8-K/A
Xerox Holdings Corp (XRX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________________________
FORM 8-K/A
Amendment No.1
_____________________________________________________________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 20, 2024
_____________________________________________________________________________________________________
| 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<br>Identification No.) |
201 Merritt 7
Norwalk, Connecticut
06851-1056
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (203) 849-5216
_____________________________________________________________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||
|---|---|---|---|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||
| --- | --- | ||||
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||
| --- | --- | ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||
| --- | --- | Securities registered pursuant to Section 12(b) of the Act: | |||
| --- | --- | --- | |||
| Title of each class | Trading Symbol | Name of each exchange on which registered | |||
| Xerox Holdings Corporation Common Stock, $1 par value | XRX | Nasdaq Global Select Market |
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| Xerox Holdings Corporation | ☐ | Xerox Corporation | ☐ |
|---|
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 | ☐ | Xerox Corporation | ☐ |
|---|
______________________________________________________________________________________________________
Item 2.01. Completion of Acquisition or Disposition of Assets.
As previously disclosed in the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the "SEC") by Xerox Corporation ("Xerox") on November 20, 2024 (the "Original Form 8-K"), Xerox consummated its previously announced acquisition of ITsavvy Acquisition Company, Inc. ("the Company") on November 20, 2024 pursuant to the Securities Purchase Agreement (the “Purchase Agreement”), whereby ITsavvy Holdings, LLC (the “Seller”) sold, Xerox (the "Purchaser") purchased purchase, all of the issued and outstanding equity securities of the Company. The consideration payable by Xerox pursuant to the Purchase Agreement, after customary working capital and other adjustments in accordance with the terms of the Purchase Agreements, was approximately $405 million.
This Form 8-K/A has been filed to amend and supplement the Original Form 8-K to provide the financial statements described in Item 9.01 below, which are permitted to be filed by amendment not later than 71 calendar days after the date that the Original Form 8-K was required to be filed with the SEC.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses or funds acquired.
The Company’s audited consolidated financial statements as of and for the year ended December 31, 2023 and unaudited condensed consolidated financial statements for the nine-month period ended September 30, 2024 are attached as Exhibits 99.1 and 99.2, respectively, to this Form 8-K/A and incorporated herein by reference. Such financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
(b) Pro forma financial information.
The unaudited pro forma condensed combined financial information as of and for the nine months ended September 30, 2024, and for the year ended December 31, 2023, related to Xerox’s acquisition of the Company are attached as Exhibit 99.3 to this Form 8-K/A and incorporated herein by reference.
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 23.1 | Consent of RSM US LLP re Xerox Holdings Corporation |
| 23.2 | Consent of RSM US LLP re Xerox Corporation |
| 99.1 | ITsavvy Acquisition Company, Inc audited consolidated financial statements for the year ended December 31, 2023 |
| 99.2 | ITsavvy Acquisition Company, Inc unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2024 |
| 99.3 | Xerox Holdings Corporation unaudited pro forma condensed combined financial information as of and for the nine months ended September 30, 2024 and for the year ended December 31, 2023 |
| 104 | Cover Page Interactive Data File - The cover page XBRL tags are embedded within the Inline XBRL document. |
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<br><br>(Registrant) | |
|---|---|
| By: | /s/ WILLIAM TWOMEY |
| William Twomey<br>Vice President and<br>Chief Accounting Officer<br>(Principal Accounting Officer) |
Date: February 5, 2025
| XEROX CORPORATION<br><br>(Registrant) | |
|---|---|
| By: | /s/ WILLIAM TWOMEY |
| William Twomey<br>Vice President and<br>Chief Accounting Officer<br>(Principal Accounting Officer) |
Date: February 5, 2025
Document
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in Registration Statement (Nos. 333-280588, 333-273626, 333-257512, 333-257511, 333-187663-01, 333-189290-01 and 333-167922-01) on Form S-8 of Xerox Holdings Corporation of our report dated February 5, 2025, relating to the consolidated financial statements of ITsavvy Acquisition Company, Inc., appearing in this Current Report on Form 8‑K/A.
| /S/ RSM US LLP |
|---|
| Rockford, Illinois |
| February 5, 2025 |
Document
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in Registration Statement (Nos. 333-187663, 333-189290, 333-167922, 333-160264 and 333-142417) on Form S-8 of Xerox Corporation of our report dated February 5, 2025, relating to the consolidated financial statements of ITsavvy Acquisition Company, Inc., appearing in this Current Report on Form 8‑K/A.
| /S/ RSM US LLP |
|---|
| Rockford, Illinois |
| February 5, 2025 |
itsavvyllc_23fsxfinal
ITsavvy Acquisition Company, Inc. and Subsidiaries Consolidated Financial Report December 31, 2023
Contents Independent auditor’s report 1-2 Financial statements Consolidated balance sheet 3-4 Consolidated statement of income 5 Consolidated statement of stockholder’s equity 6 Consolidated statement of cash flows 7-8 Notes to the consolidated financial statements 9-22
1 Independent Auditor’s Report Board of Directors ITsavvy Acquisition Company, Inc. Opinion We have audited the consolidated financial statements of ITsavvy Acquisition Company, Inc. and its subsidiaries (the Company), which comprise the consolidated balance sheet as of December 31, 2023, the related consolidated statements of income, stockholder’s equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter The Company, effective August 8, 2022, is no longer electing the Private Company Council (PCC) alternatives. As a result of this election the Company unwound previous amortization of goodwill and allocated purchase price of prior acquisitions to customer relationships. The effect of this change in accounting principle as of December 31, 2022, was a decrease in the accumulated deficit of $1,791 which is the result of the difference of goodwill and customer relationships amortization as well as tax effects. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued.
2 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. Rockford, Illinois February 5, 2025
3 ITsavvy Acquisition Company, Inc. and Subsidiaries Consolidated Balance Sheet December 31, 2023 (In thousands) Assets Current assets: Cash 22,590 $ Accounts receivable, net 56,033 Inventories, net 4,024 Prepaid expenses and other current assets 3,464 Income tax receivable 1,067 Total current assets 87,178 Property and equipment, net 4,204 Right-of-use assets, net 5,161 Goodwill 65,878 Intangible assets, net 111,702 Total long-term assets 186,945 Total assets 274,123 $ (Continued)
4 Liabilities and Stockholder’s Equity Current liabilities: Accounts payable 48,625 $ Accrued expense 8,406 Deferred revenue—current portion 11,012 Current portion of operating lease liabilities 1,037 Current portion of long-term debt 934 Total current liabilities 70,014 Long-term liabilities: Long-term debt, less current portion, net 79,635 Deferred revenue—long-term 11,821 Contingent consideration 14,875 Operating lease liabilities, net of current portion 4,385 Deferred tax liability 11,429 Other long-term liabilities 1,980 Total long-term liabilities 124,125 Total liabilities 194,139 Common stock 1 Additional paid-In capital 80,279 Accumulated deficit (296) Total stockholder’s equity 79,984 Total liabilities and stockholder’s equity 274,123 $ See notes to consolidated financial statements.
5 ITsavvy Acquisition Company, Inc. and Subsidiaries Consolidated Statement of Income Year Ended December 31, 2023 (In thousands) Net sales 409,648 $ Cost of goods sold 350,179 Gross profit 59,469 Selling, general and administrative expenses 48,533 Operating income 10,936 Interest expense 9,215 Income before income tax expense 1,721 Income tax expense 671 Net income 1,050 $ See notes to consolidated financial statements.
6 ITsavvy Acquisition Company, Inc. and Subsidiaries Consolidated Statement of Stockholder’s Equity Year Ended December 31, 2023 (In thousands) Additional Total Common Paid-In Accumulated Stockholder’s Stock Capital Deficit Equity Balance, December 31, 2022 1 $ 78,119 $ (1,346) $ 76,774 $ Issuance of Class A units pursuant to business combination - 2,160 - 2,160 Net income - - 1,050 1,050 Balance, December 31, 2023 1 $ 80,279 $ (296) $ 79,984 $ See notes to consolidated financial statements.
7 ITsavvy Acquisition Company, Inc. and Subsidiaries Consolidated Statement of Cash Flows Year Ended December 31, 2023 (In thousands) Cash flows from operating activities: Net income 1,050 $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,083 Amortization of intangible assets 6,651 Amortization of deferred financing costs 401 Change in right-of-use assets—operating leases 187 Deferred taxes (1,278) Loss on disposal of property and equipment 346 Change in operating assets, net of effects of acquisition of business: Accounts receivable 131 Inventories 3,043 Income tax receivable (1,067) Prepaid expenses and other current assets 5,219 Change in operating liabilities, net of effects of acquisition of business: Accounts payable 1,930 Accrued expenses and other long-term liabilities (264) Operating lease liabilities (86) Deferred revenue (1,940) Net cash provided by operating activities 15,406 Cash flows from investing activities: Purchases of property and equipment (1,024) Acquisition of business, net of cash acquired (16,233) Net cash used in investing activities (17,257) Cash flows from financing activities: Proceeds from borrowings on long-term debt 18,500 Payments of long-term debt (10,790) Borrowings on revolving line of credit 3,000 Payments on revolving line of credit (3,000) Net cash provided by financing activities 7,710 Net increase in cash 5,859 Cash: Beginning 16,731 Ending 22,590 $ (Continued)
8 ITsavvy Acquisition Company, Inc. and Subsidiaries Consolidated Statement of Cash Flows (Continued) Year Ended December 31, 2023 (In thousands) Supplemental disclosures of cash flow information: Cash paid for interest 8,050 $ Cash paid for income taxes 3,999 $ Supplemental schedules of noncash investing and financing activities: Acquisition of business (Note 2): Assets acquired 23,325 $ Liabilities assumed 5,499 Net identifiable assets acquired 17,826 Goodwill 10,582 Total net assets acquired 28,408 Less Class A units issued to seller (2,160) Less contingent considerations (10,015) 16,233 $ See notes to consolidated financial statements.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 9 Note 1. Nature of Organization and Summary of Significant Accounting Policies Nature of organization: ITsavvy Acquisition Company, Inc. and its Subsidiaries (the Company) is a technology infrastructure solutions provider focused on accelerating time to value in delivering business outcomes on behalf of our clients. The organization, from sales, service delivery, and back-office operations, is focused on enabling frictionless experiences for clients across all four client focus areas (Public Sector, Enterprise, Commercial, and SMB). The Company is focused on four main technology infrastructure verticals: Cloud & Hosting; Network & Security; Collaboration; and Hybrid Workforce/Anywhere Learning. Adoption of Public Company Standards: The Company is no longer electing the Private Company Council (PCC) alternatives. As a result of this election, the Company unwound previous amortization of goodwill and allocated purchase price of prior acquisitions to customer relationships. The effect of this change in accounting principle as of December 31, 2022 was a decrease in the accumulated deficit of $3,713 which is the result of the difference of goodwill and customer relationships as well as tax effects. Principles of consolidation: The consolidated financial statements include the accounts of the Company. All intercompany accounts and transactions have been eliminated in consolidation. The Company is wholly owned by its parent company, ITsavvy Holdings, LLC (Holdings). Basis of presentation: The Company was a newly formed entity on July 19, 2022 (Inception). The financial statements herein include the results of ITsavvy Acquisition Company, Inc. (Acquisition) and its subsidiaries for the year ended December 31, 2023. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash: The Company maintains cash with multiple financial institutions in bank accounts which, may at times, exceed existing federally insured limits. The Company has not experienced any losses in these accounts. Accounts receivable, net: Accounts receivable primarily consist of amounts billed currently due from customers. Accounts receivable are presented net of an allowance for credit losses, which is an estimate of amounts that may not be collectible. In determining the amount of the allowance, the Company makes judgments about general economic conditions, historical write-off experience and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer financial conditions. The Company does not accrue interest on past due accounts. Account balances are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable. Adjustments to the allowance for credit losses are recorded as selling, general and administrative expenses in the consolidated statement of income. Activity in the Company’s allowance for expected credit losses for the year ended December 31, 2023 is as follows: Balance, beginning 775 $ Bad debt expense 1,173 Uncollectible accounts written off, net of recoveries (1,196) Balance, ending 752 $
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 10 Note 1. Nature of Organization and Summary of Significant Accounting Policies (Continued) Inventories, net: Inventories, consisting mainly of finished products, are valued at the lower of cost or net realizable value. The process for evaluating the value of excess and obsolete inventories requires the Company to make judgments and estimates concerning the future sales levels, quantities, and prices at which such inventories will be sold in the normal course of business. As of December 31, 2023, the Company has determined the reserve for excess and obsolete inventory is not material to the consolidated financial statements. Property and equipment: Property and equipment is carried at cost and depreciated over the estimated useful life of each asset on a straight-line basis: Furniture and office equipment 3 to 7 years Computer equipment 3 to 5 years Warehouse equipment 5 to 7 years Leasehold improvements Lesser of lease term or 5 to 29 years Major renewals and betterments are capitalized while maintenance and repairs that do not improve or extend the life of the respective assets are expensed in the period as such expenses are incurred. Goodwill: Goodwill is the excess of cost over the fair value of net assets acquired. Goodwill is not amortized but is tested for impairment. Under the provisions of Accounting Standards Codification (ASC) 350, Intangibles—Goodwill and Other, the Company is required to perform annual tests of its goodwill for impairment or additional tests whenever events or circumstances indicate impairment may exist. Under this guidance, goodwill must be tested at lease annually for impairment using either a quantitative or qualitative approach. The Company performs impairment test on December 31 whereby it compares the fair value of equity to the carrying amount and recognizes an impairment charge for an amount by which the carrying amount exceeds the fair value, when applicable. During the year ended December 31, 2023, the Company determined that impairment of goodwill did not exist. Intangible assets: Intangible assets acquired, primarily relating to customer relationships and tradenames, are amortized over their estimated useful lives on a straight-line basis. Deferred financing costs: Deferred financing costs of $2,405 at December 31, 2023 (net of accumulated amortization of $552), relating to the Company’s long-term debt are being amortized on a straight-line basis over the lines of the related debt agreements, which approximates the effective interest method. Impairment of long-lived assets: The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The assessment of impairment is based on the estimated undiscounted future cash flows from the asset compared with the carrying value of the asset group. If the undiscounted future cash flows for an asset group are less than the carrying value, a write-down will be recorded; measured by the amount of the difference between carrying value and the fair value of the asset group. There was no impairment noted for 2023. Fair value of financial instruments: The carrying amounts of cash, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximate the fair values of these financial instruments due to their short-term maturity of the instruments. The fair value of debt approximates the carrying value based on comparisons of terms (maturity, interest rate, etc.) to comparable debt offerings in the marketplace.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 11 Note 1. Nature of Organization and Summary of Significant Accounting Policies (Continued) Revenue recognition: The Company recognizes revenue following a five-step model for recognizing revenue from contracts with clients consistent with ASC 606 as follows: • Identify the contract with a client • Identify the performance obligations in the contract • Determine the transaction price • Allocate the transaction price to the performance obligations in the contract • Recognize revenue when or as performance obligations are satisfied The Company distributes IT products and provides a variety of IT related services. The Company evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or services, (ii) the Company has inventory risk before the specified good or service has been transferred to the client and (iii) the Company has discretion in establishing the price for the specified good or service. The Company recognizes revenue in transactions for which it is acting as a principal once control has passed to the client. The following indicators are evaluated in determining when control has passed to the client: (i) the Company has a right to payment for the product or service, (ii) the client has legal title to the product, (iii) the Company has transferred physical possession of the product to the client, (iv) the client has the significant risk and rewards of ownership of the product and (v) the client has accepted the product. The Company’s products can be delivered to client in a variety of ways, including (i) as physical product shipped from the Company’s warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses. The Company’s shipping terms allow for the Company to recognize revenue when control of the product is transferred. The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its clients without having to physically hold the inventory at its warehouses. The Company is the principal in the transaction and recognizes revenue for drop-shipment arrangements on a gross basis. Revenue recognition for hardware: Revenues from sales of hardware products are recognized on a gross basis as the Company is acting as a principal in these transactions, with the selling price to the client recorded as net sales and the acquisition cost of the product recorded as cost of sales. Revenue recognition for software: Revenues from most software license sales are recognized as a single performance obligation on a gross basis as the Company is acting as a principal in these transactions at the point the software license is delivered to the client. The Company sells cloud computing solutions which include Software as a Service (SaaS). SaaS solutions utilize third-party partners to offer the Company’s clients access to software in the cloud that provide a variety of services to the end client. The Company’s clients are offered the opportunity by certain vendors to purchase software licenses and software assurance under enterprise agreements (EAs). Under most EA transactions, the Company’s obligation to the client is that of a distributor or sales agent of the software, where all obligations for providing the software to clients are passed to the Company’s vendors. The Company’s performance obligations are satisfied at the time of the sale.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 12 Note 1. Nature of Organization and Summary of Significant Accounting Policies (Continued) Revenue recognition for services: The Company provides professional services in designing, delivering, and implementing IT solutions, providing network monitoring services, and providing managed services. As the Company is the principal in the transaction and delivery, revenue is recognized on a gross basis each month as services obligations are performed on behalf of the Company’s clients. Revenue from the sale of services is recognized over the period the service is provided. Contracts with multiple performance obligations: When the Company’s contracts with clients contain multiple performance obligations, the contract transaction price is allocated based on the standalone selling price basis to each performance obligation. The Company typically determines standalone selling price based on observable selling prices of its products and services. Transaction price: The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods and services to the client. Revenue is recorded based on the transaction price, which includes fixed consideration and estimates of variable consideration such as early payment discounts, volume discounts, rebates and right of return. During the year ended December 31, 2023, there were no variable considerations included in the transaction price. The Company excludes from revenue sales taxes and other government-assessed and imposed taxes on revenue generating activities that are invoiced to clients. Contract costs: The Company identified certain incremental costs to obtain a contract, primarily sales commissions, requiring capitalization under Topic 606. The Company continues to expense these costs as incurred because the amortization period for the costs would be one year or less. Warranty sales: The Company sells extended warranties to clients with terms ranging from 12 to 60 months. The price for the extended warranty is set forth in the client contract. The warranty is recognized as a performance obligation which is satisfied over the warranty period. The Company records a deferral at the contract date and recognizes the warranty revenue over the life of the warranty contract on a straight-line basis. Total revenue recognized from warranty sales which is recognized over time was $12,619 for the year ended December 31, 2023. A rollforward of deferred warranty revenue for the year ended December 31, 2023, is as follows: Balance, beginning 22,757 $ Revenue deferred 12,695 Revenue recognized (12,619) Balance, ending 22,833 $ Shipping costs: Shipping costs billed to clients are recognized in sales. The Company expenses shipping costs incurred in cost of goods sold. Shipping costs billed to clients are recorded in the same period as shipping costs incurred.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 13 Note 1. Nature of Organization and Summary of Significant Accounting Policies (Continued) Advertising and other marketing costs: Advertising and other marketing costs are expensed as incurred. Such expenses were not material for 2023. Income taxes: The Company accounts for income taxes using the liability method. As such, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the anticipated reversal of these differences is scheduled to occur. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company follows the provisions of the Accounting for Uncertainty in Income Taxes subtopic of the Income Taxes Topic of the ASC. The Company has not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company files tax returns in all appropriate jurisdictions. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in operating expenses in the consolidated statement of income, of which there were none in the year presented. As of December 31, 2023, the Company has no liability for unrecognized tax benefits. Lease accounting: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations related to their leasing arrangements. This comprehensive new standard amends and supersedes existing lease accounting guidance and is intended to increase transparency and comparability among organizations by recognizing right-of-use (ROU) lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. Lease expense continues to be recognized in a manner similar to legacy U.S. GAAP. Generally, the Company’s lease contracts do not provide a readily determinable implicit rate, and therefore, the Company uses an estimated incremental borrowing rate as of the commencement date in determining the present value of lease payments. The Company made an accounting policy election under Topic 842 not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less. For all other leases, the Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at the commencement date of the lease. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by any lease incentives. Future lease payments may include fixed rent escalation clauses or payments that depend on an index (such as the consumer price index). Subsequent changes to an index and other periodic market-rate adjustments to base rent are recorded in variable lease expense in the period incurred. Payments for terminating the lease are included in the lease payments only when it is probable they will be incurred.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 14 Note 1. Nature of Organization and Summary of Significant Accounting Policies (Continued) The Company’s leases may include a non-lease component representing additional services transferred to the Company, such as common area maintenance for real estate. The Company made an accounting policy election to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. Non-lease components that are variable in nature are recorded in variable lease expense in the period incurred. Recently adopted standard: Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which creates a new credit impairment standard for financial assets measured at amortized cost. The ASU requires financial assets measured at amortized cost (including loans, trade receivables and held-to- maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the consolidated statement of income as the amounts expected to be collected change. The Company determined the new standard did not have a significant impact on the consolidated financial statements. Recently issued accounting pronouncements: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides for improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU is effective for the Entity beginning on January 1, 2026. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to improve disclosures related to certain income statement expenses of the Company. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures. Note 2. Business Acquisitions and Subsequent Event The Company has adopted ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 removes the measurement of acquired contract assets and contract liabilities from the fair value measurement provisions of ASC 805 and instead requires that such acquired balances be recognized and measured in accordance with the provisions of ASC 606, Revenue from Contracts with Customers.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 15 Note 2. Business Acquisition and Subsequent Event (Continued) INOC, LLC: On February 1, 2023, the Company entered into an asset purchase agreement with INOC, LLC and acquired 100% of the membership units of the Company. The Company expects to generate returns for its investors through expanding its service offerings to its existing client base and expand new offerings to new and legacy clients. The acquisition was accounted for using the acquisition method of accounting, and accordingly, the Company has recorded assets acquired and liabilities assumed at their estimated fair values at the date of the acquisition. The seller was given as consideration, 2,160 Class A units in Holdings. Holdings owns 100% of the outstanding shares of ITsavvy Acquisition, Inc. The fair value of the equity units issued as consideration to the seller was determined on contemporaneous investments by other minority investors. The following table summarizes the estimated fair value of the consideration paid, assets acquired and liabilities assumed at the date of acquisition: Cash 16,403 $ Rollover equity 2,160 Contingent consideration 10,015 Working capital adjustment (170) 28,408 $ Accounts receivable 4,447 $ Prepaid expenses and other current assets 1,628 Property and equipment 173 Right-of-use asset 1,527 Developed technology 1,250 Customer relationships—Contractual 3,400 Customer relationships—Non-contractual 9,450 Tradename 1,450 23,325 Accounts payable 865 Accrued expenses 363 Operating lease liability 1,596 Deferred revenue 2,499 Deferred tax liability 176 5,499 Net assets acquired 17,826 Goodwill 10,582 28,408 $ The goodwill arising from the acquisition is largely due to the Company’s presence in the marketplace and growth opportunities. The goodwill is expected to be tax deductible for tax purposes for the shareholders of the Company.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 16 Note 2. Business Acquisitions (Continued) The Company acquired a tradename which was valued at $1,450. The trade name has a useful life of 15 years. The Company acquired developed technology, the NOC Platform, which was valued at $1,250. The developed technology has a useful life of 3 years. The Company has acquired customer relationships with contractual obligations that had a fair value of $3,400. These customer relationships have a useful life of 6 years. The Company acquired customer relationships without contractual obligations that had a fair value of $9,450. These customer relationships have a useful life of 20 years. The fair values assigned to intangible assets were determined with the assistance of an independent third-party valuation appraiser, through the use of the income approach, specifically the relief from royalty method and multi-period excess earnings method. Both valuation methods rely on management’s judgments, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, peer group cost of capital and royalty rates as well as other factors. The Purchase Agreement includes contingent consideration based on achievement of specified organic revenue growth and achievement of certain earnings before interest, taxes, depreciation and amortization (EBITDA) margin thresholds measured at three various earnout period dates. The minimum payment is $0 and the maximum is $11,250. The fair value of contingent consideration as of February 1, 2023, was $10,015, which is a Level 3 fair value measurement, and was estimated through probability weighting outcome scenarios. Key inputs and assumptions that are not observable in the market include outcome probabilities over the measurement period. The measurement period is for the subsequent 12 months after acquisition for two years in two earnout periods. There was no change in the liability from February 1, 2023 through December 31, 2023. On May 10, 2024, the Company paid $2,250 for the first installment of payments on the contingent consideration. In connection with the transaction, the Company incurred $686 of transaction costs which is included in selling, general and administrative expenses in the consolidated statement of income. Note 3. Goodwill and Intangible Assets The following is a summary of goodwill and intangible assets subject to amortization as of December 31, 2023: Estimated Gross Accumulated Net Book Useful Lives Value Amortization Value (Years) Goodwill 65,878 $ -$ 65,878 $ Customer relationships 88,760 $ (6,330) $ 82,430 $ 6-20 NOC platform 1,250 $ (382) $ 868 $ 3 Trade names 30,530 $ (2,126) $ 28,404 $ 15
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 17 Note 3. Goodwill and Intangible Assets (Continued) Amortization expense related to intangibles for the year ended December 31, 2023, was $6,917. Estimated amortization expense on all amortizable intangible assets during each of the next five years is as follows: Intangibles Years ending December 31: 2024 6,650 $ 2025 6,650 2026 6,650 2027 6,650 2028 6,650 Thereafter 78,452 111,702 $ Note 4. Long-Term Debt, Delayed Draw Term Loan, and Line of Credit In August 2022, the Company entered into a credit agreement with a lender that provided for $74,900 term loan and a revolving line of credit, with a maximum borrowing capacity of $10,000, and a delayed draw term loan. The term loan requires quarterly principal payments of $188 through August 2028, when the remaining principal and interest are due in full. The credit agreement has a maturity date of August 5, 2028. Interest is payable monthly or quarterly at a rate of Secured Overnight Financing Rate (SOFR) plus applicable margin. The outstanding balance on the term loan was $73,964 as of December 31, 2023. There were no outstanding borrowings on the line of credit as of December 31, 2023. On February 1, 2023, the Company amended the existing credit agreement to allow for borrowings on the delay draw term loan. The Company borrowed $18,500 on the delay draw term loan with no other significant amendments made to the credit agreement. The delay draw term loan has a maturity date of August 2028, similar to the remainder of the credit agreement. Principal payments are due quarterly of approximately $46 with the balance outstanding due upon maturity date of the delay draw term loan. Interest is payable at a rate of SOFR plus applicable margin. The outstanding balance on the delay draw term loan was $8,459 as of December 31, 2023. The effective rate was 10.89% at December 31, 2023 on the term loan. The effective rate was 10.78% at December 31, 2023 on the delay draw term loan. The term loan, delayed draw term loan, and line of credit are collateralized by substantially all assets of the Company. The credit agreement contains restrictions and covenants as defined in the agreement. The agreement also requires the Company to make annual payments in addition to the quarterly installments, based on excess cash flows, as defined, scheduled to commence with fiscal year ended December 31, 2023. There were no required payments for excess cash flows for the year ended December 31, 2023.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 18 Note 4. Long-Term Debt, Delayed Draw Term Loan, and Line of Credit (Continued) The annual maturities of long-term debt are as follows: Years ending December 31: 2024 934 $ 2025 934 2026 934 2027 934 2028 78,687 82,423 Less current portion (934) 81,489 Less unamortized portion of deferred financing costs (1,854) 79,635 $ Note 5. Lease Commitments The Company determines if an arrangement is or contains a lease at inception, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. Under Topic 842, a contract is or contains a lease when (i) explicitly or implicitly identified assets have been deployed in the contract and (ii) the client obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company also considers whether its service arrangements include the right to control the use of an asset. The Company leases premises for industrial, warehouse purposes and associated general office uses from unrelated parties under operating lease agreements that have terms from transition of 1.0 to 8.33 years. The leases include one to two options to renew of one to five years, generally at the Company’s sole discretion, with renewal terms that can extend the lease term. These options to extend a lease are included in the lease terms when it is reasonably certain that the Company will exercise that option. The Company’s leases generally do not contain any material restrictive covenants. The weighted average of remaining lease term for operating leases was 6.84 years as of December 31, 2023. The weighted average of discount rate for operating leases was 3.66% as of December 31, 2023. Operating lease cost is recognized on a straight-line basis over the lease term. The components of lease expense are as follows: Operating lease cost 1,342$ Short-term lease cost 115 1,457$ Rent expense was approximately $1,457 for the year ended December 31, 2023.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 19 Note 5. Lease Commitments (Continued) Supplemental cash flow information related to leases is as follows: Cash paid for amounts included in measurement of lease liabilities: Operating cash outflows—payments on operating leases 1,130 $ Right-of-use assets obtained in exchange for new lease obligations: Operating leases 2,411 $ Future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities recognized on the consolidated balance sheet as of December 31, 2023, is as follows: Operating leases: 2024 1,192 $ 2025 1,177 2026 1,223 2027 1,067 2028 431 Thereafter 826 Total lease payments 5,916 Less imputed interest (494) Total present value of lease liabilities 5,422 $ Note 6. Transactions with Related Parties The Company has a management agreement with the majority member. Under the terms of the agreement, the Company is required to pay the majority member an annual fee in an aggregate amount equal to the greater of 3% of EBITDA or $550. In addition to the management fee, the Company reimburses the majority member for certain costs related to monitoring or otherwise providing any service to the business operations of the Company. The Company also incurred certain expenses related to its acquisition in the period (see Note 2), which were paid to the majority member. The expenses incurred under this agreement are included in the selling, general and administrative expenses on the consolidated statement of income. For the year ended December 31, 2023, total related- party expenses amounted to $861. Note 7. Stockholder’s Equity The Company has 5,000 common stock shares authorized of which 802.8 were issued and outstanding as of December 31, 2023. Each share is entitled to one vote. On February 1, 2023, the Company issued $2,160 of Class A Units in connection with the purchase of INOC, LLC as described in Note 2.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 20 Note 7. Stockholder’s Equity (Continued) On August 8, 2022, Holdings authorized and issued 1 Class B-1 Unit and 1 Class B-2 Unit. On December 21, 2022, Holdings authorized and issued 1 Class B-3 Unit. On January 12, 2023, Holdings authorized and issued 7,978.01 Class C Units. All tranches of B and C units were issued at no cost, and no value was allocated to the units. The units receive a profits interest if either the exit value when the Company is sold, or cumulative distributions, exceed specified multiples of the initial investor equity investment. The units do not have voting rights. The profits interest vest in accordance with the terms of the agreement. No compensation expense was recognized for the year ended December 31, 2023 as the units do not vest until a change in control occurs. Note 8. Income Taxes The (benefit) expense from income taxes consists of the following at December 31, 2023: Current: Federal 1,341 $ State 607 1,948 Deferred: Federal (1,170) State (107) (1,277) 671 $ A reconciliation of U.S. income tax benefit to the amount of (benefit) expense that would result from applying the U.S. federal statutory rate of 21% to net loss before income taxes is as follows at December 31, 2023: Benefit from income taxes at statutory rate 362 $ State income tax benefit, net of federal benefit 159 Permanent differences 18 Other 132 671 $
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 21 Note 8. Income Taxes (Continued) Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets for federal and state income taxes as of December 31, 2023, are as follows: Deferred tax assets: Deferred revenue 431 $ Interest expense limitation 1,929 Reserves and allowances 928 Lease liability 1,487 Accrued liabilities 661 Other 210 5,646 Deferred tax liabilities: Property and equipment 623 Right-of-use asset 1,415 Intangible assets 14,251 Other 786 Total deferred tax liabilities 17,075 (11,429) $ Note 9. 401(k) Plan The Company maintains a defined contribution 401(k) plan which is designed primarily to encourage employees to save for their retirement by deferring the receipt of current compensation. The Company’s discretionary match is equal to 25% of the participants’ deferral limited to 5% of a participant’s eligible compensation. Company contributions to the plan were $321 for the year ended December 31, 2023. Note 10. Commitments and Contingencies The Company has various claims and pending legal proceedings that have arisen in the normal course of business. The Company believes that any potential liability resulting from these proceedings would not be material to the consolidated financial statements. Note 11. Self-Insurance The Company is self-insured for a portion of its employees’ health insurance claims. An insurance policy limits the claims the Company may pay to $70 per member. In October 2023, the Company ended the self-insurance policy and entered into a new insurance policy with a third-party provider.
ITsavvy Acquisition Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands except per share data) 22 Note 12. Subsequent Events The Company has evaluated subsequent events for recognition and/or disclosure through February 5, 2025, the date the consolidated financial statements were available to be issued. On October 15, 2024, the Company entered into a Securities Purchase Agreement with Xerox Corporation to acquire all outstanding equity securities of the Company for approximately $405,000. The purchase price was funded through a combination of new debt issuance and cash provided by buyers. On November 20, 2024, Xerox Corporation completed the acquisition of all the issued and outstanding equity securities of the Company.
itsavvyllc_24fsreviewxfi
ITsavvy Acquisition Company, Inc. Condensed Consolidated Financial Report (Reviewed) September 30, 2024
Contents Financial statements Condensed consolidated balance sheets 1-2 Condensed consolidated statements of income 3 Condensed consolidated statements of stockholders’ equity 4 Condensed consolidated statements of cash flows 5 Notes to condensed consolidated financial statements 6-9
1 September 30, 2024 December 31, 2023 Assets Current assets: Cash 41,451 $ 22,590 $ Accounts receivable, net 50,165 56,033 Inventories, net 3,719 4,024 Prepaid expenses and other current assets 3,553 3,464 Income tax receivable 1,342 1,067 Total current assets 100,230 87,178 Property and equipment, net 4,379 4,204 Right-of-use assets, net 3,089 5,161 Goodwill 65,878 65,878 Intangible assets, net 106,619 111,702 Total long-term assets 179,965 186,945 Total assets 280,195 $ 274,123 $ ITsavvy Acquisition Company, Inc. and Subsidiaries Unaudited Condensed Consolidated Balance Sheets September 30, 2024 and December 31, 2023 (in thousands) (Continued)
2 September 30, 2024 December 31, 2023 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable 53,526 $ 48,625 $ Accrued expenses 6,889 8,406 Deferred revenue—current portion 13,247 11,012 Current portion of operating lease liabilities 940 1,037 Current portion of long-term debt 749 934 Total current liabilities 75,351 70,014 Long-term liabilities: Long-term debt, less current portion, net 71,066 79,635 Deferred revenue—long-term 12,703 11,821 Contingent consideration 12,625 14,875 Operating lease liabilities, net of current portion 2,370 4,385 Deferred tax liabilities 11,429 11,429 Other long-term obligations 12,246 1,980 Total long-term liabilities 122,439 124,125 Total liabilities 197,790 194,139 Common stock 1 1 Additional paid-in capital 80,099 80,279 Retained earnings (accumulated deficit) 2,305 (296) Total stockholders’ equity 82,405 79,984 Total liabilities and stockholders’ equity 280,195 $ 274,123 $ See notes to condensed consolidated financial statements.
3 ITsavvy Acquisition Company, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Income (in thousands) Nine Months Ended September 30, 2024 Net sales 351,344 $ Cost of goods sold 302,151 Gross profit 49,193 Selling, general and administrative expenses 39,300 Operating income 9,893 Interest expense 6,268 Income before income tax expense 3,625 Income tax expense 1,024 Net income 2,601 $ See notes to condensed consolidated financial statements.
4 ITsavvy Acquisition Company, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Stockholders’ Equity Nine Months Ended September 30, 2024 (in thousands) Retained Additional Earnings Total Common Paid-In (Accumulated Stockholders’ Stock Capital Deficit) Equity Balance, December 31, 2023 1 $ 80,279 $ (296) $ 79,984 $ Repurchase of Class A units - (180) - (180) Net income - - 2,601 2,601 Balance, September 30, 2024 1 $ 80,099 $ 2,305 $ 82,405 $ See notes to condensed consolidated financial statements.
5 ITsavvy Acquisition Company, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2024 (In thousands) Cash flows from operating activities: Net income 2,601 $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,135 Amortization of intangible assets 5,083 Amortization of deferred financing costs 267 Change in right-of-use assets—operating leases 2,072 Change in operating assets: Accounts receivable, net 5,868 Inventories, net 305 Prepaid expenses and other current assets (90) Income tax receivable (275) Change in operating liabilities: Accounts payable 4,901 Accrued expenses and other long-term liabilities 8,750 Operating lease liabilities (2,112) Deferred revenue 3,117 Net cash provided by operating activities 31,622 Cash flows from investing activities: Purchases of property and equipment (1,310) Net cash used in investing activities (1,310) Cash flows from financing activities: Payments of long-term debt (562) Payments on revolving line of credit (8,459) Payment of contingent consideration (2,250) Repurchase of Class A common units (180) Net cash used in financing activities (11,451) Net increase in cash 18,861 Cash: Beginning 22,590 Ending 41,451 $ See notes to condensed consolidated financial statements.
ITsavvy Acquisition Company, Inc. Notes to Condensed Consolidated Financial Statements (Amounts in Thousands Except per Share Data) 6 Note 1. Nature of Organization and Summary of Significant Accounting Policies Nature of organization: ITsavvy Acquisition Company, Inc. and its Subsidiaries (the Company) is a technology infrastructure solutions provider focused on accelerating time to value in delivering business outcomes on behalf of our clients. The organization, from sales, service delivery, and back-office operations, is focused on enabling frictionless experiences for clients across all four client focus areas (Public Sector, Enterprise, Commercial, and SMB). The Company is focused on four main technology infrastructure verticals: Cloud & Hosting; Network & Security; Collaboration; and Hybrid Workforce/Anywhere Learning. Principles of consolidation: The unaudited condensed consolidated financial statements include the accounts of the Company. All intercompany accounts and transactions have been eliminated in consolidation. The Company is wholly owned by its parent company, ITsavvy Holdings, LLC (Holdings). Basis of presentation: We have prepared the accompanying unaudited interim condensed consolidated financial statements pursuant to the rules and regulations regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepting accounting principles (GAAP), and therefore should be read in conjunction with our audited consolidated financial statements, and the notes thereto, as of and for the year ended December 31, 2023. In the opinion of management, the condensed consolidated financial statements for the nine months ended September 30, 2024, include all adjustments which are necessary for a fair statement of the results of the interim periods and of our financial position as of September 30, 2024. The accompanying condensed consolidated balance sheet as of December 31, 2023, has been derived from the audited consolidated financial statements. The results of operations for the nine months ended September 30, 2024, may not be indicative of the results for the year ended December 31, 2024. Other long-term obligations: Other long-term obligations consist of costs to third-party vendors for amounts due for a period greater than one year. Note 2. Long-Term Debt, Delayed Draw Term Loan, and Line of Credit In August 2022, the Company entered into a credit agreement with a lender that provided for $74,900 term loan and a revolving line of credit, with a maximum borrowing capacity of $10,000, and a delayed draw term loan. The term loan requires quarterly payments of $188 through August 2028, when the remaining principal and interest are due in full. The credit agreement has a maturity date of August 5, 2028. Interest is payable monthly or quarterly at a rate of Secured Overnight Financing Rate (SOFR) plus applicable margin. The outstanding balance on the term loan was $73,402 and $73,964 as of September 30, 2024 and December 31, 2023, respectively. There were no outstanding borrowings on the line of credit as of September 30, 2024 and December 31, 2023. On February 1, 2023, the Company amended the existing credit agreement to allow for borrowings on the delay draw term loan. The Company borrowed $18,500 on the delay draw term loan with no other significant amendments made to the credit agreement. The delay draw term loan has a maturity date of August 2028, similar to the remainder of the credit agreement. Payments are due quarterly of approximately $46 with the balance outstanding due upon maturity date of the delay draw term loan. Interest is payable at a rate of SOFR plus applicable margin. The outstanding balance on the delay draw term loan was $0 and $8,459 as of September 30, 2024 and December 31, 2023, respectively.
ITsavvy Acquisition Company, Inc. Notes to Condensed Consolidated Financial Statements (Amounts in Thousands Except per Share Data) 7 Note 2. Long-Term Debt, Delayed Draw Term Loan, and Line of Credit (Continued) The effective rate was 10.20% and 10.89% at September 30, 2024 and December 31, 2023, respectively, on the term loan. The term loan, delayed draw term loan, and line of credit are collateralized by substantially all assets of the Company. The credit agreement contains restrictions and covenants as defined in the agreement. The agreement also requires the Company to make annual payments in addition to the quarterly installments, based on excess cash flows, as defined, scheduled to commence with fiscal year ended December 31, 2023. Deferred financing costs of $2,405 at September 30, 2024 and December 31, 2023 , net of accumulated amortization of $819 and $552, respectively, relating to the Company’s long-term debt are being amortized on a straight-line basis over the lines of the related debt agreements, which approximates the effective interest method. Note 3. Lease Commitments The Company determines if an arrangement is or contains a lease at inception, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. Under Topic 842, a contract is or contains a lease when (i) explicitly or implicitly identified assets have been deployed in the contract and (ii) the client obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company also considers whether its service arrangements include the right to control the use of an asset. The Company leases premises for industrial, warehouse purposes and associated general office uses from unrelated parties under operating lease agreements that have terms from transition of 1.0 to 8.33 years. The leases include one to two options to renew of one to five years, generally at the Company’s sole discretion, with renewal terms that can extend the lease term. These options to extend a lease are included in the lease terms when it is reasonably certain that the Company will exercise that option. The Company’s leases generally do not contain any material restrictive covenants. Operating lease cost is recognized on a straight-line basis over the lease term. The components of lease expense are as follows: September 30, 2024 Operating lease cost 1,092 $ Short-term lease cost 229 1,321 $ Rent expense was approximately $1,321 for the period ended September 30, 2024. Supplemental cash flow information related to leases is as follows: September 30, 2024 Cash paid for amounts included in measurement of lease liabilities: Operating cash outflows—payments on operating leases 800 $
ITsavvy Acquisition Company, Inc. Notes to Condensed Consolidated Financial Statements (Amounts in Thousands Except per Share Data) 8 Note 3. Lease Commitments (Continued) Future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities recognized on the condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023, is as follows: September 30, December 31, 2024 2023 Operating leases: 2024 260 $ 1,192 $ 2025 1,018 1,177 2026 1,022 1,223 2027 858 1,067 2028 219 431 Thereafter 115 826 Total lease payments 3,492 5,916 Less imputed interest (182) (494) Total present value of lease liabilities 3,310 $ 5,422 $ Note 4. Transactions with Related Parties The Company has a management agreement with the majority member. Under the terms of the agreement, the Company is required to pay the majority member an annual fee in an aggregate amount equal to the greater of 3% of EBITDA or $550. In addition to the management fee, the Company reimburses the majority member for certain costs related to monitoring or otherwise providing any service to the business operations of the Company. The expenses incurred under this agreement are included in the selling, general and administrative expenses on the condensed consolidated statements of income. For the period ended September 30, 2024, total related-party expenses amounted to $842. Note 5. Stockholder’s Equity The Company has 5,000 common stock shares authorized of which 801 were issued and outstanding as of September 30, 2024. Each share is entitled to one vote. During the period ended September 30, 2024, the Company repurchased $180 of Class A units. On August 8, 2022, Holdings authorized and issued 1 Class B-1 Unit and 1 Class B-2 Unit. On December 21, 2022, Holdings authorized and issued 1 Class B-3 Unit. On January 12, 2023, Holdings authorized and issued 7,978.01 Class C Units. All tranches of B and C units were issued at no cost, and no value was allocated to the units. The units receive a profits interest if either the exit value when the Company is sold, or cumulative distributions, exceed specified multiples of the initial investor equity investment. The units do not have voting rights. The profits interest vest in accordance with the terms of the agreement. No compensation expense was recognized for the period ended September 30, 2024, as the units do not vest until a change in control occurs.
ITsavvy Acquisition Company, Inc. Notes to Condensed Consolidated Financial Statements (Amounts in Thousands Except per Share Data) 9 Note 6. 401(k) Plan The Company maintains a defined contribution 401(k) plan which is designed primarily to encourage employees to save for their retirement by deferring the receipt of current compensation. The Company’s discretionary match is equal to 25% of the participants’ deferral limited to 5% of a participant’s eligible compensation. Company contributions to the plan were $492 for the period ended September 30, 2024. Note 7. Commitments and Contingencies The Company has various claims and pending legal proceedings that have arisen in the normal course of business. The Company believes that any potential liability resulting from these proceedings would not be material to the condensed consolidated financial statements. Note 8. Subsequent Events The Company has evaluated subsequent events for recognition and/or disclosure through February 5, 2025, the date the condensed consolidated financial statements were available to be issued. On October 15, 2024, the Company entered into a Securities Purchase Agreement with Xerox Corporation to acquire all outstanding equity securities of the Company for approximately $405,000. The purchase price was funded through a combination of new debt issuance and cash provided by buyers. On November 20, 2024, Xerox Corporation completed the acquisition of all of the issued and outstanding equity securities of the Company.
Document
EXHIBIT 99.3
XEROX HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INTRODUCTION
(in millions, except where otherwise noted)
On October 15, 2024, Xerox Corporation (Xerox) entered into a Securities Purchase Agreement (the Purchase Agreement) with ITsavvy Holdings, LLC (the Seller) and ITsavvy Acquisition Company (ITsavvy). The transaction contemplated by the Purchase Agreement was consummated on November 20, 2024 (the Closing Date) and is referred to herein as the “Acquisition”.
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, “Amendments to Financial Disclosures About Acquired and Disposed Businesses,” as adopted by the SEC on May 21, 2020 (Article 11).
The unaudited pro forma condensed combined balance sheet as of September 30, 2024 gives effect to the Acquisition, as if it had been completed on September 30, 2024 and combines the unaudited consolidated balance sheet of Xerox as of September 30, 2024 with ITsavvy’s unaudited consolidated balance sheet as of September 30, 2024.
The unaudited pro forma condensed combined statements of (loss) income for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023 give effect to the Acquisition, as if it had occurred on January 1, 2023, the first day of Xerox’s fiscal year 2023 and combines the historical results of Xerox and ITsavvy. The unaudited pro forma condensed combined statements of income for the twelve months ended December 31, 2023 combines the audited consolidated statements of (loss) income of Xerox for the twelve months ended December 31, 2023 and ITsavvy’s audited consolidated statement of income for the twelve months ended December 31, 2023. The unaudited pro forma condensed combined statements of (loss) income for the nine months ended September 30, 2024 combines the unaudited consolidated statements of (loss) income of Xerox for the nine months ended September 30, 2024 with ITsavvy’s unaudited consolidated statements of income for the nine months ended September 30, 2024.
The historical financial statements of Xerox and ITsavvy have been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to pro forma events that constitute accounting adjustments, which are necessary to account for the Acquisition in accordance with U.S. GAAP. The unaudited pro forma adjustments are based upon available information and certain assumptions that Xerox management believes are reasonable.
The unaudited pro forma condensed combined financial information should be read in conjunction with:
•The accompanying notes to the unaudited pro forma condensed combined financial information;
•The separate audited financial statements of Xerox as of and for the twelve months ended December 31, 2023 and the related notes, included in Xerox’s Annual Report on Form 10-K for the twelve months ended December 31, 2023, filed with Securities and Exchange Commission (SEC) on February 23, 2024;
•The separate unaudited interim financial statements Xerox as of and for the nine months ended September 30, 2024 and the related notes, included in Xerox’s Quarterly Report on Form 10-Q for the period ended September 30, 2024 filed with SEC on November 4, 2024;
•The separate audited financial statements of ITsavvy as of and for the year ended December 31, 2023 and the related notes, filed as Exhibit 99.1 herein; and
•The separate unaudited financial statements of ITsavvy as of and for the nine months ended September 30, 2024 and the related notes, filed as Exhibit 99.2 herein.
Description of the Transaction
On November 20, 2024, Xerox completed the Acquisition of ITsavvy. The total consideration paid to the Sellers was $405, which consisted of (i) cash payments of $195, (ii) a $110 secured promissory note issued by Xerox to the Seller at the Closing Date (the 2025 Note), and (iii) another $110 secured promissory note issued by Xerox to the Seller at the Closing Date (the 2026 Note and, together with the 2025 Note, the Notes), net of unamortized debt discount of $10 on the Notes. Refer to Note 3 - Purchase Price Allocation for additional information regarding total consideration paid. There are no material post-closing adjustments expected.
Pro Forma Financial Statements
1
Accounting for the Transaction
The Acquisition is being accounted for by Xerox using the acquisition method of accounting in accordance with Accounting Standards Codification (ASC) 805 — Business Combinations (ASC 805). Xerox’s management has evaluated the guidance contained in ASC 805 and determined that Xerox is the acquirer for financial accounting purposes. Accordingly, Xerox’s cost to acquire ITsavvy has been allocated to ITsavvy’s acquired assets and liabilities based upon their estimated fair values. The allocation of the Acquisition consideration is estimated and is dependent upon estimates of certain valuations that are subject to change. Any differences between the consideration transferred and the estimated fair value of the assets acquired and liabilities assumed will be recorded as an adjustment to goodwill. The allocation of the aggregate Acquisition consideration and related adjustments reflected in this unaudited pro forma condensed combined financial information are preliminary and may be subject to measurement period adjustments or changes based on a final determination of fair value. Refer to Note 1—Basis of Presentation for more information.
The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations would have been had the Acquisition occurred as of the dates indicated. The unaudited pro forma condensed combined financial information also should not be considered indicative of the future results of operations or financial position of Xerox. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information as required by SEC rules. Differences between these preliminary estimates and the final business combination accounting may be material.
Pro Forma Financial Statements
2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
| September 30, 2024 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (in millions) | Xerox Historical(1) | ITsavvy Adjusted Historical(2) | ITsavvy Combination Pro Forma Adjustments | Note 4 | Pro Forma Combined Company | ||||
| Assets | |||||||||
| Cash and cash equivalents | $ | 521 | $ | 42 | $ | (195) | A | $ | 368 |
| Accounts receivable, net | 821 | 50 | — | 871 | |||||
| Billed portion of finance receivables, net | 50 | — | — | 50 | |||||
| Finance receivables, net | 664 | — | — | 664 | |||||
| Inventories | 732 | 4 | — | 736 | |||||
| Other current assets | 223 | 4 | — | 227 | |||||
| Total current assets | 3,011 | 100 | (195) | 2,916 | |||||
| Finance receivables due after one year, net | 1,275 | — | — | 1,275 | |||||
| Equipment on operating leases, net | 255 | — | — | 255 | |||||
| Land, buildings and equipment, net | 225 | 4 | — | 229 | |||||
| Intangible assets, net | 149 | 107 | 29 | B | 285 | ||||
| Goodwill, net | 1,709 | 66 | 216 | C | 1,991 | ||||
| Deferred tax assets | 635 | — | (18) | F | 617 | ||||
| Other long-term assets | 1,063 | 3 | — | 1,066 | |||||
| Total Assets | $ | 8,322 | $ | 280 | $ | 32 | $ | 8,634 | |
| Liabilities and Equity | |||||||||
| Short-term debt and current portion of long-term debt | $ | 519 | $ | 1 | $ | 80 | D | $ | 600 |
| Accounts payable | 895 | 54 | — | 949 | |||||
| Accrued compensation and benefits costs | 227 | 6 | — | 233 | |||||
| Accrued expenses and other current liabilities | 752 | 15 | — | 767 | |||||
| Total current liabilities | 2,393 | 76 | 80 | 2,549 | |||||
| Long-term debt | 2,752 | 71 | 58 | E | 2,881 | ||||
| Pension and other benefit liabilities | 1,126 | — | — | 1,126 | |||||
| Post-retirement medical benefits | 166 | — | — | 166 | |||||
| Other long-term liabilities | 354 | 51 | (24) | F | 381 | ||||
| Total Liabilities | 6,791 | 198 | 114 | 7,103 | |||||
| Noncontrolling Interests | 10 | — | — | 10 | |||||
| Convertible Preferred Stock | 214 | — | — | 214 | |||||
| Common stock | 124 | — | — | G | 124 | ||||
| Additional paid-in capital | 1,123 | 80 | (80) | G | 1,123 | ||||
| Retained earnings (accumulated deficit) | 3,570 | 2 | (2) | G | 3,570 | ||||
| Accumulated other comprehensive loss | (3,514) | — | — | (3,514) | |||||
| Xerox Holdings shareholders' equity | 1,303 | 82 | (82) | 1,303 | |||||
| Noncontrolling interests | 4 | — | — | 4 | |||||
| Total Equity | 1,307 | 82 | (82) | 1,307 | |||||
| Total Liabilities and Equity | $ | 8,322 | $ | 280 | $ | 32 | $ | 8,634 |
____________
(1)Xerox Holdings Corporation (Xerox)
(2)The financial information in this column has been derived from ITsavvy Acquisition Company, Inc.'s (ITsavvy) historical consolidated financial statements for the nine months ended September 30, 2024 with certain reclassification adjustments made by Xerox as described in further detail in Note 1 - Basis of Presentation in connection with the Acquisition of ITsavvy. Refer to Note 2 - Reclassification Adjustments for additional information regarding certain reclassification adjustments that have been made to conform ITsavvy’s historical financial statement presentation to Xerox’s historical financial statement presentation.
See the accompanying notes to the unaudited pro forma condensed financial statements, which are an integral part of these statements. The pro forma adjustments are explained in Note 4 - Pro Forma Adjustments in connection with the Acquisition of ITsavvy.
Pro Forma Financial Statements
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF (LOSS) INCOME
| Nine Months Ended September 30, 2024 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (in millions, except per share data) | Xerox Historical(1) | ITsavvy Adjusted Historical(2) | ITsavvy Combination Pro Forma Adjustments | Note 4 | Pro Forma Combined Company | ||||
| Revenues | |||||||||
| Sales | $ | 1,722 | $ | 290 | $ | — | $ | 2,012 | |
| Services, maintenance and rentals | 2,768 | 61 | — | 2,829 | |||||
| Financing | 118 | — | — | 118 | |||||
| Total Revenues | 4,608 | 351 | — | 4,959 | |||||
| Costs and Expenses | |||||||||
| Cost of sales | 1,117 | 244 | — | 1,361 | |||||
| Cost of services, maintenance and rentals | 1,951 | 47 | — | 1,998 | |||||
| Cost of financing | 82 | — | — | 82 | |||||
| Research, development and engineering expenses | 144 | — | — | 144 | |||||
| Selling, administrative and general expenses | 1,160 | 45 | 2 | H | 1,207 | ||||
| Goodwill Impairment | 1,058 | — | — | 1,058 | |||||
| Restructuring and related costs | 107 | — | — | 107 | |||||
| Amortization of intangible assets | 30 | 5 | 5 | I | 40 | ||||
| Divestitures | 51 | — | — | 51 | |||||
| Transaction and related costs, net | — | — | — | — | |||||
| Other expenses, net | 120 | 6 | 1 | J | 127 | ||||
| Total Costs and Expenses | 5,820 | 347 | 8 | 6,175 | |||||
| (Loss) Income before Income Taxes and Equity Income | (1,212) | 4 | (8) | (1,216) | |||||
| Income tax expense (benefit) | 88 | 1 | (1) | K | 88 | ||||
| Net (Loss) Income | (1,300) | 3 | (7) | (1,304) | |||||
| Less: Preferred Stock Dividends, net | (11) | — | — | (11) | |||||
| Net (Loss) Income Attributable to Common Shareholders | $ | (1,311) | $ | 3 | $ | (7) | $ | (1,315) | |
| Loss per Share from Continuing Operations | |||||||||
| Basic Loss per Share | $ | (10.55) | $ | (10.59) | |||||
| Diluted Loss per Share | $ | (10.55) | $ | (10.59) | |||||
| Pro Forma Shares Outstanding (in thousands) | |||||||||
| Basic | 124,149 | — | 124,149 | ||||||
| Diluted | 124,149 | — | 124,149 |
_____________
(1)Xerox Holdings Corporation (Xerox)
(2)The financial information in this column has been derived from ITsavvy Acquisition Company, Inc.'s (ITsavvy) historical consolidated financial statements for the nine months ended September 30, 2024 with certain reclassification adjustments made by Xerox as described in further detail in Note 1 - Basis of Presentation in connection with the Acquisition of ITsavvy. Refer to Note 2 - Reclassification Adjustments for additional information regarding certain reclassification adjustments that have been made to conform ITsavvy’s historical financial statement presentation to Xerox’s historical financial statement presentation.
See the accompanying notes to the unaudited pro forma condensed financial statements, which are an integral part of these statements. The pro forma adjustments are explained in Note 4 - Pro Forma Adjustments in connection with the Acquisition of ITsavvy.
Pro Forma Financial Statements
4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF (LOSS) INCOME
| Year Ended December 31, 2023 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (in millions, except per share data) | Xerox Historical(1) | ITsavvy Adjusted Historical(2) | ITsavvy Combination Pro Forma Adjustments | Note 4 | Pro Forma Combined Company | ||||
| Revenues | |||||||||
| Sales | $ | 2,720 | $ | 333 | $ | — | $ | 3,053 | |
| Services, maintenance and rentals | 3,975 | 77 | — | 4,052 | |||||
| Financing | 191 | — | — | 191 | |||||
| Total Revenues | 6,886 | 410 | — | 7,296 | |||||
| Costs and Expenses | |||||||||
| Cost of sales | 1,778 | 279 | — | 2,057 | |||||
| Cost of services, maintenance and rentals | 2,664 | 58 | — | 2,722 | |||||
| Cost of financing | 130 | — | — | 130 | |||||
| Research, development and engineering expenses | 229 | — | — | 229 | |||||
| Selling, administrative and general expenses | 1,696 | 55 | 2 | H | 1,753 | ||||
| Restructuring and related costs | 167 | — | — | 167 | |||||
| Amortization of intangible assets | 43 | 7 | 9 | I | 59 | ||||
| PARC Donation | 132 | — | — | 132 | |||||
| Transaction and related costs, net | — | — | — | — | |||||
| Other expenses, net | 75 | 9 | 2 | J | 86 | ||||
| Total Costs and Expenses | 6,914 | 408 | 13 | 7,335 | |||||
| (Loss) Income before Income Taxes and Equity Income | (28) | 2 | (13) | (39) | |||||
| Income tax (benefit) expense | (29) | 1 | (3) | K | (31) | ||||
| Net Income (Loss) | 1 | 1 | (10) | (8) | |||||
| Less: Preferred Stock Dividends, net | (14) | — | — | (14) | |||||
| Net (Loss) Income Attributable to Common Shareholders | $ | (13) | $ | 1 | $ | (10) | $ | (22) | |
| Loss per Share from Continuing Operations | |||||||||
| Basic Loss per Share | $ | (0.09) | $ | (0.15) | |||||
| Diluted Loss per Share | $ | (0.09) | $ | (0.15) | |||||
| Pro Forma Shares Outstanding (in thousands) | |||||||||
| Basic | 149,116 | — | 149,116 | ||||||
| Diluted | 149,116 | — | 149,116 |
_____________
(1)Xerox Holdings Corporation (Xerox)
(2)The financial information in this column has been derived from ITsavvy Acquisition Company, Inc.'s (ITsavvy) historical consolidated financial statements for the year ended December 31, 2023 with certain reclassification adjustments made by Xerox as described in further detail in Note 1 - Basis of Presentation in connection with the Acquisition of ITsavvy. Refer to Note 2 - Reclassification Adjustments for additional information regarding certain reclassification adjustments that have been made to conform ITsavvy’s historical financial statement presentation to Xerox’s historical financial statement presentation.
See the accompanying notes to the unaudited pro forma condensed financial statements, which are an integral part of these statements. The pro forma adjustments are explained in Note 4 - Pro Forma Adjustments in connection with the Acquisition of ITsavvy.
Pro Forma Financial Statements
5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
(in millions, except per share data, and where otherwise noted)
The preceding unaudited pro forma condensed combined financial information has been prepared by Xerox in accordance with Article 11 of Regulation S-X to reflect the Acquisition. The unaudited pro forma condensed combined financial information presented is for illustrative purposes only and is not necessarily indicative of what Xerox’s condensed combined statements of (loss) income or condensed combined balance sheet would have been had the Acquisition been consummated as of the dates indicated or will be for any future periods. The unaudited proforma condensed combined financial information does not purport to project the future financial position or results of operations of Xerox following the Closing Date of the Acquisition. The pro forma condensed combined financial information reflects transaction accounting adjustments Xerox believes are necessary to present fairly Xerox’s unaudited pro forma financial position and results of operations following the Closing Date as of and for the periods indicated. The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies, or revenue enhancements that the combined company may achieve as a result of the Acquisition, nor does it reflect the costs to integrate the operations of Xerox and ITsavvy or the costs necessary to achieve any cost savings, operating synergies, and revenue enhancements.
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations with Xerox as the accounting acquirer, using the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and based on the historical consolidated financial statements of Xerox and ITsavvy. Under ASC 805, with certain exceptions, assets acquired and liabilities assumed in a business combination are recognized and measured at their assumed acquisition date fair value, while transaction costs associated with the business combination are expensed as incurred. The excess of Acquisition consideration over the estimated fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The allocation of the aggregate Acquisition consideration depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the aggregate Acquisition consideration has been made for the purpose of developing the unaudited proforma condensed combined financial information. The final determination of fair values of assets acquired and liabilities assumed relating to the Acquisition could differ materially from the preliminary allocation of aggregate Acquisition consideration.
The transaction accounting adjustments represent Xerox’s best estimates and are based upon currently available information and certain assumptions that Xerox believes are reasonable under the circumstances. Xerox is not aware of any material transactions between Xerox and ITsavvy (prior to the announcement of the Acquisition) during the periods presented. Accordingly, adjustments to eliminate transactions between Xerox and ITsavvy have not been reflected in the unaudited proforma condensed combined financial information.
Xerox has commenced a preliminary review of ITsavvy’s accounting policies to determine if differences in accounting policies and account classifications require reclassification of results operations or reclassification of assets and liabilities to conform to Xerox’s accounting policies and classifications. Accordingly, we may identify differences between the accounting policies of the two companies, which when conformed, could have a material impact on the unaudited pro forma condensed combined financial information.
In addition, as discussed in Note 2 - Reclassification Adjustments, certain reclassification adjustments have been made to conform ITsavvy’s historical financial statement presentation to Xerox’s historical financial statement presentation.
Pro Forma Financial Statements
6
NOTE 2 - RECLASSIFICATION ADJUSTMENTS
During the preparation of this unaudited pro forma condensed combined financial information, Xerox management performed a preliminary analysis of ITsavvy’s financial information to identify differences in financial statement presentation as compared to the presentation of Xerox. With the information currently available, Xerox has made reclassification adjustments to conform ITsavvy’s historical financial statement presentation to Xerox’s historical financial statement presentation. Following the Acquisition, Xerox completed its review of the financial statement presentation.
Refer to the table below for a summary of reclassification adjustments made to present ITsavvy’s balance sheet as of September 30, 2024 to conform with that of Xerox's financial statement presentation:
| (in millions) | September 30, 2024 | ||||||
|---|---|---|---|---|---|---|---|
| ITsavvy Historical | Adjustments | ITsavvy Adjusted Historical | |||||
| Prepaid assets | $ | 3 | $ | (3) | (a) | $ | — |
| Income tax receivable | 1 | (1) | (a) | — | |||
| Other current assets | — | 4 | 4 | ||||
| Right-of-use assets | 3 | (3) | (b) | ||||
| Other long-term assets | — | 3 | 3 | ||||
| Total Adjustments to ITsavvy historical assets | $ | 7 | $ | — | $ | 7 | |
| Accrued compensation and benefits costs | $ | — | $ | 6 | (c) | $ | 6 |
| Current portion of operating lease liabilities | 1 | (1) | (d) | — | |||
| Current portion of deferred revenue | 13 | (13) | (d) | — | |||
| Accrued expenses and other current liabilities | 7 | 8 | (e) | 15 | |||
| Long-term portion of deferred revenue | 13 | (13) | (f) | — | |||
| Contingent consideration | 13 | (13) | (f) | — | |||
| Long-term portion of operating lease liabilities | 2 | (2) | (f) | — | |||
| Deferred tax liability | 11 | (11) | (f) | ||||
| Other long-term liabilities | 12 | 39 | 51 | ||||
| Total Adjustments to ITsavvy historical liabilities | $ | 72 | $ | — | $ | 72 |
(a)Reclassified to Other current assets.
(b)Reclassified to Other long-term assets.
(c)Reclassified from Accrued expenses and other current liabilities.
(d)Reclassified to Accrued expenses and other current liabilities
(e)Includes reclassifications of $1 from Current portion of operating lease liabilities, and $13 from Current portion of deferred revenue, partially offset by a reclassification of $6 to Accrued compensation and benefits costs
(f)Reclassified to Other long-term liabilities
Pro Forma Financial Statements
7
Refer to the table below for a summary of reclassification adjustments made to present ITsavvy’s condensed consolidated statement of income for the nine months ended September 30, 2024 to conform with that of Xerox's financial statement presentation:
| Nine months ended September 30, 2024 | |||||||
|---|---|---|---|---|---|---|---|
| (in millions) | ITsavvy Historical | Adjustments | ITsavvy Adjusted Historical | ||||
| Sales | $ | 351 | $ | (61) | (a) | $ | 290 |
| Services, maintenance and rentals | — | 61 | 61 | ||||
| Cost of sales | $ | 302 | $ | (58) | (b) | $ | 244 |
| Cost of services, maintenance and rentals | — | 47 | (c) | 47 | |||
| Selling, administrative and general expenses | 39 | 6 | (d) | 45 | |||
| Amortization of intangible assets | — | 5 | (e) | 5 | |||
| Interest expense | 6 | (6) | (f) | — | |||
| Other expenses, net | — | 6 | 6 |
(a)Reclassified $(61) from Sales to Services, maintenance and rentals.
(b)Reclassified ($47) to Cost of services, maintenance and rentals, and ($11) to Selling, administrative and general expenses.
(c)Reclassified $47 from Cost of sales.
(d)Reclassified $11 from Cost of sales and ($5) to Amortization of intangible assets.
(e)Reclassified $5 from Selling, administrative and general expenses.
(f)Reclassified ($6) to Other expenses, net
Refer to the table below for a summary of reclassification adjustments made to present ITsavvy’s condensed consolidated statement of income for the year ended December 31, 2023 to conform with that of Xerox's financial statement presentation:
| Year ended December 31, 2023 | |||||||
|---|---|---|---|---|---|---|---|
| (in millions) | ITsavvy Historical | Adjustments | ITsavvy Adjusted Historical | ||||
| Sales | $ | 410 | $ | (77) | (a) | $ | 333 |
| Services, maintenance and rentals | — | 77 | 77 | ||||
| Cost of sales | $ | 350 | $ | (71) | (b) | $ | 279 |
| Cost of services, maintenance and rentals | — | 58 | (c) | 58 | |||
| Selling, administrative and general expenses | 49 | 6 | (d) | 55 | |||
| Amortization of intangible assets | — | 7 | (e) | 7 | |||
| Interest expense | 9 | (9) | (f) | — | |||
| Other expenses, net | — | 9 | 9 |
(a)Reclassified ($77) to Sales to Service, maintenance and rentals.
(b)Reclassified ($58) to Cost of services, maintenance and rentals, and ($13) to Selling, administrative and general expenses.
(c)Reclassified $58 from Cost of sales.
(d)Reclassified $13 from Cost of sales and ($7) to Amortization of intangible assets.
(e)Reclassified $7 from Selling, administrative and general
(f)Reclassified ($9) to Other expenses, net.
Pro Forma Financial Statements
8
NOTE 3 - PURCHASE PRICE ALLOCATION
The following table provides an estimated preliminary pro forma purchase price allocation, which is subject to change upon a completed valuation of the assets acquired and liabilities assumed as of the Closing Date. The preliminary purchase price allocation assumes as if the Acquisition had been consummated on September 30, 2024, based on the unaudited consolidated balance sheet of ITsavvy as of September 30, 2024, with the excess recorded as goodwill. The aggregate Acquisition consideration is $405. Refer to the table below for additional details:
| September 30, 2024 | |||
|---|---|---|---|
| Acquisition Consideration | |||
| Cash | $ | 195 | |
| Secured promissory notes due in 2025 | 107 | (a) | |
| Secured promissory notes due in 2026 | 103 | (a) | |
| Total consideration transferred | $ | 405 | |
| Assets acquired | |||
| Cash and cash equivalents | $ | 42 | |
| Accounts receivable, net | 50 | ||
| Inventories | 4 | ||
| Other current assets | 4 | ||
| Land, buildings and equipment, net | 4 | ||
| Intangible assets, net | 136 | (b) | |
| Other long-term assets | 3 | ||
| Total Assets acquired | $ | 243 | |
| Liabilities acquired | |||
| Accounts payable | $ | 54 | |
| Accrued compensation and benefits costs | 6 | ||
| Accrued expenses and other current liabilities | 15 | (c) | |
| Other long-term liabilities | 45 | (c) | |
| Total Liabilities acquired | $ | 120 | |
| Net Assets acquired | $ | 123 | |
| Goodwill | $ | 282 | (d) |
(a) Represents the fair value of the Notes issued.
(b) Comprised of acquired customer relationships and trade names of $134 and $2, respectively. The fair value estimate for these is preliminary and final determination of fair value is subject to change.
(c) Both Accrued expenses and other current liabilities, and Other long-term liabilities include $13 of deferred revenue, respectively. The unaudited pro forma condensed combined financial statements presented reflects the adoption of Accounting Standards Update (ASU) 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under the standard, deferred revenue acquired in a business combination is measured pursuant to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers rather than its acquisition date fair value. Also included in Other long-term liabilities is $7 of deferred taxes recorded on the fair value step-up of intangible assets.
(d) Goodwill is calculated as the difference between the consideration transferred and the preliminary estimate of the fair value assigned to the assets acquired and liabilities assumed. The fair value estimate for goodwill is preliminary. The final determination of fair value of goodwill is subject to change.
The assumed accounting for the Acquisition is based on provisional amounts, including estimates of the fair value of the assets and liabilities assumed on September 30, 2024 and have been prepared to illustrate the effect of the ITsavvy acquisition. The associated purchase accounting is not final. The preliminary allocation of the purchase price to the acquired assets and liabilities assumed was based upon the preliminary estimate of the fair values. The final determination of the purchase price allocation is anticipated to be completed as soon as practicable after completion of the transaction and will be based on the fair values of the assets acquired and liabilities assumed as of the Closing Date. The final amounts allocated to assets acquired and liabilities assumed could differ materially from the amounts presented in the unaudited pro forma condensed combined financial information.
Pro Forma Financial Statements
9
NOTE 4 – PRO FORMA ADJUSTMENTS
This note should be read in conjunction with Note 1 - Basis of Presentation and Note 3 - Purchase Price Allocation. The following summarizes the pro forma adjustments in connection with the Acquisition of ITsavvy to give effect to the transaction as if it had occurred on January 1, 2023 for purposes of the unaudited pro forma condensed combined statements of (loss) income and on September 30, 2024 for purposes of the unaudited pro forma condensed combined balance sheet:
(A) Reflects the adjustment to cash and cash equivalents:
| (in millions) | September 30, 2024 | ||
|---|---|---|---|
| Cash consideration to the Seller | $ | 121 | (1) |
| Settlement of debt obligations | 74 | (2) | |
| Total | $ | 195 |
(1)Represents cash consideration for the Acquisition and includes $8 placed in escrow that is expected to ultimately transfer to the Seller, as well as $3 of transaction costs incurred by ITsavvy, and $3 for certain insurance policies that were paid by Xerox at the Closing Date.
(2)Represents payment by Xerox made at the Closing Date to settle ITsavvy's debt obligations that Xerox will not assume.
(B) Reflects the preliminary acquisition accounting adjustment to step up ITsavvy’s historical intangible assets and goodwill, and to reflect the acquired identifiable intangible assets consisting primarily of customer relationships of $134 as well as the capitalization of the preliminary goodwill for Acquisition consideration in excess of the fair value of net assets acquired in connection with the Acquisition. The fair value of the acquired customer relationship intangible asset is estimated based on a multi-period excess earnings method which calculates the present value of the estimated revenues and net cash flows derived from it.
The following table summarizes the fair values of ITsavvy’s identifiable intangible assets and their estimated average useful lives and details the pro forma transaction accounting adjustment related to intangibles, net:
| (in millions) | September 30, 2024 | Estimated Useful Life | |
|---|---|---|---|
| Customer relationships | $ | 134 | 10 years |
| Trade name | 2 | 1 year | |
| Total preliminary fair value of acquired intangibles | 136 | ||
| Less: ITsavvy's historical intangible assets | (107) | ||
| Net pro forma transaction accounting adjustment to intangible assets, net | $ | 29 |
For purposes of the unaudited pro forma condensed combined statement of (loss) income, pro forma amortization expense is preliminary and based on the use of straight-line amortization over the estimated average useful life of the finite life intangible assets recognized in the Acquisition. The customer relationship intangible asset acquired in this Acquisition has a preliminary estimated useful life of 10 years.
The amount of amortization expense recognized following the Closing Date may differ significantly between periods based upon the final fair value assigned, the estimated useful life assigned and the amortization methodology used for each identifiable intangible asset.
(C) Reflects preliminary acquisition accounting adjustment to record goodwill and eliminate ITsavvy historical goodwill:
| (in millions) | September 30, 2024 | ||
|---|---|---|---|
| Fair value of consideration transferred in excess of fair value of assets acquired and liabilities assumed | $ | 282 | (1) |
| Elimination of ITsavvy's historical goodwill | (66) | ||
| Net pro forma transaction accounting adjustment to Goodwill, net | $ | 216 |
(1)Refer to the table in Note 3 - Purchase Price Allocation for the calculation of the fair value of consideration transferred in excess of the preliminary fair value of assets acquired and liabilities assumed based on the preliminary allocation of the Acquisition consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of ITsavvy.
The pro forma adjustments related to intangibles, net and goodwill, net were based on the preliminary information available at the time of the preparation of the unaudited pro forma condensed combined financial information.
Pro Forma Financial Statements
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(D) Reflects the removal of $1 of the current portion of ITsavvy debt which was settled at the Acquisition date and therefore not assumed by the Xerox, as well as the fair value of the current portion of the secured promissory note of $81, which was issued by Xerox to the Seller in conjunction with the Acquisition.
(E) Reflects pro forma transaction accounting debt-related adjustments:
| (in millions) | September 30, 2024 | ||
|---|---|---|---|
| Settlement of Long-term debt | $ | (73) | |
| Debt issuance cost related to settled debt | 2 | ||
| Long-term portion of secured promissory notes | 129 | (1) | |
| Net pro forma transaction accounting adjustment to Long-term debt | $ | 58 |
(1)Represents the fair value of the long-term portion of the secured promissory notes issued by Xerox to the Seller in conjunction with the Acquisition.
(F) Reflects the removal of the balance of contingent consideration of $13 related to certain of ITsavvy's previous business combinations that were settled in conjunction with the Acquisition, the increase of $7 to deferred tax liabilities associated with the additional intangible assets recorded with the Acquisition, as well as the reclassification of deferred tax liabilities of $18 to deferred tax assets.
(G) Reflects the elimination of ITsavvy's historical equity.
(H) Represents an adjustment made to reflect share-based payment expense recorded by Xerox for restricted stock awards issued to certain employees in conjunction with the Acquisition.
(I) Reflects the adjustments to Amortization of intangible assets
| (in millions) | Nine Months Ended September 30, 2024 | Year Ended December 31, 2023 | |||
|---|---|---|---|---|---|
| Removal of ITsavvy's historical intangible asset amortization | $ | (5) | $ | (7) | |
| Estimated amortization of acquired intangible assets | 10 | 16 | (1) | ||
| Net pro forma transaction accounting adjustment to Amortization of intangible assets | $ | 5 | $ | 9 |
(1)Represents straight-line amortization of the estimated fair value of the intangible assets for customer relationships and a trade name over the estimated weighted average useful life of 10 years and one year, respectively.
(J) Reflects the adjustments made to Other expenses, net
| (in millions) | Nine Months Ended September 30, 2024 | Year Ended December 31, 2023 | ||
|---|---|---|---|---|
| Removal of interest expense on ITsavvy debt not assumed by Xerox | $ | (8) | $ | (10) |
| Imputed interest on the secured promissory notes issued by Xerox to Seller | 9 | 12 | ||
| Net pro forma transaction accounting adjustment to Other expenses, net | $ | 1 | $ | 2 |
The secured promissory notes do not require interest, however, Xerox computed interest using a 5.5% annual interest rate.
(K) Represents the application of the estimated statutory income tax rate of 24.5% to the pro forma transaction accounting adjustments for both the nine months ended September 30, 2024 and the year ended December 31, 2023, further adjusted for valuation allowance required on certain deferred tax assets, for the nine months ended September 30, 2024. Because the tax rates used for the unaudited pro forma condensed combined financial information are estimated, the blended statutory rate will likely vary from the actual effective rate in periods subsequent to the Closing Date.
Pro Forma Financial Statements
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