exceeded the fair value of the assets of those plans by $1,190 million, which is an increase of $48 million from the balance at December 31, 2022, of $1,142 million. The increase is largely due to decreased discount rates and the resultant increase in projected benefit obligations. Cash contributions to our retiree health plans are made each year to cover medical premiums and claim costs incurred during the year. Our retiree health benefit plans are unfunded and are primarily related to our U.S. and Canada operations. The unfunded balance of our retiree health plans of $193 million at December 31, 2023 decreased by $16 million from the balance at December 31, 2022, primarily due to benefit payments partially offset by decreased discount rates. Refer to Note 18 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding contributions to our defined benefit pension and retiree health plans. FUJIFILM Business Innovation Corp. We purchased products, including parts and supplies, from FUJIFILM Business Innovation Corp. totaling $933 million, $1,175 million and $966 million in 2023, 2022 and 2021, respectively. Our product supply agreements with FUJIFILM Business Innovation Corp. are designed to support the entire product lifecycle, end-to-end, including the availability of spare parts, consumables and technical support throughout the time such products are with our customers. Our purchase orders under such agreements are made in the normal course of business and typically have a lead time of three months. Shared Services Arrangements In March 2019, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including, among others, selected information technology and finance functions, from Xerox to HCL. The shared services arrangement with HCL includes a remaining aggregate spending commitment of approximately $440 million over the next 3 years. However, we can terminate the arrangement at any time at our discretion, subject to payment of termination fees that decline over the term, or for cause. In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS provides business processing outsourcing services in support of our global finance and accounting organization. The shared services arrangement with TCS includes a remaining aggregate spending commitment of approximately $144 million over the next 4 years. We can terminate the arrangement subject to payment of termination fees that decline over the term. We incurred net charges of $227 million, $220 million and $207 million for the three years ended December 31, 2023, 2022, and 2021, respectively, related to these shared services arrangements. The cost has been allocated to the various functional expense lines in the Consolidated Statements of Income (Loss) based on an estimate of the nature and amount of the costs incurred for the various transferred functions. Other Contingencies and Commitments Refer to Note 20 - Contingencies and Litigation in the Consolidated Financial Statements for additional information regarding our other contingencies and commitments. Xerox 2023 Annual Report 57 Table of Contents Off-Balance Sheet Arrangements We may occasionally utilize off-balance sheet arrangements in our operations (as defined by the SEC Financial Reporting Release 67 (FRR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations”). We enter into the following arrangements that have off-balance sheet elements: • We have a facility in Europe where we sell certain accounts receivables on a recurring basis. Refer to Note 7 - Accounts Receivable, Net in the Consolidated Financial Statements for further information regarding accounts receivable sales. • During 2022, the Company entered into a Master Agreement for the Sale and Assignment of Lease Receivables that establishes a committed sale and purchase facility pursuant to which the Company agreed to offer for sale certain eligible pools of finance receivables relating to equipment leases on a monthly basis in transactions intended to be true sales. During 2023 and 2022, the Company sold approximately $1,100 million and $60 million, respectively, in principal balances of lease receivables under this agreement and will continue to service those receivables for which we will earn a servicing fee. Refer to Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for further information regarding this arrangement. As of December 31, 2023, we do not believe we have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. In addition, refer to Note 20 - Contingencies and Litigation in the Consolidated Financial Statements for additional information regarding contingencies, guarantees, indemnifications and warranty liabilities. Xerox 2023 Annual Report 58 Table of Contents Non-GAAP Financial Measures We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below. We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below. Adjusted Earnings Measures • Adjusted Net Income and Earnings per share ( Adjusted EPS) • Adjusted Effective Tax Rate The above measures were adjusted for the following items: Restructuring and related costs, net: Restructuring and related costs, net include restructuring and asset impairment charges as well as costs associated with our transformation programs beyond those normally included in restructuring and asset impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other strategic business changes. Additional costs for our transformation programs are primarily related to the implementation of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges since we do not believe they provide meaningful insight into our current or past operating performance, nor do we believe they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and savings with respect to our operational performance. Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods. Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets as well as those that are predominantly legacy in nature and related to employees who are no longer providing current service to the Company (e.g. retirees and ex-employees). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be outside the operational performance of the business or legacy costs and not necessarily indicative of current or future cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans. Xerox 2023 Annual Report 59 Table of Contents Discrete, unusual or infrequent items: We excluded the following items given their discrete, unusual or infrequent nature and their impact on our results for the period: • PARC donation • Goodwill impairment loss • Contract termination costs - product supply • Stock compensation expense associated with the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO • Losses on early extinguishment of debt • Tax Indemnification - Conduent Adjusted Operating Income and Margin We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax loss and margin amounts. In addition to the costs and expenses noted as adjustments for our adjusted earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses. We exclude these amounts in order to evaluate our current and past operating performance and to better understand the expected future trends in our business. Constant Currency (CC) Refer to the Currency Impact section in the MD&A for a discussion of this measure and its use in our analysis of revenue growth. Adjusted Net Income and EPS Reconciliation Year Ended December 31, 2023 2022 2021 (in millions, except per share amounts) Net Income EPS Net (Loss) Income EPS Net (Loss) Income EPS Reported (1) $ 1 $ (0.09) $ (322) $ (2.15) $ (455) $ (2.56) Adjustments: PARC donation 132 — — Goodwill impairment — 412 781 Restructuring and related costs, net 167 65 38 Amortization of intangible assets 43 42 55 Non-service retirement-related costs 19 (12) (89) Contract termination costs - product supply — 33 — Accelerated share vesting — 21 — Loss on early extinguishment of debt 10 5 — Tax indemnification - Conduent (7) — — Income tax on PARC donation (2) (40) — — Income tax on adjustments (2) (38) (55) (37) Adjusted $ 287 $ 1.82 $ 189 $ 1.12 $ 293 $ 1.51 Dividends on preferred stock used in adjusted EPS calculation (3) $ 14 $ 14 $ 14 Weighted average shares for adjusted EPS (3) 151 157 185 Estimated fully diluted shares at December 31, 2023 (4) 125 _____________ (1) Net Income (loss) and EPS. (2) Refer to Adjusted Effective Tax Rate reconciliation. (3) For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude 7 million shares associated with our Series A Convertible preferred stock. (4) Represents common shares outstanding at December 31, 2023, plus potential dilutive common shares used for the calculation of adjusted diluted earnings per share for the year ended December 31, 2023. Excludes shares associated with our Series A convertible preferred stock, which were anti-dilutive for the year ended December 31, 2023. Xerox 2023 Annual Report 60 Table of Contents Adjusted Effective Tax Rate Reconciliation Year Ended December 31, 2023 2022 2021 (in millions) Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Reported (1) $ (28) $ (29) 103.6 % $ (325) $ (3) 0.9 % $ (472) $ (17) 3.6 % PARC donation (2) 132 40 — Goodwill impairment (2) — — 412 17 781 31 Non-GAAP Adjustments (2) 232 38 154 38 4 6 Adjusted (3) $ 336 $ 49 14.6 % $ 241 $ 52 21.6 % $ 313 $ 20 6.4 % _____________ (1) Pre-tax Loss and Income tax benefit. (2) Refer to Adjusted Net Income and EPS reconciliation for details. (3) The tax impact on Adjusted Pre-Tax Income is calculated under the same accounting principles applied to the Reported Pre-Tax (Loss) under ASC 740, which employs an annual effective tax rate method to the results. Adjusted Operating Income and Margin Reconciliation Year Ended December 31, 2023 2022 2021 (in millions) Profit (Loss) Revenue Margin (Loss) Profit Revenue Margin (Loss) Profit Revenue Margin Net Income (Loss) $ 1 $ 6,886 $ (322) $ 7,107 $ (455) $ 7,038 Income tax benefit (29) $ — (3) $ — (17) $ — Pre-tax (loss) $ (28) $ 6,886 (0.4) % $ (325) $ 7,107 (4.6) % $ (472) $ 7,038 (6.7) % Adjustments: Goodwill impairment — 412 781 Restructuring and related costs, net 167 65 38 Amortization of intangible assets 43 42 55 PARC donation 132 — — Accelerated share vesting — 21 — Other expenses, net (1) 75 60 (27) Adjusted $ 389 $ 6,886 5.6 % $ 275 $ 7,107 3.9 % $ 375 $ 7,038 5.3 % 0 _____________ (1) Includes non-service retirement-related costs. Xerox 2023 Annual Report 61 Table of Contents