SEC Info - Xerox Holdings Corp., et al.

PART I — FINANCIAL INFORMATION

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	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	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	42
	Capital Resources and Liquidity	60
	Financial Risk Management	63
	Non-GAAP Financial Measures	64
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	67
Part II — Other Information
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	69
Signatures		70
Exhibit Index		71

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 2022 Form 10-Q 2

ITEM 1 — FINANCIAL STATEMENTS

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

Three Months Ended
June 30,

Six Months Ended
June 30,

(in millions, except per-share data)

2022

2021

2022

2021

Revenues

Sales

i 667

i 670

i 1,259

i 1,272

Services, maintenance and rentals

i 1,028

i 1,067

i 2,051

i 2,120

Financing

i 52

i 56

i 105

i 111

Total Revenues

i 1,747

i 1,793

i 3,415

i 3,503

Costs and Expenses

Cost of sales

i 487

i 468

i 922

i 888

Cost of services, maintenance and rentals

i 677

i 658

i 1,356

i 1,309

Cost of financing

i 26

i 28

i 50

i 56

Research, development and engineering expenses

i 84

i 79

i 162

i 153

Selling, administrative and general expenses

i 459

i 434

i 914

i 882

Restructuring and related costs, net

i 1

i 12

i 19

i 29

Amortization of intangible assets

i 10

i 14

i 21

i 29

Other expenses, net

i 8

i 1

i 65

i 5

Total Costs and Expenses

i 1,752

i 1,694

i 3,509

i 3,351

(Loss) Income before Income Taxes and Equity Income

( i 5)

i 99

( i 94)

i 152

Income tax expense (benefit)

i 1

i 9

( i 30)

i 23

Equity in net income of unconsolidated affiliates

i 1

i 2

i 1

Net (Loss) Income

( i 5)

i 91

( i 62)

i 130

Less: Net loss attributable to noncontrolling interests

( i 1)

i —

( i 2)

i —

Net (Loss) Income Attributable to Xerox Holdings

( i 4)

i 91

( i 60)

i 130

Basic (Loss) Earnings per Share

( i 0.05)

i 0.47

( i 0.43)

i 0.64

Diluted (Loss) Earnings per Share

( i 0.05)

i 0.46

( i 0.43)

i 0.64

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

Xerox 2022 Form 10-Q 3

XEROX HOLDINGS CORPORATION

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

Three Months Ended
June 30,

Six Months Ended
June 30,

(in millions)

2022

2021

2022

2021

Net (Loss) Income

( i 5)

i 91

( i 62)

i 130

Less: Net loss attributable to noncontrolling interests

( i 1)

i —

( i 2)

i —

Net (Loss) Income Attributable to Xerox Holdings

( i 4)

i 91

( i 60)

i 130

Other Comprehensive (Loss) Income, Net(1)

Translation adjustments, net

( i 287)

i 54

( i 359)

i 3

Unrealized losses, net

( i 14)

i —

( i 25)

( i 7)

Changes in defined benefit plans, net

i 3

i 16

i 42

i 71

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

( i 298)

i 70

( i 342)

i 67

Comprehensive (Loss) Income, Net

( i 303)

i 161

( i 404)

i 197

Less: Comprehensive loss, net attributable to noncontrolling interests

( i 1)

i —

( i 2)

i —

Comprehensive (Loss) Income, Net Attributable to Xerox Holdings

( i 302)

i 161

( i 402)

i 197

_____________

(1) Refer to Note 20 - Other Comprehensive (Loss) Income for gross components of Other comprehensive (loss) income, 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 2022 Form 10-Q 4

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands)

Assets

Cash and cash equivalents

i 1,151

i 1,840

Accounts receivable (net of allowance of $ i 63 and $ i 58, respectively)

i 852

i 818

Billed portion of finance receivables (net of allowance of $ i 3 and $ i 4, respectively)

i 83

i 94

Finance receivables, net

i 1,019

i 1,042

Inventories

i 765

i 696

Other current assets

i 232

i 211

Total current assets

i 4,102

i 4,701

Finance receivables due after one year (net of allowance of $ i 113 and $ i 114, respectively)

i 1,845

i 1,934

Equipment on operating leases, net

i 226

i 253

Land, buildings and equipment, net

i 334

i 358

Intangible assets, net

i 223

i 211

Goodwill

i 3,217

i 3,287

Deferred tax assets

i 539

i 519

Other long-term assets

i 1,784

i 1,960

Total Assets

i 12,270

i 13,223

Liabilities and Equity

Short-term debt and current portion of long-term debt

i 1,108

i 650

Accounts payable

i 1,207

i 1,069

Accrued compensation and benefits costs

i 233

i 239

Accrued expenses and other current liabilities

i 867

i 871

Total current liabilities

i 3,415

i 2,829

Long-term debt

i 2,764

i 3,596

Pension and other benefit liabilities

i 1,310

i 1,373

Post-retirement medical benefits

i 242

i 277

Other long-term liabilities

i 433

i 481

Total Liabilities

i 8,164

i 8,556

Commitments and Contingencies (See Note 22)

Noncontrolling Interests

i 10

Convertible Preferred Stock

i 214

Common stock

i 155

i 168

Additional paid-in capital

i 1,564

i 1,802

Treasury stock, at cost

i —

( i 177)

Retained earnings

i 5,484

i 5,631

Accumulated other comprehensive loss

( i 3,330)

( i 2,988)

Xerox Holdings shareholders’ equity

i 3,873

i 4,436

Noncontrolling interests

i 9

i 7

Total Equity

i 3,882

i 4,443

Total Liabilities and Equity

i 12,270

i 13,223

Shares of common stock issued

i 154,966

i 168,069

Treasury stock

i —

( i 8,675)

Shares of Common Stock Outstanding

i 154,966

i 159,394

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

Xerox 2022 Form 10-Q 5

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended
June 30,

(in millions)

2022

2021

Cash Flows from Operating Activities

Net (Loss) Income

( i 62)

i 130

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

Depreciation and amortization

i 140

i 170

Provisions

i 35

i 34

Net gain on sales of businesses and assets

( i 1)

Stock-based compensation

i 50

i 30

Restructuring and asset impairment charges

i 22

i 25

Payments for restructurings

( i 21)

( i 49)

Non-service retirement-related costs(1)

( i 11)

( i 42)

Contributions to retirement plans(1)

( i 72)

( i 80)

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

( i 49)

i 37

(Increase) decrease in inventories

( i 95)

i 4

Increase in equipment on operating leases

( i 47)

( i 63)

Decrease in finance receivables

i 17

i 12

Decrease in other current and long-term assets

i 35

i 66

Increase (decrease) in accounts payable

i 172

( i 33)

Increase in accrued compensation(1)

i 7

i 16

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

( i 48)

i 92

Net change in income tax assets and liabilities

( i 76)

i 2

Net change in derivative assets and liabilities

( i 6)

( i 2)

Other operating, net

( i 9)

( i 17)

Net cash (used in) provided by operating activities

( i 19)

i 331

Cash Flows from Investing Activities

Cost of additions to land, buildings, equipment and software

( i 29)

( i 33)

Proceeds from sales of businesses and assets

i 26

i 1

Acquisitions, net of cash acquired

( i 52)

( i 37)

Other investing, net

( i 7)

( i 3)

Net cash used in investing activities

( i 62)

( i 72)

Cash Flows from Financing Activities

Proceeds from issuance of long-term debt

i 754

i —

Payments on long-term debt

( i 1,133)

( i 209)

Dividends

( i 88)

( i 108)

Payments to acquire treasury stock, including fees

( i 113)

( i 413)

Other financing, net

( i 7)

( i 17)

Net cash used in financing activities

( i 587)

( i 747)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

( i 14)

i —

Decrease in cash, cash equivalents and restricted cash

( i 682)

( i 488)

Cash, cash equivalents and restricted cash at beginning of period

i 1,909

i 2,691

Cash, Cash Equivalents and Restricted Cash at End of Period

i 1,227

i 2,203

_____________

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

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

Xerox 2022 Form 10-Q 6

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

Three Months Ended
June 30,

Six Months Ended
June 30,

(in millions)

2022

2021

2022

2021

Revenues

Sales

i 667

i 670

i 1,259

i 1,272

Services, maintenance and rentals

i 1,028

i 1,067

i 2,051

i 2,120

Financing

i 52

i 56

i 105

i 111

Total Revenues

i 1,747

i 1,793

i 3,415

i 3,503

Costs and Expenses

Cost of sales

i 487

i 468

i 922

i 888

Cost of services, maintenance and rentals

i 677

i 658

i 1,356

i 1,309

Cost of financing

i 26

i 28

i 50

i 56

Research, development and engineering expenses

i 84

i 79

i 162

i 153

Selling, administrative and general expenses

i 459

i 434

i 914

i 882

Restructuring and related costs, net

i 1

i 12

i 19

i 29

Amortization of intangible assets

i 10

i 14

i 21

i 29

Other expenses, net

i 8

i 1

i 65

i 5

Total Costs and Expenses

i 1,752

i 1,694

i 3,509

i 3,351

(Loss) Income before Income Taxes and Equity Income

( i 5)

i 99

( i 94)

i 152

Income tax expense (benefit)

i 1

i 9

( i 30)

i 23

Equity in net income of unconsolidated affiliates

i 1

i 2

i 1

Net (Loss) Income

( i 5)

i 91

( i 62)

i 130

Less: Net loss attributable to noncontrolling interests

( i 1)

i —

( i 2)

i —

Net (Loss) Income Attributable to Xerox

( i 4)

i 91

( i 60)

i 130

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

Xerox 2022 Form 10-Q 7

XEROX CORPORATION

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

Three Months Ended
June 30,

Six Months Ended
June 30,

(in millions)

2022

2021

2022

2021

Net (Loss) Income

( i 5)

i 91

( i 62)

i 130

Less: Net loss attributable to noncontrolling interests

( i 1)

i —

( i 2)

i —

Net (Loss) Income Attributable to Xerox

( i 4)

i 91

( i 60)

i 130

Other Comprehensive (Loss) Income, Net(1)

Translation adjustments, net

( i 287)

i 54

( i 359)

i 3

Unrealized losses, net

( i 14)

i —

( i 25)

( i 7)

Changes in defined benefit plans, net

i 3

i 16

i 42

i 71

Other Comprehensive (Loss) Income, Net Attributable to Xerox

( i 298)

i 70

( i 342)

i 67

Comprehensive (Loss) Income, Net

( i 303)

i 161

( i 404)

i 197

Less: Comprehensive loss, net attributable to noncontrolling interests

( i 1)

i —

( i 2)

i —

Comprehensive (Loss) Income, Net Attributable to Xerox

( i 302)

i 161

( i 402)

i 197

_____________

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

Xerox 2022 Form 10-Q 8

XEROX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions)

Assets

Cash and cash equivalents

i 1,151

i 1,840

Accounts receivable (net of allowance of $ i 63 and $ i 58, respectively)

i 852

i 818

Billed portion of finance receivables (net of allowance of $ i 3 and $ i 4, respectively)

i 83

i 94

Finance receivables, net

i 1,019

i 1,042

Inventories

i 765

i 696

Other current assets

i 232

i 211

Total current assets

i 4,102

i 4,701

Finance receivables due after one year (net of allowance of $ i 113 and $ i 114, respectively)

i 1,845

i 1,934

Equipment on operating leases, net

i 226

i 253

Land, buildings and equipment, net

i 334

i 358

Intangible assets, net

i 223

i 211

Goodwill

i 3,217

i 3,287

Deferred tax assets

i 539

i 519

Other long-term assets

i 1,769

i 1,952

Total Assets

i 12,255

i 13,215

Liabilities and Equity

Short-term debt and current portion of long-term debt

i 1,108

i 650

Accounts payable

i 1,207

i 1,069

Accrued compensation and benefits costs

i 233

i 239

Accrued expenses and other current liabilities

i 819

i 823

Total current liabilities

i 3,367

i 2,781

Long-term debt

i 1,269

i 2,102

Related party debt

i 1,495

i 1,494

Pension and other benefit liabilities

i 1,310

i 1,373

Post-retirement medical benefits

i 242

i 277

Other long-term liabilities

i 433

i 481

Total Liabilities

i 8,116

i 8,508

Commitments and Contingencies (See Note 22)

Noncontrolling Interests

i 10

Additional paid-in capital

i 3,630

i 3,202

Retained earnings

i 3,820

i 4,476

Accumulated other comprehensive loss

( i 3,330)

( i 2,988)

Xerox shareholder's equity

i 4,120

i 4,690

Noncontrolling interests

i 9

i 7

Total Equity

i 4,129

i 4,697

Total Liabilities and Equity

i 12,255

i 13,215

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

Xerox 2022 Form 10-Q 9

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended
June 30,

(in millions)

2022

2021

Cash Flows from Operating Activities

Net (Loss) Income

( i 62)

i 130

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

Depreciation and amortization

i 140

i 170

Provisions

i 35

i 34

Net gain on sales of businesses and assets

( i 1)

Stock-based compensation

i 50

i 30

Restructuring and asset impairment charges

i 22

i 25

Payments for restructurings

( i 21)

( i 49)

Non-service retirement-related costs(1)

( i 11)

( i 42)

Contributions to retirement plans(1)

( i 72)

( i 80)

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

( i 49)

i 37

(Increase) decrease in inventories

( i 95)

i 4

Increase in equipment on operating leases

( i 47)

( i 63)

Decrease in finance receivables

i 17

i 12

Decrease in other current and long-term assets

i 35

i 66

Increase (decrease) in accounts payable

i 172

( i 33)

Increase in accrued compensation(1)

i 7

i 16

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

( i 48)

i 92

Net change in income tax assets and liabilities

( i 76)

i 2

Net change in derivative assets and liabilities

( i 6)

( i 2)

Other operating, net

( i 9)

( i 17)

Net cash (used in) provided by operating activities

( i 19)

i 331

Cash Flows from Investing Activities

Cost of additions to land, buildings, equipment and software

( i 29)

( i 33)

Proceeds from sales of businesses and assets

i 26

i 1

Acquisitions, net of cash acquired

( i 52)

( i 37)

Net cash used in investing activities

( i 55)

( i 69)

Cash Flows from Financing Activities

Proceeds from issuance of long-term debt

i 754

i —

Payments on long-term debt

( i 1,133)

( i 209)

Distributions to parent

( i 218)

( i 542)

Other financing, net

i 3

i 1

Net cash used in financing activities

( i 594)

( i 750)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

( i 14)

i —

Decrease in cash, cash equivalents and restricted cash

( i 682)

( i 488)

Cash, cash equivalents and restricted cash at beginning of period

i 1,909

i 2,691

Cash, Cash Equivalents and Restricted Cash at End of Period

i 1,227

i 2,203

_____________

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

Xerox 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 – i 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 2021 Annual Report on Form 10-K (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 2021 Annual Report.

In our opinion, all adjustments 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.

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

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

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

Goodwill

Interim Impairment Evaluation

Our goodwill balance was $ i 3.2 billion and $ i 3.3 billion at June 30, 2022 and December 31, 2021, respectively. The balance at December 31, 2021 reflects a pre-tax impairment charge of $ i 781 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.

As noted above, during the first quarter 2022, the Company made a change to its operating and reportable segments from i i one / operating/reportable segment - Printing - to i i 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 i i one / operating/reportable segment, we determined that we had i one 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 i i two / operating/reportable segments, we now have i two reporting units – 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.

During the first half of 2022, the Company continued to encounter significant operational challenges due to supply chain constraints, inflationary pressure on product and labor costs, geopolitical uncertainty in Europe and the continued impacts from additional COVID-19 variants. Operating results did improve in the second quarter 2022 as compared to the first quarter 2022 and operating results are expected to improve further in the second half of 2022 . The Company's latest projections for the full year 2022 as well as for 2023 and 2024 are still within the range of our sensitivity analysis performed as part of the January 1, 2022 interim impairment assessment. Accordingly, based on our interim assessment as of June 30, 2022, we determined that it was more-likely-than-not that the fair value of the Print and Other reporting unit (the only reporting unit with goodwill) was still greater than its net book value and that we did not have a “triggering event” requiring a quantitative assessment of Goodwill. However, given macroeconomic conditions, specifically rising interest rates and their impact on discount rates, our goodwill excess fair value over carrying value is likely reduced as compared to the impairment test as of January 1, 2022.

If assumptions or estimates with respect to the Company's future performance vary from what is expected, including those assumptions relating to the supply chain constraints, interest rates, inflationary pressure on product and labor costs, geopolitical uncertainty in Europe and the threat of additional COVID-19 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. 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.

Note 2 – i 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:

Financial Instruments

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures - Gross Write-offs. The amendments in this update eliminate the accounting guidance for Troubled Debt Restructurings (TDRs) by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables. The update is applicable for financing receivables and net investments in leases that are within the scope of ASC 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. This update is effective for our fiscal year beginning on January 1, 2023, 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 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

Xerox 2022 Form 10-Q 12

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 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 2022:

Government Assistance

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The update increases the transparency surrounding government assistance by requiring disclosure of 1) the types of assistance received, 2) an entity’s accounting for the assistance, and 3) the effect of the assistance on the entity’s financial statements. We adopted this update effective for our fiscal year beginning January 1, 2022. The impact of adoption was not material to our Consolidated Financial Statements. Impacts on future periods will depend on the amounts of government assistance received. Prior to the COVID pandemic, the amounts of government assistance the Company received were not material and since the update is limited to increased disclosures, we do not expect the adoption to have a material impact on our financial condition, results of operations, and cash flows in future periods.

Business Combinations

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

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 statements and related disclosures.

Other Updates

In 2022 and 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:

•Fair Value Measurement: ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This update is effective for our fiscal year beginning January 1, 2024.

•Derivatives and Hedging: ASU 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method. This update is effective for our fiscal year beginning January 1, 2023.

•Equity Instruments: ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options). This update was 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 – i 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,

2022

2021

2022

2021

Primary geographical markets(1):

United States

i 992

i 1,015

i 1,932

i 1,989

Europe

i 467

i 514

i 933

i 1,013

Canada

i 135

i 104

i 250

i 197

Other

i 153

i 160

i 300

i 304

Total Revenues

i 1,747

i 1,793

i 3,415

i 3,503

Major product and services lines:

Equipment

i 366

i 429

i 680

i 810

Supplies, paper and other sales

i 301

i 241

i 579

i 462

Maintenance agreements(2)

i 446

i 448

i 875

i 883

Service arrangements(3)

i 478

i 508

i 964

i 997

Rental and other

i 104

i 111

i 212

i 240

Financing

i 52

i 56

i 105

i 111

Total Revenues

i 1,747

i 1,793

i 3,415

i 3,503

Sales channels:

Direct equipment lease(4)

i 144

i 189

i 279

i 336

Distributors & resellers(5)

i 298

i 289

i 559

i 543

Customer direct

i 225

i 192

i 421

i 393

Total Sales

i 667

i 670

i 1,259

i 1,272

_____________

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

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

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

(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 advance billings for maintenance and other services to be performed and were approximately $ i 144 and $ i 144 at June 30, 2022 and December 31, 2021, respectively. The majority of the balance at June 30, 2022 will be amortized to revenue over approximately the next i 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 i four years. We pay commensurate sales commissions upon customer renewals, therefore our amortization period is aligned to our initial contract term.

Incremental direct costs are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Incremental direct costs of obtaining a contract	$	i 15	$	i 17	$	i 28	$	i 30
Amortization of incremental direct costs	i 16		i 18		i 34		i 37

Xerox 2022 Form 10-Q 14

The balance of deferred incremental direct costs net of accumulated amortization at June 30, 2022 and December 31, 2021 was $ i 124 and $ i 132, respectively. This amount is expected to be amortized over its estimated period of benefit, which we currently estimate to be approximately i 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, 2022 and December 31, 2021, amounts deferred associated with contract fulfillment costs and inducements were $ i 12 and $ i 15, respectively, and the related amortization was $ i 2 and $ i 2 for the three months ended June 30, 2022 and 2021, respectively, and $ i 3 and $ i 3 for the six months ended June 30, 2022 and 2021, 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 – i 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 i one reportable segment to i two reportable segments - Print and Other, and Financing (FITTLE) to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies. Our i two reportable segments are based on the information reviewed by the CODM together with the Company’s management to evaluate performance of the business and allocate resources. As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments.

During 2021 we progressed with internally standing up of i three new businesses: Software (CareAR), Financing (FITTLE) and Innovation (PARC). As a result of this effort, during the first quarter of 2022, we reassessed our operating and reportable segments and determined that, based on the financial information reviewed by our CODM as well as the CEO’s management and assessment of the Company’s operations, we had i i two / 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 include A4 devices and desktop printers and multifunction devices that primarily serve small and medium workgroups/work teams.

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

•“High-End”, which include production printing and publishing systems that generally serve the graphic communications marketplace and print centers in 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 June 30,

2022

2021

Print and Other

Financing (FITTLE)

Total

Print and Other

Financing (FITTLE)

Total

External net revenue

i 1,599

i 148

i 1,747

i 1,619

i 174

i 1,793

Intersegment net revenue(1)

i 34

i 3

i 37

i 53

i 3

i 56

Total Segment net revenue

i 1,633

i 151

i 1,784

i 1,672

i 177

i 1,849

Segment profit

i 18

i 17

i 35

i 111

i 15

i 126

Segment margin(2)

i 1.1

i 11.5

i 2.0

i 6.9

i 8.6

i 7.0

Depreciation and amortization

i 28

i 30

i 58

i 29

i 41

i 70

Interest income

i —

i 52

i —

i 56

Interest expense(3)

i —

i 28

i —

i 30

Six Months Ended June 30,

2022

2021

Print and Other

Financing (FITTLE)

Total

Print and Other

Financing (FITTLE)

Total

External net revenue

i 3,112

i 303

i 3,415

i 3,152

i 351

i 3,503

Intersegment net revenue(1)

i 71

i 6

i 77

i 101

i 6

i 107

Total Segment net revenue

i 3,183

i 309

i 3,492

i 3,253

i 357

i 3,610

Segment (loss) profit

( i 2)

i 34

i 32

i 182

i 33

i 215

Segment (loss) margin(2)

( i 0.1)

i 11.2

i 0.9

i 5.8

i 9.4

i 6.1

Depreciation and amortization

i 57

i 62

i 119

i 58

i 83

i 141

Interest income

i —

i 105

i —

i 111

Interest expense(3)

i —

i 54

i —

i 60

_____________

(1)Intersegment net revenue is 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.

(3)Interest expense for the Financing Segment includes non-financing interest expense on allocated debt associated with Equipment on operating lease of $ i 2 and $ i 2 for the three months ended June 30, 2022 and 2021, respectively, and $ i 4 and $ i 4 for the six months ended June 30, 2022 and 2021, respectively.

Xerox 2022 Form 10-Q 16

Selected financial information for our reportable segments was as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Pre-tax (Loss) Income

Total reported segments

i 35

i 126

i 32

i 215

Restructuring and related costs, net

( i 1)

( i 12)

( i 19)

( i 29)

Amortization of intangible assets

( i 10)

( i 14)

( i 21)

( i 29)

Accelerated share vesting

( i 21)

i —

( i 21)

i —

Other expenses, net

( i 8)

( i 1)

( i 65)

( i 5)

Total Pre-tax (loss) income

( i 5)

i 99

( i 94)

i 152

Depreciation and Amortization

Total reported segments

i 58

i 70

i 119

i 141

Amortization of intangible assets

i 10

i 14

i 21

i 29

Total Depreciation and amortization

i 68

i 84

i 140

i 170

Interest Expense

Total reported segments

i 28

i 30

i 54

i 60

Corporate

i 21

i 22

i 48

i 44

Total Interest expense

i 49

i 52

i 102

i 104

Interest Income

Total reported segments

i 52

i 56

i 105

i 111

Corporate

i 3

i 1

i 4

i 2

Total Interest income

i 55

i 57

i 109

i 113

Note 5 – i i 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.

i i i

The components of lease income are as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,

Location in Statements of (Loss) Income

2022

2021

2022

2021

Revenue from sales type leases

Sales

i 144

i 189

i 279

i 336

Interest income on lease receivables

Financing

i 52

i 56

i 105

i 111

Lease income - operating leases

Services, maintenance and rentals

i 44

i 58

i 92

i 118

Variable lease income

Services, maintenance and rentals

i 16

i 31

Total Lease income

i 256

i 319

i 507

i 596

/ / /

Profit at lease commencement on sales-type leases was estimated to be $ i 44 and $ i 57 for the three months ended June 30, 2022 and 2021, respectively, and $ i 88 and $ i 101 for the six months ended June 30, 2022 and 2021, respectively.

Xerox 2022 Form 10-Q 17

Note 6 – i Acquisitions and Investments

Acquisition

In the first quarter 2022, Xerox acquired Powerland, a leading IT services provider in Canada, for approximately $ i 52 (CAD i 66 million). The acquisition also includes contingent consideration up to approximately $ i 22 (CAD i 28 million) based on future performance of the acquisition over the next i two years. The acquisition strengthens Xerox’s IT services offerings in North America, which include cloud, cyber security, end user computing and managed services. The goodwill associated with the acquisition of Powerland is included in our Print and Other segment.

The operating results of this acquisition are not material to our financial statements and are included within our results from the acquisition date. The purchase price was all cash for i 100% ownership of the acquired company and was primarily allocated to Intangible assets, net (approximately $ i 39) and Goodwill (approximately $ i 40), with the remainder to tangible assets and assumed/recorded liabilities. The allocations are based on preliminary management estimates, which continue to be reviewed, and are expected to be finalized by the end of 2022 and may include input and support from third-party valuations. Any adjustments to the preliminary allocations are not expected to be material.

Note 7 – i 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. i Estimated savings from these various government assistance programs are recorded as follows in the Condensed Consolidated Statements of (Loss) Income:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Cost of services, maintenance and rentals	$	i —	$	i 6	$	i —	$	i 13

Selling, administrative and general expenses	i —		i 4		i —		i 7
Total Estimated savings	$	i —	$	i 10	$	i —	$	i 20

Cash, Cash Equivalents and Restricted Cash

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 22 - 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:

Cash and cash equivalents

i 1,151

i 1,840

Restricted cash

Litigation deposits in Brazil

i 39

i 34

Escrow and cash collections related to secured borrowing arrangements(1)

i 36

i 32

Other restricted cash

i 1

i 3

Total Restricted cash

i 76

i 69

Cash, cash equivalents and restricted cash

i 1,227

i 1,909

_____________

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

/ i

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

Other current assets

i 36

i 33

Other long-term assets

i 40

i 36

Total Restricted cash

i 76

i 69

Xerox 2022 Form 10-Q 18

Supplemental Cash Flow Information

Summarized cash flow information is as follows:

Six Months Ended
June 30,

2022

2021

Provision for receivables

i 21

i 15

Provision for inventory

i 14

i 19

Provision for product warranties

i 3

i 4

Depreciation of buildings and equipment

i 34

i 38

Depreciation and obsolescence of equipment on operating leases

i 62

i 83

Amortization of internal use software

i 23

i 20

Amortization of acquired intangible assets

i 21

i 29

Amortization of customer contract costs(1)

i 37

i 40

Cost of additions to land, buildings and equipment

i 19

i 12

Cost of additions to internal use software

i 10

i 21

Common stock dividends - Xerox Holdings

i 81

i 101

Preferred stock dividends - Xerox Holdings

i 7

Payments to noncontrolling interests

i 1

i —

Investment from noncontrolling interests

i 5

Repurchases related to stock-based compensation - Xerox Holdings

i 10

i 14

_____________

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

Note 8 – i Accounts Receivable, Net

Accounts receivable, net were as follows:

Invoiced

i 703

i 660

Accrued(1)

i 212

i 216

Allowance for doubtful accounts

( i 63)

( i 58)

Accounts receivable, net

i 852

i 818

_____________

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

/ i

The allowance for doubtful accounts was as follows:

2022

2021

Balance at January 1st

i 58

i 69

Provision

i 9

i 4

Charge-offs

( i 3)

( i 5)

Recoveries and other(1)

( i 1)

i 0

Balance at March 31st

i 63

i 68

Provision

i 3

i 1

Charge-offs

( i 2)

Recoveries and other(1)

( i 1)

i 1

Balance at June 30th

i 63

i 68

_____________

(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 i 6.9% at June 30, 2022 and i 6.6% at December 31, 2021. The increase in the allowance is primarily due to an increased provision to cover expected write-offs of 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 i 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, $ i 84 and $ i 102 remained uncollected as of June 30, 2022 and December 31, 2021, respectively.

Accounts receivable sales activity was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Accounts receivable sales(1)	$	i 120	$	i 125	$	i 236	$	i 232

____________

(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.

Note 9 - 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:

Gross receivables

i 3,418

i 3,568

Unearned income

( i 355)

( i 380)

Subtotal

i 3,063

i 3,188

Residual values

i —

Allowance for doubtful accounts

( i 116)

( i 118)

Finance receivables, net

i 2,947

i 3,070

Less: Billed portion of finance receivables, net

i 83

i 94

Less: Current portion of finance receivables not billed, net

i 1,019

i 1,042

Finance receivables due after one year, net

i 1,845

i 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 i 3.8% at June 30, 2022 and i 3.7% and i 4.0% at December 31, 2021 and 2020, respectively. In determining the level of reserve required we critically assessed current and forecasted economic conditions and trends to ensure we objectively considered those expected impacts in the determination of our reserve. Our assessment also included a review of current portfolio credit metrics and the level of write-offs incurred over the past year.

Our allowance for doubtful finance receivables is effectively determined by geography. The risk characteristics in our finance receivable portfolio segments are generally 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.

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 and deal with recent macro-economic trends including higher interest rates and inflation as well as the prospects of a potential recession. In addition, there is also 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 elevated and 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 trends, 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

i 77

i 11

i 30

i 118

Provision

i 3

i —

i 3

i 6

Charge-offs

( i 2)

( i 1)

( i 4)

Recoveries and other(2)

i —

i 1

( i 1)

i —

Balance at March 31, 2022

i 78

i 11

i 31

i 120

Provision

i —

i 1

i 3

i 4

Charge-offs

( i 3)

( i 1)

( i 2)

( i 6)

Recoveries and other(2)

i —

( i 2)

Balance at June 30, 2022

i 75

i 11

i 30

i 116

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

i 1,861

i 230

i 972

i 3,063

Balance at December 31, 2020

i 77

i 15

i 41

i 133

Provision

i 2

i 1

i 3

i 6

Charge-offs

( i 2)

i —

( i 1)

( i 3)

Recoveries and other(2)

i 1

i —

( i 2)

( i 1)

Balance at March 31, 2021

i 78

i 16

i 41

i 135

Provision

i 6

( i 1)

( i 3)

i 2

Charge-offs

( i 3)

( i 1)

( i 5)

Recoveries and other(2)

i —

i 1

i —

i 1

Balance at June 30, 2021

i 81

i 15

i 37

i 133

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

i 1,845

i 283

i 1,122

i 3,250

_____________

(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 $ i 116 and $ i 133 at June 30, 2022 and 2021, respectively.

In the U.S., customers are further evaluated by class based on the type of lease origination. The primary categories are direct, which primarily includes leases originated directly with end customers through bundled lease arrangements, and indirect, which primarily includes leases originated through our XBS sales channel and lease financing to end-user customers who purchased equipment we sold to distributors or resellers.

Xerox 2022 Form 10-Q 21

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 i 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 i 2% to i 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 i 7% to i 10%.

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:

2022

2021

2020

2019

2018

Prior

Total
Finance
Receivables

United States (Direct)

Low Credit Risk

i 80

i 124

i 104

i 74

i 44

i 9

i 435

Average Credit Risk

i 40

i 33

i 43

i 15

i 4

i 175

High Credit Risk

i 28

i 82

i 60

i 24

i 9

i 4

i 207

Total

i 148

i 246

i 197

i 141

i 68

i 17

i 817

United States (Indirect)

Low Credit Risk

i 111

i 189

i 108

i 67

i 24

i 3

i 502

Average Credit Risk

i 112

i 189

i 95

i 61

i 24

i 4

i 485

High Credit Risk

i 11

i 23

i 14

i 6

i 3

i —

i 57

Total

i 234

i 401

i 217

i 134

i 51

i 7

i 1,044

Canada

Low Credit Risk

i 11

i 27

i 23

i 18

i 8

i 2

i 89

Average Credit Risk

i 18

i 29

i 28

i 22

i 10

i 3

i 110

High Credit Risk

i 4

i 7

i 10

i 5

i 4

i 1

i 31

Total

i 33

i 63

i 61

i 45

i 22

i 6

i 230

EMEA(1)

Low Credit Risk

i 124

i 190

i 108

i 80

i 42

i 9

i 553

Average Credit Risk

i 73

i 120

i 80

i 62

i 26

i 7

i 368

High Credit Risk

i 9

i 14

i 12

i 10

i 5

i 1

i 51

Total

i 206

i 324

i 200

i 152

i 73

i 17

i 972

Total Finance Receivables

Low Credit Risk

i 326

i 530

i 343

i 239

i 118

i 23

i 1,579

Average Credit Risk

i 243

i 378

i 236

i 188

i 75

i 18

i 1,138

High Credit Risk

i 52

i 126

i 96

i 45

i 21

i 6

i 346

Total

i 621

i 1,034

i 675

i 472

i 214

i 47

i 3,063

Xerox 2022 Form 10-Q 22

2021

2020

2019

2018

2017

Prior

Total
Finance
Receivables

United States (Direct)

Low Credit Risk

i 148

i 121

i 98

i 68

i 21

i 3

i 459

Average Credit Risk

i 60

i 40

i 57

i 23

i 8

i 2

i 190

High Credit Risk

i 91

i 73

i 31

i 16

i 6

i 1

i 218

Total

i 299

i 234

i 186

i 107

i 35

i 6

i 867

United States (Indirect)

Low Credit Risk

i 235

i 145

i 100

i 43

i 11

i —

i 534

Average Credit Risk

i 201

i 103

i 74

i 35

i 10

i —

i 423

High Credit Risk

i 24

i 15

i 8

i 4

i 1

i —

i 52

Total

i 460

i 263

i 182

i 82

i 22

i —

i 1,009

Canada

Low Credit Risk

i 32

i 27

i 22

i 13

i 3

i 1

i 98

Average Credit Risk

i 34

i 27

i 15

i 6

i 1

i 117

High Credit Risk

i 8

i 12

i 7

i 5

i 4

i —

i 36

Total

i 74

i 73

i 56

i 33

i 13

i 2

i 251

EMEA(1)

Low Credit Risk

i 229

i 143

i 121

i 71

i 22

i 6

i 592

Average Credit Risk

i 156

i 109

i 84

i 45

i 15

i 3

i 412

High Credit Risk

i 18

i 15

i 13

i 8

i 3

i —

i 57

Total

i 403

i 267

i 218

i 124

i 40

i 9

i 1,061

Total Finance Receivables

Low Credit Risk

i 644

i 436

i 341

i 195

i 57

i 10

i 1,683

Average Credit Risk

i 451

i 286

i 242

i 118

i 39

i 6

i 1,142

High Credit Risk

i 141

i 115

i 59

i 33

i 14

i 1

i 363

Total

i 1,236

i 837

i 642

i 346

i 110

i 17

i 3,188

_____________

(1)Includes developing market countries.

Xerox 2022 Form 10-Q 23

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:

Current

31-90

Days

Past Due

>90 Days

Past Due

Total Billed

Unbilled

Total

Finance

Receivables

>90 Days

and

Accruing

Direct

i 26

i 5

i 6

i 37

i 780

i 817

i 57

Indirect

i 23

i 5

i 33

i 1,011

i 1,044

i —

Total United States

i 49

i 10

i 11

i 70

i 1,791

i 1,861

i 57

Canada

i 5

i 1

i —

i 6

i 224

i 230

i 9

EMEA(1)

i 8

i 2

i —

i 10

i 962

i 972

i 8

Total

i 62

i 13

i 11

i 86

i 2,977

i 3,063

i 74

Current

31-90

Days

Past Due

>90 Days

Past Due

Total Billed

Unbilled

Total

Finance

Receivables

>90 Days

and

Accruing

Direct

i 28

i 7

i 42

i 825

i 867

i 61

Indirect

i 28

i 5

i 4

i 37

i 972

i 1,009

i —

Total United States

i 56

i 12

i 11

i 79

i 1,797

i 1,876

i 61

Canada

i 6

i 1

i —

i 7

i 244

i 251

i 9

EMEA(1)

i 9

i 2

i 1

i 12

i 1,049

i 1,061

i 13

Total

i 71

i 15

i 12

i 98

i 3,090

i 3,188

i 83

_____________

(1)Includes developing market countries

Secured Borrowings and Collateral

In 2022 and 2021, we sold certain finance receivables to consolidated special purpose entities included in our Condensed Consolidated Balance Sheet as collateral for secured loans.

Refer to Note 13 - Debt, for additional information related to these arrangements.

Note 10 – i Inventories and Equipment on Operating Leases, Net

i The following is a summary of Inventories by major category:

Finished goods

i 607

i 568

Work-in-process

i 46

i 43

Raw materials

i 112

i 85

Total Inventories

i 765

i 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.

Xerox 2022 Form 10-Q 24

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

Equipment on operating leases

i 1,188

i 1,266

Accumulated depreciation

( i 962)

( i 1,013)

Equipment on operating leases, net

i 226

i 253

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

Secured Borrowings and Collateral

In 2021, we sold the rights to payments under operating leases to a consolidated special purpose entity included in our Condensed Consolidated Balance Sheet as collateral for a secured loan.

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

Note 11 – i Lessee

i 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 i ten 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,

2022

2021

2022

2021

Operating lease expense

i 24

i 27

i 49

i 54

Short-term lease expense

i 4

i 6

i 8

i 11

Variable lease expense(1)

i 13

i 11

i 25

i 23

Sublease income

( i 2)

( i 1)

( i 4)

( i 2)

Total Lease expense

i 39

i 43

i 78

i 86

_____________

(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 June 30, 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:

Other long-term assets

i 233

i 264

Accrued expenses and other current liabilities

i 75

i 79

Other long-term liabilities

i 175

i 204

Total Operating lease liabilities

i 250

i 283

Xerox 2022 Form 10-Q 25

Note 12 – i Restructuring Programs

We engage in restructuring actions, 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 months ended June 30, 2022, we recorded net restructuring charges of $ i 40, which included $ i 44 of severance costs related to headcount reductions of approximately i 1,050 employees worldwide, and $ i 1 of other contractual termination costs. These costs were partially offset by $ i 5 of net reversals, which primarily reflect changes in estimated reserves from prior period initiatives. Charges were primarily related to the Print and Other segment as amounts related to the Financing (FITTLE) segment were immaterial for all periods presented.

Information related to our restructuring programs is summarized below:

Severance and

Related Costs

Other Contractual Termination Costs(2)

Total

Balance at December 31, 2021

i 25

i 2

i 27

Provision

i 22

i —

i 22

Reversals

( i 3)

i —

( i 3)

Net current period charges(1)

i 19

i —

i 19

Charges against reserve and currency

( i 7)

i —

( i 7)

Balance at March 31, 2022

i 37

i 2

i 39

Provision

i 22

i 1

i 23

Reversals

( i 1)

( i 2)

Net current period charges(1)

i 21

i —

i 21

Charges against reserve and currency

( i 14)

i —

( i 14)

Balance at June 30, 2022

i 44

i 2

i 46

______________

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

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

/ i

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

Six Months Ended
June 30,

2022

2021

Charges against reserve and currency

( i 21)

( i 62)

Effects of foreign currency and other non-cash items

i —

i 13

Restructuring cash payments

( i 21)

( i 49)

/ i

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

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Retention related severance/bonuses(1)

i —

i 3

( i 2)

( i 1)

Contractual severance costs

( i 1)

i 3

( i 1)

i 3

Consulting and other costs(2)

i —

i 2

i —

i 2

Total

( i 1)

i 8

( i 3)

i 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 months ended June 30, 2022 and 2021 reflects a change in estimate.

Cash paid for restructuring related costs were $ i 2 and $ i 6 for the six months ended June 30, 2022 and 2021, respectively. The restructuring related costs reserve was $ i 13 and $ i 18 at June 30, 2022 and December 31, 2021, respectively. The balance at June 30, 2022 is expected to be paid over the next twelve months.

Xerox 2022 Form 10-Q 26

In connection with our restructuring programs, during the six months ended June 30, 2022, we recorded a net gain of $ i 18, which included a gain of $ i 20 on the sale of surplus buildings and land. Information related to our restructuring-related asset impairment activity is summarized below:

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Lease right of use assets(1)

i —

i 2

i 1

i 2

Owned assets(1)

i 1

i —

i 1

i 10

Asset impairments

i 1

i 2

i 12

Gain on sales of assets(2)

( i 20)

i —

( i 20)

i —

Adjustments/Reversals

i —

( i 1)

i —

( i 1)

Net asset impairment charges

( i 19)

i 1

( i 18)

i 11

______________

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

(2)Primarily related to the sale of land and a facility during the second quarter of 2022.

Note 13 – i Debt

Early Extinguishment of Senior Notes

In June 2022, we completed the early redemption of $ i 350 of the $ i 1 billion of Xerox Corporation i 4.625% Senior Notes due March 2023, for $ i 353 in cash consideration, which included an early redemption premium over par of $ i 3. The early redemption resulted in a net loss of $ i 4, inclusive of fees and the write-off of debt carrying value adjustments.

Xerox Holdings Corporation / Xerox Corporation Intercompany Loan

In February 2021, Xerox Holdings Corporation and Xerox Corporation entered into an Intercompany Loan agreement for the net proceeds of $ i 1,494 contributed by Xerox Holdings Corporation to Xerox Corporation in 2020. The intercompany loan was established to mirror the terms included in Xerox Holdings Corporation’s 2025 and 2028 Senior Notes, including interest rates and payment dates. The intercompany interest expense also includes a ratable amount to reimburse Xerox Holdings Corporation for its debt issuance costs and premium.

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

Credit Facility

In July 2022, Xerox Corporation entered into an agreement for a new $ i 500 revolving Credit Facility. This new facility replaced our prior $ i 1.5 billion Credit Facility. Refer to Note 23 - Subsequent Events for additional information related to this Credit Facility.

Secured Borrowings and Collateral

In 2022 and 2021, we entered into secured loan agreements with various financial institutions where we sold finance receivables and rights to payments under our equipment on operating leases to special purpose entities (SPEs). The purchases by the SPEs were funded through amortizing secured loans to the SPEs from the financial institutions. The loans have variable interest rates and expected lives of approximately i 2.5 years, with half projected to be repaid within the first year based on collections of the underlying portfolio of receivables. For certain loans, we entered into interest rate hedge agreements to either fix or cap the interest rate over the life of the loan.

The sales of the receivables to the 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 fully consolidate the SPEs in our financial statements. As a result, the assets of the SPEs are not available to satisfy any of our other obligations. Conversely, the credit holders of these SPEs do not have legal recourse to the Company’s general credit.

Xerox 2022 Form 10-Q 27

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

Finance Receivables, Net(1)

Equipment on Operating Leases, Net

Secured Debt(2)

Interest Rate

Expected Maturity

United States

January 2022

i 642

i —

i 549

i 3.02

2024

September 2021

i 238

i 6

i 207

i 1.78

2024

Total

i 880

i 6

i 756

Canada

April 2022

i 84

i 0

i 77

i 3.32

2025

Total

i 964

i 6

i 833

Finance Receivables, Net(1)

Equipment on Operating Leases, Net

Secured Debt(2)

Interest Rate

Expected Maturity

United States

September 2021

i 308

i 8

i 293

i 1.40

2024

December 2020

i 380

i —

i 267

i 1.74

2023

Total

i 688

i 8

i 560

_____________

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

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

Interest Expense and Income

Interest expense and income were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Interest expense(1)(2)	$	i 49	$	i 52	$	i 102	$	i 104
Interest income(3)	i 55		i 57		i 109		i 113

____________

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

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

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

Xerox 2022 Form 10-Q 28

Note 14 – i 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.

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, 2022 and December 31, 2021, we had outstanding forward exchange and purchased option contracts with gross notional values of $ i 1,170 and $ i 1,113 respectively, with terms of less than 12 months. Approximately i 81% of the contracts at June 30, 2022 mature within three months, i 9% mature in three to six months and i 10% in six to twelve months. There have not been any material changes in our hedging strategy.

Foreign Currency Cash Flow Hedges

We designate a portion of our foreign currency derivative contracts as cash flow hedges of our foreign currency-denominated inventory purchases, sales and expenses. The net liability fair value of these contracts were $ i 28 and $ i 3 as of June 30, 2022 and December 31, 2021, respectively.

Summary of Derivative Instruments Fair Value

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

Designation of Derivatives

Balance Sheet Location

Derivatives Designated as Hedging Instruments

Foreign exchange contracts - forwards

Other current assets

i 2

i 3

Accrued expenses and other current liabilities

( i 30)

( i 6)

Interest rate cap

Other long-term assets

i 4

i 1

Net designated derivative liabilities

( i 24)

( i 2)

Derivatives NOT Designated as Hedging Instruments

Foreign exchange contracts – forwards

Other current assets

i 2

i 1

Accrued expenses and other current liabilities

( i 9)

( i 5)

Net undesignated derivative liabilities

( i 7)

( i 4)

Summary of Derivatives

Total Derivative assets

i 8

i 5

Total Derivative liabilities

( i 39)

( i 11)

Net Derivative liabilities

( i 31)

( i 6)

Xerox 2022 Form 10-Q 29

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,

Loss on Derivative Instruments

2022

2021

2022

2021

Cash Flow Hedges - Foreign Exchange Forward Contracts and Options

Derivative loss recognized in OCI (effective portion)

( i 23)

( i 2)

( i 38)

( i 12)

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

( i 4)

( i 2)

( i 6)

( i 3)

During the six months ended June 30, 2022 and 2021, i i 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, i i no / amount was recorded for an underlying exposure that did not occur or was not expected to occur.

As of June 30, 2022, a net after-tax loss of $ i 27 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	Location of Derivative Gain (Loss)	Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021
Foreign exchange contracts – forwards	Other expense – Currency losses, net	$	( i 14)	$	( i 4)	$	( i 23)	$	( i 22)

Currency losses, net were $ i 1 and $ i 1 for the three months ended June 30, 2022 and 2021, respectively, and $ i 1 and $ i 3 for six months ended June 30, 2022 and 2021, 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.

Xerox 2022 Form 10-Q 30

Note 15 – i 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.

Assets

Foreign exchange contracts - forwards

i 4

Interest rate cap

i 4

i 1

Deferred compensation plan investments in mutual funds

i 14

i 18

Total

i 22

i 23

Liabilities

Foreign exchange contracts - forwards

i 39

i 11

Deferred compensation plan liabilities

i 14

i 18

Total

i 53

i 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:

Carrying

Amount

Fair

Value

Carrying

Amount

Fair

Value

Cash and cash equivalents

i 1,151

i 1,840

Accounts receivable, net

i 852

i 818

Short-term debt and current portion of long-term debt

i 1,108

i 1,110

i 650

i 653

Long-term Debt

Xerox Holdings Corporation

i 1,495

i 1,337

i 1,494

i 1,579

Xerox Corporation

i 895

i 786

i 1,892

i 1,987

Xerox - Other Subsidiaries(1)

i 374

i 376

i 210

Long-term debt

i 2,764

i 2,499

i 3,596

i 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 2022 Form 10-Q 31

Note 16 – i 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,

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

Components of Net Periodic Benefit Costs:

2022

2021

2022

2021

2022

2021

Service cost

i 1

i 4

i 5

i 1

i —

Interest cost

i 24

i 19

i 33

i 22

i 2

Expected return on plan assets

( i 24)

( i 27)

( i 59)

( i 52)

i —

Recognized net actuarial loss (gain)

i 3

i 4

i 6

i 14

( i 1)

i —

Amortization of prior service credit

i —

( i 1)

i —

( i 3)

( i 16)

Recognized settlement loss

i 15

i 13

i —

Defined benefit plans

i 19

i 9

( i 16)

( i 11)

( i 1)

( i 14)

Defined contribution plans

i 5

i —

i 4

i 5

n/a

Net Periodic Benefit Cost (Credit)

i 24

i 9

( i 12)

( i 6)

( i 1)

( i 14)

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

Net actuarial (gain) loss(1)

( i 7)

( i 25)

i 31

i —

i 2

Prior service cost

i —

i 48

i —

Amortization of net actuarial (loss) gain

( i 18)

( i 17)

( i 6)

( i 14)

i 1

i —

Amortization of net prior service credit

i —

i 1

i —

i 3

i 16

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

( i 25)

( i 41)

i 73

( i 14)

i 4

i 18

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income

( i 1)

( i 32)

i 61

( i 20)

i 3

i 4

Six Months Ended June 30,

Pension Benefits

U.S. Plans

Non-U.S. Plans

Retiree Health

Components of Net Periodic Benefit Costs:

2022

2021

2022

2021

2022

2021

Service cost

i 1

i 8

i 10

i 1

Interest cost

i 44

i 37

i 62

i 44

i 4

Expected return on plan assets

( i 51)

( i 55)

( i 114)

( i 104)

i —

Recognized net actuarial loss (gain)

i 7

i 9

i 12

i 29

( i 1)

i —

Amortization of prior service credit

i —

( i 1)

i —

( i 7)

( i 33)

Recognized settlement loss

i 33

i 28

i —

Defined benefit plans

i 34

i 19

( i 32)

( i 21)

( i 3)

( i 28)

Defined contribution plans

i 10

i —

i 8

i 10

n/a

Net Periodic Benefit Cost (Credit)

i 44

i 19

( i 24)

( i 11)

( i 3)

( i 28)

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

Net actuarial loss (gain)(1)

i 7

( i 69)

i 31

i 1

( i 7)

i 2

Prior service cost (credit)

i —

i 48

i —

( i 23)

i —

Amortization of net actuarial (loss) gain

( i 40)

( i 37)

( i 12)

( i 29)

i 1

i —

Amortization of prior service credit

i —

i 1

i —

i 7

i 33

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

( i 33)

( i 105)

i 67

( i 28)

( i 22)

i 35

Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income

i 11

( i 86)

i 43

( i 39)

( i 25)

i 7

_____________

(1)The net actuarial loss (gain) 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 the actuarial valuation results based on the January 1st plan census data. The non-U.S. net actuarial loss reflects remeasurement related to the second quarter 2022 Pension Plan amendment in the UK.

(2)Amounts represent the pre-tax effect included within Other Comprehensive (Loss) Income. Refer to Note 20 - Other Comprehensive (Loss) Income for related tax effects and the after-tax amounts.

Xerox 2022 Form 10-Q 32

Contributions

i 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,

2022

2021

Estimated 2022

2021

U.S. plans

i 12

i 25

i 24

Non-U.S. plans

i 51

i 57

i 105

i 111

Total Pension plans

i 63

i 69

i 130

i 135

Retiree Health

i 9

i 11

i 25

Total Retirement plans

i 72

i 80

i 155

i 160

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

Retiree Health Plan Amendment

During the first quarter of 2022, we amended our U.S. Retiree Health Plan to reduce certain benefits for existing union retirees through the reduction or elimination of coverage or cost-sharing subsidies for retiree health care and life insurance costs. This negative plan amendment resulted in a reduction of approximately $ i 23 in the Company's postretirement benefit obligation. The amount for the plan amendment will be amortized to future net periodic benefit costs as a prior service credit.

Pension Plan Amendment

In April 2022, our U.K. defined benefit pension plan was amended, at the sole discretion of the Plan Trustees as legally allowed, to increase the capped inflation indexation for the April 2022 pension increase award to i 7.5% in line with the December 2021 UK Retail Price Index (RPI). This amendment resulted in an increase of approximately $ i 48 (GBP i 39 million) in the projected benefit obligation (PBO) for this plan (approximately i 1.4% of the plan PBO as of December 31, 2021). The associated impacts from the required remeasurement of the plan assets and obligations for updates to discount rates, actual returns and actuarial experience as of the effective date of the amendment resulted in an additional actuarial loss of $ i 31. Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements included in the 2021 Annual Report for additional information regarding our U.K. defined benefit pension plan including its funding status as of December 31, 2021.

Xerox 2022 Form 10-Q 33

Note 17 – i 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

Balance at March 31, 2022

i 156

i 1,560

( i 32)

i 5,532

( i 3,032)

i 4,184

i 5

i 4,189

Comprehensive loss, net

—

( i 4)

( i 298)

( i 302)

( i 1)

( i 303)

Cash dividends declared - common(3)

—

( i 41)

—

( i 41)

—

( i 41)

Cash dividends declared - preferred(4)

—

( i 3)

—

( i 3)

—

( i 3)

Stock option and incentive plans, net

i 1

i 34

—

i 35

—

i 35

Cancellation of treasury stock

( i 2)

( i 30)

i 32

—

i —

Investment from noncontrolling interests

—

i 5

Balance at June 30, 2022

i 155

i 1,564

i —

i 5,484

( i 3,330)

i 3,873

i 9

i 3,882

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

i 199

i 2,456

( i 162)

i 6,267

( i 3,335)

i 5,425

i 4

i 5,429

Comprehensive income, net

—

i 91

i 70

i 161

—

i 161

Cash dividends declared - common(3)

—

( i 47)

—

( i 47)

—

( i 47)

Cash dividends declared - preferred(4)

—

( i 3)

—

( i 3)

—

( i 3)

Stock option and incentive plans, net

i —

i 5

—

i 5

—

i 5

Payments to acquire treasury stock, including fees

—

( i 251)

—

( i 251)

—

( i 251)

Cancellation of treasury stock

( i 10)

( i 244)

i 254

—

i —

Investment from noncontrolling interests

—

i 1

—

i 1

i 4

i 5

Other

—

( i 4)

—

( i 4)

—

( i 4)

Balance at June 30, 2021

i 189

i 2,214

( i 159)

i 6,308

( i 3,265)

i 5,287

i 8

i 5,295

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, 2021

i 168

i 1,802

( i 177)

i 5,631

( i 2,988)

i 4,436

i 7

i 4,443

Comprehensive loss, net

—

( i 60)

( i 342)

( i 402)

( i 2)

( i 404)

Cash dividends declared - common(3)

—

( i 80)

—

( i 80)

—

( i 80)

Cash dividends declared - preferred(4)

—

( i 7)

—

( i 7)

—

( i 7)

Stock option and incentive plans, net

i 1

i 38

—

i 39

—

i 39

Payments to acquire treasury stock, including fees

—

( i 113)

—

( i 113)

—

( i 113)

Cancellation of treasury stock

( i 14)

( i 276)

i 290

—

i —

Investment from noncontrolling interests

—

i 5

Distributions to noncontrolling interests

—

( i 1)

Balance at June 30, 2022

i 155

i 1,564

i —

i 5,484

( i 3,330)

i 3,873

i 9

i 3,882

Xerox 2022 Form 10-Q 34

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

i 198

i 2,445

i —

i 6,281

( i 3,332)

i 5,592

i 4

i 5,596

Comprehensive income, net

—

i 130

i 67

i 197

—

i 197

Cash dividends declared - common(3)

—

( i 96)

—

( i 96)

—

( i 96)

Cash dividends declared - preferred(4)

—

( i 7)

—

( i 7)

—

( i 7)

Stock option and incentive plans, net

i 1

i 16

—

i 17

—

i 17

Payments to acquire treasury stock, including fees

—

( i 413)

—

( i 413)

—

( i 413)

Cancellation of treasury stock

( i 10)

( i 244)

i 254

—

i —

Investment from noncontrolling interests

—

i 1

—

i 1

i 4

i 5

Other

—

( i 4)

—

( i 4)

—

( i 4)

Balance at June 30, 2021

i 189

i 2,214

( i 159)

i 6,308

( i 3,265)

i 5,287

i 8

i 5,295

_____________

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

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

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

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

Common Stock and Treasury Stock

The following is a summary of the changes in Common and Treasury stock shares:

Common Stock Shares

Treasury Stock Shares

Balance at December 31, 2021

i 168,069

i 8,675

Stock based compensation plans, net

i 630

i —

Acquisition of Treasury stock

i —

i 5,174

Cancellation of Treasury stock

( i 12,341)

Balance at March 31, 2022

i 156,358

i 1,508

Stock based compensation plans, net

i 116

i —

Cancellation of Treasury stock

( i 1,508)

Balance at June 30, 2022

i 154,966

i —

Xerox 2022 Form 10-Q 35

Note 18 – 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, 2022

i 3,592

i 3,871

( i 3,032)

i 4,431

i 5

i 4,436

Comprehensive loss, net

—

( i 4)

( i 298)

( i 302)

( i 1)

( i 303)

Dividends declared to parent

—

( i 47)

—

( i 47)

—

( i 47)

Transfers from parent

i 38

—

i 38

—

i 38

Investment from noncontrolling interests

—

i 5

Balance at June 30, 2022

i 3,630

i 3,820

( i 3,330)

i 4,120

i 9

i 4,129

Additional Paid-in Capital

Retained Earnings

AOCL(1)

Xerox Shareholder's Equity

Non-

controlling

Interests

Total

Equity

Balance at March 31, 2021

i i 3,360 /

i i 5,672 /

( i i 3,335 / )

i i 5,697 /

i i 4 /

i i 5,701 /

Comprehensive income, net

—

i 91

i 70

i 161

i —

i 161

Dividends declared to parent

—

( i 358)

—

( i 358)

—

( i 358)

Transfers from parent

i 52

—

i 52

—

i 52

Investment from noncontrolling interests

i 1

—

i 1

i 4

i 5

Balance at June 30, 2021

i 3,413

i 5,405

( i 3,265)

i 5,553

i 8

i 5,561

Additional Paid-in Capital

Retained Earnings

AOCL(1)

Xerox Shareholder's Equity

Non- controlling Interests

Total

Equity

Balance at December 31, 2021

i 3,202

i 4,476

( i 2,988)

i 4,690

i 7

i 4,697

Comprehensive loss, net

—

( i 60)

( i 342)

( i 402)

( i 2)

( i 404)

Dividends declared to parent

—

( i 596)

—

( i 596)

—

( i 596)

Transfers from parent

i 428

—

i 428

—

i 428

Investment from noncontrolling interests

—

i 5

Distributions to noncontrolling interests

—

( i 1)

Balance at June 30, 2022

i 3,630

i 3,820

( i 3,330)

i 4,120

i 9

i 4,129

Additional Paid-in Capital

Retained Earnings

AOCL(1)

Xerox Shareholder's Equity

Non- controlling Interests

Total

Equity

Balance at December 31, 2020

i 4,888

i 5,834

( i 3,332)

i 7,390

i 4

i 7,394

Comprehensive income, net

—

i 130

i 67

i 197

i —

i 197

Dividends declared to parent

—

( i 559)

—

( i 559)

—

( i 559)

Intercompany loan capitalization(2)

( i 1,494)

—

( i 1,494)

—

( i 1,494)

Transfers from parent

i 18

—

i 18

—

i 18

Investment from noncontrolling interests

i 1

—

i 1

i 4

i 5

Balance at June 30, 2021

i 3,413

i 5,405

( i 3,265)

i 5,553

i 8

i 5,561

_____________

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

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

Xerox 2022 Form 10-Q 36

Note 19 – i Stock-Based Compensation

Stock-based compensation expense of $ i 50 for the six months ended June 30, 2022 reflects $ i 21 of accelerated expense associated with the vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO.

Stock Options – CareAR Holdings, LLC

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

In March 2022, the CareAR Holdings, LLC Board approved the CareAR 2022 Equity Compensation Plan (the “Plan”) and authorized the issuance of i 105 thousand stock options (SOs) to certain executives and employees of Xerox and CareAR. Compensation expense of $ i 30 associated with i 90 thousand SOs currently awarded under the Plan is based upon the grant date fair value, as determined by utilizing a Black-Scholes option-pricing model and is expected to be recorded on a straight-line basis over i 4.7 years, based on the vesting period and management’s estimate of the number of SOs expected to vest. SOs vest on an annual, graduated schedule beginning January 2023 through January 2027 as follows: i 10% in January 2023 and 2024, respectively, i 20% in January 2025 and 2026, respectively, and i 40% in January 2027 based upon continued service. Options granted under the Plan are subject to terms and conditions as determined by the CareAR Board and become vested and exercisable at any time subsequent to the scheduled vesting dates and may expire i 90 days or i one year from employee termination, depending on cause, but in no event later than i ten years from the May 2022 grant date. The terms of the awards also include certain provisions that allow for the immediate vesting in the event of a sale of the entity.

Note 20 - i Other Comprehensive (Loss) Income

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

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Pre-tax

Net of Tax

Pre-tax

Net of Tax

Pre-tax

Net of Tax

Pre-tax

Net of Tax

Translation Adjustments (Losses) Gains

( i 295)

( i 287)

i 55

i 54

( i 366)

( i 359)

i 3

Unrealized (Losses) Gains

Changes in fair value of cash flow hedges losses

( i 23)

( i 16)

( i 2)

( i 1)

( i 38)

( i 29)

( i 12)

( i 9)

Changes in cash flow hedges reclassed to earnings(1)

i 4

i 2

i 1

i 6

i 4

i 3

i 2

Net Unrealized Losses

( i 19)

( i 14)

i —

( i 32)

( i 25)

( i 9)

( i 7)

Defined Benefit Plans (Losses) Gains

Net actuarial/prior service (losses) gains

( i 72)

( i 55)

i 23

i 17

( i 56)

( i 43)

i 66

i 49

Prior service amortization(2)

( i 3)

( i 2)

( i 17)

( i 13)

( i 7)

( i 5)

( i 34)

( i 25)

Actuarial loss amortization/settlement(2)

i 23

i 17

i 31

i 23

i 51

i 38

i 66

i 49

Other gains (losses)(3)

i 43

( i 11)

i 52

( i 2)

Changes in Defined Benefit Plans (Losses) Gains

( i 9)

i 3

i 26

i 16

i 40

i 42

i 96

i 71

Other Comprehensive (Loss) Income Attributable to Xerox Holdings/Xerox

( i 323)

( i 298)

i 81

i 70

( i 358)

( i 342)

i 90

i 67

____________

(1)Reclassified to Cost of sales - refer to Note 14 - Financial Instruments for additional information regarding our cash flow hedges.

(2)Reclassified to Total Net Periodic Benefit Cost - refer to Note 16 - 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)

i AOCL is comprised of the following:

Cumulative translation adjustments

( i 2,220)

( i 1,861)

Other unrealized losses, net

( i 27)

( i 2)

Benefit plans net actuarial losses and prior service credits

( i 1,083)

( i 1,125)

Total Accumulated Other Comprehensive Loss Attributable to Xerox Holdings/Xerox

( i 3,330)

( i 2,988)

Xerox 2022 Form 10-Q 37

Note 21 – i (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,

2022

2021

2022

2021

Basic (Loss) Earnings per Share

Net (Loss) Income Attributable to Xerox Holdings

( i 4)

i 91

( i 60)

i 130

Accrued dividends on preferred stock

( i 3)

( i 7)

Adjusted Net (loss) income available to common shareholders

( i 7)

i 88

( i 67)

i 123

Weighted average common shares outstanding(1)

i 155,170

i 187,009

i 155,897

i 191,433

Basic (Loss) Earnings per Share

( i 0.05)

i 0.47

( i 0.43)

i 0.64

Diluted (Loss) Earnings per Share

Net (Loss) Income Attributable to Xerox Holdings

( i 4)

i 91

( i 60)

i 130

Accrued dividends on preferred stock

( i 3)

( i 7)

Adjusted Net (loss) income available to common shareholders

( i 7)

i 88

( i 67)

i 123

Weighted average common shares outstanding(1)

i 155,170

i 187,009

i 155,897

i 191,433

Common shares issuable with respect to:

Stock options

i —

Restricted stock and performance shares

i —

i 2,012

i —

i 2,096

Convertible preferred stock

i —

Adjusted weighted average common shares outstanding

i 155,170

i 189,021

i 155,897

i 193,529

Diluted (Loss) Earnings per Share

( i 0.05)

i 0.46

( i 0.43)

i 0.64

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

i 693

i 694

i 693

i 694

Restricted stock and performance shares

i 6,178

i 4,647

i 6,178

i 4,562

Convertible preferred stock

i 6,742

Total Anti-Dilutive Securities

i 13,613

i 12,083

i 13,613

i 11,998

Dividends per Common Share

i 0.25

i 0.50

____________

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

Note 22 – i 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

Xerox 2022 Form 10-Q 38

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. i Below is a summary of our Brazilian tax contingencies: