Table of Contents

   

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   
FORM 10-Q
   
ýQuarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended JuneSeptember 30, 2018
¨Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from                      to                     
Commission File Number 0-24429
   
cognizantlogoa01.jpg
 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
   
Delaware 13-3728359
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
  
Glenpointe Centre West
500 Frank W. Burr Blvd.
Teaneck, New Jersey
 07666
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (201) 801-0233
   
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý   No:  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý    No:  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerýAccelerated filer¨
    
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
    
  Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  ý
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of July 27,October 23, 2018:
Class Number of Shares
Class A Common Stock, par value $.01 per share 580,233,834579,028,009

   

Table of Contents

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
TABLE OF CONTENTS
 
  Page
PART I.
   
Item 1.
   
 
   
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
PART II.
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 6.
  


Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.     Consolidated Financial Statements (Unaudited).
 
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in millions, except par values)
June 30,  
 2018

December 31, 
 2017
September 30,  
 2018

December 31, 
 2017
Assets





Current assets:





Cash and cash equivalents$901

$1,925
$1,339

$1,925
Short-term investments3,346

3,131
3,424

3,131
Trade accounts receivable, net of allowances of $68 and $65, respectively3,204

2,865
3,187

2,865
Unbilled accounts receivable

357


357
Other current assets852

833
777

833
Total current assets8,303

9,111
8,727

9,111
Property and equipment, net1,345

1,324
1,362

1,324
Goodwill3,036

2,704
3,037

2,704
Intangible assets, net1,060

981
1,021

981
Deferred income tax assets, net367

418
391

418
Long-term investments80
 235
93
 235
Other noncurrent assets615

448
643

448
Total assets$14,806

$15,221
$15,274

$15,221
Liabilities and Stockholders’ Equity





Current liabilities:





Accounts payable$217

$210
$223

$210
Deferred revenue308

383
244

383
Short-term debt100

175
100

175
Accrued expenses and other current liabilities1,912

2,071
2,126

2,071
Total current liabilities2,537

2,839
2,693

2,839
Deferred revenue, noncurrent77

104
72

104
Deferred income tax liabilities, net145

146
157

146
Long-term debt649

698
624

698
Long-term income taxes payable508
 584
490
 584
Other noncurrent liabilities242

181
260

181
Total liabilities4,158

4,552
4,296

4,552
Commitments and contingencies (See Note 13)

 

 
Stockholders’ equity:      
Preferred stock, $0.10 par value, 15.0 shares authorized, none issued
 

 
Class A common stock, $0.01 par value, 1,000 shares authorized, 580 and 588 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively6
 6
Class A common stock, $0.01 par value, 1,000 shares authorized, 580 and 588 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively6
 6
Additional paid-in capital55
 49
119
 49
Retained earnings10,681
 10,544
11,041
 10,544
Accumulated other comprehensive income (loss)(94) 70
(188) 70
Total stockholders’ equity10,648

10,669
10,978

10,669
Total liabilities and stockholders’ equity$14,806

$15,221
$15,274

$15,221
The accompanying notes are an integral part of the unaudited consolidated financial statements.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share data)
 
Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2018 2017 2018 20172018 2017 2018 2017
Revenues$4,006

$3,670

$7,918

$7,216
$4,078

$3,766

$11,996

$10,982
Operating expenses:













Cost of revenues (exclusive of depreciation and amortization expense shown separately below)2,417

2,261

4,818

4,455
2,480

2,337

7,298

6,792
Selling, general and administrative expenses805

709

1,516

1,395
734

674

2,250

2,069
Depreciation and amortization expense114

94

221

190
119

107

340

297
Income from operations670

606

1,363

1,176
745

648

2,108

1,824
Other income (expense), net:













Interest income40

31

81

63
47

34

128

97
Interest expense(7)
(6)
(13)
(12)(6)
(6)
(19)
(18)
Foreign currency exchange gains (losses), net(80)
5

(111)
57
(122)
(16)
(233)
41
Other, net

(1)



(2)
(2)
(2)
(2)
Total other income (expense), net(47)
29

(43)
108
(83)
10

(126)
118
Income before provision for income taxes623

635

1,320

1,284
662

658

1,982

1,942
Provision for income taxes(168)
(165)
(345)
(257)(185)
(164)
(530)
(421)
Income from equity method investments1
 
 1
 

 1
 1
 1
Net income$456

$470

$976

$1,027
$477

$495

$1,453

$1,522
Basic earnings per share$0.78

$0.80

$1.67

$1.72
$0.82

$0.84

$2.49

$2.56
Diluted earnings per share$0.78

$0.80

$1.66

$1.71
$0.82

$0.84

$2.48

$2.55
Weighted average number of common shares outstanding - Basic585

589

586

597
579

590

584

594
Dilutive effect of shares issuable under stock-based compensation plans1
 2
 1
 2
1
 2
 1
 2
Weighted average number of common shares outstanding - Diluted586

591

587

599
580

592

585

596
Dividends declared per common share$0.20
 $0.15
 $0.40
 $0.15
$0.20
 $0.15
 $0.60
 $0.30
The accompanying notes are an integral part of the unaudited consolidated financial statements.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
 
Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2018 2017 2018 20172018 2017 2018 2017
Net income$456
 $470
 $976
 $1,027
$477
 $495
 $1,453
 $1,522
Other comprehensive income (loss), net of tax:              
Foreign currency translation adjustments(71) 50
 (34) 67
(12) 33
 (46) 100
Change in unrealized gains and losses on cash flow hedges, net of taxes(87) (1) (123) 78
Change in unrealized gains and losses on available-for-sale securities, net of taxes1
 1
 (6) 2
Change in unrealized gains and losses on cash flow hedges(82) (22) (205) 56
Change in unrealized gains and losses on available-for-sale securities
 
 (6) 2
Other comprehensive income (loss)(157) 50
 (163) 147
(94) 11
 (257) 158
Comprehensive income$299
 $520
 $813
 $1,174
$383
 $506
 $1,196
 $1,680
The accompanying notes are an integral part of the unaudited consolidated financial statements.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in millions)
 
 Class A Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
  Total Class A Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
  Total
Shares     Amount  Shares     Amount 
Balance, December 31, 2017 588
 $6
 $49
 $10,544
 $70
 $10,669
 588
 $6
 $49
 $10,544
 $70
 $10,669
Cumulative effect of changes in accounting principle(1)
 
 
 
 122
 (1) 121
 
 
 
 122
 (1) 121
Net income 
 
 
 976
 
 976
 
 
 
 1,453
 
 1,453
Other comprehensive income (loss) 
 
 
 
 (163) (163) 
 
 
 
 (257) (257)
Common stock issued, stock-based compensation plans 4
 
 102
 
 
 102
 5
 
 142
 
 
 142
Stock-based compensation expense 
 
 130
 
 
 130
 
 
 199
 
 
 199
Repurchases of common stock (12) 
 (226) (723) 
 (949) (13) 
 (271) (723) 
 (994)
Dividends 
 
 
 (238) 
 (238) 
 
 
 (355) 
 (355)
Balance, June 30, 2018 580
 $6
 $55
 $10,681
 $(94) $10,648
Balance, September 30, 2018 580
 $6
 $119
 $11,041
 $(188) $10,978
                        
 Class A Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
  Total Class A Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
  Total
Shares     Amount  Shares     Amount 
Balance, December 31, 2016 608
 $6
 $358
 $10,478
 $(114) $10,728
 608
 $6
 $358
 $10,478
 $(114) $10,728
Net income 
 
 
 1,027
 
 1,027
 
 
 
 1,522
 
 1,522
Other comprehensive income (loss) 
 
 
 
 147
 147
 
 
 
 
 158
 158
Common stock issued, stock-based compensation plans 4
 
 105
 
 
 105
 6
 
 146
 
 
 146
Stock-based compensation expense 
 
 109
 
 
 109
 
 
 161
 
 
 161
Repurchases of common stock (22) 
 (444) (1,100) 
 (1,544) (24) 
 (457) (1,100) 
 (1,557)
Dividends 
 
 
 (89) 
 (89) 
 
 
 (179) 
 (179)
Balance, June 30, 2017 590
 $6
 $128
 $10,316
 $33
 $10,483
Balance, September 30, 2017 590
 $6
 $208
 $10,721
 $44
 $10,979
            
(1)
Reflects the adoption of accounting standards as described in Note 1.            


The accompanying notes are an integral part of the unaudited consolidated financial statements.


COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)

For the Six Months Ended 
 June 30,
For the Nine Months Ended 
 September 30,
2018 20172018 2017
Cash flows from operating activities:      
Net income$976
 $1,027
$1,453
 $1,522
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization240
 207
367
 321
Provision for doubtful accounts4
 17
5
 12
Deferred income taxes51
 8
46
 (46)
Stock-based compensation expense130
 109
199
 161
Other100
 (63)196
 (49)
Changes in assets and liabilities:      
Trade accounts receivable(330) (103)(313) (284)
Other current assets296
 (81)338
 21
Other noncurrent assets(159) (46)(194) (65)
Accounts payable(3) 2
(5) (5)
Deferred revenues, current and noncurrent(47) 10
(116) (21)
Other current and noncurrent liabilities(230) (289)(86) 4
Net cash provided by operating activities1,028
 798
1,890
 1,571
Cash flows from investing activities:      
Purchases of property and equipment(187) (126)(281) (204)
Purchases of available-for-sale investment securities(806) (1,622)(1,356) (2,163)
Proceeds from maturity or sale of available-for-sale investment securities906
 1,936
1,516
 2,352
Purchases of held-to-maturity investment securities(519) (662)(1,093) (1,015)
Proceeds from maturity of held-to-maturity investment securities386
 50
750
 208
Purchases of other investments(318) (213)(479) (363)
Proceeds from maturity or sale of other investments205
 345
345
 835
Payments for business combinations, net of cash acquired(478) (6)(479) (72)
Net cash (used in) investing activities(811) (298)(1,077) (422)
Cash flows from financing activities:      
Issuance of common stock under stock-based compensation plans102
 104
142
 146
Repurchases of common stock(949) (1,544)(994) (1,557)
Repayment of term loan borrowings and capital lease obligations(64) (42)(89) (62)
Net change in notes outstanding under the revolving credit facility(75) 150
(75) 
Dividends paid(236) (89)(352) (179)
Net cash (used in) financing activities(1,222) (1,421)(1,368) (1,652)
Effect of exchange rate changes on cash and cash equivalents(19) 44
(31) 46
(Decrease) in cash and cash equivalents(1,024) (877)(586) (457)
Cash and cash equivalents, beginning of year1,925
 2,034
1,925
 2,034
Cash and cash equivalents, end of period$901
 $1,157
$1,339
 $1,577
The accompanying notes are an integral part of the unaudited consolidated financial statements.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Interim Consolidated Financial Statements

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 generally accepted accounting principles in the United States of America, or U.S. GAAP, and Regulation S-X under the Securities Exchange Act of 1934, as amended, or 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, 2017. 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.

Recently Adopted Accounting Pronouncements
Date Issued and TopicDate Adopted and MethodDescriptionImpact
May 2014

Revenue
January 1, 2018

Modified Retrospective
The new standard, as amended, sets forth a single comprehensive model for recognizing and reporting revenues. The standard also requires additional financial statement disclosures that enable users to understand the nature, amount, timing and uncertainty of revenues and cash flows relating to customer contracts. The standard allows for two methods of adoption: the full retrospective adoption, which requires the standard to be applied to each prior period presented, or the modified retrospective adoption, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption.
See Note 3 for the impact of adoption of this standard.
November 2016

Statement of Cash Flows
January 1, 2018

Retrospective

This update requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. It also requires a reconciliation of such totals to the amounts on the statement of financial position and disclosure as to the nature of the restrictions.There were no restricted cash balances as of JuneSeptember 30, 2018. The adoption of this update had no impact on our financial statements for the three and sixnine months ended JuneSeptember 30, 2018.
February 2018

Income Statement - Reporting Comprehensive Income
January 1, 2018

In the period of adoption
This update provides an option for entities to reclassify stranded tax effects caused by the newly-enactedrecently-enacted Tax Cuts and Jobs Act, or Tax Reform Act, from accumulated other comprehensive income to retained earnings.We have early adopted this update as of January 1, 2018. The adoption resulted in a decrease of $1 million in accumulated other comprehensive income and a corresponding increase of $1 million to opening retained earnings.



New Accounting Pronouncements
Date Issued and TopicEffective DateDescriptionImpact
February 2016

Leases


January 1, 2019The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. The standard offers several practical expedients for transition and certain expedients specific to lessees or lessors. The standard allows for two methods of adoption: retrospective to each prior reporting period presented with the cumulative effect of adoption recognized at the beginning of the earliest period presented or retrospective to the beginning of the period of adoption through a cumulative-effect adjustment.
While we are continuing to evaluate the provisions of this standard, the primary effect will be to require recording of right-of-use assets and corresponding lease obligations for current operating leases. We expect the adoption of this standard to have a material impact on our consolidated statement of financial position, but not on the consolidated statements of operations or cash flows. As of December 31, 2017, our undiscounted operating lease commitments were $943 million.
We are currently planning to elect the package of practical expedients which permits us to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. We are also evaluating other available practical expedients. We intend to adopt the standard retrospectively to the beginning of the period of adoption through a cumulative-effect adjustment.
March 2017

Nonrefundable Fees and Other Costs
January 1, 2019This update shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount. Upon adoption, entities will be required to use a modified retrospective transition with the cumulative effect adjustment recognized to retained earnings as of the beginning of the period of adoption.We do not expect the adoption of this update to have a material impact on our financial statements.
August 2018

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement (CCA) that is a Service Contract
January 1, 2020
This update aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The update clarifies that a customer should capitalize certain implementation costs and subsequently amortize such costs over the term of the hosting arrangement as operating expenses.

We are currently evaluating the effect the amendmentsthis update will have on our consolidated financial statements and related disclosures.


Note 2 — Internal Investigation and Related Matters

We are conducting anhave substantially completed our internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation, iswhich began in 2016, has also examiningexamined various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the U.S. Department of Justice, or DOJ, and Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is beinghas been conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date,In connection with the investigation, has identified a total of approximately $6 million in payments made between 2009 and 2016 that may have been improper. Duringduring the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of suchpotentially improper payments between 2009 and 2016 that had been previously capitalized thatwhen they should have been expensed. These out-of-period corrections and the other $2 million in potentially improper payments were not material to any previously issued financial statements. There were no adjustments recorded during 2018 and 2017 related to the amounts under investigation.

The Company’s discussions with the DOJ and SEC have progressed to a point where the Company can now reasonably estimate a probable loss and has recorded an accrual of $28 million, or FCPA Accrual, in the caption “Accrued expenses and other

current liabilities” in our consolidated statements of financial position. There can be no assurance as to the timing of a final resolution of these matters with the DOJ and SEC.

Note 3 — Revenues

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers,” or the New Revenue Standard, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For contracts that were modified before the effective date, the Company aggregated the effect of all contract modifications prior to identifying performance obligations and allocating transaction price in accordance with the practical expedient ASC 606-10-65-1-(f)-4. Upon adoption of the New Revenue Standard on January 1, 2018, we recorded a net increase to opening retained earnings of approximately $121 million, after a tax impact of $37 million. The impact of adoption primarily relates to (1) changes in the method used to measure progress on our fixed-price application maintenance, consulting and business process services contracts, (2) the longer period of amortization for costs to fulfill a contract, (3) the timing of revenue recognition and allocation of purchase price on our software license contracts, (4) the reclassification of balances representing receivables, as defined by the New Revenue Standard, from Unbilled accounts receivable to Trade accounts receivable, net, (5) the reclassification of balances representing contract assets, as defined by the New Revenue Standard, from Unbilled accounts receivable to Other current assets, as well as (6) the income tax impact of the above items, as applicable.


The following tables compare the financial statement line items materially affected by the adoption of the New Revenue Standard as of and for the three and sixnine months ended JuneSeptember 30, 2018 to the pro-forma amounts had the previous guidance been in effect, or Pro-forma Amounts:
 June 30, 2018 September 30, 2018
 As Reported Pro-forma Amounts Impacts of the New Revenue Standard As Reported Pro-forma Amounts Impacts of the New Revenue Standard
 (in millions) (in millions)
Assets:            
Trade accounts receivable, net(1), (2)
 $3,204
 $3,082
 $122
 $3,187
 $3,073
 $114
Unbilled accounts receivable(1), (3)
 
 416
 (416) 
 432
 (432)
Other current assets(2), (3)
 852
 534
 318
 777
 457
 320
Total current assets     24
     2
Other noncurrent assets(4)
 615
 565
 50
 643
 589
 54
Total assets     $74
     $56
Liabilities:            
Deferred revenue(2)
 $308
 $451
 $(143) $244
 $417
 $(173)
Total current liabilities     (143)     (173)
Deferred revenue, noncurrent(2)
 77
 86
 (9) 72
 106
 (34)
Deferred income tax liabilities, net(5)
 145
 95
 50
 157
 100
 57
Total liabilities     (102)     (150)
Stockholders’ equity:            
Retained earnings 10,681
 10,505
 176
 11,041
 10,835
 206
Total stockholders’ equity     176
     206
Total liabilities and stockholders’ equity     $74
     $56
 Three Months Ended June 30, 2018 Six Months Ended June 30, 2018 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
 As Reported Pro-forma Amounts Impacts of the New Revenue Standard As Reported Pro-forma Amounts Impacts of the New Revenue Standard As Reported Pro-forma Amounts Impacts of the New Revenue Standard As Reported Pro-forma Amounts Impacts of the New Revenue Standard
 (in millions) (in millions) (in millions) (in millions)
Revenues(2)
 $4,006
 $3,975
 $31
 $7,918
 $7,866
 $52
 $4,078
 $4,045
 $33
 $11,996
 $11,911
 $85
Cost of revenues (4)
 2,417
 2,424
 (7) 4,818
 4,833
 (15) 2,480
 2,484
 (4) 7,298
 7,317
 (19)
Selling, general and administrative expenses 805
 805
 
 1,516
 1,516
 
 734
 734
 
 2,250
 2,250
 
Depreciation and amortization expense 114
 114
 
 221
 221
 
 119
 119
 
 340
 340
 
Income from operations 670
 632
 38
 1,363
 1,296
 67
 745
 708
 37
 2,108
 2,004
 104
Other income (expense), net (47) (47) 
 (43) (43) 
 (83) (84) 1
 (126) (127) 1
Income before provision for income taxes(5)
 623
 585
 38
 1,320
 1,253
 67
 662
 624
 38
 1,982
 1,877
 105
Provision for income taxes (168) (161) (7) (345) (332) (13) (185) (178) (7) (530) (510) (20)
Income (loss) from equity method investment 1
 1
 
 1
 1
 
 
 
 
 1
 1
 
Net income $456
 $425
 $31
 $976
 $922
 $54
 $477
 $446
 $31
 $1,453
 $1,368
 $85
Basic earnings per share $0.78
 $0.73
 $0.05
 $1.67
 $1.57
 $0.10
 $0.82
 $0.77
 $0.05
 $2.49
 $2.34
 $0.15
Diluted earnings per share $0.78
 $0.73
 $0.05
 $1.66
 $1.57
 $0.09
 $0.82
 $0.77
 $0.05
 $2.48
 $2.34
 $0.14
            
(1)Reflects the reclassification of balances representing receivables, as defined by the New Revenue Standard, from Unbilled accounts receivable to Trade accounts receivable, net.
(2)Reflects the impact of changes in the method used to measure progress on our fixed-price application maintenance, consulting and business process services contracts and the timing of revenue recognition and allocation of purchase price on our software license contracts.
(3)Reflects the reclassification of balances representing contract assets, as defined by the New Revenue Standard, from Unbilled accounts receivable to Other current assets.
(4)Reflects the impact of a longer period of amortization for costs to fulfill a contract.
(5)Reflects the income tax impact of the above items.


Revenue Recognition

We recognize revenues as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration to which we expect to be entitled. To recognize revenues, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. We account for a contract when it has approval and commitment from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience.

We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer.  When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.

For performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Revenues related to fixed-price contracts for application development and systems integration services, consulting or other technology services are recognized as the service is performed using the cost to cost method, under which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18. If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. Revenues related to fixed-price hosting and infrastructure services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18. If our invoicing is not consistent with value delivered, revenues are recognized on a straight-line basis unless revenues are earned and obligations are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides the most faithful depiction of performance towards satisfaction of our performance obligations; for example, the cost to cost method is used when the value of services provided to the customer is best represented by the costs expended to deliver those services.

Revenues related to our non-hosted software license arrangements that do not require significant modification or customization of the underlying software are recognized when the software is delivered as control is transferred at a point in time. For software license arrangements that require significant functionality enhancements or modification of the software, revenues for the software license and related services are recognized as the services are performed in accordance with the methods described above. In software hosting arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a service. Sales and usage-based fees promised in exchange for licenses of intellectual property are not recognized as revenue until the uncertainty related to the variable amounts is resolved. Revenues related to software maintenance and support are generally recognized on a straight-line basis over the contract period.

Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period the services are provided in a manner that corresponds with the value transferred to the customer to-date relative to the remaining services to be provided.

Revenues also include the reimbursement of out-of-pocket expenses. Our warranties generally provide a customer with assurance that the related deliverable will function as the parties intended because it complies with agreed-upon specifications and is therefore not considered an additional performance obligation in the contract.

From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal (i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). In doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Determining whether we control the good or service before it is transferred to the customer may require judgment.

Our contracts may be modified to add, remove or change existing performance obligations. The accounting for modifications to our contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price. Services added to our application development and systems integration service contracts are typically not distinct, while services added to our other contracts, including application maintenance, testing and business process services contracts, are typically distinct.

Incentive revenues, volume discounts, or any other form of variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration to which we may be entitled. We include in the transaction price variable consideration only to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.

We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.

Costs to Fulfill

Recurring operating costs for contracts with customers are recognized as incurred. Certain eligible, nonrecurring costs incurred in the initial phases of our application maintenance, business process outsourcing and infrastructure services contracts (i.e. set-up or transition costs) are capitalized when such costs (1) relate directly to the contract, (2) generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future, and (3) are expected to be recovered. These costs are expensed ratably over the estimated life of the customer relationship, including expected renewals. In determining the estimated life of the customer relationship, we evaluate the average contract term, on a portfolio basis by nature of the services to be provided, and apply judgment to evaluate the rate of technological and industry change. Capitalized amounts are monitored regularly for impairment. Impairment losses are recorded when projected remaining undiscounted operating cash flows are not sufficient to recover the carrying amount of the capitalized costs to fulfill.

The following table presents information related to the capitalized costs to fulfill, such as set-up or transition activities, for the sixnine months ended JuneSeptember 30, 2018. Costs to obtain contracts were immaterial for the periods disclosed.
  Costs to Fulfill
  (in millions)
Balance - January 1, 2018 $303
Amortization expense (32)
Costs capitalized 85
Other (3)
Balance - June 30, 2018 $353
Costs to fulfill are recorded in "Other noncurrent assets" in our consolidated statements of financial position. Costs to obtain contracts were immaterial for the periods disclosed.
  Costs to Fulfill
  (in millions)
Balance - January 1, 2018 $303
Amortization expense (50)
Costs capitalized 132
Other (2)
Balance - September 30, 2018 $383


Trade Accounts Receivable and Contract Balances

We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, we recognize a receivable for revenues related to our time and materials and transaction or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in Trade accounts receivable, net in our consolidated statements of financial position at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other applicable factors.

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 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:
 Contract Assets Contract Assets
 (in millions) (in millions)
Balance - January 1, 2018 $306
 $306
Revenues recognized during the period but not billed 259
 290
Amounts reclassified to accounts receivable (247) (273)
Balance - June 30, 2018 $318
Other (3)
Balance - September 30, 2018 $320

Our contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize the revenues. The noncurrent portion of deferred revenue is included in other noncurrent liabilities in our consolidated statements of financial position.

The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the period disclosed:
 Deferred Revenue Deferred Revenue
 (in millions) (in millions)
Balance - January 1, 2018 $431
 $431
Amounts billed but not recognized as revenues 119
 116
Revenues recognized related to the opening balance of deferred revenue (163) (230)
Other (2) (1)
Balance - June 30, 2018 $385
Balance - September 30, 2018 $316
Our contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. The difference between the opening and closing balances of our contract assets and deferred revenues primarily results from the timing difference between our performance obligations and the customer’s payment. We receive payments from customers based on the terms established in our contracts, which vary by contract type.
Revenues recognized during the sixnine months ended JuneSeptember 30, 2018 for performance obligations satisfied or partially satisfied in previous periods were immaterial.

Remaining Performance Obligations

ASC 606 requires that we disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of JuneSeptember 30, 2018. This disclosure is not required for:
(1)contracts with an originala duration of one year or less including contracts that can be terminated for convenience without a substantive penalty,as determined under ASC 606,
(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. As of JuneSeptember 30, 2018, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $1,595$2,014 million, of which approximately 64%70% is expected to be recognized as revenues within 2 years.
Disaggregation of Revenues

The table below presents disaggregated revenues from contracts with customers by customer 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.
 Three Months Ended Three Months Ended
 June 30, 2018 September 30, 2018
 Financial Services Healthcare Products and Resources Communications, Media and Technology Total Financial Services Healthcare Products and Resources Communications, Media and Technology Total
 (in millions) (in millions)
Revenues                    
Geography:                    
North America $1,056
 $1,060
 $585
 $366
 $3,067
 $1,033
 $1,084
 $609
 $381
 $3,107
United Kingdom 114
 22
 89
 84
 309
 127
 23
 90
 85
 325
Rest of Europe 165
 61
 109
 46
 381
 170
 69
 109
 50
 398
Europe - Total 279
 83
 198
 130
 690
 297
 92
 199
 135
 723
Rest of World 134
 13
 57
 45
 249
 134
 13
 55
 46
 248
Total $1,469
 $1,156
 $840
 $541
 $4,006
 $1,464
 $1,189
 $863
 $562
 $4,078
                    
Service line:                    
Consulting and technology services $885
 $613
 $499
 $289
 $2,286
 $902
 $645
 $512
 $292
 $2,351
Outsourcing services 584
 543
 341
 252
 1,720
 562
 544
 351
 270
 1,727
Total $1,469
 $1,156
 $840
 $541
 $4,006
 $1,464
 $1,189
 $863
 $562
 $4,078
                    
Type of contract:                    
Time and materials $953
 $452
 $379
 $335
 $2,119
 $954
 $464
 $374
 $354
 $2,146
Fixed-price 460
 443
 367
 179
 1,449
 453
 452
 392
 187
 1,484
Transaction or volume-based 56
 261
 94
 27
 438
 57
 273
 97
 21
 448
Total $1,469
 $1,156
 $840
 $541
 $4,006
 $1,464
 $1,189
 $863
 $562
 $4,078


 Six Months Ended Nine Months Ended
 June 30, 2018 September 30, 2018
 Financial Services Healthcare Products and Resources Communications, Media and Technology Total Financial Services Healthcare Products and Resources Communications, Media and Technology Total
 (in millions) (in millions)
Revenues                    
Geography:                    
North America $2,100
 $2,083
 $1,157
 $702
 $6,042
 $3,133
 $3,167
 $1,766
 $1,083
 $9,149
United Kingdom 230
 45
 176
 168
 619
 357
 68
 266
 253
 944
Rest of Europe 327
 122
 218
 88
 755
 497
 191
 327
 138
 1,153
Europe - Total 557
 167
 394
 256
 1,374
 854
 259
 593
 391
 2,097
Rest of World 273
 27
 110
 92
 502
 407
 40
 165
 138
 750
Total $2,930
 $2,277
 $1,661
 $1,050
 $7,918
 $4,394
 $3,466
 $2,524
 $1,612
 $11,996
         
         
Service line:         
         
Consulting and technology services $1,756
 $1,251
 $980
 $567
 $4,554
 $2,658
 $1,896
 $1,492
 $859
 $6,905
Outsourcing services 1,174
 1,026
 681
 483
 3,364
 1,736
 1,570
 1,032
 753
 5,091
Total $2,930
 $2,277
 $1,661
 $1,050
 $7,918
 $4,394
 $3,466
 $2,524
 $1,612
 $11,996
         
         
Type of contract:         
         
Time and materials $1,888
 $900
 $748
 $641
 $4,177
 $2,842
 $1,364
 $1,122
 $995
 $6,323
Fixed-price 931
 954
 728
 358
 2,971
 1,384
 1,406
 1,120
 545
 4,455
Transaction or volume-based 111

423
 185
 51
 770
 168
 696
 282
 72
 1,218
Total $2,930
 $2,277
 $1,661
 $1,050
 $7,918
 $4,394
 $3,466
 $2,524
 $1,612
 $11,996


Note 4 — Business Combinations
In
During the nine months ended September 30, 2018, we completed two business combinations for total consideration of approximately $492 million, inclusive of contingent consideration. The acquisition of Bolder Healthcare Solutions, a privately-held U.S. provider of revenue cycle management solutions to the healthcare industry expands our healthcare consulting, technology and business process services portfolio and strengthens our position in digital healthcare technology and operations. The acquisition of Hedera Consulting, a privately-held company specializing in business advisory and data analytics services across a number of industries expands our consulting, business insight and digital transformation capabilities in Belgium and the Netherlands.


These acquisitions were not material, either individually or in the aggregate, to our operations, financial position or operating cash flow. Accordingly, pro forma results have not been presented. These acquisitions were included in our unaudited consolidated financial statements as of the date on which the businesses were acquired. We have allocated the purchase price related to these transactions to tangible and intangible assets and liabilities, including non-deductible goodwill, based on their estimated fair values. We will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition. The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:
Six Months Ended 
 June 30, 2018
Fair Value Weighted Average Useful LifeFair Value Weighted Average Useful Life
(in millions) (in millions) 
Cash$10
 $9
 
Current assets37
 37
 
Property, plant and equipment and other noncurrent assets10
 7
 
Non-deductible goodwill (1)
340
 344
 
Customer relationship intangible assets123
 9.7 years122
 9.7 years
Other intangible assets26
 2.4 years26
 2.4 years
Current liabilities(15) (14) 
Noncurrent liabilities(39) (39) 
Purchase price$492
 $492
 
            
(1)     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 amortizable intangible asset.

Note 5 — Realignment Charges
In 2017, we began a realignment of our business to accelerate the shift to digital services and solutions while improving the overall efficiency of our operations. Charges we incurred asAs part of this realignment, were reportedfor the three and nine months ended September 30, 2017, we incurred $19 million and $69 million, respectively, in "Selling, general and administrative expenses" in our consolidated statements of operations. The realignmentpre-tax charges. These charges are comprised ofincluded severance costs including thoseprimarily related to aour voluntary separation program announced in May 2017, lease termination costs and advisory fees related to non-routine shareholder matters and charges related to the development of our realignment and return of capital programs. Further, during the three months ended September 30, 2018, we incurred $11 million in pre-tax severance costs as part of an involuntary separation program. Our realignment initiatives are intended to further improve our cost structure primarily by optimizing our resource pyramid. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations.
Realignment charges were as follows:
Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2018 2017 2018 20172018 2017 2018 2017
(in millions)(in millions)
Employee separations$
 $37
 $
 $39
$11
 $14
 $11
 $53
Advisory fees
 1
 
 10

 5
 
 15
Lease termination costs
 1
 1
 1

 
 1
 1
Total realignment costs$
 $39
 $1
 $50
$11
 $19
 $12
 $69


Note 6 — Investments
Our investments were as follows:
June 30, 2018 December 31, 2017September 30, 2018 December 31, 2017
(in millions)(in millions)
Short-term investments:      
Equity investment securities$25
 $25
$25
 $25
Available-for-sale investment securities1,862
 1,972
1,801
 1,972
Held-to-maturity investment securities987
 745
1,133
 745
Time deposits472
(1) 
389
465
(1) 
389
Total short-term investments$3,346
 $3,131
$3,424
 $3,131
Long-term investments:     ��
Equity and cost method investments$74
 $74
$75
 $74
Held-to-maturity investment securities6
 161
18
 161
Total long-term investments$80
 $235
$93
 $235
            
(1)
Includes $419$405 million in restricted time deposits as of JuneSeptember 30, 2018. See Note 9.

Equity Investment Securities

Our equity investment securities consist of a U.S. dollar denominated investment in a fixed income mutual fund. Unrealized losses for the three and sixnine months ended JuneSeptember 30, 2018 and 2017 were immaterial. The value of the fixed income mutual fund is based on the net asset value, or NAV, of the fund, with appropriate consideration of the liquidity and any restrictions on disposition of our investment in the fund. There were no realized gains or losses on equity securities during the three and sixnine months ended JuneSeptember 30, 2018 and 2017.

Available-for-Sale Investment Securities

Our available-for-sale investment securities consist of U.S. dollar denominated investments primarily in U.S. Treasury notes, U.S. government agency debt securities, municipal debt securities, non-U.S. government debt securities, U.S. and international corporate bonds, certificates of deposit, commercial paper, debt securities issued by supranational institutions, and asset-backed securities, including securities backed by auto loans, credit card receivables, and other receivables. Our investment guidelines are to purchase securities which are investment grade at the time of acquisition. We monitor the credit ratings of the securities in our portfolio on an ongoing basis.

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at JuneSeptember 30, 2018 were as follows:
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 Fair
Value
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 Fair
Value
(in millions)(in millions)
U.S. Treasury and agency debt securities$647
 $
 $(10) $637
$647
 $
 $(10) $637
Corporate and other debt securities440
 
 (5) 435
431
 
 (5) 426
Certificates of deposit and commercial paper377
 
 
 377
317
 
 
 317
Asset-backed securities306
 
 (3) 303
321
 
 (3) 318
Municipal debt securities111
 
 (1) 110
104
 
 (1) 103
Total available-for-sale investment securities$1,881
 $
 $(19) $1,862
$1,820
 $
 $(19) $1,801

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at December 31, 2017 were as follows:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 (in millions)
U.S. Treasury and agency debt securities$667
 $
 $(6) $661
Corporate and other debt securities439
 
 (2) 437
Certificates of deposit and commercial paper450
 
 
 450
Asset-backed securities297
 
 (2) 295
Municipal debt securities130
 
 (1) 129
Total available-for-sale investment securities$1,983
 $
 $(11) $1,972

The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of JuneSeptember 30, 2018:
Less than 12 Months 12 Months or More TotalLess than 12 Months 12 Months or More Total
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
(in millions)(in millions)
U.S. Treasury and agency debt securities$517
 $(8) $86
 $(2) $603
 $(10)$296
 $(4) $336
 $(6) $632
 $(10)
Corporate and other debt securities321
 (4) 97
 (1) 418
 (5)258
 (3) 134
 (2) 392
 (5)
Certificates of deposit and commercial paper99
 
 
 
 99
 
198
 
 
 
 198
 
Asset-backed securities212
 (2) 78
 (1) 290
 (3)168
 (1) 137
 (2) 305
 (3)
Municipal debt securities86
 (1) 16
 
 102
 (1)62
 (1) 40
 
 102
 (1)
Total$1,235
 $(15) $277
 $(4) $1,512
 $(19)$982
 $(9) $647
 $(10) $1,629
 $(19)

The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of December 31, 2017:
 Less than 12 Months 12 Months or More Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 (in millions)
U.S. Treasury and agency debt securities$519
 $(4) $124
 $(2) $643
 $(6)
Corporate and other debt securities297
 (1) 126
 (1) 423
 (2)
Certificates of deposit and commercial paper49
 
 
 
 49
 
Asset-backed securities193
 (1) 94
 (1) 287
 (2)
Municipal debt securities107
 (1) 18
 
 125
 (1)
Total$1,165
 $(7) $362
 $(4) $1,527
 $(11)

The unrealized losses for the above securities as of JuneSeptember 30, 2018 and December 31, 2017 were primarily attributable to changes in interest rates. At each reporting date, we perform an evaluation of impaired available-for-sale securities to determine if the unrealized losses are other-than-temporary. We do not consider any of the investments to be other-than-temporarily impaired as of JuneSeptember 30, 2018. The gross unrealized gains and losses in the above tables were recorded, net of tax, in "Accumulated other comprehensive income (loss)" in our consolidated statements of financial position.

The contractual maturities of our fixed income available-for-sale investment securities as of JuneSeptember 30, 2018 are set forth in the following table:
Amortized
Cost
 
Fair
Value
Amortized
Cost
 
Fair
Value
(in millions)(in millions)
Due within one year$536
 $535
$579
 $578
Due after one year up to two years526
 518
474
 466
Due after two years up to three years468
 461
407
 400
Due after three years45
 45
39
 39
Asset-backed securities306
 303
321
 318
Total available-for-sale investment securities$1,881
 $1,862
$1,820
 $1,801

Asset-backed securities were excluded from the maturity categories because the actual maturities may differ from the contractual maturities since the underlying receivables may be prepaid without penalties. Further, actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.

Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:
Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2018 2017 2018 20172018 2017 2018 2017
(in millions)(in millions)
Proceeds from sales of available-for-sale investment securities$434
 $397
 $559
 $1,645
$490
 $375
 $1,049
 $2,020
              
Gross gains$
 $
 $
 $1
$
 $
 $
 $1
Gross losses(1) 
 (2) (1)(1) (1) (3) (2)
Net realized (losses) on sales of available-for-sale investment securities$(1) $
 $(2) $
$(1) $(1) $(3) $(1)

Held-to-Maturity Investment Securities

Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial paper, corporate bonds and government debt securities. Our investment guidelines are to purchase securities that are investment grade at the time of acquisition. We monitor the credit ratings of the securities in our portfolio on an ongoing basis.

The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at JuneSeptember 30, 2018 were as follows:
Amortized
Cost
 Unrealized
Gains
 Unrealized
Losses
 Fair
Value
Amortized
Cost
 Unrealized
Gains
 Unrealized
Losses
 Fair
Value
(in millions)(in millions)
Short-term investments:              
Corporate and other debt securities$599
 $
 $(2) $597
$677
 $
 $(3) $674
Commercial paper388
 
 (1) 387
456
 
 (2) 454
Total short-term held-to-maturity investments987
 
 (3) 984
1,133
 
 (5) 1,128
Long-term investments:              
Corporate and other debt securities6
 
 
 6
6
 
 
 6
Commercial paper12
 
 
 12
Total held-to-maturity investment securities$993
 $
 $(3) $990
$1,151
 $
 $(5) $1,146

The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at December 31, 2017 were as follows:
 Amortized
Cost
 Unrealized
Gains
 Unrealized
Losses
 Fair
Value
 (in millions)
Short-term investments:       
Corporate and other debt securities$346
 $
 $(1) $345
Commercial paper399
 
 (2) 397
Total short-term held-to-maturity investments745
 
 (3) 742
Long-term investments:       
Corporate and other debt securities161
 
 (1) 160
Total held-to-maturity investment securities$906
 $
 $(4) $902

The fair value and related unrealized losses of held-to-maturity investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of JuneSeptember 30, 2018:
Less than 12 Months 12 Months or More TotalLess than 12 Months 12 Months or More Total
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
(in millions)(in millions)
Corporate and other debt securities$485
 $(2) $31
 $
 $516
 $(2)$469
 $(2) $168
 $(1) $637
 $(3)
Commercial paper387
 (1) 
 
 387
 (1)454
 (2) 
 
 454
 (2)
Total$872
 $(3) $31
 $
 $903
 $(3)$923
 $(4) $168
 $(1) $1,091
 $(5)

The fair value and related unrealized losses of held-to-maturity investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of December 31, 2017:
 Less than 12 Months 12 Months or More Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 (in millions)
Corporate and other debt securities$473
 $(2) $
 $
 $473
 $(2)
Commercial paper394
 (2) 
 
 394
 (2)
Total$867
 $(4) $
 $
 $867
 $(4)

At each reporting date, the Company performs an evaluation of held-to-maturity securities to determine if the unrealized losses are other-than-temporary. We do not consider any of the investments to be other-than-temporarily impaired as of JuneSeptember 30, 2018.
The contractual maturities of our fixed income held-to-maturity investment securities as of JuneSeptember 30, 2018 are set forth in the following table:
Amortized
Cost
 
Fair
Value
Amortized
Cost
 
Fair
Value
(in millions)(in millions)
Due within one year$987
 $984
$1,133
 $1,128
Due after one year up to two years12
 12
Due after two years6
 6
6
 6
Total held-to-maturity investment securities$993
 $990
$1,151
 $1,146

During the sixnine months ended JuneSeptember 30, 2018 and the year ended December 31, 2017, there were no transfers of investments between our available-for-sale and held-to-maturity investment portfolios.

Note 7 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:
June 30, 2018 December 31, 2017September 30, 2018 December 31, 2017
(in millions)(in millions)
Compensation and benefits$928
 $1,272
$1,053
 $1,272
Customer volume and other incentives320
 289
Derivative financial instruments67
 5
FCPA Accrual28
 
Income taxes174
 48
158
 48
Professional fees113
 100
114
 100
Travel and entertainment45
 32
57
 32
Customer volume and other incentives312
 289
Derivative financial instruments18
 5
Other322
 325
329
 325
Total accrued expenses and other current liabilities$1,912
 $2,071
$2,126
 $2,071

Note 8 — Debt

In 2014, we entered into a credit agreement with a commercial bank syndicate, or, as amended, the Credit Agreement, providing for a $1,000 million unsecured term loan and a $750 million unsecured revolving credit facility. The term loan and the revolving credit facility both mature in November 2019. All notes drawn to date under the revolving credit facility have been less than 90 days in duration. The term loan and the revolving credit facility both mature in November 2019. We are required under the Credit Agreement to make scheduled quarterly principal payments on the term loan.loan, with a final payment of $625 million due on the term loan due in November 2019. We are currently evaluating alternative financing arrangements. We were in compliance with all debt covenants and representations as of JuneSeptember 30, 2018.

Short-term Debt

The following summarizes our short-term debt balances as of:
 June 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
 (in millions) (in millions)
Notes outstanding under revolving credit facility $
 $75
 $
 $75
Term loan - current maturities 100
 100
 100
 100
Total short-term debt $100
 $175
 $100
 $175
Long-term Debt

The following summarizes our long-term debt balances as of:
 June 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
 (in millions) (in millions)
Term loan, due November 2019 $750
 $800
 $725
 $800
Less:        
Current maturities (100) (100) (100) (100)
Deferred financing costs (1) (2) (1) (2)
Long-term debt, net of current maturities $649
 $698
 $624
 $698

Note 9 — Income Taxes
On December 22, 2017, the United States enacted the Tax Reform Act, which significantly revised the U.S. corporate income tax law for tax years beginning after December 31, 2017 by (among other provisions):
reducing the U.S. federal statutory corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017;
implementing a modified territorial tax system that includes a one-time transition tax on all accumulated undistributed earnings of foreign subsidiaries;
providing for a full deduction on future dividends received from foreign affiliates; and
imposing a U.S. income tax on global intangible low-taxed income, or GILTI.
During the fourth quarter of 2017, in accordance with the SEC Staff Accounting Bulletin ("SAB") No. 118 - Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we recorded a one-time provisional net income tax expense of $617 million, which was comprised of: (i) the one-time transition tax expense on accumulated undistributed earnings of foreign subsidiaries of $635 million, (ii) foreign and U.S. state income tax expense that will be applicable upon repatriation of the accumulated undistributed earnings of our foreign subsidiaries, other than our Indian subsidiaries, of $53 million, partially offset by (iii) an income tax benefit of $71 million resulting from the revaluation of U.S. net deferred income tax liabilities to the new lower U.S. income tax rate. During the three months ended September 30, 2018, we recognized a $5 million reduction to the provision for income taxes as we finalized our calculation of the one-time net income tax expense related to the enactment of the Tax Reform Act, bringing the final one-time cost to $612 million. The Company has elected to pay the transition tax on undistributed earnings over eight years. The one-time incremental income tax expense is provisional as it reflects certain assumptions based upon our interpretation ofin installments through the Tax Reform Act and may change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. During the six months ended June 30, 2018, we have not recorded any adjustments to the one-time provisional net income tax expense. We will complete the accounting for the Tax Reform Act within the one year measurement period as provided in SAB 118.2024.
Our effective income tax rates were as follows:
 Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
 2018 2017 2018 2017
Effective income tax rate27.0% 26.0% 26.1% 20.0%
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 2018 2017 2018 2017
Effective income tax rate27.9% 24.9% 26.7% 21.7%
The effective tax rate for the sixnine months ended JuneSeptember 30, 2017 was affectedimpacted by the recognition of income tax benefits previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million. The recognition of these benefits in the first quarter of 2017 was based on management’s reassessment regarding whether certain unrecognized tax benefits met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefits. The estimate of our 2018 annual effective income tax rate reflects the current interpretation of the Tax Reform Act, including the GILTI provision and may change as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time.
We are involved in an ongoing dispute with the Indian Income Tax Department, or ITD, in connection with which we received a notice in March 2018 asserting that the ITD is owed additional taxes on our previously disclosed 2016 India Cash Remittance, the transaction undertaken by our principal operating subsidiary in India, or CTS India, to repurchase shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of that transaction, undertaken pursuant to a plan approved by the Madras High Court in Chennai, India, we previously paid $135 million in Indian income taxes, which we believe are all the applicable taxes owed for this transaction under Indian law. The ITD is asserting that we owe an additional 33 billion Indian rupees ($482455 million at the JuneSeptember 30, 2018 exchange rate) related to the 2016 India Cash Remittance. In addition to the dispute on the 2016 India Cash Remittance, we are 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 collectively referred to as the ITD Dispute), for which we also believe we have paid all the applicable taxes owed. Accordingly, we have not recorded any reserves for these matters as of JuneSeptember 30, 2018. The ITD Dispute is ongoing, and no final decision has been reached.
In March 2018, the ITD placed an attachment on certain of our India bank accounts, relating to the 2016 India Cash Remittance. In April 2018, the Madras High Court granted our application for a stay of the actions of the ITD and lifted the ITD’s attachment of our bank accounts. As part of the interim stay order, we have deposited 5 billion Indian rupees ($7268 million at the JuneSeptember 30, 2018 exchange rate) representing 15% of the disputed tax amount related to the 2016 India Cash Remittance, to be kept in a segregated account by the ITD. This amount is presented in "Other current assets" on our consolidated statement of financial position. In addition, in April 2018 the court placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($410387 million at the JuneSeptember 30, 2018 exchange rate), which is the remainder of the disputed tax amount related to the 2016 India Cash Remittance. We have classifiedThe affected time deposits asare considered restricted assets and we have reported them in “Short-term investments” on“Short-

term investments” on our consolidated statement of financial position. As of JuneSeptember 30, 2018, the restricted time deposits balance was $419$405 million, including accumulated interest. There were no restricted time deposits as of December 31, 2017.
Note 10 — Derivative Financial Instruments

In the normal course of business, we use foreign exchange forward contracts to manage foreign currency exchange rate risk. The estimated fair value of the foreign exchange forward contracts considers the following items: discount rate, timing and amount of cash flow and counterparty credit risk. Derivatives may give rise to credit risks from the possible non-performance by counterparties. Credit risk is generally limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by entering into derivative transactions only with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution and conducting an 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 forward contracts set forth in the below table are subject to International Swaps and Derivatives Association, or ISDA, master netting arrangements or other similar agreements 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 forward contracts on a gross basis, with no offsets, in our accompanying unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to our foreign exchange forward 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:
   June 30, 2018 December 31, 2017   September 30, 2018 December 31, 2017
Designation of Derivatives 
Location on Statements of
Financial Position
 Assets Liabilities Assets   Liabilities 
Location on Statements of
Financial Position
 Assets Liabilities Assets   Liabilities
 (in millions) (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments Other current assets $36
 $
 $134
 $
 Other current assets $4
 $
 $134
 $
 Other noncurrent assets 
 
 20
 
 Other noncurrent assets 
 
 20
 
 Accrued expenses and other current liabilities 
 18
 
 
 Accrued expenses and other current liabilities 
 66
 
 
 Other noncurrent liabilities 
 25
 
 
 Other noncurrent liabilities 
 48
 
 
 Total 36
 43
 154
 
 Total 4
 114
 154
 
Foreign exchange forward contracts – Not designated as hedging instruments Other current assets 4
 
 
 
 Other current assets 3
 
 
 
 Accrued expenses and other current liabilities 
 
 
 5
 Accrued expenses and other current liabilities 
 1
 
 5
 Total 4
 
 
 5
 Total 3
 1
 
 5
Total $40
 $43
 $154
 $5
 $7
 $115
 $154
 $5

Cash Flow Hedges

We have entered into a series of foreign exchange forward 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 exchange rates on future operating costs and are scheduled to mature each month during 2018, 2019 and the first halfnine months of 2020. Under these contracts, we purchase Indian rupees and sell U.S. dollars. The changes in fair value of these contracts are initially reported in the caption “Accumulated other comprehensive income (loss)” in our consolidated statements of financial position and are subsequently reclassified to earnings in the same period the forecasted Indian rupee denominated payments are recorded in earnings. As of JuneSeptember 30, 2018, we estimate that $13$50 million, net of tax, of net gainslosses related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income (loss) 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 included in accumulated other comprehensive income (loss) for such contracts were as follows as of:
June 30, 2018 December 31, 2017September 30, 2018 December 31, 2017
(in millions)(in millions)
2018$690
 $1,185
$360
 $1,185
20191,050
 720
1,215
 720
2020315
 
555
 
Total notional value of contracts outstanding$2,055
 $1,905
$2,130
 $1,905
Net unrealized (losses) gains included in accumulated other comprehensive income (loss), net of taxes$(8) $115
$(90) $115

Upon settlement or maturity of the cash flow hedge contracts, we record the gains or losses, based on our designation at the commencement of the contract, with the related hedged Indian rupee denominated expense reported within cost of revenues and selling, general and administrative expenses. Hedge ineffectiveness was immaterial for all periods presented.

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 JuneSeptember 30:
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 2018 2017   2018 2017
 (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments$(91) $35
 Cost of revenues $18
 $29
     Selling, general and administrative expenses 3
 6
     Total $21
 $35
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 2018 2017   2018 2017
 (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments$(96) $6
 Cost of revenues $6
 $29
     Selling, general and administrative expenses 1
 5
     Total $7
 $34

The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the sixnine months ended JuneSeptember 30:
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 2018 2017   2018 2017
 (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments$(105) $159
 Cost of revenues $48
 $46
     Selling, general and administrative expenses 8
 9
     Total $56
 $55
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 2018 2017   2018 2017
 (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments$(201) $165
 Cost of revenues $54
 $75
     Selling, general and administrative expenses 9
 14
     Total $63
 $89

The activity related to the change in net unrealized gains and losses on our cash flow hedges included in accumulated other comprehensive income (loss) is presented in Note 12.


Other Derivatives

We use foreign exchange forward contracts which have not been designated as hedges, to provide an economic hedge against balance sheet exposureexposures to certain monetary assets and liabilities denominated in currencies, primarily the Indian rupee, British pound and Euro, other than the functional currency of our foreign subsidiaries. We entered into a series of foreign exchange forward contracts that are scheduled to mature in 2018. 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 consolidated statements of operations.

Additional information related to our outstanding foreign exchange forward contracts not designated as hedging instruments is as follows:
 June 30, 2018 December 31, 2017
 Notional Fair Value Notional Fair Value
 (in millions)
Contracts outstanding$432
 $4
 $255
 $(5)
 September 30, 2018 December 31, 2017
 Notional Fair Value Notional Fair Value
 (in millions)
Contracts outstanding$460
 $2
 $255
 $(5)

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 and sixnine months ended JuneSeptember 30:
 
Location of Net Gains (Losses) on
Derivative Instruments
 Amount of Net Gains (Losses) on Derivative Instruments
   Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
   2018 2017 2018 2017
   (in millions)
Foreign exchange forward contracts – Not designated as hedging instrumentsForeign currency exchange gains (losses), net $18
 $(3) $20
 $(13)
 
Location of Net Gains (Losses) on
Derivative Instruments
 Amount of Net Gains (Losses) on Derivative Instruments
   Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
   2018 2017 2018 2017
   (in millions)
Foreign exchange forward contracts – Not designated as hedging instrumentsForeign currency exchange gains (losses), net $3
 $(3) $23
 $(16)

The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

Note 11 — Fair Value Measurements
We measure our cash equivalents, investments and foreign exchange forward 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 JuneSeptember 30, 2018:
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
(in millions)(in millions)
Cash equivalents:              
Money market funds$300
 $
 $
 $300
$401
 $
 $
 $401
Certificates of deposit and commercial paper
 81
 
 81
Commercial paper and bank deposits
 6
 
 6
Total cash equivalents300
 81
 
 381
401
 6
 
 407
Short-term investments:              
Time deposits(1)

 472
 
 472

 465
 
 465
Available-for-sale investment securities:              
U.S. Treasury and agency debt securities572
 65
 
 637
572
 65
 
 637
Corporate and other debt securities
 435
 
 435

 426
 
 426
Certificates of deposit and commercial paper
 377
 
 377

 317
 
 317
Asset-backed securities
 303
 
 303

 318
 
 318
Municipal debt securities
 110
 
 110

 103
 
 103
Total available-for-sale investment securities572
 1,290
 
 1,862
572
 1,229
 
 1,801
Held-to-maturity investment securities:              
Corporate and other debt securities
 674
 
 674
Commercial paper
 387
 
 387

 454
 
 454
Corporate and other debt securities
 597
 
 597
Total short-term held-to-maturity investment securities
 984
 
 984

 1,128
 
 1,128
Total short-term investments(2)
572
 2,746
 
 3,318
572
 2,822
 
 3,394
Long-term investments:              
Held-to-maturity investment securities:              
Corporate and other debt securities
 6
 
 6

 6
 
 6
Commercial paper
 12
 
 12
Total long-term held-to-maturity investment securities
 6
 
 6

 18
 
 18
Total long-term investments(3)

 6
 
 6

 18
 
 18
Derivative financial instruments - foreign exchange forward contracts:              
Other current assets
 40
 
 40

 7
 
 7
Accrued expenses and other current liabilities
 (18) 
 (18)
 (67) 
 (67)
Other noncurrent liabilities
 (25) 
 (25)
 (48) 
 (48)
Total$872
 $2,830
 $
 $3,702
$973
 $2,738
 $
 $3,711
            
(1)
Includes $419$405 million in restricted time deposits. See Note 9.
(2)Excludes an equity security invested in a mutual fund valued at $25 million based on the NAV of the fund.
(3)Excludes equity and cost method investments of $74$75 million, which are accounted for using the equity method of accounting and at cost, respectively.


The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2017:
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
(in millions)(in millions)
Cash equivalents:              
Money market funds$334
 $
 $
 $334
$334
 $
 $
 $334
Bank deposits
 80
 
 80

 80
 
 80
Commercial paper
 386
 
 386

 386
 
 386
Total cash equivalents334
 466
 
 800
334
 466
 
 800
Short-term investments:              
Time deposits
 389
 
 389

 389
 
 389
Available-for-sale investment securities:              
U.S. Treasury and agency debt securities585
 76
 
 661
585
 76
 
 661
Corporate and other debt securities
 437
 
 437

 437
 
 437
Certificates of deposit and commercial paper
 450
 
 450

 450
 
 450
Asset-backed securities
 295
 
 295

 295
 
 295
Municipal debt securities
 129
 
 129

 129
 
 129
Total available-for-sale investment securities585
 1,387
 
 1,972
585
 1,387
 
 1,972
Held-to-maturity investment securities:              
Corporate and other debt securities
 345
 
 345
Commercial paper
 397
 
 397

 397
 
 397
Corporate and other debt securities
 345
 
 345
Total held-to-maturity investment securities

742



742


742



742
Total short-term investments(1)
585
 2,518
 
 3,103
585
 2,518
 
 3,103
Long-term investments:              
Held-to-maturity investment securities:              
Corporate and other debt securities
 160
 
 160

 160
 
 160
Total held-to-maturity investment securities
 160
 
 160

 160
 
 160
Total long-term investments(2)

 160
 
 160

 160
 
 160
Derivative financial instruments - foreign exchange forward contracts:              
Other current assets
 134
 
 134

 134
 
 134
Accrued expenses and other current liabilities
 (5) 
 (5)
 (5) 
 (5)
Other noncurrent assets
 20
 
 20

 20
 
 20
Total$919
 $3,293
 $
 $4,212
$919
 $3,293
 $
 $4,212
            
(1)Excludes an equity security invested in a mutual fund valued at $25 million based on the NAV of the fund.
(2)Excludes equity and cost method investments of $74 million, which are accounted for using the equity method of accounting and at cost, respectively.

We measure the fair value of money market funds and U.S. Treasury securities based on quoted prices in active markets for identical assets and therefore classify these assets as Level 1. The fair value of commercial paper, certificates of deposit, U.S. government agency securities, municipal debt securities, debt securities issued by supranational institutions, U.S. and international corporate bonds and foreign government debt securities 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. We measure the fair value of our asset-backed securities using model-driven valuations based on significant inputs derived from or corroborated by observable market data such as dealer quotes, available trade information, spread data, current market assumptions on prepayment speeds and defaults and historical data on deal collateral performance. The carrying value of deposits approximated fair value as of JuneSeptember 30, 2018 and December 31, 2017.

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 contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. The amounts are aggregated by type of contract and maturity.

During the sixnine months ended JuneSeptember 30, 2018 and the year ended December 31, 2017, there were no transfers among Level 1, Level 2, or Level 3 financial assets and liabilities.
Note 12 — Stockholders' Equity
Stock Repurchase Program
We have entered into multiple accelerated stock repurchase agreements, or ASRs, under our stock repurchase program authorized by our Board of Directors. The ASR activity and related information during the sixnine months ended JuneSeptember 30, 2018 and the year ended December 31, 2017 were as follows:
 Purchase Period End Date Number of Shares Average Repurchase Price per Share ASR Amount Purchase Period End Date Number of Shares Average Repurchase Price per Share ASR Amount
 (in millions)   (in millions) (in millions)   (in millions)
June 2018 ASR 
(1) 
 6.5
(1) 
(1) 
 $600
 August 2018 7.6
(1) 
$79.42
 $600
March 2018 ASR May 2018 3.7
(2) 
$79.95
 $300
 May 2018 3.7
(2) 
$79.95
 $300
December 2017 ASR March 2018 4.0
(3) 
$75.75
 $300
 March 2018 4.0
(3) 
$75.75
 $300
March 2017 ASR August 2017 23.7
 $63.19
 $1,500
 August 2017 23.7
 $63.19
 $1,500
___________________
(1)Under the terms of the June 2018 ASR and in exchange for up-front payments of $600 million, the financial institution initially deliveredIncludes 6.5 million shares a portioninitially delivered in June 2018 and 1.1 million shares delivered in August 2018 upon the final settlement of the Company's total expected shares to be repurchased under the June 2018 ASR. The total number of shares ultimately delivered, and therefore the average price paid per share, will be determined at the end of the purchase period, which is scheduled to end during the third quarter of 2018, based on the volume-weighted average price of the Company's common stock during that period.
(2)Includes 3.0 million shares initially delivered in March 2018 and 0.7 million shares delivered in May 2018 upon the final settlement of the ASR.
(3)Includes 3.6 million shares initially delivered in December 2017 and 0.4 million shares delivered in March 2018 upon the final settlement of the ASR.
In addition to the ASR activity above, during the nine months ended September 30, 2018, we repurchased 0.3 million shares of our Class A common stock for $25 million under our existing stock repurchase program approved by our Board of Directors.
Our stock repurchase program allows for the repurchase of $3,500 million of our outstanding shares of Class A common stock, excluding fees and expenses, through December 31, 2019. As of JuneSeptember 30, 2018, the remaining available balance under our stock repurchase program was $800$775 million.
Stock repurchases were also made in connection with our stock-based compensation plans, whereby Company shares were tendered by employees for payment of applicable statutory tax withholdings. In 2017, we also repurchased a limited number of shares from employees at the repurchase date market price. For the sixnine months ended JuneSeptember 30, 2018 and 2017, such repurchases totaled 0.60.9 million shares at an aggregate cost of $49$69 million, and 0.70.9 million shares at an aggregate cost of $44$57 million, respectively.
Dividends
Dividends on our Class A common stock, including dividend equivalents, during the periods presented were as follows:
  Dividends per Share Amount
    (in millions)
2018:    
Three months ended March 31, 2018 $0.20
 $119
Three months ended June 30, 2018 0.20
 119
Six months ended June 30, 2018   $238
2017:    
Three months ended June 30, 2017 $0.15
 $89
Three months ended September 30, 2017 0.15
 90
Three months ended December 31, 2017 0.15
 89
Year ended December 31, 2017   $268
On August 2, 2018, our Board of Directors approved the Company's declaration of a $0.20 per share dividend with a record date of August 22, 2018 and a payment date of August 31, 2018.
  Dividends per Share Amount
    (in millions)
2018:    
Three months ended March 31, 2018 $0.20
 $119
Three months ended June 30, 2018 0.20
 119
Three months ended September 30, 2018 0.20
 117
Nine months ended September 30, 2018   $355
2017:    
Three months ended June 30, 2017 $0.15
 $89
Three months ended September 30, 2017 0.15
 90
Three months ended December 31, 2017 0.15
 89
Year ended December 31, 2017   $268

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component were as follows for the three and sixnine months ended JuneSeptember 30, 2018:
Three Months Six MonthsThree Months Nine Months
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 Before Tax
Amount
 Tax
Effect
 Net of Tax
Amount
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 Before Tax
Amount
 Tax
Effect
 Net of Tax
Amount
(in millions)(in millions)
Foreign currency translation adjustments:                      
Beginning balance$3
 $(4) $(1) $(38) $
 $(38)$(79) $7
 $(72) $(38) $
 $(38)
Change in foreign currency translation adjustments(82) 11
 (71) (41) 7
 (34)(14) 2
 (12) (55) 9
 (46)
Ending balance$(79) $7
 $(72) $(79) $7
 $(72)$(93) $9
 $(84) $(93) $9
 $(84)
                      
Unrealized (losses) on available-for-sale investment securities:                      
Beginning balance$(19) $4
 $(15) $(11) $4
 $(7)$(19) $5
 $(14) $(11) $4
 $(7)
Cumulative effect of change in accounting principle(1)

 
 
 
 (1) (1)
 
 
 
 (1) (1)
Net unrealized (losses) arising during the period(1) 1
 
 (10) 2
 (8)(1) 
 (1) (11) 2
 (9)
Reclassification of net losses to Other, net1
 
 1
 2
 
 2
1
 
 1
 3
 
 3
Net change
 1
 1
 (8) 1
 (7)
 
 
 (8) 1
 (7)
Ending balance$(19) $5
 $(14) $(19) $5
 $(14)$(19) $5
 $(14) $(19) $5
 $(14)
                      
Unrealized gains on cash flow hedges:                      
Beginning balance$105
 $(26) $79
 $154
 $(39) $115
$(7) $(1) $(8) $154
 $(39) $115
Unrealized (losses) arising during the period(91) 19
 (72) (105) 24
 (81)(96) 20
 (76) (201) 44
 (157)
Reclassifications of net (gains) to:                      
Cost of revenues(18) 5
 (13) (48) 12
 (36)(6) 1
 (5) (54) 13
 (41)
Selling, general and administrative expenses(3) 1
 (2) (8) 2
 (6)(1) 
 (1) (9) 2
 (7)
Net change(112) 25
 (87) (161) 38
 (123)(103) 21
 (82) (264) 59
 (205)
Ending balance$(7) $(1) $(8) $(7) $(1) $(8)$(110) $20
 $(90) $(110) $20
 $(90)
                      
Accumulated other comprehensive income (loss):                      
Beginning balance$89
 $(26) $63
 $105
 $(35) $70
$(105) $11
 $(94) $105
 $(35) $70
Other comprehensive income (loss)(194) 37
 (157) (210) 46
 (164)(117) 23
 (94) (327) 69
 (258)
Ending balance$(105) $11
 $(94) $(105) $11
 $(94)$(222) $34
 $(188) $(222) $34
 $(188)
            
(1)
Reflects the adoption of accounting standards as described in Note 1.



Changes in accumulated other comprehensive income (loss) by component were as follows for the three and sixnine months ended JuneSeptember 30, 2017:
Three Months Six MonthsThree Months Nine Months
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 Before Tax
Amount
 Tax
Effect
 Net of Tax
Amount
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 Before Tax
Amount
 Tax
Effect
 Net of Tax
Amount
(in millions)(in millions)
Foreign currency translation adjustments:                      
Beginning balance$(132) $
 $(132) $(149) $
 $(149)$(82) $
 $(82) $(149) $
 $(149)
Change in foreign currency translation adjustments50
 
 50
 67
 
 67
33
 
 33
 100
 
 100
Ending balance$(82) $
 $(82) $(82) $
 $(82)$(49) $
 $(49) $(49) $
 $(49)
                      
Unrealized gains (losses) on available-for-sale investment securities:                      
Beginning balance$(4) $1
 $(3) $(6) $2
 $(4)$(3) $1
 $(2) $(6) $2
 $(4)
Net unrealized gains arising during the period1
 
 1
 3
 (1) 2
Reclassification of net (gains) to Other, net
 
 
 
 
 
Net unrealized (losses) gains arising during the period(1) 
 (1) 2
 (1) 1
Reclassification of net losses to Other, net1
 
 1
 1
 
 1
Net change1
 
 1
 3
 (1) 2

 
 
 3
 (1) 2
Ending balance$(3) $1
 $(2) $(3) $1
 $(2)$(3) $1
 $(2) $(3) $1
 $(2)
                      
Unrealized gains on cash flow hedges:                      
Beginning balance$155
 $(37) $118
 $51
 $(12) $39
$155
 $(38) $117
 $51
 $(12) $39
Unrealized gains arising during the period35
 (9) 26
 159
 (39) 120
6
 (2) 4
 165
 (41) 124
Reclassifications of net (gains) to:                      
Cost of revenues(29) 7
 (22) (46) 11
 (35)(29) 7
 (22) (75) 18
 (57)
Selling, general and administrative expenses(6) 1
 (5) (9) 2
 (7)(5) 1
 (4) (14) 3
 (11)
Net change
 (1) (1) 104
 (26) 78
(28) 6
 (22) 76
 (20) 56
Ending balance$155
 $(38) $117
 $155
 $(38) $117
$127
 $(32) $95
 $127
 $(32) $95
                      
Accumulated other comprehensive income (loss):                      
Beginning balance$19
 $(36) $(17) $(104) $(10) $(114)$70
 $(37) $33
 $(104) $(10) $(114)
Other comprehensive income (loss)51
 (1) 50
 174
 (27) 147
5
 6
 11
 179
 (21) 158
Ending balance$70
 $(37) $33
 $70
 $(37) $33
$75
 $(31) $44
 $75
 $(31) $44

Note 13 — Commitments and Contingencies

We are involved in various claims and legal actions 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. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are conducting anhave substantially completed our internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. The investigation, iswhich began in 2016, has also examiningexamined various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the DOJ and SEC and are cooperating fully with both agencies. The investigation is beinghas been conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date,In connection with the investigation, has identified a total of approximately $6 million in payments made between 2009 and 2016 that may have been improper. Duringduring the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of suchpotentially improper payments between 2009 and 2016 that werehad been previously capitalized thatwhen they should have been expensed. These out-of-period corrections and the other $2 million in potentially improper payments were not material to any previously issued financial statements. There were no adjustments recorded during 2018 and 2017 related to the amounts under investigation.

The Company’s discussions with the DOJ and SEC have progressed to a point where the Company can now reasonably estimate a probable loss and has recorded the FCPA Accrual of $28 million in the caption “Accrued expenses and other current liabilities” in our consolidated statements of financial position. There can be no assurance as to the timing of a final resolution of these matters with the DOJ and SEC.

The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. The Company will continue to evaluate the amount of its liability pending final resolution of the discussions with the DOJ and SEC.

In addition, the DOJ and the SEC could bring enforcement actions against the Company or individuals, including former members of senior management. Such actions, if brought, could result in dispositions, judgments, settlements, fines, injunctions, cease and desist orders, debarment or other civil or criminal penalties against the Company or such individuals. The Company cannot currently assess the potential liability that might be incurred if a settlement is not reached and the government were to litigate the matter. As such, based on the information available at this time any additional liability related to this matter is not reasonably estimable.

We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. The imposition of any sanctions or the implementation of remedial measures could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition.

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. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders 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 FCPA, 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. UnderDefendants filed a stipulation filed by the parties on February 23, 2017, defendants filed motionsmotion to dismiss the consolidated amended complaint on June 6, 2017, plaintiffs filed an opposition brief on July 21, 2017 responding to defendants’ motionsand the motion to dismiss and defendants filed reply briefs in further supportwas fully briefed as of their motions to dismiss on September 5, 2017. On August 8, 2018, the Court 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 5, 2017, defendants also7, 2018, we filed a motion to strike certain allegations in the consolidated amended complaint, plaintiffsUnited States District Court for the District of New Jersey 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). Plaintiffs filed an oppositiona response to the motion to strike on October 2, 2017,September 28, 2018, and on October 10, 2017, we filed a reply brief in further support of the motion to strike.on October 9, 2018.

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. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. 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, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our then current directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our then current 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, but also adds a claim for violations of Section 10(b) of the Exchange Act against the individual defendants. On May 10, 2017, a sixth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our then current 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, but also adds a claim for violations of Section

14(a) of the Exchange Act against the individual defendants. In an order dated June 20, 2017, the United States District Court for the District of New Jersey consolidated the three putative shareholder derivative actions filed in that court 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. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to the Company as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.

We are presently unable to predict the duration, scope or result of the internal investigation, any investigations by the DOJ or the SEC, the consolidated putative securities class action, the putative shareholder derivative actions or any other 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. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. In addition, the DOJ and the SEC could bring enforcement actions against the Company or individuals, including former members of senior management. Such actions, if brought, could result in dispositions, judgments, settlements, fines, injunctions, cease and desist orders, debarment or other civil or criminal penalties against the Company or such individuals.

We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. The imposition of any sanctions or the implementation of remedial measures could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition. Furthermore, whileWhile 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 ongoing internal investigation, we have received requests under such indemnification agreements and our Bylaws to provide funds for legal fees and other expenses, and expect additional requests in connection with the investigation and related litigation. We have not recorded any liability for these matters as of JuneSeptember 30, 2018 as we cannot estimate the ultimate outcome at this time but have expensed payments made through JuneSeptember 30, 2018.

We have maintained directors and officers insurance, from which a portion of the indemnification expenses and costs related to the putative securities class action complaints may be recoverable, and have recorded an insurance receivable of less than $1 million as of JuneSeptember 30, 2018.

See Note 9 for information relating to the ITD Dispute.
Many of our engagements involve projects that are critical to the operations of our customers’ business and provide benefits that are difficult to quantify. Any failure in a customer’s systems or our failure to meet our contractual obligations to our customers, including any breach involving a customer’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 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 condition and cash flows.

In the normal course of business and in conjunction with certain customer engagements, we have entered into contractual arrangements through which we may be obligated to indemnify customers 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 customer 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 payments under these indemnification agreements and therefore they have not had any 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 material impact on our business, results of operations, financial condition and cash flows.


Note 14 — Related Party Transactions
Brackett B. Denniston, III was the Interim General Counsel and an executive officer of the Company from December 2016 until May 15, 2017, during which period Mr. Denniston was also a Senior Counsel at the law firm of Goodwin Procter LLP, or Goodwin. During the three and sixnine months ended JuneSeptember 30, 2017, Goodwin performed legal services for the Company for which it earned approximately $1 million and $3$4 million, respectively. For such period and other periods when Goodwin was a related party of the Company, the provision of legal services from Goodwin was reviewed and approved by our Audit Committee. During the sixnine months ended JuneSeptember 30, 2018, Goodwin was not a related party of the Company.

Note 15 — 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 and logistics, travel and hospitality, and energy and utilities operating segments; and
Communications, Media and Technology, which includes our communications and media operating segment and our technology operating segment.

Our sales managers, account executives, account managers and project teams 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.
In 2018, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the changes is to charge to our business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes the stock-based compensation expense of sales managers, account executives, account managers and project teams, which was previously included in "unallocated costs." In addition, we have changed the methodology of charging our business segments for the use of our global delivery centers and infrastructure from a fixed per employee charge to a variable per employee charge that differs depending on location and assets deployed. We have reported our segment operating profits using the new measurement methodology and have restated the prior period results to conform to the new methodology.
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 selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, costs related to our realignment program, 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 separately disclosed 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.
As described in Note 3 to our unaudited consolidated financial statements, on January 1, 2018, we adopted the New Revenue Standard, using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies.

Revenues from external customers and segment operating profits, before unallocated expenses, by reportable segment were as follows:
 Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
 2018 2017 2018 2017
 (in millions)
Revenues:       
Financial Services$1,469
 $1,406
 $2,930
 $2,782
Healthcare1,156
 1,050
 2,277
 2,053
Products and Resources840
 747
 1,661
 1,484
Communications, Media and Technology541
 467
 1,050
 897
Total revenues$4,006
 $3,670
 $7,918
 $7,216
        
Segment Operating Profit:       
Financial Services$462
 $445
 $909
 $872
Healthcare357
 345
 695
 619
Products and Resources258
 230
 514
 447
Communications, Media and Technology179
 156
 338
 291
Total segment operating profit1,256
 1,176
 2,456
 2,229
Less: unallocated costs(1)
586
 570
 1,093
 1,053
Income from operations$670
 $606
 $1,363
 $1,176
________________
(1)In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on science, technology, engineering and math (or collectively, STEM) education in the United States. This charge was recorded in unallocated costs for the three and six months ended June 30, 2018.
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 2018 2017 2018 2017
 (in millions)
Revenues:       
Financial Services$1,464
 $1,427
 $4,394
 $4,209
Healthcare1,189
 1,085
 3,466
 3,138
Products and Resources863
 774
 2,524
 2,258
Communications, Media and Technology562
 480
 1,612
 1,377
Total revenues$4,078
 $3,766
 $11,996
 $10,982
        
Segment Operating Profit:       
Financial Services$446
 $476
 $1,355
 $1,348
Healthcare382
 352
 1,077
 971
Products and Resources267
 248
 781
 695
Communications, Media and Technology184
 159
 522
 450
Total segment operating profit1,279
 1,235
 3,735
 3,464
Less: unallocated costs534
 587
 1,627
 1,640
Income from operations$745
 $648
 $2,108
 $1,824

Geographic Area Information
Revenue and long-lived assets, by geographic area, are as follows:
Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2018 2017 2018 20172018 2017 2018 2017
(in millions)(in millions)
Revenues: (1)
              
North America (2)
$3,067
 $2,851
 $6,042
 $5,612
$3,107
 $2,891
 $9,149
 $8,503
United Kingdom309
 288
 619
 562
325
 301
 944
 863
Rest of Europe381
 291
 755
 576
398
 327
 1,153
 903
Europe - Total690
 579
 1,374
 1,138
723
 628
 2,097
 1,766
Rest of World (3)
249
 240
 502
 466
248
 247
 750
 713
Total revenues$4,006
 $3,670
 $7,918
 $7,216
$4,078
 $3,766
 $11,996
 $10,982
As ofAs of
June 30, 2018 December 31, 2017September 30, 2018 December 31, 2017
(in millions)(in millions)
Long-lived Assets: (4)
      
North America(2)
$403
 $360
$420
 $360
Europe82
 63
90
 63
Rest of World (3)(5)
860
 901
852
 901
Total$1,345
 $1,324
$1,362
 $1,324
________________
(1)Revenues are attributed to regions based upon customer location.
(2)Substantially all relates to operations in the United States.
(3)Includes our operations in Asia Pacific, the Middle East and Latin America.
(4)Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
(5)Substantially all of these long-lived assets relate to our operations in India.


Note 16— Subsequent Events

Acquisitions
In the fourth quarter of 2018, we entered into an agreement to acquire Softvision and completed the acquisitions of Advanced Technology Group, or ATG, and SaaSfocus. The combined preliminary purchase price for these three transactions is approximately $635 million. Softvision is a privately held digital engineering and consulting company that focuses on agile development of custom cloud-based software and platforms. The acquisition of Softvision will expand our digital engineering practice and is expected to close during the fourth quarter of 2018. ATG is a privately held consulting firm that helps companies plan, implement, and optimize automated cloud-based Quote-to-Cash business processes and technologies. SaaSfocus is a privately held consulting firm specializing in digital transformation, leveraging the Salesforce platform. The SaaSfocus and ATG acquisitions are expected to strengthen and expand our Salesforce practice.

Dividend

On October 29, 2018, our Board of Directors approved the Company's declaration of a $0.20 per share dividend with a record date of November 20, 2018 and a payment date of November 30, 2018.




Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Executive Summary

We are one of the world’s leading professional services companies. We are in business to help our customers adapt, compete and grow in the face of continual shifts and disruptions within their markets. We do so by partnering with them to apply technology to transform their business, operating, and technology models, allowing them to achieve the full value of digitizing their entire enterprises. We call this being “digital at scale.” When implemented, it enables customers to achieve more efficient and effective operations while reshaping their business models for innovation and growth. Our industry-based, consultative approach helps customers envision, build and run more innovative and efficient businesses. Our core competencies include: business, process, operations and technology consulting, application development and systems integration, enterprise information management, application testing, application maintenance, information technology, or IT, infrastructure services, and business process services. We tailor our services and solutions to specific industries and use an integrated global delivery model that employs customer service teams based at customer locations and delivery teams located at dedicated global and regional delivery centers.
In 2017, we began a realignment of our business to improve the overall efficiency of our operations while continuing to drive revenue growth. As a continuation of this realignment program, during the three months ended September 30, 2018, we intend to takeincurred $11 million in pre-tax severance costs as part of an involuntary separation program. We may incur additional actions duringrealignment charges for the remainder of 2018 and in 2019. Our realignment initiatives are intended to further improve our cost structure primarily by optimizing our resource pyramid. As a result of these actions, we expect to incur $25 million to $35 million in severance costs during the remainder of 2018. The final amount and timing of these charges is uncertain and may change as the severance program continues to develop. In addition, to accelerate our shift to digital services and solutions, we are continuing to deploy the following strategies: aligning our digital services and solutions along three practice areas, investing to scale these digital practice areas across our business segments and geographies, continuing to develop our core business and selectively targeting higher margin work within our core business. We believe the above actions and strategies will enable us to gradually expand our non-GAAP operating margins1 with the goal of achieving an approximately 22% non-GAAP operating margin1 in 2019. There2019.There can be no assurances that we will be successful in achieving the objectives of these plans or that other factors beyond our control, including the various risks set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, will not cause us to fail to achieve the targeted improvements.
In February 2017, we announced a plan to return $3.4 billion to our stockholders over a two-year period. To date, as part of this plan, we have repurchased $2.7 billion of stock through accelerated stock repurchase agreements, or ASRs, and paid dividends of $501$617 million. In May 2017, we initiated a quarterly cash dividend and, in February 2018, we increased our quarterly dividend to $0.20 per share from $0.15 per share. On an ongoing basis, we reviewWe are currently reviewing our capital return plan, considering our financial performance and liquidity position, investments required to execute our strategic initiatives, the economic outlook, regulatory changes and other relevant factors. We are currently evaluating the impact of the Tax Cuts and Jobs Act, or Tax Reform Act, our financial performance and liquidity position, investments required to execute our strategic plans and initiatives, the economic outlook, regulatory changes and other relevant factors.
We have substantially completed our internal investigation focused on our capital return plan.whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation, which began in 2016, has also examined various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the Department of Justice, or DOJ, and the Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation has been conducted under the oversight of the Audit Committee, with the assistance of outside counsel. In connection with the investigation, during the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of potentially improper payments between 2009 and 2016 that had been previously capitalized when they should have been expensed. There were no adjustments recorded during 2018 or 2017 related to the amounts under investigation.
The Company’s discussions with the DOJ and SEC have progressed to a point where the Company can now reasonably estimate a probable loss and has recorded an accrual of $28 million, or FCPA Accrual. There can be no assurance as to the timing of a final resolution of these matters with the DOJ and SEC.




1Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

The following table sets forth summarized operating results for the three months ended September 30, 2018 and 2017:
        Increase / Decrease
  2018 2017 $ %
  (Dollars in millions, except per share data)
Revenues $4,078
  $3,766
  $312
 8.3
Income from operations and operating margin 745
18.3% 648
17.2% 97
 15.0
Net income 477
  495
  (18) (3.6)
Diluted earnings per share 0.82
  0.84
  (0.02) 

Other Financial Information2
       

 

Non-GAAP income from operations and Non-GAAP operating margin 862
21.1% 754
20.0% 108
 14.3
Non-GAAP diluted earnings per share 1.19
  0.98
  0.21
 

On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers,” or New Revenue Standard, using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For the three months ended JuneSeptember 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31$33 million, income from operations of $38$37 million and diluted earnings per share of $0.05 per share. See Note 3 to our unaudited consolidated financial statements for additional information.






1Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

The following table sets forth summarized operating results for the three months ended June 30, 2018 and 2017:
        Increase / Decrease
  2018 2017 $ %
  (Dollars in millions, except per share data)
Revenues $4,006
  $3,670
  $336
 9.2
Income from operations and operating margin 670
16.7% 606
16.5% 64
 10.6
Net income 456
  470
  (14) (3.0)
Diluted earnings per share 0.78
  0.80
  (0.02) 

Other Financial Information2
       

 

Non-GAAP income from operations and Non-GAAP operating margin 882
22.0% 735
20.0% 147
 20.0
Non-GAAP diluted earnings per share 1.19
  0.93
  0.26
 


The following charts set forth revenues and revenue growth by business segment and geography for the three months ended JuneSeptember 30, 2017 and 2018:
revenuechartsa06.jpgrevenuechartsa12.jpg
The following factors impacted our revenue growth during the three months ended JuneSeptember 30, 2018 as compared to JuneSeptember 30, 2017:
Solid performance in our Communications, Media and Technology, Products and Resources and Healthcare segments;
Revenues in our Financial Services business segment grew below Company average as certain banking customers continue to optimize the cost of supporting their legacy IT systems and operations, including moving a portion of their services to captives, as they shift their spend to transformation and digital services;
Sustained strength in the North American market;
Continued penetration of the European and Rest of World (primarily Asia Pacific) markets;
Revenues from our customers in Europe grew 19.2% inclusive of a positive currency impact of 6.4%.
Revenues from our Rest of Europe customers increased 30.9% inclusive of a positive currency impact of 7.1% and revenues from a new strategic customer acquired in the third quarter of 2017.
Revenues from our United Kingdom customers increased 7.3% inclusive of a positive currency impact of 5.8%. Revenue growth in the United Kingdom continues to be negatively affected by weakness in the banking sector in that region;
Increased customer spending on discretionary projects;
Expansion of our service offerings, including consulting and digital services, next-generation IT solutions and platform-based solutions;
            
2Non-GAAP income from operations, Non-GAAPnon-GAAP operating margin and non-GAAP earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measures.

Revenues from our customers in Europe grew 15.1% inclusive of a negative currency impact of 1.3%;
Revenues from our Rest of Europe customers increased 21.7% inclusive of a negative currency impact of 2.0%;
Revenues from our United Kingdom customers increased 8.0% inclusive of a negative currency impact of 0.5%. Revenue growth in the United Kingdom continues to be negatively affected by weakness in the banking sector in that region;
Revenues from our customers in our Rest of World region grew 0.4% inclusive of a negative currency impact of 5.9%;
Increased customer spending on discretionary projects;
Expansion of our service offerings, including consulting and digital services, next-generation IT solutions and platform-based solutions;
Continued expansion of the market for global delivery of technology and business process services; and
Increased penetration at existing customers, including strategic customers.
Our customers seek to meet a dual mandate of achieving more efficient and effective operations, while investing in digital technologies that are reshaping their business models. Increasingly, the relative emphasis among our customers is shifting towards investment and innovation, as reflected in accelerated demand for our digital services. We continue to see demand for larger, more complex projects that are transformational for our customers, including managed services contracts. Such contracts may have longer sales cycles and ramp-up periods and could lead to greater period-to-period variability in our operating results. We increased the number of strategic customers by 7 during the quarter, bringing the total number of our strategic customers to 371.378. We define a strategic customer as one offering the potential to generate at least $5 million to $50 million or more in annual revenues at maturity.
In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on science, technology, engineering and math (or collectively, STEM) education in the United States. This funding was reported in "Selling, general and administrative expenses" in our consolidated statements of operations and was excluded from our non-GAAP income from operations3, non-GAAP operating margin3 and non-GAAP diluted earnings per share3 as it is not expected to recur at this magnitude in the foreseeable future.
Our operating margin increased to 16.7%18.3% for the quarter ended JuneSeptember 30, 2018 from 16.5%17.2% for the quarter ended JuneSeptember 30, 2017, while our non-GAAP operating margin for the same period increased to 22.0%21.1%3 from 20.0%3. The increases in both our GAAP and non-GAAP operating margins were due to a decrease, as a percentage of revenues, in compensation and benefit costs as revenue growth outpaced headcount growth and the depreciation of the Indian rupee against the U.S. dollar, partially offset by an increase in fees paid to strategic partners and other vendors related toin our manageddigital operations, platform and infrastructure services, and digital productsthe impact of the FCPA Accrual recorded in the third quarter of 2018 and lower gains on settlement of our cash flow hedges in 2018 compared to 2017. Our GAAP operating margin was further negatively impacted by the initial funding of the Cognizant U.S. Foundation and the increase in amortization expense due to recent acquisitions. For the remainder of 2018, we expect our GAAP and non-GAAP operating margins to trend lower than the second quarter of 2018 as we absorb increased costs related to our annual salary revision and promotion cycles and other planned investments.
On December 22, 2017, the United States enacted the Tax Reform Act, which significantly revised the U.S. corporate income tax law for tax years beginning after December 31, 2017. During the fourth quarter of 2017, we recorded a one-time provisional net income tax expense of $617 million. During the three months ended September 30, 2018, we recognized a $5 million which reflects certain assumptions based uponreduction to the provision for income taxes as we finalized our interpretationcalculation of the one-time net income tax expense related to the enactment of the Tax Reform Act, and may change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. During 2018, we have not recorded any adjustments tobringing the one-time provisional net income tax expense. We anticipate completing the accounting for the Tax Reform Act within the measurement period.cost to $612 million. See Note 9 to our unaudited consolidated financial statements for additional information.
As previously disclosed,During the Company is conductingquarter ended September 30, 2018, the state of New Jersey enacted comprehensive budget legislation that included various changes to the state's tax laws. This legislation did not have a material effect on our income tax provision during the three and nine months ended September 30, 2018. Additional provisions were signed into law in October 2018 that, as enacted, would result in an internal investigation focused on whether certain payments relatingincremental annual income tax expense of approximately $70 million beginning in 2018. However, we intend to Company-owned facilities in India were made improperlyimplement prudent and in possible violationfeasible tax planning strategies during the fourth quarter of 2018, which we expect to significantly reduce the income tax expense resulting from the enacted legislation. Also, we are exploring additional tax planning strategies and are seeking relief from the state of New Jersey, either or both of which may further reduce the impact of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation is also examining various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the Department of Justice, or DOJ, and the Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2009 and 2016 that may have been improper. In 2016, we recorded an out-of-period correction related to $4 million of such payments that had been previously capitalized that should have been expensed. There were no adjustments recorded during 2018 or 2017 related to the amounts under investigation.
In 2016, there were putative securities class action complaints filed, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, or the Exchange Act, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal control over financial reporting and our disclosure controls and procedures. Additionally, in 2017 and 2016, putative shareholder derivative complaints were filed, naming us, certain of our current and former directors and certain of our current and former officers as defendants. See the section titled "Part II, Item 1. Legal Proceedings."legislation.
During the quarters ended JuneSeptember 30, 2018 and 2017, we incurred $3$5 million and $8$9 million, respectively, in costs related to the FCPA investigation and related lawsuits. We expect to continue to incur expenses related to these matters.
3Non-GAAP income from operations, non-GAAP operating margin and non-GAAP earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measures.

We are involved in an ongoing dispute with the Indian Income Tax Department, or ITD, in connection with which we received a notice in March 2018 asserting that the ITD is owed additional taxes on our previously disclosed 2016 India Cash Remittance, the transaction undertaken by our principal operating subsidiary in India, or CTS India, to repurchase shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of that transaction, undertaken pursuant to a plan approved by the Madras High Court in Chennai, India, we previously paid $135 million in Indian income taxes, which we believe are all the applicable taxes owed for this transaction under Indian law. The ITD is asserting that we owe an additional 33 billion
3Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measures.

Indian rupees ($482455 million at the JuneSeptember 30, 2018 exchange rate) related to the 2016 India Cash Remittance. In addition to the dispute on the 2016 India Cash Remittance, we are 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 collectively referred to as the ITD Dispute), for which we also believe we have paid all applicable taxes owed. Accordingly, we have not recorded any reserves for these matters as of JuneSeptember 30, 2018. The ITD Dispute is ongoing, and no final decision has been reached. While we believe that we have paid all applicable taxes related to the transactions underlying the ITD Dispute, if it is ultimately determined that we are liable for the full amount of additional taxes the ITD alleges we owe, there could be a material adverse effect on our results of operations, cash flows and financial condition.
In March 2018, the ITD placed an attachment on certain of our India bank accounts, relating to the 2016 India Cash Remittance. In April 2018, the Madras High Court granted our application for a stay of the actions of the ITD and lifted the ITD’s attachment of our bank accounts. As part of the interim stay order, we have deposited 5 billion Indian rupees ($7268 million at the JuneSeptember 30, 2018 exchange rate) representing 15% of the disputed tax amount related to the 2016 India Cash Remittance, to be kept in a segregated account by the ITD. This amount is presented in "Other current assets" on our consolidated statement of financial position. In addition, the court has placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($410387 million at the JuneSeptember 30, 2018 exchange rate), which is the remainder of the disputed tax amount related to the 2016 India Cash Remittance. We have classifiedThe affected time deposits asare considered restricted assets and we have reported them in “Short-term investments” on our consolidated statement of financial position. As of JuneSeptember 30, 2018, the restricted time deposits balance was $419$405 million, including accumulated interest. See Note 9 to our unaudited consolidated financial statements for additional information.
We finished the secondthird quarter of 2018 with approximately 268,900274,200 employees, which is an increase of approximately 12,10018,100 as compared to JuneSeptember 30, 2017. Annualized turnover, including both voluntary and involuntary, was approximately 22.6%22.3% for the three months ended JuneSeptember 30, 2018. The majority of our turnover occurs in India. The higher than usual annualized turnover rate reflects the highly competitive labor market in our industry in the geographies in which we compete for talent, including India. Annualized attrition rates on-site at customers are below our global attrition rate. In addition, attrition is weighted towards the more junior members of our staff.
During the remainder of 2018, barring any unforeseen events, we expect the following factors to affect our business and our operating results:
Demand from our customers for digital services;
Our customers' dual mandate of simultaneously achieving cost savings while investing in transformation and innovation;
Continued focus by customers on directing technology spending towards cost containment projects;
Discretionary spending by our customers may be negatively affected by international trade policies as well as other macroeconomic factors;
Secular changes driven by evolving digital technologies and regulatory changes, including potential regulatory changes with respect to immigration and taxes;
Demand from our healthcare customers may continue to be affected by the uncertainty in the regulatory and secular environments;
Demand from certain banking customers may continue to be negatively affected by their ongoing efforts to optimize the cost of supporting their legacy IT systems and operations, including moving a portion of their services to captives, as they shift their spend to transformation and digital services;
Discretionary spending byDemand from our retailhealthcare customers may continue to be affected by weaknessthe uncertainty in the retail sector;regulatory and secular environments;
Demand among our technology customers may be affected by uncertainty in the regulatory environment while significant merger and acquisition activity continues to impact our customers in the communications and media industry;
Legal fees and other expenses related to the internal investigation and related matters as described above; and
Volatility in foreign currency rates.
In response to this environment, we plan to:
Continue to invest in our digital practice areas of focus across industries and geographies;
Continue to invest in our talent base, including through local hiring and re-skilling, and new service offerings, including digital technologies and new delivery models;
Partner with our existing customers to garner an increased portion of our customers’ overall spend by providing innovative solutions;

Focus on growing our business in Europe, the Middle East, Asia Pacific and Latin America, where we believe there are opportunities to gain market share;
Increase our strategic customer base across all of our business segments;
Pursue strategic acquisition opportunities that we believe add new technologies, including digital technologies, or platforms that complement our existing services, improve our overall service delivery capabilities, and/or expand our geographic presence; and
Focus on operating discipline in order to appropriately manage our cost structure.
Business Segments
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 and logistics, travel and hospitality, and energy and utilities operating segments; and
Communications, Media and Technology, which includes our communications and media operating segment and our technology operating segment.
Our sales managers, account executives, account managers and project teams 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.
In 2018, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the changes is to chargeSee Note 15 to our business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes the stock-based compensation expense of sales managers, account executives, account managers and project teams, which was previously included in "unallocated costs." In addition, we have changed the methodology of chargingunaudited consolidated financial statements for additional information on our business segments for the use of our global delivery centers and infrastructure from a fixed per employee charge to a variable per employee charge that differs depending on location and assets deployed. We have reported our segment operating profits using the new measurement methodology and have restated the prior period results to conform to the new methodology.
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 selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, costs related to our realignment program, 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 separately disclosed as “unallocated costs” and adjusted against our total income from operations.segments.
We provide a significant volume of services to many customers in each of our business segments. Therefore, a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment. However, no individual customer accounted for sales in excess of 10% of our consolidated revenues for the periods ended JuneSeptember 30, 2018 and 2017. In addition, the services we provide to our larger customers are often critical to the operations of such customers. As such, we believe that a termination of our services would in many instances require an extended transition period with gradually declining revenues.

Results of Operations

Three Months Ended JuneSeptember 30, 2018 Compared to Three Months Ended JuneSeptember 30, 2017

The following table sets forth, for the periods indicated, certain financial data for the three months ended JuneSeptember 30:
  % of   % of 
Increase / Decrease(1)
  % of   % of 
Increase / Decrease(1)
2018(1)
 Revenues 
2017(1)
 Revenues $ %
2018(1)
 Revenues 
2017(1)
 Revenues $ %
(Dollars in millions, except per share data)(Dollars in millions, except per share data)
Revenues$4,006
 100.0 $3,670
 100.0 $336
 9.2
$4,078
 100.0 $3,766
 100.0 $312
 8.3
Cost of revenues(2)
2,417
 60.3 2,261
 61.6 156
 6.9
2,480
 60.8 2,337
 62.1 143
 6.1
Selling, general and administrative expenses(2)
805
 20.1 709
 19.3 96
 13.5
734
 18.0 674
 17.9 60
 8.9
Depreciation and amortization expense114
 2.8 94
 2.6 20
 21.3
119
 2.9 107
 2.8 12
 11.2
Income from operations670
 16.7 606
 16.5 64
 10.6
745
 18.3 648
 17.2 97
 15.0
Other income (expense), net(47) 29
 (76) (262.1)(83) 10
 (93) (930.0)
Income before provision for income taxes623
 15.6 635
 17.3 (12) (1.9)662
 16.2 658
 17.5 4
 0.6
Provision for income taxes(168) (165) (3) 1.8
(185) (164) (21) 12.8
Income from equity method investments1
 
 1
 


 1
 (1) 

Net income$456
 11.4 $470
 12.8 $(14) (3.0)$477
 11.7 $495
 13.1 $(18) (3.6)
Diluted earnings per share$0.78
 $0.80
 $(0.02) 
$0.82
 $0.84
 $(0.02) 
              
Other Financial Information(3)
              
Non-GAAP income from operations and non-GAAP operating margin$882
 22.0 $735
 20.0 $147
 20.0
$862
 21.1 $754
 20.0 $108
 14.3
Non-GAAP diluted earnings per share$1.19
 $0.93
 $0.26
  $1.19
 $0.98
 $0.21
  
_____________________
(1)
On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For the three months ended JuneSeptember 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31$33 million, income from operations of $38$37 million and diluted earnings per share of $0.05 per share. See Note 3 to our unaudited consolidated financial statements for additional information.
(2)Exclusive of depreciation and amortization expense.
(3)Non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.
Revenues - Overall
Our revenue growth was primarily attributed to services related to integration of digital technologies that are reshaping our customers' business, operating and technology models to align with shifts in consumer preferences, increased customer spending on discretionary projects, continued interest in using our global delivery model as a means to reduce overall technology and operations costs and continued penetration in all our geographic markets. Revenues from customers added since JuneSeptember 30, 2017 were $126$114 million and represented 37.5%36.6% of the period-over-period revenue increase.
Our consulting and technology services revenues for the three months ended JuneSeptember 30, 2018 increased by 6.0%6.6% compared to the three months ended JuneSeptember 30, 2017 and represented 57.1%57.7% of total revenues for the three months ended JuneSeptember 30, 2018. Our outsourcing services revenues for the three months ended JuneSeptember 30, 2018 increased by 13.6%10.7% and constituted 42.9%42.3% of total revenues for the three months ended JuneSeptember 30, 2018.

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. For the three months ended JuneSeptember 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31$33 million. See Note 3 to our unaudited consolidated financial statements for additional information.

Revenues from our top customers as a percentage of total revenues were as follows:
 Three Months Ended June 30, Three Months Ended September 30,
 2018 2017 2018 2017
Top five customers 8.6% 9.0% 8.7% 8.9%
Top ten customers 15.4% 15.1% 15.5% 14.9%

Revenues - Reportable Business Segments
Revenues by reportable business segment were as follows for the three months ended JuneSeptember 30:
 2018 2017 Increase 2018 2017 Increase
$ %$ %
 (Dollars in millions) (Dollars in millions)
Financial Services $1,469
 $1,406
 $63
 4.5 $1,464
 $1,427
 $37
 2.6
Healthcare 1,156
 1,050
 106
 10.1 1,189
 1,085
 104
 9.6
Products and Resources 840
 747
 93
 12.4 863
 774
 89
 11.5
Communications, Media and Technology 541
 467
 74
 15.8 562
 480
 82
 17.1
Total revenues(1)
 $4,006
 $3,670
 $336
 9.2 $4,078
 $3,766
 $312
 8.3
_____________________
(1)
Results for 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. See Note 3 to our unaudited consolidated financial statements for additional information.
Financial Services
Revenues from our Financial Services segment grew 4.5%2.6%, inclusive of a positivenegative currency impact of 1.0%0.8%, for the three months ended JuneSeptember 30, 2018, as compared to the three months ended JuneSeptember 30, 2017. Growth was stronger among our insurance customers where revenues increased by $54$28 million as compared to an increase of $9 million for our banking customers. In this segment, revenues from customers added since JuneSeptember 30, 2017 were $36$22 million and represented 57.1%59.5% of the period-over-period revenues increase in this segment. Key areas of focus for our Financial Services customers included the adoption and integration of digital technologies that are reshaping our customers' business and operating models, cost optimization, robotic process automation, cyber security and vendor consolidation. Demand from certain banking customers may continue to be negatively affected by their ongoing efforts to optimize the cost of supporting their legacy IT systems and operations, including moving a portion of their services to captives, as they shift their spend to transformation and digital services.
Healthcare
Revenues from our Healthcare segment grew 10.1%9.6% for the three months ended JuneSeptember 30, 2018, as compared to the three months ended JuneSeptember 30, 2017. Growth was stronger among our healthcare customers where revenues increased by $100$83 million, includingas compared to an increase of $21 million for our life sciences customers.Revenue growth from our healthcare customers includes revenues from Bolder Healthcare Solutions acquired in the second quarter of 2018, andpartially offset by a new strategicramp down of a customer acquiredrelationship in which we were a subcontractor to a third party for the third quarterpurpose of 2017, as compareddelivering healthcare-related systems implementation services to an increase of $6 million for our life sciences customers.local government. Revenues from customers added since JuneSeptember 30, 2017 were $52$48 million and represented 49.1%46.2% of the period-over-period revenues increase in this segment. The demand for our services among life science customers has been affected by reduced discretionary spending. The demand for our services among healthcare customers may continue to be affected by uncertainty in the regulatory environment. We believe that in the long term the healthcare industry continues to present a significant growth opportunity due to factors that are transforming the industry, including the changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare.
Products and Resources
Revenues from our Products and Resources segment grew 12.4%11.5%, inclusive of a positivenegative currency impact of 1.7%0.8%, for the three months ended JuneSeptember 30, 2018, as compared to the three months ended JuneSeptember 30, 2017. Revenue growth was above Company average in each of the four operating segments within this segment was strongest among our manufacturing and logistics customers and energy and utilities customers where revenues increased by a combined $66 million. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined $27 million.business segment. Revenues from customers added since JuneSeptember 30, 2017 were $31$35 million, representing 33.3%39.3% of the period-over-period revenue increase in this segment. Demand within this segment continues to be driven by increased adoption

of digital technologies that are reshaping our customers' business

and operating models, as well as growing demand for analytics, supply chain consulting, implementation initiatives, smart products, transformation of business models, internet of things and omni channel commerce implementation and integration services. DiscretionaryIn the future, discretionary spending by our retail customers has been andin this segment may continue to be affected by weakness in the retail sector.international trade policies as well as other macroeconomic factors.
Communications, Media and Technology
Revenues from our Communications, Media and Technology segment grew 15.8%17.1%, inclusive of a positivenegative currency impact of 1.5%1.1%, for the three months ended JuneSeptember 30, 2018, as compared to the three months ended JuneSeptember 30, 2017. Revenue growthGrowth was $59 millionstronger among our technology customers and $15where revenues increased by $67 million amongas compared to an increase of $16 million for our communications and media customers. Revenues from customers added since JuneSeptember 30, 2017 were $7$9 million and represented 9.5%11.0% of the period-over-period revenue increase in this segment. Growth within this segment was driven by the increased adoption of digital technologies, digital content operations, services to help our customers balance rationalizing costs while creating a differentiated user experience and an expanded range of services, including business process services. Revenue growthAdditionally, demand among our communicationstechnology customers has been and may continue to be negatively affected by uncertainty due toin the regulatory environment while significant merger and acquisition activity continues to impact our customers in theirthe communications and media industry.
Revenues - Geographic Markets
Revenues by geographic market were as follows for the three months ended JuneSeptember 30:
 2018 2017 Increase 2018 2017 Increase
$ % $ %
 (Dollars in millions) (Dollars in millions)
North America $3,067
 $2,851
 $216
 7.6 $3,107
 $2,891
 $216
 7.5
United Kingdom 309
 288
 21
 7.3 325
 301
 24
 8.0
Rest of Europe 381
 291
 90
 30.9 398
 327
 71
 21.7
Europe - Total 690
 579
 111
 19.2 723
 628
 95
 15.1
Rest of World 249
 240
 9
 3.8 248
 247
 1
 0.4
Total revenues(1)
 $4,006
 $3,670
 $336
 9.2 $4,078
 $3,766
 $312
 8.3
_____________________
(1)
Results for 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. See Note 3 to our unaudited consolidated financial statements for additional information.
North America continues to be our largest market, representing 76.6%76.2% of total revenues for the secondthird quarter of 2018, and 64.3%69.2% of total revenue growth from the secondthird quarter of 2017. Revenues from our customers in Europe grew 19.2%15.1% inclusive of a positivenegative currency impact of 6.4%1.3%. Specifically, revenues from our Rest of Europe customers, increased 30.9%21.7% inclusive of a positivenegative currency impact of 7.1%2.0%, while within the United Kingdom we experienced an increase in revenues of 7.3%8.0% inclusive of a positivenegative currency impact of 5.8%0.5%. Revenues from our Rest of World customers grew 3.8%0.4% in the secondthird quarter of 2018.2018 inclusive of a negative currency impact of 5.9%. Revenue growth in the United Kingdom and Rest of World was negatively affected by weakness in theour Financial Services segment as certain banking sectorcustomers in those regions.regions continue to optimize the cost of supporting their legacy IT systems and operations, including moving a portion of their services to captives, as they shift their spend to transformation and digital services. We believe that Europe, India, Middle East, Asia Pacific and Latin America will continue to be areas of significant investment for us as we see these regions as long term growth opportunities.
Cost of Revenues (Exclusive of Depreciation and Amortization Expense)
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, project-related immigration and travel for technical personnel and subcontracting costs relating to revenues. Our cost of revenues increased by 6.9%6.1% during the secondthird quarter of 2018 as compared to the secondthird quarter of 2017, decreasing as a percentage of revenues to 60.3%60.8% in the secondthird quarter of 2018 compared to 61.6%62.1% in the secondthird quarter of 2017. The decrease as a percentage of revenues was due primarily to a decrease in compensation and benefits as revenue growth outpaced headcount growth and the depreciation of the Indian rupee against the U.S. dollar, partially offset by an increase in fees paid to strategic partners and other vendors related toin our manageddigital operations, platform and infrastructure services and digital products and lower realized gains on our cash flow hedges in 2018 compared to 2017. Compensation and benefits costs increased by $66 million when compared to the three months ended June 30, 2017, as the number of our technical personnel increased.

Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. Selling, general and administrative expenses, including depreciation and amortization, increased by 14.4%9.2% during the secondthird quarter of 2018 as compared to the secondthird quarter of 2017, increasingremaining relatively flat as a percentage of revenues to 22.9%at 20.9% in the secondthird quarter of 2018 as compared to 21.9%20.7% in the secondthird quarter of 2017. The increase as a percentage of revenues was due primarily to the initial funding of the Cognizant U.S. FoundationSelling, general and increases in amortization expense due to recent acquisitions, partially offset byadministrative expenses reflect a decrease in compensation and benefit costs.costs, offset by the impact of the FCPA Accrual recorded in the third quarter of 2018.
Income from Operations and Operating Margin - Overall
Income from operations increased 10.6%15.0% in the secondthird quarter of 2018 as compared to the secondthird quarter of 2017. Our operating margin increased to 16.7%18.3% for the quarter ended JuneSeptember 30, 2018 from 16.5%17.2% for the quarter ended JuneSeptember 30, 2017, primarily due to a decrease, as a percentage of revenues, in compensation and benefit costs as revenue growth outpaced headcount growth and the depreciation of the Indian rupee against the U.S. dollar, partially offset by the initial funding of the Cognizant U.S. Foundation, an increase in fees paid to strategic partners and other vendors related toin our manageddigital operations, platform and infrastructure services, and digital products,the impact of the FCPA Accrual recorded in the third quarter of 2018, an increase in amortization expense due to the recent acquisitions and lower gains on settlement of our cash flow hedges in 2018 compared to 2017. Excluding the impact of applicable designated cash flow hedges, the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 66162 basis points, or 0.661.62 percentage points, in the three months ended JuneSeptember 30, 2018. Each additional 1.0% change in the exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by approximately 1718 basis points or 0.170.18 percentage points.
We entered into foreign exchange forward contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the three months ended JuneSeptember 30, 2018, the settlement of our cash flow hedges positively impacted our operating margin by approximately 5217 basis points or 0.520.17 percentage points as compared to a positive impact of approximately 9590 basis points or 0.950.90 percentage points during the three months ended JuneSeptember 30, 2017.
For the three months ended JuneSeptember 30, 2018 and 2017, our non-GAAP operating margins were 22.0%21.1%4 and 20.0%4, respectively. As set forth in the “Non-GAAP Financial Measures” section, below, our non-GAAP operating margin excludes stock based compensation expense, acquisition-related charges and realignment charges and in the second quarter of 2018, the initial funding of the Cognizant U.S. Foundation.charges.
For the remainder of 2018, we expect our GAAP and non-GAAP operating margins to trend lower than the second quarter of 2018 as we absorb increased costs related to our annual salary revision and promotion cycles and other planned investments.
Segment Operating Profit
In 2018, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the changes is to charge to our business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes the stock-based compensation expense of sales managers, account executives, account managers and project teams, which was previously included in "unallocated costs." In addition, we have changed the methodology of charging our business segments for the use of our global delivery centers and infrastructure from a fixed per employee charge to a variable per employee charge that differs depending on location and assets deployed. We have reported our segment operating profits using the new measurement methodology and have restated the prior period results to conform to the new methodology.











_______________
4Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

Segment operating profits were as follows for the three months ended JuneSeptember 30:
    Increase    Increase (Decrease)
2018 2017 $ %2018 2017 $ %
(Dollars in millions)(Dollars in millions)
Financial Services$462
 $445
 $17
 3.8$446
 $476
 $(30) (6.3)
Healthcare357
 345
 12
 3.5382
 352
 30
 8.5
Products and Resources258
 230
 28
 12.2267
 248
 19
 7.7
Communications, Media and Technology179
 156
 23
 14.7184
 159
 25
 15.7
Total segment operating profit1,256
 1,176
 80
 6.81,279
 1,235
 44
 3.6
Less: unallocated costs586
 570
 16
 2.8534
 587
 (53) (9.0)
Income from operations$670
 $606
 $64
 10.6$745
 $648
 $97
 15.0

In our Financial Services Healthcare and Communications, Mediaour Products and TechnologyResources business segments, operating profits decreased as a percentage of revenues due to investments to accelerate our shift to digital, including re-skilling of service delivery personnel, an increase in subcontractor costs and an increase in fees paid to the strategic partners and other vendors related toin our manageddigital operations, platform and infrastructure services, and digital products, partially offset by the positive impact of revenue growth outpacing headcount growth and the depreciation of the Indian rupee against the U.S. dollar. In our ProductsHealthcare and ResourcesCommunications, Media and Technology business segment,segments, operating profits remained relatively flat as a percentage of revenues.
Other Income (Expense), Net
Total other income (expense), net consists primarily of foreign currency exchange gains and (losses),losses, interest income and interest expense. The following table sets forth total other income (expense), net for the three months ended JuneSeptember 30:
2018 2017 
Increase/
Decrease
2018 2017 
Increase/
Decrease
(in millions)(in millions)
Foreign currency exchange (losses) gains$(98) $8
 $(106)
Foreign currency exchange (losses)$(125) $(13) $(112)
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments18
 (3) 21
3
 (3) 6
Net foreign currency exchange (losses) gains(80) 5
 (85)
Foreign currency exchange gains (losses), net(122) (16) (106)
Interest income40
 31
 9
47
 34
 13
Interest expense(7) (6) (1)(6) (6) 
Other, net
 (1) 1
(2) (2) 
Total other (expense) income, net$(47) $29
 $(76)
Total other income (expense), net$(83) $10
 $(93)
The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets in our U.S. dollar functional currency India subsidiaries as well asand, to a lesser extent, the remeasurement of other net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. The gains and losses on our foreign exchange forward contracts not designated as hedging instruments relaterelated to the realized and unrealized gains and losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to the Indian rupeeBritish pound, Euro and other non-U.S. dollar denominated net monetary assets and liabilities. As of JuneSeptember 30, 2018, the notional value of our undesignated hedges was $432$460 million. The increase in interest income of $9$13 million was primarily attributable to an increase in average invested balances and higher yields in 2018.
Provision for Income Taxes
The provision for income taxes increased to $168$185 million during the three months ended JuneSeptember 30, 2018 from $165$164 million during the three months ended JuneSeptember 30, 2017. The effective income tax rate increased to 27.0%27.9% for the three months ended JuneSeptember 30, 2018 from 26.0%24.9% for the three months ended JuneSeptember 30, 2017 primarily due to the depreciation of the India rupee against the U.S. dollar, which resulted in (i) higher non-deductible foreign currency exchange losses on our consolidated statement of operations and (ii) a higher effective income tax rateprovision for our India subsidiaries resulting from thedue to foreign currency exchange gains on their statutory books asbooks. The 2018 effective income tax rate was additionally adversely impacted by the Indian rupee depreciated againstFCPA Accrual recorded in the U.S. dollar.third quarter of 2018, which is not deductible for tax purposes. The estimate of our 2018 annual effective income tax rate reflects the current interpretation of the Tax Reform Act, including the GILTI provision and may change as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. Additionally, our effective income tax rate for the remainder of 2018 and future periods may be negatively affected by the recently-enacted New Jersey state tax laws as further described in the Executive Summary.

Net Income
Net income decreased to $456$477 million for the three months ended JuneSeptember 30, 2018 from $470$495 million for the three months ended JuneSeptember 30, 2017, representing 11.4%11.7% and 12.8%13.1% of revenues, respectively. The decrease in net income is primarily due to an increase in foreign currency exchange losses in 2018 compared to gains2017 driven by the depreciation of the Indian rupee and the increase in 2017,the provision for income taxes, partially offset by an increase in income from operations.

Non-GAAP Financial Measures

Portions of our disclosure, including the following table, include non-GAAP income from operations, non-GAAP operating margin, and non-GAAP diluted earnings per share. These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of Cognizant’sour non-GAAP financial measures to the corresponding GAAP measures should be carefully evaluated.

Our non-GAAP income from operations and non-GAAP operating margin exclude stock-based compensation expense,costs, acquisition-related charges, realignment charges and in the second quarter of 2018, the initial funding of the Cognizant U.S. Foundation.Foundation, as applicable. Our definition of non-GAAP diluted earnings per share excludes net non-operating foreign currency exchange gains or losses, the effect of an income tax benefit recognized in the third quarter of 2018 upon the finalization of our calculation of the one-time net income tax expense related to the enactment of the Tax Reform Act, and the effect of recognition in the first quarter of 2017 of an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position, in addition to excluding stock-based compensation expense, acquisition-related charges, realignment charges and in the second quarter of 2018, the initial funding of the Cognizant U.S. Foundation. Our non-GAAP diluted earnings per share is additionally adjusted for the income tax impact of the above items, as applicable. The income tax impact of each item is calculated by applying the statutory rate and local tax regulations in the jurisdiction in which the item was incurred.

We believe providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into the operating results of the Company. For our internal management reporting and budgeting purposes, we use various GAAP and non-GAAP financial measures for financial and operational decision making,decision-making, to evaluate period-to-period comparisons, to determine portions of the compensation for our executive officers and for making comparisons of our operating results to those of our competitors. In addition, due to a variety of award types, valuation methodologies and subjective assumptions that affect the calculations of stock-based compensation expense, we believe that the exclusion of stock-based compensation expense allows for more accurate comparisons of our operating results to those of our competitors. Therefore, it is our belief that the use of non-GAAP financial measures excluding these costs provides a meaningful supplemental measure for investors to evaluate our financial performance. Accordingly, we believe that the presentation of non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share, when read in conjunction with our reported GAAP results, can provide useful supplemental information to our management and investors regarding financial and business trends relating to our financial condition and results of operations.

A limitation of using non-GAAP financial measures versus financial measures calculated in accordance with GAAP is that non-GAAP measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and exclude costs that are recurring, namely stock-based compensation expense, certain acquisition-related charges, and net non-operating foreign currency exchange gains or losses. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby limiting the usefulness of these non-GAAP financial measures as a comparative tool. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share to allow investors to evaluate such non-GAAP financial measures.


The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three months ended JuneSeptember 30:
2018 
% of
Revenues
 2017 
% of
Revenues
2018 
% of
Revenues
 2017 
% of
Revenues
(Dollars in millions, except per share amounts)(Dollars in millions, except per share amounts)
GAAP income from operations and operating margin$670
 16.7 $606
 16.5$745
 18.3 $648
 17.2
Add: Stock-based compensation expense (1)
71
 1.8 55
 1.569
 1.7 52
 1.4
Add: Acquisition-related charges (2)
41
 1.0 35
 1.037
 0.9 35
 0.9
Add: Realignment charges (3)

  39
 1.011
 0.2 19
 0.5
Add: Initial funding of Cognizant U.S. Foundation (4)
100
 2.5 
 
Non-GAAP income from operations and non-GAAP operating margin$882
 22.0 $735
 20.0$862
 21.1 $754
 20.0
        
GAAP diluted earnings per share$0.78
 $0.80
 $0.82
 $0.84
 
Effect of above operating adjustments, pre-tax0.36
 0.22
 0.20
 0.18
 
Effect of non-operating foreign currency exchange (gains) losses, pre-tax (5)
0.14
 (0.01) 
Tax effect of non-GAAP adjustments to pre-tax income (6)
(0.09) (0.08) 
Effect of non-operating foreign currency exchange (gains) losses, pre-tax (4)
0.21
 0.02
 
Tax effect of non-GAAP adjustments to pre-tax income (5)
(0.03) (0.06) 
Effect of adjustment to the one-time income tax expense related to the Tax Reform Act (6)
(0.01) 
 
Non-GAAP diluted earnings per share$1.19
 $0.93
 $1.19
 $0.98
 
_____________________

(1)Stock-based compensation expense reported in:
Three Months Ended 
 June 30,
Three Months Ended 
 September 30,
2018 20172018 2017
(in millions)(in millions)
Cost of revenues$16
 $13
$15
 $13
Selling, general and administrative expenses55
 42
54
 39
(2)Acquisition-related charges include when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.costs, as applicable.
(3)
Realignment charges include severance costs, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations. See Note 5 to our unaudited consolidated financial statements for additional information.
(4)In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on STEM education in the United States.
(5)Non-operating foreign currency exchange gains (losses),and losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.
(6)(5)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
Three Months Ended 
 June 30,
Three Months Ended 
 September 30,
2018 20172018 2017
(in millions)(in millions)
Non-GAAP income tax benefit (expense) related to:      
Stock-based compensation expense$19
 $20
$15
 $19
Acquisition-related charges11
 12
8
 11
Realignment charges
 14
3
 6
Foreign currency exchange gains (losses)(8) 
Initial funding of Cognizant U.S. Foundation28
 
Foreign currency exchange losses(6) (1)
The effective income tax rate related to each of our non-GAAP adjustments varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions.
(6)During the three months ended September 30, 2018, we finalized our calculation of the one-time net income tax expense related to the enactment of the Tax Reform Act and recognized a $5 million income tax benefit, which reduced our provision for income taxes.

SixNine Months Ended JuneSeptember 30, 2018 Compared to SixNine Months Ended JuneSeptember 30, 2017

The following table sets forth, for the periods indicated, certain financial data for the sixnine months ended JuneSeptember 30:
  % of   % of Increase / Decrease  % of   % of Increase / Decrease
2018(1)
 Revenues 
2017(1)
 Revenues $ %
2018(1)
 Revenues 
2017(1)
 Revenues $ %
(Dollars in millions, except per share data)(Dollars in millions, except per share data)
Revenues$7,918
 100.0 $7,216
 100.0 $702
 9.7
$11,996
 100.0 $10,982
 100.0 $1,014
 9.2
Cost of revenues(2)
4,818
 60.8 4,455
 61.7 363
 8.1
7,298
 60.8 6,792
 61.8 506
 7.4
Selling, general and administrative expenses(2)
1,516
 19.1 1,395
 19.3 121
 8.7
2,250
 18.8 2,069
 18.8 181
 8.7
Depreciation and amortization expense221
 2.8 190
 2.6 31
 16.3
340
 2.8 297
 2.7 43
 14.5
Income from operations1,363
 17.2 1,176
 16.3 187
 15.9
2,108
 17.6 1,824
 16.6 284
 15.6
Other income (expense), net(43) 108
 (151) (139.8)(126) 118
 (244) (206.8)
Income before provision for income taxes1,320
 16.7 1,284
 17.8 36
 2.8
1,982
 16.5 1,942
 17.7 40
 2.1
Provision for income taxes(345) (257) (88) 34.2
(530) (421) (109) 25.9
Income from equity method investments1
 
 1
  1
 1
 
  
Net income$976
 12.3 $1,027
 14.2 $(51) (5.0)$1,453
 12.1 $1,522
 13.9 $(69) (4.5)
Diluted earnings per share$1.66
 $1.71
 $(0.05)  $2.48
 $2.55
 $(0.07)  
Other Financial Information (3)
              
Non-GAAP income from operations and non-GAAP operating margin$1,676
 21.2 $1,404
 19.5 $272
 19.4
$2,538
 21.2 $2,158
 19.7 $380
 17.6
Non-GAAP diluted earnings per share$2.25
 $1.76
 $0.49
  $3.44
 $2.75
 $0.69
  
            
(1)
On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For the sixnine months ended JuneSeptember 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $52$85 million, income from operations of $67$104 million and diluted earnings per share of $0.09$0.14 per share. See Note 3 to our unaudited consolidated financial statements for additional information.
(2)Exclusive of depreciation and amortization expense.
(3)Non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.
Revenues - Overall

Our revenue growth for the nine months ended September 30, 2018 was primarily attributed to services related to integration of digital technologies that are reshaping our customers' business, operating and technology models to align with shifts in consumer preferences, increased customer spending on discretionary projects, continued interest in using our global delivery model as a means to reduce overall technology and operations costs and continued penetration in all our geographic markets. Revenues from customers added since JuneSeptember 30, 2017 were $183$229 million and represented 26.1%22.6% of the period-over-period revenue increase.

Our consulting and technology services revenues for the sixnine months ended JuneSeptember 30, 2018 increased by 8.3%7.7% compared to the sixnine months ended JuneSeptember 30, 2017 and represented 57.5%57.6% of total revenues for the sixnine months ended JuneSeptember 30, 2018. Our outsourcing services revenues for the sixnine months ended JuneSeptember 30, 2018 increased by 11.7%11.4% and constituted 42.5%42.4% of total revenues for the sixnine months ended JuneSeptember 30, 2018.

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. For the sixnine months ended JuneSeptember 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $52$85 million. See Note 3 to our unaudited consolidated financial statements for additional information.


Revenues from our top customers were as follows:
 Six Months Ended June 30, Nine Months Ended September 30,
 2018 2017 2018 2017
Revenues from top five customers as a percentage of total revenues 8.6% 8.9% 8.7% 8.9%
Revenues from top ten customers as a percentage of total revenues 15.6% 15.0% 15.5% 14.9%
Revenues - Reportable Business Segments
Revenues by reportable business segment were as follows for the sixnine months ended JuneSeptember 30:
 2018 2017 Increase 2018 2017 Increase
$ %$ %
 (Dollars in millions) (Dollars in millions)
Financial Services $2,930
 $2,782
 $148
 5.3 $4,394
 $4,209
 $185
 4.4
Healthcare 2,277
 2,053
 224
 10.9 3,466
 3,138
 328
 10.5
Products and Resources 1,661
 1,484
 177
 11.9 2,524
 2,258
 266
 11.8
Communications, Media and Technology 1,050
 897
 153
 17.1 1,612
 1,377
 235
 17.1
Total revenues(1)
 $7,918
 $7,216
 $702
 9.7 $11,996
 $10,982
 $1,014
 9.2
_____________________
(1)
Results for 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. See Note 3 to our unaudited consolidated financial statements for additional information.
Financial Services
Revenues from our Financial Services segment grew 5.3%4.4%, inclusive of a positive currency impact of 1.6%0.8%, for the sixnine months ended JuneSeptember 30, 2018, as compared to the sixnine months ended JuneSeptember 30, 2017. Growth was stronger among our insurance customers where revenues increased by $109$137 million as compared to an increase of $39$48 million for our banking customers. In this segment, revenues from customers added since JuneSeptember 30, 2017 were $56$44 million and represented 37.8%23.8% of the period-over-period revenue increase in this segment. Key areas of focus for our Financial Services customers included the adoption and integration of digital technologies that are reshaping our customers' business and operating models, cost optimization, robotic process automation, cyber security and vendor consolidation. Demand from certain banking customers may continue to be negatively affected by their ongoing effortsas they continue to optimize the cost of supporting their legacy IT systems and operations, including moving a portion of their services to captives, as they shift their spend to transformation and digital services.
Healthcare
Revenues from our Healthcare segment grew 10.9%10.5% for the sixnine months ended JuneSeptember 30, 2018, as compared to the sixnine months ended JuneSeptember 30, 2017. RevenuesGrowth was stronger among our healthcare customers where revenues increased by $294 million, as compared to an increase of $34 million for our life sciences customers. Revenue growth from our healthcare customers increased by $211 million, includingincludes revenues from Bolder Healthcare Solutions acquired in the second quarter of 2018, andpartially offset by a new strategicramp down of a customer acquiredrelationship in which we were a subcontractor to a third party for the third quarterpurpose of 2017, while revenue growth among our life sciences customers was $13 million.delivering healthcare-related systems implementation services to local government. Revenues from customers added since JuneSeptember 30, 2017 were $66$93 million and represented 29.5%28.4% of the period-over-period revenue increase in this segment. The increase in revenues from our life sciences customers was driven by a growing demand for a broader range ofour services including business process services, advanced data analytics and solutions that span multiple service lines while leveraging cloud technologies and platforms.among life science customers has been affected by reduced discretionary spending. The demand for our services among healthcare customers could be affected by uncertainty in the regulatory environment. We believe that in the long term the healthcare industry continues to present a significant growth opportunity due to factors that are transforming the industry, including the changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare.
Products and Resources
Revenues from our Products and Resources segment grew 11.9%11.8%, inclusive of a positive currency impact of 2.4%1.3%, for the sixnine months ended JuneSeptember 30, 2018, as compared to the sixnine months ended JuneSeptember 30, 2017. Revenue growth in this segment was strongest among our energy and utilities customers and manufacturing and logistics customers, where revenues increased by a combined $130$170 million. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined $47$96 million. Revenues from customers added since JuneSeptember 30, 2017 were $50$77 million, representing 28.2%28.9% of the period-over-period revenue increase in this segment. Demand within this segment continues to be driven by increased adoption of digital technologies that are reshaping our customers' business and operating models, as well as growing demand for analytics, supply chain consulting, implementation initiatives, smart products, transformation of business models, internet of things

and omni channel commerce

implementation and integration services. DiscretionaryIn the future, discretionary spending by our retail customers has been andin this segment may continue to be affected by weakness in the retail sector.international trade policies as well as other macroeconomic factors.
Communications, Media and Technology
Revenues from our Communications, Media and Technology segment grew 17.1%, inclusive of a positive currency impact of 2.4%1.2%, for the sixnine months ended JuneSeptember 30, 2018, as compared to the sixnine months ended JuneSeptember 30, 2017. Revenue growthGrowth was $112 millionstronger among our technology customers and $41where revenues increased by $179 million amongas compared to an increase of $56 million for our communications and media customers. Revenues from customers added since JuneSeptember 30, 2017 were $11$15 million and represented 7.2%6.4% of the period-over-period revenue increase in this segment. Growth within this segment was driven by the increased adoption of digital technologies, digital content operations, services to help our customers balance rationalizing costs while creating a differentiated user experience and an expanded range of services, including business process services. Revenue growthAdditionally, demand among our communicationstechnology customers has been and may continue to be negatively affected by uncertainty due toin the regulatory environment while significant merger and acquisition activity continues to impact our customers in theirthe communications and media industry.
Revenues - Geographic Markets
Revenues by geographic market were as follows for the sixnine months ended JuneSeptember 30:
 2018 2017 Increase (Decrease) 2018 2017 Increase (Decrease)
$ %$ %
 (Dollars in millions) (Dollars in millions)
North America $6,042
 $5,612
 $430
 7.7 $9,149
 $8,503
 $646
 7.6
United Kingdom 619
 562
 57
 10.1 944
 863
 81
 9.4
Rest of Europe 755
 576
 179
 31.1 1,153
 903
 250
 27.7
Europe - Total 1,374
 1,138
 236
 20.7 2,097
 1,766
 331
 18.7
Rest of World 502
 466
 36
 7.7 750
 713
 37
 5.2
Total revenues(1)
 $7,918
 $7,216
 $702
 9.7 $11,996
 $10,982
 $1,014
 9.2
_____________________
(1)
Results for 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. See Note 3 to our unaudited consolidated financial statements for additional information.    
North America continues to be our largest market, representing 76.3% of total revenues for the sixnine months ended JuneSeptember 30, 2018 and accounting for 61.3%63.7% of total revenue growth over the sixnine months ended JuneSeptember 30, 2017. Revenues from our customers in Europe grew 20.7%18.7%, after a positive currency impact of 9.0%5.4%. Specifically, revenues from our Rest of Europe customers grew 31.1%27.7% after an positive currency impact of 9.9%5.6%, while within the United Kingdom we experienced an increase in revenues of 10.1%9.4%, after a positive currency impact of 8.2%5.2%. Revenue growth in the United Kingdom and Rest of World was negatively affected by weakness in our Financial Services segment as certain banking customers in those regions optimize the banking sector in that region.cost of supporting their legacy IT systems and operations, including moving a portion of their services to captives, as they shift their spend to transformation and digital services. Revenues from our Rest of World customers grew 7.7%5.2% inclusive of a negative currency impact of 1.4%. We believe that Europe, India, Middle East, Asia Pacific and Latin America regions will continue to be areas of significant investment for us as we see these regions as long term growth opportunities.
Cost of Revenues (Exclusive of Depreciation and Amortization Expense)

Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, project-related immigration and travel for technical personnel and subcontracting costs relating to revenues. Our cost of revenues increased by 8.1%7.4% during the sixnine months ended JuneSeptember 30, 2018 as compared to the sixnine months ended JuneSeptember 30, 2017, decreasing as a percentage of revenues to 60.8% during the 2018 period compared to 61.8% in the first half of 2018 compared to 61.7% in the first half of 2017.2017 period. The decrease as a percentage of revenues was due primarily to a decrease in compensation and benefits costs as revenue growth outpaced headcount growth,and the depreciation of the Indian rupee against the U.S. dollar, partially offset by an increase in fees paid to strategic partners and other vendors related toin our managed servicesdigital operations, platform and digital products. For the six months ended June 30, 2018, compensation and benefits costs increased by $245 million as compared to the six months ended June 30, 2017.infrastructure services.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. Selling, general and administrative expenses, including depreciation and amortization, increased by 9.6%9.5% during the sixnine months ended JuneSeptember 30, 2018 as compared to the sixnine months ended JuneSeptember 30, 2017, decreasingremaining relatively

flat as a percentage of revenues to 21.9%at 21.6% for the sixnine months ended JuneSeptember 30, 2018 as compared to 22.0%21.5% for the sixnine months ended JuneSeptember 30, 2017. The

decrease as a percentageSelling, general and administrative expenses include the impacts of revenues was due primarily to efficiencies of leveraging our cost structure over a larger organization, partially offset by the initial funding of the Cognizant U.S. Foundation and the FCPA Accrual recorded during the nine months ended September 30, 2018, offset by a decrease in the second quarter of 2018.compensation and benefit costs.
Income from Operations and Operating Margin - Overall

Income from operations increased 15.9%15.6% for the sixnine months ended JuneSeptember 30, 2018 as compared to the same period in 2017. Our operating margin increased to 17.2%17.6% for the sixnine months ended JuneSeptember 30, 2018 from 16.3%16.6% for the sixnine months ended JuneSeptember 30, 2017, due to a decrease, as a percentage of revenues, in compensation and benefits costs, as revenue growth outpaced headcount growth, partially offset by the impacts of the initial funding of the Cognizant U.S. Foundation inand the second quarter ofFCPA Accrual recorded during the nine months ended September 30, 2018 and an increase in fees paid to strategic partners and other vendors related toin our managed servicedigital operations, platform and digital products.infrastructure services. Excluding the impact of applicable designated cash flow hedges, the appreciationdepreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 251 basis points, or 0.02%0.51% percentage points, during the sixnine months ended JuneSeptember 30, 2018. Each additional 1.0% change in exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by approximately 18 basis points or 0.18 percentage points.

We entered into foreign exchange forward contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the sixnine months ended JuneSeptember 30, 2018, the settlement of cash flow hedges positively impacted our operating margin by approximately 7153 basis points, or 0.710.53 percentage points, as compared to a positive impact of approximately 7681 basis points or 0.760.81 percentage points during the sixnine months ended JuneSeptember 30, 2017.

For the sixnine months ended JuneSeptember 30, 2018 and 2017, our non-GAAP operating margins were 21.2%5 and 19.5%19.7%5, respectively. As set forth in the “Non-GAAP Financial Measures” section below, our non-GAAP operating margin excludes stock based compensation expense, acquisition-related charges, realignment charges and in the second quarter ofnine months ended September 30 2018, the initial funding of the Cognizant U.S. Foundation.
Segment Operating Profit
Segment operating profits were as follows for the sixnine months ended JuneSeptember 30:
    Increase (Decrease)    Increase (Decrease)
2018 2017 $ %2018 2017 $ %
(Dollars in millions)(Dollars in millions)
Financial Services$909
 $872
 $37
 4.2$1,355
 $1,348
 $7
 0.5
Healthcare695
 619
 76
 12.31,077
 971
 106
 10.9
Products and Resources514
 447
 67
 15.0781
 695
 86
 12.4
Communications, Media and Technology338
 291
 47
 16.2522
 450
 72
 16.0
Total segment operating profit2,456
 2,229
 227
 10.23,735
 3,464
 271
 7.8
Less: unallocated costs1,093
 1,053
 40
 3.81,627
 1,640
 (13) (0.8)
Income from operations$1,363
 $1,176
 $187
 15.9$2,108
 $1,824
 $284
 15.6
In our Healthcare and Products and Resources business segments, operating profits increased as a percentage of revenues as revenue growth outpaced headcount growth, partially offset by investments to accelerate our shift to digital.
In our Financial Services and Communication, Media and Technology business segments,segment, operating profits decreased as a percentage of revenues due to investments to accelerate our shift to digital.


digital, including re-skilling of service delivery personnel, an increase in subcontractor costs and an increase in fees paid to strategic partners and other vendors in our digital operations, platform and infrastructure services, partially offset by the depreciation of the Indian rupee against the U.S. dollar. In our Healthcare, Products and Resources and Communications, Media and Technology business segments, operating profits remained relatively flat as a percentage of revenues.



________________
5Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

Other Income (Expense), Net
Total other income (expense), net consists primarily of foreign currency exchange gains and (losses)losses, interest income and interest income.expense. The following table sets forth total other income (expense), net for the sixnine months ended JuneSeptember 30:
2018 2017 
Increase/
Decrease
2018 2017 
Increase/
Decrease
(in millions)(in millions)
Foreign currency exchange (losses) gains$(131) $70
 $(201)$(256) $57
 $(313)
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments20
 (13) 33
23
 (16) 39
Foreign currency exchange (losses) gains, net(111) 57
 (168)
Foreign currency exchange gains (losses), net(233) 41
 (274)
Interest income81
 63
 18
128
 97
 31
Interest expense(13) (12) (1)(19) (18) (1)
Total other (expense) income, net$(43) $108
 $(151)
Other, net(2) (2) 
Total other income (expense), net$(126) $118
 $(244)
The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets in our U.S. dollar functional currency India subsidiaries as well asand, to a lesser extent, the remeasurement of other net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. The gains and losses on our foreign exchange forward contracts not designated as hedging instruments relate to the realized and unrealized gains and losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to the British pound, Indian rupee, Euro and other non-U.S. dollar denominated net monetary assets and liabilities. As of JuneSeptember 30, 2018, the notional value of our undesignated hedges was $432$460 million. The increase in interest income of $18$31 million was primarily attributable to an increase in average invested balances and higher yields in 2018.
Provision for Income Taxes

The provision for income taxes increased to $345$530 million during the sixnine months ended JuneSeptember 30, 2018 from $257$421 million during the sixnine months ended JuneSeptember 30, 2017. The effective income tax rate increased to 26.1%26.7% for the sixnine months ended JuneSeptember 30, 2018 from 20.0%21.7% for the sixnine months ended JuneSeptember 30, 2017. The increase in our effective income tax rate was primarily due to the recognition in the first quarter of 2017 of income tax benefits previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million and a higher 2018 effective income tax rate driven primarily by the depreciation of the India rupee against the U.S. dollar, which resulted in (i) higher non-deductible foreign currency exchange losses on our consolidated statement of operations and (ii) a higher income tax provision for our India subsidiaries resulting from thedue to foreign currency exchange gains on their statutory books as the Indian rupee depreciated against the U.S. dollar.books. The estimate of our 2018 annual effective income tax rate reflects the current interpretation of the Tax Reform Act, including the GILTI provision and may change as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. Additionally, our effective income tax rate for the remainder of 2018 and future periods may be negatively affected by the recently-enacted New Jersey state tax laws as further described in the Executive Summary.
Net Income
Net income decreased to $976$1,453 million for the sixnine months ended JuneSeptember 30, 2018 from $1,027$1,522 million for the sixnine months ended JuneSeptember 30, 2017, representing 12.3%12.1% and 14.2%13.9% of revenues, respectively. The decrease in net income as a percentage of revenues is primarily due to the fluctuation in the value of the India rupee which generated foreign currency exchange losses in 2018 compared to foreign currency exchange gains in 2017.2017 and the increase in the provision for income taxes, partially offset by an increase in income from operations.


Non-GAAP Financial Measures
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the sixnine months ended JuneSeptember 30:
2018 
% of
Revenues
 2017 
% of
Revenues
2018 
% of
Revenues
 2017 
% of
Revenues
(Dollars in millions, except per share amounts)(Dollars in millions, except per share amounts)
GAAP income from operations and operating margin$1,363
 17.2 $1,176
 16.3$2,108
 17.6 $1,824
 16.6
Add: Stock-based compensation expense (1)
130
 1.6 109
 1.5199
 1.7 161
 1.5
Add: Acquisition-related charges (2)
82
 1.1 69
 1.0119
 1.0 104
 1.0
Add: Realignment charges (3)
1
  50
 0.712
 0.1 69
 0.6
Add: Initial funding of Cognizant U.S. Foundation (4)
100
 1.3 
 100
 0.8 
 
Non-GAAP income from operations and non-GAAP operating margin$1,676
 21.2 $1,404
 19.5$2,538
 21.2 $2,158
 19.7
        
GAAP diluted earnings per share$1.66
 $1.71
 $2.48
 $2.55
 
Effect of above operating adjustments, pre-tax0.53
 0.38
 0.74
 0.56
 
Effect of non-operating foreign currency exchange losses (gains), pre-tax (5)
0.19
 (0.10) 0.39
 (0.06) 
Tax effect of non-GAAP adjustments to pre-tax income (6)
(0.13) (0.14) (0.16) (0.21) 
Effect of recognition of income tax benefit related to an uncertain tax position (7)

 (0.09) 
 (0.09) 
Effect of adjustment to the one-time income tax expense related to the Tax Reform Act (8)
(0.01) 
 
Non-GAAP diluted earnings per share$2.25
 $1.76
 $3.44
 $2.75
 
_____________________
(1)Stock-based compensation expense reported in:
Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2018 20172018 2017
(in millions)(in millions)
Cost of revenues$31
 $28
$46
 $41
Selling, general and administrative expenses99
 81
153
 120
(2)Acquisition-related charges include when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.costs, as applicable.
(3)
Realignment charges include severance costs, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations. See Note 5 to our unaudited consolidated financial statements for additional information.
(4)InDuring the second quarter ofnine months ended September 30, 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on STEM education in the United States.
(5)Non-operating foreign currency exchange gains (losses),and losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.

(6)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2018 20172018 2017
(in millions)(in millions)
Non-GAAP income tax benefit (expense) related to:      
Stock-based compensation expense$38

$41
$53

$60
Acquisition-related charges20

24
28

35
Realignment charges

18
3

24
Foreign currency exchange gains (losses)(9)
5
Foreign currency exchange gains and losses(15)
4
Initial funding of Cognizant U.S. Foundation28
 
28
 
The effective tax rate related to each of our non-GAAP adjustments varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions.
(7)During the threenine months ended March 31,September 30, 2017, we recognized an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position of $55 million. The recognition of the benefit in the first quarter of 2017 was based on management’s reassessment regarding whether this unrecognized tax benefit met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefit.
(8)During the nine months ended September 30, 2018, we finalized our calculation of the one-time net income tax expense related to the enactment of the Tax Reform Act and recognized a $5 million income tax benefit, which reduced our provision for income taxes.

Liquidity and Capital Resources

Cash generated from operations has historically been our primary source of liquidity to fund operations and investments to grow our business. In addition, as of JuneSeptember 30, 2018, we had cash, cash equivalents and short-term investments of $4,247$4,763 million, of which $419$405 million was restricted and not available for use as a result of our dispute with the ITD with respect to our 2016 India Cash Remittance. See Note 9 of our unaudited consolidated financial statements for more information. As of JuneSeptember 30, 2018, we had available capacity under our revolving credit facility of approximately $750 million. Our revolving credit facility matures in November 2019. The following table provides a summary of our cash flows for the sixnine months ended JuneSeptember 30:
  2018 2017 Increase / Decrease
  (in millions)
Net cash provided by operating activities $1,028
 $798
 $230
Net cash (used in) investing activities (811) (298) (513)
Net cash (used in) financing activities (1,222) (1,421) 199
  2018 2017 Increase / Decrease
  (in millions)
Net cash provided by (used in):      
Operating activities $1,890
 $1,571
 $319
Investing activities (1,077) (422) (655)
Financing activities (1,368) (1,652) 284

Operating activities
The increase in cash generated from operating activities was primarily attributable to the increase in income from operations and the increase in non-cash expenses in the sixnine months ended JuneSeptember 30, 2018 as compared to the same period in 2017, partially offset by the initial funding of the Cognizant U.S. Foundation in the second quarter of 2018.2017.

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. As a result of adoption, we classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). By contrast, a contract asset is a right to consideration that is conditional upon factors other than the passage of time. Upon adoption, we reclassified (i) balances representing receivables, as defined by the New Revenue Standard, from Unbilled accounts receivable to Trade accounts receivable, net and (ii) balances representing contract assets, as defined by the New Revenue Standard, from Unbilled accounts receivable to Other current assets. Balances as of JuneSeptember 30, 2018 are presented under the New Revenue Standard, while prior period balances are not adjusted and continue to be reported in accordance with our historic accounting policies. See Note 3 of our unaudited consolidated financial statements for more information.


Historically, our days sales outstanding calculation included billed and unbilled accounts receivable, net of allowance for doubtful accounts, reduced by the uncollected portion of our deferred revenue. To reflect the adoption of the New Revenue Standard and maintain the comparability of the calculation, in 2018 we adjusted the definition to include receivables, as defined by the New Revenue Standard, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of our deferred revenue. Our days sales outstanding as of JuneSeptember 30, 2018 was 76 days, higher as compared to 71 days as of December 31, 2017 and 7374 days as of JuneSeptember 30, 2017. The adoption of the New Revenue Standard increased our days sales outstanding as of JuneSeptember 30, 2018 by 2 days. We monitor turnover, aging and the collection of accounts receivable by customer.

Investing activities
The increase in cash used in investing activities is primarily related to higher payments for acquisitions and outflows for capital expendituresan increase in net purchases of investments in the 2018 period as compared to 2017.

Financing activities
The decrease in cash used in financing activities in the 2018 period is primarily attributable to lower repurchases of common stock in 2018 compared to the same period in 2017, partially offset by higher dividends paid in 2018 and net repayments under the revolving credit facility in 2018 as compared to net borrowings under the credit facility in the same period in 2017.

2018.

In 2014, we entered into a credit agreement with a commercial bank syndicate, or the Credit Agreement, providing for a $1,000 million unsecured term loan and a $750 million revolving credit facility. The term loan was used to pay a portion of the cash consideration in connection with our acquisition of TZ US Parent, Inc., or TriZetto. The revolving credit facility is available for general corporate purposes. As of JuneSeptember 30, 2018, we had $750$725 million outstanding under the term loan and no outstanding notes under the revolving credit facility. The term loan and the revolving credit facility both mature in November 2019 with a final payment of $625 million due on the term loan. While we believe we will have sufficient liquidity to fund the final payment if necessary, we plan to evaluateare currently evaluating alternative financing arrangements prior to maturity.arrangements.

The Credit Agreement contains certain negative covenants, including limitations on liens, mergers, consolidations and acquisitions, subsidiary indebtedness and affiliate transactions, as well as certain affirmative covenants. In addition, the Credit Agreement requires us to maintain a debt to total stockholders' equity ratio not in excess of 0.40 to 1.00. As of JuneSeptember 30, 2018, we were in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the Credit Agreement to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the revolving credit facility as of JuneSeptember 30, 2018 and through the date of this filing.

In February 2017, we announced a plan to return $3.4 billion to stockholders by the end of 2018 through a combination of stock repurchases and cash dividends. As part of this plan, to date we expended $2.7 billion to repurchase our Class A common stock under ASRs and paid cash dividends totaling $501$617 million. The payments related to the ASRs were funded with cash on hand in the U.S. and borrowings under the revolving credit facility. Stock repurchases may be made from time to time through open-market purchases, through the use of Rule 10b5-1 plans and/or by other means. We are currently evaluatingreviewing our capital return plan, considering the longer term impact of the Tax Reform Act, may have on our overall capital return program. As a first step, in February 2018financial performance and liquidity position, investments required to execute our Board of Directors approved an increase to our quarterly dividend to $0.20 per share.strategic plans and initiatives, the economic outlook, regulatory changes and other relevant factors.

Our Board of Directors reviews our capital return plan on an ongoing basis with consideration given to our financial performance, economic outlook, regulatory changes and any other relevant factors. The Board of Directors’ determinations regarding future share repurchases and dividends will include evaluating the longer term impact of the Tax Reform Act, as well as a variety of other factors, including our net income, cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. As these factors may change over time, the amount of stock repurchase activity and actual amount of dividends declared, if any, during any particular period cannot be predicted and may fluctuate from time to time. There can be no guarantee that we will achieve the objective of our announced capital return plan in the amounts or within the expected time frame that we have indicated, or at all.

Other Liquidity and Capital Resources Information
We seek to ensure that our worldwide cash is available in the locations in which it is needed. As part of our ongoing liquidity assessments, we regularly monitor the mix of our domestic and international cash flows and cash balances. As a result of the enactment of the Tax Reform Act, our historical and future foreign earnings are no longer subject to U.S. federal income tax upon repatriation beyond the one-time transition tax accrued in the fourth quarter of 2017. During the first half ofnine months ended September 30, 2018, we repatriated $2,108$2,273 million from our foreign subsidiaries. As of JuneSeptember 30, 2018, $2,570$3,004 million of our cash, cash equivalents and short-term investments were held outside the United States, of which $1,723$1,883 million was held in India. As further

described in Note 9 of our unaudited consolidated financial statements, $419$405 million of our short-term investment balances held in India were classified as restricted as of JuneSeptember 30, 2018. We are continuing to evaluate what portion of the non-U.S. cash, cash equivalents and short-term investments held outside India is needed locally to execute our strategic plans and what amount is available for repatriation back to the United States.

Our Indian earnings are indefinitely reinvested and our current plans do not demonstrate the need to repatriate ourthe historical undistributed earnings of our India subsidiaries to fund our liquidity needs outside of India. In reaching this conclusion, we considered our global capital needs, the available sources of liquidity globally and our growth plans in India. However, future events may occur, such as material changes in cash estimates, discretionary transactions, including corporate restructurings, and changes in applicable laws, that may lead us to repatriate the undistributed Indian earnings. If we were to change our assertion that our accumulated undistributed Indian earnings are indefinitely reinvested, we would expect, based on our current interpretation of Indian tax law, to accrue additional tax expense at a rate of approximately 21% of cash available for distribution, which could have a material adverse effect on our future effective income tax rate. This estimate is subject to change based on tax legislative developments in India and other jurisdictions as well as judicial and interpretive developments of applicable tax laws.
We expect our operating cash flow, cash and investment balances (excluding the $419$405 million of India restricted assets), and available capacity under our revolving credit facility to be sufficient to meet our operating requirements, in India and globally, for

the next twelve months. We expect to fund the remaining balance of the one-time transition tax related to the Tax Reform Act, which is payable in installments through the year 2024, from a combination of cash generated from operations, borrowings and the repatriation of a portion of our historical non-U.S. earnings that are available for distribution to the United States. Our ability to expand and grow our business in accordance with current plans, to make acquisitions and form joint ventures, to meet our long-term capital requirements beyond a twelve month period and our ability to execute the remainder of our capital return plan will depend on many factors, including the rate, if any, at which our cash flow increases, our ability and willingness to accomplish acquisitions and joint ventures with capital stock and the availability of public and private debt and equity financing. We cannot be certain that additional financing, if required, will be available on terms and conditions acceptable to us, if at all.
As further described in Note 9 of our unaudited consolidated financial statements, certain cash, cash equivalents and short-term investment balances in India totaling $419$405 million were restricted in connection with our dispute with the ITD with respect to our 2016 India Cash Remittance. The dispute with the ITD is ongoing, and no final decision has been reached. The affected balances may continue to remain restricted and unavailable for our use while the dispute is ongoing. Additionally, while we believe that we have paid all applicable taxes related to the transactions underlying the ITD Dispute, if it is ultimately determined that we are liable for the full amount of additional taxes the ITD claims we owe, our liquidity could be materially adversely affected.
Commitments and Contingencies

See Note 13 to our unaudited consolidated financial statements.
Off-Balance Sheet Arrangements

Other than our foreign exchange forward contracts, there were no off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons in the sixnine months ended JuneSeptember 30, 2018 that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. On an on-going basis, we evaluate our estimates. The most significant estimates relate to the recognition of revenue and profits, including the application of the cost to cost method of measuring progress to completion for certain fixed-price contracts, income taxes, assumptions used in valuing stock-based compensation arrangements, valuation of investments and derivative financial instruments, business combinations, valuation of goodwill and other long-lived assets and contingencies. We base our estimates on historical experience, current trends and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual amounts may differ from the estimates used in the preparation of the accompanying unaudited consolidated financial statements. For a discussion of our critical accounting estimates, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2017 Annual Report on Form 10-K. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our 2017 Annual Report on Form 10-K. There have been no material changes to the aforementioned critical accounting estimates and policies during the quarter.
Recently Adopted and New Accounting Pronouncements

See Note 1 to our unaudited consolidated financial statements.
Forward Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Exchange Act) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,” “would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.

Such forward-looking statements may be included in various filings made by us with the SEC, or press releases or oral statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as statements regarding our anticipated future revenues or operating margins, contract percentage completions, earnings, capital expenditures, anticipated effective tax rates and tax expense, liquidity, access to capital, capital return plan, investment strategies, cost management, realignment program, plans and objectives, including those related to our digital practice areas, investment in our business and potential acquisitions, industry trends, customer behaviors and trends, and the ongoing internaloutcome of the FCPA investigation, litigation matters and other statements regarding matters that are not historical facts, are based on our current expectations, estimates and projections, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including:
competition from other service providers;
the risk that we may not be able to achieve targeted improvements in our operating margin and level of profitability, or that our operating margin and profitability may decline;
the risk of liability or damage to our reputation resulting from security breaches or disclosure of sensitive data or failure to comply with data protection laws and regulations;
the risk that we may not be able to keep pace with the rapidly evolving technological environment;
the rate of growth in the use of technology in business and the type and level of technology spending by our customers;
mispricing of our services, especially on our fixed-price and transaction- or volume-based priced contracts;
risks associated with our ongoing internal investigation into possible violations of the FCPA and similar laws, including the cost of such investigation and any sanctions, fines or remedial measures that may be imposed by the DOJ or SEC, additional expenses related to remedial measures, the costs of defending and/or settling possible judgments against us that may result from associated lawsuits against us and any possible impact on our ability to timely file the required reports with the SEC;
our inability to successfully acquire or integrate target companies;
system failure or disruptions in our communications or information technology;
the risk that we may lose key executives and not be able to enforce non-competition agreements with them;
competition for hiring highly-skilled technical personnel;
possible failure to provide business solutions and deliver complex and large projects for our customers;
the risk of reputational harm to us;
the effect of our use of derivative instruments;
our revenues being highly dependent on customers concentrated in certain industries, including financial services and healthcare, and located primarily in the United States and Europe;
the risk that we may not be able to pay dividends or repurchase shares in accordance with our capital return plan, or at all;
risks relating to our global operations, including our operations in India;

the effects of fluctuations in the Indian rupee and other currency exchange rates;
the risk of war, terrorist activities, pandemics and natural disasters;
the Brexit Referendum and any negative effects on global economic conditions, financial markets and our business;
the risk that we may not be able to enforce or protect our intellectual property rights, or that we may infringe upon the intellectual property rights of others;
regulatory uncertainties, including in the areas of outsourcing, immigration and taxes;
increased regulation of the financial services and healthcare industries, as well as other industries in which our customers operate;
the possibility that we may be required to or choose to repatriate Indian earnings;
the possibility that we may lose certain tax benefits provided to companies in our industry by the Indian government, and any adverse outcome of our dispute with the ITD; and
The factors set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017.

You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC, including this report in the section titled “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I, Item 1. Business” in our Annual Report on Form 10-K for the year ended December 31, 2017. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Item 3.     Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 27, 2018.
Item 4.     Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and our chief financial officer, evaluated the design and operating effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of JuneSeptember 30, 2018. Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as of JuneSeptember 30, 2018, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended JuneSeptember 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION
Item 1. Legal Proceedings

See Note 13 to our unaudited consolidated financial statements.
Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on February 27, 2018.
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
Our existing stock repurchase program, as approved by our Board of Directors, allows for the repurchase of $3.5 billion of our outstanding shares of Class A common stock, excluding fees and expenses, through December 31, 2019. Under the stock repurchase program, the Company is authorized to repurchase its Class A common stock through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act, or in private transactions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased are determined by the Company’s management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors.
During the three months ended September 30, 2018, we repurchased $25 million of our Class A common stock under our stock repurchase program. These stock repurchases were funded from working capital. As of JuneSeptember 30, 2018, the remaining available balance under our stock repurchase program authorized by the Board of Directors was $0.8 billion.$775 million.
Month Total Number
of Shares
Purchased
 Average
Price Paid
per Share
 Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or
Programs
 Approximate
Dollar Value of Shares
that May Yet Be
Purchased under the
Plans or Programs
(in millions)
 Total Number
of Shares
Purchased
 Average
Price Paid
per Share
 Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or
Programs
 Approximate
Dollar Value of Shares
that May Yet Be
Purchased under the
Plans or Programs
(in millions)
April 1, 2018 - April 30, 2018        
July 1, 2018 - July 31, 2018        
Open market and privately negotiated purchases 
 $
 
 $1,400
 
 $
 
 $800
May 1, 2018 - May 31, 2018        
August 1, 2018 - August 31, 2018        
June 2018 ASR 1,062,111
 (a)
 1,062,111
  
Open market and privately negotiated purchases 
 
 
   303,551
 74.84
 303,551
 777
March 2018 ASR 708,984
 (a)
 708,984
 1,400
June 1, 2018 - June 30, 2018        
September 1, 2018 - September 30, 2018        
Open market and privately negotiated purchases 
 
 
   39,677
 74.94
 39,677
 775
June 2018 ASR 6,492,680
 (b)
 6,492,680
 800
Total 7,201,664
 $
 7,201,664
   1,405,339
 $
 1,405,339
  
            
(a)In MarchJune 2018, the Company entered into an ASR to purchase up to $300$600 million of the Company's Class A common stock. In MayAugust 2018, the purchase period for the ASR ended and an additional 0.71.1 million shares were delivered. In total, 3.77.6 million shares were delivered under the ASR at an average repurchase price of $79.95.
(b)Under the terms of the June 2018 ASR and in exchange for up-front payments of $600 million, the financial institution initially delivered 6.5 million shares, a portion of the Company's total expected shares to be repurchased under the June 2018 ASR. The total number of shares ultimately delivered and therefore the average price paid per share, will be determined at the end of the purchase period, which is scheduled to end during the third quarter of 2018, based on the volume-weighted average price of the Company's common stock during that period.$79.42.
During the three months ended JuneSeptember 30, 2018, we also purchased shares in connection with our stock-based compensation plans, whereby shares of our common stock were tendered by employees for payment of applicable statutory tax withholdings. For the three months ended JuneSeptember 30, 2018, such repurchases totaled 433,947248,860 shares at an aggregate cost of $33$20 million.

Item 6.     Exhibit Index

EXHIBIT INDEX
    Incorporated by Reference  
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished Herewith
3.1  8-K 000-24429 3.1
 6/7/2018  
3.2  8-K 000-24429 3.3
 6/7/2018  
10.1          Filed
31.1          Filed
31.2          Filed
32.1          Furnished
32.2          Furnished
101.INS XBRL Instance Document         Filed
101.SCH XBRL Taxonomy Extension Schema Document         Filed
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         Filed
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         Filed
101.LAB XBRL Taxonomy Extension Label Linkbase Document         Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         Filed
    Incorporated by Reference  
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished Herewith
3.1  8-K 000-24429 3.1
 6/7/2018  
3.2  8-K 000-24429 3.1
 9/20/2018  
31.1          Filed
31.2          Filed
32.1          Furnished
32.2          Furnished
101.INS XBRL Instance Document         Filed
101.SCH XBRL Taxonomy Extension Schema Document         Filed
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         Filed
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         Filed
101.LAB XBRL Taxonomy Extension Label Linkbase Document         Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         Filed


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   Cognizant Technology Solutions Corporation
     
Date:August 2,October 30, 2018  By: 
/s/ FRANCISCO D’SOUZA
      Francisco D’Souza,
      Chief Executive Officer
      (Principal Executive Officer)
       
Date:August 2,October 30, 2018  By: 
/s/ KAREN MCLOUGHLIN
      Karen McLoughlin,
      Chief Financial Officer
      (Principal Financial Officer)

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