UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


XEROX HOLDINGS CORPORATION
XEROX CORPORATION
(Exact Name of Registrant as specified in its charter)


New York	001-39013	83-3933743
New York	001-04471	16-0468020
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)

	P.O. Box 4505, 201 Merritt 7 Norwalk, Connecticut 06851-1056
	(Address of principal executive offices)

(203) 849-5216
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Xerox Holdings Corporation
Common Stock, $1 par value	XRX	~~New York Stock Exchange~~Nasdaq Global Select Market
(Title of each ~~class~~class)	(Trading ~~Symbol~~Symbol)	(Name of each exchange on which ~~registered~~registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Xerox Holdings Corporation Yes ☒ No ☐ Xerox Corporation Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Xerox Holdings Corporation Yes ☒ No ☐ Xerox Corporation Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Xerox Holdings Corporation

Xerox Corporation

Large accelerated filer

☒

Large accelerated filer

☐

Accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Smaller reporting company

☐

Emerging growth company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Xerox Holdings Corporation o Xerox Corporation o

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Xerox Holdings Corporation Yes ☐ No ☒ Xerox Corporation Yes ☐ No ☒



Class						Outstanding at ~~July 31, 2021~~April 30, 2022
Xerox Holdings Corporation Common Stock, $1 par value						~~178,485,529~~154,862,456 shares

~~CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS~~Forward-Looking Statements

This document, and other written or oral statements made from time to time by management contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should”, “targeting”, “projecting”, “driving” and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially.

Such factors include but are not limited to: the effects of pandemics, such as the COVID-19 pandemic, on our and our customers' businesses and the duration and extent to which this will impact our future results of operations and overall financial performance; our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; our ability to attract and retain key personnel; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; reliance on third parties, including subcontractors, for manufacturing of products and provision of services and the shared service arrangements entered into by us as part of Project Own It; our ability to attract and retain key personnel; the risk that ~~multi-year contracts with governmental entities~~confidential and/or individually identifiable information of ours, our customers, clients and employees could be ~~terminated prior~~inadvertently disclosed or disclosed as a result of a breach of our security systems due to ~~the end~~cyber attacks or other intentional acts or that cyberattacks could result in a shutdown of ~~the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law;~~our systems; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring ~~actions; the risk that confidential and/or individually identifiable information of ours, our customers, clients~~ and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; the exit of the United Kingdom from the European Union;transformation actions; our ability to manage changes in the printing environment like the decline in the volume of printed pages and ~~expand~~extension of equipment placements; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; interest rates, cost of borrowing and access to credit markets; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; funding requirements associated with our employee pension and retiree health benefit plans; changes in foreign currency exchange rates; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; and any impacts resulting from the restructuring of our relationship with Fujifilm Holdings ~~Corporation; and the shared services arrangements entered into by us as part of Project Own It.~~ Corporation.

Additional risks that may affect Xerox’s operations ~~and other factors that~~ are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this combined Quarterly Report on Form 10-Q, ~~Xerox Holdings Corporation’s and Xerox Corporation’s combined Quarterly Report on Form 10-Q for the quarter ended March 31, 2021~~ and Xerox Holdings Corporation’s and Xerox Corporation’s combined ~~2020~~2021 Annual Report on Form 10-K, as well as in Xerox Holdings Corporation’s and Xerox Corporation’s Current Reports on Form 8-K filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document or as of the date to which they refer, and ~~Xerox assumes~~we assume no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

Throughout this combined Quarterly Report on Form 10-Q (combined Form 10-Q), 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,” 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 subsidiaries.

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

Xerox ~~2021~~2022 Form 10-Q 1

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

FORM 10-Q

~~June 30, 2021~~March 31, 2022

TABLE OF CONTENTS


		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Xerox Holdings Corporation Condensed Consolidated Statements of (Loss) Income	3
	Xerox Holdings Corporation Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~	4
	Xerox Holdings Corporation Condensed Consolidated Balance Sheets	5
	Xerox Holdings Corporation Condensed Consolidated Statements of Cash Flows	6
	Xerox Corporation Condensed Consolidated Statements of (Loss) Income	7
	Xerox Corporation Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~	8
	Xerox Corporation Condensed Consolidated Balance Sheets	9
	Xerox Corporation Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
	Capital Resources and Liquidity	5554
	Financial Risk Management	5957
	Non-GAAP Financial Measures	6058
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6361
Item 4.	Controls and Procedures	6361
Part II — Other Information
Item 1.	Legal Proceedings	6462
Item 1A.	Risk Factors	6462
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6462
Item 3.	Defaults Upon Senior Securities	6563
Item 4.	Mine Safety Disclosures	6563
Item 5.	Other Information	6563
Item 6.	Exhibits	6664
Signatures		6766
Exhibit Index		6867

For additional information about Xerox Holdings Corporation and Xerox Corporation and access to our Annual Reports to Shareholders and SEC filings, free of charge, please visit our website at www.xerox.com/investor. The content of our website is not incorporated by reference into this combined Form 10-Q unless expressly noted.

Xerox ~~2021~~2022 Form 10-Q 2

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions, except per-share data)	(in millions, except per-share data)	2021		2020		2021		2020		(in millions, except per-share data)		2022		2021
Revenues	Revenues									Revenues
Sales	Sales	$	670	$	460	$	1,272	$	1,025	Sales		$	592	$	602
Services, maintenance and rentals	Services, maintenance and rentals	1,067		949		2,120		2,185		Services, maintenance and rentals		1,023		1,053
Financing	Financing	56		56		111		115		Financing		53		55
Total Revenues	Total Revenues	1,793		1,465		3,503		3,325		Total Revenues		1,668		1,710
Costs and Expenses	Costs and Expenses									Costs and Expenses
Cost of sales	Cost of sales	468		338		888		725		Cost of sales		435		420
Cost of services, maintenance and rentals	Cost of services, maintenance and rentals	658		533		1,309		1,264		Cost of services, maintenance and rentals		679		651
Cost of financing	Cost of financing	28		30		56		60		Cost of financing		24		28
Research, development and engineering expenses	Research, development and engineering expenses	79		76		153		160		Research, development and engineering expenses		78		74
Selling, administrative and general expenses	Selling, administrative and general expenses	434		426		882		967		Selling, administrative and general expenses		455		448
Restructuring and related costs, net	Restructuring and related costs, net	12		3		29		44		Restructuring and related costs, net		18		17
Amortization of intangible assets	Amortization of intangible assets	14		10		29		21		Amortization of intangible assets		11		15
Transaction and related costs, net		0		7		0		24

Other expenses, net	Other expenses, net	1		7		5		30		Other expenses, net		57		4
Total Costs and Expenses	Total Costs and Expenses	1,694		1,430		3,351		3,295		Total Costs and Expenses		1,757		1,657
Income before Income Taxes and Equity Income		99		35		152		30
Income tax expense		9		8		23		7
(Loss) Income before Income Taxes and Equity Income										(Loss) Income before Income Taxes and Equity Income		(89)		53
Income tax (benefit) expense										Income tax (benefit) expense		(31)		14
Equity in net income of unconsolidated affiliates	Equity in net income of unconsolidated affiliates	1		0		1		2		Equity in net income of unconsolidated affiliates		1		—

Net Income		91		27		130		25
Less: Net income attributable to noncontrolling interests		0		0		0		0
Net (Loss) Income										Net (Loss) Income		(57)		39
Less: Net loss attributable to noncontrolling interests										Less: Net loss attributable to noncontrolling interests		(1)		—

Net Income Attributable to Xerox Holdings		$	91	$	27	$	130	$	25
Net (Loss) Income Attributable to Xerox Holdings										Net (Loss) Income Attributable to Xerox Holdings		$	(56)	$	39

Basic Earnings per Share		$	0.47	$	0.11	$	0.64	$	0.08
Basic (Loss) Earnings per Share										Basic (Loss) Earnings per Share		$	(0.38)	$	0.18

Diluted Earnings per Share		$	0.46	$	0.11	$	0.64	$	0.08
Diluted (Loss) Earnings per Share										Diluted (Loss) Earnings per Share		$	(0.38)	$	0.18

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

Xerox ~~2021~~2022 Form 10-Q 3

XEROX HOLDINGS CORPORATION

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

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2021 2020 2021 2020
Net Income $ 91 $ 27 $ 130 $ 25
Less: Net income attributable to noncontrolling interests 0 0 0 0
Net Income Attributable to Xerox Holdings 91 27 130 25
Other Comprehensive Income (Loss), Net(1)
Translation adjustments, net 54 25 3 (172)
Unrealized (losses) gains, net 0 (2) (7) 3
Changes in defined benefit plans, net 16 80 71 134
Other Comprehensive Income (Loss), Net Attributable to Xerox Holdings 70 103 67 (35)
Comprehensive Income (Loss), Net Attributable to Xerox Holdings $ 161 $ 130 $ 197 $ (10)


	Three Months Ended March 31,
(in millions)		2022		2021
Net (Loss) Income		$	(57)	$	39
Less: Net loss attributable to noncontrolling interests		(1)		—

Net (Loss) Income Attributable to Xerox Holdings		(56)		39

Other Comprehensive (Loss) Income, Net(1)
Translation adjustments, net		(72)		(51)
Unrealized losses, net		(11)		(7)
Changes in defined benefit plans, net		39		55


Other Comprehensive Loss, Net Attributable to Xerox Holdings		(44)		(3)

Comprehensive (Loss) Income, Net		(101)		36
Less: Comprehensive loss, net attributable to noncontrolling interests		(1)		—

Comprehensive (Loss) Income, Net Attributable to Xerox Holdings		$	(100)	$	36

_____________

(1) Refer to Note 1819 - Other Comprehensive (Loss) Income ~~(Loss)~~ for gross components of Other comprehensive ~~income (loss),~~loss, net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

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

Xerox ~~2021~~2022 Form 10-Q 4

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands) June 30,
2021 December 31,
2020
Assets
Cash and cash equivalents $ 2,124 $ 2,625
Accounts receivable (net of allowance of $68 and $69, respectively) 846 883
Billed portion of finance receivables (net of allowance of $3 and $4, respectively) 89 99
Finance receivables, net 1,057 1,082
Inventories 815 843
Other current assets 244 251
Total current assets 5,175 5,783
Finance receivables due after one year (net of allowance of $130 and $129, respectively) 1,971 1,984
Equipment on operating leases, net 271 296
Land, buildings and equipment, net 372 407
Intangible assets, net 230 237
Goodwill 4,104 4,071
Deferred tax assets 491 508
Other long-term assets 1,496 1,455
Total Assets $ 14,110 $ 14,741
Liabilities and Equity
Short-term debt and current portion of long-term debt $ 642 $ 394
Accounts payable 935 983
Accrued compensation and benefits costs 263 261
Accrued expenses and other current liabilities 851 840
Total current liabilities 2,691 2,478
Long-term debt 3,597 4,050
Pension and other benefit liabilities 1,436 1,566
Post-retirement medical benefits 340 340
Other long-term liabilities 537 497
Total Liabilities 8,601 8,931
Commitments and Contingencies (See Note 20) 0 0
Convertible Preferred Stock 214 214
Common stock 189 198
Additional paid-in capital 2,214 2,445
Treasury stock, at cost (159) 0
Retained earnings 6,308 6,281
Accumulated other comprehensive loss (3,265) (3,332)
Xerox Holdings shareholders’ equity 5,287 5,592
Noncontrolling interests 8 4
Total Equity 5,295 5,596
Total Liabilities and Equity $ 14,110 $ 14,741
Shares of common stock issued 188,817 198,386
Treasury stock (6,641) 0
Shares of Common Stock Outstanding 182,176 198,386


(in millions, except share data in thousands)	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	1,681	$	1,840
Accounts receivable (net of allowance of $63 and $58, respectively)	807		818
Billed portion of finance receivables (net of allowance of $3 and $4, respectively)	89		94
Finance receivables, net	1,023		1,042
Inventories	732		696

Other current assets	234		211
Total current assets	4,566		4,701
Finance receivables due after one year (net of allowance of $117 and $114, respectively)	1,893		1,934
Equipment on operating leases, net	254		253
Land, buildings and equipment, net	350		358

Intangible assets, net	240		211
Goodwill	3,300		3,287
Deferred tax assets	528		519
Other long-term assets	1,951		1,960
Total Assets	$	13,082	$	13,223
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	1,450	$	650
Accounts payable	1,183		1,069
Accrued compensation and benefits costs	258		239


Accrued expenses and other current liabilities	878		871
Total current liabilities	3,769		2,829
Long-term debt	2,821		3,596
Pension and other benefit liabilities	1,359		1,373
Post-retirement medical benefits	247		277
Other long-term liabilities	473		481
Total Liabilities	8,669		8,556

Commitments and Contingencies (See Note 21)	0		0

Noncontrolling Interests	10		10

Convertible Preferred Stock	214		214

Common stock	156		168

Additional paid-in capital	1,560		1,802
Treasury stock, at cost	(32)		(177)
Retained earnings	5,532		5,631
Accumulated other comprehensive loss	(3,032)		(2,988)
Xerox Holdings shareholders’ equity	4,184		4,436
Noncontrolling interests	5		7
Total Equity	4,189		4,443
Total Liabilities and Equity	$	13,082	$	13,223

Shares of common stock issued	156,358		168,069
Treasury stock	(1,508)		(8,675)
Shares of Common Stock Outstanding	154,850		159,394

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

Xerox ~~2021~~2022 Form 10-Q 5

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)		2022		2021
Cash Flows from Operating Activities	Cash Flows from Operating Activities									Cash Flows from Operating Activities
Net Income		$	91	$	27	$	130	$	25
Net (Loss) Income										Net (Loss) Income		$	(57)	$	39

Adjustments required to reconcile Net income to Cash flows from operating activities
Adjustments required to reconcile Net (loss) income to Cash flows from operating activities										Adjustments required to reconcile Net (loss) income to Cash flows from operating activities
Depreciation and amortization	Depreciation and amortization	84		88		170		182		Depreciation and amortization		72		86
Provisions	Provisions	14		21		34		101		Provisions		19		20

Net gain on sales of businesses and assets		(1)		0		(1)		(1)

Stock-based compensation	Stock-based compensation	14		13		30		24		Stock-based compensation		15		16
Restructuring and asset impairment charges	Restructuring and asset impairment charges	4		(2)		25		27		Restructuring and asset impairment charges		20		21
Payments for restructurings		(22)		(17)		(49)		(52)
Defined benefit pension cost		(2)		13		(2)		37
Contributions to defined benefit pension plans		(34)		(31)		(69)		(64)
(Increase) decrease in accounts receivable and billed portion of finance receivables		(55)		262		37		428
Decrease (increase) in inventories		22		(99)		4		(225)
Payments for restructuring										Payments for restructuring		(7)		(27)
Non-service retirement-related costs(1)										Non-service retirement-related costs(1)		(7)		(20)
Contributions to retirement plans(1)										Contributions to retirement plans(1)		(38)		(41)
Decrease in accounts receivable and billed portion of finance receivables										Decrease in accounts receivable and billed portion of finance receivables		13		92
Increase in inventories										Increase in inventories		(31)		(18)
Increase in equipment on operating leases	Increase in equipment on operating leases	(35)		(23)		(63)		(55)		Increase in equipment on operating leases		(36)		(28)
(Increase) decrease in finance receivables		(25)		97		12		190
Decrease (increase) in other current and long-term assets		48		1		66		(15)
Decrease in accounts payable		(2)		(210)		(33)		(159)
Decrease in finance receivables										Decrease in finance receivables		41		37
(Increase) decrease in other current and long-term assets										(Increase) decrease in other current and long-term assets		(1)		18
Increase (decrease) in accounts payable										Increase (decrease) in accounts payable		111		(31)
Increase (decrease) in accrued compensation(1)	Increase (decrease) in accrued compensation(1)	1		(21)		(35)		(129)		Increase (decrease) in accrued compensation(1)		22		(10)
Increase (decrease) in other current and long-term liabilities		127		(92)		92		(130)
Decrease in other current and long-term liabilities										Decrease in other current and long-term liabilities		(43)		(35)
Net change in income tax assets and liabilities	Net change in income tax assets and liabilities	(4)		13		2		3		Net change in income tax assets and liabilities		(39)		6
Net change in derivative assets and liabilities	Net change in derivative assets and liabilities	(5)		(10)		(2)		(2)		Net change in derivative assets and liabilities		7		3
Other operating, net	Other operating, net	(6)		4		(17)		22		Other operating, net		5		(11)

Net cash provided by operating activities	Net cash provided by operating activities	214		34		331		207		Net cash provided by operating activities		66		117
Cash Flows from Investing Activities	Cash Flows from Investing Activities									Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software	Cost of additions to land, buildings, equipment and software	(16)		(19)		(33)		(42)		Cost of additions to land, buildings, equipment and software		(16)		(17)
Proceeds from sales of businesses and assets		1		0		1		2

Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(37)		0		(37)		(193)		Acquisitions, net of cash acquired		(54)		—

Other investing, net	Other investing, net	(3)		1		(3)		1		Other investing, net		(5)		—

Net cash used in investing activities	Net cash used in investing activities	(55)		(18)		(72)		(232)		Net cash used in investing activities		(75)		(17)
Cash Flows from Financing Activities	Cash Flows from Financing Activities									Cash Flows from Financing Activities

Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	0		3		0		5		Proceeds from issuance of long-term debt		668		—
Payments on long-term debt	Payments on long-term debt	(114)		(313)		(209)		(313)		Payments on long-term debt		(646)		(95)
Dividends	Dividends	(54)		(57)		(108)		(115)		Dividends		(46)		(54)

Payments to acquire treasury stock, including fees	Payments to acquire treasury stock, including fees	(251)		0		(413)		0		Payments to acquire treasury stock, including fees		(113)		(162)

Other financing, net	Other financing, net	(10)		(5)		(17)		(9)		Other financing, net		(12)		(7)
Net cash used in financing activities	Net cash used in financing activities	(429)		(372)		(747)		(432)		Net cash used in financing activities		(149)		(318)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	12		5		0		(24)		Effect of exchange rate changes on cash, cash equivalents and restricted cash		10		(12)

Decrease in cash, cash equivalents and restricted cash	Decrease in cash, cash equivalents and restricted cash	(258)		(351)		(488)		(481)		Decrease in cash, cash equivalents and restricted cash		(148)		(230)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	2,461		2,665		2,691		2,795		Cash, cash equivalents and restricted cash at beginning of period		1,909		2,691
Cash, Cash Equivalents and Restricted Cash at End of Period	Cash, Cash Equivalents and Restricted Cash at End of Period	$	2,203	$	2,314	$	2,203	$	2,314	Cash, Cash Equivalents and Restricted Cash at End of Period		$	1,761	$	2,461

_____________

(1)

Captions were changed in 2022 to reflect the inclusion of expense and contributions for our Retiree Health plans, which were previously reported as part of the Increase (decrease) in accrued compensation. There was no change to Net cash provided by operating activities as a result of the reclassification. Prior year amounts have been revised to conform to this presentation. Refer to Note 16 - Employee Benefit Plans for additional information.

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

Xerox ~~2021~~2022 Form 10-Q 6

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)		2022		2021
Revenues	Revenues									Revenues
Sales	Sales	$	670	$	460	$	1,272	$	1,025	Sales		$	592	$	602
Services, maintenance and rentals	Services, maintenance and rentals	1,067		949		2,120		2,185		Services, maintenance and rentals		1,023		1,053
Financing	Financing	56		56		111		115		Financing		53		55
Total Revenues	Total Revenues	1,793		1,465		3,503		3,325		Total Revenues		1,668		1,710
Costs and Expenses	Costs and Expenses									Costs and Expenses
Cost of sales	Cost of sales	468		338		888		725		Cost of sales		435		420
Cost of services, maintenance and rentals	Cost of services, maintenance and rentals	658		533		1,309		1,264		Cost of services, maintenance and rentals		679		651
Cost of financing	Cost of financing	28		30		56		60		Cost of financing		24		28
Research, development and engineering expenses	Research, development and engineering expenses	78		76		152		160		Research, development and engineering expenses		78		74
Selling, administrative and general expenses	Selling, administrative and general expenses	430		426		877		967		Selling, administrative and general expenses		455		448
Restructuring and related costs, net	Restructuring and related costs, net	12		3		29		44		Restructuring and related costs, net		18		17
Amortization of intangible assets	Amortization of intangible assets	13		10		27		21		Amortization of intangible assets		11		15
Transaction and related costs, net		0		7		0		24

Other expenses, net	Other expenses, net	2		7		6		30		Other expenses, net		57		4
Total Costs and Expenses	Total Costs and Expenses	1,689		1,430		3,344		3,295		Total Costs and Expenses		1,757		1,657
Income before Income Taxes and Equity Income		104		35		159		30
Income tax expense		9		8		23		7
(Loss) Income before Income Taxes and Equity Income										(Loss) Income before Income Taxes and Equity Income		(89)		53
Income tax (benefit) expense										Income tax (benefit) expense		(31)		14
Equity in net income of unconsolidated affiliates	Equity in net income of unconsolidated affiliates	1		0		1		2		Equity in net income of unconsolidated affiliates		1		—

Net Income		96		27		137		25
Less: Net income attributable to noncontrolling interests		0		0		0		0
Net (Loss) Income										Net (Loss) Income		(57)		39
Less: Net loss attributable to noncontrolling interests										Less: Net loss attributable to noncontrolling interests		(1)		—

Net Income Attributable to Xerox		$	96	$	27	$	137	$	25
Net (Loss) Income Attributable to Xerox										Net (Loss) Income Attributable to Xerox		$	(56)	$	39

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

Xerox ~~2021~~2022 Form 10-Q 7

XEROX CORPORATION

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

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2021 2020 2021 2020
Net Income $ 96 $ 27 $ 137 $ 25
Less: Net income attributable to noncontrolling interests 0 0 0 0
Net Income Attributable to Xerox 96 27 137 25
Other Comprehensive Income (Loss), Net(1)
Translation adjustments, net 54 25 3 (172)
Unrealized (losses) gains, net 0 (2) (7) 3
Changes in defined benefit plans, net 16 80 71 134
Other Comprehensive Income (Loss), Net Attributable to Xerox 70 103 67 (35)
Comprehensive Income (Loss), Net Attributable to Xerox $ 166 $ 130 $ 204 $ (10)


	Three Months Ended March 31,
(in millions)		2022		2021
Net (Loss) Income		$	(57)	$	39
Less: Net loss attributable to noncontrolling interests		(1)		—

Net (Loss) Income Attributable to Xerox		(56)		39

Other Comprehensive (Loss) Income, Net(1)
Translation adjustments, net		(72)		(51)
Unrealized losses, net		(11)		(7)
Changes in defined benefit plans, net		39		55


Other Comprehensive Loss, Net Attributable to Xerox		(44)		(3)

Comprehensive (Loss) Income, Net		(101)		36
Less: Comprehensive loss, net attributable to noncontrolling interests		(1)		—

Comprehensive (Loss) Income, Net Attributable to Xerox		$	(100)	$	36

_____________

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

Xerox ~~2021~~2022 Form 10-Q 8

XEROX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	March 31, 2022		December 31, 2021
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	2,124	$	2,625	Cash and cash equivalents	$	1,681	$	1,840
Accounts receivable (net of allowance of $68 and $69, respectively)		846		883
Accounts receivable (net of allowance of $63 and $58, respectively)						Accounts receivable (net of allowance of $63 and $58, respectively)	807		818
Billed portion of finance receivables (net of allowance of $3 and $4, respectively)	Billed portion of finance receivables (net of allowance of $3 and $4, respectively)	89		99		Billed portion of finance receivables (net of allowance of $3 and $4, respectively)	89		94
Finance receivables, net	Finance receivables, net	1,057		1,082		Finance receivables, net	1,023		1,042
Inventories	Inventories	815		843		Inventories	732		696

Other current assets	Other current assets	250		251		Other current assets	234		211
Total current assets	Total current assets	5,181		5,783		Total current assets	4,566		4,701
Finance receivables due after one year (net of allowance of $130 and $129, respectively)		1,971		1,984
Finance receivables due after one year (net of allowance of $117 and $114, respectively)						Finance receivables due after one year (net of allowance of $117 and $114, respectively)	1,893		1,934
Equipment on operating leases, net	Equipment on operating leases, net	271		296		Equipment on operating leases, net	254		253
Land, buildings and equipment, net	Land, buildings and equipment, net	372		407		Land, buildings and equipment, net	350		358

Intangible assets, net	Intangible assets, net	224		229		Intangible assets, net	240		211
Goodwill	Goodwill	4,102		4,068		Goodwill	3,300		3,287
Deferred tax assets	Deferred tax assets	491		508		Deferred tax assets	528		519
Other long-term assets	Other long-term assets	1,492		1,455		Other long-term assets	1,939		1,952
Total Assets	Total Assets	$	14,104	$	14,730	Total Assets	$	13,070	$	13,215
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Short-term debt and current portion of long-term debt	Short-term debt and current portion of long-term debt	$	642	$	394	Short-term debt and current portion of long-term debt	$	1,450	$	650
Accounts payable	Accounts payable	935		983		Accounts payable	1,183		1,069
Accrued compensation and benefits costs	Accrued compensation and benefits costs	263		261		Accrued compensation and benefits costs	258		239

Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	797		750		Accrued expenses and other current liabilities	833		823
Total current liabilities	Total current liabilities	2,637		2,388		Total current liabilities	3,724		2,781
Long-term debt	Long-term debt	2,103		2,557		Long-term debt	1,326		2,102
Related party debt	Related party debt	1,494		0		Related party debt	1,495		1,494
Pension and other benefit liabilities	Pension and other benefit liabilities	1,436		1,566		Pension and other benefit liabilities	1,359		1,373
Post-retirement medical benefits	Post-retirement medical benefits	340		340		Post-retirement medical benefits	247		277
Other long-term liabilities	Other long-term liabilities	535		494		Other long-term liabilities	473		481
Total Liabilities	Total Liabilities	8,545		7,345		Total Liabilities	8,624		8,508

Commitments and Contingencies (See Note 20)		0		0
Commitments and Contingencies (See Note 21)						Commitments and Contingencies (See Note 21)	0		0

Noncontrolling Interests						Noncontrolling Interests	10		10

Additional paid-in capital	Additional paid-in capital	3,404		4,879		Additional paid-in capital	3,592		3,202

Retained earnings	Retained earnings	5,412		5,834		Retained earnings	3,871		4,476
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,265)		(3,332)		Accumulated other comprehensive loss	(3,032)		(2,988)
Xerox shareholder's equity	Xerox shareholder's equity	5,551		7,381		Xerox shareholder's equity	4,431		4,690
Noncontrolling interests	Noncontrolling interests	8		4		Noncontrolling interests	5		7
Total Equity	Total Equity	5,559		7,385		Total Equity	4,436		4,697
Total Liabilities and Equity	Total Liabilities and Equity	$	14,104	$	14,730	Total Liabilities and Equity	$	13,070	$	13,215

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

Xerox ~~2021~~2022 Form 10-Q 9

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)		2022		2021
Cash Flows from Operating Activities	Cash Flows from Operating Activities									Cash Flows from Operating Activities
Net Income		$	96	$	27	$	137	$	25
Net (Loss) Income										Net (Loss) Income		$	(57)	$	39

Adjustments required to reconcile Net income to Cash flows from operating activities
Adjustments required to reconcile Net (loss) income to Cash flows from operating activities										Adjustments required to reconcile Net (loss) income to Cash flows from operating activities
Depreciation and amortization	Depreciation and amortization	83		88		168		182		Depreciation and amortization		72		86
Provisions	Provisions	14		21		34		101		Provisions		19		20

Net gain on sales of businesses and assets		(1)		0		(1)		(1)

Stock-based compensation	Stock-based compensation	14		13		30		24		Stock-based compensation		15		16
Restructuring and asset impairment charges	Restructuring and asset impairment charges	4		(2)		25		27		Restructuring and asset impairment charges		20		21
Payments for restructurings	Payments for restructurings	(22)		(17)		(49)		(52)		Payments for restructurings		(7)		(27)
Defined benefit pension cost		(2)		13		(2)		37
Contributions to defined benefit pension plans		(34)		(31)		(69)		(64)
(Increase) decrease in accounts receivable and billed portion of finance receivables		(54)		262		38		428
Decrease (increase) in inventories		22		(99)		4		(225)
Non-service retirement-related costs(1)										Non-service retirement-related costs(1)		(7)		(20)
Contributions to retirement plans(1)										Contributions to retirement plans(1)		(38)		(41)
Decrease in accounts receivable and billed portion of finance receivables										Decrease in accounts receivable and billed portion of finance receivables		13		92
Increase in inventories										Increase in inventories		(31)		(18)
Increase in equipment on operating leases	Increase in equipment on operating leases	(35)		(23)		(63)		(55)		Increase in equipment on operating leases		(36)		(28)
(Increase) decrease in finance receivables		(25)		97		12		190
Decrease (increase) in other current and long-term assets		42		1		60		(15)
Decrease in accounts payable		(2)		(210)		(33)		(159)
Decrease in finance receivables										Decrease in finance receivables		41		37
(Increase) decrease in other current and long-term assets										(Increase) decrease in other current and long-term assets		(1)		18
Increase (decrease) in accounts payable										Increase (decrease) in accounts payable		111		(31)
Increase (decrease) in accrued compensation(1)	Increase (decrease) in accrued compensation(1)	1		(21)		(35)		(129)		Increase (decrease) in accrued compensation(1)		22		(10)
Increase (decrease) in other current and long-term liabilities		128		(92)		92		(130)
Decrease in other current and long-term liabilities										Decrease in other current and long-term liabilities		(43)		(35)
Net change in income tax assets and liabilities	Net change in income tax assets and liabilities	(4)		13		2		3		Net change in income tax assets and liabilities		(39)		6
Net change in derivative assets and liabilities	Net change in derivative assets and liabilities	(5)		(10)		(2)		(2)		Net change in derivative assets and liabilities		7		3
Other operating, net	Other operating, net	(6)		4		(17)		22		Other operating, net		5		(11)

Net cash provided by operating activities	Net cash provided by operating activities	214		34		331		207		Net cash provided by operating activities		66		117
Cash Flows from Investing Activities	Cash Flows from Investing Activities									Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software	Cost of additions to land, buildings, equipment and software	(16)		(19)		(33)		(42)		Cost of additions to land, buildings, equipment and software		(16)		(17)

Proceeds from sales of businesses and assets		1		0		1		2

Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(37)		0		(37)		(193)		Acquisitions, net of cash acquired		(54)		—

Other investing, net		0		1		0		1

Net cash used in investing activities	Net cash used in investing activities	(52)		(18)		(69)		(232)		Net cash used in investing activities		(70)		(17)
Cash Flows from Financing Activities	Cash Flows from Financing Activities									Cash Flows from Financing Activities

Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	0		3		0		5		Proceeds from issuance of long-term debt		668		—
Payments on long-term debt	Payments on long-term debt	(114)		(313)		(209)		(313)		Payments on long-term debt		(646)		(95)

Distributions to parent	Distributions to parent	(322)		(67)		(542)		(125)		Distributions to parent		(174)		(220)

Other financing, net	Other financing, net	4		5		1		1		Other financing, net		(2)		(3)
Net cash used in financing activities	Net cash used in financing activities	(432)		(372)		(750)		(432)		Net cash used in financing activities		(154)		(318)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	12		5		0		(24)		Effect of exchange rate changes on cash, cash equivalents and restricted cash		10		(12)

Decrease in cash, cash equivalents and restricted cash	Decrease in cash, cash equivalents and restricted cash	(258)		(351)		(488)		(481)		Decrease in cash, cash equivalents and restricted cash		(148)		(230)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	2,461		2,665		2,691		2,795		Cash, cash equivalents and restricted cash at beginning of period		1,909		2,691
Cash, Cash Equivalents and Restricted Cash at End of Period	Cash, Cash Equivalents and Restricted Cash at End of Period	$	2,203	$	2,314	$	2,203	$	2,314	Cash, Cash Equivalents and Restricted Cash at End of Period		$	1,761	$	2,461

_____________

(1)Captions were changed in 2022 to reflect the inclusion of expense and contributions for our Retiree Health plans, which were previously reported as part of the Increase (decrease) in accrued compensation. There was no change to Net cash provided by operating activities as a result of the reclassification. Prior year amounts have been revised to conform to this presentation. Refer to Note 16 - Employee Benefit Plans for additional information.

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

Xerox ~~2021~~2022 Form 10-Q 10

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in millions, except per-share data and where otherwise noted)

Note 1 – Basis of Presentation

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,” 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.

The accompanying unaudited Condensed Consolidated Financial Statements and footnotes represent the respective, consolidated results and financial results of Xerox Holdings and Xerox and all respective companies that each registrant directly or indirectly controls, either through majority ownership or otherwise. This is a combined report of Xerox Holdings and Xerox, which includes separate unaudited Condensed Consolidated Financial Statements for each registrant.

The accompanying unaudited Condensed Consolidated Financial Statements of both Xerox Holdings and Xerox have been prepared in accordance with the accounting policies described in the Combined ~~2020~~2021 Annual Report on Form 10-K ~~(2020~~(2021 Annual Report), except as noted herein, and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. You should read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements included in the ~~Combined 2020~~2021 Annual Report.

In our opinion, all adjustments ~~which are~~ necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented have been made. These adjustments consist of normal recurring items. Interim results of operations are not necessarily indicative of the results of the full year.

As of June 30, 2021 we are seeing improvement in our financial results as regions and countries continue to progress in controlling the COVID-19 pandemic and businesses resume investments in new printing technology and increase their level of printing services as compared to the prior year. However, the pandemic continues to have varying and divergent impacts across various regions and countries and a high degree of economic uncertainty still remains. We expect the pandemic's effects will likely continue to impact our financial results over the remainder of the year. Accordingly, many of our estimates and assumptions continue to require an increased level of judgment and may have to change in the future as events continue to evolve and additional information becomes available.

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

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

Segments

During the first quarter of 2022, the Company made a change to its reportable segments from 1 reportable segment to 2 reportable segments - Print and Other, and Financing (FITTLE) - to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies. As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments.

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

Goodwill

Interim Impairment Evaluation

~~We perform our annual Goodwill~~Our goodwill balance was $3.3 billion at March 31, 2022 and December 31, 2021, respectively. The balance at December 31, 2021 reflects a pre-tax impairment ~~testing~~charge of $781 recorded in the fourth quarter 2021 after completion of ~~each year. After completing~~ our ~~quantitative~~fourth quarter annual goodwill impairment ~~review in~~assessment. We assess goodwill for impairment at least annually during the fourth quarter ~~2020, we concluded~~and whenever events or changes in circumstances indicate that ~~Goodwill was~~the carrying value may not ~~impaired. Based on various forecast models, which we believe reflected~~be recoverable.

As noted above, during the ~~inherent uncertainty~~first quarter 2022, the Company made a change to its operating and reportable segments from 1 operating/reportable segment - Printing - to 2 operating/reportable segments - Print and Other, and Financing (FITTLE). As a result of the ~~future,~~new operating and reportable segments, we also reassessed our reporting units for the evaluation of goodwill. Prior to this change, consistent with the determination that we had 1 operating/reportable segment, we determined that we had 1 reporting unit for goodwill assessment purposes. Our

Xerox 2022 Form 10-Q 11

reassessment during the first quarter of 2022 determined that likewise consistent with the determination that we had 2 operating/reportable segments, we now have 2 reporting units – Print and Other, and Financing (FITTLE).

As a result of the change in reporting units, effective January 1, 2022, we estimated ~~that~~ the ~~excess of~~ fair value ~~over carrying value ranged between 15%~~of our new reporting units and, ~~20%.~~based on an assessment of the relative fair values of our new reporting units after the change, we determined that no goodwill was allocable to the Financing (FITTLE) segment. This determination was largely based on the fact that at this stage in the stand-up of the Financing (FITTLE) business, its separate valuation is constrained and limited because the operation is significantly integrated with the Print and Other segment and is primarily an extension or enabler to facilitate the sale of the Company’s products. The change in reporting units was also considered a triggering event indicating a test for goodwill impairment was required as of January 1, 2022 before and after the change in reporting units. The Company performed those impairment tests, which did not result in the identification of an impairment loss as of January 1, 2022.

During the ~~six months ended June 30, 2021, although business performance continued~~first quarter 2022, the Company encountered significant operational challenges and uncertainties, due to ~~improve,~~supply chain constraints, inflationary pressure on costs, geopolitical uncertainty in Europe and the threat of additional COVID-19 variants. Despite these uncertainties, the Company expects to maintain its full year 2022 financial outlook since at this stage in the year we ~~determined that the continued negative impacts~~do not have enough information or clarity (positive or negative) on these uncertainties to warrant an adjustment in our current operations resulting from the COVID-19 pandemic, as well as a market capitalization that remains less than book value, required us to qualitatively assess whether a triggering event had occurred and whether it was more likely than not that our Goodwill was impaired as of June 30, 2021. Basedoutlook. Accordingly, based on our interim ~~qualitative~~ assessment as of ~~June 30, 2021,~~March 31, 2022, we determined that it was more-likely-than-not that the fair value of ~~the Company~~Print and Other reporting unit (the only reporting unit with goodwill) was still greater than ~~the~~its net book value and that we did not have a “triggering event” requiring a quantitative ~~or Step 1~~ assessment of Goodwill. ~~Our review~~Despite indications that our excess fair value is likely reduced as compared to the impairment test as of ~~macroeconomic and industry considerations, as well as~~January 1, 2022, the Company's ~~financial results for the first half of 2021 and~~ projections for the full year

~~Xerox 2021 Form 10-Q~~ 11

~~2021, were consistent with the expectations and sensitivities assessed~~ 2022, reviewed as part of our ~~review~~quantitative analysis, are still within the range of our sensitivity analysis performed ~~in the fourth quarter 2020. Further, although~~as part of our ~~market capitalization remained below our net book value, the Company's market capitalization remained fairly constant in relation to book value during the second quarter 2021.~~January 1, 2022 interim impairment assessment.

If assumptions or estimates inwith respect to the ~~fair value calculations change or if~~Company's future ~~cash flows~~performance vary from what ~~was~~is expected, including those assumptions relating to the ~~duration~~supply chain constraints, inflationary pressure on costs, geopolitical uncertainty in Europe and ~~severity~~the threat of ~~the financial impact from the~~additional COVID-19 ~~pandemic,~~variants, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

Note 2 – Recent Accounting Pronouncements

Xerox Holdings and Xerox consider the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB). The ASUs listed below apply to both registrants. ASUs not listed below were assessed and determined to be not applicable to the Condensed Consolidated Financial Statements of either registrant.

Accounting Standard Updates to be Adopted:

~~Debt~~Financial Instruments

In ~~August 2020,~~March 2022, the FASB issued ASU ~~2020-06~~2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures - ~~Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts~~Gross Write-offs. The amendments in ~~Entity's Own Equity (Subtopic 815-40).~~ ~~This~~this update ~~simplifies~~eliminate the accounting ~~for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the~~ guidance for Troubled Debt Restructurings (TDRs) by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables. The update is applicable for financing receivables and net investments in leases that are within the ~~derivatives~~ scope ~~exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and requires the application~~ of ~~the if-converted method for calculating diluted earnings per share.~~ASC 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. This update is effective for our fiscal year beginning on January 1, ~~2022.~~2023, but early adoption is permitted. The provisions of this amendment are to be applied on a prospective basis. We are currently evaluating the impact of the adoption of this standard on the ~~Company’s~~Company's consolidated financial statements and related disclosures.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which provided clarification guidance to ASU 2020-04. These ASUs were effective commencing with our quarter ended March 31, 2020 through December 31, 2022. There has been no impact to date as a result of ASU 2020-04 or ASU 2021-01 and subsequent amendments on reference rate reform. However, we continue to evaluate potential future impacts that may result

Xerox 2022 Form 10-Q 12

from the discontinuation of LIBOR or other reference rates as well as the accounting provided in this update on our financial condition, results of operations, and cash flows.

Accounting Standard Updates Adopted in ~~2021:~~2022:

~~Income Taxes~~Government Assistance

In ~~December 2019,~~November 2021, the FASB issued ASU ~~2019-12~~2021-10, ~~Income Taxes~~Government Assistance (Topic ~~740): Simplifying~~832), Disclosures by Business Entities about GovernmentAssistance. The update increases the ~~Accounting for Income Taxes,~~ transparency surrounding government assistance by requiring disclosure of 1) the types of assistance~~which was intended to simplify various aspects related to~~received, 2) an entity’s accounting for ~~income taxes~~. ~~ASU 2019-12 removes certain exceptions to~~ the ~~general principles in Topic 740~~assistance, and ~~also clarifies and amends existing guidance to improve consistent application.~~3) the effect of the assistance on the entity’s financial statements. We adopted this update effective for our fiscal year beginning January 1, ~~2021.~~2022. The impact of adoption ~~did~~was not ~~have nor~~material to our Consolidated Financial Statements. Impacts on future periods will depend on the amounts of government assistance received. Prior to the COVID pandemic, the amounts of government assistance the Company received were not material and since the update is ~~expected~~limited to increased disclosures, we do not expect the adoption to have a material impact on our financial condition, results of operations, and cash flows in future periods.

Business Combinations

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. We early adopted this update effective for our fiscal year beginning January 1, 2022. The impact of adopting the new standard will depend on the magnitude of future acquisitions. The standard will not impact contract assets or liabilities acquired in business combinations that occurred prior to the adoption date.

Debt

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). This update simplified the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amended the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and required the application of the if-converted method for calculating diluted earnings per share. We adopted this update effective for our fiscal year beginning January 1, 2022. The adoption of this update did not have a material impact on the Company’s consolidated financial ~~position or~~statements and related disclosures.

Other Updates

In ~~2021~~2022 and ~~2020,~~2021, the FASB also issued the following ASUs, which impact the Company but did not have, or are not expected to have, a material impact on our financial condition, results of operations or cash flows upon adoption. Those updates are as follows:

•~~Investments:~~Derivatives and Hedging: ASU ~~2020-01~~2022-01, ~~Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323) and~~ Derivatives and Hedging (Topic 815)., Fair Value Hedging - Portfolio Layer Method. ~~We adopted this~~This update is effective for our fiscal year beginning January 1, ~~2021.~~2023.

•Equity Instruments: ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic470-50), Compensation—Stock ~~Compensation(Topic~~Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications

~~Xerox 2021 Form 10-Q~~ 12

or Exchanges of Freestanding Equity-Classified Written Call Options). This update is effective for our fiscal year beginning January 1, 2022.

•Leases: ASU 2021-05, Leases - Certain Lease Payments with Variable Lease Payments (ASC 842). This update is effective for our fiscal year beginning January 1, 2022.

Xerox 2022 Form 10-Q 13

Note 3 – Revenue

Revenues disaggregated by primary geographic markets, major product lines, and sales channels are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Primary geographical markets(1):	Primary geographical markets(1):									Primary geographical markets(1):
United States	United States	$	1,015	$	925	$	1,989	$	2,039	United States		$	940	$	974
Europe	Europe	514		356		1,013		837		Europe		466		499
Canada	Canada	104		76		197		184		Canada		115		93
Other	Other	160		108		304		265		Other		147		144
Total Revenues	Total Revenues	$	1,793	$	1,465	$	3,503	$	3,325	Total Revenues		$	1,668	$	1,710

Major product and services lines:	Major product and services lines:									Major product and services lines:
Equipment	Equipment	$	429	$	310	$	810	$	635	Equipment		$	314	$	381
Supplies, paper and other sales	Supplies, paper and other sales	241		150		462		390		Supplies, paper and other sales		278		221
Maintenance agreements(2)	Maintenance agreements(2)	448		366		883		895		Maintenance agreements(2)		429		435
Service arrangements(3)	Service arrangements(3)	508		460		997		1,026		Service arrangements(3)		486		489
Rental and other	Rental and other	111		123		240		264		Rental and other		108		129
Financing	Financing	56		56		111		115		Financing		53		55

Total Revenues	Total Revenues	$	1,793	$	1,465	$	3,503	$	3,325	Total Revenues		$	1,668	$	1,710

Sales channels:	Sales channels:									Sales channels:

Direct equipment lease(4)	Direct equipment lease(4)	$	189	$	111	$	336	$	237	Direct equipment lease(4)		$	135	$	147
Distributors & resellers(5)	Distributors & resellers(5)	289		136		543		359		Distributors & resellers(5)		261		254
Customer direct	Customer direct	192		213		393		429		Customer direct		196		201
Total Sales	Total Sales	$	670	$	460	$	1,272	$	1,025	Total Sales		$	592	$	602

_____________

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

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

(3)Primarily includes revenues from our Managed Services ~~offerings.~~arrangements. Also includes revenues from embedded operating leases in our Managed Service arrangements, which were not significant.

(4)Primarily reflects sales through bundled lease arrangements.

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

Contract Assets and Liabilities: We normally do not have contract assets, which are primarily unbilled accounts receivable that are conditional on something other than the passage of time. Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to ~~advanced~~advance billings for maintenance and other services to be performed and were approximately ~~$129~~$138 and ~~$130~~$144 at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The majority of the balance at ~~June 30, 2021 is expected to~~March 31, 2022 will be amortized to revenue over approximately the next 30 months.

Contract Costs: Incremental direct costs of obtaining a contract primarily include sales commissions paid to sales people and agents in connection with the placement of equipment with associated post sale services arrangements. These costs are deferred and amortized on the straight-line basis over the estimated contract term, which is currently estimated to be approximately four years. We pay commensurate sales commissions upon customer renewals, therefore our amortization period is aligned to our initial contract term.

~~Xerox 2021 Form 10-Q~~ 13

Incremental direct costs are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Incremental direct costs of obtaining a contract	Incremental direct costs of obtaining a contract	$	17	$	13	$	30	$	28	Incremental direct costs of obtaining a contract		$	13	$	13
Amortization of incremental direct costs	Amortization of incremental direct costs	18		20		37		41		Amortization of incremental direct costs		18		19

Xerox 2022 Form 10-Q 14

The balance of deferred incremental direct costs net of accumulated amortization at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$139~~$128 and ~~$145,~~$132, respectively. This amount is expected to be amortized over its estimated period of benefit, which we currently estimate to be approximately four years.

We may also incur costs associated with our services arrangements to generate or enhance resources and assets that will be used to satisfy our future performance obligations included in these arrangements. These costs are considered contract fulfillment costs and are amortized over the contractual service period of the arrangement to cost of services. In addition, we provide inducements to certain customers in various forms, including contractual credits, which are capitalized and amortized as a reduction of revenue over the term of the contract. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, amounts deferred associated with contract fulfillment costs and inducements were ~~$16~~$14 and ~~$13, respectively. The~~$15, respectively, and the related amortization was $2$1 and $1 for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $3 and $2 for the six months ended June 30, 2021 and 2020,~~ respectively.

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

Note 4 – Segment Reporting

Our reportable segments are aligned with how we manage the business and view the markets we serve. During the first quarter of 2022, the Company changed to its reportable segments from 1 reportable segment to 2 reportable segments - Print and Other, and Financing (FITTLE) to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies. Our 2 reportable segments are based on the information reviewed by the CODM together with the Company’s management to evaluate performance of the business and allocate resources. As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments.

During 2021 we progressed with the standing up of 3 new businesses: Software (CareAR), Financing (FITTLE) and Innovation (PARC). As a result of this effort, during the first quarter of 2022, we reassessed our operating and reportable segments and determined that, based on the financial information reviewed by our CODM as well as the CEO’s management and assessment of the Company’s operations, we had 2 operating and reportable segments - Print and Other, and Financing.

•Print and Other - 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.

•Financing (FITTLE) – primarily provides financing for the sales of Xerox equipment.

We also determined that the other businesses – Software and Innovation - did not meet the requirements to be considered separate operating segments largely due to their continued management through the Print and Other Segment as well as their immateriality to our results at this stage. Accordingly, those groups will continue to be reported as part of the Print and Other Segment.

Our Print and Other segment includes the sale of document systems, supplies and technical services and managed services. The segment also includes the delivery of managed services that involve a continuum of solutions and services that help our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. This segment also includes IT services and software. Our product groupings range from:

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

•“Mid-range,” which includes A3 devices that generally serve workgroup environments in mid to large enterprises and includes products that fall into the following market categories: Color 41+ ppm priced at less than $100 thousand and Light Production 91+ ppm priced at less than $100 thousand; to

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

Customers range from small and mid-sized businesses to large enterprises. Customers also include graphic communication enterprises as well as channel partners including distributors and resellers. Segment revenues also include commissions and other payments from the Financing segment for the exclusive right to provide lease financing for Xerox products. These revenues are reported as part of Intersegment Revenues, which are eliminated in consolidated revenues.

Xerox 2022 Form 10-Q 15

The Financing (FITTLE) segment provides leasing solutions through either bundled or unbundled lease agreements of Xerox products or direct purchases of equipment. These leasing solutions support a wide range of customers, from government to graphic communications and SMB to Enterprise as well as financing for direct channel customer purchases of both Xerox and non-Xerox equipment. Segment revenues primarily includes financing income on sales-type leases, operating lease income (including month to month rentals and extensions) and leasing fees.

Segment Policy

We derive the results of our business segments directly from our internal management reporting system. The accounting policies that the Company uses to derive its segment results are substantially the same as those used by the Company in preparing its consolidated financial statements. The segment results include a significant level of management estimates regarding the allocation of revenues such as finance income in bundled lease arrangements and other leasing revenues and operating lease revenues embedded in our managed services contracts as well as the allocation of expenses for shared selling and administrative services. Accordingly, the financial results for the Financing segment may not be indicative of the results the business would have as on a standalone basis or what might be presented for the business in stand-alone financial statements. The CODM measures the performance of each segment based on several metrics, including segment revenues and profit. The CODM uses these results, in part, to evaluate the performance of, and to allocate resources to each segment. The Financing (FITTLE) segment also includes interest expense associated with allocated debt of the Company in support of its Finance assets, while no interest expense is allocated to the Print and Other segment.

Selected financial information for our reportable segments was as follows:


	Three Months Ended March 31,
	2022									2021
	Print and Other			Financing (FITTLE)			Total			Print and Other			Financing (FITTLE)			Total
External net revenue	$	1,513		$	155		$	1,668		$	1,533		$	177		$	1,710
Intersegment net revenue(1)	37			3			40			48			3			51
Total Segment net revenue	$	1,550		$	158		$	1,708		$	1,581		$	180		$	1,761

Segment (loss) profit	$	(20)		$	17		$	(3)		$	71		$	18		$	89
Segment margin(2)	(1.3)		%	11.0		%	(0.2)		%	4.6		%	10.2		%	5.2		%

Depreciation and amortization	$	29		$	32		$	61		$	29		$	42		$	71


Interest income	—			53			53			—			55			55
Interest expense(3)	—			26			26			—			30			30

_____________

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

(2)Segment margin based on External net revenue only.

(3)Interest expense for the Financing Segment includes $2 and $2 of non-financing interest expense on allocated debt associated with Equipment on operating lease for the three months ended March 31, 2022 and 2021, respectively.

Xerox 2022 Form 10-Q 16

Selected financial information for our reportable segments was as follows:


	Three Months Ended March 31,
		2022		2021





Pre-tax (Loss) Income
Total reported segments		$	(3)	$	89
Restructuring and related costs, net		(18)		(17)
Amortization of intangible assets		(11)		(15)
Other expenses, net		(57)		(4)
Total Pre-tax (loss) income		$	(89)	$	53

Depreciation and Amortization
Total reported segments		$	61	$	71
Amortization of intangible assets		11		15
Total Depreciation and amortization		$	72	$	86

Interest Expense
Total reported segments		$	26	$	30
Corporate		27		22
Total Interest expense		$	53	$	52

Interest Income
Total reported segments		$	53	$	55
Corporate		1		1
Total Interest income		$	54	$	56

Note 5 – Lessor

Revenue from sales-type leases is presented on a gross basis when the Company enters into a lease to realize value from a product that it would otherwise sell in its ordinary course of business, whereas in transactions where the Company enters into a lease for the purpose of generating revenue by providing financing, the profit or loss, if any, is presented on a net basis. In addition, we have elected to account for sales tax and other similar taxes collected from a lessee as lessee costs and therefore we exclude these costs from contract consideration and variable consideration and present revenue net of these costs.

The components of lease income are as follows:


			Three Months Ended June 30,				Six Months Ended June 30,						Three Months Ended March 31,
		Location in Statements of Income	2021		2020		2021		2020			Location in Statements of (Loss) Income		2022		2021
Revenue from sales type leases	Revenue from sales type leases	Sales	$	189	$	111	$	336	$	237	Revenue from sales type leases	Sales		$	135	$	147

Interest income on lease receivables	Interest income on lease receivables	Financing	56		56		111		115		Interest income on lease receivables	Financing		53		55

Lease income - operating leases	Lease income - operating leases	Services, maintenance and rentals	58		79		118		165		Lease income - operating leases	Services, maintenance and rentals		48		67
Variable lease income	Variable lease income	Services, maintenance and rentals	16		14		31		36		Variable lease income	Services, maintenance and rentals		15		15
Total Lease income	Total Lease income		$	319	$	260	$	596	$	553	Total Lease income			$	251	$	284

Profit at lease commencement on ~~sales type~~sales-type leases was estimated to be ~~$57~~$44 and ~~$42~~$56 for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $101 and $86 for the six months ended June 30, 2021 and 2020,~~ respectively.

Xerox ~~2021~~2022 Form 10-Q 1417

Note 56 – Acquisitions and Investments

Acquisition

In ~~2021,~~the first quarter 2022, Xerox continued its strategy of focusing on further penetrating the small-to-medium sized business (SMB) market through acquisitions of local area resellers and partners (including multi-brand dealers). During the second quarter of 2021, business acquisitions associated with this initiative totaled $37, net of cash acquired ~~and included an office equipment dealer~~Powerland, a leading IT services provider in Canada, for approximately ~~$30~~$54 (CAD 69 million). The acquisition also includes contingent consideration up to approximately $22 (CAD 28 million) based on future performance of the acquisition over the next two years. The acquisition strengthens Xerox’s IT services offerings in North America, which include cloud, cyber security, end user computing and ~~a document solutions provider~~managed services. The goodwill associated with the acquisition of Powerland is included in ~~the U.S. for approximately $7.~~our Print and Other segment.

The operating results of ~~these acquisitions~~this acquisition are not material to our financial statements and are included within our results from the acquisition date. The purchase ~~prices were~~price was all cash for 100% ownership of the acquired ~~companies~~company and ~~were~~was primarily allocated to Intangible assets, net (approximately ~~$21)~~$40) and Goodwill (approximately ~~$18)~~$41), with the remainder to tangible ~~net assets.~~assets and assumed/recorded liabilities. The allocations are based on preliminary management estimates, which continue to be reviewed, and are expected to be finalized by the end of ~~2021~~2022 and may include input and support from third-party valuations. Any adjustments to the preliminary allocations are not expected to be material.

~~Joint Venture Formation~~

In May 2021, Xerox and the Victorian Government (AU) (VicGov) announced that they have partnered to launch Eloque, a venture to commercialize new technology that will remotely monitor the structural health of critical infrastructure assets, such as road and railway bridges. Under the terms of the agreement, Xerox contributed approximately $5 in cash, along with technology and intellectual property for a controlling interest in the entity, whereas VicGov contributed approximately $5 in cash, along with technology and intellectual property for a noncontrolling interest in the entity. As a result of Xerox’s controlling interest in the newly formed entity, beginning with the second quarter 2021, Xerox consolidated the new entity and the VicGov investment was reported as a noncontrolling interest. The revenues and expenses of the new entity post formation did not materially impact the Company’s reported results for the three months ended June 30, 2021.

Note 67 – Supplementary Financial Information

Government Assistance

In response to the COVID-19 pandemic, various governments employed temporary measures to provide aid and economic stimulus to companies through cash grants and credits or indirectly through payments to temporarily furloughed employees. Estimated savings from these various government assistance programs are recorded as follows in the Condensed Consolidated Statements of (Loss) Income:


	Three Months Ended March 31,
		2022		2021

Cost of services, maintenance and rentals		$	—	$	7

Selling, administrative and general expenses		—		3
Total Estimated savings		$	—	$	10

Cash, Cash Equivalents and Restricted Cash

~~Cash, cash equivalents and restricted cash amounts were as follows:~~
June 30,
2021 December 31,
2020
Cash and cash equivalents $ 2,124 $ 2,625
Restricted cash
    Litigation deposits in Brazil 44 42
    Escrow and cash collections related to secured borrowing arrangements(1)
34 22
    Other restricted cash 1 2
    Total Restricted cash 79 66
Cash, cash equivalents and restricted cash $ 2,203 $ 2,691

~~_____________~~

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

Restricted cash primarily relates to escrow cash deposits made in Brazil associated with ongoing litigation as well as cash collections on finance receivables that were pledged for secured borrowings. As more fully discussed in Note 2021 - Contingencies and Litigation, various litigation matters in Brazil require us to make cash deposits to escrow as a condition of continuing the litigation. Restricted cash amounts are classified in our Condensed Consolidated Balance Sheets based on when the cash will be contractually or judicially released.

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


	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	1,681	$	1,840
Restricted cash
Litigation deposits in Brazil	42		34
Escrow and cash collections related to secured borrowing arrangements(1)	37		32
Other restricted cash	1		3
Total Restricted cash	80		69
Cash, cash equivalents and restricted cash	$	1,761	$	1,909

_____________

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

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


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Other current assets	Other current assets	$	35	$	23	Other current assets	$	38	$	33
Other long-term assets	Other long-term assets	44		43		Other long-term assets	42		36
Total Restricted cash	Total Restricted cash	$	79	$	66	Total Restricted cash	$	80	$	69

Xerox ~~2021~~2022 Form 10-Q 1518

Supplemental Cash Flow Information

Summarized cash flow information is as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Provision for receivables	Provision for receivables	$	4	$	13	$	15	$	87	Provision for receivables		$	14	$	11
Provision for inventory	Provision for inventory	10		8		19		14		Provision for inventory		5		9
Provision for product warranty		2		1		4		3
Provision for product warranties										Provision for product warranties		1		2
Depreciation of buildings and equipment	Depreciation of buildings and equipment	19		22		38		43		Depreciation of buildings and equipment		18		19
Depreciation and obsolescence of equipment on operating leases	Depreciation and obsolescence of equipment on operating leases	41		46		83		97		Depreciation and obsolescence of equipment on operating leases		32		42
Amortization of internal use software	Amortization of internal use software	10		10		20		21		Amortization of internal use software		11		10

Amortization of acquired intangible assets~~(1)~~	Amortization of acquired intangible assets~~(1)~~	14		10		29		21		Amortization of acquired intangible assets~~(1)~~		11		15
Amortization of customer contract costs~~(2)~~(1)	Amortization of customer contract costs~~(2)~~(1)	20		21		40		43		Amortization of customer contract costs~~(2)~~(1)		19		20
Cost of additions to land, buildings and equipment	Cost of additions to land, buildings and equipment	4		9		12		27		Cost of additions to land, buildings and equipment		12		8
Cost of additions to internal use software	Cost of additions to internal use software	12		10		21		15		Cost of additions to internal use software		4		9
Common stock dividends - Xerox Holdings Corporation		51		54		101		108
Preferred stock dividends - Xerox Holdings Corporation		3		3		7		7
Common stock dividends - Xerox Holdings										Common stock dividends - Xerox Holdings		42		50
Preferred stock dividends - Xerox Holdings										Preferred stock dividends - Xerox Holdings		4		4

Payments to noncontrolling interests										Payments to noncontrolling interests		1		—
Repurchases related to stock-based compensation - Xerox Holdings										Repurchases related to stock-based compensation - Xerox Holdings		10		4

Repurchases related to stock-based compensation - Xerox Holdings Corporation		10		3		14		10

_____________

(1)~~Amortization of acquired intangible assets of Xerox was $13 and $27 for the three and six months ended June 30, 2021, respectively.~~

~~(2)~~Amortization of customer contract costs is reported in ~~Decrease (increase)~~(Increase) decrease in other current and long-term assets in the Condensed Consolidated Statements of Cash Flows. Refer to Note 3 - Revenue - Contract Costs for additional information.

~~Fuji Xerox Technology Agreement (TA)~~

As previously disclosed, our TA with Fuji Xerox (now known as FUJIFILM Business Innovation Corp.) expired on March 31, 2021. The TA included a provision that allowed Fuji Xerox continued use of the Xerox brand trademark for two years after the date of termination of the TA as it transitions to a new brand in exchange for an upfront prepaid fixed royalty of $100. Fuji Xerox elected to continue its use of the Xerox brand trademark over the next two years and, therefore, made the upfront payment due under the TA of $100 in April 2021, which is included in Operating cash flows for the six month period ended June 30, 2021.

We expect to recognize the revenue associated with this extended brand license ratably over the two year transition period. Accordingly, any potential entry by Xerox for Xerographic products into the Fuji Xerox territory under the Xerox brand will be deferred to at least April 1, 2023. The product supply agreements with Fuji Xerox will continue to be effective despite the termination of the TA, and Fuji Xerox and Xerox will continue to operate as each other’s product supplier under existing or new purchase/supply agreements.

~~Xerox 2021 Form 10-Q~~ 16

Note 78 – Accounts Receivable, Net

Accounts receivable, net were as follows:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Invoiced	Invoiced	$	695	$	735	Invoiced	$	658	$	660
Accrued(1)	Accrued(1)	219		217		Accrued(1)	212		216
Allowance for doubtful accounts	Allowance for doubtful accounts	(68)		(69)		Allowance for doubtful accounts	(63)		(58)
Accounts receivable, net	Accounts receivable, net	$	846	$	883	Accounts receivable, net	$	807	$	818

_____________

(1)Accrued receivables include amounts to be invoiced in the subsequent quarter for current services provided.

The allowance for doubtful accounts was as follows:


		2021		2020			2022		2021
Balance at December 31st		$	69	$	55
Balance at January 1st						Balance at January 1st	$	58	$	69
Provision	Provision	4		8		Provision	9		4
Charge-offs	Charge-offs	(5)		(2)		Charge-offs	(3)		(5)
Recoveries and other(1)	Recoveries and other(1)	0		(1)		Recoveries and other(1)	(1)		0
Balance at March 31st	Balance at March 31st	$	68	$	60	Balance at March 31st	$	63	$	68
Provision		1		9
Charge-offs		(2)		(8)
Recoveries and other(1)		1		(1)
Balance at June 30th		$	68	$	60

_____________

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

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. The allowance for uncollectible accounts receivable is determined based on an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was ~~7.4%~~7.2% at ~~June 30, 2021~~March 31, 2022 and ~~7.2%~~6.6% at December 31, ~~2020.~~2021. The increase in the allowance ~~for doubtful accounts as a percent~~is primarily due to an increased provision to cover expected write-offs of ~~gross accounts receivable remains at an elevated level as compared to historical levels primarily as a result of the macroeconomic and market disruption caused by COVID-19.~~receivables in our Russian subsidiary.

Xerox 2022 Form 10-Q 19

Accounts Receivable Sales Arrangements

Accounts receivable sales arrangements are utilized in the normal course of business as part of our cash and liquidity management. The accounts receivable sold are generally short-term trade receivables with payment due dates of less than 60 days. We have one facility in Europe that enables us to sell accounts receivable associated with our distributor network on an ongoing basis, without recourse. Under this arrangement, we sell our entire interest in the related accounts receivable for cash and no portion of the payment is held back or deferred by the purchaser.

Of the accounts receivable sold and derecognized from our balance sheet, ~~$107~~$87 and ~~$136~~$102 remained uncollected as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Accounts receivable sales activity was as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2021 2020 2021 2020
Accounts receivable sales(1)
$ 125 $ 14 $ 232 $ 67


	Three Months Ended March 31,
		2022		2021
Accounts receivable sales(1)		$	116	$	107

____________

(1)Losses on sales were not material. Customers may also enter into structured-payable arrangements that require us to sell our receivables from that customer to a third-party financial institution, which then makes payments to us to settle the customer's receivable. In these instances, we ensure the sale of the receivables are bankruptcy-remote and the payment made to us is without recourse. The activity associated with these arrangements is not reflected in this disclosure, as payments under these arrangements have not been material and these are customer directed arrangements.

~~Xerox 2021 Form 10-Q~~ 17

Note 89 - Finance Receivables, Net

Finance receivables include sales-type leases and installment loans arising from the marketing of our equipment. These receivables are typically collateralized by a security interest in the underlying assets.

Finance receivables, net were as follows:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Gross receivables	Gross receivables	$	3,640	$	3,691	Gross receivables	$	3,490	$	3,568
Unearned income	Unearned income	(390)		(393)		Unearned income	(365)		(380)
Subtotal	Subtotal	3,250		3,298		Subtotal	3,125		3,188
Residual values	Residual values	0		0		Residual values	—		—
Allowance for doubtful accounts	Allowance for doubtful accounts	(133)		(133)		Allowance for doubtful accounts	(120)		(118)
Finance receivables, net	Finance receivables, net	3,117		3,165		Finance receivables, net	3,005		3,070
Less: Billed portion of finance receivables, net	Less: Billed portion of finance receivables, net	89		99		Less: Billed portion of finance receivables, net	89		94
Less: Current portion of finance receivables not billed, net	Less: Current portion of finance receivables not billed, net	1,057		1,082		Less: Current portion of finance receivables not billed, net	1,023		1,042
Finance receivables due after one year, net	Finance receivables due after one year, net	$	1,971	$	1,984	Finance receivables due after one year, net	$	1,893	$	1,934

Finance Receivables – Allowance for Credit Losses and Credit Quality

Our finance receivable portfolios are primarily in the U.S., Canada and EMEA. We generally establish customer credit limits and estimate the allowance for credit losses on a country or geographic basis. Customer credit limits are based upon an initial evaluation of the customer's credit quality and we adjust that limit accordingly based upon ongoing credit assessments of the customer, including payment history and changes in credit quality.

The allowance for doubtful credit losses is principally determined based on an assessment of origination year and past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was ~~4.1%~~3.8% at ~~June 30, 2021~~March 31, 2022 and ~~4.0%~~3.7% at December 31, ~~2020.~~2021. In determining the level of reserve required, we ~~had to~~ critically ~~assess~~assessed current and forecasted economic conditions in light of the COVID-19 pandemic to ensure we objectively included those expected impacts in the determination of our reserve. Our assessment also included a review of current portfolio credit metrics and the level of write-offs incurred over the past year of the COVID-19 pandemic.

The allowance for doubtful accounts and provision for credit losses represent estimates of the losses expected to be incurred from the Company's finance receivable portfolio. The level of the allowance is determined on a collective basis by applying projected loss rates to our different portfolios by country, which represent our portfolio segments. This is the level at which we develop and document our methodology to determine the allowance for credit losses. These projected loss rates are primarily based upon historical loss experience adjusted for judgments about the probable effects of relevant observable data including current and future economic conditions as well as delinquency trends, resolution rates, the aging of receivables, credit quality indicators and the financial health of specific customer classes or groups.

The allowance for doubtful finance receivables is inherently more difficult to estimate than the allowance for trade accounts receivable because the underlying lease portfolio has an average maturity, at any time, of approximately ~~two~~ to three years and contains past due billed amounts, as well as unbilled amounts. We consider all available information in our quarterly assessments of the adequacy of the allowance for doubtful accounts. We believe our estimates, including any qualitative adjustments, are reasonable and have considered all reasonably available information about past events, current conditions, and reasonable and supportable forecasts of future events and economic conditions. The identification of account-specific exposure is not a significant factor in establishing the allowance for doubtful finance receivables. Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented.

Our allowance for doubtful finance receivables is effectively determined by ~~geography, the~~geography. The risk characteristics in our finance receivable portfolio segments ~~will~~are generally be consistent with the risk factors associated with the economies of the countries/regions included in those geographies. Since EMEA is comprised of various countries and regional

Xerox 2022 Form 10-Q 20

economies, the risk profile within that portfolio segment is somewhat more diversified due to the varying economic conditions among and within the countries.

~~The bad debt provision of $2 for the second quarter 2021 included a reserve reduction of approximately $6 reflecting improvements in the macroeconomic environment as well as lower write-offs. Actual~~Although actual finance receivable write-offs incurred to date ~~have lagged~~continue to lag expectations, ~~but~~we believe our current reserve position remains sufficient to cover expected future losses that may result from current and future macro-economic conditions. We continue to believe that uncertainties remain ~~in line with our original projections over the life of the lease portfolio and~~

~~Xerox 2021 Form 10-Q~~ 18

~~are consistent with future expectations regarding our estimated impacts from the COVID-19 pandemic. Despite improvement in the global economy,~~as economies continue to recover from the impacts of the COVID-19 pandemic including the cessation of government support as well as labor, interest rate and inflation risks and the potential for higher taxes. In addition, there is also considerable uncertainty regarding the impact the Russia/Ukraine war and related global sanctions will have on the macro or global economy. As a result of these uncertainties, ~~we continue to consider various adverse macroeconomic scenarios in our models. Accordingly,~~ our reserves as a percent of receivables have remained elevated and fairly consistent subsequent to the first quarter 2020 ~~when we recorded a charge of approximately $60~~increase to initially record expected losses from the COVID-19 pandemic. We continue to monitor developments ~~regarding the pandemic, including business reopenings and mitigating government support actions as well as~~in future economic conditions, and as a result, our reserves may need to be updated in future periods.

The allowance for doubtful accounts as well as the related investment in finance receivables were as follows:


											United States		Canada		EMEA(1)		Total
Balance at December 31, 2021										Balance at December 31, 2021	$	77	$	11	$	30	$	118
Provision										Provision	3		—		3		6
Charge-offs										Charge-offs	(2)		(1)		(1)		(4)
Recoveries and other(2)										Recoveries and other(2)	—		1		(1)		—
Balance at March 31, 2022										Balance at March 31, 2022	$	78	$	11	$	31	$	120

Finance receivables as of March 31, 2022 collectively evaluated for impairment (3)										Finance receivables as of March 31, 2022 collectively evaluated for impairment (3)	$	1,863	$	246	$	1,016	$	3,125
		United States		Canada		EMEA(1)		Total
Balance at December 31, 2020	Balance at December 31, 2020	$	77	$	15	$	41	$	133	Balance at December 31, 2020	$	77	$	15	$	41	$	133
Provision	Provision	2		1		3		6		Provision	2		1		3		6
Charge-offs	Charge-offs	(2)		0		(1)		(3)		Charge-offs	(2)		—		(1)		(3)
Recoveries and other(2)	Recoveries and other(2)	1		0		(2)		(1)		Recoveries and other(2)	1		—		(2)		(1)
Balance at March 31, 2021	Balance at March 31, 2021	$	78	$	16	$	41	$	135	Balance at March 31, 2021	$	78	$	16	$	41	$	135
Provision		6		(1)		(3)		2
Charge-offs		(3)		(1)		(1)		(5)
Recoveries and other(3)		0		1		0		1
Balance at June 30, 2021		$	81	$	15	$	37	$	133

Finance receivables as of June 30, 2021 collectively evaluated for impairment (3)		$	1,845	$	283	$	1,122	$	3,250

Balance at December 31, 2019		$	59	$	10	$	20	$	89
Provision		35		6		25		66
Charge-offs		(3)		(1)		(4)		(8)
Recoveries and other(2)		0		0		(1)		(1)
Balance at March 31, 2020		$	91	$	15	$	40	$	146
Provision		3		1		0		4
Charge-offs		(5)		(1)		(2)		(8)
Recoveries and other(3)		0		1		0		1
Balance at June 30, 2020		$	89	$	16	$	38	$	143

Finance receivables as of June 30, 2020 collectively evaluated for impairment(3)		$	1,824	$	289	$	1,100	$	3,213
Finance receivables as of March 31, 2021 collectively evaluated for impairment(3)										Finance receivables as of March 31, 2021 collectively evaluated for impairment(3)	$	1,806	$	288	$	1,118	$	3,212

_____________

(1)Includes developing market countries.

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

(3)Total Finance receivables exclude the allowance for credit losses of ~~$133~~$120 and ~~$143~~$135 at ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

In the U.S., customers are further evaluated by class based on the type of lease origination. The primary categories are direct, which primarily includes leases originated directly with end customers through bundled lease arrangements, and indirect, which primarily includes leases originated through our XBS sales channel ~~that utilizes a combination of internal~~ and ~~third party leasing in its lease arrangements with end customers. Indirect also includes~~ lease financing to end-user customers who purchased equipment we sold to distributors or resellers.

~~Xerox 2021 Form 10-Q~~ 19

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

•Low Credit Risk: This rating includes accounts with excellent to good business credit, asset quality and capacity to meet financial obligations. These customers are less susceptible to adverse effects due to shifts in economic conditions or changes in circumstance. The rating generally equates to a Standard & Poor's (S&P) rating of BBB- or better. Loss rates in this category in the normal course are generally less than 1%.

•Average Credit Risk: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. This rating generally equates to a BB S&P rating. Although we experience higher loss rates associated with this customer class, we believe the risk is somewhat mitigated by the fact that our leases are fairly well dispersed across a large and diverse customer base. In addition, the higher loss rates are largely offset by the higher rates of return we obtain with such leases. Loss rates in this category in the normal course are generally in the range of 2% to 5%.

•High Credit Risk: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. We use numerous strategies to mitigate risk including higher rates of interest, prepayments, personal guarantees, etc. Accounts in this category include customers who were downgraded during the term of the lease from low and average credit risk evaluation when the lease was originated. Accordingly, there is a distinct possibility for a loss of principal and interest or customer default. The loss rates in this category in the normal course are generally in the range of 7% to 10%.

Xerox 2022 Form 10-Q 21

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

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


		June 30, 2021															March 31, 2022
		2021		2020		2019		2018		2017		Prior		Total Finance Receivables			2022		2021		2020		2019		2018		Prior		Total Finance Receivables
United States (Direct)	United States (Direct)															United States (Direct)
Low Credit Risk	Low Credit Risk	$	101	$	142	$	124	$	94	$	43	$	12	$	516	Low Credit Risk	$	43	$	128	$	110	$	85	$	54	$	15	$	435
Average Credit Risk	Average Credit Risk	42		45		73		36		15		4		215		Average Credit Risk	24		47		39		52		20		7		189
High Credit Risk	High Credit Risk	41		81		36		20		9		3		190		High Credit Risk	12		86		66		27		12		5		208
Total	Total	$	184	$	268	$	233	$	150	$	67	$	19	$	921	Total	$	79	$	261	$	215	$	164	$	86	$	27	$	832

United States (Indirect)	United States (Indirect)															United States (Indirect)
Low Credit Risk	Low Credit Risk	$	119	$	166	$	121	$	60	$	21	$	2	$	489	Low Credit Risk	$	66	$	205	$	124	$	83	$	30	$	7	$	515
Average Credit Risk	Average Credit Risk	107		115		94		48		18		2		384		Average Credit Risk	55		200		99		69		31		6		460
High Credit Risk	High Credit Risk	16		18		9		6		2		0		51		High Credit Risk	8		24		14		6		3		1		56
Total	Total	$	242	$	299	$	224	$	114	$	41	$	4	$	924	Total	$	129	$	429	$	237	$	158	$	64	$	14	$	1,031

Canada	Canada															Canada
Low Credit Risk	Low Credit Risk	$	21	$	33	$	29	$	19	$	6	$	2	$	110	Low Credit Risk	$	5	$	30	$	26	$	20	$	11	$	3	$	95
Average Credit Risk	Average Credit Risk	21		41		34		20		11		3		130		Average Credit Risk	8		33		32		25		13		5		116
High Credit Risk	High Credit Risk	5		15		8		8		6		1		43		High Credit Risk	1		8		12		6		5		3		35
Total	Total	$	47	$	89	$	71	$	47	$	23	$	6	$	283	Total	$	14	$	71	$	70	$	51	$	29	$	11	$	246

EMEA(1)	EMEA(1)															EMEA(1)
Low Credit Risk	Low Credit Risk	$	123	$	170	$	148	$	102	$	41	$	12	$	596	Low Credit Risk	$	107	$	190	$	120	$	90	$	49	$	11	$	567
Average Credit Risk	Average Credit Risk	94		137		122		74		29		7		463		Average Credit Risk	76		126		86		69		30		8		395
High Credit Risk	High Credit Risk	10		19		17		10		5		2		63		High Credit Risk	9		15		13		11		5		1		54
Total	Total	$	227	$	326	$	287	$	186	$	75	$	21	$	1,122	Total	$	192	$	331	$	219	$	170	$	84	$	20	$	1,016

Total Finance Receivables	Total Finance Receivables															Total Finance Receivables
Low Credit Risk	Low Credit Risk	$	364	$	511	$	422	$	275	$	111	$	28	$	1,711	Low Credit Risk	$	221	$	553	$	380	$	278	$	144	$	36	$	1,612
Average Credit Risk	Average Credit Risk	264		338		323		178		73		16		1,192		Average Credit Risk	163		406		256		215		94		26		1,160
High Credit Risk	High Credit Risk	72		133		70		44		22		6		347		High Credit Risk	30		133		105		50		25		10		353
Total	Total	$	700	$	982	$	815	$	497	$	206	$	50	$	3,250	Total	$	414	$	1,092	$	741	$	543	$	263	$	72	$	3,125

Xerox ~~2021~~2022 Form 10-Q 2022


		December 31, 2020															December 31, 2021
		2020		2019		2018		2017		2016		Prior		Total Finance Receivables			2021		2020		2019		2018		2017		Prior		Total Finance Receivables
United States (Direct)	United States (Direct)															United States (Direct)
Low Credit Risk	Low Credit Risk	$	164	$	151	$	128	$	71	$	32	$	4	$	550	Low Credit Risk	$	148	$	121	$	98	$	68	$	21	$	3	$	459
Average Credit Risk	Average Credit Risk	54		95		52		26		8		2		237		Average Credit Risk	60		40		57		23		8		2		190
High Credit Risk	High Credit Risk	90		42		27		13		5		3		180		High Credit Risk	91		73		31		16		6		1		218
Total	Total	$	308	$	288	$	207	$	110	$	45	$	9	$	967	Total	$	299	$	234	$	186	$	107	$	35	$	6	$	867

United States (Indirect)	United States (Indirect)															United States (Indirect)
Low Credit Risk	Low Credit Risk	$	193	$	140	$	79	$	33	$	7	$	0	$	452	Low Credit Risk	$	235	$	145	$	100	$	43	$	11	$	—	$	534
Average Credit Risk	Average Credit Risk	129		124		71		31		8		0		363		Average Credit Risk	201		103		74		35		10		—		423
High Credit Risk	High Credit Risk	19		9		9		3		1		0		41		High Credit Risk	24		15		8		4		1		—		52
Total	Total	$	341	$	273	$	159	$	67	$	16	$	0	$	856	Total	$	460	$	263	$	182	$	82	$	22	$	—	$	1,009

Canada	Canada															Canada
Low Credit Risk	Low Credit Risk	$	37	$	34	$	24	$	10	$	5	$	1	$	111	Low Credit Risk	$	32	$	27	$	22	$	13	$	3	$	1	$	98
Average Credit Risk	Average Credit Risk	46		39		26		17		6		1		135		Average Credit Risk	34		34		27		15		6		1		117
High Credit Risk	High Credit Risk	18		10		10		10		3		0		51		High Credit Risk	8		12		7		5		4		—		36
Total	Total	$	101	$	83	$	60	$	37	$	14	$	2	$	297	Total	$	74	$	73	$	56	$	33	$	13	$	2	$	251

EMEA(1)	EMEA(1)															EMEA(1)
Low Credit Risk	Low Credit Risk	$	197	$	177	$	131	$	62	$	20	$	4	$	591	Low Credit Risk	$	229	$	143	$	121	$	71	$	22	$	6	$	592
Average Credit Risk	Average Credit Risk	170		160		108		51		17		4		510		Average Credit Risk	156		109		84		45		15		3		412
High Credit Risk	High Credit Risk	23		24		15		10		4		1		77		High Credit Risk	18		15		13		8		3		—		57
Total	Total	$	390	$	361	$	254	$	123	$	41	$	9	$	1,178	Total	$	403	$	267	$	218	$	124	$	40	$	9	$	1,061

Total Finance Receivables	Total Finance Receivables															Total Finance Receivables
Low Credit Risk	Low Credit Risk	$	591	$	502	$	362	$	176	$	64	$	9	$	1,704	Low Credit Risk	$	644	$	436	$	341	$	195	$	57	$	10	$	1,683
Average Credit Risk	Average Credit Risk	399		418		257		125		39		7		1,245		Average Credit Risk	451		286		242		118		39		6		1,142
High Credit Risk	High Credit Risk	150		85		61		36		13		4		349		High Credit Risk	141		115		59		33		14		1		363
Total	Total	$	1,140	$	1,005	$	680	$	337	$	116	$	20	$	3,298	Total	$	1,236	$	837	$	642	$	346	$	110	$	17	$	3,188

_____________

(1)Includes developing market countries.

Xerox ~~2021~~2022 Form 10-Q 2123

The aging of our receivables portfolio is based upon the number of days an invoice is past due. Receivables that are more than 90 days past due are considered delinquent. Receivable losses are charged against the allowance when management believes the uncollectibility of the receivable is confirmed and is generally based on individual credit evaluations, results of collection efforts and specific circumstances of the customer. Subsequent recoveries, if any, are credited to the allowance.

We generally continue to maintain equipment on lease and provide services to customers that have invoices for finance receivables that are 90 days or more past due and, as a result of the bundled nature of billings, we also continue to accrue interest on those receivables. However, interest revenue for such billings is only recognized if collectability is deemed reasonably assured.

The aging of our billed finance receivables is as follows:


		June 30, 2021															March 31, 2022
		Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing			Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Direct	Direct	$	29	$	6	$	7	$	42	$	879	$	921	$	60	Direct	$	26	$	6	$	7	$	39	$	793	$	832	$	50
Indirect	Indirect	20		4		3		27		897		924		0		Indirect	23		6		4		33		998		1,031		—

Total United States	Total United States	49		10		10		69		1,776		1,845		60		Total United States	49		12		11		72		1,791		1,863		50
Canada	Canada	6		2		0		8		275		283		12		Canada	6		2		—		8		238		246		10

EMEA(1)	EMEA(1)	11		2		2		15		1,107		1,122		17		EMEA(1)	8		2		1		11		1,005		1,016		9

Total	Total	$	66	$	14	$	12	$	92	$	3,158	$	3,250	$	89	Total	$	63	$	16	$	12	$	91	$	3,034	$	3,125	$	69

		December 31, 2020															December 31, 2021
		Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing			Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Direct	Direct	$	33	$	6	$	9	$	48	$	919	$	967	$	74	Direct	$	28	$	7	$	7	$	42	$	825	$	867	$	61
Indirect	Indirect	21		4		3		28		828		856		0		Indirect	28		5		4		37		972		1,009		—

Total United States	Total United States	54		10		12		76		1,747		1,823		74		Total United States	56		12		11		79		1,797		1,876		61
Canada	Canada	8		2		0		10		287		297		12		Canada	6		1		—		7		244		251		9

EMEA(1)	EMEA(1)	12		3		2		17		1,161		1,178		23		EMEA(1)	9		2		1		12		1,049		1,061		13

Total	Total	$	74	$	15	$	14	$	103	$	3,195	$	3,298	$	109	Total	$	71	$	15	$	12	$	98	$	3,090	$	3,188	$	83

_____________

(1)Includes developing market countries

Secured Borrowings and Collateral

In ~~July 2020,~~January 2022, we sold ~~$355~~$789 of U.S. based finance receivables to a consolidated special purpose entity (SPE)~~, which funded the purchase through a secured loan agreement with a financial institution. As of June 30, 2021~~. At March 31, 2022, the SPE ~~holds $214~~held $758 of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for ~~the~~a secured ~~loan agreement.~~loan.

In ~~December 2020,~~September 2021, we sold ~~$610~~$331 of U.S. based finance receivables to a consolidated ~~SPE, which funded the purchase through a secured loan agreement with a financial institution. As of June 30,~~SPE. At March 31, 2022 and December 31, 2021, the SPE ~~holds $485~~held $272 and $308, respectively, of total Finance receivables, net, which are included in our Condensed Consolidated Balance Sheet as collateral for ~~the~~a secured ~~loan agreement.~~loan.

Refer to Note 1213 - Debt, for additional information related to ~~this arrangement including the related secured loan agreement.~~these arrangements.

Xerox ~~2021~~2022 Form 10-Q 2224

Note 910 – Inventories and Equipment on Operating Leases, Net

The following is a summary of Inventories by major category:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Finished goods	Finished goods	$	670	$	707	Finished goods	$	586	$	568
Work-in-process	Work-in-process	49		43		Work-in-process	42		43
Raw materials	Raw materials	96		93		Raw materials	104		85
Total Inventories	Total Inventories	$	815	$	843	Total Inventories	$	732	$	696

The transfer of equipment from our inventories to equipment subject to an operating lease is presented in our Condensed Consolidated Statements of Cash Flows in the operating activities section. Equipment on operating leases and similar arrangements consists of our equipment rented to customers and depreciated to estimated salvage value at the end of the lease term.

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


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Equipment on operating leases	Equipment on operating leases	$	1,321	$	1,376	Equipment on operating leases	$	1,256	$	1,266
Accumulated depreciation	Accumulated depreciation	(1,050)		(1,080)		Accumulated depreciation	(1,002)		(1,013)
Equipment on operating leases, net	Equipment on operating leases, net	$	271	$	296	Equipment on operating leases, net	$	254	$	253

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were ~~$16~~$15 and ~~$14~~$15 for the three months ended ~~June 30,~~March 31, 2022 and 2021, respectively.

Secured Borrowings and ~~2020,~~Collateral

In September 2021, we sold the rights to payments under operating leases with an equipment net book value of $9 to a consolidated SPE. The SPE held Equipment on operating leases, net of $7 and $8 as of March 31, 2022 and December 31, 2021, respectively, ~~and $31 and $36~~which are included in our Condensed Consolidated Balance Sheets as collateral for the ~~six months ended June 30, 2021 and 2020, respectively.~~secured loan agreement.

Refer to Note 13 - Debt, for additional information related to this arrangement.

Xerox 2022 Form 10-Q 25

Note 1011 – Lessee

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.

The components of lease expense are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Operating lease expense	Operating lease expense	$	27	$	28	$	54	$	56	Operating lease expense		$	25	$	27
Short-term lease expense	Short-term lease expense	6		5		11		10		Short-term lease expense		4		5
Variable lease expense(1)	Variable lease expense(1)	11		10		23		22		Variable lease expense(1)		12		12
Sublease income	Sublease income	(1)		(1)		(2)		(1)		Sublease income		(2)		(1)

Total Lease expense	Total Lease expense	$	43	$	42	$	86	$	87	Total Lease expense		$	39	$	43

_____________

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

As of March 31, 2022, operating leases that had not yet commenced were not material.

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


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Other long-term assets	Other long-term assets	$	280	$	310	Other long-term assets	$	252	$	264

Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	79	$	83	Accrued expenses and other current liabilities	$	79	$	79
Other long-term liabilities	Other long-term liabilities	223		250		Other long-term liabilities	191		204
Total Operating lease liabilities	Total Operating lease liabilities	$	302	$	333	Total Operating lease liabilities	$	270	$	283

Xerox ~~2021~~2022 Form 10-Q 2326

Note 1112 – Restructuring Programs

We engage in restructuring actions, ~~through~~including Project Own It, as well as other transformation efforts in order to reduce our cost structure and realign it to the changing nature of our business. As part of our efforts to reduce costs, our restructuring actions may also include the off-shoring and/or outsourcing of certain operations, services and other functions, as well as reducing our real estate footprint.

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we recorded net restructuring and asset impairment charges of ~~$25,~~$20, which included ~~$20~~$22 of severance costs related to headcount reductions of approximately ~~400~~450 employees worldwide ~~$2 of other contractual termination costs~~ and ~~$12~~$1 of asset impairment ~~charges. These costs~~charges, both of which were partially offset by $9$3 of net reversals. The net reversals primarily ~~resulting~~resulted from changes in estimated reserves from prior period initiatives. Charges were primarily related to the Print and Other segment as amounts related to the Financing (FITTLE) segment were immaterial for all periods presented.

Information related to restructuring program activity is outlined below:


		Severance and Related Costs		Other Contractual Termination Costs(2)		Asset Impairments(3)		Total			Severance and Related Costs		Other Contractual Termination Costs(2)		Asset Impairments(3)		Total
Balance at December 31, 2020		$	78	$	4	$	0	$	82
Balance at December 31, 2021										Balance at December 31, 2021	$	25	$	2	$	—	$	27
Provision	Provision	14		1		10		25		Provision	22		—		1		23
Reversals	Reversals	(4)		0		0		(4)		Reversals	(3)		—		—		(3)
Net current period charges(1)	Net current period charges(1)	10		1		10		21		Net current period charges(1)	19		—		1		20
Charges against reserve and currency	Charges against reserve and currency	(29)		(1)		(10)		(40)		Charges against reserve and currency	(7)		—		(1)		(8)
Balance at March 31, 2021		$	59	$	4	$	0	$	63
Provision		6		1		2		9
Reversals		(3)		(1)		(1)		(5)
Net current period charges(1)		3		0		1		4
Charges against reserve and currency		(20)		(1)		(1)		(22)
Balance at June 30, 2021		$	42	$	3	$	0	$	45
Balance at March 31, 2022										Balance at March 31, 2022	$	37	$	2	$	—	$	39

______________

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

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

(3)Primarily relates to the exit and abandonment of leased and owned facilities. The charges include the accelerated write-off of $2$1 for leased ROU ~~assets and $9 for owned~~ assets upon exit from the facilities, net of any potential sublease income and other recoveries, including potential sales.

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Charges against reserve and currency	Charges against reserve and currency	$	(22)	$	(13)	$	(62)	$	(48)	Charges against reserve and currency		$	(8)	$	(40)

Asset impairments										Asset impairments		1		—
Effects of foreign currency and other non-cash items	Effects of foreign currency and other non-cash items	0		(4)		13		(4)		Effects of foreign currency and other non-cash items		—		13
Restructuring cash payments	Restructuring cash payments	$	(22)	$	(17)	$	(49)	$	(52)	Restructuring cash payments		$	(7)	$	(27)

In connection with our restructuring programs, we also incurred certain related costs as follows:
Three Months Ended
June 30, Six Months Ended
June 30,
2021 2020 2021 2020
Retention related severance/bonuses(1)
$ 3 $ 4 $ (1) $ 11
Contractual severance costs 3 0 3 4
Consulting and other costs(2)
2 1 2 2
Total $ 8 $ 5 $ 4 $ 17


	Three Months Ended March 31,
		2022		2021
Retention related severance/bonuses(1)		$	(2)	$	(4)


Total		$	(2)	$	(4)

_____________

(1)Includes retention related severance and bonuses for employees expected to continue working beyond their minimum notification period before termination. The credit for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 reflects a change in estimate.

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

Cash paid for restructuring related costs were ~~approximately~~$1 and $3 ~~and $8~~ for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $6 and $8 for the six months ended June 30, 2021 and 2020,~~ respectively. The restructuring related costs reserve was $15 and $18 ~~and $21~~ at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The balance at ~~June 30, 2021~~March 31, 2022 is expected to be paid over the next twelve months.

Xerox ~~2021~~2022 Form 10-Q 2427

Note 1213 – Debt

Xerox Holdings Corporation / Xerox Corporation Intercompany Loan

In August 2020, Xerox Holdings Corporation issued $550 of 5.00% Senior Notes due August 2025 (the "2025 Senior Notes") at par and $550 of 5.50% Senior Notes due August 2028 (the "2028 Senior Notes") at par resulting in aggregate net proceeds (after fees and expenses) of approximately $1,089. On August 24, 2020, Xerox Holdings Corporation issued an additional $200 of the 2025 Senior Notes at 100.75% of par and an additional $200 of the 2028 Senior Notes at 102.50% of par resulting in additional aggregate net proceeds (after premium, fees and expenses) of approximately $405 for total aggregate net proceeds from both issuances of approximately $1,494. In 2020, the net debt proceeds were contributed by Xerox Holdings Corporation to Xerox Corporation and recorded as Additional paid-in capital by Xerox Corporation.

In February 2021, Xerox Holdings Corporation and Xerox Corporation entered into an Intercompany Loan agreement for the net proceeds of $1,494 contributed by Xerox Holdings Corporation to Xerox Corporation in 2020. The intercompany loan, which did not involve the exchange of cash in the current period, resulted in capitalization of the amount as Related Party Debt for Xerox Corporation. The amount was originally recorded as Additional paid-in capital in 2020 when the cash was contributed by Xerox Holdings Corporation.

The intercompany loan was established to mirror the terms included in Xerox Holdings Corporation’s 2025 and 2028 Senior Notes, including interest rates and payment dates. The intercompany interest expense also includes a ratable amount to reimburse Xerox Holdings Corporation for its debt issuance costs and premium.

At ~~June 30,~~March 31, 2022 and December 31, 2021, the balance of the Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $1,495 and $1,494, respectively, which is net of related debt issuance costs, and the intercompany interest payable was ~~$30.~~$10 and $30, respectively. Xerox Corporation’s interest expense ~~for the three and six months ended June 30, 2021~~ included ~~$19 and $39, respectively, of~~ interest expense associated with this Intercompany ~~Loan.~~Loan of $20 and $20 for the three months ended March 31, 2022 and 2020, respectively.

Credit Facility

In March 2022, Xerox and Xerox Holdings entered into Amendment No. 4 to the Credit Facility. The Amendment, which became effective on March 24, 2022, included the following changes:

(1)reduced the aggregate amount of the revolving credit commitments under the Credit Agreement from $1.8 billion to $1.5 billion; and

(2)modified the financial covenants in the Credit Agreement to now require that, during a specified Covenant Modification Period, which began on January 1, 2022 and ends on the earlier of (a) June 30, 2022 and (b) the date on which Xerox Corp. delivers a written notice to the Administrative Agent electing to end such period:

a.Xerox Corporation maintain unrestricted cash (as defined in the Amendment) at the end of each fiscal quarter in an amount not less than $500.

b.With respect to each fiscal quarter ending during the Covenant Modification Period, Xerox Corporation maintain a ratio of Net Debt for Borrowed Money to consolidated EBITDA of not greater than 4.25x with Net Debt for Borrowed Money including a cash netting with a cap of $1,250 for the quarter ending March 31, 2022 and $1,000 for the quarter ending June 30, 2022. This covenant is in lieu of the 4.25x Net Debt for Borrowed Money to consolidated EBITDA ratio requirement without cash netting applicable prior to the Amendment.

As of March 31, 2022, we were in full compliance with the covenants and other provisions of our Credit Facility.

Secured Borrowings and Collateral

In ~~July~~January 2022, we entered into a secured loan agreement with financial institutions where we sold $789 of U.S. based finance receivables to a special purpose entity (SPE). The purchase by the SPE was funded through a $668 amortizing secured loan to the SPE from the financial institutions. The SPE is fully consolidated in our financial statements. The secured loan was an amendment of the December 2020 secured borrowing, which had a remaining balance of $248, and we received the incremental net cash. The transaction was accounted for as an extinguishment of debt and the issuance of new debt and associated collateral. The new loan has a variable interest rate based on the financial institutions' cost of funds plus a spread (current rate of 1.71% at March 31, 2022) and an expected life of approximately 2.5 years, with half of the loan projected to be repaid within the first year based on collections of the underlying portfolio of receivables.

In September 2021, we entered into a secured loan agreement with a financial institution where we sold ~~$355~~$331 of U.S. based finance receivables and the rights to payments under operating leases with an equipment net book value of ~~$10~~$9 to a ~~special purpose entity (SPE).~~SPE. The purchase by the SPE was funded through ana $311 amortizing secured loan to the SPE from the financial ~~institution of $340.~~institution. The debt has a variable interest rate based on LIBOR plus a spread (current rate of ~~1.67%~~1.75% at ~~June 30, 2021)~~March 31, 2022).

In ~~December 2020,~~October 2021, we entered into ~~a second secured loan~~an interest rate hedge agreement ~~with a financial institution where we sold $610~~to cap LIBOR over the life of ~~U.S. based finance~~the loan.

The sales of the receivables to ~~an SPE. The purchase by~~ the ~~SPE was funded~~SPEs were structured as "true sales at law," and we have received opinions to that effect from outside legal counsel. However, the transactions were accounted for as secured borrowings as we consolidate the SPEs since we have both the power to direct the activities that most significantly impact the SPEs' economic performance through ~~an amortizing secured loan to~~our role as servicer of all the ~~SPE from the financial institution of $500. The debt has a variable interest rate based on the financial institution's cost of funds plus a spread (current rate of 1.68% at June 30, 2021).~~

~~Below are the assets and liabilities~~receivables held by the ~~consolidated~~ SPEs, ~~which are included~~and the obligation through variable interests in ~~our Condensed Consolidated Balance Sheets.~~the SPEs to absorb losses or receive benefits that could potentially be significant to the

Xerox 2022 Form 10-Q 28

SPEs. As a result, ~~of the above sales,~~ the assets of the SPEs are not available to satisfy any of our other obligations. Conversely, the credit holders of these ~~SPEs' borrowings~~SPEs do not have legal recourse to the Company’s general ~~credit or other assets.~~credit.

June 30,
2021 December 31,
2020
Assets held by SPEs
Billed portion of finance receivables, net $ 24 $ 28
Finance receivables, net 301 350
Finance receivables due after one year, net 374 510
Equipment on operating leases, net 5 8
Restricted cash(1)
34 22
Total Assets $ 738 $ 918
Liabilities held by SPEs
Current portion of long-term debt, net(2)
$ 344 $ 394
Long term debt, net(2)
213 370
Total Liabilities $ 557 $ 764
Below are the assets and liabilities held by the consolidated SPEs, which are included in our Condensed Consolidated Balance Sheets.


	March 31, 2022		December 31, 2021
Assets held by SPEs
Billed portion of finance receivables, net	$	31	$	27
Finance receivables, net	402		299
Finance receivables due after one year, net	597		362
Equipment on operating leases, net	7		8
Restricted cash(1)	37		32
Total Assets	$	1,074	$	728
Liabilities held by SPEs
Current portion of long-term debt, net(2)	$	451	$	350
Long term debt, net(2)	432		210
Total Liabilities	$	883	$	560

_____________

(1)Restricted cash is included in Other current assets in our Condensed Consolidated Balance Sheet.

(2)Net of debt issuance costs of ~~$2.~~

~~Xerox~~$2 and $1 as of March 31, 2022 and December 31, 2021, ~~Form 10-Q~~ respectively.25

Interest Expense and Income

Interest expense and income were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Interest expense(1)(2)	Interest expense(1)(2)	$	52	$	48	$	104	$	99	Interest expense(1)(2)		$	53	$	52
Interest income(3)	Interest income(3)	57		59		113		126		Interest income(3)		54		56

____________

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

(2)Interest expense of Xerox Corporation ~~for the three and six months ended June 30, 2021 includes $19 and $39, respectively, of~~included intercompany interest expense ~~for~~associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany ~~Loan.~~Loan of $20 and $20 for the three months ended March 31, 2022 and 2021, respectively.

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

Note 1314 – Financial Instruments

Interest Rate Risk Management

We use interest rate swap and interest rate cap agreements to manage our interest rate exposure and to achieve a desired proportion of variable and fixed rate debt. These derivatives may be designated as fair value hedges or cash flow hedges depending on the nature of the risk being hedged. At ~~June 30, 2021,~~March 31, 2022, there ~~were no~~was 1 interest rate ~~derivative contracts~~cap contract outstanding.

Foreign Exchange Risk Management

We are a global company and we are exposed to foreign currency exchange rate fluctuations in the normal course of our business. As a part of our foreign exchange risk management strategy, we use derivative instruments, primarily forward contracts and purchased option contracts, to hedge the following foreign currency exposures, thereby reducing volatility of earnings or protecting fair values of assets and liabilities:

•Foreign currency-denominated assets and liabilities

•Forecasted purchases and sales in foreign currency

At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had outstanding forward exchange and purchased option contracts with gross notional values of ~~$1,073~~$1,126 and ~~$1,161~~$1,113 respectively, with terms of less than 12 months. Approximately ~~81%~~77% of the contracts at ~~June 30, 2021~~March 31, 2022 mature within three months, ~~10%~~13% mature in three to six months and 9%10% in six to twelve months. ~~The decrease in hedge position from December 31, 2020 is primarily for GBP and YEN exposures due to lower requirements.~~ There have not been any material changes in our hedging strategy.

Xerox 2022 Form 10-Q 29

Foreign Currency Cash Flow Hedges

We designate a portion of our foreign currency derivative contracts as cash flow hedges of our foreign currency-denominated inventory purchases, sales and expenses. The net ~~(liability) asset~~liability fair value of these contracts were ~~$(4)~~$18 and $2$3 as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~Xerox 2021 Form 10-Q~~ 26

Summary of Derivative Instruments Fair Value

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


Designation of Derivatives	Designation of Derivatives	Balance Sheet Location	June 30, 2021		December 31, 2020		Designation of Derivatives	Balance Sheet Location	March 31, 2022		December 31, 2021
Derivatives Designated as Hedging Instruments	Derivatives Designated as Hedging Instruments						Derivatives Designated as Hedging Instruments
Foreign exchange contracts - forwards	Foreign exchange contracts - forwards	Other current assets	$	3	$	3	Foreign exchange contracts - forwards	Other current assets	$	1	$	3
		Accrued expenses and other current liabilities	(7)		(2)			Accrued expenses and other current liabilities	(19)		(6)
Foreign currency options		Other current assets	0		1

Interest rate cap							Interest rate cap	Other long-term assets	3		1

		Net designated derivative (liability) asset	$	(4)	$	2		Net designated derivative liabilities	$	(15)	$	(2)

Derivatives NOT Designated as Hedging Instruments	Derivatives NOT Designated as Hedging Instruments						Derivatives NOT Designated as Hedging Instruments
Foreign exchange contracts – forwards	Foreign exchange contracts – forwards	Other current assets	$	2	$	3	Foreign exchange contracts – forwards	Other current assets	$	3	$	1
		Accrued expenses and other current liabilities	(2)		(3)			Accrued expenses and other current liabilities	(13)		(5)
		Net undesignated derivative liability	$	0	$	0		Net undesignated derivative liabilities	$	(10)	$	(4)

Summary of Derivatives	Summary of Derivatives	Total Derivative assets	$	5	$	7	Summary of Derivatives	Total Derivative assets	$	7	$	5
		Total Derivative liabilities	(9)		(5)			Total Derivative liabilities	(32)		(11)
		Net Derivative (liability) asset	$	(4)	$	2		Net Derivative liabilities	$	(25)	$	(6)

Summary of Derivative Instruments Gains (Losses)

Derivative gains and (losses) affect the income statement based on whether such derivatives are designated as hedges of underlying exposures. The following is a summary of derivative gains (losses).

Designated Derivative Instruments Gains (Losses)

The following table provides a summary of gains (losses) on derivative instruments:

Three Months Ended
June 30, Six Months Ended
June 30,
Gain (Loss) on Derivative Instruments 2021 2020 2021 2020
Fair Value Hedges - Interest Rate Contracts
Derivative loss recognized in interest expense $ 0 $ 0 $ 0 $ (1)
Hedged item gain recognized in interest expense 0 0 0 1
Cash Flow Hedges - Foreign Exchange Forward Contracts and Options
Derivative (loss) gain recognized in OCI (effective portion) $ (2) $ (3) $ (12) $ 4
Derivative (loss) gain reclassified from AOCL to income - Cost of sales (effective portion) (2) 2 (3) 1


	Three Months Ended March 31,
Loss on Derivative Instruments		2022		2021




Cash Flow Hedges - Foreign Exchange Forward Contracts and Options
Derivative loss recognized in OCI (effective portion)		$	(15)	$	(10)
Derivative loss reclassified from AOCL to income - Cost of sales (effective portion)		(2)		(1)

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, 0~~no amount of ineffectiveness was recorded in the Condensed Consolidated Statements of (Loss) Income for these designated cash flow hedges and all components of each derivative’s gain or (loss) were included in the assessment of hedge effectiveness. In addition, 0no amount was recorded for an underlying exposure that did not occur or was not expected to occur.

As of ~~June 30, 2021,~~March 31, 2022, a net after-tax loss of $5$13 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity. The entire balance is expected to be reclassified into net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Non-Designated Derivative Instruments Gains (Losses)

Non-designated derivative instruments are primarily instruments used to hedge foreign currency-denominated assets and liabilities. They are not designated as hedges since there is a natural offset for the remeasurement of the underlying foreign currency-denominated asset or liability.

The following table provides a summary of gains and (losses) on non-designated derivative instruments:


Derivatives NOT Designated as Hedging Instruments	Derivatives NOT Designated as Hedging Instruments	Location of Derivative (Loss) Gain	Three Months Ended June 30,				Six Months Ended June 30,				Derivatives NOT Designated as Hedging Instruments	Location of Derivative Gain (Loss)	Three Months Ended March 31,
			2021		2020		2021		2020					2022		2021
Foreign exchange contracts – forwards	Foreign exchange contracts – forwards	Other expense – Currency (losses) gains, net	$	(4)	$	3	$	(22)	$	17	Foreign exchange contracts – forwards	Other expense – Currency losses, net		$	(9)	$	(18)

Xerox ~~2021~~2022 Form 10-Q 2730

Currency losses, net were $1$0 and $2 for ~~the~~ three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and $3 and $4 for six months ended June 30, 2021 and 2020,~~ respectively. Net currency gains and losses include the mark-to-market adjustments of the derivatives not designated as hedging instruments and the related cost of those derivatives as well as the remeasurement of foreign currency-denominated assets and liabilities and are included in Other expenses, net.

Note 1415 – Fair Value of Financial Assets and Liabilities

The following table represents assets and liabilities measured at fair value on a recurring basis. The basis for the measurement at fair value in all cases is Level 2 – Significant Other Observable Inputs.


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets					Assets
Foreign exchange contracts - forwards	Foreign exchange contracts - forwards	$	5	$	6	Foreign exchange contracts - forwards	$	4	$	4
Foreign currency options		0		1

Interest rate cap						Interest rate cap	3		1

Deferred compensation plan investments in mutual funds	Deferred compensation plan investments in mutual funds	18		18		Deferred compensation plan investments in mutual funds	17		18
Total	Total	$	23	$	25	Total	$	24	$	23
Liabilities	Liabilities					Liabilities
Foreign exchange contracts - forwards	Foreign exchange contracts - forwards	$	9	$	5	Foreign exchange contracts - forwards	$	32	$	11

Deferred compensation plan liabilities	Deferred compensation plan liabilities	17		17		Deferred compensation plan liabilities	16		18
Total	Total	$	26	$	22	Total	$	48	$	29

We utilize the income approach to measure the fair value for our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices, and therefore are classified as Level 2.

Fair value for our deferred compensation plan investments in mutual funds is based on quoted market prices for those funds. Fair value for deferred compensation plan liabilities is based on the fair value of investments corresponding to employees’ investment selections.

Summary of Other Financial Assets and Liabilities

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


		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
		Carrying Amount		Fair Value		Carrying Amount		Fair Value			Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	Cash and cash equivalents	$	2,124	$	2,124	$	2,625	$	2,625	Cash and cash equivalents	$	1,681	$	1,681	$	1,840	$	1,840
Accounts receivable, net	Accounts receivable, net	846		846		883		883		Accounts receivable, net	807		807		818		818
Short-term debt and current portion of long-term debt	Short-term debt and current portion of long-term debt	642		652		394		396		Short-term debt and current portion of long-term debt	1,450		1,459		650		653
Long-term Debt	Long-term Debt									Long-term Debt
Xerox Holdings Corporation	Xerox Holdings Corporation	1,494		1,569		1,493		1,596		Xerox Holdings Corporation	1,495		1,489		1,494		1,579
Xerox Corporation	Xerox Corporation	1,890		1,996		2,187		2,298		Xerox Corporation	894		864		1,892		1,987
Xerox - Other Subsidiaries(1)	Xerox - Other Subsidiaries(1)	213		213		370		372		Xerox - Other Subsidiaries(1)	432		433		210		210
Long-term debt	Long-term debt	$	3,597	$	3,778	$	4,050	$	4,266	Long-term debt	$	2,821	$	2,786	$	3,596	$	3,776

____________

(1)Represents subsidiaries of Xerox Corporation

The fair value amounts for Cash and cash equivalents and Accounts receivable, net, approximate carrying amounts due to the short maturities of these instruments. The fair value of Short-term debt, including the current portion of long-term debt, and Long-term debt was estimated based on the current rates offered to us for debt of similar maturities (Level 2). The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at such date.

Xerox ~~2021~~2022 Form 10-Q 2831

Note 1516 – Employee Benefit Plans

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


		Three Months Ended June 30,													Three Months Ended March 31,
		Pension Benefits													Pension Benefits
		U.S. Plans				Non-U.S. Plans				Retiree Health					U.S. Plans				Non-U.S. Plans				Retiree Health
Components of Net Periodic Benefit Costs:	Components of Net Periodic Benefit Costs:	2021		2020		2021		2020		2021		2020		Components of Net Periodic Benefit Costs:	2022		2021		2022		2021		2022		2021
Service cost	Service cost	$	1	$	0	$	5	$	5	$	0	$	0	Service cost	$	—	$	—	$	4	$	5	$	—	$	1
Interest cost	Interest cost	19		21		22		26		2		4		Interest cost	20		18		29		22		2		2
Expected return on plan assets	Expected return on plan assets	(27)		(26)		(52)		(46)		0		0		Expected return on plan assets	(27)		(28)		(55)		(52)		—		—
Recognized net actuarial loss (gain)		4		7		14		14		0		(1)
Recognized net actuarial loss														Recognized net actuarial loss	4		5		6		15		—		—
Amortization of prior service credit	Amortization of prior service credit	(1)		(1)		0		0		(16)		(19)		Amortization of prior service credit	—		—		—		—		(4)		(17)
Recognized settlement loss	Recognized settlement loss	13		13		0		0		0		0		Recognized settlement loss	18		15		—		—		—		—

Defined benefit plans	Defined benefit plans	9		14		(11)		(1)		(14)		(16)		Defined benefit plans	15		10		(16)		(10)		(2)		(14)
Defined contribution plans	Defined contribution plans	0		6		5		5		n/a		n/a		Defined contribution plans	5		—		4		5		n/a		n/a
Net Periodic Benefit Cost (Credit)	Net Periodic Benefit Cost (Credit)	9		20		(6)		4		(14)		(16)		Net Periodic Benefit Cost (Credit)	20		10		(12)		(5)		(2)		(14)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss):
Net actuarial (gain) loss (1)		(25)		(92)		0		0		2		(6)
Amortization of net actuarial (loss) gain		(17)		(20)		(14)		(14)		0		1
Amortization of net prior service credit		1		1		0		0		16		19

Total Recognized in Other Comprehensive Income (Loss)(2)		(41)		(111)		(14)		(14)		18		14
Total Recognized in Net Periodic Benefit (Credit) Cost and Other Comprehensive Income (Loss)		$	(32)	$	(91)	$	(20)	$	(10)	$	4	$	(2)

		Six Months Ended June 30,
		Pension Benefits
		U.S. Plans				Non-U.S. Plans				Retiree Health
Components of Net Periodic Benefit Costs:		2021		2020		2021		2020		2021		2020
Service cost		$	1	$	1	$	10	$	10	$	1	$	1
Interest cost		37		44		44		55		4		6
Expected return on plan assets		(55)		(52)		(104)		(93)		0		0
Recognized net actuarial loss (gain)		9		14		29		28		0		(1)
Amortization of prior service credit		(1)		(1)		0		0		(33)		(38)
Recognized settlement loss		28		32		0		0		0		0
Recognized curtailment gain		0		0		0		(1)		0		0
Defined benefit plans		19		38		(21)		(1)		(28)		(32)
Defined contribution plans		0		11		10		10		n/a		n/a
Net Periodic Benefit Cost (Credit)		19		49		(11)		9		(28)		(32)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss):
Net actuarial (gain) loss(1)		(69)		(80)		1		0		2		(6)
Amortization of net actuarial (loss) gain		(37)		(46)		(29)		(28)		0		1
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income:														Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income:
Net actuarial loss (gain)(1)														Net actuarial loss (gain)(1)	14		(44)		—		1		(7)		—
Prior service credit														Prior service credit	—		—		—		—		(23)		—
Amortization of net actuarial loss														Amortization of net actuarial loss	(22)		(20)		(6)		(15)		—		—
Amortization of prior service credit	Amortization of prior service credit	1		1		0		0		33		38		Amortization of prior service credit	—		—		—		—		4		17

Total Recognized in Other Comprehensive Income (Loss)(2)		(105)		(125)		(28)		(28)		35		33
Total Recognized in Net Periodic Benefit (Credit) Cost and Other Comprehensive Income (Loss)		$	(86)	$	(76)	$	(39)	$	(19)	$	7	$	1
Total Recognized in Other Comprehensive (Loss) Income(2)														Total Recognized in Other Comprehensive (Loss) Income(2)	(8)		(64)		(6)		(14)		(26)		17
Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income														Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income	$	12	$	(54)	$	(18)	$	(19)	$	(28)	$	3

_____________

(1)The net actuarial loss (gain) ~~loss~~ for U.S. Plans primarily reflects ~~(i)~~ the remeasurement of our primary U.S. pension plans as a result of the payment of periodic ~~settlements and (ii) adjustments for~~settlements. The Retiree Health net actuarial gain reflects remeasurement related to the ~~actuarial valuation results based on the January 1st plan census data.~~first quarter 2022 Plan Amendment.

(2)Amounts represent the pre-tax effect included within Other Comprehensive ~~Income~~ (Loss). Income. Refer to Note 1819 - Other Comprehensive (Loss) Income ~~(Loss)~~ for related tax effects and the after-tax amounts.

~~Xerox 2021 Form 10-Q~~ 29

Contributions

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


		Six Months Ended June 30,				Year Ended December 31,					Three Months Ended March 31,				Year Ended December 31,
		2021		2020		Estimated 2021		2020			2022		2021		Estimated 2022		2021
U.S. plans	U.S. plans	$	12	$	12	$	25	$	35	U.S. plans	$	6	$	6	$	25	$	24
Non-U.S. plans	Non-U.S. plans	57		52		105		104		Non-U.S. plans	26		29		110		111
Total Pension		$	69	$	64	$	130	$	139

Total Pension plans										Total Pension plans	32		35		135		135
Retiree Health	Retiree Health	$	11	$	9	$	30	$	25	Retiree Health	6		6		25		25
Total Retirement plans										Total Retirement plans	$	38	$	41	$	160	$	160

There are 0no mandatory contributions required in ~~2021~~2022 for our U.S. tax-qualified defined benefit plans to meet the minimum funding requirements.

~~Defined Contribution Plans~~Retiree Health Plan Amendment

InDuring the first quarter ~~2021,~~of 2022, we amended our U.S. Retiree Health Plan to reduce certain benefits for existing union retirees through the ~~Company suspended~~reduction or elimination of coverage or cost-sharing subsidies for retiree health care and ~~will not make its full year 2021 employer match/contribution for its U.S. based 401(k) saving plans for salaried employees. The suspension is expected to result~~life insurance costs. This negative plan amendment resulted in ~~savings~~a reduction of approximately ~~$20~~$23 in the Company's postretirement benefit obligation. The amount for the ~~year ending December 31, 2021.~~plan amendment will be amortized to future net periodic benefit costs as a prior service credit.

Xerox 2022 Form 10-Q 32

Note 1617 – Shareholders’ Equity of Xerox Holdings

(shares in thousands)

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


		Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non-controlling Interests		Total Equity			Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non-controlling Interests		Total Equity
Balance at March 31, 2021		$	199	$	2,456	$	(162)	$	6,267	$	(3,335)	$	5,425	$	4	$	5,429
Balance at December 31, 2021																		Balance at December 31, 2021	$	168	$	1,802	$	(177)	$	5,631	$	(2,988)	$	4,436	$	7	$	4,443

Comprehensive income, net		—		—		—		91		70		161		—		161
Comprehensive loss, net																		Comprehensive loss, net	—		—		—		(56)		(44)		(100)		(1)		(101)
Cash dividends declared - common(3)	Cash dividends declared - common(3)	—		—		—		(47)		—		(47)		—		(47)		Cash dividends declared - common(3)	—		—		—		(39)		—		(39)		—		(39)
Cash dividends declared - preferred(4)	Cash dividends declared - preferred(4)	—		—		—		(3)		—		(3)		—		(3)		Cash dividends declared - preferred(4)	—		—		—		(4)		—		(4)		—		(4)

Stock option and incentive plans, net	Stock option and incentive plans, net	0		5		—		—		—		5		—		5		Stock option and incentive plans, net	—		4		—		—		—		4		—		4

Payments to acquire treasury stock, including fees	Payments to acquire treasury stock, including fees	—		—		(251)		—		—		(251)		—		(251)		Payments to acquire treasury stock, including fees	—		—		(113)		—		—		(113)		—		(113)
Cancellation of treasury stock	Cancellation of treasury stock	(10)		(244)		254		—		—		—		—		0		Cancellation of treasury stock	(12)		(246)		258		—		—		—		—		—
Investment from noncontrolling interests(5)		—		1		—		—		—		1		4		5
Other		—		(4)		—		—		—		(4)		—		(4)
Balance at June 30, 2021		$	189	$	2,214	$	(159)	$	6,308	$	(3,265)	$	5,287	$	8	$	5,295

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

Balance at March 31, 2022																		Balance at March 31, 2022	$	156	$	1,560	$	(32)	$	5,532	$	(3,032)	$	4,184	$	5	$	4,189

Common
Stock(1)
Additional
Paid-in
Capital
Treasury Stock
Retained
Earnings
AOCL(2)
Xerox Holdings Shareholders’ Equity Non- controlling Interests
Total
Equity
Balance at March 31, 2020 $ 213 $ 2,712 $ 0 $ 6,252 $ (3,784) $ 5,393 $ 7 $ 5,400
Comprehensive income, net — — — 27 103 130 — 130
Cash dividends declared - common(3)
— — — (53) — (53) — (53)
Cash dividends declared - preferred(4)
— — — (3) — (3) — (3)
Stock option and incentive plans, net — 10 — — — 10 — 10
Distributions to noncontrolling interests — — — — — — (3) (3)
Balance at June 30, 2020 $ 213 $ 2,722 $ 0 $ 6,223 $ (3,681) $ 5,477 $ 4 $ 5,481

~~Xerox 2021 Form 10-Q~~ 30

Common
Stock(1)
Additional
Paid-in
Capital
Treasury Stock
Retained
Earnings
AOCL(2)
Xerox Holdings
Shareholders’
Equity
Non-controlling
Interests
Total
Equity
Balance at December 31, 2020 $ 198 $ 2,445 $ 0 $ 6,281 $ (3,332) $ 5,592 $ 4 $ 5,596
Comprehensive income, net — — — 130 67 197 — 197
Cash dividends declared - common(3)
— — — (96) — (96) — (96)
Cash dividends declared - preferred(4)
— — — (7) — (7) — (7)
Stock option and incentive plans, net 1 16 — — — 17 — 17
Payments to acquire treasury stock, including fees — — (413) — — (413) — (413)
Cancellation of treasury stock (10) (244) 254 — — — — 0
Investment from noncontrolling interests(5)
— 1 — — — 1 4 5
Other — (4) — — — (4) — (4)
Balance at June 30, 2021 $ 189 $ 2,214 $ (159) $ 6,308 $ (3,265) $ 5,287 $ 8 $ 5,295


		Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non- controlling Interests		Total Equity			Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non- controlling Interests		Total Equity
Balance at December 31, 2019		$	215	$	2,782	$	(76)	$	6,312	$	(3,646)	$	5,587	$	7	$	5,594
Balance at December 31, 2020																		Balance at December 31, 2020	$	198	$	2,445	$	—	$	6,281	$	(3,332)	$	5,592	$	4	$	5,596

Comprehensive income (loss), net	Comprehensive income (loss), net	—		—		—		25		(35)		(10)		—		(10)		Comprehensive income (loss), net	—		—		—		39		(3)		36		—		36
Cash dividends declared - common(3)	Cash dividends declared - common(3)	—		—		—		(107)		—		(107)		—		(107)		Cash dividends declared - common(3)	—		—		—		(49)		—		(49)		—		(49)
Cash dividends declared - preferred(4)	Cash dividends declared - preferred(4)	—		—		—		(7)		—		(7)		—		(7)		Cash dividends declared - preferred(4)	—		—		—		(4)		—		(4)		—		(4)

Stock option and incentive plans, net	Stock option and incentive plans, net	—		14		—		—		—		14		—		14		Stock option and incentive plans, net	1		11		—		—		—		12		—		12

Cancellation of treasury stock		(2)		(74)		76		—		—		—		—		0
Distributions to noncontrolling interests		—		—		—		—		—		—		(3)		(3)

Balance at June 30, 2020		$	213	$	2,722	$	0	$	6,223	$	(3,681)	$	5,477	$	4	$	5,481
Payments to acquire treasury stock, including fees																		Payments to acquire treasury stock, including fees	—		—		(162)		—		—		(162)		—		(162)

Balance at March 31, 2021																		Balance at March 31, 2021	$	199	$	2,456	$	(162)	$	6,267	$	(3,335)	$	5,425	$	4	$	5,429

_____________

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

(2)Refer to Note 1819 - Other Comprehensive (Loss) Income ~~(Loss)~~ for the components of AOCL.

(3)Cash dividends declared on common stock for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were $0.25 ~~per share, respectively, and $0.50~~ per share, respectively.

(4)Cash dividends declared on preferred stock for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were $20.00 per share, ~~respectively, and $40.00 per share,~~ respectively.

~~(5)Refer to Note 5 - Acquisitions~~Common Stock and ~~Investments for additional information regarding this noncontrolling investment.~~

Treasury Stock

The following is a summary of the ~~purchases of~~changes in Common ~~Stock during 2021:~~and Treasury stock shares:

Shares Amount
Balance at December 31, 2020 0 $ 0
Purchases(1)
17,067 413
Cancellations (10,426) (254)
Balance at June 30, 2021 6,641 $ 159

~~_____________~~

~~(1)Includes associated fees.~~


	Common Stock Shares	Treasury Stock Shares
Balance at December 31, 2021	168,069	8,675
Stock based compensation plans, net	630	—
Acquisition of Treasury stock	—	5,174
Cancellation of Treasury stock	(12,341)	(12,341)
Balance at March 31, 2022	156,358	1,508

Xerox ~~2021~~2022 Form 10-Q 3133

Note 1718 – Shareholder's Equity of Xerox

The shareholder's equity information presented below reflects the consolidated activity of Xerox.

Additional Paid-in Capital Retained Earnings
AOCL(1)
Xerox Shareholder's Equity
Non-
controlling
Interests
Total
Equity
Balance at March 31, 2021 $ 3,351 $ 5,674 $ (3,335) $ 5,690 $ 4 $ 5,694
Comprehensive income, net — 96 70 166 — 166
Dividends declared to parent — (358) — (358) — (358)
Transfers from parent 52 — — 52 — 52
Investment from noncontrolling interests(2)
1 — — 1 4 5
Balance at June 30, 2021 $ 3,404 $ 5,412 $ (3,265) $ 5,551 $ 8 $ 5,559


	Additional Paid-in Capital		Retained Earnings		AOCL(1)		Xerox Shareholder's Equity		Non- controlling Interests		Total Equity
Balance at December 31, 2021	$	3,202	$	4,476	$	(2,988)	$	4,690	$	7	$	4,697

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



Dividends declared to parent	—		(549)		—		(549)		—		(549)


Transfers from parent	390		—		—		390		—		390

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






Balance at March 31, 2022	$	3,592	$	3,871	$	(3,032)	$	4,431	$	5	$	4,436

Additional Paid-in Capital Retained Earnings
AOCL(1)
Xerox Shareholder's Equity Non- controlling Interests
Total
Equity
Balance at March 31, 2020 $ 3,504 $ 5,955 $ (3,784) $ 5,675 $ 7 $ 5,682
Comprehensive income, net — 27 103 130 — 130
Dividends declared to parent — (57) — (57) — (57)
Transfers from parent 11 — — 11 — 11
Distributions to noncontrolling interests — — — — (3) (3)
Balance at June 30, 2020 $ 3,515 $ 5,925 $ (3,681) $ 5,759 $ 4 $ 5,763


	Additional Paid-in Capital		Retained Earnings		AOCL(1)		Xerox Shareholder's Equity		Non- controlling Interests		Total Equity
Balance at December 31, 2020	$	4,888	$	5,834	$	(3,332)	$	7,390	$	4	$	7,394

Comprehensive income (loss), net	—		39		(3)		36		—		36



Dividends declared to parent	—		(201)		—		(201)		—		(201)

Intercompany loan capitalization	(1,494)		—		—		(1,494)		—		(1,494)
Transfers to parent	(34)		—		—		(34)		—		(34)


Balance at March 31, 2021	$	3,360	$	5,672	$	(3,335)	$	5,697	$	4	$	5,701

Additional
Paid-in
Capital
Retained
Earnings
AOCL(1)
Xerox
Shareholder's
Equity
Non-
controlling
Interests
Total
Equity
Balance at December 31, 2020 $ 4,879 $ 5,834 $ (3,332) $ 7,381 $ 4 $ 7,385
Comprehensive income, net — 137 67 204 — 204
Dividends declared to parent — (559) — (559) — (559)
Intercompany loan capitalization(3)
(1,494) — — (1,494) — (1,494)
Transfers from parent 18 — — 18 — 18
Investment from noncontrolling interests(2)
1 — — 1 4 5
Balance at June 30, 2021 $ 3,404 $ 5,412 $ (3,265) $ 5,551 $ 8 $ 5,559

Additional
Paid-in
Capital
Retained
Earnings
AOCL(1)
Xerox
Shareholder's
Equity
Non-
controlling
Interests
Total
Equity
Balance at December 31, 2019 $ 3,266 $ 6,247 $ (3,646) $ 5,867 $ 7 $ 5,874
Comprehensive income (loss), net — 25 (35) (10) — (10)
Dividends declared to parent — (347) — (347) — (347)
Transfers from parent 249 — — 249 — 249
Distributions to noncontrolling interests — — — — (3) (3)
Balance at June 30, 2020 $ 3,515 $ 5,925 $ (3,681) $ 5,759 $ 4 $ 5,763
_____________

(1)Refer to Note 1819 - Other Comprehensive (Loss) Income ~~(Loss)~~ for the components of AOCL.

~~(2)Refer to Note 5 - Acquisitions and Investments for additional information regarding this noncontrolling investment.~~

~~(3)Refer to Note 12 - Debt for information regarding capitalization of balance to Intercompany Loan with Xerox Holdings Corporation.~~

Xerox ~~2021~~2022 Form 10-Q 3234

Note 1819 - Other Comprehensive (Loss) Income ~~(Loss)~~

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


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended March 31,
		2021				2020				2021				2020						2022	2021
		Pre-tax		Net of Tax		Pre-tax		Net of Tax		Pre-tax		Net of Tax		Pre-tax		Net of Tax					Pre-tax		Net of Tax		Pre-tax		Net of Tax
Translation Adjustments Gains (Losses)		$	55	$	54	$	26	$	25	$	3	$	3	$	(178)	$	(172)
Translation Adjustments Losses																		Translation Adjustments Losses			$	(71)	$	(72)	$	(52)	$	(51)
Unrealized (Losses) Gains	Unrealized (Losses) Gains																	Unrealized (Losses) Gains
Changes in fair value of cash flow hedges (losses) gains		(2)		(1)		(3)		(1)		(12)		(9)		4		3
Changes in fair value of cash flow hedges losses																		Changes in fair value of cash flow hedges losses			(15)		(13)		(10)		(8)
Changes in cash flow hedges reclassed to earnings(1)	Changes in cash flow hedges reclassed to earnings(1)	2		1		(2)		(1)		3		2		(1)		0		Changes in cash flow hedges reclassed to earnings(1)			2		2		1		1

Net Unrealized (Losses) Gains		0		0		(5)		(2)		(9)		(7)		3		3
Net Unrealized Losses																		Net Unrealized Losses			(13)		(11)		(9)		(7)

Defined Benefit Plans Gains (Losses)	Defined Benefit Plans Gains (Losses)																	Defined Benefit Plans Gains (Losses)
Net actuarial/prior service gains	Net actuarial/prior service gains	23		17		98		73		66		49		86		64		Net actuarial/prior service gains			16		12		43		32
Prior service amortization(2)	Prior service amortization(2)	(17)		(13)		(20)		(15)		(34)		(25)		(39)		(29)		Prior service amortization(2)			(4)		(3)		(17)		(12)
Actuarial loss amortization/settlement(2)	Actuarial loss amortization/settlement(2)	31		23		33		26		66		49		73		56		Actuarial loss amortization/settlement(2)			28		21		35		26

Other (losses) gains(3)		(11)		(11)		(4)		(4)		(2)		(2)		43		43
Other gains(3)																		Other gains(3)			9		9		9		9
Changes in Defined Benefit Plans Gains	Changes in Defined Benefit Plans Gains	26		16		107		80		96		71		163		134		Changes in Defined Benefit Plans Gains			49		39		70		55

Other Comprehensive Income (Loss) Attributable to Xerox Holdings/Xerox		$	81	$	70	$	128	$	103	$	90	$	67	$	(12)	$	(35)
Other Comprehensive (Loss) Income Attributable to Xerox Holdings/Xerox																		Other Comprehensive (Loss) Income Attributable to Xerox Holdings/Xerox			$	(35)	$	(44)	$	9	$	(3)

____________

(1)Reclassified to Cost of sales - refer to Note 1314 - Financial Instruments for additional information regarding our cash flow hedges.

(2)Reclassified to Total Net Periodic Benefit Cost - refer to Note 1516 - Employee Benefit Plans for additional information.

(3)Primarily represents currency impact on cumulative amount of benefit plan net actuarial losses and prior service credits in AOCL.

Accumulated Other Comprehensive Loss (AOCL)

AOCL is comprised of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Cumulative translation adjustments	Cumulative translation adjustments	$	(1,717)	$	(1,720)	Cumulative translation adjustments	$	(1,933)	$	(1,861)
Other unrealized (losses) gains, net		(5)		2
Other unrealized losses, net						Other unrealized losses, net	(13)		(2)
Benefit plans net actuarial losses and prior service credits	Benefit plans net actuarial losses and prior service credits	(1,543)		(1,614)		Benefit plans net actuarial losses and prior service credits	(1,086)		(1,125)
Total Accumulated Other Comprehensive Loss Attributable to Xerox Holdings/Xerox	Total Accumulated Other Comprehensive Loss Attributable to Xerox Holdings/Xerox	$	(3,265)	$	(3,332)	Total Accumulated Other Comprehensive Loss Attributable to Xerox Holdings/Xerox	$	(3,032)	$	(2,988)

Xerox ~~2021~~2022 Form 10-Q 3335

Note 1920 – (Loss) Earnings per Share

(shares in thousands)

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Basic Earnings per Share
Net Income Attributable to Xerox Holdings		$	91	$	27	$	130	$	25
Basic (Loss) Earnings per Share										Basic (Loss) Earnings per Share
Net (Loss) Income Attributable to Xerox Holdings										Net (Loss) Income Attributable to Xerox Holdings		$	(56)	$	39
Accrued dividends on preferred stock	Accrued dividends on preferred stock	(3)		(3)		(7)		(7)		Accrued dividends on preferred stock		(4)		(4)

Adjusted Net income available to common shareholders		$	88	$	24	$	123	$	18
Adjusted Net (loss) income available to common shareholders										Adjusted Net (loss) income available to common shareholders		$	(60)	$	35

Weighted average common shares outstanding	Weighted average common shares outstanding	187,009		212,949		191,433		212,852		Weighted average common shares outstanding		156,362		195,985

Basic Earnings per Share		$	0.47	$	0.11	$	0.64	$	0.08
Basic (Loss) Earnings per Share										Basic (Loss) Earnings per Share		$	(0.38)	$	0.18

Diluted Earnings per Share
Net Income Attributable to Xerox Holdings		$	91	$	27	$	130	$	25
Diluted (Loss) Earnings per Share										Diluted (Loss) Earnings per Share
Net (Loss) Income Attributable to Xerox Holdings										Net (Loss) Income Attributable to Xerox Holdings		$	(56)	$	39
Accrued dividends on preferred stock	Accrued dividends on preferred stock	(3)		(3)		(7)		(7)		Accrued dividends on preferred stock		(4)		(4)

Adjusted Net income available to common shareholders		$	88	$	24	$	123	$	18
Adjusted Net (loss) income available to common shareholders										Adjusted Net (loss) income available to common shareholders		$	(60)	$	35

Weighted average common shares outstanding	Weighted average common shares outstanding	187,009		212,949		191,433		212,852		Weighted average common shares outstanding		156,362		195,985
Common shares issuable with respect to:	Common shares issuable with respect to:									Common shares issuable with respect to:
Stock options	Stock options	0		0		0		30		Stock options		—		—
Restricted stock and performance shares	Restricted stock and performance shares	2,012		2,618		2,096		3,132		Restricted stock and performance shares		—		2,181
Convertible preferred stock	Convertible preferred stock	0		0		0		0		Convertible preferred stock		—		—

Adjusted weighted average common shares outstanding	Adjusted weighted average common shares outstanding	189,021		215,567		193,529		216,014		Adjusted weighted average common shares outstanding		156,362		198,166

Diluted Earnings per Share		$	0.46	$	0.11	$	0.64	$	0.08
Diluted (Loss) Earnings per Share										Diluted (Loss) Earnings per Share		$	(0.38)	$	0.18

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive:	The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive:									The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive:
Stock options	Stock options	694		845		694		816		Stock options		612		693
Restricted stock and performance shares	Restricted stock and performance shares	4,647		3,648		4,562		3,134		Restricted stock and performance shares		6,470		5,327
Convertible preferred stock	Convertible preferred stock	6,742		6,742		6,742		6,742		Convertible preferred stock		6,742		6,742
Total Anti-Dilutive Securities	Total Anti-Dilutive Securities	12,083		11,235		11,998		10,692		Total Anti-Dilutive Securities		13,824		12,762

Dividends per Common Share	Dividends per Common Share	$	0.25	$	0.25	$	0.50	$	0.50	Dividends per Common Share		$	0.25	$	0.25

Xerox ~~2021~~2022 Form 10-Q 3436

Note 2021 – Contingencies and Litigation

Legal Matters

We are involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; governmental entity contracting; servicing and procurement law; intellectual property law; environmental law; employment law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations. We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. We assess our potential liability by analyzing our litigation and regulatory matters using available information. We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs.

Brazil Contingencies

Our Brazilian operations have received or been the subject of numerous governmental assessments related to indirect and other taxes. The tax matters principally relate to claims for taxes on the internal transfer of inventory, municipal service taxes on rentals and gross revenue taxes. We are disputing these tax matters and intend to vigorously defend our positions. Based on the opinion of legal counsel and current reserves for those matters deemed probable of loss, we do not believe that the ultimate resolution of these matters will materially impact our results of operations, financial position or cash flows. Below is a summary of our Brazilian tax contingencies:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Tax contingency - unreserved	Tax contingency - unreserved	$	392	$	355	Tax contingency - unreserved	$	368	$	292
Escrow cash deposits	Escrow cash deposits	41		39		Escrow cash deposits	39		32
Surety bonds	Surety bonds	112		112		Surety bonds	69		96
Letters of credit	Letters of credit	80		78		Letters of credit	93		74
Liens on Brazilian assets	Liens on Brazilian assets	0		0		Liens on Brazilian assets	—		—

The increase in the unreserved portion of the tax contingency, inclusive of any related interest, was primarily ~~related~~due to currency, ~~and~~as well as interest. With respect to the unreserved tax contingency, the majority has been assessed by management as being remote as to the likelihood of ultimately resulting in a loss to the Company. In connection with the above proceedings, customary local regulations may require us to make escrow cash deposits or post other security of up to half of the total amount in dispute, as well as, additional surety bonds and letters of credit, which include associated indexation. Generally, any escrowed amounts would be refundable and any liens on assets would be removed to the extent the matters are resolved in our favor. We are also involved in certain disputes with contract and former employees. Exposures related to labor matters are not material to the financial statements as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. We routinely assess all these matters as to the probability of ultimately incurring a liability against our Brazilian operations and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable.

Litigation Against the Company

~~Pending Litigation Relating to the Fuji Transaction:~~

1.~~Ribbe v. Jacobson, et al.:~~

On April 11, 2019, Carmen Ribbe filed a putative derivative and class action stockholder complaint in the Supreme Court of the State of New York for New York County, naming as defendants Xerox, current Board members Joseph J. Echevarria, Cheryl Gordon Krongard, Keith Cozza, Giovanni G. Visentin, Jonathan Christodoro, Nicholas Graziano, and A. Scott Letier, and former Board members Jeffrey Jacobson, William Curt Hunter, Robert J. Keegan, Charles Prince, Ann N. Reese, Stephen H. Rusckowski, Gregory Q. Brown, and Sara Martinez Tucker. Plaintiff previously filed a putative shareholder derivative lawsuit on May 24, 2018 against certain of these defendants, as well as others, in the same court; that lawsuit was dismissed without prejudice on December 6, 2018 (~~"Ribbe I"~~). The new complaint included putative derivative claims on behalf of Xerox for breach of fiduciary duty against the then members of the Xerox Board who approved Xerox’s entry into agreements to settle shareholder actions filed in 2018 in the same court against Xerox, its then directors, and FUJIFILM Holdings Corporation (“Fujifilm”) in connection with a proposed transaction announced in January 2018 to combine Xerox and Fuji Xerox (the “Fuji

~~Xerox 2021 Form 10-Q~~ 35

~~Transaction”), including a consolidated putative class action,~~ ~~In re Xerox Corporation Consolidated Shareholder Litigation (“XCCSL”), and actions filed by Darwin Deason,~~ ~~Deason v. Fujifilm Holdings Corp., et al.~~ ~~and~~ ~~Deason v. Xerox Corporation, et al., against the same defendants as well as, in the first~~ ~~Deason~~ action, former Xerox Chief Executive Officer Ursula M. Burns (the "Fuji Transaction Shareholder Lawsuits"). Plaintiff alleged that the settlements ceded control of the Board and the Company to Darwin Deason and Carl C. Icahn without a vote by, or compensation to, other Xerox stockholders; improperly provided certain benefits and releases to the resigning and continuing directors; and subjected Xerox to potential breach of contract damages in an action by Fuji relating to Xerox’s termination of the proposed Fuji Transaction. Plaintiff also alleged that the current Board members breached their fiduciary duties by allegedly rejecting plaintiff’s January 14, 2019 shareholder demand on the Board to remedy harms arising from entry into the ~~Deason~~ ~~and~~ ~~XCCSL~~ settlements. The new complaint further included direct claims for breach of fiduciary duty on behalf of a putative class of current Xerox stockholders other than Mr. Deason, Mr. Icahn, and their affiliated entities (the “Ribbe Class”) against the defendants for causing Xerox to enter into the ~~Deason~~ ~~and~~ ~~XCCSL~~ settlements, which plaintiff alleged perpetuated control of Xerox by Mr. Icahn and Mr. Deason and denied the voting franchise of Xerox shareholders. Among other things, plaintiff sought damages in an unspecified amount for the alleged fiduciary breaches in favor of Xerox against defendants jointly and severally; rescission or reformation of the ~~Deason~~ ~~and~~ ~~XCCSL~~ ~~settlements; restitution of funds paid to the resigning directors under the~~ ~~Deason~~ settlement; an injunction against defendants’ engaging in the alleged wrongful practices and equitable relief affording the putative Ribbe Class the ability to determine the composition of the Board; costs and attorneys’ fees; and other further relief as the Court may deem proper.

Defendants accepted service of the complaint as of May 16, 2019. On June 4, 2019, the Court entered an order setting a briefing schedule for defendants’ motions to dismiss the complaint. On July 12, 2019, plaintiff filed a motion to preclude defendants from referencing in their motions to dismiss the formation of, or work by, the committee of the Board established to investigate plaintiff’s shareholder demand. On July 18, 2019, the Court denied plaintiff’s motion and adjourned sine die the deadline by which defendants must file any motions to dismiss the complaint.

On January 6, 2020, plaintiff filed his first amended complaint (“FAC”). The FAC includes many of plaintiff’s original allegations regarding the 2018 shareholder litigation and settlements, as well as additional allegations, including, among others, that the members of the Special Committee of the Board that investigated plaintiff’s demand lacked independence and wrongfully refused to pursue the claims in the demand; allegations that an agreement announced in November 2019 for, among other things, the sale by Xerox of its interest in Fuji Xerox to Fujifilm and dismissal of Fujifilm’s breach of contract lawsuit against Xerox (the “FX Sale Transaction”), was unfavorable to Xerox; and allegations about a potential acquisition by Xerox of HP similar to those in the ~~Miami Firefighters~~ derivative action described below. In addition to the claims in the April 11, 2019 complaint, the FAC adds as defendants Carl C. Icahn, Icahn Capital LP, and High River Limited Partnership (the “Icahn defendants”) and asserts claims against those defendants and the Board similar to those in ~~Miami Firefighters~~ relating to the Icahn defendants’ purchases of HP stock allegedly with knowledge of material nonpublic information concerning Xerox’s potential acquisition of HP. In addition to the relief sought in Ribbe’s prior complaint, the FAC seeks relief similar to that sought in ~~Miami Firefighters~~ ~~relating to the Icahn defendants’ alleged purchases of HP stock.~~

~~On January 21, 2020, plaintiff in the~~ ~~Miami Firefighters~~ ~~action filed a motion seeking to intervene in~~ ~~Ribbe~~ ~~and to have stayed, or alternatively, severed and consolidated with the~~ ~~Miami Firefighters~~ ~~action, any claims first filed in~~ ~~Miami Firefighters~~ ~~and later asserted by Ribbe. At a conference held on February 25, 2020, the Court denied the motion to intervene without prejudice. On March 6, 2020, plaintiff in the~~ ~~Miami Firefighters~~ ~~action renewed its motion. On July 23, 2020, after hearing oral argument, the Court issued an order denying the motion and setting certain case deadlines.~~

Discovery commenced. On August 7, 2020, Xerox, the director defendants, and the Icahn defendants filed separate motions to dismiss. On October 1, 2020, plaintiff filed a cross-motion seeking, among other relief, joinder of Xerox Holdings Corporation as a nominal defendant. Briefing on the motions to dismiss and plaintiff’s cross-motion was completed on October 16, 2020. On December 14, 2020, following oral argument, the Court issued a decision and order denying plaintiff’s cross-motion and granting defendants’ motions, dismissing the action in its entirety as to all defendants. Dismissal as to the Icahn defendants was conditioned on the filing of an affidavit, which the Icahn defendants filed on December 16, 2020, indicating whether defendant Icahn gained a profit or incurred a loss on purchases of HP stock during the relevant time period.

On January 13, 2021, plaintiff filed a notice of appeal of the December 14, 2020 dismissal order to the Appellate Division, First Department. Upon his application to the Appellate Division, plaintiff’s time to perfect the appeal of the December 14, 2020 dismissal order has been extended to September 13, 2021.

~~Xerox 2021 Form 10-Q~~ 36

~~On April 7, 2021, plaintiff filed in the previously dismissed~~ ~~Ribbe I~~ ~~and~~ ~~XCCSL~~ actions a motion seeking an award of attorneys’ fees of $1.5 and a service award of $10 thousand for benefits he allegedly obtained for Xerox and its stockholders. On June 4, 2021, the Court granted plaintiff’s fee application, in part, and awarded plaintiff attorneys’ fees in the amount of $125 thousand in the dismissed actions. The Court denied plaintiff’s request for a service award.

Xerox will vigorously defend against this matter. At this time, it is premature to make any conclusion regarding the probability of incurring material losses in this litigation. Should developments cause a change in our determination as to an unfavorable outcome, or result in a final adverse judgment or settlement, there could be a material adverse effect on our results of operations, cash flows and financial position in the period in which such change in determination, judgment, or settlement occurs.

2.Miami Firefighters’ Relief & Pension Fund v. Icahn, et al.:

On December 13, 2019, alleged shareholder Miami Firefighters’ Relief & Pension Fund (“Miami Firefighters”) filed a purported derivative complaint in New York State Supreme Court, New York County on behalf of Xerox Holdings Corporation ("Xerox Holdings") (as nominal defendant) against Carl Icahn and his affiliated entities High River Limited Partnership and Icahn Capital LP (the "Icahn defendants"), Xerox Holdings, and all ~~current~~then-current Xerox Holdings directors (the "Directors"). Plaintiff made no demand on the Board before bringing the action, but instead alleges that doing so would be futile because the Directors lack independence due to alleged direct or indirect relationships with Icahn. Among other things, the complaint alleges that Icahn controls and dominates Xerox Holdings and therefore owes a fiduciary duty of loyalty to Xerox Holdings, which he breached by acquiring HP stock at a time when he knew that Xerox Holdings was considering an offer to acquire HP or had knowledge of the "obvious merits" of such potential acquisition, and that the Icahn defendants’ holdings of HP common stock have risen in market value by approximately $128 since disclosure of the offer. The complaint includes four causes of action: breach of fiduciary duty of loyalty against the Icahn defendants; breach of contract against the Icahn

Xerox 2022 Form 10-Q 37

defendants (for purchasing HP stock in violation of Icahn’s confidentiality agreement with Xerox Holdings); unjust enrichment against the Icahn defendants; and breach of fiduciary duty of loyalty against the Directors (for any consent to the Icahn defendants’ purchases of HP common stock while Xerox Holdings was considering acquiring HP). The complaint seeks a judgment of breach of fiduciary duties against the Icahn defendants and the Directors; a declaration that Icahn breached his confidentiality agreement with Xerox Holdings; a constructive trust on Icahn Capital and High River's investments in HP securities; disgorgement to Xerox Holdings of profits Icahn Capital and High River earned from trading in HP stock; payment of unspecified damages by the Directors for breaching fiduciary duties; and attorneys' fees, costs, and other relief the Court deems just and proper. On January 15, 2020, the Court entered an order granting plaintiff’s unopposed motion to consolidate with Miami Firefighters a similar action filed on December 26, 2019 by alleged shareholder Steven J. Reynolds against the same parties in the same court, and designating Miami Firefighters’ counsel as lead counsel in the consolidated action. ~~On January 21, 2020, plaintiff filed a motion seeking to intervene in~~ ~~Ribbe v. Jacobson, et al.~~, described above, and to have stayed, or alternatively, severed and consolidated with this action, any claims first filed in this action and later asserted by Ribbe. At a conference held on February 25, 2020, the Court denied the motion to intervene without prejudice. On March 6, 2020, plaintiff in the ~~Miami Firefighters~~ ~~action renewed its motion. On July 23, 2020, after hearing oral argument, the Court issued an order denying the motion and setting certain case deadlines.~~

Discovery ~~has~~ commenced. On August 10, 2020, the Xerox defendants and the Icahn defendants filed separate motions to dismiss. Briefing on the motions was completed on October 21, 2020. On December 14, 2020, following oral argument, the Court issued a decision and order granting defendants’ motions and dismissing the action in its entirety as to all defendants. Dismissal as to the Icahn defendants was conditioned on the filing of an affidavit, which the Icahn defendants filed on December 16, 2020, indicating whether defendant Icahn gained a profit or incurred a loss on purchases of HP stock during the relevant time period.

On December 23, 2020, plaintiff filed a motion seeking discovery related to the Icahn defendants’ losses resulting from their investment in HP. The motion was fully briefed on January 7, 2021. On January 15, 2021, the Court issued a decision and order denying the motion.

Also on January 15, 2021, plaintiff filed a notice of appeal of the December 14, 2020 dismissal order to the Appellate Division, First Department. On January 20, 2021, plaintiff filed a notice of appeal of the January 15, 2021 order denying its motion for discovery to the Appellate Division, First Department. On July 15, 2021, plaintiff filed its brief in connection with the appeals of the December 14, 2020 dismissal order and the January 15, 2021 discovery order.

On November 18, 2021, the Appellate Division issued its decision. The Court reversed the lower court’s ruling to the extent that it dismissed the claims asserted against the Icahn defendants. The claims asserted against the Directors remain dismissed. On December 8, 2021, the Xerox ~~2021 Form 10-Q~~ 37

Board approved the formation of a Special Litigation Committee to investigate and evaluate the claims and allegations asserted in the Miami Firefighters’ case and determine the course of action that would be in the best interests of the Company and its shareholders. The Special Litigation Committee moved to stay the litigation pending its investigation and on January 25, 2022, the Court issued an order staying all discovery until February 28, 2022, except as related to the issue of the alleged damages sustained by Xerox.

On March 18, 2022, following the conclusion of its investigation, the Special Litigation Committee filed a motion to dismiss plaintiffs’ claims on the grounds that the derivative claims are without merit and pursuing the claims would not be in the best interest of Xerox ~~Holdings will vigorously defend against this matter. At this time, it is premature~~or its shareholders. One week later the Icahn Defendants filed a motion for summary judgment. On April 4, 2022, Miami Firefighters filed papers in opposition to ~~make any conclusion~~the pending motions and cross-moved to, among other things, seek discovery regarding the ~~probability~~Special Litigation Committee’s investigation. Miami Firefighters also cross-moved seeking an order granting partial summary judgment against the Icahn Defendants for disgorgement of incurring material losses in this litigation. Should developments cause a change in our determination as to an unfavorable outcome, or result in a final adverse judgment or settlement, there could be a material adverse effect on our results of operations, cash flows and financial positionalleged unrealized profits in the ~~period in which such change in determination, judgment, or settlement occurs.~~amount of $18.12. Oral argument on the pending motions is scheduled for May 26, 2022.

~~Other Litigation~~

1.Xerox Holdings Corporation v. Factory Mutual Insurance Company and Related Actions:

On March 10, 2021, Xerox Holdings Corporation (“~~XHC”~~Xerox Holdings”) filed a complaint for breach of contract and declaratory judgment against Factory Mutual Insurance Company in Rhode Island Superior Court, Providence County seeking insurance coverage for business interruption losses resulting from the coronavirus/COVID-19 pandemic. The complaint alleges that defendant agreed to provide ~~XHC~~Xerox Holdings with up to $1 billion in per-occurrence coverage for losses resulting from pandemic-related loss or damage to certain real and other property, including business interruption loss resulting from insured property damage; that the pandemic had inflicted significant physical loss or damage to property of ~~XHC~~Xerox Holdings and its direct and indirect customers; that ~~XHC’s~~Xerox Holdings’ worldwide actual and projected losses through the end of 2020 totaled in excess of $300 (and is still increasing); and that following ~~XHC’s~~Xerox Holdings' timely and proper claim in March 2020 for coverage under the “all risk” commercial property insurance policy it had purchased from defendant, defendant improperly denied and rejected coverage for most of the claim. The complaint seeks a jury trial, a declaratory judgment against defendant declaring that Xerox is entitled to full coverage of costs and losses under defendant’s policy and declaring that defendant is required to pay for such costs and losses, subject to any applicable limits; damages in an amount to be

Xerox 2022 Form 10-Q 38

determined at trial; consequential damages; attorneys’ fees and costs; pre- and post-judgment interest; and other relief the Court deems just and proper. Also on March 10, 2021, subsidiaries of ~~XHC~~Xerox Holdings filed similar complaints and related requests for arbitration in Toronto, London, and Amsterdam ~~(see below).~~for Canadian, UK and European losses.

~~XHC~~Xerox Holdings consented to defendant’s request for an extension of its time in which to answer or otherwise respond to the complaint. The parties consented to assignment to the Court’s business calendar. At an initial conference on April 8, 2021, both parties informed the Court that they anticipate filing motions for judgment on the pleadings. On May 6, 2021, FMG filed its answer to the complaint. The parties thereafter agreed to stay all non-U.S. proceedings pending the outcome of the U.S. litigation.

a.~~Canadian action~~

On March 10, 2021, plaintiffs Xerox Canada Inc. and Xerox Canada Ltd. filed a Notice of Action against Factory Mutual Insurance Company in the Ontario Superior Court of Justice in Toronto. On April 9, 2021, plaintiffs filed their Statement of Claim. Plaintiffs must serve both filings by September 10, 2021.

~~The parties have executed a tolling agreement and will seek an order from the Court staying the action on consent.~~

b.~~UK action~~

On March 10, 2021, plaintiffs Concept Group Limited, Continua Limited, Xerox Limited, and Xerox UK Limited filed a Claim Form against F.M. Insurance Company Limited in the High Court of Justice, Commercial Court, in London. Also on March 10, 2021, plaintiffs submitted 2 Requests for Arbitration, which were withdrawn after the parties agreed on March 31, 2021 that both liability and quantum of plaintiffs’ claims would be litigated in the Commercial Court proceeding.

On May 20, 2021, the Court entered an order on consent of the parties for a stay of nine months and extensions of 11 and 14 months, respectively, of plaintiffs’ deadline to file and serve their Particulars of Claim and FMG’s deadline to file and serve its Defense.

c.~~Netherlands action~~

On March 10, 2021, plaintiffs Xerox Corporation and 20 of its European subsidiaries filed a Writ of Summons against FM Insurance Europe S.A. in the Amsterdam District Court. Also on March 10, 2021, plaintiffs submitted a Request for Arbitration, which was withdrawn after the parties agreed on April 12, 2021, that both liability and quantum of plaintiffs’ claims would be litigated in the District Court proceeding.

~~The parties are in the process of executing a tolling agreement to stay the District Court proceeding until full and final resolution of the U.S. litigation.~~

~~Xerox 2021 Form 10-Q~~ 38

Guarantees

We have issued or provided approximately ~~$306~~$279 of guarantees as of ~~June 30, 2021~~March 31, 2022 in the form of letters of credit or surety bonds issued to i) support certain insurance programs; ii) support our obligations related to the Brazil contingencies; and iii) support certain contracts, primarily with public sector customers, which require us to provide a surety bond as a guarantee of our performance of contractual obligations.

In general, we would only be liable for the amount of these guarantees in the event we defaulted in performing our obligations under each ~~contract;~~contract, the probability of which we believe is remote. We believe that our capacity in the surety markets as well as under various credit arrangements (including our Credit Facility) is sufficient to allow us to respond to future requests for proposals that require such credit support.

Note 22 – Subsequent Events

Pension

In April 2022, our U.K. defined benefit pension plan was amended, at the sole discretion of the Plan Trustees as legally allowed, to increase the capped inflation indexation for the April 2022 pension increase award to 7.5% in line with the December 2021 UK Retail Price Index (RPI). This plan amendment is expected to result in an increase of approximately $53 (GBP 40 million) in the projected benefit obligation (PBO) for this plan (approximately 1.4% of the plan PBO as of December 31, 2021). However, at this stage, we are still evaluating the full impact of this amendment including the associated impacts from the required remeasurement of the plan assets and obligations for updates to discount rates, actual returns and actuarial experience as of the effective date of the amendment. Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements included in the 2021 Annual Report for additional information regarding our U.K. defined benefit pension plan including its funding status as of December 31, 2021.

Secured Borrowing

In April 2022, we entered into a secured loan agreement with a financial institution where we sold $94 (119 million CAD) of finance receivables of our Canadian subsidiary to a special purpose entity (SPE). The purchase by the SPE was funded through an $85 (108 million CAD) amortizing secured loan to the SPE from the financial institution. The transaction was accounted for as a secured borrowing and the SPE is fully consolidated in our financial statements. As a result, the assets of the SPE are not available to satisfy any of our other obligations. Conversely, the credit holder of this SPE does not have legal recourse to the Company’s general credit.

The loan has a variable interest rate that was swapped to a fixed interest rate of 3.32% and it has an expected life of less than 3 years, with half of the loan projected to be repaid within the first year based on collections of the underlying portfolio of receivables.

Xerox ~~2021~~2022 Form 10-Q 39

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout the Management’s Discussion and Analysis (MD&A), 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,” the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise. References to "Xerox Holdings Corporation" refer to the stand-alone parent company and do not include its subsidiaries. References to "Xerox Corporation" refer to the stand-alone company and do not include its subsidiaries.

Currently, Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations. Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, the Condensed Consolidated Financial Statements and the accompanying notes. Throughout this MD&A, references are made to various notes in the Condensed Consolidated Financial Statements which appear in Item 1 of this Combined Quarterly Report on Form 10-Q, 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 ~~operating~~ subsidiary is ~~CareAR, Inc. (CareAR), an SaaS solutions provider,~~Xerox Ventures LLC, which was ~~acquired~~established in ~~2020. CareAR incurred $5~~2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. Xerox Ventures LLC had investments of approximately $13 million ~~and $7 million of costs and expenses for the three and six months ended June 30, 2021, respectively.~~at March 31, 2022. Due to ~~their~~its immaterial nature, and for ease of discussion, ~~CareAR's expenses~~Xerox Ventures LLC's results are included ~~in this discussion with Xerox's costs and expenses.~~within the following discussion.

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.

Overview

During the first quarter 2022, our business faced several challenges. Supply constraints continued to inhibit our ability to fulfill demand, negatively impacting our Equipment Sales Revenue but resulting in the growth of our backlog1 to $422 million, a 21% sequential increase and nearly three times the prior year period’s levels. As demand and backlog grow, we are focused on maintaining our level of client satisfaction. We continue to expect supply chain constraints to begin easing in the second half of the year and we did see slight improvements in page volumes and volume-driven post sale revenue in the first quarter 2022, particularly in March, as the Omicron variant waned and more employees returned to the office. Third-party2 data points to gathering momentum in return to office trends. Progressive improvement in workplace attendance is expected each month, with a broader return of employees to the office in the second half of the year. Lastly, in the first quarter 2022, we also saw an acceleration of inflationary pressure on costs throughout our business, particularly for logistics and labor. The Company is enacting a series of price increases with the intent to offset these inflation-related cost increases over time as price adjustments are enforced within our contractual business and we further rationalize our cost base.

____________________________

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

installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT services

offerings. First quarter 2022 backlog of $422 million excludes sales orders from Russia and Powerland, which was acquired in the first quarter of 2022.

(2)Third party data is Kastle Systems U.S. offices badge swipe data metric.

Xerox ~~2021~~2022 Form 10-Q 40

~~Impact of COVID-19 on Our Business Operations~~Russia-Ukraine Conflict

~~In response~~With respect to the ~~COVID-19 pandemic,~~war in Ukraine, in the first quarter 2022, we ~~continue~~halted shipments to ~~prioritize the health and safety~~Russia when sanctions were imposed. The resulting financial impact has thus far been minimal. The Eurasian region in total comprised a low single digit percentage of our ~~employees, customers~~revenue and ~~partners~~operating profits in 2021. As of March 31, 2022 the net assets of our Eurasian operations were approximately $20 million (approximately $35 million of assets) and ~~support their needs so they can perform their work flawlessly, whether in the office or a remote location.~~comprised approximately 0.5% of consolidated net assets.

Reportable Segment Change

During the ~~second~~first quarter ~~2021,~~of 2022, the Company made a change to its reportable segments from one reportable segment to two reportable segments - Print and Other, and Financing (FITTLE) to align with a change in how the Chief Operating Decision Maker (CODM), our ~~business continued~~Chief Executive Officer (CEO) allocates resources and assesses performance against the Company’s key growth strategies. As such, prior period reportable segment results and related disclosures have been conformed to ~~be impacted by~~reflect the pandemic. However, we saw a continued gradual recovery of our revenues in the quarter as businesses gained confidence in the control of the pandemic and as a result invested in new printing technology and services. We continued to see a positive correlation between the roll-out of vaccinations, the return of employees to the office, and the gradual recovery of our page-volume driven post sale revenues. We expect that measures to control the pandemic and expand economic activity will result in a moderate economic improvement in 2021. However, in the near term, the recovery may be uneven and affected by the emergence of new variants of the COVID-19 virus which could result in a resurgence of cases in various countries and regions.

We have a strong balance sheet and sufficient liquidity, including approximately $2.1 billion of cash and cash equivalents and access to our undrawn $1.8 billion revolver. With our Project Own It transformation and cost savings, we have built a leaner and more flexible cost structure. We also continue to focus our efforts on incremental actions to prioritize and preserve cash as we manage through the pandemic. These actions include the continued reduction of discretionary spend such as near-term targeted marketing programs and the suspension of 401(k) matching contributions. In addition, in response to the COVID-19 pandemic, various governments continue to employ temporary measures to provide aid and economic stimulus directly to companies through cash grants and credits or indirectly through payments to temporarily furloughed employees. We recognized savings from the use of such measures in the U.S., Canada and Europe. We continue to monitor government programs and actions being implemented or expected to be implemented to counter the economic impacts of the COVID-19 pandemic.

~~The savings from government assistance were recorded as follows in the Condensed Consolidated Statements of Income:~~

(in millions) Three Months Ended
June 30, Six Months Ended
June 30,
2021 2020 2021 2020
Cost of services, maintenance and rentals $ 6 $ 40 $ 13 $ 40
Research, development and engineering expenses — 1 — 1
Selling, administrative and general expenses 4 19 7 19
Total Estimated savings $ 10 $ 60 $ 20 $ 60
Company’s current reportable segments.

~~Overview~~

~~Second~~First Quarter ~~2021~~2022 Review

Total revenue of ~~$1.79~~$1.67 billion for ~~second~~first quarter 2022 decreased 2.5% from first quarter 2021, ~~increased 22.4% from second quarter 2020,~~ including a ~~4.3-percentage~~1.8-percentage point ~~favorable~~adverse impact from currency. ~~The increase in~~Total revenue reflected an increase of ~~18.1%~~1.9% in Post sale revenue, including a ~~4.3-percentage~~1.8-percentage point ~~favorable~~adverse impact from currency, and ~~an increase~~a decrease of ~~38.4%~~17.6% in Equipment sales revenue, including a ~~4.4-percentage~~1.5-percentage point ~~favorable~~adverse impact from currency. The benefits from slightly higher page volumes on post-sale revenues were offset by the continued impacts from a constrained supply chain.

~~Total~~Print and Other segment revenues of $1.55 billion, which represented 93% of total revenue, decreased 2.0%. Print and Other segment loss of ~~$3.50 billion for~~$20 million, decreased $91 million as compared to the ~~six months ended June 30,~~first quarter 2021. Financing segment (FITTLE) revenues of $158 million, which represented 9% of total revenue, decreased 12.2%. Financing segment (FITTLE) profit of $17 million, decreased $1 million as compared to the first quarter of 2021.

Net (loss) income attributable to Xerox Holdings and adjusted1 Net (loss) income attributable to Xerox Holdings were as follows:


	Three Months Ended March 31,
(in millions)		2022		2021		B/(W)
Net (loss) income attributable to Xerox Holdings		$	(56)	$	39	$	(95)
Adjusted(1) Net (loss) income attributable to Xerox Holdings		(14)		47		(61)

First quarter 2022 Net loss attributable to Xerox Holdings of $(56) million decreased $95 million as compared to first quarter 2021 ~~increased 5.4%~~primarily reflecting lower gross margin, as a result of unfavorable mix as well as higher logistics costs associated with product supply constraints and higher Selling, administrative and general expenses. Other expenses, net were $53 million higher primarily due to a $33 million charge ($25 million after-tax) associated with the termination of a product supply agreement, higher non-financing interest expense, and a lower benefit from non-service retirement costs. These negative impacts were partially offset by income tax benefits. First quarter 2022 Adjusted1 net loss attributable to Xerox Holdings of $14 million decreased $61 million as compared to the prior year, ~~period, including~~primarily reflecting lower gross margin, as a ~~3.3-percentage point favorable impact from currency. The increase in revenue reflected an increase~~result of ~~0.1% in Post sale revenue, including a 3.1-percentage point favorable impact from currency~~unfavorable mix as well as higher logistics costs associated with product supply constraints, and ~~an increase of 27.6% in Equipment sales revenue, including a 3.7-percentage point favorable impact from currency.~~higher Selling, administrative and general expenses, and Other expenses, net. These negative impacts were partially offset by income tax benefits.

~~The increase in revenue for~~Cash flows provided by operating activities during the ~~three and six months ended June 30, 2021 reflected the significant effect of the COVID-19 pandemic~~first quarter 2022 were $66 million, as compared to $117 million in the ~~respective~~ prior year ~~periods,~~period, as lower earnings, which ~~caused business closures~~included investments in our new businesses, and ~~office building capacity restrictions that impacted~~lower royalty payments, were offset by decreased working capital2 and lower restructuring payments. Working capital2 was a source of cash of $93 million this quarter, $50 million higher than the prior year, entirely driven by accounts payable. Cash used in investing activities during the first quarter 2022 was $75 million reflecting capital expenditures of $16 million, acquisitions of $54 million and $5 million of noncontrolling investments as part of our ~~customers' purchasing decisions~~corporate venture capital fund. Cash used in ~~2020~~financing activities during the first quarter 2022 was $149 million reflecting $113 million for repurchases of our Common Stock, proceeds of $668 million on a new secured financing arrangement, partially offset by payments of $346 million on existing secured financing arrangements and ~~drove lower printing volumes~~$300 million on ~~our devices.~~Senior Notes, and dividend payments of $46 million.

Xerox ~~2021~~2022 Form 10-Q 41

~~Net income attributable~~2022 Outlook

Despite the continuing uncertainties encountered in the first quarter 2022, we are maintaining our revenue and cash flow outlook, as we continue to ~~Xerox Holdings~~expect supply chain constraints and ~~adjusted~~1 ~~Net income attributable~~office trends to ~~Xerox Holdings were as follows:~~
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 B/(W) 2021 2020 B/(W)
Net income attributable to Xerox Holdings $ 91 $ 27 $ 64 $ 130 $ 25 $ 105
Adjusted(1) Net income attributable to Xerox Holdings
94 36 58 141 86 55

~~Second~~ ~~quarter 2021~~ ~~Net income attributable~~improve in the second half of the year, and we are implementing counteractive measures in response to ~~Xerox Holdings increased $64 million as compared to second quarter 2020 primarily due to higher revenues as compared to the prior year period, as well as lower Transaction~~geopolitical uncertainty and related costs, net, non-service retirement-related costs and the benefit from a change in tax law, which were partially offset by higher Restructuring and related costs, net, Amortization of intangible assets and non-financing interest expense. Second ~~quarter 2021 Adjusted~~1 ~~net income attributable to Xerox Holdings increased $58 million as compared to the prior year, primarily reflecting higher revenues as well continued cost and expense reductions associated with our~~inflationary pressures. These measures include generating additional savings through Project Own It, ~~transformation~~which may include additional restructuring actions, and lower bad debt expense, which helped to improve operating income and margin. These benefits were partially offset by reduced temporary government assistance and furlough measures and higher freight costs as well as higher non-financing interest expense.

~~Net income attributable to Xerox Holdings~~with a planned 50% increase in our targeted savings amount for the six months ended June 30, 2021 increased $105 million as compared to the prior year period primarily due to higher revenues and lower bad debt expense, as the prior year period included a $60 million incremental provision to cover estimated write-offs on our trade and finance receivable portfolio from the COVID-19 pandemic, as well as lower Transaction and related costs, net, non-service retirement-related costs, Restructuring and related costs, net and the benefit from a change in tax law in second quarter 2021. These benefits were partially offset by reduced temporary government assistance and furlough measures, as well as higher Amortization of intangible assets and higher non-financing interest expense. A~~djusted~~1 net income attributable to Xerox Holdings for the six months ended June 30, 2021 increased $55 million as compared to the prior year, primarily due to higher revenues and lower bad debts expense. These benefits were partially offset by reduced temporary government assistance and furlough measures as well higher non-financing interest expense.year.

Cash flows provided by operating activities for the six months ended June 30, 2021 were $331 million, as compared to $207 million in the prior year period, which includes the receipt of an upfront prepaid fixed royalty from FUJIFILM Business Innovation Corp. (formerly Fuji Xerox) (FX) of $100 million, partially offset by a lower run-off of finance receivables and cash from working capital, net2. Cash used in investing activities for the six months ended June 30, 2021 was $72 million reflecting capital expenditures of $33 million and acquisitions of $37 million. Cash used in financing activities for the six months ended June 30, 2021 was $747 million reflecting $413 million for repurchases of our Common Stock, payments of $209 million on secured borrowing arrangements and dividend payments of $108 million.

~~2021 Outlook~~

WeAccordingly, we continue to expect ~~a modest recovery~~revenue to grow to $7.1 billion in ~~2021~~actual currency, and expect ~~full year total revenues~~that profitability will be weighted to ~~increase to at least $7.2 billion, or approximately 2.5%, excluding~~ the ~~impact~~second half of ~~currency.~~the year. We are confident in our ability to generate cash and plan to continue our capital allocation policy of returning at least 50% of our annual free cash flow to shareholders ~~as disclosed in our 2020 Annual Report. We~~and expect ~~operating~~full year Operating cash flows to be ~~approximately $600~~at least $475 million (excluding the payments associated with the first quarter 2022 contract termination charge), and capital expenditures of ~~approximately $100 million and plan to opportunistically make share repurchases utilizing our remaining share repurchase authorization of approximately $88~~at least $75 million.

____________________________

(1)See the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure.

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

Critical Accounting Policies and Estimates - Update

Goodwill - Interim Impairment Evaluation – Change in Segments

Our goodwill balance was $3.3 billion at March 31, 2022 and December 31, 2021, respectively. The balance at December 31, 2021 reflects a pre-tax impairment charge of $781 million recorded in the fourth quarter 2021 after completion of our fourth quarter annual goodwill impairment assessment. We assess goodwill for impairment at least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

During the first quarter 2022, the Company made a change to its operating and reportable segments from one operating/reportable segment - Printing - to two operating/reportable segments - Print and Other, and Financing (FITTLE). As a result of the new operating and reportable segments, we also reassessed our reporting units for the evaluation of goodwill. Prior to this change, consistent with the determination that we had one operating/reportable segment, we determined that we had one reporting unit for goodwill assessment purposes. Our reassessment during the first quarter of 2022 determined that likewise consistent with the determination that we had two operating/reportable segments, we now have two reporting units for goodwill assessment purposes – Print and Other, and Financing (FITTLE).

As a result of the change in reporting units, effective January 1, 2022, we estimated the fair value of our new reporting units and, based on an assessment of the relative fair values of our new reporting units after the change, we determined that no goodwill was allocable to the Financing (FITTLE) segment. This determination was largely based on the fact that at this stage in the stand-up of the Financing (FITTLE) business, its separate valuation is constrained and limited because the operation is significantly integrated with the Print and Other segment and is primarily an extension or enabler to facilitate the sale of the Company’s products. The change in reporting units was also considered a triggering event indicating a test for goodwill impairment was required as of January 1, 2022 before and after the change in reporting units. The Company performed those impairment tests, which did not result in the identification of an impairment loss as of January 1, 2022.

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

In estimating the fair value of our single reporting unit before the change in segments, our analysis reflected a 75/25 allocation between the income and market approach and the application of a discount rate applied to our projected cash flows of approximately 7.50%. The weighting between the income and market approach was consistent with our assessment in the fourth quarter 2021. The applied discount rate was 25 basis points lower than the rate applied in the fourth quarter 2021 assessment largely due to changes in market inputs with respect to the Cost of Equity as well as a slightly higher Cost of Debt weighting, which carries a lower cost. We continue to believe that the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflected current market and industry conditions.

In estimating the fair value of our reporting unit with goodwill after the change in segments (Print and Other), our analysis likewise reflected a 75/25 allocation between the income and market approach but the discount rate applied to our projected cash flows was increased to approximately 8.75%. The increase in the discount rate was largely due to an increase in the Company Specific Risk Premium to balance the overall Company valuation and to

Xerox ~~2021~~2022 Form 10-Q 42

reflect an increased risk to Print and Other as a result of the removal of a portion of the steadier annuity financing revenues to the Financing (FITTLE) reporting unit. As with the assessment before the segment change, we continue to believe that the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflected current market and industry conditions. Based on our forecast model, which we believe reflects the inherent uncertainty of the future, we estimated that the excess of fair value over carrying value for the reporting unit with goodwill ranged between 15% and 20%.

In performing its assessment, the Company believes it has made reasonable estimates based on the facts and circumstances available as of the assessment date and taking into consideration the macro-economic and industry factors existing at that point. However, the determination of fair value includes assumptions that are subject to risk and uncertainty. The discounted cash flow calculations are dependent on subjective factors including the timing and amount of future cash flows and the discount rate. If assumptions or estimates used in the fair value calculations change, including assumptions related to future cash flows as well as the impact of future macro-economic and industry conditions and our ability to initiate management actions to recover from those issues, it may result in a further decline in our estimated fair value and trigger future impairment charges. We will continue to monitor developments in 2022 including updates to our forecasts as well as our market capitalization, and an update of our assessment and related estimates may be required in the future.

Financial Review

Revenues


		Three Months Ended June 30,								Six Months Ended June 30,								% of Total Revenue					Three Months Ended March 31,							% of Total Revenue
(in millions)	(in millions)	2021		2020		% Change		CC % Change		2021		2020		% Change		CC % Change		2021		2020		(in millions)		2022		2021		% Change		CC % Change		2022		2021
Equipment sales	Equipment sales	$	429	$	310	38.4	%	34.0	%	$	810	$	635	27.6	%	23.9	%	23	%	19	%	Equipment sales		$	314	$	381	(17.6)	%	(16.1)	%	19	%	22	%
Post sale revenue	Post sale revenue	1,364		1,155		18.1	%	13.8	%	2,693		2,690		0.1	%	(3.0)	%	77	%	81	%	Post sale revenue		1,354		1,329		1.9	%	3.7	%	81	%	78	%
Total Revenue	Total Revenue	$	1,793	$	1,465	22.4	%	18.1	%	$	3,503	$	3,325	5.4	%	2.1	%	100	%	100	%	Total Revenue		$	1,668	$	1,710	(2.5)	%	(0.7)	%	100	%	100	%

Reconciliation to Condensed Consolidated Statements of Income:
Reconciliation to Condensed Consolidated Statements of (Loss) Income:																						Reconciliation to Condensed Consolidated Statements of (Loss) Income:
Sales	Sales	$	670	$	460	45.7	%	40.7	%	$	1,272	$	1,025	24.1	%	20.6	%					Sales		$	592	$	602	(1.7)	%	0.1	%
Less: Supplies, paper and other sales	Less: Supplies, paper and other sales	(241)		(150)		60.7	%	54.4	%	(462)		(390)		18.5	%	15.3	%					Less: Supplies, paper and other sales		(278)		(221)		25.8	%	28.0	%

Equipment sales	Equipment sales	$	429	$	310	38.4	%	34.0	%	$	810	$	635	27.6	%	23.9	%					Equipment sales		$	314	$	381	(17.6)	%	(16.1)	%

Services, maintenance and rentals	Services, maintenance and rentals	$	1,067	$	949	12.4	%	8.3	%	$	2,120	$	2,185	(3.0)	%	(6.1)	%					Services, maintenance and rentals		$	1,023	$	1,053	(2.8)	%	(1.1)	%
Add: Supplies, paper and other sales	Add: Supplies, paper and other sales	241		150		60.7	%	54.4	%	462		390		18.5	%	15.3	%					Add: Supplies, paper and other sales		278		221		25.8	%	28.0	%
Add: Financing	Add: Financing	56		56		—	%	(3.4)	%	111		115		(3.5)	%	(6.1)	%					Add: Financing		53		55		(3.6)	%	(2.5)	%

Post sale revenue	Post sale revenue	$	1,364	$	1,155	18.1	%	13.8	%	$	2,693	$	2,690	0.1	%	(3.0)	%					Post sale revenue		$	1,354	$	1,329	1.9	%	3.7	%

Segments																						Segments
Print and Other																						Print and Other		$	1,550	$	1,581	(2.0)	%			93	%	92	%
Financing (FITTLE)																						Financing (FITTLE)		158		180		(12.2)	%			9	%	11	%
Intersegment elimination(1)																						Intersegment elimination(1)		(40)		(51)		(21.6)	%			(2)	%	(3)	%
Total Revenue(2)																						Total Revenue(2)		$	1,668	$	1,710	(2.5)	%			100	%	100	%

Go-To-Market																						Go-To-Market
Americas	Americas	$	1,133	$	990	14.4	%	12.7	%	$	2,209	$	2,229	(0.9)	%	(1.8)	%	63	%	67	%	Americas		$	1,071	$	1,076	(0.5)	%	(0.4)	%	64	%	63	%
EMEA	EMEA	617		428		44.2	%	33.2	%	1,204		1,003		20.0	%	11.5	%	34	%	30	%	EMEA		554		587		(5.6)	%	(0.8)	%	33	%	34	%
Other	Other	43		47		(8.5)	%	(8.5)	%	90		93		(3.2)	%	(3.2)	%	3	%	3	%	Other		43		47		(8.5)	%	(8.5)	%	3	%	3	%
Total Revenue(1)		$	1,793	$	1,465	22.4	%	18.1	%	$	3,503	$	3,325	5.4	%	2.1	%	100	%	100	%
Total Revenue(2)																						Total Revenue(2)		$	1,668	$	1,710	(2.5)	%	(0.7)	%	100	%	100	%

_____________

CC - See "Currency Impact" section for a description of Constant Currency.

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

(2)Refer to the ~~"Geographic~~"Reportable Segments and Geographic Sales ~~Channels and Products and Offerings Definitions"~~Channels" section.

Second quarter 2021 total revenue increased 22.4% as compared to second quarter 2020, including a 4.3-percentage point favorable impact from currency, while total revenue for the six months ended June 30, 2021 increased 5.4% as compared to the prior year period, including a 3.3-percentage point favorable impact from currency and an approximate 0.7-percentage point favorable impact from recent partner dealer acquisitions. The increase for both the three and six months ended June 30, 2021 reflected the significant effect of the COVID-19 pandemic in the prior year, which at that time caused business closures and office building capacity restrictions that drove lower printing volumes on our devices and impacted our customers' purchasing decisions. Business closures and limited office occupancy continue to affect our revenues. However, the progress of vaccinations and the gradual reopening of workplaces in second quarter 2021 have resulted in higher installations of Mid-range devices to near pre-pandemic levels, as well as a continued modest sequential increase in our page volumes (as compared to first quarter 2021). Improvements in total revenue for both the three and six months ended June 30, 2021 were partially offset by the impact of global freight disruptions and product supply constraints that started in the second quarter of 2021 (the result of market-wide shortages of computer chips and resins).

Xerox 2022 Form 10-Q 43

Geographically, revenue increased more significantly in our EMEA operations for both the three and six months ended June 30, 2021, partially due to the region's more expansive shutdown in the prior year and its larger indirect channel business, which in the prior year experienced a significant reduction of inventory purchases from channel partners seeking to protect their liquidity amidst market uncertainty. EMEA also benefited from a faster recovery of SMB businesses, while our North American operations include a higher proportion of Education, State and Local government and Enterprise customers who are experiencing a slower pace of return to workplaces. Our EMEA revenues were also favorably impacted by prior year acquisitions in the region.

Total revenue for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 decreased 2.5% as compared to first quarter 2021, including a 1.8-percentage point benefit from acquisitions as well as a 1.8-percentage point adverse impact from currency. The decrease in organic revenue reflected continued global product supply constraints and freight disruptions, which limited our ability to fulfill orders and resulted in growth of our order backlog. In March, we saw a modest increase in page volumes and page volume-driven post sale revenue as the Omicron variant waned in our key markets and businesses welcomed employees back to the office. We continue to expect supply constraints and return to office trends to improve beginning in the second half of the year.

Geographically, revenue in our EMEA operations decreased 5.6% as compared to first quarter 2021, including a 4.8-percentage point adverse impact from currency. Revenue decreased 0.5% in our Americas operations with relatively no impact from currency. Both regions were negatively affected by product supply shortages and global freight disruptions. First quarter 2022 page volumes grew slightly faster in EMEA than in the Americas when compared to first quarter 2021 as Omicron-related closures affected the EMEA operations earlier than in the Americas.

Total revenue for the three months ended March 31, 2022 reflected the following:

Post sale revenue

Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing. These revenues are associated not only with the population of devices in the field, which are affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page. Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization in the U.S.

~~Xerox 2021 Form 10-Q~~ 43

For the three months ended ~~June 30, 2021,~~March 31, 2022, Post sale revenue increased ~~18.1%~~1.9% as compared to ~~second~~first quarter ~~2020, including a 4.3-percentage point favorable impact from currency, while Post Sale revenues increased 0.1% for the six months ended June 30,~~ 2021, including a ~~3.1-percentage~~1.8-percentage point ~~favorable~~adverse impact from currency. ~~The increases in Post Sale revenue correspond with the gradual reopening of workplaces.~~ Post sale revenue reflected the following:

•Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled supplies) as well as the post sale component of the document services ~~revenue~~offerings from our Xerox Services offerings. ~~While these revenues are contractual in nature, our bundled services contracts generally include a minimum fixed charge and a significant variable component based on print volumes.~~

◦For the three months ended ~~June 30, 2021,~~March 31, 2022, these revenues ~~increased 12.4%~~decreased 2.8% as compared to ~~second~~first quarter ~~2020,~~2021, including a ~~4.1-percentage~~1.7-percentage point ~~favorable~~adverse impact from currency, reflecting the impact of lower royalty revenues from FUJIFILM Business Innovation Systems (formerly Fuji Xerox), lower third-party leasing commissions (resulting from higher ~~page volumes, corresponding with the reopening~~XFS lease penetration of ~~workplaces, which more than offset the effect of~~our XBS operations), a lower net population of devices ~~(which is partially associated with lower installs in prior periods),~~ and an ongoing competitive price environment.

◦For the six months ended June 30, 2021, these revenues decreased 3.0% as compared to the prior year period, including a 3.1-percentage point favorable impact from currency, reflecting a lower population of devices (which is Declines were partially ~~associated with lower installs in prior periods), an ongoing competitive price environment, and lower~~offset by modestly higher page volumes, ~~during first~~particularly in the last month of the quarter, ~~2021 (including a higher mix~~corresponding with the gradual reopening of ~~lower average-page-volume products) as business shutdowns only started at the end of first quarter 2020.~~workplaces.

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

◦For the three months ended ~~June 30, 2021,~~March 31, 2022, these revenues increased ~~60.7%~~25.8% as compared to ~~second~~first quarter ~~2020,~~2021, including a ~~6.3-percentage~~2.2-percentage point ~~favorable~~adverse impact from currency, ~~reflecting~~and primarily reflected higher IT Services sales, which increased more than 20% year-over-year excluding revenue from our recent acquisition of Powerland, as well as higher sold supplies and paper revenues. The higher supplies revenues reflects higher channel demand and is consistent with the gradual reopening of ~~workplaces which drove higher demand.~~

◦For the six months ended June 30, 2021, these revenues increased 18.5% as compared to the prior year period, including a 3.2-percentage point favorable impact from currency, reflecting primarily higher supplies revenues.workplaces.

•Financing revenue is generated from financed equipment sale transactions. For the three months ended ~~June 30, 2021,~~March 31, 2022, these revenues ~~were flat~~decreased 3.6% as compared to ~~second~~first quarter ~~2020,~~2021, including a ~~3.4-percentage~~1.1-percentage point ~~favorable impact from currency, while Financing revenue for the six months ended June 30, 2021 decreased 3.5%, including a 2.6-percentage point favorable~~adverse impact from currency. The decrease ~~at constant currency~~1 reflected a lower finance receivables balance due to the pace of run-off of our lease portfolio and lower equipment sales in prior ~~periods. Our lease originations increased for both the three and six months ended June 30, 2021 as compared to the respective prior year~~ periods, as well as ~~on a sequential basis for~~ the ~~second~~impact of lower equipment sales in the current period. Lease originations decreased in the quarter ~~2021~~ as compared to first quarter 2021. Xerox channel originations declined due primarily to supply constraints. These declines were partially offset by an increase in originations from third-party dealers and non-Xerox equipment providers.

Equipment sales revenue

Equipment sales revenue decreased 17.6% for the three months ended March 31, 2022 as compared to first quarter 2021, including a 1.5-percentage point adverse impact from currency. The decrease reflected the adverse impact of product supply constraints (consistent with market-wide shortages of computer chips and resins) and global freight disruptions. Demand continued to increase as businesses reopened, resulting in a backlog of orders at the end of the quarter that increased sequentially and was above both prior year and pre-pandemic levels. Equipment sales revenue decreased in EMEA and the Americas due to supply chain disruptions, which impacted all product categories (Entry, Mid-Range, and High-End).

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

Xerox 2022 Form 10-Q 44

Costs, Expenses and Other Income

Summary of Key Financial Ratios

The following is a ~~higher level~~summary of ~~lease originations from~~key financial ratios used to assess our ~~XBS sales unit as well as higher equipment sales.~~performance:


	Three Months Ended March 31,

(in millions)		2022				2021				B/(W)





Gross Profit			$	530			$	611			$	(81)
RD&E			78				74				(4)
SAG			455				448				(7)

Equipment Gross Margin			20.4		%		27.9		%		(7.5)		pts.
Post sale Gross Margin			34.4		%		38.0		%		(3.6)		pts.
Total Gross Margin			31.8		%		35.7		%		(3.9)		pts.
RD&E as a % of Revenue			4.7		%		4.3		%		(0.4)		pts.
SAG as a % of Revenue			27.3		%		26.2		%		(1.1)		pts.

Pre-tax (Loss) Income			$	(89)			$	53			$	(142)
Pre-tax (Loss) Income Margin			(5.3)		%		3.1		%		(8.4)		pts.

Adjusted(1) Operating (Loss) Profit			$	(3)			$	89			$	(92)
Adjusted(1) Operating (Loss) Income Margin			(0.2)		%		5.2		%		(5.4)		pts.

____________

(1)See the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure.

Pre-tax (Loss) Income Margin

First quarter 2022 pre-tax loss margin of (5.3)% decreased 8.4-percentage points as compared to first quarter 2021. The decrease primarily reflected the impact of lower adjusted1 operating margin (see below), as well as higher Other expenses, net, which included a $33 million charge ($25 million after-tax) associated with the termination of a product supply agreement.

Adjusted1 Operating Margin

First quarter 2022 adjusted1 operating loss margin of (0.2)% decreased by 5.4-percentage points as compared to first quarter 2021, primarily reflecting lower revenues and lower gross margin, which includes the impact of higher freight costs associated with product supply constraints, as well as higher expenses reflecting increased investments in new businesses, higher bad debt expense, and benefits from temporary government assistance and furlough measures in the prior year. These impacts were partially offset by lower selling expenses resulting from lower sales volumes as well as productivity and cost savings associated with our Project Own It transformation actions.

______________

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

Gross Margin

First quarter 2022 gross margin of 31.8% decreased by 3.9-percentage points as compared to first quarter 2021, reflecting unfavorable mix to Entry products and IT services as well as the unfavorable impacts of approximately 2.5-percentage points associated with supply chain costs and capacity restrictions, which reflects significantly higher freight and shipping costs and constrained availability of higher margin equipment. 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 a competitive pricing environment.

First quarter 2022 equipment gross margin of 20.4% decreased by 7.5-percentage points as compared to first quarter 2021, primarily reflecting an unfavorable mix of mid-range products and the impact of higher freight costs associated with product supply constraints and higher product costs.

First quarter 2022 Post sale gross margin of 34.4% decreased by 3.6-percentage points as compared to first quarter 2021, reflecting higher component and logistics costs associated with supply chain disruption, benefits from temporary government assistance and furlough measures in the prior year, a competitive pricing environment, and lower royalty revenues and third-party financing commissions. In addition, a higher mix of IT services revenues also contributed to the decrease in margins. These impacts were partially offset by productivity and cost savings and restructuring savings associated with Project Own It transformation actions.

Xerox 2022 Form 10-Q 45

Research, Development and Engineering Expenses (RD&E)


	Three Months Ended March 31,
(in millions)		2022		2021		Change
R&D		$	64	$	59	$	5
Sustaining engineering		14		15		(1)
Total RD&E Expenses		$	78	$	74	$	4

First quarter 2022 RD&E as a percentage of revenue of 4.7% increased by 0.4-percentage points as compared to first quarter 2021, as a result of revenue declines that outpaced the rate of investments.

RD&E of $78 million increased $4 million as compared to first quarter 2021 primarily reflecting investments in our innovation portfolio and software, partially offset by savings from restructuring and productivity as well as lower RD&E for our print business.

Selling, Administrative and General Expenses (SAG)

First quarter 2022 SAG as a percentage of revenue of 27.3% increased by 1.1-percentage points as compared to first quarter 2021, due to higher administrative and bad debt expenses, as well as the impact of lower revenues, partially offset by lower selling expenses as a result of lower sales volumes and lower marketing costs.

First quarter 2022 SAG of $455 million increased $7 million as compared to first quarter 2021, primarily reflecting investments in new businesses, higher bad debt expense and acquisitions as well as, benefits from temporary government assistance and furlough measures in the prior year. These actions were partially offset by lower sales and marketing expenses resulting from lower sales volumes as well as productivity and cost savings associated with our Project Own It transformation actions and the favorable impact from currency.

Our bad debt provision for the three months ended March 31, 2022 of $15 million increased by $5 million as compared to the first quarter 2021, primarily related to reserves for trade receivables in our Eurasia operations, primarily in Russia. Although actual finance receivable write-offs incurred to date continue to lag expectations, we believe our current reserve position remains sufficient to cover expected future losses that may result from current and future macro-economic conditions. We continue to believe that uncertainties remain as economies continue to recover from the impacts of the COVID-19 pandemic including the cessation of government support as well as labor, interest rate and inflation risks and the potential for higher taxes. In addition, there is also considerable uncertainty regarding the impact the Russia/Ukraine war and related global sanctions will have on the macro or global economy. As a result of these uncertainties, our reserves as a percent of receivables have remained fairly consistent subsequent to the first quarter 2020 increase to initially record expected losses from the COVID-19 pandemic. We continue to monitor developments in future economic conditions, and as a result, our reserves may need to be updated in future periods. On a trailing twelve-month basis (TTM), bad debt expense was approximately 1.0% of total receivables (excluding the 2021 reserve reductions of approximately $31 million), which is consistent with the pre-pandemic trend and reflects the consistent level of reserves subsequent to the first quarter 2020 charge.

Refer to Note 8 - Accounts Receivable, Net and Note 9 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our bad debt provision.

Xerox ~~2021~~2022 Form 10-Q 4446

Restructuring and Related Costs, Net

We incurred Restructuring and related costs, net of $18 million for the first quarter 2022, as compared to $17 million for first quarter 2021. These costs were primarily related to the implementation of initiatives under our business transformation projects including Project Own It. The following is a breakdown of those costs:


	Three Months Ended March 31,
(in millions)		2022		2021
Severance(1)		$	22	$	14
Asset impairments - leased right-of-use assets(2)		1		1
Asset impairments - owned assets(2)		—		9
Other contractual termination costs(3)		—		1
Net reversals(4)		(3)		(4)
Restructuring and asset impairment costs		20		21
Retention-related severance/bonuses(5)		(2)		(4)


Total		$	18	$	17

_____________

(1)Reflects headcount reductions of approximately 450 and 350 employees worldwide in first quarter 2022 and 2021, respectively.

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

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

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

(5)Includes retention-related severance and bonuses for employees expected to continue working beyond their minimum notification period before termination. The reversals in first quarter 2022 and 2021, respectively, reflect a change in estimates.

First quarter 2022 actions impacted several functional areas, with approximately 30% focused on gross margin improvements, approximately 60% focused on SAG reductions and the remainder focused on RD&E optimization.

First quarter 2021 actions impacted several functional areas, with approximately 30% focused on gross margin improvements, approximately 65% focused on SAG reductions and the remainder focused on RD&E optimization.

The Restructuring and related costs, net reserve balance for all programs as of March 31, 2022 was $53 million, which is expected to be paid over the next twelve months.

Refer to Note 12 - Restructuring Programs in the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

Amortization of Intangible Assets

First quarter 2022 Amortization of intangible assets of $11 million was $4 million lower as compared to the first quarter 2021, primarily related to the write-off of certain XBS tradenames in first quarter 2022 as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It.

Worldwide Employment

Worldwide employment was approximately 23,400 as of March 31, 2022, an increase of approximately 100 from December 31, 2021. The increase resulted from net hires (gross hires net of attrition), as well as the impact of organizational changes.

Other Expenses, Net


	Three Months Ended March 31,
(in millions)		2022		2021
Non-financing interest expense		$	29	$	24
Interest income		(1)		(1)
Non-service retirement-related costs		(7)		(20)

Currency losses, net		—		2



Contract termination costs - product supply		33		—

All other expenses, net		3		(1)
Other expenses, net		$	57	$	4

Xerox 2022 Form 10-Q 47

Non-Financing Interest Expense

First quarter 2022 non-financing interest expense of $29 million was $5 million higher than first quarter 2021. When combined with financing interest expense (Cost of financing), total interest expense remained relatively flat as compared to first quarter 2021.

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements, for additional information regarding debt activity and interest expense.

Non-Service Retirement-Related Costs

First quarter 2022 non-service retirement-related costs were $13 million higher as compared to the first quarter 2021, primarily driven by an increase in interest costs due to higher discount rates and higher settlement losses.

NOTE: First quarter 2022 service retirement-related costs, which are included in operating expenses, were $4 million and $6 million in the first quarter 2022 and 2021, respectively.

Refer to Note 16 - Employee Benefit Plans in the Condensed Consolidated Financial Statements, for additional information regarding service and non-service retirement-related costs.

Contract termination costs

In the first quarter 2022, we recorded a $33 million charge ($25 million after-tax) associated with the termination of a product supply agreement. The charge primarily reflects the payment of the contractual cancellation fee plus interest and related legal fees.

Income Taxes

First quarter 2022 effective tax rate was 34.8% and included benefits from additional tax incentives as well as a change in our indefinite reinvestment tax liability due to a recent acquisition of approximately 10%. On an adjusted1 basis, first quarter 2022 effective tax rate was 52.9%. The adjusted1 effective tax rate was higher than the U.S. federal statutory tax rate of 21% primarily due to benefits from additional tax incentives and a change in our indefinite reinvestment tax liability due to a recent acquisition of approximately 25% as well as the geographical mix of earnings. The adjusted1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, non-service retirement-related costs and other discrete, unusual or infrequent items (as applicable), as described in our Non-GAAP Financial Measures section.

First quarter 2021 effective tax rate was 26.4%. On an adjusted1 basis, first quarter 2021 effective tax rate was 27.7%. This rate was higher than the U.S. federal statutory tax rate of 21% primarily due to state taxes and the geographical mix of earnings. The adjusted1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, non-service retirement-related costs and other discrete, unusual or infrequent items (as applicable), as described in our Non-GAAP Financial Measures section.

Our effective tax rate is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, our effective tax rate will change based on discrete or other nonrecurring events that may not be predictable.

_____________

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

Equity in Net Income of Unconsolidated Affiliates

Investment in Affiliates, at Equity largely consists of several minor investments in entities in the Middle East region. Equity in net income of unconsolidated affiliates for the three months ended March 31, 2022 was $1 million higher as compared to the prior year period.

Net (Loss) Income

First quarter 2022 Net Loss Attributable to Xerox Holdings was $56 million, or $(0.38) per diluted share. On an adjusted1 basis, Net Loss Attributable to Xerox Holdings was $14 million, or $(0.12) per diluted share. First quarter 2022 adjustments to Net Loss Attributable to Xerox Holdings included Restructuring and related costs, net, Amortization of intangible assets, non-service retirement-related costs and other discrete items (see Non-GAAP Financial Measures).

Xerox 2022 Form 10-Q 48

First quarter 2021 Net Income Attributable to Xerox Holdings was $39 million, or $0.18 per diluted share. On an adjusted1 basis, Net Income Attributable to Xerox Holdings was $47 million, or $0.22 per diluted share. First quarter 2021 adjustments to Net Income Attributable to Xerox Holdings included Restructuring and related costs, net, Amortization of intangible assets, and non-service retirement-related costs (see Non-GAAP Financial Measures).

Refer to Note 20 - (Loss) Earnings per Share in the Condensed Consolidated Financial Statements, for additional information regarding the calculation of basic and diluted earnings per share.

_____________

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

Other Comprehensive (Loss) Income

First quarter 2022 Other Comprehensive Loss, Net Attributable to Xerox was $44 million and included the following: i) net translation adjustment losses of $72 million reflecting the weakening of our major foreign currencies against the U.S. Dollar during the quarter; ii) $11 million of net unrealized losses; and iii) $39 million of net gains from the changes in defined benefit plans primarily due to a prior service credit as well as the amortization of actuarial losses and settlement losses and the positive impact of currency. This compares to Other Comprehensive Loss, Net Attributable to Xerox of $3 million for the first quarter 2021, which reflected the following: i) net translation adjustment losses of $51 million reflecting the weakening of the Euro against the U.S. Dollar that was only partially offset by the strengthening of the GBP and CAD; ii) $7 million of net unrealized losses; and iii) $55 million of net gains from the changes in defined benefit plans primarily due to net actuarial gains as a result of higher discount rates in the U.S.

Refer to Note 19 - Other Comprehensive (Loss) Income in the Condensed Consolidated Financial Statements, for the components of Other Comprehensive (Loss) Income, Note 14 - Financial Instruments in the Condensed Consolidated Financial Statements, for additional information regarding unrealized losses, net, and Note 16 - Employee Benefit Plans in the Condensed Consolidated Financial Statements, for additional information regarding net changes in our defined benefit plans.

Reportable Segments and Geographic Sales Channels

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

During 2021 we progressed with the standing up of three new businesses: Software (CareAR), Financing (FITTLE) and Innovation (PARC). As a result of this effort, during the first quarter of 2022, we reassessed our operating and reportable segments and determined that, based on the financial information reviewed by our chief operating decision maker (CODM), who is the Chief Executive Officer (CEO), as well as the CEO’s management and assessment of the Company’s operations, we had two operating and reportable segments - Print and Other and Financing.

•Financing (FITTLE) – a financing solutions business primarily providing financing for the sales of Xerox equipment.

We also determined that the other businesses – Software and Innovation - did not meet the requirements to be considered separate operating segments largely due to their continued management through the Print and Other segment as well as their immateriality to our results at this stage. Accordingly, those groups will continue to be reported as part of the Print and Other Segment.

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

•Americas, which includes our sales channels in the U.S. and Canada, as well as Mexico, and Central and South America.

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

•Other, primarily includes sales to Fuji Xerox as well as royalties and licensing revenue.

These GTM sales channels are structured to serve a range of customers for our products and services, including financing. Accordingly, we will continue to provide information, primarily revenue related, with respect to our principal GTM sales channels.

Xerox 2022 Form 10-Q 49

Segment Review


	Three Months Ended March 31,
(in millions)	External Net Revenue		Intersegment Net Revenue(1)		Total Segment Revenue		% of Total Revenue		Segment (Loss) Profit		Segment Margin(2)
2022
Print and Other	$	1,513	$	37	$	1,550	91	%	$	(20)	(1.3)	%
Financing (FITTLE)	155		3		158		9	%	17		11.0	%
Total	$	1,668	$	40	$	1,708	100	%	$	(3)	(0.2)	%

2021
Print and Other	$	1,533	$	48	$	1,581	90	%	$	71	4.6	%
Financing (FITTLE)	177		3		180		10	%	18		10.2	%
Total	$	1,710	$	51	$	1,761	100	%	$	89	5.2	%

_____________

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

(2)Segment margin based on external net 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


	Three Months Ended March 31,
(in millions)		2022		2021		% Change
Equipment sales		$	309	$	373	(17.2)%
Post-sale revenue		1,204		1,160		3.8%
Intersegment net revenue (1)		37		48		(22.9)%
Total Print and Other Revenue		$	1,550	$	1,581	(2.0)%

_____________

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

First quarter 2022 Print and Other revenue decreased 2.0% as compared to first quarter 2021 primarily due to supply shortages, which caused a 17.2% decline in Equipment sales revenue as compared to first quarter 2021. This decline was partially offset by an increase in Post sale revenue of 3.8% as compared to first quarter 2021. Print and Other segment revenue results included the following:

Three Months Ended June 30, Six Months Ended
June 30, % of Equipment Sales
(in millions) 2021 2020
%
Change
CC % Change 2021 2020 % Change CC % Change 2021 2020
Entry $ 69 $ 44 56.8% 54.0% $ 137 $ 92 48.9% 44.5% 17% 15%
Mid-range 276 195 41.5% 37.0% 514 401 28.2% 24.8% 63% 63%
High-end 80 67 19.4% 14.4% 150 134 11.9% 8.3% 19% 21%
Other 4 4 —% —% 9 8 12.5% 12.5% 1% 1%
Equipment sales $ 429 $ 310 38.4% 34.0% $ 810 $ 635 27.6% 23.9% 100% 100%
Equipment sales revenue decreased 17.2% as compared to first quarter 2021 due to the adverse impact of product supply constraints (consistent with market-wide shortages of computer chips and resins) and global freight disruptions. Demand continued to increase as businesses reopened, resulting in a backlog of orders at the end of the quarter that increased sequentially and was above both prior year and pre-pandemic levels.

Post-sale revenue increased by 3.8% as compared to first quarter 2021 primarily due to growth in supplies, paper and other revenue, and includes growth from our IT Services business, which included two months of revenue from our recent acquisition of Powerland. We also experienced growth in page volume-driven service revenues, reflecting modest growth in page volumes during the quarter. These increases were partially offset by a decline in royalty income and third-party leasing commissions.

Xerox 2022 Form 10-Q 50

Detail by product group is shown below.


	Three Months Ended March 31,						% of Equipment Sales
(in millions)		2022		2021		% Change	CC % Change	2022	2021
Entry		$	61	$	68	(10.3)%	(7.6)%	19%	18%
Mid-range		194		238		(18.5)%	(17.1)%	62%	63%
High-end		54		70		(22.9)%	(21.0)%	17%	18%
Other		5		5		—%	—%	2%	1%
Equipment sales(1)(2)		$	314	$	381	(17.6)%	(16.1)%	100%	100%

_____________

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

~~Note: During first quarter~~(1)Refer to the Products and Offerings Definitions section.

(2)The three months ended March 31, 2022 and 2021, ~~we revised the classification~~includes $5 million and $8 million, respectively, of equipment sales ~~revenue by category for our XBS sales unit. Refer~~related to the ~~Equipment Sales Revenue - Classification Update section, for the revision of prior periods based on the new classification.~~Financing (FITTLE) segment.

Equipment sales revenue increased 38.4% for the three months ended June 30, 2021 as compared to second quarter 2020, including a 4.4-percentage point favorable impact from currency partially offset by the impact of price declines of less than 5%, while for the six months ended June 30, 2021, Equipment sales revenue increased 27.6% as compared to the prior year period, including a 3.7-percentage point favorable impact from currency partially offset by the impact of price declines of less than 5%. The increase is partially the result of a favorable compare to the three and six month ended June 30, 2020, when businesses were extensively shut down due to the COVID-19 pandemic. Equipment sales revenue increased at a higher pace through our indirect channels, both in the U.S. and EMEA, as demand continued to increase with business reopenings. Sales of office-centric devices led the increase of these revenues (as businesses re-open and prepare for a broader return to the office), while sales of high-end production systems, which demand larger capital investments, had a more moderate increase. Equipment sales were significantly impacted by global freight disruptions and product supply constraints (the result of market-wide shortages of computer chips and resins) which resulted in a backlog of orders at the end of the second quarter 2021 that increased over the first quarter 2021 and was significantly above prior year and pre-pandemic levels. The growthchange at constant currency1 reflected the following:

•Entry - The ~~increase~~decrease for the three months ended ~~June 30, 2021~~March 31, 2022 as compared to ~~second~~first quarter ~~2020,~~2021, was driven by ~~higher demand for~~supply constraints, which most significantly affected our printers and MFPs through our indirect channels in EMEA and the Americas, which resulted in markedly higher installations of Entry devices. While sales increased across this portfolio, we experienced an unfavorable mix from significantly higher sales of our lower-end black-and-white devices. The increase for the six months ended June 30, 2021 as compared to the prior year period, was driven primarily by higher demand for our lower-end printers and MFPs through our indirect channels in EMEA and the Americas, as well as higher installs related to government deals in the developing regions of EMEA, which resulted in markedly higher installations of Entry devices. While sales increased across this portfolio, we experienced an unfavorable mix from significantly higher sales of our lower-end black-and-white devices.

•Mid-range - The ~~increase~~decrease for the three months ended ~~June 30, 2021~~March 31, 2022 as compared to ~~second~~first quarter ~~2020,~~2021, was primarily driven ~~primarily~~ by ~~higher demand across geographies, consistent with~~ the ~~gradual reopening~~impact of ~~workplaces as well as improved activity from~~global product supply constraints and freight disruptions, which had a slightly more pronounced effect on our indirect channels as they moderately eased their tight cash preservation measures to rebuild their inventories. The increase for the six months ended June 30, 2021 as compared to the prior year period, was also driven primarily by higher demand across geographies, consistent with the gradual reopeningU.S. operations and availability of ~~workplaces, as compared to business shutdowns that reduced purchases of office devices in the prior year period, as well as higher demand for~~ our ~~MFP devices and improved activity from our indirect channels.~~black-and-white devices.

•High-end - The ~~increase~~decrease for the three months ended ~~June 30, 2021~~March 31, 2022 as compared to ~~second~~first quarter ~~2020,~~2021, primarily reflected ~~improvement in sales~~the impact of ~~devices in~~global product supply constraints and freight disruptions, partially offset by a more favorable mix.

_____________

(1)Refer to the ~~lower-end~~Non-GAAP Financial Measures section for an explanation of the range and to SMB customers, as well as sales of black-and-white systems corresponding with our customers' refresh cycles. Sales of larger color production engines, while higher than the second quarter 2020, had a more moderate increase, as a result of our customers' delayed capital investment decisions as they assess their post-pandemic operational print requirements. The increase for the six months ended June 30, 2021 as compared to the prior year period, reflected primarily improvement in sales of devices in the lower-end of the range and to SMB customers, as well as sales of black-and-white systems corresponding with our customers' refresh cycles, while sales of larger color production engines continued to be depressed as a result of our customers' delayed capital investment decisions.non-GAAP financial measure.

~~Xerox 2021 Form 10-Q~~ 45

Total Installs

Installs reflect only new ~~placement~~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 ~~from~~for Xerox and non-Xerox branded products installed by our XBS sales unit. Detail by product group (see ~~Geographic Sales Channels and~~ Products and Offerings Definitions) is shown below.

Installs for the three months ended ~~June 30, 2021:~~March 31, 2022:

Entry

•~~19% increase in~~Installs of color multifunction devices were flat reflecting ~~higher installs of ConnectKey devices through our indirect channels primarily in EMEA, as well as in the Americas.~~supply constraints that offset strong demand for recently launched products.

•~~63% increase~~39% decrease in black-and-white multifunction devices reflecting ~~higher activity~~lower installs as a result of product constraints and a larger number of installs of black-and-white devices in the prior year, primarily ~~from low-end devices through indirect channels in developing regions of EMEA and Latin America.~~associated with work-from-home demand associated with the COVID-19 pandemic.

Mid-Range~~(1)~~

•~~62% increase~~9% decrease in mid-range color installs primarily reflecting ~~higher installs~~the impact of ~~our~~freight disruption and product supply constraints, offsetting strong demand for recently launched ~~new-generation of ConnectKey multi-function printers and our PrimeLink entry-production color devices.~~products.

•~~36% increase~~61% decrease in mid-range black-and-white installs reflecting ~~higher installs~~the impact of ~~our recently launched new-generation of ConnectKey multi-function devices~~freight disruption and ~~our PrimeLink light-production devices.~~product supply constraints.

High-End~~(1)~~

•~~27% increase~~29% decrease in high-end color installs primarily reflecting ~~growth from our lower-end Versant devices.~~the impact of global product constraints and freight disruptions.

•~~47% increase~~15% decrease in high-end black-and-white systems reflecting ~~higher installs~~the impact of ~~our Nuvera devices related to cyclical account refreshes in the U.S.~~global product constraints and freight disruptions.

~~Installs for the six months ended June 30, 2021:~~

~~Entry~~

•~~13% increase in color multifunction devices reflecting higher installs of ConnectKey devices through our indirect channels in EMEA and the Americas.~~

•80% increase in black-and-white multifunction devices reflecting higher activity primarily from low-end devices through indirect channels in the Americas, and from developing regions in EMEA, which included large order government deals.

~~Mid-Range(1)~~

•35% increase in mid-range color installs primarily reflecting higher installs of our recently launched new-generation of ConnectKey multi-function printers and our PrimeLink entry-production color devices.

•~~24% increase in mid-range black-and-white installs reflecting higher installs of our recently launched new-generation of ConnectKey multi-function devices and our PrimeLink light-production devices.~~

~~High-End(1)~~

•~~36% increase in high-end color installs reflecting primarily growth from our lower-end Versant devices and our Iridesse systems partially offset by lower installs of our higher-end production presses.~~

•~~33% increase in high-end black-and-white systems reflecting higher installs of our Nuvera devices related to cyclical account refreshes in the U.S.~~

~~_____________~~

~~(1)~~Mid-range and High-end color installations exclude FX digital front-end sales in 2020. When we include these sales in 2020, installs of Mid-range color devices increased 63% and 35%, respectively, and High-end color systems increased 25% and 34%, respectively, for the three and six months ended June 30, 2021.

Xerox ~~2021~~2022 Form 10-Q 4651

~~Geographic Sales Channels and~~ Products and Offerings Definitions

Our ~~business is aligned to a geographic focus and is primarily organized on the basis of go-to-market sales channels, which~~Equipment sale product groupings are ~~structured to serve a range of customers for our products and services. In 2019 we changed our geographic structure to create a more streamlined, flatter and more effective organization,~~ as follows:

•~~Americas, which includes our sales channels in the U.S. and Canada, as well as Mexico, and Central and South America.~~

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

•~~Other, primarily includes sales to and royalties from FX, and our licensing revenue.~~

~~Our products and offerings include:~~

•“Entry”, which includes A4 devices and desktop printers. Prices in this product group can range from approximately $150 to $3,000.

•“Mid-Range”, which includes A3 Office and Light Production devices that generally serve workgroup environments in mid to large enterprises. Prices in this product group can range from approximately $2,000 to $75,000+.

•“High-End”, which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises. Prices for these systems can range from approximately $30,000 to $1,000,000+.

~~Equipment Sales Revenue - Classification Update~~Segment Margin

~~During~~First quarter 2022 Print and Other segment (loss) margin of (1.3)% decreased by 5.9-percentage points as compared to first quarter 2021 ~~we revised~~primarily due to the ~~classification~~impact of higher freight and production costs associated with product supply constraints, investments in new businesses, benefits from temporary government assistance and furlough measures in the prior year, lower royalty revenues and third-party leasing commissions, partially offset by productivity and cost savings associated with Project Own It transformation actions.

Financing (FITTLE)

Financing (FITTLE) represents a global financing solutions business, providing financing for the sales of Xerox equipment .

Revenue


	Three Months Ended March 31,
(in millions)		2022		2021		% Change
Equipment sales		$	5	$	8	(37.5)%
Financing income		53		55		(3.6)%
Other Post-sale revenue(1)		97		114		(14.9)%
Intersegment net revenue		3		3		—%
Total Financing (FITTLE) Revenue		$	158	$	180	(12.2)%

_____________

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

First quarter 2022 Financing (FITTLE) segment revenue decreased 12.2% as compared to first quarter 2021, and included the following:

Equipment Sales for the three months ended March 31, 2022 decreased 37.5% as compared to first quarter 2021 as reduced end of lease equipment inventory resulted in fewer opportunities.

Financing Income for the three months ended March 31, 2022 decreased by 3.6% as compared to first quarter 2021 due to a lower finance receivables balance, as collections continue to outpace originations. Originations have been impacted by the global product supply constraints and freight disruptions.

Other Post-sale revenue for the three months ended March 31, 2022 decreased 14.9% as compared to first quarter 2021 due to a decline in operating lease rental income, which is consistent with the overall decline of equipment ~~sales revenue~~installs.

Segment Margin

First quarter 2022 Financing (FITTLE) segment margin of 11% increased 0.8-percentage points as compared to first quarter 2021 due to a reduction in commissions paid to equipment suppliers (primarily the Print and Other segment), partially offset by ~~category for our XBS sales unit to conform~~incremental costs associated with standing up the ~~classification of devices across Xerox sales channels. The revision had no impact on reported total equipment sales revenue.~~

2020 Equipment Sales Revenue As Reported
(in millions) Q1 Q2 Q3 Q4 FY
Entry $ 40 $ 34 $ 55 $ 59 $ 188
Mid-range 218 209 291 325 1,043
High-end 64 64 69 115 312
Other 3 3 4 11 21
Equipment Sales Revenue $ 325 $ 310 $ 419 $ 510 $ 1,564

Change
(in millions) Q1 Q2 Q3 Q4 FY
Entry $ 8 $ 10 $ 11 $ 11 $ 40
Mid-range (12) (14) (15) (16) (57)
High-end 3 3 3 4 13
Other 1 1 1 1 4
Equipment Sales Revenue $ — $ — $ — $ — $ —

2020 Equipment Sales Revenue As Revised
(in millions) Q1 Q2 Q3 Q4 FY
Entry $ 48 $ 44 $ 66 $ 70 $ 228
Mid-range 206 195 276 309 986
High-end 67 67 72 119 325
Other 4 4 5 12 25
Equipment Sales Revenue $ 325 $ 310 $ 419 $ 510 $ 1,564

business.

Xerox ~~2021~~2022 Form 10-Q 4752

~~Costs, Expenses~~2021 Segment Review

The following are our 2021 results that correspond, for comparison purposes, to the new segment reporting in 2022.


(in millions)	External Net Revenue		Intersegment Net Revenue(1)		Total Segment Revenue		% of Total Revenue		Segment Profit		Segment Margin(2)
Q1 2021
Print and Other	$	1,533	$	48	$	1,581	90	%	$	71	4.6	%
Financing (FITTLE)	177		3		180		10	%	18		10.2	%
Total	$	1,710	$	51	$	1,761	100	%	$	89	5.2	%

Q2 2021
Print and Other	$	1,619	$	53	$	1,672	90	%	$	111	6.9	%
Financing (FITTLE)	174		3		177		10	%	15		8.6	%
Total	$	1,793	$	56	$	1,849	100	%	$	126	7.0	%

Q3 2021
Print and Other	$	1,590	$	46	$	1,636	91	%	$	50	3.1	%
Financing (FITTLE)	168		3		171		9	%	24		14.3	%
Total	$	1,758	$	49	$	1,807	100	%	$	74	4.2	%

Q4 2021
Print and Other	$	1,613	$	46	$	1,659	91	%	$	61	3.8	%
Financing (FITTLE)	164		3		167		9	%	25		15.2	%
Total	$	1,777	$	49	$	1,826	100	%	$	86	4.8	%

2021
Print and Other	$	6,355	$	193	$	6,548	90	%	$	293	4.6	%
Financing (FITTLE)	683		12		695		10	%	82		12.0	%
Total	$	7,038	$	205	$	7,243	100	%	$	375	5.3	%

_____________

(1)Reflects net revenue, primarily commissions and other payments, made by the Financing segment (FITTLE) to the Print and Other ~~Income~~

~~Summary~~segment for the lease of ~~Key Financial Ratios~~Xerox equipment placements.

(2)Segment margin based on external net revenue only.


(in millions)	Q1 2021		Q2 2021		Q3 2021		Q4 2021		Full Year 2021
Pre-tax Income (Loss)
Total reported segments	$	89	$	126	$	74	$	86	$	375
Goodwill impairment	—		—		—		(781)		(781)
Restructuring and related costs, net	(17)		(12)		(10)		1		(38)
Amortization of intangible assets	(15)		(14)		(13)		(13)		(55)
Other expenses, net	(4)		(1)		33		(4)		24
Total Pre-tax income (loss)	$	53	$	99	$	84	$	(711)	$	(475)

Xerox 2022 Form 10-Q 53

Capital Resources and Liquidity

The following is a summary of ~~key financial ratios used~~our liquidity position:

•As of March 31, 2022 and December 31, 2021, total cash, cash equivalents and restricted cash were $1,761 million and $1,909 million, respectively, and apart from restricted cash of $80 million and $69 million, respectively, was readily accessible for use. The decrease in total cash, cash equivalents and restricted cashof $148 million primarily reflects payments to ~~assess our performance:~~
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 B/(W) 2021 2020 B/(W)
Gross Profit $ 639 $ 564 $ 75 $ 1,250 $ 1,276 $ (26)
RD&E 79 76 (3) 153 160 7
SAG 434 426 (8) 882 967 85
Equipment Gross Margin 28.1 % 28.8 % (0.7) pts. 28.0 % 27.5 % 0.5 pts.
Post sale Gross Margin 38.1 % 41.1 % (3.0) pts. 38.0 % 40.9 % (2.9) pts.
Total Gross Margin 35.6 % 38.5 % (2.9) pts. 35.7 % 38.4 % (2.7) pts.
RD&E as a % of Revenue 4.4 % 5.2 % 0.8 pts. 4.4 % 4.8 % 0.4 pts.
SAG as a % of Revenue 24.2 % 29.1 % 4.9 pts. 25.2 % 29.1 % 3.9 pts.
Pre-tax Income $ 99 $ 35 $ 64 $ 152 $ 30 $ 122
Pre-tax Income Margin 5.5 % 2.4 % 3.1 pts. 4.3 % 0.9 % 3.4 pts.
Adjusted(1) Operating Profit
$ 126 $ 62 $ 64 $ 215 $ 149 $ 66
Adjusted(1) Operating Margin
7.0 % 4.2 % 2.8 pts. 6.1 % 4.5 % 1.6 pts.

~~____________~~_shareholders of $159 million (repurchases of $113 million and dividends of $46 million).

~~(1)~~•~~See~~No amounts are due under our Senior Note borrowings for the ~~“Non-GAAP Financial Measures” section for an explanation~~remainder of ~~the non-GAAP financial measure.~~

~~Pre-tax Income Margin~~

~~Second quarter 2021 pre-tax income margin of 5.5% increased 3.1-percentage points as compared to second quarter 2020. The increase primarily reflected the impact of higher adjusted~~1 operating margin (see below) as well as lower Transaction and related costs, net and Other expenses, net, partially offset by higher Restructuring and related costs, net and Amortization of intangible assets.2022.

~~Pre-tax income margin for the six months ended June 30, 2021 of 4.3% increased 3.4-percentage points as compared~~•In March 2022, Xerox and Xerox Holdings entered into Amendment No. 4 to the ~~prior year period. The increase primarily reflected the impact~~Credit Facility, which became effective on March 24, 2022. As of ~~higher adjusted~~1 operating margin (see below) as well as lower Restructuring and related costs, net, Transaction and related costs, net and Other expenses, net, partially offset by higher Amortization of intangible assets.

~~Adjusted~~1 ~~Operating Margin~~

~~Second quarter 2021 adjusted~~1 ~~operating margin of 7.0% increased by 2.8-percentage points as compared~~March 31, 2022, we have access to second quarter 2020, reflecting the impact of higher revenues, primarily due to the significant effect of the COVID-19 pandemic on our business during the prior year period, as well as cost and expense reductions associated with our Project Own It transformation actions and additional savings from various other cost reductions to mitigate the impact of the pandemic (including reductionsan undrawn $1.5 billion Credit Facility that terminates in discretionary spend such as near-term targeted marketing programs, and the suspension of 401(k) matching contributions), and lower bad debt expenses. These favorable factors were partially offset by an approximate $50 million reduction of temporary government assistance and furlough measures and higher freight costs.

~~Adjusted~~1 operating margin for the six months ended June 30, 2021 of 6.1% increased by 1.6-percentage points as compared to the prior year period, reflecting an approximate 2.1-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year to reflect the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic. Additionally, higher revenues favorably impacted adjusted1 operating margin, primarily due to the significant effect of the COVID-19 pandemic on our business during the prior year period, as well as cost and expense reductions associated with our Project Own It transformation actions and additional savings from various other cost reductions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs, and the suspension of 401(k) matching contributions). These favorable factors were partially offset by an approximate $40 million reduction of temporary government assistance and furlough measures and higher freight costs.

~~______________~~

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

~~Xerox 2021 Form 10-Q~~ 48

~~Gross Margin~~

Second quarter 2021 gross margin of 35.6% decreased by 2.9-percentage points as compared to second quarter 2020, reflecting the impact of lower savings from temporary government assistance and furlough measures as well as higher freight costs and the impact of the ongoing competitive price environment, partially offset by higher revenue and cost savings from our Project Own It transformation actions as well as the additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as the suspension of 401(k) matching contributions).

Gross margin for the six months ended June 30, 2021 of 35.7% decreased by 2.7-percentage points as compared to the prior year period, reflecting the impact of lower savings from temporary government assistance and furlough measures and the impact of the ongoing competitive price environment, as well as the impact of a lower mix of our higher-margin post sale stream and higher freight costs. These headwinds were partially offset by the cost savings from our Project Own It transformation actions as well as the additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as the suspension of 401(k) matching contributions).

Second quarter 2021 equipment gross margin of 28.1% decreased by 0.7-percentage points as compared to second quarter 2020, reflecting higher freight costs, the impact of targeted price promotions sales and the higher mix of sales from our EMEA channel, partially offset by higher revenue and a larger contribution from our mid-range product portfolio.

Equipment gross margin for the six months ended June 30, 2021 of 28.0% increased by 0.5-percentage points as compared to the prior year period, primarily reflecting higher revenues and favorable transaction currency, partially offset by higher freight costs, as well as an unfavorable mix of growth in low-end devices and the impact of targeted price promotions.

Second quarter 2021 Post sale gross margin of 38.1% decreased by 3.0-percentage points as compared to second quarter 2020, reflecting the impact of lower savings from temporary government assistance and furlough measures, as well as price erosion on contract renewals and lower royalty revenues, partially offset by productivity and cost savings and restructuring savings associated with Project Own It transformation actions, as well as savings from the additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as the suspension of 401(k) matching contributions).

Post sale gross margin for the six months ended June 30, 2021 of 38.0% decreased by 2.9-percentage points as compared to the prior year period, reflecting the impact of lower savings from temporary government assistance and furlough measures and the impact of the ongoing competitive price environment, partially offset by productivity and cost savings and restructuring savings associated with Project Own It transformation actions, as well as savings from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as the suspension of 401(k) matching contributions).

~~Research, Development and Engineering Expenses (RD&E)~~

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2021 2020 Change 2021 2020 Change
R&D $ 63 $ 65 $ (2) $ 122 $ 133 $ (11)
Sustaining engineering 16 11 5 31 27 4
Total RD&E Expenses $ 79 $ 76 $ 3 $ 153 $ 160 $ (7)

~~Second quarter 2021 RD&E as a percentage of revenue of 4.4% decreased by 0.8-percentage points as compared to second quarter 2020, as a result of higher revenues that outpaced the rate of investments.~~

RD&E of $79 million increased $3 million as compared to second quarter 2020 reflecting primarily investments in our innovation portfolio and higher compensation related accrual expenses (corresponding with higher expected operating results) partially offset by savings from restructuring and productivity as well as benefits from the timing of program cycles.

RD&E as a percentage of revenue for the six months ended June 30, 2021 of 4.4% decreased by 0.4-percentage points as compared to the prior year period, as a result of higher revenues and Project Own It cost reductions, that outpaced the rate of investments.

~~Xerox 2021 Form 10-Q~~ 49

RD&E for the six months ended June 30, 2021 of $153 million decreased $7 million as compared to the prior year period, primarily reflecting the benefits from the timing of program cycles, as well as savings from simplification and rationalization in our core technology, partially offset by investments in our innovation portfolio and higher compensation related accrual expenses (corresponding with higher expected operating results).

~~Selling, Administrative and General Expenses (SAG)~~

Second quarter 2021 SAG as a percentage of revenue of 24.2% decreased 4.9-percentage points as compared to second quarter 2020, primarily as a result of higher revenues and lower bad debt provision offsetting higher selling and administrative expenses.

Second quarter 2021 SAG of $434 million increased by $8 million as compared to second quarter 2020, including an approximate $15 million adverse impact from translation currency, partially offset by a $10 million benefit from a lower bad debt provision. The remaining increase reflected the impact of lower savings from temporary government assistance and furlough measures, as well as higher compensation related accrual expenses and other investments in the business corresponding with higher expected operating results, partially offset by productivity and cost savings from our Project Own It transformation actions and other cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs and the suspension of 401(k) matching contributions).

SAG as a percentage of revenue for the six months ended June 30, 2021 of 25.2% decreased 3.9-percentage points as compared to the prior year period, primarily as a result of an approximate 2.1-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year to reflect the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic. The remaining decrease was primarily due to the impact of lower expenses as a result of cost savings and restructuring associated with our Project Own It transformation actions, and savings from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs and the suspension of 401(k) matching contributions).

SAG for the six months ended June 30, 2021 of $882 million decreased by $85 million as compared to the prior year period, primarily reflecting lower bad debt expenses, as well as cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs and the suspension of 401(k) matching contributions), partially offset by an approximate $25 million adverse impact from translation currency, higher compensation related accrual expenses and other investments in the business corresponding with higher expected operating results, the impact of lower savings from temporary government assistance and furlough measures and higher expenses from prior year acquisitions.

Our bad debt provision for the six months ended June 30, 2021 of $13 million decreased by $74 million as compared to the prior year period, primarily due to the prior year reflecting an approximate $60 million incremental provision to cover estimated write-offs on our trade and finance receivable portfolio from the COVID-19 pandemic, as well as a reserve reduction, in second quarter 2021, of approximately $6 million reflecting improvements in the macroeconomic environment as well as lower write-offs. Although actual write-offs incurred to date have lagged expectations, we believe our current reserve position remains sufficient to cover expected future losses that may result from future economic conditions. Despite the improvement in the global economy, economies continue to recover from the impacts of the COVID-19 pandemic including the cessation of government support as well as labor, interest rate and inflation risks and the potential for higher taxes. As a result of these uncertainties, we continue to consider various adverse macroeconomic scenarios in our models. Accordingly, our reserves as a percent of receivables have remained fairly consistent subsequent to the first quarter 2020 charge of approximately $60 million to initially record expected losses from the COVID-19 pandemic. We continue to monitor developments regarding the pandemic, including business closures and reopenings and mitigating government support actions as well as future economic conditions, and as a result our reserves may need to be updated in future periods. On a trailing twelve-month basis (TTM), bad debt expense was approximately 1.0% of total receivables, which is consistent with the pre-pandemic trend and reflects the consistent level of reserves subsequent to the first quarter 2020 charge.

~~Xerox 2021 Form 10-Q~~ 50

~~Restructuring and Related Costs, Net~~

~~We incurred Restructuring and related costs, net of $12 million for the~~ ~~second~~ ~~quarter 2021~~, ~~as compared to~~ $3 ~~million for~~ ~~second~~ ~~quarter 2020, and $29 million for the~~ ~~six months ended June 30, 2021, as compared to~~ ~~$44 million in the prior year period. These costs were primarily related to the implementation of initiatives under our business transformation projects including Project Own It.~~ ~~The following is a breakdown of those costs:~~

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2021 2020 2021 2020
Severance(1)
$ 6 $ 7 $ 20 $ 39
Asset impairments(2)
2 — 11 2
Other contractual termination costs(3)
1 — 2 1
Net reversals(4)
(5) (9) (8) (15)
Restructuring and asset impairment costs 4 (2) 25 27
Retention related severance/bonuses(5)
3 4 (1) 11
Contractual severance costs(6)
3 — 3 4
Consulting and other costs(7)
2 1 2 2
Total $ 12 $ 3 $ 29 $ 44

~~_____________~~

~~(1)~~Reflects headcount reductions of approximately 50 and 150 employees worldwide in second quarter 2021 and 2020, respectively and 400 and 450 employees worldwide for the six months ended June 30, 2021 and 2020, respectively.

~~(2)Primarily related to the exit and abandonment of leased and owned facilities. The charge includes the accelerated write-off of $1 million~~ ~~in second quarter 2021, as compared to no write-offs in second quarter 2020~~ ~~and $2 million and $1 million~~ ~~for the six months ended June 30, 2021 and 2020, respectively,~~ ~~for leased right-of-use assets, as well as no write-offs~~ ~~in second quarter 2021 and 2020,~~ ~~and $9 million and $1 million~~ ~~for the six months ended June 30, 2021 and 2020, respectively,~~ ~~for owned assets upon exit from the facilities, net of any potential sublease income and other recoveries, including potential sales..~~

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

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

~~(5)Includes retention related severance and bonuses for employees expected to continue working beyond their minimum notification period before termination. The $1 million credit through the~~ ~~six months ended June 30, 2021, reflected a change in estimate.~~

~~(6)~~Amounts primarily reflect severance and other related costs we are contractually required to pay in connection with employees transferred as part of the shared service arrangement entered into with HCL Technologies.

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

~~Second~~ ~~quarter 2021 actions impacted several functional areas, with approximately 30% focused on gross margin improvements and approximately 70% focused on SAG reductions.~~

~~Second~~ ~~quarter 2020 actions impacted several functional areas, with approximately 10% focused on gross margin improvements and approximately 90% focused on SAG reductions.~~

~~The Restructuring and related costs, net reserve balance as of June 30, 2021 for all programs was $63 million, which is expected to be paid over the next twelve months.~~

August 2022. Refer to Note ~~11 - Restructuring Programs in the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.~~

~~Transaction and Related Costs, Net~~

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain major and strategic M&A projects. There were no Transaction and related costs, net incurred during 2021. Transaction and related costs, net for the three and six months ended June 30, 2020 were $7 million and~~$24 million, respectively, and primarily related to legal and other professional costs associated with the terminated proposal to acquire HP Inc.~~

~~Amortization of Intangible Assets~~

Amortization of intangible assets for the three and six months ended June 30, 2021 of $14 million and $29 million, respectively, increased by $4 million and $8 million as compared to the respective prior year periods, primarily related to intangible assets associated with our recent acquisitions.

~~Xerox 2021 Form 10-Q~~ 51

~~Worldwide Employment~~

~~Worldwide employment was approximately 24,000 as of June 30, 2021 and decreased by approximately 1,100~~1 from December 31, 2020. The reduction resulted from net attrition (attrition net of gross hires), of which a large portion is not expected to be backfilled, as well as the impact of organizational changes.

~~_____________~~

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

~~Other Expenses, Net~~

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2021 2020 2021 2020
Non-financing interest expense $ 24 $ 18 $ 48 $ 39
Interest income (1) (3) (2) (11)
Non-service retirement-related costs (22) (8) (42) (7)
Gains on sales of businesses and assets (1) — (1) (1)
Currency losses, net 1 2 3 4
Contract termination costs - IT services — — — 3
All other expenses, net — (2) (1) 3
Other expenses, net $ 1 $ 7 $ 5 $ 30

~~Non-Financing Interest Expense~~

Second quarter 2021 non-financing interest expense of $24 million was $6 million higher than second quarter 2020. When combined with financing interest expense (Cost of financing), total interest expense increased by $4 million as compared to second quarter 2020 primarily reflecting a higher average debt balance and average interest rate.

Non-financing interest expense for the six months ended June 30, 2021 of $48 million was $9 million higher than the prior year. When combined with financing interest expense (Cost of financing), total interest expense increased by $5 million from the prior year period reflecting a higher average debt balance and average interest rate.

~~Refer to Note 12~~13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding ~~debt activity and the interest expense.~~

~~Interest Income~~

Interest income for the three and six months ended June 30, 2021 were $2 million and $9 million lower, respectively, than the respective prior year periods, primarily due to lower interest rates and a lower cash balance.

~~Non-Service Retirement-Related Costs~~

Non-service retirement-related costs for the three and six months ended June 30, 2021 were $14 million and $35 million lower than the respective prior year periods, primarily driven by lower discount rates and higher expected returns on plan assets due to higher asset balances as well as lower losses from pension settlements in the U.S.

~~Refer to Note 15 - Employee Benefit Plans in the Condensed Consolidated Financial Statements, for additional information regarding non-service retirement-related costs.~~

~~Income Taxes~~

~~Second quarter 2021 effective tax rate was 9.1%. On an adjusted~~1 basis, second quarter 2021 effective tax rate was 9.7%. Both rates include the benefit from a change in tax law, resulting in the remeasurement of deferred tax assets of approximately 16%. The adjusted1 ~~effective tax rate was lower than the U.S. federal statutory tax rate of 21% primarily due to the change in tax law, partially offset by state taxes and the geographical mix of earnings. The adjusted~~1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, non-service retirement-related costs and other discrete, unusual or infrequent items (as applicable) as described in our ~~Non-GAAP Financial Measures section.~~

~~Second quarter 2020 effective tax rate was 22.9%. On an adjusted~~1 basis, second quarter 2020 effective tax rate was 23.4%. This rate was higher than the U.S. federal statutory tax rate of 21% primarily due to state taxes and the geographical mix of earnings partially offset by the impact from various non-deductible and discrete items on lower pre-tax income. The adjusted1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs and other discrete, unusual or infrequent items (as applicable), as described in our Non-GAAP Financial Measures section.

~~Xerox 2021 Form 10-Q~~ 52

~~The effective tax rate for the six months ended June 30, 2021 was 15.1%. On an adjusted~~1 basis, the effective tax rate for the six months ended June 30, 2021 was 16.7%. Both rates include the benefit from a change in tax law, resulting in the remeasurement of deferred tax assets of approximately 10%. The adjusted1 ~~effective tax was lower than the U.S. federal statutory tax rate of 21% primarily due to the change in the tax law, partially offset by state taxes and the geographical mix of earnings. The adjusted~~1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, non-service retirement-related costs and other discrete, unusual or infrequent items (as applicable), as described in our Non-GAAP Financial Measures section.

~~The effective tax rate for the six months ended June 30, 2020 was 23.3%. On an adjusted~~1 basis, the effective tax rate for the six months ended June 30, 2020 was 27.0%. This rate was higher than the U.S. federal statutory tax rate of 21% primarily due to the impact of changes in our uncertain tax positions, state taxes and various non-deductible items partially offset by the impact of tax law changes and other discrete items. The adjusted1 effective tax rate excludes the tax impacts associated with the following charges: Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, as well as non-service retirement-related costs and other discrete, unusual or infrequent items (as applicable), as described in our Non-GAAP Financial Measures section.

~~_____________~~

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

~~Equity in Net Income of Unconsolidated Affiliates~~

Investment in Affiliates, at Equity largely consists of several minor investments in entities in the Middle East region. Equity in net income of unconsolidated affiliates for the six months ended June 30, 2021 was $1 million, as compared to $2 million for the six months ended June 30, 2020.

~~Net Income~~

~~Second quarter 2021 Net income attributable to Xerox Holdings was $91 million, or $0.46 per diluted share and included the benefit from a change in tax law (see~~ ~~Income Taxes~~ ~~above). On an adjusted~~1 basis, Net income attributable to Xerox Holdings was $94 million, or $0.47 per diluted share. Second quarter 2021 adjustments to Net income included Restructuring and related costs, net, Amortization of intangible assets, and non-service retirement-related costs (see ~~Non-GAAP Financial Measures~~).

~~Net income attributable to Xerox Holdings for the six months ended June 30, 2021 was $130 million, or $0.64 per diluted share and included the benefit from a change in tax law (see~~ ~~Income Taxes~~ ~~above). On an adjusted~~1 basis, Net income attributable to Xerox Holdings was $141 million, or $0.69 per diluted share. Adjustments to Net income for the six months ended June 30, 2021 included Restructuring and related costs, net, Amortization of intangible assets, and non-service retirement-related costs (see ~~Non-GAAP Financial Measures~~).

~~Second quarter 2020 Net income attributable to Xerox Holdings was $27 million, or $0.11 per diluted share. On an adjusted~~1 basis, Net income attributable to Xerox Holdings was $36 million, or $0.15 per diluted share. Second quarter 2020 adjustments to Net income included Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs (see ~~Non-GAAP Financial Measures~~).

~~Net income attributable to Xerox Holdings for the six months ended June 30, 2020 was $25 million, or $0.08 per diluted share. On an adjusted~~1 basis, Net income attributable to Xerox Holdings was $86 million, or $0.36 per diluted share. Both amounts included the impact of the approximately $60 million pre-tax increase in bad debt expense (approximately $43 million after-tax) as compared to the prior year period, primarily reflecting the expected impact to our customer base and related outstanding receivable portfolio from the COVID-19 pandemic. Adjustments to Net income for the six months ended June 30, 2020 included Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items (see ~~Non-GAAP Financial Measures~~).

~~Refer to Note 19 - Earnings per Share (EPS) in the Condensed Consolidated Financial Statements, for additional information regarding the calculation of basic and diluted earnings per share.~~

~~_____________~~

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

~~Xerox 2021 Form 10-Q~~ 53

~~Other Comprehensive Income (Loss)~~

Second quarter 2021 Other Comprehensive Income, Net Attributable to Xerox was $70 million and included the following: i) net translation adjustment gains of $54 million reflecting the strengthening of our major foreign currencies against the U.S. Dollar during the quarter; and ii) $16 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. This compares to Other Comprehensive Income, Net Attributable to Xerox of $103 million for the second quarter 2020, which reflected the following: i) $80 million of net gains from the changes in defined benefit plans primarily due to remeasurement; ii) net translation adjustment gains of $25 million reflecting the strengthening of our major foreign currencies against the U.S. Dollar; and iii) $2 million of net unrealized losses.

Other Comprehensive Income, Net Attributable to Xerox for the six months ended June 30, 2021 was $67 million and included the following: i) $71 million of net gains from the changes in defined benefit plans primarily due to remeasurement in the second quarter of 2021 and net actuarial gains as a result of higher discount rates.; ii) net translation adjustment gains of $3 million reflecting the strengthening of the GBP and CAD that was only partially offset by the weakening of the EUR against the U.S. Dollar; and iii) $7 million of net unrealized losses. This compares to Other Comprehensive Loss, Net Attributable to Xerox for the six months ended June 30, 2020 of $35 million, which reflected the following: i) net translation adjustment losses of $172 million reflecting the significant weakening of our major foreign currencies against the U.S. Dollar; ii) $134 million of net gains from the changes in defined benefit plans primarily due to remeasurement in the second quarter of 2020; and iii) $3 million of net unrealized gains.

Refer to Note 18 - Other Comprehensive Income (Loss) in the Condensed Consolidated Financial Statements, for the components of Other Comprehensive Income (Loss), Note 13 - Financial Instruments in the Condensed Consolidated Financial Statements, for additional information regarding unrealized (losses) gains, net, and Note 15 - Employee Benefit Plans in the Condensed Consolidated Financial Statements, for additional information regarding net changes in our defined benefit plans.

~~New Business Strategy~~

As disclosed in our 2020 Annual Report, in January 2021 we announced our intention to stand up our Software, Financing and Innovation businesses as separate units by 2022. At this stage, the operations and financial results for these units continue to be primarily managed by and reported in our “go-to-market” (GTM) sales channels. We have begun the process of reorganizing these new units from the GTM units but we have not progressed to the point where we have discrete and complete financial information for these new businesses. Accordingly, the chief operating decision maker (CODM) and management continue to manage the Company’s operations, including the products and services from these units, through the GTM sales channels and as result, we continue to have one operating and reportable segment.

We expect that the business and financial information for these new units, as well as the operational management of these businesses, will continue to be refined and improved during 2021. Accordingly, a reassessment of our operating segments may be required later in 2021.

~~Xerox 2021 Form 10-Q~~ 54

~~Capital Resources and Liquidity~~

Our financial results through June 30, 2021 were impacted by COVID-19 related business closures and office building capacity restrictions. However, we believe we have sufficient liquidity to manage the business through the economic disruption caused by this pandemic:

•A majority of our business is contractually based and most of our bundled services contracts include not only a variable component linked to print volumes, but also a fixed minimum, which provides us with a continuing stream of operating cash flow.Credit Facility.

•As of June 30, 2021, total cash, cash equivalents and restricted cash were $2,203 million and, apart from the restricted cash of $79 million, was readily accessible for use. We have access to an undrawn $1.8 billionThe Credit Facility, ~~that matures~~which as noted above terminates in August ~~2022.~~2022, contains various investment grade covenants at a time when the Company is not investment grade rated. The Company may seek to renegotiate or replace such facility, including reducing the size of such facility, or may determine not to replace such facility at all and may instead pursue other forms of liquidity. Any new credit agreement may result in higher borrowing costs and may contain non-investment grade covenants, such as those that would place greater restrictions on how the Company can run its businesses and/or limit the Company from taking certain actions that might otherwise be beneficial to the Company and/or its shareholders, customers, suppliers, partners and/or lenders.

Cash Flow Analysis

The following summarizes our cash, cash equivalents and restricted cash:


		Six Months Ended June 30,				Change			Three Months Ended March 31,				Change
(in millions)	(in millions)	2021		2020				(in millions)	2022		2021

Net cash provided by operating activities	Net cash provided by operating activities	$	331	$	207	$	124	Net cash provided by operating activities	$	66	$	117	$	(51)

Net cash used in investing activities	Net cash used in investing activities	(72)		(232)		160		Net cash used in investing activities	(75)		(17)		(58)

Net cash used in financing activities	Net cash used in financing activities	(747)		(432)		(315)		Net cash used in financing activities	(149)		(318)		169
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	—		(24)		24		Effect of exchange rate changes on cash, cash equivalents and restricted cash	10		(12)		22

Decrease in cash, cash equivalents and restricted cash	Decrease in cash, cash equivalents and restricted cash	(488)		(481)		(7)		Decrease in cash, cash equivalents and restricted cash	(148)		(230)		82
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	2,691		2,795		(104)		Cash, cash equivalents and restricted cash at beginning of period	1,909		2,691		(782)
Cash, Cash Equivalents and Restricted Cash at End of Period	Cash, Cash Equivalents and Restricted Cash at End of Period	$	2,203	$	2,314	$	(111)	Cash, Cash Equivalents and Restricted Cash at End of Period	$	1,761	$	2,461	$	(700)

Cash Flows from Operating Activities

Net cash provided by operating activities was ~~$331~~$66 million ~~for~~in the ~~six months ended June 30, 2021.~~first quarter 2022. The ~~$124~~$51 million ~~increase~~decrease in operating cash from the prior year period was primarily due to the following:

•$~~229~~109 million ~~increase~~decrease in pre-tax income before depreciation and amortization, restructuring and related costs and non-service retirement-related costs.

•$79 million decrease from accounts receivable primarily due to a lower sequential revenue decrease compared to the prior year as well as the timing of collections.

•$13 million decrease from inventory primarily due to ~~increased revenues as well as significant cash usage in 2020 as inventory levels increased with the onset of the COVID-19 pandemic.~~higher non-equipment inventories.

•$~~126~~142 million increase from accounts payable primarily due to the ~~increase in spending as compared to the prior year partially offset by the~~ timing of supplier and vendor ~~payments.~~payments as payment terms were extended on multiple suppliers.

•$~~122~~22 million increase from ~~other current~~lower payments for restructuring and ~~long-term liabilities, reflecting higher accruals from the increased level of operations as compared to the prior year.~~

•$100 million increase due to the receipt of an upfront prepaid fixed royalty from FX for their continued use of the Xerox brand trademark subsequent to the termination of our technology agreement with them.

•~~$94 million increase from accrued compensation primarily~~ related ~~to higher employee incentive accruals and year-over-year timing of employee incentive payments.~~

•~~$391 million decrease from accounts receivable primarily due to higher revenues as compared to the prior year partially offset by the timing of collections.~~

•~~$178 million decrease from a lower net run-off of finance receivables due to an increased level of direct lease originations from our XBS sales unit as well as higher equipment sales.~~costs.

Cash Flows from Investing Activities

Net cash used in investing activities was ~~$72~~$75 million ~~for~~in the ~~six months ended June 30, 2021.~~first quarter 2022. The ~~$160~~$58 million change from the prior year period was primarily due to ~~two acquisitions completed~~one acquisition for $54 million in the current year ~~for $37 million~~ compared to ~~four~~no acquisitions in the prior ~~year for $193 million.~~year. Other investing, net includes $3$5 million of noncontrolling investments as part of our corporate venture capital fund.

Xerox 2022 Form 10-Q 54

Cash Flows from Financing Activities

Net cash used in financing activities was ~~$747~~$149 million ~~for~~in the ~~six months ended June 30, 2021.~~first quarter 2022. The ~~$315~~$169 million ~~increase~~decrease in the use of cash from the prior year period was primarily due to the following:

•$~~413~~117 million ~~increase~~decrease from net debt activity. 2022 reflects proceeds of $668 million on a new secured financing arrangement offset by payments of $346 million on existing secured financing arrangements1 and $300 million on Senior Notes. 2021 reflects payments of $94 million on secured financing arrangements.

•$49 million decrease due to share repurchases in the current year of $113 million compared to no share repurchases of $162 million in the prior year.

~~Xerox 2021 Form 10-Q~~ 55

_____________

•(1)~~$99 million decrease from net debt activity primarily due to~~The payments ~~of $209 million~~ on existing secured financing arrangements inof $346 million include $248 million associated with the ~~current year compared~~early extinguishment of an existing arrangement that was funded through the new secured financing arrangement. Refer to ~~payments of $313 million on Senior Notes in the prior year.~~Note 13 - Debt for further information.

•Other financing, net includes the receipt of $5 million for a noncontrolling investment in Eloque, a newly-formed joint venture for the remote monitoring of critical infrastructure assets, such as road and railway bridges.

Cash, Cash Equivalents and Restricted Cash

Refer to Note 67 - Supplementary Financial Information in the Condensed Consolidated Financial Statements for additional information regarding Cash, cash equivalents and restricted cash.

Operating Leases

Refer to Note 1011 - Lessee in the Condensed Consolidated Financial Statements for additional information regarding our leases accounted for under lessee accounting.

Debt and Customer Financing Activities

The following summarizes our debt:


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	March 31, 2022		December 31, 2021
Xerox Holdings Corporation	Xerox Holdings Corporation	$	1,500	$	1,500	Xerox Holdings Corporation	$	1,500	$	1,500
Xerox Corporation	Xerox Corporation	2,200		2,200		Xerox Corporation	1,900		2,200
Xerox - Other Subsidiaries(1)	Xerox - Other Subsidiaries(1)	559		767		Xerox - Other Subsidiaries(1)	885		561
Subtotal - Principal debt balance	Subtotal - Principal debt balance	4,259		4,467		Subtotal - Principal debt balance	4,285		4,261
Debt issuance costs	Debt issuance costs					Debt issuance costs
Xerox Holdings Corporation	Xerox Holdings Corporation	(12)		(13)		Xerox Holdings Corporation	(10)		(11)
Xerox Corporation	Xerox Corporation	(9)		(11)		Xerox Corporation	(5)		(6)
Xerox - Other Subsidiaries(1)	Xerox - Other Subsidiaries(1)	(2)		(3)		Xerox - Other Subsidiaries(1)	(1)		(1)
Subtotal - Debt issuance costs	Subtotal - Debt issuance costs	(23)		(27)		Subtotal - Debt issuance costs	(16)		(18)
Net unamortized premium	Net unamortized premium	3		3		Net unamortized premium	2		3
Fair value adjustments(2)
- terminated swaps		—		1

Total Debt	Total Debt	$	4,239	$	4,444	Total Debt	$	4,271	$	4,246

_____________

(1)Represents secured debt issued by subsidiaries of Xerox Corporation as part of the securitization of Finance ~~Receivables - Refer to Note 12 - Debt in the Condensed Consolidated Financial Statements for additional information.~~

~~(2)~~Fair value adjustments normally include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value adjustment.Receivables.

Refer to Note 1213 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt.

Finance Assets and Related Debt

The following represents our total finance assets, net associated with our lease and finance operations:


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	March 31, 2022		December 31, 2021
Total finance receivables, net(1)	Total finance receivables, net(1)	$	3,117	$	3,165	Total finance receivables, net(1)	$	3,005	$	3,070
Equipment on operating leases, net	Equipment on operating leases, net	271		296		Equipment on operating leases, net	254		253
Total Finance Assets, net(2)	Total Finance Assets, net(2)	$	3,388	$	3,461	Total Finance Assets, net(2)	$	3,259	$	3,323

_____________

(1)Includes (i) Billed portion of finance receivables, net, (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in our Condensed Consolidated Balance Sheets.

(2)The change from December 31, ~~2020~~2021 includes a decrease of ~~$19~~$14 million due to currency.

Xerox ~~2021~~2022 Form 10-Q 5655

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~~Total finance assets, 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.

Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt:
(in millions) June 30, 2021 December 31, 2020
Finance receivables debt(1)
$ 2,728 $ 2,769
Equipment on operating leases debt 237 259
Financing debt 2,965 3,028
Core debt 1,274 1,416
Total Debt $ 4,239 $ 4,444


(in millions)	March 31, 2022		December 31, 2021
Finance receivables debt(1)	$	2,630	$	2,687
Equipment on operating leases debt	222		221
Financing debt	2,852		2,908
Core debt	1,419		1,338
Total Debt	$	4,271	$	4,246

~~____________________________~~__________________

(1)Finance receivables debt is the basis for our calculation of "Cost of financing" expense in the Condensed Consolidated Statements of (Loss) Income.

Sales of Accounts Receivable

Activity related to sales of accounts receivable is as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)		2022		2021
Estimated increase (decrease) to operating cash flows(1)		$	1	$	(58)	$	(26)	$	(136)
Estimated decrease to net operating cash flows(1)										Estimated decrease to net operating cash flows(1)		$	(13)	$	(27)

_____________

(1)Represents the difference between current and prior period accounts receivable sales adjusted for the effects of currency.

Refer to Note 78 - Accounts Receivable, Net in the Condensed Consolidated Financial Statements for additional information regarding our accounts receivable sales arrangements.

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 spread over the next five years as follows:


(in millions)	(in millions)	Xerox Holdings Corporation		Xerox Corporation		Xerox - Other Subsidiaries(1)		Total		(in millions)	Xerox Holdings Corporation		Xerox Corporation		Xerox - Other Subsidiaries(1)		Total
2021 Q3		$	—	$	—	$	95	$	95
2021 Q4		—		—		89		89
2022		—		300		293		593
2022 Q2										2022 Q2	$	—	$	—	$	42	$	42
2022 Q3										2022 Q3	—		—		39		39
2022 Q4										2022 Q4	—		—		339		339
2023	2023	—		1,000		82		1,082		2023	—		1,000		111		1,111
2024	2024	—		300		—		300		2024	—		300		25		325
2025	2025	750		—		—		750		2025	750		—		329		1,079
2026 and thereafter		750		600		—		1,350
2026										2026	—		—		—		—
2027 and thereafter										2027 and thereafter	750		600		—		1,350
Total(2)	Total(2)	$	1,500	$	2,200	$	559	$	4,259	Total(2)	$	1,500	$	1,900	$	885	$	4,285

_____________

(1)Represents secured debt issued by subsidiaries of Xerox Corporation as part of securitization of Finance ~~Receivables -~~ Receivables.

(2)Includes fair value adjustments.

Refer to Note 1213 - Debt in the Condensed Consolidated Financial Statements for additional ~~information.~~

~~(2)Includes fair value adjustments.~~information regarding debt.

Xerox ~~2021~~2022 Form 10-Q 5756

Treasury Stock

Xerox Holdings Corporation repurchased ~~10.4~~5.2 million shares of ~~our~~its common stock for an aggregate ~~$251~~$113 million, including fees, in ~~second~~first quarter ~~2021. Xerox Holdings repurchased 17.1 million shares of our common stock for an aggregate cost of $413 million, including fees, during the six months ended June 30, 2021.~~2022. The cumulative total of shares repurchased by Xerox Holdings Corporation under the current share repurchase program is ~~41.8~~24.6 million shares for an aggregate cost of ~~$1,013~~approximately $500 million, including fees. As of ~~June 30, 2021, the remaining share~~March 31, 2022, there was no repurchase ~~authorization, excluding fees and expenses, is approximately $88 million.~~authority remaining.

~~Shared Services Arrangement with HCL Technologies~~

In March 2019, as part of Project Own It, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including, among others, selected information technology and finance functions, from Xerox to HCL. This transition was expected to be completed during 2020, however, it sustained some delays caused by the COVID-19 pandemic, and it is now expected to be finalized by the end of 2021. HCL is expected to make certain ongoing investments in software, tools and other technology to consolidate, optimize and automate the transferred functions with the goal of providing improved service levels and significant cost savings. The shared services arrangement with HCL includes a remaining aggregate spending commitment of approximately $925 million over the next 5 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.

We incurred net charges of approximately $50 million and $45 million during the three months ended June 30, 2021 and 2020, respectively, and approximately $100 million and $90 million for the six months ended June 30, 2021 and 2020. The cost has been allocated to the various functional expense lines in the Condensed Consolidated Statements of Income based on an assessment of the nature and amount of the costs incurred for the various transferred functions prior to their transfer to HCL.

~~ServiceNow License Purchase~~

In June 2021, Xerox entered into a software services agreement with a system integrator that included Xerox's use of ServiceNow software licenses for a 5-year commitment of approximately $60 million. A portion of licenses obtained through this new arrangement are expected to be used by Xerox as part of a future project with the system integrator for the reengineering and restructure of Xerox's current global technical service force.

~~Shared Services Arrangement with Tata Consulting Services~~

In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS will provide business processing outsourcing services in support of our global finance organization. TCS will leverage their existing technology and make additional investments as required to consolidate, optimize and automate the supported services with the goal of providing improved service levels and cost savings. The arrangement is initially for 6 years with a total contract value of approximately $160 million. We can terminate the arrangement subject to payment of termination fees that decline over the term.

~~Xerox 2021 Form 10-Q~~ 58

Financial Risk Management

We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. We utilize derivative financial instruments to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates. We enter into limited types of derivative contracts, including interest rate swap agreements, interest rate caps, foreign currency spot, forward and swap contracts and net purchased foreign currency options to manage interest rate and foreign currency exposures. Our primary foreign currency market exposures include the Japanese Yen, Euro and U.K. Pound Sterling. The fair market values of all our derivative contracts change with fluctuations in interest rates and/or currency exchange rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

We are required to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. As permitted, certain of these derivative contracts have been designated for hedge accounting treatment. Certain of our derivatives that do not qualify for hedge accounting are effective as economic hedges. These derivative contracts are likewise required to be recognized each period at fair value and therefore do result in some level of volatility. The level of volatility will vary with the type and amount of derivative hedges outstanding, as well as fluctuations in the currency and interest rate markets during the period. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange and interest rate movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a diversified group of major financial institutions. Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The current market events have not required us to materially modify or change our financial risk management strategies with respect to our exposures to interest rate and foreign currency risk. Refer to Note 1314 – Financial Instruments in the Condensed Consolidated Financial Statements for further discussion and information on our financial risk management strategies.

Xerox ~~2021~~2022 Form 10-Q 5957

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. 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.

~~A reconciliation~~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 as well as in the ~~second~~first quarter ~~2021~~2022 presentation slides available at www.xerox.com/investor.

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.

Adjusted Earnings Measures

•Net (Loss) Income and EPS

•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.

~~Transaction and related costs, net:~~ Transaction and related costs, net are costs and expenses primarily associated with certain strategic M&A projects. These costs are primarily for third-party legal, accounting, consulting and other similar type professional services as well as potential legal settlements that may arise in connection with those M&A transactions. These costs are considered incremental to our normal operating charges and were incurred or are expected to be incurred solely as a result of the planned transactions. Accordingly, we are excluding these expenses from our Adjusted Earnings Measures in order to evaluate our performance on a comparable basis.

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.

Other discrete, unusual or infrequent items: We excluded these items, when applicable, given their discrete, unusual or infrequent nature and its impact on our results for the period.

~~Xerox 2021 Form 10-Q~~ •60Contract termination costs - product supply

We believe the exclusion of these items allows investors to better understand and analyze the results for the period as compared to prior periods and expected future trends in our business.

Adjusted Operating (Loss) Income and Margin

We calculate and utilize adjusted operating (loss) income and margin measures by adjusting our reported pre-tax (loss) income and margin amounts. In addition to the costs and expenses noted above as adjustments for our

Xerox 2022 Form 10-Q 58

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 "Currency Impact" for a discussion of this measure and its use in our analysis of revenue growth.

Summary

Management believes that all of these non-GAAP financial measures provide an additional means of analyzing the current period’s results against the corresponding prior period’s results. 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 Condensed Consolidated Financial Statements prepared in accordance with GAAP. Our 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.

~~A reconciliation~~Reconciliations of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth on the following tables:

Net (Loss) Income and EPS reconciliation:


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended March 31,
		2021				2020				2021				2020						2022	2021
(in millions, except per share amounts)	(in millions, except per share amounts)	Net Income		EPS		Net Income		EPS		Net Income		EPS		Net Income		EPS		(in millions, except per share amounts)			Net Loss		EPS		Net Income		EPS
Reported(1)	Reported(1)	$	91	$	0.46	$	27	$	0.11	$	130	$	0.64	$	25	$	0.08	Reported(1)			$	(56)	$	(0.38)	$	39	$	0.18
Adjustments:	Adjustments:																	Adjustments:
Restructuring and related costs, net	Restructuring and related costs, net	12				3				29				44				Restructuring and related costs, net			18				17
Amortization of intangible assets	Amortization of intangible assets	14				10				29				21				Amortization of intangible assets			11				15
Transaction and related costs, net		—				7				—				24

Non-service retirement-related costs	Non-service retirement-related costs	(22)				(8)				(42)				(7)				Non-service retirement-related costs			(7)				(20)
Contract termination costs - IT services		—				—				—				3
Contract termination costs - product supply																		Contract termination costs - product supply			33				—

Income tax on adjustments(2)	Income tax on adjustments(2)	(1)				(3)				(5)				(24)				Income tax on adjustments(2)			(13)				(4)

Adjusted	Adjusted	$	94	$	0.47	$	36	$	0.15	$	141	$	0.69	$	86	$	0.36	Adjusted			$	(14)	$	(0.12)	$	47	$	0.22

Dividends on preferred stock used in adjusted EPS calculation(3)	Dividends on preferred stock used in adjusted EPS calculation(3)			$	3			$	3			$	7			$	7	Dividends on preferred stock used in adjusted EPS calculation(3)					$	4			$	4
Weighted average shares for adjusted EPS(3)	Weighted average shares for adjusted EPS(3)			189				216				194				216		Weighted average shares for adjusted EPS(3)					156				198
Fully diluted shares at June 30, 2021(4)				184
Fully diluted shares at March 31, 2022(4)																		Fully diluted shares at March 31, 2022(4)					155

____________________________

(1)Net ~~income~~(Loss) Income and EPS attributable to Xerox Holdings.

(2)Refer to Effective Tax Rate reconciliation.

(3)~~Average~~For those periods that include the preferred stock dividend, the average shares for the ~~calculation~~calculations of ~~adjusted~~ diluted EPS ~~for 2021 and~~ ~~2020~~ ~~excludes~~exclude the 7 million shares associated with ~~our~~Xerox Holdings Corporation's Series A convertible preferred ~~stock and therefore earnings includes the preferred stock dividend.~~stock.

(4)Represents common shares outstanding at ~~June 30, 2021 plus~~March 31, 2022 and excludes potential dilutive common shares as used for the calculation of adjusted diluted ~~EPS~~earnings per share for ~~2021. The amount excludes~~the first quarter 2022 as well as shares associated with ~~our~~Xerox Holdings Corporation's Series A convertible preferred stock, ~~as they~~all of which were anti-dilutive for ~~2021.~~the first quarter 2022.

Xerox ~~2021~~2022 Form 10-Q 6159

Effective Tax Rate reconciliation:


		Three Months Ended June 30,													Three Months Ended March 31,
		2021						2020							2022						2021
(in millions)	(in millions)	Pre-Tax Income		Income Tax Expense		Effective Tax Rate		Pre-Tax Income		Income Tax Expense		Effective Tax Rate		(in millions)	Pre-Tax Loss		Income Tax Benefit		Effective Tax Rate		Pre-Tax Income		Income Tax Expense		Effective Tax Rate
Reported(1)	Reported(1)	$	99	$	9	9.1	%	$	35	$	8	22.9	%	Reported(1)	$	(89)	$	(31)	34.8	%	$	53	$	14	26.4	%
Non-GAAP Adjustments(2)	Non-GAAP Adjustments(2)	4		1				12		3				Non-GAAP Adjustments(2)	55		13				12		4

Adjusted(3)	Adjusted(3)	$	103	$	10	9.7	%	$	47	$	11	23.4	%	Adjusted(3)	$	(34)	$	(18)	52.9	%	$	65	$	18	27.7	%

		Six Months Ended June 30,
		2021						2020
(in millions)		Pre-Tax Income		Income Tax Expense		Effective Tax Rate		Pre-Tax Income		Income Tax Expense		Effective Tax Rate
Reported(1)		$	152	$	23	15.1	%	$	30	$	7	23.3	%
Non-GAAP Adjustments(2)		16		5				85		24

Adjusted(3)		$	168	$	28	16.7	%	$	115	$	31	27.0	%

____________________________

(1)Pre-tax (loss) income and ~~income~~Income tax (benefit) expense.

(2)Refer to Net (Loss) Income and EPS reconciliation for details.

(3)The tax impact on Adjusted ~~Pre-Tax Income~~Pre-tax (loss) income is calculated under the same accounting principles applied to the Reported ~~Pre-Tax Income~~Pre-tax (loss) income under ASC 740, which employs an annual effective tax rate method to the results.

Operating (Loss) Income and Margin reconciliation:


		Three Months Ended June 30,													Three Months Ended March 31,
		2021						2020							2022						2021
(in millions)	(in millions)	Profit		Revenue		Margin		Profit		Revenue		Margin		(in millions)	Loss		Revenue		Margin		Profit		Revenue		Margin
Reported(1)	Reported(1)	$	99	$	1,793	5.5	%	$	35	$	1,465	2.4	%	Reported(1)	$	(89)	$	1,668	(5.3)	%	$	53	$	1,710	3.1	%
Adjustments:	Adjustments:													Adjustments:
Restructuring and related costs, net	Restructuring and related costs, net	12						3						Restructuring and related costs, net	18						17
Amortization of intangible assets	Amortization of intangible assets	14						10						Amortization of intangible assets	11						15
Transaction and related costs, net		—						7

Other expenses, net	Other expenses, net	1						7						Other expenses, net	57						4
Adjusted	Adjusted	$	126	$	1,793	7.0	%	$	62	$	1,465	4.2	%	Adjusted	$	(3)	$	1,668	(0.2)	%	$	89	$	1,710	5.2	%

		Six Months Ended June 30,
		2021						2020
(in millions)		Profit		Revenue		Margin		Profit		Revenue		Margin
Reported(1)		$	152	$	3,503	4.3	%	$	30	$	3,325	0.9	%
Adjustments:
Restructuring and related costs, net		29						44
Amortization of intangible assets		29						21
Transaction and related costs, net		—						24

Other expenses, net		5						30
Adjusted		$	215	$	3,503	6.1	%	$	149	$	3,325	4.5	%

____________________________

(1)~~Pre-Tax Income~~Pre-tax (loss) income.

Xerox ~~2021~~2022 Form 10-Q 6260

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the “Financial Risk Management” section of this Quarterly Report on Form 10-Q is hereby incorporated by reference in answer to this Item.

ITEM 4 — CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

Xerox Holdings Corporation

The management of Xerox Holdings Corporation evaluated, with the participation of its principal executive officer and principal financial officer, or persons performing similar functions, the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer of Xerox Holdings Corporation have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of Xerox Holdings Corporation were effective to ensure that information ~~that is~~ required to be disclosed in the reports ~~that is~~ filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to Xerox Holdings Corporation, including its consolidated subsidiaries, and was accumulated and communicated to the management of Xerox Holdings Corporation, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Xerox Corporation

The management of Xerox Corporation evaluated, with the participation of its principal executive officer and principal financial officer, or persons performing similar functions, the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer of Xerox Corporation have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of Xerox Corporation were effective to ensure that information ~~that is~~ required to be disclosed in the reports that ~~is filed~~ or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to Xerox Corporation, including its consolidated subsidiaries, and was accumulated and communicated to the management of Xerox Corporation, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in Internal Controls

Xerox Holdings Corporation

As required by paragraph (d) of Rule 13a-15 under the Exchange Act, we evaluated changes in our internal control over financial reporting during the last fiscal quarter. There were no changes identified in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Xerox Corporation

Xerox ~~2021~~2022 Form 10-Q 6361

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

The information set forth under Note 2021 – Contingencies and Litigation in the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q is incorporated by reference in answer to this item.

ITEM 1A — RISK FACTORS

Reference is made to the Risk Factors set forth in Part I, Item 1A of the combined Xerox Holdings Corporation and Xerox Corporation Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)Sales of Unregistered Securities during the Quarter ended ~~June 30, 2021~~March 31, 2022

During the quarter ended ~~June 30, 2021,~~March 31, 2022, Xerox Holdings Corporation issued the following securities in transactions that were not registered under the Securities Act of 1933, as amended (the Act).

Annual Director Fees:

(a)Securities issued on ~~May 20, 2021:~~February 17, 2022: Xerox Holdings Corporation issued an aggregate of ~~120,399 shares~~520 units - ~~107,770~~371 deferred stock units (DSUs) and ~~12,629~~149 restricted stock units (RSUs), representing the right to receive shares of Common Stock, par value $1 per share, at a future date. ~~For 2021, the Board determined that both the cash portion and equity portion of the annual director fees would be paid in the form of equity.~~

(b)No underwriters participated. The ~~shares~~DSUs were issued to ~~each of~~Scott Letier and Steven D. Miller and the RSUs were issued to James L. Nelson, non-employee Directors of Xerox Holdings ~~Corporation: Keith Cozza, Joseph J. Echevarria, Aris Kekedjian, Cheryl Gordon Krongard, Scott Letier, Nichelle Maynard-Elliott, Steven D. Miller, James L. Nelson and Margarita Paláu-Hernández.~~Corporation.

(c)The DSUs and RSUs were issued at a deemed purchase price of ~~$23.755~~$22.54 per DSU or RSU (aggregate price ~~$2,860,078)~~$11,721), based upon the market value of our Common Stock on the date of issuance, in payment of the Annual Director's fees pursuant to Xerox Holdings Corporation's 2004 Equity Compensation Plan for Non-Employee Directors (as amended and restated in 2021 (the 2021 Restatement)). The number of DSUs and RSUs awarded were prorated to reflect payment of their fees for serving on the newly formed Technology Committee (February 2022 - May 2022).

(d)Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering.

Dividend Equivalents:

(a)Securities issued on January 31, 2022: Xerox Holdings Corporation issued 2,798 DSUs, representing the right to receive shares of Common Stock, par value $1 per share, at a future date.

(b)No underwriters participated. The DSUs were issued to each of the non-employee Directors of Xerox Holdings Corporation and to two former non-employee Directors of Xerox Corporation: Jonathan Christodoro, Keith Cozza, Joseph J. Echevarria, Nicholas Graziano, Cheryl Gordon Krongard, Scott Letier, Jesse A. Lynn, Nichelle Maynard-Elliott, Steven D. Miller, and Margarita Paláu-Hernández.

(c)The DSUs were issued at a deemed purchase price of $22.795 per DSU (aggregate price $63,780), based upon the market value of our Common Stock on the date of record, in payment of the dividend equivalents due to DSU holders pursuant to Xerox Holdings Corporation's 2004 Equity Compensation Plan for Non-Employee Directors (as amended and restated in 2021 (the 2021 Restatement)).

(d)Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering.

~~Dividend Equivalent:~~

~~(a)Securities issued on April 30, 2021: Xerox Holdings Corporation issued 1,860 DSUs, representing the right to receive shares of Common Stock, par value $1 per share, at a future date.~~

~~(b)~~No underwriters participated. The shares were issued to each of the non-employee Directors of Xerox Holdings Corporation: Jonathan Christodoro, Keith Cozza, Joseph J. Echevarria, Nicholas Graziano, Cheryl Gordon Krongard and Scott Letier.

~~(c)~~The DSUs were issued at a deemed purchase price of $24.30 per DSU (aggregate price $45,198), based upon the market value on the date of record, in payment of the dividend equivalents due to DSU holders pursuant to Xerox Holdings Corporation's 2004 Equity Compensation Plan for Non-Employee Directors (as amended and restated in 2019 (the 2019 Restatement)).

~~(d)Exemption from registration under the Act was claimed based upon Section 4(2) as a sale by an issuer not involving a public offering.~~

Xerox ~~2021~~2022 Form 10-Q 6462

(b) Issuer Purchases of Equity Securities during the Quarter ended ~~June 30, 2021~~March 31, 2022

Repurchases of Xerox Holdings Corporation's Common Stock, par value $1 per share, include the following:

Board Authorized Share Repurchase Program:

Total Number of Shares Purchased
Average Price Paid per Share(1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2)
April 1 through 30 3,722,224 $ 24.65 3,722,224 $ 246,457,419
May 1 through 31 3,525,437 23.86 3,525,437 162,335,166
June 1 through 30 3,115,061 23.93 3,115,061 87,806,339
Total 10,362,722 10,362,722


	Total Number of Shares Purchased	Average Price Paid per Share(1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2)
January 1 through 31	3,666,387	$	22.06	3,666,387	$	31,823,523
February 1 through 28	1,507,539	21.11		1,507,539	—
March 1 through 31	—	—		—	—
Total	5,173,926			5,173,926

____________________________

(1)Exclusive of fees and expenses.

(2)Of the ~~$1.1 billion~~$500 million of share repurchase authority previously granted by Xerox Holdings Corporation's Board of Directors, exclusive of fees and expenses, approximately ~~$1,012~~$500 million has been used through ~~June 30, 2021.~~March 31, 2022. Repurchases may be made on the open market, or through derivative or negotiated contracts. Open-market repurchases will be made in compliance with the Securities and Exchange Commission's Rule 10b-18, and are subject to market conditions, as well as applicable legal and other considerations.

Repurchases Related to Stock Compensation Programs(1):

Total Number of Shares Purchased
Average Price Paid per Share(2)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
April 1 through 30 284,598 $ 25.04 n/a n/a
May 1 through 31 105,383 24.21 n/a n/a
June 1 through 30 — — n/a n/a
Total 389,981

Total Number of Shares Purchased

Average Price Paid per Share(2)

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs

January 1 through 31

403,142

23.82

n/a

February 1 through 28

3,889

22.26

n/a

March 1 through 31

514

19.71

n/a

Total

407,545

____________________________

(1)These repurchases are made under a provision in our restricted stock compensation programs for the indirect repurchase of shares through a net-settlement feature upon the vesting of shares in order to satisfy minimum statutory tax-withholding requirements.

(2)Exclusive of fees and expenses.

ITEM 3 — DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 — MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 — OTHER INFORMATION

None.

Xerox ~~2021~~2022 Form 10-Q 6563

ITEM 6 — EXHIBITS


~~3.1~~3.2.1						First Amendment dated February 17, 2022 to By-Laws of Xerox Holdings ~~Corporation By-Laws effective July 22, 2021.~~Corporation.
						Incorporated by reference to Exhibit ~~3(b)~~3.2 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated ~~July 22, 2021.~~February 17, 2022. See SEC File ~~Nos.~~Numbers 001-39013 and ~~001-04471~~.001-04471.
~~3.2~~3.2.2						Amended and Restated By-Laws of Xerox Holdings ~~Corporation’s By-Laws as amended July 22, 2021.~~Corporation dated February 17, 2022.
~~3.3~~						Incorporated by reference to Exhibit 3(b)(2) to Xerox Holdings Corporation’s and Xerox Corporation’s ~~By-Laws as amended July 22,~~combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
4						~~Registration Rights~~Amendment No. 4 to Credit Agreement, dated ~~April 29, 2021 between~~as of March 24, 2022, among Xerox Corporation, Xerox Holdings Corporation, certain Lenders signatory thereto, and ~~the Icahn Group and the Deason Group.~~Citibank, N.A., as administrative agent.
						Incorporated by reference to Exhibit 4.1 to Xerox Holdings Corporation’s and Xerox Corporation’s combined ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended~~8-K dated March 3 1 ~~, 2021.~~24, 2022. See SEC File ~~Nos.~~Numbers 001-39013 and 001-04471.
1010.1						Management Incentive Plan for 2021.
						Incorporated by reference to Exhibit 10(f)(14) to Xerox Holdings Corporation’s ~~Amended~~ and ~~Restated Equity Compensation~~Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.2						Form of E-LTIP Performance Share Unit (“PSU”) Award Agreement (2022) under Xerox Holdings Corporation Performance Incentive Plan ~~for Non-Employee Directors (2021 Restatement)~~(“XHCPIP”).
						Incorporated by reference to Exhibit ~~10.1~~10(f)(17) to Xerox Holdings Corporation’s ~~Current~~and Xerox Corporation’s combined Annual Report on Form ~~8-K dated May 20,~~10-K for the fiscal year ended December 31, 2021. See SEC File ~~No. 001-39013.~~Numbers 001-39013 and 001-04471.
10.3						Form of E-LTIP Restricted Stock Unit (“RSU”) Graduated-Vesting Award Agreement (2022) under XHCPIP.
						Incorporated by reference to Exhibit 10(f)(18) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.4						Form of E-LTIP RSU Cliff-Vesting Award Agreement (2022) under XHCPIP.
						Incorporated by reference to Exhibit 10(f)(19) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.5						Form of International Appendix to E-LTIP PSU and RSU Award Agreements (2022) under XHCPIP.
						Incorporated by reference to Exhibit 10(f)(20) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.6						Management Incentive Plan for 2022.
						Incorporated by reference to Exhibit 10(f)(21) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.7						Performance Elements for 2022 Executive Long-Term Incentive Program.
						Incorporated by reference to Exhibit 10(f)(22) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
31(a)(1)						Certification of Xerox Holdings Corporation CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(a)(2)						Certification of Xerox Corporation CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(b)(1)						Certification of Xerox Holdings Corporation CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(b)(2)						Certification of Xerox Corporation CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32(a)						Certification of Xerox Holdings Corporation CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)						Certification of Xerox Corporation CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Xerox 2022 Form 10-Q 64


101						The following financial information from Xerox Holdings Corporation and Xerox Corporation's combined Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021~~March 31, 2022 was formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Xerox Holdings Corporation Condensed Consolidated Statements of (Loss) Income, (ii) Xerox Holdings Corporation Condensed Consolidated Statements of Comprehensive (Loss) Income, ~~(Loss),~~ (iii) Xerox Holdings Corporation Condensed Consolidated Balance Sheets, (iv) Xerox Holdings Corporation Condensed Consolidated Statements of Cash Flows, (v) Xerox Corporation Condensed Consolidated Statements of (Loss) Income, (vi) Xerox Corporation Condensed Consolidated Statements of Comprehensive (Loss) Income, ~~(Loss),~~ (vii) Xerox Corporation Condensed Consolidated Balance Sheets, (viii) Xerox Corporation Condensed Consolidated Statements of Cash Flows, and (ix) Notes to the Condensed Consolidated Financial Statements.
104						The cover page from this Quarterly Report on Form 10-Q, (formatted as Inline XBRL and contained in Exhibit 101).

Xerox ~~2021~~2022 Form 10-Q 6665

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signatures for each undersigned shall be deemed to relate only to matters having reference to such company and its subsidiaries.


XEROX HOLDINGS CORPORATION (Registrant)

By:			/S/ JOSEPH H. MANCINI, JR.
			Joseph H. Mancini, Jr. Vice President and Chief Accounting Officer (Principal Accounting Officer)

Date: ~~August 4, 2021~~May 3, 2022


XEROX CORPORATION (Registrant)

By:			/S/ JOSEPH H. MANCINI, JR.
			Joseph H. Mancini, Jr. Vice President and Chief Accounting Officer (Principal Accounting Officer)

Date: ~~August 4, 2021~~May 3, 2022

Xerox ~~2021~~2022 Form 10-Q 6766

EXHIBIT INDEX


~~3.1~~3.2.1						First Amendment dated February 17, 2022 to By-Laws of Xerox Holdings ~~Corporation By-Laws effective July 22, 2021.~~Corporation.
						Incorporated by reference to Exhibit ~~3(b)~~3.2 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated ~~July 22, 2021.~~February 17, 2022. See SEC File ~~Nos.~~Numbers 001-39013 and 001-04471.
~~3.2~~3.2.2						Amended and Restated By-Laws of Xerox Holdings ~~Corporation’s By-Laws as amended July 22, 2021.~~Corporation dated February 17, 2022.
~~3.3~~						Incorporated by reference to Exhibit 3(b)(2) to Xerox Holdings Corporation’s and Xerox Corporation’s ~~By-Laws as amended July 22,~~combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
4						~~Registration Rights~~Amendment No. 4 to Credit Agreement, dated ~~April 29, 2021 between~~as of March 24, 2022, among Xerox Corporation, Xerox Holdings Corporation, certain Lenders signatory thereto, and ~~the Icahn Group and the Deason Group.~~Citibank, N.A., as administrative agent.
						Incorporated by reference to Exhibit 4.1 to Xerox Holdings Corporation’s and Xerox Corporation’s combined ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended~~8-K dated March 3 1 ~~, 2021.~~24, 2022. See SEC File ~~Nos.~~Numbers 001-39013 and 001-04471.
1010.1						Management Incentive Plan for 2021.
						Incorporated by reference to Exhibit 10(f)(14) to Xerox Holdings Corporation’s ~~Amended~~ and ~~Restated Equity Compensation~~Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.2						Form of E-LTIP Performance Share Unit (“PSU”) Award Agreement (2022) under Xerox Holdings Corporation Performance Incentive Plan ~~for Non-Employee Directors (2021 Restatement)~~(“XHCPIP”).
						Incorporated by reference to Exhibit ~~10.1~~10(f)(17) to Xerox Holdings Corporation’s ~~Current~~and Xerox Corporation’s combined Annual Report on Form ~~8-K dated May 20,~~10-K for the fiscal year ended December 31, 2021. See SEC File ~~No. 001-39013.~~Numbers 001-39013 and 001-04471.
10.3						Form of E-LTIP Restricted Stock Unit (“RSU”) Graduated-Vesting Award Agreement (2022) under XHCPIP.
						Incorporated by reference to Exhibit 10(f)(18) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.4						Form of E-LTIP RSU Cliff-Vesting Award Agreement (2022) under XHCPIP.
						Incorporated by reference to Exhibit 10(f)(19) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.5						Form of International Appendix to E-LTIP PSU and RSU Award Agreements (2022) under XHCPIP.
						Incorporated by reference to Exhibit 10(f)(20) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.6						Management Incentive Plan for 2022.
						Incorporated by reference to Exhibit 10(f)(21) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.7						Performance Elements for 2022 Executive Long-Term Incentive Program.
						Incorporated by reference to Exhibit 10(f)(22) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC File Numbers 001-39013 and 001-04471.
31(a)(1)						Certification of Xerox Holdings Corporation CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(a)(2)						Certification of Xerox Corporation CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(b)(1)						Certification of Xerox Holdings Corporation CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(b)(2)						Certification of Xerox Corporation CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32(a)						Certification of Xerox Holdings Corporation CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)						Certification of Xerox Corporation CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Xerox 2022 Form 10-Q 67


101						The following financial information from Xerox Holdings Corporation and Xerox Corporation's combined Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021~~March 31, 2022 was formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Xerox Holdings Corporation Condensed Consolidated Statements of (Loss) Income, (ii) Xerox Holdings Corporation Condensed Consolidated Statements of Comprehensive (Loss) Income, ~~(Loss),~~ (iii) Xerox Holdings Corporation Condensed Consolidated Balance Sheets, (iv) Xerox Holdings Corporation Condensed Consolidated Statements of Cash Flows, (v) Xerox Corporation Condensed Consolidated Statements of (Loss) Income, (vi) Xerox Corporation Condensed Consolidated Statements of Comprehensive (Loss) Income, ~~(Loss),~~ (vii) Xerox Corporation Condensed Consolidated Balance Sheets, (viii) Xerox Corporation Condensed Consolidated Statements of Cash Flows, and (ix) Notes to the Condensed Consolidated Financial Statements.
104						The cover page from this Quarterly Report on Form 10-Q, (formatted as Inline XBRL and contained in Exhibit 101).

Xerox ~~2021~~2022 Form 10-Q 68


	Three Months Ended June 30,				Six Months Ended June 30,
Gain (Loss) on Derivative Instruments	2021		2020		2021		2020
Fair Value Hedges - Interest Rate Contracts
Derivative loss recognized in interest expense	$	0	$	0	$	0	$	(1)
Hedged item gain recognized in interest expense	0		0		0		1

Cash Flow Hedges - Foreign Exchange Forward Contracts and Options
Derivative (loss) gain recognized in OCI (effective portion)	$	(2)	$	(3)	$	(12)	$	4
Derivative (loss) gain reclassified from AOCL to income - Cost of sales (effective portion)	(2)		2		(3)		1


	Shares	Amount
Balance at December 31, 2020	0	$	0
Purchases(1)	17,067	413
Cancellations	(10,426)	(254)
Balance at June 30, 2021	6,641	$	159


	2020 Equipment Sales Revenue As Revised
(in millions)	Q1		Q2		Q3		Q4		FY
Entry	$	48	$	44	$	66	$	70	$	228
Mid-range	206		195		276		309		986
High-end	67		67		72		119		325
Other	4		4		5		12		25
Equipment Sales Revenue	$	325	$	310	$	419	$	510	$	1,564