UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended	~~June 30, 2019~~March 31, 2020
☐	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

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~~) (201) 801-0233

N/A

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	CTSH	The Nasdaq Stock Market LLC

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 ☒ No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer		☒	Accelerated filer	☐

~~Large Accelerated Filer~~Non-accelerated filer		☒☐	~~Accelerated filer~~Smaller reporting company	☐

~~Non-accelerated filer~~		☐	~~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 26, 2019:~~

May 1, 2020:



Class						Number of Shares
Class A Common Stock, par value $0.01 per share						~~552,291,064~~540,580,052

Table of Contents

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

TABLE OF CONTENTS


				Page
GLOSSARY					1

			~~Page~~
PART I.	FINANCIAL INFORMATION		12

Item 1.		Consolidated Financial Statements (Unaudited)		12

		Consolidated Statements of Financial Position (Unaudited) as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019		12

		Consolidated Statements of Operations (Unaudited) for the Three ~~and Six~~ Months Ended ~~June 30, 2019~~March 31 , 20 20 and ~~2018~~20 19		23

		Consolidated Statements of Comprehensive Income (Unaudited) for the Three ~~and Six~~ Months Ended ~~June 30, 2019~~March 31 , 20 20 and ~~2018~~20 19		34

		Consolidated Statements of Stockholders' Equity (Unaudited) for the Three Months Ended March 31, ~~2019~~20 20 and ~~2018 and June 30, 2019 and 2018~~201 9		45

		Consolidated Statements of Cash Flows (Unaudited) for the ~~Six~~Three Months Ended ~~June 30, 2019~~March 31 , 20 20 and ~~2018~~20 19		56

		Notes to Consolidated Financial Statements (Unaudited)		67

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		3026

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		5040

Item 4.		Controls and Procedures		5040

PART II.		OTHER INFORMATION		5141

Item 1.		Legal Proceedings		5141

Item 1A.		Risk Factors		5141

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		5144

Item 6.		Exhibits		5245

SIGNATURES					5346

Table of Contents


GLOSSARY


Defined Term			Definition
10b5-1 Plan			Trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act
Adjusted Diluted EPS			Adjusted diluted earnings per share
AI			Artificial Intelligence
ASC			Accounting Standards Codification
ASR			Accelerated Stock Repurchase
Budget			Union Budget of India for 2020-2021
CC			Constant Currency
CIT			Commissioner of Income Tax
Credit Loss Standard			ASC Topic 326: "Financial Instruments - Credit Losses"
Code Zero			Code Zero, LLC
Court			Madras High Court
COVID-19			The novel coronavirus disease
Credit Agreement			Credit agreement with a commercial bank syndicate dated November 5, 2018
CTS India			Our principal operating subsidiary in India
DDT			Dividend Distribution Tax
Division Bench			Division Bench of the Madras High Court
DSO			Days Sales Outstanding
EPS			Earnings Per Share
EU			European Union
Exchange Act			Securities Exchange Act of 1934, as amended
Executive Transition Costs			Costs associated with our CEO transition and the departure of our President
GAAP			Generally Accepted Accounting Principles
HR			Human Resources
India Defined Contribution Obligation			Certain statutory defined contribution obligations of employees and employers in India
IoT			Internet of Things
ITD			Indian Income Tax Department
Lev			Levementum LLC
LIBOR			London Inter-bank Offered Rate
Samlink			Oy Samlink Ab
SEC			United States Securities and Exchange Commission
SCI			Supreme Court of India
Tax Reform Act			Tax Cuts and Jobs Act
Term Loan			Unsecured term loan
Zenith			Zenith Technologies Limited

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, 2019			December 31, 2018				March 31, 2020		December 31, 2019
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	1,660		$	1,161		Cash and cash equivalents	$	3,886	$	2,645
Short-term investments	1,343			3,350			Short-term investments	396		779
Trade accounts receivable, net of allowances of $100 and $78, respectively	3,386			3,257
Trade accounts receivable, net of allowances of $74 and $67, respectively							Trade accounts receivable, net of allowances of $74 and $67, respectively	3,220		3,256
Other current assets	817			909			Other current assets	823		931
Total current assets	7,206			8,677			Total current assets	8,325		7,611
Property and equipment, net	1,337			1,394			Property and equipment, net	1,322		1,309
Operating lease assets, net	847			—			Operating lease assets, net	927		926
Goodwill	3,651			3,481			Goodwill	4,014		3,979
Intangible assets, net	1,161			1,150			Intangible assets, net	1,005		1,041
Deferred income tax assets, net	468			442			Deferred income tax assets, net	594		585
Long-term investments	80			80			Long-term investments	433		17
Other noncurrent assets	767			689			Other noncurrent assets	809		736
Total assets	$	15,517		$	15,913		Total assets	$	17,429	$	16,204
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	254		$	215		Accounts payable	$	289	$	239
Deferred revenue	285			286			Deferred revenue	354		313
Short-term debt	28			9			Short-term debt	38		38
Operating lease liabilities	201			—			Operating lease liabilities	197		202
Accrued expenses and other current liabilities	2,056			2,267			Accrued expenses and other current liabilities	1,994		2,191
Total current liabilities	2,824			2,777			Total current liabilities	2,872		2,983
Deferred revenue, noncurrent	63			62			Deferred revenue, noncurrent	42		23
Operating lease liabilities, noncurrent	679			—			Operating lease liabilities, noncurrent	734		745
Deferred income tax liabilities, net	44			183			Deferred income tax liabilities, net	31		35
Long-term debt	718			736			Long-term debt	2,430		700
Long-term income taxes payable	471			478			Long-term income taxes payable	478		478
Other noncurrent liabilities	161			253			Other noncurrent liabilities	229		218
Total liabilities	4,960			4,489			Total liabilities	6,816		5,182
Commitments and contingencies (See Note 13)
Commitments and contingencies (See Note 12)							Commitments and contingencies (See Note 12)
Stockholders’ equity:							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, 552 and 577 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	6			6
Preferred stock, $0.10 par value, 15.0 shares authorized, NaN issued							Preferred stock, $0.10 par value, 15.0 shares authorized, NaN issued	—		—
Class A common stock, $0.01 par value, 1,000 shares authorized, 541 and 548 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively							Class A common stock, $0.01 par value, 1,000 shares authorized, 541 and 548 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	5		5
Additional paid-in capital	38			47			Additional paid-in capital	41		33
Retained earnings	10,583			11,485			Retained earnings	10,831		11,022
Accumulated other comprehensive income (loss)	(70		)	(114		)	Accumulated other comprehensive income (loss)	(264)		(38)
Total stockholders’ equity	10,557			11,424			Total stockholders’ equity	10,613		11,022
Total liabilities and stockholders’ equity	$	15,517		$	15,913		Total liabilities and stockholders’ equity	$	17,429	$	16,204

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

Table of Contents

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 March 31,
	2019			2018			2019			2018				2020		2019
Revenues	$	4,141		$	4,006		$	8,251		$	7,918		Revenues	$	4,225	$	4,110
Operating expenses:													Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense shown separately below)	2,629			2,417			5,204			4,818			Cost of revenues (exclusive of depreciation and amortization expense shown separately below)	2,747		2,575
Selling, general and administrative expenses	768			805			1,641			1,516			Selling, general and administrative expenses	711		871
Restructuring charges													Restructuring charges	55		2
Depreciation and amortization expense	125			114			248			221			Depreciation and amortization expense	133		123
Income from operations	619			670			1,158			1,363			Income from operations	579		539
Other income (expense), net:													Other income (expense), net:
Interest income	45			40			93			81			Interest income	41		48
Interest expense	(6		)	(7		)	(13		)	(13		)	Interest expense	(6)		(7)
Foreign currency exchange gains (losses), net	16			(80		)	18			(111		)	Foreign currency exchange gains (losses), net	(102)		2
Other, net	2			—			3			—			Other, net	(2)		1
Total other income (expense), net	57			(47		)	101			(43		)	Total other income (expense), net	(69)		44
Income before provision for income taxes	676			623			1,259			1,320			Income before provision for income taxes	510		583
Provision for income taxes	(167		)	(168		)	(309		)	(345		)	Provision for income taxes	(142)		(142)
Income from equity method investments	—			1			—			1
Income (loss) from equity method investments													Income (loss) from equity method investments	(1)		—
Net income	$	509		$	456		$	950		$	976		Net income	$	367	$	441
Basic earnings per share	$	0.90		$	0.78		$	1.67		$	1.67		Basic earnings per share	$	0.67	$	0.77
Diluted earnings per share	$	0.90		$	0.78		$	1.67		$	1.66		Diluted earnings per share	$	0.67	$	0.77
Weighted average number of common shares outstanding - Basic	564			585			569			586			Weighted average number of common shares outstanding - Basic	546		573
Dilutive effect of shares issuable under stock-based compensation plans	—			1			1			1			Dilutive effect of shares issuable under stock-based compensation plans	—		2
Weighted average number of common shares outstanding - Diluted	564			586			570			587			Weighted average number of common shares outstanding - Diluted	546		575

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

Table of Contents

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 March 31,
	2019			2018			2019			2018				2020		2019
Net income	$	509		$	456		$	950		$	976		Net income	$	367	$	441
Other comprehensive income (loss), net of tax:													Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(9		)	(71		)	(11		)	(34		)	Foreign currency translation adjustments	(135)		(2)
Change in unrealized gains and losses on cash flow hedges	11			(87		)	47			(123		)	Change in unrealized gains and losses on cash flow hedges	(91)		36
Change in unrealized gains and losses on available-for-sale securities	2			1			8			(6		)	Change in unrealized gains and losses on available-for-sale securities	—		6
Other comprehensive income (loss)	4			(157		)	44			(163		)	Other comprehensive income (loss)	(226)		40
Comprehensive income	$	513		$	299		$	994		$	813		Comprehensive income	$	141	$	481

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

Table of Contents

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
		Shares			Amount
Balance, December 31, 2019	548		$	5		$	33	$	11,022	$	(38)	$	11,022
Cumulative effect of changes in accounting principle⁽¹⁾	—		—			—		1		—		1
Net income	—		—			—		367		—		367
Other comprehensive income (loss)	—		—			—		—		(226)		(226)
Common stock issued, stock-based compensation plans	2		—			40		—		—		40
Stock-based compensation expense	—		—			55		—		—		55
Repurchases of common stock	(9)		—			(87)		(439)		—		(526)
Dividends declared, $0.22 per share	—		—			—		(120)		—		(120)
Balance, March 31, 2020	541		$	5		$	41	$	10,831	$	(264)	$	10,613

Class A Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares Amount
Balance, December 31, 2018 577
$ 6
$ 47
$ 11,485
$ (114 ) $ 11,424
Cumulative effect of changes in accounting principle⁽¹⁾
—
—
—
2
—
2
Net income —
—
—
441
—
441
Other comprehensive income (loss) —
—
—
—
40
40
Common stock issued, stock-based compensation plans 2
—
50
—
—
50
Stock-based compensation expense —
—
66
—
—
66
Repurchases of common stock (10 ) —
(99 ) (672 ) —
(771 )
Dividends declared, $0.20 per share —
—
—
(116 ) —
(116 )
Balance, March 31, 2019 569
6
64
11,140
(74 ) 11,136
Net income —
—
—
509
—
509
Other comprehensive income (loss) —
—
—
—
4
4
Common stock issued, stock-based compensation plans 2
—
40
—
—
40
Stock-based compensation expense —
—
54
—
—
54
Repurchases of common stock (19 ) —
(120 ) (952 ) —
(1,072 )
Dividends declared, $0.20 per share —
—
—
(114 ) —
(114 )
Balance, June 30, 2019 552
$ 6
$ 38
$ 10,583
$ (70 ) $ 10,557

Class A Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares Amount
Balance, December 31, 2017 588
$ 6
$ 49
$ 10,544
$ 70
$ 10,669
Cumulative effect of changes in accounting principle⁽²⁾
—
—
—
122
(1 ) 121
Net income —
—
—
520
—
520
Other comprehensive income (loss) —
—
—
—
(6 ) (6 )
Common stock issued, stock-based compensation plans 2
—
60
—
—
60
Stock-based compensation expense —
—
59
—
—
59
Repurchases of common stock (4 ) —
(105 ) (211 ) —
(316 )
Dividends declared, $0.20 per share —
—
—
(119 ) —
(119 )
Balance, March 31, 2018 586
6
63
10,856
63
10,988
Net income —
—
—
456
—
456
Other comprehensive income (loss) —
—
—
—
(157 ) (157 )
Common stock issued, stock-based compensation plans 2
—
42
—
—
42
Stock-based compensation expense —
—
71
71
Repurchases of common stock (8 ) —
(121 ) (512 ) (633 )
Dividends declared, $0.20 per share —
—
—
(119 ) (119 )
Balance, June 30, 2018 580
$ 6
$ 55
$ 10,681
$ (94 ) $ 10,648

~~(1)~~

~~Reflects the adoption of the Accounting Standards Codification ("ASC") Topic 842 "Leases" (the "New Lease Standard")~~


	Class A Common Stock							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
		Shares			Amount
Balance, December 31, 2018	577		$	6		$	47	$	11,485	$	(114)	$	11,424
Cumulative effect of changes in accounting principle⁽²⁾	—		—			—		2		—		2
Net income	—		—			—		441		—		441
Other comprehensive income (loss)	—		—			—		—		40		40
Common stock issued, stock-based compensation plans	2		—			50		—		—		50
Stock-based compensation expense	—		—			66		—		—		66
Repurchases of common stock	(10)		—			(99)		(672)		—		(771)
Dividends declared, $0.20 per share	—		—			—		(116)		—		(116)
Balance, March 31, 2019	569		$	6		$	64	$	11,140	$	(74)	$	11,136

(1) Reflects the adoption of the Credit Loss Standard as described in Note 1~~Note 6~~.

(2) Reflects the adoption of ASC Topic 842 “Leases” on January 1, 2019. Refer to the notes in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.


~~(2)~~	Reflects the adoption of the ASC Topic 606 "Revenue from Contacts with Customers" (the "New Revenue Standard") as well as Accounting Standards Update ("ASU") 2018-02 "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02") on January 1, 2018. Refer to our Annual Report on Form 10-K for the year ended December 31, 2018.

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

Table of Contents

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)


	For the Six Months Ended June 30,							For the Three Months Ended March 31,
	2019			2018				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	950		$	976		Net income	$	367	$	441
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	266			240			Depreciation and amortization	136		133
Provision for doubtful accounts	22			4

Deferred income taxes	(180		)	51			Deferred income taxes	(19)		(42)
Stock-based compensation expense	120			130			Stock-based compensation expense	55		66

Other	(48		)	100			Other	144		(7)
Changes in assets and liabilities:							Changes in assets and liabilities:
Trade accounts receivable	(129		)	(330		)	Trade accounts receivable	13		(131)
Other current and noncurrent assets	51			137			Other current and noncurrent assets	26		90
Accounts payable	2			(3		)	Accounts payable	44		49
Deferred revenues, current and noncurrent	(2		)	(47		)	Deferred revenues, current and noncurrent	59		56
Other current and noncurrent liabilities	(208		)	(230		)	Other current and noncurrent liabilities	(328)		(386)
Net cash provided by operating activities	844			1,028			Net cash provided by operating activities	497		269
Cash flows from investing activities:							Cash flows from investing activities:
Purchases of property and equipment	(202		)	(187		)	Purchases of property and equipment	(112)		(106)
Purchases of available-for-sale investment securities	(333		)	(806		)	Purchases of available-for-sale investment securities	—		(243)
Proceeds from maturity or sale of available-for-sale investment securities	2,107			906			Proceeds from maturity or sale of available-for-sale investment securities	—		650
Purchases of held-to-maturity investment securities	(406		)	(519		)	Purchases of held-to-maturity investment securities	(202)		(94)
Proceeds from maturity of held-to-maturity investment securities	691			386			Proceeds from maturity of held-to-maturity investment securities	154		348
Purchases of other investments	(310		)	(318		)	Purchases of other investments	(54)		(31)
Proceeds from maturity or sale of other investments	308			205			Proceeds from maturity or sale of other investments	28		29
Payments for business combinations, net of cash acquired	(232		)	(478		)	Payments for business combinations, net of cash acquired	(86)		(197)
Net cash provided by (used in) investing activities	1,623			(811		)
Net cash (used in) provided by investing activities							Net cash (used in) provided by investing activities	(272)		356
Cash flows from financing activities:							Cash flows from financing activities:
Issuance of common stock under stock-based compensation plans	90			102			Issuance of common stock under stock-based compensation plans	40		50

Repurchases of common stock	(1,825		)	(949		)	Repurchases of common stock	(511)		(771)
Repayment of term loan borrowings and finance lease and earnout obligations	(9		)	(64		)
Net change in notes outstanding under the revolving credit facility	—			(75		)
Repayment of term loan borrowings and finance lease obligations							Repayment of term loan borrowings and finance lease obligations	(13)		(2)
Borrowings under the revolving credit facility							Borrowings under the revolving credit facility	1,740		—
Dividends paid	(232		)	(236		)	Dividends paid	(121)		(116)
Net cash (used in) financing activities	(1,976		)	(1,222		)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	1,135		(839)
Effect of exchange rate changes on cash and cash equivalents	8			(19		)	Effect of exchange rate changes on cash and cash equivalents	(119)		3
Increase (decrease) in cash and cash equivalents	499			(1,024		)	Increase (decrease) in cash and cash equivalents	1,241		(211)
Cash and cash equivalents, beginning of year	1,161			1,925			Cash and cash equivalents, beginning of year	2,645		1,161
Cash and cash equivalents, end of period	$	1,660		$	901		Cash and cash equivalents, end of period	$	3,886	$	950

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

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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~~GAAP and the ~~United States of America ("GAAP"), and Regulation S-X under the Securities~~ Exchange ~~Act of 1934, (as amended, the "Exchange Act").~~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, ~~2018.~~2019. 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.

Our unaudited consolidated financial statements presented herein reflect the latest estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses during the reporting periods presented. In the first quarter of 2020, the global COVID-19 pandemic began causing significant loss of life and interruption to the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease. We expect the effects of the COVID-19 pandemic to negatively impact our results of operations, cash flows and financial position. In addition, the pandemic may affect management's estimates and assumptions of variable consideration in contracts with customers as we well as other estimates and assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions, such as the annual effective tax rate, the allowance for doubtful accounts, the recoverability of capitalized deferred charges and the fair values of goodwill, long-lived assets and indefinite-lived intangible assets.

We deemed the COVID-19 related deterioration in general economic conditions sufficient to trigger an interim impairment test of goodwill as of March 31, 2020. Our interim test results indicate that the fair values of all of our reporting units exceed their carrying values and thus, no impairment of goodwill exists as of March 31, 2020. Due to the size of past acquisitions in our healthcare reporting unit, this reporting unit carries the most significant portion of our goodwill balance and has the least amount of excess fair value over its carrying value.

Recently Adopted Accounting Pronouncements



Date Issued and Topic			Date Adopted and Method	Description	Impact
~~February~~June 2016 ~~Leases~~ Financial Instruments-Credit Losses			January 1, ~~2019~~ 2020 ~~Effective Date Method~~ Modified Retrospective	The new standard requires the measurement and recognition of expected credit losses using the current expected credit loss model for financial assets held at amortized cost, which includes the Company’s trade accounts receivable, certain financial instruments and contract assets. It replaces the existing ~~guidance on leases and requires the lessee to recognize a right-of-use ("ROU") asset and a lease liability~~incurred loss impairment model with an expected loss methodology. The recorded credit losses are adjusted each period for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee recognizes interest expense and amortization of the ROU asset, and for operating leases, the lessee recognizes total lease expense on a straight-line basis.changes in expected lifetime credit losses. 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 throughrequires a ~~cumulative-effect adjustment (the "Effective Date Method").~~	~~See~~ ~~Note 6~~ ~~for the impact of adoption of this standard.~~
March 2017 Nonrefundable Fees and Other Costs	~~January 1, 2019~~ ~~Modified Retrospective~~	This 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 are required to use a modified retrospective transition with the cumulative effect adjustment ~~recognized~~ to ~~retained earnings~~the statement of financial position as of the beginning of the first reporting period ~~of adoption.~~	~~The adoption of this update did not have an impact on our consolidated financial statements.~~
August 2018 Customer’s Accounting for Implementation Costs Incurred in ~~a Cloud Computing Arrangement ("CCA") that is a Service Contract~~	~~Early adoption on January 1, 2019~~ ~~Prospective~~	~~This update aligns the accounting for costs incurred to implement a CCA that is a service arrangement with~~which the guidance ~~on capitalizing costs associated~~is effective.	As a result of the adoption, we recorded an increase to our opening retained earnings and "Trade accounts receivable, net" of $1 million each. Prior period amounts are not adjusted and continue to be reported in accordance with developing or obtaining internal-use software. In addition, this update clarifies the financial statement presentation requirement for capitalized implementation costs and related amortization of such costs.	~~The adoption of this update did not have an impact on~~ our ~~consolidated financial statements.~~historical accounting policies.

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Note 2 — Revenues and Trade Accounts Receivable

Disaggregation of Revenues

The tables below present disaggregated revenues from contracts with ~~customers~~clients by ~~customer~~client location, service line and contract-type for each of our business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. Revenues are attributed to regions based upon ~~customer~~client location. Substantially all ~~of the revenue~~revenues in our North America region ~~relates~~relate to operations in the United States.


	Three Months Ended March 31, 2020

	Financial Services		Healthcare		Products and Resources		Communications, Media and Technology		Total
	(in millions)
Revenues
Geography:
North America	$	1,012	$	1,038	$	689	$	451	$	3,190
United Kingdom	120		40		93		84		337
Continental Europe	191		99		109		38		437
Europe - Total	311		139		202		122		774
Rest of World	128		17		63		53		261
Total	$	1,451	$	1,194	$	954	$	626	$	4,225

Service line:
Consulting and technology services	$	947	$	662	$	590	$	348	$	2,547
Outsourcing services	504		532		364		278		1,678
Total	$	1,451	$	1,194	$	954	$	626	$	4,225

Type of contract:
Time and materials	$	884	$	475	$	409	$	383	$	2,151
Fixed-price	483		409		443		219		1,554
Transaction or volume-based	84		310		102		24		520
Total	$	1,451	$	1,194	$	954	$	626	$	4,225

We ~~have defined~~expect the COVID-19 pandemic to result in reduced demand across all our ~~Financial Services, Healthcare,~~segments in the second quarter of 2020 and potentially longer. We expect demand from our retail and consumer goods clients and our travel and hospitality clients in our Products and Resources segment as well as communications and media clients in our Communications, Media and Technology ~~segments as ("FS"), ("HC"), ("P&R"), and ("CMT"), respectively, in our disaggregation of revenues tables.~~segment to be particularly negatively impacted by the COVID-19 pandemic.

Three Months Ended
June 30, 2019 Six Months Ended
June 30, 2019

FS HC P&R CMT Total FS HC P&R CMT Total
(in millions)
Revenues
Geography:
North America $ 1,035
$ 1,006
$ 658
$ 440
$ 3,139
$ 2,053
$ 2,048
$ 1,299
$ 862
$ 6,262
United Kingdom 119
29
97
77
322
248
54
191
158
651
Continental Europe 194
80
110
43
427
356
162
225
89
832
Europe - Total 313
109
207
120
749
604
216
416
247
1,483
Rest of World 125
19
62
47
253
252
35
126
93
506
Total $ 1,473
$ 1,134
$ 927
$ 607
$ 4,141
$ 2,909
$ 2,299
$ 1,841
$ 1,202
$ 8,251

Service line:
Consulting and technology services $ 947
$ 613
$ 561
$ 320
$ 2,441
$ 1,860
$ 1,251
$ 1,113
$ 626
$ 4,850
Outsourcing services 526
521
366
287
1,700
1,049
1,048
728
576
3,401
Total $ 1,473
$ 1,134
$ 927
$ 607
$ 4,141
$ 2,909
$ 2,299
$ 1,841
$ 1,202
$ 8,251

Type of contract:
Time and materials $ 920
$ 442
$ 401
$ 379
$ 2,142
$ 1,839
$ 900
$ 801
$ 754
$ 4,294
Fixed-price 477
382
424
197
1,480
941
782
838
387
2,948
Transaction or volume-based 76
310
102
31
519
129
617
202
61
1,009
Total $ 1,473
$ 1,134
$ 927
$ 607
$ 4,141
$ 2,909
$ 2,299
$ 1,841
$ 1,202
$ 8,251

Three Months Ended
June 30, 2018 Six Months Ended
June 30, 2018

FS HC P&R CMT Total FS HC P&R CMT Total
(in millions)
Revenues
Geography:
North America $ 1,056
$ 1,060
$ 585
$ 366
$ 3,067
$ 2,100
$ 2,083
$ 1,157
$ 702
$ 6,042
United Kingdom 114
22
89
84
309
230
45
176
168
619
Continental Europe 165
61
109
46
381
327
122
218
88
755
Europe - Total 279
83
198
130
690
557
167
394
256
1,374
Rest of World 134
13
57
45
249
273
27
110
92
502
Total $ 1,469
$ 1,156
$ 840
$ 541
$ 4,006
$ 2,930
$ 2,277
$ 1,661
$ 1,050
$ 7,918

Service line:
Consulting and technology services $ 885
$ 613
$ 499
$ 289
$ 2,286
$ 1,756
$ 1,251
$ 980
$ 567
$ 4,554
Outsourcing services 584
543
341
252
1,720
1,174
1,026
681
483
3,364
Total $ 1,469
$ 1,156
$ 840
$ 541
$ 4,006
$ 2,930
$ 2,277
$ 1,661
$ 1,050
$ 7,918

Type of contract:
Time and materials $ 953
$ 452
$ 379
$ 335
$ 2,119
$ 1,888
$ 900
$ 748
$ 641
$ 4,177
Fixed-price 460
443
367
179
1,449
931
954
728
358
2,971
Transaction or volume-based 56
261
94
27
438
111
423
185
51
770
Total $ 1,469
$ 1,156
$ 840
$ 541
$ 4,006
$ 2,930
$ 2,277
$ 1,661
$ 1,050
$ 7,918

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	Three Months Ended March 31, 2019

	Financial Services		Healthcare		Products and Resources		Communications, Media and Technology		Total
	(in millions)
Revenues
Geography:
North America	$	1,018	$	1,042	$	641	$	422	$	3,123
United Kingdom	129		25		94		81		329
Continental Europe	162		82		115		46		405
Europe - Total	291		107		209		127		734
Rest of World	127		16		64		46		253
Total	$	1,436	$	1,165	$	914	$	595	$	4,110

Service line:
Consulting and technology services	$	913	$	638	$	552	$	306	$	2,409
Outsourcing services	523		527		362		289		1,701
Total	$	1,436	$	1,165	$	914	$	595	$	4,110

Type of contract:
Time and materials	$	919	$	458	$	400	$	375	$	2,152
Fixed-price	464		400		414		190		1,468
Transaction or volume-based	53		307		100		30		490
Total	$	1,436	$	1,165	$	914	$	595	$	4,110

Costs to Fulfill

~~The following table presents information related to the capitalized costs~~Costs to fulfill, such as set-up or transition activities, ~~for the six months ended June 30, 2019~~. ~~Costs to fulfill~~ are recorded in "Other noncurrent assets" in our unaudited consolidated statements of financial position and the amortization expense of costs to fulfill is included in "Cost of revenues" in our unaudited consolidated ~~statement~~statements of operations. Costs to obtain contracts were immaterial for the period disclosed. The following table presents information related to the capitalized costs to fulfill for the three months ended March 31:

Costs to Fulfill
(in millions)
Balance - December 31, 2018 $ 400
Amortization expense (38 )
Costs capitalized 92
Balance - June 30, 2019 $ 454


	2020		2019
	(in millions)
Beginning balance	485		$	400
Amortization expense	(22)		(20)
Costs capitalized	35		43

Ending balance	$	498	$	423

Contract Balances

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in "Other current assets" in our unaudited consolidated statements of financial position and primarily relate to unbilled amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. The table below shows significant movements in contract ~~assets:~~assets for the three months ended March 31:


	2020		2019
	(in millions)
Beginning balance	$	334	$	305
Revenues recognized during the period but not billed	219		238
Amounts reclassified to trade accounts receivable	(194)		(208)

Ending balance	$	359	$	335

Contract Assets
(in millions)
Balance - December 31, 2018 $ 305
Revenues recognized during the period but not billed 295
Amounts reclassified to accounts receivable (250 )
Balance - June 30, 2019 $ 350

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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 ~~table~~tables below ~~shows~~show significant movements in the deferred revenue balances (current and noncurrent) for the ~~period disclosed:~~three months ended March 31:

Deferred Revenue
(in millions)
Balance - December 31, 2018 $ 348
Amounts billed but not recognized as revenues 203
Revenues recognized related to the opening balance of deferred revenue (203 )
Balance - June 30, 2019 $ 348


	2020		2019
	(in millions)
Beginning balance	$	336	$	348
Amounts billed but not recognized as revenues	257		205
Revenues recognized related to the opening balance of deferred revenue	(197)		(149)

Ending balance	$	396	$	404

Revenues recognized during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 for performance obligations satisfied or partially satisfied in previous periods were immaterial.

Remaining Performance Obligations

As of ~~June 30, 2019,~~March 31, 2020, the aggregate amount of transaction price allocated to remaining performance obligations, was ~~$1,994~~$1,674 million of which approximately ~~71%~~70% is expected to be recognized as revenue within 2 ~~years.~~years. Disclosure is not required for performance obligations that meet any of the following criteria:


~~(1)~~	~~contracts with a duration of one year or less as determined under the New Revenue Standard,~~


~~(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.~~

(1)contracts with a duration of one year or less as determined under ASC Topic 606: "Revenue from Contracts with Customers",

(2)contracts for which we recognize revenues based on the right to invoice for services performed,

(3)variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

(4)variable consideration in the form of a sales-based or usage based royalty promised in exchange for a license of intellectual property.

Many of our performance obligations meet one or more of these exemptions and therefore are not included in the remaining performance obligation ~~amounts~~amount disclosed above.

Trade Accounts Receivable and Allowance for Doubtful Accounts

We calculate expected credit losses for our trade accounts receivable based on historical credit loss rates for each aging category as adjusted for the current market conditions and forecasts about future economic conditions. The following table presents the activity in the allowance for doubtful accounts for trade accounts receivable:



	Allowance for Doubtful Accounts
	(in millions)
Balance - December 31, 2019	$	67
Impact of adoption of the Credit Loss Standard	(1)
Current-period provision for expected credit losses	10
Write-offs charged against the allowance	(2)

Balance - March 31, 2020	$	74

Note 3 — Business Combinations

~~Each~~During the three months ended March 31, 2020, we acquired 100% ownership in the following:

•Code Zero, a provider of consulting and implementation services that strengthens our cloud solutions portfolio and Salesforce Configure-Price-Quote and billing capabilities (acquired on January 31, 2020).

•Lev, a Salesforce Platinum Partner specializing in digital marketing consultancy and implementation of custom cloud solutions that further expands our Salesforce practice (acquired on March 27, 2020).

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The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:


	Fair Value		Weighted Average Useful Life
	(in millions)
Cash	$	4
Current assets	9
Property, plant and equipment and other noncurrent assets	4
Non-deductible goodwill	76
Customer relationship intangible assets	9		5.0 years

Current liabilities	(5)
Noncurrent liabilities	(2)
Purchase price, inclusive of contingent consideration	$	95

The allocations are preliminary and will be finalized as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition.

The acquisitions completed during the ~~six~~three months ended ~~June 30, 2019 was~~March 31, 2020 were not individually or in the aggregate material to our operations or cash ~~flow.~~flows. Accordingly, pro forma results have not been presented. We have allocated the purchase price related to these transactions to tangible and intangible assets acquired and liabilities assumed, including non-deductible goodwill, based on their estimated fair values. Goodwill from these acquisitions is intended to benefit all of our reportable segments and has been allocated as such. The primary items that generated goodwill are the value of the acquired assembled workforces and synergies between the acquired companies and us, neither of which qualify as an ~~amortizable~~identifiable intangible asset.

During the six months ended June 30, 2019, we completed three business combinations for total consideration of approximately $293 million, inclusive of contingent consideration. These acquisitions were Meritsoft, a financial software company based in Ireland, Mustache, a creative content agency specializing in creating original and branded content for digital, broadcast and social mediums based in the U.S. and Samlink, a developer of services and solutions for the financial sector based in Finland.

~~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, 2019
Fair Value Weighted Average Useful Life
(in millions)
Cash $ 29

Current assets 29

Property, plant and equipment and other noncurrent assets 4

Non-deductible goodwill 167

Customer relationship intangible assets 65
9.7 years
Other intangible assets 37
6.5 years
Current liabilities (23 )
Noncurrent liabilities (15 )
Purchase price $ 293

~~The allocation is preliminary and will be finalized as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition.~~

Note 4 — ~~Realignment~~Restructuring Charges

~~Our~~In 2017, we began a realignment program ~~is focused on~~with the objective of improving our ~~customer~~client focus, our cost structure and the efficiency and effectiveness of our delivery while continuing to drive revenue growth. ~~As part of the realignment program, during the six months ended June 30,~~In 2019, we ~~incurred costs associated~~announced our 2020 Fit for Growth Plan which involves certain measures to simplify our organizational model and optimize our cost structure in order to partially fund the investments required to execute on our strategy and advance our growth agenda as well as our decision to exit certain content-related services that are not in line with our ~~CEO transition and~~strategic vision for the departure of our President ("Executive Transition Costs"), employee separation costs and third party realignment costs. Our third party realignment costs include professional fees related to the development of our realignment program in 2019 and facility exit costs in 2018. Company.

The total costs related to ~~the~~our realignment program and our 2020 Fit for Growth Plan are reported in ~~"Selling, general and administrative expenses"~~"Restructuring charges" in our unaudited consolidated statements of operations. We do not allocate ~~realignment~~these charges to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are ~~separately disclosed~~included in our segment reporting as “unallocated costs”. See Note 1513.

~~Realignment charges~~

Charges related to our realignment program and our 2020 Fit for Growth Plan were as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in millions)
Executive Transition Costs $ 20
$ —
$ 22
$ —
Employee separation costs 27
—
27
—
Third party realignment costs 2
—
2
1
Total realignment costs $ 49
$ —
$ 51
$ 1


	Three Months Ended March 31,
	2020		2019
	(in millions)
Realignment Program:
Executive Transition Costs	$	—	$	2

Employee retention costs	6		—
Professional fees	14		—
2020 Fit for Growth Plan:
Employee separation costs	26		—
Employee retention costs	4		—
Facility exit costs ⁽¹⁾	5		—
Total realignment costs	$	55	$	2

~~As of June 30, 2019, we have $27~~

(1)Includes $3 million of accelerated depreciation.

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The 2020 Fit for Growth Plan charges include $11 million of costs incurred in 2020 related to our exit from certain content-related services.

Changes in our accrued ~~realignment~~employee separation costs included in "Accrued expenses and other current liabilities" in our ~~unaudited~~ consolidated statements of financial ~~position. Accrued realignment costs as of December 31, 2018 were immaterial.~~

position, are presented in the table below.



	(in millions)
Balance - December 31, 2019	$	47
Employee separation costs accrued	26
Payments made	(35)
Balance - March 31, 2020	$	38

There were no material employee separation costs accrued or severance payments made for the period ended March 31, 2019.

Note 5 — Investments

Our investments were as follows:


	March 31, 2020		December 31, 2019
	(in millions)
Short-term investments:
Equity investment security	$	27	$	26
Held-to-maturity investment securities	321		287
Time deposits ⁽¹⁾	48		466
Total short-term investments	$	396	$	779

June 30, 2019 December 31, 2018
(in millions)
Short-term investments:
Equity investment securities $ 26
$ 25
Available-for-sale investment securities —
1,760
Held-to-maturity investment securities 810
1,065
Time deposits ⁽¹⁾
507
500
Total short-term investments $ 1,343
$ 3,350


Long-term investments:
Equity and cost method investments	$	40	$	17
Time deposits ⁽¹⁾	$	393	$	—
Total long-term investments	$	433	$	17

Long-term investments:
Equity and cost method investments $ 74
$ 74
Held-to-maturity investment securities 6
6
Total long-term investments $ 80
$ 80


~~(1)~~	~~Includes $429 million and $423 million in restricted time deposits as of June 30, 2019 and December 31, 2018, respectively.~~ (1)As of March 31, 2020, $393 million in restricted time deposits were classified as long-term. As of December 31, 2019, $414 million in restricted time deposits were classified as short-term. See Note 8. ~~Note 9~~.

Equity Investment Securities

Our equity investment ~~securities consist of~~security is a U.S. dollar denominated investment in ~~a fixed income~~an open-ended mutual fund. ~~For the three and six months ended June 30, 2019 and 2018, realized~~Realized and unrealized gains and losses were immaterial. The value of the fixed income mutual fund is based on the net asset value ("NAV") of the fund, with appropriate consideration of the liquidity and any restrictions on disposition of our investment in the fund.

~~Available-for-Sale Investment Securities~~

~~2019~~

~~During~~immaterial for the three months ended June 30, 2019, all of our available-for-sale investment securities either matured or were sold. Thus, as of June 30, 2019, there were no available-for-sale investment securities in our unaudited statement of financial position.March 31, 2020 and 2019.

~~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, 2019 Six Months Ended June 30, 2019
(in millions)
Proceeds from sales of available-for-sale investment securities $ 1,398
$ 1,712

Gross gains $ 5
$ 6
Gross losses (4 ) (5 )
Net realized gains on sales of available-for-sale investment securities $ 1
$ 1

~~2018~~

Our 2018 available-for-sale investment securities consisted 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.

~~The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at December 31, 2018 were as follows:~~

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
(in millions)
U.S. Treasury and agency debt securities $ 630
$ 1
$ (6 ) $ 625
Corporate and other debt securities 420
—
(4 ) 416
Certificates of deposit and commercial paper 296
—
—
296
Asset-backed securities 336
—
(2 ) 334
Municipal debt securities 90
—
(1 ) 89
Total available-for-sale investment securities $ 1,772
$ 1
$ (13 ) $ 1,760

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, 2018:

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 $ 84
$ —
$ 446
$ (6 ) $ 530
$ (6 )
Corporate and other debt securities 108
(1 ) 254
(3 ) 362
(4 )
Certificates of deposit and commercial paper 295
—
—
—
295
—
Asset-backed securities 93
—
179
(2 ) 272
(2 )
Municipal debt securities 17
—
64
(1 ) 81
(1 )
Total $ 597
$ (1 ) $ 943
$ (12 ) $ 1,540
$ (13 )

The unrealized losses for the above securities as of December 31, 2018 were primarily attributable to changes in interest rates. The gross unrealized gains and losses in the above tables were recorded, net of tax, in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statement of financial position.

~~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, 2018 Six Months Ended June 30, 2018
(in millions)
Proceeds from sales of available-for-sale investment securities $ 434
$ 559

Gross gains $ —
$ —
Gross losses (1 ) (2 )
Net realized (losses) on sales of available-for-sale investment securities $ (1 ) $ (2 )

Held-to-Maturity Investment Securities

Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial paper, international 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 basis for the ~~credit ratings~~measurement of fair value of our held-to-maturity investments is Level 2 in the ~~securities in our portfolio on an ongoing basis.~~fair value hierarchy.

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The amortized cost ~~gross unrealized gains and losses~~ and fair value of our held-to-maturity investment securities ~~at June 30, 2019~~ were as follows:


	March 31, 2020						December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Short-term investments, due within one year:
Corporate and other debt securities	$	146	$	146	$	101	$	101
Commercial paper	175		175		186		186
Total short-term held-to-maturity investments	$	321	$	321	$	287	$	287

Amortized
Cost Unrealized
Gains Unrealized
Losses Fair
Value
(in millions)
Short-term investments:
Corporate and other debt securities $ 257
$ 1
$ —
$ 258
Commercial paper 553
—
—
553
Total short-term held-to-maturity investments 810
1
—
811
Long-term investments:
Corporate and other debt securities 6
—
—
6
Total held-to-maturity investment securities $ 816
$ 1
$ —
$ 817

~~The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at December 31, 2018 were as follows:~~

Amortized
Cost Unrealized
Gains Unrealized
Losses Fair
Value
(in millions)
Short-term investments:
Corporate and other debt securities $ 546
$ —
$ —
$ 546
Commercial paper 519
—
(1 ) 518
Total short-term held-to-maturity investments 1,065
—
(1 ) 1,064
Long-term investments:
Corporate and other debt securities 6
—
—
6
Total held-to-maturity investment securities $ 1,071
$ —
$ (1 ) $ 1,070

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 ~~June 30, 2019:~~March 31, 2020:


	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	$	100	$	—	$	—	$	—	$	100	$	—
Commercial paper	49		—		—		—		49		—



Total	$	149	$	—	$	—	$	—	$	149	$	—

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 $ —
$ —
$ 6
$ —
$ 6
$ —
Commercial paper 279
—
—
—
279
—
Total $ 279
$ —
$ 6
$ —
$ 285
$ —


	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	$	42	$	—	$	—	$	—	$	42	$	—
Commercial paper	70		—		—		—		70		—
Total	$	112	$	—	$	—	$	—	$	112	$	—

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 $ 263
$ —
$ 57
$ —
$ 320
$ —
Commercial paper 268
(1 ) —
—
268
(1 )
Total $ 531
$ (1 ) $ 57
$ —
$ 588
$ (1 )

~~At each reporting date,~~We monitor 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~~credit ratings of the ~~investments to be other-than-temporarily impaired as~~securities in our portfolio on an ongoing basis and evaluate the need for an allowance for expected credit losses. The securities in our portfolio are highly rated and short-term in nature. Historically, we have not had any impairment losses on our portfolio. As of ~~June 30, 2019.~~

~~The contractual maturities~~March 31, 2020, $116 million of ~~our fixed income held-to-maturity investment~~corporate and other debt securities ~~as of June 30, 2019 are set forth in~~were rated AAA and the ~~following table:~~

Amortized
Cost

Fair
Value
(in millions)
Due within one year $ 810
$ 811
Due after one year and before two years 6
6
Total held-to-maturity investment securities $ 816
$ 817

remaining $30 million were rated AA+. Commercial paper securities were rated A-1+.

During the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and the year ended December 31, ~~2018,~~2019, there were no transfers of investments between our available-for-sale and held-to-maturity investment portfolios.

Equity and Cost Method Investments

During the first quarter of 2020, we acquired a $26 million equity method investment in the technology sector. As of March 31, 2020 and December 31, 2019, we had equity method investments of $37 million and $9 million, respectively and cost method investments of $3 million and $8 million, respectively.

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Note 6 ~~— Leases~~

~~Adoption of the New Lease Standard~~

On January 1, 2019, we adopted the New Lease Standard using the Effective Date Method applied to all lease contracts existing as of January 1, 2019. Under the Effective Date Method, results for reporting periods beginning on or after January 1, 2019 are presented under the New Lease Standard. We elected the package of practical expedients that permits us to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. Prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies.

The impact of adoption primarily relates to the recognition of ROU operating lease assets and operating lease liabilities on our unaudited consolidated statement of financial position for all operating leases with a term greater than twelve months. The accounting for our finance leases remained substantially unchanged. The following table provides the impact of adoption of the New Lease Standard on our unaudited consolidated statement of financial position as of January 1, 2019:

Location on Statement of Financial Position January 1, 2019
(in millions)
Property and equipment, net⁽¹⁾
$ (81 )
Operating lease assets, net^{(1) (2) (3)}
839
Total Assets $ 758

Operating lease liabilities^{(2) (3)}
$ 191
Operating lease liabilities, noncurrent^{(2) (3)}
670
Accrued expenses and other liabilities⁽³⁾
(10 )
Other noncurrent liabilities⁽³⁾
(95 )
Total Liabilities $ 756

Retained earnings⁽⁴⁾
$ 2


~~(1)~~	~~Reflects the reclassification of leasehold land and a built-to-suit lease asset from "Property and equipment, net" to "Operating lease assets, net".~~


~~(2)~~	Represents the recognition of operating lease assets and liabilities (current and noncurrent), as defined by the New Lease Standard, including the liability for a built-to-suit lease that was previously accounted for as a capital lease under the former lease guidance.


~~(3)~~	Represents the reclassification of deferred rent from "Accrued expenses and other liabilities" and "Other noncurrent liabilities" to "Operating lease assets, net" and the reclassification of built-to-suit lease liabilities from "Accrued expenses and other liabilities" and "Other noncurrent liabilities" to "Operating lease liabilities" and "Operating lease liabilities, noncurrent".


~~(4)~~	~~Represents the net impact of the derecognition of a built-to-suit lease under the former lease guidance and the re-establishment of that lease as an operating lease under the New Lease Standard.~~

~~The adoption of the New Lease Standard did not materially impact our unaudited consolidated statement of operations or our unaudited statement of cash flows.~~

~~Leases~~

Our lease asset classes primarily consist of operating leases for office space, data centers and equipment. At inception of a contract, we determine whether a contract contains a lease, and if a lease is identified, whether it is an operating or finance lease. In determining whether a contract contains a lease we consider whether (1) we have the right to obtain substantially all of the economic benefits from the use of the asset throughout the term of the contract, (2) we have the right to direct how and for what purpose the asset is used throughout the term of the contract and (3) we have the right to operate the asset throughout the term of the contract without the lessor having the right to change the terms of the contract. Some of our lease agreements contain both lease and non-lease components that we account for as a single lease component for all our lease asset classes.

Our ROU lease assets represent our right to use an underlying asset for the lease term and may include any advance lease payments made and any initial direct costs, and exclude lease incentives. Our ROU lease liabilities represent our obligation to make lease payments arising from the contractual terms of the lease. ROU lease assets and lease liabilities are recognized at the commencement of the lease and are calculated using the present value of lease payments over the lease term. Typically, our lease agreements do not provide sufficient detail to arrive at an implicit interest rate. Therefore, we use our estimated country-specific incremental borrowing rate based on information available at the commencement date of the lease to calculate the present value of the lease payments. In estimating our country-specific incremental borrowing rates, we consider market rates of comparable collateralized borrowings for similar terms. Our lease terms may include the option to extend or terminate the lease before the end of the contractual lease term. Our ROU lease assets and lease liabilities include these options when it is reasonably certain that they will be exercised.

~~The following table provides information on the components of our operating and finance leases included in our unaudited consolidated statement of financial position:~~

Leases Location on Statement of Financial Position June 30, 2019
Assets (in millions)
ROU operating lease assets Operating lease assets, net $ 847
ROU finance lease assets Property and equipment, net 18
Total $ 865

Liabilities
Current
Operating lease Operating lease liabilities $ 201
Finance lease Accrued expenses and other current liabilities 12
Noncurrent
Operating lease Operating lease liabilities, noncurrent 679
Finance lease Other noncurrent liabilities 16
Total $ 908

Our operating lease cost was $64 million and $127 million for the three and six months ended June 30, 2019, respectively, and included $5 million and $9 million, respectively, of variable lease cost. A portion of our real estate leases is subject to annual changes in the Consumer Price Index ("CPI"). The changes to the CPI are treated as variable lease payments and are recognized in the period in which the obligation for those payments was incurred. Other variable lease costs primarily relate to adjustments for common area maintenance, utilities and property tax. These variable costs are recognized in the period in which the obligation for those payments was incurred. Our short term lease rental expense was $4 million and $8 million for the three and six months ended June 30, 2019, respectively. Lease interest expense related to our finance leases for the three and six months ended June 30, 2019 was immaterial.

~~The following table provides information on the weighted average remaining lease term and weighted average discount rate for our operating leases:~~



~~Operating Lease Term and Discount Rate~~	~~June 30, 2019~~

~~Weighted average remaining lease term~~	~~5.9 years~~
~~Weighted-average discount rate~~	~~5.9~~	%

~~The following table provides supplemental cash flow information related to our operating leases:~~

Six Months Ended June 30, 2019
(in millions)
Cash paid for amounts included in the measurement of operating lease liabilities $ 108
ROU assets obtained in exchange for operating lease liabilities 103

Cash paid for amounts included in the measurement of finance lease liabilities was immaterial for the three and six months ended June 30, 2019. Additionally, ROU assets obtained in exchange for finance lease liabilities was immaterial for the three and six months ended June 30, 2019.

~~The following table provides the schedule of maturities of our operating lease liabilities, under the New Lease Standard, as of June 30, 2019:~~

June 30, 2019
(in millions)
2019- remainder of year $ 125
2020 230
2021 186
2022 142
2023 108
2024 70
Thereafter 187
Total lease payments 1,048
Interest (168 )
Total lease liabilities $ 880

~~The following table provides the schedule of our future minimum payments on our operating leases, as of December 31, 2018, which were accounted for in accordance with our historic accounting policies.~~

December 31, 2018
(in millions)
2019 $ 226
2020 197
2021 157
2022 121
2023 90
Thereafter 197
Total lease payments $ 988

As of June 30, 2019, we had $93 million of additional operating leases that had yet to commence and therefore are not included in our unaudited statement of financial position. These leases are primarily related to real estate and will commence in various months in 2019 and 2020 with lease terms of 1 year to 8 years.

~~Note 7~~ — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:


	March 31, 2020		December 31, 2019
	(in millions)
Compensation and benefits	$	952	$	1,239
Customer volume and other incentives	264		251
Derivative financial instruments	42		8
Income taxes	197		152
Professional fees	131		137
Travel and entertainment	24		24
Other	384		380
Total accrued expenses and other current liabilities	$	1,994	$	2,191

June 30, 2019 December 31, 2018
(in millions)
Compensation and benefits $ 1,063
$ 1,216
Customer volume and other incentives 357
323
Derivative financial instruments 15
25
FCPA Accrual⁽¹⁾
—
28
Income taxes 108
162
Professional fees 109
110
Travel and entertainment 41
34
Other 363
369
Total accrued expenses and other current liabilities $ 2,056
$ 2,267

~~(1)~~ ~~Refer to~~ ~~Note 13~~.

Note 87 — Debt

In 2018, ~~we completed a debt refinancing in which~~ we entered into a ~~credit agreement with a commercial bank syndicate (the "Credit Agreement")~~Credit Agreement providing for a $750 million ~~unsecured term loan (the "Term Loan")~~Term Loan and a $1,750 million unsecured revolving credit facility. During the first quarter of 2020, we borrowed $1,740 million against our revolving credit facility. Both our Term Loan and the borrowing under our revolving credit facility ~~which are due to~~ mature in November 2023.

The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Our Credit Agreement also provides a mechanism for determining an alternative rate of interest to the Eurocurrency rate after LIBOR is no longer available. The outstanding balance under our revolving credit facility as of March 31, 2020 is a Eurocurrency Rate loan with an Interest Period (as defined in the Credit Agreement) of one month.

We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term ~~Loan beginning in December 2019.~~Loan. The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. We were in compliance with all debt covenants and representations as of ~~June~~March 31, 2020.

In February 2020, our India subsidiary renewed its 13 billion Indian rupee ($173 million at the March 31, 2020 exchange rate) working capital facility, which requires us to repay any balances within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made prior to 30 ~~2019.~~days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February.

Short-term Debt

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$28~~$38 million ~~and $9 million, respectively,~~ of short-term debt related to current maturities ~~for~~of our Term Loan. As

Table of ~~June 30, 2019, we had no notes outstanding under the revolving credit facility.~~Contents

Long-term Debt

The following summarizes our long-term debt balances as of:


	March 31, 2020		December 31, 2019
	(in millions)
Notes outstanding under revolving credit facility	$	1,740	$	—
Term loan	731		741
Less:
Current maturities - term loan	(38)		(38)
Deferred financing costs	(3)		(3)
Long-term debt, net of current maturities	$	2,430	$	700

June 30, 2019 December 31, 2018
(in millions)
Term loan $ 750
$ 750
Less:
Current maturities (28 ) (9 )
Deferred financing costs (4 ) (5 )
Long-term debt, net of current maturities $ 718
$ 736
The carrying value of our debt approximated its fair value as of March 31, 2020 and December 31, 2019.

Note 98 — Income Taxes

Our effective income tax rates were as follows:


	Three Months Ended March 31,
	2020		2019
Effective income tax rate	27.8	%	24.4	%

The effective tax rate for the three months ended March 31, 2020 increased primarily due to the depreciation of the Indian rupee against the U.S. dollar, which resulted in non-deductible foreign currency exchange losses on our unaudited consolidated statement of operations.

In March 2020, the Indian parliament enacted the Budget, which contains a number of provisions related to income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder receiving the dividend. This provision reduces the tax rate applicable to us for cash repatriated from India. As of the first quarter of 2020, we have limited our indefinite reinvestment assertion to India earnings accumulated in prior years.

We are involved in an ongoing dispute with the ~~Indian Income Tax Department ("ITD")~~ITD in connection with a previously disclosed 2016 share repurchase transaction undertaken by ~~our principal operating subsidiary in~~CTS India ~~("CTS India")~~ to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at ~~$2.8 billion.~~$2.8 billion. As a result of that transaction, which was undertaken pursuant to a plan approved by the ~~Madras High~~ Court in Chennai, India, we previously paid ~~$135~~$135 million in Indian income taxes - an amount we believe includes all the applicable taxes owed for this transaction under Indian law. In March 2018, we received a communication from the ITD asserting that the ITD is owed an additional 33 billion Indian rupees ($~~479~~438 million at the ~~June 30, 2019~~March 31, 2020 exchange rate) on the 2016 transaction. Immediately thereafter, the ITD placed an attachment on certain of our India bank accounts. In addition to the dispute on the 2016 transaction, we are also involved in another ongoing dispute with the ITD relating to a 2013 transaction undertaken by CTS India to repurchase shares from its shareholders valued at $523 million (the two disputes are collectively referred to as the "ITD Dispute").

In April 2018, the ~~Madras High~~ Court admitted our writ petition for a stay of the actions of the ITD and lifted the ITD’s attachment on our bank accounts. As part of the interim stay order, we ~~deposited~~deposited 5 billion Indian rupees ($7266 million at the ~~June 30, 2019~~March 31, 2020 exchange rate and ~~$71~~$70 million at the December 31, ~~2018~~2019 exchange rate) representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. ~~These amounts are presented in "Other current assets" in our unaudited consolidated statements of financial position.~~ In addition, the Court also placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($~~407~~372 million at the ~~June 30, 2019~~March 31, 2020 exchange rate and ~~$404~~$393 million at the December 31, ~~2018~~2019 exchange rate), which is the remainder of the disputed tax amount related to the 2016 transaction. The affected time deposits are considered restricted assets and we have reported them in “Short-term investments” in our unaudited consolidated statements of financial position. As of June 30, 2019 and December 31, 2018, the restricted time deposits balance was $429 million and $423 million, respectively, including accumulated interest.

In June 2019, the Court dismissed our previously admitted writ petitions on the ITD Dispute, holding that the ~~company~~Company must exhaust other remedies, such as pursuing the matter before other appellate bodies, for resolution of the ITD Dispute prior to intervention by the ~~Madras High~~ Court. The Court did not issue a ruling on the substantive issue of whether we owe additional tax as a result of either the 2016 or the 2013 transaction. In July 2019, we appealed the Court’s orders before the Division Bench. In September 2019, the Division Bench partly allowed the Company’s appeal, but did not issue a ruling on the substantive issue of the ~~Madras High Court (the “Division Bench”).~~tax implications of the transactions. In October 2019, we filed a Special Leave Petition before the SCI.

In March 2020, the SCI referred the case back to the ITD with directions to carry out the assessment following the due process of law. Further, until the conclusion of the assessment, the SCI maintained in place the lien on our 28 billion Indian

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rupees time deposit and did not order the release of the 5 billion Indian Rupees deposit held by the ITD. In April 2020, we received an assessment from the ITD, which is consistent with its previous assertions regarding our 2016 transaction. We plan to appeal this assessment before the CIT. The ~~Division Bench has scheduled~~ruling of the SCI and the ITD's assessment created additional uncertainty as to the timing of the resolution of this case and, as a ~~hearing on~~result, management reclassified the ~~appeal in August, 2019~~deposits under lien, which are considered restricted assets, and ~~has instructed~~the deposit with the ITD to ~~maintain status quo until~~noncurrent assets. As of March 31, 2020 and December 31, 2019, the ~~next hearing.~~balance of deposits under lien was $393 million presented in "Long-term investments" and $414 million presented in "Short-term investments", respectively, including a portion of the interest previously earned. As of March 31, 2020 and December 31, 2019, the deposit with the ITD was $66 million presented in "Other noncurrent assets" and $70 million presented in "Other current assets", respectively.

We believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions. Accordingly, we have not recorded any reserves for these matters as of ~~June 30, 2019.~~March 31, 2020.

Note 109 — 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~~risk from the possible non-performance by counterparties. Credit risk is limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by ~~entering into derivative transactions only with highly-rated financial institutions, limiting~~limiting the amount of credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial institutions with which we do business. In addition, all the assets and liabilities related to our foreign exchange forward contracts set forth in the below table are subject to master netting arrangements, such as the International Swaps and Derivatives Association, ~~("ISDA"),~~ 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, as applicable, on a gross basis, with no offsets, in our unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to our foreign exchange 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, 2019 December 31, 2018
Designation of Derivatives
Location on Statements of
Financial Position
Assets Liabilities Assets Liabilities
(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments Other current assets $ 32
$ —
$ 11
$ —
Other noncurrent assets 28
—
15
—
Accrued expenses and other current liabilities —
6
—
21
Other noncurrent liabilities —
—
—
9
Total 60
6
26
30
Foreign exchange forward contracts – Not designated as hedging instruments Other current assets 3
—
1
—
Accrued expenses and other current liabilities —
9
—
4
Total 3
9
1
4
Total $ 63
$ 15
$ 27
$ 34


		March 31, 2020						December 31, 2019
Designation of Derivatives	Location on Statements of Financial Position	Assets		Liabilities		Assets		Liabilities
		(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments	Other current assets	$	5	$	—	$	32	$	—
	Other noncurrent assets	—		—		8		—
	Accrued expenses and other current liabilities	—		42		—		7
	Other noncurrent liabilities	—		36		—		2
	Total	5		78		40		9
Foreign exchange forward contracts – Not designated as hedging instruments	Other current assets	8		—		3		—
	Accrued expenses and other current liabilities	—		—		—		1
	Total	8		—		3		1
Total		$	13	78		$	43	$	10

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 the remainder of ~~2019,~~ 2020, 2021 and the first ~~half~~quarter of ~~2021.~~2022. Under these contracts, we purchase Indian rupees and sell U.S. dollars. The changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position and are subsequently reclassified to earnings in the same period that the forecasted Indian rupee denominated payments are recorded in earnings. As of ~~June 30, 2019,~~March 31, 2020, we estimate that ~~$21~~$36 million, net of tax, of net ~~gains~~ losses related to derivatives designated as cash flow hedges reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position is expected to be reclassified into earnings within the next 12 months.

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The notional value of our outstanding contracts by year of maturity and the net unrealized gains and losses included in the caption "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position, for such contracts were as follows:


	March 31, 2020		December 31, 2019
	(in millions)
2020	$	1,190	$	1,505
2021	1,005		883
2022	145		—
Total notional value of contracts outstanding	$	2,340	$	2,388
Net unrealized (losses) gains included in accumulated other comprehensive income (loss), net of taxes	$	(65)	$	26

June 30,
2019 December 31, 2018
(in millions)
2019 $ 800
$ 1,388
2020 1,145
780
2021 358
—
Total notional value of contracts outstanding $ 2,303
$ 2,168
Net unrealized gains (losses) included in accumulated other comprehensive income (loss), net of taxes $ 44
$ (3 )

Upon settlement or maturity of the cash flow hedge contracts, we record the related gains or losses, based on our designation at the commencement of the contract, with the related hedged Indian rupee denominated expense reported within the captions "Cost of revenues" and "Selling, general and administrative expenses" in our unaudited consolidated statements of operations.

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 ~~June 30:~~March 31:


	Change in Derivative (Losses) Gains Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion)					Location of Net (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)		Net (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)
	2020		2019			2020		2019
	(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments	$	(113)	$	39	Cost of revenues	$	(3)	$	(3)
					Selling, general and administrative expenses	—		(1)
					Total	$	(3)	$	(4)

Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)

Location of Net Derivative Gains and (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)

Net Gains and (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
2019 2018 2019 2018
(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments $ 19
$ (91 ) Cost of revenues $ 3
$ 18
Selling, general and administrative expenses 1
3
Total $ 4
$ 21

~~The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the six months ended June 30:~~

Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)

Location of Net Derivative Gains and (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)

Net Gains and (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
2019 2018 2019 2018
(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments $ 58
$ (105 ) Cost of revenues $ —
$ 48
Selling, general and administrative expenses —
8
Total $ —
$ 56

The activity related to the change in net unrealized gains and losses on our cash flow hedges included in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of stockholders equity is presented in Note 1211.

Other Derivatives

We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain monetary assets and liabilities denominated in currencies, other than the functional currency of our foreign subsidiaries, primarily the ~~Euro,~~Indian rupee, British pound and ~~Indian rupee.~~Euro. We entered into a series of foreign exchange forward contracts that are scheduled to mature in ~~2019.~~2020. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our ~~unaudited~~ consolidated statements of operations.

Additional information related to our outstanding foreign exchange forward contracts not designated as hedging instruments was as follows:


	March 31, 2020						December 31, 2019
	Notional		Fair Value		Notional		Fair Value
	(in millions)
Contracts outstanding	$	338	$	8	$	702	$	2

June 30, 2019 December 31, 2018
Notional Fair Value Notional Fair Value
(in millions)
Contracts outstanding $ 577
$ (6 ) $ 507
$ (3 )

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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 six~~ months ended ~~June 30:~~March 31:


	Location of Net Gains (Losses) on Derivative Instruments	Amount of Net Gains (Losses) on Derivative Instruments

		2020		2019
		(in millions)
Foreign exchange forward contracts – Not designated as hedging instruments	Foreign currency exchange gains (losses), net	$	6	$	(1)

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,
2019 2018 2019 2018
(in millions)
Foreign exchange forward contracts – Not designated as hedging instruments Foreign currency exchange gains (losses), net $ (4 ) $ 18
$ (5 ) $ 20

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

Note 1110 — Fair Value Measurements

We measure our cash equivalents, certain investments, contingent consideration liabilities 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 ~~June 30, 2019:~~March 31, 2020:

Level 1 Level 2 Level 3 Total
(in millions)
Cash equivalents:
Money market funds $ 690
$ —
$ —
$ 690
Bank deposits —
167
—
167
Total cash equivalents 690
167
—
857
Short-term investments:
Time deposits⁽¹⁾
—
507
—
507
Held-to-maturity investment securities:
Corporate and other debt securities —
258
—
258
Commercial paper —
553
—
553
Total short-term held-to-maturity investment securities —
811
—
811
Total short-term investments⁽²⁾
—
1,318
—
1,318
Long-term investments:
Held-to-maturity investment securities:
Corporate and other debt securities —
6
—
6
Total long-term held-to-maturity investment securities —
6
—
6
Total long-term investments⁽³⁾
—
6
—
6
Derivative financial instruments - foreign exchange forward contracts:
Other current assets —
35
—
35
Accrued expenses and other current liabilities —
(15 ) —
(15 )
Other noncurrent assets —
28
—
28
Total derivative financial instruments - foreign exchange forward contracts —
48
—
48
Contingent consideration liabilities —
—
(38 ) (38 )
Total $ 690
$ 1,539
$ (38 ) $ 2,191


	Level 1		Level 2		Level 3		Total
	(in millions)
Cash equivalents:
Money market funds	$	1,562	$	—	$	—	$	1,562
Commercial paper	—		1,498		—		1,498
Short-term investments:
Time deposits	—		48		—		48
Equity investment security	27		—		—		27







Other current assets:
Foreign exchange forward contracts	—		13		—		13
Long-term investments:
Time deposits⁽¹⁾	—		393		—		393


Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(42)		—		(42)
Contingent consideration liabilities	—		—		(11)		(11)
Other noncurrent liabilities:
Foreign exchange forward contracts	—		(36)		—		(36)
Contingent consideration liabilities	—		—		(9)		(9)


~~(1)~~	~~Includes $429 million in~~ (1)Balance represents restricted time deposits. See Note 8~~Note 9~~. 18 Table of Contents


~~(2)~~	~~Excludes an equity security invested in a mutual fund valued at $26 million based on the NAV of the fund.~~


~~(3)~~	~~Excludes equity and cost method investments of $74 million.~~

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, ~~2018:~~2019:


	Level 1		Level 2		Level 3		Total
	(in millions)
Cash equivalents:
Money market funds	$	1,646	$	—	$	—	$	1,646


Short-term investments:
Time deposits⁽¹⁾	—		466		—		466
Equity investment security	26		—		—		26






Other current assets:
Foreign exchange forward contracts	—		35		—		35
Other noncurrent assets:
Foreign exchange forward contracts	—		8		—		8
Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(8)		—		(8)
Contingent consideration liabilities	—		—		(8)		(8)
Other noncurrent liabilities:
Foreign exchange forward contracts	—		(2)		—		(2)
Contingent consideration liabilities	—		—		(30)		(30)

Level 1 Level 2 Level 3 Total
(in millions)
Cash equivalents:
Money market funds $ 103
$ —
$ —
$ 103
Bank deposits —
32
—
32
Certificates of deposit and commercial paper —
68
—
68
Total cash equivalents 103
100
—
203
Short-term investments:
Time deposits⁽¹⁾
—
500
—
500
Available-for-sale investment securities:
U.S. Treasury and agency debt securities 570
55
—
625
Corporate and other debt securities —
416
—
416
Certificates of deposit and commercial paper —
296
—
296
Asset-backed securities —
334
—
334
Municipal debt securities —
89
—
89
Total available-for-sale investment securities 570
1,190
—
1,760
Held-to-maturity investment securities:
Corporate and other debt securities —
546
—
546
Commercial paper —
518
—
518
Total short-term held-to-maturity investment securities —

1,064

—

1,064
Total short-term investments⁽²⁾
570
2,754
—
3,324
Long-term investments:
Held-to-maturity investment securities:
Corporate and other debt securities —
6
—
6
Total long-term held-to-maturity investment securities —
6
—
6
Total long-term investments⁽³⁾
—
6
—
6
Derivative financial instruments - foreign exchange forward contracts:
Other current assets —
12
—
12
Accrued expenses and other current liabilities —
(25 ) —
(25 )
Other noncurrent assets —
15
—
15
Other noncurrent liabilities —
(9 ) —
(9 )
Total $ 673
$ 2,853
$ —
$ 3,526

(1)Includes $414 million in restricted time deposits. See Note 8.


~~(1)~~	~~Includes $423 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 million.~~

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.~~measure the fair value of our equity security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The fair value of commercial paper 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 our time deposits approximated fair value as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

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.~~

We estimate the fair value of ~~our~~ contingent consideration liabilities associated with our acquisitions utilizing one or more significant inputs that are unobservable. We calculate the fair value of ~~the contingent consideration~~such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate. ~~Contingent consideration liabilities were immaterial as~~

Table of ~~December 31, 2018.~~Contents

~~During the six months ended June 30, 2019 and the year ended December 31, 2018, there were no transfers among Level 1, Level 2, or Level 3 financial assets and liabilities.~~

Note 1211 — Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component were as follows for the three ~~and six~~ months ended ~~June 30, 2019:~~March 31, 2020:



	Before Tax Amount		Tax Effect		Net of Tax Amount
	(in millions)
Foreign currency translation adjustments:
Beginning balance	$	(63)	$	(1)	$	(64)
Change in foreign currency translation adjustments	(139)		4		(135)
Ending balance	$	(202)	$	3	$	(199)









Unrealized gains (losses) on cash flow hedges:
Beginning balance	$	31	$	(5)	$	26
Unrealized (losses) arising during the period	(113)		19		(94)
Reclassifications of net losses to:
Cost of revenues	3		—		3
Selling, general and administrative expenses	—		—		—
Net change	(110)		19		(91)
Ending balance	$	(79)	$	14	$	(65)

Accumulated other comprehensive income (loss):
Beginning balance	$	(32)	$	(6)	$	(38)
Other comprehensive income (loss)	(249)		23		(226)
Ending balance	$	(281)	$	17	$	(264)

Three Months Six Months

Before Tax
Amount

Tax
Effect

Net of Tax
Amount
Before Tax
Amount Tax
Effect Net of Tax
Amount
(in millions)
Foreign currency translation adjustments:
Beginning balance $ (111 ) $ 6
$ (105 ) $ (108 ) $ 5
$ (103 )
Change in foreign currency translation adjustments (6 ) (3 ) (9 ) (9 ) (2 ) (11 )
Ending balance $ (117 ) $ 3
$ (114 ) $ (117 ) $ 3
$ (114 )

Unrealized (losses) on available-for-sale investment securities:
Beginning balance $ (3 ) $ 1
$ (2 ) $ (12 ) $ 4
$ (8 )
Net gains arising during the period 4
(1 ) 3
13
(4 ) 9
Reclassification of net losses to Other, net (1 ) —
(1 ) (1 ) —
(1 )
Net change 3
(1 ) 2
12
(4 ) 8
Ending balance $ —
$ —
$ —
$ —
$ —
$ —

Unrealized gains on cash flow hedges:
Beginning balance $ 39
$ (6 ) $ 33
$ (4 ) $ 1
$ (3 )
Unrealized gains arising during the period 19
(4 ) 15
58
(11 ) 47
Reclassifications of net (gains) to:
Cost of revenues (3 ) —
(3 ) —
—
—
Selling, general and administrative expenses (1 ) —
(1 ) —
—
—
Net change 15
(4 ) 11
58
(11 ) 47
Ending balance $ 54
$ (10 ) $ 44
$ 54
$ (10 ) $ 44

Accumulated other comprehensive income (loss):
Beginning balance $ (75 ) $ 1
$ (74 ) $ (124 ) $ 10
$ (114 )
Other comprehensive income (loss) 12
(8 ) 4
61
(17 ) 44
Ending balance $ (63 ) $ (7 ) $ (70 ) $ (63 ) $ (7 ) $ (70 )

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Changes in accumulated other comprehensive income (loss) by component were as follows for the three ~~and six~~ months ended ~~June 30, 2018:~~March 31, 2019:



	Before Tax Amount		Tax Effect		Net of Tax Amount
	(in millions)
Foreign currency translation adjustments:
Beginning balance	$	(108)	$	5	$	(103)
Change in foreign currency translation adjustments	(3)		1		(2)
Ending balance	$	(111)	$	6	$	(105)

Unrealized (losses) on available-for-sale investment securities:
Beginning balance	$	(12)	$	4	$	(8)

Net unrealized gains arising during the period	9		(3)		6
Reclassification of net losses to Other, net	—		—		—
Net change	9		(3)		6
Ending balance	$	(3)	$	1	$	(2)

Unrealized (losses) gains on cash flow hedges:
Beginning balance	$	(4)	$	1	$	(3)
Unrealized gains arising during the period	39		(7)		32
Reclassifications of net losses to:
Cost of revenues	3		—		3
Selling, general and administrative expenses	1		—		1
Net change	43		(7)		36
Ending balance	$	39	$	(6)	$	33

Accumulated other comprehensive income (loss):
Beginning balance	$	(124)	$	10	$	(114)
Other comprehensive income (loss)	49		(9)		40
Ending balance	$	(75)	$	1	$	(74)

Three Months Six Months

Before Tax
Amount

Tax
Effect

Net of Tax
Amount
Before Tax
Amount Tax
Effect Net of Tax
Amount
(in millions)
Foreign currency translation adjustments:
Beginning balance $ 3
$ (4 ) $ (1 ) $ (38 ) $ —
$ (38 )
Change in foreign currency translation adjustments (82 ) 11
(71 ) (41 ) 7
(34 )
Ending balance $ (79 ) $ 7
$ (72 ) $ (79 ) $ 7
$ (72 )

Unrealized (losses) on available-for-sale investment securities:
Beginning balance $ (19 ) $ 4
$ (15 ) $ (11 ) $ 4
$ (7 )
Cumulative effect of change in accounting principle⁽¹⁾
—
—
—
—
(1 ) (1 )
Net unrealized (losses) arising during the period (1 ) 1
—
(10 ) 2
(8 )
Reclassification of net losses to Other, net 1
—
1
2
—
2
Net change —
1
1
(8 ) 1
(7 )
Ending balance $ (19 ) $ 5
$ (14 ) $ (19 ) $ 5
$ (14 )

Unrealized gains (losses) on cash flow hedges:
Beginning balance $ 105
$ (26 ) $ 79
$ 154
$ (39 ) $ 115
Unrealized (losses) arising during the period (91 ) 19
(72 ) (105 ) 24
(81 )
Reclassifications of net (gains) to:
Cost of revenues (18 ) 5
(13 ) (48 ) 12
(36 )
Selling, general and administrative expenses (3 ) 1
(2 ) (8 ) 2
(6 )
Net change (112 ) 25
(87 ) (161 ) 38
(123 )
Ending balance $ (7 ) $ (1 ) $ (8 ) $ (7 ) $ (1 ) $ (8 )

Accumulated other comprehensive income (loss):
Beginning balance $ 89
$ (26 ) $ 63
$ 105
$ (35 ) $ 70
Other comprehensive income (loss) (194 ) 37
(157 ) (210 ) 46
(164 )
Ending balance $ (105 ) $ 11
$ (94 ) $ (105 ) $ 11
$ (94 )


~~(1)~~	~~Reflects the adoption of ASU 2018-02.~~

Note ~~13 —~~12— Commitments and Contingencies

We are involved in various claims and legal proceedings arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. While we do not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matters described below, if decided adversely), individually or in the aggregate, will have a material adverse effect on our financial position, an unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.

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connectivity with our network, allowing us to continue to provide service, but some clients opted to suspend our access to their networks as a security precaution. In this circumstance, we are unable to continue providing services via client networks until access is restored. We engaged leading outside forensics and cybersecurity experts, launched a comprehensive containment and remediation effort and forensic investigation, and are working on restoring and ensuring the security of our internal systems and networks, including through the adoption of various security enhancements. We also notified and are coordinating with law enforcement.

The lost revenue and containment, remediation, investigation, legal and other costs will be significant and may exceed our insurance policy limits ormay not be covered by insurance at all. Further, we may be subject to regulatory enforcement actions and litigation that could result in financial judgments or the payment of settlement amounts, and disputes with insurance carriers concerning coverage.

On February 28, 2019, a ruling of the Supreme Court of India interpreting ~~certain statutory defined contribution obligations of employees and employers (the “India~~the India Defined Contribution ~~Obligation”)~~Obligation altered historical understandings of ~~such obligations,~~the obligation, extending ~~them~~it to cover additional portions of the employee’s income. As a result, the ongoing contributions of our affected employees and the Company ~~are~~were required to be increased. In the first quarter of 2019, we accrued $117 million with respect to prior periods, assuming retroactive application of the Supreme Court’s ~~ruling.~~ruling, in "Selling, general and administrative expenses" in our unaudited consolidated statement of operations. There is significant uncertainty as to how the liability

should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. Since the ruling, a variety of trade associations and industry groups have advocated to the Indian government, highlighting the harm to the information technology sector, other industries and job growth in India that would result from a retroactive application of the ruling. ~~We anticipate~~It is possible the Indian government will review the matter and ~~believe~~ there is a substantial question as to whether the Indian government will apply the Supreme Court’s ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different from the amount accrued.

~~In February 2019, we completed our previously disclosed internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly~~On October 5, 2016, October 27, 2016 and in violation of the U.S. Foreign Corrupt Practices Act ("FCPA") and other applicable laws. We also announced a resolution of the previously disclosed investigations by the United States Department of Justice ("DOJ") and United States Securities and Exchange Commission ("SEC") into the matters that were the subject of our internal investigation. In connection with this resolution, in February 2019 we paid approximately $28 million to the DOJ and SEC, an amount consistent with our December 31, 2018 accrual for this matter. The DOJ also issued a declination letter, declining to take any additional action against the Company.

InNovember 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. These complaints were consolidated into a single action and on April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of persons and entities who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the ~~FCPA,~~Foreign Corrupt Practices Act, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including ~~attorneys’~~attorneys’ fees. Defendants filed a motion to dismiss the consolidated amended complaint on June 6, 2017. On August 8, 2018, the United States District Court for the District of New Jersey issued an order which granted the motion to dismiss in part, ~~including~~including dismissal of all claims against current officers of the Company, and denied them in part. On September 7, 2018, we filed a motion in the United 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). On October 18, 2018, the District Court issued an order granting our motion, and staying the action pending the outcome of our appeal petition to the Third Circuit. On October 29, 2018, we filed a petition for permission to appeal with the United States Court of Appeals for the Third Circuit. On March 6, 2019, the Third Circuit denied our petition without prejudice. In an order dated March 19, 2019, the District Court directed the lead plaintiffs to provide the defendants with a proposed amended complaint. On April 26, 2019, lead plaintiffs filed their second amended complaint. We filed a motion to dismiss the second amended complaint on June 10, 2019. The District Court has scheduled a hearing on the motion to dismiss for May 12, 2020.

InOn October 31, 2016, November 15, 2016 and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. These actions were consolidated in an order dated January 24, 2017. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future.

InOn February 22, 2017, April 7, 2017 and May 10, 2017, three additional putative shareholder derivative complaints alleging similar claims were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former directors and officers as defendants. These complaints asserted claims similar to those in the previously-filed

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putative shareholder derivative actions. In an order dated June 20, 2017, the United States District Court for the District of New Jersey consolidated these actions into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motions to dismiss the consolidated putative securities class action. On October 30, 2018, lead plaintiff filed a consolidated verified derivative complaint.

On March 11, 2019, a seventh putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our current and former directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions. On May 14, 2019, the United States District Court for the District of New Jersey approved a stipulation that (i) consolidated this action with the putative shareholder derivative suits that were previously filed in the United States District Court for the District of New Jersey; and (ii) stayed all of these suits pending a final, non-appealable order on the motion to dismiss the second amended complaint in the securities class action.

We are presently unable to predict the duration, scope or result of the consolidated putative securities class action, the putative shareholder derivative actions or any other lawsuits. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters. While the Company intends to defend the lawsuits vigorously, these lawsuits and any other related lawsuits are subject to inherent uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is necessarily uncertain.

We have indemnification and expense advancement obligations pursuant to our bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s directors. In connection with the matters that were the subject of our previously disclosed internal investigation, the ~~DOJ~~United States Department of Justice and SEC investigations and the related litigation, we have received and expect to continue to receive requests under such indemnification agreements and our bylaws to provide funds for legal fees and other expenses. We have expensed such costs incurred through ~~June 30, 2019.~~March 31, 2020.

We have maintained directors and officers insurance and have recorded an insurance receivable of ~~$15~~$15 million as of ~~June 30, 2019,~~March 31, 2020, reported in "Other current assets," in our unaudited consolidated statement of financial position related to the recovery of a portion of the indemnification expenses and costs related to the putative securities class action complaints. We are unable to make a reliable estimate of the eventual cash flows by period related to the indemnification and expense advancement obligations described here.

See Note 98 for information relating to the ITD Dispute.

Many of our engagements involve projects that are critical to the operations of our ~~customers’~~clients’ business and provide benefits that are difficult to quantify. Any failure in a ~~customer’s~~client’s systems or our failure to meet our contractual obligations to our ~~customers,~~clients, including any breach involving a ~~customer’s~~client’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.

In the normal course of business and in conjunction with certain ~~customer~~client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify ~~customers~~clients or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to hold the indemnified party and certain of their affiliated entities harmless with respect to third-party claims related to such matters as our breach of certain representations or covenants, our intellectual property infringement, our gross negligence or willful misconduct or certain other claims made against certain parties. Payments by us under any of these arrangements are generally conditioned on the ~~customer~~client making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine the maximum potential liability under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Historically, we have not made material payments under these indemnification agreements and therefore they have not had a material impact on our operating results, financial position, or cash flows. However, if events

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arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have entered, such payments could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.

Note 1413 — ~~Related Party Transactions~~

During the six months ended June 30, 2018, we provided $100 million of initial funding to the Cognizant U.S. Foundation, which is focused on science, technology, engineering and math education in the United States. The expense was reported in the caption "Selling, general and administrative expenses" in our consolidated statement of operations. Additionally, two of our executive officers served as directors of the Cognizant U.S. Foundation in 2018 and during the six months ended June 30, 2019.

Segment Information

~~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, logistics, energy, and utilities; and travel and hospitality operating segments;

•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 2019, 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 change was to charge to our business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes certain benefit, immigration, recruitment and sales and field marketing costs, which were previously included in "unallocated costs." We have reported our 2019 segment operating profits using the new allocation methodology and have restated the 2018 results to conform to the new methodology. Additionally, we combined our energy and utilities operating segment with our manufacturing and logistics operating segment for our internal reporting. Our products and resources segment, which was previously comprised of four operating segments (retail and consumer goods; manufacturing and logistics; travel and hospitality; and energy and utilities) is now comprised of three operating segments (retail and consumer goods; manufacturing, logistics, energy and utilities; and travel and hospitality). This change reflects how this operating segment is currently managed and reported to chief operating decision makers but will not affect our reportable segment financial results.

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, ~~the excess or shortfall of incentive compensation for commercial and delivery personnel as compared to target,~~restructuring 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~~included below as “unallocated costs” and adjusted against our total income from operations. The incremental accrual related to the India Defined Contribution Obligation recorded in the first quarter of 2019 has been excluded from segment operating profits for the ~~six~~three months ended ~~June 30, 2019. Additionally, the initial funding of the Cognizant U.S. Foundation has been excluded from segment operating profits for the three~~March 31, 2019 and ~~six months ended June 30, 2018. These costs are~~is included in "unallocated costs" in the table below. Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.

For revenues by reportable segment and geographic area, please see Note 2.

Segment operating profits by reportable segment were as follows:


	Three Months Ended March 31,
	2020		2019
	(in millions)
Financial Services	$	381	400
Healthcare	321		337
Products and Resources	261		234
Communications, Media and Technology	190		174
Total segment operating profit	1,153		1,145
Less: unallocated costs	574		606
Income from operations	$	579	$	539

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in millions)
Financial Services $ 407
$ 448
$ 807
$ 888
Healthcare 314
352
651
689
Products and Resources 255
253
489
506
Communications, Media and Technology 184
176
358
334
Total segment operating profit 1,160
1,229
2,305
2,417
Less: unallocated costs 541
559
1,147
1,054
Income from operations $ 619
$ 670
$ 1,158
$ 1,363

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Geographic Area Information

Long-lived assets by geographic area are as follows:


	As of
	March 31, 2020		December 31, 2019
	(in millions)
Long-lived Assets: ⁽¹⁾
North America⁽²⁾	$	446	$	445
Europe	100		104
Rest of World ⁽³⁾	776		760
Total	$	1,322	$	1,309

As of
June 30, 2019 December 31, 2018
(in millions)
Long-lived Assets: ⁽¹⁾

North America⁽²⁾
$ 454
$ 436
Europe 103
105
Rest of World ⁽³⁾
780
853
Total $ 1,337
$ 1,394

(1)Long-lived assets include property and equipment, net of accumulated depreciation and amortization.

(2)Substantially all relates to the United States.

(3)Substantially all relates to India.


~~(1)~~	~~Long-lived assets include property and equipment, net of accumulated depreciation and amortization.~~


~~(2)~~	~~Substantially all relates to operations in the United States.~~


~~(3)~~	~~Substantially all of these long-lived assets relate to our operations in India.~~

Note ~~16—~~14 — Subsequent Events

~~Acquisition~~

Acquisitions

In ~~the third quarter~~May 2020, we entered into an agreement to acquire Collaborative Solutions for a preliminary purchase price of ~~2019, we acquired Zenith Technologies Limited ("Zenith") for cash consideration of $160~~approximately $385 million, ~~exclusive of~~excluding contingent consideration. ~~Zenith~~Collaborative Solutions is a privately-held ~~life sciences company that specializes~~global consultancy firm specializing in ~~implementing digital technologies~~Workday enterprise cloud applications for finance and HR. This acquisition will add new finance and HR advisory and implementation services to ~~manage, control~~our portfolio of cloud offerings and ~~optimize drug and medical device production.~~

is expected to close during the second quarter of 2020.

Dividend

On ~~July 29, 2019,~~May 5, 2020, our Board of Directors approved the Company's declaration of a ~~$0.20~~$0.22 per share dividend with a record date of ~~August 22, 2019~~May 20, 2020 and a payment date of ~~August 30, 2019.~~May 29, 2020.

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

Executive Summary

Cognizant is one of the world’s leading professional services companies, transforming clients’ business, operating and technology models for the digital era. Our ~~industry-based, consultative approach helps customers envision, build and run more innovative and efficient businesses. Our~~ services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Digital services ~~are becoming~~have become an increasingly important part of our portfolio, ~~of services and solutions and are often integrated or delivered along~~aligning with our ~~other services.~~clients' focus on becoming data-enabled, customer-centric and differentiated businesses. We tailor our services and solutions to specific industries ~~and use~~with an integrated global delivery model that employs ~~customer~~client service and delivery teams based at ~~customer locations and delivery teams located at customer~~client locations and dedicated global and regional delivery centers.

Q2In the first quarter of 2020, the global COVID-19 pandemic began causing significant loss of life and interruption to the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease. In response to COVID-19, we have prioritized the safety and well-being of our employees, business continuity for our clients and supporting the efforts of governments around the world to contain the spread of the virus. In light of our commitment to help our clients as they navigate unprecedented business challenges while protecting the safety of our employees, we have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic. We worked closely with our clients to support them as they implemented their contingency plans, helping them access our services and solutions remotely. We also undertook a significant effort to enable a greater percentage of our employees to work from home by providing them with computer and Internet accessibility equipment while seeking to maintain appropriate security protocols. Despite these efforts, we experienced some delays in project fulfillment as delivery, particularly in India and the Philippines, shifted to work-from-home. While these delays continued early in the second quarter, we expect to be at near full project fulfillment capacity before the end of the second quarter, with the exception of certain client projects where a work-from-home scenario may not be possible due to regulatory or other compliance requirements.

As a result of the ongoing pandemic, we began to experience reduced client demand in the first quarter of 2020. We expect project deferrals, requests for furloughs, temporary rate concessions and deferred payment term requests to adversely affect revenues across all our business segments in the second quarter of 2020 and potentially longer. We continue to actively monitor the impacts of and responses to COVID-19 and the related risks, and plan to respond accordingly. The pandemic continues to rapidly evolve, and its ultimate impacts will depend on future developments that are uncertain and cannot be predicted with confidence, and may materially adversely affect our business irrespective of our efforts to mitigate the impact. See Part II, Item 1A. Risk Factors.

In the first quarter of 2020, we incurred approximately $6 million of costs in response to the COVID-19 pandemic, including a one-time bonus to our employees at the designation of associate and below in both India and the Philippines and costs incurred to enable our employees to work remotely and provide medical staff and extra cleaning services for our facilities (collectively "COVID-19 Charges"). We expect to continue to incur incremental costs related to the COVID-19 pandemic during the second quarter of 2020.

We remain committed to implementing our 2020 Fit for Growth Plan, investing in the key digital areas of IoT, AI, digital engineering and cloud, while working to maintain and optimize our core portfolio of services through efficiency, tooling and automation, delivery optimization, protection of renewals, industry alignment and geographic expansion. Our 2020 Fit for Growth Plan involves certain measures to simplify our organizational model and optimize our cost structure in order to partially fund the investments required to execute on our strategy and advance our growth agenda as well as our decision to exit certain content-related services that are not in line with our strategic vision for the Company. During the three months ended March 31, 2020, we incurred $35 million of employee separation, retention and facility exit costs under this plan, including $11 million of costs related to our exit from certain content-related services. See Note 4 for additional information on these costs which are reported in the caption "Restructuring charges" in our unaudited consolidated statements of operations. The optimization measures that are part of the 2020 Fit for Growth Plan are expected to result in total charges in the range of $150 million to $200 million, primarily related to severance and facility exit costs. The optimization measures are expected to generate an annualized savings run rate, before anticipated investments, in the range of approximately $500 million to $550 million in 2021. The potential negative impact of the COVID-19 pandemic on our revenues may require us to take additional cost optimization measures. At the same time, the pandemic may adversely impact our ability to execute and realize the benefits of our strategy and various transformation initiatives, including the 2020 Fit for Growth Plan. See Part II, Item 1A. Risk Factors.

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Additionally, we anticipate that our decision in 2019 to exit certain content-related services may negatively impact our relationship with the affected clients. We continue to estimate that we may lose revenues of $225 million to $255 million on an annualized basis within our Communications, Media and Technology segment in North America. The exit negatively impacted our first quarter 2020 revenue by approximately $23 million. We anticipate the revenue will continue to ramp down over the next one to two years and the impact on 2020 revenues is expected to be between $180 million and $200 million.

On April 20, 2020, we announced a security incident involving a Maze ransomware attack. While our investigation is ongoing, we believe we have contained the attack. Based on the investigation to date, we believe the attack principally impacted certain of our systems and data. The attack resulted in unauthorized access to certain data and caused significant disruption to our business. This included the disabling of some of our systems and disruption caused by our taking certain other internal systems and networks offline as a precautionary measure. The attack compounded the challenges we face in enabling work-from-home arrangements during the COVID-19 pandemic and resulted in setbacks and delays to such efforts. The impact to clients and their responses to the security incident have varied. Some clients experienced no disruption. As to other clients, we experienced service disruptions due to our reliance on certain of the impacted systems and networks to perform work for clients and the impact to our systems and networks supporting work-from-home capabilities. The systems that comprise the technology platforms that support our business process-as-a-service solutions were not impacted. Most clients maintained connectivity with our network, allowing us to continue to provide service, but some clients opted to suspend our access to their networks as a security precaution. In this circumstance, we are unable to continue providing services via client networks until access is restored. We engaged leading outside forensics and cybersecurity experts, launched a comprehensive containment and remediation effort and forensic investigation, and are working on restoring and ensuring the security of our internal systems and networks, including through the adoption of various security enhancements. We also notified and are coordinating with law enforcement.

We expect the business disruption caused by and incremental costs resulting from the ransomware attack to adversely impact our financial results primarily with respect to the second quarter of 2020. We have and expect to continue to experience a loss of revenue due to the interruption in our ability to provide services to some clients, either as a direct consequence of the attack or as a result of clients suspending our access to their networks as a security precaution, and incur incremental costs for the investigation, containment and remediation of the security incident, including legal and other professional fees, and investments to enhance our overall security environment. The lost revenue and containment, investigation, remediation, legal and other costs will be significant and may exceed our insurance policy limits or may not be covered by insurance at all. Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with customers, regulatory enforcement action, litigation that could result in financial judgments or the payment of settlement amounts and disputes with insurance carriers concerning coverage. See Part II, Item 1A. Risk Factors.

Q1 2020 Financial Results

The following table sets forth a summary of our financial results for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Increase / (Decrease)
2019 2018 $ %
(Dollars in millions, except per share data)
Revenues $ 4,141
$ 4,006
$ 135
3.4
Income from operations 619
670
(51 ) (7.6 )
Net income 509
456
53
11.6
Diluted earnings per share 0.90
0.78
0.12
15.4
Other Financial Information¹

Adjusted Income from Operations $ 668
$ 770
$ (102 ) (13.2 )
Adjusted Diluted Earnings Per Share ("Adjusted Diluted EPS") 0.94
1.05
(0.11 ) (10.5 )


¹	Adjusted Income From Operations and Adjusted Diluted EPS are not measurements of financial performance prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures.


					Increase / (Decrease)
	2020		2019		$		%
	(Dollars in millions, except per share data)
Revenues	$	4,225	$	4,110	$	115	2.8
Income from operations	579		539		40		7.4
Net income	367		441		(74)		(16.8)
Diluted EPS	0.67		0.77		(0.10)		(13.0)
Other Financial Information¹
Adjusted Income from Operations	$	640	$	658	$	(18)	(2.7)
Adjusted Diluted EPS	0.96		0.91		0.05		5.5

After a strong start to the first quarter, our revenue growth slowed meaningfully in March, reflecting the COVID-19 related fulfillment challenges. During the quarter ended ~~June 30, 2019,~~March 31, 2020, revenues increased by ~~$135~~$115 million as compared to the quarter ended ~~June 30, 2018,~~March 31, 2019, representing growth of ~~3.4%~~2.8%, or ~~4.7%~~3.5% on a constant currency basis ~~("CC")~~²¹. Revenues from ~~customers~~clients added, including those related to acquisitions since March 31, 2019 were $124 million.

¹ Adjusted Income From Operations, Adjusted Diluted EPS and ~~a strategic partnership~~constant currency revenue growth are not measurements of financial performance prepared in accordance with ~~three Finish~~GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial ~~institutions to transform and operate a shared core banking platform ("Samlink"), since June 30, 2018 were $129 million.~~ measures, as applicable.

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The following charts set forth revenues and revenue growth by business segment and geography for the three months ended ~~June 30, 2018~~March 31, 2020 as compared to the three months ended March 31, 2019:




	Financial Services									Healthcare
			Increase / (Decrease)							Increase / (Decrease)
Dollars in millions	Revenues		$	%	CC %²	Revenues		$	%	CC %²
North America	$	1,012	(6)	(0.6)	(0.6)	$	1,038	(4)	(0.4)	(0.4)
United Kingdom	120		(9)	(7.0)	(5.7)	40		15	60.0	62.8
Continental Europe	191		29	17.9	19.6	99		17	20.7	21.9
Europe - Total	311		20	6.9	8.4	139		32	29.9	31.5
Rest of World	128		1	0.8	5.3	17		1	6.3	8.9
Total	$	1,451	15	1.0	1.8	$	1,194	29	2.5	2.7

	Products and Resources									Communications, Media and Technology
			Increase / (Decrease)							Increase / (Decrease)
Dollars in millions	Revenues		$	%	CC %²	Revenues		$	%	CC %²
North America	$	689	48	7.5	7.5	$	451	29	6.9	6.9
United Kingdom	93		(1)	(1.1)	0.4	84		3	3.7	5.9
Continental Europe	109		(6)	(5.2)	(1.4)	38		(8)	(17.4)	(12.4)
Europe - Total	202		(7)	(3.3)	(0.6)	122		(5)	(3.9)	(0.8)
Rest of World	63		(1)	(1.6)	2.7	53		7	15.2	20.3
Total	$	954	40	4.4	5.3	$	626	31	5.2	6.3

Financial Services: Revenues in this segment increased in our Continental Europe region primarily due to Samlink revenues, while decreasing in our North America and ~~2019.~~the United Kingdom regions as certain banking clients continue to transition the support of some of their legacy systems and operations in-house or to captives.

Healthcare: Revenues in this segment increased in our United Kingdom and Continental Europe regions, primarily due to revenues from our life sciences clients, including revenues from our acquisition of Zenith. Revenues in our North America region were negatively impacted by the establishment of an offshore captive by a large client, partially offset by growth among other clients in this region. Revenue growth among our life sciences clients was driven by demand for our digital operations services and solutions.

Products and Resources:Revenue growth in this segment was strongest in our North America region driven by our clients' adoption and integration of digital technologies and revenues from our recently completed acquisitions.Demand from our retail and consumer goods clients and our travel and hospitality clients in this segment is expected to be particularly negatively impacted by the COVID-19 pandemic.

Communications, Media and ~~Technology~~Technology: Revenue growth in this segment was ~~strongest~~strongest in our North America region and was primarily driven by the demand from our technology ~~customers~~clients for digital content services. Our strategic decision in 2019 to exit certain content-related services negatively impacted our first quarter 2020 revenue by approximately $23 million and ~~solutions~~is expected to continue to affect future revenue growth in ~~addition to revenues~~this segment. Demand from our ~~acquisitions.~~

~~Revenue growth~~communications and media clients in ~~our Products and Resources~~this segment ~~was strongest in our North America region and was primarily driven by our customers' adoption and integration of digital technologies in addition~~is expected to ~~revenues from our acquisitions.~~

Revenues in our Financial Services segment remained relatively flat, increasing in our Continental Europe region primarily due to revenues from our acquisitions and Samlink, while decreasing in our North America and Rest of World regions as certain banking customers continue to transition the support of some of their legacy systems and operations to offshore captives.

~~Revenues in our Healthcare segment in our North America region were~~be particularly negatively impacted by the mergers within the healthcare industry, the establishment of an offshore captive by a large customer, and a ramp down of a customer relationship in which we were a subcontractor to a third party for the purpose of delivering healthcare-related systems implementation services to local government.

COVID-19 pandemic.

During the three months ended June 30, 2019 we incurred $49 million in realignment charges that included $20 million in costs associated with our CEO transition and the departure of our President ("Executive Transition Costs"), $27 million in employee separation costs and $2 million in third party realignment costs. See ~~Note 4~~ to our unaudited consolidated financial statements for additional information. We anticipate that the employee separations completed as part of our realignment program in the second quarter of 2019 will reduce our compensation expense by approximately $65 million on an annualized basis. We will continue to incur additional realignment charges in 2019 as management is currently evaluating various realignment strategies to further improve our customer focus, our cost structure and the efficiency and effectiveness of our delivery while continuing to drive revenue growth. In order to ensure that we continue to retain top talent to serve our customers and manage our business, in July 2019 we offered retention awards to certain key employees, which will result in additional realignment charges of approximately $48 million during the remainder of 2019 and $17 million during the first half of 2020. Additional realignment plans are still being developed, and therefore we cannot estimate the amount of any incremental realignment charges that we may incur or the impact these plans may have on our financial statements.

Our operating margin increased to 13.7% from 13.1% for the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019, while our Adjusted Operating Margin²decreased to 15.1% from 16.0% for the same periods. Our GAAP and Adjusted Operating Margin² decreased to 14.9% and 16.1%, respectively, for the quarter ended June 30, 2019 from 16.7% and 19.2%, respectively, for the quarter ended June 30, 2018. The decreases in our GAAP operating margin and Adjusted Operating Margin²were ~~due to an increase in~~adversely impacted as costs related to our delivery personnel (including employees and subcontractors) ~~outpacing~~outpaced revenue growth, ~~and the negative impact of contract renegotiations with recently merged Healthcare customers, partially offset~~which was negatively affected by the ~~impact of lower incentive-based compensation accrual rates. Our~~COVID-19 pandemic. A decrease in travel and entertainment expenses due to the COVID-19 pandemic and our cost optimization strategy positively impacted our GAAP and Adjusted Operating Margin². In addition, our 2019 GAAP operating margin ~~was also negatively impacted by realignment charges~~included a 2.9% negative impact of the 2019 incremental accrual related to the India Defined Contribution Obligation as discussed in Note 12 to our unaudited consolidated financial statements, while our ~~2018 GAAP~~2020 operating margin ~~was negatively impacted by the initial funding~~included a 1.3% negative impact of the ~~Cognizant U.S. Foundation.~~restructuring charges discussed in

Note 4 to our unaudited consolidated financial statements.


²Constant currency revenue growth and Adjusted Operating Margin are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable. 28 Table of Contents ²	Constant currency revenue growth, Adjusted Operating Margin and Adjusted Diluted EPS are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures.

In the ~~second~~first quarter of ~~2019,~~2020, we ~~returned $1,153~~returned $632 million to our stockholders through ~~$1,037~~$511 million in share repurchases under our stock repurchase program and ~~$116~~$121 million in dividend ~~payments.~~

payments. Other ~~Matters~~

than repurchases under our 10b5-1 Plan, we have suspended our share repurchases program and have not repurchased any shares since March 31, 2020. We will continue to review our capital return plan, considering the potential impacts of the COVID-19 pandemic, our financial performance and liquidity position, investments required to execute our strategic plans and initiatives, acquisition opportunities, the economic outlook, regulatory changes and other relevant factors.

~~As previously disclosed,~~During the first quarter of 2020, we ~~accrued $117 million~~borrowed $1.74 billion against our revolving credit facility, which is due to mature in November 2023, in order to increase our cash on hand in the ~~first quarter~~United States, as a large portion of ~~2019~~our cash is held in India. This will allow us the flexibility to continue to help and support our clients and also to continue to invest in the business, both organically and inorganically.

2020 Business Considerations

The significant and continuing impact and rapidly evolving nature of the COVID-19 pandemic makes it impossible for us to reasonably estimate its future impact on our ongoing business, results of operations and overall financial performance. As clients work through significant financial challenges related to the ~~India Defined Contribution Obligation as described in~~COVID-19 pandemic, we may face reduced client demand for services, client pricing pressure, payment term extensions and insolvency risk, additional delivery challenges, increased costs, a diversion of and strain on management and other corporate resources, and reduced employee morale and productivity. See Part II, Item 1A. Risk Factors~~Note 13~~.

While the immediate focus of many clients is on the COVID-19 impacts to ~~our unaudited consolidated financial statements. We~~their businesses, we continue to ~~anticipate that~~expect the ~~Indian government will review the matter. As such, the ultimate amount~~long-term focus of our ~~obligation~~clients to be on their digital transformation into data-enabled, customer-centric and differentiated businesses. As our clients seek to optimize the cost of supporting their legacy systems and operations, our core portfolio of services may be ~~materially different from the amount accrued.~~subject to pricing pressure and lower demand due to clients transitioning certain work in-house or to new or existing captives.

~~As previously disclosed, we are involved in an ongoing dispute~~Our clients will likely continue to contend with ~~the Indian Income Tax Department ("ITD") described in~~ ~~Note 9~~ ~~to our unaudited consolidated financial statements. The dispute with the ITD is currently pending before the Division Bench of the Madras High Court and no final decision has been reached.~~

~~2019 Business Considerations~~

~~During the remainder of 2019, barring any unforeseen events, we expect the following factors to affect our business and our operating results:~~

~~Demand from our customers for digital services and~~ industry-specific changes driven by evolving digital ~~technologies;~~

~~Our customers' dual mandate of simultaneously achieving cost savings while investing~~technologies, uncertainty in ~~transformation~~the regulatory environment, industry consolidation and ~~innovation;~~

~~Discretionary spending by our customers may be negatively affected by~~convergence as well as international trade policies ~~as well as~~and other macroeconomic ~~factors;~~

~~Customer~~factors, which could affect their demand for our services. Client demand may also be impacted by uncertainty related to the potential economic and regulatory ~~impacts~~effects of the ~~2016~~ United ~~Kingdom referendum to~~Kingdom's exit from the ~~European Union;~~

Demand from certain banking customers may continue to be negatively affected by their ongoing efforts to optimize the cost of supporting their legacy systems and operations, including through insourcing;

~~Demand~~EU. Additionally, revenue from our ~~healthcare customers may continue to~~technology clients will be affected by ~~uncertainty in~~our strategic decision to exit certain content-related work under our 2020 Fit for Growth Plan.

We expect our 2020 financial results to be impacted by the ~~regulatory environment~~initial cost optimization measures executed as part of our 2020 Fit for Growth Plan, and ~~industry-specific trends, including industry consolidation and convergence;~~

~~Demand among~~the expected execution of additional measures under this plan during the remainder of 2020. In addition, our ~~technology customers~~2020 results may be ~~affected~~impacted by ~~uncertainty in~~ the ~~regulatory environment while significant merger and acquisition activity continues to impact our customers in the communications and media industry;~~

Disruption of our operations related to our new CEO transition and our realignment initiatives, including any disruption from the diversion of efforts of the executive management team and departures of senior personnel;

~~Uncertainty~~uncertainty regarding regulatory changes, including potential regulatory changes with respect to immigration and ~~taxes;~~


•	~~Costs~~taxes as well as costs related to the potential resolution of legal and regulatory matters discussed in ~~Note 13~~ ~~to our unaudited consolidated financial statements;~~


•	~~Clarification, if any, by the Indian government as to the application of the Supreme Court's ruling related to the India Defined Contribution Obligation. See~~ ~~Note 13~~ ~~to our unaudited consolidated financial statements; and~~

~~Volatility~~ in ~~foreign currency rates.~~Note 12 to our unaudited consolidated financial statements.

~~In response~~As discussed earlier in the Executive Summary, we expect the business disruption caused by and incremental costs resulting from the ransomware attack to ~~this environment,~~adversely impact our financial results primarily with respect to the second quarter of 2020. See Part II, Item 1A. Risk Factors.

During 2020, we ~~plan to:~~

~~Continue~~intend to continue to invest in our digital capabilities, ~~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~~across industries and geographies, while increasing our investment in sales and marketing professionals to help us expand existing accounts and acquire new ~~delivery models;~~

~~Partner with our existing customers~~ones. We will continue 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;~~

~~Pursue~~pursue strategic acquisitions that we believe add new ~~technologies, including digital~~ technologies or platforms that complement our existing services, improve our overall service delivery capabilities or expand our geographic ~~presence;~~presence. Additionally, we will continue to focus on maintaining and

~~Focus~~ optimizing our core portfolio of services through efficiency, tooling and automation, delivery optimization, protection of renewals, industry alignment and geographic expansion. Finally, through the execution of our 2020 Fit for Growth Plan and other initiatives, we will focus on operating discipline in order to appropriately manage our cost ~~structure.~~structure, giving consideration to the potential negative impact of the COVID-19 pandemic on our revenues.

Table of Contents

~~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, logistics, energy, and utilities; and travel and hospitality operating segments;~~

~~Communications, Media and Technology, which includes our communications and media operating segment and our technology operating segment.~~

We provide a significant volume of services to many customers in each of our business segments. A loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment. However, the services we provide to our larger customers are often critical to the operations of such customers, and we believe that a termination of our services would in many instances require an extended transition period with gradually declining revenues.

~~In 2019, we made changes to the internal measurement of segment operating profits. See~~ Results of Operations~~Note 15~~ ~~to our unaudited consolidated financial statements for additional information relating to this change and on our business segments.~~

~~Results of Operations~~

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth, for the periods indicated, certain financial data for the three months ended ~~June 30:~~March 31:

% of % of Increase / Decrease
2019 Revenues 2018 Revenues $ %
(Dollars in millions, except per share data)
Revenues $ 4,141
100.0 $ 4,006
100.0 $ 135
3.4
Cost of revenues⁽¹⁾
2,629
63.5 2,417
60.3 212
8.8
Selling, general and administrative expenses⁽¹⁾
768
18.5 805
20.1 (37 ) (4.6 )
Depreciation and amortization expense 125
3.0 114
2.8 11
9.6
Income from operations 619
14.9 670
16.7 (51 ) (7.6 )
Other income (expense), net 57
(47 ) 104
(221.3 )
Income before provision for income taxes 676
16.3 623
15.6 53
8.5
Provision for income taxes (167 ) (168 ) 1
(0.6 )
Income from equity method investments —
1
(1 )

Net income $ 509
12.3 $ 456
11.4 $ 53
11.6
Diluted earnings per share $ 0.90
$ 0.78
$ 0.12

Other Financial Information³

Adjusted Income from Operations and Adjusted Operating Margin $ 668
16.1 $ 770
19.2 $ (102 ) (13.2 )
Adjusted Diluted EPS $ 0.94
$ 1.05
$ (0.11 ) (10.5 )


			% of			% of	Increase / Decrease
	2020		Revenues	2019		Revenues	$		%
	(Dollars in millions, except per share data)
Revenues	$	4,225	100.0	$	4,110	100.0	$	115	2.8
Cost of revenues⁽¹⁾	2,747		65.0	2,575		62.7	172		6.7
Selling, general and administrative expenses⁽¹⁾	711		16.8	871		21.2	(160)		(18.4)
Restructuring Charges	55		1.3	2		—	53		*
Depreciation and amortization expense	133		3.1	123		3.0	10		8.1
Income from operations	579		13.7	539		13.1	40		7.4
Other income (expense), net	(69)			44			(113)		(256.8)
Income before provision for income taxes	510		12.1	583		14.2	(73)		(12.5)
Provision for income taxes	(142)			(142)			—		—
Income (loss) from equity method investments	(1)			—			(1)		*
Net income	$	367	8.7	$	441	10.7	$	(74)	(16.8)
Diluted earnings per share	$	0.67		$	0.77		$	(0.10)	(13.0)

Other Financial Information³
Adjusted Income from Operations and Adjusted Operating Margin	$	640	15.1	$	658	16.0	$	(18)	(2.7)
Adjusted Diluted EPS	$	0.96		$	0.91		$	0.05	5.5


~~(1)~~	~~Exclusive of depreciation and amortization expense.~~

(1) Exclusive of depreciation and amortization expense.

* Not meaningful

Revenues - Overall

During the quarter ended ~~June 30, 2019,~~March 31, 2020, revenues increased by ~~$135~~$115 million as compared to the quarter ended ~~June 30, 2018,~~March 31, 2019, representing growth of ~~3.4%~~2.8%, or ~~4.7%~~3.5% on a constant currency basis³. Revenues from ~~customers~~clients added, including those related to acquisitions, since March 31, 2019 were $124 million. Growth was driven by our clients' adoption and ~~Samlink, since June 30, 2018 were $129 million.~~integration of digital technologies, demand for our digital operations services and solutions as well as revenues from our recently completed acquisitions. This was partially offset by a decline in revenue from certain content-related services, pricing pressure within our core portfolio of services as our clients continue their efforts to optimize the cost of supporting their legacy systems and operations, and fulfillment issues driven by the COVID-19 pandemic.

Revenues from our top ~~customers~~clients as a percentage of total revenues were as follows:


	Three Months Ended March 31,
	2020		2019
Top five clients	8.0	%	8.8	%
Top ten clients	14.1	%	15.7	%

Three Months Ended June 30,
2019 2018
Top five customers 8.0 % 8.6 %
Top ten customers 14.5 % 15.4 %


³ ³Adjusted Income From Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable. 30 Table of Contents	Adjusted Income From Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures.

Revenues - Reportable Business Segments

Revenues by reportable business segment were as follows for the three months ended ~~June 30:~~March 31:


	2019		2018		Increase/ (Decrease)								2020		2019		Increase/ (Decrease)
					$			%		CC %⁴												$	%	CC %⁴
	(Dollars in millions)												(Dollars in millions)
Financial Services	$	1,473	$	1,469	$	4		0.3		1.7	%	Financial Services	$	1,451	$	1,436	$	15	1.0	1.8	%
Healthcare	1,134		1,156		(22		)	(1.9	)	(1.5	)%	Healthcare	1,194		1,165		29		2.5	2.7	%
Products and Resources	927		840		87			10.4		12.3	%	Products and Resources	954		914		40		4.4	5.3	%
Communications, Media and Technology	607		541		66			12.2		14.1	%	Communications, Media and Technology	626		595		31		5.2	6.3	%
Total revenues	$	4,141	$	4,006	$	135		3.4		4.7	%	Total revenues	$	4,225	$	4,110	$	115	2.8	3.5	%

Financial Services

Revenues from our Financial Services segment ~~increased 0.3%~~grew 1.0%, or ~~1.7%~~1.8% on a constant currency basis⁴, for the three months ended ~~June 30, 2019,~~March 31, 2020, as compared to the three months ended ~~June 30, 2018.~~March 31, 2019. Revenues in this segment increased by $6$20 million among our banking ~~customers, as~~clients compared to a ~~decline~~decrease of $2$5 million from our insurance ~~customers.~~clients. Revenues from ~~customers~~clients added, including those related to ~~acquisitions and~~ Samlink, since ~~June 30, 2018~~March 31, 2019 were ~~$36~~$55 million. Demand in this segment was driven by our ~~customers' focus on cost optimization in the face of profitability pressures, their~~clients' need to be compliant with significant regulatory requirements and adaptable to regulatory change, and their adoption and integration of digital technologies, ~~that are reshaping their business and operating models,~~ including customer experience enhancement, robotic process automation, ~~and~~ analytics and ~~artificial intelligence.~~AI in areas such as digital lending, fraud detection and next generation payments. Demand from certain banking ~~customers~~clients has been and may continue to be negatively affected as they transition the support of some of their legacy systems and operations in-house or to ~~offshore~~ captives.

Healthcare

Revenues from our Healthcare segment ~~decreased 1.9%~~grew 2.5%, or ~~1.5%~~2.7% on a constant currency basis⁴, for the three months ended ~~June 30, 2019,~~March 31, 2020, as compared to the three months ended ~~June 30, 2018.~~March 31, 2019. Revenues in this segment ~~decreased by $71 million among our healthcare customers as compared to an increase of $49~~increased $46 million from our life science ~~customers.~~clients compared to a decrease of $17 million among our healthcare clients. Revenue growth among our life sciences clients was driven by revenues from Zenith and demand for our digital operations services and solutions. Revenues from our healthcare ~~customers~~clients were negatively impacted by ~~the mergers within the segment,~~ the establishment of an offshore captive by a large customer, and a ramp down of a customer relationship in which we were a subcontractor to a third party for the purpose of delivering healthcare-related systems implementation services to local government.client, partially offset by growth among other clients. Revenues from ~~customers~~clients added since ~~June 30, 2018~~March 31, 2019 were ~~$16~~$18 million.

Demand in this segment was driven by emerging industry trends, including enhanced compliance, integrated health management, claims investigative services and heightened focus on patient experience, as well as services that drive operational improvements in areas such as claims processing, enrollment, membership and ~~billing, in addition to~~billing. Demand was also created by the adoption and integration of digital technologies such as ~~artificial intelligence,~~AI to shape personalized care plans and predictive data analytics to improve patient outcomes. Demand from our healthcare ~~customers~~clients may continue to be affected by uncertainty in the regulatory environment and industry-specific trends, including industry consolidation and convergence. Demand among our life sciences clients may be affected by industry consolidation. 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.


⁴	~~Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.~~

Products and Resources

Revenues from our Products and Resources segment grew ~~10.4%~~4.4%, or ~~12.3%~~5.3% on a constant currency basis⁵⁴, for the three months ended ~~June 30, 2019,~~March 31, 2020, as compared to the three months ended ~~June 30, 2018.~~March 31, 2019. Revenue growth was ~~strongest~~strong among our retail and consumer goods ~~customers,~~clients, where revenue increased by ~~$54 million. Revenues from~~$22 million, and our manufacturing, logistics, energy and utilities ~~customers~~clients, where revenue increased by ~~$20 million while revenue~~$19 million. Revenue from our travel and hospitality ~~customers increased~~clients decreased by ~~$13~~$1 million. Revenues from ~~customers~~clients added, including those related to acquisitions, since ~~June 30, 2018~~March 31, 2019 were ~~$47~~$30 million. Demand in this segment was driven by our ~~customers’~~clients’ focus on improving the efficiency of their operations, the enablement and integration of mobile platforms to support sales and other omni-channel commerce initiatives, and their adoption and integration of digital technologies, such as the application of intelligent systems to manage supply chain and enhance overall customer experiences.Additionally, demand from our retail and consumer goods clients and our travel and hospitality clients in this segment is expected to be particularly negatively impacted by the COVID-19 pandemic.

⁴ Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.

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Communications, Media and Technology

Revenues from our Communications, Media and Technology segment grew ~~12.2%~~5.2%, or ~~14.1%~~6.3% on a constant currency basis⁵, for the three months ended ~~June 30, 2019,~~March 31, 2020, as compared to the three months ended ~~June 30, 2018.~~March 31, 2019. Growth ~~was strongest~~ among our ~~technology customers where revenues~~communications and media clients increased ~~$65~~by $18 million while revenues from our communications and media customers remained relatively flat. A significant portion of the revenue growth within this segment was generated by a small number of customers and there can be no guarantee that the revenue generated by these customers will continue to grow at a similar pace.technology clients increased $13 million. Revenues from ~~customers~~clients added, including those related to acquisitions, since ~~June 30, 2018~~March 31, 2019 were ~~$30 million~~.$21 million. Demand in this segment ~~was~~is driven by our ~~customers’ need~~clients’ needs to ~~manage their digital content,~~ create differentiated user experiences, ~~expand their range of services, including business process services,~~ transition to agile development methodologies, enhance their ~~network~~networks, manage their digital content and adopt and integrate digital technologies, such as cloud, ~~enablement and~~ interactive and ~~connected products. Additionally, demand among~~IoT. Our strategic decision to exit certain content-related services negatively impacted our ~~technology customers~~first quarter 2020 revenue by approximately $23 million. We anticipate that our decision may ~~be affected by uncertainty in the regulatory environment while significant merger and acquisition activity may~~negatively impact our ~~customers in~~relationship with the affected clients and we continue to estimate that we may lose revenues of $225 million to $255 million on an annualized basis. We anticipate the revenue will continue to ramp down over the next one to two years and the impact on 2020 revenues is expected to be between $180 million and $200 million. Demand from our communications and media ~~industry.~~clients in this segment is expected to continue to be particularly negatively impacted by the COVID-19 pandemic.

Revenues - Geographic Markets

Revenues by geographic market were as follows for the three months ended ~~June 30:~~March 31:


	2020		2019		Increase / (Decrease)
									$	%	CC %⁵
	(Dollars in millions)
North America	$	3,190	$	3,123	$	67	2.1	2.2
United Kingdom	337		329		8		2.4	4.1
Continental Europe	437		405		32		7.9	10.5
Europe - Total	774		734		40		5.4	7.6
Rest of World	261		253		8		3.2	7.6
Total revenues	$	4,225	$	4,110	$	115	2.8	3.5

2019 2018 Increase / (Decrease)
$ %
CC %⁵
(Dollars in millions)
North America $ 3,139
$ 3,067
$ 72
2.3 2.3
United Kingdom 322
309
13
4.2 9.6
Continental Europe 427
381
46
12.1 18.0
Europe - Total 749
690
59
8.6 14.2
Rest of World 253
249
4
1.6 6.4
Total revenues $ 4,141
$ 4,006
$ 135
3.4 4.7

North America continues to be our largest market, representing ~~75.8%~~75.5% of total revenues for the ~~second~~first quarter of ~~2019~~2020 and ~~53.3%~~58.3% of total revenue growth from the ~~second~~first quarter of ~~2018.~~2019. Revenue growth in our North America region was driven by the demand for digital content services and solutions by ~~customers~~clients in our Communications, Media and Technology segment, the adoption and integration of digital technologies by clients in our Products and Resources segment and revenues from recently completed acquisitions, partially offset by the impact of our strategic decision to exit certain content-related services in our Communications, Media and Technology segment and the ~~adoption~~transition of certain Financial Services and ~~integration of digital technologies by~~Healthcare customers ~~in our Products and Resources segment, in addition~~in-house or to ~~revenues from our acquisitions completed since the second quarter of 2018.~~captives. Revenue growth in our ~~North America~~Continental Europe and the United Kingdom regions was driven by our life science clients and includes revenues related to our recently completed acquisitions. Revenue growth in our Rest of World ~~regions~~region was ~~negatively affected as certain banking customers in these regions transition the support of some of their legacy systems and operations to offshore captives. Revenues~~driven by strength in our ~~North America region in our Healthcare segment were negatively impacted by the mergers within the segment, the establishment of an offshore captive by a large customer,~~Communications, Media and ~~a ramp down of a customer relationship in which we were a subcontractor to a third party for the purpose of delivering healthcare-related systems implementation services to local government.~~Technology segment. We believe that ~~Europe, Middle East, Asia Pacific and Latin America regions represent long term~~there are opportunities for long-term growth ~~opportunities.~~


⁵across all of our geographic markets.	~~Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.~~

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, subcontracting and equipment costs relating to revenues. Our cost of revenues increased by ~~8.8%~~6.7% during the ~~second~~first quarter of ~~2019~~2020 as compared to the ~~second~~first quarter of ~~2018,~~2019, increasing as a percentage of revenues to ~~63.5%~~65.0% in the ~~second~~first quarter of ~~2019~~2020 compared to ~~60.3%~~62.7% in the ~~second~~first quarter of ~~2018.~~2019. The increase in cost of revenues, as a percentage of revenues, was due primarily to an increase in costs related to our delivery personnel (including employees and subcontractors) outpacing revenue growth, which was negatively affected by the COVID-19 pandemic, partially offset by ~~lower incentive-based compensation accrual rates~~lower travel and entertainment costs as a result of the reduction in ~~2019.~~travel due to the pandemic and our cost optimization strategy.

~~Selling, General and Administrative~~

⁵ Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.

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SG&A Expenses ~~and Depreciation and Amortization Expense~~

~~Selling, general and administrative~~SG&A 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~~SG&A expenses decreased by ~~4.6%~~18.4% during the ~~second~~first quarter of ~~2019~~2020 as compared to the ~~second~~first quarter of ~~2018,~~2019, decreasing as a percentage of revenues to ~~18.5%~~16.8% in ~~the second quarter of 2019~~2020 as compared to ~~20.1%~~21.2% in ~~the second quarter of 2018.~~2019. The decrease, is primarily due to the one-time initial funding of the Cognizant U.S. Foundation which occurred in the second quarter of 2018 and lower incentive-based compensation accrual rates in 2019, partially offset by realignment charges incurred in the second quarter of 2019. Depreciation and amortization expense increased to 3.0% as a percentage of revenues, was due primarily to the $117 million 2019 incremental accrual related to the India Defined Contribution Obligation, as discussed in Note 12 to our unaudited consolidated financial statements, and lower compensation costs in the ~~second~~first quarter of ~~2019, from 2.8%~~2020.

Restructuring Charges

Our restructuring charges consist of our 2020 Fit for Growth Plan and our realignment program. Restructuring charges were $55 million or 1.3%, as a percentage of revenues during 2020, as compared to $2 million in ~~the second quarter of 2018, primarily driven by the amortization of intangible assets acquired in recent business combinations.~~2019. For further detail on our restructuring charges see Note 4 to our unaudited consolidated financial statements.

~~Income from Operations and~~ Operating Margin - Overall

Our operating margin increased to 13.7% from 13.1% for the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019, while our Adjusted Operating Margin⁶decreased to 15.1% from 16.0% for the same periods. Our GAAP and Adjusted Operating Margin⁶decreased to 14.9% and 16.1%, respectively, for the second quarter of 2019 from 16.7% and 19.2%, respectively, in the second quarter of 2018. The decreases in our GAAP operating margin and Adjusted Operating Margin⁶were ~~due to an increase in~~adversely impacted as costs related to our delivery personnel (including employees and subcontractors) ~~outpacing~~outpaced revenue growth, ~~and the negative impact of contract renegotiations with recently merged Healthcare customers, partially offset~~which was negatively affected by the ~~impact of lower incentive-based compensation accrual rates. Our~~COVID-19 pandemic. A decrease in travel and entertainment expenses due to the COVID-19 pandemic and our cost optimization strategy positively impacted our GAAP and Adjusted Operating Margin⁶. In addition, our 2019 GAAP operating margin ~~was also negatively impacted by realignment charges~~included a 2.9% negative impact of the 2019 incremental accrual related to the India Defined Contribution Obligation as discussed in Note 12 to our unaudited consolidated financial statements, while our ~~2018 GAAP~~2020 operating margin ~~was negatively impacted by the initial funding~~included a 1.3% negative impact of the ~~Cognizant U.S. Foundation.~~restructuring charges discussed in Note 4 to our unaudited consolidated financial statements.

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 7050 basis points, or ~~0.70~~0.50 percentage points, induring the three months ended ~~June 30, 2019.~~March 31, 2020. 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 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 three months ended ~~June 30,~~March 31, 2020 and 2019, the settlement of ~~our~~ cash flow hedges ~~positively impacted~~had an immaterial impact on our operating ~~margin by approximately 10 basis points or 0.10 percentage points as compared to a positive impact of approximately 52 basis points or 0.52 percentage points during~~margin.

We finished the ~~three months ended June 30, 2018.~~

~~We finished the second~~first quarter of ~~2019~~2020 with approximately ~~288,200~~291,700 employees, which is an increase of approximately ~~19,300~~5,900 as compared to ~~June 30, 2018.~~March 31, 2019. Annualized turnover, including both voluntary and involuntary, was approximately ~~23.0%~~22.4% for the three months ended ~~June 30, 2019. Average annualized attrition rates on-site at customer locations are below our global attrition rate. In addition, attrition~~March 31, 2020. Attrition is weighted towards the more junior members of our staff.


⁶	Adjusted 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 Profit

Segment operating profits were as follows for the three months ended ~~June 30:~~March 31:


	2020		Operating Margin %	2019		Operating Margin %	Increase / (Decrease)
	(Dollars in millions)
Financial Services	$	381	26.3	$	400	27.9	$	(19)
Healthcare	321		26.9	337		28.9	(16)
Products and Resources	261		27.4	234		25.6	27
Communications, Media and Technology	190		30.4	174		29.2	16
Total segment operating profit	1,153		27.3	1,145		27.9	8
Less: unallocated costs	574			606			(32)
Income from operations	$	579	13.7	$	539	13.1	$	40

⁶ Adjusted 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.

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2019 Operating Margin % 2018 Operating Margin % Increase / (Decrease)
(Dollars in millions)
Financial Services $ 407
27.6 $ 448
30.5 $ (41 )
Healthcare 314
27.7 352
30.4 (38 )
Products and Resources 255
27.5 253
30.1 2
Communications, Media and Technology 184
30.3 176
32.5 8
Total segment operating profit 1,160
28.0 1,229
30.7 (69 )
Less: unallocated costs 541
559
(18 )
Income from operations $ 619
14.9 $ 670
16.7 $ (51 )

~~Across all~~In our Financial Services and Healthcare operating segments, operating margins decreased as ~~compensation, benefit~~costs related to our delivery personnel (including employees and ~~subcontractor~~subcontractors) outpaced revenue growth, which was negatively affected by the COVID-19 pandemic, partially offset by cost savings generated by our cost optimization initiatives and lower travel and entertainment costs ~~outpaced~~due to COVID-19 related reductions in travel. In our Products and Resources and Communications, Media and Technology segments, operating margins increased as a result of cost savings generated by our cost optimization initiatives and lower travel and entertainment costs due to COVID-19 related reductions in travel, partially offset by the negative impact of the COVID-19 pandemic on revenue growth. Additionally, ~~operating margins in Healthcare were negatively affected by mergers among several of our healthcare customers. The lower segment~~2019 operating margin in our ~~Communications, Media~~Products and ~~Technology~~Resources segment ~~reflects the growth of digital content services and solutions~~was negatively affected by bankruptcy filings by several clients in ~~this segment, which generate lower margins than other services in our portfolio.~~that segment.

Certain ~~selling, general and administrative~~SG&A expenses, ~~the excess or shortfall of incentive compensation for commercial and delivery personnel as compared to target,~~restructuring 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~~included above as “unallocated costs” and adjusted against our total income from operations. The decrease in unallocated costs in ~~the second quarter of~~2020 compared to 2019 ~~from the second quarter of 2018~~ is primarily due to ~~a greater shortfall of incentive-based compensation as compared to target~~the India Defined Contribution Obligation presented in ~~2019 and the initial funding of the Cognizant U.S. Foundation recorded~~unallocated costs in ~~the second quarter of 2018,~~2019, partially offset by ~~the realignment charges incurred~~higher restructuring costs included in ~~the second quarter of 2019.~~unallocated costs in 2020.

Other Income (Expense), Net

Total other income (expense), net consists primarily of foreign currency exchange gains and losses, interest income and interest expense. The following table sets forth total other income (expense), net for the three months ended ~~June 30:~~March 31:


	2020		2019		Increase/ Decrease
	(in millions)
Foreign currency exchange (losses) gains	$	(108)	$	3	$	(111)
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments	6		(1)		7
Foreign currency exchange gains (losses), net	(102)		2		(104)
Interest income	41		48		(7)
Interest expense	(6)		(7)		1
Other, net	(2)		1		(3)
Total other income (expense), net	$	(69)	$	44	$	(113)

2019 2018
Increase/
Decrease
(in millions)
Foreign currency exchange gains (losses) $ 20
$ (98 ) $ 118
(Losses) gains on foreign exchange forward contracts not designated as hedging instruments (4 ) 18
(22 )
Foreign currency exchange gains (losses), net 16
(80 ) 96
Interest income 45
40
5
Interest expense (6 ) (7 ) 1
Other, net 2
—
2
Total other income (expense), net $ 57
$ (47 ) $ 104

The foreign currency exchange gains and losses were primarily ~~attributed~~attributable to the remeasurement of the Indian rupee denominated net monetary assets and liabilities in our U.S. dollar functional currency India subsidiaries and, 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 ~~related~~relate to the realized and unrealized gains and losses on foreign exchange forward contracts entered into ~~primarily~~ to partially offset foreign currency exposure toto the Euro, Indian rupee, British pound and ~~other~~other non-U.S. dollar denominated net monetary assets and liabilities. As of ~~June 30, 2019,~~March 31, 2020, the notional value of our undesignated hedges was ~~$577~~$338 million. The ~~increase~~decrease in interest income of $5$7 million ~~was~~was primarily attributable to ~~an increase~~a decrease in yield and in average invested balances ~~and higher yields~~ in ~~2019.~~

2020.

Provision for Income Taxes

The provision for income taxes ~~decreased to $167~~remained flat at $142 million during the three months ended ~~June 30, 2019 from $168 million during the three months ended June 30, 2018.~~March 31, 2020. The effective income tax rate ~~decreased~~increased to ~~24.7%~~27.8% for the three months ended ~~June 30, 2019~~March 31, 2020 compared to ~~27.0%~~24.4% for the three months ended ~~June 30, 2018~~March 31, 2019, primarily ~~due to a lower effective income tax rate for our India subsidiaries in 2019 due to foreign currency exchange gains on their statutory books in 2018, increasing our 2018 India tax rate, as~~driven by the depreciation of the Indian rupee ~~depreciated~~ against the U.S. dollar, ~~during that period.~~which resulted in non-deductible foreign currency exchange losses on our unaudited consolidated statement of operations.

Net Income

Net income ~~increased~~decreased to ~~$509~~$367 million for the three months ended ~~June 30, 2019~~March 31, 2020 from ~~$456~~$441 million for the three months ended ~~June 30, 2018,~~March 31, 2019, representing ~~12.3%~~8.7% and ~~11.4%~~10.7% of revenues, respectively. The ~~increase~~decrease in net income ~~is primarily due to~~was driven by higher foreign ~~currency gains in 2019 compared to~~exchange losses, ~~in 2018~~partially offset by ~~a decrease in~~higher income from operations.

Non-GAAP Financial Measures

Portions of our disclosure include non-GAAP financial measures. 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 financial measures used by other companies. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements

Table of Contents

prepared in accordance with GAAP. The reconciliations of our non-GAAP financial measures to the corresponding GAAP measures, set forth below, should be carefully evaluated.

Our non-GAAP financial measures, Adjusted Operating Margin, ~~and~~ Adjusted Income From Operations ~~exclude unusual items~~ and ~~our~~ Adjusted Diluted EPS ~~additionally~~exclude unusual items. Additionally, Adjusted Diluted EPS excludes net non-operating foreign currency exchange gains or losses and the tax impact of all the applicable adjustments. 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. Constant currency revenue growth is defined as revenues for a given period restated at the comparative period’s foreign currency exchange rates measured against the comparative period's reported revenues.

We believe providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into our operating results. For our internal management reporting and budgeting purposes, we use various GAAP and non-GAAP financial measures for financial and operational 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. Therefore, it is our belief that the use of non-GAAP financial measures excluding certain costs provides a meaningful supplemental measure for investors to evaluate our financial performance. We believe that the presentation of our non-GAAP financial measures ~~(Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth)~~ along with reconciliations to the most comparable GAAP measure, as applicable, 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 financial measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and may exclude costs that are recurring such as our 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 our non-GAAP financial measures 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 ~~June 30:~~March 31:


	2020		% of Revenues	2019		% of Revenues
	(Dollars in millions, except per share amounts)
GAAP income from operations and operating margin	$	579	13.7	$	539	13.1
Realignment charges ⁽¹⁾	20		0.5	2		—
2020 Fit for Growth plan restructuring charges ⁽²⁾	35		0.8	—		—
COVID-19 Charges ⁽³⁾	6		0.1	—		—
Incremental accrual related to the India Defined Contribution Obligation ⁽⁴⁾	—		—	117		2.9
Adjusted Income from Operations and Adjusted Operating Margin	$	640	15.1	$	658	16.0

GAAP diluted EPS	$	0.67		$	0.77
Effect of above adjustments, pre-tax	0.11			0.20
Non-operating foreign currency exchange (gains) losses, pre-tax ⁽⁵⁾	0.19			(0.01)
Tax effect of above adjustments ⁽⁶⁾	(0.01)			(0.05)



Adjusted Diluted EPS	$	0.96		$	0.91

2019
% of
Revenues
2018
% of
Revenues
(Dollars in millions, except per share amounts)
GAAP income from operations and operating margin $ 619
14.9 $ 670
16.7
Realignment charges ⁽¹⁾
49
1.2 —
—
Initial funding of Cognizant U.S. Foundation ⁽²⁾
—
— 100
2.5
Adjusted Income from Operations and Adjusted Operating Margin $ 668
16.1 $ 770
19.2

GAAP diluted EPS $ 0.90
$ 0.78

Effect of above adjustments, pre-tax 0.09
0.17

Non-operating foreign currency exchange (gains) losses, pre-tax ⁽³⁾
(0.03 ) 0.14

Tax effect of above adjustments ⁽⁴⁾
(0.02 ) (0.04 )
Adjusted Diluted EPS $ 0.94
$ 1.05

~~(1)~~

(1) As part of the ~~realignment program, during the three months ended June 30, 2019, we incurred Executive Transition Costs, employee separation costs and third party~~ realignment program, during 2020, we incurred employee retention costs and professional fees. See Note 4 to our unaudited consolidated financial statements for additional information.

(2) As part of our 2020 Fit for Growth plan, we incurred certain employee separation, employee retention and facility exit costs. See Note 4~~Note 4~~ to our unaudited consolidated financial statements for additional information.


~~(2)~~	In the second quarter of 2018, we provided $100 million of initial funding to the Cognizant U.S. Foundation. This cost is reported in "Selling, general and administrative expenses" in our unaudited consolidated statement of operations.


~~(3)~~	Non-operating foreign currency exchange gains 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 unaudited consolidated statements of operations.


~~(4)~~	~~Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:~~

Table of Contents

Three Months Ended
June 30,
2019 2018
(in millions)
Non-GAAP income tax benefit (expense) related to:
Realignment charges $ 13
$ —
Initial funding of Cognizant U.S. Foundation —
28
Foreign currency exchange gains and losses —
(8 )
(3) During the three months ended March 31, 2020, we incurred costs in response to the COVID-19 pandemic including a one-time bonus to our employees at the designation of associate and below in both India and the Philippines and costs to enable our employees to work remotely and provide medical staff and extra cleaning services for our facilities. Substantially all of the costs related to the pandemic are reported in "Cost of revenues" in our unaudited consolidated statements of operations.

(4) In the first quarter of 2019, we recorded an accrual of $117 million related to the India Defined Contribution Obligation as further described in Note 12 to our unaudited consolidated financial statements.

(5) Non-operating foreign currency exchange gains 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 unaudited consolidated statements of operations.

(6) Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:


	Three Months Ended March 31,
	2020		2019
	(in millions)
Non-GAAP income tax benefit (expense) related to:
Realignment charges	$	5	$	—
2020 Fit for Growth Plan restructuring charges	$	9	—
COVID-19 Charges	2		—
Incremental accrual related to the India Defined Contribution Obligation	—		31
Foreign currency exchange gains and losses	(10)		1

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.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~The following table sets forth, for the periods indicated, certain financial data for the six months ended June 30:~~

% of % of Increase / Decrease
2019 Revenues 2018 Revenues $ %
(Dollars in millions, except per share data)
Revenues $ 8,251
100.0 $ 7,918
100.0 $ 333
4.2
Cost of revenues⁽¹⁾
5,204
63.1 4,818
60.8 386
8.0
Selling, general and administrative expenses⁽¹⁾
1,641
19.9 1,516
19.1 125
8.2
Depreciation and amortization expense 248
3.0 221
2.8 27
12.2
Income from operations 1,158
14.0 1,363
17.2 (205 ) (15.0 )
Other income (expense), net 101
(43 ) 144
(334.9 )
Income before provision for income taxes 1,259
15.3 1,320
16.7 (61 ) (4.6 )
Provision for income taxes (309 ) (345 ) 36
(10.4 )
Income from equity method investments —
1
(1 )
Net income $ 950
11.5 $ 976
12.3 $ (26 ) (2.7 )
Diluted earnings per share $ 1.67
$ 1.66
$ 0.01

Other Financial Information ⁽⁷⁾

Adjusted Income From Operations and Adjusted Operating Margin $ 1,326
16.1 $ 1,464
18.5 $ (138 ) (9.4 )
Adjusted Diluted EPS $ 1.85
$ 1.99
$ (0.14 )


~~(1)~~	~~Exclusive of depreciation and amortization expense.~~

~~Revenues - Overall~~

~~During the six months ended June 30, 2019, revenues increased by $333 million as compared to the six months ended June 30, 2018, representing growth of 4.2%, or 5.7% on a constant currency basis~~⁷~~. Revenues from customers added, including those related to acquisitions and Samlink, since June 30, 2018 were $214 million.~~

~~Revenues from our top customers were as follows:~~

Six Months Ended June 30,
2019 2018
Revenues from top five customers as a percentage of total revenues 8.4 % 8.6 %
Revenues from top ten customers as a percentage of total revenues 15.1 % 15.6 %


⁷	Adjusted Income From Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures.

~~Revenues - Reportable Business Segments~~

~~Revenues by reportable business segment were as follows for the six months ended June 30:~~

2019 2018 Increase / (Decrease)
$ %
CC %⁸
(Dollars in millions)
Financial Services $ 2,909
$ 2,930
$ (21 ) (0.7 ) 0.9
Healthcare 2,299
2,277
22
1.0
1.5
Products and Resources 1,841
1,661
180
10.8
13.1
Communications, Media and Technology 1,202
1,050
152
14.5
16.8
Total revenues $ 8,251
$ 7,918
$ 333
4.2
5.7

~~Financial Services~~

~~Revenues from our Financial Services segment declined 0.7%, but grew 0.9% on a constant currency basis~~⁸, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. Revenues in this segment decreased by $28 million among our banking customers, primarily in our North America and Rest of World regions, compared to an increase of $7 million from our insurance customers. Revenues from customers added, including those related to acquisitions and Samlink, since June 30, 2018 were $49 million. Demand in this segment was driven by our customers' focus on cost optimization in the face of profitability pressures, the need to be compliant with significant regulatory requirements and adaptable to regulatory change, and their adoption and integration of digital technologies that are reshaping our customers' business and operating models, including customer experience enhancement, robotic process automation and analytics and artificial intelligence. Demand from certain banking customers has been and may continue to be negatively affected as they transition the support of some of their legacy systems and operations to offshore captives.

~~Healthcare~~

~~Revenues from our Healthcare segment grew 1.0%, or 1.5% on a constant currency basis~~⁸, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. Revenues in this segment increased by $103 million among our life science customers compared to a decline of $81 million from our healthcare customers. Revenues from our healthcare customers were negatively impacted by the mergers within the segment, the establishment of an offshore captive by a large customer, and a ramp down of a customer relationship in which we were a subcontractor to a third party for the purpose of delivering healthcare-related systems implementation services to local government, partially offset by revenues from Bolder Healthcare Solutions ("Bolder"), which we acquired in the second quarter of 2018. Revenues from customers added since June 30, 2018 were $25 million. Demand in this segment was driven by emerging industry trends, including enhanced compliance, integrated health management, claims investigative services, as well as services that drive operational improvements in areas such as claims processing, enrollment, membership and billing, in addition to the adoption and integration of digital technologies, such as artificial intelligence, personalized care plans and predictive data analytics to improve patient outcomes. Demand from our healthcare customers may continue to be affected by uncertainty in the regulatory environment and industry-specific trends, including industry consolidation and convergence. 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.


⁸	~~Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.~~

~~Products and Resources~~

~~Revenues from our Products and Resources segment grew 10.8%, or 13.1% on a constant currency basis~~⁹, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. Revenue growth was strongest among our retail and consumer goods customers, where revenue increased by $109 million. Revenues from our manufacturing, logistics, energy and utilities customers increased by $45 million while revenue from our travel and hospitality customers increased by $26 million. Revenues from customers added, including those related to acquisitions, since June 30, 2018 were $83 million. Demand in this segment was driven by our customers’ focus on improving the efficiency of their operations, the enablement and integration of mobile platforms to support sales and other omni-channel commerce initiatives, and their adoption and integration of digital technologies, such as the application of intelligent systems to manage supply chain and enhance overall customer experiences.

~~Communications, Media and Technology~~

~~Revenues from our Communications, Media and Technology segment grew 14.5%, or 16.8% on a constant currency basis~~⁹, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. Growth was stronger among our technology customers where revenues increased $139 million as compared to an increase of $13 million for our communications and media customers. A significant portion of the revenue growth within this segment was generated by a small number of customers and there can be no guarantee that the revenue generated by these customers will continue to grow at a similar pace. Revenues from customers added, including those related to acquisitions, since June 30, 2018 were $57 million. Demand in this segment was driven by our customers’ need to manage their digital content, create differentiated user experiences, expand their range of services, including business process services, transition to agile development methodologies, enhance their network and adopt and integrate digital technologies, such as cloud enablement and interactive and connected products. Additionally, demand among our technology customers may be affected by uncertainty in the regulatory environment while significant merger and acquisition activity may impact our customers in the communications and media industry.

~~Revenues - Geographic Markets~~

~~Revenues by geographic market were as follows for the six months ended June 30:~~

2019 2018 Increase / (Decrease)
$ %
CC %⁹
(Dollars in millions)
North America $ 6,262
$ 6,042
$ 220
3.6 3.6
United Kingdom 651
619
32
5.2 10.8
Continental Europe 832
755
77
10.2 17.1
Europe - Total 1,483
1,374
109
7.9 14.3
Rest of World 506
502
4
0.8 6.8
Total revenues $ 8,251
$ 7,918
$ 333
4.2 5.7

North America continues to be our largest market, representing 75.9% of total revenues for the six months ended June 30, 2019 and 66.1% of total revenue growth from the six months ended June 30, 2018. Revenue growth in our North America region was driven by the demand for digital content services and solutions by customers in our Communications, Media and Technology segment and the adoption and integration of digital technologies by customers in our Products and Resources segment, in addition to revenues from our acquisitions completed since the second quarter of 2018. Revenue growth in our North America and Rest of World regions was negatively affected as certain banking customers in these regions transition the support of some of their legacy systems and operations to offshore captives. Revenues in our North America region in our Healthcare segment were negatively impacted by the mergers within the segment, the establishment of an offshore captive by a large customer, and a ramp down of a customer relationship in which we were a subcontractor to a third party for the purpose of delivering healthcare-related systems implementation services to local government. We believe that Europe, Middle East, Asia Pacific and Latin America regions represent long term growth opportunities.


⁹	~~Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.~~

~~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, subcontracting and equipment costs relating to revenues. Our cost of revenues increased by 8.0% during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, increasing as a percentage of revenues to 63.1% in the first half of 2019 compared to 60.8% in the first half of 2018. The increase in cost of revenues, as a percentage of revenues, was due primarily to an increase in costs related to our delivery personnel (including employees and subcontractors) outpacing revenue growth, partially offset by lower incentive-based compensation accrual rates in 2019 and the depreciation of the Indian rupee (net of the impact of the settlement of our cash flow hedges).

~~Selling, General and Administrative Expenses and Depreciation and Amortization~~

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 increased by 8.2% during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, increasing as a percentage of revenues to 19.9% in the first half of 2019 as compared to 19.1% in the first half of 2018. The increase, as a percentage of revenues, was due primarily to an increase in compensation costs, the impact of bankruptcy filings by some of our Products and Resources customers and realignment charges incurred in the second quarter of 2019, partially offset by lower incentive-based compensation accrual rates in 2019 and the depreciation of the Indian rupee (net of the impact of the settlement of our cash flow hedges). Additionally, in the first quarter of 2019 we recorded the incremental accrual related to the India Defined Contribution Obligation. In the second quarter of 2018, we recorded the initial funding of the Cognizant U.S. Foundation. Depreciation and amortization expense increased to 3.0%, as a percentage of revenues, in the first half of 2019 from 2.8% in the first half of 2018 primarily driven by the amortization of intangible assets acquired in recent business combinations.

~~Income from Operations and Operating Margin - Overall~~

~~Our operating margin and Adjusted Operating Margin~~¹⁰decreased to 14.0% and 16.1%, respectively, for the six months ended June 30, 2019 from 17.2% and 18.5% for the six months ended June 30, 2018. The decreases in our GAAP operating margin and Adjusted Operating Margin¹⁰ were due to an increase in costs related to our delivery personnel (including employees and subcontractors) outpacing revenue growth, the negative impact of contract renegotiations with recently merged Healthcare customers and bankruptcy filings by some of our Products and Resources customers, partially offset by the impact of lower incentive-based compensation accrual rates and the depreciation of the Indian rupee (net of the impact of the settlement of our cash flow hedges). Our 2019 GAAP operating margin was additionally negatively impacted by the incremental accrual related to the India Defined Contribution Obligation and realignment charges recorded in the first half of 2019 while our 2018 GAAP operating margin was negatively impacted by the initial funding of the Cognizant U.S. Foundation.

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 117 basis points, or 1.17 percentage points, during the six months ended June 30, 2019. 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 six months ended June 30, 2019, the settlement of cash flow hedges had an immaterial impact on our operating margin as compared to a positive impact of approximately 71 basis points or 0.71 percentage points during the six months ended June 30, 2018.


¹⁰	Adjusted 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 Profit~~

~~Segment operating profits were as follows for the six months ended June 30:~~

2019 Operating Margin % 2018 Operating Margin % Increase / (Decrease)
(Dollars in millions)
Financial Services $ 807
27.7 $ 888
30.3 $ (81 )
Healthcare 651
28.3 689
30.3 (38 )
Products and Resources 489
26.6 506
30.5 (17 )
Communications, Media and Technology 358
29.8 334
31.8 24
Total segment operating profit 2,305
27.9 2,417
30.5 (112 )
Less: unallocated costs 1,147
1,054
93
Income from operations $ 1,158
14.0 $ 1,363
17.2 $ (205 )

Across all our operating segments, operating margins decreased as compensation, benefit and subcontractor costs outpaced revenue growth. Additionally, operating margins in Healthcare were negatively affected by mergers among several of our healthcare customers while bankruptcy filings by some of our Products and Resources customers negatively affected the profitability of that segment. The lower segment operating margin in our Communications, Media and Technology segment reflects the growth of digital content services and solutions in this segment, which generate lower margins than other services in our portfolio.

Certain selling, general and administrative expenses, the excess or shortfall of incentive compensation for commercial and 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 above as “unallocated costs” and adjusted against our total income from operations. The increase in unallocated costs for the six months ended June 30, 2019 from the six months ended June 30, 2018 is due to realignment charges incurred in the second quarter of 2019 and the India Defined Contribution Obligation recorded in the first quarter of 2019, partially offset by a greater shortfall of incentive-based compensation as compared to target in 2019 and the initial funding of the Cognizant U.S. Foundation recorded in the second quarter of 2018.

~~Other Income (Expense), Net~~

2019 2018
Increase/
Decrease
(in millions)
Foreign currency exchange gains (losses) $ 23
$ (131 ) $ 154
(Losses) gains on foreign exchange forward contracts not designated as hedging instruments (5 ) 20
(25 )
Foreign currency exchange gains (losses), net 18
(111 ) 129
Interest income 93
81
12
Interest expense (13 ) (13 ) —
Other, net 3
—
3
Total other income (expense), net $ 101
$ (43 ) $ 144

The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets and liabilities in our U.S. dollar functional currency India subsidiaries and, 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 related to the realized and unrealized gains and losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to the Euro, Indian rupee, British pound and other non-U.S. dollar denominated net monetary assets and liabilities. As of June 30, 2019, the notional value of our undesignated hedges was $577 million. The increase in interest income of $12 million was primarily attributable to an increase in average invested balances and higher yields in 2019.

~~Provision for Income Taxes~~

The provision for income taxes decreased to $309 million during the six months ended June 30, 2019 from $345 million during the six months ended June 30, 2018. The effective income tax rate decreased to 24.5% for the six months ended June 30, 2019 from 26.1% for the six months ended June 30, 2018 primarily due to a lower effective income tax rate for our India subsidiaries in 2019 due to foreign currency exchange gains on their statutory books in 2018, increasing our 2018 India tax rate, as the Indian rupee depreciated against the U.S. dollar during that period.

~~Net Income~~

Net income decreased to $950 million for the six months ended June 30, 2019 from $976 million for the six months ended June 30, 2018, representing 11.5% and 12.3% of revenues, respectively. The decrease in net income is primarily due to a decrease in income from operations partially offset by foreign currency exchange gains in 2019 compared to losses in 2018.

~~Non-GAAP Financial Measures~~

~~The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the six months ended June 30:~~

2019
% of
Revenues
2018
% of
Revenues
(Dollars in millions, except per share amounts)
GAAP income from operations and operating margin $ 1,158
14.0 $ 1,363
17.2
Realignment charges ⁽¹⁾
51
0.7 1
—
Incremental accrual related to the India Defined Contribution Obligation ⁽²⁾
117
1.4 —
—
Initial funding of Cognizant U.S. Foundation ⁽³⁾
—
— 100
1.3
Adjusted Income from Operations and Adjusted Operating Margin $ 1,326
16.1 $ 1,464
18.5

GAAP diluted EPS $ 1.67
$ 1.66

Effect of above adjustments, pre-tax 0.29
0.17

Non-operating foreign currency exchange (gains) losses, pre-tax ⁽⁴⁾
(0.03 ) 0.19

Tax effect of above adjustments ⁽⁵⁾
(0.08 ) (0.03 )
Adjusted Diluted EPS $ 1.85
$ 1.99


~~(1)~~	~~As part of the realignment program, during the six months ended June 30, 2019, we incurred Executive Transition Costs, employee separation costs and third party realignment costs. See~~ ~~Note 4~~ ~~to our unaudited consolidated financial statements for additional information.~~


~~(2)~~	~~In the first quarter of 2019, we recorded an accrual of $117 million related to the India Defined Contribution Obligation as further described in~~ ~~Note 13~~ ~~to our unaudited consolidated financial statements.~~


~~(3)~~	In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation. This cost is reported in "Selling, general and administrative expenses" in our unaudited consolidated statement of operations.


~~(4)~~	Non-operating foreign currency exchange gains 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 unaudited consolidated statements of operations.


~~(5)~~	~~Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income~~

Six Months Ended
June 30,
2019 2018
(in millions)
Non-GAAP income tax benefit (expense) related to:
Realignment charges $ 13
$ —
Incremental accrual related to the India Defined Contribution Obligation 31
—
Initial funding of Cognizant U.S. Foundation —
28
Foreign currency exchange gains and losses 1
(9 )

Liquidity and Capital Resources

Our 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 ~~June 30, 2019,~~March 31, 2020, we had cash, cash equivalents and short-term investments of ~~$3,003~~$4,282 million. During the first quarter of ~~which $429 million was restricted and not available for use as a result of our ongoing dispute with the ITD as described in~~2020, we borrowed ~~Note 9~~ ~~to our unaudited consolidated financial statements. Additionally, as of June 30, 2019, we had available capacity under~~$1.74 billion against our revolving credit facility in order to increase our cash on hand in the United States, as a large portion of ~~approximately $1,750 million.~~our cash is held in India. This will allow us the flexibility to continue to help and support our clients during the COVID-19 pandemic and also to continue to invest in the business, both organically and inorganically.

The following table provides a summary of our cash flows for the ~~six~~three months ended ~~June 30:~~March 31:


	2020		2019		Increase / Decrease
	(in millions)
Net cash provided by (used in):
Operating activities	$	497	$	269	$	228
Investing activities	(272)		356		(628)
Financing activities	1,135		(839)		1,974

2019 2018 Increase / Decrease
(in millions)
Net cash provided by (used in):
Operating activities $ 844
$ 1,028
$ (184 )
Investing activities 1,623
(811 ) 2,434
Financing activities (1,976 ) (1,222 ) (754 )

Operating activities

The ~~decrease~~increase in cash provided by operating activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to the same period in ~~2018~~2019 was primarily due to lower incentive compensation payouts, the ~~decrease~~increase in income from operations ~~as discussed in the section~~ ~~Results of Operations - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~.and improved DSO.

We monitor turnover, aging and the collection of accounts receivable by ~~customer.~~client. Our ~~days sales outstanding ("DSO")~~DSO calculation includes receivables, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of our deferred revenue. Our DSO was 7974 days as of ~~June 30, 2019, 75~~March 31, 2020, 73 days as of December 31, ~~2018~~2019 and 76 days as of ~~June 30, 2018.~~March 31, 2019. During the fourth quarter of 2019, we changed our policy with regard to the presentation of certain amounts due to customers, such as discounts and rebates, and retrospectively applied this policy to the calculation of DSO as of March 31, 2019. This change in policy had the effect of reducing our March 31, 2019 DSO by 2 days.

Table of Contents

Investing activities

Net cash used by investing activities for the three months ended March 31, 2020 was driven by outflows for capital expenditures, payments for acquisitions and net purchases of investments. Net cash provided by investing activities for the ~~six~~three months ended ~~June 30,~~March 31, 2019 was driven by net sales of investments partially offset by payments for acquisitions and outflows for capital expenditures. ~~Net cash used in investing activities for the six months ended June 30, 2018 is related to payments for acquisitions, outflows for capital expenditures and net purchases of investments.~~

Financing activities

The ~~increase~~cash provided by financing activities in the three months ended March 31, 2020 compared to cash used in financing activities ~~for~~in the ~~six~~three months ended ~~June 30,~~March 31, 2019 ~~was~~is primarily ~~attributable to higher~~driven by our borrowing against the revolving credit facility and lower repurchases of common stock in ~~2019, including our $600 million accelerated stock repurchase agreement,~~the three months ended March 31, 2020 as compared to the ~~same period in 2018. Additionally, during the six~~three months ended ~~June 30, 2018 we had net repayments under the term loan and revolving credit facility.~~March 31, 2019.

~~In 2018, we completed~~We have a ~~debt refinancing in which we entered into a credit agreement with a commercial bank syndicate (the "Credit Agreement")~~Credit Agreement providing for a $750 million ~~unsecured term loan (the "Term Loan")~~Term Loan and a $1,750 million unsecured revolving credit ~~facility,~~facility, which are due to mature in November 2023. We ~~are~~are required under the Credit Agreement to make scheduled quarterly principal payments on the Term ~~Loan beginning in December 2019.~~Loan.

The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Our Credit Agreement also provides a mechanism for determining an alternative rate of interest to the Eurocurrency rate after LIBOR is no longer available. The outstanding balance under our revolving credit facility as of March 31, 2020 is a Eurocurrency Rate loan with a maturity of November 2023 and an Interest Period (as defined in the Credit Agreement) of one month.

The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. The financial covenant is tested at the end of each fiscal quarter and requires us to maintain a Leverage Ratio not in excess of 3.50 to 1.00, or

for a period of up to four quarters following certain material acquisitions, 3.75 to 1.00. We were in compliance with all debt covenants and representations of the Credit Agreement as of ~~June 30, 2019. We believe that we currently meet all conditions set forth in~~March 31, 2020.

In February 2020, our India subsidiary renewed its one-year 13 billion Indian rupee ($173 million at the ~~Credit Agreement~~March 31, 2020 exchange rate) working capital facility, which requires us to ~~borrow thereunder, and we are not aware of~~repay any ~~conditions that would prevent us~~balances drawn down within 90 days from ~~borrowing part or all of the remaining available capacity under the revolving credit facility as of June 30, 2019 and through~~ the date of ~~this filing.~~disbursement. There is a 1.0% prepayment penalty applicable to payments made prior to 30 days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February.

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we ~~returned $2,019~~returned $632 million to our stockholders through ~~$1,787~~$511 million in share repurchases under our stock repurchase program and ~~$232~~$121 million in dividend payments. During the three months ended March 31, 2020, our Board of Directors approved a 10% or $0.02 increase to our quarterly cash dividends and increased our stock repurchase program authorization from $5.5 billion to $7.5 billion, excluding fees and expenses. Other than repurchases under our 10b5-1 Plan, we have suspended our repurchase program and have not repurchased any shares since March 31, 2020. We review our capital return plan on an on-going basis, considering the potential impacts of COVID-19 pandemic, our financial performance and liquidity position, investments required to execute our strategic plans and initiatives, acquisition opportunities, the economic outlook, regulatory changes and other relevant factors. As these factors may change over time, the actual amounts expended on stock repurchase activity, dividends, and acquisitions, if any, during any particular period cannot be predicted and may fluctuate from time to time.

Other Liquidity and Capital Resources Information

We seek to ~~ensure~~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 of ~~June 30, 2019,~~March 31, 2020, the amount of our cash, cash equivalents and short-term investments held outside the United States was ~~$2,725~~$3,255 million, of which ~~$2,186~~$1,950 million was in India. ~~As further described in~~ ~~Note 9~~ to our unaudited consolidated financial statements, certain short-term investment balances in India totaling $429 million as of June 30, 2019, were restricted in connection with our dispute with the ITD. The affected balances may continue to remain restricted and unavailable for our use while the dispute is ongoing.

We evaluate on an ongoing basis 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. ~~We consider~~

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we have limited our indefinite reinvestment assertion to India earnings accumulated in ~~India to be indefinitely reinvested, which is consistent with our ongoing strategy to expand our Indian operations, including through infrastructure investments. However, future~~prior years. Future events may occur, such as material changes in cash estimates, discretionary transactions, including corporate ~~restructurings,~~restructurings, and changes in applicable laws or interpretations of such laws, that may lead us to ~~repatriate~~change our assertion.

Given the ~~undistributed Indian earnings. As~~dynamic nature of ~~June 30, 2019,~~ the ~~amount of unrepatriated Indian earnings was approximately $4,926 million. If all of our accumulated unrepatriated Indian earnings were to be repatriated, based~~COVID-19 pandemic, its future impact on our ~~current interpretation~~ongoing business, results of ~~India tax law,~~operations, liquidity needs and overall financial performance cannot be reasonably estimated at this time. However, we estimate that we would incur an additional income tax expense of approximately $1,035 million. This estimate is subject to change based on tax legislation developments in India and other jurisdictions as well as judicial and interpretive developments of applicable tax laws.

We expect our operating cash ~~flow,~~flows, cash and short-term investment balances ~~(excluding the $429 million of India restricted assets described in~~ ~~Note 9~~ ~~to our unaudited consolidated financial statements), together with our available capacity under our revolving credit facility~~ to be sufficient to meet our operating requirements ~~in the U.S., India~~ and ~~globally,~~service our debt for the next twelve months. Our ability to expand and grow our business in accordance with current plans, make acquisitions and form joint ventures, meet our long-term capital requirements beyond a twelve-month period and execute our capital ~~deployment~~return plan will depend on many factors, including the rate, if any, at which our cash flow increases, our ability and willingness to pay for 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.

Commitments and Contingencies

See Note 1312 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 ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 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 GAAP. 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, 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 Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018. There~~2019. Other than the below discussion of the interim goodwill impairment test, there have been no material changes to the aforementioned critical accounting estimates and policies during the quarter.

Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. During the first quarter of 2020, COVID-19 has negatively affected all major economic and financial markets and, although there is an extremely wide range of possible outcomes and the associated impact is highly dependent on variables that are difficult to forecast, we deemed the deterioration in general economic conditions sufficient to trigger an interim impairment testing of goodwill as of March 31, 2020. Our interim test results indicate that the fair values of all of our reporting units exceed their carrying values and thus, no impairment of goodwill exists as of March 31, 2020. Due to the size of past acquisitions in our healthcare reporting unit, this reporting unit carries the most significant portion of our goodwill balance and has the least amount of excess fair value over its carrying value.

Recently Adopted and New Accounting Pronouncements

See Note 1 to our unaudited consolidated financial statements.

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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 ~~Securities~~ Exchange ~~Act of 1934, as amended (the "Exchange Act"))~~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, in press releases or in 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,~~margin, earnings, capital expenditures, impacts to our business, financial results and financial condition as a result of the COVID-19 pandemic, anticipated effective income tax ~~rates~~rate and income tax expense, liquidity, access to capital, capital ~~deployment~~return plan, investment strategies, cost management, realignment program, 2020 Fit for Growth Plan, plans and objectives, including those related to our digital practice areas, investment in our business, potential acquisitions, industry trends, ~~customer~~client behaviors and trends, the outcome of regulatory and litigation matters, the incremental accrual related to the India Defined Contribution Obligation 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 anticipated 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:

•economic and political conditions globally and in particular in the markets in which our ~~customers~~clients and operations are concentrated;

•the significant and continuing adverse impact of the COVID-19 pandemic on our business, results of operations, liquidity and financial condition, and the potential for such impact being materially adverse to us as the pandemic continues to rapidly evolve and cause significant loss of life and interruption to the global economy;

•our ability to contain the damage from and restore our business following the ransomware attack we suffered in April 2020;

•our ability to attract, train and retain skilled professionals, including highly skilled technical personnel to satisfy ~~customer~~client demand and senior management to lead our business globally;

•challenges related to growing our business organically as well as inorganically through acquisitions, and our ability to achieve our targeted growth rates;

•our ability to achieve our profitability and capital return goals;

•our ability to successfully implement our 2020 Fit for Growth Plan and achieve the anticipated benefits from the plan;

•our ability to meet specified service levels or milestones required by certain of our contracts;

•intense and evolving competition and significant technological advances that our service offerings must keep pace with in the rapidly changing markets we compete in;

•legal, reputational and financial risks related to our recent ransomware attack and if we otherwise fail to protect ~~customer~~client and/or Cognizant data from security breaches or cyberattacks;

•the effectiveness of our business continuity and disaster recovery plans and the potential that our global delivery capacity could be impacted;

•restrictions on visas, in particular in the United States, United Kingdom and ~~European Union,~~EU, or immigration more generally, which may affect our ability to compete for and provide services to our ~~customers;~~clients;

•risks related to anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing, both of which could impair our ability to serve our ~~customers;~~clients;

•risks related to complying with the numerous and evolving legal and regulatory requirements to which we are subject in the many jurisdictions in which we operate;

•potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or proceedings;

•potential exposure to litigation and legal claims in the conduct of our business;

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•potential significant expense that would occur if we change our intent not to repatriate prior year Indian accumulated undistributed earnings; and

~~The~~•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, ~~2018.~~2019, as updated by “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

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, ~~2018.~~2019. 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, ~~2018,~~2019, filed with the SEC on February ~~19, 2019.~~14, 2020.

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 Exchange Act) as of ~~June 30, 2019.~~March 31, 2020. Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as of ~~June 30, 2019,~~March 31, 2020, 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 ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 1312 to our unaudited consolidated financial statements.

Item 1A. Risk Factors

~~There have been no material changes in our~~The 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, ~~2018,~~2019 filed with the SEC on February ~~19, 2019.~~14, 2020 continue to apply to our business. The information presented below should be read in conjunction with the other risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The COVID-19 pandemic has had a significant and continuing adverse impact upon, and may have a material adverse impact upon, our business, liquidity, results of operations and financial condition.

The ongoing global COVID-19 pandemic has caused and continues to cause significant loss of life and interruption to the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease, including through business and transportation shutdowns and restrictions on people’s movement and congregation. Among other things, “stay at home”, “shelter in place” and various states of “lockdown” in many countries around the world has meant that many of our and our clients’ offices have been closed and employees have been working from home and many consumer-facing businesses have closed or are operating at a significantly reduced level to observe various social distancing requirements and government-mandated closures. The result has been a dramatic reduction in activity in the global economy, a reduction in demand for many products and services and significant adverse impacts to the financial markets, including the trading price of our common stock.

The COVID-19 pandemic has had a significant and continuing adverse impact upon, and may have a material adverse impact upon, our business, liquidity, results of operations and financial condition, including as a result of the following:

•Reduced client demand for services – The vast majority of our business is with clients in the United States, the United Kingdom and other countries in Europe, all regions that have been hard hit by the pandemic to date. Many of these countries have been in some state of “lockdown” condition since March 2020, and the timeframe for reopening their economies is uncertain and could be lengthy. This has reduced demand for our services, particularly from clients in the travel and hospitality industries, and is likely to continue to result in reduced demand for our services as clients across many industries face reduced demand for their products and services as consumers and other businesses reduce spending, reduce business activity including through facility closures, production slowdowns, work from home arrangements and employee furloughs, financial pressure on their businesses and/or a need to reduce costs. Among other things, our clients have postponed, cancelled or scaled-back existing projects and not entered into or reduced the scope of potential projects, and may continue to do so. The inability to meet with current and prospective clients in person has limited and may continue to limit our ability to win work with current and prospective clients.

•Client pricing pressure, payment term extensions and insolvency risk – As clients face reduced demand for their products and services, reduce their business activity and face increased financial pressure on their businesses, we have faced and expect to continue to face downward pressure on our pricing and gross margins due to pricing concessions to clients and requests from clients to extend payment terms. In addition, clients have requested and may continue to request extended payment terms, which may have an adverse on our cash flows from operations. We may also face a significantly elevated risk of client insolvency, bankruptcy or liquidity challenges where we may perform services and incurred expenses for which we are not paid.

•Delivery challenges – Due to the closures of many of our and our clients’ facilities, including as a result of various orders from national, state or local governments, sickness of employees or their families or the desire of employees to avoid contact with large groups of people, we have faced and will continue to face challenges delivering services to our clients and satisfying contractually agreed upon service levels. Two-thirds of our employees and the core of our delivery capabilities are in India, which has been on a country-wide lockdown since March and whose population density presents a very significant risk of the spread of the pandemic. We also have significant delivery operations in the Philippines, which has also had a country-wide lockdown since March. The impact of pandemic, particularly in India, but also in the Philippines and other countries where we have near-shore or onshore delivery operations for clients, as well as our in-country offices and offices of clients where our associates may normally work, has impacted and is expected to continue to impact our ability to deliver services to clients. Our efforts to enable work-from-home arrangements for many of our employees may be unsuccessful in mitigating the impact of such closures and increase

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our exposure to security breaches or cyberattacks. The ransomware attack we were subject to in April 2020 compounded the challenges we face in enabling work-from-home arrangements and resulted in setbacks and delays to such efforts. A significant worsening of the pandemic, particularly in India, or another security incident during the pandemic, could materially impair our ability to deliver services to clients to an extent that may have a material adverse impact to our business, liquidity, results of operations and financial condition.

•Increased costs – We face increased costs from the pandemic, including as a result of mitigation efforts such as enabling increased work-from-home capabilities and additional health and safety measures.

•Diversion of and strain on management and other corporate resources – Addressing the significant personal and business challenges presented by the pandemic, including various business continuity measures and the need to enable work-from-home arrangements for many of our associates, has demanded significant management time and attention and strained other corporate resources, and is expected to continue to do so. Among other things, this may adversely impact our client and associate development and our ability to execute our strategy and various transformation initiatives, and may increase our exposure to security breaches or cyberattacks.

•Reduced employee morale and productivity – The significant personal and business challenges presented by the pandemic, including the potentially life-threatening health risks to employees and their families and friends, the closures of schools and the unavailability of various services our employees may rely upon, such as childcare, are a cause of employee morale concerns and may adversely impact employee productivity.

The COVID-19 pandemic continues to rapidly evolve. The ultimate extent to which the outbreak impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the transmission rate and geographic spread of the disease, the duration and extent of the pandemic, travel restrictions and social distancing in the United States, the United Kingdom, other countries in Europe, India, the Philippines and other countries, the duration and extent of business closures and business disruptions and the effectiveness of actions taken to contain, treat and prevent the disease. If we or our clients experience prolonged shutdowns or other business disruptions, our business, liquidity, results of operations, financial condition and the trading price of our common stock are likely to be materially adversely affected, and our ability to access the capital markets may be limited.

We face legal, reputational and financial risks resulting from the security incident we announced on April 20, 2020 and if we otherwise fall victim to security breaches or cyberattacks that may impact client and/or Cognizant data.

In order to provide our services and solutions, we depend on global information technology networks and systems, including those of third parties, to process, transmit, host and securely store electronic information (including our confidential information and the confidential information of our clients) and to communicate among our locations around the world and with our clients, suppliers and partners. Security breaches, employee malfeasance, or human or technological error create risks of shutdowns or disruptions of our operations and potential unauthorized access and/or disclosure of our or our clients’ sensitive data, which in turn could jeopardize projects that are critical to our operations or the operations of our clients’ businesses. For example, on April 20, 2020, we announced a security incident involving a Maze ransomware attack as to which we have an ongoing investigation (see Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding the security incident). The attack resulted in unauthorized access to certain data and caused significant disruption to our business. This included the disabling of some of our systems and disruption caused by our taking certain other internal systems and networks offline as a precautionary measure. The attack compounded the challenges we face in enabling work-from-home arrangements during the COVID-19 pandemic and resulted in setbacks and delays to such efforts. Some of our clients experienced service disruptions due to our reliance on certain of the impacted systems and networks to perform work for clients and the impact to our systems and networks supporting work-from-home capabilities. In addition, some clients opted to suspend our access to their networks as a security precaution. In this circumstance, we are unable to continue providing services via client networks until access is restored. We expect the business disruption caused by and incremental costs resulting from the ransomware attack to adversely impact our financial results primarily with respect to the second quarter of 2020. We have and expect to continue to experience a loss of revenue due to the interruption in our ability to provide services to some clients, either as a direct consequence of the attack or as a result of clients suspending our access to their networks as a security precaution, and incur incremental costs for the investigation, containment and remediation of the security incident, including legal and other professional fees, and investments to enhance our overall security environment. The lost revenue and containment, investigation, remediation, legal and other costs will be significant and may exceed our insurance policy limits or may not be covered by insurance at all. Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with customers, regulatory enforcement action, litigation that could result in financial judgments or the payment of settlement amounts and disputes with insurance carriers concerning coverage. In addition to the ransomware attack, we and the businesses we interact with face other threats to data and systems, including by perpetrators of random or targeted malicious cyberattacks, computer viruses, malware, worms, bot

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attacks or other destructive or disruptive software and attempts to misappropriate client information and cause system failures and disruptions.

A security compromise of our information systems, such as the security incident announced in April 2020, or of those of businesses with whom we interact, that results in confidential information being accessed by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions, client attrition due to reputational concerns or otherwise, containment and remediation expenses, and claims brought by our clients or others for breaching contractual confidentiality and security provisions or data protection laws. Monetary damages imposed on us could be significant and may impose costs in excess of insurance policy limits or not covered by our insurance at all. Techniques used by bad actors to obtain unauthorized access, disable or degrade service, or sabotage systems evolve frequently and may not immediately produce signs of intrusion, and we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, a security breach could require that we expend substantial additional resources related to the security of our information systems, diverting resources from other projects and disrupting our businesses. Any remediation measures that we have taken or that we may undertake in the future in response to the security incident announced in April 2020 or other security breaches may be insufficient to prevent future attacks.

We are required to comply with increasingly complex and changing data security and privacy regulations in the United States, the United Kingdom, the European Union and in other jurisdictions in which we operate that regulate the collection, use and transfer of personal data, including the transfer of personal data between or among countries. For example, the European Union’s General Data Protection Regulation has imposed stringent compliance obligations regarding the handling of personal data and has resulted in the issuance of significant financial penalties for noncompliance. In the United States, there have been proposals for federal privacy legislation and many new state privacy laws are on the horizon. Recently enacted legislation, such as the California Consumer Privacy Act, impose extensive privacy requirements on organizations governing personal information. Existing US sectoral laws such as the Health Insurance Portability and Accountability Act also impose extensive privacy and security requirements on organizations operating in the healthcare industry, which Cognizant serves. Additionally, in India, the Personal Data Protection Bill, 2018 was recently cleared for introduction in the current session of the Indian Parliament. If enacted in its current form it would impose stringent obligations on the handling of personal data, including certain localization requirements for sensitive data. Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders. We may also face audits or investigations by one or more domestic or foreign government agencies or our clients pursuant to our contractual obligations relating to our compliance with these regulations. Complying with changing regulatory requirements requires us to incur substantial costs, exposes us to potential regulatory action or litigation, and may require changes to our business practices in certain jurisdictions, any of which could materially adversely affect our business operations and operating results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Our stock repurchase program, as ~~approved~~amended by our Board of Directors in February 2020, allows for the repurchase of up ~~to $5.5~~to $7.5 billion, ~~excluding~~excluding fees and expenses, of our Class A common stock through open market purchases, including under a ~~trading plan adopted pursuant to Rule~~ 10b5-1 ~~of the Exchange Act~~Plan or in private transactions, including through ~~accelerated stock repurchase ("ASR")~~ASR agreements entered into with financial institutions, in accordance with applicable federal securities ~~laws through December 31, 2020.~~laws. The timing of repurchases and the exact number of shares to be purchased are determined by management, in its discretion, or pursuant to a ~~Rule~~ 10b5-1 ~~trading plan,~~Plan, and will depend upon market conditions and other factors.Other than repurchases under our 10b5-1 Plan, we have suspended our repurchase program and have not repurchased any shares since March 31, 2020.

During the three months ended ~~June 30, 2019,~~March 31, 2020, we repurchased ~~$1,037~~$511 million of our Class A common stock under our stock repurchase program. The stock repurchase activity under our stock repurchase program during the three months ended ~~June 30, 2019~~March 31, 2020 was as follows:


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)
January 1, 2020 - January 31, 2020
Open market purchases	—	$	—	—	$	369
February 1, 2020 - February 28, 2020
Open market purchases	4,349,635	68.97		4,349,635	2,069
March 1, 2020 - March 31, 2020
Open market purchases	4,131,769	50.94		4,131,769	1,858
Total	8,481,404	$	60.19	8,481,404

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)
April 1, 2019 - April 30, 2019
Open market purchases —
$ —
—
$ 1,775
May 1, 2019 - May 31, 2019
March 2019 ASR 1,807,592
(a) 1,807,592

Open market purchases 8,573,918
61.25
8,573,918
1,250
June 1, 2019 - June 30, 2019
Open market purchases 8,288,096
61.79
8,288,096
738
Total 18,669,606
$ —
18,669,606


~~(a)~~	In March 2019, we entered into ASR agreements with financial institutions to purchase $600 million of our Class A common stock (the "March 2019 ASR"). The March 2019 ASR settled in May 2019 and an additional 1.8 million shares were delivered. In total, 8.9 million shares were delivered under the March 2019 ASR at an average repurchase price of $67.08.

During the three months ended ~~June 30, 2019,~~March 31, 2020, 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.~~withholdings. For the three months ended ~~June 30, 2019,~~March 31, 2020, such repurchases totaled ~~0.5~~0.3 million shares at an aggregate cost of ~~$35~~$15 million.

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Item 6. Exhibit Index

EXHIBIT INDEX

Incorporated by Reference

Number

Exhibit Description

Form

File No.

Exhibit

Date

Filed or Furnished Herewith

3.1

Restated Certificate of Incorporation, dated June 5, 2018

8-K

000-24429

3.1

6/7/2018

3.2

Amended and Restated Bylaws, as adopted on September 14, 2018

8-K

000-24429

3.1

9/20/2018

10.1

Form of Restricted Stock Unit Award Grant Notice (March 5, 2020 form)

Filed

10.2

Form of Performance-Based Restricted Stock Unit Award Grant Notice (March 5, 2020 form)

Filed

10.3

Cognizant Technology Solutions Corporation Retirement Plan

Filed

31.1

Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed

31.2

Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed

32.1

Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350

Furnished

32.2

Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350

Furnished

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Filed

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed

Incorporated by Reference
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished Herewith
3.1
Restated Certificate of Incorporation, dated June 5, 2018
8-K 000-24429 3.1
6/7/2018
3.2
Amended and Restated Bylaws, as adopted on September 14, 2018
8-K 000-24429 3.1
9/20/2018
31.1
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed
31.2
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed
32.1
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
Furnished
32.2
Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
Furnished
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. Filed
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed

Table of Contents

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:

May 8, 2020

~~Cognizant Technology Solutions Corporation~~

By:

~~Date:~~

~~August 1, 2019~~

~~By:~~

/s/ BRIAN HUMPHRIES

Brian Humphries,

Chief Executive Officer

(Principal Executive Officer)

Date:

May 8, 2020

By:

~~Date:~~

~~August 1, 2019~~

~~By:~~

/s/ KAREN MCLOUGHLIN

Karen McLoughlin,

Chief Financial Officer

(Principal Financial Officer)



	Three Months Ended June 30, 2019										Six Months Ended June 30, 2019
	Three Months Ended June 30, 2019										Six Months Ended June 30, 2019
	FS		HC		P&R		CMT		Total		FS		HC		P&R		CMT		Total
	(in millions)
Revenues
Geography:
North America	$	1,035	$	1,006	$	658	$	440	$	3,139	$	2,053	$	2,048	$	1,299	$	862	$	6,262
United Kingdom	119		29		97		77		322		248		54		191		158		651
Continental Europe	194		80		110		43		427		356		162		225		89		832
Europe - Total	313		109		207		120		749		604		216		416		247		1,483
Rest of World	125		19		62		47		253		252		35		126		93		506
Total	$	1,473	$	1,134	$	927	$	607	$	4,141	$	2,909	$	2,299	$	1,841	$	1,202	$	8,251

Service line:
Consulting and technology services	$	947	$	613	$	561	$	320	$	2,441	$	1,860	$	1,251	$	1,113	$	626	$	4,850
Outsourcing services	526		521		366		287		1,700		1,049		1,048		728		576		3,401
Total	$	1,473	$	1,134	$	927	$	607	$	4,141	$	2,909	$	2,299	$	1,841	$	1,202	$	8,251

Type of contract:
Time and materials	$	920	$	442	$	401	$	379	$	2,142	$	1,839	$	900	$	801	$	754	$	4,294
Fixed-price	477		382		424		197		1,480		941		782		838		387		2,948
Transaction or volume-based	76		310		102		31		519		129		617		202		61		1,009
Total	$	1,473	$	1,134	$	927	$	607	$	4,141	$	2,909	$	2,299	$	1,841	$	1,202	$	8,251



	Three Months Ended June 30, 2018										Six Months Ended June 30, 2018
	Three Months Ended June 30, 2018										Six Months Ended June 30, 2018
	FS		HC		P&R		CMT		Total		FS		HC		P&R		CMT		Total
	(in millions)
Revenues
Geography:
North America	$	1,056	$	1,060	$	585	$	366	$	3,067	$	2,100	$	2,083	$	1,157	$	702	$	6,042
United Kingdom	114		22		89		84		309		230		45		176		168		619
Continental Europe	165		61		109		46		381		327		122		218		88		755
Europe - Total	279		83		198		130		690		557		167		394		256		1,374
Rest of World	134		13		57		45		249		273		27		110		92		502
Total	$	1,469	$	1,156	$	840	$	541	$	4,006	$	2,930	$	2,277	$	1,661	$	1,050	$	7,918

Service line:
Consulting and technology services	$	885	$	613	$	499	$	289	$	2,286	$	1,756	$	1,251	$	980	$	567	$	4,554
Outsourcing services	584		543		341		252		1,720		1,174		1,026		681		483		3,364
Total	$	1,469	$	1,156	$	840	$	541	$	4,006	$	2,930	$	2,277	$	1,661	$	1,050	$	7,918

Type of contract:
Time and materials	$	953	$	452	$	379	$	335	$	2,119	$	1,888	$	900	$	748	$	641	$	4,177
Fixed-price	460		443		367		179		1,449		931		954		728		358		2,971
Transaction or volume-based	56		261		94		27		438		111		423		185		51		770
Total	$	1,469	$	1,156	$	840	$	541	$	4,006	$	2,930	$	2,277	$	1,661	$	1,050	$	7,918



	Costs to Fulfill
	(in millions)
Balance - December 31, 2018	$	400
Amortization expense	(38		)
Costs capitalized	92
Balance - June 30, 2019	$	454



	Contract Assets
	(in millions)
Balance - December 31, 2018	$	305
Revenues recognized during the period but not billed	295
Amounts reclassified to accounts receivable	(250		)
Balance - June 30, 2019	$	350



	June 30, 2019		December 31, 2018
	(in millions)
Short-term investments:
Equity investment securities	$	26	$	25
Available-for-sale investment securities	—		1,760
Held-to-maturity investment securities	810		1,065
Time deposits ⁽¹⁾	507		500
Total short-term investments	$	1,343	$	3,350



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	(in millions)
Proceeds from sales of available-for-sale investment securities	$	1,398		$	1,712

Gross gains	$	5		$	6
Gross losses	(4		)	(5		)
Net realized gains on sales of available-for-sale investment securities	$	1		$	1



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
U.S. Treasury and agency debt securities	$	630	$	1	$	(6	)	$	625
Corporate and other debt securities	420		—		(4		)	416
Certificates of deposit and commercial paper	296		—		—			296
Asset-backed securities	336		—		(2		)	334
Municipal debt securities	90		—		(1		)	89
Total available-for-sale investment securities	$	1,772	$	1	$	(13	)	$	1,760



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
	(in millions)
Proceeds from sales of available-for-sale investment securities	$	434		$	559

Gross gains	$	—		$	—
Gross losses	(1		)	(2		)
Net realized (losses) on sales of available-for-sale investment securities	$	(1	)	$	(2	)



Location on Statement of Financial Position	January 1, 2019
	(in millions)
Property and equipment, net⁽¹⁾	$	(81	)
Operating lease assets, net^{(1) (2) (3)}	839
Total Assets	$	758

Operating lease liabilities^{(2) (3)}	$	191
Operating lease liabilities, noncurrent^{(2) (3)}	670
Accrued expenses and other liabilities⁽³⁾	(10		)
Other noncurrent liabilities⁽³⁾	(95		)
Total Liabilities	$	756

Retained earnings⁽⁴⁾	$	2



Leases	Location on Statement of Financial Position	June 30, 2019
Assets		(in millions)
ROU operating lease assets	Operating lease assets, net	$	847
ROU finance lease assets	Property and equipment, net	18
	Total	$	865

Liabilities
Current
Operating lease	Operating lease liabilities	$	201
Finance lease	Accrued expenses and other current liabilities	12
Noncurrent
Operating lease	Operating lease liabilities, noncurrent	679
Finance lease	Other noncurrent liabilities	16
	Total	$	908



	June 30, 2019
	(in millions)
2019- remainder of year	$	125
2020	230
2021	186
2022	142
2023	108
2024	70
Thereafter	187
Total lease payments	1,048
Interest	(168		)
Total lease liabilities	$	880



	Change in Derivative Gains/Losses Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion)					Location of Net Derivative Gains and (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)	Net Gains and (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)
	2019		2018				2019		2018
	(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments	$	19	$	(91	)	Cost of revenues	$	3	$	18
						Selling, general and administrative expenses	1		3
						Total	$	4	$	21



	Three Months									Six Months
	Before Tax Amount			Tax Effect			Net of Tax Amount			Before Tax Amount			Tax Effect			Net of Tax Amount
	(in millions)
Foreign currency translation adjustments:
Beginning balance	$	(111	)	$	6		$	(105	)	$	(108	)	$	5		$	(103	)
Change in foreign currency translation adjustments	(6		)	(3		)	(9		)	(9		)	(2		)	(11		)
Ending balance	$	(117	)	$	3		$	(114	)	$	(117	)	$	3		$	(114	)

Unrealized (losses) on available-for-sale investment securities:
Beginning balance	$	(3	)	$	1		$	(2	)	$	(12	)	$	4		$	(8	)
Net gains arising during the period	4			(1		)	3			13			(4		)	9
Reclassification of net losses to Other, net	(1		)	—			(1		)	(1		)	—			(1		)
Net change	3			(1		)	2			12			(4		)	8
Ending balance	$	—		$	—		$	—		$	—		$	—		$	—

Unrealized gains on cash flow hedges:
Beginning balance	$	39		$	(6	)	$	33		$	(4	)	$	1		$	(3	)
Unrealized gains arising during the period	19			(4		)	15			58			(11		)	47
Reclassifications of net (gains) to:
Cost of revenues	(3		)	—			(3		)	—			—			—
Selling, general and administrative expenses	(1		)	—			(1		)	—			—			—
Net change	15			(4		)	11			58			(11		)	47
Ending balance	$	54		$	(10	)	$	44		$	54		$	(10	)	$	44

Accumulated other comprehensive income (loss):
Beginning balance	$	(75	)	$	1		$	(74	)	$	(124	)	$	10		$	(114	)
Other comprehensive income (loss)	12			(8		)	4			61			(17		)	44
Ending balance	$	(63	)	$	(7	)	$	(70	)	$	(63	)	$	(7	)	$	(70	)



	Three Months Ended June 30,
	2019		2018
Top five customers	8.0	%	8.6	%
Top ten customers	14.5	%	15.4	%



	Six Months Ended June 30,
	2019		2018
Revenues from top five customers as a percentage of total revenues	8.4	%	8.6	%
Revenues from top ten customers as a percentage of total revenues	15.1	%	15.6	%