UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2021

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

For the transition period from                        to

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

 (Exact Name of Registrant as specified in its charter)

New York	001-39013	83-3933743
New York	001-04471	16-0468020
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)
	P.O. Box 4505, 201 Merritt 7 Norwalk, Connecticut 06851-1056
	(Address of principal executive offices)
(203) 849-5216
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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 March 31, 2021
Xerox Holdings Corporation Common Stock, $1 par value	191,947,343 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 and Xerox Holdings Corporation’s and Xerox Corporation’s combined 2020 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.

Throughout this combined Quarterly Report on Form 10-Q ("combined Form 10-Q"), references to “Xerox Holdings” refer to Xerox Holdings Corporation and its consolidated subsidiaries while references to “Xerox” refer to Xerox Corporation and its consolidated subsidiaries. References herein to “we,” “us,” “our,” the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise. References to “Xerox Holdings Corporation” refer to the stand-alone parent company and do not include its subsidiaries. References to “Xerox Corporation” refer to the stand-alone company and do not include subsidiaries.

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

Xerox 2021 Form 10-Q 1

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

FORM 10-Q

March 31, 2021

TABLE OF CONTENTS

		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Xerox Holdings Corporation Condensed Consolidated Statements of Income (Loss)	3
	Xerox Holdings Corporation Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Xerox Holdings Corporation Condensed Consolidated Balance Sheets	5
	Xerox Holdings Corporation Condensed Consolidated Statements of Cash Flows	6
	Xerox Corporation Condensed Consolidated Statements of Income (Loss)	7
	Xerox Corporation Condensed Consolidated Statements of Comprehensive Income (Loss)	8
	Xerox Corporation Condensed Consolidated Balance Sheets	9
	Xerox Corporation Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
	Capital Resources and Liquidity	50
	Financial Risk Management	54
	Non-GAAP Financial Measures	55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58
Part II — Other Information
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60
Signatures		62
Exhibit Index		63

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

Xerox 2021 Form 10-Q 2

ITEM 1 — FINANCIAL STATEMENTS

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

	Three Months Ended March 31,
(in millions, except per-share data)	2021		2020
Revenues
Sales	$	602	$	565
Services, maintenance and rentals	1,053		1,236
Financing	55		59
Total Revenues	1,710		1,860
Costs and Expenses
Cost of sales	420		387
Cost of services, maintenance and rentals	651		731
Cost of financing	28		30
Research, development and engineering expenses	74		84
Selling, administrative and general expenses	448		541
Restructuring and related costs, net	17		41
Amortization of intangible assets	15		11
Transaction and related costs, net	—		17
Other expenses, net	4		23
Total Costs and Expenses	1,657		1,865
Income (Loss) before Income Taxes and Equity Income	53		(5)
Income tax expense (benefit)	14		(1)
Equity in net income of unconsolidated affiliates	—		2
Net Income (Loss)	39		(2)
Less: Net income attributable to noncontrolling interests	—		—
Net Income (Loss) Attributable to Xerox Holdings	$	39	$	(2)
Basic Earnings (Loss) per Share	$	0.18	$	(0.03)
Diluted Earnings (Loss) per Share	$	0.18	$	(0.03)

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

Xerox 2021 Form 10-Q 3

XEROX HOLDINGS CORPORATION

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

	Three Months Ended March 31,
(in millions)	2021		2020
Net Income (Loss)	$	39	$	(2)
Less: Net income attributable to noncontrolling interests	—		—
Net Income (Loss) Attributable to Xerox Holdings	39		(2)
Other Comprehensive (Loss) Income, Net(1)
Translation adjustments, net	(51)		(197)
Unrealized (losses) gains, net	(7)		5
Changes in defined benefit plans, net	55		54
Other Comprehensive Loss, Net Attributable to Xerox Holdings	(3)		(138)
Comprehensive Income (Loss), Net Attributable to Xerox Holdings	$	36	$	(140)

_____________

(1) Refer to Note 17 - Other Comprehensive Income (Loss) for gross components of Other comprehensive loss, net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

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

Xerox 2021 Form 10-Q 4

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands)	March 31, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	2,379	$	2,625
Accounts receivable (net of allowance of $68 and $69, respectively)	781		883
Billed portion of finance receivables (net of allowance of $4 and $4, respectively)	92		99
Finance receivables, net	1,065		1,082
Inventories	841		843
Other current assets	262		251
Total current assets	5,420		5,783
Finance receivables due after one year (net of allowance of $131 and $129, respectively)	1,920		1,984
Equipment on operating leases, net	277		296
Land, buildings and equipment, net	393		407
Intangible assets, net	223		237
Goodwill	4,075		4,071
Deferred tax assets	510		508
Other long-term assets	1,454		1,455
Total Assets	$	14,272	$	14,741
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	678	$	394
Accounts payable	932		983
Accrued compensation and benefits costs	241		261
Accrued expenses and other current liabilities	794		840
Total current liabilities	2,645		2,478
Long-term debt	3,674		4,050
Pension and other benefit liabilities	1,473		1,566
Post-retirement medical benefits	339		340
Other long-term liabilities	498		497
Total Liabilities	8,629		8,931
Commitments and Contingencies (See Note 19)
Convertible Preferred Stock	214		214
Common stock	199		198
Additional paid-in capital	2,456		2,445
Treasury stock, at cost	(162)		—
Retained earnings	6,267		6,281
Accumulated other comprehensive loss	(3,335)		(3,332)
Xerox Holdings shareholders’ equity	5,425		5,592
Noncontrolling interests	4		4
Total Equity	5,429		5,596
Total Liabilities and Equity	$	14,272	$	14,741
Shares of common stock issued	198,651		198,386
Treasury stock	(6,704)		—
Shares of Common Stock Outstanding	191,947		198,386

.

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

Xerox 2021 Form 10-Q 5

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
(in millions)	2021		2020
Cash Flows from Operating Activities
Net Income (Loss)	$	39	$	(2)
Adjustments required to reconcile Net income (loss) to Cash flows from operating activities
Depreciation and amortization	86		94
Provisions	20		80
Net gain on sales of businesses and assets	—		(1)
Stock-based compensation	16		11
Restructuring and asset impairment charges	21		29
Payments for restructurings	(27)		(35)
Defined benefit pension cost	—		24
Contributions to defined benefit pension plans	(35)		(33)
Decrease in accounts receivable and billed portion of finance receivables	92		166
Increase in inventories	(18)		(126)
Increase in equipment on operating leases	(28)		(32)
Decrease in finance receivables	37		93
Decrease (increase) in other current and long-term assets	18		(16)
(Decrease) increase in accounts payable	(31)		51
Decrease in accrued compensation	(36)		(108)
Decrease in other current and long-term liabilities	(35)		(38)
Net change in income tax assets and liabilities	6		(10)
Net change in derivative assets and liabilities	3		8
Other operating, net	(11)		18
Net cash provided by operating activities	117		173
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software	(17)		(23)
Proceeds from sales of businesses and assets	—		2
Acquisitions, net of cash acquired	—		(193)
Net cash used in investing activities	(17)		(214)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	—		2
Payments on long-term debt	(95)		—
Dividends	(54)		(58)
Payments to acquire treasury stock, including fees	(162)		—
Other financing, net	(7)		(4)
Net cash used in financing activities	(318)		(60)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(12)		(29)
Decrease in cash, cash equivalents and restricted cash	(230)		(130)
Cash, cash equivalents and restricted cash at beginning of period	2,691		2,795
Cash, Cash Equivalents and Restricted Cash at End of Period	$	2,461	$	2,665

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

Xerox 2021 Form 10-Q 6

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

	Three Months Ended March 31,
(in millions)	2021		2020
Revenues
Sales	$	602	$	565
Services, maintenance and rentals	1,053		1,236
Financing	55		59
Total Revenues	1,710		1,860
Costs and Expenses
Cost of sales	420		387
Cost of services, maintenance and rentals	651		731
Cost of financing	28		30
Research, development and engineering expenses	74		84
Selling, administrative and general expenses	447		541
Restructuring and related costs, net	17		41
Amortization of intangible assets	14		11
Transaction and related costs, net	—		17
Other expenses, net	4		23
Total Costs and Expenses	1,655		1,865
Income (Loss) before Income Taxes and Equity Income	55		(5)
Income tax expense (benefit)	14		(1)
Equity in net income of unconsolidated affiliates	—		2
Net Income (Loss)	41		(2)
Less: Net income attributable to noncontrolling interests	—		—
Net Income (Loss) Attributable to Xerox	$	41	$	(2)

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

Xerox 2021 Form 10-Q 7

XEROX CORPORATION

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

	Three Months Ended March 31,
(in millions)	2021		2020
Net Income (Loss)	$	41	$	(2)
Less: Net income attributable to noncontrolling interests	—		—
Net Income (Loss) Attributable to Xerox	41		(2)
Other Comprehensive (Loss) Income, Net(1)
Translation adjustments, net	(51)		(197)
Unrealized (losses) gains, net	(7)		5
Changes in defined benefit plans, net	55		54
Other Comprehensive Loss, Net Attributable to Xerox	(3)		(138)
Comprehensive Income (Loss), Net Attributable to Xerox	$	38	$	(140)

_____________

(1) Refer to Note 17 - Other Comprehensive Income (Loss) for gross components of Other comprehensive loss, net, reclassification adjustments out of Accumulated other comprehensive loss and related tax effects.

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

Xerox 2021 Form 10-Q 8

XEROX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions)	March 31, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	2,379	$	2,625
Accounts receivable (net of allowance of $68 and $69, respectively)	781		883
Billed portion of finance receivables (net of allowance of $4 and $4, respectively)	92		99
Finance receivables, net	1,065		1,082
Inventories	841		843
Other current assets	263		251
Total current assets	5,421		5,783
Finance receivables due after one year (net of allowance of $131 and $129, respectively)	1,920		1,984
Equipment on operating leases, net	277		296
Land, buildings and equipment, net	393		407
Intangible assets, net	216		229
Goodwill	4,072		4,068
Deferred tax assets	510		508
Other long-term assets	1,455		1,455
Total Assets	$	14,264	$	14,730
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	678	$	394
Accounts payable	932		983
Accrued compensation and benefits costs	241		261
Accrued expenses and other current liabilities	736		750
Total current liabilities	2,587		2,388
Long-term debt	2,180		2,557
Related party debt	1,494		—
Pension and other benefit liabilities	1,473		1,566
Post-retirement medical benefits	339		340
Other long-term liabilities	497		494
Total Liabilities	8,570		7,345
Commitments and Contingencies (See Note 19)
Additional paid-in capital	3,351		4,879
Retained earnings	5,674		5,834
Accumulated other comprehensive loss	(3,335)		(3,332)
Xerox shareholder's equity	5,690		7,381
Noncontrolling interests	4		4
Total Equity	5,694		7,385
Total Liabilities and Equity	$	14,264	$	14,730

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

Xerox 2021 Form 10-Q 9

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
(in millions)	2021		2020
Cash Flows from Operating Activities
Net Income (Loss)	$	41	$	(2)
Adjustments required to reconcile Net income (loss) to Cash flows from operating activities
Depreciation and amortization	85		94
Provisions	20		80
Net gain on sales of businesses and assets	—		(1)
Stock-based compensation	16		11
Restructuring and asset impairment charges	21		29
Payments for restructurings	(27)		(35)
Defined benefit pension cost	—		24
Contributions to defined benefit pension plans	(35)		(33)
Decrease in accounts receivable and billed portion of finance receivables	92		166
Increase in inventories	(18)		(126)
Increase in equipment on operating leases	(28)		(32)
Decrease in finance receivables	37		93
Decrease (increase) in other current and long-term assets	18		(16)
(Decrease) increase in accounts payable	(31)		51
Decrease in accrued compensation	(36)		(108)
Decrease in other current and long-term liabilities	(36)		(38)
Net change in income tax assets and liabilities	6		(10)
Net change in derivative assets and liabilities	3		8
Other operating, net	(11)		18
Net cash provided by operating activities	117		173
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software	(17)		(23)
Proceeds from sales of businesses and assets	—		2
Acquisitions, net of cash acquired	—		(193)
Net cash used in investing activities	(17)		(214)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	—		2
Payments on long-term debt	(95)		—
Distributions to parent	(220)		(58)
Other financing, net	(3)		(4)
Net cash used in financing activities	(318)		(60)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(12)		(29)
Decrease in cash, cash equivalents and restricted cash	(230)		(130)
Cash, cash equivalents and restricted cash at beginning of period	2,691		2,795
Cash, Cash Equivalents and Restricted Cash at End of Period	$	2,461	$	2,665

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

Xerox 2021 Form 10-Q 10

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Note 1 – Basis of Presentation

References to “Xerox Holdings” refer to Xerox Holdings Corporation and its consolidated subsidiaries while references to “Xerox” refer to Xerox Corporation and its consolidated subsidiaries. References herein to “we,” “us,” “our,” the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise. References to "Xerox Holdings Corporation" refer to the stand-alone parent company and do not include its subsidiaries. References to "Xerox Corporation" refer to the stand-alone company and do not include its subsidiaries.

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

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

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

As of March 31, 2021, although we did see certain improvement in our financial results as businesses gained confidence in the progress to control the COVID-19 pandemic and resumed investments in new printing technology and services, the pandemic continues to progress and impact our financial results. Accordingly, many of our estimates and assumptions continue to require an increased level of judgment and may have to change in the future as events continue to evolve and additional information becomes available.

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

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

Goodwill

Interim Impairment Evaluation

We perform our annual goodwill impairment testing in the fourth quarter of each year. After completing our quantitative impairment review in the fourth quarter 2020, we concluded that Goodwill was not impaired. Based on various forecast models, which we believe reflected the inherent uncertainty of the future, we estimated that the excess of fair value over carrying value ranged between 15% and 20%.

During the quarter ended March 31, 2021, although business performance continues to improve, we determined that the continued negative impacts on our current operations resulting from the COVID-19 pandemic as well as a market capitalization that remains less than book value required us to qualitatively assess whether a triggering event had occurred and whether it was more likely than not that our goodwill was impaired as of March 31, 2021. Based on our interim qualitative assessment as of March 31, 2021, we determined that it was more-likely-than-not that the fair value of the Company was greater than the net book value and that we did not have a “triggering event” requiring a quantitative or Step 1 assessment of goodwill. Our review of macroeconomic and industry considerations, as well as the Company's financial results for the first quarter 2021 and projections for the full year 2021, were consistent with the expectations and sensitivities assessed as part of our review performed in the fourth

Xerox 2021 Form 10-Q 11

quarter 2020. Further, although our market capitalization remained below our net book value, the Company's market capitalization did improve in the first quarter 2021.

If assumptions or estimates in the fair value calculations change or if future cash flows vary from what was expected, including those assumptions relating to the duration and severity of the financial impact from the COVID-19 pandemic, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

Note 2 – Recent Accounting Pronouncements

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

Accounting Standard Updates to be Adopted:

Debt

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 simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. This update is effective for our fiscal year beginning January 1, 2022. 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 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 2021:

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which was intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted this update effective for our fiscal year beginning January 1, 2021. The adoption did not have nor is expected to have a material impact on our results of operations, financial position or disclosures.

Other Updates

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

•Investments: ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323) and Derivatives and Hedging (Topic 815). This update is effective for our fiscal year beginning January 1, 2021.

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Note 3 – Revenue

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

	Three Months Ended March 31,
	2021		2020
Primary geographical markets(1):
United States	$	974	$	1,114
Europe	499		481
Canada	93		108
Other	144		157
Total Revenues	$	1,710	$	1,860
Major product and services lines:
Equipment	$	381	$	325
Supplies, paper and other sales	221		240
Maintenance agreements(2)	435		529
Service arrangements(3)	489		566
Rental and other	129		141
Financing	55		59
Total Revenues	$	1,710	$	1,860
Sales channels:
Direct equipment lease(4)	$	147	$	126
Distributors & resellers(5)	254		223
Customer direct	201		216
Total Sales	$	602	$	565

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

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

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

(4)Primarily reflects sales through bundled lease arrangements.

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

Contract Assets and Liabilities: We normally do not have contract assets, which are primarily unbilled accounts receivable that are conditional on something other than the passage of time. Our contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advanced billings for maintenance and other services to be performed and were approximately $126 and $130 at March 31, 2021 and December 31, 2020, respectively. The majority of the balance at March 31, 2021 is expected to be amortized to revenue over approximately the next 30 months.

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

Incremental direct costs are as follows:

	Three Months Ended March 31,
	2021		2020
Incremental direct costs of obtaining a contract	$	13	$	15
Amortization of incremental direct costs	19		21

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The balance of deferred incremental direct costs net of accumulated amortization at March 31, 2021 and December 31, 2020 was $140 and $145, respectively. This amount is expected to be amortized over its estimated period of benefit, which we currently estimate to be approximately four years.

We may also incur costs associated with our services arrangements to generate or enhance resources and assets that will be used to satisfy our future performance obligations included in these arrangements. These costs are considered contract fulfillment costs and are amortized over the contractual service period of the arrangement to cost of services. In addition, we provide inducements to certain customers in various forms, including contractual credits, which are capitalized and amortized as a reduction of revenue over the term of the contract. As of March 31, 2021 and December 31, 2020 amounts deferred associated with contract fulfillment costs and inducements were $17 and $13, respectively. The related amortization was $1 and $1 for the three months ended March 31, 2021 and 2020, respectively.

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

Note 4 – Lessor

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

The components of lease income are as follows:

		Three Months Ended March 31,
	Location in Statements of Income (Loss)	2021		2020
Revenue from sales type leases	Sales	$	147	$	126
Interest income on lease receivables	Financing	55		59
Lease income - operating leases	Services, maintenance and rentals	67		86
Variable lease income	Services, maintenance and rentals	15		22
Total Lease income		$	284	$	293

Profit at lease commencement on sales type leases was estimated to be $56 and $43 for the three months ended March 31, 2021 and 2020, respectively.

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Note 5 – Supplementary Financial Information

Cash, Cash Equivalents and Restricted Cash

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

	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	2,379	$	2,625
Restricted cash
Litigation deposits in Brazil	38		42
Escrow and cash collections related to secured borrowing arrangements(1)	43		22
Other restricted cash	1		2
Total Restricted cash	82		66
Cash, cash equivalents and restricted cash	$	2,461	$	2,691

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

Restricted cash primarily relates to cash collections on finance receivables that were pledged for secured borrowings as well as escrow cash deposits made in Brazil associated with ongoing litigation. As more fully discussed in Note 19 - 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.

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

	March 31, 2021		December 31, 2020
Other current assets	$	44	$	23
Other long-term assets	38		43
Total Restricted cash	$	82	$	66

Supplemental Cash Flow Information

Summarized cash flow information is as follows:

	Three Months Ended March 31,
	2021		2020
Provision for receivables	$	11	$	74
Provision for inventory	9		6
Provision for product warranty	2		2
Depreciation of buildings and equipment	19		21
Depreciation and obsolescence of equipment on operating leases	42		51
Amortization of internal use software	10		11
Amortization of acquired intangible assets(1)	15		11
Amortization of customer contract costs(2)	20		22
Cost of additions to land, buildings and equipment	8		18
Cost of additions to internal use software	9		5