What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2021-11-04 · 149 added, 204 removed, 445 unchanged (44% of the section changed)

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data) 2022 2021

8 unchanged sentences

(Gain) loss on divestitures and transaction costs ( 163 ) 2

Litigation costs — — 2 20

Loss on extinguishment of debt — — 2 —

Litigation settlements (recoveries), net ( 28 ) 1

Other (income) expenses, net 1 —

3 unchanged sentences

Net Income (Loss) $ 136 $ ( 11 )

Net Earnings (Loss) per Share:

Net Income (Loss) per Share:

Basic $ 0.62 $ ( 0.06 )

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

3 unchanged sentences

Unrecognized gains (losses), net ( 1 ) ( 1 )

Changes in benefit plans, net — — ( 1 ) 1

Other Comprehensive Income (Loss), Net ( 6 ) ( 12 )

6 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands) September 30, 2021 December 31, 2020

(in millions, except share data in thousands) March 31, 2022 December 31, 2021

Cash and cash equivalents $ 588 $ 415

Accounts receivable, net 661 699

Assets held for sale — 184

Contract assets 160 154

12 unchanged sentences

Unearned income 75 82

Liabilities held for sale — 29

Other current liabilities 426 443

19 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2022 2021

3 unchanged sentences

Depreciation and amortization 61 95

Contract inducement amortization 1 2

Deferred income taxes 31 ( 1 )

(Gain) loss from investments 5 ( 3 )

Amortization of debt financing costs 1 2

Loss on extinguishment of debt 2 —

Loss on divestitures and sales of fixed assets, net 1 5

(Gain) loss on divestitures and sales of fixed assets, net ( 164 ) 1

Stock-based compensation 2 3

Allowance for doubtful accounts ( 1 ) 1

Changes in operating assets and liabilities:

2 unchanged sentences

Accounts payable and accrued compensation and benefits costs ( 33 ) ( 39 )

Restructuring liabilities — 3

Other current and long-term liabilities ( 17 ) —

7 unchanged sentences

Cash Flows from Financing Activities:

Proceeds from revolving credit facility and other loans — 152

Payments on revolving credit facility ( 100 ) —

Payments on debt ( 8 ) ( 23 )

Payment of contingent consideration related to acquisition — ( 4 )

Premium on debt redemption ( 2 ) —

Taxes paid for settlement of stock-based compensation ( 1 ) ( 3 )

Dividends paid on preferred stock ( 2 ) ( 2 )

4 unchanged sentences

Cash, Cash Equivalents and Restricted Cash at End of period (1)

(1) Includes $ 6 million and $ 8 million of restricted cash as of September 30, 2021 and 2020, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

(1) Includes $ 5 million and $ 10 million of restricted cash as of March 31, 2022 and 2021, 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.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

Three Months Ended September 30, 2021

(in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

Shareholders'

Balance at June 30, 2021 $ 2 $ 3,907 $ ( 2,317 ) $ ( 407 ) $ 1,185

Dividends - preferred stock, $ 20 /share

— — ( 2 ) — ( 2 )

Stock incentive plans, net — 5 — — 5

Comprehensive Income (Loss):

Net Income (Loss) — — 11 — 11

Other comprehensive income (loss), net — — — ( 16 ) ( 16 )

Total Comprehensive Income (Loss), Net — — 11 ( 16 ) ( 5 )

Balance at September 30, 2021 $ 2 $ 3,912 $ ( 2,308 ) $ ( 423 ) $ 1,183

Three Months Ended September 30, 2020

(in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

Shareholders'

Balance at June 30, 2020 $ 2 $ 3,896 $ ( 2,290 ) $ ( 433 ) $ 1,175

Dividends - preferred stock, $ 20 /share (2)

— — ( 2 ) — ( 2 )

Stock 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

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

(in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

8 unchanged sentences

Total Comprehensive Income (Loss), Net — — 136 ( 6 ) 130

Balance at September 30, 2021 $ 2 $ 3,912 $ ( 2,308 ) $ ( 423 ) $ 1,183

Nine Months Ended September 30, 2020

Balance at March 31, 2022 $ 2 $ 3,912 $ ( 2,217 ) $ ( 435 ) $ 1,262

Three Months Ended March 31, 2021

(in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

8 unchanged sentences

Total Comprehensive Income (Loss), Net — — ( 11 ) ( 12 ) ( 23 )

Balance at September 30, 2020 $ 2 $ 3,901 $ ( 2,299 ) $ ( 421 ) $ 1,183

Balance at March 31, 2021 $ 2 $ 3,902 $ ( 2,326 ) $ ( 410 ) $ 1,168

(1) AOCL - Accumulated other comprehensive loss.

Refer to Note 11 – 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 Q1 2022 Form 10-Q

CONDUENT INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Basis of Presentation

1 unchanged sentence

Description of Business

As one of the largest business process services companies in the world, Conduent delivers 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 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.

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.

As one of the largest diversified business process services companies in the world, Conduent delivers mission-critical solutions and services on behalf of businesses and governments – creating exceptional outcomes for its clients and the millions of people who count on them.

Through its dedicated people, processes and technologies, Conduent's services and solutions enhance customer experience, increase efficiencies, reduce costs and improve performance for most Fortune 100 companies and more than 500 government entities.

Basis of Presentation

10 unchanged sentences

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, 2021.

The Company has evaluated subsequent events through May 3, 2022 and no material subsequent events were identified.

Use of Estimates

4 unchanged sentences

The Company bases its 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, 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.

Although as of March 31, 2022, many government-imposed restrictions have been lightened or removed, the future impact of the COVID-19 pandemic continues to be highly uncertain.

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.

1 unchanged sentence

CNDT Q1 2022 Form 10-Q

Contingencies and Litigation

The Company is currently involved in various claims and legal proceedings.

At least quarterly, it reviews the status of each significant matter and assesses its potential financial exposure considering all available information including, but not limited to, the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information and events pertaining to a particular matter.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

The estimated losses are recorded within Litigation settlements (recoveries), net in the Company's income statement.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Because of uncertainties related to these matters, accruals are based only on the best information available at the time.

As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation and may revise its estimates.

These revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial position.

The Company's policy is to expense legal defense costs related to such matters as incurred.

These costs are recorded within Selling, general and administrative expenses in the Company's income statement.

Any insurance recoveries for litigation settlements and defense costs are recorded when such recoveries are deemed probable and collectability is reasonably assured.

Such recoveries are recorded in the same financial statement line as the related costs to which the recoveries relate.

Refer to Note 12 – Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information regarding loss contingencies.

For acquired businesses, the Company records the acquired assets and assumed liabilities based on their relative fair values at the date of acquisitions (commonly referred to as the purchase price allocation).

Goodwill represents the excess of the purchase price paid in excess of the fair value of net tangible and intangible assets acquired.

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.

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

Impairment testing for goodwill is done at the reporting unit level.

As of January 1, 2022, the Company underwent an internal reorganization in its Commercial reportable segment resulting in the previous four Commercial operating segments being combined into one single operating segment and reporting unit, led by a single segment manager.

The Company considered the reorganization a triggering event and performed an interim qualitative goodwill impairment assessment of the reporting units before and after the reorganization and concluded no impairment existed at the time of change.

Additionally, as part of this reorganization, certain clients were reassigned from the Government Services reportable segment to the Commercial reportable segment (refer to Note 4 – Segment Reporting to the Condensed Consolidated Financial Statements for additional information).

This change resulted in less than 1% of goodwill being reallocated between the reporting units within the two reportable segments.

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, 2021.

Summarized below are the applicable accounting pronouncements adopted or to be adopted subsequent to December 31, 2020.

New Accounting Standards Adopted

I ncome Taxes:

In December 2019, the Financial Accounting Standards Board (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 any material impact on the Company's Condensed Consolidated Financial Statements.

New Accounting Standards To Be Adopted

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 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 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 this guidance on its Condensed Consolidated Financial Statements.

The Company has not adopted any new accounting standards in 2022 that had a material impact on its Consolidated Financial Statements.

CNDT Q1 2022 Form 10-Q

New Accounting Standards To Be Adopted

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

Note 3 – Revenue

Disaggregation of Revenue

During the first quarter of 2022, certain clients were reclassified from the Government Services segment to the Commercial segment.

Additionally, revenue for the Midas business divested in the first quarter of 2022 has been reclassified from the Commercial segment to the Divestitures segment.

These changes have no impact on the timing of revenue recognition.

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

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.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Commercial Industries:

Customer experience management $ 161 $ 161

2 unchanged sentences

Human resource and learning services 110 115

Total Commercial Industries 509 518 1,538 1,610

Total Commercial 512 512

Government Services:

9 unchanged sentences

Total Transportation 162 184

Divestitures 7 18

Total Consolidated Revenue $ 967 $ 1,028

11 unchanged sentences

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, 2021 December 31, 2020

(in millions) March 31, 2022 December 31, 2021

Contract Assets (Unearned Income)

4 unchanged sentences

( 47 ) ( 48 )

Net Contract Assets (Unearned Income) $ 17 $ 2

Net Contract Assets $ 47 $ 32

Accounts receivable, net $ 661 $ 699

1 unchanged sentence

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

Revenues of $ 11 million and $ 99 million were recognized during the three and nine months ended September 30, 2021, respectively, related to the Company's unearned income at December 31, 2020.

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.

The Company had no material asset impairment charges related to contract assets for the three and nine months ended September 30, 2021 or 2020.

Revenues of $ 35 million were recognized during the three months ended March 31, 2022 related to the Company's unearned income at December 31, 2021.

Additionally, the Company recognized $ 7 million of revenue related to the unearned income of the divested Midas business for the three months ended March 31, 2022.

Such amount was included in Liabilities Held for Sale on the December 31, 2021 consolidated balance sheet.

Revenues of $ 58 million were recognized during the three months ended March 31, 2021 related to the Company's unearned income at December 31, 2020.

The Company had no material asset impairment charges related to contract assets for the three months ended March 31, 2022 or 2021.

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, 2021 was approximately $ 1.3 billion.

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at March 31, 2022 was approximately $ 1.1 billion.

The Company expects to recognize approximately 72 % of this revenue over the next two years and the remainder thereafter.

Note 4 – Segment Reporting

The Company's reportable segments correspond to how it organizes and manages the business, as defined by the Company's Chief Executive Officer, who is also the Company's Chief Operating Decision Maker (CODM), and are aligned to the industries in which the Company's clients operate.

The Company's segments involve the delivery of business process services and include service arrangements where it manages a customer's business activity or process.

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.

In the first quarter of 2022, the Company realigned certain clients between reportable segments to reflect how the Company currently manages its business.

Certain clients were reclassified from the Government Services reportable segment to the Commercial reportable segment to align with a product view of the business.

Additionally, in the first quarter of 2022, in order to provide greater visibility into the profitability of the Company's segments, certain real estate costs that were previously included in Unallocated Costs have been allocated to each of the reportable segments.

As described in Note 5 – Assets/Liabilities Held for Sale and Divestiture, the Company sold its Midas Suite of patient safety, quality and advanced analytics solutions to a third party in the first quarter of 2022.

Accordingly, the results of this disposed business, which had previously been reported in the Commercial segment have been reclassified to the Divestitures segment.

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

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

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

Commercial Industries:

The Commercial Industries segment provides business process services and customized solutions to clients in a variety of industries.

Across the Commercial Industries segment, the Company operates on its clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for the Company's clients and their consumers and employees.

CNDT Q1 2022 Form 10-Q

The Commercial segment provides business process services and customized solutions to clients in a variety of industries.

Across the Commercial segment, the Company operates on its clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for the Company's clients and their consumers and employees.

Government Services:

2 unchanged sentences

The solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations.

CNDT Q3 2021 Form 10-Q

Transportation:

1 unchanged sentence

On behalf of government agencies and authorities in the transportation industry, the Company delivers 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 the Company's Student Loan business, which the Company exited in the third quarter of 2018.

Divestitures includes the Company's Midas Suite of patient safety, quality and advanced analytics solutions which it sold to a third party in the first quarter of 2022.

Refer to Note 5 – Assets/Liabilities Held for Sale and Divestiture for additional information.

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 the reportable segments.

1 unchanged sentence

Three Months Ended

September 30,

(in millions) Commercial Industries Government Services Transportation Other Unallocated Costs Total

Revenue $ 509 $ 349 $ 180 $ — $ — $ 1,038

Segment profit (loss) $ 29 $ 125 $ 16 $ — $ ( 94 ) $ 76

Revenue $ 518 $ 348 $ 175 $ — $ — $ 1,041

Segment profit (loss) $ 32 $ 122 $ 26 $ 6 $ ( 98 ) $ 88

Nine Months Ended

September 30,

(in millions) Commercial Industries Government Services Transportation Other Unallocated Costs Total

(in millions) Commercial Government Services Transportation Divestitures Unallocated Costs Total

Revenue $ 512 $ 286 $ 162 $ 7 $ — $ 967

3 unchanged sentences

(in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2022 2021

5 unchanged sentences

(Gain) loss on divestitures and transaction costs ( 163 ) 2

Litigation costs — — 2 20

Loss on extinguishment of debt — — 2 —

Litigation settlements (recoveries), net ( 28 ) 1

Other (income) expenses, net 1 —

2 unchanged sentences

CNDT Q1 2022 Form 10-Q

Note 5 – Assets/Liabilities Held for Sale and Divestiture

Assets/Liabilities Held for Sale

As of December 31, 2021, the sale of the Midas Suite of patient safety, quality and advanced analytics solutions to Symplr Software, Inc.

had not yet closed.

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

As described below, the sale closed in the first quarter of 2022 and the assets and liabilities held for sale have been removed from the Company's Condensed Consolidated Balance Sheet.

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

The Company received $ 321 million of cash consideration for this divestiture, subject to customary working capital adjustments.

Working capital adjustments are expected to be finalized in the second quarter of 2022 and are not expected to be material.

The divestiture generated a pre-tax gain of $ 165 million, which is included in (Gain) loss on divestitures and transaction costs.

The Company recorded approximately $ 62 million of income taxes in connection with the divestiture.

The revenue generated by this business was $ 7 million and $ 18 million for the three months ended March 31, 2022 and 2021, respectively.

Note 6 – Restructuring Programs and Related Costs

1 unchanged sentence

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 $ 4 million and $ 8 million for the three months ended September 30, 2021 and 2020, respectively, and $ 19 million and $ 16 million for the nine months ended September 30, 2021 and 2020, respectively.

Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $ 4 million and $ 7 million for the three months ended March 31, 2022 and 2021, respectively.

Management continues to evaluate the Company's businesses, 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.

2 unchanged sentences

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, 2021 and 2020 is as follows:

A summary of the Company's restructuring program activity during the three months ended March 31, 2022 and 2021 is as follows:

(in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total

4 unchanged sentences

Charges against reserve and currency ( 4 ) ( 4 ) ( 4 ) ( 12 )

Accrued Balance at September 30, 2021 $ 1 $ 1 $ — $ 2

Accrued Balance at March 31, 2022 $ 1 $ 1 $ — $ 2

CNDT Q1 2022 Form 10-Q

(in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total

4 unchanged sentences

Charges against reserve and currency ( 2 ) ( 10 ) ( 3 ) ( 15 )

Accrued Balance at September 30, 2020 $ 7 $ 3 $ — $ 10

Accrued Balance at March 31, 2021 $ 1 $ 2 $ — $ 3

(1) Represents amounts recognized within the Consolidated Statements of Income (Loss) for the years shown.

In addition, the Company recorded professional support costs associated with the implementation of certain strategic transformation programs of $ 1 million and $ 2 million for the three months ended September 30, 2021 and 2020, respectively, and $ 3 million and $ 6 million for the nine months ended September 30, 2021 and 2020, respectively.

CNDT Q3 2021 Form 10-Q

In addition, the Company recorded professional support costs associated with the implementation of certain strategic transformation programs of $ 1 million and $ 1 million for the three months ended March 31, 2022 and 2021, respectively.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

Commercial Industries $ 1 $ 4 $ 3 $ 11

Commercial $ — $ —

Government Services — —

Transportation — —

Divestitures — —

Unallocated Costs (1)

3 unchanged sentences

Long-term debt was as follows:

(in millions) September 30, 2021 December 31, 2020

Term loan A due December 2022 $ 585 $ 654

Term loan B due December 2023 810 816

(in millions) March 31, 2022 December 31, 2021

2021 Term loan A due 2026 $ 262 $ 265

2021 Term loan B due 2028 514 515

2021 Senior notes due 2029 520 520

2021 Revolving credit facility maturing 2026 — 100

Finance lease obligations 14 16

Other loans 5 4

Principal debt balance 1,333 1,440

2 unchanged sentences

Total Long-term Debt $ 1,277 $ 1,383

As of September 30, 2021, the Company had no outstanding borrowings under its $ 750 million Senior Revolving Credit Facility in effect as of September 30, 2021 (Prior Revolver).

However, the Company has utilized $ 10 million of the Prior Revolver to issue letters of credit.

The net Prior Revolver available to be drawn upon as of September 30, 2021 was $ 740 million.

On May 1, 2021, the Company redeemed all the previously outstanding $ 34 million 10.50% Senior Notes due 2024 and incurred $ 2 million of loss on extinguishment of debt.

On October 15, 2021, the Company closed on a debt refinancing and extended its maturity profile.

As described in Note 17 - Subsequent Event, the Term Loan A due 2022 and the Term Loan B due 2023 (collectively, the 2016 Credit Facilities) were repaid and the Prior Revolver was terminated.

Under the applicable accounting rules, since the 2016 Credit Facilities were refinanced on a long-term basis before the issuance of these Condensed Consolidated Financial Statements, the Company has classified a portion of the current maturities related to the 2016 Credit Facilities to long-term debt as of September 30, 2021.

At December 31, 2020, the Company was in compliance with all debt covenants related to the borrowings in the table above.

As a result of the October 2021 refinancing, the Company’s financial covenants have been waived until March 31, 2022.

During the first quarter of 2022, the Company repaid $ 100 million that was outstanding as of December 31, 2021 under its 2021 Revolving Credit Facility maturing in 2026 (Revolver).

As of March 31, 2022, the Company had no outstanding borrowings under its Revolver.

However, the Company utilized $ 10 million of the Revolver to issue letters of credit.

The net Revolver available to be drawn upon as of March 31, 2022 was $ 540 million.

At March 31, 2022, the Company was in compliance with all debt covenants related to the borrowings in the table above.

CNDT Q1 2022 Form 10-Q

2 unchanged sentences

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, 2021 and December 31, 2020, the Company had outstanding forward exchange contracts with gross notional values of $ 147 million and $ 180 million, respectively.

At September 30, 2021, approximately 72 % of these contracts mature within three months, 11 % in three to six months, 13 % in six to twelve months and 4 % in greater than twelve months.

At March 31, 2022 and December 31, 2021, the Company had outstanding forward exchange contracts with gross notional values of $ 139 million and $ 150 million, respectively.

At March 31, 2022, approximately 71 % of these contracts mature within three months, 11 % in three to six months, 14 % in six to twelve months and 4 % 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.

10 unchanged sentences

The basis for the measurement at fair value in all cases was Level 2.

(in millions) September 30, 2021 December 31, 2020

(in millions) March 31, 2022 December 31, 2021

Foreign exchange contract - forward $ 1 $ 1

4 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions) Carrying

2 unchanged sentences

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.

CNDT Q3 2021 Form 10-Q

The fair value of Long-term debt was estimated using quoted market prices for identical or similar instruments (Level 2 inputs).

CNDT Q1 2022 Form 10-Q

Note 10 – Employee Benefit Plans

2 unchanged sentences

In these plans, employees are permitted to contribute a portion of their salaries and bonuses to the plans.

Historically, the Company matched a portion of employee contributions.

Beginning in 2019, the Company suspended its match to the 401(k) plan for all U.S.

salaried employees and extended the suspension to all U.S.

hourly employees in the second quarter of 2020.

However, the Company match was reinstated for all U.S.

employees in November of 2020.

The Company recognized an expense related to its defined contribution plans of $ 6 million and $ 1 million for the three months ended September 30, 2021 and 2020, respectively.

The Company recognized an expense related to its defined contribution plans of $ 16 million and $ 2 million for the nine months ended September 30, 2021 and 2020, respectively.

The balance sheet and income statement impacts of any remaining defined benefit plans are immaterial for all periods presented in these Consolidated Condensed Financial Statements.

The Company, at its discretion, matches a portion of employee contributions.

The Company recognized an expense related to its defined contribution plans of $ 5 million and $ 5 million for the three months ended March 31, 2022 and 2021, respectively.

The balance sheet and income statement impacts of any remaining defined benefit plans are immaterial for all periods presented in these Condensed Consolidated Financial Statements.

Note 11 – Accumulated Other Comprehensive Loss (AOCL)

3 unchanged sentences

Other comprehensive income (loss) ( 5 ) ( 1 ) — ( 6 )

Balance at September 30, 2021 $ ( 423 ) $ 2 $ ( 2 ) $ ( 423 )

Balance at March 31, 2022 $ ( 436 ) $ 1 $ — $ ( 435 )

(in millions) Currency Translation Adjustments Gains (Losses) on Cash Flow Hedges Defined Benefit Pension Items Total

1 unchanged sentence

Other comprehensive income (loss) ( 11 ) ( 1 ) — ( 12 )

Balance at September 30, 2020 $ ( 423 ) $ 3 $ ( 1 ) $ ( 421 )

Balance at March 31, 2021 $ ( 411 ) $ 2 $ ( 1 ) $ ( 410 )

(1) All amounts are net of tax.

Tax effects were immaterial.

CNDT Q3 2021 Form 10-Q

Note 12 – Contingencies and Litigation

10 unchanged sentences

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, 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.

The Company believes it has recorded adequate provisions for any such matters as of March 31, 2022.

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.

CNDT Q1 2022 Form 10-Q

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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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 Company's Consolidated Financial position or liquidity.

As of September 30, 2021, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

As of March 31, 2022, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

Litigation Against the Company

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In June 2020, the court denied the motion to dismiss and allowed the claims to proceed.

The Court granted Class Certification on February 28, 2022.

We intend to defend the litigation vigorously.

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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 Q3 2021 Form 10-Q

Skyview Capital LLC and Continuum Global Solutions, LLC v.

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indemnification for breach of representation and warranty;

indemnification for breach of contract;

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.

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CNDT Q1 2022 Form 10-Q

Dennis Nasrawi v.

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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.

Plaintiffs alleged 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 alleged 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.

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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 plaintiff's 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.

This case was stayed pending the outcome of parallel litigation the plaintiffs were 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.

Nasrawi 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;

In August 2018, the Company sold Buck;

however, the Company retained this liability after the sale.

CNDT Q3 2021 Form 10-Q

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.

On January 18, 2022, Plaintiffs in the parallel litigation filed a petition for review to the California Supreme Court.

On March 16, 2022, the California Supreme Court denied Plaintiffs’ petition, thereby foreclosing further avenues for Plaintiffs.

Plaintiffs filed their Notice of Dismissal, which the Court entered on March 22, 2022.

As a result, during the first quarter of 2022, the Company reversed the reserve pertaining to this matter.

Conduent Business Services, LLC v.

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Other Matters

During the first quarter of 2022, the Company entered into settlement agreements with six of its insurers under its 2012–2013 errors and omission insurance policy in which the Company agreed to resolve its claims for insurance coverage in connection with the previously disclosed State of Texas matter that settled in February 2019, as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

As a result of the settlement agreements entered with the insurers, the Company received an aggregate sum of $ 38 million, of which $ 14 million was recognized as defense costs recovery in Selling, general and administrative and $ 24 million was recognized in Litigation settlements (recoveries), net.

CNDT Q1 2022 Form 10-Q

Since 2014, Xerox Education Services, Inc.

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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 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.

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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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, 2021, the Company had $ 553 million of outstanding surety bonds used to secure its performance of contractual obligations with its clients and $ 94 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.

As of March 31, 2022, the Company had $ 559 million of outstanding surety bonds issued to secure its performance of contractual obligations with its clients and $ 105 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 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 Q3 2021 Form 10-Q

Note 13 – Preferred Stock

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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.

CNDT Q1 2022 Form 10-Q

Note 14 – Earnings (Loss) per Share

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Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data in whole dollars and shares in thousands) 2022 2021

Basic Net Earnings (Loss) per Share:

Net Income (Loss) $ 136 $ ( 11 )

Dividend - Preferred Stock ( 2 ) ( 2 )

Adjusted Net Income (Loss) Available to Common Shareholders $ 9 $ ( 9 ) $ 5 $ ( 114 )

Adjusted Net Income (Loss) Available to Common Shareholders - Basic $ 134 $ ( 13 )

Diluted Net Earnings (Loss) per Share:

Net Income (Loss) $ 136 $ ( 11 )

Dividend - Preferred Stock — ( 2 )

Adjusted Net Income (Loss) Available to Common Shareholders - Diluted $ 136 $ ( 13 )

Weighted Average Common Shares Outstanding - Basic 215,503 212,250

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Restricted Stock And Performance Units / Shares 2,994 —

8% Convertible Preferred Stock 5,393 —

Weighted Average Common Shares Outstanding - Diluted 223,890 212,250

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The components of Other assets and Other liabilities were as follows:

(in millions) September 30, 2021 December 31, 2020

(in millions) March 31, 2022 December 31, 2021

Other Current Assets

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Other taxes payable 17 14

Accrued interest 17 10

Total Other Current Liabilities $ 426 $ 443

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Other Long-term Liabilities

Deferred payroll tax related to the CARES Act (1)

Income tax liabilities 12 15

Unearned income 47 48

Restructuring liabilities — 5

Total Other Long-term Liabilities $ 91 $ 95

(1) The CARES Act allowed 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.

CNDT Q3 2021 Form 10-Q

Note 16 – Related Party Transactions

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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).

Revenue and purchases from these entities were included in Revenue and Costs of services or Selling, general and administrative, respectively, on the Company's Condensed Consolidated Statements of Income (Loss).

CNDT Q1 2022 Form 10-Q

Transactions with related parties were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021

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Purchases from related parties $ 5 $ 7

The Company's receivable and payable balances with related party entities were not material as of September 30, 2021 and December 31, 2020.

Note 16 – Goodwill

The following table presents the changes in the carrying amount of goodwill, by reportable segment:

(in millions) Commercial Industries Government Services Transportation Total

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

Foreign currency translation ( 11 ) ( 4 ) ( 7 ) ( 22 )

Balance at September 30, 2021 $ 826 $ 619 $ 61 $ 1,506

Gross goodwill $ 2,379 $ 1,373 $ 641 $ 4,393

Accumulated impairment ( 1,553 ) ( 754 ) ( 580 ) ( 2,887 )

Balance at September 30, 2021 $ 826 $ 619 $ 61 $ 1,506

In the first, second and third quarters of 2021, 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, the Company concluded that it is not more likely than not that the fair values of any of its reporting units were less than their carrying values.

Consequently, the Company determined that it was not necessary to perform an interim impairment test for any of its 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.

CNDT Q3 2021 Form 10-Q

Note 17 – Subsequent Event

On October 15, 2021, the Company closed on a debt refinancing and extended its maturity profile.

The debt refinancing transactions were as follows:

(in millions) Amount Interest Rate

Term Loan A due 2026 $ 265 LIBOR + 1.75 to 2.75%

Term Loan B due 2028 515 LIBOR * + 4.25%

Secured Notes due 2029 520 6.00 %

Total new debt excluding revolving credit facility $ 1,300

Revolving Credit Facility maturing 2026 $ 550 LIBOR + 1.75 to 2.75%

* subject to a floor of 50 basis points

Upon closing the debt refinancing, $ 100 million was borrowed under the new Revolving Credit Facility (Revolver).

The net proceeds of the Term Loan A due 2026, Term Loan B due 2028, Secured Notes due 2029 and $ 100 million of borrowing under the Revolver were used to repay borrowings under the 2016 Credit Facilities that were outstanding on October 15, 2021.

The amounts repaid were $ 587 million for Term Loan A due 2022 and $ 810 million for Term Loan B due 2023.

As a part of the transactions, the Prior Revolver was terminated.

The Company's receivable and payable balances with related party entities were not material as of March 31, 2022 and December 31, 2021.

CNDT Q1 2022 Form 10-Q

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-Q

Item 1. Financial Statements