What changed in this filing

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Item 1. Financial Statements

2023-05-03 compared with 2022-11-01 · 88 added, 221 removed, 448 unchanged (41% of the section changed)

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data) 2023 2022

7 unchanged sentences

Interest expense 27 19

(Gain) loss on divestitures and transaction costs 1 — ( 159 ) 1

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

Litigation settlements (recoveries), net ( 21 ) ( 28 )

Loss on extinguishment of debt — — — 2

Other (income) expenses, net ( 1 ) 1

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

3 unchanged sentences

Unrecognized gains (losses), net 1 ( 1 )

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

Other Comprehensive Income (Loss), Net 18 ( 6 )

6 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands) September 30, 2022 December 31, 2021

(in millions, except share data in thousands) March 31, 2023 December 31, 2022

Cash and cash equivalents $ 526 $ 582

Accounts receivable, net 590 630

Assets held for sale — 184

Contract assets 163 171

12 unchanged sentences

Unearned income 79 81

Liabilities held for sale — 29

Other current liabilities 375 382

19 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2023 2022

5 unchanged sentences

Deferred income taxes ( 8 ) 31

(Gain) loss from investments — 5

Amortization of debt financing costs 1 1

Loss on extinguishment of debt — 2

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

Stock-based compensation 2 2

Allowance for credit losses — ( 1 )

Changes in operating assets and liabilities:

13 unchanged sentences

Payments on debt ( 10 ) ( 8 )

Premium on debt redemption — ( 2 )

Taxes paid for settlement of stock-based compensation ( 7 ) —

5 unchanged sentences

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

(1) Includes $ 10 million and $ 6 million of restricted cash as of September 30, 2022 and 2021, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

(1) Includes $ 21 million and $ 5 million of restricted cash as of March 31, 2023 and 2022, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

Three Months Ended September 30, 2022

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

Shareholders'

Balance at June 30, 2022 $ 2 $ 3,918 $ ( 2,220 ) $ ( 475 ) $ 1,225

Dividends - preferred stock, $ 20 /share

— — ( 2 ) — ( 2 )

Stock incentive plans, net — 6 — — 6

Comprehensive Income (Loss):

Net Income (Loss) — — 15 — 15

Other comprehensive income (loss), net — — — ( 38 ) ( 38 )

Total Comprehensive Income (Loss), Net — — 15 ( 38 ) ( 23 )

Balance at September 30, 2022 $ 2 $ 3,924 $ ( 2,207 ) $ ( 513 ) $ 1,206

Three Months Ended September 30, 2021

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

Shareholders'

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

Dividends - preferred stock, $ 20 /share

— — ( 2 ) — ( 2 )

Stock incentive plans, net — 5 — — 5

Comprehensive Income (Loss):

Net Income (Loss) — — 11 — 11

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

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

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

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

8 unchanged sentences

Total Comprehensive Income (Loss), Net — — ( 6 ) 18 12

Balance at September 30, 2022 $ 2 $ 3,924 $ ( 2,207 ) $ ( 513 ) $ 1,206

Nine Months Ended September 30, 2021

Balance at March 31, 2023 $ 2 $ 3,926 $ ( 2,551 ) $ ( 448 ) $ 929

Three Months Ended March 31, 2022

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

8 unchanged sentences

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

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

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

(1) AOCL - Accumulated other comprehensive loss.

5 unchanged sentences

Description of Business

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

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

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

As a global technology-led business process solutions company, Conduent delivers digital business solutions and services spanning the commercial, government and transportation spectrum – creating exceptional outcomes for its clients and the millions of people who count on them.

Through a dedicated global team of associates, process expertise, and advanced technologies, Conduent’s solutions and services digitally transform its clients’ operations to enhance customer experiences, improve performance, increase efficiencies and reduce costs.

Basis of Presentation

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These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The Company has evaluated subsequent events through November 1, 2022 and no material subsequent events were identified.

In the first quarter of 2023, the Company identified an error and recorded an out-of-period adjustment to correct the recognition of revenue on a Government segment contract that originated in 2020 and impacted all quarterly periods through December 31, 2022.

This adjustment resulted in a reduction to revenue and income (loss) before income taxes of $ 7 million and a corresponding decrease to accounts receivable of $ 1 million and an increase to other current liabilities of $ 6 million in the first quarter of 2023.

The Company evaluated the impact of the out-of-period adjustment and concluded it was not material to any previously issued interim or annual consolidated financial statements and the adjustment is not expected to be material to the year ending December 31, 2023.

The Company has evaluated subsequent events through May 3, 2023, and no material subsequent events were identified.

Use of Estimates

4 unchanged sentences

The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

As of September 30, 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 of March 31, 2023, the effects of global macroeconomic and geopolitical uncertainty 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.

1 unchanged sentence

CNDT Q1 2023 Form 10-Q

Contingencies and Litigation

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

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

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

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

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

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

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

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

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

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

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

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

Refer to Note 13 – Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information regarding loss contingencies.

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

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

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

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

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

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

The Company considered the reorganization 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 Services reportable segment to the Commercial reportable segment (refer to Note 4 – Segment Reporting to the Condensed Consolidated Financial Statements for additional information).

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

Note 2 – Recent Accounting Pronouncements

2 unchanged sentences

The Company has not adopted any new accounting standards in 2023 that had a material impact on its Consolidated Financial Statements.

CNDT Q3 2022 Form 10-Q

New Accounting Standards To Be Adopted

2 unchanged sentences

Disaggregation of Revenue

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

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

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

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

The following table provides information about disaggregated revenue by major service offering, the timing of revenue recognition and a reconciliation of the disaggregated revenue by reportable segment.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

1 unchanged sentence

Business operations solutions 135 151

Commercial healthcare solutions 100 91 278 277

Human resource and learning services 104 111 325 339

Healthcare claims and administration solutions 90 90

Human capital solutions 106 110

Total Commercial 508 512

Government Services:

Government healthcare solutions 143 145

Government services solutions 121 141

Total Government Services 291 346 856 996

Total Government 264 286

Transportation:

Roadway charging & management services 87 79 244 237

Road usage charging & management solutions 75 76

Transit solutions 40 49

9 unchanged sentences

Total Revenue $ 922 $ 967

CNDT Q1 2023 Form 10-Q

Contract Balances

4 unchanged sentences

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

CNDT Q3 2022 Form 10-Q

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

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

Contract Assets (Unearned Income)

8 unchanged sentences

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

Revenues of $ 14 million and $ 67 million were recognized during the three and nine months ended September 30, 2022, respectively, related to the Company's unearned income at December 31, 2021.

Additionally, the Company recognized $ 7 million of revenue related to the unearned income of the divested Midas business for the nine months ended September 30, 2022.

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

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

The Company had no material asset impairment charges related to contract assets for the three and nine months ended September 30, 2022 or 2021.

Revenues of $ 29 million were recognized during the three months ended March 31, 2023 related to the Company's unearned income at December 31, 2022.

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

The Company had no material asset impairment charges related to contract assets for the three months ended March 31, 2023 or 2022.

Transaction Price Allocated to the Remaining Performance Obligations

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at September 30, 2022 was approximately $ 950 million.

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at March 31, 2023 was approximately $ 1.1 billion.

The Company expects to recognize approximately 75 % of this revenue over the next two years and the remainder thereafter.

2 unchanged sentences

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

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

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

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

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

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

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

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

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

CNDT Q3 2022 Form 10-Q

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

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

Government Services:

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

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.

CNDT Q1 2023 Form 10-Q

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, have a positive impact on the environment and increase revenue and reduce congestion while creating safe, seamless travel experiences for consumers.

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

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

Unallocated Costs includes IT infrastructure costs that are shared by multiple reportable segments, enterprise application costs and certain corporate overhead expenses not directly attributable or allocated to the reportable segments.

1 unchanged sentence

Three Months Ended

September 30,

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

Revenue $ 504 $ 291 $ 182 $ — $ — $ 977

Segment profit (loss) $ 44 $ 79 $ 16 $ — $ ( 87 ) $ 52

Revenue $ 493 $ 346 $ 180 $ 19 $ — $ 1,038

Segment profit (loss) $ 16 $ 125 $ 13 $ 11 $ ( 89 ) $ 76

Nine Months Ended

September 30,

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

(in millions) Commercial Government Transportation Divestitures Unallocated Costs Total

Revenue $ 508 $ 264 $ 150 $ — $ — $ 922

2 unchanged sentences

Segment profit (loss) $ 28 $ 75 $ 8 $ 2 $ ( 59 ) $ 54

CNDT Q3 2022 Form 10-Q

(in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2023 2022

4 unchanged sentences

Interest expense 27 19

(Gain) loss on divestitures and transaction costs 1 — ( 159 ) 1

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

Litigation settlements (recoveries), net ( 21 ) ( 28 )

Loss on extinguishment of debt — — — 2

Other (income) expenses, net ( 1 ) 1

Segment Pre-tax Income (Loss) $ 52 $ 76 $ 142 $ 210

Segment Profit (Loss) $ 30 $ 54

Refer to Note 3 – Revenue for additional information on disaggregated revenues of the reportable segments.

Note 5 – Assets/Liabilities Held for Sale and Divestiture

Assets/Liabilities Held for Sale

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

had not yet closed.

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

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

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

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

The working capital adjustments were settled during the second quarter of 2022 and were not material.

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

Note 5 – Divestiture

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 ($ 321 million in the first quarter of 2022 and $ 1 million in the second quarter of 2022).

The divestiture generated a pre-tax gain of $ 166 million ($ 165 million in the first quarter of 2022 and $ 1 million in the second quarter of 2022), 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 for the nine months ended September 30, 2022 and $ 19 million and $ 54 million, respectively, for the three and nine months ended September 30, 2021.

There was no revenue generated by this business for the three months ended September 30, 2022.

Note 6 – Goodwill

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

(in millions) Commercial Government Services Transportation Total

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

Foreign currency translation ( 33 ) ( 7 ) ( 13 ) ( 53 )

Balance at September 30, 2022 $ 628 $ 610 $ 48 $ 1,286

Gross goodwill $ 2,181 $ 1,364 $ 628 $ 4,173

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

Balance at September 30, 2022 $ 628 $ 610 $ 48 $ 1,286

In the third quarter of 2022, the Company performed its ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value.

After evaluating and weighing all relevant events and circumstances, the Company concluded that it is not more likely than not that the fair values of any of its reporting units were less than their carrying values.

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

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

CNDT Q1 2023 Form 10-Q

To the extent that:

(i) the COVID-19 pandemic or a potential recession disrupts the economic environment, such as a decline in the performance of the reporting units or loss of a significant contract or multiple significant contracts, or (ii) interest rates continue to rise in response to persistent inflation, the fair value of one or more of the reporting units could fall below their carrying value, resulting in a goodwill impairment charge.

Note 6 – Restructuring Programs and Related Costs

The Company engages in a series of restructuring programs related to downsizing its employee base, exiting certain activities, outsourcing certain internal functions and engaging in other actions designed to reduce its cost structure and improve productivity.

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

Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $ 2 million and $ 4 million for the three months ended September 30, 2022 and 2021, respectively, and $ 9 million and $ 19 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company engages in a series of restructuring programs related to exiting certain activities, downsizing its employee base, outsourcing certain internal functions and engaging in other actions designed to reduce its cost structure and improve productivity.

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.

1 unchanged sentence

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 our real estate footprint include impairment of operating lease right-of-use (ROU) assets and associated leasehold improvements.

A summary of the Company's restructuring program activity during the nine months ended September 30, 2022 and 2021 is as follows:

Asset impairment costs related to the reduction of the Company's real estate footprint include impairment of operating lease ROU assets and associated leasehold improvements.

A summary of the Company's restructuring program activity during the three months ended March 31, 2023 and 2022 is as follows:

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

4 unchanged sentences

Charges against reserve and currency ( 8 ) ( 3 ) ( 2 ) ( 13 )

Accrued Balance at September 30, 2022 $ 1 $ — $ — $ 1

Accrued Balance at March 31, 2023 $ 22 $ 4 $ — $ 26

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

4 unchanged sentences

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

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

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

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

In addition, the Company recorded professional support costs associated with the implementation of certain strategic transformation programs of $ 1 million for the three months ended September 30, 2021, and $ 2 million and $ 3 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company did not record any such costs for the three months ended September 30, 2022.

In addition, during the three months ended March 31, 2023, the Company also incurred $ 4 million of professional support costs associated with bringing certain technology functions in-house.

CNDT Q1 2023 Form 10-Q

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

Commercial $ 20 $ —

Government Services — — — —

Government — —

Transportation — —

5 unchanged sentences

Long-term debt was as follows:

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

Term loan A due 2026 $ 249 $ 252

7 unchanged sentences

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

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

As of September 30, 2022, the Company had no outstanding borrowings under its Revolver.

However, the Company utilized $ 2 million of the Revolver to issue letters of credit as of September 30, 2022.

The net Revolver available to be drawn upon as of September 30, 2022 was $ 548 million.

At September 30, 2022, the Company was in compliance with all debt covenants related to the borrowings in the table above.

As of March 31, 2023, the Company had no outstanding borrowings under its Revolver.

However, the Company utilized $ 2 million of the Revolver to issue letters of credit as of March 31, 2023.

The net Revolver available to be drawn upon as of March 31, 2023 was $ 548 million.

At March 31, 2023, the Company was in compliance with all debt covenants related to the borrowings in the table above.

Note 8 – Financial Instruments

1 unchanged sentence

As a part of the Company's foreign exchange risk management strategy, the Company uses derivative instruments, primarily forward contracts, to hedge the funding of foreign entities which have a non-dollar functional currency, thereby reducing volatility of earnings or protecting fair values of assets and liabilities.

At September 30, 2022 and December 31, 2021, the Company had outstanding forward exchange contracts with gross notional values of $ 105 million and $ 150 million, respectively.

At September 30, 2022, approximately 66 % of these contracts mature within three months, 13 % in three to six months, 16 % in six to twelve months and 5 % in greater than twelve months.

At March 31, 2023 and December 31, 2022, the Company had outstanding forward exchange contracts with gross notional values of $ 99 million and $ 104 million, respectively.

At March 31, 2023, approximately 59 % of these contracts mature within three months, 17 % in three to six months, 18 % in six to twelve months and 6 % in greater than twelve months.

Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on the Company's balance sheet, income statement or cash flows for the periods presented.

11 unchanged sentences

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

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

Foreign exchange contract - forward $ 1 $ —

4 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions) Carrying

4 unchanged sentences

Note 10 – Employee Benefit Plans

The Company has post-retirement savings and investment plans in several countries, including the U.S., U.K.

The Company has post-retirement savings and investment plans in several countries, including the U.S., India and the Philippines.

In many instances, employees participating in defined benefit pension plans that have been amended to freeze future service accruals were transitioned to an enhanced defined contribution plan.

1 unchanged sentence

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

The Company recognized an expense related to its defined contribution plans of $ 4 million and $ 6 million for the three months ended September 30, 2022 and 2021, respectively and $ 12 million and $ 16 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company recognized an expense related to its defined contribution plans of $ 3 million and $ 5 million for the three months ended March 31, 2023 and 2022, respectively.

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

5 unchanged sentences

Other comprehensive income (loss) 17 1 — 18

Balance at September 30, 2022 $ ( 513 ) $ — $ — $ ( 513 )

Balance at March 31, 2023 $ ( 455 ) $ 2 $ 5 $ ( 448 )

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

1 unchanged sentence

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

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

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

(1) All amounts are net of tax.

12 unchanged sentences

Should developments in any of these matters cause a change in the Company's determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts in excess of any accrual for such matter or matters, this could have a material adverse effect on the Company's results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs.

The Company believes it has recorded adequate provisions for any such matters as of September 30, 2022.

The Company believes it has recorded adequate provisions for any such matters as of March 31, 2023.

Litigation is inherently unpredictable, and it is not possible to predict the ultimate outcome of these matters and such outcome in any such matters could be more than any amounts accrued and could be material to the Company's results of operations, cash flows or financial position in any reporting period.

4 unchanged sentences

However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Company's Consolidated Financial position or liquidity.

As of September 30, 2022, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

As of March 31, 2023, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

CNDT Q1 2023 Form 10-Q

2 unchanged sentences

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 our statements and alleged omissions regarding the Company's 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 Court).

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.

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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 are preparing the necessary documentation for approval by the court, class notice, and the claims administration process.

The Company maintains insurance that will cover the costs arising out of this litigation and resulting settlement subject to meeting the deductible and other terms and conditions thereof.

Until the court approves the documentation for the settlement, 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.

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.

Conduent Business Services, LLC:

On February 3, 2020, plaintiffs filed a lawsuit in the Superior Court of New York County, New York.

On February 3, 2020, plaintiffs Skyview LLC (Skyview) 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.

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Plaintiffs allege that their obligation to mitigate damages and their contractual right of set-off permits them to withhold and deduct from any amounts that are owed to CBS under the Notes, and plaintiffs seek a judgement that they have no obligation to pay the Notes.

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

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

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

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

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

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.

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 Q1 2023 Form 10-Q

Dennis Nasrawi v.

Buck Consultants et al.:

On October 8, 2009, plaintiffs filed a lawsuit in the Superior Court of California, Stanislaus County, and on November 24, 2009, the case was removed to the U.S.

Court for the Eastern District of California, Fresno Division.

Plaintiffs 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.

The Court also ruled that plaintiffs had adequately pleaded their claim that Buck allegedly aided and abetted StanCERA in breaching its fiduciary duty.

Plaintiffs then filed their Fifth Amended Complaint and added StanCERA to the litigation.

Buck and StanCERA filed demurrers to the amended complaint.

On September 13, 2012, the Court sustained both demurrers with prejudice, completely dismissing the matter and barring plaintiffs from refiling their claims.

Plaintiffs appealed, and ultimately the California Court of Appeals (Sixth District) reversed the trial court’s ruling and remanded the case back to the trial court as to Buck only, and only with respect to plaintiff's claim of aiding and abetting StanCERA in breaching its fiduciary duty.

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.

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.

The matter has been proceeding through fact and expert discovery.

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 parties participated in a mediation in late February 2023, and this matter settled, following negotiations that continued thereafter.

The parties executed the Settlement Agreement and Mutual Release on March 30, 2023, with no admission of liability or wrongdoing by either party.

In April 2023, each side made reciprocal payments of $ 6 million to the other, with Conduent’s payment made toward the termination fee payable under the applicable service delivery contract.

As a result of the settlement, during the first quarter of 2023, the Company adjusted the balance sheet amounts recorded pertaining to this matter.

As such, the Company recognized a $ 17 million benefit in Cost of services (excluding depreciation and amortization) and a $ 26 million benefit in Litigation settlements (recoveries), net.

Other Matters

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

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

CNDT Q3 2022 Form 10-Q

Since 2014, Xerox Education Services, Inc.

(XES) has cooperated with several federal and state agencies regarding a variety of matters, including XES' self-disclosure to the U.S.

As a result of the settlement agreements entered with the insurers, in the three months ended March 31, 2022, 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, Conduent Education Services, LLC, formerly Xerox Education Services LLC (CES), has cooperated with several federal and state agencies regarding a variety of matters, including CES' self-disclosure to the U.S.

Department of Education (Department) and the Consumer Financial Protection Bureau (CFPB) that some third-party student loans under outsourcing arrangements for various financial institutions required adjustments.

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Department of Justice.

The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which XES serviced third-party student loans, or another party will not ultimately commence a legal action against XES in which fines, penalties or other liabilities are sought from XES.

The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which CES serviced third-party student loans, or another party will not ultimately commence a legal action against CES in which fines, penalties or other liabilities are sought from CES.

Nor is the Company able to predict the likely outcome of these matters, should any such matter be commenced, or reasonably provide an estimate or range of estimates of any loss in excess of currently recorded reserves.

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Other Contingencies

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

As of September 30, 2022, the Company had $ 565 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.

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 March 31, 2023, the Company had $ 631 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 Q1 2023 Form 10-Q

Note 13 – Preferred Stock

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Each share of convertible preferred stock is convertible at any time, at the option of the holder, into 44.9438 shares of common stock for a total of 5,393,000 shares (reflecting an initial conversion price of approximately $ 22.25 per share of common stock), subject to customary anti-dilution adjustments.

CNDT Q3 2022 Form 10-Q

Note 14 – Earnings (Loss) per Share

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Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data in whole dollars and shares in thousands) 2023 2022

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

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

Other Current Assets

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Cloud computing implementation costs, net 3 4

Deferred tax assets 30 20

Total Other Long-term Assets $ 494 $ 489

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Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

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Purchases from related parties $ 6 $ 5

The Company's receivable and payable balances with related party entities were not material as of September 30, 2022 and December 31, 2021.

The Company's receivable and payable balances with related party entities were not material as of March 31, 2023 and December 31, 2022.

CNDT Q1 2023 Form 10-Q

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

What changed 10-Q

Item 1. Financial Statements