Conduent Incorporated Annual Report 2019

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FY2019 Annual Report · Conduent Incorporated

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Conduent Incorporated | 100 Campus Drive, Suite 200, Florham Park, NJ 07932 | Conduent.com

Conduent and Conduent Agile Star are trademarks

of Conduent, Inc. and/or its subsidiaries in the

United States and/or other countries.

Paper from responsible sources.

Delivering
Meaningful Outcomes

2019

9 ANNUAL REPORT

CONDUENT ANNUAL REPORT20199

Conduent

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 our clients and the millions of people who count on them. We work with a majority of Fortune 100
companies and over 500 government entities every day to manage their business processes and essential
interactions with their end users. Through people, process expertise in transaction-intensive processing,
and technology such as analytics and automation, Conduent services and solutions create value by
improving effi ciencies, reducing costs and enabling revenue growth.

Delivering Meaningful Outcomes

Across our multiple lines of business and at considerable scale, our off erings deliver better outcomes for
our clients while also improving the experience of the millions of people every day who interact with them.

Commercial

Transforming business processes by automating
and streamlining operations through our deep
industry experience and the latest technology
solutions, to drive effi ciencies, reduce costs,
increase compliance and enable revenue growth,
while enhancing the end user experience.

Outcomes

Scale

$17B savings from
medical bill review for
workers comp claims
30% reduction in
phone inquiries
40% effi ciency gain
from automation

80% of Fortune 100
2/3 of all U.S. insured
patients
40% of U.S. hospitals
2.5M CXM
interactions/day

Government

Delivering services and solutions that reduce
costs, increase program participation, and improve
compliance for government agencies while providing
intuitive, easy-to-use tools for the people and
communities they serve.

Outcomes

Scale

98% effi ciency in
application processing
27% program cost
reduction
$65M in fraud
prevention

55% of SNAP payments
30M interactions for
government healthcare
annually
275K+ parent and
employer users

Transportation

Advancing 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.

Outcomes

Scale

$850M revenue
collected yearly
100M daily public
transport tickets
15% reduction in
congestion

48% of U.S. parking
systems
1 of every 4 U.S. public
safety systems
46% of electronic tolling
systems in the U.S.

Board of Directors

Courtney R. Mather, CAIA, CFA, FRM

Chairman of the Board, Conduent Incorporated;

Former Portfolio Manager, Icahn Capital LP

Jesse Lynn

General Counsel,

Icahn Enterprises L.P.

Cliff Skelton

Chief Executive Offi cer,

Conduent Incorporated

Nicholas Graziano

Portfolio Manager,

Icahn Capital LP

Kathy Higgins Victor

Founder and President,

Centera Corporation

Scott Letier

Managing Director,

Deason Capital Services, LLC

Michael A. Nutter

Former Mayor,

Philadelphia, Pennsylvania

Margarita Paláu-Hernández

Founder and Chief Executive Offi cer,

Hernández Ventures

Virginia M. Wilson

Former Senior Executive Vice President

and Chief Financial Offi cer,

Teachers Insurance and Annuity Association (TIAA)

Shareholder Information

For investor information, including comprehensive earnings releases and this Annual Report, visit https://

investor.conduent.com or contact: Alan Katz | Investor Relations | alan.katz@conduent.com | 973.526.7173

Shareholder Services

Electronic Delivery Enrollment

Conduent off ers shareholders the convenience of electronic delivery, including:

Call: Computershare at 866.574.5496

Write: Computershare Investor Services

P.O. Box 505000

Louisville, KY 40233

Email: www.computershare.com

Annual Meeting

Tuesday, May 19, 2020, 9 a.m. EDT

Conduent Corporate Headquarters

100 Campus Drive

Florham Park, NJ 07932

We will announce any alternative arrangements

in light of the coronavirus (COVID-19) outbreak.

Proxy material will be mailed on April 6, 2020

to shareholders of record as of March 25, 2020.

• Immediate receipt of the Proxy

Statement and Annual Report

• Online proxy voting

Registered Shareholders, visit:

www.envisionreports.com/CNDT

Registered shareholders can sign up for future electronic delivery on that site.

You are a registered shareholder if your shares are being held by our transfer

agent, Computershare.

CONDUENT ANNUAL REPORT20199CONDUENT ANNUAL REPORT20199CONDUENT ANNUAL REPORT20199
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM 10-K
_________________________________________________

(Mark One)

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

☒

For the fiscal year ended: December 31, 2019

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
_________________________________________________

CONDUENT INCORPORATED

(Exact Name of Registrant as specified in its charter)
_________________________________________________

New York

81-2983623

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

100 Campus Drive, Suite 200,

Florham Park, New Jersey

(Address of principal executive offices)

07932
(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 class
Common Stock, $0.01 par value

Trading Symbol(s)
CNDT

Name of each exchange on which registered
NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None
_________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes o No x

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
the past
90 days. Yes x No o

to such filing requirements for

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 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 a 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 definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Small reporting company ☐ Emerging 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. o

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes ☐ No ý

The aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates as of
June 30, 2019 was $2,012,432,097.

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest

practicable date:

Common Stock,

Class
$0.01 par value

Outstanding at January 31, 2020

211,886,566

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain portions of the Registrant's Notice of 2020 Annual
Meeting of Shareholders and Proxy Statement (to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A no later than 120 days after the close of the fiscal year covered by this report on Form 10-K).

FORWARD-LOOKING STATEMENTS

From time to time, we and our representatives may provide information, whether orally or in writing, including certain
statements in this Annual Report on Form 10-K (Form 10-K), which are deemed to be "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"). These forward-looking
statements and other information are based on our beliefs as well as assumptions made by us using information
currently available.

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 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-K, any exhibits to this Form 10-K and other public statements we make.

Important factors and uncertainties that could cause actual results to differ materially from those in our forward-
looking statements include, but are not limited to: 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 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; 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-K, as well as in our Quarterly Reports on Form
10-Q and Current Reports on Form 8-K. We do not intend to update these forward-looking statements, except as
required by law.

CONDUENT 2019 ANNUAL REPORT | 1

CONDUENT INCORPORATED
FORM 10-K
December 31, 2019

TABLE OF CONTENTS

Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Part II
Item 5.

Item 6.
Item 7.

Item 7A.
Item 8.
Item 9.

Item 9A.
Item 9B.

Part III
Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Business

Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Auditor Fees and Services

Part IV
Item 15.
Item 16.
Exhibit Index
Signatures

Exhibits and Financial Statement Schedules
Form 10-K Summary

Page

3
14
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26
26
26

27
28

30
45
46

92
93

93
94

94
94
94

94
95
96
100

2 | CONDUENT 2019 ANNUAL REPORT

PART I

ITEM 1. BUSINESS

In this Form 10-K, unless the content otherwise dictates, "Conduent", the "Company", "we" or "our" mean Conduent
Inc. and its consolidated subsidiaries.

Our 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 our 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.

Conduent's commercial portfolio includes leading solutions in attractive markets such as end-user customer
experience management, transaction processing services, commercial healthcare and human resource and
learning services. For example, Conduent is a leading provider of medical bill review. In 2019, Conduent processed
over 28 million medical bills and saved customers over $17 billion.

Conduent serves a vast range of the public sector including market leading transportation and government
solutions. For example, Conduent’s systems support 11 million traveler transactions per day via electronic tolling
and process over 40% of Supplemental Nutrition Assistance Program (SNAP) payments on behalf of government
entities.

We create value for our clients through efficient global service delivery combined with a personalized and seamless
experience for the end-user. We apply our expertise, technology and innovation to continually modernize our
offerings for improved customer and constituent satisfaction and loyalty, increased process efficiency and rapid
response to changing market dynamics.

Conduent Incorporated is a New York corporation, organized in 2016. Our common stock began trading on January
3, 2017, on the New York Stock Exchange, under the ticker "CNDT". In December 2019, Conduent changed the
listing of its publicly traded common stock from the New York Stock Exchange to the NASDAQ Global Select Market
(NASDAQ), where it remains listed under the ticker "CNDT".

With approximately 67,000 employees globally as of December 31, 2019, we provide differentiated services to
clients spanning medium and large businesses and governments around the world.

In the third quarter of 2019, management and the Board of Directors jointly commenced a strategic and operational
review of the Company and each line of business. Each of the lines of business were evaluated across multiple
factors including competitive positioning, financial performance, investment needs, market scarcity and execution
risk, among others. The Company’s transformation plan and perspective on allocating capital amongst its business
units changed as a result of this review.

CONDUENT 2019 ANNUAL REPORT | 3

Our Transformation

We continue to focus on transformation and optimization throughout the business. We have seen tremendous
optimization from our real estate consolidation efforts. Going forward, we intend to transform the business through
an intense focus on Growth, Quality, and Efficiency – utilizing a programmatic, project management approach. We
are intent on hiring and organizing top-talent, instituting and instilling processes and investing in and upgrading our
technology. We are using a deliberate process that identifies the biggest gaps and then prioritizes actions to ensure
success.

• Growth: In 2019, we hired a Chief Revenue Officer and re-organized our sales team. We centralized the sales
executives from the business delivery operations. Previously, the sales and delivery organizations were co-
mingled. We believe isolating sales executives to a single organization with a sole purpose of selling will enable
the team to benefit from increased focus and shared sales knowledge transfer. Additionally, we simplified our
go-to-market strategy to align our focus on solution-based selling. We are taking a very client-centric approach
to strengthen our relationships, better understand our clients' businesses and proactively respond to or pre-
empt our clients' needs. We are examining the entire “sales to service continuum” to improve our performance
and have launched a client retention program. We are measuring success in “Growth” through revenue
retention and new business signings, among other metrics.

• Quality: In 2019, we continued to improve processes and procedures to address our technology infrastructure
and our client delivery. We hired new executive leadership in the technology organization and continued the
consolidation process of our data centers. We are also establishing a new and a more centralized command
center to boost proactive management and monitoring of infrastructure incidents. We believe these changes will
provide stability and a streamlined delivery of services to our clients and their end-users. In addition to
optimizing the quality and stability of our service delivery, we continue to invest to upgrade our solutions to
enable exceptional outcomes for our clients and their end-users as we work to standardize the service delivery
processes. We are measuring success in “Quality” by service level agreement performance, severity 1 outages,
and client satisfaction.

•

Efficiency: We continue to find ways to reduce costs via increased efficiencies. We are implementing
standardized processes and a singular operating model across the business, which we believe will eliminate
silos and improve our leadership across the company. We believe greater efficiencies will be driven through
simplified, standardized processes and a motivated workforce. We continue to find efficiencies from the ongoing
consolidation of our data centers and real estate footprint. We are making steady progress in reshaping our
culture and are investing in associate engagement programs as well as improvements to our work environments
across our global locations. We are measuring success in “Efficiency” by associate retention and adjusted
earnings before interest, depreciation and amortization (EBITDA) margin, among other metrics.

Our Market Opportunity

We estimate our addressable market size in the global business process service industry at over $200 billion in
2019, according to third party industry reports, and we are a leader across several segments of this large, diverse
and growing market. Providing business process services is complex and multi-faceted with services that span
many industries.

Ongoing competitive pressures and increasing demand for further productivity gains have motivated businesses to
outsource elements of their day-to-day operations to accelerate performance and innovation. As a result, our clients
have become more focused on their core businesses and the range of outsourced activities has expanded greatly.
Increasing globalization has also required many companies to optimize cost structures to retain competitiveness
and business process services have become a key component of this strategy.

The ongoing shift to next-generation software and automation technologies is driving greater demand for, and
expectation of, efficiency and personalization by the constituents and customers of the businesses and
governments we serve. Addressing these business and operational challenges is necessary for business process
services companies to capitalize on these trends. In addition, business process services have the potential to
meaningfully enhance productivity for businesses and governments and satisfaction for their customers and
constituents.

4 | CONDUENT 2019 ANNUAL REPORT

Segments

We organize, manage and report our businesses through three reportable segments (Commercial Industries,
Government Services and Transportation), Other operations and Shared IT / Infrastructure & Corporate Costs.

Our Commercial Industries is our largest segment, with $2.4 billion in revenues in 2019, representing 53.4% of our
total revenues. 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.

Our Government Services segment revenue for 2019 was $1.3 billion, representing 28.3% of our total revenues.
This segment provides government-centric business process services to U.S. federal, state and local 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.

Our Transportation segment revenue for 2019 was $0.8 billion, representing 17.5% of our total revenues. This
segment provides systems and support, as well as revenue-generating services, to government clients in 25
countries. 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.

Other represents our divestitures, our Student Loan business, which the Company exited in the third quarter of
2018. In 2019, Other accounted for $38 million or 0.8% of total revenues, which was mainly from the portfolio of
select standalone customer care contracts sold in February 2019. Refer to Note 4 – Divestiture to the Consolidated
Financial Statements for additional information regarding this sale.

Shared IT / Infrastructure & Corporate Costs includes both normal ongoing IT infrastructure 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. We expect that
our transformation initiatives will provide greater strategic and operational flexibility and efficiency and better control
of our systems and processes. There is a risk, however, that our modernization efforts and data center
consolidations could materially and adversely disrupt our operations. Refer to Part I, Item 1A – Risk Factors of this
Form 10-K for additional information.

We present segment financial information in Note 3 – Segment Reporting to our Consolidated Financial Statements
included in Part II, Item 8 of this Form 10-K, which is incorporated herein by reference.

Our Service Offerings

Our portfolio of business process services includes a combination of industry-specific and cross-industry services.
We have subject matter experts who are responsible for implementing each of these services, delivering service
excellence to clients, ensuring best practices to improve cost competitiveness, innovating our next generation
offerings and supporting worldwide sales.

Commercial Industries

Our solutions and services include end-user customer experience, transaction processing, commercial healthcare
and human resource and learning services.

•

End-User Customer Experience (EUCE)

◦ We offer a range of services that help our clients support their end-users. This includes in-bound and
out-bound call support for both simple and complex transactions, technical support and patient
assistance. We also provide multi-channel communication support (both print and digital) across a
range of industries.

CONDUENT 2019 ANNUAL REPORT | 5

•

Transaction Processing Solutions (TP)

◦ We help our clients improve communications with their customers and constituents, whether it is on

paper, on-line or through other communication channels. By supporting our clients’ customer
communication processes, we help our clients deliver a better experience to their customers and
operate with improved efficiency and greater effectiveness.

◦ We offer a broad array of flexible transaction processing services that include data entry, scanning,

image processing, enrollment processing, claims processing, high volume offsite print and mail services
and file indexing. Our multi-channel communication capabilities (including secure print, email, text and
web) enable the delivery of personalized and targeted communications that are designed to elicit the
desired response from customers or other end-users (e.g., on-time bill payment and increased
marketing response rates). Our service offerings utilize both proprietary and commercially available
third-party technologies, combined with our expertise, to ensure continued quality and innovation for our
clients.

◦ We also serve clients by managing their critical finance, accounting and procurement processes. Our
services include general accounting and reporting, billing and accounts receivable and purchasing,
accounts payable and expense management services. We also offer wholesale and retail lockbox
services and process auto and mortgage loans in the United States. With a global, dedicated team, we
manage the core, end-to-end process areas of finance, accounting and procurement for some of the
world’s most recognized brands.

•

Commercial Healthcare Services (CH)

◦ On behalf of the healthcare industry, we deliver administration, clinical support and medical

management solutions across the health ecosystem to reduce costs, increase compliance and enhance
utilization, while improving health outcomes and experience for members and patients. Our solutions
span: trials, sales, access, adherence and long-term differentiation solutions to pharmaceutical clients;
case management, performance management and patient safety for hospital clients; medical bill review,
care integration, subrogation and payment integrity solutions to managed care companies; and workers
compensation medical bill review, mailroom/data capture and medical management services to claims
payers and third-party administrators.

•

Human Resource and Learning Services (HRL)

◦ We help our clients support their employees at all stages of employment from initial on-boarding

through retirement, as well as HSA administration. We offer clients a range of customized advisory,
technology and administrative services that improve the ability of employees to manage their benefits,
professional development and retirement planning.

◦ We also provide clients with a simplified approach to help their employees manage their healthcare

costs and accumulate wealth with tax-advantaged accounts. We consolidate administration of all health
spending accounts onto one common platform, including HSA, Health Reimbursement Arrangements,
Flexible Spending Accounts and Commuter and Dependent Care Accounts. By consolidating and
integrating the management of health spending accounts, we help our clients improve benefit
enrollment and account opening, consolidate customer service, simplify communications and streamline
account funding and management. As of December 31, 2019, we had approximately 1 million active
HSA accounts and $2.7 billion of assets under management within our HSA offering.

◦ We are a provider of end-to-end learning services, designed to accelerate the productivity and

development of our clients’ employees and extended work forces. Our global presence, superior
innovation and expertise allow us to deliver performance-based learning services tailored to our clients’
unique strategic business goals. Our offerings include learning strategy and assessment, instructor
management and learning administration.

6 | CONDUENT 2019 ANNUAL REPORT

Government Services

Our solutions and services include government health services, payment solutions, child support services, and labor
workforce and general government solutions.

• Government Healthcare

◦ We provide medical management and fiscal agent care management services to Medicaid programs

and federally-funded U.S. government healthcare programs in 23 states, Puerto Rico and the District of
Columbia. Our services include a range of innovative solutions such as Medicaid management, provider
services, Medicaid business intelligence, pharmacy benefits management, eligibility verification and
case management solutions. Our case management solutions make it easy to process and access
large volumes of digital data. This can be used to track public health metrics (such as diseases, vitals,
and birth defects), perform electronic visit verification, and more. These services help states optimize
their costs by streamlining access to care and improve patient health outcomes through population
health management, while helping families in need, by improving beneficiary support.

•

Payment Solutions

◦ With more than $80 billion disbursed annually, we are a leader in government payment disbursements
for federally sponsored programs like SNAP, commonly known as food stamps and Women, Infant and
Children (WIC) as well as government-initiated cash disbursements such as child support and
unemployment. Conduent delivers electronic payments for government services in 33 states, including
106 prepaid debit card programs, 26 Electronic Benefit Transfer (EBT) programs, 13 EBT for WIC
programs and 7 Electronic Child Care programs. As part of our payment solutions, we are also a
preferred partner to child support enforcement agencies nationwide, we deliver innovative services and
solutions to help agencies reduce costs and improve processes.

•

State and Local

◦

Child Support Services: As a preferred partner to child support enforcement agencies nationwide, we
deliver innovative services and solutions to help agencies reduce costs and improve processes. We
offer a broad set of child support services, including processing and distributing State Disbursement
Units (SDUs), Child support payment cards, child care credentialing and case management, among
others, to help states comply with federal standards.

Labor, Workforce and Government Solutions: We help agencies streamline onerous, paper-based tasks
by turning them into efficient, digital processes. We offer unemployment insurance, workers
compensation, parks and recreation, utilities and information technology solutions (such as cloud,
hosting, maintenance and operations) to all the 50 U.S. states.

•

Federal
◦

As a preferred partner to government IT clients, we leverage technology as a key mechanism for
improving citizen service and cost savings. Our solutions include: technology infrastructure, application
portfolio management, IT consulting, and other IT managed services.

Transportation

On behalf of government agencies and authorities in the transportation industry, we deliver fare collection, violation
management, notification, 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. Our solutions span tolling, transit, photo and parking and commercial
vehicle.

•

Tolling

◦ Our electronic tolling, urban congestion management and mileage-based user solutions help clients
keep up with an ever-changing environment and get more travelers where they need to go while
generating revenue for much-needed infrastructure improvements. Our solutions include vehicle
passenger detection systems, electronic toll collection, automated license plate recognition and
congestion management solutions.

CONDUENT 2019 ANNUAL REPORT | 7

•

Transit
◦

For today’s travelers, we aim to make journeys more personalized and convenient while increasing
capacity and profitability for authorities and agencies. We combine the latest in fare collection,
intelligent mobility so that clients can get the added efficiency of having a single point of contact for all
their transit solutions.

•

Photo and Parking

◦

Curbside Management: We deliver intelligent curbside management systems that simplify parking
programs and deliver convenient and hassle-free experience for drivers. Our curbside solutions include
citation and permit administration, parking enforcement, and curbside demand management. We collect
over $850 million annually for citations and delinquent revenue collections.

Public Safety: Public safety is a priority in every community, especially as budgets shrink and
populations grow. We provide data analytics, automated photo enforcement and other public safety
solutions to make streets and communities safer. One in every four US public safety enforcement
systems are implemented by Conduent Transportation.

•

Commercial vehicle

◦ We provide computer-aided dispatch/automatic vehicle location technology to help customers manage

their fleet operations.

Our Strategies

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.
Our differentiated services and solutions improve experiences for millions of people every day.

Specific elements of our strategy include the following:

Portfolio Focus – The industries in which we operate have attractive revenue growth rates, generally in the mid-
single digits. We intend to sharpen our focus and expand our business in industries with strong growth and
profitability characteristics. We will aim to employ a disciplined approach to portfolio management to complement
our competitive strengths and build depth and breadth in our core businesses. Within the Healthcare industry, we
leverage our data analytics, differentiated service offerings and industry know-how to continue to service payer,
provider and core government healthcare clients. Within the Transportation industry, we leverage our global, end-to-
end platforms to continue to deliver seamless travel experiences while providing back-end transaction processing
and call center services for government clients globally. Within the Government industry, we leverage our
relationships with 41 different states and various government agencies to streamline operations and improve the
citizen experience.

Operating Discipline – We continue to invest in our people, processes, and technology to optimize and strengthen
our services capabilities. We plan to optimize our services capabilities and strengthen several core areas, including
TP and finance and accounting services by building out our services offerings and continuing to improve our
competitive strengths. We have divested non-core assets, refocused our business towards higher margin growing
segments and consolidated delivery operations to enable greater productivity. Within TP, we continue to build
industry-specific service offerings and advance inbound and outbound processing capabilities. Within EUCE, we
capitalize on our global scale, cost efficiencies and our ability to provide seamless communications between our
clients and their end-users through traditional (e.g., voice) and digital (e.g., web, mobile and Internet of Things)
channels. Conduent’s solutions deliver exceptional outcomes for its clients, including:

•
•
•
•

$17 billion in medical bill savings,
$11 billion in child support payments processed more efficiently,
up to 40% efficiency increase in HR operations, and
up to 40% improvement in processing costs, while driving higher end-user satisfaction.

8 | CONDUENT 2019 ANNUAL REPORT

Sales and Delivery Excellence – We look for the opportunity to exceed expectations and strive to be the best at
what we do. Our clients are at the forefront of everything we do. We do our best to make things simple both in the
solutions we design and the way we do business. We engage, develop and support our people. We intend to
increasingly develop our employees by investing in training, processes and systems to equip them with modern
tools that enable them to perform their jobs more efficiently. Furthermore, we plan to strengthen our sales teams
through improved and optimized coverage and effective talent management. In 2019, we centralized our sales
organization to report under a single Chief Revenue Officer and are investing in providing leadership and coaching
to our sales team. The dedication and expertise of our employees have resulted in Conduent serving a majority of
Fortune 100 companies, including:

•
•
•
•

9 of top 10 health insurers,
8 of 10 pharma companies,
6 of top 10 automakers, and
8 of top 10 U.S. banks.

Innovation complemented by tightly aligned investments – We are thinking about how we invest into the
business differently than before. We intend to be disciplined in how we allocate capital and what our investments will
fund. We have designated our businesses into three categories, each with a different approach to growing the
business.

•

Category 1- “Optimize”: The businesses where we will drive optimization are generally areas of significant
scale and where we believe that with process optimization, automation, and an investment into the current
offerings, we can improve the end-user experience, reduce our cost of delivery, expand our margins, and thus
capture additional “share”. We have identified EUCE, TP, Government Services (State, Local and Federal and
Payment solutions) as businesses that fit into this category.

Category 2- “Enhance”: These are businesses where we see the potential to enhance our solutions and
market share with modest investment. These tend to have strong client relationships and a long history of
servicing the markets we operate in, but legacy technology that needs to be refreshed or modernized. We have
identified Government Healthcare services and HRL services as businesses that fit into this category.

Category 3- “Expand”: These are businesses where we believe opportunities to expand our capabilities may
require more meaningful investment, but we see the payback as more significant than the other businesses.
These businesses, augmented with new capabilities, perhaps supplemented by modest acquisitions, will
address market dynamics and provide additional growth opportunities. We have identified Commercial
Healthcare and Transportation as businesses that fit into this category.

Our Competitive Strengths

We possess certain competitive strengths that distinguish us from our competitors, including:

Leadership in attractive growth markets – We are a large player in business process services delivering
exceptional outcomes for our clients at an unparalleled scale. Our clients continue to outsource key business
processes to improve efficiencies and to accelerate performance and digital transformation. Additionally, clients are
moving beyond services for back-office functions in order to drive customer satisfaction and loyalty. The increase in
globalization and cost competition continues to accelerate, forcing companies to seek ways to stay ahead of the
competition. These factors, along with clients and their customers demanding more personalized, seamless and
secure solutions, are collectively driving the ongoing shift to next-generation solutions and services. Through our
portfolio of services and solutions, we have reached significant scale in our interactions including:

CONDUENT 2019 ANNUAL REPORT | 9

•

Healthcare – U.S. healthcare spending is expected to rise from the 17.9% of GDP in 2017 to 19.4% of GDP by
2027and is projected to grow at an average rate of 5.5% per year for 2018-2027. As one of the most regulated
industries, healthcare providers must balance increased utilization with heightened complexity and new financial
pressures such as government budget challenges to significantly reduce reimbursements, reimbursement
penalties for hospital readmissions and a shift from fee-for-service to “value-based” population health
management. We are widely recognized by industry analysts as a leader in healthcare payer operations,
serving 9 of the top 10 U.S. managed healthcare plans and providing administrative and care management
solutions to Medicaid programs and federally funded U.S. government healthcare programs in 23 states, Puerto
Rico and the District of Columbia. Two out of every three U.S. insured patients are touched by Conduent.
Conduent’s healthcare capabilities have been recognized by NelsonHall, HfS Research and Everest Group.

Transportation – Traffic congestion continues to increase as urbanization and changing demographics take
hold globally. As a result, optimized transportation systems are becoming critical to increase efficiency while
maintaining strict safety requirements. Electronic toll collection, public transit and parking all represent key
growth drivers as governments at all levels increasingly focus on transportation infrastructure. We are an award-
winning innovator in parking management. 46% of U.S. toll services are managed by Conduent and 11 million
traveler transactions go through Conduent transportation toll systems daily.

Transaction Processing – We provide high volume print and mail services, enrollment processing and
personalized and targeted marketing and communications to large corporations and are a leading provider in
this market with more than 3.6 billion documents captured, indexed and classified annually. We process 89
million invoices annually for our Finance, Accounting and Procurement clients.

Global delivery expertise – Our scale and global delivery network enables us to deliver our proprietary technology,
differentiated service offerings and service capabilities expertly to clients around the world. We have operations in
23 countries including India, Philippines, Jamaica, Guatemala, Mexico, Romania, Dominican Republic and several
locations within the United States, giving our customers the option for "onshore", "nearshore" or "offshore"
outsourced business process services. This global delivery model enables us to leverage lower-cost production
locations, consistent methodologies and processes, time zone advantages and business continuity plans. As of
December 31, 2019, 51% of our employees were located in high cost countries and 49% were located in low cost
countries.

Differentiated suite of multi-industry service offerings at scale – We manage transaction-intensive processes
and work directly with end-users to meet their needs often in real-time. We are unique in our ability to offer our
clients these business process services on a large scale and with high quality. Additionally, we are able to leverage
our cross-industry services to bring the same scale and quality to our portfolio of industry-specific service offerings,
such as healthcare claims management, employee benefits management and public transit fare collection.

Recurring revenue model supported by a loyal, diverse client base – We have a broad and diverse base of
clients in countries across geographies and industries, including a majority of the Fortune 100 as well as Fortune
1,000 companies and midsize businesses and governmental entities. Our close client relationships and successful
client execution support our stable recurring revenue model and high renewal rates. Excluding our strategic decision
not to renew certain contracts and the impact of divestitures, renewal rates for 2019 and 2018 were 81% and 95%,
respectively.

10 | CONDUENT 2019 ANNUAL REPORT

Competition

Although we encounter competition in all areas of our portfolio, we lead across certain areas of our principal
businesses. We compete on the basis of technology, performance, price, quality, reliability, reputation and customer
service and support. In the current political environment in the U.S. and other territories, we also consider our
"onshore" delivery capacity to be a competitive advantage. We participate in a highly competitive and rapidly
evolving market, driven by changes in industry standards and demands of customers to become more efficient. Our
competitors range from large international companies to relatively small firms. Our competitors include:

•

•
•
•
•
•
•
•

Large multinational service providers such as CGI Group, Accenture, Aon Hewitt, Cognizant, Hewlett-Packard
Enterprise, Fidelity Information Systems, Bank of America, IBM, Teletech and Teleperformance;
Traditional Business Process Outsourcing companies such as Genpact, ELX Services, Exela Technologies and
WNS Global Services;
Payroll processing and human capital management providers such as ADP and Paychex;
Healthcare-focused IT and service solutions providers such as Cerner and Maximus;
Human resource services providers such as Alight and Willis Towers Watson;
Health Savings Account administrators such as Health Equity, HSA Bank, and WexHealth;
U.S. Federal focused government services such as CACI International and DXC Technology;
Transportation multi-nationals such as Roper/TransCore, Cubic, Kapsch and Verra Mobility; and
Smaller niche business processing service providers and in-house departments that perform functions that
could be outsourced to us.

Sales and Marketing

We market our business process services to both potential and existing clients through our worldwide sales force
and our business development team. Additionally, we have dedicated “solution architects” who work with clients to
better understand their business requirements and to develop custom-tailored solutions to meet their unique needs.

Our sales and marketing strategy is to go to market by solutions to deliver key industry-specific and cross-industry
services and solutions to our clients. We focus on developing new prospects through market research and analysis,
demand generation, renewing expiring contracts and leveraging existing client relationships to offer additional
services. We leverage our broad, cross-industry service offerings to package solutions through enterprise selling,
while maintaining a disciplined approach to pricing and contracting. Our sales efforts typically involve extended
selling cycles and our deep domain and industry expertise is critical to winning new business.

Intellectual Property

Our general policy is to seek patent protection for those inventions likely to be incorporated into our products and
services or where obtaining such proprietary rights will improve our competitive position. We own approximately
1,030 patents and pending applications. Our patent portfolio evolves as new patents are awarded to us and as older
patents expire. These patents expire at various dates, generally 20 years from their original filing dates. While we
believe that our portfolio of patents and applications has value, in general, no single patent is essential to our
business or any individual segment. In addition, any of our proprietary rights could be challenged, invalidated or
circumvented, or may not provide significant competitive advantages.

Our business relies on software provided to an approximately equal extent, by both internal development and
external sourcing to deliver our services. With respect to internally developed software, we claim copyright on all
such software, registering works which may be accessible to third parties. In addition, we rely on maintaining source
code confidentiality to assure our market competitiveness. With respect to externally sourced software, we rely on
contracts assuring our continued access for our business usage.

In the United States, we own 76 trademarks, which are either registered or applied for, reflecting the many
businesses we participate in. These trademarks may have a perpetual life, subject to renewal every 10 years and
may be subject to cancellation or invalidation based on certain use requirements and third party challenges, or on
other grounds. We vigorously enforce and protect our trademarks.

CONDUENT 2019 ANNUAL REPORT | 11

People and Culture

We draw on the skills, expertise, and experience of our talented and diverse global workforce to deliver mission-
critical services and solutions that drive exceptional client outcomes. We have 67,000 associates in 23 countries
working towards a common vision and purpose, with 44% located in North America and the remainder located
primarily in our delivery centers in India, Philippines, Jamaica, Guatemala and Mexico.

We believe an engaged and motivated workforce is our most important asset, which is why we are focused on
building a workplace where our people can do their best work, feel empowered to innovate and put forth new ideas
and solutions and have the tools and resources they need to be successful. We take pride in our ‘One Conduent’
culture, which is underpinned by our core values and leadership and teamwork principles. We place a strong
emphasis on teamwork and shared success – and we amplify this unity across our associate base through several
programs, including employee volunteerism, diversity and inclusion programs and continuous, open and transparent
two-way communication.

Corporate Ethics

We operate according to our ethics and compliance program, which is designed to meet general governance and
specific industry and regulatory requirements with a focus on values, culture and performance with integrity.
Conduent has a business ethics program, which is overseen by the business ethics office, and a code of business
conduct (Code), which serves as the foundation of our business ethics program. The Code sets forth our
expectations for ethical leadership, performance of job responsibilities and compliance with company policies and
the law. In addition, the Code embodies and reinforces Conduent’s commitment to integrity and helps employees
resolve ethics and compliance concerns consistent with operating principles and legal and policy controls. In
addition, our employees are required to complete business ethics training annually and we periodically solicit their
input to gauge the state of Conduent’s ethical culture and help identify areas for improvement.

Our directors must act in accordance with our Code of Business Conduct and Ethics for Members of the Board; our
principal executive officer, principal financial officer and principal accounting officer, among others, must act in
accordance with our Finance Code of Conduct; and all of our executives and employees must act in accordance
with our Code of Business Conduct. Each of these codes of conduct can be accessed through our website at
www.conduent.com/corporate-governance. They are also available to any shareholder who requests them in writing
addressed to Conduent Incorporated, 100 Campus Drive Suite 200, Florham Park, NJ 07932, Attention: Corporate
Secretary. We will disclose any future amendments to, or waivers from, provisions of our Code of Business Conduct
and Ethics for members of the Board and, our Code of Business Conduct and our Finance Code of Conduct for our
officers on our website as promptly as practicable, and consistent with the requirements of applicable U.S.
Securities and Exchange Commission (SEC) and NASDAQ rules.

Seasonality

Our revenues can be affected by various factors such as our clients’ demand pattern for our services, which
includes peak windows for benefit enrollment and new product launch by clients.

Availability of Company Information

Our internet address is www.conduent.com. In the Investor Information section of our Internet website, you will find
our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our Proxy
Statements and any amendments to these reports and statements. We make these documents available as soon as
we can after we have filed them with, or furnished them to, the SEC free of charge.

The SEC maintains an internet address (www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The content on any website referred to in
this Form 10-K is nor incorporated by reference in this Form 10-K unless expressly noted.

12 | CONDUENT 2019 ANNUAL REPORT

Information about our Executive Officers

The following is a list of the executive officers of Conduent as of February 26, 2020, their current ages, their present
positions and the year appointed to their present positions.

Each officer is elected to hold office until the meeting of the Board of Directors held on the day of the next annual
meeting of shareholders, subject to the provisions of the by-laws.

Name

Clifford Skelton*

Brian J. Webb-Walsh

Mario A. Pompeo

Michael Krawitz

Mark Brewer

Age

Present Position

Chief Executive Officer

Executive Vice President & Chief Financial Officer

Vice President & Chief Accounting Officer

Executive Vice President, General Counsel &
Secretary

Executive Vice President & President–Public Sector

_____________________________
*

Member of Conduent Board of Directors

Year Appointed
to Present
Position

Conduent
Officer
Since

2019

2017

2019

2017

2019

Each of the officers named above has been an officer or an executive of Conduent or its subsidiaries for less than
five years.

Mr. Skelton was appointed Chief Operating Officer of Conduent in June 2019 and Chief Executive Officer of
Conduent in August 2019. He served as President of Fiserv Output Solutions from March 2017 to June 2019. Prior
to that, Mr. Skelton was the Group President and Chief Information Officer at Fiserv from April 2012 until March
2017. Mr. Skelton also held a variety of leadership roles at companies such as Ally Financial (formerly General
Motors Acceptance Corporation) and Bank of America. Mr. Skelton is a former Navy fighter pilot and served in the
Navy for over 20 years.

Mr. Webb-Walsh served as the Chief Financial Officer of Xerox Services since January 2016. Prior to this, Mr.
Webb-Walsh was Senior Vice President of Finance for the Government Healthcare Group and the Platform
Development and Systems Integration Group of Xerox Services. Mr. Webb-Walsh joined Xerox Corporation in 1997
and has held a variety of leadership positions.

Mr. Pompeo previously served as Chief Audit Executive of Conduent since 2017 and was appointed Chief
Accounting Officer of Conduent in June 2019. Prior to joining Conduent, Mr. Pompeo was a partner and the National
Chief Financial Officer (CFO) Advisory Services Leader at CohnReznick, LLP from 2015 – 2017 and served as
Senior Vice President – Finance & CFO of Stuart Weitzman, Inc. from 2013 – 2015. He began his accounting career
in the Assurance and Business Advisory Practice of PricewaterhouseCoopers, LLP.

Mr. Michael Krawitz served as Executive Vice President, General Counsel and Secretary since November 2019.
Prior to joining Conduent, from June 2015 to November, 2019, Mr. Krawitz was Executive Vice President, General
Counsel and Corporate Secretary of insurance services firm York Risk Services Group, a portfolio company of Onex
Corp. From 2014 to 2015, he was Chief Legal Officer of Veriteq Corp., a biotech company. From 1999 to 2014, Mr.
Krawitz held leadership roles in public and private companies in technology and finance sectors. Mr. Krawitz began
his career at Fried Frank and was educated at Cornell University and Harvard Law School.

Mr. Brewer joined Conduent as Executive Vice President & President – Public Sector in June 2019. Prior to joining
Conduent, he served as Senior Vice President and Managing Director of Diebold Nixdorf from 2018 to 2019. Prior to
that Mr. Brewer was Global Vice President for DXC’s Technology, Enterprise Application and Cloud Businesses from
2016 to 2018. He also held a variety of Senior Executive leadership roles at IBM Corporation for over 20 years, in
Europe, Asia and the Americas. Mr. Brewer has served as a member of several boards of global companies,
including IBM Australia and Softlayer, and has advised clients and boards around the world on changes that will
fundamentally transform their businesses.

CONDUENT 2019 ANNUAL REPORT | 13

ITEM 1A. RISK FACTORS

Our government contracts are subject to appropriation of funds, termination rights, audits and
investigations, which, if exercised, could negatively impact our reputation and reduce our ability to
compete for new contracts.

A significant portion of our revenues is derived from contracts with U.S. federal, state and local governments and
their agencies, and some of our revenues are derived from contracts with foreign governments and their agencies.
Government entities typically finance projects through appropriated funds. While these projects are often planned
and executed as multi-year projects, government entities usually reserve the right to change the scope of or
terminate these projects for lack of approved funding and/or at their convenience. Changes in government or
political developments, including budget deficits, shortfalls or uncertainties, failures to enact appropriation legislation
(e.g., a government "shut-down"), government spending reductions (e.g., Congressional sequestration of funds
under the Budget Control Act of 2011) or other debt or funding constraints, have result in and in the future could
result in lower governmental sales and in our projects being reduced in price or scope or terminated altogether,
which also could limit our recovery of incurred costs, reimbursable expenses and profits on work completed prior to
the termination. Additionally, if the government discovers what it considers to be improper or illegal activities or
contractual non-compliance (including improper billing or non-compliant performance of contract requirements), we
may be subject to various civil and criminal penalties and administrative sanctions, which has occurred in the past
and may in the future include termination of contracts, forfeiture of profits, suspension of payments, contractual
service penalties, fines and suspensions or debarment from doing business with the government. Any resulting
penalties or sanctions could materially adversely affect our results of operations and financial condition. Moreover,
government contracts are generally subject to audits and investigations by government agencies. If the government
finds that we inappropriately charged any costs to a contract, the costs are not reimbursable or, if already
reimbursed, the cost must be refunded to the government. Further, the negative publicity that could arise from any
such penalties, sanctions or findings in such audits or investigations could have an adverse effect on our reputation
in the industry and reduce our ability to compete for new contracts and could materially adversely affect our results
of operations and financial condition.

We derive significant revenue and profit from commercial and government contracts awarded through
competitive bidding processes, including renewals, which can impose substantial costs on us, and we will
not achieve revenue and profit objectives if we fail to accurately and effectively bid on such projects.

Many of these contracts are extremely complex and require the investment of significant resources in order to
prepare accurate bids and proposals. Competitive bidding imposes substantial costs and presents a number of
risks, including: (i) the substantial cost and managerial time and effort that we spend to prepare bids and proposals
for contracts that may or may not be awarded to us; (ii) the need to estimate accurately the resources and costs that
will be required to implement and service any contracts we are awarded, sometimes in advance of the final
determination of their full scope and design; (iii) the expense and delay that may arise if our competitors protest or
challenge awards made to us pursuant to competitive bidding and the risk that such protests or challenges could
result in the requirement to resubmit bids and in the termination, reduction or modification of the awarded contracts;
and (iv) the opportunity cost of not bidding on and winning other contracts we might otherwise pursue. If our
competitors protest or challenge an award made to us on a government contract, the costs to defend such an award
may be significant and could involve subsequent litigation that could take years to resolve.

Our ability to recover capital and other investments in connection with our contracts is subject to risk.

In order to attract and retain large outsourcing contracts, we sometimes make significant capital and other
investments to enable us to perform our services under those contracts, such as purchases of information
technology equipment, facility costs, labor resources and costs incurred to develop and implement software. The
net book value of certain assets recorded, including a portion of our intangible assets, could be impaired, and our
results of operations and financial condition could be materially adversely affected in the event of the early
termination of all or a part of such a contract or a reduction in volumes and services thereunder for reasons such as
a customer’s or client’s merger or acquisition, divestiture of assets or businesses, business failure or deterioration or
a customer’s or client’s exercise of contract termination rights.

14 | CONDUENT 2019 ANNUAL REPORT

We rely to a significant extent on third-party providers, such as subcontractors, a relatively small number of
primary software vendors, utility providers and network providers; if they cannot deliver or perform as
expected or if our relationships with them are terminated or otherwise change, our results of operations
and financial condition could be materially adversely affected.

Our ability to service our customers and clients and deliver and implement solutions depends to a large extent on
third-party providers such as subcontractors, a relatively small number of primary software vendors, software
application developers, utility providers and network providers meeting their obligations to us and our expectations
in a timely, quality manner. We have experienced suboptimal performance from an inherited legacy technology
vendor, which has caused certain operational challenges and customer delivery performance issues that we have
been aggressively addressing. Our results of operations and financial condition have been and in the future may be
materially adversely affected and we might incur significant additional liabilities (a) if we are unable to adequately
renegotiate these legacy contracts, or (b) if any of our third-party providers (1) do not meet their service level
obligations, (2) do not meet our or our clients’ expectations, (3) terminate or refuse to renew their relationships with
us, or (4) offer their products to us with less advantageous prices and other terms than previously offered.

Failure to deliver on our contractual obligations properly and on time could materially adversely affect our
results of operations and financial condition.

Our business model depends in large part on our ability to retain existing and attract new work from our base of
existing clients, as well as on relationships we develop with our clients so that we can understand our clients’ needs
and deliver solutions and services that are tailored to meet those needs. In order for our business to grow, we must
successfully manage the provision of services under our contracts. If a client is not satisfied with the quality of work
performed by us or a subcontractor, or with the type of services or solutions delivered, or if we or our subcontractors
fail to perform in accordance with contract requirements, then we could incur additional costs to address the
situation, the profitability of that work might be impaired and the client’s dissatisfaction with our services could
damage our ability to obtain additional work from that client or obtain new work from other potential clients. In
particular, many of our contracts with non-government clients may be terminated by the client, without cause, upon
specified advance notice. Accordingly, clients who are not satisfied might seek to terminate existing contracts prior
to their scheduled expiration date, which may result in our inability to fully recover our up-front investments. In
addition, clients could direct future business to our competitors. We could also trigger contractual credits to clients
or a contractual default. Failure to properly transition new clients to our systems, properly budget transition costs or
accurately estimate contract operational costs could result in delays in our contract performance, trigger service
level penalties, impair fixed or intangible assets or result in contract profit margins that do not meet our expectations
or our historical profit margins.

In addition, we incur significant expenditures for the development and construction of system software platforms
needed to support our clients’ needs. Our failure to fully understand client requirements or implement the
appropriate operating systems or databases or solutions which enable the use of other supporting software may
delay the project and result in cost overruns or potential impairment of the related software platforms, which could
materially adversely affect our results of operations and financial condition.

We face significant competition and our failure to compete successfully could materially adversely affect
our results of operations and financial condition.

To remain competitive, we must develop services and applications, periodically enhance our existing offerings,
remain cost efficient and attract and retain key personnel and management. If we are unable to compete
successfully, we could lose market share and important customers to our competitors and that could materially
adversely affect our results of operations and financial condition.

CONDUENT 2019 ANNUAL REPORT | 15

We have recorded significant goodwill impairment charges and may be required to record additional
charges to future earnings if our goodwill or intangible assets become impaired.

We are required under generally accepted accounting principles to review our intangible assets for impairment
when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required
to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating
that the carrying value of our intangible assets and/or goodwill may not be recoverable include a decline in stock
price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially
adverse events that have implications on the profitability of our business or business segments. We may be
required to record additional charges to earnings during the period in which any impairment of our goodwill or other
intangible assets is determined which could adversely impact our results of operations. As of December 31, 2019,
our goodwill balance was $1.5 billion, which represented 33.3% of total consolidated assets. Refer to Note 8 –
Goodwill and Intangible Assets, Net to our Consolidated Financial Statements for additional information about our
goodwill impairment.

Our significant indebtedness could materially adversely affect our results of operations and financial
condition.

We have and will continue to have a significant amount of debt and other obligations. Our substantial debt and other
obligations could have important consequences. For example, it could (i) increase our vulnerability to general
adverse economic and industry conditions; (ii) limit our ability to obtain additional financing for future working capital,
capital expenditures, acquisitions and other general corporate requirements; (iii) require us to dedicate a substantial
portion of our cash flows from operations to service debt and other obligations thereby reducing the availability of
our cash flows from operations for other purposes; (iv) limit our flexibility in planning for, or reacting to, changes in
our businesses and the industries in which we operate; (v) place us at a competitive disadvantage compared to our
competitors that have less debt; and (vi) become due and payable upon a change in control. If new debt is added to
our current debt levels, these related risks could increase.

Our ability to make payments on and to refinance our indebtedness, as well as any future debt that we may incur,
will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to
generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are
beyond our control.

The terms of our indebtedness may restrict our current and future operations, particularly our ability to
incur debt that we may need to fund initiatives in response to changes in our business, the industries in
which we operate, the economy and governmental regulations.

The terms of our indebtedness include a number of restrictive covenants that impose significant operating and
financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term
best interests. These may restrict our and our subsidiaries’ ability to take some or all of the following actions:

incur or guarantee additional indebtedness or sell disqualified or preferred stock;
pay dividends on, make distributions in respect of, repurchase or redeem, capital stock;

•
•
• make investments or acquisitions;
•
•
•
•
•
•
•
•
•

sell, transfer or otherwise dispose of certain assets, including accounts receivable;
create liens;
enter into sale/leaseback transactions;
enter into agreements restricting the ability to pay dividends or make other intercompany transfers;
consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;
enter into transactions with affiliates;
prepay, repurchase or redeem certain kinds of indebtedness;
issue or sell stock of our subsidiaries; and/or
significantly change the nature of our business.

16 | CONDUENT 2019 ANNUAL REPORT

As a result of all of these restrictions, we may be:

•
•
•

limited in how we conduct our business and pursue our strategy;
unable to raise additional debt financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.

A breach of any of the restrictive covenants, if applicable, could result in an event of default under the terms of this
indebtedness. If an event of default occurs, the lenders would have the right to accelerate the repayment of such
debt and the event of default or acceleration may result in the acceleration of the repayment of any other of our debt
to which a cross-default or cross-acceleration provision applies. Furthermore, under this indebtedness we have
pledged our assets as collateral as security for our repayment obligations. If we were unable to repay any amount of
this indebtedness when due and payable, the lenders could proceed against the collateral that secures this
indebtedness. In the event our creditors accelerate the repayment of our borrowings, we may not have sufficient
assets to repay such indebtedness, which could materially adversely affect our results of operations and financial
condition.

In addition, our credit facility bears interest at a rate that varies depending on the LIBOR. On July 27, 2017, the UK's
Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of
2021. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established
such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference
Rates Committee, a steering committee comprised of large U.S. financial institutions, announced replacement of
U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury
securities called the Secured Overnight Financing Rate ("SOFR"). The first publication of SOFR was released in
April 2018. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the
future of LIBOR at this time is uncertain. If LIBOR rates are no longer available, our costs of borrowings under our
credit facilities may be negatively impacted, which could have an adverse effect on our results of operations.

Our business is dependent on continued interest in outsourcing.

Our business and growth depend in large part on continued interest in outsourced business process services.
Outsourcing means that an entity contracts with a third-party, such as us, to provide business process services
rather than perform such services in-house. There can be no assurance that this interest will continue, as
organizations may elect to perform such services themselves and/or the business process outsourcing industry
could move to an as-a-Service model, thereby eliminating traditional business process outsourcing tasks. A
significant change in this interest in outsourcing could materially adversely affect our results of operations and
financial condition. Additionally, there can be no assurance that our cross-selling efforts will cause clients to
purchase additional services from us or adopt a single-source outsourcing approach.

Our profitability is dependent upon our ability to obtain adequate pricing for our services and to improve
our cost structure.

Our success depends on our ability to obtain adequate pricing for our services that will provide a reasonable return
to our shareholders. Depending on competitive market factors, future prices we obtain for our services may decline
from previous levels. If we are unable to obtain adequate pricing for our services, it could materially adversely affect
our results of operations and financial condition. In addition, our contracts are increasingly requiring tighter timelines
for implementation as well as more stringent service level metrics. This makes the bidding process for new
contracts much more difficult and requires us to adequately consider these requirements in the pricing of our
services.

In order to meet the service requirements of our customers, which often includes 24/7 service, and to optimize our
employee cost base, including our back-office support, we often locate our delivery service and back-office support
centers in lower-cost locations, including several developing countries. Concentrating our centers in these locations
presents a number of operational risks, many of which are beyond our control, including the risks of political
instability, natural disasters, safety and security risks, labor disruptions, excessive employee turnover and rising
labor rates. Additionally, a change in the political environment in the United States or the adoption and enforcement
of legislation and regulations curbing the use of such centers outside of the United States could materially adversely
affect our results of operations and financial condition. These risks could impair our ability to effectively provide
services to our customers and keep our costs aligned to our associated revenues and market requirements.

CONDUENT 2019 ANNUAL REPORT | 17

Our ability to sustain and improve profit margins is dependent on a number of factors, including our ability to
continue to improve the cost efficiency of our operations through such programs as robotic process automation, to
absorb the level of pricing pressures on our services through cost improvements and to successfully complete
information technology initiatives. If any of these factors adversely materialize or if we are unable to achieve and
maintain productivity improvements through restructuring actions or information technology initiatives, our ability to
offset labor cost inflation and competitive price pressures would be impaired, each of which could materially
adversely affect our results of operations and financial condition.

Our business may be adversely affected by geopolitical events, natural disasters and other factors that
could directly impact certain of our employees, customers and vendors in countries or regions effected by
such events and factors.

We have a global workforce and global customers. Our employees and customers in a particular country or region
in the world may be impacted as a result of a variety of diversions, including: geopolitical events, such as war, the
threat of war, or terrorist activity; natural disasters or the effects of climate change (such as drought, flooding,
wildfires, increased storm severity, and sea level rise); power shortages or outages, major public health issues,
including pandemics (such as the coronavirus); and significant local, national or global events capturing the
attention of a large part of the population. If any of these, or any other factors, disrupt a country or region where we
have a significant workforce (such as the U.S., India or the Philippines) or customers (such as the U.S. or Europe),
or vendors, our business could be materially adversely affected.

We may be subject to claims of infringement of third-party intellectual property rights which could
adversely affect our results of operation and financial condition.

We rely heavily on the use of intellectual property. We do not own all of the software that we use to run our
business; instead we license this software from a small number of primary vendors. If these vendors assert claims
that we or our clients are infringing on their software or related intellectual property, we could incur substantial costs
to defend these claims, which could materially adversely affect our results of operations and financial condition. In
addition, if any of our vendors’ infringement claims are ultimately successful, our vendors could require us to (i)
cease selling or using products or services that incorporate the challenged software or technology, (ii) obtain a
license or additional licenses from our vendors or (iii) redesign our services which rely on the challenged software or
technology. In addition, we may be exposed to claims for monetary damages. If we are unsuccessful in defending
an infringement claim and our vendors require us to initiate any of the above actions, or we are required to pay
monetary damages, then such actions could materially adversely affect our results of operations and financial
condition.

We are subject to laws of the United States and foreign jurisdictions relating to individually identifiable
information and personal health information, and failure to comply with those laws, whether or not
inadvertent, could subject us to legal actions and negatively impact our operations.

We receive, process, transmit and store information relating to identifiable individuals, both in our role as a service
provider and as an employer. As a result, we are subject to numerous laws and regulations in the United States
(both federal and state) and foreign laws and regulations designed to protect both individually identifiable
information and personal health information, including the Health Insurance Portability and Accountability Act of
1996, as amended (“HIPAA”), and the regulations promulgated under HIPPA governing, among other things, the
privacy, security and electronic transmission of individually identifiable health information, and the European Union
General Data Protection Regulation (GDPR) (effective May 25, 2018), which imposes stringent data protection
requirements and significant penalties for noncompliance and has had a significant impact on how we process and
handle certain data.

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Additional laws of the United States and foreign jurisdictions apply to our processing of individually identifiable
information. These laws have been subject to frequent changes, and new legislation in this area may be enacted at
any time. For example, the GDPR and the invalidation of the U.S.-EU Safe Harbor regime have required us to
implement alternative mechanisms in order for some of our data flows from Europe to the United States to comply
with applicable law. Changes to existing laws, the introduction of new laws in this area or our failure to comply with
existing laws that are applicable to us may subject us to, among other things, additional costs or changes to our
business practices, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity,
restrictions on our ability to obtain and process information and allegations by our customers and clients that we
have not performed our contractual obligations, any of which could materially adversely affect our results of
operations and financial condition.

We are subject to laws of the United States and foreign jurisdictions relating to processing certain financial
transactions, including payment card transactions and debit or credit card transactions, and failure to
comply with those laws, whether or not inadvertent, could subject us to legal actions and materially
adversely affect our results of operations and financial condition.

We process, support and execute financial transactions, and disburse funds, on behalf of both government and
commercial customers, often in partnership with financial institutions. This activity includes receiving debit and credit
card information, processing payments for and due to our customers and disbursing funds on payment or debit
cards to payees of our customers. As a result, we are subject to numerous laws and regulations in the United States
(both federal and state) and in foreign jurisdictions, including the Electronic Fund Transfer Act, as amended, the
Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the Bank Secrecy Act), as
amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (including the so-called Durbin
Amendment), as amended, the Gramm-Leach-Bliley Act (also known as the Financial Modernization Act of 1999),
as amended, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended. Other United States (both federal and state) and
foreign jurisdiction laws apply to our processing of certain financial transactions and related support services. These
laws are subject to frequent changes, and new statutes and regulations in this area may be enacted at any time.
Changes to existing laws, the introduction of new laws in this area or our failure to comply with existing laws that are
applicable to us may subject us to, among other things, additional costs or changes to our business practices,
liability for monetary damages, fines and civil and/or criminal prosecution, unfavorable publicity, restrictions on our
ability to process and support financial transactions and allegations by our customers, partners and clients that we
have not performed our contractual obligations. Any of these could materially adversely affect our results of
operations and financial condition.

Our data systems, information systems and network infrastructure may be subject to hacking or other
cybersecurity threats and other service interruptions, which could expose us to liability, impair our
reputation or temporarily render us unable to fulfill our service obligations under our contracts.

We are a leading provider of business processing services concentrated in transaction-intensive processing,
analytics and automation. We act as a trusted business partner in both front office and back office platforms,
providing interactions on a substantial scale with our customers and other third-parties. Our customers include
global commercial clients and government clients who depend upon our operational efficiency, non-interruption of
service, and accuracy and security of information. We also use third-party providers such as subcontractors,
software vendors, utility providers and network providers, upon whom we rely for our business processing services,
to deliver uninterrupted, secure service. As part of our business processing services we also develop system
software platforms necessary to support our customers’ needs, with significant ongoing investment in developing
and operating customer-appropriate operating systems, data bases and system software solutions. We also
receive, process, transmit and store substantial volumes of information relating to identifiable individuals, both in our
role as a service provider and as an employer, and we are subject to numerous laws, rules and regulations in the
United States (both federal and state) and foreign jurisdictions designed to protect both individually identifiable
information as well as personal health information. We also receive, process and implement financial transactions,
and disburse funds, on behalf of both commercial and government customers, which activity includes receiving
debit and credit card information to process payments due to our customers as well as disbursing funds to payees
of our customers. As a result of these and other business processing services, the integrity, security, accuracy and
non-interruption of our systems and information technology and that of our third-party providers and our interfaces
with our customers are extremely important to our business, operating results, growth, prospects and reputation.

CONDUENT 2019 ANNUAL REPORT | 19

We have implemented security systems and controls, both directly and with third-party subcontractors and service
providers, with the intent of maintaining both the physical security of our facilities and the data security of our
customers’, clients’ and suppliers’ confidential information and information related to identifiable individuals
(including payment card and debit and credit card information and health information) against unauthorized access
through our information systems or by other electronic transmission or through the misdirection, theft or loss of
physical media. These include, for example, the appropriate encryption of information. Despite such efforts, we are
susceptible to breach of security systems which may result in unauthorized access to our facilities and those of our
customers and/or the information we and our customers are trying to protect. Cybersecurity failure might be caused
by computer hacking, malware, computer viruses, worms and other destructive software, “cyber-attacks” and other
malicious activity, as well as natural disasters, power outages, terrorist attacks and similar events. Operational or
business delays may also result from the disruption of network or information systems and subsequent remediation
activities.

Because the techniques used to obtain unauthorized access are constantly changing and becoming increasingly
more sophisticated and often are not recognized until launched against a target, we or our third-party service
providers may be unable to anticipate these techniques or implement sufficient preventative measures. Hacking,
malware, phishing, viruses and other “cyber-attacks” have become more prevalent, have occurred in our systems in
the past, and may occur in our systems in the future. Although we have implemented and intend to continue to
implement what we believe to be appropriate cyber practices and cybersecurity systems, these systems may prove
to be inadequate and result in the disruption, failure, misappropriation or corruption of our network and information
systems. Notwithstanding the preventative and protective measures we have in place, it may not be possible for us
to fully or timely know if or when such incidents arise, or the full business impact of any cybersecurity breach.

Additionally, with advances in computer capabilities and data protection requirements to address ongoing threats,
we may be required to expend significant capital and other resources to protect against potential security breaches
or to alleviate problems caused by security breaches. Moreover, employee error or malfeasance, faulty password
management or other irregularities may result in a defeat of our or our third-party service providers’ security
measures and a breach of our or our third-party service providers’ information systems (whether digital, cloud-based
or otherwise).

If unauthorized parties gain physical access to one of our or one of our third-party service providers’ facilities or gain
electronic access to our or one of our third-party service providers’ information systems, such access could result in,
among other things, unfavorable publicity and significant damage to our brand, governmental inquiry, oversight and
possible regulatory action, difficulty in marketing our services, loss of existing and potential customers, allegations
by our customers that we have not performed our contractual obligations, litigation by affected parties and possible
financial obligations for substantial damages related to the theft or misuse of such information, any of which could
materially adversely affect our results of operations and financial condition. Similar consequences may arise if
sensitive or confidential information is misdirected, lost or stolen during transmission or transport, or is stolen or
misused. Moreover, a security breach could require us to devote significant management resources to address the
problems created by the security breach and to expend significant additional resources to upgrade further the
security measures that we employ to guard such personal information against "cyber-attacks" and to maintain
various systems and data centers for our customers. Often these systems and data centers must be maintained
worldwide and on a 24/7 basis. Although we endeavor to ensure that there is adequate backup and maintenance of
these systems and centers, we have in the past experienced and in the future could experience service
interruptions that could result in curtailed operations and loss of existing and potential customers, which could
significantly reduce our revenues and profits in addition to significantly impairing our reputation. If our information
systems and our back-up systems are damaged, breached or cease to function properly, we may have to make a
significant investment to repair or replace them, and we may suffer interruptions in our operations in the interim,
each of which could materially adversely affect our results of operations and financial condition and diminish the
value of our shares.

In addition, our and our customers’ systems and networks are subject to continued threats of terrorism, which could
disrupt our operations as well as disrupt the utilities and telecommunications infrastructure on which our business
depends. To the extent any such disruptions were to occur, our business, operating results and financial condition
could be materially adversely affected.

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If we underestimate the scope of work or the costs entailed in performing our contracts, or if we do not fully
perform our contracts, our results of operations and financial condition could be materially adversely
affected.

In order to stay competitive in our industry, we must keep pace with changing technologies and customer
preferences. Many of our contracts require us to design, develop and implement new technological and operating
systems for our customers. Many of these systems involve detailed and complex computer source code which must
be created and integrated into a working system that meets contract specifications. The accounting for these
contracts requires judgment relative to assessing risks, estimating contract revenues and costs and making
assumptions for schedule and technical issues. To varying degrees, each contract type involves some risk that we
could underestimate the costs and resources necessary to fulfill the contract. In each case, our failure to accurately
estimate costs or the resources and technology needed to perform our contracts or to effectively manage and
control our costs during the performance of our work could result, and in some instances has resulted, in reduced
profits or in losses. In addition, many of our contracts contain complicated performance obligations, including,
without limitation, designing and building new integrated computer systems. These contracts carry potential financial
penalties or could result in financial damages or exposures if we fail to properly perform those obligations and have
in the past resulted in and in the future could result in our results of operations and financial condition being
materially adversely affected.

Our continuing emphasis and shift toward technology-led digital transactions, rather than more labor
intensive commoditized services, could impact our type and timing of the customer contracts that we enter
into, particularly in the short-term.

We have made the strategic decision to increase our focus on technology-led digital transactions and focus less on
historic labor-intensive commoditized services and customer contracts. We believe technology-led digital
transactions are becoming, and will become, the type of services required by many of our customers and those in
the industry. We believe that our continuing focus on digital transactions will better create long-term value and
increased profitability. However, this increased emphasis on technology-led digital transactions has resulted in and
will continue to result in our exiting certain services and contracts, and could adversely impact our revenues and our
results of operations, particularly in the short-term.

Our customers’ decision-making cycles are changing and the lead time for customers to commit to
contracts with us has been lengthening.

As our services industry and our service offerings change and evolve, particularly with our customers increasing
their focus on digital offerings, our customers are spending increased time and resources evaluating technology and
other investments needed to obtain optimal results and performance, including from their outsourcing providers
including the Company. This has led to longer sales lead time cycles for contract commitments from our customers,
which can adversely affect the timing of customer commitments and our revenues and results of operations.

If we are unable to collect our receivables for billed or unbilled services, our results of operations and
financial condition could be materially adversely affected.

The profitability of certain of our large contracts depends on our ability to successfully obtain payment from our
clients of the amounts they owe us for work performed. Actual losses on client balances could differ from current
estimates and, as a result, may require adjustment of our receivables for unbilled services. Our receivables include
long-term contracts. Over the course of a long-term contract, our customers’ financial condition may change such
that their ability to pay their obligations, and our ability to collect our fees for services rendered, is adversely
affected. Additionally, we may perform work for the federal, state and local governments, with respect to which we
must file requests for equitable adjustment or claims with the proper agency to seek recovery in whole or in part, for
out-of-scope work directed or caused by the government customer in support of its project, and the amounts of such
recoveries may not meet our expectations or cover our costs. Timely collection of client balances also depends on
our ability to complete our contractual commitments (such as our ability to achieve specified milestones in
percentage-of-completion contracts) and bill and collect our contracted revenues. If we are unable to meet our
contractual requirements, we might experience delays in collection of and/or be unable to collect our client
balances, and if this occurs, our results of operations and cash flows could be adversely affected. In addition, if we
experience an increase in the time to bill and collect for our services, our results of operations and financial
condition could be materially adversely affected.

CONDUENT 2019 ANNUAL REPORT | 21

A decline in revenues from or a loss or failure of significant clients could materially adversely affect our
results of operations and financial condition.

Our results of operations and financial condition could be materially adversely affected by the loss or failure of
significant clients or any significant reduction in revenue volumes from our significant customers, which has
occurred in the past and could occur in the future. Some of our clients are in business sectors which have
experienced significant financial difficulties or consolidation, and/or the reduction of volumes or their inability to
make payments to us, as a result of, among other things, their merger or acquisition, divestiture of assets or
businesses, contract expiration, nonrenewal or early termination (including termination for convenience) or business
or financial failure or deterioration. Economic and political conditions could affect our clients’ businesses and the
markets they serve. Competition from other service providers and bringing these services in-house could also be
expected to adversely impact out services revenues.

We have non-recurring revenue, which subjects us to a risk that our revenues and cash flows from
operations may fluctuate from period to period.

Revenue generated from our non-recurring services may fluctuate due to factors both within and outside of our
control. Our mix of non-recurring and recurring revenues is impacted by acquisitions as well as growth in our non-
recurring lines of business, as well as our strategic decisions to exit or reduce our services in particular service
areas. There is less predictability and certainty in the timing and amount of revenues generated by our non-
recurring services and, accordingly, our results of operations and financial condition could be materially adversely
affected by the timing and amount of revenues generated from our non-recurring services.

The failure to obtain or maintain a satisfactory credit rating could adversely affect our liquidity, capital
position, borrowing costs, access to capital markets and ability to post surety or performance bonds to
support clients’ contracts.

Any future downgrades to our credit rating could negatively impact our ability to renew contracts with our existing
clients, limit our ability to compete for new clients, result in increased premiums for surety or performance bonds to
support our clients’ contracts and/or result in a requirement that we provide collateral to secure our surety or
performance bonds. Further, certain of our commercial outsourcing contracts provide that, in the event our credit
ratings are downgraded to specified levels, the client may elect to terminate its contract with us and either pay a
reduced termination fee or, in some limited instances, no termination fee. Such a credit rating downgrade could
adversely affect these client relationships.

There can be no assurance that we will be able to maintain our credit ratings. Any additional actual or anticipated
downgrades of our credit ratings, including any announcement that our ratings are under review for a downgrade,
may have a negative impact on our liquidity, capital position and access to capital markets.

The loss of key senior management or the failure to attract and retain necessary technical personnel and
qualified subcontractors could materially adversely affect our results of operations and financial condition.

Our success depends, in part, upon key managerial and technical personnel, including our ability to attract and
retain additional qualified personnel, as well as qualified subcontractors. The loss of certain key personnel, such as
our Chief Executive Officer (CEO), could materially adversely affect our results of operations and financial condition.
On May 8, 2019, we announced Ashok Vemuri’s plan to step down as CEO. On August 6, 2019, our Board of
Directors transitioned Mr. Vemuri out as CEO and he resigned as a Director. Also, on August 6, 2019, the Board of
Directors appointed Clifford Skelton to serve as CEO and as a Director on the Board to fill the vacancy created by
Mr. Vemuri’s departure. There is no assurance that we can retain our key managerial personnel, or that we can
attract similar employees, in the future.

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In addition, because we operate in intensely competitive markets, our success depends to a significant extent upon
our ability to attract, retain and motivate highly skilled and qualified technical personnel and to subcontract with
qualified, competent subcontractors. If we fail to attract, train and retain sufficient numbers of qualified engineers,
technical staff and sales and marketing representatives, or if we are unable to contract with qualified, competent
subcontractors, our results of operations and financial condition could be materially adversely affected. Experienced
and capable personnel in the services industry remain in high demand, and there is continual competition for their
talents. Our ability to renegotiate certain of our legacy third-party contracts which we view as unfavorable, or to
improve the service levels we expect from these contracts and third-party providers, is key to our ability to timely,
efficiently and profitably deliver our services to our customers. Additionally, we have increased and expect to
continue to increase our hiring in geographic areas outside of the United States, which could subject us to increased
geopolitical and exchange rate risk. The loss of any key technical employee, the loss of a key subcontractor
relationship or our inability to renegotiate or obtain required service levels from legacy and other third-party
providers, could materially adversely affect our results of operations and financial condition.

Increases in the cost of telephone and data services or significant interruptions in such services could
materially adversely affect our results of operations and financial condition.

Our business is significantly dependent on telephone and data service provided by various local and long distance
telephone and data service providers around the world. Accordingly, any disruption of these services could
materially adversely affect our results of operations and financial condition. We have taken steps to mitigate our
exposure to service disruptions by investing in redundant circuits, although there is no assurance that the redundant
circuits would not also suffer disruption. Any inability to obtain telephone or data services at favorable rates could
materially adversely affect our results of operations and financial condition. Where possible, we have entered into
long-term contracts with various providers to mitigate short-term rate increases and fluctuations. There is no
obligation, however, for the vendors to renew their contracts with us, or to offer the same or lower rates in the future,
and such contracts are subject to termination or modification for various reasons outside of our control. A significant
increase in the cost of telephone or data services that is not recoverable through an increase in the price of our
services could materially adversely affect our results of operations and financial condition. In addition, a number of
our facilities are located in jurisdictions outside of the United States where the provision of utility services, including
electricity and water, may not be consistently reliable, and while there are backup systems in many of our operating
facilities, an extended outage of utility or network services could materially adversely affect our results of operations
and financial condition.

If we fail to successfully develop new service offerings, including new technology components, and protect
our intellectual property rights, we may be unable to retain current customers and gain new customers and
our revenues would decline.

The process of developing new service offerings, including new technology components, is inherently complex and
uncertain. It requires accurate anticipation of customers’ changing needs and emerging technological trends. We
must make long-term investments and commit significant resources before knowing whether these investments will
eventually result in service offerings that achieve customer acceptance and generate the revenues required to
provide desired returns. For example, establishing internal automation processes to help us develop new service
offerings will require significant up-front costs and resources, which, if not monetized effectively, could materially
adversely affect our revenues. In addition, some of our service offerings rely on technologies developed by and
licensed from third-parties. We may not be able to obtain or continue to obtain licenses and technologies from these
third-parties at all or on reasonable terms, or such third-parties may demand cross-licenses to our intellectual
property. It is also possible that our intellectual property rights could be challenged, invalidated or circumvented,
allowing others to use our intellectual property to our competitive detriment. We also must ensure that all of our
service offerings comply with both existing and newly enacted regulatory requirements in the countries in which they
are sold. If we fail to accurately anticipate and meet our customers’ needs through the development of new service
offerings (including technology components) or if we fail to adequately protect our intellectual property rights or if our
new service offerings are not widely accepted or if our current or future service offerings fail to meet applicable
worldwide regulatory requirements, we could lose market share and customers to our competitors and that could
materially adversely affect our results of operations and financial condition.

CONDUENT 2019 ANNUAL REPORT | 23

The Company’s business, operating results and reputation may be negatively impacted by failures or
delays in our efforts to modernize our information technology infrastructure and to consolidate to fewer
data centers.

We have experienced certain disruptions in our operations and service delivery performance issues as a result of
some of our information technology infrastructure that is outdated and needs to be enhanced and updated, which
disruptions have adversely impacted client and delivery performance. As a result, we are investing in modernizing a
significant portion of our information technology infrastructure with new systems and processes and consolidating
our data centers as part of our transformation initiatives. This also includes investments in our data center and
networks, enhancement, modernization and consolidation of our IT infrastructure and customer-facing technologies,
enhanced cybersecurity and movement to cloud-based technology. We expect that these changes will provide
greater strategic and operational flexibility and efficiency and better control of our systems and processes. There is
a risk, however, that our modernization efforts and data center consolidations could materially and adversely disrupt
our operations and our service delivery to customers, could result in contractual penalties or damage claims from
customers, could occur over a period longer than planned, and could require greater than expected investment and
other internal and external resources. It may also take longer to realize the intended favorable benefits from an
enhanced technology infrastructure than we expected, or that disruptions may continue to occur while we enhance
this infrastructure.

The process of consolidating our data center involves inherent risks and may cause disruptions to our operations.
In October 2018, we suffered a significant outage as a result of a data center migration, which resulted in unplanned
system unavailability and disruption for our customers. We plan to undertake several data center migrations in the
future and, in the course of these data migrations, could potentially experience significant service outages. Future
service disruptions could hinder our ability to attract new customers, cause us to incur legal liability, contractual
penalties or issue service credits to our customers and cause us to lose current customers, each of which could
have a material adverse effect on our business, financial condition and results of operations.

If we fail to meet industry data security standards, our ability to meet contractual obligations may be
impaired and result in contractual damage or contract breach claims.

In some of our services lines, we are contractually subject to industry data security standards. These industry data
security standards include Card Brand (Visa, Mastercard, American Express, Discover and JCB) operating rules,
certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data
Security Standard (PCI DSS), a data security standard applicable to companies that collect, store or transmit
payment card data. Another industry standard is the Health Information Trust Alliance (HITRUST) which applies to
aspects of the healthcare industry and in addition to other industries. While we are taking steps to achieve future
compliance and/or certification for our systems, we may not be compliant now, and in the future we may not be able
to maintain compliance with PCI DSS, HITRUST and other applicable industry standards. We are taking steps to
achieve compliance and/or certification for our systems, but we cannot assure that these efforts will be successful in
the time period required or at all. Any failure to comply fully or materially with PCI DSS, HITRUST and other
applicable industry standards now or at any point in the future may provide customers the right to terminate
contracts with us or to enforce provisions obligating us to reimburse them for any penalties or costs incurred by
them as a result of our non-compliance, or subject us to other fines, penalties, damages or civil liability, each of
which could have a material adverse effect on our business, financial condition and results of operations. In
addition, failure to meet PCI DSS standards could result in the loss of our ability to accept credit card payments and
the failure to meet HITRUST standards could impact our ability to service customers in the healthcare and other
industries, both of which could have a material adverse impact on our business, financial condition and results of
operations.

24 | CONDUENT 2019 ANNUAL REPORT

We are a holding company and, therefore, may not be able to receive dividends or other payments in
needed amounts from our subsidiaries.

Our principal assets are the shares of capital stock and indebtedness of our subsidiaries. We rely on dividends,
interest and other payments from these subsidiaries to meet our obligations for paying principal and interest on
outstanding debt obligations, paying corporate expenses and, if determined by our Board, paying dividends to
shareholders and repurchasing common shares. Certain of our subsidiaries are subject to regulatory requirements
of the jurisdictions in which they operate or other restrictions that may limit the amounts that these subsidiaries can
pay in dividends or other payments to us. No assurance can be given that there will not be further changes in law,
regulatory actions or other circumstances that could restrict the ability of our subsidiaries to pay dividends to us. In
addition, due to differences in tax rates, repatriation of funds from certain countries into the United States could
have unfavorable tax ramifications for us.

Our results of operations and financial condition could be materially adversely affected by legal and
regulatory matters.

We are potentially subject to 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 concerning:
securities laws; governmental and non-governmental entity contracting, servicing and governmental entity
procurement laws; intellectual property laws; environmental laws; employment laws; the Employee Retirement
Income Security Act of 1974 (ERISA); and other laws, regulations and contractual undertakings, as discussed under
Note 16 – Contingencies and Litigation to our Consolidated Financial Statements. If developments in any of these
matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a
material accrual or materially increase an existing accrual, or if any of these matters result in an adverse judgment
or are settled for significant amounts above any existing accruals, it could materially adversely affect our results of
operations and financial condition in the period or periods in which such change in determination, judgment or
settlement occurs. There can be no assurances as to the favorable outcome of any claim, lawsuit, investigation or
proceeding. It is possible that a resolution of one or more such proceedings, through judgment, settlement or
otherwise, could require us to make substantial payments to satisfy judgments, fines or penalties or settlement
amounts, any of which could materially adversely affect our results of operations and financial condition.
Additionally, the terms of dismissal, settlement, release or other resolution may permit certain claims to be reopened
under certain conditions. Claims, lawsuits investigations and proceedings involving the Company could also result in
reputational harm, criminal sanctions, consent decrees or orders preventing us from offering certain services,
requiring a change in our business practices in costly ways or requiring development of non-infringing or otherwise
altered products or technologies. In addition, it can be very costly to defend litigation and these costs could
materially adversely affect our results of operations and financial condition. Refer to Note 16 – Contingencies and
Litigation to our Consolidated Financial Statements.

Our results of operations and financial condition may be materially adversely affected by conditions
abroad, including local economics, political environments, fluctuating foreign currencies and shifting
regulatory schemes.

A portion of our revenues is generated from operations outside the United States. In addition, we maintain
significant operations outside the United States. Our results of operations and financial condition could be materially
adversely affected by changes in foreign currency exchange rates, as well as by a number of other factors,
including, without limitation, changes in economic conditions from country to country, changes in a country’s political
conditions, trade controls and protection measures, financial sanctions, licensing requirements, local tax issues,
capitalization and other related legal matters. The withdrawal of the United Kingdom from the European Union, and
the resulting impact on cross-border transactions and operations between the United Kingdom and the European
Union member states, could materially and adversely affect our operations and financial condition. We generally
hedge foreign currency denominated assets, liabilities and anticipated transactions primarily through the use of
currency derivative contracts. The use of derivative contracts is intended to mitigate or reduce transactional level
volatility in the results of foreign operations but does not completely eliminate volatility. We do not hedge the
translation effect of international revenues and expenses, which are denominated in currencies other than our U.S.
parent functional currency, within our Consolidated Financial Statements. If we are unable to effectively hedge these
risks, our results of operations and financial condition could be materially adversely affected.

CONDUENT 2019 ANNUAL REPORT | 25

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

We lease and own numerous facilities worldwide with larger concentrations of space in Kentucky, New Jersey,
California, Mexico, Guatemala, the Philippines, Jamaica, Romania and India. Our owned and leased facilities house
general offices, sales offices, service locations, call centers and distribution centers. The size of our property
portfolio as of December 31, 2019 was approximately 6.6 million square feet at an annual operating cost (lease
costs and expenses) of approximately $157 million and comprised 206 leased properties and 4 owned properties.
We believe that our current facilities are suitable and adequate for our current businesses. Because of the
interrelation of our business segments, each of the segments uses substantially all of these properties at least in
part.

We had 1.8 million square feet of our leased and owned properties that became surplus in 2019 due to the
implementation of our strategic transformation program as well as various productivity initiatives to consolidate our
real estate footprint. We aggressively managed our surplus properties through early terminations and subleasing of
leased properties and the sale of owned properties. As a result, approximately 1.6 million square feet of the surplus
property portfolio were resolved as of December 31, 2019. Additional leased and owned properties may become
surplus in the future as we continue the strategic transformation program. We are obligated to maintain our leased
surplus properties through required contractual lease periods and plan to dispose of or sublease these properties.

ITEM 3. LEGAL PROCEEDINGS

The information set forth under Note 16 – Contingencies and Litigation to the Consolidated Financial Statements in
Part II, Item 8 is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

26 | CONDUENT 2019 ANNUAL REPORT

Part II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Exchange Information

The common stock of Conduent Incorporated began trading on January 3, 2017, on the New York Stock Exchange,
under the ticker "CNDT". In December 2019, Conduent changed the listing of its publicly traded common stock from
the New York Stock Exchange to the NASDAQ, where it remains listed under the ticker "CNDT".

Common Shareholders of Record

Refer to Item 6. Selected Financial Data – Five Years in Review for common shareholders of record at year-end,
which is incorporated here by reference.

Conduent Common Stock Dividends

We did not pay any dividends on our common stock in 2019. We intend to retain future earnings for use in the
operation of our business and to fund future growth. We do not anticipate paying any dividends on our common
stock for the foreseeable future.

Performance Graph

Comparison of 36 Month Cumulative Total Return
Assumes Initial Investment of $100
December 2019

250.00

200.00

150.00

100.00

50.00

0.00

1/3/2017

3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019

Conduent Incorporated

S&P 500 Index - Total Return

S&P Software and Services Index

Sales of Unregistered Securities During the Quarter Ended December 31, 2019

None

CONDUENT 2019 ANNUAL REPORT | 27

ITEM 6. SELECTED FINANCIAL DATA

FIVE YEARS IN REVIEW
(in millions, except per-share and common shareholders of record data)

Operations

Revenues

Income (loss) income from continuing operations

(1)

Net income (loss)

(1)

Per-Share Data

Income (loss) from continuing operations

Basic

Diluted

Net income (loss) attributable to Conduent

Basic

Diluted

Financial Position

Working capital

Total Assets

Consolidated Capitalization

Current portion of long-term debt

Long-term debt

Total Debt

(2)

Series A preferred stock

Conduent shareholders' equity/former parent investment

(3)

Total Consolidated Capitalization

Selected Data and Ratios

(4)

Common shareholders of record at year-end

(4)

Book value per common share

(4)

Year-end common stock market price

(4)

Cash dividends paid - preferred stock, $80/per share

__________

2019

2018

2017

2016

2015

4,467

5,393

6,022

6,408

6,662

(1,934)

(416)

177

181

(983)

(336)

(414)

(9.29) $

(2.06) $

0.82

(4.85) $

(9.29)

(2.06)

0.81

(4.85)

(9.29)

(2.06)

0.84

0.83

(4.85)

409

767

1,342

515

4,514

6,680

7,548

7,709

1,464

1,514

142

1,300

1,512

1,567

142

3,222

1,979

2,061

142

3,529

1,913

1,941

142

3,288

2,956

4,931

5,732

5,371

25,660

26,226

6.60

6.20

15.68

10.63

26,936

16.77

16.16

n/a

— $

(1.65)

(2.04)

(867)

9,058

n/a

5,162

5,223

n/a

—

(1) The 2019 amounts include goodwill impairment charge of approximately $2.0 billion. Refer to Note 8 – Goodwill and Intangible Assets, Net

to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further discussion.

(2)

Includes finance lease obligations. Refer to Note 1 – Basis of Presentation and Summary of Significant Accounting Policies and Note 11 –
Debt to the Consolidated Financial Statements included in Item 8 of this Form 10-K for a discussion concerning finance lease obligations.

(3) The amount for 2015 represents former parent company's investments.

(4) Common stock of Conduent Incorporated began trading on the NYSE on January 3, 2017; therefore, selected data and ratios are not

available for years prior to 2017. In December 2019, Conduent changed the listing of its publicly traded common stock from the New York
Stock Exchange to NASDAQ, where it remains listed under the ticker "CNDT".

28 | CONDUENT 2019 ANNUAL REPORT

QUARTERLY RESULTS OF OPERATIONS (Unaudited)

(in millions, except per-share data)

2019

Revenues

Costs and Expenses

(1)

(Loss) Income before Income Taxes

Income tax (benefit) expense

Net (Loss) Income

Earnings (Loss) per Share

(2)
:

Basic

Diluted

2018

Revenues

Costs and Expenses

(Loss) Income before Income Taxes

Income tax (benefit) expense

Net (Loss) Income

Earnings (Loss) per Share

(2)
:

Basic

Diluted

_________________

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Full
Year

1,158

1,112

1,098

1,099

4,467

1,496

(338)

(30)

2,231

(1,119)

(90)

1,112

1,734

(14)

(635)

(54)

6,573

(2,106)

(172)

(308) $

(1,029) $

(16) $

(581) $

(1,934)

(1.49) $

(4.94) $

(0.09) $

(2.76) $

(9.29)

(1.49) $

(4.94) $

(0.09) $

(2.76) $

(9.29)

1,420

1,387

1,304

1,282

1,474

1,333

1,556

1,425

(54)

(4)

(50) $

(252)

(15)

(143)

(3)

(237) $

(140) $

(416)

5,393

5,788

(395)

(0.26) $

0.05

(0.26) $

0.04

(1.16) $

(0.69) $

(2.06)

(1.16) $

(0.69) $

(2.06)

(1) First quarter, second quarter, fourth quarter and full year include goodwill impairment charge of $284 million, $1.1 billion, $601 million and

approximately $2.0 billion, respectively. Refer to Note 8 – Goodwill and Intangible Assets, Net to the Consolidated Financial Statements
included in Item 8 of this Form 10-K for further discussion.

(2) The sum of quarterly earnings per share may differ from the full-year amounts due to rounding, or in the case of diluted earnings per share,

because securities that are anti-dilutive in certain quarters may not be anti-dilutive on a full-year basis.

CONDUENT 2019 ANNUAL REPORT | 29

ITEM 7. 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. This MD&A is provided as a supplement to, and
should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes in this
Form 10-K for the year ended December 31, 2019. This MD&A provides additional information about our operations,
current developments, financial condition, cash flows and results of operations.

Throughout the MD&A, we refer to various notes to our Consolidated Financial Statements which appear in Item 8
of this Form 10-K, and the information contained in such notes is incorporated by reference into the MD&A in the
places where such references are made.

Overview

With revenues of $4.5 billion, we are a 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 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 have a team of approximately 67,000 people as of December 31,
2019, servicing customers from service centers in 23 countries. In 2019, 10% of our revenue was generated outside
the U.S.

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, 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.

Other operations include our divestitures, 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 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. We expect that
our transformation initiatives will provide greater strategic and operational flexibility and efficiency and better control
of our systems and processes. There is a risk, however, that our efforts, plans and transactions related to our
strategic and operational review, as well as our modernization efforts and data center consolidations could
materially and adversely disrupt our operations. Refer to Part I, Item 1A – Risk Factors of this Form 10-K for
additional information.

30 | CONDUENT 2019 ANNUAL REPORT

Significant 2019 Actions

•

Business Acquisition – In January 2019, we acquired Health Solution Plus, a software provider of healthcare
payer administration solutions for a total base consideration of $90 million. This acquisition is part of the
Commercial Industries segment. Refer to Note 5 – Business Acquisition to the Consolidated Financial
Statements for additional information regarding this acquisition.

Disposition – In February 2019, we completed the sale of a portfolio of select standalone customer care
contracts for $25 million. The business sold represented $36 million and $439 million of revenues in 2019 and
2018, respectively. Refer to Note 4 – Divestiture to the Consolidated Financial Statements for additional
information regarding this sale.

Litigation Settlement – In February 2019, we reached a settlement agreement and release with the State of
Texas ("State") and the Texas Department of Health and Human Services, which was amended in May 2019
("Texas Agreement"). Pursuant to the terms of the Texas Agreement, the Company was required to pay the
State $236 million, of which $118 million was paid in 2019 and the remaining $118 million paid in January 2020.
Refer to Note 16 – Contingencies and Litigation to the Consolidated Financial Statements for additional
information regarding this litigation settlement.

• Goodwill Impairment – During the first quarter of 2019, we recorded a pre-tax impairment charge of $284

million related to our Transportation reporting unit. Also, during the second quarter of 2019, we performed an
interim goodwill impairment assessment for all reporting units and recognized a total pre-tax impairment charge
of $1.1 billion. No impairment was identified during our annual impairment test performed as of October 1, 2019.
Subsequent to completing the annual impairment test, the Company experienced further unanticipated contract
losses within the Government Services reporting unit, and as result, management performed a goodwill
impairment assessment for this reporting unit as of December 31, 2019 which resulted in a pre-tax impairment
charge of $512 million. In addition, in the fourth quarter we recorded an immaterial correction to the impairment
charges recorded in the first and second quarters to properly reflect the impact of tax deductible goodwill on the
previous impairments as well as the related income tax benefit. The impairment adjustment and related income
tax benefit to the first quarter charge for the Transportation reporting unit totaled $20 million and $1 million,
respectively. The impairment adjustment and related income tax benefit to the second quarter charge totaled
$69 million and $6 million, respectively. The second quarter impairment and income tax benefit adjustments
corrected the combined Commercial Industries reporting units by $53 million and $5 million, respectively, and
the Government Services reporting unit by $16 million and $1 million, respectively. We believe these
adjustments are not material to the current period or any prior period. The cumulative impairment charge for the
year ended December 31, 2019 was approximately $2.0 billion. Refer to Note 8 – Goodwill and Intangible
Assets, Net to the Consolidated Financial Statements and MD&A – Critical Accounting Policies – Goodwill for
additional information regarding the goodwill impairment assessment and resulting charges.

Significant 2018 Actions

•

Loan Redemption – In July 2018, we redeemed $476 million of our $510 million Senior Notes due 2024 at a
premium of $95 million. Refer to Note 11 – Debt to the Consolidated Financial Statements for additional
information regarding this redemption.

Dispositions – In 2018, we completed divestitures of: (1) our Commercial Vehicle Operations business; (2) our
off-street parking business; (3) our U.S. human resource consulting and actuarial business and the human
resource consulting and outsourcing business located in Canada and the United Kingdom; and (4) our local and
municipal constituent government software solutions business. The aggregate proceeds for these divestitures
was $703 million in cash. The businesses sold represented $304 million and $500 million of 2018 and 2017
revenue, respectively. We recorded a pre-tax gain of $78 million on these divestitures for the year ended
December 31, 2018.

CONDUENT 2019 ANNUAL REPORT | 31

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (U.S. GAAP) requires us to make estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying Consolidated Financial Statements and notes thereto. In preparing our
Consolidated Financial Statements, we have made our best estimates and judgments of certain amounts included
in the Consolidated Financial Statements giving due consideration to materiality. However, application of these
accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates. Senior management has discussed the development and
selection of the critical accounting policies, estimates and related disclosures included herein with the Audit
Committee of the Board of Directors. We consider these as critical to understanding our Consolidated Financial
Statements, as their application places the most significant demands on management's judgment, since financial
reporting results rely on estimates of the effects of matters that are inherently uncertain. In instances where different
estimates could have reasonably been used, we disclose the impact of these different estimates on our operations.
In certain instances, the accounting rules are prescriptive; therefore, it would not have been possible to reasonably
use different estimates. Changes in assumptions and estimates are reflected in the period in which they occur. The
impact of such changes could be material to our results of operations and financial condition in any quarterly or
annual period.

Specific risks associated with these critical accounting policies are discussed throughout the MD&A, where such
policies affect our reported and expected financial results. For a detailed discussion of the application of these and
other accounting policies, refer to Note 1 – Basis of Presentation and Summary of Significant Accounting Policies to
the Consolidated Financial Statements.

Leases

The Company determines if an arrangement is a lease at the inception of the contract and whether that lease meets
the classification criteria of a finance or operating lease. The Company accounts for lease and non-lease
components separately for its equipment leases, based on the estimated standalone price of each component, and
combines lease and non-lease components for its real estate leases. The Company's leases generally do not
provide an implicit rate, therefore the Company uses its incremental borrowing rate as the discount rate when
measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the
Company would incur at lease commencement to borrow an amount equal to the lease payments on a
collateralized basis over the term of a lease within a particular currency environment. Refer to Note 1 – Basis of
Presentation and Summary of Significant Accounting Policies for additional information regarding our lease
accounting policies.

Revenue Recognition

Application of the accounting principles in U.S. GAAP related to the measurement and recognition of revenue
requires us to make judgments and estimates. Complex arrangements with nonstandard terms and conditions may
require significant contract interpretation to determine the appropriate accounting. Refer to Note 1 – Basis of
Presentation and Summary of Significant Accounting Policies and Note 2 – Revenue to the Consolidated Financial
Statements for additional information regarding our revenue recognition policies.

Held for Sale

We classify assets as held for sale in the period when the following conditions are met: (i) management, having the
authority to approve the action, commits to a plan to sell the asset (disposal group); (ii) the asset (disposal group) is
available for immediate sale in its present condition subject only to terms that are usual and customary for sales of
such assets (disposal group); (iii) an active program to locate a buyer and other actions required to complete the
plan to sell the asset (disposal group) have been initiated; (iv) the sale of the asset (disposal group) is probable, and
transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year,
except if events or circumstances beyond our control extend the period of time required to sell the asset (disposal
group) beyond one year; (v) the asset (disposal group) is being actively marketed for sale at a price that is
reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made or that the plan will be withdrawn.

32 | CONDUENT 2019 ANNUAL REPORT

A long-lived asset (disposal group) that is classified as held for sale is initially measured at the lower of its carrying
value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in
which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset
(disposal group) until the date of sale.

The fair value of a long-lived asset (disposal group) less any costs to sell is assessed each reporting period it
remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value
of the asset (disposal group), as long as the new carrying value does not exceed the carrying value of the asset at
the time it was initially classified as held for sale. Upon determining that a long-lived asset (disposal group) meets
the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group in
the line items Assets held for sale and Liabilities held for sale, respectively, in the Consolidated Balance Sheets.

In 2018, management approved the disposal through sale of certain assets and businesses, which were a mix of
Commercial Industries, Government Services and Transportation businesses. This action was taken as a result of
our evaluation of these businesses as they represent businesses in markets or with services that we did not see as
strategic or core. As of December 31, 2019, all of these businesses have been sold. Refer to Note 4 – Divestiture to
the Consolidated Financial Statements for additional information.

Intangible Assets

The fair values of identifiable intangible assets are primarily estimated using an income approach. These estimates
include market participant assumptions and require projected financial information, including assumptions about
future revenue growth and costs necessary to facilitate the projected growth. Other key inputs include assumptions
about technological obsolescence, customer attrition rates, brand recognition, the allocation of projected cash flows
to identifiable intangible assets and discount rates. We regularly review intangible assets with finite lives for
impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Factors we consider important which could trigger an impairment review include the following:

•

significant underperformance relative to historical or projected future operating results;

significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

significant negative industry or economic trends.

When we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon
the existence of one or more of the above indicators of potential impairment, we assess whether an impairment has
occurred based on whether net book value of the assets exceeds the related projected undiscounted cash flows
from these assets groups. We consider a number of factors, including past operating results, budgets, economic
projections, market trends and product development cycles in estimating future cash flows. Differing estimates and
assumptions as to any of the factors described above could result in a materially different impairment charge, if any,
and thus materially different results of operations.

Goodwill

Goodwill is not amortized but rather tested for impairment annually, or more frequently if an event or circumstance
indicates that impairment may have been incurred. Events or circumstances that might indicate an interim
evaluation is warranted include, among other things, unexpected adverse business conditions, macro and reporting
unit specific economic factors, supply costs, unanticipated adverse events or conditions impacting revenues, cash
flows or profitability, unanticipated competitive activities and acts by governments and courts.

CONDUENT 2019 ANNUAL REPORT | 33

Application of the interim and annual goodwill impairment test requires judgment, including the identification of
reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and
the assessment of the fair value of each reporting unit. We determined during the first three quarters of 2019 that
we had five reporting units (Financial Services & Healthcare (FS&H), Consumer & Industrial (C&I), Europe (together
comprising Commercial Industries), Government Services and Transportation). During the fourth quarter of 2019,
we changed our reporting units within the Commercial Industries reportable segment to reflect how we currently
manage our business. We currently have six reporting units (End-User Customer Experience (EUCE), Transaction
Processing (TP), Commercial Healthcare (CH) and Human Resources and Learning Services (HRL) (together
comprising Commercial Industries), Government Services and Transportation), which support our three reportable
segments.

Interim Goodwill Impairment Evaluation

During the first quarter of 2019, the Transportation reporting unit experienced unanticipated losses of certain
customer contracts, lower than expected new customer contracts and higher costs of delivery (all subsequent to
February 2019), and as a result, the expected growth of this reporting unit decreased resulting in its fair value being
below its carrying value by an estimated $284 million. Accordingly, the Company recorded a pre-tax impairment
charge of $284 million for the three months ended March 31, 2019.

In the second quarter of 2019, there were further unanticipated losses of certain customer contracts, lower potential
future volumes and lower than expected new customer contracts (all subsequent to May 9, 2019). This led to actual
results being below budget and a further downward revision of the long-term forecast across all of the Company’s
former reporting units (FS&H, C&I, Europe, Government Services, and Transportation). As a consequence of the
business performance and the strategy pivot due to changes in management that occurred in the second quarter of
2019, we lowered our sales outlook, average margin expectation for the future years, and increased our weighted
average cost of capital.

The table below summarizes key factors (by reporting unit) impacting our revised forecast within the second quarter
of 2019 goodwill assessment.

Key Factors

FS&H

C&I

Europe

Lower anticipated new business

Potential higher than anticipated contract losses

Potential volume pressures

Strategic pivot

Government
Services

Transportation

Based upon the information identified in the second quarter of 2019, we performed an interim goodwill impairment
assessment for all our reporting units which resulted in a pre-tax impairment charge of $1.1 billion for the three
months ended June 30, 2019.

Annual Goodwill Impairment Evaluation

Our annual quantitative impairment test of goodwill was performed as of October 1, 2019.

In our quantitative test, we estimate the fair value of each reporting unit by weighting the results from the income
approach (discounted cash flow methodology) and market approach. These valuation approaches require
significant judgment and consider several factors that include, but are not limited to, expected future cash flows,
growth rates and discount rates and comparable multiples from publicly traded companies in our industry. In
addition, we are required to make certain assumptions and estimates regarding the current economic environment,
industry factors and the future profitability of our businesses.

34 | CONDUENT 2019 ANNUAL REPORT

When performing our discounted cash flow analysis for each reporting unit, we incorporate the use of projected
financial information and discount rates that are developed using market participant-based assumptions. The cash-
flow projections are based on three-year financial forecasts developed by management that include revenue and
expense projections, restructuring and strategic transformation activities, capital spending trends and investment in
working capital to support anticipated revenue growth or other changes in the business. The selected discount rates
consider the risk and nature of the respective reporting units' cash flows, appropriate capital structure and rates of
return that market participants would require to invest their capital in our reporting units.

We believe these assumptions are appropriate and reflect our forecasted long-term business model and consider
our historical results as well as the current economic environment and markets that we serve.

Based on our quantitative assessments, we concluded that the fair value of our reporting units exceeded their
respective carrying values by approximately $100 million (for all Commercial Industries), $21 million for Government
Services and $24 million for Transportation, respectively.

The most significant assumption used in the goodwill analysis relates to the discount rates (ranging from 8.75% to
12.75%) and long-term organic growth rates (ranging from 2.5% to 3.0%) for the reporting units comprising the
Commercial Industries, Government Services and Transportation reporting units.

Subsequent to completing the annual impairment test, the Company experienced further unanticipated contract
losses within the Government Services reporting unit, and as result, management performed a goodwill impairment
assessment for this reporting unit as of December 31, 2019, which resulted in a pre-tax impairment charge of $512
million. In addition, in the fourth quarter we recorded an immaterial correction to the impairment charges recorded in
the first and second quarters to properly reflect the impact of tax deductible goodwill on the previous impairments as
well as the related income tax benefit. The impairment adjustment and related income tax benefit to the first quarter
charge for the Transportation reporting unit totaled $20 million and $1 million, respectively. The impairment
adjustment and related income tax benefit to the second quarter charge totaled $69 million and $6 million,
respectively. The second quarter impairment and income tax benefit adjustments corrected the combined
Commercial Industries reporting units by $53 million and $5 million, respectively, and the Government Services
reporting unit by $16 million and $1 million, respectively. We believe these adjustments are not material to the
current period or any prior period. The cumulative impairment charge for the year ended December 31, 2019 was
approximately $2.0 billion.

Refer to Note 8 – Goodwill and Intangible Assets, Net to the Consolidated Financial Statements for additional
information regarding goodwill by reportable segment.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. The determination of our
provision for income taxes requires significant judgment, the use of estimates and the interpretation and application
of complex tax laws. Our provision is based on nonrecurring events as well as recurring factors, including the
taxation of foreign income. In addition, our provision will change based on discrete or other nonrecurring events
such as audit settlements, tax law changes, changes in valuation allowances and other factors, that may not be
predictable. In the event that there is a significant unusual or one-time item recognized in our operating results, the
taxes attributable to that item would be separately calculated and recorded at the same time as an unusual or one-
time item.

We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities
and amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards.
We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets
recorded in our Consolidated Balance Sheets and provide valuation allowances as required. We regularly review
our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the
expected timing of the reversals of existing temporary differences and tax planning strategies. Gross deferred tax
assets of $309 million and $210 million had valuation allowances of $72 million and $44 million at December 31,
2019 and 2018, respectively.

CONDUENT 2019 ANNUAL REPORT | 35

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (Tax Reform). The Tax Reform includes a tax
on global intangible low-taxed income (“GILTI”), which imposes a U.S. tax on certain income earned by the
Company’s foreign subsidiaries. The Company elected to treat the tax on GILTI as a period cost when incurred and
therefore, no deferred taxes for GILTI have been recognized for the year ended December 31, 2019.

We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may incur
additional tax expense based upon our assessment of the more-likely-than-not outcomes of such matters. In
addition, when applicable, we adjust previously recorded tax expense to reflect examination results. Our ongoing
assessments of the more-likely-than-not outcomes of examinations and related tax positions require judgment and
can materially increase or decrease our effective tax rate, as well as impact our operating results. Unrecognized tax
benefits were $24 million, $20 million and $15 million at December 31, 2019, 2018 and 2017, respectively.

Refer to Note 15 – Income Taxes to the Consolidated Financial Statements for additional information regarding
deferred income taxes and unrecognized tax benefits.

Loss Contingencies

We are currently involved in various claims and legal proceedings. At least quarterly, we review the status of each
significant matter and assess its potential financial exposure considering all available information including, but not
limited to, the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information
and events pertaining to a particular matter. If the potential loss from any claim or legal proceeding is considered
probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant
judgment is required in both the determination of probability and the determination as to whether an exposure is
reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best
information available at the time. As additional information becomes available, we reassess the potential liability
related to pending claims and litigation and may revise estimates. These revisions in the estimates of the potential
liabilities could have a material impact on the results of operations and financial position.

Refer to Note 16 – Contingencies and Litigation to the Consolidated Financial Statements for additional information
regarding loss contingencies.

Recent Accounting Changes

See Note 1 – Basis of Presentation and Summary of Significant Accounting Policies for information on accounting
standards adopted during the current year, as well as recently issued accounting standards not yet required to be
adopted and the expected impact of the adoption of these accounting standards. To the extent we believe the
adoption of new accounting standards has had or will have a material impact on our consolidated results of
operations, financial condition or liquidity, we also discuss the impact in the applicable section(s) of this MD&A.

Other Developments

SEC Rule—FAST Act Modernization and Simplification of Regulation S-K

In March 2019, the SEC adopted amendments to modernize and simplify certain disclosure requirements in
Regulation S-K as part of modernization and simplification of Regulation S-K and related rules and forms. The
amendments, which, among other things, change the requirements for the content of MD&A and change the
process for redacting confidential information in certain exhibits, are intended to improve the readability and
navigability of disclosure documents and discourage repetition and disclosure of immaterial information. The final
rule became effective May 2, 2019.

The provisions of the rule that have the most significant impact on our disclosures under Regulation S-K and the
content of this Form 10-K include: (i) the elimination, where appropriate, of the requirement to include in MD&A a
discussion of the earliest year for registrants that provide financial statements covering three years in their filings, as
such discussion is already included in prior filings; and (ii) a requirement that registrants identify the location in the
prior filing where the omitted discussion can be found.

36 | CONDUENT 2019 ANNUAL REPORT

Financial Information

The section below provides a comparative discussion of our consolidated results of operations for the year ended
December 31, 2019 and 2018. See Item 7. MD&A–Financial Information in our Annual Report on Form 10-K for the
year ended December 31, 2018, for a comparative discussion of our consolidated results of operations between
2018 and 2017.

(in millions)

Revenue

Operating Costs and Expenses

Year Ended December 31,

2019 vs. 2018

2019

2018

$ Change

% Change

4,467

5,393

(926)

(17)%

Cost of services (excluding depreciation and amortization)

3,494

4,182

Selling, general and administrative (excluding depreciation and
amortization)

Research and development (excluding depreciation and amortization)

Depreciation and amortization

Restructuring and related costs

Interest expense

(Gain) loss on extinguishment of debt

Goodwill impairment

(Gain) loss on divestitures and transaction costs

Litigation costs (recoveries), net

Other (income) expenses, net

Total Operating Costs and Expenses

Income (Loss) Before Income Taxes

Income tax expense (benefit)

Net Income (Loss)

Revenue

479

459

—

1,952

(10)

6,573

(2,106)

(172)

560

460

112

108

—

227

5,788

(395)

(1,934) $

(416) $

(16)%

(14)%

(27)%

— %

(12)%

(30)%

(100)%

(40)%

(93)%

(300)%

(688)

(81)

(3)

(1)

(10)

(34)

(108)

1,952

(17)

(210)

(15)

785

(1,711)

(193)

(1,518)

Revenue for 2019 decreased, compared to the prior year period, mainly due to the impact from divestitures
completed in 2019 and 2018, lost business in the Commercial Industries and Government Services segments, price
and volume pressure and currency fluctuations. Partially offsetting these declines were increases from the ramp of
new business.

Cost of Services (excluding depreciation and amortization)

Cost of services for 2019 decreased, compared to the prior year period, mainly driven by the divestitures completed
in 2019 and 2018, reductions in real estate, IT and labor costs from our transformation initiatives, lost business and
lower volumes.

Selling, General and Administrative (SG&A) (excluding depreciation and amortization)

Lower SG&A for 2019, compared to the prior year period, was reflective of divested SG&A expenses, reductions in
real estate costs, lower corporate overhead costs and reductions labor costs, including reductions in 401(k) costs.

CONDUENT 2019 ANNUAL REPORT | 37

Depreciation and Amortization

Depreciation and amortization for 2019 decreased, compared to the prior year period, primarily due to the
divestitures in 2019 and 2018, partially offset by the HSP acquisition and increased capitalized software
amortization for new projects placed in service. Refer to Note 5 – Business Acquisition and Note 8 – Goodwill and
Intangible Assets, Net to the Consolidated Financial Statements for additional information regarding the HSP
acquisition and our intangible assets, respectively.

Restructuring and Related Costs

We engage in a series of restructuring programs related to downsizing 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:

(in millions, except headcount in whole numbers)

Severance and related costs

Data center consolidation

Other contractual termination costs

Asset impairment

Total Net Current Period Charges

Consulting and other costs

(1)

Restructuring and Related Costs

Reduction in headcount

(2)

__________

Year Ended December 31,

2019

2018

1,300

3,300

(1) Represents professional support costs associated with our strategic transformation program.
(2) Relates to headcount reductions worldwide associated with Severance and related costs

Refer to Note 9 – Restructuring Programs and Related Costs to the Consolidated Financial Statements for
additional information regarding our restructuring programs.

Interest Expense

The decrease in Interest expense for 2019, compared to the prior year period, was driven primarily by lower
average debt balances resulting mostly from the tender offer in 2018 and repricing. Refer to Note 11 – Debt to the
Consolidated Financial Statements for additional information.

(Gain) Loss on Extinguishment of Debt

The loss on extinguishment of debt in 2018 related to the premium paid for the substantial buyback of the 10.5%
Senior Notes due 2024. Refer to Note 11 – Debt to the Consolidated Financial Statements for additional information.

Goodwill Impairment

The goodwill impairment for 2019 related to the write-down of the carrying values of the reporting units. Refer to
Note 8 – Goodwill and Intangible Assets, Net to the Consolidated Financial Statements and MD&A–Overview–
Significant 2019 Actions–Goodwill Impairment for additional information.

38 | CONDUENT 2019 ANNUAL REPORT

(Gain) Loss on Divestitures and Transaction Costs

The loss in 2019 consists of $6 million of changes in estimates related to losses on divestitures, $2 million related to
a loss on sale of assets and $17 million of transaction and related costs, $4 million of which related to costs to
remediate Payment Card Industry Data Security Standards compliance issues related to the sale of select
standalone customer care contracts to Skyview Capital LLC. The loss in 2018 was mainly related to the impairment
charge on the anticipated sale of a portfolio of select standalone customer care contracts to Skyview Capital LLC.

Litigation Costs (Recoveries), Net

Net litigation costs for 2019 consist primarily of the recognition of the $13 million discount on the fair value of the
Texas litigation liability established in 2018, due to the 2019 acceleration of the payment terms of the settlement.
The 2018 expenses were primarily due to the increase in reserves for the Texas litigation and establishment of
reserves for the Cognizant terminated contracts.

Refer to Note 16 – Contingencies and Litigation to the Consolidated Financial Statements for additional information.

Other (Income) Expenses, Net

Other (income) expenses, net primarily includes foreign currency transaction losses (gains), interest income, the
Student Loan business shut-down costs and other deferred compensation investment results.

Income Taxes

The 2019 effective tax rate was 8.2%, compared to (5.3)% for 2018. The 2019 rate was lower than the U.S.
statutory rate of 21%, primarily due to the goodwill impairment charge being partially non-deductible for tax and the
geographic mix of income, partially offset by U.S. federal tax credits and tax benefits recognized on the sale of a
portfolio of select standalone customer care contracts to Skyview Capital LLC. The 2018 rate was lower than the
U.S. statutory tax rate of 21%, primarily due to pre-tax loss and tax from the divestitures, partially offset by U.S.
foreign tax credits.

Excluding the impact of goodwill impairment, divestitures, the Texas litigation reserve, amortization and
restructuring, the normalized effective tax rate for 2019 was 30.0%. The normalized effective tax rate of 25.1% for
2018, was predominantly impacted by the exclusion of divestitures, the Texas litigation reserve, the loss on
extinguishment of debt, amortization, restructuring and divestiture related costs.

CONDUENT 2019 ANNUAL REPORT | 39

Operations Review of Segments

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, Government
Services and Transportation), Other operations and Shared IT / Infrastructure & Corporate Costs.

The section below provides a comparative discussion of our financial performance by segment between the year
ended December 31, 2019 and 2018. See Item 7. MD&A–Operations Review of Segment in our Annual Report on
Form 10-K for the year ended December 31, 2018, for a comparative discussion of our consolidated results of
operations between 2018 and 2017.

(in millions)

Commercial
Industries

Government
Services

Transportation

Other

Shared IT /
Infrastructure
& Corporate
Costs

Total

Year Ended Dec 31, 2019

Total Revenue

Segment profit (Loss)

Adjusted EBITDA

% of Total Revenue

Adjusted EBITDA Margin

Year Ended Dec 31, 2018

Total Revenue

Segment profit (Loss)

Adjusted EBITDA

% of Total Revenue

Adjusted EBITDA Margin

2,385

448

542

53.4 %

22.7 %

2,550

501

598

47.3 %

23.5 %

1,263

394

423

28.3 %

33.5 %

1,351

424

451

25.1 %

33.4 %

Divestitures

Other

781

120

157

17.5 %

20.1 %

729

113

149

0.8 %

2.8 %

752

105

— $

4,467

(690) $

(629) $

273

494

— %

100.0 %

11.1 %

(19) $

(16) $

— $

5,393

(695) $

(647) $

422

640

13.5 %

20.4 %

13.9 %

14.0 %

0.2 %

(145.5)%

— %

100.0 %

11.9 %

Commercial Industries Segment

Revenue

Commercial Industries revenue for 2019 decreased, compared to the prior year period, primarily driven by contract
losses, volume pressure, price pressure upon renewals, strategic exits and currency fluctuations. These losses
were partially offset by revenue from new contracts.

Segment Profit and Adjusted EBITDA

Decreases in the Commercial Industries segment profit and adjusted EBITDA margin for 2019, compared to the
prior year period, were mainly driven by the overall revenue declines, partially offset by reductions in labor, IT and
real estate costs from our transformation initiatives.

Government Services Segment

Revenue

Government Services revenue for 2019 decreased, compared to the prior year period, primarily driven by contract
losses and pricing and scope changes associated with a large renewal. These declines were partially offset by ramp
of new business.

40 | CONDUENT 2019 ANNUAL REPORT

Segment Profit and Adjusted EBITDA

Decreases in the Government Services segment profit and adjusted EBITDA margin for 2019, compared to the prior
year period, were mainly driven by lower revenue, partially offset by lower IT and delivery costs.

Transportation Segment

Revenue

Transportation revenue for 2019 increased, compared to the prior year period, primarily driven by ramp of new
business and volume increases.

Segment Profit and Adjusted EBITDA

Transportation segment profit and adjusted EBITDA margin for 2019 increased, compared to the prior year period,
mainly driven by increased revenue and reduced IT platform spend.

Other

Revenue

Other revenue for 2019 decreased, compared to the prior year period, driven mainly by the divestitures completed
in 2018 and 2019 and the run-off of our Student Loan Services business.

Segment Profit (Loss) and Adjusted EBITDA

Decreases in Other segment profit and adjusted EBITDA for 2019, compared to the prior year period, were primarily
due to divestitures completed in 2019 and 2018 and the run-off of our Student Loan Services business.

Shared IT / Infrastructure & Corporate Costs

Improvements in Shared IT/Infrastructure and Corporate costs for 2019, compared to the prior year period, were
mainly due to reductions in corporate overhead costs.

Metrics

Signings

Signings are defined as estimated future revenues from contracts signed during the period, including renewals of
existing contracts. Total Contract Value (TCV) is the estimated total contractual revenue related to signed contracts.
The amounts in the following table exclude divestitures.

(in millions)

New business TCV

Renewals TCV

Total Signings

Annual recurring revenue signings(1)
Non-recurring revenue signings(2)

___________

Year Ended December 31,

2019 vs. 2018

2019

2018

$ Change

% Change

996

1,598

2,230

3,847

3,226

5,445

(602)

(1,617)

(2,219)

281

166

365

234

(84)

(68)

(38)%

(42)%

(41)%

(23)%

(29)%

(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.

CONDUENT 2019 ANNUAL REPORT | 41

Signings for the 2019 decreased, compared to the prior year, primarily due to sales headcount challenges and
market positioning.

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.

Excluding our strategic decision not to renew certain contracts, renewal rates for 2019 and 2018 were 81% and
95%, respectively. A large part of the decline was attributable to the loss of our California Medicaid contract.

Capital Resources and Liquidity

As of December 31, 2019 and 2018, total cash and cash equivalents were $496 million (of which approximately
$124 million was cash in foreign locations) and $756 million (of which approximately $100 million was cash in
foreign locations), respectively. The Company also has a $750 million revolving line of credit for its various cash
needs, of which $83 million has been utilized for letters of credit as of December 31, 2019.

As of December 31, 2019, there were $1.5 billion outstanding borrowings under our Credit Agreement of which $50
million was due within one year. Refer to Note 11 – Debt to the Consolidated Financial Statements for additional
debt information.

In January 2019, we acquired Health Solution Plus, a software provider of healthcare payer administration solutions
for a total base consideration of $90 million. This acquisition is part of the Commercial Industries segment. Refer to
Note 5 – Business Acquisition to the Consolidated Financial Statements for additional information regarding this
acquisition.

In February 2019, we reached a settlement agreement and release with the State of Texas ("State") and the Texas
Department of Health and Human Services, which was amended in May 2019 ("Texas Agreement"). Pursuant to the
terms of the Texas Agreement, the Company was required to pay the State $236 million, of which $118 million was
paid in 2019 and the remaining $118 million paid in January 2020. Refer to Note 16 – Contingencies and Litigation
to the Consolidated Financial Statements for additional information regarding this litigation settlement.

Refer to the Capital Market Activity section below for additional information regarding our capital activity.

Cash Flow Analysis

The following summarizes our cash flows for the three years ended December 31, 2019, as reported in our
Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:

(in millions)

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Year Ended December 31,

Change

2019

2018

2019 vs. 2018

132

(310)

(85)

283

460

(637)

(151)

(770)

552

Operating Activities

The decrease in cash generated from operating activities of $151 million, compared to the prior year period, was
primarily attributable to $131 million of payments for the Texas and other litigation and lower adjusted EBITDA of
$146 million, partially offset by lower cash income tax payments of $62 million, lower restructuring payments of $14
million and other working capital improvements of $50 million.

42 | CONDUENT 2019 ANNUAL REPORT

Investing Activities

The increase in cash used in investing activities of $770 million, compared to the prior year period, was primarily
due to the absence of the proceeds from the divestitures and asset sales in 2018, the acquisition of HSP and
increased spending for capital expenditures related to modernizing our IT infrastructure for both customer-facing
and internal functions in 2019.

Financing Activities

The decrease in cash used in financing activities for 2019, compared to the prior year period, was related to lower
debt repayments.

Sales of Accounts Receivable

The net impact from the sales of accounts receivable on net cash provided by (used in) operating activities for the
years ended December 31, 2019, 2018 and 2017 was $51 million, $23 million and $(3) million, respectively. The net
impact from the sales of accounts receivable represents the difference between current and prior year fourth quarter
accounts receivable sales adjusted for the effects of: (i) collections prior to the end of the year and (ii) currency.

Capital Market Activity

On June 28, 2018, the Company entered into Amendment No. 3 (Amendment) to the December 7, 2016 Credit
Agreement and in July 2018, the Company redeemed $476 million of its $510 million 10.5% Senior Notes due 2024.

Refer to Note 11 – Debt to the Consolidated Financial Statements for additional information on both Amendment No.
3 and the partial redemption of the Senior Notes.

Financial Instruments

Refer to Note 12 – Financial Instruments to the Consolidated Financial Statements for additional information.

Contractual Cash Obligations and Other Commercial Commitments and Contingencies

At December 31, 2019, we had the following contractual cash obligations and other commercial commitments and
contingencies:

(in millions)

2020

2021

2022

2023

2024

Thereafter

Total debt, including finance lease obligations

(1)

106

571

800

312

256

694

875

—

Interest on debt

(2)

Minimum operating lease commitments

(3)

Estimated Purchase Commitments

(4)

Total

_______________

(1) Total debt represents principal debt and finance leases. Refer to Note 11 – Debt to the Consolidated Financial Statements for additional

information regarding debt.

(2) Represents interest on debt. Refer to Note 11 – Debt in the Consolidated Financial Statements for additional information.
(3) Refer to Note 1 – Basis of Presentation and Summary of Significant Accounting Policies to the Consolidated Financial Statements for

additional information.

(4) Other purchase commitments: We enter into other purchase commitments with vendors in the ordinary course of business. Our policy with
respect to all purchase commitments is to record losses, if any, when they are probable and reasonably estimable. We currently do not
have, nor do we anticipate, material loss contracts.

The table above does not include the amounts payable under the Texas Agreement. Refer to Note 16 –
Contingencies and Litigation to the Consolidated Financial Statements for additional information.

CONDUENT 2019 ANNUAL REPORT | 43

Other Contingencies and Commitments

As more fully discussed in Note 16 – Contingencies and Litigation to the Consolidated Financial Statements, we are
involved in a variety of claims, lawsuits, investigations and proceedings concerning: securities law; governmental
entity contracting, servicing and procurement law; intellectual property law; employment law; the Employee
Retirement Income Security Act (ERISA); and other laws and regulations. In addition, guarantees, indemnifications
and claims may arise during the ordinary course of business from relationships with suppliers, customers and non-
consolidated affiliates. Nonperformance under a contract including a guarantee, indemnification or claim could
trigger an obligation of the Company.

We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is
deemed probable and can be reasonably estimated. Should developments in any of these areas cause a change in
our 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 could have a
material adverse effect on our results of operations, cash flows and financial position in the period or periods in
which such change in determination, judgment or settlement occurs.

Off-Balance Sheet Arrangements

As of December 31, 2019, we do not believe we have any off-balance sheet arrangements that have, or are
reasonably likely to have, a material current or future effect on financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

In addition, refer to the preceding table for the Company's contractual cash obligations and other commercial
commitments and Note 16 – Contingencies and Litigation to the Consolidated Financial Statements for additional
information regarding contingencies, guarantees and indemnifications.

44 | CONDUENT 2019 ANNUAL REPORT

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to market risk from foreign currency exchange rates, which could affect operating results, financial
position and cash flows. We manage our exposure to this market risk through our regular operating and financing
activities and, when appropriate, through the use of derivative financial instruments. We utilized derivative financial
instruments to hedge economic exposures, as well as reduce earnings and cash flow volatility resulting from shifts
in market rates. We also 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 events have not caused us to materially modify or change our financial risk management strategies
with respect to our exposures to foreign currency risk. Refer to Note 12 – Financial Instruments to the Consolidated
Financial Statements for additional discussion on our financial risk management.

Foreign Exchange Risk Management

Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency
exchange rates at December 31, 2019, the potential change in the fair value of foreign currency-denominated
assets and liabilities in each entity would not be significant because all material currency asset and liability
exposures were economically hedged as of December 31, 2019. A 10% appreciation or depreciation of the U.S.
Dollar against all currencies from the quoted foreign currency exchange rates at December 31, 2019 would have an
impact on our cumulative translation adjustment portion of equity of approximately $32 million. The net amount
invested in foreign subsidiaries and affiliates, primarily in the U.K. and Europe, and translated into U.S. Dollars
using the year-end exchange rates, was approximately $320 million at December 31, 2019.

Interest Rate Risk Management

The consolidated weighted-average interest rates related to our total debt for 2019 approximated 3.42% for Term A
Loan due 2021, 5.48% for Term B Loan due 2023, 10.91% for Senior Notes due 2024 and 4.79% for finance lease
obligations. As of December 31, 2019, $1,505 million of our total debt of $1,539 million carried variable interest
rates. The fair values of our fixed rate financial instruments are sensitive to changes in interest rates and at
December 31, 2019, a 10% increase in market interest rates would decrease the fair values of such financial
instruments by approximately $4 million. A 10% decrease in market interest rates would increase the fair values of
such financial instruments by approximately $6 million.

CONDUENT 2019 ANNUAL REPORT | 45

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Conduent Incorporated

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Conduent Incorporated and its subsidiaries (the
“Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income (loss), of
comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period
ended December 31, 2019, including the related notes and schedule of valuation and qualifying accounts for each
of the three years in the period ended December 31, 2019 listed in the index appearing under Item 15(a)(2)
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it
accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in
2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.
Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

46 | CONDUENT 2019 ANNUAL REPORT

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i)
relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.

Goodwill Impairment Assessment

As described in Notes 1 and 8 to the consolidated financial statements, the Company’s consolidated goodwill
balance was $1,502 million as of December 31, 2019. The goodwill associated with the Commercial Industries
reportable segment, Government Services reportable segment and Transportation reporting segment was $821
million, $621 million and $60 million, respectively. Management tests goodwill for impairment annually or more
frequently if an event or change in circumstances indicate the asset may be impaired. As disclosed by management,
the annual quantitative impairment test of goodwill was performed as of October 1, 2019. Impairment testing for
goodwill is done at the reporting unit level. The fair value of reporting units is determined using a combination of
both an income approach and a market approach. The income approach utilizes a discounted cash flow analysis
based upon the forecasted future business results of reporting units. The market approach utilizes the guideline
public company method. If the fair value of a reporting unit is less than its carrying amount, an impairment charge
would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to
exceed the total amount of goodwill allocated to the reporting unit. In Q1 and Q2 2019, the Company experienced
unanticipated losses of certain customer contracts, lower potential future volumes, lower than expected new
customer contracts and higher costs of delivery. This led to actual results being below budget and a further
downward revision of the long-term forecast across all the Company's reporting units (Financial Services &
Healthcare, Consumer & Industrial, Europe (together comprising Commercial Industries), Government Services,
and Transportation). As a consequence of the business performance and the strategy pivot due to changes in
management that occurred in the second quarter, the Company lowered its sales outlook, average margin
expectation for future years, and increased its weighted average cost of capital. Based upon the events that
occurred during Q1 and Q2 2019, management performed interim goodwill impairment assessments for all its
reporting units which resulted in a pre-tax impairment charge of $284 million in Q1 and approximately $1.1 billion in
Q2. No impairment was identified during the annual impairment test performed as of October 1, 2019. Subsequent
to completing the annual impairment test, the Company experienced further unanticipated contract losses within the
Government Services reporting unit, and as result, management performed a goodwill impairment assessment for
this reporting unit as of December 31, 2019 which resulted in a pre-tax impairment charge of $512 million. As
disclosed by management, the most significant assumptions used in the goodwill analysis relate to the long-term
organic growth rates as well as the discount rates.

CONDUENT 2019 ANNUAL REPORT | 47

The principal considerations for our determination that performing procedures relating to the goodwill impairment
assessment is a critical audit matter are that there was significant judgment by management when determining the
fair value measurement of the reporting units. This in turn led to a high degree of auditor judgment, effort, and
subjectivity in performing procedures to evaluate management’s cash flow projections, including significant
assumptions related to the long-term organic growth rates and the discount rates. In addition, the audit effort
involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and
evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls relating to the Company’s goodwill impairment assessment, including controls over the determination of the
fair value of the Company’s reporting units. These procedures also included, among others, testing management’s
process for determining the fair value estimate; evaluating the appropriateness of the discounted cash flow analysis;
testing the completeness, accuracy and relevance of underlying data used in the estimate; and evaluating the
significant assumptions used by management, including the long-term organic growth rates and the discount rates.
Evaluating management’s assumptions related to the long-term organic growth rates involved evaluating whether
the assumptions used were reasonable considering (i) the current and past performance of each reporting unit, (ii)
the consistency with external market and industry data and (iii) whether these assumptions were consistent with
evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to
assist in the evaluation of the Company’s discounted cash flow analysis and certain significant assumptions,
including the discount rates.

/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 26, 2020

We have served as the Company’s auditor since 2016.

48 | CONDUENT 2019 ANNUAL REPORT

REPORTS OF MANAGEMENT

Management's Responsibility for Financial Statements

Our management is responsible for the integrity and objectivity of all information presented in this annual report.
The consolidated financial statements were prepared in conformity with accounting principles generally accepted in
the United States of America and include amounts based on management's best estimates and judgments.
Management believes the consolidated financial statements fairly reflect the form and substance of transactions and
that the financial statements fairly represent the Company's financial position and results of operations.

The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly
with the independent registered public accountants, PricewaterhouseCoopers LLP, the internal auditors and
representatives of management to review accounting, financial reporting, internal control and audit matters, as well
as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the
independent registered public accountants. The independent registered public accountants and internal auditors
have free access to the Audit Committee.

/s/ CLIFFORD SKELTON

/s/ BRIAN WEBB-WALSH

/s/ MARIO A. POMPEO

Chief Executive Officer

Chief Financial Officer

Chief Accounting Officer

CONDUENT 2019 ANNUAL REPORT | 49

CONDUENT INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in millions, except per-share data)

Revenue

Operating Costs and Expenses

Year Ended December 31,

2019

2018

2017

4,467

5,393

Cost of services (excluding depreciation and amortization)

3,494

4,182

Selling, general and administrative (excluding depreciation and
amortization)

Research and development (excluding depreciation and amortization)

Depreciation and amortization

Restructuring and related costs

Interest expense

(Gain) loss on extinguishment of debt

Goodwill impairment

(Gain) loss on divestitures and transaction costs

Litigation costs (recoveries), net

Separation costs

Other (income) expenses, net

Total Operating Costs and Expenses

Income (Loss) Before Income Taxes

Income tax expense (benefit)

Income (Loss) From Continuing Operations

Income (loss) from discontinued operations, net of tax

Net Income (Loss)

Basic Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Total Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Total Diluted Earnings (Loss) per Share

479

459

—

1,952

—

(10)

6,573

(2,106)

(172)

(1,934)

—

560

460

112

108

—

227

—

5,788

(395)

(416)

—

(1,934) $

(416) $

(9.29) $

—

(9.29) $

—

(9.29) $

(2.06) $

—

(2.06) $

—

(2.06) $

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

6,022

4,730

611

495

101

137

—

(42)

(11)

(7)

6,038

(16)

(193)

177

181

0.82

0.02

0.84

0.81

0.02

0.83

50 | CONDUENT 2019 ANNUAL REPORT

CONDUENT INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

Net Income (Loss)

Other Comprehensive Income (Loss), Net

(1)

Currency translation adjustments, net

Reclassification of currency translation adjustments on divestitures

Reclassification of divested benefit plans and other

Unrecognized gains (losses), net

Changes in benefit plans, net

Other Comprehensive Income (Loss), Net

Year Ended December 31,

2019

2018

2017

(1,934) $

(416) $

181

(1)

—

(31)

—

(5)

Comprehensive Income (Loss), Net

(1,916) $

(342) $

213

__________

(1) All amounts are net of tax. Tax effects were immaterial. Refer to Note 19 – Other Comprehensive Income (Loss) for information about pre-

tax amounts.

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

CONDUENT 2019 ANNUAL REPORT | 51

CONDUENT INCORPORATED
CONSOLIDATED BALANCE SHEETS

(in millions, except share data in thousands)

Assets

Cash and cash equivalents

Accounts receivable, net

Assets held for sale

Contract assets

Other current assets

Total current assets

Land, buildings and equipment, net

Operating lease right-of-use assets

Intangible assets, net

Goodwill

Other long-term assets

Total Assets

Liabilities and Equity

Current portion of long-term debt

Accounts payable

Accrued compensation and benefits costs

Unearned income

Liabilities held for sale

Other current liabilities

Total current liabilities

Long-term debt

Deferred taxes

Operating lease liabilities

Other long-term liabilities

Total Liabilities

Contingencies (See Note 16)

Series A convertible preferred stock

Common stock

Additional paid-in capital

Retained earnings (deficit)

Accumulated other comprehensive loss

Total Equity

Total Liabilities and Equity

Shares of common stock issued and outstanding

Shares of series A convertible preferred stock issued and outstanding

December 31,

2019

2018

496

652

—

155

283

1,586

342

271

426

1,502

387

4,514

198

174

108

—

647

1,177

1,464

111

229

3,072

756

782

177

234

1,964

328

—

651

3,408

329

6,680

230

193

112

567

1,197

1,512

327

—

280

3,316

142

3,890

(2,185)

(407)

1,300

4,514

3,878

(233)

(425)

3,222

6,680

211,511

120

211,306

120

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

52 | CONDUENT 2019 ANNUAL REPORT

CONDUENT INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Cash Flows from Operating Activities:

Net income (loss)

Adjustments required to reconcile net income to cash flows from operating

Year Ended December 31,

2019

2018

2017

(1,934) $

(416) $

181

activities:

Depreciation and amortization

Contract inducement amortization

Goodwill impairment

Deferred income taxes

(Gain) loss from investments

Amortization of debt financing costs

(Gain) loss on extinguishment of debt

(Gain) loss on divestitures and transaction costs

Stock-based compensation

Allowance for doubtful accounts

Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable

(Increase) decrease in other current and long-term assets

Increase (decrease) in accounts payable and accrued compensation

Increase (decrease) in restructuring liabilities

Increase (decrease) in other current and long-term liabilities

Net change in income tax assets and liabilities

Other operating, net

Net cash provided by (used in) operating activities

Cash Flows from Investing Activities:

Cost of additions to land, buildings and equipment

Proceeds from sale of land, buildings and equipment

Cost of additions to internal use software

Proceeds from investments

Payments for acquisitions, net of cash acquired

Proceeds from divestitures and sale of assets, net of cash

Payments from divestitures, including cash sold

Other investing, net

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities:

Proceeds on long-term debt

Debt issuance fee payments

Payments on debt

Premium on debt redemption

Net payments to former parent company

Taxes paid for settlement of stock based compensation

Dividends paid on preferred stock

Other financing

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Increase (decrease) in cash, cash equivalents and restricted cash

Cash, Cash Equivalents and Restricted Cash at Beginning of Period
(1)

Cash, Cash Equivalents and Restricted Cash at End of period

___________

459

1,952

(220)

(4)

—

107

(14)

(32)

(257)

—

132

(148)

(67)

—

(90)

—

(7)

—

(310)

—

(54)

—

(21)

(10)

—

(85)

(260)

765

505

460

—

(75)

(2)

108

—

133

(111)

(56)

161

(17)

(4)

283

(179)

(45)

—

675

—

(5)

460

—

(3)

(519)

(95)

—

(10)

—

(637)

(8)

667

765

495

—

(230)

(10)

—

(42)

(1)

(32)

(49)

(125)

(15)

300

(96)

(36)

117

—

306

(8)

(241)

—

(161)

(5)

(10)

(5)

(124)

251

416

667

(1)

Includes $9 million of restricted cash as of each of the years December 31, 2019, 2018 and 2017, that was included in Other current assets
on their respective Consolidated Balance Sheets.

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

CONDUENT 2019 ANNUAL REPORT | 53

CONDUENT INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in millions)

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

(1)

AOCL

Conduent
Shareholders’
Equity

Balance at December 31, 2016

3,812

— $

(526) $

3,288

Cash dividends paid - preferred stock, $80/per share

Stock option and incentive plans, net

Comprehensive Income (Loss):

Net Income (Loss)

Other comprehensive income (loss), net

Total Comprehensive Income (Loss), Net

—

(10)

—

181

—

181

—

(10)

181

213

Balance at December 31, 2017

3,850

171

(494) $

3,529

Cash dividends paid - preferred stock, $80/per share

Cumulative impact of adopting the new revenue standard

Reclassification of amounts impacted by Tax Reform

Stock option and incentive plans, net

Comprehensive Income (Loss):

Net Income (Loss)

Other comprehensive income (loss), net

Total Comprehensive Income (Loss), Net

—

(10)

—

(416)

—

(416)

—

(5)

—

(10)

—

(416)

(342)

Balance at December 31, 2018

3,878

(233) $

(425) $

3,222

Cash dividends paid - preferred stock, $80/per share

Cumulative impact of adopting the new lease standard

Stock option and incentive plans, net

Comprehensive Income (Loss):

Net Income (Loss)

Other comprehensive income (loss), net

Total Comprehensive Income (Loss), Net

Balance at December 31, 2019

___________

(1) AOCL - Accumulated other comprehensive loss.

—

(10)

(8)

—

(1,934)

—

(1,934)

—

3,890

(2,185) $

(407) $

(10)

(8)

(1,934)

(1,916)

1,300

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

54 | CONDUENT 2019 ANNUAL REPORT

CONDUENT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

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 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 solutions
and payment services.

Basis of Presentation

Our Consolidated Financial Statements included the historical basis of assets, liabilities, revenues and expenses of
the individual businesses of the Company, including joint ventures and partnerships over which the Company has a
controlling financial interest. We have prepared the Consolidated Financial Statements pursuant to the rules and
regulations of the SEC. Certain reclassifications have been made to prior years' amounts to conform to the current
year presentation. All intercompany transactions and balances have been eliminated.

The Company has evaluated subsequent events through February 26, 2020. Subsequent events are disclosed
throughout the Notes to these Consolidated Financial Statements.

Use of Estimates

We prepared the Consolidated Financial Statements using financial information available at the time of preparation,
which requires us to make estimates and assumptions that affect the amounts reported. Our most significant
estimates pertain to the intangible and long-lived assets, valuation of goodwill, contingencies and litigation and
income taxes. Our estimates are based on management's best knowledge of current events, historical experience,
and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual
results may be different from these estimates.

CONDUENT 2019 ANNUAL REPORT | 55

New Accounting Standards

Credit Losses: In June 2016, the 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. Early adoption is permitted. The Company has determined, after gathering data and developing
models, that the adoption of the new standard will not have any material impact on its Consolidated Financial
Statements.

Recently Adopted Accounting Standards

Leases: The Company adopted the new lease guidance as of January 1, 2019, using the cumulative-effect
adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the
comparative periods presented. The Company has elected the package of practical expedients, which allows the
Company not to reassess (1) whether any expired or existing contracts as of the adoption date are, or contain,
leases, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs
for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical
expedient. Additionally, the Company has elected not to include short-term leases, with a term of 12 months or less,
on its Consolidated Balance Sheets.

The impact of adopting this new guidance included the establishment of Operating lease right-of-use (ROU) assets
of $387 million, an increase to Other current liabilities of $103 million, a decrease to Other long-term liabilities of $21
million, the establishment of Operating lease liabilities of $316 million and a net decrease to opening retained
earnings (deficit) of $8 million, as of January 1, 2019. The adoption did not have an impact on the Company’s
Consolidated Statements of Income (Loss) or Consolidated Statements of Cash Flows.

Summary of Accounting Policies

Leases

The Company determines if an arrangement is a lease at the inception of the contract and whether that lease meets
the classification criteria of a finance or operating lease. The Company has operating and finance leases for real
estate and equipment. Operating leases are included in Operating lease ROU assets, Other current liabilities, and
Operating lease liabilities in our Consolidated Balance Sheets. Finance leases are included in Land, buildings and
equipment, net, Current portion of long-term debt, and Long-term debt in our Consolidated Balance Sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities
represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are
recognized at the commencement date based on the net present value of lease payments over the lease term using
the Company’s incremental borrowing rates or implicit rates. The Company's lease terms may include options to
extend or terminate the lease when it is reasonably certain that the Company will exercise that option based on
economic factors. The Company recognizes operating fixed lease expense and finance lease depreciation on a
straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for
those payments is incurred. The Company accounts for lease and non-lease components separately for its
equipment leases, based on the estimated standalone price of each component, and combines lease and non-lease
components for its real estate leases.

56 | CONDUENT 2019 ANNUAL REPORT

The components of lease costs were as follows:

(in millions)

Finance Lease Costs:

Amortization of right of use assets

Interest on lease liabilities

Total Finance Lease Costs

Operating lease costs:

Base rent

Short-term lease costs

Variable lease costs

(1)

Sublease income

Total Operating Lease Costs

__________

(1) Primarily related to taxes, insurance and common area and other maintenance costs for real estate leases.

Supplemental cash flow information related to leases was as follows:

(in millions)

Cash paid for the amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Total Cash Flow from Operating Activities

Financing cash flow from finance leases

Supplemental non-cash information on right of use assets obtained in exchange for new lease obligations:

Operating leases

Finance leases

Supplemental balance sheet information related to leases was as follows:

(in millions)

Operating lease assets:

Operating lease right-of-use assets

Operating lease liabilities:

Other current liabilities

Operating lease liabilities

Total Operating Lease Liabilities

Finance lease assets:

Land, buildings and equipment, net

Finance lease liabilities:

Current portion of long-term debt

Long-term debt

Total Finance Lease Liabilities

Year Ended December 31,
2019

112

(7)

147

Year Ended December 31,
2019

December 31, 2019

137

138

271

229

320

CONDUENT 2019 ANNUAL REPORT | 57

The Company's leases generally do not provide an implicit rate, therefore the Company uses its incremental
borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate
represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount
equal to the lease payments on a collateralized basis over the term of a lease within a particular currency
environment. The weighted average discount rates for operating and finance leases were 5.5% and 4.8%,
respectively.

The weighted average remaining lease terms for operating and finance leases at December 31, 2019, were 5 years
and 3 years, respectively.

Maturities of operating lease liabilities were as follows:

(in millions)

2020

2021

2022

2023

2024

Thereafter

Total undiscounted operating lease payments

Less imputed interest

Present value of operating lease liabilities

Maturities of finance lease liabilities were as follows:

(in millions)

2020

2021

2022

2023

2024

Thereafter

Total undiscounted finance lease payments

Less imputed interest

Present value of finance lease liabilities

December 31, 2019

Operating Lease
Payments

106

368

320

December 31, 2019

Finance Lease Payments

—

As of December 31, 2019, the Company had entered into additional operating lease agreements for real estate of
$15 million, which have not commenced and have not been recognized on the Company's Consolidated Balance
Sheet. These operating leases are expected to commence in 2020 with lease terms of 3 to 10 years.

58 | CONDUENT 2019 ANNUAL REPORT

Under the previous lease accounting guidance, future minimum operating lease commitments that have initial or
remaining non-cancelable lease term in excess of one year at December 31, 2018 were as follows:

(in millions)

2019

2020

2021

2022

2023

Thereafter

Total minimum operating lease payments

Cash and Cash Equivalents

December 31, 2018

Operating Lease
Payments

153

113

506

Cash and cash equivalents consist of cash on hand, including money market funds and investments with original
maturities of three months or less.

Receivable Sales

In 2019, 2018 and 2017, the Company sold certain accounts receivable and derecognized the corresponding
receivable balance. Refer to Note 6 – Accounts Receivable, Net for more details on our receivable sales.

Assets/Liabilities Held for Sale

In 2018, management approved the disposal through sale of certain assets and businesses. This action was taken
as a result of the Company's strategic evaluation of these businesses. As of December 31, 2018, one of these
businesses remained unsold and qualified as assets held for sale and we reclassified $15 million to assets held for
sale and $40 million to liabilities held for sale.

Refer to Note 4 – Divestiture for further discussion.

CONDUENT 2019 ANNUAL REPORT | 59

Land, Buildings and Equipment

Land, buildings and equipment are recorded at cost. Buildings and equipment are depreciated over their estimated
useful lives. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life.
Significant improvements are capitalized and maintenance and repairs are expensed when incurred.

Refer to Note 7 – Land, Buildings, Equipment and Software, Net for further discussion.

Software - Internal Use and Product

Internal Use: We capitalize direct costs associated with developing, purchasing or otherwise acquiring software for
internal use and amortize these costs on a straight-line basis over the expected useful life of the software, beginning
when the software is implemented. Costs for upgrades and enhancements that will not result in additional
functionality are expensed as incurred. Amounts incurred for Internal Use Software are included in Cash Flows from
Investing.

Refer to Note 7 – Land, Buildings, Equipment and Software, Net for further information.

Goodwill

For acquired businesses, the Company records the acquired assets and assumed liabilities based on their relative
fair values at the date of acquisitions (commonly referred to as the purchase price allocation). Goodwill represents
the excess of the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. For
the Company’s business acquisitions, the purchase price is allocated to identifiable intangible assets separate from
goodwill if they are from contractual or other legal rights, or if they could be separated from the acquired business
and sold, transferred, licensed, rented or exchanged.

In January 2017, the FASB issued updated accounting guidance for simplifying the goodwill impairment test. We
early adopted this guidance for our goodwill impairment tests performed after January 1, 2017. We test goodwill for
impairment annually or more frequently if an event or change in circumstances indicate the asset may be impaired.
Impairment testing for goodwill is done at the reporting unit level. We determined the fair value of our reporting units
utilizing a combination of both an Income Approach and a Market Approach. The Income Approach utilizes a
discounted cash flow analysis based upon the forecasted future business results of our reporting units. The Market
Approach utilizes the guideline public company method. If the fair value of a reporting unit is less than its carrying
amount, an impairment charge would be recognized for the amount by which the carrying amount exceeds the
reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

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

Other Intangible Assets

Other intangible assets primarily consist of assets acquired through business combinations, including installed
customer base and distribution network relationships, patents and trademarks. Other intangible assets are
amortized on a straight-line basis over their estimated economic lives unless impairment is identified.

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

Impairment of Long-Lived Assets

We review the recoverability of our long-lived assets, including buildings, equipment, internal use software, product
software and other intangible assets, when events or changes in circumstances occur that indicate that the carrying
value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to
recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without
interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an
impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary
measure of fair value is based on forecasted cash flows.

60 | CONDUENT 2019 ANNUAL REPORT

Income Taxes

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are based on
differences between U.S. GAAP reporting and tax bases of assets or liabilities and based on current tax laws,
regulations and rates.

The recognition of deferred tax assets requires an assessment to determine the realization of such assets.
Management establishes valuation allowances on deferred tax assets when it is determined “more-likely-than-not”
that some portion or all of the deferred tax assets may not be realized. Management considers positive and
negative evidence in evaluating the ability of the Company to realize its deferred tax assets, including its historical
results and forecasts of future ability to realize its deferred tax assets, including projected future taxable income, the
expected timing of the reversals of existing temporary differences and tax planning strategies.

We are subject to ongoing tax examinations and assessments in various jurisdictions. We have unrecognized tax
benefits for uncertain tax positions. We follow U.S. GAAP which prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and
related tax positions require judgment and can materially increase or decrease our effective tax rate, as well as
impact our operating results.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (Tax Reform). The Tax Reform includes a tax
on global intangible low-taxed income (“GILTI”), which imposes a U.S. tax on certain income earned by the
Company’s foreign subsidiaries. The Company elected to treat the tax on GILTI as a period cost when incurred and
therefore, no deferred taxes for GILTI were recognized for the year ended December 31, 2019.

Refer to Note 15 – Income Taxes for further discussion.

Foreign Currency Translation and Re-measurement

The functional currency for most foreign operations is the local currency. Net assets are translated at current rates
of exchange and income, expense and cash flow items are translated at average exchange rates for the applicable
period. The translation adjustments are recorded in Accumulated other comprehensive loss.

The U.S. Dollar is used as the functional currency for certain foreign subsidiaries that conduct their business in U.S.
Dollars. A combination of current and historical exchange rates is used in re-measuring the local currency
transactions of these subsidiaries and the resulting exchange adjustments are recorded in Currency (gains) and
losses within other expenses, net together with other foreign currency re-measurements.

Revenue Recognition

In May 2014, the FASB updated the accounting guidance related to revenue recognition, which is also referred to
herein as "the new revenue standard" to clarify the principles for recognizing revenue and replaced 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 the 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. The updated guidance
also requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and
uncertainty of revenue and cash flows arising from contracts with customers largely on a disaggregated basis. The
Company adopted the new revenue standard as of January 1, 2018, using the modified retrospective method. The
Company has applied the new revenue standard only to contracts not completed as of the date of initial application.
The adoption has primarily impacted the following: (1) revenue associated with postage recognized on a net basis
versus previously being recognized on a gross basis; (2) the timing of revenue recognition associated with fixed
fees for certain contracts with more than one performance obligation; and (3) the timing of recognition of certain
pricing discounts and credits.

The Company recognizes revenue when control of the promised goods or services is transferred to its customers, in
an amount that reflects the consideration that the Company expects to receive in exchange for those goods or
services.

CONDUENT 2019 ANNUAL REPORT | 61

The Company's contracts with customers often include promises to transfer multiple products and services to a
customer. Determining whether products and services are considered distinct performance obligations that should
be accounted for separately, versus together, may require judgment. Typically, the Company’s contracts include
performance obligation(s) to stand-ready on a daily or monthly basis to provide services to the customers. Under
a stand-ready obligation, the evaluation of the nature of our performance obligation is focused on each time
increment rather than the underlying activities. Accordingly, the promise to stand-ready is accounted for as a single-
series performance obligation.

Once the Company determines the performance obligations, the Company estimates the amount of variable
consideration, if any, to be included in determining the transaction price. Typical forms of variable consideration
include variable pricing based on the number of transactions processed or usage-based pricing arrangements.
Variable consideration is also present in the form of volume discounts, tiered and declining pricing, penalties for
service level agreements, performance bonuses and credits. In circumstances where we meet certain requirements
to allocate variable consideration to a distinct service within a series of related services, we allocate variable
consideration to each distinct period of service within the series. If we do not meet those requirements, we include
an estimate of variable consideration in the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty is resolved. For contracts with multiple
performance obligations, the transaction price is allocated to the separate performance obligations on a relative
standalone selling price basis. The Company generally determines standalone selling prices based on the prices
charged to customers or by using expected cost plus margin.

The Company typically satisfies its performance obligations over time as the services are provided. A time-elapsed
output method is used to measure progress because the nature of the Company’s promise is a stand-ready service
and efforts are expended evenly throughout the period. In limited circumstances, such as contracts for
implementation or development projects, the Company also uses a cost-to-cost based input method. The Company
has determined that the above methods provide a faithful depiction of the transfer of services to the customer.

Estimates of revenue expected to be recognized in future periods exclude unexercised customer options to
purchase additional services that do not represent material rights to the customer. Customer options that do not
represent a material right are only accounted for when the customer exercises its option to purchase additional
goods or services. The Company recognizes revenue for non-refundable upfront implementation fees on a straight-
line basis over the period between the initiation of the services through the end of the contract term.

When more than one party is involved in providing services to a customer, the Company evaluates whether it is the
principal, and reports revenue on a gross basis, or an agent, and reports revenue on a net basis. In this
assessment, the Company considers the following: if it obtains control of the specified services before they are
transferred to the customer; is primarily responsible for fulfillment and inventory risk; and has discretion in
establishing price.

The Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are
imposed on and concurrent with specific revenue-producing transactions. The primary revenue-based taxes are
sales tax and value-added tax (VAT).

The Company's payment terms vary by type of services offered. The time between invoicing and when payment is
due is not significant. For certain services and customer types, the Company requires payment before services are
rendered.

From time to time, the Company's contracts are modified to account for additions or changes to existing
performance obligations. The Company's contract modifications related to stand-ready performance obligations are
generally accounted for prospectively.

Refer to Note 2 – Revenue for further discussion.

62 | CONDUENT 2019 ANNUAL REPORT

Note 2 – Revenue

Disaggregation of Revenue

In 2019, the Company changed how it presents its disaggregated revenue by major service offering to reflect how
the Company currently manages its businesses. All prior periods presented have been revised to reflect this
change.

These changes have no impact on disaggregated revenue by reportable segment or the timing of revenue
recognition.

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

(in millions)

Commercial Industries:

End-user customer experience

Transaction processing

Commercial healthcare

Human resource and learning services

Total Commercial Industries

Government Services:

Government healthcare

Payment solutions

State and local

Federal

Total Government Services

Transportation:

Tolling

Transit

Photo and parking

Commercial vehicle

Total Transportation

Other:

Divestitures

Education

Total Other

Total Consolidated Revenue

Timing of Revenue Recognition:

Point in time

Over time

Total Revenue

Year Ended December 31,

2019

2018

669

595

519

602

2,385

680

292

235

1,263

327

254

190

781

710

651

510

679

2,550

731

321

245

1,351

300

226

188

729

752

763

4,467

5,393

144

4,323

4,467

142

5,251

5,393

The Company's contracts with customers are broadly similar in nature throughout the Company's major service
offerings. The following is a description of the major service offerings:

End-User Customer Experience: The Company offers a range of services that help its clients support their end-
users. This includes in-bound and out-bound call support for both simple and complex transactions, technical
support and patient assistance. The Company also provides multi-channel communication support (both print and
digital) across a range of industries.

CONDUENT 2019 ANNUAL REPORT | 63

Transaction Processing: The Company helps its clients improve communications with their customers and
constituents, whether it is on paper, on-line or through other communication channels. The Company also offers a
broad array of flexible transaction processing services that include data entry, scanning, image processing,
enrollment processing, claims processing, high volume offsite print and mail services and file indexing. The
Company serves clients by managing their critical finance, accounting and procurement processes. These services
include general accounting and reporting, billing and accounts receivable and purchasing, accounts payable and
expense management services. The Company also offers wholesale and retail lockbox services and process auto
and mortgage loans in the United States.

Commercial Healthcare: On behalf of the healthcare industry, the Company delivers administration, clinical
support and medical management solutions across the health ecosystem to reduce costs, increase compliance and
enhance utilization, while improving health outcomes and experience for members and patients. The Company's
solutions span: trials, sales, access, adherence and long-term differentiation solutions to pharmaceutical clients;
case management, performance management and patient safety for hospital clients; medical bill review, care
integration, subrogation and payment integrity solutions to managed care companies; and workers compensation
medical bill review, mailroom/data capture and medical management services to claims payers and third-party
administrators.

Human Resource and Learning Services: The Company helps its clients support their employees at all stages of
employment from initial on-boarding through retirement as well as health savings account (HSA) administration. The
Company offers clients a range of customized advisory, technology and administrative services that improve the
ability of employees to manage their benefits, professional development and retirement planning. Also, the
Company provides clients with a simplified approach to help their employees manage their healthcare costs and
accumulate wealth with tax-advantaged accounts, as well as end-to-end learning services, designed to accelerate
the productivity and development of its clients’ employees and extended work forces. The Company's global
presence, superior innovation and expertise allow it to deliver performance-based learning services tailored to its
clients’ unique strategic business goals. Offerings include learning strategy and assessment, instructor management
and learning administration.

Government Healthcare: The Company provides medical management and fiscal agent care management
services to Medicaid programs and federally-funded U.S. government healthcare programs. The Company's
services include a range of innovative solutions such as Medicaid management, provider services, Medicaid
business intelligence, pharmacy benefits management, eligibility, electronic visit verification and case management
solutions.

Payment Solutions: The Company is a leader in government payment disbursements for federally sponsored
programs like SNAP, commonly known as food stamps and Women, Infant and Children (WIC) as well as
government-initiated cash disbursements such as child support and unemployment.

State and Local: The Company delivers innovative services and solutions to help agencies reduce costs and
improve processes. The Company offers a broad set of solutions and services such as child support services, case
management, labor, workforce and other government solutions.

Federal: As a preferred partner to government IT clients, the Company leverages technology as a key mechanism
for improving citizen service and cost savings. The Company's solutions include: technology infrastructure,
application portfolio management, IT consulting and other IT managed services.

Tolling: The Company's electronic tolling, urban congestion management and mileage-based user solutions help
clients keep up with an ever-changing environment and get more travelers where they need to go while generating
revenue for much-needed infrastructure improvements. The Company's solutions include vehicle passenger
detection systems, electronic toll collection, automated license plate recognition and congestion management
solutions.

Transit: The Company aims to make journeys more personalized and convenient while increasing capacity and
profitability for authorities and agencies. The Company combines the latest in fare collection and intelligent mobility
so that clients can get the added efficiency of having a single point of contact for all their transit solutions.

64 | CONDUENT 2019 ANNUAL REPORT

Photo and Parking: The Company delivers intelligent curbside management systems that simplify parking
programs and deliver convenient and hassle-free experience for drivers. The Company's curbside solutions include
citation and permit administration, parking enforcement and curbside demand management. The Company also
provides data analytics, automated photo enforcement and other public safety solutions to make streets and
communities safer.

Commercial Vehicle: The Company provides computer-aided dispatch/automatic vehicle location technology to
help customers manage their fleet operations.

Divestitures: This represents divestitures that were previously reported as Commercial Industries, Government
Services and Transportation.

Education: This represents Student Loan business, which the Company exited in the third quarter of 2018.

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.

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

(in millions)

Contract Assets (Unearned Income)

Current contract assets

Long-term contract assets

(1)

Current unearned income

Long-term unearned income

(2)

Net Contract Assets (Unearned Income)

Accounts receivable, net

__________

December 31, 2019

December 31, 2018

155

(108)

(21)

652

177

(112)

(32)

782

(1) Presented in Other long-term assets in the Consolidated Balance Sheets

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

Revenues of $101 million and $134 million were recognized during the years ended December 31, 2019 and 2018,
respectively, related to the Company's unearned income at December 31, 2018 and January 1, 2018. The Company
had no asset impairment charges related to contract assets for the year ended December 31, 2019.

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 December 31, 2019, was approximately $1.8 billion. The Company expects to recognize
approximately 67% of this revenue over the next 2 years and the remainder thereafter.

CONDUENT 2019 ANNUAL REPORT | 65

Costs to Obtain and Fulfill a Contract

The Company capitalizes commission expenses paid to internal sales personnel that are incremental to obtaining
customer contracts. The net book value of these costs, which was $18 million and $24 million as of December 31,
2019 and 2018, respectively, are included in Other long-term assets. The judgments made in determining the
amount of costs incurred include whether the commissions are incremental and directly related to a successful
acquisition of a customer contract. These costs are amortized in Depreciation and amortization over the term of the
contract or the estimated life of the customer relationship, if renewals are expected and the renewal commission is
not commensurate with the initial commission. These costs are periodically reviewed for impairment. The Company
expenses sales commissions when incurred if the amortization period of the sales commission is one year or less.

In addition, the Company may provide inducement payments to secure customer contracts. These inducement
payments are capitalized and amortized to expense over the term of the customer contract. The net book value of
these costs totaled $21 million and $23 million as of December 31, 2019 and 2018, respectively, and are included in
Other long-term assets.

Also, the Company capitalizes costs incurred to fulfill its contracts that (i) relate directly to the contract, (ii) are
expected to generate resources that will be used to satisfy the Company’s performance obligation under the
contract and (iii) are expected to be recovered through revenue generated under the contract. The net book value of
these costs, which comprise set-up/transition activities, was $45 million and $53 million as of December 31, 2019
and 2018, respectively, and are classified in Other long-term assets on the Consolidated Balance Sheets. Contract
fulfillment costs are expensed to Depreciation and amortization as the Company satisfies its performance
obligations by transferring the service to the customer. These costs are amortized on a systematic basis over the
expected period of benefit.

The amortization of costs incurred to obtain and fulfill a contract for the years ended December 31, 2019 and 2018,
were $42 million and $50 million, respectively.

Note 3 – 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.

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.

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

66 | CONDUENT 2019 ANNUAL REPORT

Selected financial information for our reportable segments was as follows:

Year Ended December 31,

Commercial
Industries

Government
Services

Transportation

Other

Divestitures

Other

2,385

448

542

2,550

501

598

2,685

563

661

1,263

394

423

1,351

424

451

1,433

398

440

781

120

157

729

113

149

767

114

157

— $

752

105

1,062

128

141

Shared IT /
Infrastructure
& Corporate
Costs

Total

— $

(19) $

(16) $

— $

(690) $

(629) $

— $

(695) $

(647) $

— $

(802) $

(745) $

4,467

273

216

494

5,393

422

221

640

6,022

417

254

672

(in millions)

2019

Revenue

Segment profit (loss)

Segment depreciation and
amortization

Adjusted EBITDA

2018

Revenue

Segment profit (loss)

Segment depreciation and
amortization

Adjusted EBITDA

2017

Revenue

Segment profit (loss)

Segment depreciation and
amortization

Adjusted EBITDA

The following is a reconciliation of segment profit (loss)/adjusted EBITDA to income (loss) before income taxes:

(in millions)

Year Ended December 31,

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

2019

2018

2017

Income (Loss) Before Income Taxes

Reconciling items:

Amortization of acquired intangible assets

Restructuring and related costs

Interest expense

(Gain) loss on extinguishment of debt

Goodwill impairment

(Gain) loss on divestitures and transaction costs

Litigation costs (recoveries), net

Separation costs

Other (income) expenses, net

Segment Pre-Tax Income (Loss)

Segment depreciation and amortization

NY MMIS charge (credit)

HE charge (credit)

Other adjustments

Adjusted EBITDA

(2,106) $

(395) $

246

—

1,952

—

(10)

273

216

—

494

242

112

108

—

227

—

422

221

(2)

(1)

— $

640

(16)

243

101

137

—

(42)

(11)

(7)

417

254

(8)

—

672

CONDUENT 2019 ANNUAL REPORT | 67

Geographic area data is based upon the location of the subsidiary reporting the revenue or long-lived assets and is
as follows for each of the years ended December 31:

(in millions)

United States

Europe

Other areas

Total Revenues and Long-Lived Assets

__________

2019

Revenues

2018

Long-Lived Assets

(1)

2017

(2)

2019

2018

4,000

4,748

5,303

612

386

497

148

538

181

4,467

5,393

6,022

137

802

375

465

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

(2) Amounts include operating lease right-of-use assets.

Note 4 – Divestiture

In February 2019, the Company completed the sale of a portfolio of select standalone customer care contracts to
Skyview Capital LLC. During 2019, the Company recorded additional losses and transaction costs of $17 million on
the sale of this portfolio, reflecting certain changes in estimates that were made when recording the initial charge in
2018. The revenue generated from this business was $36 million for the three months ended March 31, 2019 and
$439 million for the year ended December 31, 2018.

Note 5 – Business Acquisition

In January 2019, the Company completed the acquisition of Health Solutions Plus (HSP), a software provider of
healthcare payer administration solutions, for a total base consideration of $90 million and a maximum contingent
consideration payment of $8 million based on a cumulative achievement over 2 years. Revenue recorded for the
year ended December 31, 2019, was $20 million. Pre-tax income for the year ended December 31, 2019, was $6
million.

The Company’s final purchase price allocation for HSP as of the acquisition date was as follows:

(in millions)

Fair Value of Consideration Transferred:

Cash paid

Contingent consideration payable

Total Consideration

Allocation of Purchase Price:

Net tangible assets

Developed technology

Costs Assigned to Intangible Assets

Customer relationships

Trademarks and trade names

Goodwill

Total Intangible Assets

Total Assets

The weighted average amortization periods are 7 years, 15 years and 1.5 years for Developed technology,
Customer relationships and Trademarks and trade names, respectively. The acquired goodwill is associated with the
Company's Commercial Industries segment. This acquired goodwill, while tax deductible, includes $7 million related
to contingent consideration payable that is not tax deductible until it is earned and paid. The goodwill recognized is
attributable primarily to expected synergies and the assembled workforce of HSP. The Developed technology is
classified as Product Software within Other long-term assets on the Consolidated Balance Sheets.

68 | CONDUENT 2019 ANNUAL REPORT

The Company has not presented separate results of operations or combined pro forma financial information of the
Company and the acquired business because the results of operations of the acquired business are considered
immaterial.

Note 6 – Accounts Receivable, Net

The Accounts receivable, net balance of $652 million and $782 million at December 31, 2019 and 2018,
respectively, included allowance for doubtful accounts of $2 million and $1 million at December 31, 2019 and 2018,
respectively.

The Company enters into various factoring and supply chain financing programs from time to time, in the normal
course of business as part of our cash and liquidity management, to sell certain accounts receivable without
recourse to third-party financial institutions. Sales of accounts receivable are reflected as a reduction of accounts
receivable on the Consolidated Balance Sheets and the proceeds are included in cash flow from operating activities
in the Consolidated Statements of Cash Flows.

Accounts receivable sales were as follows:

(in millions)

Accounts receivable sales

Note 7 - Land, Buildings, Equipment and Software, Net

Land, buildings and equipment, net was as follows:

Year Ended December 31,

2019

2018

204

119

(in millions except as noted)

Land

Building and building equipment

Leasehold improvements

IT, other equipment and office furniture

Other

Construction in progress

Subtotal

Accumulated depreciation

Estimated Useful
Lives

December 31,

(Years)

2019

2018

25 to 50

Varies

3 to 15

4 to 20

267

964

1,292

(950)

Land, Buildings and Equipment, Net

342

246

901

1,222

(894)

328

Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $123 million, $121 million and
$125 million, respectively.

CONDUENT 2019 ANNUAL REPORT | 69

Internal Use and Product Software

Internal use and product software are included in Other long-term assets on the Company's Consolidated Balance
Sheets. Additions to Internal Use and Product Software as well as year-end balances for these assets were as
follows:

(in millions)

Additions to:

Internal use software

Product software

(in millions)

Capitalized Costs, Net

Internal use software

(1)

Product software

(1)

Year Ended December 31,

2019

2018

2017

December 31,

2019

2018

150

123

__________
(1) Refer to Note 10 – Supplementary Financial Information for additional information.

Useful lives of our internal use and product software generally vary from one to seven years. Amortization expense
for internal use and product software for the years ended December 31, 2019, 2018 and 2017 was $48 million, $46
million and $65 million, respectively.

Note 8 - Goodwill and Intangible Assets, Net

Goodwill

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

(in millions)

Balance at December 31, 2017

Foreign currency translation

Assets held-for-sale

(1)

Other

Balance at December 31, 2018

Foreign currency translation

Acquisition

Impairment

Other

Balance at December 31, 2019

Commercial
Industries

Government
Services

Transportation

Total

1,399

1,310

657

3,366

(10)

(12)

—

(16)

—

(26)

(12)

1,391

1,376

641

3,408

—

(618)

(1)

—

(754)

—

821

621

(1)

—

(580)

—

(2)

(1,952)

(1)

1,502

__________
(1) Represents 2018 true-up to the 2017 Assets held for sale.

Impairment Charge

In the first quarter of 2019, the Transportation reporting unit experienced unanticipated losses of certain customer
contracts, lower than expected new customer contracts and higher costs of delivery (all subsequent to February
2019), and as a result, the growth of this reporting unit decreased resulting in its fair value being below its carrying
value by an estimated $284 million. Accordingly, the Company recorded a pre-tax impairment charge of $284 million
for the three months ended March 31, 2019.

70 | CONDUENT 2019 ANNUAL REPORT

In the second quarter of 2019, there were further unanticipated losses of certain customer contracts, lower potential
future volumes and lower than expected new customer contracts (all subsequent to May 9, 2019). This led to actual
results being below budget and a further downward revision of the long-term forecast across all the Company's
former reporting units (Financial Services & Healthcare, Consumer & Industrial, Europe (together comprising
Commercial Industries), Government Services, and Transportation). As a consequence of the business
performance and the strategy pivot due to changes in management that occurred in the second quarter of 2019, the
Company lowered its sales outlook, average margin expectation for the future years, and increased its weighted
average cost of capital.

Based upon the information identified in the second quarter of 2019, the Company performed an interim goodwill
impairment assessment for all its reporting units which resulted in a pre-tax impairment charge of $1.1 billion for the
three months ended June 30, 2019.

During the fourth quarter of 2019, the Company changed its reporting units within the Commercial Industries
reportable segment to reflect how the Company currently manages its business. The Company currently has six
reporting units (End-User Customer Experience, Transaction Processing, Commercial Healthcare and Human
Resources and Learning Services, (together comprising Commercial Industries), Government Services and
Transportation), which support its three reportable segments. No impairment was identified during the annual
impairment test performed as of October 1, 2019. Subsequent to completing the annual impairment test, the
Company experienced further unanticipated contract losses within the Government Services reporting unit, and as
result, management performed a goodwill impairment assessment for this reporting unit as of December 31, 2019,
which resulted in a pre-tax impairment charge of $512 million. In addition, in the fourth quarter the Company
recorded an immaterial correction to the impairment charges recorded in the first and second quarters to properly
reflect the impact of tax deductible goodwill on the previous impairments as well as the related income tax benefit.
The impairment adjustment and related income tax benefit to the first quarter charge for the Transportation reporting
unit totaled $20 million and $1 million, respectively. The impairment adjustment and related income tax benefit to the
second quarter charge totaled $69 million and $6 million, respectively. The second quarter impairment and income
tax benefit adjustments corrected the Commercial Industries reporting unit by $53 million and $5 million,
respectively, and the Government Services reporting unit by $16 million and $1 million, respectively. We believe
these adjustments are not material to the current period or any prior period. The cumulative impairment charge for
the year ended December 31, 2019 was approximately $2.0 billion.

The fair values of the goodwill impairment charges were estimated based on a determination of the implied fair
value of goodwill, leveraging discounted cash flows and designated as level 3 of the fair value hierarchy.

Intangible Assets, Net

Net intangible assets were $426 million at December 31, 2019 of which $285 million, $96 million and $45 million
relate to our Commercial Industries, Government Services and Transportation segments, respectively. Intangible
assets were comprised of the following:

December 31, 2019

December 31, 2018

(in millions except years)

Weighted
Average
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Net
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Amount

Customer relationships

12 years

Technology, patents and
non-compete

Total Intangible Assets

4 years

2,920

2,494

426

2,914

2,264

—

2,921

2,495

426

2,920

2,269

650

651

Amortization expense related to intangible assets was $246 million, $242 million and $243 million for the years
ended December 31, 2019, 2018 and 2017, respectively. Amortization expense is expected to approximate $240
million in 2020, $122 million in 2021, $24 million in 2022, $6 million in 2023 and $4 million in 2024.

CONDUENT 2019 ANNUAL REPORT | 71

Note 9 – 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 are incremental, non-recurring costs related to the consolidation of our data centers, which totaled
$21 million and $4 million for the years ended December 31, 2019 and 2018, 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 our restructuring program activity during the two years ended December 31, 2019 is as follows:

(in millions)

Balance at December 31, 2017

Provision

Changes in estimates

Total Net Current Period Charges

(1)

Charges against reserve and currency

Balance at December 31, 2018

Provision

Changes in estimates

Total Net Current Period Charges

(1)

Charges against reserve and currency

Reclassification to operating lease ROU
assets

(2)

Balance at December 31, 2019

Severance and
Related Costs

Other Contractual
Termination Costs

Asset Impairments

Total

(5)

(35)

(5)

(26)

—

(35)

(6)

(32)

(22)

— $

(1)

(3)

— $

—

(15)

—

— $

—

(73)

(11)

(73)

(22)

__________
(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.

We also recorded costs related to professional support services associated with the implementation of the strategic
transformation program of $4 million, $3 million and $9 million during the years ended December 31, 2019, 2018
and 2017, respectively.

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

(in millions)

Commercial Industries

Government Services

Transportation

Other

Shared IT / Infrastructure & Corporate Costs

Total Net Restructuring Charges

72 | CONDUENT 2019 ANNUAL REPORT

Year Ended December 31,

2019

2018

2017

—

Note 10 – Supplementary Financial Information

The components of Other assets and liabilities were as follows:

(in millions)

Other Current Assets

Prepaid expenses

Income taxes receivable

Value-added tax (VAT) receivable

Restricted cash

Net receivable from buyers of divested businesses

(1)

Other

Total Other Current Assets

Other Current Liabilities

Accrued liabilities

Litigation related accruals

Current operating lease liabilities

Restructure reserves

Income tax payable

Other taxes payable

Other

Total Other Current Liabilities

Other Long-term Assets

Internal use software, net

Deferred contract costs, net

(2)

Product software, net

(1)

Other

Total Other Long-term Assets

Other Long-term Liabilities

Litigation related accruals

Income tax liabilities

Unearned income

Restructuring reserves

Other

Total Other Long-term Liabilities

__________

December 31,

2019

2018

283

309

178

647

150

113

387

— $

234

330

147

—

567

123

100

329

144

280

(1) The balances at December 31, 2019 and 2018 include capitalized cloud computing implementation costs, net, which represents technology
solutions, of $40 million and $5 million at December 31, 2019 and 2018, respectively. The costs have estimated useful lives of 3 to 5 years
with amortization expense of $2 million, $0 million and $0 million for the years ended December 31, 2019, 2018 and 2017, respectively. The
amortization expense and the associated hosting fees are included in Cost of services and Selling, general and administrative expenses on
the Company's Consolidated Statements of Income (Loss).

(2) The balances at December 31, 2019 and 2018 are expected to be amortized over a weighted average remaining life of approximately 12

and 10 years, respectively.

Amortization expense for deferred contract costs for the years ended December 31, 2019, 2018 and 2017 was $42
million, $50 million and $62 million, respectively.

CONDUENT 2019 ANNUAL REPORT | 73

Amortization expense for the next five years and thereafter for deferred contract costs is expected as follows:

2020

2021

2022

2023

2024

Thereafter

Note 11 – Debt

We classify our debt based on the contractual maturity dates of the underlying debt instruments or as of the earliest
put date available to the debt holders. We defer costs associated with debt issuance over the applicable term.
These costs are amortized as interest expense in our Consolidated Statements of Income (Loss).

Long-term debt was as follows:

(in millions)

Term loan A due 2022

Term loan B due 2023

Senior notes due 2024

Finance lease obligations

Principal Debt Balance

Debt issuance costs and unamortized discounts

Less: current maturities

Total Long-term Debt

Weighted Average
Interest Rates at
December 31, 2019

(1)

December 31,

2019

2018

3.42 % $

5.48 %

10.91 %

4.79 %

664

824

1,539

(25)

(50)

1,464

705

833

1,598

(31)

(55)

1,512

____________
(1) Represents weighted average effective interest rate which includes the effect of discounts and premiums on issued debt.

Scheduled principal payments due on our long-term debt for the next five years and thereafter are as follows:

2020

2021

2022

571

2023

800

2024

Thereafter

— $

Total

1,539

Credit Facility

On December 7, 2016, we entered into a senior secured credit agreement (Credit Agreement) among the Company,
its subsidiaries: Conduent Business Services, LLC (CBS), Affiliated Computer Services International B.V. and
Conduent Finance, Inc. (CFI), the lenders party and JP Morgan Chase Bank, N.A., as the administrative agent. The
Credit Agreement contains senior secured credit facilities (Senior Credit Facilities) consisting of:

(i)
(ii)
(iii)

Senior Secured Term Loan A (Term Loan A) with an aggregate principal amount of $700 million;
Senior Secured Term Loan B (Term Loan B) with an aggregate principal amount of $850 million;
Senior Revolving Credit Facility (Revolving Credit Facility) with an aggregate available amount of $750
million including a sub-limit for up to $300 million available for the issuance of letters of credit.

As of December 31, 2019, we have utilized $83 million of our revolving credit facility capacity to issue letters of
credit.

The Credit Agreement permits us to incur incremental term loan borrowings and /or increase commitments under
the revolving credit facility, subject to certain limitations and satisfaction of certain conditions. Currently additional
term loans of up to $300 million are permitted.

74 | CONDUENT 2019 ANNUAL REPORT

All obligations under the Credit Agreement are unconditionally guaranteed by the Company, CBS, Conduent
Finance, Inc. (CFI) and the existing and future direct and indirect wholly owned domestic subsidiaries of CBS
(subject to certain exceptions). All obligations under the Credit Agreement, and the guarantees of those obligations,
are secured, subject to certain exceptions, by substantially all of the assets of CBS and the guarantors under the
Credit Agreement (other than the Company and CFI), including a first-priority pledge of all the capital stock of CBS
and the subsidiaries of CBS directly held by CBS or the guarantors (other than the Company and CFI) under the
Credit Agreement (which pledges, in the case of any foreign subsidiary, will be limited to 65% of the capital stock of
any first-tier foreign subsidiary).

The Credit Agreement contains certain customary affirmative and negative covenants, restrictions and events of
default. The Credit Agreement requires total net leverage ratio for December 31, 2019 and thereafter not to exceed
3.75 to 1.00.

Senior Notes

The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by the Company and each of
the existing and future domestic subsidiaries of CFI or CBS that guarantee the obligations under the Senior Credit
Facilities.

Interest is payable semi-annually. At the option of the Issuers, the Senior Notes are redeemable in whole or in part,
at any time prior to December 15, 2020, at a price equal to 100% of the aggregate principal amount of the Senior
Notes plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus a “make-whole” premium.
The Issuers may also redeem the Senior Notes, in whole or in part, at any time on or after December 15, 2020, at
the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to but excluding the
redemption date.

Loans Repricing and Redemption

On June 28, 2018, the Company entered into Amendment No. 3 (Amendment) to the December 7, 2016 Credit
Agreement, which (i) extended the revolving credit maturity from December 7, 2021 to December 7, 2022 and
reduced the interest rate on the revolving credit by 0.5% from 2.25% over LIBOR to 1.75% over LIBOR; (ii)
extended the maturity date of the Term A Loans from December 7, 2021 to December 7, 2022 and reduced the
interest rate by 0.5% from 2.25% over LIBOR to 1.75% over LIBOR, and (iii) reduced the interest rate on the Term B
Loans by 0.5% from 3.0% over LIBOR to 2.5% over LIBOR. These transactions resulted in a write-off of
unamortized discount and issuance costs of $3 million.

In July 2018, the Company redeemed $476 million of its $510 million 10.50% Senior Notes due 2024. As part of the
redemption, the Company paid a premium of $95 million and wrote off the associated unamortized discount and
issuance costs of $13 million.

Interest

Interest paid on our short-term and long-term debt amounted to $69 million, $100 million, $129 million for the years
ended December 31, 2019, 2018 and 2017, respectively.

Interest expense and interest income were as follows:

(in millions)

Interest expense
(1)

Interest income

Year Ended December 31,

2019

2018

2017

112

137

____________
(1)

Included in Other (income) expenses, net on the Consolidated Statements of Income (Loss).

CONDUENT 2019 ANNUAL REPORT | 75

Note 12 – Financial Instruments

We are exposed to market risk from changes in foreign currency exchange rates and interest 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 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 enter into limited types of derivative
contracts to manage foreign currency exposures that we hedge. Our primary foreign currency market exposures
include the Philippine Peso, Indian Rupee and Mexican Peso. The fair market values of all our derivative contracts
change with fluctuations in interest rates or currency exchange rates and are designed so that any changes in their
values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held
solely as risk management tools and not for trading or speculative purposes. The related cash flow impacts of all our
derivative activities are reflected as cash flows from operating activities.

We do not believe there is significant risk of loss in the event of non-performance by the counterparty associated with
our derivative instruments because these transactions are executed with a major financial institution. Further, our
policy is to deal only with counterparties having a minimum investment grade or better credit rating. Credit risk is
managed through the continuous monitoring of exposures to such counterparties.

Summary of Foreign Exchange Hedging Positions

At December 31, 2019 and 2018, we had outstanding forward exchange with gross notional values of $207 million
and $167 million, respectively. At December 31, 2019, approximately 76% of these contracts mature within three
months, 9% in three to six months, 12% in six to twelve months and 3% in greater than 12 months.

The following is a summary of the primary hedging positions and corresponding fair values:

(in millions)

Currencies Hedged (Buy/Sell)

Philippine Peso/U.S. Dollar

Indian Rupee/U.S. Dollar

Mexican Peso/U.S. Dollar

All Other

Total Foreign Exchange Hedging

December 31, 2019

December 31, 2018

Gross
Notional
Value

Fair Value
Asset
(Liability)

(1)

Gross
Notional
Value

Fair Value
Asset
(Liability)

(1)

—

207

—

167

—

____________
(1)

Represents the net receivable (payable) amount included in the Consolidated Balance Sheet.

76 | CONDUENT 2019 ANNUAL REPORT

Note 13 – 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.

(in millions)

Assets:

Foreign exchange contract - forward

Total Assets

Liabilities:

Foreign exchange contracts - forwards

Total Liabilities

December 31, 2019

December 31, 2018

— $

Summary of Other Financial Assets and Liabilities

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

(in millions)

Assets:

Assets held for sale

Liabilities:

Long-term debt

Liabilities held for sale

Contingent consideration payable

December 31, 2019

December 31, 2018

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

— $

1,464

1,449

— $

1,512

— $

1,463

—

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

The fair value of the contingent consideration payable related to the HSP acquisition was measured using a Monte
Carlo simulation model and calibrated to management’s financial projections of the acquired business. The value of
the contingent consideration payable is then estimated to be the arithmetic average of all simulation paths,
discounted to the valuation date (Level 3). The changes in the fair value are recorded in Other income (expense),
net on the Consolidated Statements of Income (Loss). Refer to Note 5 – Business Acquisition for additional
information.

CONDUENT 2019 ANNUAL REPORT | 77

The fair value of the Assets held for sale and the Liabilities held for sale were measured based on the sale’s price
less estimated transactions costs (Level 3). Refer to Note 4 – Divestiture for additional information.

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

Note 14 – Employee Benefit Plans

Defined Benefit Plans

In 2018, all the U.S. and the majority of the international plan assets and obligations were sold as part of the
divestiture of the U.S. human resource consulting and actuarial business and the human resource consulting and
outsourcing business located in Canada and the U.K. The Company's remaining benefit obligations and plan assets
at December 31, 2019 were $14 million and $2 million, respectively. The Company's remaining benefit obligations
and plan assets at December 31, 2018 were $12 million and $3 million, respectively.

Defined Contribution Plans

We have post-retirement savings and investment plans in several countries, including the U.S., U.K. and Canada. In
many instances, employees from those 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 allowed
to contribute a portion of their salaries and bonuses to the plans, and we match a portion of the employee
contributions. However, beginning in 2019, the Company suspended its match to the 401(k) plan for all U.S. salaried
employees.

The Company recorded charges related to its defined contribution plans of $9 million in 2019, $28 million in 2018
and $35 million in 2017. As a result of suspending 401(k) match for U.S. employees in 2019, there was a $12 million
reduction in expense for the year ended December 31, 2019.

Note 15 - Income Taxes

Income (loss) before income taxes (pre-tax income (loss)) was as follows:

(in millions)

Domestic loss

Foreign income

Loss Before Income Taxes

Year Ended December 31,

2019

2018

2017

(2,177) $

(411) $

(2,106) $

(395) $

(91)

(16)

78 | CONDUENT 2019 ANNUAL REPORT

Provision (benefit) for income taxes were as follows:

(in millions)

Federal Income Taxes

Current

Deferred

Foreign Income Taxes

Current

Deferred

State Income Taxes

Current

Deferred

Total Provision (Benefit)

Year Ended December 31,

2019

2018

2017

(3) $

(170)

(62)

(8)

(43)

(6)

(7)

(233)

(3)

(172) $

(193)

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate was as
follows:

U.S. federal statutory income tax rate

Nondeductible expenses

(1)

Effect of tax law changes

Change in valuation allowance for deferred tax assets

State taxes, net of federal benefit

Tax-exempt income, credits and incentives

Foreign rate differential adjusted for U.S. taxation of foreign profits

(2)

Divestitures

(3)

Goodwill impairment

(4)

Unrecognized tax benefits and other

Effective Income Tax Rate

____________

Year Ended December 31,

2019

2018

2017

21.0 %

(0.2)%

— %

(1.2)%

1.8 %

0.3 %

(0.2)%

0.2 %

(14.1)%

0.6 %

8.2 %

21.0 %

(3.7)%

0.5 %

(1.7)%

(2.3)%

2.2 %

1.9 %

(20.3)%

— %

(2.9)%

(5.3)%

35.0 %

(104.0)%

1,282.4 %

(39.5)%

1.2 %

38.9 %

47.7 %

(51.9)%

— %

(3.5)%

1,206.3 %

In 2017, nondeductible expenses primarily related to officers life insurance.

(1)
(2) The “U.S. taxation of foreign profits” represents the U.S. tax, net of foreign tax credits, associated with actual and deemed repatriations of

earnings from our non-U.S. subsidiaries.

(3) 2018 and 2017 divestitures include nondeductible goodwill allocated to divested businesses.
(4) Goodwill impairment represents adjustments for impairment of non-deductible component of goodwill.

On a consolidated basis, we paid a total of $46 million, $108 million and $29 million in income taxes to federal,
foreign and state jurisdictions during the three years ended December 31, 2019, 2018 and 2017, respectively.

CONDUENT 2019 ANNUAL REPORT | 79

Total income tax expense (benefit) was allocated as follows:

(in millions)

Income tax expense (benefit)

Discontinued operations

Total Income Tax Expense (Benefit)

Unrecognized Tax Benefits and Audit Resolutions

Year Ended December 31,

2019

2018

2017

(172) $

—

(172) $

—

(193)

(190)

We recognize tax liabilities when, despite our belief that our tax return positions are supportable, we believe that
certain positions may not be fully sustained upon review by tax authorities. Each period we assess uncertain tax
positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured
at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Where we
have determined that our tax return filing position does not satisfy the more-likely-than-not recognition threshold, we
have recorded no tax benefits.

We are also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope
of our operations. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related
tax positions require judgment and can increase or decrease our effective tax rate, as well as impact our operating
results. The specific timing of when the resolution of each tax position will be reached is uncertain.

As of December 31, 2019, the Company had $24 million of total unrecognized tax benefits, of which $23 million, if
recognized, would impact the Company's effective tax rate. Due to expected settlements, the Company estimates
that $14 million of the total unrecognized tax benefits will reverse within the next twelve months.

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

(in millions)

Balance at January 1

Additions related to current year

Additions related to prior years positions

Reductions related to prior years positions

Settlements with taxing authorities

(1)

Currency

Balance at December 31

_______________

2019

2018

2017

(3)

(1)

—

(1)

(2)

—

(1) 2019 and 2018 settlement resulted in $1 million and $1 million cash paid, respectively.

We maintain offsetting benefits from other jurisdictions of $16 million, $15 million and $16 million, at December 31,
2019, 2018 and 2017, respectively. We recognized interest and penalties accrued on unrecognized tax benefits
within income tax expense. We had $14 million, $10 million and $6 million accrued for the payment of interest and
penalties associated with unrecognized tax benefits at December 31, 2019, 2018 and 2017, respectively. In the
U.S., we are no longer subject to U.S. federal income tax examinations for years before 2015. With respect to our
major foreign jurisdictions, the years generally remain open back to 2006.

80 | CONDUENT 2019 ANNUAL REPORT

Deferred Income Taxes

The Company is indefinitely reinvested in the undistributed earnings of its foreign subsidiaries with respect to the
U.S. These foreign subsidiaries have aggregate cumulative undistributed earnings of $222 million as of December
31, 2019. For years after 2017, the Tax Reform does allow for certain earnings to be repatriated free from U.S.
Federal taxes. However, the repatriation of earnings could give rise to additional tax liabilities. We have also not
provided for deferred taxes on outside basis differences in our investments in our foreign subsidiaries that are
unrelated to unremitted earnings. A determination of the unrecognized deferred taxes related to these other
components of our outside basis differences is not practicable. We have provided for deferred taxes with respect to
certain unremitted earnings of foreign subsidiaries that are not indefinitely reinvested between foreign subsidiaries
outside of the U.S.

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

(in millions)

Net operating losses and capital loss carryforward

Operating reserves, accruals and deferrals

Deferred Tax Assets

Deferred compensation

Settlement reserves

Operating lease liabilities

Other

Subtotal

Valuation allowance

Total

Unearned income

Intangibles and goodwill

Depreciation

Operating lease right-of-use assets

Other

Total

Total Deferred Taxes, Net

Deferred Tax Liabilities

December 31,

2019

2018

122

309

(72)

237

143

331

—

210

(44)

166

341

—

481

(94) $

(315)

The deferred tax assets for the respective periods were assessed for recoverability and, where applicable, a
valuation allowance was recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not,
be realized in the future. The net change in the total valuation allowance for the years ended December 31, 2019
and 2018 was an increase of $28 million and an increase of $9 million, respectively. The valuation allowance relates
primarily to certain net operating loss carryforwards, tax credit carryforwards and deductible temporary differences
for which we have concluded it is more-likely-than-not that these items will not be realized in the ordinary course of
operations.

Although realization is not assured, we have concluded that it is more-likely-than-not that the deferred tax assets,
for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of
operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and
projected income from operating activities. The amount of the net deferred tax assets considered realizable,
however, could be reduced in the near term if actual future income or income tax rates are lower than estimated, or
if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary
differences.

CONDUENT 2019 ANNUAL REPORT | 81

At December 31, 2019, we had tax credit carryforwards of $15 million available to offset future income taxes which
will expire between 2027 and 2039 if not utilized. We also had net operating loss carryforwards for income tax
purposes of $637 million that will expire between 2020 and 2039, if not utilized; and $254 million available to offset
future taxable income indefinitely. We had $45 million of capital loss carryforwards for income tax purposes that will
expire in 2024, if not utilized, and $11 million available to offset future capital gains income indefinitely.

Note 16 – Contingencies and Litigation

As more fully discussed below, the Company is involved in a variety of claims, lawsuits, investigations and
proceedings concerning a variety of matters, including: governmental entity contracting, servicing and procurement
law; intellectual property law; employment law; commercial and contracts law; the Employee Retirement Income
Security Act (ERISA); and other laws and regulations. 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.
The Company assesses its potential liability by analyzing its litigation and regulatory matters using available
information. The Company develops its view on estimated losses in consultation with outside counsel handling 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 the Company's
determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of
these matters result in a final adverse judgment or be settled for significant amounts in excess of any accrual for
such matter or matters, this could have a material adverse effect on the Company's results of operations, cash flows
and financial position in the period or periods in which such change in determination, judgment or settlement occurs.
The Company believes it has recorded adequate provisions for any such matters as of December 31, 2019.
Litigation is inherently unpredictable, and it is not possible to predict the ultimate outcome of these matters and such
outcome in any such matters could be in excess of any amounts accrued and could be material to the Company's
results of operations, cash flows or financial position in any reporting period.

Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships
with suppliers, customers and non-consolidated affiliates when the Company undertakes an obligation to guarantee
the performance of others if specified triggering events occur. Nonperformance under a contract could trigger an
obligation of the Company. 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
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 consolidated financial position or liquidity. As of December 31, 2019, the Company had accrued its
estimate of liability incurred under its indemnification arrangements and guarantees.

Litigation Against the Company

State of Texas v. Xerox Corporation, Conduent Business Services, LLC (f/k/a Xerox Business Services,
LLC), Conduent State Healthcare, LLC (f/k/a Xerox State Healthcare, LLC, f/k/a ACS State Healthcare, LLC)
and Conduent Incorporated: On May 9, 2014, the State of Texas, via the Texas Office of Attorney General (the
“State”), filed a lawsuit in the 53rd Judicial District Court of Travis County, Texas. The lawsuit alleged that Conduent
State Healthcare LLC (f/k/a Xerox State Healthcare, LLC and ACS State Healthcare) (“CSH”), Conduent Business
Services LLC (“CBS”) and Conduent Incorporated (“CI”) (collectively, CSH, CBS and CI are referred to herein as
the "Conduent Defendants") and Xerox Corporation (together with the Conduent Defendants, the “Defendants”)
violated the Texas Medicaid Fraud Prevention Act in the administration of its contract with the Texas Department of
Health and Human Services (“HHSC”). In February 2019 a settlement agreement and release was reached among
the Defendants, the State and HHSC which was amended in May 2019 ("Texas Agreement"). Pursuant to the terms
of the Texas Agreement, the Conduent Defendants were required to pay the State of Texas $236 million, of which
$118 million was paid in 2019 and $118 million paid in January 2020. The case has been dismissed with prejudice
with a full release and discharge of the Defendants.

82 | CONDUENT 2019 ANNUAL REPORT

Skyview Capital LLC and Continuum Global Solutions, LLC v. Conduent Business Services, LLC: On
February 3, 2020, plaintiffs filed a lawsuit in the Superior Court of New York County, New York. The lawsuit relates
to the sale of a portion of Conduent Business Service, LLC’s (“CBS”) select standalone customer care call center
business (the “Business”) to plaintiffs, which sale closed in February 2019. Under the terms of the sale agreement,
CBS received approximately $23 million of notes from plaintiffs (the “Notes”). The lawsuit alleges various causes of
action in connection with the acquisition, including: indemnification for breach of representation and 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. Conduent denies all of these
allegations, believes that it has strong defenses to all of plaintiffs’ claims and will vigorously defend itself against
these claims. 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.

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”),
which was a wholly-owned subsidiary of Conduent, for the use of faulty actuarial assumptions in connection with the
2007 actuarial valuation for the Stanislaus County Employees Retirement Association (“StanCERA”). Plaintiffs
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 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 Consultants, LLC; 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.

Conduent Business Services, LLC v. Cognizant Business Services, LLC: On April 12, 2017, Conduent
Business Services LLC (“Conduent”) 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 Conduent and Cognizant, as amended and supplemented (the “Contract”). The
Contract contains certain minimum purchase obligations by Conduent 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 Conduent under Conduent’s contract with the New York Department of
Health to provide Medicaid Management Information Systems. In the lawsuit, Conduent seeks damages in excess
of $150 million. During the first quarter of 2018, Conduent provided notice to Cognizant that it was terminating the
Contract for cause and recorded in the same period certain charges associated with the termination. Conduent also
alleges that it terminated the Contract for cause, because, among other things, Cognizant violated the Foreign
Corrupt Practices Act. Cognizant asserted two 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. Conduent has responded to Cognizant’s counterclaims by denying the allegations.
Cognizant filed a second amended counterclaim seeking an additional $43 million to satisfy the minimum revenue
commitment attributable to the years 2017-2020, which increased Cognizant's damages claim to $90 million.
Conduent 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.

CONDUENT 2019 ANNUAL REPORT | 83

Other Matters:

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 (the
"Department") and the Consumer Financial Protection Bureau ("CFPB") that some third-party student loans under
outsourcing arrangements for various financial institutions required adjustments. With the exception of an inquiry the
Illinois Attorney General's Office recently commenced, the Company has resolved the investigations the CFPB and
several state agencies commenced and continues to work with the Department and the U.S. Department of Justice
to resolve all outstanding issues, including a number of operational projects that XES discovered and 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 which fines, penalties or other liabilities are sought from XES. Nor is the Company able
to predict the likely outcome of these matters, should any such matter be commenced, or reasonably provide an
estimate or range of estimates of any loss in excess of current reserves. The Company could, in future periods,
incur judgments or enter into settlements to resolve these potential matters for amounts in excess of current
reserves and there could be a material adverse effect on the Company's results of operations, cash flows and
financial position in the period in which such change in judgment or settlement occurs.

Guarantees and Indemnifications

Indemnifications Provided as Part of Contracts and Agreements

Acquisitions/Divestitures:

We have indemnified, subject to certain deductibles and limits, the purchasers of businesses or divested assets for
the occurrence of specified events under certain of our divestiture agreements. In addition, we customarily agree to
hold the other party harmless against losses arising from a breach of representations and covenants, including such
matters as adequate title to assets sold, intellectual property rights and certain income taxes arising prior to the date
of acquisition. Where appropriate, an obligation for such indemnifications is recorded as a liability at the time of the
acquisition or divestiture. Since the obligated amounts of these types of indemnifications are often not explicitly
stated or are contingent on the occurrence of future events, the overall maximum amount, or range of amount of the
obligation under such indemnifications cannot be reasonably estimated. Other than obligations recorded as
liabilities at the time of divestiture, we have not historically made significant payments for these indemnifications.
Additionally, under certain of our acquisition agreements, we have provided for additional consideration to be paid to
the sellers if established financial targets are achieved within specific timeframes post-closing. We have recognized
liabilities for these contingent obligations based on an estimate of the fair value of these contingencies at the time of
acquisition. Contingent obligations related to indemnifications arising from our divestitures and contingent
consideration provided for by our acquisitions are not expected to be material to our financial position, results of
operations or cash flows.

Other Agreements:

We are also party to the following types of agreements pursuant to which we may be obligated to indemnify the
other party with respect to certain matters:

• Guarantees on behalf of our subsidiaries with respect to real estate leases. These lease guarantees may

remain in effect subsequent to the sale of the subsidiary.

• Agreements to indemnify various service providers, trustees and bank agents from any third-party claims

related to their performance on our behalf, with the exception of claims that result from the third-party's own
willful misconduct or gross negligence.

• Guarantees of our performance in certain services contracts to our customers and indirectly the performance of
third parties with whom we have subcontracted for their services. This includes indemnifications to customers
for losses that may be sustained as a result of our performance of services at a customer's location.

84 | CONDUENT 2019 ANNUAL REPORT

In each of these circumstances, our payment is conditioned on the other party making a claim pursuant to the
procedures specified in the particular contract and such procedures also typically allow us to challenge the other
party's claims. In the case of lease guarantees, we may contest the liabilities asserted under the lease. Further, our
obligations under these agreements and guarantees may be limited in terms of time and/or amount, and in some
instances, we may have recourse against third parties for certain payments we made.

Intellectual Property Indemnifications

We do not own most of the software that we use to run our business. Instead, we license this software from a small
number of primary vendors. We indemnify certain software providers against claims that may arise as a result of our
use or our subsidiaries', customers' or resellers' use of their software in our services and solutions. These
indemnities usually do not include limits on the claims, provided the claim is made pursuant to the procedures
required in the services contract.

Indemnification of Officers and Directors

Our corporate by-laws require that, except to the extent expressly prohibited by law, we must indemnify our officers
and directors against judgments, fines, penalties and amounts paid in settlement and reasonable expenses,
including attorneys' fees, incurred in connection with civil or criminal action or proceedings or any appeal, as it
relates to their services to our Company and our subsidiaries. Although the by-laws provide no limit on the amount
of indemnification, we may have recourse against our insurance carriers for certain payments made by us.
However, certain indemnification payments may not be covered under our directors' and officers' insurance
coverage. We also indemnify certain fiduciaries of our employee benefit plans for liabilities incurred in their service
as fiduciary whether or not they are officers of the Company. Finally, in connection with our acquisition of
businesses, we may become contractually obligated to indemnify certain former and current directors, officers and
employees of those businesses in accordance with pre-acquisition by-laws or indemnification agreements or
applicable state law.

Other Contingencies

Certain contracts, primarily in the Company's Government Services and Transportation segments, require the
Company to provide a surety bond or a letter of credit as a guarantee of performance. As of December 31, 2019,
the Company had $568 million of outstanding surety bonds used to secure its performance of contractual
obligations with its clients and $227 million of outstanding letters of credit issued to secure the Company's
performance of contractual obligations to its clients as well as other corporate obligations. In general, the Company
would only be liable for the amount of these guarantees in the event of default in the Company's performance of its
obligations under each contract. The Company believes it has sufficient capacity in the surety markets and liquidity
from its cash flow and its various credit arrangements (including its Credit Facility) to allow it to respond to future
requests for proposals that require such credit support.

CONDUENT 2019 ANNUAL REPORT | 85

Note 17 - Preferred Stock

Series A Preferred Stock

In connection with the December 31, 2016 separation from our former parent company (Separation), we issued
120,000 shares of Series A convertible perpetual preferred stock with an aggregate liquidation preference of $120
million and an initial fair value of $142 million. The Series A convertible preferred stock pays quarterly cash
dividends at a rate of 8% per year ($9.6 million per year). Each share of the Series A convertible preferred stock is
convertible at any time, at the option of the holder, into 44.9438 shares of common stock for a total of 5,393,000
shares (reflecting an initial conversion price of approximately $22.25 per share of common stock), subject to
customary anti-dilution adjustments.

If the closing price of our common stock exceeds 137% of the initial conversion price for 20 out of 30 trading days,
we have the right to cause any or all of the Series A convertible preferred stock to be converted into shares of
common stock at the then applicable conversion rate. The Series A convertible preferred stock is also convertible, at
the option of the holder, upon a change in control, at the applicable conversion rate plus an additional number of
shares determined by reference to the price paid for our common stock upon such change in control. In addition,
upon the occurrence of certain fundamental change events, including a change in control or the delisting of
Conduent's common stock, the holder of Series A convertible preferred stock has the right to require us to redeem
any or all of the Series A convertible preferred stock in cash at a redemption price per share equal to the liquidation
preference and any accrued and unpaid dividends to, but not including, the redemption date. As a result of the
contingent redemption feature, the Series A convertible preferred stock is classified as temporary equity and
reflected separately from permanent equity in the Consolidated Balance Sheets.

Note 18 – Shareholders’ Equity

Preferred Stock

As of December 31, 2019, we had one class of preferred stock outstanding. Refer to Note 17 – Preferred Stock for
further information. We are authorized to issue approximately 100 million shares of convertible preferred stock
at $0.01 par value per share.

Common Stock

We have 1 billion authorized shares of common stock at $0.01 par value per share. At December 31, 2019, 17
million shares were reserved for issuance under our incentive compensation plans and 5.4 million shares were
reserved for conversion of the Series A convertible preferred stock.

Stock Compensation Plans

Certain of our employees participate in a long-term incentive plan. Our long-term incentive plan authorizes the
issuance of restricted stock units / shares (RSU), performance stock units / share (PSU) and non-qualified stock
options to employees. All awards for these plans prior to 2017 were made in Xerox stock and therefore converted
into Conduent stock effective upon the Separation. Using a formula designed to preserve the value of the award
immediately prior to the Separation, all of these awards will be settled in Conduent's common stock and are
reflected in the Company's Consolidated Statements of Shareholders' Equity. Stock-based compensation expense
includes expense based on the awards and terms previously granted to the employees.

Stock-based compensation expense was as follows:

(in millions)

Stock-based compensation expense, pre-tax

Income tax benefit recognized in earnings

2019

Year Ended December 31,
2018

2017

—

86 | CONDUENT 2019 ANNUAL REPORT

Restricted Stock Units / Shares Compensation expense is based upon the grant date market price. The
compensation expense is recorded over the vesting period, which is normally three years from the date of grant,
based on management's estimate of the number of shares expected to vest.

Performance Stock Units / Shares: The Company granted PSUs that vest contingent upon its achievement of
certain specified financial performance criteria over a three-year period. If the three-year actual results exceed the
stated targets, then the plan participants have the potential to earn additional shares of common stock, which
cannot exceed 100% of the original grant.

The fair value of PSUs is based upon the market price of Conduent's common stock on the date of the grant.
Compensation expense is recognized over the vesting period, which is normally three years from the date of grant,
based on management's estimate of the number of shares expected to vest. If the stated targets are not met, any
recognized compensation cost would be reversed.

Employee Stock Options: Stock options were issued by a former parent company and were converted to
Conduent's common stock upon the Separation. As of December 31, 2019, these options have expired. Conduent
has not issued any new stock options.

Summary of Stock-based Compensation Activity

(shares in thousands)

2019

2018

2017

Weighted
Average Grant
Date Fair
Value

Restricted Stock Units / Shares

Outstanding at January 1

2,399

Granted

Vested

Canceled

Outstanding at December 31

Performance Stock Units /
Shares

Outstanding at January 1

Granted

Vested

Canceled

Outstanding at December 31

2,503

(2,135)

(1,026)

1,741

4,557

1,229

(1,069)

(1,120)

3,597

16.90

12.57

15.54

15.68

13.07

16.76

13.35

15.64

16.00

16.17

3,125

1,246

(1,501)

(471)

2,399

5,429

730

(980)

(622)

4,557

16.29

18.82

17.30

16.62

16.90

16.55

18.64

17.12

16.59

16.76

1,961

1,988

(215)

(609)

3,125

4,926

3,933

(1,696)

(1,734)

5,429

13.99

16.75

19.98

15.88

16.29

13.99

16.76

19.67

17.46

16.55

The Company issued 182 thousand Deferred Stock Units (DSU) to non-employee members of the Board of
Directors. These DSUs are fully vested and will be issued when the directors leave the Board.

The total unrecognized compensation cost related to non-vested stock-based awards at December 31, 2019 was as
follows (in millions):

Awards

Restricted Stock Units / Shares

Performance Stock Units / Shares

Total

Unrecognized
Compensation

Remaining Weighted-
Average Vesting Period
(Years)

1.9

1.0

CONDUENT 2019 ANNUAL REPORT | 87

The aggregate intrinsic value of outstanding RSUs and PSUs awards were as follows (in millions):

Awards

Restricted Stock Units / Shares

Performance Stock Units / Shares

December 31, 2019

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

(in millions)

December 31, 2019

December 31, 2018

December 31, 2017

Awards

Restricted Stock
Units / Shares

Performance Stock
Units / Shares

Stock Options

Total
Intrinsic
Value

Cash
Received

Tax
Benefit

Total
Intrinsic
Value

Cash
Received

Tax
Benefit

Total
Intrinsic
Value

Cash
Received

Tax
Benefit

— $

—

— $

—

— $

—

Note 19 – Other Comprehensive Income (Loss)

Other Comprehensive Loss is comprised of the following:

(in millions)

Currency Translation

Currency translation adjustments, net

Reclassification of currency translation
adjustments on divestitures

Translation adjustments gains(losses)

Unrealized Gains (Losses)

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

Changes in cash flow hedges reclassed to
earnings

(1)

Net Unrealized Gains (Losses)

Defined Benefit Plans Gains (Losses)

Reclassification of divested benefit plans
and other

Net actuarial/prior service gains (losses)
(2)

Actuarial loss amortization/settlement

Other gains (losses)

(3)

Changes in Defined Benefit Plans Gains
(Losses)

Other Comprehensive Income (Loss)

____________________________

Year Ended December 31,

2019

2018

2017

Pre-tax

Net of Tax

Pre-tax

Net of Tax

Pre-tax

Net of Tax

(31) $

(1)

— $

—

(1) $

—

(1) $

(1)

—

— $

(5)

(4)

(7) $

—

(4)

(3)

(5)

(1) Reclassified to Cost of sales - refer to Note 12 – Financial Instruments for additional information regarding our cash flow hedges.
(2) Reclassified to total net periodic benefit cost.
(3) Primarily represents currency impact on cumulative amount of benefit plan net actuarial losses and prior service credits in AOCL.

88 | CONDUENT 2019 ANNUAL REPORT

Accumulated Other Comprehensive Loss (AOCL)

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

(in millions)

Balance at December 31, 2018

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

Balance at December 31, 2019

Currency
Translation
Adjustments

Gains (Losses)
on Cash Flow
Hedges

Defined Benefit
Pension Items

Total

(426) $

(408) $

—

(1) $

(425)

—

(1)

(2) $

(407)

(in millions)

Currency
Translation
Adjustments

Gains (Losses)
on Cash Flow
Hedges

Defined Benefit
Pension Items

Total

Balance at December 31, 2017

(437) $

(58) $

Reclassification of amounts impacted by Tax Reform

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

Balance at December 31, 2018

(in millions)

Balance at December 31, 2016

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

Balance at December 31, 2017

__________

(1) All amounts are net of tax. Tax effects were immaterial.

—

(31)

(426) $

—

(5)

—

(1) $

(494)

(5)

(30)

104

(425)

Currency
Translation
Adjustments

Gains (Losses)
on Cash Flow
Hedges

Defined Benefit
Pension Items

Total

(472) $

(1) $

(53) $

(526)

—

(437) $

—

(5)

—

(5)

—

(58) $

(494)

CONDUENT 2019 ANNUAL REPORT | 89

Note 20 – Earnings per Share

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

The following table sets forth the computation of basic and diluted earnings per share of common stock:

(in millions, except per share data. Shares in thousands)

2019

2018

2017

Year Ended December 31,

Net Income (Loss) per Share:

Net income (loss)

Cash dividend paid - preferred stock

Adjusted Net Income (Loss) From Continuing Operations Available to
Common Shareholders

Net income (loss) from discontinued operations

Adjusted Net Income (Loss) Available to Common Shareholders

Weighted average common shares outstanding

Basic Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share:

Net income (loss) from continuing operations

Accrued dividends on preferred stock

Adjusted Net Income (Loss) From Continuing Operations Available to
Common Shareholders

Net income (loss) from discontinued operations

Adjusted Net Income (Loss) Available to Common Shareholders

Weighted average common shares outstanding

Common shares issuable with respect to:

Stock options

Restricted stock and performance units / shares

8% Convertible preferred stock

Adjusted Weighted Average Common Shares Outstanding

Diluted Earnings (Loss) per Share:

Continuing operations

Discontinued operations

Diluted Earnings (Loss) per Share

(1,934) $

(10)

(1,944)

—

(1,944) $

209,318

(9.29) $

—

(9.29) $

(1,934) $

(10)

(1,944)

—

(1,944) $

209,318

—

(416) $

(10)

(426)

—

(426) $

177

(10)

167

171

206,056

204,007

(2.06) $

—

(2.06) $

(416) $

(10)

(426)

—

(426) $

0.82

0.02

0.84

177

(10)

167

171

206,056

204,007

—

195

2,591

—

209,318

206,056

206,793

(9.29) $

—

(9.29) $

(2.06) $

—

(2.06) $

0.81

0.02

0.83

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):

Stock Options

Restricted stock and performance shares/units

Convertible preferred stock

Total Anti-Dilutive Securities

—

2,568

5,393

7,961

90 | CONDUENT 2019 ANNUAL REPORT

Note 21 – Related Party Transactions

During the third quarter of 2019, Carl C. Icahn and his affiliates (shareholders) increased their ownership interest in
the Company. In the normal course of business, the Company provides services to, and purchases from, certain
related parties with the same shareholders. The services provided to these entities included those related to human
resources, end-user support and other services and solutions. The purchases from these entities included office
equipment and related services and supplies. Revenue and purchases from these entities were included in
Revenue and Costs of services / Selling, General and administrative, respectively, on the Company's Consolidated
Statements of Income (Loss).

Transactions with related parties were as follows:

(in millions)

Revenue from related parties

Purchases from related parties

Year Ended December 31,

2019

2018

2017

45 $

41 $

The Company's receivable and payable balances with related party entities were not material as of December 31,
2019 and 2018.

CONDUENT 2019 ANNUAL REPORT | 91

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Management's Responsibility for Financial Statements

Management is responsible for the integrity and objectivity of all information presented in this Annual Report on
Form 10-K. The consolidated financial statements were prepared in conformity with accounting principles generally
accepted in the United States of America and include amounts based on management's best estimates and
judgments. Management believes the consolidated financial statements fairly reflect the form and substance of
transactions and that the financial statements fairly represent the Company's financial position and results of
operations.

Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of our principal executive officer and principal
financial officer, 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, as of December 31, 2019, the end of the period
covered by this Annual Report on Form 10-K. 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 Annual Report on Form 10-K, 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 Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
forms relating to Conduent Incorporated, 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.

Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as
amended. Under the supervision and with the participation of our management, including our principal executive
officer, principal financial officer and principal accounting officer, we have conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in "Internal Control - Integrated
Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the above evaluation, management concluded that our internal control over financial reporting was
effective as of December 31, 2019.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which
appears in Part II, Item 8 of this Form 10-K.

92 | CONDUENT 2019 ANNUAL REPORT

Changes in Internal Control over Financial Reporting

In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no
change identified in our internal control over financial reporting that occurred during the last fiscal quarter ended
December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

ITEM 9B. OTHER INFORMATION

On February 25, 2020, the Company’s Board of Directors appointed Clifford Skelton to serve as the Company’s
Chief Executive Officer. Mr. Skelton served as Interim Chief Executive Officer since August 6, 2019 and Chief
Operating Officer between June 2019 and August 2019. In connection with such appointment, the Compensation
Committee of the Board of Directors set the salary of Mr. Skelton at $750,000 per annum. Mr. Skelton will be eligible
to participate in the Company’s Annual Performance Incentive Plan (“APIP”) at a target level of 125% of his salary
with a potential payout range between zero and 200% of target. Mr. Skelton will also be eligible to participate in the
Company’s Long Term Incentive Plan (“LTIP”), which is payable in equity. His LTIP target annual award is
$3,000,000.

The Letter Agreement, which sets forth the compensation and other terms of Mr. Skelton’s appointment, is attached
as Exhibit 10.6(e)(ii) to this Report and incorporated by reference. Other than the terms set forth in the Letter
Agreement, Mr. Skelton’s employment terms remain the same as set forth in the letter agreements between the
Company and Mr. Skelton dated May 21, 2019 and filed as Exhibit 10.6(h) on Form 8-K dated May 28, 2019 and
dated August 6, 2019 and filed as Exhibit 10.6(j) on Form 8-K dated August 7, 2019, which are incorporated by
reference.

The information required by Items 401 and 404 of Regulation S-K and filed in Item 5.02(c) on Registrant’s Form 8-K
dated May 28, 2019 is incorporated herein by reference.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding our Executive officers required by Item 10 of Part III is set forth in Item 1 of Part I
"Business–Information About Our Executive Officers." The information regarding directors is incorporated herein by
reference to the section entitled “Proposal 1 - Election of Directors” in our definitive Proxy Statement (2020 Proxy
Statement) to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for our 2020
Annual Meeting of Stockholders. The Proxy Statement is expected to be filed within 120 days after the end of our
fiscal year ended December 31, 2019.

The information regarding compliance with Section 16(a) of the Securities and Exchange Act of 1934 is incorporated
herein by reference to the section entitled “Delinquent Section 16(a) Report" of our 2020 Proxy Statement.

The information required by this Item regarding the Audit Committee, its members and the Audit Committee financial
experts is incorporated by reference herein from the subsection entitled “Committee Functions, Membership and
Meetings” in the section entitled “Proposal 1 - Election of Directors” in our 2020 Proxy Statement.

We have adopted a code of ethics applicable to our principal executive officer, principal financial officer and principal
accounting officer (Finance Code of Conduct). The Finance Code of Conduct can be found on our website at:
https://www.conduent.com/corporate-governance/ethics-and-compliance/. Information concerning our Finance Code
of Conduct can be found under "Corporate Governance" in our 2020 Proxy Statement and is incorporated here by
reference.

CONDUENT 2019 ANNUAL REPORT | 93

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item included under the following captions under “Proposal 1 - Election of
Directors” in our 2020 Proxy Statement is incorporated herein by reference: “Compensation Discussion and
Analysis”, “Summary Compensation Table”, “Grants of Plan-Based Awards in 2019”, “Outstanding Equity Awards at
2019 Fiscal Year-End”, “Option Exercises and Stock Vested in 2019”, “Pension Benefits for the 2019 Fiscal Year”,
“Nonqualified Deferred Compensation for the 2019 Fiscal Year”, “Potential Payments upon Termination or Change
in Control”, “Summary of Annual Director Annual Compensation, "Compensation Committee Interlocks and Insider
Participation” and “Compensation Committee”. The information included under the heading “Compensation
Committee Report” in our 2020 Proxy Statement is incorporated herein by reference; however, this information shall
not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the
liabilities of Section 18 of the Exchange Act.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this Item regarding security ownership of certain beneficial owners and management and
securities authorized for issuance under equity compensation plans is incorporated herein by reference to the
subsections entitled “Ownership of Company Securities,” and “Equity Compensation Plan Information” under
“Proposal 1 - Election of Directors” in our 2020 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE

Information required by this Item regarding certain relationships and related transactions is incorporated herein by
reference to the subsection entitled “Certain Relationships and Related Person Transactions” under “Proposal 1 -
Election of Directors” in our 2020 Proxy Statement. The information regarding director independence is
incorporated herein by reference to the subsections entitled “Corporate Governance” and “Director Independence”
in the section entitled “Proposal 1 - Election of Directors” in our 2020 Proxy Statement.

ITEM 14. PRINCIPAL AUDITOR FEES AND SERVICES

The information required by this Item regarding principal auditor fees and services is incorporated herein by
reference to the section entitled “Proposal 2 - Ratification of Election of Independent Registered Public Accounting
Firm” in our 2020 Proxy Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

Index to Financial Statements filed as part of this report:

•
▪

▪

▪
▪

▪

Report of Independent Registered Public Accounting Firm;
Consolidated Statements of Income (Loss) for each of the years in the three-year period
ended December 31, 2019;
Consolidated Statements of Comprehensive Income (Loss) for each of the years in the three-
year period ended December 31, 2019;
Consolidated Balance Sheets as of December 31, 2019 and 2018;
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 2019;
Consolidated Statements of Shareholders' Equity for each of the years in the three-year
period ended December 31, 2019;
Notes to the Consolidated Financial Statements; and

94 | CONDUENT 2019 ANNUAL REPORT

▪

All other schedules are omitted as they are not applicable, or the information required is
included in the financial statements or notes thereto.

Financial Statement Schedules:

▪

Schedule II–Valuation and Qualifying Accounts for each of the three years in the period
ended December 31, 2019.

The exhibits filed herewith are set forth in the exhibit Index included herein.

(b)

Management contracts or compensatory plans or arrangements listed that are applicable to the executive
officers named in the Summary Compensation Table which appears in Registrant's 2020 Proxy Statement
or to our directors are preceded by an asterisk (*).

SCHEDULE II

Valuation and Qualifying Accounts

For the three years ended December 31, 2019

(in millions)

Balance
at beginning
of period

Additions
charged to
expense(1)(4)

Amounts
(credited)
charged to
other income
statement
accounts (2)

Deductions
and other, net
of recoveries
(3)(4)

Balance
at end
of period

Allowance for Losses:
2019 Accounts Receivable

2018 Accounts Receivable

2017 Accounts Receivable

Tax Valuation Allowance:
2019 Tax Valuation

2018 Tax Valuation

2017 Tax Valuation

__________

—

(1)

— $

(2) $

—

(1)

(4)

(10)

(8)

(5)

(1) Account Receivables/Contract Assets: additions charged to expense represent bad debt provisions relate to estimated losses due to credit

and similar collectibility issues.

(2) Account Receivables: Other charges (credits) relate to adjustments to reserves necessary to reflect events of non-payment such as

customer accommodations and contract terminations.

(3) Account Receivables/Contract Assets: Deductions and other, net of recoveries primarily relates to receivable and contract asset write-offs,
but also includes reclassification to other balance sheet accounts, the impact of foreign currency translation adjustments and recoveries of
previously written off receivables and contract assets.

(4) Tax Valuation: tax valuation allowance are primarily related to certain net operating loss carryforwards, tax credit carryforwards and

deductible temporary differences for which we have concluded it is more-likely-than-not that these items will not be realized in the ordinary
course of operations.

ITEM 16. FORM 10-K SUMMARY

None

CONDUENT 2019 ANNUAL REPORT | 95

EXHIBIT INDEX

Document and Location

Exhibit No.
2.1

3.1

3.2

4.1(a)

4.1(b)

4.1(c)

4.1(d)

4.1(e)

4.1(f)

4.2

10.1(a)

10.1(b)

Separation and Distribution Agreement, dated as of December 30, 2016, by and between Xerox
Corporation and Conduent Incorporated.
Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K dated
January 3, 2017. (See SEC File Number 001-37817).
Restated Certificate of Incorporation of Registrant as of December 23, 2016.

Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated
December 23, 2016. (See SEC File Number 001-37817).
Amended and Restated By-Laws of Registrant as amended through December 31, 2016.

Incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K dated
December 23, 2016. (See SEC File Number 001-37817).
Indenture, dated as of December 7, 2016, among Conduent Finance, Inc., Xerox Business
Services, LLC, the Guarantors named therein and U.S. Bank National Association, as trustee.
Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated
December 9, 2016. (See SEC File Number 001-37817).
First Supplemental Indenture, dated as of January 9, 2018, among Conduent Finance, Inc.,
Xerox Business Services, LLC, the Guarantors named therein and U.S. Bank National
Association, as trustee.

Incorporated by reference to Exhibit 4.1(a) to the Registrant's Quarterly Report on Form 10-Q
dated August 8, 2018. (See SEC File Number 001-37817).
Second Supplemental Indenture, dated as of June 1, 2018, among Conduent Finance, Inc.,
Xerox Business Services, LLC, the Guarantors named therein and U.S. Bank National
Association, as trustee.

Incorporated by reference to Exhibit 4.1(b) to the Registrant's Quarterly Report on Form 10-Q
dated August 8, 2018. (See SEC File Number 001-37817).
Third Supplemental Indenture, dated as of June 1, 2018, among Conduent Finance, Inc., Xerox
Business Services, LLC, the Guarantors named therein and U.S. Bank National Association, as
trustee.

Incorporated by reference to Exhibit 4.1(c) to the Registrant's Quarterly Report on Form 10-Q
dated August 8, 2018. (See SEC File Number 001-37817).
Fourth Supplemental Indenture, dated as of June 1, 2018, among Conduent Finance, Inc.,
Xerox Business Services, LLC, the Guarantors named therein and U.S. Bank National
Association, as trustee.

Incorporated by reference to Exhibit 4.1(d) to the Registrant's Quarterly Report on Form 10-Q
dated August 8, 2018. (See SEC File Number 001-37817).
Fifth Supplemental Indenture, dated as of July 12, 2018, among Conduent Finance, Inc., Xerox
Business Services, LLC, the Guarantors named therein and U.S. Bank National Association, as
trustee.

Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated July
12, 2018. (See SEC File Number 001-37817).
4.2 Description of Securities.

Credit Agreement, dated as of December 7, 2016, among Conduent Incorporated, Xerox
Business Services, LLC, Affiliated Computer Services International B.V., Conduent Finance,
Inc., the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent.
Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated
December 9, 2016. (See SEC File Number 001-37817).

Amendment No. 1 to Credit Agreement, dated as of April 1, 2017, among Conduent
Incorporated, Conduent Business Services, LLC (f/k/a Xerox Business Services, LLC), Affiliated
Computer Services International B.V., Conduent Finance, Inc., the Lenders from time to time
party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent.

96 | CONDUENT 2019 ANNUAL REPORT

10.1(c)

10.1(d)

10.1(e)

10.3(a)

10.3(b)

10.3(c)

10.4(a)

10.4(b)

10.5(a)

10.5(b)

Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated
April 11, 2017. (See SEC File Number 001-37817).

Amendment No. 2 to Credit Agreement, dated as of October 10, 2017, among Conduent
Incorporated, Conduent Business Services, LLC (f/k/a Xerox Business Services, LLC), Affiliated
Computer Services International B.V., Conduent Finance, Inc., the Lenders from time to time
party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent.
Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated
October 10, 2017. (See SEC File Number 001-37817).
Amendment No. 3 to Credit Agreement, dated as of June 28, 2018, among Conduent
Incorporated, Conduent Business Services, LLC (f/k/a Xerox Business Services, LLC), Affiliated
Computer Services International B.V., Conduent Finance, Inc., the Lenders from time to time
party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent.

Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated
June 28, 2018. (See SEC File Number 001-37817).
First Incremental Agreement, dated as of January 3, 2017, among JPMorgan Chase Bank,
N.A., as Administrative Agent and Xerox Business Services, LLC.
Incorporated by reference to Exhibit 10.1(b) to the Registrant's Annual Report on Form 10-K
dated March 10, 2017, (See SEC File Number 001-37817).
Tax Matters Agreement, dated as of December 30, 2016, by and between Xerox Corporation
and Conduent Incorporated.
Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated
January 3, 2017. (See SEC File Number 001-37817).
Employee Matters Agreement, dated as of December 30, 2016, by and between Xerox
Corporation and Conduent Incorporated.
Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated
January 3, 2017. (See SEC File Number 001-37817).
Intellectual Property Agreement, dated as of December 30, 2016, by and between Xerox
Corporation and Conduent Incorporated.
Incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated
January 3, 2017. (See SEC File Number 001-37817).
Joinder Agreement to Agreement, dated December 31, 2016, among Conduent Incorporated,
Xerox Corporation, Icahn Partners Master Fund LP, Icahn Partners LP, Icahn Onshore LP, Icahn
Offshore LP, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P., Icahn Enterprises
G.P. Inc., Beckton Corp., High River Limited Partnership, Hopper Investments LLC, Barberry
Corp., Jonathan Christodoro and Carl C. Icahn.
Incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K dated
January 3, 2017. (See SEC File Number 001-37817).
Agreement, dated January 28, 2016, among Xerox Corporation, Icahn Partners Master Fund
LP, Icahn Partners LP, Icahn Onshore LP, Icahn Offshore LP, Icahn Capital LP, IPH GP LLC,
Icahn Enterprises Holdings L.P., Icahn Enterprises G.P. Inc., Beckton Corp., High River Limited
Partnership, Hopper Investments LLC, Barberry Corp., Jonathan Christodoro and Carl C. Icahn.

Incorporated by reference to Exhibit 10.6 to Registrant’s Amendment No. 1 to Form 10 dated
August 15, 2016. (See SEC File Number 001-37817).
Exchange Agreement dated October 27, 2016 by and among Darwin A. Deason, Conduent
Incorporated and Xerox Corporation.
Incorporated by reference to Exhibit 10.14 to Registrant’s Amendment No. 5 to Form 10 dated
October 28, 2016. (See SEC File Number 001-37817).
Shareholders Agreement dated December 18, 2018 by and between Darwin Deason and
Conduent Incorporated.
Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated
December 18, 2018. (See SEC File Number 001-37817).

The management contracts or compensatory plans or arrangements listed below that are applicable to the
executive officers named in the Summary Compensation Table which will appear in the Registrant’s 2020
Proxy Statement or to our directors are preceded by an asterisk (*).

*10.6(a)(i)

Registrant’s Performance Incentive Plan dated as of December 15, 2016 (“PIP”).

Incorporated by reference to Exhibit 4.3 to Registrant’s Registration Statement No. 333-215361
dated December 29, 2016. (See SEC File Number 001-37817).

CONDUENT 2019 ANNUAL REPORT | 97

*10.6(a)(ii)

*10.6(a)(iii)

*10.6(a)(iv)

*10.6(a)(v)

*10.6(b)(i)

*10.6(b)(ii)

*10.6.(c)

*10.6(d)

*10.6(d)(i)

*10.6(e)

*10.6(e)(i)

*10.6(e)(ii)

*10.6(f)

*10.6(f)(i)

*10.6(g)

*10.6(h)

*10.6(i)

Form of Restricted Stock Unit Award Agreement 2018 under the PIP, dated as of October 1,
2017.
Incorporated by reference to Exhibit 10.6(a)(vii) to the Registrant's Quarterly Report on Form
10-Q dated May 9, 2018. (See SEC File Number 001-37817).
Form of Performance Stock Unit Award Agreement 2018 under the PIP, dated as of October 1,
2017.
Incorporated by reference to Exhibit 10.6(a)(viii) to the Registrant's Quarterly Report on Form
10-Q dated May 9, 2018. (See SEC File Number 001-37817).
Form of Restricted Stock Unit Award Agreement 2019 under the PIP.

Incorporated by reference to Exhibit 10.6(a)(ix) to the Registrant's Annual Report on Form 10-K
dated February 28, 2019. (See SEC File Number 001-37817).
Form of Performance Stock Unit Award Agreement 2019 under the PIP.

Incorporated by reference to Exhibit 10.6(a)(x) to the Registrant's Annual Report on Form 10-K
dated February 28, 2019. (See SEC File Number 001-37817).
Registrant’s Equity Compensation Plan for Non-Employee Directors dated as of December 15,
2016 (“ECPNED”).
Incorporated by reference to Exhibit 4.4 to Registrant’s Registration Statement No. 333-215361
dated December 29, 2016. (See SEC File Number 001-37817).
Form of Agreement under the ECPNED.

Incorporated by reference to Exhibit 10.6(b)(ii) to the Registrant's Annual Report on From 10-K
dated March 10, 2017. (See SEC File Number 001-37817).
Registrant's Executive Change in Control Severance Plan dated as of April 25, 2017.

Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated
August 28, 2017. (See SEC File Number 001-37817).
Letter Agreement dated June 10, 2016 between Xerox Corporation and Ashok Vemuri regarding
compensation arrangements.
Incorporated by reference to Exhibit 99.2 to Xerox Corporation’s Current Report on Form 8-K
dated June 14, 2016. (See SEC File Number 001-04471).
Separation Agreement dated June 4, 2019 between Conduent Incorporated and Ashok Vemuri

Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated
June 4, 2019. (See SEC File Number 001-37817).
Letter Agreement dated May 21, 2019 between Conduent Incorporated and Clifford Skelton
regarding compensation arrangements.
Incorporated by reference to Exhibit 10.6(h) to the Registrant’s Current Report on Form 8-K
dated May 28, 2019. (See SEC File Number 001-37817).
Letter Agreement dated August 6, 2019 between Conduent Incorporated and Clifford Skelton
regarding compensation arrangements.
Incorporated by reference to Exhibit 10.6(j) to the Registrant’s Current Report on Form 8-K
dated August 7, 2019. (See SEC File Number 001-37817).
Letter Agreement dated February 25, 2020 between Conduent Incorporated and Clifford
Skelton regarding compensation arrangements.
Letter Agreement dated July 22, 2016 between Xerox Corporation and J. Michael Peffer
regarding compensation arrangements.
Incorporated by reference to Exhibit 10.12 to Registrant’s Amendment No. 4 to Form 10 dated
October 21, 2016. (See SEC File Number 001-37817).
Separation Agreement dated November 5, 2019 between Conduent Incorporated and J.
Michael Peffer.
Letter Agreement dated September 6, 2016 between Xerox Corporation and Brian Webb-Walsh
regarding compensation arrangements.
Incorporated by reference to Exhibit 10.13 to Registrant’s Amendment No. 4 to Form 10 dated
October 21, 2016. (See SEC File Number 001-37817).
Letter Agreement dated May 15, 2019 between Conduent Incorporated and Mark S. Brewer.

Letter Agreement dated November 5, 2019 between Conduent Incorporated and Michael
Krawitz.

98 | CONDUENT 2019 ANNUAL REPORT

*10.6(j)

Separation Agreement dated January 13, 2020 between Conduent Incorporated and Jeffrey
Friedel.

21.1

31(a)

31(b)

101.INS

101.CAL
101.DEF
101.LAB
101.PRE
101.SCH
104

List of subsidiaries of Registrant.

Consent of PricewaterhouseCoopers LLP.

Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a).

Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).

Certification of CEO and CFO pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002.
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.
Inline XBRL Taxonomy Extension Calculation Linkbase.
Inline XBRL Taxonomy Extension Definition Linkbase.
Inline XBRL Taxonomy Extension Label Linkbase.
Inline XBRL Taxonomy Extension Presentation Linkbase.
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

CONDUENT 2019 ANNUAL REPORT | 99

Pursuant to the requirements of Section 13 or 15(d) 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

/s/ CLIFFORD SKELTON
Clifford Skelton
Chief Executive Officer

February 26, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated.

February 26, 2020

Signature

Title

Principal Executive Officer:
/S/ CLIFFORD SKELTON
Clifford Skelton

Principal Financial Officer:
/S/ BRIAN WEBB-WALSH
Brian Webb-Walsh

Principal Accounting Officer:
/S/ MARIO A. POMPEO
Mario A. Pompeo

/S/ NICHOLAS GRAZIANO

Nicholas Graziano
/S/ KATHY H. VICTOR

Kathy H. Victor
/s/ SCOTT LETIER

Scott Letier
/S/ COURTNEY R. MATHER

Courtney R. Mather
/S/ JESSE LYNN

Jesse Lynn
/S/ MICHAEL A. NUTTER

Michael A. Nutter
/S/ MARGARITA PALÁU-HERNÁNDEZ

Margarita Paláu-Hernández
/S/ VIRGINIA M. WILSON

Virginia M. Wilson

Chief Executive Officer and Director

Executive Vice President and Chief Financial Officer

Vice President and Chief Accounting Officer

Director

Director and Chairman of the Board

Director

100 | CONDUENT 2019 ANNUAL REPORT

This Page Left Intentionally Blank

Conduent

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 our clients and the millions of people who count on them. We work with a majority of Fortune 100

companies and over 500 government entities every day to manage their business processes and essential

interactions with their end users. Through people, process expertise in transaction-intensive processing,

and technology such as analytics and automation, Conduent services and solutions create value by

improving effi ciencies, reducing costs and enabling revenue growth.

Delivering Meaningful Outcomes

Across our multiple lines of business and at considerable scale, our off erings deliver better outcomes for

our clients while also improving the experience of the millions of people every day who interact with them.

Commercial

Transforming business processes by automating

and streamlining operations through our deep

industry experience and the latest technology

solutions, to drive effi ciencies, reduce costs,

increase compliance and enable revenue growth,

while enhancing the end user experience.

Outcomes

Scale

$17B savings from

medical bill review for

workers comp claims

30% reduction in

phone inquiries

40% effi ciency gain

from automation

80% of Fortune 100

2/3 of all U.S. insured

patients

40% of U.S. hospitals

2.5M CXM

interactions/day

Government

Delivering services and solutions that reduce

costs, increase program participation, and improve

compliance for government agencies while providing

intuitive, easy-to-use tools for the people and

communities they serve.

Outcomes

Scale

98% effi ciency in

application processing

27% program cost

reduction

$65M in fraud

prevention

55% of SNAP payments

30M interactions for

government healthcare

annually

275K+ parent and

employer users

Transportation

Advancing 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.

Outcomes

Scale

$850M revenue

collected yearly

100M daily public

transport tickets

15% reduction in

congestion

48% of U.S. parking

systems

1 of every 4 U.S. public

safety systems

46% of electronic tolling

systems in the U.S.

Board of Directors

Courtney R. Mather, CAIA, CFA, FRM
Chairman of the Board, Conduent Incorporated;
Former Portfolio Manager, Icahn Capital LP

Jesse Lynn
General Counsel,
Icahn Enterprises L.P.

Cliff Skelton
Chief Executive Offi cer,
Conduent Incorporated

Nicholas Graziano
Portfolio Manager,
Icahn Capital LP

Kathy Higgins Victor
Founder and President,
Centera Corporation

Scott Letier
Managing Director,
Deason Capital Services, LLC

Michael A. Nutter
Former Mayor,
Philadelphia, Pennsylvania

Margarita Paláu-Hernández
Founder and Chief Executive Offi cer,
Hernández Ventures

Virginia M. Wilson
Former Senior Executive Vice President
and Chief Financial Offi cer,
Teachers Insurance and Annuity Association (TIAA)

Shareholder Information

For investor information, including comprehensive earnings releases and this Annual Report, visit https://
investor.conduent.com or contact: Alan Katz | Investor Relations | alan.katz@conduent.com | 973.526.7173

Shareholder Services

Electronic Delivery Enrollment

Call: Computershare at 866.574.5496
Write: Computershare Investor Services

P.O. Box 505000
Louisville, KY 40233
Email: www.computershare.com

Conduent off ers shareholders the convenience of electronic delivery, including:

• Immediate receipt of the Proxy
Statement and Annual Report

• Online proxy voting

Annual Meeting

Registered Shareholders, visit:

Tuesday, May 19, 2020, 9 a.m. EDT
Conduent Corporate Headquarters
100 Campus Drive
Florham Park, NJ 07932
We will announce any alternative arrangements
in light of the coronavirus (COVID-19) outbreak.
Proxy material will be mailed on April 6, 2020
to shareholders of record as of March 25, 2020.

www.envisionreports.com/CNDT
Registered shareholders can sign up for future electronic delivery on that site.
You are a registered shareholder if your shares are being held by our transfer
agent, Computershare.

CONDUENT ANNUAL REPORT20199CONDUENT ANNUAL REPORT20199CONDUENT ANNUAL REPORT20199
D

Conduent Incorporated | 100 Campus Drive, Suite 200, Florham Park, NJ 07932 | Conduent.com

© 2020 Conduent, Inc. All rights reserved.
Conduent and Conduent Agile Star are trademarks
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Delivering

Meaningful Outcomes

2019

9 ANNUAL REPORT

CONDUENT ANNUAL REPORT20199