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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
_______________  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to
Commission File Number 001-37817
https://cdn.kscope.io/d4da2fff9e3418462159d3e77df5480a-cndt-20210930_g1.jpg
CONDUENT INCORPORATED
(Exact Name of Registrant as specified in its charter)
New York81-2983623
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
100 Campus Drive, Suite 200,
Florham Park,New Jersey07932
(Address of principal executive offices)(Zip Code)
(844) 663-2638
(Registrant’s telephone number, including area code)
_________________________________________________  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueCNDTNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmall reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
Class Outstanding at October 31, 2021
Common Stock,$0.01 par value 212,793,998
CNDT Q3 2021 Form 10-Q







FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (Form 10-Q) and any exhibits to this Form 10-Q may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” "plan," “intend,” “will,” “aim,” “should,” “could,” “forecast,” “target,” “may,” "continue to," "if,” “growing,” “projected,” “potential,” “likely,” and similar expressions, as they relate to us, are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. In addition, all statements regarding the anticipated effects of the novel coronavirus, or COVID-19, pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, and markets, results of operations and financial condition and anticipated actions to be taken by management to sustain our business during the economic uncertainty caused by the pandemic and related governmental and business actions, as well as other statements that are not strictly historical in nature, are forward looking. These statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied herein as anticipated, believed, estimated, expected or intended or using other similar expressions.
In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Form 10-Q, any exhibits to this Form 10-Q and other public statements we make. Our actual results may vary materially from those expressed or implied in our forward-looking statements. These forward-looking statements are also subject to the significant continuing impact of the COVID-19 pandemic on our business, operations, financial results and financial condition, which is dependent on developments which are highly uncertain and cannot be predicted.
Important factors and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements include, but are not limited to: the significant continuing effects of the ongoing COVID-19 pandemic on our business, operations, financial results and financial condition, which is dependent on developments which are highly uncertain and cannot be predicted; government appropriations and termination rights contained in our government contracts; our ability to renew commercial and government contracts, including contracts awarded through competitive bidding processes; our ability to recover capital and other investments in connection with our contracts; our reliance on third-party providers; our ability to deliver on our contractual obligations properly and on time; changes in interest in outsourced business process services; risk and impact of geopolitical events, natural disasters and other factors (such as pandemics, including coronavirus) in a particular country or region on our workforce, customers and vendors; claims of infringement of third-party intellectual property rights; our ability to estimate the scope of work or the costs of performance in our contracts; the loss of key senior management and our ability to attract and retain necessary technical personnel and qualified subcontractors; increases in the cost of telephone and data services or significant interruptions in such services; our failure to develop new service offerings and protect our intellectual property rights; our ability to modernize our information technology infrastructure and consolidate data centers; the failure to comply with laws relating to individually identifiable information and personal health information; the failure to comply with laws relating to processing certain financial transactions, including payment card transactions and debit or credit card transactions; breaches of our information systems or security systems or any service interruptions; our ability to comply with data security standards; changes in tax and other laws and regulations; risk and impact of potential goodwill and other asset impairments; our significant indebtedness; our ability to obtain adequate pricing for our services and to improve our cost structure; our ability to collect our receivables, including those for unbilled services; a decline in revenues from, or a loss of, or a reduction in business from or failure of significant clients; fluctuations in our non-recurring revenue; our failure to maintain a satisfactory credit rating; our ability to receive dividends or other payments from our subsidiaries; developments in various contingent liabilities that are not reflected on our balance sheet, including those arising as a result of being involved in a variety of claims, lawsuits, investigations and proceedings; conditions abroad, including local economics, political environments, fluctuating foreign currencies and shifting regulatory schemes; changes in government regulation and economic, strategic, political and social conditions; changes in the volatility of our stock price and the risk of litigation following a decline in the price of our stock; the impact of the ongoing COVID-19 pandemic; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Quarterly Report on Form 10-Q as well as in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and any subsequent Quarterly Report on Form 10-Q and Current Report on Form 8-K. Any forward-looking statements made by us in this Quarterly Report on Form 10-Q speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
CNDT Q3 2021 Form 10-Q
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CONDUENT INCORPORATED

FORM 10-Q

September 30, 2021
TABLE OF CONTENTS
 
 Page

For additional information about Conduent Incorporated and access to our Annual Reports to Shareholders and SEC filings, free of charge, please visit our website at https://investor.conduent.com/. Any information on or linked from the website is not incorporated by reference into this Form 10-Q.
CNDT Q3 2021 Form 10-Q
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PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)

CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions, except per share data)2021202020212020
Revenue$1,038 $1,041 $3,092 $3,108 
Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)776 779 2,335 2,406 
Selling, general and administrative (excluding depreciation and amortization)131 122 382 349 
Research and development (excluding depreciation and amortization)2  3 1 
Depreciation and amortization84 112 265 344 
Restructuring and related costs10 20 31 56 
Interest expense12 14 38 46 
(Gain) loss on divestitures and transaction costs 8 1 14 
Litigation costs  2 20 
Loss on extinguishment of debt  2  
Other (income) expenses, net4 (1)4  
Total Operating Costs and Expenses1,019 1,054 3,063 3,236 
Income (Loss) Before Income Taxes19 (13)29 (128)
Income tax expense (benefit)8 (6)17 (21)
Net Income (Loss)$11 $(7)$12 $(107)
Net Earnings (Loss) per Share:
Basic$0.04 $(0.04)$0.02 $(0.54)
Diluted$0.04 $(0.04)$0.02 $(0.54)

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

CNDT Q3 2021 Form 10-Q
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CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Net Income (Loss)$11 $(7)$12 $(107)
Other Comprehensive Income (Loss), Net(1)
Currency translation adjustments, net(16)11 (23)(15)
Unrecognized gains (losses), net 1 (1) 
Changes in benefit plans, net  (1)1 
Other Comprehensive Income (Loss), Net(16)12 (25)(14)
Comprehensive Income (Loss), Net$(5)$5 $(13)$(121)
__________
(1)All amounts are net of tax. Tax effects were immaterial.

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



CNDT Q3 2021 Form 10-Q
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CONDUENT INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in thousands)September 30, 2021December 31, 2020
Assets
Cash and cash equivalents$394 $450 
Accounts receivable, net701 670 
Contract assets159 151 
Other current assets257 306 
Total current assets1,511 1,577 
Land, buildings and equipment, net273 305 
Operating lease right-of-use assets243 246 
Intangible assets, net84 187 
Goodwill1,506 1,528 
Other long-term assets475 413 
Total Assets$4,092 $4,256 
Liabilities and Equity
Current portion of long-term debt$21 $90 
Accounts payable169 182 
Accrued compensation and benefits costs252 237 
Unearned income111 133 
Other current liabilities434 450 
Total current liabilities987 1,092 
Long-term debt1,384 1,420 
Deferred taxes87 97 
Operating lease liabilities195 207 
Other long-term liabilities114 108 
Total Liabilities2,767 2,924 
Contingencies (See Note 11)
Series A convertible preferred stock142 142 
Common stock2 2 
Additional paid-in capital3,912 3,899 
Retained earnings (deficit)(2,308)(2,313)
Accumulated other comprehensive loss(423)(398)
Total Equity1,183 1,190 
Total Liabilities and Equity$4,092 $4,256 
Shares of common stock issued and outstanding212,672 212,074 
Shares of series A convertible preferred stock issued and outstanding120 120 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
CNDT Q3 2021 Form 10-Q
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CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine Months Ended
September 30,
(in millions)20212020
Cash Flows from Operating Activities:
Net income (loss)$12 $(107)
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization265 344 
Contract inducement amortization1 2 
Deferred income taxes(7)(38)
(Gain) loss from investments5 (3)
Amortization of debt financing costs5 5 
Loss on extinguishment of debt2  
Loss on divestitures and sales of fixed assets, net1 5 
Stock-based compensation14 14 
Allowance for doubtful accounts(1)1 
Changes in operating assets and liabilities:
Accounts receivable(34)(36)
Other current and long-term assets(59)(51)
Accounts payable and accrued compensation and benefits costs5 (5)
Restructuring liabilities 3 
Other current and long-term liabilities(57)(152)
Net change in income tax assets and liabilities6 7 
Net cash provided by (used in) operating activities158 (11)
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment(52)(48)
Cost of additions to internal use software(49)(47)
Proceeds from divestitures4 3 
Net cash provided by (used in) investing activities(97)(92)
Cash Flows from Financing Activities:
Proceeds from revolving credit facility and other loans 152 
Payments on debt(102)(41)
Payment of contingent consideration related to acquisition (4)
Premium on debt redemption(2) 
Taxes paid for settlement of stock-based compensation(1)(3)
Dividends paid on preferred stock(7)(5)
Net cash provided by (used in) financing activities(112)99 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(7)(5)
Increase (decrease) in cash, cash equivalents and restricted cash(58)(9)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period458 505 
Cash, Cash Equivalents and Restricted Cash at End of period(1)
$400 $496 
 ___________
(1)Includes $6 million and $8 million of restricted cash as of September 30, 2021 and 2020, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CNDT Q3 2021 Form 10-Q
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CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three Months Ended September 30, 2021
(in millions)Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)
AOCL(1)
Shareholders'
Equity
Balance at June 30, 2021$2 $3,907 $(2,317)$(407)$1,185 
Dividends - preferred stock, $20/share
— — (2)— (2)
Stock incentive plans, net— 5 — — 5 
Comprehensive Income (Loss):
Net Income (Loss)— — 11 — 11 
Other comprehensive income (loss), net— — — (16)(16)
Total Comprehensive Income (Loss), Net— — 11 (16)(5)
Balance at September 30, 2021$2 $3,912 $(2,308)$(423)$1,183 
Three Months Ended September 30, 2020
(in millions)Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)
AOCL(1)
Shareholders'
Equity
Balance at June 30, 2020$2 $3,896 $(2,290)$(433)$1,175 
Dividends - preferred stock, $20/share(2)
— — (2)— (2)
Stock incentive plans, net— 5 — — 5 
Comprehensive Income (Loss):
Net Income (Loss)— — (7)— (7)
Other comprehensive income (loss), net— — — 12 12 
Total Comprehensive Income (Loss), Net— — (7)12 5 
Balance at September 30, 2020$2 $3,901 $(2,299)$(421)$1,183 

Nine Months Ended September 30, 2021
(in millions)Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)
AOCL(1)
Shareholders'
Equity
Balance at December 31, 2020$2 $3,899 $(2,313)$(398)$1,190 
Dividends - preferred stock, $60/share
— — (7)— (7)
Stock incentive plans, net— 13 — — 13 
Comprehensive Income (Loss):
Net Income (Loss)— — 12 — 12 
Other comprehensive income (loss), net— — — (25)(25)
Total Comprehensive Income (Loss), Net— — 12 (25)(13)
Balance at September 30, 2021$2 $3,912 $(2,308)$(423)$1,183 

Nine Months Ended September 30, 2020
(in millions)Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)
AOCL(1)
Shareholders'
Equity
Balance at December 31, 20192 3,890 (2,185)(407)1,300 
Dividends - preferred stock, $60/share (2)
— — (7)— (7)
Stock incentive plans, net— 11 — — 11 
Comprehensive Income (Loss):
Net Income (Loss)— — (107) (107)
Other comprehensive income (loss), net— —  (14)(14)
Total Comprehensive Income (Loss), Net— — (107)(14)(121)
Balance at September 30, 2020$2 $3,901 $(2,299)$(421)$1,183 
 ___________
(1)AOCL - Accumulated other comprehensive loss. Refer to Note 10 – Accumulated Other Comprehensive Loss for the components of AOCL.
(2)The preferred dividend for the third quarter of 2020 was accrued but unpaid as of September 30, 2020.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CNDT Q3 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.

Description of Business

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

Basis of Presentation

The unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The year-end Condensed Consolidated Balance Sheet was derived from the audited Consolidated Financial Statements included in the Company's Annual 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 the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows have been made. These adjustments consist of normal recurring items. The interim results of operations are not necessarily indicative of the results of the full year. 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 assumptions that affect the amounts reported and disclosed in the financial 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 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.

As of September 30, 2021, the impact of the COVID-19 pandemic, the mitigating impact of the rollout of a vaccine for it and fluctuating cases of new variants of the virus continue to unfold. As a result, many of the Company's estimates and assumptions continue to require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company's estimates may change materially in the future.

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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

Reference Rate Reform: In March 2020, the FASB issued updated guidance relating to the accounting for the discontinuation of the London Inter-bank Offered Rate (LIBOR), referred to as reference rate reform. This guidance provides optional practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This guidance is applicable to contract modifications that replace a reference LIBOR rate affected by reference rate reform. The amendments may be applied through December 31, 2022. The Company is currently evaluating the impact of this guidance on its Condensed Consolidated Financial Statements.

CNDT Q3 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 and a reconciliation of the disaggregated revenue by reportable segment. Refer to Note 4 – Segment Reporting for additional information on the Company's reportable segments.
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Commercial Industries:
Customer experience management$152 $149 $459 $474 
Business operations solutions139 140 418 426 
Commercial healthcare solutions109 106 329 322 
Human resource and learning services109 123 332 388 
Total Commercial Industries509 518 1,538 1,610 
Government Services:
Government healthcare solutions143 153 432 459 
Government services solutions206 195 573 510 
Total Government Services349 348 1,005 969 
Transportation:
Roadway charging & management services79 83 237 232 
Transit solutions60 53 194 181 
Curbside management solutions22 18 60 54 
Public safety solutions17 19 52 56 
Commercial vehicles2 2 6 6 
Total Transportation180 175 549 529 
Total Consolidated Revenue$1,038 $1,041 $3,092 $3,108 
Timing of Revenue Recognition:
Point in time$26 $23 $83 $85 
Over time1,012 1,018 3,009 3,023 
Total Revenue$1,038 $1,041 $3,092 $3,108 

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, which are realized when the associated revenue is recognized under the contract.
CNDT Q3 2021 Form 10-Q
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The following table provides information about the balances of the Company's contract assets, unearned income and receivables from contracts with customers:
(in millions)September 30, 2021December 31, 2020
Contract Assets (Unearned Income)
Current contract assets$159 $151 
Long-term contract assets(1)
8 13 
Current unearned income(111)(133)
Long-term unearned income(2)
(39)(29)
Net Contract Assets (Unearned Income)$17 $2 
Accounts receivable, net$701 $670 
__________
(1)Presented in Other long-term assets in the Condensed Consolidated Balance Sheets.
(2)Presented in Other long-term liabilities in the Condensed Consolidated Balance Sheets.

Revenues of $11 million and $99 million were recognized during the three and nine months ended September 30, 2021, respectively, related to the Company's unearned income at December 31, 2020. Revenues of $20 million and $84 million were recognized during the three and nine months ended September 30, 2020, respectively, related to the Company's unearned income at December 31, 2019. The Company had no material asset impairment charges related to contract assets for the three and nine months ended September 30, 2021 or 2020.

Transaction Price Allocated to the Remaining Performance Obligations

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at September 30, 2021 was approximately $1.3 billion. The Company expects to recognize approximately 76% of this revenue over the next two years and the remainder thereafter.

Note 4 – Segment Reporting

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

The Company's financial performance is based on Segment Profit/(Loss) for its three reportable segments (Commercial Industries, Government Services and Transportation), Other and Unallocated Costs. The Company's CODM does not evaluate operating segments using discrete asset information.

Commercial Industries: The Commercial Industries segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial Industries segment, the Company operates on its clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for the Company's clients and their consumers and employees.

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

CNDT Q3 2021 Form 10-Q
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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 the Company's 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 the reportable segments.

Selected financial information for the Company's reportable segments was as follows:
Three Months Ended
September 30,
(in millions)Commercial IndustriesGovernment ServicesTransportationOtherUnallocated CostsTotal
2021
Revenue$509 $349 $180 $ $ $1,038 
Segment profit (loss)$29 $125 $16 $ $(94)$76 
2020
Revenue$518 $348 $175 $ $ $1,041 
Segment profit (loss)$32 $122 $26 $6 $(98)$88 
Nine Months Ended
September 30,
(in millions)Commercial IndustriesGovernment ServicesTransportationOtherUnallocated CostsTotal
2021
Revenue$1,538 $1,005 $549 $ $ $3,092 
Segment profit (loss)$93 $322 $54 $ $(259)$210 
2020
Revenue$1,610 $969 $529 $ $ $3,108 
Segment profit (loss)$99 $282 $56 $9 $(258)$188 
(in millions)Three Months Ended
September 30,
Nine Months Ended
September 30,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)2021202020212020
Income (Loss) Before Income Taxes$19 $(13)$29 $(128)
Reconciling items:
Amortization of acquired intangible assets31 60 103 180 
Restructuring and related costs10 20 31 56 
Interest expense12 14 38 46 
(Gain) loss on divestitures and transaction costs 8 1 14 
Litigation costs  2 20 
Loss on extinguishment of debt  2  
Other (income) expenses, net4 (1)4  
Segment Pre-tax Income (Loss)$76 $88 $210 $188 

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

CNDT Q3 2021 Form 10-Q
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Note 5 – Restructuring Programs and Related Costs

The Company engages in a series of restructuring programs related to downsizing its employee base, exiting certain activities, outsourcing certain internal functions and engaging in other actions designed to reduce its cost structure and improve productivity. The implementation of the Company's operational efficiency improvement initiatives has reduced the Company's real estate footprint across all geographies and segments resulting in lease right-of-use asset impairments and other related costs. Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $4 million and $8 million for the three months ended September 30, 2021 and 2020, respectively, and $19 million and $16 million for the nine months ended September 30, 2021 and 2020, respectively. Management continues to evaluate the Company's businesses, and in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed.

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

A summary of the Company's restructuring program activity during the nine months ended September 30, 2021 and 2020 is as follows:

(in millions)Severance and Related CostsTermination and Other CostsAsset ImpairmentsTotal
Accrued Balance at December 31, 2020$3 $3 $ $6 
Provision2 23 7 32 
Changes in estimates (4) (4)
Total Net Current Period Charges(1)
2 19 7 28 
Charges against reserve and currency(4)(21)(7)(32)
Accrued Balance at September 30, 2021$1 $1 $ $2 
(in millions)Severance and Related CostsTermination and Other CostsAsset ImpairmentsTotal
Accrued Balance at December 31, 2019$15 $6 $ $21 
Provision13 19 15 47 
Changes in estimates1 2  3 
Total Net Current Period Charges(1)
14 21 15 50 
Charges against reserve and currency(22)(24)(15)(61)
Accrued Balance at September 30, 2020$7 $3 $ $10 
__________
(1)Represents amounts recognized within the Consolidated Statements of Income (Loss) for the years shown.

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

CNDT Q3 2021 Form 10-Q
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The following table summarizes the total amount of costs incurred in connection with these restructuring programs by reportable and non-reportable segment:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Commercial Industries$1 $4 $3 $11 
Government Services   1 
Transportation (1) 2 
Unallocated Costs(1)
8 15 25 36 
Total Net Restructuring Charges$9 $18 $28 $50 
__________
(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.

Note 6 – Debt

Long-term debt was as follows:
(in millions)September 30, 2021December 31, 2020
Term loan A due December 2022$585 $654 
Term loan B due December 2023810 816 
Senior notes due 2024 34 
Finance lease obligations18 20 
Other loans5 4 
Principal debt balance1,418 1,528 
Debt issuance costs and unamortized discounts(13)(18)
Less: current maturities(21)(90)
Total Long-term Debt$1,384 $1,420 

As of September 30, 2021, the Company had no outstanding borrowings under its $750 million Senior Revolving Credit Facility in effect as of September 30, 2021 (Prior Revolver). However, the Company has utilized $10 million of the Prior Revolver to issue letters of credit. The net Prior Revolver available to be drawn upon as of September 30, 2021 was $740 million.

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

On October 15, 2021, the Company closed on a debt refinancing and extended its maturity profile. As described in Note 17 - Subsequent Event, the Term Loan A due 2022 and the Term Loan B due 2023 (collectively, the 2016 Credit Facilities) were repaid and the Prior Revolver was terminated. Under the applicable accounting rules, since the 2016 Credit Facilities were refinanced on a long-term basis before the issuance of these Condensed Consolidated Financial Statements, the Company has classified a portion of the current maturities related to the 2016 Credit Facilities to long-term debt as of September 30, 2021.

At December 31, 2020, the Company was in compliance with all debt covenants related to the borrowings in the table above. As a result of the October 2021 refinancing, the Company’s financial covenants have been waived until March 31, 2022.

CNDT Q3 2021 Form 10-Q
14





Note 7 – Financial Instruments

The Company is a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of its business. As a part of the Company's foreign exchange risk management strategy, the Company uses derivative instruments, primarily forward contracts, to hedge the funding of foreign entities which have a non-dollar functional currency, thereby reducing volatility of earnings or protecting fair values of assets and liabilities.
At September 30, 2021 and December 31, 2020, the Company had outstanding forward exchange contracts with gross notional values of $147 million and $180 million, respectively. At September 30, 2021, approximately 72% of these contracts mature within three months, 11% in three to six months, 13% in six to twelve months and 4% in greater than twelve months. Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on the Company's balance sheet, income statement or cash flows for the periods presented.

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.

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 in all cases was Level 2.