What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-23 compared with 2021-02-24 · 268 added, 248 removed, 1162 unchanged (31% of the section changed)

8 unchanged sentences

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment

Goodwill Impairment Assessment – Reporting Units Within the Commercial Industries Reportable Segment

As described in Notes 1 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,339 million as of December 31, 2021.

The goodwill associated with the Commercial Industries reportable segment, Government Services reportable segment and Transportation reportable segment was $837 million, $623 million and $68 million, respectively.

The goodwill associated with the Commercial Industries reportable segment was $661 million.

Management tests goodwill for impairment annually or more frequently if an event or change in circumstances indicate the asset may be impaired.

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There was no impairment identified for the year ended December 31, 2021.

As disclosed by management, the most significant assumptions used in the goodwill analysis relate to the long-term organic growth rates as well as the discount rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are (i) the significant judgment by management when determining the fair value measurement of the reporting units;

(ii) a high degree of auditor judgment, effort, and subjectivity in performing procedures to evaluate management’s cash flow projections and significant assumptions related to the long-term organic growth rates and the discount rates;

As disclosed by management, the most significant assumptions used in the goodwill analysis relate to the long-term organic growth rate as well as the discount rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the reporting units within the Commercial Industries reportable segment is a critical audit matter are (i) the significant judgment by management when determining the fair value of the reporting units;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s significant assumptions related to the long-term organic growth rate and the discount rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the Company’s goodwill impairment assessment, including controls over the determination of the fair value of the Company’s reporting units.

These procedures also included, among others, testing management’s process for determining the fair value estimate;

These procedures also included, among others, testing management’s process for determining the fair value of the reporting units within the Commercial Industries reportable segment;

evaluating the appropriateness of the discounted cash flow analysis;

CNDT 2021 Annual Report

testing the completeness, accuracy and relevance of underlying data used in the estimate;

and evaluating the significant assumptions used by management related to the long-term organic growth rates and the discount rates.

Evaluating management’s assumptions related to the long-term organic growth rates involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of each reporting unit;

testing the completeness and accuracy of underlying data used in the discounted cash flow analysis;

and evaluating the significant assumptions used by management related to the long-term organic growth rate and the discount rates.

Evaluating management’s significant assumption related to the long-term organic growth rate involved evaluating whether the long-term organic growth rate used was reasonable considering (i) the current and past performance of each reporting unit;

(ii) the consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow analysis and certain significant assumptions, including the discount rates.

and (iii) whether the long-term organic growth rate assumption was consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow analysis and in the evaluation of the reasonableness of the long-term organic growth rate and the discount rate significant assumptions.

/s/ PricewaterhouseCoopers LLP

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The independent registered public accountants and internal auditors have free access to the Audit Committee.

/s/ CLIFFORD SKELTON /s/ BRIAN WEBB-WALSH /s/ STEPHEN WOOD

Chief Executive Officer Chief Financial Officer Corporate Controller & Principal Accounting Officer

/s/ CLIFFORD SKELTON /s/ STEPHEN WOOD

Chief Executive Officer Chief Financial Officer & Principal Accounting Officer

CNDT 2021 Annual Report

36 unchanged sentences

Other Comprehensive Income (Loss), Net ( 31 ) 9 18

Comprehensive Loss, Net $ ( 109 ) $ ( 1,916 ) $ ( 342 )

Comprehensive Income (Loss), Net $ ( 59 ) $ ( 109 ) $ ( 1,916 )

(1) All amounts are net of tax.

8 unchanged sentences

Accounts receivable, net 699 670

Assets held for sale 184 —

Contract assets 154 151

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Unearned income 82 133

Liabilities held for sale 29 —

Other current liabilities 443 450

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Cash Flows from Operating Activities:

Net income (loss) $ ( 118 ) $ ( 1,934 ) $ ( 416 )

Adjustments required to reconcile net income (loss) to cash flows from operating activities:

Net loss $ ( 28 ) $ ( 118 ) $ ( 1,934 )

Adjustments required to reconcile net loss to cash flows from operating activities:

Depreciation and amortization 352 459 459

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Goodwill impairment — — 1,952

Write-off of implementation costs 28 — —

Deferred income taxes ( 21 ) ( 21 ) ( 220 )

Loss from investments ( 3 ) ( 4 ) ( 2 )

(Gain) loss from investments 5 ( 3 ) ( 4 )

Amortization of debt financing costs 6 7 7

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Stock-based compensation 21 20 24

Allowance for doubtful accounts 2 3 —

Allowance for credit losses 1 2 3

Changes in operating assets and liabilities:

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Other current and long-term assets ( 44 ) ( 36 ) ( 14 )

Accounts payable and accrued compensation 39 ( 15 ) ( 14 )

Restructuring liabilities — 10 8

Accounts payable and accrued compensation and benefits costs 23 39 ( 15 )

Other current and long-term liabilities ( 68 ) ( 174 ) ( 247 )

Net change in income tax assets and liabilities ( 4 ) ( 8 ) 3

Other operating, net — — ( 4 )

Net cash provided by (used in) operating activities 243 161 132

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Payments for acquisitions, net of cash acquired — — ( 90 )

Proceeds (payments) from divestitures, net of cash 5 ( 7 ) 675

Other investing, net — — ( 4 )

Proceeds from divestitures 5 5 ( 7 )

Net cash provided by (used in) investing activities ( 142 ) ( 134 ) ( 310 )

Cash Flows from Financing Activities:

Proceeds from revolving credit facility and other loans 155 — —

Proceeds from revolving credit facility 100 150 —

Payments on revolving credit facility — ( 150 ) —

Proceeds from the issuance of debt, net 1,299 5 —

Payments on debt ( 1,500 ) ( 55 ) ( 54 )

Debt issuance fee payments — — ( 3 )

Debt issuance costs ( 9 ) — —

Premium on debt redemption ( 2 ) — —

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Dividend - preferred stock, $80/per share — — ( 10 ) — ( 10 )

Cumulative effect of accounting change - revenue standard — — 17 — 17

Reclassification of amounts impacted by Tax Reform — — 5 ( 5 ) —

Cumulative effect of accounting change - lease standard — — ( 8 ) — ( 8 )

Stock option and incentive plans, net — 12 — — 12

5 unchanged sentences

Dividend - preferred stock, $80/per share — — ( 10 ) — ( 10 )

Cumulative effect of accounting change - lease standard — — ( 8 ) — ( 8 )

Stock option and incentive plans, net — 9 — — 9

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Through people, process, expertise in transaction-intensive processing and technology such as analytics and automation, Conduent's services and solutions 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.

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 solutions and payment services.

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All intercompany transactions and balances have been eliminated.

The Company has evaluated subsequent events through February 24, 2021 and no material subsequent events were identified.

The Company has evaluated subsequent events through February 23, 2022.

Conduent Incorporated is a New York corporation, organized in 2016.

Our common stock began trading on January 3, 2017, on the New York Stock Exchange, under the ticker "CNDT".

Its common stock began trading on January 3, 2017, on the New York Stock Exchange, under the ticker "CNDT".

In December 2019, Conduent changed the listing of its publicly traded common stock from the New York Stock Exchange to the NASDAQ Global Select Market (NASDAQ), where it remains listed under the ticker "CNDT".

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The Company prepared the Consolidated Financial Statements using financial information available at the time of preparation, which requires it to make estimates and assumptions that affect the amounts reported.

The Company's most significant estimates pertain to the intangible assets, valuation of goodwill, contingencies and litigation and income taxes.

The Company's most significant estimates pertain to intangible assets, valuation of goodwill, contingencies and litigation and income taxes.

These estimates are based on management's best knowledge of current events, historical experience, and on various other assumptions that are believed to be reasonable under the circumstances.

As a result, actual results may be different from these estimates.

As of December 31, 2020, the impact of the outbreak of the 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.

As of December 31, 2021, the impact of the COVID-19 pandemic, the mitigating impact of the rollout of a vaccine for it and fluctuating cases of new variants of the virus continue to unfold.

As a result, many of the Company's estimates and assumptions continue to require increased judgment and carry a higher degree of variability and volatility.

As events continue to evolve and additional information becomes available, the Company's estimates may change materially in the future.

CNDT 2021 Annual Report

New Accounting Standards

Income Taxes :

In December 2019, the Financial Accounting Standards Board (FASB) issued final guidance that simplifies the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification (ASC) 740, Income Taxes.

The Company has analyzed the guidance and this guidance is not expected to have a material impact on the Company's income tax provision.

The Company is not early adopting the guidance;

as such, the guidance will be effective beginning in tax year 2021.

The Company has considered all recent accounting standards issued, but not yet effective, and does not expect any to have a material impact on the Company's Consolidated Financial Statements.

Recently Adopted Accounting Standards

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.

In March 2020, the Financial Accounting Standards Board (FASB) issued updated guidance relating to the accounting for the discontinuation of the London Inter-bank Offered Rate (LIBOR), referred to as reference rate reform.

This guidance provides optional 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.

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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.

Recently Adopted Accounting Standards

Credit Losses:

In June 2016, the 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 Company adopted the new guidance as of January 1, 2020 and the adoption of the new guidance did not have a material impact on its Consolidated Financial Statements.

The Company adopted the reference rate reform guidance on a retrospective basis as of January 1, 2021.

The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

Income Taxes:

In December 2019, the FASB issued final guidance that simplified the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification (ASC) 740, Income Taxes.

This final guidance was effective for fiscal years beginning January 1, 2021.

The Company adopted the final income taxes guidance as of January 1, 2021.

The adoption did not have a material impact on the Company's Consolidated Financial Statements.

The American Rescue Plan Act, which became law in March 2021, added a new subsection to Section 162(m) of the Internal Revenue Code to expand the application of Section 162(m) to an additional five most highly compensated individuals.

The expansion of Section 162(m) coverage is effective for tax years beginning after December 31, 2026.

This expansion does not have an impact in the current year.

The Company will monitor any potential impacts going forward.

Summary of Accounting Policies

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Refer to Note 5 – Accounts Receivable, Net for more details on the Company's receivable sales.

Assets/Liabilities Held for Sale

The Company classifies assets as held for sale in the period when the following conditions are met:

(i) management, having the authority to approve the action, commits to a plan to sell the asset (disposal group);

(ii) the asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (disposal group);

(iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated;

(iv) the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset (disposal group) beyond one year;

(v) the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value;

and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

CNDT 2021 Annual Report

A long-lived asset (disposal group) that is classified as held for sale is initially measured at the lower of its carrying value or fair value less any costs to sell.

Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met.

Conversely, gains are not recognized on the sale of a long-lived asset (disposal group) until the date of sale.

The fair value of a long-lived asset (disposal group) less any costs to sell is assessed each reporting period it remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value of the asset (disposal group), as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale.

On December 29, 2021, the Company signed a definitive agreement to sell its Midas Suite of Solutions to Symplr Software, Inc.

This action was taken because of the Company's strategy to streamline its portfolio and its consideration of divestitures of select businesses to enhance shareholder and client value.

As of December 31, 2021, the Company determined that this business met the conditions discussed above to be classified as held for sale.

Refer to Note 4 – Assets/Liabilities Held for Sale and Divestiture for further discussion.

Land, Buildings and Equipment

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Amounts incurred for Internal Use Software are included in Cash Flows from Investing Activities.

CNDT 2020 Annual Report

Produc t Software :

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These costs are amortized on a straight-line basis over the estimated economic life of the software.

Amounts incurred for Product Software are included in Cash Flows from Operations.

The Company performs annual reviews to ensure that unamortized Product Software costs remain recoverable from estimated future operating profits (net realizable value or NRV).

Amounts incurred for Product Software are included in Cash Flows from Operating activities.

The Company performs annual reviews to ensure that unamortized Product Software costs remain recoverable from estimated future operating profits (net realizable value).

Costs to support or service licensed software are charged to Costs of services as incurred.

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The amortization expense and the associated hosting fees are included in Cost of services and Selling, general and administrative expenses, depending on the nature of the underlying use of the cloud computing arrangement, in the Company’s Consolidated Statements of Income (Loss).

In the fourth quarter of 2021, the Company wrote-off approximately $ 28 million of previously capitalized implementation costs.

Refer to Note 6 – Land, Buildings, Equipment and Software, Net for further information.

CNDT 2021 Annual Report

The Company adopted the new lease guidance as of January 1, 2019, using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented.

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For the Company’s business acquisitions, the purchase price is allocated to identifiable intangible assets separate from goodwill if they are from contractual or other legal rights, or if they could be separated from the acquired business and sold, transferred, licensed, rented or exchanged.

CNDT 2020 Annual Report

The Company tests goodwill for impairment annually or more frequently if an event or change in circumstances indicate the asset may be impaired.

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Refer to Note 8 – Goodwill and Intangible Assets, Net for further information.

CNDT 2021 Annual Report

Impairment of Long-Lived Assets

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The Company's ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can materially increase or decrease its effective tax rate, as well as impact its operating results.

CNDT 2020 Annual Report

On December 22, 2017, the U.S.

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The Company elected to treat the tax on GILTI as a period cost when incurred and therefore, no deferred taxes for GILTI were recognized for the year ended December 31, 2021.

On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law, which provides for coronavirus related tax relief as well as an omnibus appropriations package that extends various expiring tax provisions.

The work opportunity tax credit has been extended through December 31, 2025, and a 100% deduction for the cost of business meals is allowed for 2021 and 2022, which will provide a permanent benefit.

The Consolidated Appropriations Act is not expected to have a material impact on the Company's income tax provision.

Refer to Note 15 – Income Taxes for further discussion.

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Dollar is used as the functional currency for certain foreign subsidiaries that conduct their business in U.S.

A combination of current and historical exchange rates is used in re-measuring the local currency transactions of these subsidiaries and the resulting exchange adjustments are recorded in Currency (gains) and losses within other expenses, net together with other foreign currency re-measurements.

A combination of current and historical exchange rates is used in re-measuring the local currency transactions of these subsidiaries and the resulting exchange adjustments are recorded in Currency (gains) and losses within Other (income) expenses, net together with other foreign currency re-measurements.

Revenue Recognition

The Company adopted the new revenue standard as of January 1, 2018, using the modified retrospective method.

The Company recognizes revenue when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.

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Typically, the Company’s contracts include performance obligation(s) to stand-ready on a daily or monthly basis to provide services to the customers.

Under a stand-ready obligation, the evaluation of the nature of our performance obligation is focused on each time increment rather than the underlying activities.

CNDT 2021 Annual Report

a stand-ready obligation, the evaluation of the nature of our performance obligation is focused on each time increment rather than the underlying activities.

Accordingly, the promise to stand-ready is accounted for as a single-series performance obligation.

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For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis.

The Company generally determines standalone selling prices based on the prices charged to customers or by using expected cost plus margin.

The Company generally determines standalone selling prices based on the prices charged to customers or by using expected cost plus a reasonable margin.

The Company typically satisfies its performance obligations over time as the services are provided.

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The Company has determined that the above methods provide a faithful depiction of the transfer of services to the customer.

CNDT 2020 Annual Report

Estimates of revenue expected to be recognized in future periods exclude unexercised customer options to purchase additional services that do not represent material rights to the customer.

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Disaggregation of Revenue

During the first quarter of 2020, the Company changed how it presents its disaggregated revenue by major service offering.

This change had 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 segments.

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Business Operations Solutions :

The Company helps its clients improve communications with their customers and constituents, whether it is on paper, on-line or through other communication channels.

The Company helps its clients improve communications with their customers and constituents, whether it is on paper, online or through other communication channels.

The Company also offers a broad array of flexible transaction processing services that include data entry, scanning, image processing, enrollment processing, claims processing, high volume offsite print and mail services and file indexing.

CNDT 2020 Annual Report

Company serves clients by managing their critical finance, accounting and procurement processes.

The Company serves clients by managing their critical finance, accounting and procurement processes.

These services include general accounting and reporting, billing and accounts receivable and purchasing, accounts payable and expense management services.

The Company also offers wholesale and retail lockbox services and process auto and mortgage loans in the United States.

CNDT 2021 Annual Report

Commercial Healthcare Solutions :

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Government Services Solutions :

The Company is a leader in government payment disbursements for federally sponsored programs like SNAP, commonly known as food stamps and Women, Infant and Children (WIC) as well as government-initiated cash disbursements such as child support and unemployment benefits.

The Company is a leader in government payment disbursements for federally sponsored programs like SNAP, commonly known as food stamps and WIC as well as government-initiated cash disbursements such as child support and unemployment benefits.

Roadway Charging & Management Services :

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( 48 ) ( 29 )

Net Contract Assets (Unearned Income) $ 2 $ 36

Net Contract Assets $ 32 $ 2

Accounts receivable, net $ 699 $ 670

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(2) Presented in Other long-term liabilities in the Consolidated Balance Sheets

Revenues of $ 101 million and $ 101 million were recognized during the years ended December 31, 2020 and 2019, respectively, related to the Company's unearned income at December 31, 2019 and January 1, 2019.

Revenues of $ 107 million and $ 101 million were recognized during the years ended December 31, 2021 and 2020, respectively, related to the Company's unearned income at December 31, 2020 and December 31, 2019.

The Company had no material asset impairment charges related to contract assets for the year ended December 31, 2021.

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In 2020, the Company realigned its sales organization and certain shared IT and other allocated functions and reallocated certain costs that were previously included in the Shared IT/Infrastructure and Corporate Costs (now referred to as Unallocated Costs) to each of the reportable segments.

All prior periods presented have been recast to reflect these changes.

The Company's financial performance is based on Segment Profit/(Loss) and Segment Adjusted EBITDA for its three reportable segments (Commercial Industries, Government Services and Transportation), Other and Unallocated Costs.

The year ended December 31, 2019 amounts have been recast to reflect these changes.

The Company's financial performance is based on Segment Profit/(Loss) for its three reportable segments (Commercial Industries, Government Services and Transportation), Other and Unallocated Costs.

The Company's CODM does not evaluate operating segments using discrete asset information.

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Segment profit (loss) $ 137 $ 412 $ 75 $ — $ 1 $ ( 388 ) $ 237

Segment depreciation and amortization $ 108 $ 25 $ 35 $ — $ — $ 54 $ 222

Adjusted EBITDA $ 258 $ 397 $ 117 $ — $ 2 $ ( 294 ) $ 480

Revenue $ 2,163 $ 1,281 $ 719 $ — $ — $ — $ 4,163

Segment profit (loss) $ 150 $ 372 $ 82 $ — $ 9 $ ( 348 ) $ 265

Segment depreciation and amortization $ 106 $ 31 $ 35 $ — $ — $ 44 $ 216

Adjusted EBITDA $ 376 $ 311 $ 108 $ 1 $ ( 1 ) $ ( 301 ) $ 494

Revenue $ 2,385 $ 1,263 $ 781 $ 36 $ 2 $ — $ 4,467

Segment profit (loss) $ 270 $ 279 $ 69 $ 1 $ ( 1 ) $ ( 345 ) $ 273

Segment depreciation and amortization $ 108 $ 35 $ 38 $ 7 $ 2 $ 31 $ 221

Adjusted EBITDA $ 454 $ 328 $ 99 $ 105 $ ( 2 ) $ ( 344 ) $ 640

The following is a reconciliation of segment profit (loss)/adjusted EBITDA to income (loss) before income taxes:

The following is a reconciliation of segment profit (loss) to income (loss) before income taxes:

(in millions) Year Ended December 31,

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Other (income) expenses, net 6 1 ( 10 )

Segment Pre-Tax Income (Loss) $ 265 $ 273 $ 422

Segment depreciation and amortization 222 216 221

NY MMIS/HE charge (credit) — 1 ( 3 )

CA MMIS charge (credit) ( 7 ) — —

Other adjustments $ — $ 4 $ —

Adjusted EBITDA $ 480 $ 494 $ 640

CNDT 2020 Annual Report

Segment Profit (Loss) $ 237 $ 265 $ 273

Geographic area data is based upon the location of the subsidiary reporting the revenue or long-lived assets and is as follows for each of the years ended December 31:

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(1) Long-lived assets are comprised of (i) Land, buildings and equipment, net, (ii) Internal use software, net, (iii) Product software, net and (iv) Operating lease right-of-use assets.

Note 4 – Divestiture

CNDT 2021 Annual Report

Note 4 – Assets/Liabilities Held for Sale and Divestiture

Assets/Liabilities Held for Sale

On December 29, 2021, the Company signed a definitive agreement to sell its Midas Suite of patient safety, quality and advanced analytics solutions to Symplr Software, Inc.

(the Buyer), a third party.

The transaction closed on February 8, 2022 for cash consideration of $ 321 million subject to customary working capital adjustments.

This action was taken because of the Company's strategy to streamline its portfolio and its consideration of divestitures of select businesses to enhance shareholder and client value.

The assets and liabilities of this portfolio, collectively referred to as the Disposal Group, have been reclassified as held for sale and measured at the lower of carrying value or fair value less costs to sell.

The Disposal Group is currently reported in the Commercial Industries segment.

The pretax profit of the Disposal Group, excluding unallocated costs, was $30 million, $31 million and $33 million for the years ended December 31, 2021, 2020 and 2019, respectively.

As the consideration for the Disposal Group is greater than the carrying value, the Company will record a gain on the sale of the Midas business in the first quarter of 2022.

The following is a summary of the major categories of assets and liabilities that have been reclassified as held for sale:

(in millions) December 31, 2021

Accounts Receivable, net $ 9

Other current assets 1

Product Software, net 10

Other long-term assets 2

Total Assets held for sale $ 184

Accounts payable $ 1

Accrued compensation and benefits costs 3

Unearned income 24

Other current liabilities 1

Total Liabilities held for sale $ 29

In February 2019, the Company completed the sale of a portfolio of select standalone customer care contracts to Skyview Capital LLC.

During 2019, the Company recorded additional losses and transaction costs of $ 17 million on the sale of this portfolio, reflecting certain changes in estimates that were made when recording the initial charge in 2018.

The revenue generated from this business was $ 36 million for the three months ended March 31, 2019 and $ 439 million for the year ended December 31, 2018.

Note 5 – Business Acquisition

In January 2019, the Company completed the acquisition of Health Solutions Plus (HSP), a software provider of healthcare payer administration solutions, for a total base consideration of $ 90 million and a maximum contingent consideration payment of $ 8 million based on a cumulative achievement over 2 years.

Revenue recorded for the year ended December 31, 2019, was $ 20 million.

Pre-tax income for the year ended December 31, 2019, was $ 6 million.

The Company’s final purchase price allocation for HSP as of the acquisition date was as follows:

(in millions)

Fair Value of Consideration Transferred:

Cash paid $ 90

Contingent consideration payable 7

Total Consideration $ 97

Allocation of Purchase Price:

Net tangible assets $ 10

Developed technology 19

Costs Assigned to Intangible Assets

Customer relationships 18

Trademarks and trade names 1

Total Intangible Assets 68

Total Assets $ 97

The weighted average amortization periods are 7 years, 15 years and 1.5 years for Developed technology, Customer relationships and Trademarks and trade names, respectively.

The acquired goodwill is associated with the Company's Commercial Industries segment.

This acquired goodwill, while tax deductible, includes $ 7 million related to contingent consideration payable that was not tax deductible until it was earned and paid.

During the third quarter of 2020, the contingent consideration payable was settled.

The goodwill recognized is attributable primarily to

The revenue generated from this business was $ 36 million for the three months ended March 31, 2019.

CNDT 2021 Annual Report

expected synergies and the assembled workforce of HSP.

The Developed technology is classified as Product Software within Other long-term assets on the Consolidated Balance Sheets.

The Company has not presented separate results of operations or combined pro forma financial information of the Company and the acquired business because the results of operations of the acquired business are considered immaterial.

Note 5 – Accounts Receivable, Net

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Cash proceeds from these arrangements are included in cash flow from operating activities in the Consolidated Statements of Cash Flows.

A ccounts receivable sales for the years ended December 31, 2020 and 2019 were as follows:

Year Ended December 31,

(in millions) 2020 2019

Accounts receivable sales $ 529 $ 204

Accounts receivable sales for the years ended December 31, 2021 and 2020 were $ 422 million and $ 529 million, respectively.

Note 6 - Land, Buildings, Equipment and Software, Net

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Cloud computing implementation costs, at cost

Impairment charges ( 28 ) —

Accumulated amortization ( 11 ) ( 6 )

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Amortization expense for Cloud computing implementation costs for the years ended December 31, 2021, 2020 and 2019 were $ 2 million, $ 4 million and $ 2 million, respectively.

As a result of the Company’s decision in the fourth quarter of 2021 to abandon an internal project, the Company wrote-off $ 28 million of its previously capitalized implementation costs.

Additionally, in connection with the abandonment of this project, the Company accrued $ 4 million of charges related to remaining hosting fees that would have continued to be incurred without any economic benefit.

The write-off and remaining hosting fee charges are included in Selling, general and administrative on the Consolidated Statements of Income (Loss).

CNDT 2021 Annual Report

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Finance leases $ 5 $ 14 $ 2

Supplemental balance sheet information related to leases was as follows:

CNDT 2021 Annual Report

Supplemental balance sheet information related to leases was as follows:

(in millions) 2021 2020

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The Company's leases generally do not provide an implicit rate;

therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.

therefore, the Company uses its incremental borrowing rate as the discount rate when measuring lease liabilities.

The incremental borrowing rate represents an estimate of the interest rate that the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment.

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December 31, 2021

(in millions) Operating Lease Payments Finance Lease Payments

(in millions) Operating Lease Payments Finance Lease

2022 $ 84 $ 8

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Present value of lease liabilities $ 255 $ 16

As of December 31, 2021, the Company had entered into an additional operating lease agreement for real estate of $ 6 million, which has not commenced and has not been recognized on the Company's Consolidated Balance Sheet.

This operating lease is expected to commence in 2022 with a lease term of 5 years.

CNDT 2021 Annual Report

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Foreign currency translation 16 2 8 26

Acquisitions 49 — — 49

Impairment ( 618 ) ( 754 ) ( 580 ) ( 1,952 )

Other ( 1 ) — — ( 1 )

Balance at December 31, 2020 $ 837 $ 623 $ 68 $ 1,528

Foreign currency translation ( 14 ) ( 6 ) ( 7 ) ( 27 )

Assets Held For Sale ( 162 ) — — ( 162 )

Balance at December 31, 2021 $ 661 $ 617 $ 61 $ 1,339

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This led to actual results being below budget and a further downward revision of the long-term forecast across all the Company's reporting units.

As a consequence of the business performance and the strategy pivot due to changes in management that occurred in the second quarter of 2019, the Company performed an interim goodwill impairment assessment for all its reporting units which resulted in a pre-tax impairment charge of $ 1.1 billion for the three months ended June 30, 2019.

Because of the business performance and the strategy pivot due to changes in management that occurred in the second quarter of 2019, the Company performed an interim goodwill impairment assessment for all its reporting units which resulted in a pre-tax impairment charge of $ 1.1 billion for the three months ended June 30, 2019.

As of December 31, 2019, the Company performed an interim impairment assessment due to a triggering event caused by further unanticipated contract losses within the Government Services reporting unit, and as result, management performed a goodwill impairment assessment for this reporting unit as of December 31, 2019, which resulted in a pre-tax impairment charge of $ 512 million.

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Net intangible assets were $ 52 million at December 31, 2021 of which $ 50 million, $ 2 million and $ 0 million relate to our Commercial Industries, Government Services and Transportation segments, respectively.

Intangible assets were comprised of the following:

Intangible assets were comprised exclusively of Customer relationships as follows:

December 31, 2021 December 31, 2020

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Amortization Net

Customer relationships 12 years $ 2,890 $ 2,703 $ 187 $ 2,920 $ 2,494 $ 426

Technology, patents and non-compete 0 years — — — 1 1 —

Total Intangible Assets $ 2,890 $ 2,703 $ 187 $ 2,921 $ 2,495 $ 426

Total Intangible Assets 12 years $ 1,658 $ 1,606 $ 52 $ 2,890 $ 2,703 $ 187

A mortization expense related to intangible assets was $ 135 million, $ 239 million and $ 246 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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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 operational efficiency improvement initiatives have reduced the Company's real estate footprint across all geographies and segments resulting in lease right-of-use asset impairments and other related costs.

The implementation of the Company's operational efficiency improvement initiatives has reduced the Company's real estate footprint across all geographies and segments resulting in lease right-of-use asset impairments and other related costs.

Also included in Restructuring and Related Costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $ 23 million, $ 23 million and $ 21 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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Charges against reserve and currency ( 26 ) ( 33 ) ( 15 ) ( 74 )

Reclassification to operating lease ROU assets (2)

— ( 22 ) — ( 22 )

Balance at December 31, 2020 $ 3 $ 3 $ — $ 6

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(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.

We also recorded costs related to professional support services associated with the implementation of certain strategic transformation programs of $ 4 million, $ 8 million and $ 4 million during the years ended December 31, 2021, 2020 and 2019, respectively.

The following table summarizes the total amount of costs incurred in connection with these restructuring programs by reportable and non-reportable segments:

CNDT 2020 Annual Report

Year Ended December 31,

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Restricted cash 5 8

Current portion of capitalized cloud computing implementation costs, net 8 5

Net receivable from buyers of divested businesses 53 52

Cloud computing implementation costs, net 6 8

Total Other Current Assets $ 228 $ 306

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Litigation related accruals 64 73

Current operating lease liabilities 81 91

Restructure reserves 1 15

Operating lease liabilities 71 81

Restructuring liabilities 6 1

Income tax payable 10 16

Other taxes payable 14 16

Accrued interest 10 3

Total Other Current Liabilities $ 443 $ 450

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Unearned income 48 29

Restructuring reserves 5 6

Restructuring liabilities — 5

Total Other Long-term Liabilities $ 95 $ 108

(1) The CARES Act allows for deferred payment of the employer-paid portion of social security taxes through the end of 2020, with 50% due on December 31, 2021 and the remainder due on December 31, 2022.

The current portion of this liability is included in Accrued compensation and benefits costs.

(1) The CARES Act allows for deferred payment of the employer-paid portion of social security taxes through the end of 2020, with 50% due on December 31, 2021 (and which the Company paid in December 2021) and the remainder due on December 31, 2022.

As of December 31, 2021, the remaining portion of this liability is classified as current and is included in Accrued compensation and benefits costs.

(2) Represents capitalized costs associated with obtaining or fulfilling a contract with a customer.

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Note 11 – Debt

The Company classifies its debt based on the contractual maturity dates of the underlying debt instruments or as of the earliest put date available to the debt holders.

The Company classifies its debt based on the contractual maturity dates of the underlying debt instruments.

The Company defers costs associated with debt issuance over the applicable term.

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2021 Senior notes due 2029 6.04 % 520 —

2021 Revolving credit facility maturing 2026 2.58 % 100 —

2016 Term loan A due 2022 — 654

2016 Term loan B due 2023 — 816

2016 Senior notes due 2024 — 34

Finance lease obligations 5.01 % 16 20

Other loans 4 —

Other 3.98 % 24 4

Principal Debt Balance $ 1,440 $ 1,528

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Total Long-term Debt $ 1,383 $ 1,420

(1) Represents weighted average effective interest rate which includes the effect of discounts and premiums on issued debt.

(1) Represents weighted average effective interest rate which includes the effect of discounts and debt issuance costs on issued debt.

Scheduled principal payments due on long-term debt for the next five years are as follows:

2021 2022 2023 2024 2025 Total

2022 2023 2024 2025 2026 Thereafter Total

$ 30 $ 27 $ 24 $ 23 $ 327 $ 1,009 $ 1,440

Credit Facility

On December 7, 2016, the Company entered into a senior secured credit agreement (Credit Agreement) among the Company, its subsidiaries:

2016 Credit Facilities

On December 7, 2016, the Company entered into a senior secured credit agreement among the Company, its subsidiaries:

Conduent Business Services, LLC (CBS), Affiliated Computer Services International B.V.

and Conduent Finance, Inc.

(CFI), the lenders party thereto and JP Morgan Chase Bank, N.A., as the administrative agent.

(CFI), the lenders party thereto and JP Morgan Chase Bank, N.A., as the administrative agent (2016 Credit Agreement).

The 2016 Credit Agreement contains senior secured credit facilities (2016 Senior Credit Facilities) consisting of:

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During the first quarter of 2020, the Company borrowed $ 150 million of its $ 750 million 2016 Revolving Credit Facility, which was subsequently fully repaid in December 2020.

As of December 31, 2020, the Company has utilized $ 7 million of its revolving credit facility capacity to issue letters of credit.

The net amount available to be drawn upon under the Credit Agreement as of December 31, 2020 was $743 million.

The Credit Agreement permits the Company to incur incremental term loan borrowings and /or increase commitments under the revolving credit facility, subject to certain limitations and satisfaction of certain conditions.

Currently additional term loans of up to $ 300 million are permitted.

2016 Senior Notes

On December 7, 2016, the Company issued 10.5 % senior secured note (2016 Senior Notes).

The 2016 Senior Notes were jointly and severally guaranteed on a senior unsecured basis by the Company and each of the existing and future domestic subsidiaries of CFI or CBS that guaranteed the obligations under the 2016 Senior Credit Facilities.

Interest was payable semi-annually.

The entire remaining $ 34 million outstanding principal amount of 2016 Senior Notes was redeemed on May 1, 2021.

Additionally, the Company wrote-off debt issuance costs and discounts

CNDT 2021 Annual Report

All obligations under the Credit Agreement are unconditionally guaranteed by the Company, CBS, Conduent Finance, Inc.

(CFI) and the existing and future direct and indirect wholly owned domestic subsidiaries of CBS (subject to certain exceptions).

All obligations under the Credit Agreement, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of CBS and the guarantors under the Credit Agreement (other than the Company and CFI), including a first-priority pledge of all the capital stock of CBS and the subsidiaries of CBS directly held by CBS or the guarantors (other than the Company and CFI) under the Credit Agreement (which pledges, in the case of any foreign subsidiary, will be limited to 65 % of the capital stock of any first-tier foreign subsidiary).

The Credit Agreement contains certain customary affirmative and negative covenants, restrictions and events of default.

The Credit Agreement requires the total net leverage ratio for December 31, 2020 and thereafter not to exceed 3.75 to 1.00.

The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by the Company and each of the existing and future domestic subsidiaries of CFI or CBS that guarantee the obligations under the Senior Credit Facilities.

related to the 2016 Senior Notes of $ 2 million which is included in Loss on extinguishment of debt in the Consolidated Statements of Income (Loss) for the year ended December 31, 2021.

2021 Credit Facilities

On October 15, 2021, the Company refinanced its 2016 Senior Credit Facilities by entering into a new senior secured credit agreement among the Company, its subsidiaries CBS, Conduent State & Local Solutions, Inc.

(CSLS) and Affiliated Computer Services International B.V., the lenders party thereto and Bank of America, N.A., as the administrative agent (2021 Credit Agreement).

The 2021 Credit Agreement contains senior secured credit facilities (2021 Senior Credit Facilities) consisting of:

(i) Senior Secured Term Loan A (2021 Term Loan A) with an aggregate principal amount of $ 265 million;

(ii) Senior Secured Term Loan B (2021 Term Loan B) with an aggregate principal amount of $ 515 million;

(iii) Senior Revolving Credit Facility maturing 2026 (2021 Revolving Credit Facility) with an aggregate available amount of $ 550 million including a sub-limit for up to $ 300 million available for the issuance of letters of credit.

As of December 31, 2021, the Company has borrowed $ 100 million of its $ 550 million 2021 Revolving Credit Facility and utilized $ 20 million of its revolving credit facility capacity to issue letters of credit.

The net amount available to be drawn upon under the 2021 Revolving Credit Facility as of December 31, 2021, was $ 430 million.

The 2021 Credit Agreement permits the Company to request incremental term loan borrowings and /or increase commitments, subject to certain limitations and satisfaction of certain conditions.

Borrowings under the 2021 Term Loan A, the 2021 Term Loan B and the 2021 Revolving Credit Facility bear interest, at the Issuers’ option, at a rate per annum equal to an applicable margin over a base rate or a Eurocurrency rate, depending on the type of loan.

The applicable margin for the 2021 Term Loan A and the 2021 Revolving Credit Facility for Eurocurrency loans range from 1.75% to 2.75% per annum, depending on certain leverage ratios and for base rate loans range from 0.75% to 1.75% per annum.

The margin at December 31, 2021 was 2.25 %.

The applicable margin for the 2021 Term Loan B for Eurocurrency loans is 4.25% per annum and for base rate loans is 3.25% per annum.

The margin at December 31, 2021 was 4.25 %.

In addition to paying interest on outstanding principal under the 2021 Revolving Credit Facility, the Company is required to pay a commitment fee of 0.4 % per annum to the lenders in respect of unutilized commitments thereunder.

Under the terms of the 2021 Credit Agreement, in the event there is a benchmark transition, the Eurocurrency rate will reference the benchmark replacement rate as defined in the 2021 Credit Agreement.

The Company does not anticipate this transition will have any material impact on its consolidated financial statements.

All obligations under the 2021 Credit Agreement are unconditionally guaranteed by the Company, CBS and CSLS, and the existing and future direct and indirect wholly owned domestic restricted subsidiaries of CBS (subject to certain exceptions).

All obligations under the 2021 Credit Agreement are secured, subject to certain exceptions, by a first-priority pledge of substantially all assets of CBS and the subsidiary guarantors, and all of the capital stock of CBS and each of CBS' wholly owned material restricted subsidiaries directly held by CBS and CSLS or a subsidiary guarantor (which pledges, in the case of any foreign subsidiary, are limited to 65% of the capital stock of any first-tier foreign subsidiary).

The 2021 Credit Agreement contains certain customary affirmative and negative covenants, restrictions, prepayment terms and events of default.

It requires the consolidated first lien net leverage ratio not to exceed 3.50 to 1.00.

This covenant applies to the 2021 Term Loan A and 2021 Revolving Credit Facility.

The covenant is tested on the last day of any fiscal quarter commencing with the first full fiscal quarter after the closing date.

Therefore the first time the test will be performed is as of March 31, 2022.

2021 Senior Notes

Concurrent with the 2021 Credit Agreement, on October 15, 2021, CBS and CSLS (collectively, the Issuers) issued 6.00 % fixed rate senior notes due 2029 (2021 Senior Notes).

The 2021 Senior Notes are guaranteed on a senior secured basis by the Company and existing and future material direct and indirect wholly owned domestic subsidiaries of CBS that guaranteed the obligations under the 2021 Senior Credit Facilities.

CNDT 2021 Annual Report

Interest is payable semi-annually.

The Issuers may redeem the Senior Notes, in whole or in part, at any time on or after December 15, 2020, at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to but excluding the redemption date.

No Senior Notes were redeemed between December 15, 2020 and December 31, 2020.

Prior to November 1, 2024, the Issuers can redeem the 2021 Senior Notes, in whole or in part, at a price equal to the principal amount of the 2021 Senior Notes, plus a make-whole premium plus accrued and unpaid interest.

The Issuers can redeem the 2021 Senior Notes, in whole or in part, at any time on or after November 1, 2024, at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, up to but excluding the redemption date.

In addition, the Company may be required to make an offer to purchase the notes upon the sale of certain assets and upon a change of control.

No 2021 Senior Notes were redeemed between October 15, 2021 and December 31, 2021.

Debt Issuance Costs and Discount

In connection with the refinancing, the Company recorded deferred discounts and debt issuance costs of $ 30 million.

Additionally, the Company wrote-off debt issuance costs and discounts related to the 2016 Senior Credit Facilities of $ 13 million which is included in Loss on extinguishment of debt in the Consolidated Statements of Income (Loss) for the year ended December 31, 2021.

Use of Proceeds

The net proceeds of the 2021 Senior Credit Facilities and the 2021 Senior Notes were used to refinance entirely the balance of borrowings outstanding under the 2016 Senior Credit Facilities on the Closing Date and to pay related fees and expenses.

Interest paid on short-term and long-term debt amounted to $ 40 million, $ 51 million, $ 69 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows.

The Company manages its exposure to these market risks through regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.

The Company manages its exposure to these market risks through regular operating and financing activities and, when appropriate, using derivative financial instruments.

These derivative financial instruments are utilized to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates.

The Company enters into limited types of derivative contracts to manage foreign currency exposures that it hedges.

The Company enters limited types of derivative contracts to manage foreign currency exposures that it hedges.

The primary foreign currency market exposures include the Philippine Peso and Indian Rupee.

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Long-term debt $ 1,383 $ 1,374 $ 1,420 $ 1,378

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.

In January 2019, the Company completed the acquisition of Health Solutions Plus (HSP), a software provider of

healthcare payer administration solutions, for a total base consideration of $ 90 million and a maximum contingent

consideration payment of $ 8 million based on a cumulative achievement over 2 years.

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.

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Defined Benefit Plans

In 2018, all the U.S.

and the majority of the international plan assets and obligations were sold as part of the divestiture of the U.S.

human resource consulting and actuarial business and the human resource consulting and outsourcing business located in Canada and the U.K.

The Company's remaining benefit obligations and plan assets at December 31, 2021 were $ 16 million and $ 1 million, respectively.

The Company's remaining benefit obligations and plan assets at December 31, 2019 were $ 14 million and $ 2 million, respectively.

The Company's benefit obligations and plan assets at December 31, 2020 were $ 13 million and $ 2 million, respectively.

Defined Contribution Plans

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Note 15 - Income Taxes

L oss before income taxes (pre-tax income (loss)) was as follows:

Loss before income taxes (pre-tax income (loss)) was as follows:

Year Ended December 31,

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( 11.1 ) % ( 0.9 ) % ( 0.2 ) %

Divestitures (2)

2.1 % — % 0.2 %

Goodwill impairment (3)

Impairments (2)

( 3.1 ) % — % ( 14.1 ) %

Unrecognized tax benefits 0.8 % ( 1.2 ) % ( 0.3 ) %

Audit and other tax return adjustments ( 5.3 ) % 0.1 % 0.2 %

Other — % 0.8 % ( 0.4 ) %

Audit and other tax adjustments ( 22.9 ) % ( 5.3 ) % 0.1 %

Excess tax benefits 7.5 % — % — %

2.1 % — % 0.8 %

Effective Income Tax Rate ( 9.7 ) % 15.1 % 8.2 %

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subsidiaries.

(2) 2018 divestitures include nondeductible goodwill allocated to divested businesses.

(3) Goodwill impairment represents adjustments for impairment of non-deductible component of goodwill.

On a consolidated basis, the Company received a refund of $( 1 ) million and paid a total of $ 46 million and $ 108 million in income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2020, 2019 and 2018, respectively.

(2) I mpairment represents adjustments for impairment of an equity investment and the non-deductible component of goodwill.

(3) In 2021, the "Other" line includes two reconciling items above 5% of the federal statutory rate.

The impact to the effective rate is driven by the low pretax book income in 2021, and these items are otherwise immaterial.

As such, the Company believes it is appropriate for these items to remain in “Other”.

On a consolidated basis, the Company paid $ 25 million, received a refund of $ 1 million and paid $ 46 million in combined income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2021, 2020 and 2019, respectively.

Unrecognized Tax Benefits and Audit Resolutions

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— ( 4 ) ( 1 )

Currency — — ( 2 )

Balance at December 31 $ 23 $ 23 $ 24

_______________

(1) 2020 and 2019 settlement resulted in $ 4 million and $ 1 million cash paid, respectively .

The Company maintains offsetting benefits from other jurisdictions of $ 12 million, $ 15 million and $ 16 million, at December 31, 2021, 2020 and 2019, respectively.

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Total $ 238 $ 285

Total Deferred Taxes, Net $ ( 74 ) $ ( 94 )

Total Deferred Tax Assets (Liabilities), Net $ ( 55 ) $ ( 74 )

The deferred tax assets for the respective periods were assessed for recoverability and, where applicable, a valuation allowance was recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future.

The net change in the total valuation allowance for the years ended December 31, 2020 and 2019 was an increase of $ 11 million and an increase of $ 28 million, respectively.

The net change in the total valuation allowance for the years ended December 31, 2021 and 2020 was a decrease of $ 1 million and an increase of $ 11 million, respectively.

The valuation allowance relates primarily to certain net operating loss carryforwards, tax credit carryforwards and deductible temporary differences for which we have concluded it is more-likely-than-not that these items will not be realized in the ordinary course of operations.

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At December 31, 2021, we had tax credit carryforwards of $ 42 million available to offset future income taxes, which will expire between 2027 and 2041, if not utilized.

We also had net operating loss carryforwards for income tax purposes of $ 634 million that will expire between 2021 and 2040, if not utilized;

and $ 189 million available to offset future taxable income indefinitely.

We also had net operating loss carryforwards for income tax purposes of $ 603 million that will expire between 2022 and 2041, if not utilized, and $ 143 million available to offset future taxable income indefinitely.

We had $ 7 million of capital loss carryforwards for income tax purposes that will expire in 2024, if not utilized, and $ 12 million available to offset future capital gains income indefinitely.

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The Company believes it has recorded adequate provisions for any such matters as of December 31, 2021.

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.

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 more than 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.

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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 consolidated financial position or liquidity.

As of December 31, 2021, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

CNDT 2020 Annual Report

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 the remaining $ 118 million paid in January 2020.

The case has been dismissed with prejudice with a full release and discharge of the Defendants.

Employees’ Retirement System of the Puerto Rico Electric Power Authority et al v.

Conduent Inc.

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.

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 former 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.

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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 2021 Annual Report

Skyview Capital LLC and Continuum Global Solutions, LLC v.

1 unchanged sentence

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 Conduent Business Service, LLC’s (“CBS”) 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 relates to the sale of a portion of Conduent Business Service, LLC’s (CBS) select standalone customer care call center 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 (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.

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.

On August 20, 2020 Conduent filed a Counterclaim against Skyview seeking the outstanding balance on the notes, the amounts owed for the Jamaica deferred closing, and other Transition Services Agreement and late rent payment obligations.

Conduent denies all of the plaintiffs' allegations, believes that it has strong defenses to all of plaintiffs’ claims and will vigorously defend itself against these claims.

On August 20, 2020, Conduent filed a counterclaim against Skyview LLC (Skyview) seeking the outstanding balance on the Notes, the amounts owed for the Jamaica deferred closing, and other transition services agreement and late rent payment obligations.

Conduent also moved to dismiss Skyview’s claims in 2020.

In May 2021, the court denied the motion and allowed the claims to proceed.

Conduent denies all of the plaintiffs' allegations, believes that it has strong defenses to all of plaintiffs’ claims and it intends to defend the litigation vigorously.

CNDT 2020 Annual Report

Dennis Nasrawi v.

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On April 26, 2019, plaintiffs in the parallel litigation filed an appeal.

On December 8, 2021, the appellate court affirmed the trial court’s decision, and the judgment became final on January 7, 2022.

Plaintiffs in the parallel litigation filed a petition for review to the California Supreme Court.

Nasrawi remains stayed until the parallel litigation is finally concluded.

1 unchanged sentence

Buck will continue to aggressively defend these lawsuits.

In August 2018, Conduent sold Buck Consultants, LLC;

In August 2018, Conduent sold Buck;

however, the Company retained this liability after the sale.

CNDT 2021 Annual Report

Conduent Business Services, LLC v.

Cognizant Business Services, LLC:

On April 12, 2017, Conduent Business Services LLC (“Conduent”) 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 Conduent and Cognizant, as amended and supplemented (the “Contract”).

The Contract contains certain minimum purchase obligations by Conduent 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 Conduent under Conduent’s contract with the New York Department of Health to provide Medicaid Management Information Systems.

In the lawsuit, Conduent seeks damages in excess of $ 150 million.

During the first quarter of 2018, Conduent provided notice to Cognizant that it was terminating the Contract for cause and recorded in the same period certain charges associated with the termination.

Conduent also alleges that it terminated the Contract for cause, because, among other things, Cognizant violated the Foreign Corrupt Practices Act.

Cognizant Business Services Corporation:

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 (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.

In its answer, Cognizant asserted two counterclaims for breach of contract seeking recovery of damages in excess of $ 47 million, which includes amounts alleged not paid to Cognizant under the Contract and an alleged $ 25 million termination fee.

Cognizant's second amended counterclaim increased its damages to $89 million.

Conduent 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.

CNDT 2020 Annual Report

Cognizant's second amended counterclaim increased Cognizant's damages to $ 89 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:

1 unchanged sentence

(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 recently commenced, 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.

Department of Education (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 one remaining state attorney general inquiry, the Company has resolved all investigations by the CFPB, several state agencies, the Department and the U.S.

Department of Justice.

The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which XES 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.

Nor is the Company 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.

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Contingent obligations related to indemnifications arising from divestitures and contingent consideration provided for by acquisitions are not expected to be material to the Company's financial position, results of operations or cash flows.

CNDT 2021 Annual Report

Other Agreements:

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• Guarantees on behalf of the Company's subsidiaries with respect to real estate leases.

These lease guarantees may remain in effect subsequent to the sale of the subsidiary.

• Agreements to indemnify various service providers, trustees and bank agents from any third-party claims related to their performance on the Company's behalf, with the exception of claims that result from the third-party's own willful misconduct or gross negligence.

These lease guarantees may remain in effect after the sale of the subsidiary.

• Agreements to indemnify various service providers, trustees and bank agents from any third-party claims related to their performance on the Company's behalf, except for claims that result from the third-party's own willful misconduct or gross negligence.

• Guarantees of the Company's performance in certain services contracts to its customers and indirectly the performance of third parties with whom the Company has subcontracted for their services.

This includes indemnifications to customers for losses that may be sustained as a result of the Company's performance of services at a customer's location.

CNDT 2020 Annual Report

This includes indemnifications to customers for losses that may be sustained because of the Company's performance of services at a customer's location.

In each of these circumstances, payment is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract and such procedures also typically allow the Company to challenge the other party's claims.

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As of December 31, 2021, the Company had $ 560 million of outstanding surety bonds used to secure its performance of contractual obligations with its clients and $ 109 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 Credit Facility) to allow it to respond to future requests for proposals that require such credit support.

In general, the Company would only be liable for 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 to allow it to respond to future requests for proposals that require such credit support.

CNDT 2021 Annual Report

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As a result of the contingent redemption feature, the Series A convertible preferred stock is classified as temporary equity and reflected separately from permanent equity in the Consolidated Balance Sheets.

CNDT 2021 Annual Report

Note 18 – Shareholders’ Equity

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Each tranche vests annually, at December 31, following the date of grant.

CNDT 2020 Annual Report

In 2021, the Company issued 329 thousand Deferred Stock Units (DSU) to non-employee members of the Board of Directors.

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• PSUs that vest contingent upon the increase of Conduent’s stock price to certain levels over a two year and nine-month period from the date of grant.

These PSUs also have a service requirement that must be met in order for them to vest.

These PSUs also have a service requirement that must be met for them to vest.

The fair value of these PSUs is based upon a Monte Carlo simulation.

Compensation expense is recognized over the vesting period based on management's estimate of the number of shares expected to vest.

Employee Stock Options:

Stock options were issued by a former parent company and were converted to Conduent's common stock upon the Separation.

As of December 31, 2020, these options have expired.

Conduent has not issued any new stock options.

CNDT 2021 Annual Report

Summary of Stock-based Compensation Activity

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Performance Stock Units / Shares 4 1.4

CNDT 2020 Annual Report

The aggregate intrinsic value of outstanding RSUs and PSUs awards were as follows (in millions):

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Performance Stock Units / Shares 11 — 2 14 — 2 11 — 2

Stock Options — — — — — — 2 2 —

CNDT 2021 Annual Report

Note 19 – Other Comprehensive Income (Loss)

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Below are the balances and changes in AOCL (1) :

CNDT 2020 Annual Report

(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 )

Reclassification of amounts impacted by Tax Reform — — ( 5 ) ( 5 )

Other comprehensive income (loss) before reclassifications 3 1 — 4

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Shares in thousands) 2021 2020 2019

Net Loss per Share:

Net loss $ ( 118 ) $ ( 1,934 ) $ ( 416 )

Dividend - preferred stock ( 10 ) ( 10 ) ( 10 )

Adjusted Net Loss Available to Common Shareholders $ ( 128 ) $ ( 1,944 ) $ ( 426 )

Weighted average common shares outstanding 210,018 209,318 206,056

Basic Loss per Share $ ( 0.61 ) $ ( 9.29 ) $ ( 2.06 )

Diluted Loss per Share:

Net loss from continuing operations $ ( 118 ) $ ( 1,934 ) $ ( 416 )

Net Earnings (Loss) per Share:

Net Income (Loss) $ ( 28 ) $ ( 118 ) $ ( 1,934 )

Dividend - Preferred Stock ( 10 ) ( 10 ) ( 10 )

Adjusted Net Loss Available to Common Shareholders $ ( 128 ) $ ( 1,944 ) $ ( 426 )

Weighted average common shares outstanding 210,018 209,318 206,056

Diluted Loss per Share $ ( 0.61 ) $ ( 9.29 ) $ ( 2.06 )

There were no securities excluded from the computation of diluted earnings per share for being either contingently issuable shares or shares that if included would have been anti-dilutive for any of the years ended December 31, 2020, 2019 or 2018.

CNDT 2020 Annual Report

Adjusted Net Income (Loss) Available to Common Shareholders $ ( 38 ) $ ( 128 ) $ ( 1,944 )

Weighted Average Common Shares Outstanding - Basic 212,719 210,018 209,318

Common Shares Issuable with Respect to:

Restricted Stock And Performance Units / Shares 0 0 0

Weighted Average Common Shares Outstanding - Diluted 212,719 210,018 209,318

Net Earnings (Loss) per Share:

Basic $ ( 0.18 ) $ ( 0.61 ) $ ( 9.29 )

Diluted $ ( 0.18 ) $ ( 0.61 ) $ ( 9.29 )

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive (shares in thousands):

Restricted stock and performance shares/units 8,210 12,286 8,943

Convertible preferred stock 5,393 5,393 5,393

Total Anti-Dilutive and Contingently Issuable Securities 13,603 17,679 14,336

Note 21 – Related Party Transactions

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The Company's receivable and payable balances with related party entities were not material as of December 31, 2021 and 2020.

Note 22 – Subsequent Events

On February 8, 2022, the Company completed the sale of the Midas Suite of patient safety, quality and advanced analytics solutions.

At closing, the Buyer paid the Company $ 321 million in cash, which is subject to settlement of customary post-closing adjustments.

The revenue from this business was $ 70 million and $ 72 million for the years ended December 31, 2021 and 2020, respectively.

On February 11, 2022, the Company repaid $ 100 million of outstanding borrowings, plus accrued interest thereon, under the 2021 Revolving Credit Facility.

CNDT 2021 Annual Report

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data