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, 2023

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

For the transition period from                        to

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

 (Exact Name of Registrant as specified in its charter)

New York	001-39013	83-3933743
New York	001-04471	16-0468020
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)
	P.O. Box 4505, 201 Merritt 7 Norwalk, Connecticut 06851-1056
	(Address of principal executive offices)
(203) 849-5216
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Xerox Holdings Corporation
Common Stock, $1 par value	XRX	Nasdaq Global Select Market
(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, 2023
Xerox Holdings Corporation Common Stock, $1 par value	156,958,464 shares

Cautionary Statement Regarding Forward-Looking Statements

This combined Quarterly Report on Form 10-Q (Form 10-Q), 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 that involve certain risks and uncertainties. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “would”, “could”, “can” “should”, “targeting”, “projecting”, “driving”, “future”, “plan”, “predict”, “may” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Risk Factors.” The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Throughout this 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,” or the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise. References to “Xerox Holdings Corporation” refer to the stand-alone parent company and do not include its subsidiaries. References to “Xerox Corporation” refer to the stand-alone company and do not include subsidiaries.

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

Xerox 2023 Form 10-Q 1

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

FORM 10-Q

March 31, 2023

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	52
	Financial Risk Management	56
	Non-GAAP Financial Measures	57
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 4.	Controls and Procedures	60
Part II — Other Information
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
Signatures		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 2023 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)	2023		2022
Revenues
Sales	$	659	$	592
Services, maintenance and rentals	1,004		1,023
Financing	52		53
Total Revenues	1,715		1,668
Costs and Expenses
Cost of sales	425		435
Cost of services, maintenance and rentals	665		679
Cost of financing	36		24
Research, development and engineering expenses	64		78
Selling, administrative and general expenses	407		455
Restructuring and related costs, net	2		18
Amortization of intangible assets	11		11
Other expenses, net	20		57
Total Costs and Expenses	1,630		1,757
Income (Loss) before Income Taxes and Equity Income	85		(89)
Income tax expense (benefit)	14		(31)
Equity in net income of unconsolidated affiliates	—		1
Net Income (Loss)	71		(57)
Less: Net loss attributable to noncontrolling interests	—		(1)
Net Income (Loss) Attributable to Xerox Holdings	$	71	$	(56)
Basic Earnings (Loss) per Share	$	0.43	$	(0.38)
Diluted Earnings (Loss) per Share	$	0.43	$	(0.38)

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

Xerox 2023 Form 10-Q 3

XEROX HOLDINGS CORPORATION

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

	Three Months Ended March 31,
(in millions)	2023		2022
Net Income (Loss)	$	71	$	(57)
Less: Net loss attributable to noncontrolling interests	—		(1)
Net Income (Loss) Attributable to Xerox Holdings	71		(56)
Other Comprehensive Income (Loss), Net(1)
Translation adjustments, net	92		(72)
Unrealized gains (losses), net	4		(11)
Changes in defined benefit plans, net	(14)		39
Other Comprehensive Income (Loss), Net	82		(44)
Less: Other comprehensive loss, net attributable to noncontrolling interests	(1)		—
Other Comprehensive Income (Loss), Net Attributable to Xerox Holdings	83		(44)
Comprehensive Income (Loss), Net	153		(101)
Less: Comprehensive loss, net attributable to noncontrolling interests	(1)		(1)
Comprehensive Income (Loss), Net Attributable to Xerox Holdings	$	154	$	(100)

_____________

(1) Refer to Note 18 - 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 2023 Form 10-Q 4

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands)	March 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	591	$	1,045
Accounts receivable (net of allowance of $53 and $52, respectively)	818		857
Billed portion of finance receivables (net of allowance of $4 and $4, respectively)	94		93
Finance receivables, net	1,022		1,061
Inventories	863		797
Other current assets	252		254
Total current assets	3,640		4,107
Finance receivables due after one year (net of allowance of $97 and $113, respectively)	1,864		1,948
Equipment on operating leases, net	250		235
Land, buildings and equipment, net	311		320
Intangible assets, net	202		208
Goodwill, net	2,850		2,820
Deferred tax assets	598		582
Other long-term assets	1,331		1,323
Total Assets	$	11,046	$	11,543
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	553	$	860
Accounts payable	1,301		1,331
Accrued compensation and benefits costs	243		258
Accrued expenses and other current liabilities	782		881
Total current liabilities	2,879		3,330
Long-term debt	2,726		2,866
Pension and other benefit liabilities	1,168		1,175
Post-retirement medical benefits	182		184
Other long-term liabilities	400		411
Total Liabilities	7,355		7,966
Commitments and Contingencies (See Note 20)
Noncontrolling Interests	10		10
Convertible Preferred Stock	214		214
Common stock	157		156
Additional paid-in capital	1,594		1,588
Retained earnings	5,162		5,136
Accumulated other comprehensive loss	(3,454)		(3,537)
Xerox Holdings shareholders’ equity	3,459		3,343
Noncontrolling interests	8		10
Total Equity	3,467		3,353
Total Liabilities and Equity	$	11,046	$	11,543
Shares of Common Stock Issued and Outstanding	156,958		155,781

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

Xerox 2023 Form 10-Q 5

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
(in millions)	2023		2022
Cash Flows from Operating Activities
Net Income (Loss)	$	71	$	(57)
Adjustments required to reconcile Net income (loss) to cash flows provided by operating activities
Depreciation and amortization	64		72
Provisions	—		19
Stock-based compensation	14		15
Restructuring and asset impairment charges	1		20
Payments for restructurings	(6)		(7)
Non-service retirement-related costs	(1)		(7)
Contributions to retirement plans	(17)		(38)
Decrease in accounts receivable and billed portion of finance receivables	39		13
Increase in inventories	(64)		(31)
Increase in equipment on operating leases	(40)		(36)
Decrease in finance receivables	160		41
Decrease (increase) in other current and long-term assets	3		(1)
(Decrease) increase in accounts payable	(41)		111
(Decrease) increase in accrued compensation	(16)		22
Decrease in other current and long-term liabilities	(128)		(43)
Net change in income tax assets and liabilities	18		(39)
Net change in derivative assets and liabilities	13		7
Other operating, net	8		5
Net cash provided by operating activities	78		66
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software	(8)		(16)
Proceeds from sales of businesses and assets	1		—
Acquisitions, net of cash acquired	(7)		(54)
Other investing, net	(3)		(5)
Net cash used in investing activities	(17)		(75)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	—		668
Payments on long-term debt	(452)		(646)
Dividends	(45)		(46)
Payments to acquire treasury stock, including fees	—		(113)
Other financing, net	(8)		(12)
Net cash used in financing activities	(505)		(149)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	2		10
Decrease in cash, cash equivalents and restricted cash	(442)		(148)
Cash, cash equivalents and restricted cash at beginning of period	1,139		1,909
Cash, Cash Equivalents and Restricted Cash at End of Period	$	697	$	1,761

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

Xerox 2023 Form 10-Q 6

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

	Three Months Ended March 31,
(in millions)	2023		2022
Revenues
Sales	$	659	$	592
Services, maintenance and rentals	1,004		1,023
Financing	52		53
Total Revenues	1,715		1,668
Costs and Expenses
Cost of sales	425		435
Cost of services, maintenance and rentals	665		679
Cost of financing	36		24
Research, development and engineering expenses	64		78
Selling, administrative and general expenses	407		455
Restructuring and related costs, net	2		18
Amortization of intangible assets	11		11
Other expenses, net	20		57
Total Costs and Expenses	1,630		1,757
Income (Loss) before Income Taxes and Equity Income	85		(89)
Income tax expense (benefit)	14		(31)
Equity in net income of unconsolidated affiliates	—		1
Net Income (Loss)	71		(57)
Less: Net loss attributable to noncontrolling interests	—		(1)
Net Income (Loss) Attributable to Xerox	$	71	$	(56)

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

Xerox 2023 Form 10-Q 7

XEROX CORPORATION

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

	Three Months Ended March 31,
(in millions)	2023		2022
Net Income (Loss)	$	71	$	(57)
Less: Net loss attributable to noncontrolling interests	—		(1)
Net Income (Loss) Attributable to Xerox	71		(56)
Other Comprehensive Income (Loss), Net(1)
Translation adjustments, net	92		(72)
Unrealized gains (losses), net	4		(11)
Changes in defined benefit plans, net	(14)		39
Other Comprehensive Income (Loss), Net	82		(44)
Less: Other comprehensive loss, net attributable to noncontrolling interests	(1)		—
Other Comprehensive Income (Loss), Net Attributable to Xerox	83		(44)
Comprehensive Income (Loss), Net	153		(101)
Less: Comprehensive loss, net attributable to noncontrolling interests	(1)		(1)
Comprehensive Income (Loss), Net Attributable to Xerox	$	154	$	(100)

_____________

(1) Refer to Note 18 - 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 2023 Form 10-Q 8

XEROX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions)	March 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	591	$	1,045
Accounts receivable (net of allowance of $53 and $52, respectively)	818		857
Billed portion of finance receivables (net of allowance of $4 and $4, respectively)	94		93
Finance receivables, net	1,022		1,061
Inventories	863		797
Other current assets	252		254
Total current assets	3,640		4,107
Finance receivables due after one year (net of allowance of $97 and $113, respectively)	1,864		1,948
Equipment on operating leases, net	250		235
Land, buildings and equipment, net	311		320
Intangible assets, net	202		208
Goodwill, net	2,850		2,820
Deferred tax assets	598		582
Other long-term assets	1,307		1,302
Total Assets	$	11,022	$	11,522
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	553	$	860
Accounts payable	1,301		1,331
Accrued compensation and benefits costs	243		258
Accrued expenses and other current liabilities	735		834
Total current liabilities	2,832		3,283
Long-term debt	1,230		1,370
Related party debt	1,496		1,496
Pension and other benefit liabilities	1,168		1,175
Post-retirement medical benefits	182		184
Other long-term liabilities	400		411
Total Liabilities	7,308		7,919
Commitments and Contingencies (See Note 20)
Noncontrolling Interests	10		10
Additional paid-in capital	3,695		3,693
Retained earnings	3,455		3,427
Accumulated other comprehensive loss	(3,454)		(3,537)
Xerox shareholder's equity	3,696		3,583
Noncontrolling interests	8		10
Total Equity	3,704		3,593
Total Liabilities and Equity	$	11,022	$	11,522

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

Xerox 2023 Form 10-Q 9

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
(in millions)	2023		2022
Cash Flows from Operating Activities
Net Income (Loss)	$	71	$	(57)
Adjustments required to reconcile Net income (loss) to cash flows provided by operating activities
Depreciation and amortization	64		72
Provisions	—		19
Stock-based compensation	14		15
Restructuring and asset impairment charges	1		20
Payments for restructurings	(6)		(7)
Non-service retirement-related costs	(1)		(7)
Contributions to retirement plans	(17)		(38)
Decrease in accounts receivable and billed portion of finance receivables	39		13
Increase in inventories	(64)		(31)
Increase in equipment on operating leases	(40)		(36)
Decrease in finance receivables	160		41
Decrease (increase) in other current and long-term assets	3		(1)
(Decrease) increase in accounts payable	(41)		111
(Decrease) increase in accrued compensation	(16)		22
Decrease in other current and long-term liabilities	(128)		(43)
Net change in income tax assets and liabilities	18		(39)
Net change in derivative assets and liabilities	13		7
Other operating, net	8		5
Net cash provided by operating activities	78		66
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software	(8)		(16)
Proceeds from sales of businesses and assets	1		—
Acquisitions, net of cash acquired	(7)		(54)
Net cash used in investing activities	(14)		(70)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	—		668
Payments on long-term debt	(452)		(646)
Distributions to parent	(54)		(174)
Other financing, net	(2)		(2)
Net cash used in financing activities	(508)		(154)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	2		10
Decrease in cash, cash equivalents and restricted cash	(442)		(148)
Cash, cash equivalents and restricted cash at beginning of period	1,139		1,909
Cash, Cash Equivalents and Restricted Cash at End of Period	$	697	$	1,761

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

Xerox 2023 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,” and 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 2022 Annual Report on Form 10-K (2022 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 2022 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 “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

Our Goodwill, net balance was $2,850 and $2,820 at March 31, 2023 and December 31, 2022, respectively. 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.

In the first quarter 2023 the Company's actual results as well as its latest projections for the full year 2023 were in line with expectations reviewed as part of our fourth quarter 2022 Goodwill qualitative assessment. In addition, discounts rates and the Company’s market capitalization in the first quarter 2023 remained steady with the fourth quarter 2022. Accordingly, based on our interim assessment as of March 31, 2023, we determined that we did not have a “triggering event” requiring a quantitative assessment of Goodwill.

If the Company's future performance varies from current expectations, assumptions, or estimates, including assumptions related to the continued unfavorable macro-economic trends and uncertainties, 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 throughout the remainder of 2023 including updates to our forecasts as well as discount rates and our market capitalization, and an update of our assessment and related estimates may be required in the future.

Xerox 2023 Form 10-Q 11

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:

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. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

There has been no material impact to date as a result of adopting these ASUs 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 2023:

Liabilities

In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding were effective for our fiscal year beginning on January 1, 2023. The new standard’s requirement to disclose a rollforward of obligations outstanding will be effective for our fiscal year beginning on January 1, 2024. Refer to Note 6 - Supplementary Financial Information for the required disclosures effective January 1, 2023.

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 disclosure of current-period gross write-offs by year of origination 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 was effective for our fiscal year beginning on January 1, 2023. The provisions of this amendment are to be applied on a prospective basis. Refer to Note 8 - Finance Receivables, Net for required disclosures regarding gross write-offs by vintage year.

Other Updates

In 2023 and 2022, 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 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force). This update is effective for our fiscal year beginning January 1, 2024.

•Leases: ASU 2023-01, Leases (Topic 842): Common Control Arrangements. This update is effective for our fiscal year beginning January 1, 2024.

Xerox 2023 Form 10-Q 12

•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 was effective for our fiscal year beginning January 1, 2023.

Note 3 – Revenue

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

	Three Months Ended March 31,
	2023		2022
Primary geographical markets(1):
United States	$	947	$	940
Europe	474		466
Canada	144		115
Other	150		147
Total Revenues	$	1,715	$	1,668
Major product and services lines:
Equipment	$	391	$	314
Supplies, paper and other sales(2)	268		278
Maintenance agreements(3)	409		429
Service arrangements(4)	495		486
Rental and other	100		108
Financing	52		53
Total Revenues	$	1,715	$	1,668
Sales channels:
Direct equipment lease(5)	$	230	$	135
Distributors & resellers(6)	260		261
Customer direct	169		196
Total Sales	$	659	$	592

_____________

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

(2)Other sales include revenues associated with IT hardware.

(3)Includes revenues from maintenance agreements on sold equipment as well as IT services and revenues associated with service agreements sold through our channel partners.

(4)Primarily includes revenues from our Print and digital services outsourcing arrangements, including revenues from embedded operating leases in those arrangements, which were not significant.

(5)Primarily reflects sales through bundled lease arrangements.

(6)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 $132 and $131 at March 31, 2023 and December 31, 2022, respectively. The majority of the balance at March 31, 2023 will be amortized to revenue over approximately the next 30 months.

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

Xerox 2023 Form 10-Q 13

Incremental direct costs are as follows:

	Three Months Ended March 31,
	2023		2022
Incremental direct costs of obtaining a contract	$	16	$	13
Amortization of incremental direct costs	16		18

The balance of deferred incremental direct costs net of accumulated amortization at March 31, 2023 and December 31, 2022 was $125 and $125, 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. The balance of contract fulfillment costs and inducements net of accumulated amortization at March 31, 2023 and December 31, 2022 was $9 and $10, respectively. The related amortization was $0 and $1 for the three months ended March 31, 2023 and 2022, respectively.

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

Note 4 – Segment Reporting

Our reportable segments are aligned with how we manage the business and view the markets we serve. We have two reportable segments - Print and Other, and Financing (FITTLE). Our two reportable segments are determined based on the information reviewed by the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), together with the Company’s management to evaluate performance of the business and allocate resources.

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 team environments as well as products in the Light Production product groups serving centralized print centers, print for pay and low 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 our FITTLE 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.

The FITTLE segment provides global leasing solutions and currently offers financing for direct channel customer purchases of Xerox equipment through bundled lease agreements, lease financing to end-user customers who purchase Xerox and non-Xerox equipment through our indirect channels and leasing solutions for OEMs of print and non-print related office equipment and IT services equipment. Segment revenues primarily include financing income on sales-type leases, operating lease income (including month-to-month rentals and extensions) and leasing fees. Segment revenues also include gains/losses from the sale of finance receivables as well as related commission and servicing fees.

Xerox 2023 Form 10-Q 14

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 segments may not be indicative of the results the businesses would have as on a standalone basis or what might be presented for the businesses 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 FITTLE segment also includes interest expense associated with allocated debt of the Company in support of its Finance assets, while no interest expense is allocated to the Print and Other segment.

Selected financial information for our reportable segments was as follows:

	Three Months Ended March 31,
	2023						2022
	Print and Other		FITTLE		Total		Print and Other		FITTLE		Total
External revenue	$	1,564	$	151	$	1,715	$	1,513	$	155	$	1,668
Intersegment revenue(1)	49		3		52		37		3		40
Total Segment revenue	$	1,613	$	154	$	1,767	$	1,550	$	158	$	1,708