What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-22 · 229 added, 190 removed, 1213 unchanged (26% of the section changed)

34 unchanged sentences

As described in Notes 1 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $651 million as of December 31, 2023.

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

The goodwill associated with the Commercial reporting unit was nil.

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

5 unchanged sentences

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.

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.

In September 2023, the Company entered into a Custodial Transfer and Asset Purchase Agreement (the "Purchase Agreement") to transfer its BenefitWallet health savings account and medical savings account portfolio (the "Portfolio"), which is reported within the Company’s Commercial segment.

Since the Purchase Agreement does not represent a disposition of a business, no goodwill was allocated to the Portfolio related to this transaction.

Consequently, the Purchase Agreement was identified as a triggering event for the Commercial reporting unit that required the Company to evaluate goodwill for impairment.

This evaluation resulted in a full impairment of the Commercial reporting unit's goodwill, totaling $287 million.

The impairment charge was primarily driven by the Purchase Agreement and was recognized in the third quarter of 2023.

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.

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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;

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and past performance of the Commercial reporting unit;

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

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

89 unchanged sentences

Common stock 2 2

Treasury stock, at cost ( 27 ) —

Additional paid-in capital 3,938 3,924

1 unchanged sentence

Accumulated other comprehensive loss ( 435 ) ( 466 )

Total Conduent Inc.

Equity 629 917

Non-controlling Interest 4 —

Total Equity 633 917

2 unchanged sentences

Shares of series A convertible preferred stock issued and outstanding 120 120

Shares of common stock held in treasury 8,841 —

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

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Premium on debt redemption — — ( 2 )

Payment of contingent consideration related to acquisition — — ( 4 )

Treasury stock purchases ( 27 ) — —

Taxes paid for settlement of stock-based compensation ( 7 ) ( 1 ) ( 10 )

Dividends paid on preferred stock ( 10 ) ( 10 ) ( 10 )

Contribution from noncontrolling interest 4 — —

Net cash provided by (used in) financing activities ( 81 ) ( 131 ) ( 132 )

9 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in millions) Common Stock Additional

(in millions) Common Stock Treasury Stock Additional

Capital Retained

Earnings AOCL (1)

Shareholders’

Non-controlling Interest Shareholders’

Balance at December 31, 2020 $ 2 $ — $ 3,899 $ ( 2,313 ) $ ( 398 ) $ — $ 1,190

2 unchanged sentences

Stock incentive plans, net — — 11 — — — 11

Treasury stock purchases — — — — — — —

Contribution from noncontrolling interest — — — — — — —

Comprehensive Income (Loss):

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Stock incentive plans, net — — 14 — — — 14

Treasury stock purchases — — — — — — —

Contribution from noncontrolling interest — — — — — — —

Comprehensive Income (Loss):

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Stock incentive plans, net — — 14 — — — 14

Treasury stock purchases — ( 27 ) — — — — ( 27 )

Contribution from noncontrolling interest — — — — — 4 4

Comprehensive Income (Loss):

12 unchanged sentences

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.

Conduent delivers digital business solutions and services spanning the commercial, government and transportation spectrum – creating valuable outcomes for its clients and the millions of people who count on them.

Conduent leverages cloud computing, artificial intelligence, machine learning, automation and advanced analytics to deliver mission-critical business process solutions.

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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All intercompany transactions and balances have been eliminated.

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 material to the year ending December 31, 2023.

The Company has evaluated subsequent events through February 21, 2024.

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

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 of December 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.

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

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

Segment Reporting:

In November 2023, the Financial Accounting Standards Board ("FASB") issued final guidance that expands reportable segment disclosures, particularly incremental segment expense disclosures.

This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Company is not early adopting this guidance.

The Company is currently in the process of gathering the data required to be disclosed upon adoption.

As the guidance is disclosure related, adoption will not have any impact on the Company's Consolidated Financial Statements.

Income Taxes:

In December 2023, the FASB issued final guidance designed to improve income tax disclosures, particularly disclosures around business entities' income tax rate reconciliation and income taxes paid.

The guidance requires consistent categories and greater disaggregation of information in the reconciliation of an entity's statutory tax rate to its effective tax rate and information about income taxes paid disaggregated by jurisdiction.

This guidance is effective for fiscal years beginning after December 15, 2024.

The Company is not early adopting this guidance.

The Company is currently in the process of gathering the data required to be disclosed upon adoption.

As the guidance is disclosure related, adoption will not have any impact on the Company's Consolidated Financial Statements.

Recently Adopted Accounting Standards

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

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Summary of Accounting Policies

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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 (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.

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

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

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Refer to Note 4 – Assets/Liabilities Held for Sale and Divestitures to the Consolidated Financial Statements for additional information.

Land, Buildings and Equipment

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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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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 the Company's Consolidated Balance Sheets.

Operating leases are included in Operating lease right of use ("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.

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

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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.

8 unchanged sentences

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.

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.

6 unchanged sentences

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.

Refer to Note 16 – Contingencies and Litigation to the 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).

13 unchanged sentences

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

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Impairment of Long-Lived Assets

7 unchanged sentences

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”

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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” 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.

10 unchanged sentences

Refer to Note 15 – Income Taxes for further discussion.

Share Repurchase Program

On May 16, 2023, the Board of Directors authorized a share repurchase program, granting approval for the Company to repurchase up to $ 75 million of its common stock over the next three years .

The Company has the discretion to repurchase shares periodically through open market transactions and may include Rule 10b5-1 trading plans.

This share repurchase program does not obligate the Company to acquire a specific number of shares and the program may be modified, suspended or discontinued at any time at the Company’s discretion without prior notice.

The Company holds repurchased shares of common stock as treasury stock.

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders' equity.

The Company accrues the cost of repurchased shares and excludes such shares from the calculation of basic and diluted earnings per share, as of the trade date.

The Company recognizes a liability for share repurchases which have not settled and for which cash has not been paid in Other current liabilities on the Company's Consolidated Balance Sheets.

Noncontrolling Interest

The Company's Consolidated Financial Statements include the historical basis of assets, liabilities, revenues and expenses of the individual businesses of the Company, including joint ventures over which the Company has a controlling financial interest.

Control is based on ownership interest.

The ownership interest held by an owner other than the Company in a less than wholly owned subsidiary is classified as a non-controlling interest.

Net income (loss) is allocated to the noncontrolling interest based on ownership interest.

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In May 2023, the Company signed a new customer contract with the State of Victoria, Australia to provide the next generation of the state's public transport ticketing system.

As a result, the Company and Convergint Australia Pty Ltd (“Convergint”) entered into a shareholder agreement to form Conduent Victoria Ticketing System Pty Ltd (“Conduent Victoria”).

The Company holds an 80 % equity investment in Conduent Victoria and the remaining 20 % is owned by Convergint.

For the year ended December 31, 2023, noncontrolling interest in Conduent Victoria was not material to the Company's Consolidated Statements of Income (Loss) or Consolidated Statements of Comprehensive Income (Loss) and, therefore, the Company did not present any separate disclosures for such noncontrolling interest in those statements.

Foreign Currency Translation and Re-measurement

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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

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

In limited circumstances, such as contracts for 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.

2 unchanged sentences

The Company recognizes revenue for non-refundable upfront implementation fees on a straight-line basis over the period between the initiation of the services through the end of the contract term.

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When more than one party is involved in providing services to a customer, the Company evaluates whether it is the principal, and reports revenue on a gross basis, or an agent, and reports revenue on a net basis.

13 unchanged sentences

Disaggregation of Revenue

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.

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.

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

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

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Year Ended December 31,

22 unchanged sentences

Total Revenue $ 3,722 $ 3,858 $ 4,140

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The Company's contracts with customers are broadly similar in nature throughout the Company's major service offerings.

5 unchanged sentences

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 streamlines mission-critical operations through its deep industry experience, understanding of its clients’ operations and the latest technology solutions, to reduce costs, improve security, performance 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.

On behalf of the healthcare and casualty insurance industries, 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 experiences for members and patients.

The Company's solutions span:

4 unchanged sentences

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

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

The Company's solutions span Benefits Administration Solutions, Human Resources ("HR") and Payroll Solutions, Health Savings Account 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.

1 unchanged sentence

Government Healthcare 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.

The Company provides mission-critical program administration solutions for government healthcare programs with 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 :

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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.

For train, bus, subway, metro and other transit travelers, the Company helps make journeys more personalized and convenient while increasing fare collections 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.

2 unchanged sentences

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

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Public Safety Solutions :

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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.

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

11 unchanged sentences

Revenues of $ 61 million and $ 76 million were recognized during the years ended December 31, 2023 and 2022, respectively, related to the Company's unearned income at December 31, 2022 and December 31, 2021.

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.

The Company recorded a $ 3 million asset impairment charge related to contract assets for the year ended December 31, 2023.

There were no material asset impairment charges related to contract assets in the years ended December 31, 2022 or 2021.

Transaction Price Allocated to the Remaining Performance Obligations

2 unchanged sentences

Costs to Obtain and Fulfill a Contract

The Company capitalizes commission expenses paid to internal sales personnel that are incremental to obtaining customer contracts.

The net book value of these costs, which was $ 24 million and $ 25 million as of December 31, 2022 and 2021, respectively, are included in Other long-term assets.

The Company capitalizes commission expenses paid to internal sales personnel that are incremental costs related to obtaining customer contracts.

As of December 31, 2023 and 2022, the net book value of these costs was $ 21 million and $ 24 million, respectively, and is included in Deferred contract costs, net within Other long-term assets.

The judgments made in determining the amount of costs incurred include whether the commissions are incremental and directly related to a successful acquisition of a customer contract.

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These inducement payments are capitalized and amortized as a reduction of revenue over the term of the customer contract.

The net book value of these costs totaled $ 28 million and $ 19 million as of December 31, 2022 and 2021, respectively, and are included in Other long-term assets.

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 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.

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book value of these costs totaled $ 10 million and $ 28 million as of December 31, 2023 and 2022, respectively, and are included in Deferred contract costs, net within Other long-term assets.

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 these costs, which comprise set-up/transition activities, was $ 60 million and $ 30 million as of December 31, 2023 and 2022, respectively, and are included in Deferred contract costs, net within 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, 2023, 2022 and 2021, were $ 40 million, $ 34 million and $ 39 million, respectively.

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

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

2024 2025 2026 2027 2028 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 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.

2 unchanged sentences

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.

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

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

1 unchanged sentence

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.

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.

Other includes the Company's Midas business, which was sold in the first quarter of 2022.

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.

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

Note 4 – Assets/Liabilities Held for Sale and Divestiture

Assets/Liabilities Held for Sale

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.

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Note 4 – Assets/Liabilities Held for Sale and Divestitures

Assets/Liabilities Held for Sale

In December 2023, the Company signed a definitive agreement to sell its Curbside Management and Public Safety Solutions businesses for $ 230 million (plus the assumption of certain indebtedness), subject to customary purchase price adjustments.

The sale is expected to close in the first half of 2024 and is subject to the s atisfaction certain customary closing conditions.

The assets and liabilities of these businesses, 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 Transportation segment.

The Disposal Group generated revenue of $ 134 million, $ 146 million and $ 149 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The pre-tax profit of the Disposal Group, excluding unallocated costs, was $ 22 million, $ 36 million and $ 54 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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, 2023

Accounts Receivable, net $ 49

Other current assets 3

Land, building and equipment, net 52

Operating lease right-of-use assets 6

Other long-term assets 35

Total Assets held for sale $ 180

Current portion of long-term debt $ 5

Accounts payable 11

Accrued compensation and benefits costs 2

Unearned income 4

Other current liabilities 9

Long-term debt 19

Operating lease liabilities 4

Other long-term liabilities 4

Total Liabilities held for sale $ 58

Announced Transfer of BenefitWallet Portfolio

In September 2023, the Company entered into a Custodial Transfer and Asset Purchase Agreement to transfer its BenefitWallet health savings account and medical savings account portfolio (collectively, the "Portfolio") to HealthEquity, Inc.

("HealthEquity") for $ 425 million, subject to customary purchase price adjustments.

The Portfolio is reported within the Company's Commercial segment.

The transfer is expected to close in multiple tranches during the first half of 2024 and is subject to the satisfaction of certain customary closing conditions.

As of December 31, 2023, there were no asset or liability balances related to the Portfolio that would require disclosure as assets and liabilities held for sale on the Company's Consolidated Balance Sheet.

The Portfolio generated revenue of $ 127 million, $ 71 million and $ 44 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The pre-tax profit of the Portfolio, excluding unallocated costs, was $ 103 million, $ 48 million and $ 16 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Completed Divestiture

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

2 unchanged sentences

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.

The revenue generated by this

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business was $ — million , $ 7 million and $ 70 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Note 5 – Accounts Receivable, Net

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 Accounts receivable, net balance was $ 559 million and $ 630 million at December 31, 2023 and 2022, respectively.

There were no allowances for credit losses at December 31, 2023 or 2022.

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.

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.

These transactions 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.

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Amortization expense for Internal use and Product software for the years ended December 31, 2023, 2022 and 2021 was $ 114 million, $ 71 million and $ 62 million, respectively.

The 2023 amount includes the write-off of capitalized software costs totaling $ 25 million, stemming from management’s decision to abandon an internal use software product and a decision by a customer to not implement a product software solution.

Cloud Computing Arrangements

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Cloud computing implementation costs, at cost

Impairment charges — ( 28 )

Accumulated impairment charges ( 28 ) ( 28 )

6 unchanged sentences

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

This liability has been settled as of December 31, 2023.

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

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Present value of lease liabilities $ 211 $ 22

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.

As of December 31, 2023, the Company had entered into additional operating lease agreements for equipment totaling $ 1 million which have not commenced and have not been recognized on the Company's Consolidated Balance Sheet.

The leases are expected to commence in 2024 with average lease terms of 3 years.

Additionally, we have $ 11 million of commitments that have not yet commenced related to leases for businesses which have been classified as held for sale.

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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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Impairment ( 287 ) — — ( 287 )

Transfer of goodwill between segments 4 ( 4 ) — —

Assets Held For Sale — — ( 35 ) ( 35 )

Balance at December 31, 2023 $ — $ 623 $ 28 $ 651

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Balance at December 31, 2023 $ — $ 623 $ 28 $ 651

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.

2023 Impairment Charge

In September 2023, the Company entered into a Custodial Transfer and Asset Purchase Agreement (the "Purchase Agreement") to transfer its BenefitWallet health savings account and medical savings account portfolio, which is reported within the Company’s Commercial segment.

Since the Purchase Agreement does not represent a disposition of a business, no goodwill was allocated to the Portfolio related to this transaction.

Consequently, the Purchase Agreement was identified as a triggering event for the Commercial reporting unit that required the Company to evaluate goodwill for impairment.

This evaluation resulted in a full impairment of the Commercial reporting unit's goodwill, totaling $ 287 million.

The impairment charge was primarily driven by the Purchase Agreement and was recognized in the third quarter of 2023.

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.

Additionally, the Company performed its annual goodwill impairment test as of October 1, 2023, for the Government and Transportation reporting units.

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

2022 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.

In the fourth quarter of 2022, the Commercial reporting unit experienced lower than expected new customer contract signings, 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.

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.

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

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

During the year ended December 31, 2023, the Company incurred $ 7 million of costs for bringing certain technology functions in-house.

These costs are included in the above table in Termination and Other Costs.

CNDT 2023 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 Company also incurred costs related to professional support services associated with the implementation of certain strategic transformation programs of $ 2 million and $ 4 million during the years ended December 31, 2022 and 2021, respectively.

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

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Restricted cash 21 16

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

Total Other Current Assets $ 240 $ 242

Other Current Liabilities

Accrued liabilities $ 211 $ 246

Accrued liabilities to vendors $ 188 $ 211

Litigation related accruals 6 37

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Product software, net 92 110

Cloud computing implementation costs, net 4 8

Deferred tax assets 21 20

Total Other Long-term Assets $ 436 $ 489

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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 (in millions) are as follows:

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

2024 2025 2026 2027 2028 Thereafter Total

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Credit Facilities

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

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

The applicable margin for the 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 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.

Borrowings under the Term Loan A, the Term Loan B and the Revolving Credit Facility bear interest, at the Company's option, at a rate per annum equal to an applicable margin over a base rate or a Secured Overnight Financing Rate ("SOFR"), depending on the type of loan.

The applicable margin for the Term Loan A and the Revolving Credit Facility for SOFR 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 for SOFR loans at December 31, 2023 was 2.25 %.

The applicable margin for the Term Loan B for SOFR 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, 2023.

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.

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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).

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

All obligations under the Credit Agreement are secured, subject to certain exceptions, by a first-priority

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

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

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

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

The covenant is tested as of the last day of any fiscal quarter.

As of December 31, 2023, the Company was in compliance with all debt covenants related to the Senior Credit Facilities.

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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 Senior Notes were redeemed in 2022.

No Senior Notes were redeemed in 2023 or 2022.

Debt Issuance Costs and Discount

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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

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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 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.

The related cash flow impacts of all derivative activities are reflected as cash flows from operating activities.

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The Company does not believe there is significant risk of loss in the event of non-performance by the counterparty associated with its derivative instruments because these transactions are executed with a major financial institution.

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Total Liabilities $ — $ 1

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Summary of Other Financial Assets and Liabilities

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

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December 31, 2023 December 31, 2022

2 unchanged sentences

Long-term debt $ 1,248 $ 1,191 $ 1,277 $ 1,155

Liabilities held for sale $ 58 $ 58 $ — $ —

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.

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In these plans employees are allowed to contribute a portion of their salaries and bonuses to the plans, and the Company matches a portion of the employee contributions.

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

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

hourly employees in the second quarter of 2020.

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

employees in November of 2020.

The Company recorded charges related to its defined contribution plans of $ 11 million in 2023, $ 10 million in 2022 and $ 21 million in 2021.

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Loss Before Income Taxes $ ( 332 ) $ ( 127 ) $ ( 25 )

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Provision (benefit) for income taxes were as follows:

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Total Provision (Benefit) $ ( 36 ) $ 55 $ 3

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A reconciliation of the U.S.

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subsidiaries.

(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.

(2) Impairment represents adjustments for the non-deductible component of goodwill in 2023 and 2022 and impairment of an equity investment in 2021.

(3) In 2023 and 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.

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.

On a consolidated basis, the Company paid $ 18 million, $ 53 million and $ 25 million in combined income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2023, 2022 and 2021, 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

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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.

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, 2023, the Company had $ 10 million of unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate.

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

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The Company had $ 2 million, $ 3 million and $ 12 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2023, 2022 and 2021, respectively.

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

and to income taxes in various states and foreign jurisdictions.

We are subject to federal income tax examinations in the U.S.

and to income tax examinations in various states and foreign jurisdictions.

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

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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.

CNDT 2022 Annual Report

The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:

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Deferred compensation 5 6

Interest expense capitalization 18 —

Settlement reserves 4 12

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Total Deferred Tax Assets (Liabilities), Net $ ( 9 ) $ ( 63 )

CNDT 2023 Annual Report

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, 2022 and 2021 was an increase of $ 20 million and a decrease of $ 1 million, respectively.

The net change in the total valuation allowance for the years ended December 31, 2023 and 2022 was a decrease of $ 2 million and an increase of $ 20 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.

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The Company has $ 678 million of gross net operating loss carryforwards for income tax purposes including $ 532 million that will expire between 2024 and 2043, if not utilized, and $ 146 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.

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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.

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

The 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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Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates when the Company undertakes an obligation to guarantee the performance of others if specified triggering events occur.

Nonperformance under a contract could trigger an obligation of the Company.

Nonperformance under a contract could trigger an

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obligation of the Company.

These potential claims include actions based upon alleged exposures to products, real estate, intellectual property such as patents, environmental matters and other indemnifications.

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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 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.

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 sought 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 sought unspecified monetary damages, costs, and attorneys’ fees.

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

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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.

The Court granted preliminary approval of the settlement terms and related documentation on January 27, 2023, and conducted the final Settlement Hearing on May 24, 2023, at which time the settlement received final approval as did plaintiffs' fee request.

The Court's preliminary order had previously noted 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)." 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.

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

Skyview Capital LLC and Continuum Global Solutions, LLC v.

1 unchanged sentence

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

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

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business to plaintiffs, which sale closed in February 2019.

Under the terms of the sale agreement, CBS received approximately $ 23 million of notes from plaintiffs (Notes).

The lawsuit relates to the sale of a portion of Conduent Business Services, LLC’s ("CBS") select standalone customer care call center business to plaintiffs, which sale closed in February 2019.

Under the terms of the sale agreement, CBS received approximately $ 23 million of notes from plaintiffs (the "Notes").

The lawsuit alleges various causes of action in connection with the acquisition, including:

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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.

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

On August 20, 2020, CBS 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.

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

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

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.

Fact and expert discovery has been concluded and the parties filed summary judgment motions on July 24, 2023.

On December 5, 2023, the court heard oral argument on the parties’ cross-motions for summary judgment and rendered its decision on December 8, 2023, finding there are certain material issues of fact that require trial, and also entering partial summary judgment for each side.

On January 5, 2024, CBS filed its notice of appeal of the portion of the ruling that did not grant its motion for summary judgment in its entirety and that granted certain limited relief in favor of plaintiffs.

On January 23, 2024, Skyview filed its own notice of appeal, challenging the decision granting a portion of CBS’s counterclaims.

CBS continues to deny all 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.

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.

1 unchanged sentence

On April 12, 2017, CBS filed a lawsuit against Cognizant Business Services Corporation ("Cognizant") in the Supreme Court of New York County, New York.

The lawsuit relates to the Amended and Restated Master Outsourcing Services Agreement effective as of October 24, 2012, and the service delivery contracts and work orders thereunder, between CBS and Cognizant, as amended and supplemented (Contract).

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amended and supplemented (the "Contract").

The Contract contains certain minimum purchase obligations by CBS through the date of expiration.

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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, 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

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

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

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

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

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

1 unchanged sentence

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

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

The Company could, in future periods, incur judgments or enter into settlements to resolve these potential matters for amounts in excess of current reserves and there could be a material adverse effect on the Company's results of operations, cash flows and financial position in the period in which such change in judgment or settlement occurs.

In view of the absence of activity by these regulators or any other party, during the fourth quarter of 2023, the Company reversed the remaining reserve pertaining to this matter.

Guarantees and Indemnifications

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The Company has recognized liabilities for these contingent obligations based on an estimate of the fair value of these contingencies at the time of acquisition.

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.

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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.

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.

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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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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.

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Note 17 - Preferred Stock

Series A Preferred Stock

In connection with the December 31, 2016 separation from the Company's former parent company (Separation), the Company issued 120,000 shares of Series A convertible perpetual preferred stock with an aggregate liquidation preference of $ 120 million and an initial fair value of $ 142 million.

In connection with the December 31, 2016 separation from the Company's former parent company (the "Separation"), the Company issued 120,000 shares of Series A convertible perpetual preferred stock with an aggregate liquidation preference of $ 120 million and an initial fair value of $ 142 million.

The Series A convertible preferred stock pays quarterly cash dividends at a rate of 8 % per year ($ 9.6 million per year).

2 unchanged sentences

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

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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.

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Certain of the Company's employees participate in a long-term incentive plan.

The Company's long-term incentive plan authorizes the issuance of restricted stock units / shares (RSU), performance stock units / share (PSU) and non-qualified stock options to employees.

The Company's long-term incentive plan authorizes the issuance of restricted stock units / shares and performance stock units / share to employees.

Stock-based compensation expense includes expense based on the awards and terms previously granted to the employees.

4 unchanged sentences

Income tax benefit recognized in earnings 4 4 3

Restricted Stock Units / Shares Compensation expense is based upon the grant date market price.

Restricted Stock Units / Shares ("RSUs"):

Compensation expense is based upon the grant date market price.

The compensation expense is recorded over the vesting period based on management's estimate of the number of shares expected to vest.

1 unchanged sentence

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

In 2022, the Company issued 312 thousand Deferred Stock Units (DSU) to non-employee members of the Board of Directors.

In 2023, the Company issued 370,000 Deferred Stock Units ("DSU") to non-employee members of the Board of Directors.

DSU awards typically vest in accordance with certain service conditions.

Performance Stock Units / Shares:

CNDT 2023 Annual Report

Performance Stock Units / Shares ("PSUs"):

The Company has granted PSUs under various scenarios including:

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For PSUs granted in 2023, the number of shares eligible to vest may be adjusted upward or downward by 50 % based on a total shareholder return modifier, which measures the Company’s stock performance relative to the stock performance of the Company’s 2023 proxy peers over each measurement period.

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

CNDT 2022 Annual Report

Summary of Stock-based Compensation Activity

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Performance Stock Units / Shares 18

CNDT 2023 Annual Report

The total intrinsic value and actual tax benefit realized for vested and exercised stock-based awards were as follows:

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Performance Stock Units / Shares — — — 7 — 1 11 — 2

CNDT 2022 Annual Report

Note 19 – Other Comprehensive Income (Loss)

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

Reclassification of currency translation adjustments on divestitures — — — — — —

Translation adjustments gains (losses) $ 31 $ 31 $ ( 41 ) $ ( 41 ) $ ( 31 ) $ ( 31 )

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Changes in fair value of cash flow hedges gains (losses) $ 1 $ 1 $ ( 1 ) $ ( 1 ) $ ( 1 ) $ ( 1 )

Changes in cash flow hedges reclassed to earnings (1)

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

Defined Benefit Plans Gains (Losses)

Reclassification of divested benefit plans and other $ — $ — $ — $ — $ — $ —

Net actuarial/prior service gains (losses) $ ( 1 ) $ ( 1 ) $ 5 $ 5 $ 1 1

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Other Comprehensive Income (Loss) $ 31 $ 31 $ ( 37 ) $ ( 37 ) $ ( 31 ) $ ( 31 )

____________________________

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

Xerox Corporation ("Xerox") has historically been classified as a related party due to significant shares of both Xerox and the Company being held by entities controlled by one individual.

As of September 28, 2023, Xerox is no longer considered a related party due to the disposition of all Xerox stock by these entities and, therefore, the Company will not consider transactions with Xerox after that date to be transactions with related parties.

Transactions with related parties were as follows:

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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