xrx-20200930

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


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

For the quarterly period ended: September 30, 2020


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

For the transition period from to


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


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

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

(203) 968-3000
(Registrant's telephone number, including area code)

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

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

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

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

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

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

Xerox Holdings Corporation

Xerox Corporation

Large accelerated filer

☒

Large accelerated filer

☐

Accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Smaller reporting company

☐

Emerging growth company

☐

Emerging growth company

☐

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

Xerox Holdings Corporation o Xerox Corporation o

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

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


Class						Outstanding at October 31, 2020
Xerox Holdings Corporation Common Stock, $1 par value						198,384,932 shares

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document, and other written or oral statements made from time to time by management contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should”, “targeting”, “projecting”, “driving” and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: the effects of the COVID-19 pandemic on our and our customers' businesses and the duration and extent to which this will impact our future results of operations and overall financial performance; our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; our ability to attract and retain key personnel; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; the exit of the United Kingdom from the European Union; our ability to manage changes in the printing environment and expand equipment placements; interest rates, cost of borrowing and access to credit markets; funding requirements associated with our employee pension and retiree health benefit plans; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; any impacts resulting from the restructuring of our relationship with Fujifilm Holdings Corporation; and the shared services arrangements entered into by us as part of Project Own It. Additional risks that may affect Xerox’s operations and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this combined Quarterly Report on Form 10-Q, Xerox Holdings Corporation’s and Xerox Corporation’s combined Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and Xerox Holdings Corporation’s and Xerox Corporation’s combined 2019 Annual Report on Form 10-K, as well as in Xerox Holdings Corporation’s and Xerox Corporation’s Current Reports on Form 8-K filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document or as of the date to which they refer, and Xerox assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

Xerox 2020 Form 10-Q

XEROX HOLDINGS CORPORATION

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 Form 10-Q unless expressly noted.

Xerox 2020 Form 10-Q

ITEM 1 — FINANCIAL STATEMENTS

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per-share data)	2020		2019		2020		2019
Revenues
Sales	$	651	$	784	$	1,676	$	2,308
Services, maintenance and rentals	1,061		1,335		3,246		4,130
Financing	55		60		170		184
Total Revenues	1,767		2,179		5,092		6,622
Costs and Expenses
Cost of sales	476		503		1,201		1,492
Cost of services, maintenance and rentals	611		771		1,875		2,398
Cost of financing	29		33		89		98
Research, development and engineering expenses	76		100		236		280
Selling, administrative and general expenses	444		510		1,411		1,573
Restructuring and related costs	20		27		64		176
Amortization of intangible assets	13		9		34		35
Transaction and related costs, net	(6)		4		18		8
Other expenses, net	(15)		(1)		15		76
Total Costs and Expenses	1,648		1,956		4,943		6,136
Income before Income Taxes and Equity Income	119		223		149		486
Income tax expense	29		66		36		106
Equity in net income of unconsolidated affiliates	—		1		2		5
Income from Continuing Operations	90		158		115		385
Income from discontinued operations, net of tax	—		64		—		157
Net Income	90		222		115		542
Less: Income from continuing operations attributable to noncontrolling interests	—		1		—		3
Less: Income from discontinued operations attributable to noncontrolling interests	—		—		—		4
Net Income Attributable to Xerox Holdings	$	90	$	221	$	115	$	535

Amounts Attributable to Xerox Holdings:
Income from continuing operations	$	90	$	157	$	115	$	382
Income from discontinued operations	—		64		—		153
Net Income Attributable to Xerox Holdings	$	90	$	221	$	115	$	535

Basic Earnings per Share:
Continuing operations	$	0.41	$	0.70	$	0.49	$	1.66
Discontinued operations	—		0.29		—		0.68
Total Basic Earnings per Share	$	0.41	$	0.99	$	0.49	$	2.34

Diluted Earnings per Share:
Continuing operations	$	0.41	$	0.68	$	0.49	$	1.62
Discontinued operations	—		0.28		—		0.65
Total Diluted Earnings per Share	$	0.41	$	0.96	$	0.49	$	2.27

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

Xerox 2020 Form 10-Q

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Net Income	$	90	$	222	$	115	$	542
Less: Income from continuing operations attributable to noncontrolling interests	—		1		—		3
Less: Income from discontinued operations attributable to noncontrolling interests	—		—		—		4
Net Income Attributable to Xerox Holdings	90		221		115		535

Other Comprehensive Income (Loss), Net(1)
Translation adjustments, net	179		(155)		7		(122)
Unrealized gains, net	1		1		4		3
Changes in defined benefit plans, net	(92)		(48)		42		(38)
Other Comprehensive Income (Loss), Net	88		(202)		53		(157)
Less: Other comprehensive income, net from continuing operations attributable to noncontrolling interests	—		1		—		1
Other Comprehensive Income (Loss), Net Attributable to Xerox Holdings	88		(203)		53		(158)

Comprehensive Income, Net	178		20		168		385
Less: Comprehensive income, net from continuing operations attributable to noncontrolling interests	—		2		—		4
Less: Comprehensive income, net from discontinued operations attributable to noncontrolling interests	—		—		—		4
Comprehensive Income, Net Attributable to Xerox Holdings	$	178	$	18	$	168	$	377

(1) Refer to Note 19 - Other Comprehensive Income (Loss) for gross components of Other comprehensive income (loss), net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

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

Xerox 2020 Form 10-Q

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	3,242	$	2,740
Accounts receivable (net of allowances of $63 and $55, respectively)(1)	895		1,236
Billed portion of finance receivables (net of allowances of $4 and $3, respectively)(1)	111		111
Finance receivables, net	1,066		1,158
Inventories	978		694

Other current assets	249		201
Total current assets	6,541		6,140
Finance receivables due after one year (net of allowances of $138 and $86, respectively)(1)	1,899		2,082
Equipment on operating leases, net	301		364
Land, buildings and equipment, net	412		426

Intangible assets, net	240		199
Goodwill	3,996		3,900
Deferred tax assets	573		598
Other long-term assets	1,390		1,338
Total Assets	$	15,352	$	15,047
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	1,218	$	1,049
Accounts payable	1,018		1,053
Accrued compensation and benefits costs	276		349


Accrued expenses and other current liabilities	815		984
Total current liabilities	3,327		3,435
Long-term debt	3,836		3,233
Pension and other benefit liabilities	1,675		1,707
Post-retirement medical benefits	336		352
Other long-term liabilities	512		512
Total Liabilities	9,686		9,239

Commitments and Contingencies (See Note 21)
Convertible Preferred Stock	214		214

Common stock	214		215

Additional paid-in capital	2,719		2,782
Treasury stock, at cost	(150)		(76)
Retained earnings	6,258		6,312
Accumulated other comprehensive loss	(3,593)		(3,646)
Xerox Holdings shareholders’ equity	5,448		5,587
Noncontrolling interests	4		7
Total Equity	5,452		5,594
Total Liabilities and Equity	$	15,352	$	15,047

Shares of common stock issued	213,964		214,621
Treasury stock	(8,007)		(2,031)
Shares of Common Stock Outstanding	205,957		212,590

(1) Allowances at September 30, 2020 determined in accordance with ASU 2016-13 adopted effective January 1, 2020 - refer to Notes 2, 8 and 9 for additional information.

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

Xerox 2020 Form 10-Q

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Cash Flows from Operating Activities
Net income	$	90	$	222	$	115	$	542
Income from discontinued operations, net of tax	—		(64)		—		(157)
Income from continuing operations	90		158		115		385
Adjustments required to reconcile Net income to Cash flows from operating activities
Depreciation and amortization	90		104		272		332
Provisions	23		16		124		58

Net gain on sales of businesses and assets	(28)		(19)		(29)		(20)

Stock-based compensation	8		11		32		41
Restructuring and asset impairment charges	20		8		47		80
Payments for restructurings	(11)		(17)		(63)		(71)
Defined benefit pension cost	9		21		46		89
Contributions to defined benefit pension plans	(33)		(37)		(97)		(107)
(Increase) decrease in accounts receivable and billed portion of finance receivables	(96)		51		332		60
(Increase) decrease in inventories	(49)		15		(274)		31
Increase in equipment on operating leases	(31)		(41)		(86)		(113)
Decrease in finance receivables	31		5		221		124
Decrease (increase) in other current and long-term assets	17		(14)		2		1
Increase (decrease) in accounts payable	90		22		(69)		(24)
Decrease in accrued compensation	(20)		(16)		(149)		(99)
(Decrease) increase in other current and long-term liabilities	(16)		26		(146)		19
Net change in income tax assets and liabilities	10		41		13		30
Net change in derivative assets and liabilities	1		5		(1)		15
Other operating, net	1		9		23		15
Net cash provided by operating activities of continuing operations	106		348		313		846
Net cash provided by operating activities of discontinued operations	—		8		—		49
Net cash provided by operating activities	106		356		313		895
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software	(18)		(17)		(60)		(48)
Proceeds from sales of businesses and assets	27		20		29		21


Acquisitions, net of cash acquired	—		—		(193)		(42)


Other investing, net	—		1		1		1


Net cash provided by (used in) investing activities	9		4		(223)		(68)
Cash Flows from Financing Activities
Net proceeds from short-term debt	1		—		1		—
Proceeds from issuance of long-term debt	1,849		2		1,854		7
Payments on long-term debt	(773)		—		(1,086)		(406)
Dividends	(61)		(61)		(176)		(183)



Payments to acquire treasury stock, including fees	(150)		(68)		(150)		(368)



Other financing, net	(10)		(10)		(19)		(33)
Net cash provided by (used in) financing activities	856		(137)		424		(983)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	12		(20)		(12)		(13)

Increase (decrease) in cash, cash equivalents and restricted cash	983		203		502		(169)
Cash, cash equivalents and restricted cash at beginning of period	2,314		776		2,795		1,148
Cash, Cash Equivalents and Restricted Cash at End of Period(1)	$	3,297	$	979	$	3,297	$	979

(1) Balance at September 30, 2019 includes $1 associated with discontinued operations.

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

Xerox 2020 Form 10-Q

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Revenues
Sales	$	651	$	784	$	1,676	$	2,308
Services, maintenance and rentals	1,061		1,335		3,246		4,130
Financing	55		60		170		184
Total Revenues	1,767		2,179		5,092		6,622
Costs and Expenses
Cost of sales	476		503		1,201		1,492
Cost of services, maintenance and rentals	611		771		1,875		2,398
Cost of financing	29		33		89		98
Research, development and engineering expenses	76		100		236		280
Selling, administrative and general expenses	444		510		1,411		1,573
Restructuring and related costs	20		27		64		176
Amortization of intangible assets	13		9		34		35
Transaction and related costs, net	(6)		4		18		8
Other expenses, net	(26)		(1)		4		76
Total Costs and Expenses	1,637		1,956		4,932		6,136
Income before Income Taxes and Equity Income	130		223		160		486
Income tax expense	29		66		36		106
Equity in net income of unconsolidated affiliates	—		1		2		5
Income from Continuing Operations	101		158		126		385
Income from discontinued operations, net of tax	—		64		—		157
Net Income	101		222		126		542
Less: Income from continuing operations attributable to noncontrolling interests	—		1		—		3
Less: Income from discontinued operations attributable to noncontrolling interests	—		—		—		4
Net Income Attributable to Xerox	$	101	$	221	$	126	$	535

Amounts Attributable to Xerox:
Net income from continuing operations	$	101	$	157	$	126	$	382
Net income from discontinued operations	—		64		—		153
Net Income Attributable to Xerox	$	101	$	221	$	126	$	535

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

Xerox 2020 Form 10-Q

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020	2019
Net Income	$	101	$	222	$


		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Xerox Holdings Corporation Condensed Consolidated Statements of Income	3
	Xerox Holdings Corporation Condensed Consolidated Statements of Comprehensive 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 Income	7
	Xerox Corporation Condensed Consolidated Statements of Comprehensive 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	41
	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	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
Signatures		71
Exhibit Index		72