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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: March 31, 2020
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/1f1d79e0a4c0bf912b639dda6674b3b5-cndt-20200331_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 April 30, 2020
Common Stock,$0.01 par value 209,067,902

CNDT Q1 2020 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,” “intend,” “will,” "aim," “should,” "continue to" and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that could cause actual results to differ materially. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. 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 novel coronavirus (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 impact of the ongoing COVID-19 pandemic; government appropriations and termination rights contained in our government contracts; risk and impact of potential goodwill and other asset impairments; 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 ability to attract and retain necessary technical personnel and qualified subcontractors; our ability to deliver on our contractual obligations properly and on time; competitive pressures; our significant indebtedness; changes in interest in outsourced business process services; our ability to obtain adequate pricing for our services and to improve our cost structure; risk and impact of geographical events, natural disasters and other factors (such as pandemics) in a particular country or region on our workforce, customers and vendors; claims of infringement of third-party intellectual property rights; the failure to comply with laws relating to individually identifiable information and personal health information and 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 estimate the scope of work or the costs of performance in our contracts; our continuing emphasis on and shift toward technology-led digital transactions; customer decision-making cycles and lead time for customer commitments; 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 attract and retain key employees; increases in the cost of telephone and data services or significant interruptions in such services; our failure to develop new service offerings; our ability to modernize our information technology infrastructure and consolidate data centers; our ability to comply with data security standards; our ability to receive dividends or other payments from our subsidiaries; changes in tax and other laws and regulations; changes in government regulation and economic, strategic, political and social conditions; 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 Form 10-Q, as well as in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and any Current Report on Form 8-K. Any forward-looking statements made by us in this 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 Q1 2020 Form 10-Q
1



CONDUENT INCORPORATED

FORM 10-Q

March 31, 2020
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 Q1 2020 Form 10-Q
2



PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)

CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
 Three Months Ended
March 31,
(in millions, except per share data)20202019
Revenue$1,051  $1,158  
Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)832  906  
Selling, general and administrative (excluding depreciation and amortization)116  127  
Research and development (excluding depreciation and amortization)1  3  
Depreciation and amortization117  115  
Restructuring and related costs7  16  
Interest expense17  20  
Goodwill impairment  284  
(Gain) loss on divestitures and transaction costs4  14  
Litigation costs (recoveries), net6  12  
Other (income) expenses, net2  (1) 
Total Operating Costs and Expenses1,102  1,496  
Income (Loss) Before Income Taxes(51) (338) 
Income tax expense (benefit)(2) (30) 
Net Income (Loss)$(49) $(308) 
Net Income (Loss) per Share:
Basic$(0.24) $(1.49) 
Diluted$(0.24) $(1.49) 

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

CNDT Q1 2020 Form 10-Q
3



CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)(1)

 Three Months Ended
March 31,
(in millions)20202019
Net Income (Loss)$(49) $(308) 
Other Comprehensive Income (Loss), Net
Currency translation adjustments, net(28) 7  
Reclassification of currency translation adjustments on divestitures  15  
Reclassification of divested benefit plans and other  (1) 
Unrecognized gains (losses), net(3) 1  
Changes in benefit plans, net1    
Other Comprehensive Income (Loss), Net(30) 22  
Comprehensive Income (Loss), Net$(79) $(286) 
__________
(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 Q1 2020 Form 10-Q
4



CONDUENT INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in thousands)March 31, 2020December 31, 2019
Assets
Cash and cash equivalents$395  $496  
Accounts receivable, net690  652  
Contract assets169  155  
Other current assets318  283  
Total current assets1,572  1,586  
Land, buildings and equipment, net321  342  
Operating lease right-of-use assets265  271  
Intangible assets, net366  426  
Goodwill1,486  1,502  
Other long-term assets384  387  
Total Assets$4,394  $4,514  
Liabilities and Equity
Current portion of long-term debt$60  $50  
Accounts payable168  198  
Accrued compensation and benefits costs151  174  
Unearned income109  108  
Other current liabilities535  647  
Total current liabilities1,023  1,177  
Long-term debt1,596  1,464  
Deferred taxes108  111  
Operating lease liabilities224  229  
Other long-term liabilities81  91  
Total Liabilities3,032  3,072  
Contingencies (See Note 11)
Series A convertible preferred stock142  142  
Common stock2  2  
Additional paid-in capital3,891  3,890  
Retained earnings (deficit)(2,236) (2,185) 
Accumulated other comprehensive loss(437) (407) 
Total Equity1,220  1,300  
Total Liabilities and Equity$4,394  $4,514  
Shares of common stock issued and outstanding209,058  211,511  
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 Q1 2020 Form 10-Q
5



CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months Ended
March 31,
(in millions)20202019
Cash Flows from Operating Activities:
Net income (loss)$(49) $(308) 
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization117  115  
Contract inducement amortization1  1  
Deferred income taxes(9) (45) 
Goodwill impairment  284  
(Gain) loss from investments(1) (1) 
Amortization of debt financing costs2  2  
(Gain) loss on divestitures and transaction costs4  14  
Stock-based compensation4  7  
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable(42) (60) 
(Increase) decrease in other current and long-term assets(42) (112) 
Increase (decrease) in accounts payable and accrued compensation(55) 58  
Increase (decrease) in restructuring liabilities(7) 4  
Increase (decrease) in other current and long-term liabilities(131) (12) 
Net change in income tax assets and liabilities16  5  
Other operating, net  (1) 
Net cash provided by (used in) operating activities(192) (49) 
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment(11) (53) 
Proceeds from sale of land, buildings and equipment  1  
Cost of additions to internal use software(13) (17) 
Payments for acquisitions, net of cash acquired  (90) 
Proceeds (payments) from divestitures, including cash sold1  (9) 
Net cash provided by (used in) investing activities(23) (168) 
Cash Flows from Financing Activities:
Proceeds from revolving credit facility150    
Payments on debt(15) (14) 
Taxes paid for settlement of stock based compensation(3) (6) 
Dividends paid on preferred stock(2) (2) 
Net cash provided by (used in) financing activities130  (22) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(7) 2  
Increase (decrease) in cash, cash equivalents and restricted cash(92) (237) 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period505  765  
Cash, Cash Equivalents and Restricted Cash at End of period(1)
$413  $528  
 ___________
(1)Includes $18 million and $8 million of restricted cash as of March 31, 2020 and 2019, 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 Q1 2020 Form 10-Q
6



CONDUENT INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(in millions)Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)
AOCL(1)
Shareholders'
Equity
Balance at December 31, 2019$2  $3,890  $(2,185) $(407) $1,300  
Cash dividends paid - preferred stock, $20/per share    (2)   (2) 
Stock option and incentive plans, net  1      1  
Comprehensive Income (Loss):
Net Income (Loss)    (49)   (49) 
Other comprehensive income (loss), net      (30) (30) 
Total Comprehensive Income (Loss), Net    (49) (30) (79) 
Balance at March 31, 2020$2  $3,891  $(2,236) $(437) $1,220  

(in millions)Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)
AOCL(1)
Shareholders'
Equity
Balance at December 31, 2018$2  $3,878  $(233) $(425) $3,222  
Cash dividends paid - preferred stock, $20/per share    (2)   (2) 
Cumulative impact of adopting the new lease standard    (8)   (8) 
Stock option and incentive plans, net  1      1  
Comprehensive Income (Loss):
Net Income (Loss)    (308)   (308) 
Other comprehensive income (loss), net      22  22  
Total Comprehensive Income (Loss), Net    (308) 22  (286) 
Balance at March 31, 2019$2  $3,879  $(551) $(403) $2,927  
 ___________
(1)AOCL - Accumulated other comprehensive loss.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CNDT Q1 2020 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

Conduent is a global enterprise and leading provider of 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 solutions and services 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 services 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 SEC. 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, 2019. 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, 2019.

Use of Estimates

Preparation of financial statements in conformity with U.S GAAP requires us 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, we evaluate our estimates, including those related to fair values of financial instruments, goodwill and intangible assets, income taxes and contingent liabilities, among others. We base our 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 March 31, 2020, the impact of the outbreak of COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our 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, 2019. Summarized below are the accounting pronouncements adopted subsequent to December 31, 2019 that were applicable and material to the Company.

New Accounting Standards Adopted

Credit Losses: In June 2016, the Financial Accounting Standards Board (FASB) updated the accounting guidance related to measurement of credit losses on financial instruments, which requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The guidance replaces the incurred loss model with an expected loss model referred to as current expected credit loss (CECL). The CECL model requires us to measure lifetime expected credit losses for financial instruments held at the reporting date using historical experience, current conditions and reasonable supportable forecasts. The guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This updated guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new credit loss guidance as of January 1, 2020. The adoption did not have any material impact on the Company's consolidated financial statements.

New Accounting Standards To Be Adopted

Income Taxes: In December 2019, the FASB issued an updated accounting guidance to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This updated guidance is effective for fiscal years beginning January 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

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

CNDT Q1 2020 Form 10-Q
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Note 3 – Revenue

Disaggregation of Revenue

During the first quarter of 2020, the Company changed how it presents disaggregated revenue by major service offering. This change has no impact on disaggregated revenue by reportable segments or the timing of revenue recognition. All prior periods presented have been revised to reflect this change.

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
March 31,
(in millions)20202019
Commercial Industries:
Customer experience management$168  $171  
Business operations solutions153  166  
Commercial healthcare solutions113  122  
Human resource services138  153  
Total Commercial Industries572  612  
Government Services:
Government healthcare solutions152  177  
Government services solutions138  148  
Total Government Services290  325  
Transportation:
Roadway charging & management services78  79  
Transit solutions67  54  
Curbside management solutions22  27  
Public safety solutions20  21  
Commercial vehicles2  3  
Total Transportation189  184  
Other:
Divestitures  36  
Education  1  
Total Other  37  
Total Consolidated Revenue$1,051  $1,158  
Timing of Revenue Recognition:
Point in time$30  $39  
Over time1,021  1,119  
Total Revenue$1,051  $1,158  

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.
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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)March 31, 2020December 31, 2019
Contract Assets (Unearned Income)
Current contract assets$169  $155  
Long-term contract assets(1)
8  10  
Current unearned income(109) (108) 
Long-term unearned income(2)
(19) (21) 
Net Contract Assets (Unearned Income)$49  $36  
Accounts receivable, net$690  $652  
__________
(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 $42 million and $53 million were recognized during the three months ended March 31, 2020 and 2019, respectively, related to the Company's unearned income at December 31, 2019 and 2018, respectively.

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 March 31, 2020 was approximately $1.8 billion. The Company expects to recognize approximately 66% of this revenue over the next two years and the remainder thereafter.

Note 4 – Segment Reporting

Our reportable segments correspond to how we organize and manage the business, as defined by our CEO, who is also our Chief Operating Decision Maker, and are aligned to the industries in which our clients operate. Our segments involve the delivery of business process services and include service arrangements where we manage a customer's business activity or process. During the first quarter of 2020, we realigned our sales organization and certain shared IT and other allocated functions to reflect how we currently manage our business. All prior periods presented have been revised to reflect this change in costs structure.

Our financial performance is based on Segment Profit / (Loss) and Segment Adjusted EBITDA for our three reportable segments (Commercial Industries, Government Services and Transportation), Other operations and Shared IT / Infrastructure & Corporate Costs.

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

Shared IT / Infrastructure & Corporate Costs includes both normal ongoing IT infrastructure and enterprise application costs and costs related to modernization of a significant portion of our infrastructure with new systems and processes and consolidation of our data centers as part of our transformation initiatives. It also includes costs related to corporate overhead functions and shared real estate costs. These costs are not allocated to the reportable segments.

Selected financial information for our reportable segments was as follows:

Three Months Ended
March 31,
(in millions)Commercial IndustriesGovernment ServicesTransportationOtherShared IT / Infrastructure & Corporate CostsTotal
2020DivestituresOther
Revenue$572  $290  $189  $  $  $  $1,051  
Segment profit (loss)$90  $93  $23  $  $4  $(165) $45  
Segment depreciation and amortization$25  $6  $9  $  $  $18  $58  
Adjusted EBITDA$115  $99  $32  $  $(3) $(147) $96  
2019
Revenue$612  $325  $184  $36  $1  $  $1,158  
Segment profit (loss)$117  $80  $19  $1  $  $(148) $69  
Segment depreciation and amortization$22  $9  $9  $  $  $14  $54  
Adjusted EBITDA$139  $89  $28  $1  $  $(134) $123  

(in millions)Three Months Ended
March 31,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)20202019
Income (Loss) Before Income Taxes$(51) $(338) 
Reconciling items:
Amortization of acquired intangible assets60  62  
Restructuring and related costs7  16  
Interest expense17  20  
Goodwill impairment  284  
(Gain) loss on divestitures and transaction costs4  14  
Litigation costs (recoveries), net6  12  
Other (income) expenses, net2  (1) 
Segment Pre-tax Income (Loss)$45  $69  
Segment depreciation and amortization (including contract inducements)$58  $54  
CA MMIS charge (credit)(7)   
Adjusted EBITDA$96  $123  

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

CNDT Q1 2020 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 strategic transformation program and various productivity initiatives have reduced the Company's real estate footprint across all geographies and segments resulting in increased lease cancellation and other related costs. Also included in Restructuring and related costs in the table below are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $2 million and $9 million for the three months ended March 31, 2020 and 2019, respectively. Management continues to evaluate the Company's business, and in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed.

Costs associated with restructuring, including employee severance and lease termination costs, are generally recognized when it has been determined that a liability has been incurred, which is generally upon communication to the affected employees or exit from the leased facility. In those geographies where we have either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, we recognize employee severance costs when they are both probable and reasonably estimable.

A summary of the Company's restructuring program activity during the three months ended March 31, 2020 and 2019 was as follows:


(in millions)Severance and Related CostsTermination and Other CostsAsset ImpairmentsTotal
Accrued Balance at December 31, 2019$15  $6  $  $21  
Provision  3  1  4  
Changes in estimates  1    1  
Total Net Current Period Charges(1)
  4  1  5  
Charges against reserve and currency(8) (5) (1) (14) 
Accrued Balance at March 31, 2020$7  $5  $  $12  

(in millions)Severance and Related CostsTermination and Other CostsAsset ImpairmentsTotal
Accrued Balance at December 31, 2018$13  $36  $  $49  
Provision3  11  3  17  
Changes in estimates  (1)   (1) 
Total Net Current Period Charges(1)
3  10  3  16  
Charges against reserve and currency(5) (6) (3) (14) 
Reclassification to operating lease ROU assets(2)
  (22)   (22) 
Accrued Balance at March 31, 2019$11  $18  $  $29  
__________
(1)Represents amounts recognized within the Consolidated Statements of Income (Loss) for the years shown.
(2)Relates to the adoption of the new lease guidance.

In addition, the Company recorded professional support costs associated with the strategic transformation program in Restructuring and related costs of $2 million and $0 million for the three months ended March 31, 2020 and 2019, respectively.

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

 Three Months Ended
March 31,
(in millions)20202019
Commercial Industries$2  $2  
Shared IT / Infrastructure & Corporate Costs3  14  
Total Net Restructuring Charges$5  $16  

Note 6 – Debt

Long-term debt was as follows:

(in millions)March 31, 2020December 31, 2019
Term loan A due 2022$652  $664  
Term loan B due 2023822  824  
Revolving credit facility due 2022150    
Senior notes due 202434  34  
Finance lease obligations20  17  
Principal debt balance1,678  1,539  
Debt issuance costs and unamortized discounts(22) (25) 
Less: current maturities(60) (50) 
Total Long-term Debt$1,596  $1,464  

As of March 31, 2020, the Company has borrowed $150 million of its $750 million Senior Revolving Credit Facility (Revolver). In addition, the Company has utilized $82 million of the Revolver to issue letters of credit. The net Revolver available to be drawn upon as of March 31, 2020 was $518 million.

At March 31, 2020 and December 31, 2019, the Company was in compliance with all debt covenants related to the borrowings in the table above.

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 March 31, 2020 and December 31, 2019, the Company had outstanding forward exchange contracts with gross notional values of $176 million and $207 million, respectively. At March 31, 2020, 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.

CNDT Q1 2020 Form 10-Q
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