Segment Reporting

3 Months Ended

Mar. 31, 2023

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

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

Our Print and Other segment includes the sale of document systems, supplies and technical services and managed services. The segment also includes the delivery of managed services that involve a continuum of solutions and services that help our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. This segment also includes IT services and software. Our product groupings range from:

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

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

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

Customers range from small and mid-sized businesses to large enterprises. Customers also include graphic communication enterprises as well as channel partners including distributors and resellers. Segment revenues also include commissions and other payments from our FITTLE segment for the exclusive right to provide lease financing for Xerox products. These revenues are reported as part of Intersegment Revenues, which are eliminated in consolidated revenues.

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

Segment Policy

We derive the results of our business segments directly from our internal management reporting system. The accounting policies that the Company uses to derive its segment results are substantially the same as those used by the Company in preparing its consolidated financial statements. The segment results include a significant level of management estimates regarding the allocation of revenues such as finance income in bundled lease arrangements and other leasing revenues and operating lease revenues embedded in our managed services contracts as well as the allocation of expenses for shared selling and administrative services. Accordingly, the financial results for the segments may not be indicative of the results the businesses would have as on a standalone basis or what might be presented for the businesses in stand-alone financial statements. The CODM measures the performance of each segment based on several metrics, including segment revenues and profit. The CODM uses these results, in part, to evaluate the performance of, and to allocate resources to each segment. The FITTLE segment also includes interest expense associated with allocated debt of the Company in support of its Finance assets, while no interest expense is allocated to the Print and Other segment.

Selected financial information for our reportable segments was as follows:

	Three Months Ended March 31,
	2023									2022
	Print and Other			FITTLE			Total			Print and Other			FITTLE			Total
External revenue	$	1,564		$	151		$	1,715		$	1,513		$	155		$	1,668
Intersegment revenue(1)	49			3			52			37			3			40
Total Segment revenue	$	1,613		$	154		$	1,767		$	1,550		$	158		$	1,708
Segment profit	$	106		$	12		$	118		$	(20)		$	17		$	(3)
Segment margin(2)	6.8		%	7.9		%	6.9		%	(1.3)		%	11.0		%	(0.2)		%
Depreciation and amortization	$	25		$	28		$	53		$	29		$	32		$	61
Interest income	—			52			52			—			53			53
Interest expense(3)	—			39			39			—			26			26

_____________

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

(2)Segment margin based on External revenue only.

(3)Interest expense for the FITTLE Segment includes non-financing interest expense on allocated debt associated with Equipment on operating lease of $3 and $2 for the three months ended March 31, 2023 and 2022, respectively.

Selected financial information for our reportable segments was as follows:

	Three Months Ended March 31,
	2023		2022
Pre-tax Income (Loss)
Total reported segments	$	118	$	(3)
Restructuring and related costs, net	(2)		(18)
Amortization of intangible assets	(11)		(11)
Other expenses, net	(20)		(57)
Total Pre-tax income (loss)	$	85	$	(89)
Depreciation and Amortization
Total reported segments	$	53	$	61
Amortization of intangible assets	11		11
Total Depreciation and amortization	$	64	$	72
Interest Expense
Total reported segments	$	39	$	26
Corporate	11		27
Total Interest expense	$	50	$	53
Interest Income
Total reported segments	$	52	$	53
Corporate	5		1
Total Interest income	$	57	$	54