NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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Note 1 — Interim Consolidated Financial Statements
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The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation and its subsidiaries unless the context indicates otherwise. We have prepared the accompanying unaudited consolidated financial statements included herein in accordance with GAAP and the Exchange Act. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2020. In our opinion, all adjustments considered necessary for a fair statement of the accompanying unaudited consolidated financial statements have been included and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.
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Note 2 — Revenues and Trade Accounts Receivable
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Disaggregation of Revenues
The tables below present disaggregated revenues from contracts with clients by client location, service line and contract type for each of our business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. Revenues are attributed to geographic regions based upon client location. Substantially all revenues in our North America region relate to operations in the United States.
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Three Months Ended
March 31, 2021
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(in millions)
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Financial Services
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Healthcare
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Products and Resources
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Communications, Media and Technology
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Total
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Geography:
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North America
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$
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1,013
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$
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1,101
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$
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718
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$
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451
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$
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3,283
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United Kingdom
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125
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40
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106
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99
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370
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Continental Europe
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192
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118
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103
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43
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456
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Europe - Total
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317
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158
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209
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142
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826
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Rest of World
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128
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29
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71
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64
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292
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Total
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$
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1,458
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$
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1,288
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$
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998
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$
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657
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$
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4,401
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Service line:
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Consulting and technology services
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$
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967
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$
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745
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$
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616
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$
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396
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$
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2,724
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Outsourcing services
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491
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543
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382
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261
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1,677
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Total
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$
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1,458
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$
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1,288
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$
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998
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$
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657
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$
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4,401
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Type of contract:
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Time and materials
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$
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899
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$
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519
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$
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418
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$
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397
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$
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2,233
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Fixed-price
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471
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499
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481
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230
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1,681
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Transaction or volume-based
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88
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270
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99
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30
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487
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Total
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$
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1,458
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$
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1,288
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$
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998
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$
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657
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$
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4,401
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Cognizant
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7
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March 31, 2021 Form 10-Q
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Three Months Ended
March 31, 2020
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(in millions)
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Financial Services
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Healthcare
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Products and Resources
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Communications, Media and Technology
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Total
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Geography:
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North America
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$
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1,012
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$
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1,038
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$
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689
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$
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451
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$
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3,190
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United Kingdom
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120
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40
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93
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84
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337
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Continental Europe
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191
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99
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109
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38
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437
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Europe - Total
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311
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139
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202
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122
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774
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Rest of World
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128
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17
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63
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53
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261
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Total
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$
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1,451
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$
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1,194
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$
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954
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$
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626
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$
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4,225
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Service line:
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Consulting and technology services
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$
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947
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$
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662
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$
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590
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$
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348
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$
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2,547
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Outsourcing services
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504
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532
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364
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278
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1,678
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Total
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$
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1,451
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$
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1,194
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$
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954
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$
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626
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$
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4,225
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Type of contract:
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Time and materials
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$
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884
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$
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475
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$
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409
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$
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383
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$
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2,151
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Fixed-price
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|
483
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|
|
409
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|
|
443
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|
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219
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1,554
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Transaction or volume-based
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|
84
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|
|
310
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|
|
102
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24
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|
|
520
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|
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Total
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$
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1,451
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$
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1,194
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$
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954
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$
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626
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|
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$
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4,225
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Costs to Fulfill
Costs to fulfill, such as setup or transition activities, are recorded in "Other noncurrent assets" in our unaudited consolidated statements of financial position and the amortization expense of costs to fulfill is included in "Cost of revenues" in our unaudited consolidated statements of operations. Costs to obtain contracts were immaterial for the periods disclosed. The following table presents information related to the capitalized costs to fulfill for the three months ended March 31:
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(in millions)
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2021
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2020
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Beginning balance
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$
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467
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$
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485
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Amortization expense
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(29)
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(22)
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Costs capitalized
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14
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|
35
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Impairment
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(9)
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—
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Ending balance
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$
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443
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$
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498
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Contract Balances
A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in "Other current assets" in our unaudited consolidated statements of financial position and primarily relate to unbilled amounts on fixed-price contracts utilizing the cost-to-cost method of revenue recognition. The table below shows significant movements in contract assets for the three months ended March 31:
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(in millions)
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2021
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2020
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Beginning balance
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$
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315
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$
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334
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Revenues recognized during the period but not billed
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183
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219
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Amounts reclassified to trade accounts receivable
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(162)
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(194)
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Ending balance
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$
|
336
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$
|
359
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Cognizant
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8
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March 31, 2021 Form 10-Q
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Our contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the three months ended March 31:
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(in millions)
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2021
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2020
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Beginning balance
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$
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419
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$
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336
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Amounts billed but not recognized as revenues
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341
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|
257
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Revenues recognized related to the opening balance of deferred revenue
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(325)
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(197)
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Ending balance
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$
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435
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$
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396
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Revenues recognized during the three months ended March 31, 2021 for performance obligations satisfied or partially satisfied in previous periods were immaterial.
Remaining Performance Obligations
As of March 31, 2021, the aggregate amount of transaction price allocated to remaining performance obligations was $1,648 million, of which approximately 75% is expected to be recognized as revenue within 2 years. Disclosure is not required for performance obligations that meet any of the following criteria:
(1)contracts with a duration of one year or less as determined under ASC Topic 606: "Revenue from Contracts with Customers",
(2)contracts for which we recognize revenues based on the right to invoice for services performed,
(3)variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or
(4)variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
Many of our performance obligations meet one or more of these exemptions and therefore are not included in the remaining performance obligation amount disclosed above.
Trade Accounts Receivable and Allowance for Doubtful Accounts
We calculate expected credit losses for our trade accounts receivable based on historical credit loss rates for each aging category as adjusted for the current market conditions and forecasts about future economic conditions. The following table presents the activity in the allowance for trade accounts receivable for the three months ended March 31:
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(in millions)
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2021
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2020
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Beginning balance
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$
|
57
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|
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$
|
67
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Impact of adoption of the Credit Loss Standard
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—
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|
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(1)
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Credit loss (reversal) expense
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(5)
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|
10
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Write-offs charged against the allowance
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(6)
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(2)
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Ending balance
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$
|
46
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|
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$
|
74
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|
|
|
|
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|
|
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|
|
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Note 3 — Business Combinations
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Acquisitions completed during the three months ended March 31, 2021 were not individually or in the aggregate material to our operations. Accordingly, pro forma results have not been presented. We have allocated the purchase price related to these transactions to tangible and intangible assets acquired and liabilities assumed, including goodwill, based on their estimated fair values. Goodwill from these acquisitions is expected to benefit all of our reportable segments and has been allocated as such. The primary items that generated goodwill are the value of the acquired assembled workforces and synergies between the acquired companies and us, neither of which qualify as an identifiable intangible asset.
During the three months ended March 31, 2021, we acquired 100% ownership in each of the following:
•Linium, a cloud transformation consultancy group specializing in the ServiceNow platform and solutions for smart digital enterprise workflows, acquired to broaden our enterprise service management capabilities (acquired January 31, 2021); and
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Cognizant
|
9
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March 31, 2021 Form 10-Q
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•Magenic, a provider of agile software and cloud development, DevOps, experience design and advisory services across a range of industries, acquired to enhance our global software engineering expertise (acquired February 1, 2021).
The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:
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|
|
|
|
|
|
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|
|
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(in millions)
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Linium
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Magenic
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Total
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Weighted Average Useful Life
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Cash
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$
|
—
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|
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$
|
13
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|
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$
|
13
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|
|
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Trade accounts receivable
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5
|
|
|
17
|
|
|
22
|
|
|
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Property and equipment and other assets
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1
|
|
|
4
|
|
|
5
|
|
|
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Operating lease assets, net
|
—
|
|
|
8
|
|
|
8
|
|
|
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Non-deductible goodwill
|
—
|
|
|
34
|
|
|
34
|
|
|
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Tax-deductible goodwill
|
57
|
|
|
112
|
|
|
169
|
|
|
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Customer relationship assets
|
24
|
|
|
90
|
|
|
114
|
|
|
8.4 years
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Other intangible assets
|
—
|
|
|
1
|
|
|
1
|
|
|
1.0 year
|
|
|
|
|
|
|
|
|
Current liabilities
|
(2)
|
|
|
(29)
|
|
|
(31)
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|
|
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Noncurrent liabilities
|
—
|
|
|
(5)
|
|
|
(5)
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|
|
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Purchase price, inclusive of contingent consideration
|
$
|
85
|
|
|
$
|
245
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|
|
$
|
330
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|
|
|
The above allocations are preliminary and will be finalized as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition.
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|
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|
|
|
|
|
|
|
|
|
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|
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Note 4 — Restructuring Charges
|
During 2020, we incurred costs related to both our realignment program and our 2020 Fit for Growth Plan. Our realignment program, which began in 2017, improved our client focus, cost structure and the efficiency and effectiveness of our delivery while continuing to drive revenue growth. Our 2020 Fit for Growth Plan, which began in the fourth quarter of 2019, simplified our organizational model and optimized our cost structure in order to partially fund the investments required to execute on our strategy and advance our growth agenda and included our decision to exit certain content-related services that were not in line with our strategic vision for the Company. The total costs related to our realignment program and our 2020 Fit for Growth Plan are reported in "Restructuring charges" in our unaudited consolidated statement of operations. During the three months ended March 31, 2020, we incurred certain retention costs and professional fees of $20 million related to our realignment program and employee separation, employee retention, facility exit and other charges of $35 million related to our 2020 Fit for Growth Plan. We did not incur any costs related to these plans during the three months ended March 31, 2021.
Our investments were as follows:
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|
|
|
|
|
|
|
|
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|
|
(in millions)
|
March 31, 2021
|
|
December 31, 2020
|
Short-term investments:
|
|
|
|
Equity investment security
|
$
|
27
|
|
|
$
|
27
|
|
Held-to-maturity investment securities
|
34
|
|
|
14
|
|
Time deposits
|
124
|
|
|
3
|
|
Total short-term investments
|
$
|
185
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
Equity and cost method investments
|
$
|
35
|
|
|
$
|
35
|
|
Restricted time deposits(1)
|
404
|
|
|
405
|
|
Total long-term investments
|
$
|
439
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
Cognizant
|
10
|
March 31, 2021 Form 10-Q
|
Equity Investment Security
Our equity investment security is a U.S. dollar denominated investment in a fixed income mutual fund. Realized and unrealized gains and losses were immaterial for the three months ended March 31, 2021 and 2020.
Held-to-Maturity Investment Securities
Our held-to-maturity investment securities consist of Indian rupee denominated investments in commercial paper and international corporate bonds. Our investment guidelines are to purchase securities that are investment grade at the time of acquisition. The basis for the measurement of fair value of our held-to-maturity investments is Level 2 in the fair value hierarchy.
The amortized cost and fair value of held-to-maturity investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31, 2021
|
|
December 31, 2020
|
|
Amortized
Cost
|
|
|
|
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
Short-term investments, maturing within one year:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other debt securities
|
$
|
14
|
|
|
|
|
|
|
$
|
14
|
|
|
$
|
14
|
|
|
$
|
14
|
|
Commercial paper
|
20
|
|
|
|
|
|
|
20
|
|
|
—
|
|
|
—
|
|
Total short-term held-to-maturity investments
|
$
|
34
|
|
|
|
|
|
|
$
|
34
|
|
|
$
|
14
|
|
|
$
|
14
|
|
As of March 31, 2021, commercial paper securities in the amount of $7 million were in an unrealized loss position. The total unrealized loss was less than $1 million and none of the securities had been in an unrealized loss position for longer than 12 months. As of December 31, 2020, there were no held-to-maturity investment securities in an unrealized loss position.
The securities in our portfolio are highly rated and short-term in nature. As of March 31, 2021, our corporate and other debt securities were rated AA+ or better and our commercial paper securities were rated A-1+ by CRISIL, an Indian subsidiary of S&P Global.
Equity and Cost Method Investments
As of both March 31, 2021 and December 31, 2020, we had equity method investments of $31 million and cost method investments of $4 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 — Accrued Expenses and Other Current Liabilities
|
Accrued expenses and other current liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31, 2021
|
|
December 31, 2020
|
Compensation and benefits
|
$
|
1,359
|
|
|
$
|
1,607
|
|
Customer volume and other incentives
|
264
|
|
|
266
|
|
|
|
|
|
Income taxes
|
11
|
|
|
34
|
|
Professional fees
|
148
|
|
|
143
|
|
Other
|
376
|
|
|
469
|
|
Total accrued expenses and other current liabilities
|
$
|
2,158
|
|
|
$
|
2,519
|
|
In 2018, we entered into the Credit Agreement providing for the $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023.
The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Our Credit
|
|
|
|
|
|
|
|
|
Cognizant
|
11
|
March 31, 2021 Form 10-Q
|
Agreement also provides a mechanism for determining an alternative rate of interest to the Eurocurrency rate after LIBOR is no longer available.
We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan. The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. We were in compliance with all debt covenants and representations as of March 31, 2021.
In February 2021, our India subsidiary renewed its 13 billion Indian rupee ($178 million at the March 31, 2021 exchange rate) working capital facility, which requires us to repay any balances within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made prior to 30 days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February.
Short-term Debt
As of both March 31, 2021 and December 31, 2020, we had $38 million of short-term debt related to current maturities of our Term Loan.
Long-term Debt
The following summarizes our long-term debt balances as of:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
Term Loan
|
$
|
694
|
|
|
$
|
703
|
|
Less:
|
|
|
|
Current maturities - Term Loan
|
(38)
|
|
|
(38)
|
|
Deferred financing costs
|
(2)
|
|
|
(2)
|
|
Long-term debt, net of current maturities
|
$
|
654
|
|
|
$
|
663
|
|
The carrying value of our debt approximated its fair value as of March 31, 2021 and December 31, 2020.
In March 2021, we reached an agreement with the IRS, which effectively settled tax years 2012 through 2016. As a result of this effective settlement, in the first quarter of 2021, we recorded a reduction of $43 million to our uncertain tax position balance, which resulted in a $14 million discrete benefit to the provision for income taxes and a $29 million adjustment to our current income tax balance sheet accounts. Tax years that remain subject to examination by the IRS are 2017 onward.
Our effective income tax rates were as follows for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Effective income tax rate
|
24.1
|
%
|
|
27.8
|
%
|
|
|
|
|
The effective tax rate for the three months ended March 31, 2021 decreased primarily as a result of significantly lower non-deductible foreign currency exchange losses in our unaudited consolidated statement of operations in the 2021 period and the discrete benefit of the effective settlement of the IRS examination for tax years 2012 through 2016.
We are involved in an ongoing dispute with the ITD in connection with a previously disclosed transaction undertaken by CTS India in 2016 to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $2.8 billion. As a result of that transaction, which was undertaken pursuant to a plan approved by the High Court in Chennai, India, we previously paid $135 million in Indian income taxes - an amount we believe includes all applicable taxes owed for this transaction under Indian law. In March 2018, we received a communication from the ITD asserting that the ITD is owed an additional 33 billion Indian rupees ($451 million at the March 31, 2021 exchange rate) on the 2016 transaction. Immediately thereafter, the ITD placed an attachment on certain of our India bank accounts. In addition to the dispute on the 2016 transaction, we are also involved in another ongoing dispute with the ITD relating to a 2013 transaction undertaken by CTS India to repurchase shares from its shareholders valued at $523 million (the two disputes are collectively referred to as the "ITD Dispute").
In April 2018, the High Court admitted our writ petition for a stay of the actions of the ITD and lifted the ITD’s attachment on our bank accounts. As part of the interim stay order, we deposited 5 billion Indian rupees ($68 million at the March 31, 2021 and December 31, 2020 exchange rates) representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. In addition, the High Court placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($383 million at the March 31, 2021 exchange rate and $384 million at the December 31, 2020 exchange rate), which is the remainder of the disputed tax amount related to the 2016 transaction.
|
|
|
|
|
|
|
|
|
Cognizant
|
12
|
March 31, 2021 Form 10-Q
|
In June 2019, the High Court dismissed our previously admitted writ petitions on the ITD Dispute, holding that the Company must exhaust other remedies, such as pursuing the matter before other appellate bodies, for resolution of the ITD Dispute prior to intervention by the High Court. The High Court did not issue a ruling on the substantive issue of whether we owe additional tax as a result of either the 2016 or the 2013 transaction. In July 2019, we appealed the High Court’s orders before the Division Bench. In September 2019, the Division Bench partly allowed the Company’s appeal with respect to the 2016 transaction, but did not issue a ruling on the substantive issue of the tax implications of the transactions. In October 2019, we filed a SLP before the SCI with respect to the 2016 transaction. In March 2020, the SCI referred the case based on the 2016 transaction back to the ITD with directions to carry out the assessment following the due process of law. Further, until the conclusion of the assessment, the SCI maintained in place the lien on our 28 billion Indian rupees time deposit and did not order the release of the 5 billion Indian rupees deposit held by the ITD. In April 2020, we received an assessment from the ITD, which is consistent with its previous assertions regarding our 2016 transaction. In June 2020, we filed an appeal against this assessment.
As of March 31, 2021 and December 31, 2020, the balance of deposits under lien was $404 million and $405 million, respectively, presented in "Long-term investments", including a portion of the interest previously earned. As of both March 31, 2021 and December 31, 2020, the deposit with the ITD was $68 million, presented in "Other noncurrent assets".
We believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions. Accordingly, we have not recorded any reserves for these matters as of March 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 — Derivative Financial Instruments
|
In the normal course of business, we use foreign exchange forward and option contracts to manage foreign currency exchange rate risk. Derivatives may give rise to credit risk from the possible non-performance by counterparties. Credit risk is limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by limiting the amount of credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial institutions with which we do business. In addition, all the assets and liabilities related to our foreign exchange derivative contracts set forth in the below table are subject to master netting arrangements, such as the International Swaps and Derivatives Association Master Agreement, with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. We have presented all the assets and liabilities related to our foreign exchange derivative contracts, as applicable, on a gross basis, with no offsets, in our unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to our foreign exchange derivative contracts.
The following table provides information on the location and fair values of derivative financial instruments included in our unaudited consolidated statements of financial position as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Designation of Derivatives
|
|
Location on Statement of
Financial Position
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments
|
|
Other current assets
|
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
45
|
|
|
$
|
—
|
|
|
|
Other noncurrent assets
|
|
18
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
63
|
|
|
—
|
|
|
71
|
|
|
—
|
|
Foreign exchange forward contracts – Not designated as hedging instruments
|
|
Other current assets
|
|
2
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
|
Accrued expenses and other current liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
|
Total
|
|
2
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Total
|
|
|
|
$
|
65
|
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Cognizant
|
13
|
March 31, 2021 Form 10-Q
|
Cash Flow Hedges
We have entered into a series of foreign exchange derivative contracts that are designated as cash flow hedges of Indian rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of the Indian rupee against the U.S. dollar on future operating costs and are scheduled to mature each month during the remainder of 2021, 2022 and the first three months of 2023. The changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position and are subsequently reclassified to earnings within "Cost of revenues" and "Selling, general and administrative expenses" in our unaudited consolidated statements of operations in the same period that the forecasted Indian rupee denominated payments are recorded in earnings. As of March 31, 2021, we estimate that $36 million, net of tax, of net gains related to derivatives designated as cash flow hedges reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position is expected to be reclassified into earnings within the next 12 months.
The notional value of our outstanding contracts by year of maturity and the net unrealized gains and losses included in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position, for such contracts, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31,
2021
|
|
December 31, 2020
|
2021
|
$
|
1,125
|
|
|
$
|
1,470
|
|
2022
|
920
|
|
|
803
|
|
2023
|
140
|
|
|
—
|
|
Total notional value of contracts outstanding (1)
|
$
|
2,185
|
|
|
$
|
2,273
|
|
|
|
|
|
(1)Includes $133 million notional value of option contracts as of both March 31, 2021 and December 31, 2020, with the remaining notional value related to forward contracts.
The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Change in
Derivative Gains (Losses) Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
|
|
Location of Net Gains (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
|
|
Net Gains (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments
|
$
|
17
|
|
|
$
|
(113)
|
|
|
Cost of revenues
|
|
$
|
18
|
|
|
$
|
(3)
|
|
|
|
|
|
|
SG&A expenses
|
|
3
|
|
|
—
|
|
|
|
|
|
|
Total
|
|
$
|
21
|
|
|
$
|
(3)
|
|
The activity related to the change in net unrealized gains and losses on our cash flow hedges included in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of stockholders' equity is presented in Note 11.
Other Derivatives
We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries. We entered into foreign exchange forward contracts that are scheduled to mature in 2021. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our unaudited consolidated statements of operations.
Additional information related to our outstanding foreign exchange forward contracts not designated as hedging instruments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31, 2021
|
|
December 31, 2020
|
|
Notional
|
|
Fair Value
|
|
Notional
|
|
Fair Value
|
Contracts outstanding
|
$
|
574
|
|
|
$
|
2
|
|
|
$
|
637
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cognizant
|
14
|
March 31, 2021 Form 10-Q
|
The following table provides information on the location and amounts of realized and unrealized pre-tax gains and losses on our other derivative financial instruments for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Net Gains on
Derivative Instruments
|
|
Amount of Net Gains on Derivative Instruments
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Foreign exchange forward contracts – Not designated as hedging instruments
|
Foreign currency exchange gains (losses), net
|
|
$
|
3
|
|
|
$
|
6
|
|
|
|
|
|
The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 — Fair Value Measurements
|
We measure our cash equivalents, certain investments, contingent consideration liabilities and foreign exchange forward and option contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.
The fair value hierarchy consists of the following three levels:
•Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
•Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
•Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
272
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
272
|
|
Time deposits
|
—
|
|
|
53
|
|
|
—
|
|
|
53
|
|
Commercial paper
|
—
|
|
|
310
|
|
|
—
|
|
|
310
|
|
Short-term investments:
|
|
|
|
|
|
|
|
Time deposits
|
—
|
|
|
124
|
|
|
—
|
|
|
124
|
|
Equity investment security
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
Foreign exchange forward and option contracts
|
—
|
|
|
47
|
|
|
—
|
|
|
47
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Restricted time deposits(1)
|
—
|
|
|
404
|
|
|
—
|
|
|
404
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
Foreign exchange forward and option contracts
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
Contingent consideration liabilities
|
—
|
|
|
—
|
|
|
(11)
|
|
|
(11)
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liabilities
|
—
|
|
|
—
|
|
|
(46)
|
|
|
(46)
|
|
|
|
|
|
|
|
|
|
|
Cognizant
|
15
|
March 31, 2021 Form 10-Q
|
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
209
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
209
|
|
Time deposits
|
—
|
|
|
203
|
|
|
—
|
|
|
203
|
|
Commercial paper
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
Short-term investments:
|
|
|
|
|
|
|
|
Time deposits
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Equity investment security
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
Other current assets:
|
|
|
|
|
|
|
|
Foreign exchange forward and option contracts
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Restricted time deposits(1)
|
—
|
|
|
405
|
|
|
—
|
|
|
405
|
|
Other noncurrent assets:
|
|
|
|
|
|
|
|
Foreign exchange forward and option contracts
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
Foreign exchange forward and option contracts
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Contingent consideration liabilities
|
—
|
|
|
—
|
|
|
(11)
|
|
|
(11)
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liabilities
|
—
|
|
|
—
|
|
|
(43)
|
|
|
(43)
|
|
The following table summarizes the changes in Level 3 contingent consideration liabilities for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2021
|
|
2020
|
Beginning balance
|
|
$
|
54
|
|
|
$
|
38
|
|
Initial measurement recognized at acquisition
|
|
8
|
|
|
4
|
|
Change in fair value recognized in SG&A expenses
|
|
(3)
|
|
|
(22)
|
|
Payments
|
|
(2)
|
|
|
—
|
|
Ending balance
|
|
$
|
57
|
|
|
$
|
20
|
|
We measure the fair value of money market funds based on quoted prices in active markets for identical assets and measure the fair value of our equity security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The fair value of commercial paper is measured based on relevant trade data, dealer quotes, or model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. The carrying value of our time deposits approximated fair value as of March 31, 2021 and December 31, 2020.
We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange forward contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. We estimate the fair value of each foreign exchange option contract by using a variant of the Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on observable market rates.
We estimate the fair value of contingent consideration liabilities associated with our acquisitions using a variation of the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate.
|
|
|
|
|
|
|
|
|
Cognizant
|
16
|
March 31, 2021 Form 10-Q
|
During the three months ended March 31, 2021 and the year ended December 31, 2020, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 — Accumulated Other Comprehensive Income (Loss)
|
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Before Tax
Amount
|
|
Tax
Effect
|
|
Net of Tax
Amount
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
56
|
|
|
$
|
(1)
|
|
|
$
|
55
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
(27)
|
|
|
2
|
|
|
(25)
|
|
|
|
|
|
|
|
Ending balance
|
$
|
29
|
|
|
$
|
1
|
|
|
$
|
30
|
|
|
|
|
|
|
|
Unrealized gains on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
67
|
|
|
$
|
(12)
|
|
|
$
|
55
|
|
|
|
|
|
|
|
Unrealized gains arising during the period
|
17
|
|
|
(3)
|
|
|
14
|
|
|
|
|
|
|
|
Reclassifications of net (gains) to:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
(18)
|
|
|
3
|
|
|
(15)
|
|
|
|
|
|
|
|
SG&A expenses
|
(3)
|
|
|
—
|
|
|
(3)
|
|
|
|
|
|
|
|
Net change
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
|
|
|
|
|
Ending balance
|
$
|
63
|
|
|
$
|
(12)
|
|
|
$
|
51
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
123
|
|
|
$
|
(13)
|
|
|
$
|
110
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
(31)
|
|
|
2
|
|
|
(29)
|
|
|
|
|
|
|
|
Ending balance
|
$
|
92
|
|
|
$
|
(11)
|
|
|
$
|
81
|
|
|
|
|
|
|
|
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Before Tax
Amount
|
|
Tax
Effect
|
|
Net of Tax
Amount
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
(63)
|
|
|
$
|
(1)
|
|
|
$
|
(64)
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
(139)
|
|
|
4
|
|
|
(135)
|
|
|
|
|
|
|
|
Ending balance
|
$
|
(202)
|
|
|
$
|
3
|
|
|
$
|
(199)
|
|
|
|
|
|
|
|
Unrealized gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
31
|
|
|
$
|
(5)
|
|
|
$
|
26
|
|
|
|
|
|
|
|
Unrealized (losses) arising during the period
|
(113)
|
|
|
19
|
|
|
(94)
|
|
|
|
|
|
|
|
Reclassifications of net losses to:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
3
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
SG&A expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Net change
|
(110)
|
|
|
19
|
|
|
(91)
|
|
|
|
|
|
|
|
Ending balance
|
$
|
(79)
|
|
|
$
|
14
|
|
|
$
|
(65)
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
(32)
|
|
|
$
|
(6)
|
|
|
$
|
(38)
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
(249)
|
|
|
23
|
|
|
(226)
|
|
|
|
|
|
|
|
Ending balance
|
$
|
(281)
|
|
|
$
|
17
|
|
|
$
|
(264)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cognizant
|
17
|
March 31, 2021 Form 10-Q
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12— Commitments and Contingencies
|
We are involved in various claims and legal proceedings arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. While we do not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matters described below, if decided adversely), individually or in the aggregate, will have a material adverse effect on our financial position, an unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.
On January 15, 2015, Syntel sued TriZetto and Cognizant in the United States District Court for the Southern District of New York. Syntel’s complaint alleged breach of contract against TriZetto, and tortious interference and misappropriation of trade secrets against Cognizant and TriZetto, stemming from Cognizant’s hiring of certain former Syntel employees. Cognizant and TriZetto countersued on March 23, 2015, for breach of contract, misappropriation of trade secrets and tortious interference, based on Syntel’s misuse of TriZetto confidential information and abandonment of contractual obligations. Cognizant and TriZetto subsequently added federal Defend Trade Secrets Act and copyright infringement claims for Syntel’s misuse of TriZetto’s proprietary technology. The parties’ claims were narrowed by the court and the case was tried before a jury, which on October 27, 2020 returned a verdict in favor of Cognizant in the amount of $855 million, including $570 million in punitive damages. On April 20, 2021, the USDC-SDNY issued a post-trial order that, among other things, affirmed the jury’s award of $285 million in actual damages, but reduced the award of punitive damages from $570 million to $285 million, thereby reducing the overall damages award from $855 million to $570 million. We expect the USDC-SDNY will issue a final judgment consistent with this order in the near future, after which we expect Syntel to appeal the decision. Thus, we will not record the gain in our financial statements until it becomes realizable.
On February 28, 2019, a ruling of the SCI interpreting the India Defined Contribution Obligation altered historical understandings of the obligation, extending it to cover additional portions of the employee’s income. As a result, the ongoing contributions of our affected employees and the Company were required to be increased. In the first quarter of 2019, we accrued $117 million with respect to prior periods, assuming retroactive application of the Supreme Court’s ruling, in "Selling, general and administrative expenses" in our unaudited consolidated statement of operations. There is significant uncertainty as to how the liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. Since the ruling, a variety of trade associations and industry groups have advocated to the Indian government, highlighting the harm to the information technology sector, other industries and job growth in India that would result from a retroactive application of the ruling. It is possible the Indian government will review the matter and there is a substantial question as to whether the Indian government will apply the SCI’s ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different from the amount accrued.
On October 5, 2016, October 27, 2016 and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey naming us and certain of our current and former officers as defendants. These complaints were consolidated into a single action and on April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of persons and entities who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the Foreign Corrupt Practices Act, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Defendants filed a motion to dismiss the consolidated amended complaint on June 6, 2017. On August 8, 2018, the USDC-NJ issued an order which granted the motion to dismiss in part, including dismissal of all claims against current officers of the Company, and denied them in part. On September 7, 2018, we filed a motion in the USDC-NJ to certify the August 8, 2018 order for immediate appeal to the United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 1292(b). On October 18, 2018, the USDC-NJ issued an order granting our motion, and staying the action pending the outcome of our appeal petition to the Third Circuit. On October 29, 2018, we filed a petition for permission to appeal with the Third Circuit. On March 6, 2019, the Third Circuit denied our petition without prejudice. In an order dated March 19, 2019, the USDC-NJ directed the lead plaintiffs to provide the defendants with a proposed amended complaint. On April 26, 2019, lead plaintiffs filed their second amended complaint. We filed a motion to dismiss the second amended complaint on June 10, 2019. On June 7, 2020, the USDC-NJ issued an order denying our motion to dismiss the second amended complaint. On July 10, 2020, we filed our answer to the second amended
|
|
|
|
|
|
|
|
|
Cognizant
|
18
|
March 31, 2021 Form 10-Q
|
complaint. On July 23, 2020, the DOJ filed a motion on consent for leave to intervene and to stay all discovery through the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), except for documents produced by us to the DOJ in connection with those criminal proceedings. On July 24, 2020, the USDC-NJ granted the DOJ’s motion; and on that same day, we filed a motion in the USDC-NJ to certify the June 7, 2020 order for immediate appeal to the Third Circuit pursuant to 28 U.S.C. 1292(b). On March 17, 2021, the USDC-NJ issued an order denying our motion.
On October 31, 2016, November 15, 2016 and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. These actions were consolidated in an order dated January 24, 2017. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future.
On February 22, 2017, April 7, 2017 and May 10, 2017, three additional putative shareholder derivative complaints alleging similar claims were filed in the USDC-NJ, naming us and certain of our current and former directors and officers as defendants. These complaints asserted claims similar to those in the previously-filed putative shareholder derivative actions. In an order dated June 20, 2017, the USDC-NJ consolidated these actions into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motions to dismiss the consolidated putative securities class action. On October 30, 2018, lead plaintiff filed a consolidated verified derivative complaint.
On March 11, 2019, a seventh putative shareholder derivative complaint was filed in the USDC-NJ, naming us, certain of our current and former directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions. On May 14, 2019, the USDC-NJ approved a stipulation that (i) consolidated this action with the putative shareholder derivative suits that were previously filed in the USDC-NJ; and (ii) stayed all of these suits pending an order on the motion to dismiss the second amended complaint in the securities class action. On August 3, 2020, lead plaintiffs filed an amended complaint. On October 19, 2020, the USDC-NJ approved a stipulation that stayed all of these suits through the earlier of the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), or November 1, 2021.
We are presently unable to predict the duration, scope or result of the consolidated putative securities class action, the putative shareholder derivative actions or any other related lawsuits. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters. While the Company intends to defend the lawsuits vigorously, these lawsuits and any other related lawsuits are subject to inherent uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is necessarily uncertain.
We have indemnification and expense advancement obligations pursuant to our bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s directors. In connection with the matters that were the subject of our previously disclosed internal investigation, the DOJ and SEC investigations and the related litigation, we have received and expect to continue to receive requests under such indemnification agreements and our bylaws to provide funds for legal fees and other expenses. We have expensed such costs incurred through March 31, 2021.
We have maintained directors and officers insurance and have recorded an insurance receivable of $3 million and $7 million as of March 31, 2021 and December 31, 2020, respectively, in "Other current assets," on our unaudited consolidated statement of financial position related to the recovery of a portion of the indemnification expenses and costs related to the putative securities class action complaints. We are unable to make a reliable estimate of the eventual cash flows by period related to the indemnification and expense advancement obligations described here.
See Note 8 for information relating to the ITD Dispute.
Many of our engagements involve projects that are critical to the operations of our clients’ business and provide benefits that are difficult to quantify. Any failure in a client’s systems or our failure to meet our contractual obligations to our clients, including any breach involving a client’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in
|
|
|
|
|
|
|
|
|
Cognizant
|
19
|
March 31, 2021 Form 10-Q
|
rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.
In the normal course of business and in conjunction with certain client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to hold the indemnified party and certain of their affiliated entities harmless with respect to third-party claims related to such matters as our breach of certain representations or covenants, our intellectual property infringement, our gross negligence or willful misconduct or certain other claims made against certain parties. Payments by us under any of these arrangements are generally conditioned on the client making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine the maximum potential liability under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Historically, we have not made material payments under these indemnification agreements and therefore they have not had a material impact on our operating results, financial position, or cash flows. However, if events arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have entered, such payments could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13 — Segment Information
|
Our reportable segments are:
•Financial Services, which consists of our banking and insurance operating segments;
•Healthcare, which consists of our healthcare and life sciences operating segments;
•Products and Resources, which consists of our retail and consumer goods; manufacturing, logistics, energy, and utilities; and travel and hospitality operating segments; and
•Communications, Media and Technology, which includes our communications and media operating segment and our technology operating segment.
Our client partners, account executives and client relationship managers are aligned in accordance with the specific industries they serve. Our chief operating decision maker evaluates the Company's performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by our operating segments may affect revenues and operating expenses to differing degrees.
Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per employee charge for use of our global delivery centers and infrastructure. Certain SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery personnel as compared to target, restructuring and COVID-19 Charges, a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are included below as “unallocated costs” and adjusted against our total income from operations. Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.
|
|
|
|
|
|
|
|
|
Cognizant
|
20
|
March 31, 2021 Form 10-Q
|
For revenues by reportable segment and geographic area, see Note 2.
Segment operating profits by reportable segment were as follows for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2021
|
|
2020
|
|
|
|
|
Financial Services
|
$
|
406
|
|
|
381
|
|
|
|
|
|
Healthcare
|
411
|
|
|
321
|
|
|
|
|
|
Products and Resources
|
308
|
|
|
261
|
|
|
|
|
|
Communications, Media and Technology
|
215
|
|
|
190
|
|
|
|
|
|
Total segment operating profit
|
1,340
|
|
|
1,153
|
|
|
|
|
|
Less: unallocated costs
|
671
|
|
|
574
|
|
|
|
|
|
Income from operations
|
$
|
669
|
|
|
$
|
579
|
|
|
|
|
|
Geographic Area Information
Long-lived assets by geographic area are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in millions)
|
March 31, 2021
|
|
December 31, 2020
|
Long-lived Assets: (1)
|
|
|
|
North America(2)
|
$
|
407
|
|
|
$
|
399
|
|
Europe
|
80
|
|
|
88
|
|
Rest of World (3)
|
763
|
|
|
764
|
|
Total
|
$
|
1,250
|
|
|
$
|
1,251
|
|
(1)Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
(2)Substantially all relates to the United States.
(3)Substantially all relates to India.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 — Subsequent Events
|
Dividend
On May 5, 2021, our Board of Directors approved the Company's declaration of a $0.24 per share dividend with a record date of May 20, 2021 and a payment date of May 28, 2021.
Acquisitions
In March 2021, we entered into an agreement to acquire ESG Mobility, a digital automotive engineering research and development provider for connected, autonomous and electric vehicles for a preliminary purchase price of approximately $117 million. This acquisition is expected to expand our automotive engineering expertise, particularly in connected vehicles. The transaction is expected to close during the second quarter of 2021.
In April 2021, we completed the acquisition of Servian for a preliminary purchase price of $248 million. Servian is an Australia-based enterprise transformation consultancy specializing in data analytics, AI, digital services, experience design and cloud, which was acquired to enhance our digital portfolio and market presence in Australia and New Zealand.
|
|
|
|
|
|
|
|
|
Cognizant
|
21
|
March 31, 2021 Form 10-Q
|