CONDUENT Inc 10-Q

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED) CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, (in millions, except per share data) 2020 2019 2020 2019 Revenue $ 1,041 $ 1,098 $ 3,108 $ 3,368 Operating Costs and Expenses Cost of services (excluding depreciation and amortization) 779 859 2,406 2,644 Selling, general and administrative (excluding depreciation and amortization) 122 112 349 360 Research and development (excluding depreciation and amortization) — 1 1 6 Depreciation and amortization 112 115 344 342 Restructuring and related costs 20 8 56 50 Interest expense 14 20 46 60 Goodwill impairment — — — 1,351 (Gain) loss on divestitures and transaction costs 8 3 14 19 Litigation costs (recoveries), net — 2 20 15 Other (income) expenses, net ( 1 ) ( 8 ) — ( 8 ) Total Operating Costs and Expenses 1,054 1,112 3,236 4,839 Income (Loss) Before Income Taxes ( 13 ) ( 14 ) ( 128 ) ( 1,471 ) Income tax expense (benefit) ( 6 ) 2 ( 21 ) ( 118 ) Net Income (Loss) $ ( 7 ) $ ( 16 ) $ ( 107 ) $ ( 1,353 ) Net Income (Loss) per Share: Basic $ ( 0.04 ) $ ( 0.09 ) $ ( 0.54 ) $ ( 6.52 ) Diluted $ ( 0.04 ) $ ( 0.09 ) $ ( 0.54 ) $ ( 6.52 ) The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q3 2020 Form 10-Q 3 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2020 2019 2020 2019 Net Income (Loss) $ ( 7 ) $ ( 16 ) $ ( 107 ) $ ( 1,353 ) Other Comprehensive Income (Loss), Net (1) Currency translation adjustments, net 11 ( 15 ) ( 15 ) ( 9 ) Reclassification of currency translation adjustments on divestitures — — — 15 Reclassification of divested benefit plans and other — — — ( 1 ) Unrecognized gains (losses), net 1 — — 1 Changes in benefit plans, net — — 1 — Other Comprehensive Income (Loss), Net 12 ( 15 ) ( 14 ) 6 Comprehensive Income (Loss), Net $ 5 $ ( 31 ) $ ( 121 ) $ ( 1,347 ) __________ (1) All amounts are net of tax. Tax effects were immaterial. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q3 2020 Form 10-Q 4 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in millions, except share data in thousands) September 30, 2020 December 31, 2019 Assets Cash and cash equivalents $ 488 $ 496 Accounts receivable, net 687 652 Contract assets 166 155 Other current assets 312 283 Total current assets 1,653 1,586 Land, buildings and equipment, net 306 342 Operating lease right-of-use assets 246 271 Intangible assets, net 247 426 Goodwill 1,506 1,502 Other long-term assets 402 387 Total Assets $ 4,360 $ 4,514 Liabilities and Equity Current portion of long-term debt $ 78 $ 50 Accounts payable 173 198 Accrued compensation and benefits costs 200 174 Unearned income 112 108 Other current liabilities 478 647 Total current liabilities 1,041 1,177 Long-term debt 1,574 1,464 Deferred taxes 106 111 Operating lease liabilities 209 229 Other long-term liabilities 105 91 Total Liabilities 3,035 3,072 Contingencies (See Note 11) Series A convertible preferred stock 142 142 Common stock 2 2 Additional paid-in capital 3,901 3,890 Retained earnings (deficit) ( 2,299 ) ( 2,185 ) Accumulated other comprehensive loss ( 421 ) ( 407 ) Total Equity 1,183 1,300 Total Liabilities and Equity $ 4,360 $ 4,514 Shares of common stock issued and outstanding 209,273 211,511 Shares of series A convertible preferred stock issued and outstanding 120 120 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q3 2020 Form 10-Q 5 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, (in millions) 2020 2019 Cash Flows from Operating Activities: Net income (loss) $ ( 107 ) $ ( 1,353 ) Adjustments required to reconcile net income (loss) to cash flows from operating activities: Depreciation and amortization 344 342 Contract inducement amortization 2 2 Deferred income taxes ( 38 ) ( 148 ) Goodwill impairment — 1,351 (Gain) loss from investments ( 3 ) ( 3 ) Amortization of debt financing costs 5 5 (Gain) loss on divestitures and transaction costs 14 19 Stock-based compensation 14 19 Allowance for doubtful accounts 1 — Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ( 36 ) ( 84 ) (Increase) decrease in other current and long-term assets ( 51 ) ( 34 ) Increase (decrease) in accounts payable and accrued compensation ( 14 ) ( 128 ) Increase (decrease) in restructuring liabilities 3 4 Increase (decrease) in other current and long-term liabilities ( 152 ) ( 199 ) Net change in income tax assets and liabilities 7 ( 9 ) Net cash provided by (used in) operating activities ( 11 ) ( 216 ) Cash Flows from Investing Activities: Cost of additions to land, buildings and equipment ( 48 ) ( 109 ) Proceeds from sale of land, buildings and equipment — 2 Cost of additions to internal use software ( 47 ) ( 49 ) Payments for acquisitions, net of cash acquired — ( 90 ) Proceeds (payments) from divestitures, including cash sold 3 ( 7 ) Net cash provided by (used in) investing activities ( 92 ) ( 253 ) Cash Flows from Financing Activities: Proceeds from revolving credit facility and other loans 152 — Payments on debt ( 41 ) ( 42 ) Payment of contingent consideration related to acquisition ( 4 ) — Taxes paid for settlement of stock based compensation ( 3 ) ( 11 ) Dividends paid on preferred stock ( 5 ) ( 7 ) Net cash provided by (used in) financing activities 99 ( 60 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 5 ) — Increase (decrease) in cash, cash equivalents and restricted cash ( 9 ) ( 529 ) Cash, Cash Equivalents and Restricted Cash at Beginning of Period 505 765 Cash, Cash Equivalents and Restricted Cash at End of period (1) $ 496 $ 236 ___________ (1) Includes $ 8 million of restricted cash as of both September 30, 2020 and 2019, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q3 2020 Form 10-Q 6 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) Three Months Ended September 30, 2020 (in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Shareholders' Equity Balance at June 30, 2020 $ 2 $ 3,896 $ ( 2,290 ) $ ( 433 ) $ 1,175 Dividends - preferred stock, $ 20 /share (2) — — ( 2 ) — ( 2 ) Stock option and incentive plans, net — 5 — — 5 Comprehensive Income (Loss): Net Income (Loss) — — ( 7 ) — ( 7 ) Other comprehensive income (loss), net — — — 12 12 Total Comprehensive Income (Loss), Net — — ( 7 ) 12 5 Balance at September 30, 2020 $ 2 $ 3,901 $ ( 2,299 ) $ ( 421 ) $ 1,183 Three Months Ended September 30, 2019 (in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Shareholders' Equity Balance at June 30, 2019 $ 2 $ 3,886 $ ( 1,583 ) $ ( 404 ) $ 1,901 Dividends - preferred stock, $ 20 /share — — ( 2 ) — ( 2 ) Comprehensive Income (Loss): Net Income (Loss) — — ( 16 ) — ( 16 ) Other comprehensive income (loss), net — — — ( 15 ) ( 15 ) Total Comprehensive Income (Loss), Net — — ( 16 ) ( 15 ) ( 31 ) Balance at September 30, 2019 $ 2 $ 3,886 $ ( 1,601 ) $ ( 419 ) $ 1,868 Nine Months Ended September 30, 2020 (in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Shareholders' Equity Balance at December 31, 2019 $ 2 $ 3,890 $ ( 2,185 ) $ ( 407 ) $ 1,300 Dividends - preferred stock, $ 60 /share (2) — — ( 7 ) — ( 7 ) Stock option and incentive plans, net — 11 — — 11 Comprehensive Income (Loss): Net Income (Loss) — — ( 107 ) — ( 107 ) Other comprehensive income (loss), net — — — ( 14 ) ( 14 ) Total Comprehensive Income (Loss), Net — — ( 107 ) ( 14 ) ( 121 ) Balance at September 30, 2020 $ 2 $ 3,901 $ ( 2,299 ) $ ( 421 ) $ 1,183 Nine Months Ended September 30, 2019 (in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Shareholders' Equity Balance at December 31, 2018 $ 2 $ 3,878 $ ( 233 ) $ ( 425 ) $ 3,222 Dividends - preferred stock, $ 60 /share — — ( 7 ) — ( 7 ) Cumulative effect of accounting change — — ( 8 ) — ( 8 ) Stock option and incentive plans, net — 8 — — 8 Comprehensive Income (Loss): Net Income (Loss) — — ( 1,353 ) — ( 1,353 ) Other comprehensive income (loss), net — — — 6 6 Total Comprehensive Income (Loss), Net — — ( 1,353 ) 6 ( 1,347 ) Balance at September 30, 2019 $ 2 $ 3,886 $ ( 1,601 ) $ ( 419 ) $ 1,868 ___________ (1) AOCL - Accumulated other comprehensive loss. Refer to Note 10 – Accumulated Other Comprehensive Loss for the components of AOCL. (2) The preferred dividend for the third quarter of 2020 was accrued but unpaid as of September 30, 2020. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q3 2020 Form 10-Q 7 Table of Contents CONDUENT INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 – Basis of Presentation References herein to “we,” “us,” “our,” the “Company” and “Conduent” refer to Conduent Incorporated and its consolidated subsidiaries unless the context suggests otherwise. Description of Business Conduent is a global enterprise and leading provider of mission-critical ​services and solutions on behalf of businesses and governments – creating exceptional outcomes for its clients and the millions of people who count on them. Through people, process expertise in transaction-intensive processing and technology such as analytics and automation, Conduent's solutions and services create value by improving efficiencies, reducing costs and enabling revenue growth. A majority of Fortune 100 companies and over 500 government entities depend on Conduent every day to manage their business processes and essential interactions with their end users. The Company's portfolio includes industry-focused solutions in attractive growth markets such as healthcare and transportation, as well as solutions that serve multiple industries such as transaction processing, customer care, human resource services and payment services. Basis of Presentation The unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. The year-end Condensed Consolidated Balance Sheet was derived from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Certain reclassifications have been made to prior year information to conform to current year presentation. Intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows have been made. These adjustments consist of normal recurring items. The interim results of operations are not necessarily indicative of the results of the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Use of Estimates Preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to fair values of financial instruments, goodwill and intangible assets, income taxes and contingent liabilities, among others. We base our estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. As of September 30, 2020, the impact of the outbreak of COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in the future. CNDT Q3 2020 Form 10-Q 8 Table of Contents Note 2 – Recent Accounting Pronouncements The Company's significant accounting policies are described in Note 1–Basis of Presentation and Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Summarized below are the accounting pronouncements adopted subsequent to December 31, 2019 that were applicable and material to the Company. New Accounting Standards Adopted Credit Losses: In June 2016, the Financial Accounting Standards Board (FASB) updated the accounting guidance related to measurement of credit losses on financial instruments, which requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The guidance replaces the incurred loss model with an expected loss model referred to as current expected credit loss (CECL). The CECL model requires us to measure lifetime expected credit losses for financial instruments held at the reporting date using historical experience, current conditions and reasonable supportable forecasts. The guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This updated guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new credit loss guidance as of January 1, 2020. The adoption did not have any material impact on the Company's consolidated financial statements. New Accounting Standards To Be Adopted Income Taxes: In December 2019, the FASB issued updated accounting guidance to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This updated guidance is effective for fiscal years beginning January 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. Reference Rate Reform: In March 2020, the FASB issued updated guidance relating to the accounting for the discontinuation of the London Inter-bank Offered Rate (LIBOR), referred to as the reference rate reform. This guidance provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the reference rate reform if certain criteria are met. T his guidance is applicable to contract modifications that replace a reference LIBOR rate affected by reference rate reform. The amendments may be applied through December 31, 2022. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. CNDT Q3 2020 Form 10-Q 9 Table of Contents Note 3 – Revenue Disaggregation of Revenue During the first quarter of 2020, the Company changed how it presents disaggregated revenue by major service offering. This change has no impact on disaggregated revenue by reportable segments or the timing of revenue recognition. All prior periods presented have been revised to reflect this change. The following table provides information about disaggregated revenue by major service offering, the timing of revenue recognition and a reconciliation of the disaggregated revenue by reportable segment. Refer to Note 4 – Segment Reporting for additional information on the Company's reportable segments. Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2020 2019 2020 2019 Commercial Industries: Customer experience management $ 149 $ 161 $ 474 $ 490 Business operations solutions 140 153 426 476 Commercial healthcare solutions 106 121 322 366 Human resource services 123 143 388 450 Total Commercial Industries 518 578 1,610 1,782 Government Services: Government healthcare solutions 153 171 459 523 Government services solutions 195 148 510 447 Total Government Services 348 319 969 970 Transportation: Roadway charging & management services 83 83 232 243 Transit solutions 53 69 181 185 Curbside management solutions 18 27 54 82 Public safety solutions 19 20 56 61 Commercial vehicles 2 2 6 8 Total Transportation 175 201 529 579 Other: Divestitures — — — 36 Education — — — 1 Total Other — — — 37 Total Consolidated Revenue $ 1,041 $ 1,098 $ 3,108 $ 3,368 Timing of Revenue Recognition: Point in time $ 23 $ 38 $ 85 $ 111 Over time 1,018 1,060 3,023 3,257 Total Revenue $ 1,041 $ 1,098 $ 3,108 $ 3,368 Contract Balances The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets are the Company’s rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Contract assets are transferred to Accounts receivable, net when the rights to consideration become unconditional. Unearned income includes payments received in advance of performance under the contract, which are realized when the associated revenue is recognized under the contract. CNDT Q3 2020 Form 10-Q 10 Table of Contents The following table provides information about the balances of the Company's contract assets, unearned income and receivables from contracts with customers: (in millions) September 30, 2020 December 31, 2019 Contract Assets (Unearned Income) Current contract assets $ 166 $ 155 Long-term contract assets (1) 16 10 Current unearned income ( 112 ) ( 108 ) Long-term unearned income (2) ( 20 ) ( 21 ) Net Contract Assets (Unearned Income) $ 50 $ 36 Accounts receivable, net $ 687 $ 652 __________ (1) Presented in Other long-term assets in the Condensed Consolidated Balance Sheets. (2) Presented in Other long-term liabilities in the Condensed Consolidated Balance Sheets. Revenues of $ 20 million and $ 84 million were recognized during the three and nine months ended September 30, 2020, respectively, related to the Company's unearned income at December 31, 2019. Revenues of $ 16 million and $ 97 million were recognized during the three and nine months ended September 30, 2019, respectively, related to the Company's unearned income at December 31, 2018. Transaction Price Allocated to the Remaining Performance Obligations Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at September 30, 2020 was approximately $ 1.5 billion. The Company expects to recognize approximately 70 % of this revenue over the next two years and the remainder thereafter. Note 4 – Segment Reporting Our reportable segments correspond to how we organize and manage the business, as defined by our Chief Executive Officer, who is also our Chief Operating Decision Maker (CODM), and are aligned to the industries in which our clients operate. Our segments involve the delivery of business process services and include service arrangements where we manage a customer's business activity or process. In the first quarter of 2020, we realigned our sales organization and certain shared IT and other allocated functions to reflect how we currently manage our business. In the third quarter of 2020, in order to provide greater visibility into the profitability of our segments, certain costs that were previously included in the Shared IT/Infrastructure and Corporate Costs (now referred to as Unallocated Costs) are being allocated to each of the reportable segments. All prior periods presented have been recast to reflect these changes. Our financial performance is based on Segment Profit/(Loss) and Segment Adjusted EBITDA for our three reportable segments (Commercial Industries, Government Services and Transportation), Other and Unallocated Costs. Our CODM does not evaluate operating segments using discrete asset information. Commercial Industries: Our Commercial Industries segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial Industries segment, we operate on our clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for our clients and their consumers and employees. Government Services: Our Government Services segment provides government-centric business process services to U.S. federal, state and local and foreign governments for public assistance, program administration, transaction processing and payment services. Our solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations. CNDT Q3 2020 Form 10-Q 11 Table of Contents Transportation: Our Transportation segment provides systems and support, as well as revenue-generating services, to government clients. On behalf of government agencies and authorities in the transportation industry, we deliver mission-critical mobility and payment solutions that improve automation, interoperability and decision-making to streamline operations, increase revenue and reduce congestion while creating safer communities and seamless travel experiences for consumers. Other includes our divestitures and our Student Loan business, which the Company exited in the third quarter of 2018. Unallocated Costs includes IT infrastructure costs that are shared by multiple reportable segments, enterprise application costs and certain corporate overhead expenses not directly attributable or allocated to our reportable segments. Selected financial information for our reportable segments was as follows: Three Months Ended September 30, (in millions) Commercial Industries Government Services Transportation Other Unallocated Costs Total 2020 Divestitures Other Revenue $ 518 $ 348 $ 175 $ — $ — $ — $ 1,041 Segment profit (loss) $ 32 $ 122 $ 26 $ — $ 6 $ ( 98 ) $ 88 Segment depreciation and amortization $ 24 $ 6 $ 9 $ — $ — $ 14 $ 53 Adjusted EBITDA $ 56 $ 128 $ 35 $ — $ 6 $ ( 84 ) $ 141 2019 Revenue $ 578 $ 319 $ 201 $ — $ — $ — $ 1,098 Segment profit (loss) $ 60 $ 70 $ 25 $ — $ — $ ( 83 ) $ 72 Segment depreciation and amortization $ 27 $ 7 $ 9 $ — $ — $ 12 $ 55 Adjusted EBITDA $ 87 $ 77 $ 34 $ — $ — $ ( 71 ) $ 127 Nine Months Ended September 30, (in millions) Commercial Industries Government Services Transportation Other Unallocated Costs Total 2020 Divestitures Other Revenue $ 1,610 $ 969 $ 529 $ — $ — $ — $ 3,108 Segment profit (loss) $ 99 $ 282 $ 56 $ — $ 9 $ ( 258 ) $ 188 Segment depreciation and amortization $ 79 $ 19 $ 27 $ — $ — $ 41 $ 166 Adjusted EBITDA $ 178 $ 301 $ 83 $ — $ 2 $ ( 217 ) $ 347 2019 Revenue $ 1,782 $ 970 $ 579 $ 36 $ 1 $ — $ 3,368 Segment profit (loss) $ 198 $ 202 $ 50 $ 1 $ — $ ( 251 ) $ 200 Segment depreciation and amortization $ 76 $ 24 $ 27 $ — $ — $ 33 $ 160 Adjusted EBITDA $ 274 $ 226 $ 81 $ 1 $ — $ ( 218 ) $ 364 CNDT Q3 2020 Form 10-Q 12 Table of Contents (in millions) Three Months Ended September 30, Nine Months Ended September 30, Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2020 2019 2020 2019 Income (Loss) Before Income Taxes $ ( 13 ) $ ( 14 ) $ ( 128 ) $ ( 1,471 ) Reconciling items: Amortization of acquired intangible assets 60 61 180 184 Restructuring and related costs 20 8 56 50 Interest expense 14 20 46 60 Goodwill impairment — — — 1,351 (Gain) loss on divestitures and transaction costs 8 3 14 19 Litigation costs (recoveries), net — 2 20 15 Other (income) expenses, net ( 1 ) ( 8 ) — ( 8 ) Segment Pre-tax Income (Loss) $ 88 $ 72 $ 188 $ 200 Segment depreciation and amortization (including contract inducements) $ 53 $ 55 $ 166 $ 160 CA MMIS charge (credit) — — ( 7 ) — Other adjustments — — — 4 Adjusted EBITDA $ 141 $ 127 $ 347 $ 364 Refer to Note 3 – Revenue for additional information on disaggregated revenues of the reportable segments. Note 5 – Restructuring Programs and Related Costs The Company engages in a series of restructuring programs related to downsizing its employee base, exiting certain activities, outsourcing certain internal functions and engaging in other actions designed to reduce its cost structure and improve productivity. The implementation of the Company's strategic transformation program and various productivity initiatives have reduced the Company's real estate footprint across all geographies and segments resulting in lease terminations, asset impairments and other related costs. Also included in Restructuring and related costs in the table below are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $ 8 million and $ 0 million for the three months ended September 30, 2020 and 2019, respectively, and $ 16 million and $ 18 million for the nine months ended September 30, 2020 and 2019, respectively. Management continues to evaluate the Company's business, and in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed. Costs associated with restructuring, including employee severance and lease termination costs, are generally recognized when it has been determined that a liability has been incurred, which is generally upon communication to the affected employees or exit from the leased facility. In those geographies where we have either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, we recognize employee severance costs when they are both probable and reasonably estimable. Asset impairment costs related to the reduction of our real estate footprint include impairment of operating lease right-of-use (ROU) assets and associated leasehold improvements. A summary of the Company's restructuring program activity during the nine months ended September 30, 2020 and 2019 was as follows: (in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total Accrued Balance at December 31, 2019 $ 15 $ 6 $ — $ 21 Provision 13 19 15 47 Changes in estimates 1 2 — 3 Total Net Current Period Charges (1) 14 21 15 50 Charges against reserve and currency ( 22 ) ( 24 ) ( 15 ) ( 61 ) Accrued Balance at September 30, 2020 $ 7 $ 3 $ — $ 10 CNDT Q3 2020 Form 10-Q 13 Table of Contents (in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total Accrued Balance at December 31, 2018 $ 13 $ 36 $ — $ 49 Provision 22 24 10 56 Changes in estimates ( 5 ) ( 4 ) 1 ( 8 ) Total Net Current Period Charges (1) 17 20 11 48 Charges against reserve and currency ( 17 ) ( 27 ) ( 11 ) ( 55 ) Reclassification to operating lease ROU assets (2) — ( 22 ) — ( 22 ) Accrued Balance at September 30, 2019 $ 13 $ 7 $ — $ 20 __________ (1) Represents amounts recognized within the Consolidated Statements of Income (Loss) for the years shown. (2) Relates to the adoption of the new lease guidance. In addition, the Company recorded professional support costs associated with the strategic transformation program in Restructuring and related costs of $ 2 million and $ 0 million for the three months ended September 30, 2020 and 2019, respectively, and $ 6 million and $ 2 million for the nine months ended September 30, 2020 and 2019, respectively. The following table summarizes the total amount of costs incurred in connection with these restructuring programs by segment: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2020 2019 2020 2019 Commercial Industries $ 4 $ 3 $ 11 $ 14 Government Services — — 1 1 Transportation ( 1 ) — 2 1 Other — ( 1 ) — — Unallocated Costs (1) 15 6 36 32 Total Net Restructuring Charges $ 18 $ 8 $ 50 $ 48 __________ (1) Represents costs related to the consolidation of the Company's data centers, operating lease ROU assets impairment, termination and other costs not allocated to the segments. Note 6 – Debt Long-term debt was as follows: (in millions) September 30, 2020 December 31, 2019 Term loan A due 2022 $ 651 $ 664 Term loan B due 2023 818 824 Revolving credit facility due 2022 150 — Senior notes due 2024 34 34 Finance lease obligations 18 17 Other loans 2 — Principal debt balance 1,673 1,539 Debt issuance costs and unamortized discounts ( 21 ) ( 25 ) Less: current maturities ( 78 ) ( 50 ) Total Long-term Debt $ 1,574 $ 1,464 As of September 30, 2020, the Company has borrowed $ 150 million of its $ 750 million Senior Revolving Credit Facility (Revolver). In addition, the Company has utilized $ 8 million of the Revolver to issue letters of credit. The net Revolver available to be drawn upon as of September 30, 2020 was $ 592 million. CNDT Q3 2020 Form 10-Q 14 Table of Contents At September 30, 2020 and December 31, 2019, the Company was in compliance with all debt covenants related to the borrowings in the table above. Note 7 – Financial Instruments The Company is a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of its business. As a part of the Company's foreign exchange risk management strategy, the Company uses derivative instruments, primarily forward contracts, to hedge the funding of foreign entities which have a non-dollar functional currency, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. At September 30, 2020 and December 31, 2019, the Company had outstanding forward exchange contracts with gross notional values of $ 160 million and $ 207 million, respectively. At September 30, 2020, approximately 76 % of these contracts mature within three months, 9 % in three to six months, 12 % in six to twelve months and 3 % in greater than twelve months. Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on the Company's balance sheet, income statement or cash flows for the periods presented. Refer to Note 8 – Fair Value of Financial Assets and Liabilities for additional information regarding the fair value of the Company's foreign exchange forward contracts. Note 8 – Fair Value of Financial Assets and Liabilities Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP established a hierarchy framework to classify the fair value based on the observability of significant inputs to the measurement. The levels of the fair value hierarchy are as follows: Level 1: Fair value is determined using an unadjusted quoted price in an active market for identical assets or liabilities. Level 2: Fair value is estimated using inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. Level 3: Fair value is estimated using unobservable inputs that are significant to the fair value of the assets or liabilities. Unless noted herein, the Company's valuation methodologies for assets and liabilities measured at fair value are described in Note 13 – Fair Value of Financial Assets and Liabilities to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Summary of Financial Assets and Liabilities Accounted for at Fair Value on a Recurring Basis The following table represents assets and liabilities measured at fair value on a recurring basis. The basis for the measurement at fair value in all cases was Level 2. (in millions) September 30, 2020 December 31, 2019 Assets: Foreign exchange contract - forward $ 2 $ 2 Total Assets $ 2 $ 2 Liabilities: Foreign exchange contracts - forward $ — $ — Total Liabilities $ — $ — CNDT Q3 2020 Form 10-Q 15 Table of Contents Summary of Other Financial Assets and Liabilities The estimated fair values of our other financial assets and liabilities were as follows: September 30, 2020 December 31, 2019 (in millions) Carrying Amount Fair Value Carrying Amount Fair Value Liabilities: Long-term debt $ 1,574 $ 1,455 $ 1,464 $ 1,449 Contingent consideration payable $ — $ — $ 4 $ 4 The fair value amounts for Cash and cash equivalents, Restricted cash, Accounts receivable, net and Short-term debt approximate carrying amounts due to the short-term maturities of these instruments. The fair value of Long-term debt was estimated based on the current rates offered to the Company for debt of similar maturities (Level 2). The fair value of the contingent consideration payable related to the HSP acquisition was measured using a Monte Carlo simulation model and calibrated to management’s financial projections of the acquired business. The value of the contingent consideration payable is then estimated to be the arithmetic average of all simulation paths, discounted to the valuation date (Level 3). The changes in the fair value are recorded in Other income (expense), net on the Condensed Consolidated Statements of Income (Loss). During the third quarter of 2020, the contingent consideration payable was settled. Note 9 – Employee Benefit Plans The Company has post-retirement savings and investment plans in several countries, including the U.S., U.K. and Canada. In many instances, employees from those defined benefit pension plans that have been amended to freeze future service accruals were transitioned to an enhanced defined contribution plan. In these plans, employees are allowed to contribute a portion of their salaries and bonuses to the plans. Historically, the Company matched a portion of employee contributions. However, beginning in 2019, the Company suspended its match to the 401(k) plan for all U.S. salaried employees. Additionally, during the second quarter of 2020, the Company extended the suspension of its match to the 401(k) plan to also include all U.S. hourly employees. The Company recognized an expense related to its defined contribution plans of $ 1 million and $ 2 million for the three months ended September 30, 2020 and 2019, respectively, and $ 2 million and $ 7 million for the nine months ended September 30, 2020 and 2019, respectively. Note 10 – Accumulated Other Comprehensive Loss (AOCL) Below are the balances and changes in AOCL (1) : (in millions) Currency Translation Adjustments Gains (Losses) on Cash Flow Hedges Defined Benefit Pension Items Total Balance at December 31, 2019 $ ( 408 ) $ 3 $ ( 2 ) $ ( 407 ) Other comprehensive income (loss) before reclassifications ( 15 ) — 1 ( 14 ) Amounts reclassified from accumulated other comprehensive loss — — — — Net current period other comprehensive income (loss) ( 15 ) — 1 ( 14 ) Balance at September 30, 2020 $ ( 423 ) $ 3 $ ( 1 ) $ ( 421 ) CNDT Q3 2020 Form 10-Q 16 Table of Contents (in millions) Currency Translation Adjustments Gains (Losses) on Cash Flow Hedges Defined Benefit Pension Items Total Balance at December 31, 2018 $ ( 426 ) $ 2 $ ( 1 ) $ ( 425 ) Other comprehensive income (loss) before reclassifications ( 9 ) 1 — ( 8 ) Amounts reclassified from accumulated other comprehensive loss 15 — ( 1 ) 14 Net current period other comprehensive income (loss) 6 1 ( 1 ) 6 Balance at September 30, 2019 $ ( 420 ) $ 3 $ ( 2 ) $ ( 419 ) __________ (1) All amounts are net of tax. Tax effects were immaterial. Note 11 – Contingencies and Litigation As more fully discussed below, the Company is involved in a variety of claims, lawsuits, investigations and proceedings concerning a variety of matters, including: governmental entity contracting, servicing and procurement law; intellectual property law; employment law; commercial and contracts law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing its litigation, regulatory and other matters using available information. The Company develops its view on estimated losses in consultation with outside counsel handling its defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments in any of these matters cause a change in the Company's determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts in excess of any accrual for such matter or matters, this could have a material adverse effect on the Company's results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs. The Company believes it has recorded adequate provisions for any such matters as of September 30, 2020. Litigation is inherently unpredictable, and it is not possible to predict the ultimate outcome of these matters and such outcome in any such matters could be in excess of any amounts accrued and could be material to the Company's results of operations, cash flows or financial position in any reporting period. Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates when the Company undertakes an obligation to guarantee the performance of others if specified triggering events occur. Nonperformance under a contract could trigger an obligation of the Company. These potential claims include actions based upon alleged exposures to products, real estate, intellectual property such as patents, environmental matters and other indemnifications. The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the condensed consolidated financial position or liquidity. As of September 30, 2020, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees. Litigation Against the Company State of Texas v. Xerox Corporation, Conduent Business Services, LLC (f/k/a Xerox Business Services, LLC), Conduent State Healthcare, LLC (f/k/a Xerox State Healthcare, LLC, f/k/a ACS State Healthcare, LLC) and Conduent Incorporated: On May 9, 2014, the State of Texas, via the Texas Office of Attorney General (the “State”), filed a lawsuit in the 53rd Judicial District Court of Travis County, Texas. The lawsuit alleged that Conduent State Healthcare LLC (f/k/a Xerox State Healthcare, LLC and ACS State Healthcare) (“CSH”), Conduent Business Services LLC (“CBS”) and Conduent Incorporated (“CI”) (collectively, CSH, CBS and CI are referred to herein as the "Conduent Defendants") and Xerox Corporation (together with the Conduent Defendants, the “Defendants”) violated the Texas Medicaid Fraud Prevention Act in the administration of its contract with the Texas Department of Health and Human Services (“HHSC”). In February 2019 a settlement agreement and release was reached among the Defendants, the State and HHSC which was amended in May 2019 ("Texas Agreement"). Pursuant to the terms of the Texas Agreement, the Conduent Defendants were required to pay the State of Texas $ 236 million, of which $ 118 million was paid in 2019 and $ 118 million paid in January 2020. The case has been dismissed with prejudice with a full release and discharge of the Defendants. CNDT Q3 2020 Form 10-Q 17 Table of Contents Employees’ Retirement System of the Puerto Rico Electric Power Authority et al v. Conduent Inc. et al.: On March 8, 2019, a putative class action lawsuit alleging violations of certain federal securities laws in connection with our statements and alleged omissions regarding our financial guidance and business and operations was filed against us, our former Chief Executive Officer, and our Chief Financial Officer in the United States District Court for the District of New Jersey. The complaint seeks certification of a class of all persons who purchased or otherwise acquired our securities from February 21, 2018 through November 6, 2018, and also seeks unspecified monetary damages, costs, and attorneys’ fees. We moved to dismiss the class action complaint in its entirety. In June 2020, the court denied the motion to dismiss and allowed the claims to proceed. We intend to defend the litigation vigorously. The Company maintains insurance that may cover any costs arising out of this litigation up to the insurance limits, and subject to meeting certain deductibles and to other terms and conditions thereof. The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves. Skyview Capital LLC and Continuum Global Solutions, LLC v. Conduent Business Services, LLC: On February 3, 2020, plaintiffs filed a lawsuit in the Superior Court of New York County, New York. The lawsuit relates to the sale of a portion of CBS's select standalone customer care call center business (the “Business”) to plaintiffs, which sale closed in February 2019. Under the terms of the sale agreement, CBS received approximately $ 23 million of notes from plaintiffs (the “Notes”). The lawsuit alleges various causes of action in connection with the acquisition, including: indemnification for breach of representation and warranty, indemnification for breach of contract and fraud. Plaintiffs allege that their obligation to mitigate damages and their contractual right of set-off permits them to withhold and deduct from any amounts that are owed to CBS under the Notes, and plaintiffs seek a judgement that they have no obligation to pay the Notes. CBS denies all of these allegations, believes that it has strong defenses to all of plaintiffs’ claims and will vigorously defend itself against these claims. In the third quarter of 2020, CBS filed a counterclaim against Skyview Capital LLC seeking the outstanding balance on the Notes, the amounts owed for the Jamaica deferred closing portion of the sale, and other transition services agreement and late rent payment obligations. The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves. Dennis Nasrawi v. Buck Consultants et al.: On October 8, 2009, plaintiffs filed a lawsuit in the Superior Court of California, Stanislaus County, and on November 24, 2009, the case was removed to the U.S. Court for the Eastern District of California, Fresno Division. Plaintiffs allege actuarial negligence against Buck Consultants, LLC (“Buck”), which was a wholly-owned subsidiary of Conduent, for the use of faulty actuarial assumptions in connection with the 2007 actuarial valuation for the Stanislaus County Employees Retirement Association (“StanCERA”). Plaintiffs allege that the employer contribution rate adopted by StanCERA based on Buck’s valuation was insufficient to fund the benefits promised by the County. On July 13, 2012, the Court entered its ruling that the plaintiffs lacked standing to sue in a representative capacity on behalf of all plan participants. The Court also ruled that plaintiffs had adequately pleaded their claim that Buck allegedly aided and abetted StanCERA in breaching its fiduciary duty. Plaintiffs then filed their Fifth Amended Complaint and added StanCERA to the litigation. Buck and StanCERA filed demurrers to the amended complaint. On September 13, 2012, the Court sustained both demurrers with prejudice, completely dismissing the matter and barring plaintiffs from refiling their claims. Plaintiffs appealed, and ultimately the California Court of Appeals (Sixth District) reversed the trial court’s ruling and remanded the case back to the trial court as to Buck only, and only with respect to Plaintiffs' claim of aiding and abetting StanCERA in breaching its fiduciary duty. This case has been stayed pending the outcome of parallel litigation the plaintiffs are pursuing against StanCERA. The parallel litigation was tried before the bench in June 2018, and on January 24, 2019, the court found in favor of StanCERA, holding that it had not breached its fiduciary duty to plaintiffs. On April 26, 2019, Plaintiffs in the parallel litigation filed an appeal. This case remains stayed until the parallel litigation is finally concluded. Absent the court finding that StanCERA breached its fiduciary duty, Plaintiffs’ claim against Buck for aiding and abetting said breach would not appear viable. Buck will continue to aggressively defend these lawsuits. In August 2018, Conduent sold Buck Consultants, LLC; however, the Company retained this liability after the sale. The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves. CNDT Q3 2020 Form 10-Q 18 Table of Contents Conduent Business Services, LLC v. Cognizant Business Services, LLC: On April 12, 2017, CBS filed a lawsuit against Cognizant Business Services Corporation (“Cognizant”) in the Supreme Court of New York County, New York. The lawsuit relates to the Amended and Restated Master Outsourcing Services Agreement effective as of October 24, 2012, and the service delivery contracts and work orders thereunder, between CBS and Cognizant, as amended and supplemented (the “Contract”). The Contract contains certain minimum purchase obligations by CBS through the date of expiration. The lawsuit alleges that Cognizant committed multiple breaches of the Contract, including Cognizant’s failure to properly perform its obligations as subcontractor to CBS under CBS’s contract with the New York Department of Health to provide Medicaid Management Information Systems. In the lawsuit, CBS seeks damages in excess of $ 150 million. During the first quarter of 2018, CBS provided notice to Cognizant that it was terminating the Contract for cause and recorded in the same period certain charges associated with the termination. CBS also alleges that it terminated the Contract for cause, because, among other things, Cognizant violated the Foreign Corrupt Practices Act. Cognizant initially asserted two counterclaims for breach of contract seeking recovery of damages in excess of $ 47 million, which includes amounts allegedly not paid to Cognizant under the Contract and an alleged $ 25 million termination fee. CBS has responded to Cognizant’s counterclaims by denying the allegations. Cognizant subsequently filed a second amended counterclaim seeking an additional $ 43 million to satisfy the minimum revenue commitment attributable to the years 2017-2020, which increased Cognizant's damages claim to approximately $ 90 million. CBS will continue to vigorously defend itself against the counterclaims but the Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves. Other Matters Since 2014, Xerox Education Services, Inc. ("XES") has cooperated with several federal and state agencies regarding a variety of matters, including XES' self-disclosure to the U.S. Department of Education (the "Department") and the Consumer Financial Protection Bureau ("CFPB") that some third-party student loans under outsourcing arrangements for various financial institutions required adjustments. With the exception of an inquiry the Illinois Attorney General's Office commenced in September 2019, the Company has resolved the investigations the CFPB and several state agencies commenced and continues to work with the Department and the U.S. Department of Justice to resolve all outstanding issues, including a number of operational projects that XES discovered and disclosed since 2014. The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which the Company serviced third-party student loans, or another party will not ultimately commence a legal action against XES in which fines, penalties or other liabilities are sought from XES. The Company is not able to predict the likely outcome of these matters, should any such matter be commenced, or reasonably provide an estimate or range of estimates of any loss in excess of currently recorded reserves. The Company could, in future periods, incur judgments or enter into settlements to resolve these potential matters for amounts in excess of current reserves and there could be a material adverse effect on the Company's results of operations, cash flows and financial position in the period in which such change in judgment or settlement occurs. Other Contingencies Certain contracts, primarily in the Company's Government Services and Transportation segments, require the Company to provide a surety bond or a letter of credit as a guarantee of performance. As of September 30, 2020, the Company had $ 601 million of outstanding surety bonds used to secure its performance of contractual obligations with its clients and $ 86 million of outstanding letters of credit issued to secure the Company's performance of contractual obligations to its clients as well as other corporate obligations. In general, the Company would only be liable for the amount of these guarantees in the event of default in the Company's performance of its obligations under each contract. The Company believes it has sufficient capacity in the surety markets and liquidity from its cash flow and its various credit arrangements (including its Revolver) to allow it to respond to future requests for proposals that require such credit support. CNDT Q3 2020 Form 10-Q 19 Table of Contents Note 12 – Preferred Stock Series A Preferred Stock In December 2016, the Company issued 120,000 shares of Series A convertible perpetual preferred stock with an aggregate liquidation preference of $ 120 million and an initial fair value of $ 142 million. The convertible preferred stock earns quarterly cash dividends at a rate of 8 % per year ($ 9.6 million per year). Each share of convertible preferred stock is convertible at any time, at the option of the holder, into 44.9438 shares of common stock for a total of 5,393,000 shares (reflecting an initial conversion price of approximately $ 22.25 per share of common stock), subject to customary anti-dilution adjustments. Note 13 – Earnings per Share We did not declare any common stock dividends in the periods presented. The following table sets forth the computation of basic and diluted earnings per share of common stock: Three Months Ended September 30, Nine Months Ended September 30, (in millions, except per share data in whole dollars and shares in thousands) 2020 2019 2020 2019 Net income (loss) $ ( 7 ) $ ( 16 ) $ ( 107 ) $ ( 1,353 ) Dividend - preferred stock ( 2 ) ( 2 ) ( 7 ) ( 7 ) Adjusted Net Income (Loss) Available to Common Shareholders $ ( 9 ) $ ( 18 ) $ ( 114 ) $ ( 1,360 ) Weighted average common shares outstanding 209,244 209,626 209,958 208,741 Common shares issuable with respect to: Stock options — — — — Restricted stock and performance units / shares — — — — Adjusted Weighted Average Common Shares Outstanding 209,244 209,626 209,958 208,741 Net Income (Loss) per Share: Basic $ ( 0.04 ) $ ( 0.09 ) $ ( 0.54 ) $ ( 6.52 ) Diluted $ ( 0.04 ) $ ( 0.09 ) $ ( 0.54 ) $ ( 6.52 ) CNDT Q3 2020 Form 10-Q 20 Table of Contents Note 14 – Supplementary Financial Information The components of Other assets and liabilities were as follows: (in millions) September 30, 2020 December 31, 2019 Other Current Assets Prepaid expenses $ 82 $ 70 Income taxes receivable 48 38 Value-added tax (VAT) receivable 24 20 Restricted cash 8 9 Net receivable from buyers of divested businesses 52 52 Other 98 94 Total Other Current Assets $ 312 $ 283 Other Current Liabilities Accrued liabilities $ 253 $ 309 Litigation related accruals 73 178 Current operating lease liabilities 81 91 Restructure reserves 5 15 Income tax payable 9 11 Other taxes payable 17 16 Other 40 27 Total Other Current Liabilities $ 478 $ 647 Other Long-term Assets Internal use software, net $ 158 $ 150 Deferred contract costs, net 75 84 Product software, net 61 40 Capitalized cloud computing implementation costs, net 41 40 Other 67 73 Total Other Long-term Assets $ 402 $ 387 Other Long-term Liabilities Deferred payroll tax related to the CARES Act (1) $ 32 $ — Income tax liabilities 13 20 Unearned income 20 21 Restructuring reserves 5 6 Other 35 44 Total Other Long-term Liabilities $ 105 $ 91 __________ (1) CARES ACT – Coronavirus Aid, Relief, and Economic Security Act. CNDT Q3 2020 Form 10-Q 21 Table of Contents Note 15 – Related Party Transactions During the third quarter of 2019, Carl C. Icahn and his affiliates (shareholders) increased their ownership interest in the Company. In the normal course of business, the Company provides services to, and purchases from, certain related parties with the same shareholders. The services provided to these entities included those related to human resources, end-user support and other services and solutions. The purchases from these entities included office equipment and related services and supplies. In addition, we have a receivable related to certain income tax matters with our former parent company, Xerox Corporation. Revenue and purchases from these entities were included in Revenue and Costs of services / Selling, General and administrative, respectively, on the Company's Condensed Consolidated Statements of Income (Loss). Transactions with related parties were as follows: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2020 2019 2020 2019 Revenue from related parties $ 6 $ 7 $ 19 $ 24 Purchases from related parties $ 4 $ 4 $ 12 $ 22 The Company's receivable and payable balances with related party entities were not material as of September 30, 2020 and December 31, 2019 . Note 16 – Goodwill The following table presents the changes in the carrying amount of goodwill, by reportable segments: (in millions) Commercial Industries Government Services Transportation Total Balance at December 31, 2019 $ 821 $ 621 $ 60 $ 1,502 Foreign currency translation 2 ( 3 ) 5 4 Balance at September 30, 2020 $ 823 $ 618 $ 65 $ 1,506 In the first, second and third quarters of 2020, the Company performed its ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair values of any of our reporting units were less than their carrying values. Consequently, we determined that it was not necessary to perform an interim impairment test for any of our reporting units. To the extent the COVID-19 pandemic continues to disrupt the economic environment, such as a decline in the performance of the reporting units or loss of a significant contract or multiple significant contracts, the fair value of one or more of the reporting units could fall below their carrying value, resulting in a goodwill impairment charge. In addition, the Company has assessed whether any impairment of its amortizable assets existed and has determined that no charges were deemed necessary under applicable accounting standards as of September 30, 2020. CNDT Q3 2020 Form 10-Q 22 Table of Contents