
Table of Contents

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)

CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data)	2021		2020		2021		2020
Revenue	$	1,026	$	1,016	$	2,054	$	2,067

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	772		795		1,559		1,627
Selling, general and administrative (excluding depreciation and amortization)	125		111		251		227
Research and development (excluding depreciation and amortization)	1		0		1		1
Depreciation and amortization	86		115		181		232
Restructuring and related costs	8		29		21		36
Interest expense	13		15		26		32

(Gain) loss on divestitures and transaction costs	(1)		2		1		6
Litigation costs	1		14		2		20
Loss on extinguishment of debt	2		0		2		0
Other (income) expenses, net	0		(1)		0		1
Total Operating Costs and Expenses	1,007		1,080		2,044		2,182

Income (Loss) Before Income Taxes	19		(64)		10		(115)

Income tax expense (benefit)	7		(13)		9		(15)
Net Income (Loss)	$	12	$	(51)	$	1	$	(100)

Net Earnings (Loss) per Share:
Basic	$	0.05	$	(0.25)	$	(0.02)	$	(0.50)
Diluted	$	0.04	$	(0.25)	$	(0.02)	$	(0.50)

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions, except per-share data) 2017 2016 2017 2016
Revenues
Revenue $ 1,470
$ 1,585
$ 4,497
$ 4,856
Related party 10
11
32
38
Total Revenues 1,480
1,596
4,529
4,894

Cost of services 1,210
1,319
3,742
4,079
Related party cost of services 9
9
24
28
Gross Margin 261
268
763
787

Operating Costs and Expenses
Research and development 4
7
11
25
Selling, general and administrative 144
164
466
517
Restructuring and related costs 22
8
76
57
Amortization of intangible assets 60
63
182
200
Interest expense 35
1
105
3
Related party interest —
10
—
30
Separation costs 2
15
8
34
(Gain) loss on sale of asset and businesses (16 ) —
(41 ) 1
Other (income) expenses, net (3 ) (2 ) (24 ) 6
Total Operating Costs and Expenses 248
266
783
873

Income (Loss) before Income Taxes 13
2
(20 ) (86 )
Income tax expense (benefit) 30
1
11
(54 )
(Loss) Income from Continuing Operations (17 ) 1
(31 ) (32 )
Income from discontinued operations, net of tax —
—
4
—
Net (Loss) Income $ (17 ) $ 1
$ (27 ) $ (32 )

Basic Earnings (Loss) per Share:
Continuing operations $ (0.09 ) $ 0.01
$ (0.19 ) $ (0.16 )
Discontinued operations —
—
0.02
—
Total Basic (Loss) Income per Share $ (0.09 ) $ 0.01
$ (0.17 ) $ (0.16 )

Diluted Earnings (Loss) per Share:
Continuing operations $ (0.09 ) $ 0.01
$ (0.19 ) $ (0.16 )
Discontinued operations —
—
0.02
—
Total Diluted (Loss) Income per Share $ (0.09 ) $ 0.01
$ (0.17 ) $ (0.16 )

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

~~Conduent~~


						CNDT Q2 2021 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Net Income (Loss)	$	12	$	(51)	$	1	$	(100)
Other Comprehensive Income (Loss), Net(1)
Currency translation adjustments, net	4		2		(7)		(26)


Unrecognized gains (losses), net	0		2		(1)		(1)
Changes in benefit plans, net	(1)		0		(1)		1
Other Comprehensive Income (Loss), Net	3		4		(9)		(26)

Comprehensive Income (Loss), Net	$	15	$	(47)	$	(8)	$	(126)

__________

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Net (Loss) Income $ (17 ) $ 1
$ (27 ) $ (32 )

Other Comprehensive Income (Loss), Net⁽¹⁾:

Translation adjustments, net 8
(10 ) 34
(25 )
Unrealized gains, net —
—
2
1
Changes in defined benefit plans, net —
1
—
2
Other Comprehensive Income (Loss), Net 8
(9 ) 36
(22 )

Comprehensive (Loss) Income, Net $ (9 ) $ (8 ) $ 9
$ (54 )
(1)All amounts are net of tax. Tax effects were immaterial.

(1) Refer to Note 10 - Other Comprehensive Income (Loss) for gross components of Other Comprehensive Income (Loss), reclassification adjustments out of Accumulated Other Comprehensive Loss and related tax effects.

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

~~Conduent~~


						CNDT Q2 2021 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	June 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	397	$	450
Accounts receivable, net	664		670
Contract assets	159		151
Other current assets	267		306
Total current assets	1,487		1,577
Land, buildings and equipment, net	281		305
Operating lease right-of-use assets	246		246
Intangible assets, net	116		187
Goodwill	1,519		1,528
Other long-term assets	474		413
Total Assets	$	4,123	$	4,256
Liabilities and Equity
Current portion of long-term debt	$	89	$	90
Accounts payable	161		182
Accrued compensation and benefits costs	234		237
Unearned income	124		133
Other current liabilities	446		450
Total current liabilities	1,054		1,092
Long-term debt	1,340		1,420
Deferred taxes	90		97
Operating lease liabilities	199		207
Other long-term liabilities	113		108
Total Liabilities	2,796		2,924

Contingencies (See Note 11)	0		0
Series A convertible preferred stock	142		142

Common stock	2		2
Additional paid-in capital	3,907		3,899
Retained earnings (deficit)	(2,317)		(2,313)
Accumulated other comprehensive loss	(407)		(398)
Total Equity	1,185		1,190
Total Liabilities and Equity	$	4,123	$	4,256

Shares of common stock issued and outstanding	212,556		212,074
Shares of series A convertible preferred stock issued and outstanding	120		120

(in millions, except share data in thousands) September 30,
2017 December 31,
2016
Assets
Cash and cash equivalents $ 468
$ 390
Accounts receivable, net 1,380
1,286
Net receivable from former parent company 31
—
Other current assets 233
241
Total current assets 2,112
1,917
Land, buildings and equipment, net 249
283
Intangible assets, net 959
1,144
Goodwill 3,899
3,889
Other long-term assets 328
476
Total Assets $ 7,547
$ 7,709

Liabilities and Equity
Short-term debt and current portion of long-term debt $ 71
$ 28
Accounts payable 147
164
Accrued compensation and benefits costs 221
269
Unearned income 184
206
Net payable to former parent company —
124
Other current liabilities 591
611
Total current liabilities 1,214
1,402
Long-term debt 1,991
1,913
Pension and other benefit liabilities 151
172
Deferred taxes 605
619
Other long-term liabilities 132
173
Total Liabilities 4,093
4,279

Contingencies (See Note 11)

Series A Convertible Preferred Stock 142
142

Common Stock 2
2
Additional paid-in-capital 3,834
3,812
Retained deficit (34 ) —
Accumulated other comprehensive loss (490 ) (526 )
Total Equity 3,312
3,288
Total Liabilities and Equity $ 7,547
$ 7,709

Shares of common stock issued and outstanding 210,372
202,875
Shares of Series A convertible preferred stock issued and outstanding 120
120

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

~~Conduent~~


						CNDT Q2 2021 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(in millions)	2021		2020
Cash Flows from Operating Activities:
Net income (loss)	$	1	$	(100)
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization	181		232
Contract inducement amortization	0		1
Deferred income taxes	(6)		(29)

(Gain) loss from investments	0		(2)
Amortization of debt financing costs	4		3
Loss on extinguishment of debt	2		0
Loss on divestitures and sales of fixed assets, net	1		0
Stock-based compensation	9		9

Changes in operating assets and liabilities:
Accounts receivable	4		(44)
Other current and long-term assets	(48)		(41)
Accounts payable and accrued compensation and benefits costs	(21)		(18)
Restructuring liabilities	(2)		6
Other current and long-term liabilities	(29)		(152)
Net change in income tax assets and liabilities	7		17
Net cash provided by (used in) operating activities	103		(118)
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment	(39)		(30)

Cost of additions to internal use software	(32)		(30)

Proceeds from divestitures	2		2
Net cash provided by (used in) investing activities	(69)		(58)
Cash Flows from Financing Activities:
Proceeds from revolving credit facility and other loans	0		150

Payments on debt	(79)		(28)

Premium on debt redemption	(2)		0
Taxes paid for settlement of stock-based compensation	(1)		(3)
Dividends paid on preferred stock	(5)		(5)
Net cash provided by (used in) financing activities	(87)		114
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2)		(6)
Increase (decrease) in cash, cash equivalents and restricted cash	(55)		(68)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	458		505
Cash, Cash Equivalents and Restricted Cash at End of period(1)	$	403	$	437

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Cash Flows from Operating Activities:
Net (loss) income $ (17 ) $ 1
$ (27 ) $ (32 )
Adjustments required to reconcile net loss to cash flows from operating activities:
Depreciation and amortization 123
135
378
417
Deferred tax expense (benefit) 24
(35 ) (7 ) (11 )
Gain on investments (3 ) (3 ) (10 ) (6 )
Amortization of debt financing costs 3
—
7
—
Net (gain) loss on sale of asset and businesses (16 ) —
(48 ) 1
Stock-based compensation 8
8
26
18
Changes in operating assets and liabilities:
Increase in accounts receivable, net (6 ) (27 ) (76 ) (137 )
Decrease (increase) in other current and long-term assets 12
2
(34 ) (64 )
Decrease in accounts payable and accrued compensation (1 ) (15 ) (86 ) (154 )
Increase (decrease) in restructuring liabilities 1
(17 ) 25
8
Decrease in other current and long-term liabilities (26 ) (74 ) (80 ) (164 )
Net change in income tax assets and liabilities 5
167
3
91
Other operating, net (3 ) (2 ) (6 ) (5 )
Net cash provided by (used in) operating activities 104
140
65
(38 )
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment (20 ) (31 ) (57 ) (86 )
Proceeds from sales of land, buildings and equipment —
—
33
—
Cost of additions to internal use software (11 ) (11 ) (26 ) (31 )
Proceeds (payments) from sale (purchase) of businesses 56
(1 ) 56
(54 )
Proceeds from investments 117
—
117
—
Net payments on related party notes receivable —
43
—
43
Other investing (1 ) (1 ) (1 ) (1 )
Net cash provided by (used in) investing activities 141
(1 ) 122
(129 )
Cash Flows from Financing Activities:
Proceeds on long term debt —
2
306
6
Debt issuance fee payments —
��
(9 ) —
Payments on debt (79 ) (6 ) (232 ) (18 )
Net (payments to) transfer from former parent —
(145 ) (161 ) 190
Employee stock plans (tax) / proceeds, net (3 ) —
(5 ) —
Dividends paid on preferred stock (2 ) —
(7 ) —
Other financing (2 ) —
(3 ) (1 )
Net cash (used in) provided by financing activities (86 ) (149 ) (111 ) 177
Effect of exchange rate changes on cash and cash equivalents —
(2 ) 2
(2 )
Increase (decrease) in cash and cash equivalents 159
(12 ) 78
8
Cash and cash equivalents at beginning of period 309
160
390
140
Cash and Cash Equivalents at End of Period $ 468
$ 148
$ 468
$ 148
___________

(1)Includes $6 million and $9 million of restricted cash as of June 30, 2021 and 2020, 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.

~~Conduent~~


						CNDT Q2 2021 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


	Three Months Ended June 30, 2021
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at March 31, 2021	$	2	$	3,902	$	(2,326)	$	(410)	$	1,168
Dividends - preferred stock, $20/share	—		—		(3)		—		(3)
Stock incentive plans, net	—		5		—		—		5
Comprehensive Income (Loss):
Net Income (Loss)	—		—		12		—		12
Other comprehensive income (loss), net	—		—		—		3		3
Total Comprehensive Income (Loss), Net	—		—		12		3		15
Balance at June 30, 2021	$	2	$	3,907	$	(2,317)	$	(407)	$	1,185


	Three Months Ended June 30, 2020
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at March 31, 2020	$	2	$	3,891	$	(2,236)	$	(437)	$	1,220
Dividends - preferred stock, $20/share	—		—		(3)		—		(3)
Stock incentive plans, net	—		5		—		—		5
Comprehensive Income (Loss):
Comprehensive Income (Loss):	—		—		(51)		—		(51)
Other comprehensive income (loss), net	—		—		—		4		4
Total Comprehensive Income (Loss), Net	—		—		(51)		4		(47)
Balance at June 30, 2020	$	2	$	3,896	$	(2,290)	$	(433)	$	1,175


	Six Months Ended June 30, 2021
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at December 31, 2020	$	2	$	3,899	$	(2,313)	$	(398)	$	1,190
Dividends - preferred stock, $40/share	—		—		(5)		—		(5)
Stock incentive plans, net	—		8		—		—		8
Comprehensive Income (Loss):
Net Income (Loss)	—		—		1		—		1
Other comprehensive income (loss), net	—		—		—		(9)		(9)
Total Comprehensive Income (Loss), Net	—		—		1		(9)		(8)
Balance at June 30, 2021	$	2	$	3,907	$	(2,317)	$	(407)	$	1,185


	Six Months Ended June 30, 2020
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at December 31, 2019	2		3,890		(2,185)		(407)		1,300
Dividends - preferred stock, $40/share	—		—		(5)		—		(5)
Stock incentive plans, net	—		6		—		—		6
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(100)		0		(100)
Other comprehensive income (loss), net	—		—		0		(26)		(26)
Total Comprehensive Income (Loss), Net	—		—		(100)		(26)		(126)
Balance at June 30, 2020	$	2	$	3,896	$	(2,290)	$	(433)	$	1,175

___________

(1)AOCL - Accumulated other comprehensive loss. Refer to Note 10 – Accumulated Other Comprehensive Loss for the components of AOCL.

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


						CNDT Q2 2021 Form 10-Q


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CONDUENT INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Basis of Presentation

References herein to “we,” “us,” “our,” the “Company” and “Conduent” refer to Conduent Incorporated and its consolidated subsidiaries unless the context suggests otherwise.

~~The condensed balance sheet as~~

Description of ~~December 31, 2016 has been derived from audited financial statements~~Business

As one of the largest business process services companies in the world, Conduent delivers mission-critical services and solutions on behalf of businesses and governments – creating exceptional outcomes for its clients and the millions of people who count on them. Through people, process, expertise in transaction-intensive processing and technology such as analytics and automation, Conduent's services and solutions create value by improving efficiencies, reducing costs and enabling revenue growth. A majority of Fortune 100 companies and over 500 government entities depend on Conduent every day to manage their business processes and essential interactions with their end-users. The Company's portfolio includes industry-focused solutions in attractive growth markets such as healthcare and transportation, as well as solutions that serve multiple industries such as transaction processing, customer care, human resource solutions and payment services.

Basis of Presentation

The unaudited interim ~~condensed financial statements~~Condensed Consolidated Financial Statements have been ~~prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in our annual financial statements~~ prepared in accordance with accounting principles generally accepted in the United States of America ~~have been condensed or omitted pursuant~~(U.S. GAAP) on a basis consistent with reporting interim financial information in accordance with instructions to ~~those rules~~Form 10-Q and ~~regulations, although~~Article 10 of Regulation S-X of the ~~Company believes that the disclosures made are adequate to make~~Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information ~~not misleading. You should read these~~and notes required by U.S. GAAP for complete financial statements. The year-end Condensed Consolidated ~~Financial Statements, and notes thereto, in conjunction with~~Balance Sheet was derived from the audited Consolidated Financial Statements included in ~~our 2016~~the Company's Annual ~~Report.~~

Report on Form 10-K for the year ended December 31, 2020. Certain reclassifications have been made to prior year information to conform to current year presentation. Intercompany balances and transactions have been eliminated. In ~~our~~the opinion of management, all adjustments ~~which are~~ necessary for a fair statement of the financial position, ~~operating~~ results of operations and cash flows ~~for the interim periods presented~~ have been made. These adjustments consist of normal recurring items. ~~Interim~~The interim results of operations are not necessarily indicative of the results of the full year. ~~For convenience~~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, 2020.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and ~~ease of reference, we refer to~~assumptions that affect the amounts reported and disclosed in the financial ~~statement caption “Income (Loss) before Income Taxes ” as “pre-tax~~statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to fair values of financial instruments, goodwill and intangible assets, income ~~(loss)”.~~taxes and contingent liabilities, among others. 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.

~~Separation from Xerox Corporation~~

~~On December 31, 2016, Conduent Incorporated spun-off from Xerox Corporation (Xerox), pursuant to~~As of June 30, 2021, the ~~Separation and Distribution Agreement. The separation was completed by way~~impact of the COVID-19 pandemic, the mitigating impact of the rollout of a ~~pro rata distribution~~vaccine for it and emerging cases of ~~Conduent Incorporated shares held by Xerox~~new variants of the virus continue to ~~Xerox’s shareholders.~~unfold. As a result, many of the ~~spin-off, we now operate as an independent, publicly traded company on~~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 ~~New York Stock Exchange, under~~Company's estimates may change materially in the ~~ticker "CNDT".~~future.

Prior to December 31, 2016, the Financial Statements of the Company were derived from the Consolidated Financial Statements and accounting records of Xerox as if the Company operated on a standalone basis and were prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and pursuant to the rules and regulations of the SEC. Historically, the Company consisted of the Business Process Outsourcing Operating segment within Xerox’s reportable Services segment and did not operate as a separate, standalone company. Accordingly, Xerox had reported the financial position and the related results of operations, cash flows and changes in equity of the Company in Xerox’s Consolidated Financial Statements.


						CNDT Q2 2021 Form 10-Q


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Note 2 – Recent Accounting Pronouncements

The Company's significant accounting policies are described in Note 1–Basis of Presentation and Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Summarized below are the applicable accounting pronouncements adopted or to be adopted subsequent to December 31, 2020.

New Accounting Standards Adopted

Income Taxes:In December 2019, the Financial Accounting Standards Board (FASB) issued final guidance that simplified the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification (ASC) 740, Income Taxes. This final guidance was effective for fiscal years beginning January 1, 2021. The Company adopted the final income taxes guidance as of January 1, 2021. The adoption did not have any material impact on the Company's Condensed Consolidated Financial Statements.

New Accounting Standards To Be Adopted

~~Revenue Recognition:~~ Reference Rate Reform:In ~~May 2014,~~March 2020, the Financial Accounting Standards Board (FASB) updated the accounting guidance related to revenue recognition to clarify the principles for recognizing revenue and replaces all existing revenue recognition guidance in U.S. GAAP with one accounting model. The core principle of the guidance is that an entity should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. TheFASB issued updated guidance ~~also requires additional qualitative and quantitative disclosures~~ relating to the ~~nature, amount, timing~~accounting for the discontinuation of the London Inter-bank Offered Rate (LIBOR), referred to as reference rate reform. This guidance provides optional practical expedients and ~~uncertainty of revenue~~exceptions for applying U.S. GAAP to contracts, hedging relationships and ~~cash flows arising from contracts with customers largely on~~other transactions affected by reference rate reform if certain criteria are met. This guidance is applicable to contract modifications that replace a ~~disaggregated basis. We continue to evaluate~~reference LIBOR rate affected by reference rate reform. The amendments may be applied through December 31, 2022. The Company is currently evaluating the ~~adoption~~ impact of ~~the updated accounting~~this guidance on ~~our financial statements, disclosures and internal controls. However, we do expect that the new guidance could impact (1)~~its Condensed Consolidated Financial Statements.


						CNDT Q2 2021 Form 10-Q


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Note 3 – Revenue

Disaggregation of Revenue

The following table provides information about disaggregated revenue by major service offering, the timing of revenue recognition ~~associated with certain contract modifications; (2) revenue associated with postage recognized on~~and a ~~net basis versus the current gross treatment, (3) certain volume discounts, and (4) timing~~reconciliation of the ~~amortization~~disaggregated revenue by reportable segment. Refer to Note 4 – Segment Reporting for additional information on the Company's reportable segments.


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Commercial Industries:
Customer experience management	$	146	$	157	$	307	$	325
Business operations solutions	137		133		279		286
Commercial healthcare solutions	109		103		220		216
Human resource and learning services	111		127		223		265
Total Commercial Industries	503		520		1,029		1,092
Government Services:
Government healthcare solutions	140		154		289		306
Government services solutions	198		177		367		315
Total Government Services	338		331		656		621
Transportation:
Roadway charging & management services	75		71		158		149
Transit solutions	70		61		134		128
Curbside management solutions	20		14		38		36
Public safety solutions	18		17		35		37
Commercial vehicles	2		2		4		4
Total Transportation	185		165		369		354




Total Consolidated Revenue	$	1,026	$	1,016	$	2,054	$	2,067

Timing of Revenue Recognition:
Point in time	$	25	$	32	$	57	$	62
Over time	1,001		984		1,997		2,005
Total Revenue	$	1,026	$	1,016	$	2,054	$	2,067

Contract Balances

The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets are the Company’s rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Contract assets are transferred to Accounts receivable, net when the rights to consideration become unconditional. Unearned income includes payments received in advance of performance under the contract, ~~acquisition costs. We will adopt this updated accounting guidance beginning January 1, 2018 using~~which are realized when the ~~modified retrospective method~~associated revenue is recognized under ~~which we will recognize a cumulative-effect adjustment at~~ the ~~date of adoption supplemented with disclosures.~~contract.

~~Conduent~~


						CNDT Q2 2021 Form 10-Q

710


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~~Leases:~~ ~~In February 2016,~~The following table provides information about the FASB updated the accounting guidance related to leases requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except short term leases (lease term of 12 months or less). The accounting for lessors is largely unchanged. This updated guidance is effective for us beginning January 1, 2019, with early adoption permitted. This guidance must be adopted using a modified retrospective approach through a cumulative-effect adjustment for leases that exist or are entered into after the beginningbalances of the ~~earliest comparative period~~Company's contract assets, unearned income and receivables from contracts with customers:


(in millions)	June 30, 2021		December 31, 2020
Contract Assets (Unearned Income)
Current contract assets	$	159	$	151
Long-term contract assets(1)	9		13
Current unearned income	(124)		(133)
Long-term unearned income(2)	(40)		(29)
Net Contract Assets (Unearned Income)	$	4	$	2
Accounts receivable, net	$	664	$	670

__________

(1)Presented in Other long-term assets in the ~~financial statements. We are currently evaluating the impact of the updated accounting guidance on our consolidated financial statements.~~Condensed Consolidated Balance Sheets.

~~Cash Flows:~~ ~~In November 2016 the FASB issued updated accounting guidance regarding the presentation of restricted cash~~(2)Presented in Other long-term liabilities in the ~~statement~~Condensed Consolidated Balance Sheets.

Revenues of cash flows. Specifically, this update requires that restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. At September 30, 2017 and December 31, 2016, we had $25$30 million and ~~$22~~$88 million ~~of restricted cash,~~were recognized during the three and six months ended June 30, 2021, respectively, ~~reported in other current assets. This update is effective for us beginning January 1, 2018.~~

~~Business Combinations:~~ ~~In January 2017, the FASB issued clarifying accounting guidance~~ related to the ~~definition~~Company's unearned income at December 31, 2020. Revenues of ~~a business~~$22 million and $64 million were recognized during the three and six months ended June 30, 2020, respectively, related to ~~assist entities with evaluating whether transactions should~~the Company's unearned income at December 31, 2019. The Company had no material asset impairment charges related to contract assets for the three and six months ended June 30, 2021 or 2020.

Transaction Price Allocated to the Remaining Performance Obligations

Estimated revenue expected to be ~~accounted for as acquisitions (or disposals) of assets~~recognized in the future related to performance obligations that are unsatisfied or ~~businesses. This update is effective for us beginning January 1, 2018, with early adoption permitted.~~partially satisfied at June 30, 2021 was approximately $1.3 billion. The ~~amendment in this update will be applied prospectively. We are currently evaluating the impact of the adoption~~Company expects to recognize approximately 76% of this ~~clarifying accounting guidance on our consolidated financial statements.~~revenue over the next two years and the remainder thereafter.

~~Accounting Standards Implemented~~

~~Goodwill:~~ In January 2017, the FASB issued updated accounting guidance for simplifying the goodwill impairment test. Under the new guidance an entity does not have to calculate the implied fair value of goodwill at the impairment testing date of its assets and liabilities as if those assets and liabilities had been acquired in a business combination. Instead the goodwill impairment test will compare the fair value of a reporting unit with its carrying amount and recognize as an impairment charge any 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. We have elected to early adopt this new guidance for our goodwill impairment tests performed after January 1, 2017. Adoption did not have any effect on our financial condition, results of operations or cash flows.

Note 34 – Segment Reporting

~~Our~~

The Company's reportable segments correspond to how we organize and manage the business, as defined by the Company's Chief Executive Officer, who is also the Company's Chief Operating Decision Maker (CODM), and are aligned to the industries in which ~~our~~the Company's clients operate. The Company's segments involve the delivery of business process services and include service arrangements where it manages a customer's business activity or process.

Beginning in 2017, in an effort to better reflect how we manage our business, we changed our reporting segments to align the Healthcare business based upon customer focus between Commercial Industries and Public Sector.

~~Our~~The Company's financial performance is based on ~~"Segment Profit /~~ Segment Profit/(Loss)~~" which is defined as income before amortization of intangibles, restructuring~~ and ~~related costs, interest, gain on sale of an~~Segment Adjusted Earnings Before Income Taxes, Depreciation and Amortization (EBITDA) for its three reportable segments (Commercial Industries, Government Services and Transportation), Other and Unallocated Costs. The Company's CODM does not evaluate operating segments using discrete asset ~~separation costs, other (income) expense, net and income taxes for the following three segments:~~information.

~~Commercial Industries~~

~~Public Sector~~

~~Other~~

Commercial Industries: ~~Our~~ The Commercial Industries segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial Industries segment, wethe Company operates on its clients’ behalf to deliver ~~end-to-end business-to-business~~mission-critical solutions and ~~business-to-customer~~ services ~~that~~to reduce costs, improve efficiencies and enable ~~our~~revenue growth for the Company's clients ~~to optimize~~and their ~~key processes. Our multi-industry competencies include customer care, human resource management~~consumers and ~~finance and accounting services.~~employees.

~~Public Sector:~~ ~~Our Public Sector~~

Government Services: The Government Services segment provides government-centric business process services to U.S. federal, state and local and foreign governments for ~~transportation,~~ public assistance program administration, transaction processing and payment services. The solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations.

~~Other:~~


						CNDT Q2 2021 Form 10-Q


Table of Contents

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.

Other includes ~~our Government Health Enterprise Medicaid Platform business, where we are limiting our focus to our current Health Enterprise clients and our~~the Company's Student Loan business, which isthe Company exited in ~~run-off mode. Other also~~the third quarter of 2018.

Unallocated Costs includes ~~non-allocated~~IT infrastructure costs that are shared by multiple reportable segments, enterprise application costs and certain corporate overhead expenses ~~as well as inter-segment eliminations.~~not directly attributable or allocated to the reportable segments.

~~Conduent Form 10-Q~~

Selected financial information for ~~our~~the Company's reportable segments iswas as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions)
Segment
Revenue
Segment Profit (Loss)
Segment
Revenue
Segment Profit (Loss)
2017
Commercial Industries $ 864
$ 53
$ 2,663
$ 114
Public Sector 540
59
1,629
179
Other 76
1
237
(7 )
Total $ 1,480
$ 113
$ 4,529
$ 286
2016
Commercial Industries $ 923
$ 42
$ 2,869
$ 103
Public Sector 584
78
1,734
217
Other 89
(23 ) 291
(75 )
Total $ 1,596
$ 97
$ 4,894
$ 245


	Three Months Ended June 30,
(in millions)	Commercial Industries		Government Services		Transportation		Other		Unallocated Costs		Total
2021
Revenue	$	503	$	338	$	185	$	0	$	0	$	1,026
Segment profit (loss)	$	29	$	110	$	17	$	0	$	(82)	$	74
Segment depreciation and amortization	$	25	$	8	$	8	$	0	$	13	$	54
Adjusted EBITDA	$	54	$	118	$	25	$	0	$	(69)	$	128

2020
Revenue	$	520	$	331	$	165	$	0	$	0	$	1,016
Segment profit (loss)	$	25	$	90	$	20	$	(1)	$	(79)	$	55
Segment depreciation and amortization	$	27	$	6	$	9	$	0	$	13	$	55
Adjusted EBITDA	$	52	$	96	$	29	$	(1)	$	(66)	$	110


	Six Months Ended June 30,
(in millions)	Commercial Industries		Government Services		Transportation		Other		Unallocated Costs		Total
2021
Revenue	$	1,029	$	656	$	369	$	0	$	0	$	2,054
Segment profit (loss)	$	64	$	197	$	38	$	0	$	(165)	$	134
Segment depreciation and amortization	$	52	$	13	$	17	$	0	$	27	$	109
Adjusted EBITDA	$	116	$	210	$	55	$	0	$	(138)	$	243

2020
Revenue	$	1,092	$	621	$	354	$	0	$	0	$	2,067
Segment profit (loss)	$	67	$	160	$	30	$	3	$	(160)	$	100
Segment depreciation and amortization	$	55	$	13	$	18	$	0	$	27	$	113
Adjusted EBITDA	$	122	$	173	$	48	$	(4)	$	(133)	$	206

(in millions) Three Months Ended
September 30, Nine Months Ended
September 30,
Reconciliation to Pre-tax Income (Loss) 2017 2016 2017 2016
Segment Profit $ 113
$ 97
$ 286
$ 245
Reconciling items:
Amortization of intangible assets (60 ) (63 ) (182 ) (200 )
Restructuring and related costs (22 ) (8 ) (76 ) (57 )
Interest Expense (35 ) (1 ) (105 ) (3 )
(Gains) loss on sale of asset and businesses 16
—
41
(1 )
Related party interest —
(10 ) —
(30 )
Separation costs⁽¹⁾
(2 ) (15 ) (8 ) (34 )
Other income (expense), net 3
2
24
(6 )
Pre-tax Income (Loss) $ 13
$ 2
$ (20 ) $ (86 )

~~__________________________~~


~~(1)~~			Separation costs are expenses incurred in connection with the separation into an independent, publicly-traded company. These costs are primarily for third-party investment banking, accounting, legal, consulting and other similar types of services related to the separation transaction as well as costs associated with the operational separation of the two companies, such as those related to human resources, brand management, real estate and information management to the extent not capitalized.			CNDT Q2 2021 Form 10-Q

~~Goodwill~~

~~Due~~12


Table of Contents


(in millions)	Three Months Ended June 30,			Six Months Ended June 30,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)		2021		2020		2021		2020
Income (Loss) Before Income Taxes		$	19	$	(64)	$	10	$	(115)
Reconciling items:
Amortization of acquired intangible assets		32		60		72		120
Restructuring and related costs		8		29		21		36
Interest expense		13		15		26		32

(Gain) loss on divestitures and transaction costs		(1)		2		1		6
Litigation costs		1		14		2		20
Loss on extinguishment of debt		2		0		2		0
Other (income) expenses, net		0		(1)		0		1
Segment Pre-tax Income (Loss)		$	74	$	55	$	134	$	100
Segment depreciation and amortization (including contract inducements)		$	54	$	55	$	109	$	113
CA MMIS charge (credit)		0		0		0		(7)

Adjusted EBITDA		$	128	$	110	$	243	$	206

Refer to ~~the first quarter 2017 change in segments, we were required to test Goodwill~~Note 3 – Revenue for ~~impairment. As a result~~additional information on disaggregated revenues of the impairment test, the fair value of both the Commercial Industries and Public Sector reporting units exceeded their carrying values. To the extent the assumptions underlying the goodwill impairment test change, there could be additional impairments in the future.reportable segments.

~~No interim goodwill impairment trigger was identified as there was no significant change in the assumptions underlying the impairment test, including profitability in each of the reporting units.~~

~~Note 4 – Accounts Receivable, Net~~

~~Accounts receivable, net was as follows:~~

(in millions) September 30, 2017 December 31, 2016
Amounts billed or billable $ 1,115
$ 1,014
Unbilled amounts 267
279
Allowance for doubtful accounts (2 ) (7 )
Accounts Receivable, Net $ 1,380
$ 1,286

~~Conduent Form 10-Q~~

Unbilled amounts include amounts associated with percentage-of-completion accounting and other earned revenues not currently billable due to contractual provisions. Amounts to be invoiced in the subsequent months for current services provided are included in amounts billable, and at September 30, 2017 and December 31, 2016 were approximately $418 million and $429 million, respectively.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. The allowance for uncollectible accounts receivables is determined principally on the basis of past collection experience, as well as consideration of current economic conditions and changes in our customer collection trends.

In the first quarter 2017 we settled a customer dispute over an aged accounts receivable balance for $19 million. We applied $5 million of the proceeds to net accounts receivable and a $14 million gain was recorded as follows:

~~$7 million to discontinued operations as a portion of the receivable was related to a business that was part of our Information Technology Outsourcing (ITO) discontinued operation; and~~

$7 million to continuing operations as the remainder of the receivable was related to our continuing Healthcare Provider business; the majority of the $7 million is reflected in legal settlements in Other (income) expense, net.

Note 5 – Restructuring Programs and Related Costs

~~During~~

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 ~~nine months ended September 30, 2017, we recorded net restructuring~~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 ~~impairment charges of $68 million, which~~impairments and other related costs. Also included ~~approximately $38 million of severance~~in Restructuring and related costs are incremental, non-recurring costs related to ~~headcount reductions~~the consolidation of ~~approximately 3,200 employees worldwide, $33~~the Company's data centers, which totaled $8 million ~~of lease cancellation costs~~ and $4$6 million ~~of asset impairments. These costs were offset by $7~~for the three months ended June 30, 2021 and 2020, respectively, and $15 million ~~of net reversals, primarily resulting from~~and $8 million for the six months ended June 30, 2021 and 2020, respectively. Management continues to evaluate the Company's businesses, and in the future, there may be additional provisions for new plan initiatives and/or changes in ~~estimated reserves~~previously recorded estimates as payments are made, or actions are completed.

Costs associated with restructuring, including employee severance and lease termination costs, are generally recognized when it has been determined that a liability has been incurred, which is generally upon communication to the affected employees or exit from ~~prior period initiatives. The~~the leased facility. In those geographies where we have either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, we recognize employee severance costs when they are both probable and reasonably estimable. Asset impairment costs related to the reduction of our real estate footprint include impairment of operating lease right-of-use (ROU) assets and associated leasehold improvements.

A summary of the Company's restructuring ~~reserve balance as of September 30, 2017, for all programs was $40 million, of which approximately $28 million is expected to be spent over the next twelve months.~~

~~We also recorded $8 million of costs~~program activity during the ~~nine~~six months ended ~~September~~June 30, ~~2017, primarily related to~~2021 and 2020 is as follows:


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2020	$	3	$	3	$	0	$	6
Provision	2		16		4		22
Changes in estimates	0		(3)		0		(3)
Total Net Current Period Charges(1)	2		13		4		19
Charges against reserve and currency	(2)		(15)		(4)		(21)
Accrued Balance at June 30, 2021	$	3	$	1	$	0	$	4


						CNDT Q2 2021 Form 10-Q


Table of Contents


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2019	$	15	$	6	$	0	$	21
Provision	10		10		11		31
Changes in estimates	0		1		0		1
Total Net Current Period Charges(1)	10		11		11		32
Charges against reserve and currency	(13)		(13)		(11)		(37)

Accrued Balance at June 30, 2020	$	12	$	4	$	0	$	16

__________

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

In addition, the Company recorded professional support ~~services~~costs associated with the implementation of ~~the~~certain strategic transformation ~~program.~~

~~Information related to restructuring program activity during~~programs of $1 million and $2 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017 is outlined below:~~

2021 and 2020, respectively, and $2 million and $4 million for the six months ended June 30, 2021 and 2020, respectively.

(in millions)
Severance and
Related Costs

Lease Cancellation
and Other Costs
Asset Impairments Total
Accrued Balance at December 31, 2016 $ 15
$ 5
$ 1
$ 21
Restructuring provision 38
33
4
75
Reversals of prior accruals (5 ) (2 ) —
(7 )
Net Current Period Charges 33
31
4
68
Payments and asset impairments (34 ) (9 ) (6 ) (49 )
Accrued Balance at September 30, 2017 $ 14
$ 27
$ (1 ) $ 40

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Commercial Industries	$	2	$	5	$	2	$	7
Government Services	0		1		0		1
Transportation	0		3		0		3

Unallocated Costs(1)	5		18		17		21
Total Net Restructuring Charges	$	7	$	27	$	19	$	32

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Commercial Industries $ 13
$ —
$ 44
$ 36
Public Sector 7
—
21
5
Other 2
—
3
4
Total Net Restructuring and Asset Impairment Charges $ 22
$ —
$ 68
$ 45
__________

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

~~Conduent Form 10-Q~~

Note 6 -– Debt

~~Long term~~Long-term debt was as follows:


(in millions)	June 30, 2021		December 31, 2020
Term loan A due December 2022	$	610	$	654
Term loan B due December 2023	812		816

Senior notes due 2024	0		34
Finance lease obligations	18		20
Other loans	4		4
Principal debt balance	1,444		1,528
Debt issuance costs and unamortized discounts	(15)		(18)
Less: current maturities	(89)		(90)
Total Long-term Debt	$	1,340	$	1,420

(in millions) September 30, 2017 December 31, 2016
Term loan A due 2021⁽¹⁾
$ 727
$ 694
Term loan B due 2023 844
750
Senior notes due 2024 510
510
Capital lease obligations 39
43
Principal Debt Balance $ 2,120
$ 1,997
Debt issuance costs and unamortized discounts (58 ) (56 )
Less: current maturities (71 ) (28 )
Total Long-term Debt $ 1,991
$ 1,913

~~_______~~

As of June 30, 2021, the Company had no outstanding borrowings under its $750 million Senior Revolving Credit Facility (Revolver). However, the Company has utilized $7 million of the Revolver to issue letters of credit. The net Revolver available to be drawn upon as of June 30, 2021 was $743 million. On May 1, 2021, the Company redeemed all the previously outstanding $34 million 10.50% Senior Notes due 2024 and incurred $2 million of loss on extinguishment of debt.

At June 30, 2021 and December 31, 2020, the Company was in compliance with all debt covenants related to the borrowings in the table above.


~~(1)~~			~~The aggregate principal debt for Term Loan A includes borrowings in both U.S Dollars and Euros.~~			CNDT Q2 2021 Form 10-Q

~~Term Loan B Repricing~~14

On April 7, 2017, we entered into Amendment No. 1 (Repricing Amendment) to the Credit Agreement, dated December 7, 2016. As a result of the Repricing Amendment, we were required to pay the Term B Lenders a 1% principal prepayment fee on approximately $848 million principal balance in the amount of approximately $8 million, and the Term B Loan interest rate was reduced by 1.5%, from 5.5% over LIBOR to 4.0% over LIBOR. Transaction fees of $1 million were expensed.


Table of Contents

Note 7 – Financial Instruments

~~We are~~The Company is a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of ~~our~~its business. As a part of ~~our~~the Company's foreign exchange risk management strategy, ~~we use~~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~~June 30, ~~2017, we~~2021 and December 31, 2020, the Company had outstanding forward exchange contracts with gross notional values of $143 million and $180 million, respectively. At June 30, 2021, approximately ~~$160 million, which is typical of the amounts that are normally outstanding at any point during the year. Approximately 68%~~71% of these contracts mature within three months, ~~12%~~11% in three to six months, ~~15%~~14% in six to 12twelve months and 5%4% in greater than 12twelve months. ~~The majority~~Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on ~~our~~the Company's balance sheet, income statement or cash flows for the periods presented.

Refer to Note 8 – Fair Value of Financial Assets and Liabilities for additional information regarding the fair value of the Company's foreign exchange forward contracts.

~~Conduent Form 10-Q~~

Note 8 – Fair Value of Financial Assets and Liabilities

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP established a hierarchy framework to classify the fair value based on the observability of significant inputs to the measurement. The levels of the fair value hierarchy are as follows:

Level 1: Fair value is determined using an unadjusted quoted price in an active market for identical assets or liabilities.

Level 2: Fair value is estimated using inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.

Level 3: Fair value is estimated using unobservable inputs that are significant to the fair value of the assets or liabilities.

Summary of Financial Assets and Liabilities Accounted for at Fair Value on a Recurring Basis

The following table represents assets and liabilities measured at fair value on a recurring basis. The basis for the measurement at fair value isin all cases was Level ~~1 for cash and cash equivalents, restricted cash and accounts receivable,net and Level 2 – Significant Other Observable Inputs for all other instruments.~~2.


(in millions)	June 30, 2021		December 31, 2020
Assets:
Foreign exchange contract - forward	$	1	$	2
Total Assets	$	1	$	2
Liabilities:
Foreign exchange contracts - forward	$	0	$	0
Total Liabilities	$	0	$	0

(in millions) September 30, 2017 December 31, 2016
Assets:
Cash and cash equivalents $ 468
$ 390
Restricted cash 25
22
Accounts receivable, net 1,380
1,286
Foreign exchange contracts - forwards 2
1
Deferred compensation investments in cash surrender life insurance⁽¹⁾
—
99
Deferred compensation investments in mutual funds⁽¹⁾
—
10
Total $ 1,875
$ 1,808
Liabilities:
Foreign exchange contracts - forwards $ 1
$ 3
Deferred compensation plan liabilities 116
113
Total $ 117
$ 116

~~_______~~

~~(1)~~

In September 2017, the Company terminated the legacy deferred compensation plans (“Plans”) and the Company Owned Life Insurance (COLI), which held the Plans’ investments. As a result, the Company sold the Plans’ investments and has approximately $141 million of cash, of which $25 million is overfunded. The only impact to the income statement is a $19 million tax expense that resulted from the fair market value of the sold investments exceeding the Plans’ tax basis. The Company will make payments to Plan participants of approximately $15 million and $101 million in the fourth quarters of 2017 and 2018, respectively.

We utilize the income approach to measure the fair value for our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices.

Summary of Other Financial Assets and Liabilities ~~Accounted at Fair Value on a Nonrecurring Basis~~

The estimated fair values of ~~our~~ other financial assets and liabilities ~~not measured at fair value on a recurring basis~~ were as follows:


	June 30, 2021				December 31, 2020
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
Long-term debt	$	1,340	$	1,316	$	1,420	$	1,378

September 30, 2017 December 31, 2016
(in millions)
Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value
Short-term debt 71
71
28
28
Long-term debt 1,991
2,085
1,913
1,933

The fair value amounts for Cash and cash equivalents, ~~and~~Restricted cash, Accounts receivable, net and Short-term debt approximate carrying amounts due to the ~~short~~short-term maturities of these instruments.


						CNDT Q2 2021 Form 10-Q


Table of Contents

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

Note 9 – Employee Benefit Plans

The Company has post-retirement savings and investment plans in several countries, including the U.S., U.K. and Canada. 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. In these plans, employees are permitted to contribute a portion of their salaries and bonuses to the plans. Historically, the Company matched a portion of employee contributions. Beginning in 2019, the Company suspended its match to the 401(k) plan for all U.S. salaried employees and extended the suspension to all U.S. hourly employees in the second quarter of 2020. However, the Company match was reinstated for all U.S. employees in November of 2020.

The Company recognized an expense related to ~~our~~its defined contribution plans of $8$5 million and ~~$10~~$0 million for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, respectively, and $27~~2020, respectively. The Company recognized an expense related to its defined contribution plans of $10 million and ~~$28~~$1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. The balance sheet and income statement impacts of any remaining defined benefit plans are immaterial for all periods presented in these Consolidated Condensed Financial Statements.

Note 10 ~~- Other Comprehensive Income (Loss)~~

Other comprehensive income for the three and nine months ended September 30 2017, increased $16 million ($17 million net of tax) and $57 million ($58 million net of tax), respectively, from the prior year periods. The increase primarily reflects gains from translation adjustments.

~~Conduent Form 10-Q~~

– Accumulated Other Comprehensive Loss (AOCL)

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


(in millions)	Currency Translation Adjustments		Gains (Losses) on Cash Flow Hedges		Defined Benefit Pension Items		Total
Balance at December 31, 2020	$	(400)	$	3	$	(1)	$	(398)
Other comprehensive income (loss)	(7)		(1)		(1)		(9)


Balance at June 30, 2021	$	(407)	$	2	$	(2)	$	(407)


(in millions)	Currency Translation Adjustments		Gains (Losses) on Cash Flow Hedges		Defined Benefit Pension Items		Total
Balance at December 31, 2019	$	(408)	$	3	$	(2)	$	(407)
Other comprehensive income (loss)	(26)		(1)		1		(26)


Balance at June 30, 2020	$	(434)	$	2	$	(1)	$	(433)

__________

(1)All amounts are net of ~~the following:~~tax. Tax effects were immaterial.


						CNDT Q2 2021 Form 10-Q

(in millions) September 30, 2017 December 31, 2016
Cumulative translation adjustments $ (438 ) $ (472 )
Other unrealized gains (losses), net 1
(1 )
Benefit plans net actuarial losses and prior service credits (53 ) (53 )
Total Accumulated Other Comprehensive Loss $ (490 ) $ (526 )


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Note 11 – Contingencies and Litigation

As more fully discussed below, ~~we are~~the Company is involved in a variety of claims, lawsuits, investigations and proceedings ~~concerning: securities law;~~concerning a variety of matters, including: governmental entity contracting, servicing and procurement law; intellectual property ~~law; environmental~~ law; employment law; commercial and contracts law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations. ~~We determine~~The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. ~~We assess our~~The Company assesses its potential liability by analyzing ~~our~~its litigation and regulatory matters using available information. ~~We develop our views~~The Company develops its view on estimated losses in consultation with outside counsel handling ~~our~~its defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments in any of these matters cause a change in ~~our~~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 ~~they~~in excess of any accrual for such matter or matters, this could have a material adverse effect on ~~our~~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 ~~and,~~ as of ~~September~~June 30, ~~2017,~~2021. Litigation is inherently unpredictable, and it ~~was~~is not ~~reasonably~~ possible ~~that a material loss had been incurred~~to predict the ultimate outcome of these matters and such outcome in ~~connection with~~any such matters could be in excess of any amounts accrued and could be material to the ~~amounts recognized~~Company's results of operations, cash flows or financial position in ~~its financial statements.~~any reporting period.

Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships with suppliers, customers and ~~nonconsolidated~~non-consolidated affiliates when ~~we undertake~~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. These potential claims include actions based upon alleged exposures to products, real estate, intellectual property such as patents, environmental matters and other indemnifications. The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the ~~final~~ outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Company's condensed consolidated financial position or liquidity. As of ~~September~~June 30, ~~2017, we have~~2021, the Company had accrued ~~our~~its estimate of liability incurred under ~~our~~its indemnification arrangements and guarantees.

Litigation Against the Company

~~State~~

Employees’ Retirement System of ~~Texas~~the Puerto Rico Electric Power Authority et al v. ~~Xerox Corporation, Xerox State Healthcare,~~Conduent Inc. et al.: 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. In June 2020, the court denied the motion to dismiss and allowed the claims to proceed. We intend to defend the litigation vigorously. The Company maintains insurance that may cover any costs arising out of this litigation up to the insurance limits, and subject to meeting certain deductibles and to other terms and conditions thereof. The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves.


						CNDT Q2 2021 Form 10-Q


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Skyview Capital LLC and ~~ACS State Healthcare,~~Continuum Global Solutions, LLC v. Conduent Business Services, LLC:On ~~May 9, 2014, the State of Texas, via the Texas Office of Attorney General (the “State”),~~February 3, 2020, plaintiffs filed a lawsuit in the ~~53rd Judicial District~~Superior Court of ~~Travis~~New York County, ~~Texas.~~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 (Business) to plaintiffs, which sale closed in February 2019. Under the terms of the sale agreement, CBS received approximately $23 million of notes from plaintiffs (Notes). The lawsuit alleges ~~that Xerox Corporation, Xerox State Healthcare, LLC and ACS State Healthcare (collectively, the "Xerox Defendants") violated the Texas Medicaid Fraud Prevention Act~~various causes of action in ~~the administration of its contract~~connection with the ~~Texas Department~~acquisition, including: indemnification for breach of ~~Health~~representation and ~~Human Services (“HHSC”).~~warranty; indemnification for breach of contract; and fraud. Plaintiffs allege that their obligation to mitigate damages and their contractual right of set-off permits them to withhold and deduct from any amounts that are owed to CBS under the Notes, and plaintiffs seek a judgement that they have no obligation to pay the Notes. On August 20, 2020, Conduent filed a counterclaim against Skyview seeking the outstanding balance on the notes, the amounts owed for the Jamaica deferred closing, and other transition services agreement and late rent payment obligations. Conduent 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. The ~~State alleges that~~Company is not able to determine or predict the ~~Xerox Defendants made false representations~~ultimate outcome of ~~material facts regarding~~this proceeding or reasonably provide an estimate or range of estimate of the ~~processes, procedures, implementation and results regarding the prior authorization of orthodontic claims. The State seeks recovery of actual damages, two times the amount of~~possible outcome or loss, if any, overpayments made as a result of unlawful acts, civil penalties, pre- and post-judgment interest and all costs and attorneys’ fees. The State references the amount in controversy as exceeding hundreds of millions of dollars. The Xerox Defendants filed their Answer in June, 2014 denying all allegations. The Xerox Defendants will continue to vigorously defend themselves in this matter. We do not believe it is probable that we will incur a material loss in excess of the amount accrued for this matter. In the course of litigation, we periodically engage in discussions with plaintiff’s counsel for possible resolution of the matter. Should developments cause a change in our determination as to an unfavorable outcome, or result in a final adverse judgment or settlement for a significant amount, there could be a material adverse effect on our results of operations, cash flows and financial position in the period in which such change in determination, judgment or settlement occurs.currently recorded reserves.

~~Conduent 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 allege actuarial negligence against Buck Consultants, LLC ~~(“Buck”)~~(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”)~~(StanCERA). Plaintiffs allege that the employer contribution rate adopted by StanCERA based on Buck’s valuation was insufficient to fund the benefits promised by the County. 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.~~court as to Buck only, and only with respect to plaintiff's claim of aiding and abetting StanCERA in breaching its fiduciary duty. This case has been stayed pending the outcome of parallel litigation the plaintiffs are pursuing against StanCERA. The parallel litigation was tried before the bench in June 2018, and on January 24, 2019, the court found in favor of StanCERA, holding that it had not breached its fiduciary duty to plaintiffs. On April 26, 2019, plaintiffs in the parallel litigation filed an appeal. Nasrawi remains stayed until the parallel litigation is finally concluded. Absent the court finding that StanCERA breached its fiduciary duty, plaintiffs’ claim against Buck for aiding and abetting said breach would not appear viable. Buck will continue to aggressively defend these lawsuits. In August 2018, Conduent sold Buck; however, the Company retained this liability after the sale. 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 Q2 2021 Form 10-Q


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Conduent Business Services, LLC v. Cognizant Business Services Corporation:On April 12, 2017, Conduent Business Service LLC (CBS) filed a lawsuit against Cognizant Business Services Corporation (Cognizant) in the Supreme Court of New York County, New York. The lawsuit relates to the Amended and Restated Master Outsourcing Services Agreement effective as of October 24, 2012, and the service delivery contracts and work orders thereunder, between CBS and Cognizant, as amended and supplemented (Contract). The Contract contains certain minimum purchase obligations by CBS through the date of expiration. The lawsuit alleges that Cognizant committed multiple breaches of the Contract, including Cognizant’s failure to properly perform its obligations as subcontractor to CBS under CBS’s contract with the New York Department of Health to provide Medicaid Management Information Systems. In the lawsuit, CBS seeks damages in excess of $150 million. During the first quarter of 2018, CBS provided notice to Cognizant that it was terminating the Contract for cause and recorded in the same period certain charges associated with the termination. CBS also alleges that it terminated the Contract for cause, because, among other things, Cognizant violated the Foreign Corrupt Practices Act. In its answer, Cognizant asserted 2 counterclaims for breach of contract seeking recovery of damages in excess of $47 million, which includes amounts alleged not paid to Cognizant under the Contract and an alleged $25 million termination fee. Cognizant's second amended counterclaim increased Cognizant's damages to $89 million. CBS will continue to vigorously defend itself against the counterclaims but the Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves.

Other Matters

~~On January 5, 2016,~~

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. Department of Education (Department) and the Consumer Financial Protection Bureau ~~(the "CFPB") notified Xerox Education Services, Inc. (XES)~~(CFPB) that in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (NORA) process, the CFPB’s Office of Enforcement is considering recommending that the CFPB take legal action against XES, alleging that XES violated the Consumer Financial Protection Act’s prohibition of unfair practices. Should the CFPB commence an action, it may seek restitution, civil monetary penalties, injunctive relief, or other corrective action. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action is recommended or commenced. This notice stems from an inquiry that commenced in 2014 when XES received and responded to a Civil Investigative Demand containing a broad request for information. During this process, XES self-disclosed to the Department of Education and the CFPB certain adjustments of which it had become aware that had not been timely made relating to its servicing of a small percentage ofsome third-party student loans under outsourcing arrangements for various financial ~~institutions. The~~institutions required adjustments. With the exception of an inquiry the Illinois Attorney General's Office recently commenced, the Company has resolved the investigations the CFPB and ~~the Department of Education, as well as certain states' attorney general offices and other regulatory~~several state agencies ~~began similar reviews. XES has cooperated~~commenced and continues to ~~fully cooperate~~work with the Department and the U.S. Department of Justice to resolve all ~~regulatory agencies,~~outstanding issues, including a number of operational projects that XES discovered and ~~XES has submitted its NORA response. We~~disclosed since 2014. The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which the Company serviced third-party student loans, or another party will not ultimately commence a legal action against XES in ~~this matter nor~~which fines, penalties or other liabilities are wesought from XES. Nor is the Company able to predict the likely outcome of ~~the investigations into this matter. We~~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 ~~connection with this matter~~excess of current reserves and there could be a material adverse effect on ~~our~~the Company's results of operations, cash flows and financial position in the period in which such change in judgment or settlement occurs.

Other Contingencies

Certain contracts, primarily in ~~our Public Sector segment,~~the Company's Government Services and Transportation segments, require usthe Company to provide a surety bond or a letter of credit as a guarantee of performance. As of ~~September~~June 30, ~~2017, we~~2021, the Company had ~~$570~~$620 million of outstanding surety bonds used to secure ~~our~~its performance of contractual obligations with ~~our~~its clients and ~~we had $238~~$95 million of outstanding letters of credit ~~and bank guarantees used~~issued to secure ~~our~~the Company's performance of contractual obligations to ~~our~~its clients as well as other corporate obligations.

In general, wethe Company would only be liable for the amount of these guarantees in the event of default in ~~our~~the Company's performance of ~~our~~its obligations under each ~~contract; the probability of which we believe is remote. We believe we have~~contract. The Company believes it has sufficient capacity in the surety markets and liquidity from ~~our~~its cash flow and ~~our~~its various credit arrangements ~~including those with our former parent,~~(including its Revolver) to allow usit to respond to future requests for proposals that require such credit support.

~~Conduent~~


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We have service arrangements where we service third-party student loans in the Federal Family Education Loan program (FFEL) on behalf of various financial institutions. We service these loans for investors under outsourcing arrangements and do not acquire any servicing rights that are transferable by us to a third-party. At September 30, 2017, we serviced a FFEL portfolio of approximately 0.8 million loans with an outstanding principal balance of approximately $12.8 billion. Some servicing agreements contain provisions that, under certain circumstances, require us to purchase the loans from the investor if the loan guaranty has been permanently terminated as a result of a loan default caused by our servicing error. If defaults caused by us are cured during an initial period, any obligation we may have to purchase these loans expires. Loans that we purchase may be subsequently cured, the guaranty reinstated and the loans repackaged for sale to third parties. We evaluate our exposure under our purchase obligations on defaulted loans and establish a reserve for potential losses, or default liability reserve, through a charge to the provision for loss on defaulted loans purchased. The reserve is evaluated periodically and adjusted based upon management’s analysis of the historical performance of the defaulted loans. As of September 30, 2017, other current liabilities include reserves of approximately $1 million for losses on defaulted loans purchased which we believe to be adequate. In addition to potential purchase obligations arising from servicing errors, various laws and regulations applicable to student loan borrowers could give rise to fines, penalties and other liabilities associated with loan servicing errors.

Note 12 -– Preferred Stock

Series A Preferred Stock

In ~~connection with~~December 2016, the ~~Separation from Xerox, we~~Company issued ~~120 thousand~~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 convertible preferred stock ~~pays~~earns quarterly cash dividends at a rate of 8% per year ($9.6 million per year). 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 thousand~~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 Q2 2021 Form 10-Q


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Note 13 – ~~Shareholders’ Equity~~

(in millions)
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

AOCL⁽¹⁾
Former Parent Company Investment
Conduent Shareholders'
Equity
Balance at December 31, 2016 $ 2
$ 3,812
$ —
$ (526 ) $ —
$ 3,288
Comprehensive (loss) income, net —
—
(27 ) 36
—
9
Cash dividends paid - preferred stock⁽²⁾
—
—
(7 ) —
—
(7 )
Stock option and incentive plans, net —
22
—
—
—
22
Balance at September 30, 2017 $ 2
$ 3,834
$ (34 ) $ (490 ) $ —
$ 3,312

(in millions)
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

AOCL⁽¹⁾
Former Parent Company Investment
Conduent Shareholders'
Equity
Balance at December 31, 2015 $ —
$ —
$ —
$ (181 ) $ 5,343
$ 5,162
Comprehensive loss, net —
—
—
(22 ) (32 ) (54 )
Net transfers from former parent —
—
—
—
382
382
Balance at September 30, 2016 $ —
$ —
$ —
$ (203 ) $ 5,693
$ 5,490

~~_____________________________~~


~~(1)~~	~~AOCL - Accumulated other comprehensive loss.~~


~~(2)~~	~~Cash dividends on preferred stock of~~ ~~$20.00~~ ~~per share for the first, second and third quarters of 2017.~~

~~Conduent Form 10-Q~~

~~Note 14 –~~ Earnings (Loss) per Share

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

The following table sets forth the computation of basic and diluted earnings (loss) per share of common ~~stock (shares in thousands):~~stock:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data in whole dollars and shares in thousands)	2021		2020		2021		2020
Net Income (Loss)	$	12	$	(51)	$	1	$	(100)
Dividend - Preferred Stock	(3)		(3)		(5)		(5)
Adjusted Net Income (Loss) Available to Common Shareholders	$	9	$	(54)	$	(4)	$	(105)

Weighted Average Common Shares Outstanding - Basic	212,450		209,129		212,344		210,261
Common Shares Issuable With Respect To:

Restricted Stock And Performance Units / Shares	7,715		0		0		0
Weighted Average Common Shares Outstanding - Diluted	220,165		209,129		212,344		210,261

Net Earnings (Loss) per Share:
Basic	$	0.05	$	(0.25)	$	(0.02)	$	(0.50)
Diluted	$	0.04	$	(0.25)	$	(0.02)	$	(0.50)

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive (shares in thousands):
Restricted stock and performance shares/units	2,762		16,444		13,783		16,444

Convertible preferred stock	5,393		5,393		5,393		5,393
Total Anti-Dilutive and Contingently Issuable Securities	8,155		21,837		19,176		21,837


						CNDT Q2 2021 Form 10-Q


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Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions, except per-share data) 2017 2016 2017 2016
Basic Earnings (Loss) per Share:
Net (loss) income from continuing operations $ (17 ) $ 1
$ (31 ) $ (32 )
Accrued dividends on preferred stock (2 ) —
(7 ) —
Adjusted Net (Loss) Income From Continuing Operations Available to Common Shareholders (19 ) 1
(38 ) (32 )
Income from discontinued operations, net of tax —
—
4
—
Adjusted Net (Loss) Income Available to Common Shareholders $ (19 ) $ 1
$ (34 ) $ (32 )
Weighted average common shares outstanding 204,356
202,875
203,838
202,875

Basic Earnings (Loss) per Share:
Continuing operations $ (0.09 ) $ 0.01
$ (0.19 ) $ (0.16 )
Discontinued operations —
—
0.02
—
Basic (Loss) Income per Share $ (0.09 ) $ 0.01
$ (0.17 ) $ (0.16 )

Diluted Earnings (Loss) per Share:
Net (loss) income from continuing operations $ (17 ) $ 1
$ (31 ) $ (32 )
Accrued dividends on preferred stock (2 ) —
(7 ) —
Adjusted Net (Loss) Income from Continuing Operations Available to Common Shareholders (19 ) 1
(38 ) (32 )
Net income from discontinued operations —
—
4
—
Adjusted Net (Loss) Income Available to Common Shareholders $ (19 ) $ 1
$ (34 ) $ (32 )
Weighted average common shares outstanding⁽¹⁾
204,356
202,875
203,838
202,875

Diluted Earnings (Loss) per Share:
Continuing operations $ (0.09 ) $ 0.01
$ (0.19 ) $ (0.16 )
Discontinued operations —
—
0.02
—
Diluted (Loss) Income per Share: $ (0.09 ) $ 0.01
$ (0.17 ) $ (0.16 )

(1) With the exception of the third quarter 2016, the computation of weighted average shares is the same for basic and diluted earnings per share due to the net loss from continuing operations. For third quarter 2016, there were no Conduent options outstanding.
Note 14 – Supplementary Financial Information

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


(in millions)	June 30, 2021		December 31, 2020
Other Current Assets
Prepaid expenses	$	99	$	73
Income taxes receivable	45		48
Value-added tax (VAT) receivable	17		21
Restricted cash	6		8
Current portion of capitalized cloud computing implementation costs, net	8		8

Other	92		148
Total Other Current Assets	$	267	$	306
Other Current Liabilities
Accrued liabilities	$	238	$	229
Litigation related accruals	64		73
Current operating lease liabilities	72		81
Restructuring liabilities	4		1
Income tax payable	21		16
Other taxes payable	14		16
Other	33		34
Total Other Current Liabilities	$	446	$	450
Other Long-term Assets
Internal use software, net	$	173	$	163
Deferred contract costs, net	73		76
Product software, net	84		72
Cloud computing implementation costs, net	33		33
Other	111		69
Total Other Long-term Assets	$	474	$	413
Other Long-term Liabilities
Deferred payroll tax related to the CARES Act(1)	$	24	$	24
Income tax liabilities	15		15
Unearned income	40		29
Restructuring liabilities	0		5
Other	34		35
Total Other Long-term Liabilities	$	113	$	108

__________

(1)The CARES Act allowed for deferred payment of the employer-paid portion of social security taxes through the end of 2020, with 50% due on December 31, 2021 and the remainder due on December 31, 2022. The current portion of this liability is included in Accrued compensation and benefits costs.


						CNDT Q2 2021 Form 10-Q


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Note 15 – Related Party ~~Transaction~~Transactions

In ~~January 2017, in connection~~the normal course of business, the Company provides services to, and purchases from, certain related parties with the ~~Separation~~same shareholders. The services provided to these entities included those related to human resources, end-user support and ~~Distribution Agreement,~~other services and solutions. The purchases from these entities included office equipment and related services and supplies. In addition, we ~~paid~~have a receivable related to certain income tax matters with our former parent company, Xerox ~~$161 million for final settlement.~~

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

Transactions with related parties were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Revenue from related parties	$	4	$	7	$	9	$	13
Purchases from related parties	$	9	$	6	$	16	$	16

The Company's receivable and payable balances with related party entities were not material as of ~~Comprehensive Loss~~June 30, 2021 and Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2016 included an allocation of general corporate expenses from Xerox, the Company's former parent. Management considered these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided, by Xerox. Allocations for management costs and corporate support services provided totaled $41 million and $125 million for the three and nine months ended September 30, 2016, respectively. These amounts included costs for corporate functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology and other shared services. Where possible, these costs were allocated based on direct usage, with the remainder allocated on a basis of costs, headcount or other measures we have determined as reasonable.December 31, 2020.

~~Conduent Form 10-Q~~

Note 16 – ~~Subsequent Event~~Goodwill

~~On October 10, 2017, we entered into Amendment No. 2 (Repricing Amendment)~~

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


(in millions)	Commercial Industries		Government Services		Transportation		Total
Balance at December 31, 2020	$	837	$	623	$	68	$	1,528
Foreign currency translation	(4)		(3)		(2)		(9)
Balance at June 30, 2021	$	833	$	620	$	66	$	1,519

Gross goodwill	$	2,386	$	1,374	$	646	$	4,406
Accumulated impairment	(1,553)		(754)		(580)		(2,887)
Balance at June 30, 2021	$	833	$	620	$	66	$	1,519

In the first and second quarters of 2021, the Company performed its ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the ~~Credit Agreement, dated December 7, 2016,~~fair value of a reporting unit below its carrying value. After evaluating and weighing all relevant events and circumstances, the Company concluded that it is not more likely than not that the fair values of any of its reporting units were less than their carrying values. Consequently, the Company determined that it was not necessary to perform an interim impairment test for any of its reporting units.

To the extent the COVID-19 pandemic continues to disrupt the economic environment, such as ~~amended by Amendment No. 1 dated April 7, 2017. This Repricing Amendment~~a decline in the performance of ~~Term B Loan reduced~~ the ~~interest rate 1.0% from 4.0% over LIBOR to 3.0% over LIBOR.~~reporting units or loss of a significant contract or multiple significant contracts, the fair value of one or more of the reporting units could fall below their carrying value, resulting in a goodwill impairment charge.

~~Conduent~~


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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of Conduent Incorporated and its consolidated subsidiaries. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying ~~notes.~~Notes.

~~Separation from Xerox Corporation~~Overview

~~On December 31, 2016, Conduent Incorporated completed its spin-off from Xerox Corporation. As~~

We are a ~~result~~leading provider of business process services with expertise in transaction-intensive processing, analytics and automation. We serve as a trusted business partner in both the ~~spin-off,~~front office and back office, enabling personalized, seamless interactions on a massive scale that improve end-user experience.

Headquartered in Florham Park, New Jersey, we now operate as an independent, publicly traded company on the New York Stock Exchange, under the ticker "CNDT". Refer to Note 1 - Basis of Presentation, in the Condensed Consolidated Financial Statements for additional information regarding the separation.

~~Currency Impact~~

To understand the trends in our business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as “currency impact” or “the impact from currency” or "constant currency" and is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate.

~~Financial Review of Operations~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 $ Change 2017 2016 $ Change
Total Revenues $ 1,480
$ 1,596
(116 ) $ 4,529
$ 4,894
(365 )
Total Cost of services 1,219
1,328
(109 ) 3,766
4,107
(341 )
Gross Margin 261
268
(7 ) 763
787
(24 )

Operating Costs and Expenses
Research and development 4
7
(3 ) 11
25
(14 )
Selling, general and administrative 144
164
(20 ) 466
517
(51 )
Restructuring and related costs 22
8
14
76
57
19
Amortization of intangible assets 60
63
(3 ) 182
200
(18 )
Interest expense 35
1
34
105
3
102
Related party interest —
10
(10 ) —
30
(30 )
Separation costs 2
15
(13 ) 8
34
(26 )
(Gain) loss on sale of asset and businesses (16 ) —
(16 ) (41 ) 1
(42 )
Other (income) expenses, net (3 ) (2 ) (1 ) (24 ) 6
(30 )
Total Operating Costs and Expenses $ 248
$ 266
(18 ) $ 783
$ 873
(90 )

Income (Loss) before Income Taxes $ 13
$ 2
$ 11
$ (20 ) $ (86 ) $ 66
Income tax expense (benefit) 30
1
29
11
(54 ) 65
(Loss) Income from Continuing Operations $ (17 ) $ 1
(18 ) $ (31 ) $ (32 ) 1

~~Revenue~~

~~Total revenues~~for the three months and nine months ended September 30, 2017 declined across all segments due primarily to lost business, the wind-down of the New York Medicaid Management Information System (NY MMIS) contract, the run-off of our Student Loan business, strategic contract actions taken by management as part of our portfolio rationalization, lower volumes and overall price declines that were consistent with prior-period trends. Partially offsetting the decline was the ramp up in new contracts in the Commercial Industries and Public Sector businesses.

~~Conduent Form 10-Q~~

~~Cost of Services~~

Cost of services for the three and nine months ended September 30, 2017 decreased compared to the prior year periods due primarily to lost business, the wind-down of the NY MMIS contract, the run-off of our Student Loan business, strategic contract actions taken by management as part of portfolio management and lower volumes.

~~Gross Margin~~

Declines in gross margin for the three and nine months ended September 30, 2017 compared to the prior year periods reflect lost business and margin pressures in our customer experience service offerings, price declines and tohave a ~~lesser degree the impact of the hurricanes.~~

~~Research and Development~~

~~Research and development for the three and nine months ended September 30, 2017, decreased compared to the prior year periods due to cost savings initiatives.~~

~~Selling, General and Administrative (SG&A)~~

~~SG&A for the three and nine months ended September 30, 2017 was lower than the prior year periods reflecting the impact of our strategic transformation initiatives that drove lower wages and benefits.~~

~~Restructuring and Related Costs~~

~~Net restructuring and related costs for the three months ended September 30, 2017 includes approximately $7 million of severance costs due to headcount reductions~~team of approximately 700 employees worldwide, $17 million of lease cancellation costs and $2 million of asset impairments. These costs were offset by $4 million of net reversals primarily resulting from changes in estimated reserves from prior-period initiatives.

Net restructuring and related costs for the nine months ended September 30, 2017 includes strategic transformation costs of $8 million and approximately $38 million of severance costs related to headcount reductions of approximately 3,200 employees worldwide, $33 million of lease cancellation costs and $4 million of asset impairments. These costs were offset by $7 million of net reversals, primarily resulting from changes in estimated reserves from prior-period initiatives.

Net restructuring and related costs for the three months ended September 30, 2016 relates to the strategic transformation program. Severance costs of $4 million related to headcount reductions and were offset by $4 million of net reversals for changes in estimated reserves from prior-period initiatives.

Net restructuring and related costs for the nine months ended September 30, 2016 includes approximately $52 million of severance costs related to headcount reductions of approximately 3,300 employees worldwide, $12 million of professional support services associated with the implementation of our strategic transformation program, $2 million of lease cancellation costs and $2 million of asset impairments. These costs were partially offset by $11 million of net reversals for changes in estimated reserves from prior-period initiatives.

~~The restructuring reserve balance~~59,000 associates as of ~~September~~June 30, ~~2017, for all programs was $40 million, of which approximately $28 million is expected to be spent over the next twelve months.~~2021, servicing customers from service centers in 23 countries.

~~Refer to Note 5 - Restructuring Programs and Related Costs, in the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.~~

~~Amortization of Intangible Assets~~

Amortization of intangible assets for the three and nine months ended September 30, 2017 decreased compared to the prior year periods as the nine months ended September 30, 2016 included the accelerated amortization related to the loss of a large customer contract.

~~Interest Expense~~

Interest expense represents interest on long-term debt and the amortization of debt issuance costs. Interest expense for the three and nine months ended September 30, 2017 increased compared to the prior year periods primarily due to the issuance of debt in connection with the capitalization of the company during the spin-off in December 2016, the subsequent additional borrowing under the Term Loan B in January 2017 and amounts outstanding under the Company’s $750 million committed credit facility (Credit Facility).

~~Conduent Form 10-Q~~

~~Refer to Note 6 - Debt, in the Condensed Consolidated Financial Statements for additional information.~~

~~Separation Costs~~

Separation costs are primarily for third-party investment banking, accounting, legal, consulting and other similar types of services related to the separation transaction as well as costs associated with the operational separation from Xerox Corporation, such as those related to human resources, brand management, real estate and information management to the extent not capitalized. Separation costs also include the costs associated with bonuses and restricted stock grants awarded to employees for retention related to separation.

~~Gain on Sale of Asset and Businesses~~

~~We sold a property in June 2017 for a pre-tax gain of $24 million.~~

Additionally, we completed the divestiture of: (1) our Firehouse business and suite of emergency records management products used by fire departments across the country for their incident reporting and Emergency Management System information and records management; (2) our healthcare provider consulting services business, which advises healthcare organizations on IT application optimization; (3) the Breakaway Group business, which provides advisory project services to assist healthcare organizations optimize their health IT applications; (4) the mobile device management business of Wireless Data Services Limited; and (5) the Global Mobility business. The aggregate proceeds for these divestitures was $56 million in cash. The businesses sold represents $82 million of 2016 revenue and $60 million for the nine months ended September 30, 2017. We recorded a pre-tax gain of $16 million on these divestitures.

~~Other (Income) Expenses, Net~~

~~Other (income) expenses, net primarily includes foreign currency transaction (gains) losses, litigation and other contingent matters and deferred compensation investment results.~~

The increase in Other income for the three months ended September 30, 2017 is primarily related to an adjustment to contingent consideration on a previous acquisition. The increase in Other income for the nine months ended September 30, 2017 is primarily related to income received as a result of several customer dispute settlements and an adjustment to contingent consideration on a previous acquisition.

~~Pre-tax Income (Loss)~~

Improvement in Pre-tax income (loss) for the three and nine months ended September 30, 2017 as compared to the prior year periods was primarily driven by improvements in our Commercial and Other segments, benefits from our strategic transformation program, gain on sale of asset and businesses and lower separation costs, partially offset by higher interest expense, higher restructuring and related costs and dis-synergies.

~~Income Taxes~~

The effective tax rate for the three months ended September 30, 2017, was 230.8% as compared with 50.0% for the three months ended September 30, 2016. The September 30, 2017 rate is higher than the U.S. statutory tax rate of 35% primarily due to a taxable gain on the termination of the Company Owned Life Insurance plan (COLI) and gains on U.S. divestitures.

Excluding primarily the tax on the termination of the COLI, gains on U.S. divestitures and amortization, the normalized effective tax rate for the three months ended September 30, 2017 was 36.8%. Primarily excluding the amortization and restructuring costs, the normalized effective rate was 39.5% for the three months ended September 30, 2016.

The effective tax rate for the nine months ended September 30, 2017, was (55.0)% as compared with 62.8% for the nine months ended September 30, 2016. The September 30, 2017 negative rate is lower than the U.S. statutory tax rate of 35% due to pre-tax loss and tax from taxable gain on the termination of the COLI and gains on U.S. divestitures. The September 30, 2016 effective tax rate was higher than the U.S. statutory tax rate due primarily to U.S. pre-tax losses that are taxed at a higher rate than foreign pre-tax income, which has the effect of increasing the overall effective tax rate.

~~Conduent Form 10-Q~~

Excluding primarily the tax on the termination of the COLI, gain on U.S. divestitures and amortization, the normalized effective tax rate for the nine months ended September 30, 2017 was 35.0%. Primarily excluding the amortization and restructuring costs, the normalized effective rate was 23.6% for the nine months ended September 30, 2016.

~~Worldwide Employment~~

Worldwide employment was approximately 90,000 as of September 30, 2017 and decreased by 6,000 from December 31, 2016, due primarily to the impact of restructuring and productivity reductions as well as seasonal reductions and divestitures.

~~Operations Review of Segment Revenue and Profit~~

Our reportable segments correspond to how we organize and manage the business and are aligned to the industries in which our clients operate.

We organize and manage our businesses through three reportable segments.

•Commercial Industries – Our Commercial Industries segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial Industries segment, we operate on our clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for our clients and their consumers and employees.

•Government Services – Our Government Services 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. Our solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations.

•Transportation – Our 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, we deliver 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.

Executive Summary

We continue to transform our business through an intense focus on growth, quality, and efficiency – utilizing a programmatic and project management approach. Beginning in ~~2017, in an effort~~the first quarter of 2020 and through the second quarter of 2021, we have expanded the focus of our project portfolio to ~~better reflect how we manage~~include both efficiency and growth initiatives, aimed to position the company to pivot to revenue growth and margin expansion over time.

We intend to drive portfolio focus, operating discipline, sales and delivery excellence and innovation, complemented by tightly aligned investments to achieve this mission and purpose. Our strategy is designed to deliver value by delivering profitable growth, expanding operating margins and deploying a disciplined capital allocation strategy. During the three and six months ended June 30, 2021, our ~~business, we changed our reporting segments to align~~strategy is showing results, including the ~~Healthcare business based on customer focus between Commercial Industries~~following:

•Revenue of $1,026 million and ~~Public Sector.~~

Our financial performance is based on "Segment Profit / (Loss)" which is defined as income before amortization of intangibles, restructuring and related costs, interest, gain on sale of an asset, separation costs, other (income) expense, net and income taxes for the following three segments:

~~Commercial Industries,~~

~~Public Sector, and~~

~~Other~~

~~Revenues by segment~~$2,054 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~were:~~

2021, respectively, was an increase of 1.0% and a decrease of less than 1.0%, respectively, a significantly improved trend compared with the same periods last year.

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) Revenue % of Total
Revenue Segment
Profit (Loss) Segment
Profit (Loss)% Revenue
% of Total
Revenue

Segment
Profit (Loss)

Segment
Profit (Loss)%

2017
Commercial Industries $ 864
58 % $ 53
6.1 % $ 2,663
59 % $ 114
4.3 %
Public Sector 540
37 % 59
10.9 % 1,629
36 % 179
11.0 %
Other 76
5 % 1
1.3 % 237
5 % (7 ) (3.0 )%
Total $ 1,480
100 % $ 113
7.6 % $ 4,529
100 % $ 286
6.3 %

2016
Commercial Industries $ 923
58 % $ 42
4.6 % $ 2,869
59 % $ 103
3.6 %
Public Sector 584
37 % 78
13.4 % 1,734
35 % 217
12.5 %
Other 89
5 % (23 ) (25.8 )% 291
6 % (75 ) (25.8 )%
Total $ 1,596
100 % $ 97
6.1 % $ 4,894
100 % $ 245
5.0 %

~~Commercial Industries Segment~~

~~Revenue~~

~~Commercial Industries revenue~~•Positive net income of $12 million and $1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 was 58%~~2021, respectively, as compared to net loss of $51 million and ~~59%, respectively, of total revenue and decreased 6% and 7%, respectively, from~~$100 million for the same periods in the prior ~~year periods. The declines were driven primarily by strategic~~year.

•Strong new business signings results:


						CNDT Q2 2021 Form 10-Q


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◦New business total contract ~~actions and lost business in the Healthcare Payer, High Tech Industrial & Retail and Provider businesses and lower volumes from existing clients, partially offset by revenue from new contracts.~~

~~Segment Profit~~

~~Increase in the Commercial Industries segment profit~~value (TCV) signings of $775 million for the three months ended ~~September~~June 30, ~~2017 was driven by benefits from our strategic transformation cost initiatives and from new business, partially offset by losses in our customer experience services offering and~~2021, representing an increase of 24% compared to that of the ~~overall~~prior year period.

◦Annual recurring revenue ~~decline from existing clients, investments and dis-synergy costs.~~

~~Conduent Form 10-Q~~

Increase in the Commercial Industries segment profit for the nine months ended September 30, 2017 was driven by benefits from our strategic transformation cost initiatives, partially offset by losses in our customer experience services offering and the overall revenue decline from existing clients, investments and dis-synergy costs.

~~Public Sector Segment~~

~~Revenue~~

~~Public Sector revenue~~signings of $115 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017 was 37%~~2021, an increase of ~~total revenue~~10% compared to that of the prior year period.

•The Company has shown year-over-year operational progress, including an improvement to technology platform uptime, improvements in associate satisfaction survey results and increases in performance incentives from customers.

•The Company redeemed the remainder of its previously outstanding $34 million Senior Notes.

COVID-19 Pandemic

Throughout the COVID-19 pandemic, we have continued to provide critical and best-in-class services to our customers and their end-users, while ensuring the health and safety of our greatest assets - our associates. To address the potential impact to our business over the near-term, our Business Continuity team established a proactive plan in the first quarter of 2020 that has continued into the second quarter of 2021, which includes:

•Supporting our associates with a number of specific initiatives, including making improvements to our policies to extend short-term disability, providing extra supplemental sick leave coverage and introducing a hardship leave policy.

•At the end of 2020, approximately 75% of our workforce had been shifted to work-from-home. In 2021, we have started a slow and measured approach to bringing associates back to Conduent offices, as appropriate. This is an ongoing phased process and is based on the specific COVID-19 conditions in certain geographies, as well as business requirements.

•Increased sanitation and social distancing for ~~both periods~~required on-site essential associates.

As the world increasingly becomes vaccinated, we will evolve our approach to various initiatives or take additional actions to meet the needs of our employees, customers and ~~decreased 8%~~their end-users and 6%the Company to continue to provide our mission-critical services and solutions.


						CNDT Q2 2021 Form 10-Q


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Financial Review of Operations


	Three Months Ended June 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
Revenue	$	1,026	$	1,016	$	10	1	%

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	772		795		(23)		(3)	%
Selling, general and administrative (excluding depreciation and amortization)	125		111		14		13	%
Research and development (excluding depreciation and amortization)	1		—		1		n/m
Depreciation and amortization	86		115		(29)		(25)	%
Restructuring and related costs	8		29		(21)		(72)	%
Interest expense	13		15		(2)		(13)	%

(Gain) loss on divestitures and transaction costs	(1)		2		(3)		(150)	%
Litigation costs	1		14		(13)		(93)	%
Loss on extinguishment of debt	2		—		2		n/m
Other (income) expenses, net	—		(1)		1		(100)	%
Total Operating Costs and Expenses	1,007		1,080		(73)

Income (Loss) Before Income Taxes	19		(64)		83
Income tax expense (benefit)	7		(13)		20
Net Income (Loss)	$	12	$	(51)	$	63


	Six Months Ended June 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
Revenue	$	2,054	$	2,067	$	(13)	(1)	%

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	1,559		1,627		(68)		(4)	%
Selling, general and administrative (excluding depreciation and amortization)	251		227		24		11	%
Research and development (excluding depreciation and amortization)	1		1		—		—	%
Depreciation and amortization	181		232		(51)		(22)	%
Restructuring and related costs	21		36		(15)		(42)	%
Interest expense	26		32		(6)		(19)	%

(Gain) loss on divestitures and transaction costs	1		6		(5)		(83)	%
Litigation costs	2		20		(18)		(90)	%
Loss on extinguishment of debt	2		—		2		n/m
Other (income) expenses, net	—		1		(1)		(100)	%
Total Operating Costs and Expenses	2,044		2,182		(138)

Income (Loss) Before Income Taxes	10		(115)		125
Income tax expense (benefit)	9		(15)		24
Net Income (Loss)	$	1	$	(100)	$	101


						CNDT Q2 2021 Form 10-Q


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Revenue

Revenue for the three months ended June 30, 2021 increased by 1%, ~~respectively,~~ compared to the prior year ~~periods. The decreases~~period, primarily due to lesser impacts of the COVID-19 pandemic across our Transportation and Commercial Industries segments, increased volumes in our Government Services Solutions offering within our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business. These increases were partially offset by lost business from prior years.

Revenue for the six months ended June 30, 2021 decreased by less than 1%, compared to the prior year period, primarily due to lost business from prior years and the effect of the COVID-19 pandemic across our Commercial Industries and our Transportation segments, which had only a minimal impact on the first quarter of 2020. These unfavorable impacts were partially offset by increased volumes in our Government Services Solutions service offering within our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business.

Cost of Services (excluding depreciation and amortization)

Cost of services for the three months ended June 30, 2021 decreased, compared to the prior year period, driven by ~~contract losses~~lost business from prior years as well as increased operational efficiency, which led to reductions in ~~State & Local, Government Healthcare~~information technology, labor and ~~Payment Services. These declines~~real estate costs.

Cost of services for the ~~nine~~six months ended June 30, 2021 decreased, compared to the prior year period, driven by lost business from prior years and lower volumes as well as increased operational efficiency, which led to reductions in information technology, labor and real estate costs. Also contributing to the decline were ~~partially mitigated by growth in our Transportation business.~~lower costs to support volume loss resulting from the effect of the COVID-19 pandemic.

~~Segment Profit~~

~~Decrease in the Public Sector segment profit~~Selling, General and Administrative (SG&A) (excluding depreciation and amortization)

SG&A for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were due~~2021 increased, compared to ~~contract losses~~the prior year periods, driven by an increase in ~~Government Healthcare, State & Local,~~certain employee-related costs and ~~Payment Services, dis-synergies~~growth in the sales organization and ~~investments in our core offerings.~~higher recruiting expenses.

~~Other Segment~~Depreciation and Amortization

~~Revenue~~

~~Other revenue~~Depreciation and amortization for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 was 5% of total revenues for both periods and~~2021 decreased, ~~15% and 19%, respectively, driven by the exit from the NY MMIS contract and the run-off of the student loan business.~~

~~Segment Profit (Loss)~~

~~Other segment profit (loss) of $1 million and $(7) million for the three and nine months ended September 30, 2017 improved $24 million and $68 million, respectively,~~ compared to the prior year periods, primarily due to ~~improved profitability~~a portion of certain customer relationship intangible assets being fully amortized in the ~~student loan business, improvements~~first quarter of 2021.

Restructuring and Related Costs

We engage in a series of restructuring programs related to optimizing our employee base, reducing our real estate

footprint, exiting certain activities, outsourcing certain internal functions, consolidating our data centers and engaging in other actions designed to reduce our cost structure and improve productivity. The following are the components of our Restructuring and related costs:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Severance and related costs	$	2	$	10	$	2	$	10
Data center consolidation	8		6		15		8
Termination, asset impairment and other costs	(3)		11		2		14
Total net current period charges	7		27		19		32
Consulting and other costs(1)	1		2		2		4
Restructuring and related costs	$	8	$	29	$	21	$	36

___________

(1)Represents professional support costs associated with certain strategic transformation programs.


						CNDT Q2 2021 Form 10-Q


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Refer to Note 5 – Restructuring Programs and Related Costs to the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

Interest Expense

Interest expense represents interest on long-term debt and the amortization of debt issuance costs. The decreases in Interest expense for the three and six months ended June 30, 2021, compared to the prior year periods, was driven primarily by lower interest rates, a lower Term Loan A principal balance and the May 1, 2021 repayment of the previously outstanding $34 million Senior Notes. Additionally, the three and six months ended June 30, 2020 included interest expense attributable to the drawdown on our Senior Revolving Credit Facility (Revolver) in March 2020, which was repaid in December 2020. Refer to Note 6 – Debt in the ~~HE business.~~Condensed Consolidated Financial Statements for additional information.

~~Health Enterprise~~(Gain) Loss on Divestitures and Transaction Costs

These costs consist of professional fees and other costs related to certain consummated and non-consummated transactions considered by the Company.

Litigation Costs

Net litigation costs for the three and six months ended June 30, 2021 primarily consist of reserves for various matters that are subject to litigation; the three and six months ended June 30, 2020 amount also included costs related to certain reimbursement matters with our former parent company, Xerox Corporation.

Refer to Note 11 – Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information.

Income Taxes

The effective tax rate for the three months ended June 30, 2021 was 38.2%, compared to 20.3% for the three months ended June 30, 2020. The June 30, 2021 rate was higher than the U.S. statutory rate of 21%, primarily due to geographic mix of income, other non-deductible permanent differences, valuation allowances and tax audit reserves, partially offset by tax credits. The June 30, 2020 rate was slightly lower than the U.S. statutory rate of 21%, primarily due to the geographic mix of income.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring costs, the normalized effective tax rate for the three months ended June 30, 2021 was 25.7%. The normalized effective tax rate for the three months ended June 30, 2020 was 32.5%, predominately due to excluding the impact of amortization and restructuring costs. The normalized effective tax rate for the three months ended June 30, 2021 was lower than the three months ended June 30, 2020 rate predominantly due to earnings mix.

The effective tax rate for the six months ended June 30, 2021 was 94.3% compared with 13.0% for the six months ended June 30, 2020. The June 30, 2021 rate was higher than the U.S. statutory rate of 21% primarily due to geographic mix of income, other non-deductible permanent differences, valuation allowances, and tax audit reserve partially offset by tax credits. The June 30, 2020 rate was lower than the U.S. statutory rate of 21% primarily due to the geographic mix of income, valuation allowances, and tax charges recognized on the vesting of employee equity awards partially offset by tax credits.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring, the normalized effective tax rate for the six months ended June 30, 2021 was 24.7%. The normalized effective tax rate for the six months ended June 30, 2020 was 32.8%, predominantly due to excluding the impact of valuation allowances, vesting of equity awards, charges for amortization of intangible assets and restructuring. The normalized effective tax rate for the six months ended June 30, 2021 was lower than the six months ended June 30, 2020 rate predominantly due to earnings mix.

The Company believes it is reasonably possible that unrecognized tax benefits of approximately $14 million will reverse within 12 months due to an anticipated audit settlement.


						CNDT Q2 2021 Form 10-Q


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Operations Review of Segment Revenue and Profit

Our financial performance is based on Segment Profit/(Loss) and Segment Adjusted EBITDA for the following three segments:

•Commercial Industries,

•Government Services, and

•Transportation.

Other includes our Student Loan business, which the Company exited in the third quarter of 2018.

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 our reportable segments.

We continue to modernize a significant portion of our infrastructure with new systems and processes and consolidate our data centers as part of our transformation initiatives. There is a risk, however, that our modernization efforts and data center consolidations could materially and adversely disrupt our operations. In ~~February 2017, we determined that it was not probable that~~addition, the ~~NY MMIS project would be completed. As~~Company’s COVID-19 response has also resulted in diversion of management's time and delayed investments from strategic, transformational and technology initiatives which had been planned. See Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.


						CNDT Q2 2021 Form 10-Q


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Results of financial performance by segment were:


	Three Months Ended June 30,
(in millions)	Commercial Industries			Government Services			Transportation			Other			Unallocated Costs			Total
2021
Revenue	$	503		$	338		$	185		$	—		$	—		$	1,026
Segment profit (loss)	$	29		$	110		$	17		$	—		$	(82)		$	74
Segment depreciation and amortization	$	25		$	8		$	8		$	—		$	13		$	54
Adjusted EBITDA	$	54		$	118		$	25		$	—		$	(69)		$	128

% of Total Revenue	49.0		%	33.0		%	18.0		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	10.7		%	34.9		%	13.5		%	—		%	—		%	12.5		%

2020
Revenue	$	520		$	331		$	165		$	—		$	—		$	1,016
Segment profit (loss)	$	25		$	90		$	20		$	(1)		$	(79)		$	55
Segment depreciation and amortization	$	27		$	6		$	9		$	—		$	13		$	55
Adjusted EBITDA	$	52		$	96		$	29		$	(1)		$	(66)		$	110

% of Total Revenue	51.2		%	32.6		%	16.2		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	10.0		%	29.0		%	17.6		%	—		%	—		%	10.8		%


	Six Months Ended June 30,
(in millions)	Commercial Industries			Government Services			Transportation			Other			Unallocated Costs			Total
2021
Revenue	$	1,029		$	656		$	369		$	—		$	—		$	2,054
Segment profit (loss)	$	64		$	197		$	38		$	—		$	(165)		$	134
Segment depreciation and amortization	$	52		$	13		$	17		$	—		$	27		$	109
Adjusted EBITDA	$	116		$	210		$	55		$	—		$	(138)		$	243

% of Total Revenue	50.1		%	31.9		%	18.0		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	11.3		%	32.0		%	14.9		%	—		%	—		%	11.8		%

2020
Revenue	$	1,092		$	621		$	354		$	—		$	—		$	2,067
Segment profit (loss)	$	67		$	160		$	30		$	3		$	(160)		$	100
Segment depreciation and amortization	$	55		$	13		$	18		$	—		$	27		$	113
Adjusted EBITDA	$	122		$	173		$	48		$	(4)		$	(133)		$	206

% of Total Revenue	52.8		%	30.1		%	17.1		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	11.2		%	27.9		%	13.6		%	—		%	—		%	10.0		%

Commercial Industries Segment

Revenue

Commercial Industries revenue for the three months ended June 30, 2021 decreased, compared to the prior year period, due to lost business from prior years, partially offset by higher volumes as the impacts from COVID-19 were lesser in the second quarter of 2021 as many regions began to loosen restrictions.


						CNDT Q2 2021 Form 10-Q


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Commercial Industries revenue for the six months ended June 30, 2021 decreased, compared to the prior year period, due to COVID-19 related volume declines in our Business Operations Solutions service offering and reduced revenue from our HSA offering "Benefit Wallet" (within our HRLS business) as a result of ~~this determination, we recorded a pre-tax charge of $161 million ($98 million after-tax)~~Federal Reserve initiated interest rate reductions, as well as lost business from prior years.

Segment Profit and Adjusted EBITDA

Increases in the ~~fourth quarter 2016 financial results. The charge included $83 million~~Commercial Industries segment profit and adjusted EBITDA margin for the ~~write-off~~three months ended June 30, 2021, compared to the prior year period, were mainly driven by the result of progress in our efficiency initiatives and one-time contract ~~receivables~~exit costs in the second quarter of 2020.

Commercial Industries segment profit decreased and adjusted EBITDA margin increased for the six months ended June 30, 2021, compared to the prior year period, mainly driven by overall revenue declines, partially offset by the result of progress in our efficiency initiatives and one-time contract exit costs in the second quarter of 2020.

Government Services Segment

Revenue

Government Services revenue for the three months ended June 30, 2021 increased, compared to the prior year period, primarily driven by COVID-19 related volume increases. These increases were partially offset by lost business from prior years. The increased volumes from the COVID-19 pandemic were largely driven by the increases in the Supplemental Nutrition Assistance Program (SNAP) volumes and Pandemic SNAP volumes.

Government Services revenue for the six months ended June 30, 2021 increased, compared to the prior year period, primarily driven by COVID-19 related volume increases. These increases were partially offset by lost business from prior years. The increased volumes from the COVID-19 pandemic was largely driven by the increases in the Supplemental Nutrition Assistance Program (SNAP) volumes and Pandemic SNAP volumes, an increase in the number of citizens to which ~~were recorded~~we distribute unemployment insurance benefits, and additional unemployment insurance benefit distributions as a ~~reduction~~result of Federal stimulus. Within the unemployment benefit business, we generate revenue and $78 million recorded in costs of outsourcing, including $36 million for wind down costs, a $28 million non-cash charge for the impairment of software and $14 million for the write-off of deferred contract set-up and transition costs and other related assets and liabilities. The three and nine months ended September 30, 2017, includes adjustments to increase our estimated wind-down costs of approximately $1 million and $10 million, respectively.

We have reached agreement in principle with the State of New York regarding resolution of the Health Enterprise (HE) platform project, which would result in settlement of our New York Health Enterprise platform exposure. Under this agreement in principle, we would pay, or incur costsbased on ~~behalf of, the State of New York in~~ the amount of ~~approximately $20 million which is reserved. This agreement in principle remains subject to ongoing negotiations~~spending by card holders.

Segment Profit and a settlement will not be effective unless and until we enter into a definitive agreement with the State of New York. Our HE platform has been fully implemented in New Hampshire, Alaska and North Dakota and we areAdjusted EBITDA

Increases in the ~~process~~Government Services segment profit and adjusted EBITDA margin for the three and six months ended June 30, 2021, compared to the prior year period, were mainly driven by increased COVID-19 related volume increases at strong margins and expense reductions resulting from progress in our efficiency initiatives.

Transportation Segment

Revenue

Transportation revenue for the three and six months ended June 30, 2021 increased, compared to the prior year period, primarily driven by the impact of ~~obtaining certification~~loosening of numerous COVID-19 related restrictions, particularly in the United States, and the ramp of new business, partially offset by lost business from prior years.

Segment Profit and Adjusted EBITDA

Transportation segment profit and adjusted EBITDA margin decreased for ~~Alaska~~the three months ended June 30, 2021, compared to the prior year period, mainly driven by unfavorable revenue mix in the quarter and ~~North Dakota.~~short term cost savings in the prior year. Transportation segment profit and adjusted EBITDA margin increased for the six months ended June 30, 2021, compared to the prior year period, mainly driven by progress in our efficiency initiatives and beneficial revenue mix.


						CNDT Q2 2021 Form 10-Q


Table of Contents

Other

Segment Profit (Loss) and Adjusted EBITDA

The segment profit in the 2020 period was primarily due to an adjustment to the then remaining California Medicaid Management Information System settlement liability of $7 million as a result of the contract expiring in March 2020. This benefit was excluded from adjusted EBITDA for segment reporting purposes due to its non-recurring nature.

Unallocated Costs

Unallocated Costs for the three and six months ended June 30, 2021 increased, compared to the prior year period. This was primarily driven by increases in certain employee costs, partially offset by progress in our efficiency initiatives.

Metrics

Signings

Signings are defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. ~~Total Contract Value (TCV)~~TCV is the estimated total contractual revenue related to signed contracts. TCV signings is defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts.

~~Conduent Form 10-Q~~

~~Signings~~For the three months ended June 30, 2021, the Company signed $775 million of new business, representing a 24% increase compared to the prior year period. This increase was driven by the signing of large contracts in the Transportation and Governments segments. Renewal TCV for the three ~~and nine~~ months ended ~~September~~June 30, ~~were:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
New business TCV $ 390
$ 633
$ 1,577
$ 1,803
Renewals TCV 657
913
1,645
3,388
Total Signings $ 1,047
$ 1,546
$ 3,222
$ 5,191

Annual recurring revenue signings $ 92
$ 167
$ 366
$ 408
Non-recurring revenue signings $ 86
$ 104
$ 287
$ 326

S~~ignings for the three and nine months ended September 30, 2017 decreased 32% and 38%, from~~2021 was $825 million, a decrease of 10% compared to the prior year ~~periods, respectively, reflecting~~period, primarily as a result of fewer renewal opportunities in the quarter. The Company continues to scale the centralized Sales and Account Management functions to deliver on our growth objectives.

For the six months ended June 30, 2021, the Company signed $1,131 million of new business, representing a 19% increase compared to the prior year period. Renewal TCV for the six months ended June 30, 2021 was $1,098 million, a decrease of 23% compared to the prior year period, primarily as a result of fewer renewal opportunities in the quarter.


	Three Months Ended June 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
New business TCV	$	775	$	623	$	152	24	%
Renewals TCV	825		912		(87)		(10)	%
Total Signings	$	1,600	$	1,535	$	65	4	%

Annual recurring revenue signings(1)	$	115	$	105	$	10	10	%
Non-recurring revenue signings(2)	$	152	$	76	$	76	100	%


	Six Months Ended June 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
New business TCV	$	1,131	$	947	$	184	19	%
Renewals TCV	1,098		1,427		(329)		(23)	%
Total Signings	$	2,229	$	2,374	$	(145)	(6)	%

Annual recurring revenue signings(1)	$	210	$	162	$	48	30	%
Non-recurring revenue signings(2)	$	279	$	120	$	159	133	%

___________

(1)Recurring revenue signings are for new business contracts longer than one year.

(2)Non-recurring revenue signings are for contracts shorter than one year.


						CNDT Q2 2021 Form 10-Q


Table of Contents

The total new business pipeline at the end of June 30, 2021 and 2020 was $21.0 billion and $22.0 billion, respectively. Total new business pipeline is defined as total new business TCV pipeline of deals in all sell stages. This extends past the next twelve-month period to include total pipeline, excluding the impact of ~~lower contract renewals, partially resulting from our strategic contract remediation actions in 2017 and a large contract renewal in the second quarter of 2016.~~divested business as required.

~~Renewal Rate~~

~~Renewal rate is defined as the annual recurring revenue (ARR) on contracts that are renewed during the period as~~

a percentage of ARR on all contracts for which a renewal decision was made during the period, excluding any contracts that were not renewed and where a strategic action to improve the risk or profitability had been initiated. Renewal rate for the three and nine months ended September 30, 2017 was 98% and 93%, respectively, and exceeded our target range of 85%-90%. Excluding these strategic actions, renewals would have been approximately 95% and 83% for the three and nine months ended September 30, 2017 .

Capital Resources and Liquidity

As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, total cash and cash equivalents were ~~$468~~$397 million ~~(inclusive of $141 million cash related to the termination of the deferred compensation plan)~~ and ~~$390~~$450 million, respectively. ~~We had no outstanding borrowings~~The Company also has a $750 million Revolver for its various cash needs, of which $7 million was used for letters of credit. The net amount available to be drawn upon under our ~~Revolving Credit Facility~~Revolver as of ~~September~~June 30, ~~2017.~~2021, was $743 million.

~~Additionally, we have letters~~

As of ~~credit and bank guarantees~~June 30, 2021, our total debt outstanding ~~from time-to-time to secure our performance~~was $1.4 billion of ~~contractual obligation to our clients and other corporate obligations.~~which $89 million was due within one year. Refer to Note ~~11 - Contingencies and Litigation,~~6 – Debt in the Condensed Consolidated Financial Statements for additional ~~information regarding these guarantees.~~debt information.

In order to provide financial flexibility and finance certain investments and projects, we may continue to utilize external financing arrangements. However, we believe that our cash on hand, projected cash flow from operations, sound balance sheet and revolving line of credit will continue to provide sufficient financial resources to meet our expected business obligations for at least the next twelve months.

Cash Flow Analysis

The following table summarizes our cash flows, as reported in our Condensed Consolidated Statement of Cash Flows in the accompanying Condensed Consolidated Financial Statements:


	Six Months Ended June 30,
(in millions)	2021		2020		Better (Worse)
Net cash provided by (used in) operating activities	$	103	$	(118)	$	221
Net cash provided by (used in) investing activities	$	(69)	$	(58)	(11)
Net cash provided by (used in) financing activities	$	(87)	$	114	(201)

Nine Months Ended
September 30,
(in millions) 2017 2016 Increase (Decrease)
Net cash provided by (used in) operating activities $ 65
$ (38 ) $ 103
Net cash provided by (used in) investing activities 122
(129 ) 251
Net cash (used in) provided by financing activities (111 ) 177
(288 )

Operating ~~activities:~~activities

The ~~increase~~net improvement in cash ~~generated from~~used in operating activities ~~was primarily attributable~~of $221 million, compared to ~~improvements in working capital, reduced wind-down payments associated with implementations in California, Montana and New York, partially offset by income-tax payments.~~

~~Investing activities:~~ ~~The increase in cash provided by investing activities~~the prior year period, was primarily related to the ~~following:~~

~~$116 million increase due to proceeds received on long-term investments driven by the termination~~absence of the 2020 Texas Litigation payment of $118 million, improved collections of Accounts receivable and other working capital timing of $126 million, partly offset by higher cash used on product software and deferred ~~compensation plan.~~contract costs for new business activities of $9 million and higher income tax net payments of $14 million.

~~$109 million~~

Investing activities

The increase ~~due to proceeds received from 2017 divestitures ($56 million) and payment made to Atos for an adjustment to purchase price related to a divestiture in 2016 ($53 million).~~

~~Conduent Form 10-Q~~

~~Financing activities:~~ ~~The decrease~~ in cash used ~~from~~in investing activities of $11 million was primarily due to increased spending related to modernizing our infrastructure and productivity tools.

Financing activities

The increase in cash used in financing activities was primarily related to the ~~following:~~

~~$351~~absence of the March 2020 $150 million ~~decrease due to net transfers to former parent.~~

~~$214~~draw down from our $750 million ~~decrease due to increase~~revolving credit facility, which was subsequently repaid in ~~payments~~December 2020. Additionally, we repaid the previously outstanding $34 million of ~~debt.~~

~~$300 million increase due to proceeds~~Senior Notes on ~~issuance of debt~~.

~~Capital Market Activity~~

~~On October 10, 2017, we entered into Amendment No. 2 to the Credit Agreement dated December 7, 2016~~May 1, 2021 and ~~amended by Amendment No. 1 dated April 7, 2017. Amendment No. 2 reduced the interest rate on our Term Loan B by 1.0% from 4.0% over LIBOR to 3.0% over LIBOR.~~

~~On April 7, 2017, we entered into Amendment No. 1 to the Credit Agreement, dated December 7, 2016 which reduced the interest rate on our Term Loan B by 1.5% from 5.5% over LIBOR to 4.0% over LIBOR.~~

~~In January 2017, we borrowed an additional $100 million~~made higher scheduled payments on Term ~~Loan B with proceeds used for general corporate purposes.~~loans of $18 million in 2021.

~~Refer to Note 6 - Debt, in the Condensed Consolidated Financial Statements for additional information.~~


						CNDT Q2 2021 Form 10-Q


Table of Contents

Market Risk Management

We are exposed to market risk from changes in foreign currency exchange rates which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. ~~These~~We may utilize derivative financial instruments ~~are utilized~~ to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates. We also may hedge the cost to fund material non-dollar entities by buying currencies periodically in advance of the funding date. This is accounted for using derivative accounting.

Recent market and economic events, including the effects of the COVID-19 pandemic, have not caused us to materially modify nor change our financial risk management strategies with respect to our exposures to foreign currency risk. Refer to Note 7 – Financial Instruments in the Condensed Consolidated Financial Statements for additional discussion on our financial risk management.

~~Non-GAAP Financial Measures~~

~~We have reported our financial results in accordance with U.S. GAAP. In addition, we have discussed our results using certain non-GAAP measures.~~

We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related tax effects. Management believes that these non-GAAP financial measures provide an additional means of analyzing the current periods’ results against the corresponding prior periods’ results. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with U.S. GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable U.S. GAAP measures and should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with U.S. GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions, and providing such non-GAAP financial measures to investors allows for a further level of transparency as to how management reviews and evaluates our business results and trends. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.

~~A reconciliation of the non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided below.~~

These reconciliations also include the income tax effects for our non-GAAP performance measures in total, to the extent applicable. The income tax effects are calculated under the same accounting principles as applied to our reported pre-tax performance measures under ASC 740, which employs an annual effective tax rate method. The noted income tax effect for our non-GAAP performance measures is effectively the difference in income taxes for reported and adjusted pre-tax income calculated under the annual effective tax rate method. The tax effect of the

~~Conduent Form 10-Q~~

~~non-GAAP adjustments was calculated based upon evaluation of the statutory tax treatment and the applicable statutory tax rate in the jurisdictions in which such charges were incurred.~~

~~Constant Currency~~

To better understand trends in our business, we believe that it is helpful to adjust revenue to exclude the impact of changes in the translation of foreign currencies into U.S. Dollars. We refer to this adjusted revenue as “constant currency.” Currency impact is the difference between actual growth rates and constant currency growth rates.

~~Adjusted Operating Income and Adjusted Operating Margin~~

~~We make adjustments to Pre-Tax Income (Loss) for the following items for the purpose of calculating Adjusted Operating Income and Adjusted Operating Margin.~~

Amortization of intangible assets. The amortization of intangible assets is driven by acquisition activity, which can vary in size, nature and timing as compared to other companies within our industry from period to period.

~~Restructuring and related costs. Restructuring and related costs include restructuring and asset impairment charges as well as costs associated with our strategic transformation program.~~

Separation costs. Separation costs are expenses incurred in connection with the separation from Xerox Corporation into a separate, independent, publicly traded company. These costs primarily relate to third-party investment banking, accounting, legal, consulting and other similar types of services related to the separation transaction as well as costs associated with the operational separation of the two companies.

~~Interest expense. Interest expense includes interest on long-term debt and amortization of debt issuance costs and related party interest.~~

~~Other (income) expenses net. Other (income) expenses, net includes currency (gains) losses, net, litigation matters and all other (income) expenses, net.~~

~~NY MMIS (2017 only). Costs associated with the company not fully completing the State of New York Health Enterprise Platform project.~~

~~HE charge (2017 only). Costs associated with not fully completing the Health Enterprise Medical Platform implementation projects in California and Montana.~~

~~(Gain) loss on sale of asset and businesses.~~

We provide our investors with adjusted operating income and adjusted operating margin information, as supplemental information, because we believe it offers added insight, by itself and for comparability between periods, by adjusting for certain non-cash items as well as certain other identified items which we do not believe are indicative of our ongoing business, and may also provide added insight on trends in our ongoing business.

~~Adjusted Net Income (Loss), Adjusted Earnings per Share and Adjusted Effective Tax Rate~~

~~We make adjustments to Income (Loss) before Income Taxes for the following items for the purpose of calculating Adjusted Net Income (Loss), Adjusted Earnings per Share and Adjusted Effective Tax Rate:~~

~~Amortization of intangible assets.~~

~~Restructuring and related costs.~~

~~Separation costs.~~

~~Other (income) expenses, net.~~

~~NY MMIS (2017 only).~~

~~HE charge (2017 only).~~

~~(Gain) loss on sale of asset and businesses.~~

The Company provides adjusted net income and adjusted EPS financial measures to assist our investors in evaluating our ongoing operating performance for the current reporting period and, where provided, over different reporting periods, by adjusting for certain items which may be recurring or non-recurring and which in our view do not necessarily reflect ongoing performance. We also internally use these measures to assess our operating performance, both absolutely and in comparison to other companies, and in evaluating or making selected compensation decisions.

Management believes that adjusted effective tax rate, provided as supplemental information, facilitates a comparison by investors of our actual effective tax rate with an adjusted effective tax rate which reflects the impact of the items which are excluded in providing adjusted net income, and may provide added insight into our underlying business results and how effective tax rates impact our ongoing business.

~~Conduent Form 10-Q~~

~~Operating Income / Margin Reconciliation:~~

Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
(in millions) Pre Tax Income (Loss) Revenue Margin Pre Tax Income (Loss) Revenue Margin
GAAP as Reported⁽¹⁾
$ 13
$ 1,480
0.9 % $ 2
1,596
0.1 %
Adjustments:
Amortization of intangible assets 60
63

NY MMIS 1
—

Restructuring and related costs 22
8

HE charge (3 )
—

Separation costs 2
15

Interest expense 35
1

Related party interest —
10

(Gain) loss on sale of asset and businesses (16 ) —

Other (income) expenses, net (3 ) (2 ) —

Adjusted Operating Income/Margin $ 111
$ 1,480
7.5 % $ 97
$ 1,596
6.1 %

(1) Pre-Tax Income (Loss) and revenue from continuing operations.

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
(in millions) Pre Tax Income (Loss) Revenue Margin Pre Tax Income (Loss) Revenue Margin
GAAP as Reported⁽¹⁾
$ (20 ) $ 4,529
(0.4 )% $ (86 ) 4,894
(1.8 )%
Adjustments:
Goodwill impairment 182
200

Amortization of intangible assets 10
—

NY MMIS 76
57

Restructuring and related costs (8 )
—

HE charge 8
34

Interest expense 105
3

Related party interest —
30

(Gain) loss on sale of asset and businesses (41 ) 1

Other (income) expenses, net (24 ) 6
—

Adjusted Operating Income/Margin $ 288
$ 4,529
6.4 % $ 245
$ 4,894
5.0 %

(1) Pre-Tax Income (Loss) and revenue from continuing operations.

~~Conduent Form 10-Q~~

~~Effective Tax Rate Reconciliation:~~

Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
(in millions) Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate
GAAP as Reported From Continuing Operations $ 13
$ 30
230.8 % $ 2
$ 1
50.0 %
Non-GAAP adjustments⁽¹⁾
63
17
84
33

Termination of COLI plan —
(19 ) —
—

Adjusted⁽²⁾
$ 76
$ 28
36.8 % $ 86
$ 34
39.5 %

(1) Refer to Net Income (Loss) reconciliation for details.
(2) The tax impact of Adjusted Pre-Tax Income (Loss) from continuing operations is calculated under the same accounting principles applied to the As Reported Pre-Tax Income, which employs an annual effective tax rate method to the results.

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
(in millions) Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate
GAAP as Reported From Continuing Operations $ (20 ) $ 11
(55.0 )% $ (86 ) $ (54 ) 62.8 %
Non-GAAP adjustments⁽¹⁾
203
72
298
104

Termination of COLI plan —
(19 ) —
—

Adjusted⁽²⁾
$ 183
$ 64
35.0 % $ 212
$ 50
23.6 %

(1) Refer to Net Income (Loss) reconciliation for details.
(2) The tax impact of Adjusted Pre-Tax Income (Loss) from continuing operations is calculated under the same accounting principles applied to the As Reported Pre-Tax Income, which employs an annual effective tax rate method to the results.

~~Net Income (Loss) and EPS Reconciliation:~~

Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
(in millions, except earnings per share) Net Income (Loss) EPS Net Income (Loss) EPS
GAAP as Reported From Continuing Operations $ (17 ) $ (0.09 ) $ 1
$ 0.01
Adjustments:
Amortization of intangible assets 60
63

NY MMIS 1
—

Restructuring and related costs 22
8

HE charge (3 ) —

Separation costs 2
15

(Gain) loss on sale of asset and businesses (16 ) —

Other (income) expenses, net (3 ) (2 )
Less: Income tax adjustments⁽¹⁾
2
(33 )
Adjusted Net Income (Loss) and EPS $ 48
$ 0.22
$ 52
$ 0.24

(shares)
Weighted average common shares outstanding 204
203
Restricted stock and performance shares 3
3
8% Convertible preferred stock —
5
Adjusted Weighted Average Shares Outstanding⁽²⁾
207
211
(1) Reflects the income tax (expense) benefit of the adjustments. Refer to the Effective Tax Rate reconciliation details.
(2) Average shares for the 2017 calculation of adjusted EPS excludes 5 million shares associated with our Series A convertible preferred stock and includes the impact of the preferred stock quarterly dividend of $2 million for the three months ended September 30, 2017. Average shares for the 2016 calculation of adjusted EPS includes 5 million shares associated with our Series A convertible preferred stock and excludes the impact of the preferred stock quarterly dividend.

~~Conduent Form 10-Q~~

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
(in millions, except earnings per share) Net Income (Loss) EPS Net Income (Loss) EPS
GAAP as Reported From Continuing Operations $ (31 ) $ (0.19 ) $ (32 ) $ (0.16 )
Adjustments:
Amortization of intangible assets 182
200

NY MMIS 10
—

Restructuring and related costs 76
57

HE charge (8 ) —

Separation costs 8
34

(Gain) loss on sale of asset and businesses (41 ) 1

Other (income) expenses, net (24 ) 6

Less: Income tax adjustments⁽¹⁾
(53 ) (104 )
Adjusted Net Income (Loss) and EPS $ 119
$ 0.54
$ 162
$ 0.77

(shares)
Weighted average common shares outstanding 204
203
Restricted stock and performance shares 3
3
8% Convertible preferred stock —
5
Adjusted Weighted Average Shares Outstanding⁽²⁾
207
211
(1) Reflects the income tax (expense) benefit of the adjustments. Refer to the Effective Tax Rate reconciliation details.
(2) Average shares for the 2017 calculation of adjusted EPS excludes 5 million shares associated with our Series A convertible preferred stock and includes the impact of the preferred stock quarterly dividend of $7 million for the nine months ended September 30, 2017. Average shares for the 2016 calculation of adjusted EPS includes 5 million shares associated with our Series A convertible preferred stock and excludes the impact of the preferred stock quarterly dividend.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the “Market Risk Management” section in Item 2 of this ~~Quarterly Report on~~ Form 10-Q is hereby incorporated by reference in answer to this Item. During the reporting period, there have been no material changes to the quantitative and qualitative disclosures regarding our market risk set forth in our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 4 — CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of our principal executive officer and principal financial officer, or persons performing similar functions, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act"), as of the end of the period covered by this ~~report.~~Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this ~~report,~~Form 10-Q, our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act, ~~as amended,~~ is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms relating to ~~Conduent Incorporated,~~the Company, including our consolidated subsidiaries, and was accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in Internal ~~Controls~~Control Over Financial Reporting

~~In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was~~

There were no ~~change identified~~changes in our internal control over financial reporting that occurred during the ~~last fiscal~~ quarter ended June 30, 2021, that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

~~Conduent~~


						CNDT Q2 2021 Form 10-Q

2834


Table of Contents

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

The information set forth under Note 11 – Contingencies and Litigation in the Condensed Consolidated Financial Statements of this ~~Quarterly Report on~~ Form 10-Q is incorporated herein by reference in answer to this Item.

ITEM 1A — RISK FACTORS

Reference is made to the Risk Factors set forth in Part I, Item 1A of our ~~2016~~ Annual ~~Report.~~Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our risk factors as previously reported in our ~~2016~~ Annual ~~Report.~~Report on Form-10-K for the year ended December 31, 2020.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


~~(a)~~	~~Sales of Unregistered Securities during the Quarter ended September 30, 2017~~ (a)Sales of Unregistered Securities during the Quarter ended June 30, 2021

During the quarter ended ~~September~~June 30, ~~2017,~~2021, the Company did not issue any securities in transactions that were not registered under the Securities Act of 1933, as amended.

(b)Issuer Purchases of Equity Securities during the Quarter ended June 30, 2021

None.


~~(b)~~			~~Issuer Purchases of Equity Securities during the Quarter ended September 30, 2017~~			CNDT Q2 2021 Form 10-Q

~~None~~.


Table of Contents

ITEM 6 — EXHIBITS



3.1		Restated Certificate of Incorporation of Registrant filed with the Department of the State of New York on December 31, ~~2016~~2016..
		Incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K dated December 23, 2016.
3.2
~~3.2~~	Amended and Restated By-Laws of Registrant as amended through December 31, ~~2016~~2016..
		Incorporated by reference to Exhibit 3.2 to Registrants Current Report on Form 8-K dated December 23, 2016.

~~10.1(d)~~10.6(a)(ix)		Amendment No. 2 to Credit Agreement, dated as of April 7, 2017, among Conduent Incorporated, Conduent Business Services, LLS, Affiliated Computer Services International B.V. and Conduent Finance, Inc., the Lenders from time to time party thereto and JPMorgan Chase Bank, N/A., as Administrative AgentRegistrant’s 2021 Performance Incentive Plan.
		Incorporated by reference to Annex A to Registrant's Proxy Filing on Schedule 14 dated April 9, 2021.
10.6(a)(x)		Form of Restricted Stock Unit Award Agreement 2021 under the 2021 PIP.
10.6(a)(xi)		Form of Performance Stock Unit Award Agreement 2021 (Revenue Metric) under the 2021 PIP.
10.6(a)(xii)		Form of Performance Stock Unit Award Agreement 2021 (Share Hurdle Metric) under the 2021 PIP.
10.6(a)(xiii)		Form of Agreement For Non-Employee Directors under 2021 PIP.

10.6(h)		Letter Agreement dated May 5, 2021, between Registrant and Stephen Wood
		Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K ~~filed October 10, 2017.~~dated May 4, 2021.

~~10.6(h)~~	~~Executive Change in Control Severance Plan, dated as of October 1, 2017~~.
	~~Incorporated by reference to Registrant's Current Report on Form 8-K, filed October 4, 2017.~~

31(a)		Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a)..
31(b)		Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.CAL~~
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase.
~~101.INS~~101.LAB		~~XBRL Instance Document.~~
~~101.LAB~~	Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase.
101.SCH		Inline XBRL Taxonomy Extension Schema Linkbase.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

~~Conduent~~


						CNDT Q2 2021 Form 10-Q

2936


Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



CONDUENT INCORPORATED (Registrant)

By:			/S~~/ ALLAN~~ C~~OHEN~~ S/ STEPHEN WOOD
			~~Allan Cohen~~ ~~Vice President and~~ Stephen Wood Chief ~~Accounting~~Financial Officer (Principal ~~Accounting~~Financial Officer)

Date: ~~November 8, 2017~~August 5, 2021

~~Conduent~~


						CNDT Q2 2021 Form 10-Q

3037


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	CNDT	NASDAQ Global Select Market


Class		Outstanding at July 31, 2021
Common Stock,	$0.01 par value	212,651,045



~~Class~~		~~Outstanding at October 31, 2017~~
~~Common Stock, $0.01 par value~~		~~210,377,257~~CNDT Q2 2021 Form 10-Q



					Page
Part I — Financial Information
Item 1.			Financial Statements (Unaudited)		3
			Condensed Consolidated Statements of Income (Loss)		3
			Condensed Consolidated Statements of Comprehensive Income (Loss)		4
			Condensed Consolidated Balance Sheets		5
			Condensed Consolidated Statements of Cash Flows		6
			Condensed Consolidated Statements of Shareholders' Equity		7
			Notes to the Condensed Consolidated Financial Statements		78
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		1824
			Capital Resources and Liquidity		2333
			Market Risk Management		2434
			~~Non-GAAP Financial Measures~~Item 3.	24
~~Item 3.~~	Quantitative and Qualitative Disclosures About Market Risk	2834
Item 4.			Controls and Procedures		2834

Part II — Other Information

Item 1.			Legal Proceedings		2935
Item 1A.			Risk Factors		2935
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		2935
~~Item 6.~~	~~Exhibits~~	29
~~Signatures~~Item 6.			30Exhibits		36
Signatures					37



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions, except per-share data)	2017			2016			2017			2016
Revenues
Revenue	$	1,470		$	1,585		$	4,497		$	4,856
Related party	10			11			32			38
Total Revenues	1,480			1,596			4,529			4,894

Cost of services	1,210			1,319			3,742			4,079
Related party cost of services	9			9			24			28
Gross Margin	261			268			763			787

Operating Costs and Expenses
Research and development	4			7			11			25
Selling, general and administrative	144			164			466			517
Restructuring and related costs	22			8			76			57
Amortization of intangible assets	60			63			182			200
Interest expense	35			1			105			3
Related party interest	—			10			—			30
Separation costs	2			15			8			34
(Gain) loss on sale of asset and businesses	(16		)	—			(41		)	1
Other (income) expenses, net	(3		)	(2		)	(24		)	6
Total Operating Costs and Expenses	248			266			783			873

Income (Loss) before Income Taxes	13			2			(20		)	(86		)
Income tax expense (benefit)	30			1			11			(54		)
(Loss) Income from Continuing Operations	(17		)	1			(31		)	(32		)
Income from discontinued operations, net of tax	—			—			4			—
Net (Loss) Income	$	(17	)	$	1		$	(27	)	$	(32	)

Basic Earnings (Loss) per Share:
Continuing operations	$	(0.09	)	$	0.01		$	(0.19	)	$	(0.16	)
Discontinued operations	—			—			0.02			—
Total Basic (Loss) Income per Share	$	(0.09	)	$	0.01		$	(0.17	)	$	(0.16	)

Diluted Earnings (Loss) per Share:
Continuing operations	$	(0.09	)	$	0.01		$	(0.19	)	$	(0.16	)
Discontinued operations	—			—			0.02			—
Total Diluted (Loss) Income per Share	$	(0.09	)	$	0.01		$	(0.17	)	$	(0.16	)



(in millions, except share data in thousands)	September 30, 2017			December 31, 2016
Assets
Cash and cash equivalents	$	468		$	390
Accounts receivable, net	1,380			1,286
Net receivable from former parent company	31			—
Other current assets	233			241
Total current assets	2,112			1,917
Land, buildings and equipment, net	249			283
Intangible assets, net	959			1,144
Goodwill	3,899			3,889
Other long-term assets	328			476
Total Assets	$	7,547		$	7,709

Liabilities and Equity
Short-term debt and current portion of long-term debt	$	71		$	28
Accounts payable	147			164
Accrued compensation and benefits costs	221			269
Unearned income	184			206
Net payable to former parent company	—			124
Other current liabilities	591			611
Total current liabilities	1,214			1,402
Long-term debt	1,991			1,913
Pension and other benefit liabilities	151			172
Deferred taxes	605			619
Other long-term liabilities	132			173
Total Liabilities	4,093			4,279

Contingencies (See Note 11)
Series A Convertible Preferred Stock	142			142

Common Stock	2			2
Additional paid-in-capital	3,834			3,812
Retained deficit	(34		)	—
Accumulated other comprehensive loss	(490		)	(526		)
Total Equity	3,312			3,288
Total Liabilities and Equity	$	7,547		$	7,709

Shares of common stock issued and outstanding	210,372			202,875
Shares of Series A convertible preferred stock issued and outstanding	120			120



(in millions)	September 30, 2017			December 31, 2016
Amounts billed or billable	$	1,115		$	1,014
Unbilled amounts	267			279
Allowance for doubtful accounts	(2		)	(7		)
Accounts Receivable, Net	$	1,380		$	1,286



(in millions)	Severance and Related Costs			Lease Cancellation and Other Costs			Asset Impairments			Total
Accrued Balance at December 31, 2016	$	15		$	5		$	1		$	21
Restructuring provision	38			33			4			75
Reversals of prior accruals	(5		)	(2		)	—			(7		)
Net Current Period Charges	33			31			4			68
Payments and asset impairments	(34		)	(9		)	(6		)	(49		)
Accrued Balance at September 30, 2017	$	14		$	27		$	(1	)	$	40



(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings			AOCL⁽¹⁾			Former Parent Company Investment		Conduent Shareholders' Equity
Balance at December 31, 2016	$	2	$	3,812	$	—		$	(526	)	$	—	$	3,288
Comprehensive (loss) income, net	—		—		(27		)	36			—		9
Cash dividends paid - preferred stock⁽²⁾	—		—		(7		)	—			—		(7		)
Stock option and incentive plans, net	—		22		—			—			—		22
Balance at September 30, 2017	$	2	$	3,834	$	(34	)	$	(490	)	$	—	$	3,312



	Three Months Ended September 30,									Nine Months Ended September 30,
(in millions)	Revenue		% of Total Revenue		Segment Profit (Loss)			Segment Profit (Loss)%		Revenue		% of Total Revenue		Segment Profit (Loss)			Segment Profit (Loss)%
2017
Commercial Industries	$	864	58	%	$	53		6.1	%	$	2,663	59	%	$	114		4.3	%
Public Sector	540		37	%	59			10.9	%	1,629		36	%	179			11.0	%
Other	76		5	%	1			1.3	%	237		5	%	(7		)	(3.0	)%
Total	$	1,480	100	%	$	113		7.6	%	$	4,529	100	%	$	286		6.3	%

2016
Commercial Industries	$	923	58	%	$	42		4.6	%	$	2,869	59	%	$	103		3.6	%
Public Sector	584		37	%	78			13.4	%	1,734		35	%	217			12.5	%
Other	89		5	%	(23		)	(25.8	)%	291		6	%	(75		)	(25.8	)%
Total	$	1,596	100	%	$	97		6.1	%	$	4,894	100	%	$	245		5.0	%



	Three Months Ended September 30, 2017							Three Months Ended September 30, 2016
(in millions)	Pre Tax Income (Loss)			Revenue		Margin		Pre Tax Income (Loss)			Revenue		Margin
GAAP as Reported⁽¹⁾	$	13		$	1,480	0.9	%	$	2		1,596		0.1	%
Adjustments:
Amortization of intangible assets	60							63
NY MMIS	1							—
Restructuring and related costs	22							8
HE charge	(3		)					—
Separation costs	2							15
Interest expense	35							1
Related party interest	—							10
(Gain) loss on sale of asset and businesses	(16		)					—
Other (income) expenses, net	(3		)					(2		)	—
Adjusted Operating Income/Margin	$	111		$	1,480	7.5	%	$	97		$	1,596	6.1	%

(1) Pre-Tax Income (Loss) and revenue from continuing operations.



	Nine Months Ended September 30, 2017							Nine Months Ended September 30, 2016
(in millions)	Pre Tax Income (Loss)			Revenue		Margin		Pre Tax Income (Loss)			Revenue		Margin
GAAP as Reported⁽¹⁾	$	(20	)	$	4,529	(0.4	)%	$	(86	)	4,894		(1.8	)%
Adjustments:
Goodwill impairment	182							200
Amortization of intangible assets	10							—
NY MMIS	76							57
Restructuring and related costs	(8		)					—
HE charge	8							34
Interest expense	105							3
Related party interest	—							30
(Gain) loss on sale of asset and businesses	(41		)					1
Other (income) expenses, net	(24		)					6			—
Adjusted Operating Income/Margin	$	288		$	4,529	6.4	%	$	245		$	4,894	5.0	%

(1) Pre-Tax Income (Loss) and revenue from continuing operations.



	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016
(in millions, except earnings per share)	Net Income (Loss)			EPS			Net Income (Loss)			EPS
GAAP as Reported From Continuing Operations	$	(17	)	$	(0.09	)	$	1		$	0.01
Adjustments:
Amortization of intangible assets	60						63
NY MMIS	1						—
Restructuring and related costs	22						8
HE charge	(3		)				—
Separation costs	2						15
(Gain) loss on sale of asset and businesses	(16		)				—
Other (income) expenses, net	(3		)				(2		)
Less: Income tax adjustments⁽¹⁾	2						(33		)
Adjusted Net Income (Loss) and EPS	$	48		$	0.22		$	52		$	0.24

(shares)
Weighted average common shares outstanding				204						203
Restricted stock and performance shares				3						3
8% Convertible preferred stock				—						5
Adjusted Weighted Average Shares Outstanding⁽²⁾				207						211
(1) Reflects the income tax (expense) benefit of the adjustments. Refer to the Effective Tax Rate reconciliation details.
(2) Average shares for the 2017 calculation of adjusted EPS excludes 5 million shares associated with our Series A convertible preferred stock and includes the impact of the preferred stock quarterly dividend of $2 million for the three months ended September 30, 2017. Average shares for the 2016 calculation of adjusted EPS includes 5 million shares associated with our Series A convertible preferred stock and excludes the impact of the preferred stock quarterly dividend.