NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Basis of Presentation
References herein to “we,” “us,” “our,” the “Company” and “Conduent” refer to Conduent Incorporated and its consolidated subsidiaries unless the context suggests otherwise.
Description of Business
The Company is a global enterprise and leading provider of business process services with expertise in transaction-intensive processing, analytics and automation. The Company serves as a trusted business partner in both the front office and the back office, enabling personalized, seamless interactions on a massive scale that improve end-user experience. The Company creates value for its commercial and government clients by applying its expertise, technology and innovation to help them drive customer and constituent satisfaction and loyalty, increase process efficiency and respond rapidly to changing market dynamics. The Company's portfolio includes industry-focused service offerings in attractive growth markets such as healthcare and transportation, as well as multi-industry service offerings such as transaction processing, customer care and payment services.
Basis of Presentation
The unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). The year-end Condensed Consolidated Balance Sheet was derived from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2018
. Certain reclassifications have been made to prior year information to conform to current year presentation. Intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows have been made. These adjustments consist of normal recurring items. The interim results of operations are not necessarily indicative of the results of the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
Note 2 – Recent Accounting Pronouncements
The Company's significant accounting policies are described in Note 1–Basis of Presentation and Summary of Significant Accounting Policies in the Company’s
2018
Annual Report on Form 10-K. Summarized below are the accounting pronouncements adopted subsequent to
December 31, 2018
that were applicable and material to the Company.
New Accounting Standards Adopted
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 Condensed Consolidated Balance Sheets.
The impact of adopting this new guidance resulted in establishing 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
, establishing 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 Condensed Consolidated Statements of Income (Loss) or Condensed 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 Condensed 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 Condensed 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.
The components of lease costs were as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2019
|
Finance Lease Costs:
|
|
|
|
|
Amortization of right of use assets
|
|
$
|
3
|
|
|
$
|
6
|
|
Interest on lease liabilities
|
|
1
|
|
|
1
|
|
Total Finance Lease Costs
|
|
$
|
4
|
|
|
$
|
7
|
|
Operating lease costs:
|
|
|
|
|
Base rent
|
|
$
|
29
|
|
|
$
|
60
|
|
Short-term lease costs
|
|
4
|
|
|
7
|
|
Variable lease costs
(1)
|
|
8
|
|
|
15
|
|
Sublease income
|
|
(1
|
)
|
|
(2
|
)
|
Total Operating Lease Costs
|
|
$
|
40
|
|
|
$
|
80
|
|
__________
|
|
(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)
|
|
Six Months Ended
June 30, 2019
|
Cash paid for the amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
|
$
|
(65
|
)
|
Operating cash flows from finance leases
|
|
(1
|
)
|
Total Cash Flow from Operating Activities
|
|
$
|
(66
|
)
|
|
|
|
Financing cash flow from finance leases
|
|
$
|
(6
|
)
|
|
|
|
Supplemental non-cash information on right of use assets obtained in exchange for new lease obligations:
|
|
|
Operating leases
|
|
$
|
16
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
(in millions)
|
|
June 30, 2019
|
Operating Leases:
|
|
|
Operating lease right-of-use assets
|
|
$
|
317
|
|
|
|
|
Other current liabilities
|
|
$
|
106
|
|
Operating lease liabilities
|
|
264
|
|
Total Operating Lease Liabilities
|
|
$
|
370
|
|
|
|
|
Finance Leases:
|
|
|
Land, buildings and equipment, net
|
|
$
|
18
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
8
|
|
Long-term debt
|
|
11
|
|
Total Finance Lease Liabilities
|
|
$
|
19
|
|
The Company's leases generally do not provide an implicit rate, and 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
5.3%
and
4.8%
, respectively.
The weighted average remaining lease terms for operating and finance leases at
June 30, 2019
, were
5 years
and
3 years
, respectively.
CNDT Q2 2019 Form 10-Q
10
The aggregate future lease payments for operating leases were as follows:
|
|
|
|
|
|
|
|
June 30, 2019
|
(in millions)
|
|
Operating Lease Payments
|
Maturity Of Lease Liabilities:
|
|
|
2019 (remaining)
|
|
$
|
66
|
|
2020
|
|
107
|
|
2021
|
|
77
|
|
2022
|
|
53
|
|
2023
|
|
35
|
|
Thereafter
|
|
86
|
|
Total undiscounted operating lease payments
|
|
424
|
|
Less imputed interest
|
|
54
|
|
Present value of operating lease liabilities
|
|
$
|
370
|
|
Maturities of finance lease liabilities were as follows:
|
|
|
|
|
|
|
|
June 30, 2019
|
(in millions)
|
|
Finance Lease Payments
|
2019 (remaining)
|
|
$
|
5
|
|
2020
|
|
6
|
|
2021
|
|
5
|
|
2022
|
|
3
|
|
2023
|
|
1
|
|
Thereafter
|
|
—
|
|
Total undiscounted finance lease payments
|
|
20
|
|
Less imputed interest
|
|
1
|
|
Present value of finance lease liabilities
|
|
$
|
19
|
|
As of
June 30, 2019
, the Company had entered into an additional operating lease agreement for real estate of
$14 million
, which has not commenced and has not been recognized on the Company's Consolidated Balance Sheet. This operating lease is expected to commence in 2019 with a lease term of
10 years
.
As previously disclosed in Note 5 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2018
, under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining non-cancelable lease term in excess of one year were as follows:
|
|
|
|
|
|
|
|
December 31, 2018
|
(in millions)
|
|
Operating Lease Payments
|
Maturity Of Lease Liabilities:
|
|
|
2019
|
|
$
|
153
|
|
2020
|
|
113
|
|
2021
|
|
78
|
|
2022
|
|
53
|
|
2023
|
|
33
|
|
Thereafter
|
|
76
|
|
Total minimum operating lease payments
|
|
$
|
506
|
|
CNDT Q2 2019 Form 10-Q
11
New Accounting Standards To Be Adopted
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. This updated guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact on its Consolidated Financial Statements.
Note 3 – Revenue, Contract Assets and Liabilities
Disaggregation of Revenue
During the second quarter, the Company changed how it presents the disaggregated revenue by major service line for Government Services and Healthcare and Payment Services to reflect how the businesses are managed. This change had no impact on disaggregated revenue by reportable segment or the timing of revenue recognition. All prior periods presented have been revised to reflect this change.
The following table provides information about disaggregated revenue by major service line, the timing of revenue recognition and a reconciliation of the disaggregated revenue by reportable segments. Refer to
Note 4 – Segment Reporting
for additional information on the Company's reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Commercial Industries:
|
|
|
|
|
|
|
|
|
Omni-channel communications
|
|
$
|
192
|
|
|
$
|
199
|
|
|
$
|
403
|
|
|
$
|
418
|
|
Human resource services
|
|
182
|
|
|
189
|
|
|
364
|
|
|
376
|
|
Industry services
|
|
218
|
|
|
238
|
|
|
437
|
|
|
486
|
|
Total Commercial Industries
|
|
592
|
|
|
626
|
|
|
1,204
|
|
|
1,280
|
|
Government Services:
|
|
|
|
|
|
|
|
|
Government Services and Healthcare
|
|
176
|
|
|
182
|
|
|
355
|
|
|
360
|
|
Payment Services
|
|
75
|
|
|
83
|
|
|
149
|
|
|
165
|
|
State and Local
|
|
61
|
|
|
62
|
|
|
120
|
|
|
124
|
|
Federal
|
|
14
|
|
|
14
|
|
|
27
|
|
|
27
|
|
Total Government Services
|
|
326
|
|
|
341
|
|
|
651
|
|
|
676
|
|
Transportation:
|
|
|
|
|
|
|
|
|
Tolling
|
|
81
|
|
|
71
|
|
|
160
|
|
|
143
|
|
Transit
|
|
62
|
|
|
57
|
|
|
116
|
|
|
111
|
|
Photo and Parking
|
|
48
|
|
|
48
|
|
|
96
|
|
|
94
|
|
Commercial Vehicle
|
|
3
|
|
|
4
|
|
|
6
|
|
|
8
|
|
Total Transportation
|
|
194
|
|
|
180
|
|
|
378
|
|
|
356
|
|
Other:
|
|
|
|
|
|
|
|
|
Divestitures
|
|
—
|
|
|
238
|
|
|
36
|
|
|
486
|
|
Education
|
|
—
|
|
|
2
|
|
|
1
|
|
|
9
|
|
Total Other
|
|
—
|
|
|
240
|
|
|
37
|
|
|
495
|
|
Total Consolidated Revenue
|
|
$
|
1,112
|
|
|
$
|
1,387
|
|
|
$
|
2,270
|
|
|
$
|
2,807
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
Point in time
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
73
|
|
|
$
|
70
|
|
Over time
|
|
1,078
|
|
|
1,353
|
|
|
2,197
|
|
|
2,737
|
|
Total Revenue
|
|
$
|
1,112
|
|
|
$
|
1,387
|
|
|
$
|
2,270
|
|
|
$
|
2,807
|
|
CNDT Q2 2019 Form 10-Q
12
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)
|
|
June 30, 2019
|
|
December 31, 2018
|
Contract Assets (Unearned Income)
|
|
|
|
|
Current contract assets
|
|
$
|
192
|
|
|
$
|
177
|
|
Long-term contract assets
(1)
|
|
15
|
|
|
7
|
|
Current unearned income
|
|
(92
|
)
|
|
(112
|
)
|
Long-term unearned income
(2)
|
|
(26
|
)
|
|
(32
|
)
|
Net Contract Assets (Unearned Income)
|
|
$
|
89
|
|
|
$
|
40
|
|
Accounts receivable, net
|
|
$
|
824
|
|
|
$
|
782
|
|
__________
|
|
(1)
|
Presented in Other long-term assets in the Condensed Consolidated Balance Sheets
|
|
|
(2)
|
Presented in Other long-term liabilities in the Condensed Consolidated Balance Sheets
|
Revenues of
$28 million
and
$81 million
were recognized during the three and six months ended
June 30, 2019
, respectively, related to the Company's unearned income at
December 31, 2018
. Revenues of
$98 million
and
$181 million
were recognized during the three and six months ended
June 30, 2018
, respectively, related to the Company's unearned income at January 1, 2018.
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
June 30, 2019
, was approximately
$2 billion
. The Company expects to recognize approximately
65%
of this revenue over the next
2 years
and the remainder thereafter.
Note 4 – Segment Reporting
The Company's reportable segments correspond to how the Company organizes and manages the business and are aligned to the industries in which the Company's clients operate.
Our financial performance is based on Segment Profit / (Loss) and Segment Adjusted EBITDA for the following
three
reportable segments:
Commercial Industries
,
Government Services
and
Transportation
.
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 deliver end-to-end, business-to-business and business-to-customer services that enable our clients to optimize their key processes. Our multi-industry competencies include omni-channel communications, human resource management and finance and accounting services.
CNDT Q2 2019 Form 10-Q
13
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.
Transportation
:
Our
Transportation
segment provides systems and support services to transportation departments and agencies globally. Offerings include support for electronic toll collection, public transit, parking and photo enforcement.
Other includes our divestitures and our Student Loan business, which the Company exited in the third quarter of 2018.
Selected financial information for our reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
(in millions)
|
|
Commercial Industries
|
|
Government Services
|
|
Transportation
|
|
Other
|
|
Shared IT / Infrastructure & Corporate Costs
|
|
Total
|
2019
|
|
|
|
|
|
|
|
Divestitures
|
|
Other
|
|
|
|
|
Revenue
|
|
$
|
592
|
|
|
$
|
326
|
|
|
$
|
194
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,112
|
|
Segment profit (loss)
|
|
$
|
108
|
|
|
$
|
103
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(183
|
)
|
|
$
|
59
|
|
Segment depreciation and amortization
|
|
$
|
21
|
|
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
51
|
|
Adjusted EBITDA
|
|
$
|
129
|
|
|
$
|
109
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(167
|
)
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
626
|
|
|
$
|
341
|
|
|
$
|
180
|
|
|
$
|
238
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
1,387
|
|
Segment profit (loss)
|
|
$
|
120
|
|
|
$
|
100
|
|
|
$
|
25
|
|
|
$
|
41
|
|
|
$
|
(4
|
)
|
|
$
|
(172
|
)
|
|
$
|
110
|
|
Segment depreciation and amortization
|
|
$
|
25
|
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
10
|
|
|
$
|
57
|
|
Adjusted EBITDA
|
|
$
|
145
|
|
|
$
|
108
|
|
|
$
|
35
|
|
|
$
|
43
|
|
|
$
|
(3
|
)
|
|
$
|
(162
|
)
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
Commercial Industries
|
|
Government Services
|
|
Transportation
|
|
Other
|
|
Shared IT / Infrastructure & Corporate Costs
|
|
Total
|
2019
|
|
|
|
|
|
|
|
Divestitures
|
|
Other
|
|
|
|
|
Revenue
|
|
$
|
1,204
|
|
|
$
|
651
|
|
|
$
|
378
|
|
|
$
|
36
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2,270
|
|
Segment profit (loss)
|
|
$
|
221
|
|
|
$
|
189
|
|
|
$
|
51
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(334
|
)
|
|
$
|
128
|
|
Segment depreciation and amortization
|
|
$
|
43
|
|
|
$
|
15
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
105
|
|
Adjusted EBITDA
|
|
$
|
264
|
|
|
$
|
204
|
|
|
$
|
72
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(304
|
)
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,280
|
|
|
$
|
676
|
|
|
$
|
356
|
|
|
$
|
486
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
2,807
|
|
Segment profit (loss)
|
|
$
|
230
|
|
|
$
|
208
|
|
|
$
|
52
|
|
|
$
|
80
|
|
|
$
|
(7
|
)
|
|
$
|
(348
|
)
|
|
$
|
215
|
|
Segment depreciation and amortization
|
|
$
|
53
|
|
|
$
|
16
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
20
|
|
|
$
|
113
|
|
Adjusted EBITDA
|
|
$
|
283
|
|
|
$
|
223
|
|
|
$
|
70
|
|
|
$
|
84
|
|
|
$
|
(5
|
)
|
|
$
|
(328
|
)
|
|
$
|
327
|
|
CNDT Q2 2019 Form 10-Q
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Income (Loss) Before Income Taxes
|
|
$
|
(1,119
|
)
|
|
$
|
54
|
|
|
$
|
(1,457
|
)
|
|
$
|
—
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets
|
|
61
|
|
|
60
|
|
|
123
|
|
|
121
|
|
Restructuring and related costs
|
|
26
|
|
|
17
|
|
|
42
|
|
|
37
|
|
Interest expense
|
|
20
|
|
|
37
|
|
|
40
|
|
|
70
|
|
Goodwill impairment
|
|
1,067
|
|
|
—
|
|
|
1,351
|
|
|
—
|
|
(Gain) loss on divestitures and transaction costs
|
|
2
|
|
|
(60
|
)
|
|
16
|
|
|
(45
|
)
|
Litigation costs (recoveries), net
|
|
1
|
|
|
4
|
|
|
13
|
|
|
35
|
|
Other (income) expenses, net
|
|
1
|
|
|
(2
|
)
|
|
—
|
|
|
(3
|
)
|
Segment Pre-tax Income (Loss)
|
|
$
|
59
|
|
|
$
|
110
|
|
|
$
|
128
|
|
|
$
|
215
|
|
Segment depreciation and amortization (including contract inducements)
|
|
$
|
51
|
|
|
$
|
57
|
|
|
$
|
105
|
|
|
$
|
113
|
|
Other adjustments
|
|
4
|
|
|
(1
|
)
|
|
4
|
|
|
(1
|
)
|
Adjusted EBITDA
|
|
$
|
114
|
|
|
$
|
166
|
|
|
$
|
237
|
|
|
$
|
327
|
|
Note 5 – Assets/Liabilities Held for Sale
In February 2019, the Company completed the sale of a portfolio of select standalone customer care contracts to Skyview Capital LLC. During the first quarter of 2019, the Company recorded an additional loss, inclusive of transaction costs, of
$12 million
on the sale of this portfolio, reflecting certain changes in estimates that were made when recording the initial charge. 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 6 – 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
two years
. Revenues recorded for the three and six months ended June 30, 2019, were
$5 million
and
$9 million
, respectively. Pre-tax income for the three and six months ended June 30, 2019, were
$3 million
and
$6 million
, respectively.
The Company’s purchase price allocation for the HSP acquisition is preliminary and subject to revision as additional information related to the fair value of assets and liabilities becomes available. The preliminary purchase price based upon the current determination of fair value at
June 30, 2019
was as follows:
|
|
|
|
|
|
(in millions)
|
|
June 30, 2019
|
Fair Value of Consideration Transferred:
|
|
|
Cash paid
|
|
$
|
90
|
|
Recorded earn-out payable
|
|
7
|
|
Total Consideration
|
|
$
|
97
|
|
Allocation of Purchase Price:
|
|
|
Net tangible assets
|
|
$
|
10
|
|
Costs Assigned to Intangible Assets
|
|
|
Developed technology
|
|
20
|
|
Customer relationships
|
|
18
|
|
Trademarks and trade names
|
|
1
|
|
Goodwill
|
|
48
|
|
Total Intangible Assets
|
|
87
|
|
|
|
|
Total Assets
|
|
$
|
97
|
|
CNDT Q2 2019 Form 10-Q
15
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 Company has not presented separate results of operations or combined pro forma financial information of the Company and the acquired interests because the results of operations of the acquired business are considered immaterial.
Note 7 – 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 the Company's data centers, which totaled
$9 million
and
$18 million
for the three and six months ended
June 30, 2019
, respectively. Management continues to evaluate the Company's business, and in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed.
Costs associated with restructuring, including employee severance and lease termination costs, are generally recognized when it has been determined that a liability has been incurred, which is generally upon communication to the affected employees or exit from the leased facility. In those geographies where we have either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, we recognize employee severance costs when they are both probable and reasonably estimable.
A summary of the Company's restructuring program activity during the
six
months ended
June 30, 2019
and
2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Severance and
Related Costs
|
|
Lease Cancellation
and Other Costs
|
|
Total
|
Accrued Balance at December 31, 2018
|
$
|
13
|
|
|
$
|
36
|
|
|
$
|
49
|
|
Restructuring provision
|
18
|
|
|
27
|
|
|
45
|
|
Adjustments to prior accruals
|
(2
|
)
|
|
(3
|
)
|
|
(5
|
)
|
Total Net Current Period Charges
|
16
|
|
|
24
|
|
|
40
|
|
Payments and other charges against reserve and currency
|
(10
|
)
|
|
(23
|
)
|
|
(33
|
)
|
Adoption of new lease standard
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
Asset impairment
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
Other
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Accrued Balance at June 30, 2019
|
$
|
19
|
|
|
$
|
9
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Severance and
Related Costs
|
|
Lease Cancellation
and Other Costs
|
|
Total
|
Accrued Balance at December 31, 2017
|
$
|
14
|
|
|
$
|
30
|
|
|
$
|
44
|
|
Restructuring provision
|
21
|
|
|
17
|
|
|
38
|
|
Adjustments to prior accruals
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Total Net Current Period Charges
|
19
|
|
|
17
|
|
|
36
|
|
Payments and other charges against reserve and currency
|
(19
|
)
|
|
(16
|
)
|
|
(35
|
)
|
Other
|
—
|
|
|
3
|
|
|
3
|
|
Accrued Balance at June 30, 2018
|
$
|
14
|
|
|
$
|
34
|
|
|
$
|
48
|
|
CNDT Q2 2019 Form 10-Q
16
In addition, the Company recorded professional support costs associated with the strategic transformation program in Restructuring and related costs of
$2 million
and
$0 million
for the
three months ended June 30, 2019
and
2018
, respectively, and
$2 million
and
$1 million
for the
six months ended June 30, 2019
and
2018
, respectively.
The following table summarizes the total amount of costs incurred in connection with these restructuring programs by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Commercial Industries
|
|
$
|
9
|
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
14
|
|
Government Services
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Transportation
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Other
|
|
—
|
|
|
2
|
|
|
1
|
|
|
3
|
|
Shared IT / Infrastructure & Corporate Costs
|
|
14
|
|
|
12
|
|
|
26
|
|
|
19
|
|
Total Net Restructuring Charges
|
|
$
|
24
|
|
|
$
|
17
|
|
|
$
|
40
|
|
|
$
|
36
|
|
Note 8 – Debt
Long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30, 2019
|
|
December 31, 2018
|
Term loan A due 2022
|
|
$
|
686
|
|
|
$
|
705
|
|
Term loan B due 2023
|
|
829
|
|
|
833
|
|
Senior notes due 2024
|
|
34
|
|
|
34
|
|
Finance lease obligations
|
|
19
|
|
|
26
|
|
Principal debt balance
|
|
1,568
|
|
|
1,598
|
|
Debt issuance costs and unamortized discounts
|
|
(28
|
)
|
|
(31
|
)
|
Less: current maturities
|
|
(52
|
)
|
|
(55
|
)
|
Total Long-term Debt
|
|
$
|
1,488
|
|
|
$
|
1,512
|
|
Note 9 – Financial Instruments
The Company is a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of its business. As a part of the Company's foreign exchange risk management strategy, the Company uses derivative instruments, primarily forward contracts, to hedge the funding of foreign entities which have a non-dollar functional currency, thereby reducing volatility of earnings or protecting fair values of assets and liabilities.
At
June 30, 2019
and
December 31, 2018
, the Company had outstanding forward exchange contracts with gross notional values of approximately
$175 million
and
$167 million
, respectively. Approximately
70%
of these contracts mature within three months,
12%
in three to six months,
14%
in six to twelve months and
4%
in greater than twelve months. Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on the Company's balance sheet, income statement or cash flows for the periods presented.
Refer to
Note 10 – Fair Value of Financial Assets and Liabilities
for additional information regarding the fair value of the Company's foreign exchange forward contracts.
CNDT Q2 2019 Form 10-Q
17
Note 10 – 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 base 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.
Unless noted herein, the Company's valuation methodologies for assets and liabilities measured at fair value are described in Note 10 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2018
.
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 is Level 2.
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30, 2019
|
|
December 31, 2018
|
Assets:
|
|
|
|
|
Foreign exchange contract - forward
|
|
$
|
4
|
|
|
$
|
3
|
|
Total Assets
|
|
$
|
4
|
|
|
$
|
3
|
|
Liabilities:
|
|
|
|
|
Foreign exchange contracts - forwards
|
|
$
|
—
|
|
|
$
|
1
|
|
Total Liabilities
|
|
$
|
—
|
|
|
$
|
1
|
|
Summary of Other Financial Assets and Liabilities
The estimated fair values of our other financial assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
(in millions)
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
Assets held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
15
|
|
|
$
|
15
|
|
Liabilities:
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
1,488
|
|
|
$
|
1,467
|
|
|
$
|
1,512
|
|
|
$
|
1,463
|
|
Liabilities held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
40
|
|
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.
CNDT Q2 2019 Form 10-Q
18
The fair value of the Assets held for sale and the Liabilities held for sale were measured based on the sales price less estimated transactions costs (Level 3). Refer to
Note 5 – Assets/Liabilities Held for Sale
to the Condensed Consolidated Financial Statements 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 11 – Employee Benefit Plans
The Company has post-retirement savings and investment plans in several countries, including the U.S., U.K. and Canada. In many instances, employees 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. Historically, the Company matched a portion of employee contributions. However, beginning in 2019, the Company has suspended its match to the 401(k) plan for all U.S. salaried employees.
The Company recognized an expense related to its defined contribution plans of
$2 million
and
$7 million
for the
three months ended June 30, 2019
and
2018
, respectively, and
$5 million
and
$16 million
for the
six months ended June 30, 2019
and
2018
, respectively. As a result of suspending 401(k) match for U.S. employees as indicated above, there was a
$3 million
and
$6 million
reduction in expense for the three and six months ended
June 30, 2019
, respectively.
Note 12 – Accumulated Other Comprehensive Loss (AOCL)
Below are the balances and changes in AOCL
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Currency Translation Adjustments
|
|
Gains (Losses) on Cash Flow Hedges
|
|
Defined Benefit Pension Items
|
|
Total
|
Balance at December 31, 2018
|
|
$
|
(426
|
)
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
(425
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
6
|
|
|
1
|
|
|
—
|
|
|
7
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
15
|
|
|
—
|
|
|
(1
|
)
|
|
14
|
|
Net current period other comprehensive income (loss)
|
|
21
|
|
|
1
|
|
|
(1
|
)
|
|
21
|
|
Balance at June 30, 2019
|
|
$
|
(405
|
)
|
|
$
|
3
|
|
|
$
|
(2
|
)
|
|
$
|
(404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Currency Translation Adjustments
|
|
Gains (Losses) on Cash Flow Hedges
|
|
Defined Benefit Pension Items
|
|
Total
|
Balance at December 31, 2017
|
|
$
|
(437
|
)
|
|
$
|
1
|
|
|
$
|
(58
|
)
|
|
$
|
(494
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(23
|
)
|
|
(3
|
)
|
|
3
|
|
|
(23
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Net current period other comprehensive income (loss)
|
|
(18
|
)
|
|
(3
|
)
|
|
3
|
|
|
(18
|
)
|
Balance at June 30, 2018
|
|
$
|
(455
|
)
|
|
$
|
(2
|
)
|
|
$
|
(55
|
)
|
|
$
|
(512
|
)
|
__________
|
|
(1)
|
All amounts are net of tax. Tax effects were immaterial.
|
CNDT Q2 2019 Form 10-Q
19
Note 13 – Contingencies and Litigation
As more fully discussed below, the Company is involved in a variety of claims, lawsuits, investigations and proceedings concerning: 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, regulations and matters. 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
June 30, 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 final outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the condensed consolidated financial position or liquidity. As of
June 30, 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 alleges 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”) (the “State Action”). In February 2019 a settlement agreement and release was reached among the Defendants, the State and HHSC ("Texas Agreement"). Pursuant to the terms of the Texas Agreement, the Conduent Defendants will pay the State of Texas
$236 million
in full settlement of the claims asserted against the Defendants. This amount was payable in installments and all proceedings in the lawsuit were suspended and the State and the HHSC agreed to dismiss the lawsuit with prejudice and release the Defendants from all of the State’s claims after all settlement payments are made. In May 2019, the Defendants entered into the First Amendment to Settlement Agreement and Release with the State (the “Amended Agreement”). Pursuant to the terms of the Amended Agreement, the amount payable to the State by the Conduent Defendants in full settlement of the State Action is as follows: (1)
$40 million
on or before April 15, 2019; (2)
$78 million
on or before May 15, 2019 (together constitute the “First Payment”); (both of which the Company has already paid); and (3)
$118 million
on or before January 15, 2020 (the “Second Payment”). In order to secure the Second Payment, the Company provided bank issued letters of credit to the State in the full amount of the Second Payment (the “LCs”) which the State may present for payment to the issuing banks if the Company does not make the Second Payment. Pursuant to the Amended Agreement, on the 91
st
day following receipt of the First Payment and the LCs, the State will file a dismissal with prejudice dismissing the State Action and fully release and discharge the Defendants.
CNDT Q2 2019 Form 10-Q
20
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 Plaintiffs' 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.
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. 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
for termination fees. Conduent has responded to Cognizant’s counterclaims by denying the allegations. Cognizant is seeking to file a second amended counterclaim seeking an additional
$42.8 million
to satisfy the minimum revenue commitment attributable to the years 2017-2020 alleged to be due and owing by Conduent under the Contract, which Conduent will assert will not be due if Conduent prevails on its claims that it terminated the Contract for cause. 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.
CNDT Q2 2019 Form 10-Q
21
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 a small percentage of third-party student loans under outsourcing arrangements for various financial institutions required adjustments. 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.
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
June 30, 2019
, the Company had
$633 million
of outstanding surety bonds used to secure its performance of contractual obligations with its clients and
$232 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.
Note 14
–
Preferred Stock
Series A Preferred Stock
In December 2016, the Company issued
120,000
shares of Series A convertible perpetual preferred stock with an aggregate liquidation preference of
$120 million
and an initial fair value of
$142 million
. The convertible preferred stock pays quarterly cash dividends at a rate of
8%
per year (
$9.6 million
per year). Each share of convertible preferred stock is convertible at any time, at the option of the holder, into
44.9438
shares of common stock for a total of
5,393,000
shares (reflecting an initial conversion price of approximately
$22.25
per share of common stock), subject to customary anti-dilution adjustments.
CNDT Q2 2019 Form 10-Q
22
Note 15 – 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions, except per share data in whole dollars and shares in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income (loss)
|
|
$
|
(1,029
|
)
|
|
$
|
11
|
|
|
$
|
(1,337
|
)
|
|
$
|
(39
|
)
|
Cash dividend paid - preferred stock
|
|
(3
|
)
|
|
(3
|
)
|
|
(5
|
)
|
|
(5
|
)
|
Adjusted Net Income (Loss) Available to Common Shareholders
|
|
$
|
(1,032
|
)
|
|
$
|
8
|
|
|
$
|
(1,342
|
)
|
|
$
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
208,496
|
|
|
205,296
|
|
|
208,207
|
|
|
205,184
|
|
Common shares issuable with respect to:
|
|
|
|
|
|
|
|
|
Stock options
|
|
—
|
|
|
146
|
|
|
—
|
|
|
—
|
|
Restricted stock and performance units / shares
|
|
—
|
|
|
3,447
|
|
|
—
|
|
|
—
|
|
Adjusted Weighted Average Common Shares Outstanding
|
|
208,496
|
|
|
208,889
|
|
|
208,207
|
|
|
205,184
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(4.94
|
)
|
|
$
|
0.05
|
|
|
$
|
(6.44
|
)
|
|
$
|
(0.21
|
)
|
Diluted
|
|
$
|
(4.94
|
)
|
|
$
|
0.04
|
|
|
$
|
(6.44
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
109
|
|
|
—
|
|
|
109
|
|
|
295
|
|
Restricted stock and performance shares/units
|
|
6,228
|
|
|
201
|
|
|
6,228
|
|
|
6,329
|
|
Convertible preferred stock
|
|
5,393
|
|
|
5,393
|
|
|
5,393
|
|
|
5,393
|
|
Total Anti-Dilutive Securities
|
|
11,730
|
|
|
5,594
|
|
|
11,730
|
|
|
12,017
|
|
CNDT Q2 2019 Form 10-Q
23