What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-23 · 286 added, 313 removed, 1117 unchanged (35% of the section changed)

7 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

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.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control over Financial Reporting

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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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 – Reporting Units Within the Commercial Industries Reportable Segment

Goodwill Impairment Assessments – Commercial Reporting Unit

As described in Notes 1 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $955 million as of December 31, 2022.

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

The goodwill associated with the Commercial reporting unit was $287 million.

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

As disclosed by management, the annual quantitative impairment test of goodwill was performed as of October 1, 2021.

Management performed the annual goodwill impairment test as of October 1, 2022.

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

The fair value of reporting units is determined using a combination of both an income approach and a market approach.

The income approach utilizes a discounted cash flow analysis based upon the forecasted future business results of reporting units.

The fair value of the reporting unit is determined utilizing a combination of both an income approach and a market approach.

The income approach utilizes a discounted cash flow analysis based upon the forecasted future business results of the reporting unit.

The market approach utilizes the guideline public company method.

If the fair value of a reporting unit is less than its carrying amount, an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

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 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;

After completing the annual impairment test, which did not identify any goodwill impairment, the Commercial reporting unit experienced lower than expected new customer contract signings (all subsequent to November 1, 2022), and an unexpected softening of the future business pipeline for certain solutions.

Management believed these were driven by macroeconomic conditions present in the fourth quarter of 2022.

The combination of these factors led management, in December 2022, to review the Commercial reporting unit and further evaluate the portfolio.

These factors triggered the need for management to perform a goodwill impairment assessment for this reporting unit as of December 31, 2022, which resulted in a pre-tax impairment charge of $358 million.

As disclosed by management, the most significant assumptions used in the goodwill impairment assessment relate to revenue growth rates, the discount rate and the long-term organic growth rate.

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

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

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 reporting units within the Commercial Industries reportable segment.

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;

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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;

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

These procedures also included, among others (i) testing management’s process for determining the fair value of the Commercial reporting unit;

(ii) evaluating the appropriateness of the discounted cash flow analysis;

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

and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, the discount rate and the long-term organic growth rate.

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

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

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.

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

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow analysis and (ii) the reasonableness of the long-term organic growth rate and the discount rate assumptions.

/s/ PricewaterhouseCoopers LLP

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Goodwill impairment 358 — —

Loss on divestitures and transaction costs 3 17 25

Litigation costs, net 3 20 17

(Gain) loss on divestitures and transaction costs, net ( 158 ) 3 17

Litigation settlements (recoveries), net ( 32 ) 3 20

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

Total Operating Costs and Expenses 3,985 4,165 4,302

Loss Before Income Taxes ( 25 ) ( 139 ) ( 2,106 )

Income (Loss) Before Income Taxes ( 127 ) ( 25 ) ( 139 )

Income tax expense (benefit) 55 3 ( 21 )

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

Basic Loss per Share $ ( 0.18 ) $ ( 0.61 ) $ ( 9.29 )

Diluted Loss per Share $ ( 0.18 ) $ ( 0.61 ) $ ( 9.29 )

Net Income (Loss) $ ( 182 ) $ ( 28 ) $ ( 118 )

Net Income (Loss) per Share:

Basic $ ( 0.89 ) $ ( 0.18 ) $ ( 0.61 )

Diluted $ ( 0.89 ) $ ( 0.18 ) $ ( 0.61 )

The accompanying notes are an integral part of these Consolidated Financial Statements.

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(in millions) 2022 2021 2020

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

Net Income (Loss) $ ( 182 ) $ ( 28 ) $ ( 118 )

Other Comprehensive Income (Loss), Net (1)

Currency translation adjustments, net ( 41 ) ( 31 ) 8

Reclassification of currency translation adjustments on divestitures — — 15

Reclassification of divested benefit plans and other — — ( 1 )

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

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Cash Flows from Operating Activities:

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

Net income (loss) $ ( 182 ) $ ( 28 ) $ ( 118 )

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

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Loss on extinguishment of debt — 15 —

Loss on divestitures and sales of fixed assets, net 1 6 8

(Gain) loss on divestitures and sales of fixed assets, net ( 165 ) 1 6

Stock-based compensation 21 21 20

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Cost of additions to land, buildings and equipment ( 92 ) ( 80 ) ( 76 )

Proceeds from sale of land, buildings and equipment — — 2

Cost of additions to internal use software ( 61 ) ( 67 ) ( 63 )

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

Proceeds from divestitures 326 5 5

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Dividend - preferred stock, $ 80 /per share

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

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

— — ( 10 ) — ( 10 )

Stock incentive plans, net — 9 — — 9

Comprehensive Income (Loss):

4 unchanged sentences

Dividend - preferred stock, $ 80 /per share

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

— — ( 10 ) — ( 10 )

Stock incentive plans, net — 11 — — 11

Comprehensive Income (Loss):

4 unchanged sentences

Dividend - preferred stock, $ 80 /per share

Stock option and incentive plans, net — 11 — — 11

— — ( 10 ) — ( 10 )

Stock incentive plans, net — 14 — — 14

Comprehensive Income (Loss):

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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.

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

As a global technology-led business process solutions company, Conduent delivers mission-critical services and solutions on behalf of businesses and governments to create exceptional outcomes for our clients and the millions of people who count on them.

Through people, process, expertise, analytics and automation, our services and solutions create value by elevating customer experiences, increasing efficiencies and reducing costs.

Eighty percent of Fortune 100 companies and over 600 government and transportation agencies depend on us each day as their trusted partner to manage their business processes and end-user interactions.

Basis of Presentation

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The Company has evaluated subsequent events through February 22, 2023.

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

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

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

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 of December 31, 2022, the effects of global macroeconomic and geopolitical uncertainty, including COVID-19 pandemic related factors, on the Company's business, results of operations and financial condition continue to evolve.

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.

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New Accounting Standards

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Recently Adopted Accounting Standards

Reference Rate Reform:

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.

This 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 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.

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

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Summary of Accounting Policies

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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.

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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.

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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.

On December 29, 2021, the Company signed a definitive agreement to sell its Midas Suite of Solutions (Midas business) 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.

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

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Produc t Software :

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

There were no such write-offs in either 2022 or 2020.

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.

The Company determines if an arrangement is a lease at the inception of the contract and whether that lease meets the classification criteria of a finance or operating lease.

The Company has operating and finance leases for real estate and equipment.

Operating leases are included in Operating lease ROU assets, Other current liabilities, and Operating lease liabilities in our Consolidated Balance Sheets.

Operating leases are included in Operating lease ROU assets, Other current liabilities, and Operating lease liabilities in the Company's Consolidated Balance Sheets.

Finance leases are included in Land, buildings and equipment, net, Current portion of long-term debt, and Long-term debt in the Company's Consolidated Balance Sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

ROU assets and liabilities are recognized at the commencement date based on the net present value of lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates.

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.

The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option based on economic factors.

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Variable lease expense is recognized in the period in which the obligation for those payments is incurred.

Leases with an initial term of one year or less are expensed on a straight-line basis over the lease term.

The Company accounts for lease and non-lease components separately for its equipment leases, based on the estimated standalone price of each component, and combines lease and non-lease components for its real estate leases.

Refer to Note 7 – Leases for further information.

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

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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 16 – 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).

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

The Company determined the fair value of its reporting units utilizing a combination of both an Income Approach and a Market Approach.

Goodwill is tested for impairment using a qualitative and/or quantitative assessment.

For the quantitative assessment, the Company determines the fair value of its reporting units utilizing a combination of both an Income Approach and a Market Approach.

The Income Approach utilizes a discounted cash flow analysis based upon the forecasted future business results of its reporting units.

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

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Impairment of Long-Lived Assets

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The recognition of deferred tax assets requires an assessment to determine the realization of such assets.

Management establishes valuation allowances on deferred tax assets when it is determined “more-likely-than-not” that some portion or all of the deferred tax assets may not be realized.

Management establishes valuation allowances on deferred tax assets when it is determined “more-likely-than-not”

CNDT 2022 Annual Report

that some portion or all of the deferred tax assets may not be realized.

Management considers positive and negative evidence in evaluating the ability of the Company to realize its deferred tax assets, including its historical results and forecasts of future ability to realize its deferred tax assets, including projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.

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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.

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.

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.

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

Once the Company determines the performance obligations, the Company determines the transaction price, which is based on fixed and variable consideration.

Once the Company determines the performance obligations, the Company determines the transaction price, which is based on fixed and/or variable consideration.

Typical forms of variable consideration include variable pricing based on the number of transactions processed or usage-based pricing arrangements.

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A time-elapsed output method is used to measure progress because the nature of the Company’s promise is a stand-ready service and efforts are expended evenly throughout the period.

In limited circumstances, such as contracts for implementation or development projects, the Company also uses a cost-to-cost based input method.

In limited circumstances, such as contracts for

CNDT 2022 Annual Report

implementation or development projects, the Company also uses a cost-to-cost based input method.

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

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Refer to Note 2 – Revenue for further discussion .

CNDT 2021 Annual Report

Note 2 – Revenue

Disaggregation of Revenue

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.

During the first quarter of 2022, certain clients were reclassified from the Government 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.

Refer to Note 3 – Segment Reporting for additional information on the Company's reportable segments.

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Year Ended December 31,

(in millions) 2022 2021 2020

Commercial Industries:

Customer experience management $ 636 $ 629 $ 648

Business operations solutions 553 567 566

Commercial healthcare solutions 435 431 482

Human resource and learning services 445 518 602

Total Commercial Industries 2,076 2,163 2,385

Government Services:

Healthcare claims and administration solutions 368 367 361

Human capital solutions 435 454 529

Total Commercial 1,992 2,017 2,104

Government healthcare solutions 589 576 603

Government services solutions 561 731 665

Total Government Services 1,318 1,281 1,263

Total Government 1,150 1,307 1,268

Transportation:

Roadway charging & management services 327 318 327

Road usage charging & management solutions 328 327 318

Transit solutions 226 262 248

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Divestitures 7 70 72

Education — — 2

Total Other 7 70 72

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Customer Experience Management :

The Company offers a range of services that help its clients support their end-users.

This includes in-bound and out-bound call support for both simple and complex transactions, technical support and patient assistance.

The Company also provides multi-channel communication support (both print and digital) across a range of industries .

The Company delivers a full range of omni-channel customer contact services and customer communications, including customer care, technical support, loyalty management, and outbound and inbound sales.

The Company creates better experiences across the customer lifecycle through a variety of channels including social media, chat, email, voice and virtual agent to help customers where and how they want to engage.

Business Operations Solutions :

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.

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 :

The Company delivers administration, clinical support and medical management solutions across the health ecosystem to reduce costs, increase compliance and enhance utilization, while improving health outcomes and experience for members and patients.

The Company helps its clients transform business processes and drive efficiency, automation and scale across essential business functions.

The Company streamlines mission-critical operations through its deep industry experience, understanding of its clients’ operations and the latest technology solutions, to reduce costs, improve security and accuracy and enable revenue growth, while enhancing the end-user experience.

The Company's portfolio of solutions spans automated document and data management, payments processing, finance, accounting, and procurement and financial industry solutions.

Healthcare Claims and Administration Solutions :

The Company delivers administration, clinical support, bill review and medical management solutions across the health ecosystem to reduce costs, increase compliance and enhance utilization, while improving health outcomes and experience for members and patients.

The Company's solutions span:

trials, sales, access, and adherence to pharmaceutical clients;

case management, performance management and patient safety for hospital clients;

medical bill review, claim processing, care integration, subrogation and payment integrity solutions to managed care companies;

and workers compensation medical bill review, mailroom/data capture and medical management services to claims payers and third-party administrators .

Human Resource and Learning Services :

The Company helps its clients support their employees at all stages of employment from initial on-boarding through retirement.

The Company delivers mission-critical, technology-enabled HR services and solutions that improve business processes across the employee journey to maximize business performance, while increasing employee satisfaction, engagement and overall well-being.

These solutions span health, benefits, payroll, onboarding and learning administration, annual enrollment, wealth & retirement, HR, talent, and workforce management.

and workers compensation medical bill review, intake mailroom/data capture and medical management services to claims payers and third-party administrators .

Human Capital Solutions :

The Company provides services to support its clients' employees at all stages of their employment from on-boarding through retirement.

The Company's solutions span Health Savings Account

CNDT 2022 Annual Report

Solutions, Benefits Administration Solutions, Human Resources (HR) and Payroll Solutions, and Learning Solutions.

On behalf of global organizations and governments, the Company delivers mission-critical, technology-led HR services and solutions that improve business processes across the employee journey to maximize business performance, while increasing employee satisfaction, engagement, and overall well-being.

These solutions span health, benefits, payroll, onboarding and learning administration, annual enrollment, wealth and retirement, HR, talent, and workforce management.

Government Healthcare Solutions :

The Company provides medical management and fiscal agent care management services, eligibility and enrollment services and support to Medicaid programs and federally funded U.S.

government healthcare programs.

The Company's services include a range of innovative solutions such as Medicaid management, provider services, Medicaid business intelligence, pharmacy benefits management, eligibility and enrollment support, contract center services, application processing, premium billing, disease surveillance and outbreak management and case management solutions.

The Company provides mission-critical program administration solutions for State Medicaid and federally-funded healthcare programs.

The Company's services include a range of innovative solutions such as Medicaid management, provider services, Medicaid business intelligence, pharmacy benefits management, eligibility and enrollment support, customer contact services, application processing, premium billing, and case management solutions.

Government Services Solutions :

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 :

The Company's electronic tolling, urban congestion management and mileage-based user solutions help clients keep up with an ever-changing environment and get more travelers where they need to go while generating revenue for much-needed infrastructure improvements.

The Company is a leader in government payment disbursements for federally sponsored programs including Supplemental Nutrition Assistance Program (SNAP), and Women, Infant and Children (WIC) as well as government-initiated cash disbursements including child support and Unemployment Insurance (UI).

The Company also offers a broad set of child support services predominately to State Disbursement Units (SDUs), including processing and distributing payment, child support payment cards, childcare credentialing, and case management, among others, to help states comply with federal standards.

Road Usage Charging & Management Services :

The Company's electronic tolling, urban congestion management and mileage-based user solutions help its clients get travelers to where they need to go while generating revenue for infrastructure improvements.

The Company's solutions include vehicle passenger detection systems, electronic toll collection, automated license plate recognition and congestion management solutions.

Transit Solutions :

The Company aims to make journeys more personalized and convenient while increasing capacity and profitability for authorities and agencies.

The Company combines the latest in fare collection and intelligent mobility so that clients can get the added efficiency of having a single point of contact for all their transit solutions.

For train, bus, subway, metro and other transit travelers, the Company helps make journeys more personalized and convenient while increasing capacity and profitability for authorities and agencies.

The Company combines fare collection and intelligent mobility to provide clients with the added efficiency of a single point of management for all transit solutions.

Curbside Management Solutions :

The Company delivers intelligent curbside management systems that simplify parking programs and deliver convenient and hassle-free experience for drivers.

The Company delivers intelligent curbside management systems that simplify parking programs and deliver convenient and hassle-free experiences for drivers.

The Company's curbside solutions include citation and permit administration, parking enforcement and curbside demand management.

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The Company provides data analytics, automated photo enforcement and other public safety solutions to make streets and communities safer.

Photo enforcement systems include red light, fixed and mobile speed, school bus, work zone, school zone, bus lane only, high occupancy and other forms of photo enforcement systems.

Photo enforcement systems include red light, fixed and mobile speed, school bus, work zone, school zone, bus lane, high occupancy and other forms of photo enforcement systems.

Commercial Vehicles :

The Company provides computer-aided dispatch/automatic vehicle location technology to help customers manage their fleet operations.

CNDT 2021 Annual Report

The Company provides computer-aided dispatch/automatic vehicle location technology to help clients manage their fleet operations.

Contract Balances

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Unearned income includes payments received in advance of performance under the contract, which are realized when the associated revenue is recognized under the contract.

CNDT 2022 Annual Report

The following table provides information about the balances of the Company's contract assets, unearned income and receivables from contracts with customers:

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Revenues of $ 76 million and $ 107 million were recognized during the years ended December 31, 2022 and 2021, respectively, related to the Company's unearned income at December 31, 2021 and December 31, 2020.

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

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

The Company had no material asset impairment charges related to contract assets for the year ended December 31, 2022.

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Also, the Company capitalizes costs incurred to fulfill its contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract and (iii) are expected to be recovered through revenue generated under the contract.

The net book value of

CNDT 2021 Annual Report

these costs, which comprise set-up/transition activities, was $ 29 million and $ 32 million as of December 31, 2021 and 2020, respectively, and are classified in Other long-term assets on the Consolidated Balance Sheets.

The net book value of these costs, which comprise set-up/transition activities, was $ 30 million and $ 29 million as of December 31, 2022 and 2021, respectively, and are classified in Other long-term assets.

Contract fulfillment costs are expensed to Depreciation and amortization as the Company satisfies its performance obligations by transferring the service to the customer.

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The amortization of costs incurred to obtain and fulfill a contract, excluding contract inducements, for the years ended December 31, 2022, 2021 and 2020, were $ 34 million, $ 39 million and $ 41 million, respectively.

The expected amortization expense for the next five years and thereafter for these costs is as follows:

CNDT 2022 Annual Report

The expected amortization expense for the next five years and thereafter for these costs to obtain and fulfill a contract is as follows:

2023 2024 2025 2026 2027 Thereafter

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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.

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.

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.

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 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 4 – Assets/Liabilities Held for Sale and Divestiture, the Company sold its Midas Suite of patient safety, quality and advanced analytics solutions (Midas business) 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 and Transportation), Other 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.

• Government Services:

The Government Services segment provides government-centric business process services to U.S.

federal, state and local and foreign governments for public assistance program administration, transaction processing and payment services.

• Commercial:

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

The Government segment provides government-centric business process services to U.S.

federal, state and local and foreign governments for public assistance, health services, program administration, transaction processing and payment services.

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

• Transportation:

The Transportation segment provides systems and support, as well as revenue-generating services, to government clients.

On behalf of government agencies and authorities in the transportation industry, 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.

The Transportation segment provides systems, support, and revenue-generating solutions, to government transportation agency clients.

The Company delivers mission-critical public safety, mobility and digital payment solutions that streamline operations, increase revenue and reduce congestion while creating safe, seamless travel experiences for consumers and have a positive impact on the environment.

Other includes the Company's divestitures and the Student Loan business, which the Company exited in the third quarter of 2018.

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CNDT 2022 Annual Report

Selected financial information for our reportable segments was as follows:

Selected financial information for the Company's reportable segments was as follows:

Year Ended December 31,

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

(in millions) Commercial Government Transportation Other Unallocated Costs Total

2022 Divestitures Other

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Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2022 2021 2020

Loss Before Income Taxes $ ( 25 ) $ ( 139 ) $ ( 2,106 )

Income (Loss) Before Income Taxes $ ( 127 ) $ ( 25 ) $ ( 139 )

Reconciling items:

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Goodwill impairment 358 — —

Loss on divestitures and transaction costs 3 17 25

Litigation costs, net 3 20 17

(Gain) loss on divestitures and transaction costs, net ( 158 ) 3 17

Litigation settlements (recoveries), net ( 32 ) 3 20

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

Segment Profit (Loss) $ 176 $ 237 $ 265

Refer to Note 2 – Revenue for additional information on disaggregated revenues of the reportable segments.

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.

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.

As of December 31, 2021, the sale of the Midas business 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 Consolidated Balance Sheets.

CNDT 2022 Annual Report

On February 8, 2022, the Company completed the sale of its Midas business to Symplr Software, Inc.

The Company received $ 322 million of cash consideration for this divestiture.

The divestiture generated a pre-tax gain of $ 166 million, which is included in (Gain) loss on divestitures and transaction costs, net .

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

The revenue generated by this business was $ 7 million, $ 70 million and $ 72 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Note 5 – Accounts Receivable, Net

The Accounts receivable, net balance of $ 699 million and $ 670 million at December 31, 2021 and 2020, respectively, included allowance for doubtful accounts of $ 0 million and $ 2 million at December 31, 2021 and 2020, respectively.

The Accounts receivable, net balance of $ 630 million and $ 699 million at December 31, 2022 and 2021, respectively, included allowance for credit losses of $ 0 million and $ 0 million at December 31, 2022 and 2021, respectively.

The Company enters into factoring agreements in the normal course of business as part of our cash and liquidity management, to sell certain accounts receivable without recourse to third-party financial institutions.

These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreements transfer effective control over, and risk related to, the receivables to the buyers.

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

During the third quarter of 2022, the Company replaced its previously outstanding factoring agreements with an agreement with a new third-party financial institution with substantially equivalent terms.

The transactions under this agreement are treated as a sale and are accounted for as a reduction in accounts receivable because the agreement transfers effective control over, and risk related to, the receivables to the buyers.

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

Accounts receivable sales for the years ended December 31, 2022 and 2021 were $ 507 million and $ 422 million, respectively.

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Impairment charges — ( 28 )

Accumulated impairment charges ( 28 ) —

Accumulated amortization ( 17 ) ( 11 )

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Note 7 - Leases

The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are, or contain, leases, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date.

The Company did not elect to apply the hindsight practical expedient.

Additionally, the Company has elected not to include short-term leases, with a term of 12 months or less, on its Consolidated Balance Sheets.

The Company has entered into non-cancelable operating and finance leases primarily for office space and equipment with lease terms that range from less than one year to 21 years.

The components of lease costs were as follows:

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Total Finance Lease Liabilities $ 20 $ 16

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 lease liabilities.

The weighted average discount rates and weighted average remaining lease terms for operating and finance leases as of December 31, 2022 and 2021 were as follows:

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Present value of lease liabilities $ 217 $ 20

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.

As of December 31, 2022, the Company had entered into additional operating lease agreements for real estate and equipment totaling $ 4 million and an additional finance lease agreement for equipment of $ 5 million, which have not commenced and have not been recognized on the Company's Consolidated Balance Sheet.

The leases are expected to commence in 2023 with average lease terms of 4 years and 5 years, respectively.

CNDT 2022 Annual Report

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

(in millions) Commercial Industries Government Services Transportation Total

(in millions) Commercial Government Transportation Total

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

Foreign currency translation ( 20 ) ( 2 ) ( 4 ) ( 26 )

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

Impairment ( 358 ) — — ( 358 )

Transfer of goodwill between segments 4 ( 4 ) — —

Balance at December 31, 2022 $ 287 $ 611 $ 57 $ 955

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Balance at December 31, 2022 $ 287 $ 611 $ 57 $ 955

The Company performed its annual goodwill impairment test for the year ended December 31, 2021 as of October 1, 2021.

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 in the first quarter of 2022 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 the change.

Additionally, as part of the reorganization in the first quarter of 2022, certain clients were reassigned from the Government reportable segment to the Commercial reportable segment.

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

The Company performed its annual goodwill impairment test as of October 1, 2022.

This testing did not identify any goodwill impairment and, accordingly, no impairment charge was recorded.

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.

2019 Goodwill Impairment Charge

In the first quarter of 2019, the Transportation reporting unit experienced unanticipated losses of certain customer contracts, lower than expected new customer contracts and higher costs of delivery, and as a result, the growth of this reporting unit decreased resulting in its fair value being below its carrying value by an estimated $ 284 million.

Accordingly, the Company recorded a pre-tax impairment charge of $ 284 million for the three months ended March 31, 2019.

In the second quarter of 2019, there were further unanticipated losses of certain customer contracts, lower potential future volumes and lower than expected new customer contracts.

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.

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.

In addition, in the fourth quarter of 2019, the Company recorded an immaterial correction to the impairment charges recorded in the first and second quarters to properly reflect the impact of tax-deductible goodwill on the previous impairments as well as the related income tax benefit.

The cumulative impairment charge for the year ended December 31, 2019 was approximately $2.0 billion.

Impairment Charge

After completing the annual impairment test, the Commercial reporting unit experienced lower than expected new customer contract signings (all subsequent to November 1, 2022), and an unexpected softening of the future business pipeline for certain solutions.

Management believed these were driven by macroeconomic conditions present in the fourth quarter of 2022.

The combination of these factors led management, in December 2022, to review the Commercial reporting unit and further evaluate the portfolio.

The fair values of the goodwill impairment charge were estimated based on a determination of the implied fair value of goodwill, leveraging the results from the Income Approach and Market Approach, and are designated as level 3 of the fair value hierarchy.

In connection with the Commercial reporting unit impairment assessment, the Company first performed a recoverability assessment of long-lived assets and concluded that such assets were not impaired.

CNDT 2022 Annual Report

Intangible Assets, Net

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.

Net intangible assets were $ 39 million at December 31, 2022 of which $ 37 million, $ 2 million and $ 0 million relate to the Company's Commercial, Government and Transportation segments, respectively.

Intangible assets were comprised exclusively of Customer relationships as follows:

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Total Intangible Assets 14 years $ 95 $ 56 $ 39 $ 1,658 $ 1,606 $ 52

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.

Amortization expense related to intangible assets was $ 13 million, $ 135 million and $ 239 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Amortization expense is expected to approximate $ 7 million in 2023, $ 5 million in 2024, $ 4 million in 2025, $ 4 million in 2026 and $ 3 million in 2027.

CNDT 2021 Annual Report

Note 9 – Restructuring Programs and Related Costs

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Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $ 10 million, $ 23 million and $ 23 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Management continues to evaluate the Company's business and, in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed.

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.

Costs associated with restructuring, including employee severance and lease termination costs, are generally recognized when it has been determined that a liability has been incurred, which is generally upon communication to the affected employees or exit from the leased facility.

In those geographies where we have either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, we recognize employee severance costs when they are both probable and reasonably estimable.

Asset impairment costs related to the reduction of our real estate footprint include impairment of operating lease right-of-use (ROU) assets and associated leasehold improvements.

In those geographies where the Company has either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, it recognizes employee severance costs when they are both probable and reasonably estimable.

Asset impairment costs related to the reduction of the Company's 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 two years ended December 31, 2022 is as follows:

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

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 2022 Annual Report

The Company also recorded costs related to professional support services associated with the implementation of certain strategic transformation programs of $ 2 million, $ 4 million and $ 8 million during the years ended December 31, 2022, 2021 and 2020, respectively.

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

Year Ended December 31,

(in millions) 2022 2021 2020

Commercial Industries $ 4 $ 11 $ 24

Government Services 1 1 1

Commercial $ 6 $ 4 $ 11

Government 1 1 1

Transportation 1 1 2

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Total Net Restructuring Charges $ 37 $ 41 $ 59

(1) Represents costs related to the consolidation of the Company's data centers, operating lease ROU asset impairment, termination and other costs not allocated to the segments.

CNDT 2022 Annual Report

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Restricted cash 16 5

Cloud computing implementation costs, net 6 8

Current portion of capitalized cloud computing implementation costs, net 5 6

Total Other Current Assets $ 242 $ 228

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Litigation related accruals 37 64

Operating lease liabilities 71 81

Current operating lease liabilities 57 71

Restructuring liabilities 10 6

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Other Long-term Liabilities

Deferred payroll tax related to the CARES Act (1)

Income tax liabilities $ 7 $ 15

Unearned income 42 48

Restructuring liabilities — 5

Total Other Long-term Liabilities $ 69 $ 95

(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.

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

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See Note 2 – Revenue for more information.

CNDT 2021 Annual Report

Note 11 – Debt

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These costs are amortized as interest expense in the Consolidated Statements of Income (Loss).

CNDT 2022 Annual Report

Long-term debt was as follows:

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Revolving credit facility maturing 2026 — % — 100

2016 Term loan A due 2022 — 654

2016 Term loan B due 2023 — 816

2016 Senior notes due 2024 — 34

Finance lease obligations 7.00 % 20 16

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(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:

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

2023 2024 2025 2026 2027 Thereafter Total

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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 (2016 Credit Agreement).

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

(i) Senior Secured Term Loan A (2016 Term Loan A) with an aggregate principal amount of $ 700 million;

(ii) Senior Secured Term Loan B (2016 Term Loan B) with an aggregate principal amount of $ 850 million;

(iii) Senior Revolving Credit Facility (2016 Revolving Credit Facility) with an aggregate available amount of $ 750 million including a sub-limit for up to $ 300 million available for the issuance of letters of credit.

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.

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

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.

On October 15, 2021, the Company refinanced its previously outstanding 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 (Credit Agreement).

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(iii) Senior Revolving Credit Facility maturing 2026 (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.

During the first quarter of 2022, the Company repaid $ 100 million of its $ 550 million Revolving Credit Facility that was outstanding as of December 31, 2021.

As of December 31, 2022, the Company had no outstanding balance under its Revolving Credit Facility.

However, the Company utilized $ 2 million of its Revolving Credit Facility capacity to issue letters of credit.

The net amount available to be drawn upon under the Revolving Credit Facility as of December 31, 2022, was $ 548 million.

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The applicable margin for the Term Loan A and the 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.

The margin for Eurocurrency loans at December 31, 2022 was 2.25 %.

The applicable margin for the Term Loan B for Eurocurrency loans does not change based on leverage ratios and is 4.25 % per annum and for base rate loans is 3.25 % per annum.

In addition to paying interest on outstanding principal under the Revolving Credit Facility, the Company is required to pay a commitment fee ranging from 0.3 % to 0.5 % per annum to the lenders in respect of unutilized commitments thereunder and the commitment fee was 0.4 % at December 31, 2022.

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

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

CNDT 2022 Annual Report

All obligations under the 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).

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The 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.

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

This covenant applies to the Term Loan A and 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

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

As of December 31, 2022, the Company was in compliance with all debt covenants related to the Senior Credit Facilities.

No mandatory debt prepayments were made as it was not required pursuant to the terms of the Credit Agreement.

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

The 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 Senior Credit Facilities.

CNDT 2021 Annual Report

Interest is payable semi-annually.

Prior to November 1, 2024, the Issuers can redeem the Senior Notes, in whole or in part, at a price equal to the principal amount of the 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.

The Issuers can redeem the Senior Notes, in whole or in part, at any time on or after November 1, 2024, at the redemption prices specified in the Indenture governing the Senior Notes, 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.

No Senior Notes were redeemed in 2022.

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.

In connection with the refinancing, the Company recorded deferred discounts and debt issuance costs of $ 30 million in 2021.

Additionally, the Company wrote-off debt issuance costs and discounts related to its previously outstanding 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.

Interest paid on short-term and long-term debt amounted to $ 84 million, $ 40 million and $ 51 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Interest expense and interest income were as follows:

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(1) Included in Other (income) expenses, net on the Consolidated Statements of Income (Loss).

CNDT 2021 Annual Report

Note 12 – Financial Instruments

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

The fair market values of all the Company's derivative contracts change with fluctuations in interest rates or currency exchange rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures.

The fair market values of all the Company's derivative contracts

CNDT 2022 Annual Report

change with fluctuations in interest rates or currency exchange rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures.

Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes.

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Dollar 1 — 18 —

Mexican Peso/U.S.

Dollar — — 2 —

All Other 16 — 30 —

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(1) Represents the net receivable (payable) amount included in the Consolidated Balance Sheet.

CNDT 2021 Annual Report

Note 13 – Fair Value of Financial Assets and Liabilities

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Total Liabilities $ 1 $ 2

CNDT 2022 Annual Report

Summary of Other Financial Assets and Liabilities

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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.

The value of the contingent consideration payable was then estimated to be the arithmetic average of all simulation paths, discounted to the valuation date (Level 3).

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

The fair value of Long-term debt was estimated based on the current rates offered to the Company for debt of similar maturities (Level 2).

CNDT 2021 Annual Report

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

Note 14 – Employee Benefit Plans

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Loss Before Income Taxes $ ( 127 ) $ ( 25 ) $ ( 139 )

CNDT 2022 Annual Report

Provision (benefit) for income taxes were as follows:

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Total Provision (Benefit) $ 55 $ 3 $ ( 21 )

CNDT 2021 Annual Report

A reconciliation of the U.S.

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subsidiaries.

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

(2) I mpairment represents adjustments for the non-deductible component of goodwill in 2022 and impairment of an equity investment in 2021.

(3) In 2022, the "Other" line includes immaterial reconciling items.

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.

On a consolidated basis, the Company paid $ 53 million and $ 25 million and received a refund of $ 1 million in combined income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2022, 2021 and 2020, respectively.

Unrecognized Tax Benefits and Audit Resolutions

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The Company is also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope of its operations.

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

The specific timing of when the resolution of each tax position will be reached is uncertain.

As of December 31, 2021, the Company had $ 23 million of unrecognized tax benefits, of which $ 22 million, if recognized, would impact the Company's effective tax rate.

Due to expected settlements, the Company estimates that $ 11 million of the total unrecognized tax benefits will reverse within the next twelve months.

Ongoing assessments of the more-likely-than-not outcomes of the

CNDT 2022 Annual Report

examinations and related tax positions require judgment and can increase or decrease the Company's effective tax rate, as well as impact its operating results.

The specific timing of when the resolution of each tax position will be reached is uncertain.

As of December 31, 2022, the Company had $ 12 million of unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

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Balance at January 1 $ 23 $ 23 $ 24

Additions related to current year — — 1

Additions related to prior years positions 1 3 3

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( 5 ) — ( 4 )

Lapse of Statute of limitations ( 5 ) — —

Balance at December 31 $ 12 $ 23 $ 23

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The Company had $ 3 million, $ 12 million and $ 13 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2022, 2021 and 2020, respectively.

We are subject to federal income taxes in the U.S.

and to income taxes in various states and foreign jurisdictions.

In the U.S., the Company is no longer subject to U.S.

federal income tax examinations for years before 2017.

With respect to major foreign jurisdictions, the years generally remain open back to 2005.

With limited exceptions, as of December 31, 2022, we are no longer subject to state, local or foreign examinations by tax authorities for years before 2017.

Deferred Income Taxes

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The Company has also not provided for deferred taxes on outside basis differences in its investments in its foreign subsidiaries.

A determination of the unrecognized deferred taxes related to these other components of our outside basis differences is not practicable.

A determination of the unrecognized deferred taxes related to these other components of the Company's outside basis differences is not practicable.

The Company has provided for deferred taxes with respect to certain unremitted earnings of foreign subsidiaries that are not indefinitely reinvested between foreign subsidiaries outside of the U.S.

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Tax credits 6 42

Capitalized research and experimentation costs 13 —

Subtotal 239 265

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Deferred Tax Liabilities

Unearned income $ — $ 27

Intangibles and goodwill $ 44 $ 79

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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, 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.

Although realization is not assured, we have concluded that it is more-likely-than-not that the deferred tax assets, for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating activities.

The net change in the total valuation allowance for the years ended December 31, 2022 and 2021 was an increase of $ 20 million and a decrease of $ 1 million, respectively.

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

Although realization is not assured, the Company has concluded that it is more-likely-than-not that the deferred tax assets, for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating activities.

The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future income or income tax rates are lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

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 $ 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.

At December 31, 2022, the Company had tax credit carryforwards of $ 6 million available to offset future income taxes, which will expire between 2027 and 2042, if not utilized.

The following table presents the Company's worldwide net operating loss carryforwards (NOLs) as of December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

(in millions) Gross Tax Effected Gross Tax Effected

U.S Federal NOLs limited by Section 382 of the Tax Code $ 4 $ 1 $ 5 $ 1

State NOLs 367 19 542 30

Foreign NOLs 304 76 199 50

Total $ 675 $ 96 $ 746 $ 81

The Company has $ 675 million of gross net operating loss carryforwards for income tax purposes including $ 531 million that will expire between 2023 and 2042, if not utilized, and $ 144 million available to offset future taxable income indefinitely.

The Company had $ 6 million of capital loss carryforwards for income tax purposes that will expire in 2024, if not utilized, and $ 11 million available to offset future capital gains income indefinitely.

CNDT 2022 Annual Report

Company does not expect to receive a tax benefit for the majority of the NOLs presented above, as valuation allowances have been recorded against most of the state and foreign NOLs and capital losses.

Note 16 – Contingencies and Litigation

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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 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.

We moved to dismiss the class action complaint in its entirety.

On March 8, 2019, a putative class action lawsuit alleging violations of certain federal securities laws in connection with the Company's statements and alleged omissions regarding its financial guidance and business and operations was filed against the Company, its former Chief Executive Officer, and its 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 the Company's securities from February 21, 2018 through November 6, 2018, and also seeks unspecified monetary damages, costs, and attorneys’ fees.

The Company moved to dismiss the class action complaint in its entirety.

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

We intend to defend the litigation vigorously.

The Company maintains insurance that may cover any costs arising out of this litigation up to the insurance limits, and subject to meeting certain deductibles and to other terms and conditions thereof.

The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves.

CNDT 2021 Annual Report

The Court granted Class Certification on February 28, 2022.

Upon the substantial completion of document discovery, the parties agreed to engage in mediation, and the Court administratively terminated the litigation to permit those efforts to proceed.

Without any admission of liability or damages, in the third quarter of 2022, the parties settled this matter following that mediation, and filed the necessary documentation for preliminary approval by the court, class notice, and the claims administration process.

The Court granted preliminary approval of the settlement terms and related documentation on January 27, 2023, with a final Settlement Hearing scheduled for May 24, 2023.

The Court's order notes that it "will likely be able to approve the proposed Settlement as fair, reasonable and adequate under Federal Rule of Civil Procedure 23(e)(2)." As a result, during the fourth quarter of 2022, the Company reversed the reserve pertaining to this matter.

The Company maintains insurance that covers the costs arising out of this litigation and resulting settlement having met the deductible and other terms and conditions thereof.

Skyview Capital LLC and Continuum Global Solutions, LLC v.

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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 to plaintiffs, which sale closed in February 2019.

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

CNDT 2022 Annual Report

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).

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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.

This matter has been proceeding through fact and expert discovery.

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

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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.

In August 2018, the Company sold Buck;

however, the Company retained this liability after the sale.

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.

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;

however, the Company retained this liability after the sale.

CNDT 2021 Annual Report

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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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.

The matter has been proceeding through fact and expert discovery, and a mediation has been scheduled for late February 2023.

CBS will continue to defend itself vigorously against the counterclaims and at this time, 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 2022 Annual Report

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 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.

Since 2014, Xerox Education Services, Inc.

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

CNDT 2022 Annual Report

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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Other Contingencies

Certain contracts, primarily in the Company's Government Services and Transportation segments, require the Company to provide a surety bond or a letter of credit as a guarantee of performance.

As of 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.

Certain contracts, primarily in the Company's Government and Transportation segments, require the Company to provide a surety bond or a letter of credit as a guarantee of performance.

As of December 31, 2022, the Company had $ 622 million of outstanding surety bonds issued to secure its performance of contractual obligations with its clients and $ 91 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 2021 Annual Report

Note 17 - Preferred Stock

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The Series A convertible preferred stock is also convertible, at the option of the holder, upon a change in control, at the applicable conversion rate plus an additional number of shares determined by reference to the price paid for the Company's common stock upon such change in control.

In addition, upon the occurrence of certain fundamental change events, including a change in control or the delisting of Conduent's common stock, the holder of Series A convertible preferred stock has the right to require the Company to redeem any or all of the Series A convertible preferred stock in cash at a redemption price per share equal to the liquidation preference and any accrued and unpaid dividends to, but not including, the redemption date.

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 2022 Annual Report

redemption date.

Note 18 – Shareholders’ Equity

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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.

For PSUs granted in 2022, the number of shares eligible to vest may be adjusted upward or downward by 5% based on a total shareholder return modifier, which measures the Company’s stock performance relative to the stock performance of the Company’s 2022 proxy peers over each measurement period.

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

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Changes in cash flow hedges reclassed to earnings (1)

— — — — ( 1 ) —

Net Unrealized Gains (Losses) $ ( 1 ) $ ( 1 ) $ ( 1 ) $ ( 1 ) $ — $ —

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____________________________

(1) Reclassified to Cost of services - refer to Note 12 – Financial Instruments for additional information regarding our cash flow hedges.

(1) Reclassified to Cost of services - refer to Note 12 – Financial Instruments for additional information regarding the Company's cash flow hedges.

Accumulated Other Comprehensive Loss (AOCL)

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Note 20 – Earnings (Loss) per Share

We did not declare any common stock dividends in the periods presented.

The Company did not declare any common stock dividends in the periods presented.

The following table sets forth the computation of basic and diluted loss per share of common stock:

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Shares in thousands) 2022 2021 2020

Net Earnings (Loss) per Share:

Basic Net Earnings (Loss) per Share:

Net Income (Loss) $ ( 182 ) $ ( 28 ) $ ( 118 )

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

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

Adjusted Net Income (Loss) Available to Common Shareholders - Basic $ ( 192 ) $ ( 38 ) $ ( 128 )

Diluted Net Earnings (Loss) per Share:

Net Income (Loss) $ ( 182 ) $ ( 28 ) $ ( 118 )

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

Adjusted Net Income (Loss) Available to Common Shareholders - Diluted $ ( 192 ) $ ( 38 ) $ ( 128 )

Weighted Average Common Shares Outstanding - Basic 215,886 212,719 210,018

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Note 21 – Related Party Transactions

During the third quarter of 2019, Carl C.

Icahn and his affiliates (shareholders) increased their ownership interest in the Company.

In the normal course of business, the Company provides services to, and purchases from, certain related parties with the same shareholders.

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

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 2022 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