xrx-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: June 30, 2024


☐			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 and Zip Code)

(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 July 31, 2024
Xerox Holdings Corporation Common Stock, $1 par value						124,331,734 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, 2023 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 2024 Form 10-Q 1

XEROX HOLDINGS CORPORATION

XEROX CORPORATION

FORM 10-Q

June 30, 2024

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	44
	Capital Resources and Liquidity	59
	Financial Risk Management	63
	Non-GAAP Financial Measures	63
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	68
Part II — Other Information
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
Signatures		72

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 2024 Form 10-Q 2

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per-share data)	2024		2023		2024		2023
Revenues
Sales	$	611	$	696	$	1,134	$	1,355
Services, maintenance and rentals	929		1,009		1,866		2,013
Financing	38		49		80		101
Total Revenues	1,578		1,754		3,080		3,469
Costs and Expenses
Cost of sales	387		452		727		877
Cost of services, maintenance and rentals	642		671		1,334		1,336
Cost of financing	29		34		56		70
Research, development and engineering expenses	50		57		99		121
Selling, administrative and general expenses	393		433		790		840

Restructuring and related costs, net	12		23		51		25
Amortization of intangible assets	10		10		20		21
Divestitures	(3)		—		51		—
PARC Donation	—		132		—		132
Other expenses, net	33		31		77		51
Total Costs and Expenses	1,553		1,843		3,205		3,473
Income (Loss) before Income Taxes	25		(89)		(125)		(4)
Income tax expense (benefit)	7		(28)		(30)		(14)



Net Income (Loss)	18		(61)		(95)		10

Less: Preferred stock dividends, net	(3)		(3)		(7)		(7)
Net Income (Loss) Attributable to Common Shareholders	$	15	$	(64)	$	(102)	$	3









Basic Earnings (Loss) per Share	$	0.12	$	(0.41)	$	(0.83)	$	0.02





Diluted Earnings (Loss) per Share	$	0.11	$	(0.41)	$	(0.83)	$	0.02

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

Xerox 2024 Form 10-Q 3

XEROX HOLDINGS CORPORATION

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2024		2023		2024		2023
Net Income (Loss)	$	18	$	(61)	$	(95)	$	10




Other Comprehensive (Loss) Income, Net(1)
Translation adjustments, net	(20)		49		(52)		142
Unrealized losses, net	—		(5)		(1)		(1)
Changes in defined benefit plans, net	6		(27)		42		(41)
Other Comprehensive (Loss) Income, Net	(14)		17		(11)		100



Comprehensive Income (Loss), Net	$	4	$	(44)	$	(106)	$	110

_____________

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

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

Xerox 2024 Form 10-Q 4

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	June 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	485	$	519
Accounts receivable (net of allowance of $66 and $64, respectively)	847		850
Billed portion of finance receivables (net of allowance of $4 and $4, respectively)	70		71
Finance receivables, net	713		842
Inventories	737		661

Other current assets	199		234
Total current assets	3,051		3,177
Finance receivables due after one year (net of allowance of $75 and $88, respectively)	1,277		1,597
Equipment on operating leases, net	253		265
Land, buildings and equipment, net	227		266

Intangible assets, net	155		177
Goodwill, net	2,719		2,747
Deferred tax assets	760		745
Other long-term assets	1,049		1,034
Total Assets	$	9,491	$	10,008
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	129	$	567
Accounts payable	936		1,044
Accrued compensation and benefits costs	205		306


Accrued expenses and other current liabilities	776		862
Total current liabilities	2,046		2,779
Long-term debt	3,174		2,710
Pension and other benefit liabilities	1,180		1,216
Post-retirement medical benefits	164		171
Other long-term liabilities	338		360
Total Liabilities	6,902		7,236

Commitments and Contingencies (See Note 21)

Noncontrolling Interests	10		10

Convertible Preferred Stock	214		214

Common stock	124		123

Additional paid-in capital	1,114		1,114

Retained earnings	4,810		4,977
Accumulated other comprehensive loss	(3,687)		(3,676)
Xerox Holdings shareholders’ equity	2,361		2,538
Noncontrolling interests	4		10
Total Equity	2,365		2,548
Total Liabilities and Equity	$	9,491	$	10,008



Shares of Common Stock Issued and Outstanding	124,319		123,144

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

Xerox 2024 Form 10-Q 5

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(in millions)		2024		2023
Cash Flows from Operating Activities
Net (Loss) Income		$	(95)	$	10


Adjustments to reconcile Net (loss) income to Net cash provided by operating activities
Depreciation and amortization		118		126
Provisions		79		21

Net gain on sales of businesses and assets		(1)		(2)
Divestitures		51		—
PARC Donation		—		132

Stock-based compensation		29		28

Restructuring and asset impairment charges		34		14
Payments for restructurings		(47)		(14)
Non-service retirement-related costs		49		10
Contributions to retirement plans		(58)		(32)
Increase in accounts receivable and billed portion of finance receivables		(32)		(36)
(Increase) decrease in inventories		(148)		12
Increase in equipment on operating leases		(50)		(77)
Decrease in finance receivables		399		407
Decrease in other current and long-term assets		14		15
Decrease in accounts payable		(88)		(290)
Decrease in accrued compensation		(93)		(7)
Decrease in other current and long-term liabilities		(52)		(139)
Net change in income tax assets and liabilities		(64)		(17)
Net change in derivative assets and liabilities		6		22
Other operating, net		(7)		(10)


Net cash provided by operating activities		44		173
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software		(18)		(15)
Proceeds from sales of businesses and assets		19		3


Acquisitions, net of cash acquired		—		(7)


Other investing, net		(20)		(3)


Net cash used in investing activities		(19)		(22)
Cash Flows from Financing Activities
Net proceeds from short-term debt		—		200
Proceeds from issuance of long-term debt		906		—
Payments on long-term debt		(871)		(826)
Purchases of capped calls		(23)		—
Dividends		(71)		(88)



Payments to acquire treasury stock, including fees		(3)		—



Other financing, net		(13)		(11)
Net cash used in financing activities		(75)		(725)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(16)		4

Decrease in cash, cash equivalents and restricted cash		(66)		(570)
Cash, cash equivalents and restricted cash at beginning of period		617		1,139
Cash, Cash Equivalents and Restricted Cash at End of Period		$	551	$	569

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

Xerox 2024 Form 10-Q 6

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2024		2023		2024		2023
Revenues
Sales	$	611	$	696	$	1,134	$	1,355
Services, maintenance and rentals	929		1,009		1,866		2,013
Financing	38		49		80		101
Total Revenues	1,578		1,754		3,080		3,469
Costs and Expenses
Cost of sales	387		452		727		877
Cost of services, maintenance and rentals	642		671		1,334		1,336
Cost of financing	29		34		56		70
Research, development and engineering expenses	50		57		99		121
Selling, administrative and general expenses	392		433		789		840

Restructuring and related costs, net	12		23		51		25
Amortization of intangible assets	10		10		20		21

Divestitures	(3)		—		51		—
PARC donation	—		132		—		132
Other expenses, net	33		31		77		51
Total Costs and Expenses	1,552		1,843		3,204		3,473
Income (Loss) before Income Taxes	26		(89)		(124)		(4)
Income tax expense (benefit)	7		(28)		(30)		(14)



Net Income (Loss)	$	19	$	(61)	$	(94)	$	10

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

Xerox 2024 Form 10-Q 7

XEROX CORPORATION

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2024		2023		2024		2023
Net Income (Loss)	$	19	$	(61)	$	(94)	$	10




Other Comprehensive (Loss) Income, Net(1)
Translation adjustments, net	(20)		49		(52)		142
Unrealized losses, net	—		(5)		(1)		(1)
Changes in defined benefit plans, net	6		(27)		42		(41)
Other Comprehensive (Loss) Income, Net	(14)		17		(11)		100



Comprehensive Income (Loss), Net	5		(44)		$	(105)	$	110

_____________

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

Xerox 2024 Form 10-Q 8

XEROX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions)	June 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	483	$	519
Accounts receivable (net of allowance of $66 and $64, respectively)	847		850
Billed portion of finance receivables (net of allowance of $4 and $4, respectively)	70		71
Finance receivables, net	713		842
Inventories	737		661

Other current assets	199		234
Total current assets	3,049		3,177
Finance receivables due after one year (net of allowance of $75 and $88, respectively)	1,277		1,597
Equipment on operating leases, net	253		265
Land, buildings and equipment, net	227		266

Intangible assets, net	155		177
Goodwill, net	2,719		2,747
Deferred tax assets	760		745
Other long-term assets	1,015		1,008
Total Assets	$	9,455	$	9,982
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	129	$	567
Accounts payable	936		1,044
Accrued compensation and benefits costs	205		306



Accrued expenses and other current liabilities	733		820
Total current liabilities	2,003		2,737
Long-term debt	1,154		1,213
Related party debt	2,020		1,497
Pension and other benefit liabilities	1,180		1,216
Post-retirement medical benefits	164		171
Other long-term liabilities	338		360
Total Liabilities	6,859		7,194

Commitments and Contingencies (See Note 21)


Noncontrolling Interests	10		10


Additional paid-in capital	3,473		3,485

Retained earnings	2,796		2,959
Accumulated other comprehensive loss	(3,687)		(3,676)
Xerox shareholder's equity	2,582		2,768
Noncontrolling interests	4		10
Total Equity	2,586		2,778
Total Liabilities and Equity	$	9,455	$	9,982

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

Xerox 2024 Form 10-Q 9

XEROX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(in millions)		2024		2023
Cash Flows from Operating Activities
Net (Loss) Income		$	(94)	$	10


Adjustments to reconcile Net (loss) income to Net cash provided by operating activities
Depreciation and amortization		118		126
Provisions		79		21

Net gain on sales of businesses and assets		(1)		(2)
Divestitures		51		—
PARC donation		—		132

Stock-based compensation		29		28

Restructuring and asset impairment charges		34		14
Payments for restructurings		(47)		(14)
Non-service retirement-related costs		49		10
Contributions to retirement plans		(58)		(32)
Increase in accounts receivable and billed portion of finance receivables		(32)		(36)
(Increase) decrease in inventories		(148)		12
Increase in equipment on operating leases		(50)		(77)
Decrease in finance receivables		399		407
Decrease in other current and long-term assets		13		15
Decrease in accounts payable		(88)		(290)
Decrease in accrued compensation		(93)		(7)
Decrease in other current and long-term liabilities		(52)		(139)
Net change in income tax assets and liabilities		(64)		(17)
Net change in derivative assets and liabilities		6		22
Other operating, net		(7)		(10)


Net cash provided by operating activities		44		173
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software		(18)		(15)


Proceeds from sales of businesses and assets		19		3
Acquisitions, net of cash acquired		—		(7)


Other investing, net		(11)		—


Net cash used in investing activities		(10)		(19)
Cash Flows from Financing Activities
Net proceeds from short-term debt		—		200
Proceeds from issuance of long-term debt		906		—
Payments on long-term debt		(871)		(826)






Distributions to parent		(118)		(98)



Other financing, net		(3)		(4)
Net cash used in financing activities		(86)		(728)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(16)		4

Decrease in cash, cash equivalents and restricted cash		(68)		(570)
Cash, cash equivalents and restricted cash at beginning of period		617		1,139
Cash, Cash Equivalents and Restricted Cash at End of Period		$	549	$	569

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

Xerox 2024 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 2023 Annual Report on Form 10-K (2023 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 2023 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” as “pre-tax income (loss)”.

Certain reclassifications have been made to the amounts for prior years in order to conform to the current year's presentation.

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 $2,719 and $2,747 at June 30, 2024 and December 31, 2023, 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.

The Company's latest projections for the full year 2024 are in line with expectations reviewed as part of our fourth quarter 2023 Goodwill qualitative assessment. Accordingly, as of June 30, 2024, we determined that we did not have a triggering event requiring a quantitative assessment of Goodwill. If assumptions or estimates with respect to the Company's future performance vary from what is expected, including those assumptions relating to interest rates, inflationary pressure on product and labor costs, execution of Reinvention and geopolitical uncertainty, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges. We will continue to monitor developments in 2024 including updates to our forecasts as well as our market capitalization, and an update of our assessment and related estimates may be required in the future.

Xerox 2024 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 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.

Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The update will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within segment profit and loss. The amendments are effective for the Company's annual periods beginning January 1, 2024, and interim periods beginning January 1, 2025, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. Since this ASU only requires additional disclosures, adoption of this ASU will not have an impact on the company’s financial condition, results of operations or cash flows.

Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted, and should be applied either prospectively or retrospectively. We are currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures.

Accounting Standard Updates Recently Adopted:

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, and the requirement to disclose a rollforward of obligations outstanding is effective for our annual reporting for the fiscal year beginning on January 1, 2024. Refer to Note 12 - Supplementary Financial Information for the required disclosures.

Xerox 2024 Form 10-Q 12

Other Updates

In 2024, the FASB also issued the following ASUs, which could impact the Company in the future but currently did not have, nor are expected to have, a material impact on our financial condition, results of operations or cash flows upon adoption.

•Compensation - Stock Compensation: ASU 2024-01, Compensation - Stock Compensation (Topic 718) - Scope Applications of Profits Interest and Similar Awards. This update is effective for the annual period beginning after December 15, 2024, as well as interim periods within that period, with early adoption permitted.

•Codification Improvements: ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements. This update is effective for our fiscal year beginning after December 15, 2024.

Note 3 – Revenue

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Primary geographical markets(1):
United States	$	872	$	982	$	1,683	$	1,929
Europe	461		497		912		971
Canada	126		136		247		280
Other	119		139		238		289
Total Revenues	$	1,578	$	1,754	$	3,080	$	3,469

Major product and services lines:
Equipment	$	356	$	420	$	646	$	811
Supplies, paper and other sales(2)	255		276		488		544
Maintenance agreements(3)	388		419		775		828
Service arrangements(4)	467		499		940		994
Rental and other	74		91		151		191
Financing	38		49		80		101

Total Revenues	$	1,578	$	1,754	$	3,080	$	3,469

Sales channels:

Direct equipment lease(5)	$	163	$	245	$	325	$	475
Distributors & resellers(6)	244		261		459		521
Customer direct	204		190		350		359
Total Sales	$	611	$	696	$	1,134	$	1,355

_____________

(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 $118 and $132 at June 30, 2024 and December 31, 2023, respectively. The majority of the balance at June 30, 2024 will be amortized to revenue over the next 30 months.

Xerox 2024 Form 10-Q 13

Contract Costs:

We incur the following contract costs as part of our revenue arrangements:

•Incremental direct costs of obtaining a contract, which are primarily 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 to Selling Expenses on a 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.

•Contract fulfillment costs, which are costs incurred for resources and assets that will be used to satisfy our future performance obligations included in our service arrangements. These costs are amortized over the contractual service period of the arrangement to cost of services.

•Contract inducements, which are capitalized and amortized as a reduction of revenue over the term of the contract.

Changes in contract costs, net are as follows:



	2024		2023
Balance at January 1st,	$	136	$	135
Customer contract costs deferred	15		16
Amortization of customer contract costs	(16)		(16)
Other(1)	(1)		(1)
Balance at March 31st,	$	134	$	134
Customer contract costs deferred	13		18
Amortization of customer contract costs	(16)		(18)

Balance at June 30th,	$	131	$	134

_____________

(1)Includes currency.

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.

Xerox 2024 Form 10-Q 14

Note 4 – Segment Reporting

Our reportable segments - Print and Other, and Xerox Financial Services (XFS) – are aligned to how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies and are consistent with how we manage the business and view the markets we serve.

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 Digital and IT services and software. The 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 XFS 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 XFS segment provides global leasing solutions and currently offers leasing for direct channel customer purchases of Xerox solutions through bundled lease agreements and lease financing to end-user customers who purchase Xerox solutions through our indirect channels. Segment revenues primarily include financing income on sales-type leases (including month-to-month extensions) and leasing fees. Segment revenues also include gains/losses from the sale of finance receivables including commissions, fees on the sales of underlying equipment residuals and servicing fees.

Selected financial information for our reportable segments was as follows:


	Three Months Ended June 30,
	2024									2023
	Print and Other			XFS			Total			Print and Other			XFS			Total
External revenue	$	1,489		$	89		$	1,578		$	1,653		$	101		$	1,754
Intersegment revenue(1)	19			—			19			21			—			21
Total Segment revenue	$	1,508		$	89		$	1,597		$	1,674		$	101		$	1,775

Segment profit	$	81		$	4		$	85		$	107		$	—		$	107
Segment margin(2)	5.4		%	4.5		%	5.4		%	6.5		%	—		%	6.1		%

Depreciation and amortization	$	49		$	—		$	49		$	52		$	—		$	52


Interest income	—			38			38			—			49			49
Interest expense	—			29			29			—			34			34

Xerox 2024 Form 10-Q 15


	Six Months Ended June 30,
	2024									2023
	Print and Other			XFS			Total			Print and Other			XFS			Total
External revenue	$	2,900		$	180		$	3,080		$	3,266		$	203		$	3,469
Intersegment revenue(1)	38			—			38			44			—			44
Total Segment revenue	$	2,938		$	180		$	3,118		$	3,310		$	203		$	3,513

Segment profit	$	114		$	4		$	118		$	207		$	18		$	225
Segment margin(2)	3.9		%	2.2		%	3.8		%	6.3		%	8.9		%	6.5		%

Depreciation and amortization	$	98		$	—		$	98		$	105		$	—		$	105


Interest income	—			80			80			—			101			101
Interest expense	—			56			56			—			70			70

_____________

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

(2)Segment margin based on External revenue only.

Selected financial information for our reportable segments was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023





Pre-tax (Loss) Income
Total reported segments	$	85	$	107	$	118	$	225

Restructuring and related costs, net	(12)		(23)		(51)		(25)
Amortization of intangible assets	(10)		(10)		(20)		(21)
Divestiture	3		—		(51)		—
PARC donation	—		(132)		—		(132)
Inventory-related impact - exit of certain production print manufacturing operations(1)	(8)		—		(44)		—
Other expenses, net	(33)		(31)		(77)		(51)
Total Pre-tax (loss) income	$	25	$	(89)	$	(125)	$	(4)

Depreciation and Amortization
Total reported segments	$	49	$	52	$	98	$	105
Amortization of intangible assets	10		10		20		21
Total Depreciation and amortization	$	59	$	62	$	118	$	126

Interest Expense
Total reported segments	$	29	$	34	$	56	$	70
Corporate	31		12		57		26
Total Interest expense	$	60	$	46	$	113	$	96

Interest Income
Total reported segments	$	38	$	49	$	80	$	101
Corporate	4		4		7		9
Total Interest income	$	42	$	53	$	87	$	110

_____________

(1)Reflects the reduction of inventory of approximately $6 and $38 and the cancellation of related purchase contracts of approximately $2 and $6, as a result of the exit of certain production print manufacturing operations during the three and six months ended June 30, 2024, respectively.

Xerox 2024 Form 10-Q 16

Note 5 – Lessor

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

The components of lease income are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,
	Location in Statements of Income (Loss)	2024		2023		2024		2023
Revenue from sales type leases	Sales	$	163	$	245	$	325	$	475


Interest income on lease receivables	Financing	38		49		80		101


Lease income - operating leases	Services, maintenance and rentals	44		40		85		80
Variable lease income	Services, maintenance and rentals	10		16		23		33
Total Lease income		$	255	$	350	$	513	$	689

Profit at lease commencement on sales-type leases was estimated to be $57 and $88 for the three months ended June 30, 2024 and 2023, respectively, and $107 and $168 for the six months ended June 30, 2024 and 2023, respectively.

Note 6 – Divestitures

Sales of Argentina and Chile

In March 2024, Xerox completed the sales of its direct business operations in Argentina and Chile to Grupo Datco, a technologies and fiber optic network service provider in Latin America for a total consideration of $19. Following the transfer of ownership, the new companies will operate as independent entities and Grupo Datco will continue to service Xerox devices previously sold in Argentina and Chile and will become the exclusive partner for Xerox in these markets. This transaction aligns with the Company's ongoing Reinvention.

The sales resulted in a net disposal loss of $51, which includes, a net currency translation loss of $40, allocated Goodwill of $10, the carrying value of the net assets of $18, and related fees of $2. During the second quarter of 2024 we recorded a purchase price adjustment credit of $3. The allocation of Goodwill was based on the relative fair value of the operations in Argentina and Chile to the total fair value for the Print and Other Segment Reporting Unit, which it was part of prior to the sales. The estimated fair values of the operations in Argentina and Chile as well as the Print and Other reporting unit are based on estimates and assumptions that are considered Level 3 inputs under the fair value hierarchy. Xerox also recorded a net income tax benefit of $19 related to the sales, for a net after-tax loss on the sales of $32. The sales of the Argentina and Chile subsidiaries are not expected to materially impact current estimates of future projections with respect to results of operations or cash flows of the Company.

Xerox 2024 Form 10-Q 17

Note 7 – Accounts Receivable, Net

Accounts receivable, net were as follows:


	June 30, 2024		December 31, 2023
Invoiced	$	718	$	710
Accrued(1)	195		204
Allowance for doubtful accounts	(66)		(64)
Accounts receivable, net	$	847	$	850

_____________

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

The allowance for doubtful accounts was as follows:


	2024		2023
Balance at January 1st	$	64	$	52
Provision	6		3
Charge-offs	(3)		(5)
Recoveries and other(1)	(2)		3
Balance at March 31st	$	65	$	53
Provision	5		6
Charge-offs	(3)		(3)
Recoveries and other(1)	(1)		2
Balance at June 30th	$	66	$	58

_____________

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

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. The allowance for doubtful accounts receivable is determined based on an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 7.2% at June 30, 2024 and 7.0% at December 31, 2023.

Accounts Receivable Sales Arrangements

We have one facility in Europe that enables us to sell accounts receivable associated with our distributor network on an ongoing basis, without recourse. Under this arrangement, we sell our entire interest in the related accounts receivable for cash and no portion of the payment is held back or deferred by the purchaser.

Accounts receivable sales activity was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Accounts receivable sales(1)	$	106	$	88	$	197	$	174

____________

(1)Losses on sales were not material.

Xerox 2024 Form 10-Q 18

Note 8 – Finance Receivables, Net

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

Finance receivables, net were as follows:


	June 30, 2024		December 31, 2023
Gross receivables	$	2,370	$	2,899
Unearned income	(231)		(297)
Subtotal	2,139		2,602
Residual values	—		—
Allowance for doubtful accounts	(79)		(92)
Finance receivables, net	2,060		2,510
Less: Billed portion of finance receivables, net	70		71
Less: Current portion of finance receivables not billed, net	713		842
Finance receivables due after one year, net	$	1,277	$	1,597

Finance Receivables – Allowance for Credit Losses and Credit Quality

Our finance receivable portfolios are primarily in the U.S., Canada and EMEA. We generally establish customer credit limits and estimate the allowance for doubtful credit losses on a country or geographic basis. Customer credit limits are based upon an initial evaluation of the customer's credit quality, and we adjust that limit accordingly based upon ongoing credit assessments of the customer, including payment history and changes in credit quality. The allowance for doubtful credit losses is determined based on an assessment of origination year and past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends.

Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 3.7% at June 30, 2024 and 3.5% at December 31, 2023.

Our allowance for doubtful credit losses is effectively determined by geography. The risk characteristics in our finance receivable portfolio segments are generally consistent with the risk factors associated with the economies of the countries/regions included in those geographies. Since EMEA is comprised of various countries and regional economies, the risk profile within that portfolio segment is somewhat more diversified due to the varying economic conditions among and within the countries.

In determining the level of reserve required we critically assessed current and forecasted economic conditions and trends to ensure we objectively considered those expected impacts in the determination of our reserve. Our assessment also included a review of current portfolio credit metrics and the level of write-offs incurred over the past year. We believe our current reserve position remains sufficient to cover expected future losses that may result from current and future macro-economic conditions including higher inflation, interest rates, and the potential for recessions in the geographic areas of our customers. We continue to monitor developments in future economic conditions and trends, and as a result, our reserves may need to be updated in future periods.

Xerox 2024 Form 10-Q 19

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


	United States		Canada		EMEA		Total
Balance at December 31, 2023	$	58	$	7	$	27	$	92
Provision	(3)		5		6		8
Charge-offs	(7)		(1)		(4)		(12)
Recoveries and other(1)	1		—		(1)		—
Balance at March 31, 2024	$	49	$	11	$	28	$	88
Provision	—		1		4		5
Charge-offs	(6)		(5)		(3)		(14)
Recoveries and other(2)	—		—		—		—
Balance at June 30, 2024	$	43	$	7	$	29	$	79






Balance at December 31, 2022	$	83	$	7	$	27	$	117
Provision	(15)		—		3		(12)
Charge-offs	(5)		—		(2)		(7)
Recoveries and other(1)	2		—		1		3
Balance at March 31, 2023	$	65	$	7	$	29	$	101
Provision	5		1		3		9
Charge-offs	(4)		(1)		(4)		(9)
Recoveries and other(2)	—		1		1		2
Balance at June 30, 2023	$	66	$	8	$	29	$	103






Finance receivables collectively evaluated for impairment
June 30, 2024(2)	$	898	$	233	$	1,008	$	2,139
June 30, 2023(2)	$	1,444	$	244	$	1,122	$	2,810

_____________

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

(2)Total Finance receivables exclude the allowance for credit losses of $79 and $103 at June 30, 2024 and 2023, respectively.

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

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

•Low Credit Risk: This rating includes accounts with excellent to good business credit, asset quality and capacity to meet financial obligations. These customers are less susceptible to adverse effects due to shifts in economic conditions or changes in circumstance. Loss rates in this category in the normal course are generally less than 1%.

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

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

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

Xerox 2024 Form 10-Q 20

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


	June 30, 2024
	2024		2023		2022		2021		2020		Prior		Total Finance Receivables
United States (Direct)
Low Credit Risk	$	60	$	79	$	43	$	45	$	26	$	6	$	259
Average Credit Risk	28		65		25		35		14		5		172
High Credit Risk	13		26		27		17		12		5		100
Total	$	101	$	170	$	95	$	97	$	52	$	16	$	531
Charge-offs	$	—	$	—	$	1	$	1	$	1	$	1	$	4

United States (Indirect)
Low Credit Risk	$	30	$	81	$	43	$	24	$	9	$	2	$	189
Average Credit Risk	24		67		39		22		7		1		160
High Credit Risk	1		8		5		3		1		—		18
Total	$	55	$	156	$	87	$	49	$	17	$	3	$	367
Charge-offs	$	—	$	1	$	2	$	4	$	1	$	1	$	9

Canada
Low Credit Risk	$	17	$	38	$	19	$	11	$	5	$	1	$	91
Average Credit Risk	19		51		30		14		7		2		123
High Credit Risk	3		5		4		3		3		1		19
Total	$	39	$	94	$	53	$	28	$	15	$	4	$	233
Charge-offs	$	—	$	5	$	1	$	—	$	—	$	—	$	6

EMEA
Low Credit Risk	$	69	$	208	$	145	$	77	$	30	$	8	$	537
Average Credit Risk	49		168		119		52		22		9		419
High Credit Risk	5		18		15		9		3		2		52
Total	$	123	$	394	$	279	$	138	$	55	$	19	$	1,008
Charge-offs	$	—	$	3	$	3	$	1	$	—	$	—	$	7







Total Finance Receivables
Low Credit Risk	$	176	$	406	$	250	$	157	$	70	$	17	$	1,076
Average Credit Risk	120		351		213		123		50		17		874
High Credit Risk	22		57		51		32		19		8		189
Total	$	318	$	814	$	514	$	312	$	139	$	42	$	2,139
Total Charge-offs	$	—	$	9	$	7	$	6	$	2	$	2	$	26

Xerox 2024 Form 10-Q 21


	December 31, 2023
	2023		2022		2021		2020		2019		Prior		Total Finance Receivables
United States (Direct)
Low Credit Risk	$	122	$	51	$	61	$	43	$	17	$	3	$	297
Average Credit Risk	104		35		49		23		9		2		222
High Credit Risk	34		36		25		22		6		3		126
Total	$	260	$	122	$	135	$	88	$	32	$	8	$	645
Charge-offs	$	1	$	1	$	1	$	1	$	1	$	2	$	7

United States (Indirect)
Low Credit Risk	$	136	$	77	$	48	$	22	$	6	$	—	$	289
Average Credit Risk	111		69		41		15		6		—		242
High Credit Risk	12		8		6		2		1		—		29
Total	$	259	$	154	$	95	$	39	$	13	$	—	$	560
Charge-offs	$	4	$	3	$	3	$	2	$	2	$	3	$	17

Canada
Low Credit Risk	$	45	$	24	$	16	$	9	$	4	$	—	$	98
Average Credit Risk	63		36		18		12		6		—		135
High Credit Risk	6		5		4		5		1		1		22
Total	$	114	$	65	$	38	$	26	$	11	$	1	$	255
Charge-offs	$	—	$	—	$	—	$	2	$	—	$	1	$	3

EMEA
Low Credit Risk	$	251	$	182	$	110	$	48	$	19	$	6	$	616
Average Credit Risk	192		148		73		36		17		3		469
High Credit Risk	19		16		11		7		4		—		57
Total	$	462	$	346	$	194	$	91	$	40	$	9	$	1,142
Charge-offs	$	3	$	8	$	4	$	2	$	—	$	—	$	17







Total Finance Receivables
Low Credit Risk	$	554	$	334	$	235	$	122	$	46	$	9	$	1,300
Average Credit Risk	470		288		181		86		38		5		1,068
High Credit Risk	71		65		46		36		12		4		234
Total	$	1,095	$	687	$	462	$	244	$	96	$	18	$	2,602
Total Charge-offs	$	8	$	12	$	8	$	7	$	3	$	6	$	44

Xerox 2024 Form 10-Q 22

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

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

The aging of our billed finance receivables is as follows:


	June 30, 2024
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Direct	$	22	$	5	$	5	$	32	$	499	$	531	$	39
Indirect	14		4		2		20		347		367		—






Total United States	36		9		7		52		846		898		39
Canada	6		2		1		9		224		233		12





EMEA	9		2		2		13		995		1,008		13

Total	$	51	$	13	$	10	$	74	$	2,065	$	2,139	$	64

	December 31, 2023
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Direct	$	24	$	6	$	5	$	35	$	610	$	645	$	41
Indirect	16		3		3		22		538		560		—






Total United States	40		9		8		57		1,148		1,205		41
Canada	6		1		1		8		247		255		10





EMEA	7		2		1		10		1,132		1,142		10

Total	$	53	$	12	$	10	$	75	$	2,527	$	2,602	$	61

Sales of Receivables

The Company has expanded the finance receivables funding agreement with an affiliate of HPS Investment Partners (HPS) pursuant to which the Company agreed to offer for sale, and HPS agreed to purchase, certain eligible pools of finance receivables, on a monthly basis, in transactions structured as "true sales at law," and bankruptcy remote transfers. We have received an opinion to that effect from outside legal counsel. Accordingly, the receivables sold are derecognized from our financial statements and HPS does not have recourse back to the Company for uncollectible receivables. In addition, the agreement provides for the sale of the underlying leased equipment to HPS, with the commission paid by HPS covering the value associated with the underlying equipment being sold to HPS. The Company retains a first right of refusal to repurchase the underlying equipment at the end of the lease term, to the extent offered for sale by HPS, at its then fair value.

In January 2024, we entered into a new agreement with HPS to transfer servicing of the majority of funding activity to HPS as well as extend the existing term to 5 years. This agreement automatically renews for a one year period unless terminated by either the Company or HPS. Xerox will be required to pay a specified fee to service the Company’s retained receivables. For the remaining funding activity, Xerox will continue to service the lease receivables for a specified fee.

Xerox 2024 Form 10-Q 23

Finance receivable sales activity was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Finance receivable sales - net proceeds(1)	$	192	$	381	$	377	$	642
Gain on sale/Commissions(2)	8		9		14		11

Servicing revenue(2)	$	5	$	2	$	7	$	3

_____________

(1)Cash proceeds were reported in Net cash provided by operating activities.

(2)Recorded in Services, maintenance and rentals as Other Revenue. Amounts include revenues associated with the sale of the underlying leased equipment.

In addition to the sale activity above, in the second quarter 2024, we sold the finance receivable of an EMEA leasing subsidiary for net proceeds of $11.

Secured Borrowings and Collateral

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

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

Note 9 – Inventories and Equipment on Operating Leases, Net

The following is a summary of Inventories by major category:


	June 30, 2024		December 31, 2023
Finished goods	$	639	$	528
Work-in-process	48		47
Raw materials(1)	50		86
Total Inventories	$	737	$	661

_____________

(1)Raw materials at June 30, 2024 reflects a reduction of approximately $38, related to the exit of certain production print manufacturing operations.

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

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


	June 30, 2024		December 31, 2023
Equipment on operating leases	$	984	$	1,074
Accumulated depreciation	(731)		(809)
Equipment on operating leases, net	$	253	$	265

Total contingent rentals on operating leases, consisting principally of usage charges in excess of minimum contracted amounts, were $10 and $16 for the three months ended June 30, 2024 and 2023, respectively, and $23 and $33 for the six months ended June 30, 2024 and 2023, respectively.

Xerox 2024 Form 10-Q 24

Note 10 – Lessee

Operating Leases

We have operating leases for real estate, vehicles and for certain equipment in our domestic and international operations. Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations. Our leases have remaining terms of up to eleven years and a variety of renewal and/or termination options.

The components of lease expense are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Operating lease expense	$	17	$	22	$	35	$	45
Short-term lease expense	4		4		8		8
Variable lease expense(1)	13		13		27		26
Sublease income	—		—		—		(1)

Total Lease expense	$	34	$	39	$	70	$	78

_____________

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

As of June 30, 2024, we had no operating leases that were material that had not yet commenced.

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


	June 30, 2024		December 31, 2023
Other long-term assets	$	170	$	172

Accrued expenses and other current liabilities	$	39	$	41
Other long-term liabilities	140		141
Total Operating lease liabilities	$	179	$	182

The net assets and the liabilities related to our finance leases were immaterial for all periods presented.

Note 11 – Restructuring Programs

In connection with our Reinvention and other transformative programs, we engage in restructuring actions in order to reduce our cost structure and realign it to the changing nature of our business. As part of our efforts to reduce costs, our restructuring actions may also include the off-shoring and/or outsourcing of certain operations, services and other functions, exit from certain product lines and geographies, as well as reducing our real estate footprint.

Restructuring and related costs, net reflect the following components:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Restructuring charges, net	$	5	$	1	$	10	$	2
Asset impairment charges, net	(2)		12		24		12
Related costs, net	9		10		17		11
Total Restructuring and related costs, net	$	12	$	23	$	51	$	25

Restructuring Charges

Restructuring charges, net primarily relate to the Print and Other segment as amounts related to the Xerox Financial Services segment were immaterial for all periods presented. A summary of our restructuring program activity is as follows:

Xerox 2024 Form 10-Q 25


	Severance and Related Costs		Other Contractual Termination Costs(2)		Total
Balance at December 31, 2023	$	129	$	—	$	129
Provision	9		—		9
Reversals	(4)		—		(4)
Net current period charges(1)	5		—		5
Charges against reserve and currency	(16)		—		(16)
Balance at March 31, 2024	118		—		118
Provision	5		—		5
Reversals	—		—		—
Net current period charges(1)	5		—		5
Charges against reserve and currency	(31)		—		(31)
Balance at June 30, 2024	$	92	$	—	$	92

______________

(1)Represents net amount recognized within the Condensed Consolidated Statements of Income (Loss) for the period shown for restructuring charges. Reversals of prior charges primarily include net changes in estimated reserves from prior period initiatives.

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

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


	Six Months Ended June 30,
		2024		2023
Restructuring cash payments		$	(47)	$	(14)

Effects of foreign currency and other non-cash items		—		—
Charges against reserve and currency		$	(47)	$	(14)

Asset Impairment Charges

Charges associated with asset impairments represent the write-down of the related assets to their new cost basis. Impairments are net of any potential sublease income or other recovery amounts. Charges incurred during 2024 includes impairments associated with strategic actions taken as a result of the Company's Project Reinvention, including geographic simplification.


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023



Asset impairments(1)	$	—	$	12	$	26	$	12

Adjustments/Reversals	(2)		—		(2)		—
Net asset impairment charge	$	(2)	$	12	$	24	$	12

_____________

(1)Includes charges associated with strategic actions taken as a result of the Company's Reinvention, including geographic simplification.

Related Costs

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Retention related severance/bonuses(1)	$	—	$	—	$	(2)	$	1

Consulting and other costs(2)	9		10		19		10
Total	$	9	$	10	$	17	$	11

_____________

(1)Includes retention related severance and bonuses for employees expected to continue working beyond their minimum retention period before termination. The credit for the six months ended June 30, 2024 reflects a change in estimate.

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

Cash paid for restructuring related costs were $19 and $11 for the six months ended June 30, 2024 and 2023, respectively. The restructuring related costs reserve was $5 and $8 at June 30, 2024 and December 31, 2023, respectively. The balance at June 30, 2024 is expected to be paid over the next twelve months.

Xerox 2024 Form 10-Q 26

Note 12 – Supplementary Financial Information

Cash, Cash Equivalents and Restricted Cash

Restricted cash primarily relates to escrow cash deposits made in Brazil associated with ongoing litigation as well as cash collections on finance receivables that were pledged for secured borrowings. As more fully discussed in Note 21 - Contingencies and Litigation, various litigation matters in Brazil require us to make cash deposits to escrow as a condition of continuing the litigation. Restricted cash amounts are classified in our Condensed Consolidated Balance Sheets based on when the cash will be contractually or judicially released.

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


	June 30, 2024		December 31, 2023
Cash and cash equivalents	$	485	$	519
Restricted cash
Litigation deposits in Brazil	24		27
Escrow and cash collections related to secured borrowing arrangements and receivable sales(1)	19		49
Other restricted cash	23		22
Total Restricted cash	66		98
Cash, cash equivalents and restricted cash(2)	$	551	$	617

_____________

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

(2)Xerox Corporation Cash, cash equivalents and restricted cash of $549 excludes $2 of cash held by Myriad Ventures Fund I LP.

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


	June 30, 2024		December 31, 2023
Other current assets	$	40	$	70
Other long-term assets	26		28
Total Restricted cash	$	66	$	98

Supplemental Cash Flow Information

Summarized cash flow information is as follows:


	Location in Statement of Cash Flows	Six Months Ended June 30,
Source/(Use)			2024		2023
Provision for receivables	Operating		$	24	$	12
Provision for inventory	Operating		55		9
Depreciation of buildings and equipment	Operating		27		31
Depreciation and obsolescence of equipment on operating leases	Operating		57		55
Amortization of internal use software	Operating		14		19

Amortization of acquired intangible assets	Operating		20		21
Amortization of patents(1)	Operating		5		4
Amortization of customer contract costs(2)	Operating		32		34

Cost of additions to land, buildings and equipment	Investing		(14)		(11)
Cost of additions to internal use software	Investing		(4)		(4)
Payments to acquire noncontrolling interests - Xerox Holdings	Investing		(20)		(3)
Common stock dividends - Xerox Holdings	Financing		(64)		(81)
Preferred stock dividends - Xerox Holdings	Financing		(7)		(7)


Payments to noncontrolling interests	Financing		(1)		(2)

Repurchases related to stock-based compensation - Xerox Holdings	Financing		(10)		(7)

_____________

(1)Amortization of patents is reported in Decrease in other current and long-term assets in the Condensed Consolidated Statements of Cash Flows.

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

Xerox 2024 Form 10-Q 27

Supplier Finance Program

The Company has a program through a financial institution that enables vendors and suppliers, at their option, to receive early payment for their invoices. All outstanding amounts related to the program are recorded within Accounts payable in our Condensed Consolidated Balance Sheets, and the associated payments are included in operating activities within our Condensed Consolidated Statements of Cash Flows. The program operates in a similar manner to a purchasing card program, however with this program the Company receives invoices associated with those vendors and suppliers participating in the program and confirms and validates those invoices and amounts due before passing the invoices on to the financial institution for early payment at a discounted amount. The financial institution subsequently invoices the Company for the stated or full amount of the invoices paid early and we are required to make payment within 45 days of the statement date. The overall impact of the program generally results in the Company paying its supplier and vendor invoices consistent with their original terms. This program is generally available to all non-inventory vendors and suppliers. Spending associated with our supplier finance program was approximately $30 and $30 during the three months ended June 30, 2024 and 2023, respectively, and was approximately $60 and $60 during the six months ended June 30, 2024 and 2023 respectively. The amount due to vendors and suppliers participating in this program was approximately $25 and $40 as of June 30, 2024 and December 31, 2023, respectively.

Note 13 – Debt

Revolving Credit Facility

In June 2024, Xerox Corporation, as borrower, and its parent company, Xerox Holdings Corporation, entered into Amendment No. 2 to Credit Agreement (the Amendment) with Citibank, N.A., as administrative agent and collateral agent (the Agent), and the lenders party thereto. The Amendment amended the Credit Agreement, dated as of May 22, 2023 (as previously amended, the ABL Credit Agreement), to (i) increase the commitments of the lenders under the ABL Credit Agreement from $300 to $425 and (ii) amend the excess availability used to trigger the fixed charge coverage ratio springing covenant from an amount equal to the greater of (A) $22.5 and (B) 10% of the Line Cap (the lesser of the aggregate amount of Revolving Commitments and the then-applicable Borrowing Base), to an amount equal to the greater of (A) $31.875 and (B) 10% of the Line Cap.

Xerox Corporation’s borrowings under the ABL Credit Agreement are supported by a first-priority security interests in substantially all of the working capital assets of Xerox Corporation, Xerox Holdings Corporation, and such U.S., Canadian and English subsidiaries (subject to certain exceptions and limitations set forth in the ABL Credit Agreement) and a second-priority security interest in all assets of Xerox Corporation, Xerox Holdings Corporation and such U.S., Canadian and English subsidiaries (subject to certain exceptions and limitations set forth in the ABL Credit Agreement), and all finance lease receivables of such German and Belgian subsidiaries.

At June 30, 2024, there were no borrowings under the ABL Facility, and no letters of credits were issued under the facility.

Senior Notes

In March 2024, Xerox Holdings Corporation issued $500 of 8.875% Senior Notes due in 2029 (the 2029 Notes) at par, resulting in net proceeds (after fees and expenses) of approximately $495. The 2029 Notes are senior unsecured obligations of Xerox Holdings Corporation and are fully and unconditionally guaranteed on a senior unsecured basis by Xerox Corporation and Xerox Business Services, LLC, as well as certain other wholly owned domestic restricted subsidiaries of the Company. The 2029 Notes and the related guarantees were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

Interest is payable semi-annually in arrears on May 30th and November 30th of each year, beginning on November 30, 2024. Xerox Holdings Corporation may, at its option, redeem some or all of the 2029 Notes, at varying prices based on the timing of the redemption. The indenture governing the 2029 Notes contains covenants that, among other things, limit the ability of Xerox Holdings Corporation and the ability of its restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other restricted payments, prepay, redeem or repurchase certain subordinated debt, issue certain preferred stock or similar equity securities, make loans and investments, sell or otherwise dispose of assets, incur liens, enter into transactions with affiliates, enter into agreements restricting its subsidiaries’ ability to pay dividends, and consolidate, merge or sell all or substantially all assets. Additionally, if Xerox Holdings Corporation experiences a Change of Control Triggering Event (as defined in the indenture governing the 2029 Notes), Xerox Holdings Corporation is required to offer to repurchase the 2029 Notes at 101% of the principal amount of such notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

Xerox 2024 Form 10-Q 28

Debt issuance costs of approximately $5 were paid and deferred in connection with the issuance of the 2029 Notes, and will be amortized over the term of the 2029 Notes. Refer to the Use of Aggregate Proceeds from Senior Notes section below for additional information regarding the use of net proceeds.

Convertible Senior Notes and Capped Call

Convertible Senior Notes

In March 2024, Xerox Holdings Corporation issued an aggregate $400 of 3.75% Convertible Senior Notes due in 2030 (the 2030 Notes). The 2030 Notes are senior unsecured obligations of Xerox Holdings Corporation and are fully and unconditionally guaranteed by Xerox Corporation and Xerox Business Solutions, LLC. The 2030 Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. Interest is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2024, and will mature on March 15, 2030, unless earlier converted, redeemed or repurchased. The net proceeds from this offering were approximately $390, after deducting the debt issuance costs. Debt issuance costs of approximately $10 were paid and deferred in connection with the issuance of the 2030 Notes, and will be amortized over the term of the 2030 Notes. Refer to the Use of Aggregate Proceeds from Senior Notes section below for additional information regarding the use of net proceeds.

Holders of the 2030 Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2029 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on March 31, 2024 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five consecutive trading day period after any ten consecutive trading day period (the measurement period) in which the trading price (as determined in accordance with the indenture governing the 2030 Notes) per $1,000 principal amount of 2030 Notes, as determined following a request by a holder or holders of the 2030 Notes, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such trading day; (iii) if the Company calls any, or all of the 2030 Notes for redemption, but only with respect to the Notes called (or deemed called) for redemption; (iv) if the Company elects to distribute to all or substantially all holders of common stock any rights, options or warrants (other than in connection with a stockholder rights plan) entitling them, for a period of not more than 45 calendar days from the declaration date for such distribution, to subscribe for or purchase shares of Company's common stock at a price per share that is less than the average of the last reported sale price of common stock for the ten consecutive trading date period ending on, and including, the trading day immediately preceding the declaration date for such distribution or distribute to all, or substantially all holders of common stock, our assets, debt securities or rights to purchase our securities, which distribution has a per share value, as reasonably determined by our Board of Directors or a committee thereof, exceeding 10% of the last reported sale price of the Company's common stock on the trading day immediately preceding the declaration date for such distribution; or (v) upon the occurrence of specified corporate events (as determined in accordance with the indenture governing the 2030 Notes). On or after December 15, 2029, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2030 Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.

As of June 30, 2024, none of the conditions permitting the holders of the 2030 Notes to convert their notes early had been met. Therefore, the 2030 Notes are classified as long-term debt.

The initial conversion rate is 47.9904 shares of the common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $20.84 per share of the common stock. The conversion rate will be subject to adjustment under certain circumstances. In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their notes in connection with such corporate event or during the relevant redemption period.

Upon conversion of the 2030 Notes, the Company must pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of the Company's common stock, or a combination of cash and shares of the Company's common stock, at the Company's election in respect of the remainder, if any, of the Company's conversion obligation in excess of the aggregate principal amount of the notes being converted.

Xerox 2024 Form 10-Q 29

We may not redeem the notes prior to September 20, 2027. The Company may redeem for cash all or any portion of the notes, at our option, on or after September 20, 2027, if the last reported sale price of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund for the notes has been provided.

If the Company undergoes a fundamental change (as defined in the indenture governing the 2030 Notes), holders may require the Company to repurchase for cash all or any portion of their 2030 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The indenture governing the 2030 Notes includes customary covenants, sets forth certain events of default after which the notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the notes become automatically due and payable.

The indenture governing the 2030 Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries.

Capped Calls

In connection with the issuance of the 2030 Notes (see Convertible Senior Notes above), the Company entered into privately negotiated capped call transactions (the Capped Calls) with certain of the initial purchasers of the 2030 Notes or their respective affiliates (the option counterparties) at a cost of approximately $23. The Capped Calls cover, subject to anti-dilution adjustments, the number of shares of the Company's common stock initially underlying the 2030 Notes. By entering into the Capped Calls, we expect to reduce the potential dilution to the Company's common stock (or, in the event a conversion of the 2030 Notes is settled in cash, to reduce our cash payment obligation) in the event that at the time of conversion of the 2030 Notes the trading price of our common stock price exceeds the conversion price of the 2030 Notes.

The initial cap sale price of the Capped Calls was approximately $28.34 per share, which represents a premium of 70% over the last reported sale price of our common stock of $16.67 on the NASDAQ Stock Exchange on March 6, 2024, and is subject to certain adjustments under the terms of the Capped Calls. The Capped Calls were included in Additional paid-in capital in the Condensed Consolidated Balance Sheet as of June 30, 2024, with no remeasurement in subsequent periods as it meets the conditions for equity classification. Refer to Note 17 - Shareholders' Equity of Xerox Holdings for additional information regarding the Capped Calls.

Use of Aggregate Proceeds from Senior Notes

A portion of the aggregate net proceeds from the Senior Note offerings was used to fund the cost of entering into the Capped Call transactions (see Convertible Senior Notes above). Additionally, a portion of the aggregate net proceeds were used to repay, through a tender offer for Senior Notes, approximately $84 of the 3.80% Xerox Corporation Senior Notes due in 2024 and approximately $362 of the 5.00% Xerox Holdings Corporation Senior Notes due in 2025. The remaining outstanding 3.80% Senior Notes that were not redeemed as part of the Senior Notes tender offer were repaid in May 2024. In connection with the repayment of the 2024 and 2025 Senior Notes, we recorded a gain on the extinguishment of the debt of approximately $4, which was partially offset by a loss of approximately $1 on the write-off of deferred debt issuance costs. The net gain on the extinguishment of $3 was recorded in Other expenses, net.

Xerox Holdings Corporation/Xerox Corporation Intercompany Loan

In the first quarter 2024, Xerox Holdings Corporation and Xerox Corporation entered into two intercompany loan agreements which mirror the terms of Xerox Holdings Corporation’s 2029 and 2030 Senior Notes, including principal, interest rates, payment dates and debt issuance costs of approximately $15 (see the Senior Notes and the Convertible Senior Notes sections above). As a result, Xerox Corporation recorded approximately $900 of Related party debt. The proceeds of the intercompany loan were used to pay down approximately $362 on the existing 2020 intercompany loan made by Xerox Holdings Corporation to Xerox Corporation.

At June 30, 2024 and December 31, 2023, the balance of the Xerox Holdings Corporation Intercompany Loan reported in Xerox Corporation’s Condensed Consolidated Balance Sheet was $2,020 and $1,497, respectively, which is net of related debt issuance costs, and the intercompany interest payable was $40 and $30, respectively.

Xerox 2024 Form 10-Q 30

Secured Borrowings and Collateral

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

The sales of the receivables to the SPEs were structured as "true sales at law," and we have received opinions to that effect from outside legal counsel. However, the transactions were accounted for as secured borrowings as we fully consolidate the SPEs in our financial statements. As a result, the assets of the SPEs are not available to satisfy any of our other obligations. Conversely, the credit holders of these SPEs do not have legal recourse to the Company’s general credit.

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


	June 30, 2024
	Finance Receivables, Net(1)		Equipment on Operating Leases, Net		Secured Debt(2)		Interest Rate(3)		Expected Maturity






Canada(4)
July 2023	$	66	$	—	$	56	6.14	%	2026


France
November 2023	180		—		120		5.28	%	2026


Total	$	246	$	—	$	176


	December 31, 2023
	Finance Receivables, Net(1)		Equipment on Operating Leases, Net		Secured Debt(2)		Interest Rate(3)		Expected Maturity
U.S.(4)

January 2022(5)	$	209	$	—	$	77	6.82	%	2024
September 2021(5)	89		2		25		6.76	%	2024
Total U.S.	298		2		102

Canada(4)
July 2023	86		—		77		6.74	%	2026


France
November 2023	235		—		182		5.42	%	2026


Total	$	619	$	2	$	361

_____________

(1)Includes (i) Billed portion of finance receivables, net (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023.

(2)Represents the principal debt balance and excludes debt issuance costs of $0 and $1 as of June 30, 2024 and December 31, 2023, respectively.

(3)Represents the pre-hedged rate. Refer to Note 14 - Financial Instruments for additional information regarding hedging of these borrowings.

(4)Secured assets and obligations held by SPEs.

(5)In the second quarter of 2024, we repaid the remaining balances on these secured borrowings.

Xerox 2024 Form 10-Q 31

Interest Expense and Income

Interest expense and income were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Interest expense(1)(2)	$	60	$	46	$	113	$	96
Interest income(3)	42		53		87		110

____________

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

(2)Interest expense of Xerox Corporation included intercompany interest expense associated with the Xerox Holdings Corporation / Xerox Corporation Intercompany Loan of $29 and $19 for the three months ended June 30, 2024 and 2023, respectively, and $51 and $39 for the six months ended June 30, 2024 and 2023, respectively.

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

Note 14 – Financial Instruments

Interest Rate Risk Management

We use interest rate swap and interest rate cap agreements to manage our interest rate exposure and to achieve a desired proportion of variable and fixed rate debt. These derivatives may be designated as fair value hedges or cash flow hedges or non-designated hedges depending on the nature of the risk being hedged. We had no fair value hedges for the three and six months ended June 30, 2024 and 2023, respectively.

Cash Flow Hedges

We use interest rate swaps and caps to manage the exposure to variability in the interest rate payments on our finance receivable secured loan borrowings. The interest rate swaps convert the interest paid on certain loans to a fixed amount while the caps limit the maximum amount of interest paid.

During first quarter 2024, the following derivatives were dedesignated as cash flow hedges. The net fair value of these cash flow hedges, which was not material, was recorded in Accumulated Other Comprehensive Loss and then reclassified to earnings.

Secured Borrowing

Derivative Type

Notional Amount

Canada

Swap

France

Cap

France

Cap

Total

181

Foreign Exchange Risk Management

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

•Foreign currency-denominated assets and liabilities

•Forecasted purchases and sales in foreign currency

At June 30, 2024 and December 31, 2023, we had outstanding forward exchange and purchased option contracts with gross notional values of $1,033 and $1,396 respectively, with terms of less than 12 months. The decrease in the notional value amount is largely due to a decrease in our YEN exposures as a result of a change in the currency terms included in a supplier inventory contract. At June 30, 2024, approximately 92% of the contracts mature within three months, 4% mature in three to six months and 4% in six to twelve months.

Xerox 2024 Form 10-Q 32

Foreign Currency Cash Flow Hedges

We designate a portion of our foreign currency derivative contracts as cash flow hedges of our foreign currency-denominated inventory purchases. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. The amount of ineffectiveness recorded in the Condensed Consolidated Statements of Income (Loss) for these designated cash flow hedges was not material for the six months ended June 30, 2024 and 2023, respectively. The net liability fair value of these contracts was $3 and $2 as of June 30, 2024 and December 31, 2023, respectively.

Summary of Derivative Instruments Gains (Losses)

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

Designated Derivative Instruments Gains (Losses)

The following table provides a summary of gains (losses) on derivative instruments in cash flow hedging relationships:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023




Derivative Loss Recognized in OCI (Effective Portion)
Foreign exchange contracts - forwards and options	$	(5)	$	(13)	$	(8)	$	(15)



Location of Derivative Losses (Gains) Reclassified from AOCL to Income (Effective Portion)
Cost of sales	$	(4)	$	(8)	$	(8)	$	(14)
Interest expense	—		1		1		2
Total	$	(4)	$	(7)	$	(7)	$	(12)

As of June 30, 2024, a net after-tax loss of $4 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity. The entire balance is expected to be reclassified into Net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Non-Designated Derivative Instruments Gains (Losses)

Non-designated derivative instruments are primarily instruments used to hedge foreign currency-denominated assets and liabilities. They are not designated as hedges since there is a natural offset for the remeasurement of the underlying foreign currency-denominated asset or liability. The net (liability) asset fair value of these contracts was $(2) and $5 as of June 30, 2024 and December 31, 2023, respectively.

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


Derivatives NOT Designated as Hedging Instruments	Location of Derivative Loss	Three Months Ended June 30,				Six Months Ended June 30,
		2024		2023		2024		2023
Foreign exchange contracts – forwards	Other expenses, net – Currency losses, net	$	(6)	$	(28)	$	(14)	$	(33)

Currency losses, net were $2 and $5 for the three months ended June 30, 2024 and 2023, respectively, and $13 and $16 for six months ended June 30, 2024 and 2023, respectively. Net currency gains and losses include the mark-to-market adjustments of the derivatives not designated as hedging instruments and the related cost of those derivatives as well as the remeasurement of foreign currency-denominated assets and liabilities and are included in Other expenses, net.

Xerox 2024 Form 10-Q 33

Note 15 – Fair Value of Financial Assets and Liabilities

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


	June 30, 2024		December 31, 2023
Assets
Derivatives	$	3	$	11




Deferred compensation plan investments in mutual funds	14		14
Total	$	17	$	25
Liabilities
Derivatives	$	8	$	8



Deferred compensation plan liabilities	13		13
Total	$	21	$	21

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

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

Summary of Other Financial Assets and Liabilities

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


	June 30, 2024				December 31, 2023
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents(1)	$	485	$	485	$	519	$	519
Accounts receivable, net	847		847		850		850
Short-term debt and current portion of long-term debt	129		135		567		567
Long-term Debt
Xerox Holdings Corporation	2,020		1,830		1,497		1,410
Xerox Corporation	1,085		963		1,096		1,023
Xerox - Other Subsidiaries(2)	69		69		117		117
Long-term debt	$	3,174	$	2,862	$	2,710	$	2,550

____________

(1)Xerox Corporation Cash and cash equivalents of $483 excludes $2 of cash held by Myriad Ventures Fund I LP.

(2)Represents subsidiaries of Xerox Corporation

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

Xerox 2024 Form 10-Q 34

Note 16 – Employee Benefit Plans

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


	Three Months Ended June 30,
	Pension Benefits
	U.S. Plans				Non-U.S. Plans				Retiree Health
Components of Net Periodic Benefit Costs:	2024		2023		2024		2023		2024		2023
Service cost	$	—	$	—	$	1	$	1	$	—	$	—
Interest cost	28		27		45		47		2		2
Expected return on plan assets	(23)		(24)		(48)		(51)		—		—
Recognized net actuarial loss (gain)	5		4		15		4		(3)		(4)
Amortization of prior service cost (credit)	—		—		3		2		(3)		(3)
Recognized settlement loss	5		7		—		—		—		—

Defined benefit plans	15		14		16		3		(4)		(5)
Defined contribution plans	5		5		6		4		n/a		n/a
Net Periodic Benefit Cost (Credit)	20		19		22		7		(4)		(5)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income:
Net actuarial loss (gain)(1)	14		44		—		(48)		(1)		(5)
Prior service cost	—		—		—		36		—		—
Amortization of net actuarial (loss) gain	(10)		(11)		(15)		(4)		3		4
Amortization of net prior service (cost) credit	—		—		(3)		(2)		3		3

Total Recognized in Other Comprehensive (Loss) Income(2)	4		33		(18)		(18)		5		2
Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive (Loss) Income	$	24	$	52	$	4	$	(11)	$	1	$	(3)

	Six Months Ended June 30,
	Pension Benefits
	U.S. Plans				Non-U.S. Plans				Retiree Health
Components of Net Periodic Benefit Costs:	2024		2023		2024		2023		2024		2023
Service cost	$	—	$	—	$	2	$	2	$	—	$	—
Interest cost	55		54		90		93		4		5
Expected return on plan assets	(46)		(49)		(96)		(107)		—		—
Recognized net actuarial loss (gain)	10		7		31		5		(6)		(6)
Amortization of prior service cost (credit)	—		—		4		3		(7)		(7)
Recognized settlement loss	10		12		—		—		—		—

Defined benefit plans	29		24		31		(4)		(9)		(8)
Defined contribution plans	8		9		11		10		n/a		n/a
Net Periodic Benefit Cost (Credit)	37		33		42		6		(9)		(8)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net actuarial loss (gain)(1)	6		37		—		(48)		(1)		(5)
Prior service cost	—		—		—		36		—		—
Amortization of net actuarial (loss) gain	(20)		(19)		(31)		(5)		6		6
Amortization of prior service (cost) credit	—		—		(4)		(3)		7		7

Total Recognized in Other Comprehensive (Loss) Income(2)	(14)		18		(35)		(20)		12		8
Total Recognized in Net Periodic Benefit Cost (Credit) and Other Comprehensive Income	$	23	$	51	$	7	$	(14)	$	3	$	—

_____________

(1)The net actuarial loss for U.S. Pension Plans primarily reflects (i) the remeasurement of our primary U.S. pension plans as a result of the payment of periodic settlements and (ii) adjustments for the actuarial valuation results based on the January 1st plan census data. The 2023 non-U.S. net actuarial gain reflects remeasurements related to the Pension Plan amendments in the U.K. in second quarter 2023. The Retiree Health plan's net actuarial gain reflects adjustments for the actuarial valuation results based on the January 1st plan census data..

(2)Amounts represent the pre-tax effect included within Other Comprehensive (Loss) Income. Refer to Note 19 - Other Comprehensive Income for related tax effects and the after-tax amounts.

Xerox 2024 Form 10-Q 35

Pension Plan Amendment

In January 2024, the pension board of our Netherlands benefit pension plan transferred the plan’s assets and projected benefit obligation (PBO) to a single general pension fund. In addition to the transition, the indexation target was increased from 75% of price inflation to 100% of price inflation. This plan amendment resulted in an increase of approximately $47 (approximately EUR 44 million) in the PBO for this Collective Defined Contribution (CDC) plan, approximately 6% of the plan PBO as of December 31, 2023. From a Company risk perspective, this CDC plan operates just like a frozen defined contribution plan. Although the Company's risk has been mitigated, under U.S. GAAP this CDC plan doesn't meet the definition of a defined contribution plan and therefore continues to be accounted for as a defined benefit plan.

Contributions

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


	Six Months Ended June 30,				Year Ended December 31,
	2024		2023		Estimated 2024		2023
U.S. plans	$	35	$	12	$	100	$	53
Non-U.S. plans	14		13		30		28
Total Pension plans	49		25		130		81
Retiree Health	9		7		20		21
Total Retirement plans	$	58	$	32	$	150	$	102

Approximately $80 of the estimated 2024 contributions for our U.S. plans are for our tax-qualified defined benefit plans.

Xerox 2024 Form 10-Q 36

Note 17 – Shareholders’ Equity of Xerox Holdings

(shares in thousands)

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


	Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non-controlling Interests		Total Equity
Balance at March 31, 2024	$	124	$	1,099	$	—	$	4,828	$	(3,673)	$	2,378	$	3	$	2,381

Comprehensive income (loss), net	—		—		—		18		(14)		4		—		4
Cash dividends declared - common(3)	—		—		—		(33)		—		(33)		—		(33)
Cash dividends declared - preferred(4)	—		—		—		(3)		—		(3)		—		(3)


Stock option and incentive plans, net	—		15		—		—		—		15		—		15




Transactions with noncontrolling interests	—		—		—		—		—		—		1		1
Balance at June 30, 2024	$	124	$	1,114	$	—	$	4,810	$	(3,687)	$	2,361	$	4	$	2,365


	Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non- controlling Interests		Total Equity
Balance at March 31, 2023	$	157	$	1,594	$	—	$	5,162	$	(3,454)	$	3,459	$	8	$	3,467

Comprehensive (loss) income, net	—		—		—		(61)		17		(44)		—		(44)
Cash dividends declared - common(3)	—		—		—		(41)		—		(41)		—		(41)
Cash dividends declared - preferred(4)	—		—		—		(3)		—		(3)		—		(3)


Stock option and incentive plans, net	—		13		—		—		—		13		—		13



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

Balance at June 30, 2023	$	157	$	1,607	$	—	$	5,057	$	(3,437)	$	3,384	$	8	$	3,392


	Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2023	$	123	$	1,114	$	—	$	4,977	$	(3,676)	$	2,538	$	10	$	2,548

Comprehensive loss, net	—		—		—		(95)		(11)		(106)		—		(106)
Cash dividends declared - common(3)	—		—		—		(65)		—		(65)		—		(65)
Cash dividends declared - preferred(4)	—		—		—		(7)		—		(7)		—		(7)


Purchases of capped calls(5)	—		(17)		—		—		—		(17)		—		(17)
Stock option and incentive plans, net	1		17		—		—		—		18		—		18



Transactions with noncontrolling interests	—		—		—		—		—		—		(5)		(5)
Distributions to noncontrolling interests	—		—		—		—		—		—		(1)		(1)

Balance at June 30, 2024	$	124	$	1,114	$	—	$	4,810	$	(3,687)	$	2,361	$	4	$	2,365

Xerox 2024 Form 10-Q 37


	Common Stock(1)		Additional Paid-in Capital		Treasury Stock		Retained Earnings		AOCL(2)		Xerox Holdings Shareholders’ Equity		Non- controlling Interests		Total Equity
Balance at December 31, 2022	$	156	$	1,588	$	—	$	5,136	$	(3,537)	$	3,343	$	10	$	3,353

Comprehensive income, net	—		—		—		10		100		110		—		110
Cash dividends declared - common(3)	—		—		—		(82)		—		(82)		—		(82)
Cash dividends declared - preferred(4)	—		—		—		(7)		—		(7)		—		(7)


Stock option and incentive plans, net	1		19		—		—		—		20		—		20





Distributions to noncontrolling interests	—		—		—		—		—		—		(2)		(2)

Balance at June 30, 2023	$	157	$	1,607	$	—	$	5,057	$	(3,437)	$	3,384	$	8	$	3,392

_____________

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

(2)Refer to Note 19 - Other Comprehensive (Loss) Income for the components of AOCL.

(3)Cash dividends declared on common stock for the three and six months ended June 30, 2024 and 2023 were $0.25 per share, respectively, and $0.50 per share, respectively.

(4)Cash dividends declared on preferred stock for the three and six months ended June 30, 2024 and 2023 were $20.00 per share, respectively, and $40.00 per share, respectively.

(5)Refer to Note 13 - Debt for additional information related to the purchases of capped calls in connection with the issuance of Xerox Holdings Corporation's $400 of 3.75% Convertible Senior Notes due 2030.

Common Stock and Treasury Stock

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


	Common Stock Shares	Treasury Stock Shares
Balance at December 31, 2023	123,144	—
Stock based compensation plans, net	1,041	—


Balance at March 31, 2024	124,185	—
Stock based compensation plans, net	134	—


Balance at June 30, 2024	124,319	—

Xerox 2024 Form 10-Q 38

Note 18 – Shareholder's Equity of Xerox

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


	Additional Paid-in Capital		Retained Earnings		AOCL(1)		Xerox Shareholder's Equity		Non- controlling Interests		Total Equity
Balance at March 31, 2024	$	3,465	$	2,811	$	(3,673)	$	2,603	$	3	$	2,606
Comprehensive income (loss), net	—		19		(14)		5		—		5


Dividends declared to parent	—		(34)		—		(34)		—		(34)

Transfers from parent	8		—		—		8		—		8







Transactions with noncontrolling interests	—		—		—		—		1		1

Balance at June 30, 2024	$	3,473	$	2,796	$	(3,687)	$	2,582	$	4	$	2,586


	Additional Paid-in Capital		Retained Earnings		AOCL(1)		Xerox Shareholder's Equity		Non- controlling Interests		Total Equity
Balance at March 31, 2023	$	3,695	$	3,455	$	(3,454)	$	3,696	$	8	$	3,704

Comprehensive (loss) income, net	—		(61)		17		(44)		—		(44)


Dividends declared to parent	—		(43)		—		(43)		—		(43)

Transfers from parent	13		—		—		13		—		13








Balance at June 30, 2023	$	3,708	$	3,351	$	(3,437)	$	3,622	$	8	$	3,630


	Additional Paid-in Capital		Retained Earnings		AOCL(1)		Xerox Shareholder's Equity		Non- controlling Interests		Total Equity
Balance at December 31, 2023	$	3,485	$	2,959	$	(3,676)	$	2,768	$	10	$	2,778


Comprehensive loss, net	—		(94)		(11)		(105)		—		(105)


Dividends declared to parent	—		(69)		—		(69)		—		(69)

Transfers to parent	(12)		—		—		(12)		—		(12)






Transactions with noncontrolling interests	—		—		—		—		(5)		(5)
Distributions to noncontrolling interests	—		—		—		—		(1)		(1)
Balance at June 30, 2024	$	3,473	$	2,796	$	(3,687)	$	2,582	$	4	$	2,586


	Additional Paid-in Capital		Retained Earnings		AOCL(1)		Xerox Shareholder's Equity		Non- controlling Interests		Total Equity
Balance at December 31, 2022	$	3,693	$	3,427	$	(3,537)	$	3,583	$	10	$	3,593

Comprehensive income, net	—		10		100		110		—		110


Dividends declared to parent	—		(86)		—		(86)		—		(86)

Transfers from parent	15		—		—		15		—		15


Distributions to noncontrolling interests	—		—		—		—		(2)		(2)
Balance at June 30, 2023	$	3,708	$	3,351	$	(3,437)	$	3,622	$	8	$	3,630

_____________

(1)Refer to Note 19 - Other Comprehensive (Loss) Income for the components of AOCL.

Xerox 2024 Form 10-Q 39

Note 19 – Other Comprehensive (Loss) Income

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2024				2023				2024				2023
	Pre-tax		Net of Tax		Pre-tax		Net of Tax		Pre-tax		Net of Tax		Pre-tax		Net of Tax
Translation Adjustments (Losses) Gains	$	(20)	$	(20)	$	49	$	49	$	(52)	$	(52)	$	142	$	142
Unrealized (Losses) Gains
Changes in fair value of cash flow hedges losses	(5)		(3)		(13)		(11)		(8)		(6)		(15)		(13)
Changes in cash flow hedges reclassed to earnings(1)	4		3		7		6		7		5		12		12

Net Unrealized Losses	(1)		—		(6)		(5)		(1)		(1)		(3)		(1)

Defined Benefit Plans (Losses) Gains
Net actuarial/prior service losses	(13)		(10)		(27)		(20)		(5)		(4)		(20)		(15)
Prior service amortization(2)	—		—		(1)		—		(3)		(2)		(4)		(2)
Actuarial loss amortization/settlement(2)	22		17		11		8		45		34		18		13

Other (losses) gains(3)	(1)		(1)		(15)		(15)		14		14		(37)		(37)
Changes in Defined Benefit Plans Gains (Losses)	8		6		(32)		(27)		51		42		(43)		(41)

Other Comprehensive (Loss) Income	(13)		(14)		11		17		$	(2)	$	(11)	$	96	$	100

____________

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

(2)Reclassified to Total Net Periodic Benefit Cost - refer to Note 16 - Employee Benefit Plans for additional information.

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

Accumulated Other Comprehensive Loss (AOCL)

AOCL is comprised of the following:


	June 30, 2024		December 31, 2023
Cumulative translation adjustments	$	(2,098)	$	(2,046)
Other unrealized losses, net	(4)		(3)
Benefit plans net actuarial losses and prior service credits	(1,585)		(1,627)
Total Accumulated Other Comprehensive Loss	$	(3,687)	$	(3,676)

Xerox 2024 Form 10-Q 40

Note 20 – Earnings (Loss) per Share

(shares in thousands)

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Basic Earnings (Loss) per Share
Net Income (Loss) Attributable to Xerox Holdings	$	18	$	(61)	$	(95)	$	10
Accrued dividends on preferred stock	(3)		(3)		(7)		(7)


Adjusted Net income (loss) available to common shareholders	$	15	$	(64)	$	(102)	$	3

Weighted average common shares outstanding	124,230		157,009		124,062		156,817




Basic Earnings (Loss) per Share:	$	0.12	$	(0.41)	$	(0.83)	$	0.02

Diluted Earnings (Loss) per Share
Net Income (Loss) Attributable to Xerox Holdings	$	18	$	(61)	$	(95)	$	10
Accrued dividends on preferred stock	(3)		(3)		(7)		(7)


Adjusted Net income (loss) available to common shareholders	$	15	$	(64)	$	(102)	$	3

Weighted average common shares outstanding	124,230		157,009		124,062		156,817
Common shares issuable with respect to:
Stock options	—		—		—		—
Restricted stock and performance shares	1,325		—		—		1,078
Convertible preferred stock	—		—		—		—

Adjusted weighted average common shares outstanding	125,555		157,009		124,062		157,895




Diluted Earnings (Loss) per Share	$	0.11	$	(0.41)	$	(0.83)	$	0.02

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive:
Stock options	174		287		174		287
Restricted stock and performance shares	6,703		7,174		8,028		6,096
Convertible preferred stock	6,742		6,742		6,742		6,742
Convertible notes(1)	19,196		—		19,196		—
Total Anti-Dilutive Securities	32,815		14,203		34,140		13,125

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

_____________

(1)Refer to Note 13 - Debt for additional information related to the issuance of Xerox Holdings Corporation's $400 of 3.75% Convertible Senior Notes due 2030.

Xerox 2024 Form 10-Q 41

Note 21 – Contingencies and Litigation

Legal Matters

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

Brazil Contingencies

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


	June 30, 2024		December 31, 2023
Tax contingency - unreserved	$	339	$	375
Escrow cash deposits	21		24
Surety bonds	92		104
Letters of credit	16		22
Liens on Brazilian assets	—		—

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

Litigation

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

On December 13, 2019, alleged shareholder Miami Firefighters’ Relief & Pension Fund (Miami Firefighters) filed a derivative complaint in New York State Supreme Court, New York County on behalf of Xerox Holdings Corporation (Xerox Holdings) against Carl Icahn and his affiliated entities High River Limited Partnership and Icahn Capital LP (the Icahn defendants), Xerox Holdings, and all then-current Xerox Holdings directors (the Directors). Xerox Holdings was named as a nominal defendant in the case but no monetary damages are sought against it. Miami Firefighters alleges: breach of fiduciary duty of loyalty against the Icahn defendants; breach of contract against the Icahn defendants (for purchasing HP stock in violation of Icahn’s confidentiality agreement with Xerox Holdings); unjust enrichment against the Icahn defendants; and breach of fiduciary duty of loyalty against the Directors (for any consent to the Icahn defendants’ purchases of HP common stock while Xerox Holdings was considering acquiring HP). Miami Firefighters seeks a judgment of breach of fiduciary duties against the Icahn defendants and the Directors, and disgorgement to Xerox Holdings of profits Icahn Capital and High River earned from trading in HP

Xerox 2024 Form 10-Q 42

stock. This action was consolidated with a similar action brought by Steven J. Reynolds against the same parties in the same court. Miami Firefighters’ counsel has been designated as lead counsel in the consolidated action.

Claims asserted against the Directors were later dismissed.

In December 2021, the Xerox Holdings Board approved the formation of a Special Litigation Committee (SLC) to investigate and evaluate Miami Firefighters' claims and determine the course of action that would be in the best interests of the Company and its shareholders. The SLC concluded that the claims were without merit and pursuing them would not be in the best interest of Xerox or its shareholders. The parties have reached a stipulation of settlement that has been preliminarily approved by the court.

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

On March 10, 2021, Xerox Holdings Corporation (Xerox Holdings) filed a complaint for breach of contract and declaratory judgment against Factory Mutual Insurance Company (FM) in Rhode Island Superior Court, Providence County seeking insurance coverage for business interruption losses resulting from the coronavirus/COVID-19 pandemic. Xerox Holdings alleges that FM agreed to provide Xerox Holdings with up to $1 billion in per-occurrence coverage for losses resulting from pandemic-related loss or damage to certain real and other property, including business interruption loss resulting from insured property damage; that Xerox Holdings’ worldwide actual and projected losses through the end of 2020 totaled in excess of $300; and that FM incorrectly denied coverage for those losses. Xerox Holdings seeks full coverage of costs and losses under FM’s policy. Subsidiaries of Xerox Holdings filed similar complaints and related requests for arbitration in Toronto, London, and Amsterdam for Canadian, UK and European losses.

These actions and proceedings have been discontinued.

Guarantees

We have issued or provided approximately $226 of guarantees as of June 30, 2024 in the form of letters of credit or surety bonds issued to i) support certain insurance programs; ii) support our obligations related to the Brazil contingencies; iii) support our obligations related to our U.K. pension plans; and iv) support certain contracts, primarily with public sector customers, which require us to provide a surety bond as a guarantee of our performance of contractual obligations.

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

Xerox 2024 Form 10-Q 43

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

Throughout the Management’s Discussion and Analysis (MD&A) that follows, 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.

Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations. Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, the Condensed Consolidated Financial Statements and the accompanying notes. Throughout this MD&A, references are made to various notes in the Condensed Consolidated Financial Statements which appear in Item 1 of this combined Quarterly Report on Form 10-Q (this Form 10-Q), and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made.

Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. At December 31, 2023 Xerox Ventures, LLC held investments of $26 million. In January 2024, Myriad Ventures Fund I LP (Myriad) was established, and the investments held by Xerox Ventures, LLC were transferred to Myriad, which will continue to be fully consolidated by Xerox Holdings. At June 30, 2024 Myriad had investments of approximately $34 million. Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion.

Currency Impact

To understand the trends in the business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as "constant currency," “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate. This impact is calculated for all countries where the functional currency is the local country currency. We do not hedge the translation effect of revenues or expenses denominated in currencies where the local currency is the functional currency. Management believes the constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference between actual growth rates and constant currency growth rates.

Overview

In the second quarter of 2024, Xerox progressed in the design, planning and implementation of structural changes that will drive the Company's multi-year Reinvention strategy. The intended benefits of the new operating model implemented in the first quarter 2024 are materializing in financial results. In second quarter 2024, adjusted1 operating income margin, cash flow and revenue trajectory all improved sequentially. These improvements, and ongoing enhancements to management processes, further our confidence that we have the right strategy in place to deliver our targeted $300 million of improvement in adjusted1 operating income by the end of 2026.

Equipment sales of $356 million in the second quarter 2024 declined 15.2% in actual currency, or 14.9% in constant currency1, as compared to the second quarter 2023. The prior year effect of backlog2 reduction and geographic simplification drove an approximate 14-percentage point year-over-year decline. Total equipment revenue declines outpaced equipment installation activity, due to unfavorable product mix. Revenue declined across all product groups, primarily due to the effects of backlog2 fluctuations in the current and prior year. Post-sale revenue of $1.2 billion declined 8.4% in actual currency, or 7.9% in constant currency1, as compared to second quarter 2023. The decline was primarily due to lower outsourcing and service revenue, reductions in non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification. Excluding non-strategic effects, post sale revenue declined mid-single digits.

Pre-tax income of $25 million for the second quarter 2024 increased by $114 million as compared to a pre-tax (loss) of $(89) million in the second quarter 2023, and was primarily driven by the net pre-tax charge of $132 million related to the donation of our Palo Alto Research Center (PARC), in the prior year period. The increase also reflects lower Selling, administrative and general expenses, due to actions taken to improve our cost structure, and lower Restructuring and related costs, net. These benefits were partially offset by lower revenues and associated gross

Xerox 2024 Form 10-Q 44

profit. Adjusted1 operating income decreased $22 million as compared to second quarter 2023, due to lower equipment and post sale revenue, and associated gross profits. These impacts were partially offset by benefits from cost reduction actions associated with structural simplification efforts and lower bad debt expense.

Divestitures

In March 2024, Xerox completed the sales of its direct business operations in Argentina and Chile to Grupo Datco. Refer to Note 6 - Divestitures in the Condensed Consolidated Financial Statements for additional information regarding these sales.

____________________________

(1)Refer to the “Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure.

(2)Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT services offerings.

2024 Review

Total revenue of $1.58 billion for second quarter 2024 decreased 10.0% from second quarter 2023, which included a 0.4-percentage point unfavorable impact from currency. Total revenue of $3.08 billion for the six months ended June 30, 2024 decreased 11.2% as compared to the prior year period, including a 0.2-percentage point benefit from currency.

Net income (loss) and adjusted1 Net income were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2024		2023		B/(W)		2024		2023		B/(W)
Net Income (Loss)	$	18	$	(61)	$	79	$	(95)	$	10	$	(105)
Adjusted(1) Net income	41		72		(31)		52		154		(102)

____________________________

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

Second quarter 2024 Net income was $18 million as compared to the second quarter 2023 Net (loss) of $(61) million. The increase in Net income of $79 million primarily reflects the net after-tax PARC donation charge of $92 million ($132 million pre-tax) in the prior year period, as well as lower Selling, administrative and general expenses, Restructuring and related costs, net, and Research, development and engineering expenses (RD&E). These positive impacts were partially offset by lower revenue and gross profit, which includes the exit of certain production print manufacturing operations, as well as, higher Other expenses, net, which included the impacts of higher non-service retirement-related costs and insurance proceeds related to a legal settlement, and higher Income tax expense. Second quarter 2024 Adjusted1 Net income of $41 million decreased $31 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net. These negative impacts were partially offset by lower Selling, administrative and general expenses, RD&E, and Income tax expense.

Net (loss) for the six months ended June 30, 2024 was $(95) million as compared to the prior year period Net income of $10 million, which reflects the net after-tax PARC donation charge of $92 million ($132 million pre-tax). The decrease in Net income reflects lower revenue and gross profit, as well as the loss from divestitures of certain direct business operations in Latin America, the exit of certain production print manufacturing operations, higher Restructuring and related costs, net, and higher Other expenses, net, which included the impacts of higher non-service retirement-related costs as well as insurance proceeds related to a legal settlement. These negative impacts were partially offset by lower Selling, administrative and general expenses and lower RD&E, as well as higher Income tax benefits. Adjusted1 Net income for the six months ended June 30, 2024 of $52 million decreased $102 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net. These negative impacts were partially offset by lower Selling, administrative and general expenses, lower RD&E, and lower Income tax expense.

____________________________

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

Xerox 2024 Form 10-Q 45

The following is a summary of our segments - Print and Other and Xerox Financial Services (XFS):


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2024		2023		% Change		2024		2023		% Change
Revenue
Print and Other	$	1,508	$	1,674	(9.9)	%	$	2,938	$	3,310	(11.2)	%
XFS	89		101		(11.9)	%	180		203		(11.3)	%
Intersegment Elimination(1)	(19)		(21)		(9.5)	%	(38)		(44)		(13.6)	%
Total Revenue	$	1,578	$	1,754	(10.0)	%	$	3,080	$	3,469	(11.2)	%

Profit
Print and Other	$	81	$	107	(24.3)	%	$	114	$	207	(44.9)	%
XFS	4		—		nm		4		18		(77.8)	%
Total Profit	$	85	$	107	(20.6)	%	$	118	$	225	(47.6)	%

____________________________

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

Cash flows from operating activities during the six months ended June 30, 2024 was a source of $44 million and decreased $129 million as compared to the prior year period, primarily related to lower net income as well as higher payments for accrued compensation and restructuring, partially offset by net proceeds of approximately $377 million from the on-going sales of finance receivables under the finance receivables funding agreement, as well as lower finance receivable originations, and improvements in cash for working capital1.

Cash used in investing activities during the six months ended June 30, 2024 was $19 million, reflecting capital expenditures of $18 million, $11 million related to the impact of the deconsolidation of an entity that is now accounted for using the equity method of accounting, and $9 million for investments in noncontrolling interests, all of which was partially offset by net cash proceeds of approximately $11 million from the sale of assets, and $7 million from the sales of our business operations in Argentina and Chile.

Cash used in financing activities during the six months ended June 30, 2024 was $75 million reflecting net payments of approximately $658 million on Senior Notes due in 2024 and 2025, $178 million on secured financing arrangements, $15 million for debt issuance costs, and $14 million on the Term Loan B facility. Partially offsetting payments on debt were proceeds from the issuance of Senior Notes during first quarter 2024 of approximately $900 million. Dividend payments were $71 million and purchases of capped calls were $23 million in connection with the issuance of Convertible Senior Notes.

____________________________

(1)Working capital, net reflects Accounts receivable, Billed portion of finance receivables, Inventories and Accounts payable.

Due primarily to incremental reductions in revenue associated with geographic simplification and the decision to exit the manufacturing of certain Production equipment, we are lowering our full-year revenue guidance from a decline of 3% to 5% in constant currency1 to a decline of 5% to 6% in constant currency1. Core business revenue in 2024 is expected to be roughly flat year-over-year in constant currency1 consistent with our prior outlook, reflecting growing demand for our products and services in the second half of the year. As a result of lower expected revenues, and to a lesser extent rising freight and product costs, we are lowering adjusted1 operating income margin guidance from at least 7.5% to at least 6.5%. Operating cash flows is now expected to be at least $600 million in 2024 versus prior guidance of at least $650 million. The reduction in operating cash flows is in-line with the after-tax reduction in adjusted1 operating income expectations. We continue to expect capital expenditures to be approximately $50 million.

____________________________

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

Xerox 2024 Form 10-Q 46

Financial Review

Revenues


	Three Months Ended June 30,								Six Months Ended June 30,								% of Total Revenue
(in millions)	2024		2023		% Change		CC % Change		2024		2023		% Change		CC % Change		2024		2023
Equipment sales	$	356	$	420	(15.2)	%	(14.9)	%	$	646	$	811	(20.3)	%	(20.4)	%	21	%	23	%
Post sale revenue	1,222		1,334		(8.4)	%	(7.9)	%	2,434		2,658		(8.4)	%	(8.6)	%	79	%	77	%
Total Revenue	$	1,578	$	1,754	(10.0)	%	(9.6)	%	$	3,080	$	3,469	(11.2)	%	(11.4)	%	100	%	100	%

Reconciliation to Condensed Consolidated Statements of Income (Loss):
Sales	$	611	$	696	(12.2)	%	(12.0)	%	$	1,134	$	1,355	(16.3)	%	(16.5)	%
Less: Supplies, paper and other sales	(255)		(276)		(7.6)	%	(7.7)	%	(488)		(544)		(10.3)	%	(10.8)	%

Equipment sales	$	356	$	420	(15.2)	%	(14.9)	%	$	646	$	811	(20.3)	%	(20.4)	%

Services, maintenance and rentals	$	929	$	1,009	(7.9)	%	(7.3)	%	$	1,866	$	2,013	(7.3)	%	(7.4)	%
Add: Supplies, paper and other sales	255		276		(7.6)	%	(7.7)	%	488		544		(10.3)	%	(10.8)	%
Add: Financing	38		49		(22.4)	%	(21.2)	%	80		101		(20.8)	%	(21.0)	%

Post sale revenue	$	1,222	$	1,334	(8.4)	%	(7.9)	%	$	2,434	$	2,658	(8.4)	%	(8.6)	%

Segments
Print and Other	$	1,508	$	1,674	(9.9)	%			$	2,938	$	3,310	(11.2)	%			95	%	95	%
Xerox Financial Services (XFS)	89		101		(11.9)	%			180		203		(11.3)	%			6	%	6	%
Intersegment elimination(1)	(19)		(21)		(9.5)	%			(38)		(44)		(13.6)	%			(1)	%	(1)	%
Total Revenue(2)	$	1,578	$	1,754	(10.0)	%			$	3,080	$	3,469	(11.2)	%			100	%	100	%

_____________

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

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

(2)Refer to Note 4 - Segment Reporting in the Condensed Consolidated Financial Statements for additional information regarding our reportable segments.

Second quarter 2024 total revenue decreased 10.0% as compared to second quarter 2023, and included a 0.4-percentage point adverse impact from currency, while total revenue for the six months ended June 30, 2024 decreased 11.2%, and included a 0.2-percentage point benefit from currency. The decrease in equipment sales revenue at constant currency1 for both the three and six months ended June 30, 2024 was primarily attributable to the effects of backlog fluctuations in the current and prior year quarters, along with non-strategic reductions in revenue, including offering and geographic simplification. The six months ended June 30, 2024 was also impacted by the organizational changes implemented during the first quarter 2024. Post sale revenue decreased at constant currency1 for both the three and six months ended June 30, 2024 primarily due to the decline in Contractual print services2 driven by lower service and outsourcing revenue, as well as reductions in non-strategic, lower margin IT endpoint device placements and paper sales, lower Finance income, and the effects of geographic simplification. Post sale revenue for the six months ended June 30, 2024, was also negatively impacted by the termination of Fuji royalty income and PARC revenue.

Total revenue for the three and six months ended June 30, 2024 reflected the following:

Post sale revenue

Post sale revenue reflects revenues from Contractual print services2, supplies and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page. Post sale revenue also includes transactional IT hardware sales and other Managed IT services, as well as gains, commissions, and servicing revenue on the sale of finance receivables.

Post sale revenue decreased 8.4% as compared to second quarter 2023, which included a 0.5-percentage point adverse impact from currency, while Post sale revenue decreased 8.4% for the six months ended June 30, 2024 as compared to the prior year period, including a 0.2-percentage point benefit from currency. Post sale revenue reflected the following:

Xerox 2024 Form 10-Q 47

•Services, maintenance and rentals revenue includes maintenance revenue (including bundled supplies), print, digital and managed IT services revenue from our Services offerings, rentals and other revenues. For the three months ended June 30, 2024, these revenues decreased 7.9% as compared to second quarter 2023, which included a 0.6-percentage point adverse impact from currency, while for the six months ended June 30, 2024 these revenues decreased 7.3% as compared to the prior year period, including a 0.1-percentage point benefit from currency. The decline at constant currency1 for both the three and six months ended June 30, 2024, respectively, was primarily due to Contractual print services2 declines and the absence of PARC revenue. Contractual print services2 revenue declined mid-single digits for the three and six months ended June 30, 2024 as compared to the respective prior year periods, driven by lower outsourcing and service revenue and the effects of geographic simplification, which was partially offset by gains, commissions, and servicing revenue on sales of finance receivables. The decline for the six months ended June 30, 2024 was also negatively impacted by the termination of Fuji royalty income.

•Supplies, paper and other sales revenue includes unbundled supplies, IT hardware and other sales. For the three months ended June 30, 2024, these revenues decreased 7.6% as compared to second quarter 2023, including a 0.1-percentage point benefit from currency, while for the six months ended June 30, 2024 the revenues decreased 10.3% as compared to the prior year period, including a 0.5-percentage point benefit from currency. The decline at constant currency1 for both the three and six months ended June 30, 2024, respectively, primarily reflected lower sales of non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification. The decline in both periods was partially offset by higher supplies revenue.

•Financing revenue is generated from direct and indirect financing of Xerox equipment. These revenues decreased 22.4% as compared to second quarter 2023, including a 1.2-percentage point adverse impact from currency. Financing revenue for the six months ended June 30, 2024 decreased 20.8% as compared to the prior year period, including a 0.2-percentage point benefit from currency. The decline at constant currency1 for both the three and six months ended June 30, 2024, respectively, reflects a reduction of the average finance receivables balance in the first half of 2024 as a result of the sales of finance receivables to HPS Investment Partners (HPS), as well as lower originations. Finance receivables are approximately $650 million lower in June of 2024 as compared to June of 2023.

Equipment sales revenue

Equipment sales revenue decreased 15.2% as compared to second quarter 2023, including a 0.3-percentage point adverse impact from currency. The decrease in both actual and constant currency1 reflects backlog fluctuations in the current and prior year quarters, as well as effects of non-strategic reductions in revenue, including offering and geographic simplification. Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

For the six months ended June 30, 2024 Equipment sales revenue decreased 20.3%, including a 0.1-percentage point benefit from currency. The decrease in both actual and constant currency1 reflects the significant reduction in backlog in the first quarter 2023 as compared to the first quarter 2024, as well as organizational changes implemented during the first quarter 2024, and the effects of non-strategic reductions in revenue, including offering and geographic simplification. Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

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

____________________________

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

(2)Includes revenues from Services, maintenance and rentals.

Xerox 2024 Form 10-Q 48

Costs, Expenses and Other Income

Summary of Key Financial Ratios

The following is a summary of key financial ratios used to assess our performance:


	Three Months Ended June 30,									Six Months Ended June 30,

(in millions)	2024			2023			B/(W)			2024			2023			B/(W)





Gross Profit	$	520		$	597		$	(77)		$	963		$	1,186		$	(223)
RD&E	50			57			7			99			121			22
SAG	393			433			40			790			840			50

Equipment Gross Margin	34.5		%	35.2		%	(0.7)		pts.	32.9		%	35.8		%	(2.9)		pts.
Post sale Gross Margin	32.5		%	33.6		%	(1.1)		pts.	30.8		%	33.7		%	(2.9)		pts.
Total Gross Margin	33.0		%	34.0		%	(1.0)		pts.	31.3		%	34.2		%	(2.9)		pts.
RD&E as a % of Revenue	3.2		%	3.2		%	—		pts.	3.2		%	3.5		%	0.3		pts.
SAG as a % of Revenue	24.9		%	24.7		%	(0.2)		pts.	25.6		%	24.2		%	(1.4)		pts.

Pre-tax Income (Loss)	$	25		$	(89)		$	114		$	(125)		$	(4)		$	(121)
Pre-tax Income (Loss) Margin	1.6		%	(5.1)		%	6.7		pts.	(4.1)		%	(0.1)		%	(4.0)		pts.

Adjusted(1) Operating Income	$	85		$	107		$	(22)		$	118		$	225		$	(107)
Adjusted(1) Operating Income Margin	5.4		%	6.1		%	(0.7)		pts.	3.8		%	6.5		%	(2.7)		pts.

____________

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

Gross Margin

Second quarter 2024 gross margin of 33.0% decreased by 1.0-percentage points as compared to second quarter 2023, primarily reflecting lower revenue and gross profit, higher transportation and product costs, and the exit of certain production print manufacturing operations. These impacts were partially offset by favorable currency and the benefits associated with recent cost and productivity actions.

Gross margin for the six months ended June 30, 2024 of 31.3% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, primarily due to charges associated with the exit of certain production print manufacturing operations, which had a 1.4-percentage point unfavorable impact on gross margin, as well as higher transportation and product costs. These impacts were partially offset by the benefits associated with recent cost and productivity actions and favorable currency.

Second quarter 2024 Equipment gross margin of 34.5% decreased by 0.7-percentage points as compared to second quarter 2023, reflecting lower revenue and gross profit, and higher transportation and product costs. These impacts were partially offset by favorable currency.

Equipment gross margin for the six months ended June 30, 2024 of 32.9% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, the exit of certain production print manufacturing operations, and higher product and transportation costs. These impacts were partially offset by favorable currency.

Second quarter 2024 Post sale gross margin of 32.5% decreased by 1.1-percentage points as compared to second quarter 2023, reflecting lower revenue and gross profit, including lower page volumes, charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, and higher transportation and product costs. These impacts were partially offset by the benefits associated with recent cost and productivity actions and favorable currency.

Post sale gross margin for the six months ended June 30, 2024 of 30.8% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, including lower page volumes, and charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, which had a 1.9-percentage point unfavorable impact on gross margin. Higher transportation and product costs, and the termination of Fuji royalty income also adversely impacted gross margin. These impacts were partially offset by the benefits associated with recent cost and productivity actions and favorable currency.

Xerox 2024 Form 10-Q 49

Research, Development and Engineering Expenses (RD&E)


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2024		2023		Change		2024		2023		Change
R&D	$	38	$	42	$	(4)	$	75	$	94	$	(19)
Sustaining engineering	12		15		(3)		24		27		(3)
Total RD&E Expenses	$	50	$	57	$	(7)	$	99	$	121	$	(22)

Second quarter 2024 RD&E as a percentage of revenue of 3.2% was flat as compared to second quarter 2023, primarily due to lower RD&E and revenues.

RD&E as a percentage of revenue for the six months ended June 30, 2024 of 3.2% decreased by 0.3-percentage points as compared to the prior year period, primarily due to the strategic decision to donate PARC in second quarter 2023.

Second quarter 2024 RD&E of $50 million decreased $7 million as compared to second quarter 2023. For the six months ended June 30, 2024 RD&E of $99 million decreased $22 million as compared to the prior year period. The decrease, as compared to the respective prior year periods was primarily due to the strategic decision to donate PARC in second quarter 2023, and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, as well as a corresponding reduction in real estate. The decrease also reflects productivity and cost savings related to the Company's Reinvention. The lower spending in innovation reflects decisions which provide greater focus and financial flexibility to pursue growth opportunities adjacent to our core operations within Print, Digital and IT Services.

Selling, Administrative and General Expenses (SAG)

Second quarter 2024 SAG as a percentage of revenue of 24.9% increased by 0.2-percentage points as compared to second quarter 2023, primarily due to lower revenues.

Second quarter 2024 SAG of $393 million decreased by $40 million as compared to second quarter 2023, primarily reflecting productivity and cost savings related to the Company's Reinvention, lower bad debt and incentive compensation expenses, as well as favorable currency.

SAG as a percentage of revenue for the six months ended June 30, 2024 of 25.6% increased by 1.4-percentage points as compared to the prior year period, primarily due to lower revenues, as well as higher bad debt expense, which were partially offset by lower selling and other administrative and general expenses.

SAG for the six months ended June 30, 2024 of $790 million decreased by $50 million as compared to the prior year period, primarily reflecting productivity and cost savings related to the Company's Reinvention, as well as, lower incentive compensation expense, lower litigation costs, and the strategic decision to donate PARC in the prior year. These favorable impacts were partially offset by higher bad debt expense and unfavorable currency.

The bad debt provision for the second quarter 2024 of $10 million decreased $5 million as compared to the second quarter 2023, primarily related to lower sales revenue.

The bad debt provision for six months ended June 30, 2024 of $25 million, increased by $18 million as compared to the prior year period. The increase reflects a reserve release in the prior year period of approximately $12 million due to a favorable reassessment of the credit exposure on a large customer receivable balance.

We continue to monitor developments in future economic conditions, and as a result, our reserves may need to be updated in future periods. As of June 30, 2024, on a trailing twelve-month basis, bad debt expense was approximately 1.5% of total receivables, as compared to approximately 1.0% for the prior year comparable period (excluding the reserve release in the first quarter 2023).

Refer to Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our bad debt provision.

Xerox 2024 Form 10-Q 50

Restructuring and Related Costs, Net

We incurred Restructuring and related costs, net of $12 million for the second quarter 2024, as compared to $23 million for the second quarter 2023, and $51 million for the six months ended June 30, 2024, as compared to $25 million in the prior year period. Charges incurred during 2024 are associated with strategic actions taken as a result of the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations and geographic simplification.

Second quarter 2024 actions entirely impacted gross margins improvements. Second quarter 2023 actions impacted several functional areas, with approximately 50% focused on SAG reductions and approximately 50% focused on RD&E Optimization.

The Restructuring and related costs, net reserve balance for all programs as of June 30, 2024 was $97 million, of which $87 million is expected to be paid over the next twelve months.

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

Worldwide Employment

Worldwide employment was approximately 18,100 as of June 30, 2024, a decrease of approximately 2,000 from December 31, 2023. The decrease primarily relates to the Company's Reinvention, which includes the effects of workforce reduction decisions announced in January 2024, as well as net attrition (attrition net of gross hires).

Other Expenses, Net


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2024		2023		2024		2023
Non-financing interest expense	$	31	$	12	$	57	$	26
Interest income	(4)		(4)		(7)		(9)
Non-service retirement-related costs	26		11		49		10

Currency losses, net	2		5		13		16

Transaction related costs, net	(23)		—		(23)		—
Loss (gain) on early extinguishment of debt	—		3		(3)		3


Gain on release of contingent consideration	—		—		(5)		—


All other expenses, net	1		4		(4)		5
Other expenses, net	$	33	$	31	$	77	$	51

Non-Financing Interest Expense

Second quarter 2024 non-financing interest expense of $31 million was $19 million higher than second quarter 2023. Non-financing interest expense for the six months ended June 30, 2024 of $57 million was $31 million higher than the prior year period. The respective increase in both periods is primarily due to higher interest rates on new debt issued in the first quarter of 2024, partially offset by lower non-financing debt in the prior year period as a result of the repayment of Senior Notes in 2022 and in the first quarter 2023.

When non-financing interest is combined with financing interest expense (Cost of financing) for the three months ended June 30, 2024, total interest expense increased by $14 million as compared to second quarter 2023, while for the six months ended June 30, 2024, total interest expense of $113 million increased by $17 million from the prior year period. The respective increase in both periods reflects the impact of higher interest rates on new debt partially offset by a lower average debt balance, due in part to the reduction of the average finance receivables balance, due to the sales of finance receivables to HPS Investment Partners, as well as lower originations.

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

Non-Service Retirement-Related Costs

Second quarter 2024 non-service retirement-related costs of $26 million were $15 million higher than the second quarter 2023, while non-service retirement-related costs of $49 million for the six months ended June 30, 2024 were $39 million higher than the prior year period. The respective increase in both periods is primarily due to an increase in actuarial losses subject to amortization, as well as a decrease in the expected return on plan assets.

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

Xerox 2024 Form 10-Q 51

Transaction and related costs, net

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain major and strategic M&A projects. Second quarter 2024 Transaction and related costs, net reflect insurance proceeds related to a legal settlement, for the reimbursement of certain legal and other professional costs, associated with the terminated proposal to acquire HP Inc. in early 2020.

Loss (Gain) on early extinguishment of debt

The (gain) on early extinguishment of debt of $(3) million for the six months ended June 30, 2024 reflects a $(4) million (gain) on the repayment of Senior Notes (via tender offer) in the first quarter of 2024, partially offset by a loss of approximately $1 million on the write-off of deferred debt issuance costs.

The loss on early extinguishment of debt of $3 million for the three and six months ended June 30, 2023 related to the early repayment on secured borrowings and the termination of our $250 million Credit Facility prior to entering into our 5-year Asset Based Lending (ABL) Facility.

Gain on release of contingent consideration

The gain on the release of contingent consideration of $5 million for the six months ended June 30, 2024 reflects a reserve release related to earn-out provisions which were not met, in connection with a prior acquisition.

Pre-tax Income (Loss) Margin

Second quarter 2024 pre-tax income margin of 1.6% increased 6.7-percentage points, as compared to second quarter 2023 pre-tax (loss) margin of (5.1)%. The increase was primarily due to the PARC donation charge in the prior year period, which resulted in a 7.6-percentage point favorable impact when compared to second quarter 2024. The increase also reflects lower Selling, administrative and general expenses and Restructuring and related costs, net, as well as insurance proceeds related to a legal settlement, which resulted in a 1.5-percentage point favorable impact. These impacts were partially offset by lower revenues and associated gross profits, which included higher transportation and product costs.

Pre-tax (loss) margin of (4.1)% for the six months ended June 30, 2024 decreased 4.0-percentage points, as compared to the prior year period pre-tax (loss) margin of (0.1)%. The decrease was primarily due to lower revenues and associated gross profit, the divestitures of certain direct business operations in Latin America, the exit of certain production print manufacturing operations, and higher Restructuring and related costs, net. These impacts were partially offset by the PARC donation charge in 2023, which resulted in a 3.8-percentage point favorable impact when comparing the pre-tax loss margin for the six months ended June 30, 2024 to the prior year period, as well as lower Selling, administrative and general expenses, insurance proceeds related to a legal settlement, which resulted in a 0.7-percentage point favorable impact, and lower RD&E expenses.

Adjusted1 Operating Margin

Second quarter 2024 adjusted1 operating income margin of 5.4% decreased by 0.7-percentage points as compared to second quarter 2023, primarily reflecting lower revenue and lower gross margin, which included higher product and transportation costs. These impacts were partially offset by the benefits from cost and productivity actions, lower Selling, administrative and general expenses, including lower bad debt and incentive compensation expenses, as well as, the benefits from the strategic decision to donate PARC, and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, as well as a corresponding reduction in real estate. Currency also positively impacted adjusted1 operating income margin.

Adjusted1 operating income margin of 3.8% for the six months ended June 30, 2024 decreased by 2.7-percentage points as compared to prior year period, reflecting lower revenue and lower gross margin, which included the termination of Fuji royalty income, and higher transportation and product costs, as well as higher bad debt expense primarily related to a reserve release in the first quarter of 2023. These impacts were partially offset by lower Selling, administrative and general expenses, the benefits from the strategic decision to donate PARC in second quarter 2023, and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, as well as a corresponding reduction in real estate, and benefits from cost and productivity actions.

______________

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

Xerox 2024 Form 10-Q 52

Income Taxes

Second quarter 2024 effective tax rate was 28.0% which was higher than the U.S. federal statutory tax rate of 21% due primarily to the redetermination of certain unrecognized tax positions and the geographical mix of earnings, including the mix associated with charges related to the Company's Reinvention. On an adjusted1 basis, second quarter 2024 effective tax rate was 25.5% which was higher than the U.S. federal statutory tax rate of 21% primarily due to changes in our uncertain tax positions and the geographical mix of earnings.

Second quarter 2023 effective tax rate was a 31.5% tax benefit and includes the loss on the PARC donation as well as the associated tax benefits. Excluding this impact, the effective tax rate was a 27.9% tax expense, which is higher than the U.S. federal statutory tax rate of 21%, primarily due to the tax impacts associated with restructuring and asset impairment charges and the geographical mix of earnings. On an adjusted1 basis, second quarter 2023 effective tax rate was 20.0%, which is lower than the U.S. federal statutory tax rate of 21% primarily due to tax benefits from the change in tax filing positions and the redetermination of certain unrecognized tax positions of approximately 10%, which were offset by the geographical mix of earnings.

The effective tax rate for the six months ended June 30, 2024 was 24.0% which resulted in a tax benefit. This tax benefit is higher than the benefit under the U.S. federal statutory tax rate of 21% due primarily to the redetermination of certain unrecognized tax positions, partially offset by the geographical mix of earnings, including the mix associated with charges related to the Company's Reinvention. On an adjusted1 basis, the effective tax rate for the six months ended June 30, 2024 was 18.8%. The difference between this rate and the U.S. federal statutory tax rate of 21% primarily reflects the redetermination of certain unrecognized tax positions partially offset by the geographical mix of earnings.

The effective tax rate for the six months ended June 30, 2023 was a 350.0% tax benefit and includes the loss on the PARC donation as well as the associated tax benefits. Excluding this impact, the effective tax rate was a 20.3% tax expense, which is lower than the U.S. federal statutory tax rate of 21% primarily due to the tax benefits from the redetermination of certain unrecognized tax positions and the change in the tax filing positions predominately offset by the tax impacts associated with restructuring and asset impairment charges and the geographical mix of earnings. On an adjusted1 basis, the effective tax rate for the six months ended June 30, 2023 was 17.6%. The adjusted1 effective tax rate was lower than the U.S. federal statutory tax rate of 21% primarily due to tax benefits from the redetermination of certain unrecognized tax positions and the change in tax filing positions, partially offset by the geographical mix of earnings.

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

_____________

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

Net Income (Loss)

Second quarter 2024 Net Income was $18 million, or $0.11 per diluted share. On an adjusted1 basis, Net Income was $41 million, or $0.29 per diluted share.

Second quarter 2023 Net (Loss) was $(61) million, or $(0.41) per diluted share, which included the net after-tax PARC donation charge of $92 million ($132 million pre-tax), or $0.58 per diluted share. On an adjusted1 basis, Net Income was $72 million, or $0.44 per diluted share.

Net (Loss) for the six months ended June 30, 2024 was $(95) million, or $(0.83) per diluted share. On an adjusted1 basis, Net Income was $52 million, or $0.35 per diluted share.

Net Income for the six months ended June 30, 2023 was $10 million, or $0.02 per diluted share, which included the net after-tax PARC donation charge of $92 million ($132 million pre-tax), or $0.58 per diluted share. On an adjusted1 basis, Net Income was $154 million, or $0.93 per diluted share.

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

_____________

(1)Refer to the Adjusted Net Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section. For the calculations of basis and diluted earnings (loss) per share, refer to Note 20 - Earnings (Loss) per Share in the Notes to the Condensed Consolidated Financial Statements.

Xerox 2024 Form 10-Q 53

Other Comprehensive (Loss) Income

Second quarter 2024 Other Comprehensive Loss, Net was $14 million and included the following: i) net translation adjustment losses of $20 million reflecting the weakening of most of our major foreign currencies against the U.S. Dollar during the quarter; and ii) $6 million of net gains from the changes in defined benefit plans reflecting the amortization of actuarial losses, partially offset by actuarial losses. This compares to Other Comprehensive Income, Net of $17 million for the second quarter 2023, which included the following: i) net translation adjustment gains of $49 million reflecting the strengthening of most of our major foreign currencies against the U.S. Dollar during the quarter; ii) $27 million of net losses from the changes in defined benefit plans primarily due to plan remeasurements and the adverse impact of currency, partially offset by amortization of actuarial losses; and iii) $5 million of net unrealized losses.

Other Comprehensive Loss, Net for the six months ended June 30, 2024 was $11 million and included the following: i) net translation adjustment losses of $52 million reflecting the weakening of our major foreign currencies against the U.S. Dollar; ii) $1 million of net unrealized losses; and iii) $42 million of net gains from the changes in defined benefit plans primarily reflecting the amortization of actuarial losses, the positive impact of currency, partially offset by actuarial losses. This compares to Other Comprehensive Income, Net for the six months ended June 30, 2023 of $100 million, which included the following: i) net translation adjustment gains of $142 million reflecting the strengthening of most of our major foreign currencies against the U.S. Dollar; ii) $41 million of net losses from the changes in defined benefit plans primarily due to the adverse impact of currency and plan remeasurements, partially offset by amortization of actuarial losses and settlement losses; and iii) $1 million of net unrealized losses.

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

Xerox 2024 Form 10-Q 54

Reportable Segments

Our business is organized to ensure we focus on efficiently managing operations while serving our customers and the markets in which we operate. We have two operating and reportable segments – Print and Other and Xerox Financial Services (XFS). Refer to Note 4 - Segment Reporting in the Condensed Consolidated Financial Statements for additional information regarding our reportable segments.

Segment Review


	Three Months Ended June 30,
(in millions)	External Revenue		Intersegment Revenue(1)		Total Segment Revenue		% of Total Revenue		Segment Profit		Segment Margin(2)
2024
Print and Other	$	1,489	$	19	$	1,508	94	%	$	81	5.4	%
XFS	89		—		89		6	%	4		4.5	%
Total	$	1,578	$	19	$	1,597	100	%	$	85	5.4	%

2023
Print and Other	$	1,653	$	21	$	1,674	94	%	$	107	6.5	%
XFS	101		—		101		6	%	—		—	%
Total	$	1,754	$	21	$	1,775	100	%	$	107	6.1	%


	Six Months Ended June 30,
(in millions)	External Revenue		Intersegment Revenue(1)		Total Segment Revenue		% of Total Revenue		Segment Profit		Segment Margin(2)
2024
Print and Other	$	2,900	$	38	$	2,938	94	%	$	114	3.9	%
XFS	180		—		180		6	%	4		2.2	%
Total	$	3,080	$	38	$	3,118	100	%	$	118	3.8	%

2023
Print and Other	$	3,266	$	44	$	3,310	94	%	$	207	6.3	%
XFS	203		—		203		6	%	18		8.9	%
Total	$	3,469	$	44	$	3,513	100	%	$	225	6.5	%

___________

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

(2)Segment margin based on external revenue only.

Print and Other

Print and Other includes the design, development and sale of document management systems, solutions and services as well as associated technology offerings including Digital and IT services and software.

Revenue


	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2024		2023		% Change	2024		2023		% Change
Equipment sales	$	351	$	414	(15.2)%	$	636	$	799	(20.4)%
Post sale revenue	1,138		1,239		(8.2)%	2,264		2,467		(8.2)%
Intersegment revenue (1)	19		21		(9.5)%	38		44		(13.6)%
Total Print and Other Revenue	$	1,508	$	1,674	(9.9)%	$	2,938	$	3,310	(11.2)%

_____________

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

Second quarter 2024 Print and Other segment revenue decreased 9.9% as compared to second quarter 2023 and Print and Other segment revenue decreased 11.2% for the six months ended June 30, 2024 as compared to the prior year period. Print and Other segment revenue included the following:

Xerox 2024 Form 10-Q 55

Equipment sales revenue decreased 15.2% during the second quarter 2024 as compared to second quarter 2023, while Equipment sales revenue decreased 20.4% for the six months ended June 30, 2024 as compared to the prior year period. The respective decrease as compared to the prior year periods reflects the effects of backlog fluctuations in the current and prior year, along with non-strategic reductions in revenue, including offering and geographic simplification. Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

Post sale revenue decreased 8.2% during the second quarter 2024 as compared to second quarter 2023, while Post sale revenue decreased 8.2% for the six months ended June 30, 2024 as compared to the prior year period. The respective decrease as compared to the prior year periods primarily reflects reductions in non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification, associated with our strategic Reinvention actions. Contractual print services1 revenue declined mid-single digits, driven by lower service and outsourcing revenue and the effects of geographic simplification. The impacts were partially offset by gains, commissions and servicing revenue on sales of finance receivables. The decrease for the six months ended June 30, 2024 as compared to the prior year period also reflected the termination of the Fuji royalty income and PARC revenue.

_____________

(1)Includes revenues from Services, maintenance and rentals.

Detail by product group is shown below.


	Three Months Ended June 30,						Six Months Ended June 30,						% of Equipment Sales
(in millions)	2024		2023		% Change	CC % Change	2024		2023		% Change	CC % Change	2024	2023
Entry	$	56	$	63	(11.1)%	(11.4)%	$	101	$	125	(19.2)%	(19.1)%	16%	16%
Mid-range	235		270		(13.0)%	(12.7)%	428		522		(18.0)%	(18.2)%	66%	64%
High-end	60		82		(26.8)%	(26.6)%	107		155		(31.0)%	(31.0)%	17%	19%
Other	5		5		—%	—%	10		9		11.1%	11.1%	1%	1%
Equipment sales(1)(2)	$	356	$	420	(15.2)%	(14.9)%	$	646	$	811	(20.3)%	(20.4)%	100%	100%

_____________

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

(1)Refer to the Products and Offerings Definitions section.

(2)Includes equipment sales related to the XFS segment of $5 million and $6 million for the three months ended June 30, 2024 and 2023, respectively, and $10 million and $12 million for the six months ended June 30, 2024 and 2023, respectively.

The change at constant currency1 reflected the effects of non-strategic reductions in revenue, including offering and geographic simplification, as well as the following:

•Entry - The decrease for the three months ended June 30, 2024 primarily reflects higher backlog reductions in the prior year period, and mix toward black-and-white installs. The decrease for the six months ended June 30, 2024 primarily reflects higher backlog reductions in the prior year period, as well as constraints in Entry, A4 devices during the first quarter of 2024.

•Mid-range - The decrease for both the three and six months ended June 30, 2024 reflects higher backlog reductions in the prior year period, partially offset by favorable mix to color.

•High-end - The decrease for both the three and six months ended June 30, 2024 was primarily due to higher backlog reductions in the prior year period, partially offset by favorable mix to color.

_____________

(1)Refer to the “Currency Impact” section for a description of constant currency.

Xerox 2024 Form 10-Q 56

Total Installs

Installs reflect new placements of devices only (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations). Revenue associated with equipment installations may be reflected up-front in Equipment sales or over time either through rental income or as part of our services revenues (which are both reported within our post sale revenues), depending on the terms and conditions of our agreements with customers. Installs include activity for Xerox and non-Xerox branded products installed by our XBS sales unit. Detail by product group (see Products and Offerings Definitions) is shown below.

Installs for the three months ended June 30, 2024 as compared to prior year period reflect the following:

Entry

•13% decrease in entry color installs, with A4 Color MFPs driving the majority of the decline.

•9% decrease in entry black-and-white installs, with Entry Mono printers driving the decline, partially offset by growth in A4 Mono MFPs.

Mid-Range

•12% decrease in mid-range color installs, driven primarily by declines in A3 Color MFPs.

•29% decrease in mid-range black-and-white installs, driven primarily by A3 Mono MFPs.

High-End

•22% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid products.

•24% decrease in high-end black-and-white primarily reflecting declines in High End Cut Sheet products.

Installs for the six months ended June 30, 2024 as compared to prior year period reflect the following:

Entry

•26% decrease in entry color installs, with A4 Color MFPs driving the majority of the decline

•28% decrease in entry black-and-white installs, with Entry Mono printers driving the decline.

Mid-Range

•15% decrease in mid-range color installs, driven primarily by declines in A3 Color MFPs.

•29% decrease in mid-range black-and-white installs, driven primarily by A3 Mono MFPs.

High-End

•33% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid products.

•20% decrease in high-end black-and-white primarily reflecting declines in High End Cut Sheet products.

Products and Offerings Definitions

Our product groupings range from:

•“Entry”, which include A4 devices and desktop printers and multifunction devices that primarily serve small and medium workgroups/work teams.

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

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

Segment Margin

Second quarter 2024 Print and Other segment margin of 5.4% decreased by 1.1-percentage points as compared to second quarter 2023, primarily due to lower revenue, and higher product and transportation costs, which were partially offset by lower Selling, administrative and general expenses, lower RD&E expense, favorable currency, and the benefits of cost and productivity savings.

Print and Other segment margin of 3.9% for the six months ended June 30, 2024 decreased 2.4-percentage points as compared to the prior year period. The decrease is primarily due to lower revenue, higher transportation and product costs, and higher bad debts expense. These adverse impacts were partially offset by lower Selling and other administrative and general expenses, lower RD&E expense, and the benefits of cost and productivity savings.

Xerox 2024 Form 10-Q 57

Xerox Financial Services

Xerox Financial Services (XFS) represents a global financing solutions business, primarily enabling the sale of our equipment and services.

Revenue


	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2024		2023		% Change	2024		2023		% Change
Equipment sales	$	5	$	6	(16.7)%	$	10	$	12	(16.7)%
Financing	38		49		(22.4)%	80		101		(20.8)%
Other Post sale revenue(1)	46		46		—%	90		90		—%

Total XFS Revenue	$	89	$	101	(11.9)%	$	180	$	203	(11.3)%

_____________

(1)Other Post sale revenue includes lease renewal and fee income as well as gains, commissions and servicing revenue associated with sold finance receivables.

Second quarter 2024 XFS segment revenue decreased 11.9% as compared to second quarter 2023, while for the six months ended June 30, 2024 segment revenue decreased 11.3% as compared to the prior year period and reflected the following:

Financing revenue is generated from direct and indirectly financed Xerox equipment sale transactions. For the three months ended June 30, 2024, these revenues decreased 22.4% as compared to second quarter 2023, including a 1.2-percentage point adverse impact from currency. Financing revenue for the six months ended June 30, 2024 decreased 20.8% as compared to the prior year period, including a 0.2-percentage point benefit from currency. The decline at constant currency1 for both the three and six months ended June 30, 2024, respectively, reflects a reduction of the average finance receivables balance in the first half of 2024 as a result of the sales of finance receivables to HPS Investment Partners (HPS), as well as lower originations. Finance receivables are approximately $650 million lower in June of 2024 as compared to June of 2023.

Other Post sale revenue was flat for both the three and six months ended June 30, 2024 as compared to the respective prior year periods, and includes gains, commissions and servicing revenue on sales of finance receivables under our finance receivables funding agreement, which were $13 and $11 for the three months ended June 30, 2024 and 2023, respectively, and $21 and $14 for the six months ended June 30, 2024 and 2023, respectively.

_____________

(1)Refer to the “Currency Impact” section for a description of constant currency.

Segment Margin

Second quarter 2024 XFS segment margin of 4.5% increased 4.5-percentage points as compared to second quarter 2023. Segment profit for XFS was $4 million higher as compared to second quarter 2023 mainly due to lower bad debt expense of $4 million as compared to second quarter 2023, which was partially offset by lower revenues from reduced assets.

XFS segment margin of 2.2% for the six months ended June 30, 2024 decreased 6.7-percentage points as compared to the prior year period. Segment profit for XFS was $14 million lower as compared to the prior year period mainly due to lower revenue from reduced assets and higher bad debt expense of $16 million as compared to the prior year period. These adverse impacts were partially offset by modestly higher gross profit from fees and lower intercompany commissions.

Xerox 2024 Form 10-Q 58

Capital Resources and Liquidity

The following is a summary of our liquidity position:

•As of June 30, 2024 and December 31, 2023, total cash, cash equivalents and restricted cash of Xerox Holdings Corporation were $551 million and $617 million, respectively, and apart from restricted cash of $66 million and $98 million at June 30, 2024 and December 31, 2023, respectively, was readily accessible for use. The decrease in total cash, cash equivalents and restricted cash of $66 million primarily reflects net cash used in financing activities of $75 million, as well as net cash used in investing activities of $19 million, both of which was partially offset by net cash provided by operating cash activities of $44 million.

•Total debt at June 30, 2024 was $3,303 million, of which $2,024 million is allocated to and supports the Company's finance assets. The remaining debt of $1,279 million is attributable to the non-financing business and increased from $849 million at December 31, 2023. Debt consists of senior unsecured notes, secured borrowings through the securitization of finance assets, and borrowings under a Term Loan B facility.

•In March 2024, Xerox Holdings Corporation issued $500 million of 8.875% Senior Notes due in 2029, as well as an aggregate $400 million of 3.75% Convertible Senior Notes due in 2030. In connection with the issuance of the 2030 Notes, the Company entered into privately negotiated capped call transactions, with the option counterparties, including certain of the initial purchasers of the 2030 Notes or their respective affiliates at a cost of approximately $23 million. A portion of the aggregate net proceeds were used to repay, via tender offer, approximately $84 million of the 3.80% Xerox Corporation Senior Notes due in 2024 and approximately $362 million of the 5.00% Xerox Holdings Corporation Senior Notes due in 2025. The remaining outstanding 3.80% Senior Notes that were not redeemed as part of the Senior Notes tender offer were repaid in May 2024. There are no repayments for Senior Notes that are due within the next twelve months.

•In June 2024 we amended our ABL facility dated as of May 22, 2023, to (i) increase the commitments of the lenders under the ABL Credit Agreement from $300 to $425 and (ii) amend the excess availability used to trigger the fixed charge coverage ratio springing covenant from an amount equal to the greater of (A) $22.5 and (B) 10% of the Line Cap (the lesser of the aggregate amount of Revolving Commitments and the then-applicable Borrowing Base), to an amount equal to the greater of (A) $31.875 and (B) 10% of the Line Cap. Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt activity.

•As of June 30, 2024, there were no borrowings or letters of credit outstanding under our ABL facility, under which we can borrow up to a maximum of $425 million. We were in full compliance with the covenants and other provisions of the ABL Facility.

•As a result of our lowered guidance, we now expect Operating cash flows for 2024 to be at least $600 million, which is a decrease from our original expectation of at least $650 million. We continue to expect capital expenditures to be approximately $50 million.

Xerox 2024 Form 10-Q 59

Cash Flow Analysis

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


	Six Months Ended June 30,				Change
(in millions)	2024		2023


Net cash provided by operating activities	$	44	$	173	$	(129)



Net cash used in investing activities	(19)		(22)		3

Net cash used in financing activities	(75)		(725)		650
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(16)		4		(20)

Decrease in cash, cash equivalents and restricted cash	(66)		(570)		504
Cash, cash equivalents and restricted cash at beginning of period	617		1,139		(522)
Cash, Cash Equivalents and Restricted Cash at End of Period	$	551	$	569	$	(18)

Cash Flows from Operating Activities

Net cash provided by operating activities was $44 million for the six months ended June 30, 2024. The $129 million decrease in operating cash from the prior year period was primarily due to the following:

•$85 million decrease in pre-tax income before depreciation and amortization, provisions, gains on sales of businesses and assets, divestitures, PARC donation, stock-based compensation, restructuring and related costs, net and non-service retirement-related costs.

•$160 million decrease from inventory primarily due to higher purchases related to a change in contractual terms with a large OEM vendor and decreased sales of equipment and supplies.

•$86 million decrease from accrued compensation due to the timing of payments of higher year-end accruals.

•$41 million decrease from higher restructuring and related payments.

•$31 million decrease from higher net tax payments.

•$26 million decrease from higher pension contributions.

•$202 million increase from accounts payable primarily due to the timing of supplier and vendor payments.

•$89 million increase from other current and long-term liabilities due to timing of payments.

•$27 million increase due to lower placements of equipment on operating leases.

Cash Flows from Investing Activities

Net cash used in investing activities was $19 million for the six months ended June 30, 2024, which was essentially flat as compared to the prior year period.

Cash Flows from Financing Activities

Net cash used in financing activities was $75 million for the six months ended June 30, 2024. The $650 million decrease in the use of cash from the prior year period was primarily due to the following:

•$661 million decrease from net debt activity. 2024 reflects proceeds of $500 million on Senior Notes and $400 million on Convertible Senior Notes offset by net payments of $658 million on Senior Notes, deferred debt issuance costs of $15 million from Senior Notes issuances, $178 million on secured financing arrangements and $14 million on the Term Loan B facility. The $658 million of net payments on Senior Notes includes $300 million on Senior Notes maturing in May 2024 and $362 million for the early redemption of 2025 Senior Notes offset by early redemption premium of $4 million. 2023 reflects payments of $300 million on Senior Notes and $519 million on secured financing arrangements offset by net proceeds of $193 million from the new ABL Facility, which includes a debt issuance cost payment of $7 million. The $519 million of payments on secured financing arrangements includes the early repayment of $185 million U.S. secured borrowing.

•$17 million decrease from common stock dividends due to lower outstanding shares.

•$23 million increase from purchases of capped calls.

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

Cash, Cash Equivalents and Restricted Cash

Refer to Note 12 - Supplementary Financial Information in the Condensed Consolidated Financial Statements for additional information regarding Cash, cash equivalents and restricted cash.

Xerox 2024 Form 10-Q 60

Operating Leases

We have operating leases for real estate and vehicles in our domestic and international operations, and for certain equipment in our domestic operations. Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations. Our leases have remaining terms of up to eleven years and a variety of renewal and/or termination options. As of June 30, 2024 and December 31, 2023, total operating lease liabilities were $179 million and $182 million, respectively.

Refer to Note 10 - Lessee in the Condensed Consolidated Financial Statements for additional information regarding our leases accounted for under lessee accounting.

Debt and Customer Financing Activities

The following summarizes our debt:


(in millions)	June 30, 2024		December 31, 2023
Xerox Holdings Corporation	$	2,038	$	1,500
Xerox Corporation	1,136		1,450
Xerox - Other Subsidiaries(1)	176		361
Subtotal - Principal debt balance	3,350		3,311
Debt issuance costs
Xerox Holdings Corporation	(21)		(6)
Xerox Corporation	(12)		(12)
Xerox - Other Subsidiaries(1)	—		(1)
Subtotal - Debt issuance costs	(33)		(19)
Net unamortized premium	(14)		(15)



Total Debt	$	3,303	$	3,277

_____________

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

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt.

Finance Assets and Related Debt

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


(in millions)	June 30, 2024		December 31, 2023
Total finance receivables, net(1)	$	2,060	$	2,510
Equipment on operating leases, net	253		265
Total Finance Assets, net(2)	$	2,313	$	2,775

_____________

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

(2)The change from December 31, 2023 includes an increase of $42 million due to currency.

Our lease contracts permit customers to pay for equipment over time rather than at the date of installation; therefore, we maintain a certain level of debt (that we refer to as financing debt) to support our investment in these lease contracts, which are reflected in Total finance assets, net. For this financing aspect of our business, we maintain an assumed 7:1 leverage ratio of debt to equity as compared to our finance assets.

Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt:


(in millions)	June 30, 2024		December 31, 2023
Finance receivables debt(1)	$	1,803	$	2,196
Equipment on operating leases debt	221		232
Financing debt	2,024		2,428
Core debt	1,279		849
Total Debt	$	3,303	$	3,277

__________________

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

Xerox 2024 Form 10-Q 61

Sales of Finance Receivables and Third Party Leasing Programs

Refer to Note 8 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our sales of finance receivables and our third party leasing programs.

Capital Market/Debt Activity

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding our debt activity.

Liquidity and Financial Flexibility

We manage our worldwide liquidity using internal cash management practices, which are subject to i) the statutes, regulations and practices of each of the local jurisdictions in which we operate, ii) the legal requirements of the agreements to which we are a party, and iii) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services.

Our principal debt maturities are spread over the next five years as follows:


(in millions)	Xerox Holdings Corporation		Xerox Corporation		Xerox - Other Subsidiaries(1)		Total
2024 Q3	$	—	$	7	$	24	$	31
2024 Q4	—		7		29		36
2025	388		28		101		517
2026	—		41		22		63
2027	—		55		—		55
2028	750		55		—		805
2029 and thereafter	900		943		—		1,843
Total	$	2,038	$	1,136	$	176	$	3,350

_____________

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

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt.

Treasury Stock

Xerox Holdings Corporation made no open-market repurchases of its Common Stock during 2024.

Technology Commitments

In the second quarter 2024, Xerox entered into a seven year agreement with Tata Consulting Services (TCS), for the purpose of consolidating Xerox’s technology services to improve business outcomes, migrate legacy data centers to the cloud, deploy a cloud-based digital ERP platform to transform business processes, and incorporate generative artificial intelligence (GenAI) into operations to help drive sustainable growth. The agreement expands Xerox's existing partnership with TCS, who currently provides business processing outsourcing services in support of our global finance and accounting organization; there were no changes to the terms of the business processing outsourcing services agreement.

In connection with the technology agreement with TCS, Xerox also entered into seven year agreements with both SAP Limited (SAP), who will provide Xerox with a cloud-based digital ERP platform, and Microsoft, who will provide their Azure cloud platform services.

In the second quarter 2024, Xerox entered into a five year agreement with Verizon Business Services (Verizon) to provide their Network as a Service (NaaS) solutions framework as part of Xerox's Reinvention. Under the terms of the agreement, Verizon will provide a secure network platform solution delivering network services to Xerox business locations globally.

The approximate aggregate spending commitments as of June 30, 2024 is as follows:

(in millions)

June 30, 2024

Agreement Term

TCS

355

7 Years

Microsoft

125

7 Years

SAP

7 Years

Verizon

5 Years

Xerox 2024 Form 10-Q 62

Financial Risk Management

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

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

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

The current market events have not required us to materially modify or change our financial risk management strategies with respect to our exposures to interest rate and foreign currency risk. Refer to Note 14 – Financial Instruments in the Condensed Consolidated Financial Statements for further discussion and information on our financial risk management strategies.

Non-GAAP Financial Measures

We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below. We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects.

However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below.

Adjusted Earnings Measures

•Adjusted Net Income and Earnings per Share (EPS)

•Adjusted Effective Tax Rate

Xerox 2024 Form 10-Q 63

The above measures were adjusted for the following items:

Restructuring and related costs, net: Restructuring and related costs, net include restructuring and asset impairment charges as well as costs associated with our transformation programs beyond those normally included in restructuring and asset impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other strategic business changes. Additional costs for our transformation programs are primarily related to the implementation of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges since we do not believe they provide meaningful insight into our current or past operating performance, nor do we believe they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and savings with respect to our operational performance.

Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets as well as those that are predominantly legacy in nature and related to employees who are no longer providing current service to the Company (e.g. retirees and ex-employees). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be outside the operational performance of the business or legacy costs and not necessarily indicative of current or future cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans.

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

Discrete, unusual or infrequent items: We exclude these item(s), when applicable, given their discrete, unusual or infrequent nature and their impact on the comparability of our results for the period to prior periods and future expected trends.

•Inventory-related impact - exit of certain production print manufacturing operations

•Divestitures

•PARC donation

•Loss (gain) on early extinguishment of debt

Adjusted Operating Income and Margin

We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax income (loss) and margin amounts. In addition to the costs and expenses noted above as adjustments for our adjusted earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses. We exclude these amounts in order to evaluate our current and past operating performance and to better understand the expected future trends in our business.

Constant Currency (CC)

Refer to "Currency Impact" for a discussion of this measure and its use in our analysis of revenue growth.

Xerox 2024 Form 10-Q 64

Adjusted Net Income and EPS reconciliation:


	Three Months Ended June 30,								Six Months Ended June 30,
	2024				2023				2024				2023
(in millions, except per share amounts)	Net Income		Diluted EPS		Net (Loss) Income		Diluted EPS		Net (Loss) Income		Diluted EPS		Net Income		Diluted EPS
Reported(1)	$	18	$	0.11	$	(61)	$	(0.41)	$	(95)	$	(0.83)	$	10	$	0.02
Adjustments:

Inventory-related impact - exit of certain production print manufacturing operations(2)	8				—				44				—
Restructuring and related costs, net	12				23				51				25
Amortization of intangible assets	10				10				20				21
Divestitures	(3)				—				51				—
PARC donation	—				132				—				132
Non-service retirement-related costs	26				11				49				10

Transaction and related costs, net	(23)				—				(23)				—
Loss (gain) on early extinguishment of debt	—				3				(3)				3

Income tax on PARC donation(3)	—				(40)				—				(40)
Income tax on adjustments(3)	(7)				(6)				(42)				(7)



Adjusted	$	41	$	0.29	$	72	$	0.44	$	52	$	0.35	$	154	$	0.93

Dividends on preferred stock used in adjusted EPS calculation(4)			$	3			$	3			$	7			$	7
Weighted average shares for adjusted EPS(4)			126				158				125				158
Fully diluted shares at June 30, 2024(5)			126

____________________________

(1)Net Income (Loss) and EPS.

(2)Reflects the reduction of inventory of approximately $6 and $38 and the cancellation of related purchase contracts of approximately $2 and $6, as a result of the exit of certain production print manufacturing operations during the three and six months ended June 30, 2024, respectively.

(3)Refer to Adjusted Effective Tax Rate reconciliation.

(4)For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with our Series A convertible preferred stock.

(5)Reflects common shares outstanding at June 30, 2024, plus potential dilutive common shares used for the calculation of adjusted diluted EPS for the second quarter 2024. Excludes shares associated with our Series A convertible preferred stock, which were anti-dilutive for the second quarter 2024 and 2023, respectively.

Xerox 2024 Form 10-Q 65

Adjusted Effective Tax Rate reconciliation:


	Three Months Ended June 30,
	2024						2023
(in millions)	Pre-Tax Income		Income Tax Expense		Effective Tax Rate		Pre-Tax (Loss) Income		Income Tax (Benefit) Expense		Effective Tax Rate
Reported(1)	$	25	$	7	28.0	%	$	(89)	$	(28)	31.5	%
PARC donation(2)	—		—				132		40
Non-GAAP Adjustments(2)	30		7				47		6

Adjusted(3)	$	55	$	14	25.5	%	$	90	$	18	20.0	%

	Six Months Ended June 30,
	2024						2023
(in millions)	Pre-Tax (Loss) Income		Income Tax (Benefit) Expense		Effective Tax Rate		Pre-Tax (Loss) Income		Income Tax (Benefit) Expense		Effective Tax Rate
Reported(1)	$	(125)	$	(30)	24.0	%	$	(4)	$	(14)	350.0	%

PARC donation(2)	—		—				132		40
Non-GAAP Adjustments(2)	189		42				59		7

Adjusted(3)	$	64	$	12	18.8	%	$	187	$	33	17.6	%

____________________________

(1)Pre-tax income (loss) and Income tax expense (benefit).

(2)Refer to Adjusted Net Income and EPS reconciliation for details.

(3)The tax impact on Adjusted Pre-tax income is calculated under the same accounting principles applied to the Reported Pre-tax income (loss) under ASC 740, which employs an annual effective tax rate method to the results.

Xerox 2024 Form 10-Q 66

Adjusted Operating Income and Margin reconciliation:


	Three Months Ended June 30,
	2024						2023
(in millions)	Profit		Revenue		Margin		(Loss) Profit		Revenue		Margin
Reported(1)	$	18	$	1,578			$	(61)	$	1,754
Income tax expense (benefit)	7		—				(28)		—
Pre-tax income (loss)	$	25	$	1,578	1.6	%	$	(89)	$	1,754	(5.1)	%
Adjustments:

Inventory-related impact - exit of certain production print manufacturing operations(2)	8						—
Restructuring and related costs, net	12						23
Amortization of intangible assets	10						10
Divestitures	(3)						—
PARC donation	—						132




Other expenses, net(3)	33						31
Adjusted	$	85	$	1,578	5.4	%	$	107	$	1,754	6.1	%

	Six Months Ended June 30,
	2024						2023
(in millions)	(Loss) Profit		Revenue		Margin		Profit (Loss)		Revenue		Margin
Reported(1)	$	(95)	$	3,080			$	10	$	3,469
Income tax benefit	(30)						(14)
Pre-tax loss	$	(125)	$	3,080	(4.1)	%	$	(4)	$	3,469	(0.1)	%
Adjustments:

Inventory-related impact - exit of certain production print manufacturing operations(2)	44						—
Restructuring and related costs, net	51						25
Amortization of intangible assets	20						21

Divestitures	51						—
PARC donation	—						132
Other expenses, net(3)	77						51
Adjusted	$	118	$	3,080	3.8	%	$	225	$	3,469	6.5	%

____________________________

(1)Net Income (Loss)

(3)Includes non-service retirement-related costs.

Xerox 2024 Form 10-Q 67

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the “Financial Risk Management” section of this Quarterly Report on Form 10-Q is hereby incorporated by reference in answer to this Item.

ITEM 4 — CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

Xerox Holdings Corporation

The management of Xerox Holdings Corporation evaluated, with the participation of its principal executive officer and principal financial officer, or persons performing similar functions, the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer of Xerox Holdings Corporation have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of Xerox Holdings Corporation were effective to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to Xerox Holdings Corporation, including its consolidated subsidiaries, and was accumulated and communicated to the management of Xerox Holdings Corporation, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Xerox Corporation

The management of Xerox Corporation evaluated, with the participation of its principal executive officer and principal financial officer, or persons performing similar functions, the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer of Xerox Corporation have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of Xerox Corporation were effective to ensure that information required to be disclosed in the reports that or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to Xerox Corporation, including its consolidated subsidiaries, and was accumulated and communicated to the management of Xerox Corporation, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in Internal Controls

Xerox Holdings Corporation

As required by paragraph (d) of Rule 13a-15 under the Exchange Act, we evaluated changes in our internal control over financial reporting during the last fiscal quarter. There were no changes identified in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Xerox Corporation

Xerox 2024 Form 10-Q 68

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

The information set forth under Note 21 – Contingencies and Litigation in the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q is incorporated by reference in answer to this item.

ITEM 1A — RISK FACTORS

Reference is made to the Risk Factors set forth in Part I, Item 1A of the combined Xerox Holdings Corporation and Xerox Corporation Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(b) Issuer Purchases of Equity Securities during the Quarter ended June 30, 2024

Repurchases of Xerox Holdings Corporation's Common Stock, par value $1 per share, include the following:

Board Authorized Share Repurchase Program:

There were no repurchases of Xerox Holdings Corporation's Common Stock for the quarter ended June 30, 2024 pursuant to share repurchase programs authorized by Xerox Holdings’ Board of Directors.

Repurchases Related to Stock Compensation Programs(1):

Total Number of Shares Purchased

Average Price Paid per Share(2)

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs

April 1 through 30

7,364

17.33

n/a

May 1 through 31

—

n/a

June 1 through 30

—

n/a

Total

7,364

____________________________

(1)These repurchases are made under a provision in our restricted stock compensation programs for the indirect repurchase of shares through a net-settlement feature upon the vesting of shares in order to satisfy minimum statutory tax-withholding requirements.

(2)Exclusive of fees and expenses.

ITEM 3 — DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 — MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 — OTHER INFORMATION

Rule 10b5-1 Trading Plans

None of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarterly period covered by this report.

Xerox 2024 Form 10-Q 69

ITEM 6 — EXHIBITS


3.1						Restated Certificate of Incorporation of Xerox Holdings Corporation as of May 19, 2022 (conformed copy).
						Incorporated by reference to Exhibit 3.1 to Xerox Holdings Corporation’s Current Report on Form 8-K dated May 25, 2022. See SEC File Numbers 001-39013.
3.2						Restated Certificate of Incorporation of Xerox Corporation filed with the Department of State of New York on July 31, 2019.
						Incorporated by reference to Exhibit 3.2 to Xerox Corporation’s Report on Form 8-K dated July 31, 2019. See SEC File Number 001-04471.
3.3						Amended and Restated By-Laws of Xerox Holdings Corporation dated February 17, 2022.
						Incorporated by reference to Exhibit 3(b)(2) to Xerox Holdings Corporation’s and Xerox Corporation’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021. See SEC file Numbers 001-39013 and 001-04471.
3.4						Amended and Restated By-Laws of Xerox Corporation dated July 22, 2021.
						Incorporated by reference to Exhibit 3.3 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Quarterly Report on Form 10-Q for the quarter ended June 30, 2021. See SEC File Numbers 001-39013 and 001-04471.
10.1						Termination of Consulting Services, dated December 29, 2023, by and between Xerox Holdings Corporation and Louie Pastor.
						Incorporated by reference to Exhibit 10.1 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated December 29, 2023. See SEC File Number 001-39013.
10.2						Offer Letter, dated December 29, 2023, by and between Xerox Corporation and Louie Pastor.
						Incorporated by reference to Exhibit 10.2 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated December 29, 2023. See SEC File Number 001-39013.
10.3						Form of Change in Control Severance Agreement, effective January 1, 2024, as approved by the Compensation Committee of the Board of Directors of Xerox Holdings Corporation.
						Incorporated by reference to Exhibit 10.3 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated December 29, 2023. See SEC File Number 001-39013.
10.4						General Release, Non-Competition and Non-Solicitation Agreement, between Xerox Corporation and Joanne Collins Smee, dated January 10, 2024.
						Incorporated by reference to Exhibit 10.1 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated January 10, 2024. See SEC File Number 001-39013.
10.5						Indenture, dated March 11, 2024 (the “Indenture”), among Xerox Holdings Corporation, as issuer, Xerox Corporation and Xerox Business Solutions, LLC, as guarantors, and U.S. Bank Trust Company, National Association, as trustee.
						Incorporated by reference to Exhibit 4.1 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated March 11, 2024. See SEC File Number 001-39013.
10.6						Form of 3.75% Convertible Senior Note due 2030 (included in Exhibit 4.1).
						Incorporated by reference to Exhibit 4.2 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated March 11, 2024. See SEC File Number 001-39013.
10.7						Indenture, dated March 20, 2024 (the “Indenture”), by and among Xerox Holdings Corporation, as issuer, Xerox Corporation and Xerox Business Solutions, LLC, as guarantors, and U.S. Bank Trust Company, National Association, as trustee.
						Incorporated by reference to Exhibit 4.1 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated March 20, 2024. See SEC File Number 001-39013.
10.8						Form of 8.875% Senior Note due 2029 (included in Exhibit 4.1).
						Incorporated by reference to Exhibit 4.2 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated March 20, 2024. See SEC File Number 001-39013.
10.9						Amendment No. 2 to Credit Agreement, dated as of June 10, 2024, by and among XEROX CORPORATION, a New York corporation, XEROX HOLDINGS CORPORATION, a New York corporation, the other Loan Parties party thereto, the 2024 Incremental Revolving Lenders party thereto and CITIBANK, N.A., as administrative agent and collateral agent.
						Incorporated by reference to Exhibit 10.1 to Xerox Holdings Corporation’s and Xerox Corporation’s combined Current Report on Form 8-K dated June 12, 2024. See SEC File Number 001-39013.

Xerox 2024 Form 10-Q 70


10.10						Xerox Holdings Corporation 2024 Equity and Performance Incentive Plan
						Incorporated by reference to Annex A to Xerox Holdings Corporation’s Proxy Statement on Schedule 14A dated April 11, 2024. See SEC File Number 001-39013 .
31(a)(1)						Certification of Xerox Holdings Corporation CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(a)(2)						Certification of Xerox Corporation CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(b)(1)						Certification of Xerox Holdings Corporation CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31(b)(2)						Certification of Xerox Corporation CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32(a)						Certification of Xerox Holdings Corporation CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)						Certification of Xerox Corporation CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Calculation Linkbase Document
101.LAB						Inline XBRL Taxonomy Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Presentation Linkbase Document
101.DEF						Inline XBRL Taxonomy Definition Linkbase Document
104						The Cover Page Interactive Data File from this Quarterly Report on Form 10-Q, (formatted as Inline XBRL and contained in Exhibit 101).

Xerox 2024 Form 10-Q 71

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signatures for each undersigned shall be deemed to relate only to matters having reference to such company and its subsidiaries.


XEROX HOLDINGS CORPORATION (Registrant)

By:			/S/ MIRLANDA GECAJ
			Mirlanda Gecaj Vice President and Chief Accounting Officer (Principal Accounting Officer)

Date: August 1, 2024


XEROX CORPORATION (Registrant)

By:			/S/ MIRLANDA GECAJ
			Mirlanda Gecaj Vice President and Chief Accounting Officer (Principal Accounting Officer)

Date: August 1, 2024

Xerox 2024 Form 10-Q 72