UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended | September 30, 20202021 |
☐ | 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)
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Delaware | | 13-3728359 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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Glenpointe Centre West | | |
500 Frank W. Burr Blvd. | | |
Teaneck, | New Jersey | | 07666 |
(Address of Principal Executive Offices) | | |
300 Frank W. Burr Blvd.
Teaneck, New Jersey 07666
(Address of Principal Executive Offices including Zip Code)
Registrant’s telephone number, including area code: (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:
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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”,filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer | ☒ | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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| | 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 classclasses of common stock, as of October 23, 2020:22, 2021:
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Class | | Number of Shares |
Class A Common Stock, par value $0.01 per share | | 534,641,037525,251,734 |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
TABLE OF CONTENTS
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PART I. | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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GLOSSARY
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Defined Term | Definition |
10b5-1 Plan | Trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act |
10th Magnitude
| 10th Magnitude Holdings, LLC
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Adjusted Diluted EPS | Adjusted Diluted Earnings Per Share |
AI | Artificial Intelligence |
ASC | Accounting Standards Codification |
ASR | Accelerated Stock Repurchase |
Budget of India | Union Budget of India for 2020-2021 |
CC | Constant Currency |
Code ZeroClass Action Settlement Loss | Code Zero, LLCLoss recorded in connection with the filing of a settlement agreement that, subject to the approval of the USDC-NJ, would resolve the consolidated putative securities class action against us and certain of our former officers |
Collaborative SolutionsCMT | Collaborative Solutions Holdings, LLC |
Contino | Contino Holdings, Inc.Communications, Media and Technology |
COVID-19 | The novel coronavirus disease |
COVID-19 Charges | Costs directly related to the COVID-19 pandemic |
Credit Agreement | Credit agreement with a commercial bank syndicate dated November 5, 2018 |
Credit Loss Standard | ASC Topic 326: "Financial Instruments - Credit Losses" |
CTS India | Our principal operating subsidiary in India |
DDTDevOps | Dividend Distribution TaxAgile relationship between development and IT operations |
Division Bench | Division Bench of the Madras High Court |
DOJ | United States Department of Justice |
DSO | Days Sales Outstanding |
EI-Technologies | Entrepreneurs et Investisseurs Technologies SA |
EPS | Earnings Per Share |
ESG Mobility | ESG Mobility GmbH |
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 in 2019 |
GAAP | Generally Accepted Accounting Principles in the United States of America |
High Court | Madras High Court |
Hunter | Certain net assets of Hunter Technical Resources, LLC |
India Defined Contribution Obligation | Certain statutory defined contribution obligations of employees and employers in India |
IoT | Internet of Things |
IRS | Internal Revenue Service |
IT | Information Technology |
ITD | Indian Income Tax Department |
Lev | Levementum, LLC |
LIBOR | London Inter-bankInter-Bank Offered Rate |
New SignatureLinium | BSI Corporate Holdings, Inc.The ServiceNow business of Ness Digital Engineering |
Magenic | Magenic Technologies, LLC |
SCI | Supreme Court of India |
SEC | United States Securities and Exchange Commission |
SCIServian | Supreme Court of IndiaSVN HoldCo Pty Limited |
SG&A | Selling, general and administrative |
SLP | Special Leave Petition |
Syntel | Syntel Sterling Best Shores Mauritius Ltd. |
Tax on Accumulated Indian Earnings | The income tax expense related to the reversal of our indefinite reinvestment assertion on Indian earnings accumulated in prior years |
Term Loan | Unsecured term loan |
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Tin RoofCognizant | 1 | September 30, 2021 Form 10-Q |
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Third Circuit | Tin Roof Software, LLCUnited States Court of Appeals for the Third Circuit |
TQS | TQS Integration Limited |
TriZetto | The TriZetto Group, Inc., now known as Cognizant Technology Software Group, Inc. |
ZenithUSDC-NJ | Zenith Technologies LimitedUnited States District Court for the District of New Jersey |
USDC-SDNY | United States District Court for the Southern District of New York |
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Cognizant | 2 | September 30, 2021 Form 10-Q |
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)
| | September 30, 2020 | | December 31, 2019 | |
(in millions, except par values) | | (in millions, except par values) | September 30, 2021 | | December 31, 2020 |
Assets | Assets | | | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 4,436 | | | $ | 2,645 | | Cash and cash equivalents | $ | 1,664 | | | $ | 2,680 | |
Short-term investments | Short-term investments | 139 | | | 779 | | Short-term investments | 749 | | | 44 | |
Trade accounts receivable, net | Trade accounts receivable, net | 3,118 | | | 3,256 | | Trade accounts receivable, net | 3,510 | | | 3,087 | |
Other current assets | Other current assets | 926 | | | 931 | | Other current assets | 1,072 | | | 1,040 | |
Total current assets | Total current assets | 8,619 | | | 7,611 | | Total current assets | 6,995 | | | 6,851 | |
Property and equipment, net | Property and equipment, net | 1,313 | | | 1,309 | | Property and equipment, net | 1,179 | | | 1,251 | |
Operating lease assets, net | Operating lease assets, net | 1,004 | | | 926 | | Operating lease assets, net | 956 | | | 1,013 | |
Goodwill | Goodwill | 4,931 | | | 3,979 | | Goodwill | 5,451 | | | 5,031 | |
Intangible assets, net | Intangible assets, net | 1,087 | | | 1,041 | | Intangible assets, net | 1,198 | | | 1,046 | |
Deferred income tax assets, net | Deferred income tax assets, net | 563 | | | 585 | | Deferred income tax assets, net | 282 | | | 445 | |
Long-term investments | Long-term investments | 441 | | | 17 | | Long-term investments | 466 | | | 440 | |
Other noncurrent assets | Other noncurrent assets | 829 | | | 736 | | Other noncurrent assets | 705 | | | 846 | |
Total assets | Total assets | $ | 18,787 | | | $ | 16,204 | | Total assets | $ | 17,232 | | | $ | 16,923 | |
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | Liabilities and Stockholders’ Equity | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 420 | | | $ | 239 | | Accounts payable | $ | 351 | | | $ | 389 | |
Deferred revenue | Deferred revenue | 285 | | | 313 | | Deferred revenue | 312 | | | 383 | |
Short-term debt | Short-term debt | 38 | | | 38 | | Short-term debt | 38 | | | 38 | |
Operating lease liabilities | Operating lease liabilities | 213 | | | 202 | | Operating lease liabilities | 200 | | | 211 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 2,340 | | | 2,191 | | Accrued expenses and other current liabilities | 2,418 | | | 2,519 | |
Total current liabilities | Total current liabilities | 3,296 | | | 2,983 | | Total current liabilities | 3,319 | | | 3,540 | |
Deferred revenue, noncurrent | Deferred revenue, noncurrent | 32 | | | 23 | | Deferred revenue, noncurrent | 37 | | | 36 | |
Operating lease liabilities, noncurrent | Operating lease liabilities, noncurrent | 820 | | | 745 | | Operating lease liabilities, noncurrent | 804 | | | 846 | |
Deferred income tax liabilities, net | Deferred income tax liabilities, net | 310 | | | 35 | | Deferred income tax liabilities, net | 214 | | | 206 | |
Long-term debt | Long-term debt | 2,412 | | | 700 | | Long-term debt | 636 | | | 663 | |
Long-term income taxes payable | Long-term income taxes payable | 428 | | | 478 | | Long-term income taxes payable | 378 | | | 428 | |
Other noncurrent liabilities | Other noncurrent liabilities | 349 | | | 218 | | Other noncurrent liabilities | 298 | | | 368 | |
Total liabilities | Total liabilities | 7,647 | | | 5,182 | | Total liabilities | 5,686 | | | 6,087 | |
Commitments and contingencies (See Note 12) | Commitments and contingencies (See Note 12) | | | | Commitments and contingencies (See Note 12) | 0 | | 0 |
Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.10 par value, 15 shares authorized, NaN issued | 0 | | | 0 | | |
Class A common stock, $0.01 par value, 1,000 shares authorized, 539 and 548 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 5 | | | 5 | | |
Preferred stock, $0.10 par value, 15 shares authorized, none issued | | Preferred stock, $0.10 par value, 15 shares authorized, none issued | — | | | — | |
Class A common stock, $0.01 par value, 1,000 shares authorized, 525 and 530 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | | Class A common stock, $0.01 par value, 1,000 shares authorized, 525 and 530 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 5 | | | 5 | |
Additional paid-in capital | Additional paid-in capital | 33 | | | 33 | | Additional paid-in capital | 29 | | | 32 | |
Retained earnings | Retained earnings | 11,142 | | | 11,022 | | Retained earnings | 11,479 | | | 10,689 | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (40) | | | (38) | | Accumulated other comprehensive income (loss) | 33 | | | 110 | |
Total stockholders’ equity | Total stockholders’ equity | 11,140 | | | 11,022 | | Total stockholders’ equity | 11,546 | | | 10,836 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 18,787 | | | $ | 16,204 | | Total liabilities and stockholders’ equity | $ | 17,232 | | | $ | 16,923 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
2
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Cognizant | 3 | September 30, 2021 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share data)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues | $ | 4,243 | | | $ | 4,248 | | | $ | 12,468 | | | $ | 12,499 | |
Operating expenses: | | | | | | | |
Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | 2,647 | | | 2,681 | | | 8,009 | | | 7,885 | |
Selling, general and administrative expenses | 804 | | | 706 | | | 2,226 | | | 2,296 | |
Restructuring charges | 51 | | | 65 | | | 177 | | | 116 | |
Depreciation and amortization expense | 138 | | | 127 | | | 407 | | | 375 | |
Income from operations | 603 | | | 669 | | | 1,649 | | | 1,827 | |
Other income (expense), net: | | | | | | | |
Interest income | 27 | | | 43 | | | 105 | | | 136 | |
Interest expense | (6) | | | (7) | | | (21) | | | (20) | |
Foreign currency exchange gains (losses), net | (1) | | | (47) | | | (105) | | | (29) | |
Other, net | 1 | | | 0 | | | 1 | | | 3 | |
Total other income (expense), net | 21 | | | (11) | | | (20) | | | 90 | |
Income before provision for income taxes | 624 | | | 658 | | | 1,629 | | | 1,917 | |
Provision for income taxes | (276) | | | (160) | | | (552) | | | (469) | |
Income (loss) from equity method investments | 0 | | | (1) | | | (1) | | | (1) | |
Net income | $ | 348 | | | $ | 497 | | | $ | 1,076 | | | $ | 1,447 | |
Basic earnings per share | $ | 0.64 | | | $ | 0.90 | | | $ | 1.98 | | | $ | 2.57 | |
Diluted earnings per share | $ | 0.64 | | | $ | 0.90 | | | $ | 1.98 | | | $ | 2.57 | |
Weighted average number of common shares outstanding - Basic | 542 | | | 551 | | | 543 | | | 563 | |
Dilutive effect of shares issuable under stock-based compensation plans | 1 | | | 0 | | | 0 | | | 0 | |
Weighted average number of common shares outstanding - Diluted | 543 | | | 551 | | | 543 | | | 563 | |
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(in millions, except per share data) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues | $ | 4,744 | | | $ | 4,243 | | | $ | 13,730 | | | $ | 12,468 | |
Operating expenses: | | | | | | | |
Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | 2,947 | | | 2,647 | | | 8,574 | | | 8,009 | |
Selling, general and administrative expenses | 924 | | | 804 | | | 2,632 | | | 2,226 | |
Restructuring charges | — | | | 51 | | | — | | | 177 | |
Depreciation and amortization expense | 144 | | | 138 | | | 430 | | | 407 | |
Income from operations | 729 | | | 603 | | | 2,094 | | | 1,649 | |
Other income (expense), net: | | | | | | | |
Interest income | 7 | | | 27 | | | 23 | | | 105 | |
Interest expense | (3) | | | (6) | | | (7) | | | (21) | |
Foreign currency exchange gains (losses), net | (3) | | | (1) | | | (19) | | | (105) | |
Other, net | 1 | | | 1 | | | (1) | | | 1 | |
Total other income (expense), net | 2 | | | 21 | | | (4) | | | (20) | |
Income before provision for income taxes | 731 | | | 624 | | | 2,090 | | | 1,629 | |
Provision for income taxes | (187) | | | (276) | | | (531) | | | (552) | |
Income (loss) from equity method investments | — | | | — | | | 2 | | | (1) | |
Net income | $ | 544 | | | $ | 348 | | | $ | 1,561 | | | $ | 1,076 | |
Basic earnings per share | $ | 1.04 | | | $ | 0.64 | | | $ | 2.96 | | | $ | 1.98 | |
Diluted earnings per share | $ | 1.03 | | | $ | 0.64 | | | $ | 2.96 | | | $ | 1.98 | |
Weighted average number of common shares outstanding - Basic | 525 | | | 542 | | | 527 | | | 543 | |
Dilutive effect of shares issuable under stock-based compensation plans | 1 | | | 1 | | | 1 | | | — | |
Weighted average number of common shares outstanding - Diluted | 526 | | | 543 | | | 528 | | | 543 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
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Cognizant | 4 | September 30, 2021 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income | $ | 348 | | | $ | 497 | | | $ | 1,076 | | | $ | 1,447 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | 90 | | | (65) | | | (7) | | | (76) | |
Change in unrealized gains and losses on cash flow hedges | 58 | | | (24) | | | 5 | | | 23 | |
Change in unrealized gains and losses on available-for-sale securities | 0 | | | 0 | | | 0 | | | 8 | |
Other comprehensive income (loss) | 148 | | | (89) | | | (2) | | | (45) | |
Comprehensive income | $ | 496 | | | $ | 408 | | | $ | 1,074 | | | $ | 1,402 | |
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(in millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income | $ | 544 | | | $ | 348 | | | $ | 1,561 | | | $ | 1,076 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | (63) | | | 90 | | | (74) | | | (7) | |
Change in unrealized gains and losses on cash flow hedges | 14 | | | 58 | | | (3) | | | 5 | |
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Other comprehensive income (loss) | (49) | | | 148 | | | (77) | | | (2) | |
Comprehensive income | $ | 495 | | | $ | 496 | | | $ | 1,484 | | | $ | 1,074 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
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Cognizant | 5 | September 30, 2021 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Class A Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Shares | | Amount | |
Balance, December 31, 2020 | | 530 | | | $ | 5 | | | $ | 32 | | | $ | 10,689 | | | $ | 110 | | | $ | 10,836 | |
Net income | | — | | | — | | | — | | | 505 | | | — | | | 505 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (29) | | | (29) | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 43 | | | — | | | — | | | 43 | |
Stock-based compensation expense | | — | | | — | | | 62 | | | — | | | — | | | 62 | |
Repurchases of common stock | | (3) | | | — | | | (93) | | | (159) | | | — | | | (252) | |
Dividends declared, $0.24 per share | | — | | | — | | | — | | | (128) | | | — | | | (128) | |
Balance, March 31, 2021 | | 528 | | | 5 | | | 44 | | | 10,907 | | | 81 | | | 11,037 | |
Net income | | — | | | — | | | — | | | 512 | | | — | | | 512 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 32 | | | — | | | — | | | 32 | |
Stock-based compensation expense | | — | | | — | | | 67 | | | — | | | — | | | 67 | |
Repurchases of common stock | | (4) | | | — | | | (111) | | | (205) | | | — | | | (316) | |
Dividends declared, $0.24 per share | | — | | | — | | | — | | | (128) | | | — | | | (128) | |
Balance, June 30, 2021 | | 525 | | | 5 | | | 32 | | | 11,086 | | | 82 | | | 11,205 | |
Net income | | — | | | — | | | — | | | 544 | | | — | | | 544 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (49) | | | (49) | |
Common stock issued, stock-based compensation plans | | 2 | | | — | | | 29 | | | — | | | — | | | 29 | |
Stock-based compensation expense | | — | | | — | | | 65 | | | — | | | — | | | 65 | |
Repurchases of common stock | | (2) | | | — | | | (97) | | | (24) | | | — | | | (121) | |
Dividends declared, $0.24 per share | | — | | | — | | | — | | | (127) | | | — | | | (127) | |
Balance, September 30, 2021 | | 525 | | | $ | 5 | | | $ | 29 | | | $ | 11,479 | | | $ | 33 | | | $ | 11,546 | |
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| | 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 | |
Net income | | — | | | — | | | — | | | 361 | | | — | | | 361 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 76 | | | 76 | |
Common stock issued, stock-based compensation plans | | 2 | | | — | | | 36 | | | — | | | — | | | 36 | |
Stock-based compensation expense | | — | | | — | | | 65 | | | — | | | — | | | 65 | |
Repurchases of common stock | | (1) | | | — | | | (59) | | | 0 | | | — | | | (59) | |
Dividends declared, $0.22 per share | | — | | | — | | | — | | | (120) | | | — | | | (120) | |
Balance, June 30, 2020 | | 542 | | | 5 | | | 83 | | | 11,072 | | | (188) | | | 10,972 | |
Net income | | — | | | — | | | — | | | 348 | | | — | | | 348 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 148 | | | 148 | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 33 | | | — | | | — | | | 33 | |
Stock-based compensation expense | | — | | | — | | | 58 | | | — | | | — | | | 58 | |
Repurchases of common stock | | (4) | | | — | | | (141) | | | (156) | | | — | | | (297) | |
Dividends declared, $0.22 per share | | — | | | — | | | — | | | (122) | | | — | | | (122) | |
Balance, September 30, 2020 | | 539 | | | $ | 5 | | | $ | 33 | | | $ | 11,142 | | | $ | (40) | | | $ | 11,140 | |
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Cognizant | 6 | September 30, 2021 Form 10-Q |
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(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 | |
Net income | | — | | | — | | | — | | | 361 | | | — | | | 361 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 76 | | | 76 | |
Common stock issued, stock-based compensation plans | | 2 | | | — | | | 36 | | | — | | | — | | | 36 | |
Stock-based compensation expense | | — | | | — | | | 65 | | | — | | | — | | | 65 | |
Repurchases of common stock | | (1) | | | — | | | (59) | | | — | | | — | | | (59) | |
Dividends declared, $0.22 per share | | — | | | — | | | — | | | (120) | | | — | | | (120) | |
Balance, June 30, 2020 | | 542 | | | 5 | | | 83 | | | 11,072 | | | (188) | | | 10,972 | |
Net income | | — | | | — | | | — | | | 348 | | | — | | | 348 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 148 | | | 148 | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 33 | | | — | | | — | | | 33 | |
Stock-based compensation expense | | — | | | — | | | 58 | | | — | | | — | | | 58 | |
Repurchases of common stock | | (4) | | | — | | | (141) | | | (156) | | | — | | | (297) | |
Dividends declared, $0.22 per share | | — | | | — | | | — | | | (122) | | | — | | | (122) | |
Balance, September 30, 2020 | | 539 | | | $ | 5 | | | $ | 33 | | | $ | 11,142 | | | $ | (40) | | | $ | 11,140 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)Reflects the adoption of the Credit Loss Standard as described in Note 1.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF 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, 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 | |
Net income | | — | | | — | | | — | | | 497 | | | — | | | 497 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (89) | | | (89) | |
Common stock issued, stock-based compensation plans | | 2 | | | — | | | 37 | | | — | | | — | | | 37 | |
Stock-based compensation expense | | — | | | — | | | 52 | | | — | | | — | | | 52 | |
Repurchases of common stock | | (4) | | | — | | | (92) | | | (149) | | | — | | | (241) | |
Dividends declared, $0.20 per share | | — | | | — | | | — | | | (111) | | | — | | | (111) | |
Balance, September 30, 2019 | | 550 | | | $ | 6 | | | $ | 35 | | | $ | 10,820 | | | $ | (159) | | | $ | 10,702 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)Reflects the adoption of ASC Topic 842 “Leases” on January 1, 2019.2020. 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.
2020.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
6
| | | | | | | | |
Cognizant | 7 | September 30, 2021 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
| | For the Nine Months Ended September 30, | |
(in millions) | | (in millions) | For the Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | |
Net income | Net income | $ | 1,076 | | | $ | 1,447 | | Net income | $ | 1,561 | | | $ | 1,076 | |
Adjustments to reconcile net income to net cash provided by operating activities: | 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 | Depreciation and amortization | 411 | | | 393 | | Depreciation and amortization | 430 | | | 411 | |
| Deferred income taxes | Deferred income taxes | 290 | | | (203) | | Deferred income taxes | 146 | | | 290 | |
Stock-based compensation expense | Stock-based compensation expense | 178 | | | 172 | | Stock-based compensation expense | 194 | | | 178 | |
| Other | Other | 107 | | | 39 | | Other | (1) | | | 107 | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Trade accounts receivable | Trade accounts receivable | 212 | | | (176) | | Trade accounts receivable | (371) | | | 212 | |
Other current and noncurrent assets | Other current and noncurrent assets | 96 | | | (80) | | Other current and noncurrent assets | 257 | | | 96 | |
Accounts payable | Accounts payable | 83 | | | 21 | | Accounts payable | (39) | | | 83 | |
Deferred revenues, current and noncurrent | Deferred revenues, current and noncurrent | (36) | | | (14) | | Deferred revenues, current and noncurrent | (75) | | | (36) | |
Other current and noncurrent liabilities | Other current and noncurrent liabilities | (16) | | | (38) | | Other current and noncurrent liabilities | (432) | | | (16) | |
Net cash provided by operating activities | Net cash provided by operating activities | 2,401 | | | 1,561 | | Net cash provided by operating activities | 1,670 | | | 2,401 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | |
Purchases of property and equipment | Purchases of property and equipment | (309) | | | (299) | | Purchases of property and equipment | (214) | | | (309) | |
Purchases of available-for-sale investment securities | Purchases of available-for-sale investment securities | 0 | | | (333) | | Purchases of available-for-sale investment securities | (400) | | | — | |
Proceeds from maturity or sale of available-for-sale investment securities | Proceeds from maturity or sale of available-for-sale investment securities | 0 | | | 2,107 | | Proceeds from maturity or sale of available-for-sale investment securities | 105 | | | — | |
Purchases of held-to-maturity investment securities | Purchases of held-to-maturity investment securities | (202) | | | (423) | | Purchases of held-to-maturity investment securities | (160) | | | (202) | |
Proceeds from maturity of held-to-maturity investment securities | Proceeds from maturity of held-to-maturity investment securities | 373 | | | 1,281 | | Proceeds from maturity of held-to-maturity investment securities | 150 | | | 373 | |
Purchases of other investments | Purchases of other investments | (446) | | | (460) | | Purchases of other investments | (1,192) | | | (446) | |
Proceeds from maturity or sale of other investments | Proceeds from maturity or sale of other investments | 464 | | | 468 | | Proceeds from maturity or sale of other investments | 760 | | | 464 | |
Payments for business combinations, net of cash acquired | Payments for business combinations, net of cash acquired | (1,069) | | | (378) | | Payments for business combinations, net of cash acquired | (715) | | | (1,069) | |
Net cash (used in) provided by investing activities | (1,189) | | | 1,963 | | |
Net cash (used in) investing activities | | Net cash (used in) investing activities | (1,666) | | | (1,189) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | |
Issuance of common stock under stock-based compensation plans | Issuance of common stock under stock-based compensation plans | 109 | | | 127 | | Issuance of common stock under stock-based compensation plans | 104 | | | 109 | |
| Repurchases of common stock | Repurchases of common stock | (833) | | | (2,084) | | Repurchases of common stock | (689) | | | (833) | |
Repayment of Term Loan borrowings and finance lease and earnout obligations | Repayment of Term Loan borrowings and finance lease and earnout obligations | (37) | | | (16) | | Repayment of Term Loan borrowings and finance lease and earnout obligations | (40) | | | (37) | |
Borrowings under the revolving credit facility | 1,740 | | | 0 | | |
Proceeds from borrowings under the revolving credit facility | | Proceeds from borrowings under the revolving credit facility | — | | | 1,740 | |
Dividends paid | Dividends paid | (362) | | | (343) | | Dividends paid | (382) | | | (362) | |
Net cash provided by (used in) financing activities | 617 | | | (2,316) | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (1,007) | | | 617 | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (38) | | | (26) | | Effect of exchange rate changes on cash and cash equivalents | (13) | | | (38) | |
Increase in cash and cash equivalents | 1,791 | | | 1,182 | | |
(Decrease) increase in cash and cash equivalents | | (Decrease) increase in cash and cash equivalents | (1,016) | | | 1,791 | |
Cash and cash equivalents, beginning of year | Cash and cash equivalents, beginning of year | 2,645 | | | 1,161 | | Cash and cash equivalents, beginning of year | 2,680 | | | 2,645 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 4,436 | | | $ | 2,343 | | Cash and cash equivalents, end of period | $ | 1,664 | | | $ | 4,436 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
7
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Cognizant | 8 | September 30, 2021 Form 10-Q |
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 U.S. GAAP and the Exchange Act. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. In our opinion, all adjustments considered necessary for a fair statement of the accompanying unaudited consolidated financial statements have been included and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.
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. During the first nine months of 2020, the global COVID-19 pandemic caused 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. The COVID-19 pandemic negatively impacted 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 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.
For the quarter ended March 31, 2020, 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 as of March 31 indicated that the fair values of all of our reporting units exceeded their carrying values and thus, no impairment of goodwill existed as of March 31, 2020. No additional triggers for an interim impairment test have been identified since 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 |
June 2016
Financial Instruments-Credit Losses | January 1, 2020
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 incurred loss impairment model with an expected loss methodology. The recorded credit losses are adjusted each period for changes in expected lifetime credit losses. The standard requires a cumulative effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance 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 year amounts are not adjusted and continue to be reported in accordance with our historical accounting policies.
|
| | | | | | | | | | | | | | |
Note 2 — Revenues and Trade Accounts Receivable |
Disaggregation of Revenues
The tables below present disaggregated revenues from contracts with clients by client location, service line and contract-typecontract type for each of our business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. Revenues are attributed to geographic regions based upon client location.location, which is the client's billing address. Substantially all revenues in our North America region relate to operations in the United States.
We have defined our Financial Services, Healthcare, Products and Resources and Communications, Media and Technology segments as ("FS"), ("HC"), ("P&R"), and ("CMT"), respectively, in our disaggregation of revenues tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 |
| | |
| | FS | | HC | | P&R | | CMT | | Total | | FS | | HC | | P&R | | CMT | | Total |
| | (in millions) |
Revenues | | | | | | | | | | | | | | | | | | | | |
Geography: | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 1,033 | | | $ | 1,054 | | | $ | 666 | | | $ | 426 | | | $ | 3,179 | | | $ | 3,023 | | | $ | 3,091 | | | $ | 1,975 | | | $ | 1,286 | | | $ | 9,375 | |
United Kingdom | | 123 | | | 40 | | | 96 | | | 86 | | | 345 | | | 353 | | | 116 | | | 278 | | | 249 | | | 996 | |
Continental Europe | | 181 | | | 116 | | | 97 | | | 43 | | | 437 | | | 554 | | | 317 | | | 300 | | | 122 | | | 1,293 | |
Europe - Total | | 304 | | | 156 | | | 193 | | | 129 | | | 782 | | | 907 | | | 433 | | | 578 | | | 371 | | | 2,289 | |
Rest of World | | 132 | | | 21 | | | 68 | | | 61 | | | 282 | | | 386 | | | 58 | | | 195 | | | 165 | | | 804 | |
Total | | $ | 1,469 | | | $ | 1,231 | | | $ | 927 | | | $ | 616 | | | $ | 4,243 | | | $ | 4,316 | | | $ | 3,582 | | | $ | 2,748 | | | $ | 1,822 | | | $ | 12,468 | |
| | | | | | | | | | | | | | | | | | | | |
Service line: | | | | | | | | | | | | | | | | | | | | |
Consulting and technology services | | $ | 984 | | | $ | 725 | | | $ | 564 | | | $ | 369 | | | $ | 2,642 | | | $ | 2,864 | | | $ | 2,053 | | | $ | 1,674 | | | $ | 1,055 | | | $ | 7,646 | |
Outsourcing services | | 485 | | | 506 | | | 363 | | | 247 | | | 1,601 | | | 1,452 | | | 1,529 | | | 1,074 | | | 767 | | | 4,822 | |
Total | | $ | 1,469 | | | $ | 1,231 | | | $ | 927 | | | $ | 616 | | | $ | 4,243 | | | $ | 4,316 | | | $ | 3,582 | | | $ | 2,748 | | | $ | 1,822 | | | $ | 12,468 | |
| | | | | | | | | | | | | | | | | | | | |
Type of contract: | | | | | | | | | | | | | | | | | | | | |
Time and materials | | $ | 932 | | | $ | 505 | | | $ | 392 | | | $ | 372 | | | $ | 2,201 | | | $ | 2,689 | | | $ | 1,448 | | | $ | 1,164 | | | $ | 1,112 | | | $ | 6,413 | |
Fixed-price | | 450 | | | 466 | | | 434 | | | 218 | | | 1,568 | | | 1,377 | | | 1,292 | | | 1,286 | | | 638 | | | 4,593 | |
Transaction or volume-based | | 87 | | | 260 | | | 101 | | | 26 | | | 474 | | | 250 | | | 842 | | | 298 | | | 72 | | | 1,462 | |
Total | | $ | 1,469 | | | $ | 1,231 | | | $ | 927 | | | $ | 616 | | | $ | 4,243 | | | $ | 4,316 | | | $ | 3,582 | | | $ | 2,748 | | | $ | 1,822 | | | $ | 12,468 | |
We expect the COVID-19 pandemic to continue to impact demand across all our segments throughout the remainder of 2020 and potentially beyond, with particular impact to 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 segment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| | |
(in millions) | | FS | | HC | | P&R | | CMT | | Total | | FS | | HC | | P&R | | CMT | | Total |
| | | | | | | | | | | | | | | | | | | | |
Geography: | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 1,075 | | | $ | 1,162 | | | $ | 749 | | | $ | 500 | | | $ | 3,486 | | | $ | 3,137 | | | $ | 3,394 | | | $ | 2,190 | | | $ | 1,420 | | | $ | 10,141 | |
United Kingdom | | 140 | | | 44 | | | 125 | | | 121 | | | 430 | | | 395 | | | 129 | | | 347 | | | 332 | | | 1,203 | |
Continental Europe | | 187 | | | 118 | | | 145 | | | 34 | | | 484 | | | 565 | | | 356 | | | 380 | | | 121 | | | 1,422 | |
Europe - Total | | 327 | | | 162 | | | 270 | | | 155 | | | 914 | | | 960 | | | 485 | | | 727 | | | 453 | | | 2,625 | |
Rest of World | | 142 | | | 30 | | | 88 | | | 84 | | | 344 | | | 407 | | | 88 | | | 243 | | | 226 | | | 964 | |
Total | | $ | 1,544 | | | $ | 1,354 | | | $ | 1,107 | | | $ | 739 | | | $ | 4,744 | | | $ | 4,504 | | | $ | 3,967 | | | $ | 3,160 | | | $ | 2,099 | | | $ | 13,730 | |
| | | | | | | | | | | | | | | | | | | | |
Service line: | | | | | | | | | | | | | | | | | | | | |
Consulting and technology services | | $ | 1,049 | | | $ | 785 | | | $ | 715 | | | $ | 441 | | | $ | 2,990 | | | $ | 3,028 | | | $ | 2,299 | | | $ | 1,999 | | | $ | 1,259 | | | $ | 8,585 | |
Outsourcing services | | 495 | | | 569 | | | 392 | | | 298 | | | 1,754 | | | 1,476 | | | 1,668 | | | 1,161 | | | 840 | | | 5,145 | |
Total | | $ | 1,544 | | | $ | 1,354 | | | $ | 1,107 | | | $ | 739 | | | $ | 4,744 | | | $ | 4,504 | | | $ | 3,967 | | | $ | 3,160 | | | $ | 2,099 | | | $ | 13,730 | |
| | | | | | | | | | | | | | | | | | | | |
Type of contract: | | | | | | | | | | | | | | | | | | | | |
Time and materials | | $ | 922 | | | $ | 515 | | | $ | 468 | | | $ | 437 | | | $ | 2,342 | | | $ | 2,729 | | | $ | 1,548 | | | $ | 1,332 | | | $ | 1,256 | | | $ | 6,865 | |
Fixed-price | | 527 | | | 554 | | | 530 | | | 265 | | | 1,876 | | | 1,498 | | | 1,582 | | | 1,517 | | | 744 | | | 5,341 | |
Transaction or volume-based | | 95 | | | 285 | | | 109 | | | 37 | | | 526 | | | 277 | | | 837 | | | 311 | | | 99 | | | 1,524 | |
Total | | $ | 1,544 | | | $ | 1,354 | | | $ | 1,107 | | | $ | 739 | | | $ | 4,744 | | | $ | 4,504 | | | $ | 3,967 | | | $ | 3,160 | | | $ | 2,099 | | | $ | 13,730 | |
| | | | | | | | |
Cognizant | 9 | September 30, 2021 Form 10-Q |
| | | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 |
| (in millions) | | (in millions) | | FS | | HC | | P&R | | CMT | | Total | | FS | | HC | | P&R | | CMT | | Total |
| | FS | | HC | | P&R | | CMT | | Total | | FS | | HC | | P&R | | CMT | | Total | |
| (in millions) | |
Revenues | | |
Geography: | Geography: | | Geography: | | | | |
North America | North America | | $ | 1,052 | | | $ | 1,036 | | | $ | 687 | | | $ | 448 | | | $ | 3,223 | | | $ | 3,105 | | | $ | 3,084 | | | $ | 1,986 | | | $ | 1,310 | | | $ | 9,485 | | North America | | $ | 1,033 | | | $ | 1,054 | | | $ | 666 | | | $ | 426 | | | $ | 3,179 | | | $ | 3,023 | | | $ | 3,091 | | | $ | 1,975 | | | $ | 1,286 | | | $ | 9,375 | |
United Kingdom | United Kingdom | | 117 | | | 36 | | | 95 | | | 77 | | | 325 | | | 365 | | | 90 | | | 286 | | | 235 | | | 976 | | United Kingdom | | 123 | | | 40 | | | 96 | | | 86 | | | 345 | | | 353 | | | 116 | | | 278 | | | 249 | | | 996 | |
Continental Europe | Continental Europe | | 192 | | | 85 | | | 115 | | | 38 | | | 430 | | | 548 | | | 247 | | | 340 | | | 127 | | | 1,262 | | Continental Europe | | 181 | | | 116 | | | 97 | | | 43 | | | 437 | | | 554 | | | 317 | | | 300 | | | 122 | | | 1,293 | |
Europe - Total | Europe - Total | | 309 | | | 121 | | | 210 | | | 115 | | | 755 | | | 913 | | | 337 | | | 626 | | | 362 | | | 2,238 | | Europe - Total | | 304 | | | 156 | | | 193 | | | 129 | | | 782 | | | 907 | | | 433 | | | 578 | | | 371 | | | 2,289 | |
Rest of World | Rest of World | | 131 | | | 18 | | | 69 | | | 52 | | | 270 | | | 383 | | | 53 | | | 195 | | | 145 | | | 776 | | Rest of World | | 132 | | | 21 | | | 68 | | | 61 | | | 282 | | | 386 | | | 58 | | | 195 | | | 165 | | | 804 | |
Total | Total | | $ | 1,492 | | | $ | 1,175 | | | $ | 966 | | | $ | 615 | | | $ | 4,248 | | | $ | 4,401 | | | $ | 3,474 | | | $ | 2,807 | | | $ | 1,817 | | | $ | 12,499 | | Total | | $ | 1,469 | | | $ | 1,231 | | | $ | 927 | | | $ | 616 | | | $ | 4,243 | | | $ | 4,316 | | | $ | 3,582 | | | $ | 2,748 | | | $ | 1,822 | | | $ | 12,468 | |
| Service line: | Service line: | | Service line: | |
Consulting and technology services | Consulting and technology services | | $ | 972 | | | $ | 634 | | | $ | 592 | | | $ | 332 | | | $ | 2,530 | | | $ | 2,832 | | | $ | 1,885 | | | $ | 1,705 | | | $ | 958 | | | $ | 7,380 | | Consulting and technology services | | $ | 984 | | | $ | 725 | | | $ | 564 | | | $ | 369 | | | $ | 2,642 | | | $ | 2,864 | | | $ | 2,053 | | | $ | 1,674 | | | $ | 1,055 | | | $ | 7,646 | |
Outsourcing services | Outsourcing services | | 520 | | | 541 | | | 374 | | | 283 | | | 1,718 | | | 1,569 | | | 1,589 | | | 1,102 | | | 859 | | | 5,119 | | Outsourcing services | | 485 | | | 506 | | | 363 | | | 247 | | | 1,601 | | | 1,452 | | | 1,529 | | | 1,074 | | | 767 | | | 4,822 | |
Total | Total | | $ | 1,492 | | | $ | 1,175 | | | $ | 966 | | | $ | 615 | | | $ | 4,248 | | | $ | 4,401 | | | $ | 3,474 | | | $ | 2,807 | | | $ | 1,817 | | | $ | 12,499 | | Total | | $ | 1,469 | | | $ | 1,231 | | | $ | 927 | | | $ | 616 | | | $ | 4,243 | | | $ | 4,316 | | | $ | 3,582 | | | $ | 2,748 | | | $ | 1,822 | | | $ | 12,468 | |
| Type of contract: | Type of contract: | | Type of contract: | |
Time and materials | Time and materials | | $ | 925 | | | $ | 472 | | | $ | 421 | | | $ | 382 | | | $ | 2,200 | | | $ | 2,764 | | | $ | 1,372 | | | $ | 1,222 | | | $ | 1,136 | | | $ | 6,494 | | Time and materials | | $ | 932 | | | $ | 505 | | | $ | 392 | | | $ | 372 | | | $ | 2,201 | | | $ | 2,689 | | | $ | 1,448 | | | $ | 1,164 | | | $ | 1,112 | | | $ | 6,413 | |
Fixed-price | | 481 | | | 420 | | | 441 | | | 202 | | | 1,544 | | | 1,422 | | | 1,202 | | | 1,279 | | | 589 | | | 4,492 | | |
Fixed price | | Fixed price | | 450 | | | 466 | | | 434 | | | 218 | | | 1,568 | | | 1,377 | | | 1,292 | | | 1,286 | | | 638 | | | 4,593 | |
Transaction or volume-based | Transaction or volume-based | | 86 | | | 283 | | | 104 | | | 31 | | | 504 | | | 215 | | | 900 | | | 306 | | | 92 | | | 1,513 | | Transaction or volume-based | | 87 | | | 260 | | | 101 | | | 26 | | | 474 | | | 250 | | | 842 | | | 298 | | | 72 | | | 1,462 | |
Total | Total | | $ | 1,492 | | | $ | 1,175 | | | $ | 966 | | | $ | 615 | | | $ | 4,248 | | | $ | 4,401 | | | $ | 3,474 | | | $ | 2,807 | | | $ | 1,817 | | | $ | 12,499 | | Total | | $ | 1,469 | | | $ | 1,231 | | | $ | 927 | | | $ | 616 | | | $ | 4,243 | | | $ | 4,316 | | | $ | 3,582 | | | $ | 2,748 | | | $ | 1,822 | | | $ | 12,468 | |
|
Costs to Fulfill
Costs to fulfill, such as set-upsetup or transition activities, are recorded in "Other noncurrent assets" in our unaudited consolidated statements of financial position and the amortization expense of costs to fulfill is included in "Cost of revenues" in our unaudited consolidated statements of operations. Costs to obtain contracts were immaterial for the periodperiods disclosed. The following table presents information related to the capitalized costs to fulfill for the nine months ended September 30:
| | 2020 | | 2019 | |
| (in millions) | |
(in millions) | | (in millions) | | 2021 | | 2020 |
Beginning balance | Beginning balance | | $ | 485 | | | $ | 400 | | Beginning balance | | $ | 467 | | | $ | 485 | |
Amortization expense | Amortization expense | | (71) | | | (58) | | Amortization expense | | (88) | | | (71) | |
Costs capitalized | Costs capitalized | | 78 | | | 143 | | Costs capitalized | | 38 | | | 78 | |
Impairment | Impairment | | (10) | | | 0 | | Impairment | | (11) | | | (10) | |
Ending balance | Ending balance | | $ | 482 | | | $ | 485 | | Ending balance | | $ | 406 | | | $ | 482 | |
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 costcost-to-cost method of revenue recognition. The table below shows significant movements in contract assets for the nine months ended September 30:
| | 2020 | | 2019 | |
| (in millions) | |
(in millions) | | (in millions) | | 2021 | | 2020 |
Beginning balance | Beginning balance | | $ | 334 | | | $ | 305 | | Beginning balance | | $ | 315 | | | $ | 334 | |
Revenues recognized during the period but not billed | Revenues recognized during the period but not billed | | 281 | | | 340 | | Revenues recognized during the period but not billed | | 298 | | | 281 | |
Amounts reclassified to trade accounts receivable | Amounts reclassified to trade accounts receivable | | (282) | | | (280) | | Amounts reclassified to trade accounts receivable | | (264) | | | (282) | |
| Ending balance | Ending balance | | $ | 333 | | | $ | 365 | | Ending balance | | $ | 349 | | | $ | 333 | |
| | | | | | | | |
Cognizant | 10 | September 30, 2021 Form 10-Q |
Our contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. The tablestable below showshows significant movements in the deferred revenue balances (current and noncurrent) for the nine months ended September 30:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | (in millions) |
Beginning balance | | $ | 336 | | | $ | 348 | |
Amounts billed but not recognized as revenues | | 260 | | | 217 | |
Revenues recognized related to the opening balance of deferred revenue | | (279) | | | (229) | |
| | | | |
Ending balance | | $ | 317 | | | $ | 336 | |
| | | | | | | | | | | | | | |
(in millions) | | 2021 | | 2020 |
Beginning balance | | $ | 419 | | | $ | 336 | |
Amounts billed but not recognized as revenues | | 309 | | | 260 | |
Revenues recognized related to the opening balance of deferred revenue | | (379) | | | (279) | |
| | | | |
Ending balance | | $ | 349 | | | $ | 317 | |
Revenues recognized during the three and nine months ended September 30, 20202021 for performance obligations satisfied or partially satisfied in previous periods were immaterial.
Remaining Performance Obligations
As of September 30, 2020,2021, the aggregate amount of transaction price allocated to remaining performance obligations was $1,704$1,658 million, approximately 70% of which approximately 80% 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 ASC Topic 606: "Revenue from Contracts with Customers",
(2)contracts for which we recognize revenues based on the right to invoice for services performed,
(3)variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or
(4)variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
Many of our performance obligations meet one or more of these exemptions and therefore are not included in the remaining performance obligation amount disclosed above.
Trade Accounts Receivable and Allowance for Doubtful AccountsCredit Loss
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:receivable for the nine months ended September 30:
| | | | | | | | |
| | 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 | | 18 | |
Write-offs charged against the allowance | | (11) | |
| | |
Balance - September 30, 2020 | | $ | 73 | |
| | | | | | | | | | | | | | |
(in millions) | | 2021 | | 2020 |
Beginning balance | | $ | 57 | | | $ | 67 | |
Impact of adoption of the Credit Loss Standard | | — | | | (1) | |
Credit loss expense | | 5 | | | 18 | |
Write-offs charged against the allowance | | (12) | | | (11) | |
| | | | |
Ending balance | | $ | 50 | | | $ | 73 | |
| | | | | | | | | | | | | | |
Note 3 — Business Combinations |
During the nine months ended September 30, 2020, we acquired 100% ownership of:
•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 global Salesforce practice (acquired on March 27, 2020).
•EI-Technologies, a digital technology consulting firm and leading Salesforce specialist that expands our global Salesforce practice (acquired on May 29, 2020).
•Collaborative Solutions, a provider of Workday enterprise cloud applications for finance and human resources that strengthens our portfolio of cloud offerings (acquired on June 10, 2020).
•New Signature, an independent Microsoft public cloud transformation company that expands our hyperscale cloud advisory services and provides the foundation for our new, dedicated practice centered on Microsoft cloud solutions (acquired on August 18, 2020).
•the net assets of Tin Roof, a custom software and digital product development services company that expands our software product engineering footprint in the United States (acquired on September 16, 2020).
•10th Magnitude, a leading cloud specialist focused on the Microsoft Azure cloud computing platform that will expand our Microsoft Azure expertise (acquired on September 30, 2020).
The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed in the aforementioned acquisitions were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Collaborative Solutions | | New Signature | | Tin Roof | | 10th Magnitude | | Other | | Total | | Weighted Average Useful Life |
| (in millions) | | |
Cash | $ | 10 | | | $ | 13 | | | $ | 0 | | | $ | 2 | | | $ | 8 | | | $ | 33 | | | |
Trade accounts receivable | 38 | | | 16 | | | 10 | | | 7 | | | 18 | | | 89 | | | |
Property and equipment and other assets | 6 | | | 4 | | | 1 | | | 2 | | | 16 | | | 29 | | | |
Operating lease assets, net | 6 | | | 7 | | | 2 | | | 4 | | | 12 | | | 31 | | | |
Non-deductible goodwill | 44 | | | 294 | | | 0 | | | 90 | | | 28 | | | 456 | | | |
Tax-deductible goodwill | 281 | | | 0 | | | 86 | | | 39 | | | 82 | | | 488 | | | |
Customer relationship intangible assets | 37 | | | 12 | | | 69 | | | 10 | | | 12 | | | 140 | | | 11.2 years |
Other intangible assets | 8 | | | 0 | | | 0 | | | 0 | | | 2 | | | 10 | | | 6.1 years |
| | | | | | | | | | | | | |
Current liabilities | (25) | | | (26) | | | (13) | | | (14) | | | (21) | | | (99) | | | |
Noncurrent liabilities | (5) | | | (8) | | | (1) | | | (6) | | | (13) | | | (33) | | | |
Purchase price, inclusive of contingent consideration(1) | $ | 400 | | | $ | 312 | | | $ | 154 | | | $ | 134 | | | $ | 144 | | | $ | 1,144 | | | |
(1)The purchase price for Collaborative Solutions includes a contingent consideration component with a maximum payout of $54 million, valued at $38 million at the date of acquisition, which is contingent upon achieving certain performance thresholds during the first two calendar years following the date of acquisition.
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 acquisitionsAcquisitions completed during the nine months ended September 30, 20202021 were not individually or in the aggregate material to our operations or cash flows.operations. Accordingly, pro forma results have not been presented. We have allocated the purchase price related to these transactions to tangible and intangible assets acquired and liabilities assumed, including goodwill, based on their estimateestimated fair valuesd fair values.. Goodwill from theseour acquisition of ESG Mobility has been allocated to our Products and Resources segment and goodwill from our acquisition of TQS has been allocated to our Healthcare and Products and Resources segments. Goodwill from other 2021 acquisitions is expected to benefit all of our reportable segments and has been allocated as such. The primary items that generated goodwill are the value of the acquired assembled workforces and synergies between the acquired companiescompanies and us, neither of which qualify as an identifiable intangible asset.
| | | | | | | | |
Cognizant | 11 | September 30, 2021 Form 10-Q |
During the nine months ended September 30, 2021, we acquired 100% ownership in each of the following:
•Linium, a cloud transformation consultancy group specializing in the ServiceNow platform and solutions for smart digital enterprise workflows, acquired to broaden our enterprise service management capabilities (acquired January 31, 2021);
•Magenic, a provider of agile software and cloud development, DevOps, experience design and advisory services across a range of industries, acquired to enhance our global software engineering expertise (acquired February 1, 2021);
•Servian, an Australia-based enterprise transformation consultancy specializing in data analytics, AI, digital services, experience design and cloud, acquired to enhance our digital portfolio and market presence in Australia and New Zealand (acquired April 1, 2021);
•ESG Mobility, a digital automotive engineering research and development provider for connected, autonomous and electric vehicles, acquired to expand our digital engineering expertise, particularly in connected vehicles (acquired June 1, 2021);
•TQS, a global industrial data and intelligence company, acquired to accelerate our growth in IoT, data and analytics (acquired July 30, 2021); and
•Hunter, a provider of digital engineering and project management services, acquired to extend our talent network in key markets, expanding our digital engineering resources in the U.S. (acquired August 16, 2021).
The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Servian | | Magenic | | ESG Mobility | | Linium | | Other | Total | | Weighted Average Useful Life |
Cash | $ | 4 | | | $ | 13 | | | $ | 28 | | | $ | — | | | $ | 2 | | $ | 47 | | | |
Trade accounts receivable | 15 | | | 17 | | | 24 | | | 5 | | | 12 | | 73 | | | |
Property and equipment and other assets | 6 | | | 4 | | | 8 | | | 1 | | | 4 | | 23 | | | |
Operating lease assets, net | 5 | | | 10 | | | 27 | | | — | | | 1 | | 43 | | | |
Non-deductible goodwill | 180 | | | 10 | | | 31 | | | — | | | 16 | | 237 | | | |
Tax-deductible goodwill | — | | | 138 | | | 24 | | | 57 | | | 10 | | 229 | | | |
Customer relationship assets | 77 | | | 90 | | | 77 | | | 24 | | | 32 | | 300 | | | 10.0 years |
Other intangible assets | 2 | | | 1 | | | — | | | — | | | — | | 3 | | | 3.8 years |
| | | | | | | | | | | | |
Current liabilities | (12) | | | (30) | | | (20) | | | (2) | | | (7) | | (71) | | | |
Noncurrent liabilities | (29) | | | (7) | | | (65) | | | — | | | (5) | | (106) | | | |
Purchase price, inclusive of contingent consideration | $ | 248 | | | $ | 246 | | | $ | 134 | | | $ | 85 | | | $ | 65 | | $ | 778 | | | |
The above allocations are preliminary and will be finalized as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition.
| | | | | | | | | | | | | | |
Note 4 — Restructuring Charges |
In 2017,During 2020, we began aincurred costs related to both our realignment program with the objective of improvingand our 2020 Fit for Growth Plan. Our realignment program, which began in 2017, improved our client focus, our cost structure and the efficiency and effectiveness of our delivery while continuing to drive revenue growth. In 2019, we announced ourOur 2020 Fit for Growth Plan, which involves certain measures to simplifybegan in the fourth quarter of 2019, simplified our organizational model and optimizeoptimized our cost structure in order to partially fund the investments required to execute on our strategy and advance our growth agenda as well asand included our decision to exit certain content-related services that arewere not in line with our strategic vision for the Company.
The total costs related to our realignment program and our 2020 Fit for Growth Plan are reported in "Restructuring charges" in our unaudited consolidated statements of operations. We do not allocate these charges to individual segments in internal management reports used byDuring the chief operating decision maker. Accordingly, such expenses are included in our segment reporting as “unallocated costs”. See Note 13.
Chargesthree months ended September 30, 2020, we incurred $8 million of professional fees related to our realignment program and $43 million of employee separation and facility exit costs and other charges related to our 2020 Fit for Growth Plan were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| (in millions) |
Realignment program: | | | | | | | |
Executive Transition Costs | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 22 | |
Employee separation costs | 0 | | | 33 | | | 0 | | | 60 | |
Employee retention costs | 0 | | | 18 | | | 15 | | | 18 | |
Professional fees | 8 | | | 14 | | | 25 | | | 16 | |
2020 Fit for Growth Plan: | | | | | | | |
Employee separation costs | 38 | | | 0 | | | 103 | | | 0 | |
Employee retention costs | 0 | | | 0 | | | 5 | | | 0 | |
Facility exit costs and other charges (1) | 5 | | | 0 | | | 29 | | | 0 | |
Total restructuring costs | $ | 51 | | | $ | 65 | | | $ | 177 | | | $ | 116 | |
(1)Includes $4 million of accelerated depreciation forPlan. During the nine months ended September 30, 2020. Accelerated depreciation for the three months ended September 30, 2020, was immaterial.
The we incurred $40 million of certain employee retention costs and professional fees related to our realignment program and $137 million of employee separation, employee retention and facility exit costs and other charges related to our 2020 Fit for Growth Plan charges include $1 million and $20 million forPlan. We did not incur any costs related to these plans during the threethree and nine months ended September 30, 2020, respectively, of costs incurred related to our exit from certain content-related services.2021.
Changes in our accrued employee separation costs included in "Accrued expenses and other current liabilities" in our consolidated statements of financial position are presented in the table below for the nine months ended September 30.
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | (in millions) |
Beginning balance | | $ | 47 | | | $ | — | |
Employee separation costs accrued | | 103 | | | 60 | |
Payments made | | (135) | | | (32) | |
Ending balance | | $ | 15 | | | $ | 28 | |
13
| | | | | | | | |
Cognizant | 12 | September 30, 2021 Form 10-Q |
Our investments were as follows:
| | September 30, 2020 | | December 31, 2019 | |
| (in millions) | |
(in millions) | | (in millions) | September 30, 2021 | | December 31, 2020 |
Short-term investments: | Short-term investments: | | Short-term investments: | |
Equity investment security | Equity investment security | $ | 27 | | | $ | 26 | | Equity investment security | $ | 27 | | | $ | 27 | |
Available-for-sale investment securities | | Available-for-sale investment securities | 295 | | | — | |
Held-to-maturity investment securities | Held-to-maturity investment securities | 108 | | | 287 | | Held-to-maturity investment securities | 23 | | | 14 | |
Time deposits (1) | Time deposits (1) | 4 | | | 466 | | Time deposits (1) | 404 | | | 3 | |
Total short-term investments | Total short-term investments | $ | 139 | | | $ | 779 | | Total short-term investments | $ | 749 | | | $ | 44 | |
| | | | | | | | | | | |
Long-term investments: | | | |
Equity and cost method investments | $ | 39 | | | $ | 17 | |
Time deposits (1) | 402 | | | — | |
Total long-term investments | $ | 441 | | | $ | 17 | |
| | | | | | | | | | | |
Long-term investments: | | | |
Equity and cost method investments | $ | 67 | | | $ | 35 | |
Restricted time deposits(1) | 399 | | | 405 | |
Total long-term investments | $ | 466 | | | $ | 440 | |
(1)As of September 30, 2020, $402 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.
Equity Investment SecuritiesSecurity
Our equity investment security is a U.S. dollar denominated investment in an open-endeda fixed income mutual fund. Realized and unrealized gains and losses were immaterial for the three and nine months ended September 30, 20202021 and 2019.2020.
Available-for-Sale Investment Securities
Our available-for-sale investment securities consist of highly rated U.S. dollar denominated investments in commercial paper maturing within one year. As of September 30, 2021, the amortized cost and fair value of our available-for-sale investments were $295 million. Unrealized gains and losses were immaterial as of September 30, 2021 and there were no realized gains or losses related to our available-for-sale investment securities during the nine months ended September 30, 2021 and 2020.
Held-to-Maturity Investment Securities
Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial paper and international corporate bonds and government debt securities.bonds. Our investment guidelines are to purchase securities that are investment grade at the time of acquisition. The basis for the measurement of fair value of our held-to-maturity investmentsinvestment securities is Level 2 in the fair value hierarchy.
The amortized cost and fair value of held-to-maturity investment securities were as follows:
| (in millions) | | (in millions) | September 30, 2021 | | December 31, 2020 |
| | September 30, 2020 | | December 31, 2019 | | Amortized Cost | | | Fair Value | | Amortized Cost | | Fair Value |
| Amortized Cost | | | Fair Value | | Amortized Cost | | Fair Value | |
| (in millions) | |
Short-term investments, due within one year: | | | | |
Short-term investments, maturing within one year: | | Short-term investments, maturing within one year: | | | |
Corporate and other debt securities | Corporate and other debt securities | $ | 30 | | | | $ | 30 | | | $ | 101 | | | $ | 101 | | Corporate and other debt securities | $ | 3 | | | | $ | 3 | | | $ | 14 | | | $ | 14 | |
Commercial paper | Commercial paper | 78 | | | | 78 | | | 186 | | | 186 | | Commercial paper | 20 | | | | 20 | | | — | | | — | |
Total short-term held-to-maturity investments | Total short-term held-to-maturity investments | $ | 108 | | | | $ | 108 | | | $ | 287 | | | $ | 287 | | Total short-term held-to-maturity investments | $ | 23 | | | | $ | 23 | | | $ | 14 | | | $ | 14 | |
As of September 30, 2020, there were 0 held-to-maturity investment securities in an unrealized loss position. As of December 31, 2019, commercial paper in the amount of $70 million and2021, corporate and other debt securities in the amount of $42$3 million and commercial paper in the amount of $7 million were in an unrealized loss position. The total unrealized loss was less than $1 million and NaNnone of the securities had been in an unrealized loss position for longer than 12 months.
We monitor the credit ratings As of theDecember 31, 2020, there were no held-to-maturity investment securities in our portfolio on an ongoing basis and evaluate the need for an allowance for expected credit losses. unrealized loss position.
The securitiessecurities in our portfolio are highly rated and short-term in nature. Historically, we have not had any impairment losses on our portfolio. As of September 30, 2020,2021, our corporate and other debt securities were rated AAA and our commercial paper securities were rated A-1+ by CRISIL, an Indian subsidiary of S&P Global.
During the nine months ended September 30, 2020 and the year ended December 31, 2019, there were no transfers of investments between our available-for-sale and held-to-maturity investment portfolios.
14
| | | | | | | | |
Cognizant | 13 | September 30, 2021 Form 10-Q |
Equity and Cost Method Investments
During 2020,the third quarter of 2021, we acquired a $26 millionincreased our equity method investment in the technology sector.sector by $32 million. As of September 30, 20202021 and December 31, 2019,2020, we had equity method investments of $35$64 million and $9$31 million, respectively, and cost method investments of $3 million and $4 million, and $8 million, respectively.
| | | | | | | | | | | | | | |
Note 6 — Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities were as follows:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| (in millions) |
Compensation and benefits | $ | 1,377 | | | $ | 1,239 | |
Customer volume and other incentives | 321 | | | 251 | |
Derivative financial instruments | 28 | | | 8 | |
Income taxes | 122 | | | 152 | |
Professional fees | 138 | | | 137 | |
Travel and entertainment | 21 | | | 24 | |
Other | 333 | | | 380 | |
Total accrued expenses and other current liabilities | $ | 2,340 | | | $ | 2,191 | |
| | | | | | | | | | | |
(in millions) | September 30, 2021 | | December 31, 2020 |
Compensation and benefits | $ | 1,578 | | | $ | 1,607 | |
Customer volume and other incentives | 267 | | | 266 | |
| | | |
Income taxes | 35 | | | 34 | |
Professional fees | 189 | | | 143 | |
Other | 349 | | | 469 | |
Total accrued expenses and other current liabilities | $ | 2,418 | | | $ | 2,519 | |
In 2018, we entered into athe Credit Agreement providing for athe $750 million 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 CreditCredit 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 September 30, 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. 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 September 30, 2020.
2021.
In February 2020,2021, our India subsidiary renewed its 13 billion Indian rupee ($177175 million at the September 30, 20202021 exchange rate) working capital facility, which requires us to repay any balances within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made prior to 30 days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February. As of September 30, 2020, we have not borrowed funds under this facility.
Short-term Debt
As of both September 30, 20202021 and December 31, 2019,2020, we had $38 million of short-term debt related to current maturities of our Term Loan.
Long-term Debt
The following summarizes our long-term debt balances as of:
| (in millions) | | (in millions) | September 30, 2021 | | December 31, 2020 |
| | September 30, 2020 | | December 31, 2019 | |
| (in millions) | |
Notes outstanding under revolving credit facility | $ | 1,740 | | | $ | 0 | | |
Term Loan | Term Loan | 713 | | | 741 | | Term Loan | $ | 676 | | | $ | 703 | |
Less: | Less: | | Less: | |
Current maturities - Term Loan | Current maturities - Term Loan | (38) | | | (38) | | Current maturities - Term Loan | (38) | | | (38) | |
Deferred financing costs | Deferred financing costs | (3) | | | (3) | | Deferred financing costs | (2) | | | (2) | |
Long-term debt, net of current maturities | Long-term debt, net of current maturities | $ | 2,412 | | | $ | 700 | | Long-term debt, net of current maturities | $ | 636 | | | $ | 663 | |
The carrying value of our debt approximated its fair value as of September 30, 20202021 and December 31, 2019.2020.
| | | | | | | | |
Cognizant | 14 | September 30, 2021 Form 10-Q |
In 2021, we reached an agreement with the IRS, which settled tax years 2012 through 2016. As a result of this settlement, in the first quarter of 2021, we recorded a reduction of $43 million to our uncertain tax position balance, which resulted in a $14 million discrete benefit to the provision for income taxes and a $29 million adjustment to our current income tax balance sheet accounts. Tax years that remain subject to examination by the IRS are 2017 onward.
Our effective income tax rates were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Effective income tax rate | 44.2 | % | | 24.3 | % | | 33.9 | % | | 24.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Effective income tax rate | 25.6 | % | | 44.2 | % | | 25.4 | % | | 33.9 | % |
In March 2020, the Indian parliament enacted the Budget of India, which contained 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 reduced theThe effective tax rate applicabledecreased in 2021 as compared to us for cash repatriated from India. Following this change, during the first quarter of 2020 we limited our indefinite reinvestment assertion to India earnings accumulated in prior years. In July 2020, the U.S. Treasury Department and the Internal Revenue Service released final regulations, which became effective in September 2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. Asprimarily as a result duringof our decision in the third quarter of 2020 after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate growth in various international markets and expand our global delivery footprint, wereverse reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years, and recorded a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits.
On October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment$140 million Tax on Accumulated Indian Earnings recorded as income tax expense in the third quarter of $2.0 billion to its shareholders (non-Indian Cognizant entities), after payment of $105 million of India withholding tax.2020.
We are involved in an ongoing dispute with the ITD in connection with a previously disclosed 2016 share repurchase transactiontransaction undertaken by CTS India in 2016 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 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 ($449445 million at the September 30, 20202021 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 valuedvalued at $523 million (the twotwo disputes are collectively referred to as the "ITD Dispute").
In April 2018, the High Court admitted our writ petition for a stay of the actions of the ITD and lifted the ITD’s attachment on our bank accounts. As part of the interim stay order, we depositeddeposited 5 billion Indian rupees ($($67 million at the September 30, 20202021 exchange rate and $70$68 million at the December 31, 20192020 exchange rate) representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. In addition, the High Court placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($382($378 million at the September 30, 20202021 exchange rate and $393$384 million at the December 31, 20192020 exchange rate), which is the remainder of the disputed tax amount related to the 2016 transaction.
In June 2019, the High Court dismissed our previously admitted writ petitions on the ITD Dispute, holding that the Company must exhaust other remedies, such as pursuing the matter before other appellate bodies, for resolution of the ITD Dispute prior to intervention by the High Court. The High Court did not issue a ruling on the substantive issue of whether we owe additional tax
as a result of either the 2016 or the 2013 transaction. In July 2019, we appealed the High Court’s orders before the Division Bench. In September 2019, the Division Bench partly allowed the Company’s appeal with respect to the 2016 transaction, but did not issue a ruling on the substantive issue of the tax implications of the transactions. In October 2019, we filed a Special Leave PetitionSLP before the SCI with respect to the 2016 transaction.
In March 2020, the SCI referred the case based on the 2016 transaction back to the ITD with directions to carry out the assessment following the due process of law. Further, until the conclusion of the assessment, the SCI maintained in place the lien on our 28 billion Indian rupees time deposit and did not order the release of the 5 billion Indian rupees deposit held by the ITD. In April 2020, we received an assessment from the ITD, which is consistent with its previous assertions regarding our 2016 transaction. In June 2020, we filed an appeal against this assessment. The 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 result, in the first quarter of 2020 we reclassified the deposits under lien, which are considered restricted assets, and the deposit with the ITD to noncurrent assets.
As of September 30, 20202021 and December 31, 2019,2020, the balance of deposits under lien was $402$399 million and $405 million, respectively, presented in "Long-term investments" and $414 million presented in "Short-term investments", respectively, including a portion of the interest previously earned. As of September 30, 20202021 and December 31, 2019,2020, the deposit with the ITD was $67 million and $68 million respectively, 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 September 30, 2020.
2021.
| | | | | | | | |
Cognizant | 15 | September 30, 2021 Form 10-Q |
| | | | | | | | | | | | | | |
Note 9 — Derivative Financial Instruments |
In the normal course of business, we use foreign exchange forward and option contracts to manage foreign currency exchange rate risk. Derivatives may give rise to credit risk from the possible non-performance by counterparties. Credit risk is limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by limiting the amount of credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial institutions with which we do business. In addition, all the assets and liabilities related to our foreign exchange derivative contracts set forth in the below table are subject to master netting arrangements, such as the International Swaps and Derivatives Association Master Agreement, with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. We have presented all the assets and liabilities related to our foreign exchange derivative contracts, as applicable, on a gross basis, with no offsets, in our unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to our foreign exchange derivative contracts.
The following table provides information on the location and fair values of derivative financial instruments included in our unaudited consolidated statements of financial position as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2020 | | December 31, 2019 |
Designation of Derivatives | | Location on Statements of Financial Position | | Assets | | Liabilities | | Assets | | Liabilities |
| | | | (in millions) |
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | | Other current assets | | $ | 29 | | | $ | — | | | $ | 32 | | | $ | — | |
| | Other noncurrent assets | | 16 | | | — | | | 8 | | | — | |
| | Accrued expenses and other current liabilities | | — | | | 2 | | | — | | | 7 | |
| | Other noncurrent liabilities | | — | | | 0 | | | — | | | 2 | |
| | Total | | 45 | | | 2 | | | 40 | | | 9 | |
Foreign exchange forward contracts – Not designated as hedging instruments | | Other current assets | | 3 | | | — | | | 3 | | | — | |
| | Accrued expenses and other current liabilities | | — | | | 26 | | | — | | | 1 | |
| | Total | | 3 | | | 26 | | | 3 | | | 1 | |
Total | | | | $ | 48 | | | 28 | | | $ | 43 | | | $ | 10 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | | | September 30, 2021 | | December 31, 2020 |
Designation of Derivatives | | Location on Statement of Financial Position | | Assets | | Liabilities | | Assets | | Liabilities |
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | | Other current assets | | $ | 46 | | | $ | — | | | $ | 45 | | | $ | — | |
| | Other noncurrent assets | | 13 | | | — | | | 26 | | | — | |
| | | | | | | | | | |
| | Other noncurrent liabilities | | — | | | 1 | | | — | | | — | |
| | Total | | 59 | | | 1 | | | 71 | | | — | |
Foreign exchange forward contracts – Not designated as hedging instruments | | Other current assets | | 8 | | | — | | | 1 | | | — | |
| | Accrued expenses and other current liabilities | | — | | | 2 | | | — | | | 1 | |
| | Total | | 8 | | | 2 | | | 1 | | | 1 | |
Total | | | | $ | 67 | | | $ | 3 | | | $ | 72 | | | $ | 1 | |
Cash Flow Hedges
We have entered into a series of foreign exchange derivative contracts that are designated as cash flow hedges of Indian rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of the Indian rupee against the U.S. dollar on future operating costs and are scheduled to mature each month during the remainder of 2020, 2021, 2022 and the first nine months of 2022.2023. The changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position and are subsequently reclassified to earnings within the captions "Cost of revenues" and "Selling, general and administrative expenses" in our unaudited consolidated statements of operations in the same period that the forecasted Indian rupee denominated payments are recorded in earnings. As of September 30, 2020,2021, we estimateestimate that $19$43 million,, net of tax,, of net gains relarelatedted to derivatives designated as cash flow hedges reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position is expected to be reclassified into earnings within the next 12 months.
The notional valuevalues 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 our cash flow hedges, were as follows:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| (in millions) |
2020 | $ | 400 | | | $ | 1,505 | |
2021 | 1,315 | | | 883 | |
2022 | 548 | | | 0 | |
Total notional value of contracts outstanding (1) | $ | 2,263 | | | $ | 2,388 | |
Net unrealized gains included in accumulated other comprehensive income (loss), net of taxes | $ | 31 | | | $ | 26 | |
| | | | | | | | | | | |
(in millions) | September 30, 2021 | | December 31, 2020 |
2021 | $ | 467 | | | $ | 1,470 | |
2022 | 1,288 | | | 803 | |
2023 | 555 | | | — | |
Total notional value of contracts outstanding (1) | $ | 2,310 | | | $ | 2,273 | |
| | | |
(1)Includes $128$93 million and $133 million notional value of option contractscontracts as of September 30, 2021 and December 31, 2020, respectively, with the remaining notional value related to forward contracts.
| | | | | | | | |
Cognizant | 16 | September 30, 2021 Form 10-Q |
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 September 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in Derivative Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion) | | Location of Net Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) | | Net Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) |
| 2020 | | 2019 | | | | 2020 | | 2019 |
| (in millions) |
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | 77 | | | $ | (28) | | | Cost of revenues | | $ | 5 | | | $ | 1 | |
| | | | | SG&A expenses | | 1 | | | 1 | |
| | | | | Total | | $ | 6 | | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Change in Derivative Gains Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion) | | Location of Net Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) | | Net Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) |
| 2021 | | 2020 | | | | 2021 | | 2020 |
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | 33 | | | $ | 77 | | | Cost of revenues | | $ | 13 | | | $ | 5 | |
| | | | | SG&A expenses | | 2 | | | 1 | |
| | | | | Total | | $ | 15 | | | $ | 6 | |
The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the nine months ended September 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in Derivative (Losses) Gains Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion) | | Location of Net (Losses) Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) | | Net (Losses) Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) |
| 2020 | | 2019 | | | | 2020 | | 2019 |
| (in millions) |
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | (1) | | | $ | 30 | | | Cost of revenues | | $ | (7) | | | $ | 1 | |
| | | | | SG&A expenses | | (1) | | | 1 | |
| | | | | Total | | $ | (8) | | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Change in Derivative Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion) | | Location of Net Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) | | Net Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) |
| 2021 | | 2020 | | | | 2021 | | 2020 |
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | 47 | | | $ | (1) | | | Cost of revenues | | $ | 43 | | | $ | (7) | |
| | | | | SG&A expenses | | 7 | | | (1) | |
| | | | | Total | | $ | 50 | | | $ | (8) | |
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 stockholdersstockholders' equity is presentedpresented in Note 11.
Other Derivatives
We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries, primarily the Indian rupee and the Euro.subsidiaries. We entered into foreign exchange forward contracts that are scheduled to mature in 2020.2021. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our unaudited consolidated statements of operations.
Additional information related to our outstanding foreign exchange forward contracts not designated as hedging instruments was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Notional | | Fair Value | | Notional | | Fair Value |
| (in millions) |
Contracts outstanding | $ | 2,575 | | | $ | (23) | | | $ | 702 | | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | September 30, 2021 | | December 31, 2020 |
| Notional | | Fair Value | | Notional | | Fair Value |
Contracts outstanding | $ | 919 | | | $ | 6 | | | $ | 637 | | | $ | — | |
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 nine months ended September 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location of Net (Losses) Gains on Derivative Instruments | | Amount of Net (Losses) Gains on Derivative Instruments |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 |
| | | (in millions) |
Foreign exchange forward contracts – Not designated as hedging instruments | Foreign currency exchange gains (losses), net | | $ | (57) | | | $ | 6 | | | $ | (54) | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location of Net Gains (Losses) on Derivative Instruments | | Amount of Net Gains (Losses) on Derivative Instruments |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | | | 2021 | | 2020 | | 2021 | | 2020 |
Foreign exchange forward contracts – Not designated as hedging instruments | Foreign currency exchange gains (losses), net | | $ | 1 | | | $ | (57) | | | $ | 7 | | | $ | (54) | |
The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.
19
| | | | | | | | |
Cognizant | 17 | September 30, 2021 Form 10-Q |
| | | | | | | | | | | | | | |
Note 10 — Fair Value Measurements |
We measure our cash equivalents, certain investments, contingent consideration liabilities and foreign exchange forward and option contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.
The fair value hierarchy consists of the following three levels:
•Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
•Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
•Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of September 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Cash equivalents: | | | | | | | |
Money market funds | $ | 2,513 | | | $ | — | | | $ | — | | | $ | 2,513 | |
Time deposits | — | | | 578 | | | — | | | 578 | |
| | | | | | | |
Short-term investments: | | | | | | | |
Time deposits | 0 | | | 4 | | | 0 | | | 4 | |
Equity investment security | 27 | | | 0 | | | 0 | | | 27 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other current assets: | | | | | | | |
Foreign exchange forward and option contracts | 0 | | | 32 | | | 0 | | | 32 | |
Long-term investments: | | | | | | | |
Time deposits(1) | — | | | 402 | | | — | | | 402 | |
Other noncurrent assets | | | | | | | |
Foreign exchange forward and option contracts | 0 | | | 16 | | | 0 | | | 16 | |
| | | | | | | |
Accrued expenses and other current liabilities: | | | | | | | |
Foreign exchange forward contracts | 0 | | | (28) | | | 0 | | | (28) | |
Contingent consideration liabilities | 0 | | | 0 | | | (11) | | | (11) | |
Other noncurrent liabilities: | | | | | | | |
| | | | | | | |
Contingent consideration liabilities | 0 | | | 0 | | | (42) | | | (42) | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents: | | | | | | | |
Money market funds | $ | 582 | | | $ | — | | | $ | — | | | $ | 582 | |
Time deposits | — | | | 4 | | | — | | | 4 | |
Commercial paper | — | | | 290 | | | — | | | 290 | |
Short-term investments: | | | | | | | |
Time deposits | — | | | 404 | | | — | | | 404 | |
Equity investment security | 27 | | | — | | | — | | | 27 | |
Available-for-sale investment securities: | | | | | | | |
Commercial paper | — | | | 295 | | | — | | | 295 | |
Other current assets: | | | | | | | |
Foreign exchange forward and option contracts | — | | | 54 | | | — | | | 54 | |
Long-term investments: | | | | | | | |
Restricted time deposits(1) | — | | | 399 | | | — | | | 399 | |
Other noncurrent assets | | | | | | | |
Foreign exchange forward contracts | — | | | 13 | | | — | | | 13 | |
Accrued expenses and other current liabilities: | | | | | | | |
Foreign exchange forward contracts | — | | | (2) | | | — | | | (2) | |
Contingent consideration liabilities | — | | | — | | | (29) | | | (29) | |
Other noncurrent liabilities: | | | | | | | |
Foreign exchange forward contracts | — | | | (1) | | | — | | | (1) | |
Contingent consideration liabilities | — | | | — | | | (9) | | | (9) | |
(1)Balance represents restricted time deposits. See Note 8.
20
| | | | | | | | |
Cognizant | 18 | September 30, 2021 Form 10-Q |
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Cash equivalents: | | | | | | | |
Money market funds | $ | 1,646 | | | $ | 0 | | | $ | 0 | | | $ | 1,646 | |
| | | | | | | |
| | | | | | | |
Short-term investments: | | | | | | | |
Time deposits(1) | 0 | | | 466 | | | 0 | | | 466 | |
Equity investment security | 26 | | | 0 | | | 0 | | | 26 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other current assets: | | | | | | | |
Foreign exchange forward contracts | 0 | | | 35 | | | 0 | | | 35 | |
Other noncurrent assets: | | | | | | | |
Foreign exchange forward contracts | 0 | | | 8 | | | 0 | | | 8 | |
Accrued expenses and other current liabilities: | | | | | | | |
Foreign exchange forward contracts | 0 | | | (8) | | | 0 | | | (8) | |
Contingent consideration liabilities | 0 | | | 0 | | | (8) | | | (8) | |
Other noncurrent liabilities: | | | | | | | |
Foreign exchange forward contracts | 0 | | | (2) | | | 0 | | | (2) | |
Contingent consideration liabilities | 0 | | | 0 | | | (30) | | | (30) | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents: | | | | | | | |
Money market funds | $ | 209 | | | $ | — | | | $ | — | | | $ | 209 | |
Time deposits | — | | | 203 | | | — | | | 203 | |
Commercial paper | — | | | 200 | | | — | | | 200 | |
Short-term investments: | | | | | | | |
Time deposits | — | | | 3 | | | — | | | 3 | |
Equity investment security | 27 | | | — | | | — | | | 27 | |
Other current assets: | | | | | | | |
Foreign exchange forward and option contracts | — | | | 46 | | | — | | | 46 | |
Long-term investments: | | | | | | | |
Restricted time deposits(1) | — | | | 405 | | | — | | | 405 | |
Other noncurrent assets: | | | | | | | |
Foreign exchange forward and option contracts | — | | | 26 | | | — | | | 26 | |
Accrued expenses and other current liabilities: | | | | | | | |
Foreign exchange forward and option contracts | — | | | (1) | | | — | | | (1) | |
Contingent consideration liabilities | — | | | — | | | (11) | | | (11) | |
Other noncurrent liabilities: | | | | | | | |
| | | | | | | |
Contingent consideration liabilities | — | | | — | | | (43) | | | (43) | |
(1)Includes $414 million in restricted time deposits. SeeSee Note 8.
The following table summarizes the changes in Level 3 contingent consideration liabilities for the nine months ended September 30:
| | | | | | | | | | | | | | |
(in millions) | | 2021 | | 2020 |
Beginning balance | | $ | 54 | | | $ | 38 | |
Initial measurement recognized at acquisition | | 11 | | | 42 | |
Change in fair value recognized in SG&A expenses | | (24) | | | (24) | |
Payments | | (3) | | | (3) | |
Ending balance | | $ | 38 | | | $ | 53 | |
We measure the fair value of money market funds based on quoted prices in active markets for identical assets and measure the fair value of our equity security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The fair value of commercial paper is measured based on relevant trade data, dealer quotes, or model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. The carrying value of our time deposits approximated fair value as of September 30, 20202021 and December 31, 2019.
2020.
We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange forward contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. We estimate the fair value of each foreign exchange option contract by using a variant of the Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on observable market rates.
We estimate the fair value of contingent consideration liabilities associated with our acquisitions using a variation of the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate.
During the nine months ended September 30, 2021 and the year ended December 31, 2020, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.
21
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Cognizant | 19 | September 30, 2021 Form 10-Q |
| | | | | | | | | | | | | | |
Note 11 — Accumulated Other Comprehensive Income (Loss) |
Changes in accumulated"Accumulated other comprehensive income (loss)" by component were as follows for the three and nine months ended September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
(in millions) | | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Beginning balance | | $ | 44 | | | $ | — | | | $ | 44 | | | $ | 56 | | | $ | (1) | | | $ | 55 | |
Change in foreign currency translation adjustments | | (65) | | | 2 | | | (63) | | | (77) | | | 3 | | | (74) | |
Ending balance | | $ | (21) | | | $ | 2 | | | $ | (19) | | | $ | (21) | | | $ | 2 | | | $ | (19) | |
Unrealized gains on cash flow hedges: | | | | | | | | | | | | |
Beginning balance | | $ | 46 | | | $ | (8) | | | $ | 38 | | | $ | 67 | | | $ | (12) | | | $ | 55 | |
Unrealized gains arising during the period | | 33 | | | (6) | | | 27 | | | 47 | | | (9) | | | 38 | |
Reclassifications of net (gains) to: | | | | | | | | | | | | |
Cost of revenues | | (13) | | | 2 | | | (11) | | | (43) | | | 8 | | | (35) | |
SG&A expenses | | (2) | | | — | | | (2) | | | (7) | | | 1 | | | (6) | |
Net change | | 18 | | | (4) | | | 14 | | | (3) | | | — | | | (3) | |
Ending balance | | $ | 64 | | | $ | (12) | | | $ | 52 | | | $ | 64 | | | $ | (12) | | | $ | 52 | |
Accumulated other comprehensive income (loss): | | | | | | | | | | | | |
Beginning balance | | $ | 90 | | | $ | (8) | | | $ | 82 | | | $ | 123 | | | $ | (13) | | | $ | 110 | |
Other comprehensive income (loss) | | (47) | | | (2) | | | (49) | | | (80) | | | 3 | | | (77) | |
Ending balance | | $ | 43 | | | $ | (10) | | | $ | 33 | | | $ | 43 | | | $ | (10) | | | $ | 33 | |
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three and nine months ended September 30, 2020:
| | | Three Months | | Nine Months | | | Three Months | | Nine Months |
| Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount | |
| (in millions) | |
(in millions) | | (in millions) | | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Foreign currency translation adjustments: | Foreign currency translation adjustments: | | Foreign currency translation adjustments: | | | | |
Beginning balance | Beginning balance | $ | (165) | | | $ | 4 | | | $ | (161) | | | $ | (63) | | | $ | (1) | | | $ | (64) | | Beginning balance | | $ | (165) | | | $ | 4 | | | $ | (161) | | | $ | (63) | | | $ | (1) | | | $ | (64) | |
Change in foreign currency translation adjustments | Change in foreign currency translation adjustments | 93 | | | (3) | | | 90 | | | (9) | | | 2 | | | (7) | | Change in foreign currency translation adjustments | | 93 | | | (3) | | | 90 | | | (9) | | | 2 | | | (7) | |
Ending balance | Ending balance | $ | (72) | | | $ | 1 | | | $ | (71) | | | $ | (72) | | | $ | 1 | | | $ | (71) | | Ending balance | | $ | (72) | | | $ | 1 | | | $ | (71) | | | $ | (72) | | | $ | 1 | | | $ | (71) | |
| | Unrealized (losses) gains on cash flow hedges: | Unrealized (losses) gains on cash flow hedges: | | Unrealized (losses) gains on cash flow hedges: | | | | |
Beginning balance | Beginning balance | $ | (33) | | | $ | 6 | | | $ | (27) | | | $ | 31 | | | $ | (5) | | | $ | 26 | | Beginning balance | | $ | (33) | | | $ | 6 | | | $ | (27) | | | $ | 31 | | | $ | (5) | | | $ | 26 | |
Unrealized gains (losses) arising during the period | Unrealized gains (losses) arising during the period | 77 | | | (14) | | | 63 | | | (1) | | | (1) | | | (2) | | Unrealized gains (losses) arising during the period | | 77 | | | (14) | | | 63 | | | (1) | | | (1) | | | (2) | |
Reclassifications of net (gains) losses to: | Reclassifications of net (gains) losses to: | | Reclassifications of net (gains) losses to: | | | | |
Cost of revenues | Cost of revenues | (5) | | | 1 | | | (4) | | | 7 | | | (1) | | | 6 | | Cost of revenues | | (5) | | | 1 | | | (4) | | | 7 | | | (1) | | | 6 | |
SG&A expenses | SG&A expenses | (1) | | | 0 | | | (1) | | | 1 | | | 0 | | | 1 | | SG&A expenses | | (1) | | | — | | | (1) | | | 1 | | | — | | | 1 | |
Net change | Net change | 71 | | | (13) | | | 58 | | | 7 | | | (2) | | | 5 | | Net change | | 71 | | | (13) | | | 58 | | | 7 | | | (2) | | | 5 | |
Ending balance | Ending balance | $ | 38 | | | $ | (7) | | | $ | 31 | | | $ | 38 | | | $ | (7) | | | $ | 31 | | Ending balance | | $ | 38 | | | $ | (7) | | | $ | 31 | | | $ | 38 | | | $ | (7) | | | $ | 31 | |
| Accumulated other comprehensive income (loss): | Accumulated other comprehensive income (loss): | | Accumulated other comprehensive income (loss): | | | | |
Beginning balance | Beginning balance | $ | (198) | | | $ | 10 | | | $ | (188) | | | $ | (32) | | | $ | (6) | | | $ | (38) | | Beginning balance | | $ | (198) | | | $ | 10 | | | $ | (188) | | | $ | (32) | | | $ | (6) | | | $ | (38) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | 164 | | | (16) | | | 148 | | | (2) | | | 0 | | | (2) | | Other comprehensive income (loss) | | 164 | | | (16) | | | 148 | | | (2) | | | — | | | (2) | |
Ending balance | Ending balance | $ | (34) | | | $ | (6) | | | $ | (40) | | | $ | (34) | | | $ | (6) | | | $ | (40) | | Ending balance | | $ | (34) | | | $ | (6) | | | $ | (40) | | | $ | (34) | | | $ | (6) | | | $ | (40) | |
22
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Cognizant | 20 | September 30, 2021 Form 10-Q |
Changes in accumulated other comprehensive income (loss) by component were as follows for the three and nine months ended September 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Nine 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 | $ | (117) | | | $ | 3 | | | $ | (114) | | | $ | (108) | | | $ | 5 | | | $ | (103) | |
Change in foreign currency translation adjustments | (64) | | | (1) | | | (65) | | | (73) | | | (3) | | | (76) | |
Ending balance | $ | (181) | | | $ | 2 | | | $ | (179) | | | $ | (181) | | | $ | 2 | | | $ | (179) | |
| | | | | | | | | | | |
Unrealized (losses) on available-for-sale investment securities: | | | | | | | | | | | |
Beginning balance | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (12) | | | $ | 4 | | | $ | (8) | |
| | | | | | | | | | | |
Net unrealized gains arising during the period | 0 | | | 0 | | | 0 | | | 13 | | | (4) | | | 9 | |
Reclassification of net gains to Other, net | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | (1) | |
Net change | 0 | | | 0 | | | 0 | | | 12 | | | (4) | | | 8 | |
Ending balance | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | |
Unrealized gains (losses) on cash flow hedges: | | | | | | | | | | | |
Beginning balance | $ | 54 | | | $ | (10) | | | $ | 44 | | | $ | (4) | | | $ | 1 | | | $ | (3) | |
Unrealized (losses) gains arising during the period | (28) | | | 5 | | | (23) | | | 30 | | | (6) | | | 24 | |
Reclassifications of net (gains) to: | | | | | | | | | | | |
Cost of revenues | (1) | | | 0 | | | (1) | | | (1) | | | 0 | | | (1) | |
SG&A expenses | (1) | | | 1 | | | 0 | | | (1) | | | 1 | | | 0 | |
Net change | (30) | | | 6 | | | (24) | | | 28 | | | (5) | | | 23 | |
Ending balance | $ | 24 | | | $ | (4) | | | $ | 20 | | | $ | 24 | | | $ | (4) | | | $ | 20 | |
| | | | | | | | | | | |
Accumulated other comprehensive income (loss): | | | | | | | | | | | |
Beginning balance | $ | (63) | | | $ | (7) | | | $ | (70) | | | $ | (124) | | | $ | 10 | | | $ | (114) | |
Other comprehensive income (loss) | (94) | | | 5 | | | (89) | | | (33) | | | (12) | | | (45) | |
Ending balance | $ | (157) | | | $ | (2) | | | $ | (159) | | | $ | (157) | | | $ | (2) | | | $ | (159) | |
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Note 12— Commitments and Contingencies |
We are involved in various claims and legal proceedings arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. While we do not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matters described below, if decided adversely), individually or in the aggregate, will have a material adverse effect on our financial position, an unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.
On January 15, 2015, Syntel sued TriZetto and Cognizant in the United States District Court for the Southern District of New York.USDC-SDNY. Syntel’s complaint alleged breach of contract against TriZetto, and tortious interference and misappropriation of trade secrets against Cognizant and TriZetto, stemming from Cognizant’s hiring of certain former Syntel employees. Cognizant and TriZetto countersued on March 23, 2015, for breach of contract, misappropriation of trade secrets and tortious interference, based on Syntel’s misuse of TriZetto confidential information and abandonment of contractual obligations. Cognizant and TriZetto subsequently added Federal Defendfederal Defend Trade Secrets Act and copyright infringement claims for Syntel’s misuse of TriZetto’s proprietary technology. The parties’ claims were narrowed by the court and the case was tried before a jury, which on October 27, 2020 returned a verdict in favor of Cognizant in the amount of $854$855 million, including $570 million in punitive
damages. We expectOn April 20, 2021, the USDC-SDNY issued a post-trial order that, among other things, affirmed the jury’s award of $285 million in actual damages, but reduced the award of punitive damages from $570 million to $285 million, thereby reducing the overall damages award from $855 million to $570 million. The USDC-SDNY subsequently issued a final judgment consistent with the April 20th order. On May 26, 2021, Syntel filed a notice of appeal to appeal the decisionUnited States Court of Appeals for the Second Circuit, and thus weon June 3, 2021 the USDC-SDNY stayed execution of judgment pending appeal. We will not record the gain in our financial statements until it becomes realizable.
On April 20, 2020, we announced a security incident involving a Maze ransomware attack. As previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, based on numerous remediation steps that have been undertaken and our continued monitoring of our environment, we believe we have contained the attack and eradicated remnants of the attacker activity from our environment. Based on our investigation, 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 faced 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 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 were unable to continue providing services via client networks until access was restored. We engaged leading outside forensics and cybersecurity experts, launched a comprehensive containment and remediation effort and forensic investigation, restored the security of our internal systems and networks and are adopting various enhancements to the security of our systems and networks. We also notified and are coordinating with law enforcement.
The lost revenue and containment, investigation, remediation, legal and other costs may exceed our insurance policy limits or may 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 IndiaSCI interpreting the India Defined Contribution Obligation altered historical understandings of the obligation, extending it to cover additional portions of the employee’s income. As a result, the ongoing contributions of our affected employees and the Company were required to be increased. In the first quarter of 2019, we accrued $117$117 million with respect to prior periods, assuming retroactive application of the Supreme Court’s ruling, in "Selling, general and administrative expenses"expenses" in our unaudited consolidated statement of operations. There is significant uncertainty as to how the liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. Since the ruling, a variety of trade associations and industry groups have advocated to the Indian government, highlighting the harm to the information technology sector, other industries and job growth in India that would result from a retroactive application of the ruling. It is possible the Indian government will review the matter and there is a substantial question as to whether the Indian government will apply the Supreme Court’sSCI’s ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different from the amount accrued.
On October 5, 2016, October 27, 2016 and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey,USDC-NJ naming us and certain of our current and former officers at that time 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 at that time as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the Foreign Corrupt Practices Act, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Defendants filed a motionmotions to dismiss the consolidated amended complaint on June 6, 2017. On August 8, 2018, the United States District Court for the District of New JerseyUSDC-NJ issued an order which granted the motionmotions to dismiss in part, including dismissal of all claims against currentthen-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 JerseyUSDC-NJ to certify the August 8, 2018 order for immediate appeal to the United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 1292(b). On October 18, 2018, the District CourtUSDC-NJ issued an order granting our motion, and staying the action pending the outcome of our appeal petition to the Third Circuit. On October 29, 2018, we filed a petition for permission to appeal with the 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 CourtUSDC-NJ directed the lead plaintiffs to provide the defendants with a proposed amended complaint. On April 26, 2019, lead plaintiffs filed their second amended complaint. We filed a motion to
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Cognizant | 21 | September 30, 2021 Form 10-Q |
dismiss the second amended complaint on June 10, 2019. On June 7, 2020, the District CourtUSDC-NJ issued an order denying our motion to dismiss the second amended complaint. On July 10, 2020, we filed our
answer to the second amended complaint. On July 23, 2020, the United States Department of JusticeDOJ filed a motion on consent for leave to intervene and to stay all discovery through the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), except for documents produced by us to the Department of JusticeDOJ in connection with those criminal proceedings. On July 24, 2020, the District CourtUSDC-NJ granted the Department of Justice’sDOJ’s motion; and on that same day, we filed a motion in the District CourtUSDC-NJ to certify the June 7, 2020 order for immediate appeal to the Third Circuit pursuant to 28 U.S.C. § 1292(b),. On March 17, 2021, the USDC-NJ issued an order denying our motion.
On September 7, 2021, the parties filed a settlement agreement that, subject to the approval of the USDC-NJ, would resolve the consolidated putative securities class action against us and certain of our former officers. The settlement agreement provides for a payment of $95 million to the putative class (inclusive of attorneys’ fees and litigation expenses). Adjusting for indemnification expenses, legal fees and other covered expenses incurred through September 7, 2021, the remaining available balance under the applicable directors and officers insurance policies was $75 million. As a result, we recorded a loss of $20 million in "Selling, general and administrative expenses" in our unaudited consolidated financial statements. The loss is referred to as the Class Action Settlement Loss. We and the other defendants are entering into the settlement agreement to eliminate the uncertainty, burden, and expense of further protracted litigation. We and the other defendants expressly deny that the plaintiffs in the consolidated putative securities class action have asserted any valid claims as to us and them, respectively. On September 9, 2021, the USDC-NJ granted preliminary approval of the settlement. The settlement is subject to final approval by the USDC-NJ and certain other conditions, and we cannot provide assurance that the USDC-NJ will grant final approval of the settlement. Notice is being provided to potential class members who will have an opportunity to opt out of the settlement and make any objections to the USDC-NJ, which motionthe USDC-NJ will then review. After the notice and objection period, the USDC-NJ is now fully briefed.scheduled to hold a hearing on December 20, 2021 to determine whether to grant final approval of the settlement. If final approval is not granted by the USDC-NJ, or if the settlement does not become final for any other reason, we will return to our position prior to the settlement and we are unable to predict the duration, scope or result of the subsequent litigation.
On October 31, 2016, November 15, 2016 and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers at that time 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 anticipatedthen-anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future.
On February 22, 2017, April 7, 2017 and May 10, 2017, three additional putative shareholder derivative complaints alleging similar claims were filed in the United States District Court for the District of New Jersey,USDC-NJ, naming us and certain of our current and former directors and officers at that time as defendants. These complaints asserted claims similar to those in the previously-filed putative shareholder derivative actions. In an order dated June 20, 2017, the United States District Court for the District of New JerseyUSDC-NJ consolidated these actions into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motions to dismiss the consolidated putative securities class action. On October 30, 2018, lead plaintiff filed a consolidated verified derivative complaint.
On March 11, 2019, a seventh putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey,USDC-NJ, naming us and certain of our current and former directors and certain of our current and former officers at that time as defendants. TheThe 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 JerseyUSDC-NJ 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;USDC-NJ; and (ii) stayed all of these suits pending an order on the motion to dismiss the second amended complaint in the consolidated putative securities class action. On August 3, 2020, lead plaintiffs filed an amended complaint. On October 19, 2020, the USDC-NJ approved a stipulation that stayed all of these suits through the earlier of the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), or November 1, 2021.
On June 1, 2021, an eighth putative shareholder derivative complaint was filed in the USDC-NJ, naming us and certain of our current and former directors and officers at that time as defendants. The complaint asserts claims similar to those in the previously-filed putative shareholder derivative actions. On August 2, 2021, the USDC-NJ approved a stipulation that stayed this action through the earliest of (i) the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), (ii) the dissolution of the stay in the consolidated putative securities class action, provided that the dissolution of the stay in the consolidated putative securities class action is not the result of a settlement agreement or other mutual resolution of the consolidated putative securities class action, or (iii) the dissolution of the stay in the
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Cognizant | 22 | September 30, 2021 Form 10-Q |
consolidated putative shareholder derivative action pending in USDC-NJ, provided that we are required to answer, move to dismiss, or otherwise respond to the operative complaint in that action following the dissolution of the stay.
We are presently unable to predict the duration, scope or result of the consolidated putative securities class action,shareholder derivative actions. Although the Company continues to defend 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 of the Company’s board of directors. In connection with the matters that were the subject of our previously disclosed internal investigation, the United States Department of JusticeDOJ 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 throughAs of the filing of the settlement agreement on September 30, 2020.
We have maintained7, 2021, there are no amounts remaining available to us under applicable insurance policies for our ongoing indemnification and advancement obligations with respect to certain of our current and former officers and directors or incremental legal fees and officers insurance and have recorded an insurance receivable of $7 millionas of September 30, 2020, reported in "Other current assets," in our unaudited consolidated statement of financial positionother expenses 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.
above matters.
See Note 8 for information relating to the ITD Dispute. Many of our engagements involve projects that are critical to the operations of our clients’ business and provide benefits that are difficult to quantify. Any failure in a client’s systems or our failure to meet our contractual obligations to our clients, including any breach involving a client’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although
we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in 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, thereomissions, we retain a significant portion of risk through our insurance deductibles and there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.
In the normal course of business and in conjunction with certain client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to hold the indemnified party and certain of their affiliated entities harmless with respect to third-party claims related to such matters as our breach of certain representations or covenants, our intellectual property infringement, our gross negligence or willful misconduct or certain other claims made against certain parties. Payments by us under any of these arrangements are generally conditioned on the client making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine the maximum potential liability under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Historically, we have not made material payments under these indemnification agreements and therefore they have not had a material impact on our operating results, financial position, or cash flows. However, if events arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have entered, such payments could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.
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Note 13 — Segment Information |
Our reportable segments are:
•Financial Services, which consists of our banking and insurance operating segments;
•Healthcare, which consists of our healthcare and life sciences operating segments;
•Products and Resources, which consists of our retail and consumer goods; manufacturing, logistics, energy, and utilities; and travel and hospitality operating segments; and
•Communications, Media and Technology, which includes our communications and media operating segment and our technology operating segment.
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Cognizant | 23 | September 30, 2021 Form 10-Q |
Our sales managers,client partners, account executives accountand client relationship 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.
Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per employee charge for use of our global delivery centers and infrastructure. Certain SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery personnel as compared to target, restructuring costs,and COVID-19 Charges,costs related to the ransomware attack, a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are included below as “unallocated costs” and adjusted against our total income from operations. 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 nine months ended September 30, 2019 and is included in "unallocated costs" in the table below.operations. Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.
For revenues by reportable segment and geographic area, please see Note 2. Segment operating profits by reportable segment were as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 | |
| (in millions) | |
(in millions) | | (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Financial Services | Financial Services | $ | 463 | | | 418 | | | $ | 1,209 | | | $ | 1,225 | | Financial Services | $ | 463 | | | $ | 463 | | | $ | 1,308 | | | $ | 1,209 | |
Healthcare | Healthcare | 378 | | | 312 | | | 1,004 | | | 963 | | Healthcare | 383 | | | 378 | | | 1,182 | | | 1,004 | |
Products and Resources | Products and Resources | 307 | | | 274 | | | 805 | | | 763 | | Products and Resources | 351 | | | 307 | | | 988 | | | 805 | |
Communications, Media and Technology | Communications, Media and Technology | 191 | | | 186 | | | 555 | | | 544 | | Communications, Media and Technology | 253 | | | 191 | | | 703 | | | 555 | |
Total segment operating profit | Total segment operating profit | 1,339 | | | 1,190 | | | 3,573 | | | 3,495 | | Total segment operating profit | 1,450 | | | 1,339 | | | 4,181 | | | 3,573 | |
Less: unallocated costs | Less: unallocated costs | 736 | | | 521 | | | 1,924 | | | 1,668 | | Less: unallocated costs | 721 | | | 736 | | | 2,087 | | | 1,924 | |
Income from operations | Income from operations | $ | 603 | | | $ | 669 | | | $ | 1,649 | | | $ | 1,827 | | Income from operations | $ | 729 | | | $ | 603 | | | $ | 2,094 | | | $ | 1,649 | |
Geographic Area Information
Long-lived assets by geographic area are as follows:
| | | | | | | | | | | |
| As of |
| September 30, 2020 | | December 31, 2019 |
| (in millions) |
Long-lived Assets: (1) | | | |
North America(2) | $ | 412 | | | $ | 445 | |
Europe | 109 | | | 104 | |
Rest of World (3) | 792 | | | 760 | |
Total | $ | 1,313 | | | $ | 1,309 | |
| | | | | | | | | | | |
| As of |
(in millions) | September 30, 2021 | | December 31, 2020 |
Long-lived Assets: (1) | | | |
North America(2) | $ | 366 | | | $ | 399 | |
Europe | 80 | | | 88 | |
Rest of World (3) | 733 | | | 764 | |
Total | $ | 1,179 | | | $ | 1,251 | |
(1)Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
(2)Substantially all relates to the United States.
(3)Substantially all relates to India.
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Note 14 — Subsequent Events |
Dividend
On October 28, 2020,26, 2021, our Board of Directors approved the Company's declaration of a $0.22$0.24 per share dividend with a record date of November 19, 20202021 and a payment date of November 30, 2020.2021.
27
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Cognizant | 24 | September 30, 2021 Form 10-Q |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Cognizant is one of the world’s leading professional services companies, transforming clients’engineering modern business operating and technology models for the digital era. Our services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Digital services have become an increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI, experience-driven software engineering and cloud. We tailor our services and solutions to specific industries with an integrated global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional delivery centers.
Q3 2021 Financial Results
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. 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 may continue to take further actions, to address the COVID-19 pandemic. We have been working 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 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, in the first half of the year we experienced some delays in project fulfillment as delivery, particularly in India and the Philippines, shifted to work-from-home. As previously reported in our Quarterly Report on Form 10-Q forDuring the quarter ended JuneSeptember 30, 2020, we are at near full project fulfillment capacity2021, revenues increased by $501 million as a work-from-home scenario is not possible at certain client projects due to regulatory or other requirements.
As a result of the ongoing pandemic, we are experiencing reduced client demand. We expect project deferrals, furloughs, and temporary rate concessions to continue to adversely affect revenues across all of our business segments in 2020 and potentially beyond. 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 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 third quarter of 2020, we incurred $21 million of costs in responsecompared to the COVID-19 pandemic, including costs incurred to enable our employees to work remotely. During the fourth quarter of 2020 we may incur incremental costs related to the COVID-19 pandemic, primarily related to operating in a work-from-home environment.
We continue to implement our 2020 Fit for Growth Plan, investing in the key digital areas of IoT, AI and analytics, 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 September 30, 2020, we incurred $43 million of employee separation and facility exit costs and other charges under this plan. 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 of approximately $200 million, primarily related to severance and facility exit costs, and are expected to be substantially completed by the end of 2020. The optimization measures are expected to generate an annualized savings run rate, before anticipated investments, in the range of approximately $520 million to $550 million in 2021. The COVID-19 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.Our 2019 decision to exit certain content-related services negatively impacted our third quarter 2020 revenues by approximately $57 million within our Communications, Media and Technology segment in North America and we anticipate the impact on 2020 revenuesto beapproximately $180 million.
On April 20, 2020, we announced a security incident involving a Maze ransomware attack. As previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, based on numerous remediation steps that have been
undertaken and our continued monitoring of our environment, we believe we have contained the attack and eradicated remnants of the attacker activity from our environment. The lost revenue and containment, investigation, remediation, legal and other costs incurred due to the ransomware attack 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 and Note 12to our unaudited consolidated financial statements.In March 2020, the Indian parliament enacted the Budget of India, which contained 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 reduced the tax rate applicable to us for cash repatriated from India. Following this change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior years. In July 2020, the U.S. Treasury Department and the Internal Revenue Service released final regulations, which became effective in September 2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate growth in various international markets and expandour global delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits.
On October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to its shareholders (non-Indian Cognizant entities), after payment of $105 million of India withholding tax.
On October 27, 2020, a jury returned a verdict in our favor in the amount of $854 million, including $570 million punitive damages, in our lawsuit with Syntel, which was initiated in 2015. We expect Syntel to appeal the decision and thus we will not record the gain in our financial statements until it becomes realizable. For more information, see Note 12 to our unaudited consolidated financial statements.Q3 2020 Financial Results
The following table sets forth a summary of our financial results for the three months ended September 30, 2020, and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Increase / Decrease |
| | 2020 | | 2019 | | $ | | % |
| | (Dollars in millions, except per share data) |
Revenues | | $ | 4,243 | | | | $ | 4,248 | | | | $ | (5) | | | (0.1) | |
Income from operations | | 603 | | | | 669 | | | | (66) | | | (9.9) | |
Provision for income taxes | | (276) | | | | (160) | | | | (116) | | | 72.5 | |
Net income | | 348 | | | | 497 | | | | (149) | | | (30.0) | |
Diluted EPS | | 0.64 | | | | 0.90 | | | | (0.26) | | | (28.9) | |
Other Financial Information1 | | | | | | | | | | |
Adjusted Income from Operations | | $ | 675 | | | | $ | 734 | | | | $ | (59) | | | (8.0) | |
Adjusted Diluted EPS | | 0.97 | | | | 1.08 | | | | (0.11) | | | (10.2) | |
representing growth of 11.8%, or
11.0%
on a constant currency basis
1 Adjusted Income From Operations and Adjusted Diluted EPS are not measures 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.
The following charts set forth revenues and change in revenues by business segment and geography for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | Financial Services | | Healthcare | | | | |
| | | | Increase / (Decrease) | | | | Increase / (Decrease) | | | | | | | | |
Dollars in millions | | Revenues | | $ | | % | | CC %2 | | Revenues | | $ | | % | | CC %2 | | | | | | | | |
North America | | $ | 1,033 | | | (19) | | | (1.8) | | | (1.8) | | | $ | 1,054 | | | 18 | | | 1.7 | | | 1.7 | | | | | | | | | |
United Kingdom | | 123 | | | 6 | | | 5.1 | | | 1.6 | | | 40 | | | 4 | | | 11.1 | | | 7.0 | | | | | | | | | |
Continental Europe | | 181 | | | (11) | | | (5.7) | | | (10.0) | | | 116 | | | 31 | | | 36.5 | | | 30.4 | | | | | | | | | |
Europe - Total | | 304 | | | (5) | | | (1.6) | | | (5.6) | | | 156 | | | 35 | | | 28.9 | | | 23.4 | | | | | | | | | |
Rest of World | | 132 | | | 1 | | | 0.8 | | | 2.6 | | | 21 | | | 3 | | | 16.7 | | | 19.4 | | | | | | | | | |
Total | | $ | 1,469 | | | (23) | | | (1.5) | | | (2.2) | | | $ | 1,231 | | | 56 | | | 4.8 | | | 4.2 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Products and Resources | | Communications, Media and Technology | | | | |
| | | | Increase / (Decrease) | | | | Increase / (Decrease) | | | | | | | | |
Dollars in millions | | Revenues | | $ | | % | | CC %2 | | Revenues | | $ | | % | | CC %2 | | | | | | | | |
North America | | $ | 666 | | | (21) | | | (3.1) | | | (3.0) | | | $ | 426 | | | (22) | | | (4.9) | | | (4.9) | | | | | | | | | |
United Kingdom | | 96 | | | 1 | | | 1.1 | | | (3.5) | | | 86 | | | 9 | | | 11.7 | | | 7.0 | | | | | | | | | |
Continental Europe | | 97 | | | (18) | | | (15.7) | | | (18.0) | | | 43 | | | 5 | | | 13.2 | | | 9.4 | | | | | | | | | |
Europe - Total | | 193 | | | (17) | | | (8.1) | | | (11.4) | | | 129 | | | 14 | | | 12.2 | | | 7.8 | | | | | | | | | |
Rest of World | | 68 | | | (1) | | | (1.4) | | | 0.9 | | | 61 | | | 9 | | | 17.3 | | | 22.5 | | | | | | | | | |
Total | | $ | 927 | | | (39) | | | (4.0) | | | (4.6) | | | $ | 616 | | | 1 | | | 0.2 | | | (0.2) | | | | | | | | | |
Across all business segments and regions, revenues benefited from our. Our recently completed acquisitions including Collaborative Solutions and Contino, and were negatively impacted by project deferrals, furloughs and temporary rate concessions brought on by the COVID-19 pandemic. Retail, consumer goods, travel and hospitality clients withincontributed 300 basis points to our Products and Resources segment as well as communications and media clients in our Communications, Media and Technology segment were particularly adversely affected by the pandemic. Clients in those industries represented 11% of our total revenues in the third quarter of 2020. At the same time, our manufacturing, logistics, energy and utilities clients within our Products and revenue growth.Resources segment generated Our revenue growth due toalso reflected our clients' continued adoption and integration of digital technologies.technologies and the acceleration in the demand for cloud, mobile workplace solutions, e-commerce, automation and AI and was aided by the negative impact on 2020 revenues of the COVID-19 pandemic. Revenues in our Financial Services segment continued to see certain clients transition the support of some of their legacy systems and operations in-house or to captives. Revenues among our technology clients in our Communications, Media and Technology segment benefited from our technology clients' growing demand for services related to digital content. Revenue growth was strong among our manufacturing, logistics, energy and utilities clients in the North America region were negatively impacted by approximately $57 millionour Products and Resources segment due to their continued adoption and integration of digital technologies. Revenue growth in our 2019 strategic decision to exit certain content-related services.Healthcare segment was driven by increased demand for our services from our pharmaceutical clients. We continue to see growing demand fromexperience pricing pressure on our technologynon-digital services as our clients, for other more strategic digital content services.particularly those in our Financial Services segment, optimize the cost of supporting their legacy systems and operations.
Our operating margin and Adjusted Operating Margin2 decreasedincreased to 14.2% and 15.9%, respectively, for the quarter ended September 30, 2020 from 15.7% and 17.3%, respectively,15.4% for the quarter ended September 30, 2019. 2021, from 14.2% for the quarter ended September 30, 2020. Our Adjusted Operating Margin1 decreased slightly to 15.8% for the quarter ended September 30, 2021 from 15.9% for the September 30, 2020. Our 2021 GAAP and Adjusted Operating Margin2Margins benefited from savings from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan. These benefits were adversely impactedpartially offset by higher incentive-based compensation accrual rates,investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, as well as the dilutivenegative impact on margin of our recently completed acquisitions, increased subcontractor and compensation costs (net of modestly lower incentive-based compensation accrual rates) as a result of significantly elevated attritionand costs related to the modernization of our core IT systems. Our 2020 GAAP and Adjusted Operating Margins1 were adversely impacted by the decline in revenues brought on by the COVID-19 pandemic and an asset impairment related to the discontinuation of certain real estate construction projects, partially offset by a significant decrease in travel and entertainment expenses due to the COVID-19 pandemic, cost savings generated by our cost optimization initiatives and the depreciation of the Indian rupee against the U.S. dollar. In addition, our 2020projects. Our 2021 GAAP operating margin was negatively impacted by COVID-19 Charges.
We finished the third quarter of 2020 with approximately 283,100 employees, which is a decrease of 6,800 as compared to September 30, 2019
1 Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Diluted EPS and an increase of 1,900 as compared to June 30, 2020. Annualized turnover, including both voluntary and involuntary, was approximately 17.9% for the three months ended September 30, 2020. A significant portion of our attrition is related to involuntary exits and is weighted towards the more junior members of our staff.
2Constantconstant currency revenue growth and Adjusted Operating Margin are not measures 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.
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Cognizant | 25 | September 30, 2021 Form 10-Q |
Business Considerationsnegatively impacted by the Class Action Settlement Loss, while our 2020 GAAP operating margin was negatively impacted by costs related to our restructuring program that concluded at the end of 2020.
In the fourth quarter of 2020, we made an offer to settle and exit a large customer engagement in Financial Services in Continental Europe. The significantoffer included, among other terms, a proposed payment and continuing impact and evolving naturethe forgiveness of certain receivables. In the second quarter of 2021, we reached a settlement agreement with two of the COVID-19 pandemic makes it difficultthree customers that were part of the engagement. The payment made to estimate its future impact onthe two customers in the second quarter as part of the settlement agreement was consistent with the payment that had been proposed in the offer to such customers. Additionally, the settlement includes a provision for the continuation of certain of our services to the two customers. Our negotiations with the third customer are ongoing business, resultsand, as such, we may not reach an agreement or the final terms of the agreement that is reached may materially differ from those contemplated in our accounting. In either instance, there could be additional impacts to our statement of operations, financial condition and overall financial performance. As clients work through significant financial challenges relatedour cash flows.
In the third quarter of 2021, the parties to the COVID-19 pandemic,consolidated putative securities class action suit described in Note 12 of our unaudited consolidated financial statements filed a settlement agreement that, subject to the approval of the USDC-NJ, would resolve the consolidated putative securities class action against us and certain of our former officers. As a result, we have facedrecorded a $20 million Class Action Settlement Loss in "Selling, general and mayadministrative expenses" in our unaudited consolidated financial statements. The loss is excluded from Adjusted Operating Margin and Adjusted Diluted EPS. For further information see Note 12 to our unaudited consolidated financial statements. Business Outlook
As we seek to increase our commercial momentum and accelerate growth, our four strategic priorities are:
•Repositioning our brand - improving our global brand recognition and becoming better known as a global digital partner to the entire C-suite;
•Accelerating digital - growing our digital business organically and inorganically;
•Globalizing Cognizant - growing our business in key international markets and diversifying leadership, capabilities and delivery footprint; and
•Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients' business needs.
During the third quarter of 2021, we acquired TQS and Hunter to expand our IoT, data, analytics and digital engineering capabilities. We intend to continue to face reduced client demand for services, client pricing pressure, payment term extensionspursue strategic acquisitions, investments and insolvency risk, additional delivery challenges, increased costs, a diversion ofalliances to expand our talent, experience and strain on management and other corporate resources, and reduced employee morale and productivity. See Part II, Item 1A. Risk Factors.capabilities in key digital areas or in particular geographies or industries. While the immediate focus of many clients is on the COVID-19 pandemic impacts to their businesses, weWe continue to expect the long-term focus of our clients to be on their digital transformation into software drive,software-driven, data-enabled, customer-centric and differentiated businesses. AsClients continue to adopt and integrate digital technologies. Demand for our digital operations services and solutions has increased since the beginning of the COVID-19 pandemic. At the same time, as our clients seek to optimize the cost of supporting their legacy systems and operations, our core portfolio ofnon-digital services have been and may continue to be subject to pricing pressure and lower demand due to clients transitioning certain work in-house or to new or existing captives.
Ourpressure. In addition, our clients will likely continue to contend with industry-specific changes driven by evolving digital technologies, uncertainty in the regulatory environment, industry consolidation and convergence as well as international trade policies and other macroeconomic factors, which could affect their demand for our services. Additionally, revenue from our technology clients will be affected by our 2019 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 cost optimization measures executed as part of our 2020 Fit for Growth Plan. Additionally, we intend to continue to invest in our digital capabilities, our talent base and new service offerings across industries and geographies, while increasing our investment in sales and marketing professionals to help us expand existing accounts and acquire new ones. We will continue to pursue strategic acquisitions that we believe add new technologies or platforms that complement our existing services, improve our overall service delivery capabilities or expand our geographic presence. Additionally, we will continue to focus on maintaining and 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, giving consideration to the impactThe evolving nature of the COVID-19 pandemic makes it difficult to estimate its future impact on our revenues.ongoing business, results of operations and overall financial performance. For example, India saw a considerable and sudden increase in new COVID-19 cases in the spring of 2021. A significant worsening of the pandemic, particularly in India, where a significant majority of our operations and technical personnel are located, could present challenges to our ability to deliver services to clients. We remain focused on protecting our employees’ health, safety and well-being.
As a global professional services company, we compete on the basis of the knowledge, experience, insights, skills and talent of our employees and the value they can provide to our clients. Our success is dependent, in large part, on our ability to keep our supply of skilled employees, in particular those with experience in key digital areas, in balance with client demand. For the three months ended September 30, 2021, our annualized attrition, including both voluntary and involuntary, was 37.0%. Competition for skilled employees in the current labor market is intense, and we experienced significantly elevated voluntary attrition during the third quarter of 2021. Challenges attracting and retaining highly qualified personnel have negatively impacted, and we expect will continue to impact, our ability to satisfy client demand and achieve our full revenue potential. Further, our ongoing and anticipated future efforts with respect to recruitment, talent management and employee engagement may not be successful and will result in increased delivery costs during the remainder of 2021.
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Cognizant | 26 | September 30, 2021 Form 10-Q |
In addition, our future results may be affected by immigration law changes that may impact our ability to do business or significantly increase our costs of doing business, such as those discussed in Part II, Item 1A. Risk Factors, potential tax law changes and other potential regulatory changes, including possible U.S. corporate income tax reform and potentially increased costs for employment and post-employment benefits in India as well asa result of the Code on Social Security, 2020. We may also incur additional costs related to the potential resolution of legal andand regulatory matters discussed in Note 12 to our unaudited consolidated financial statements.
Three Months Ended September 30, 20202021 Compared to Three Months Ended September 30, 20192020
The following table sets forth, for the periods indicated, certain financial data for the three months ended September 30:
| | | | | % of | | | | | % of | | | Increase / Decrease | | | | % of | | | | | % of | | | Increase / Decrease |
| 2020 | | Revenues | | | 2019 | | Revenues | | | $ | | % | |
| (Dollars in millions, except per share data) | |
(Dollars in millions, except per share data) | | (Dollars in millions, except per share data) | 2021 | | Revenues | | | 2020 | | Revenues | | | $ | | % |
Revenues | Revenues | $ | 4,243 | | | 100.0 | | | | $ | 4,248 | | | 100.0 | | | | $ | (5) | | | (0.1) | | Revenues | $ | 4,744 | | | 100.0 | | | | $ | 4,243 | | | 100.0 | | | | $ | 501 | | | 11.8 | |
Cost of revenues(1) | 2,647 | | | 62.4 | | | | 2,681 | | | 63.1 | | | | (34) | | | (1.3) | | |
Selling, general and administrative expenses(1) | 804 | | | 18.9 | | | | 706 | | | 16.6 | | | | 98 | | | 13.9 | | |
Cost of revenues(a) | | Cost of revenues(a) | 2,947 | | | 62.1 | | | | 2,647 | | | 62.4 | | | | 300 | | | 11.3 | |
Selling, general and administrative expenses(a) | | Selling, general and administrative expenses(a) | 924 | | | 19.5 | | | | 804 | | | 18.9 | | | | 120 | | | 14.9 | |
Restructuring charges | Restructuring charges | 51 | | | 1.2 | | | | 65 | | | 1.5 | | | | (14) | | | (21.5) | | Restructuring charges | — | | | — | | | | 51 | | | 1.2 | | | | (51) | | | (100.0) | |
Depreciation and amortization expense | Depreciation and amortization expense | 138 | | | 3.3 | | | | 127 | | | 3.0 | | | | 11 | | | 8.7 | | Depreciation and amortization expense | 144 | | | 3.0 | | | | 138 | | | 3.3 | | | | 6 | | | 4.3 | |
Income from operations | Income from operations | 603 | | | 14.2 | | | | 669 | | | 15.7 | | | | (66) | | | (9.9) | | Income from operations | 729 | | | 15.4 | | | | 603 | | | 14.2 | | | | 126 | | | 20.9 | |
Other income (expense), net | Other income (expense), net | 21 | | | | | (11) | | | | | 32 | | | (290.9) | | Other income (expense), net | 2 | | | | | 21 | | | | | (19) | | | (90.5) | |
Income before provision for income taxes | Income before provision for income taxes | 624 | | | 14.7 | | | | 658 | | | 15.5 | | | | (34) | | | (5.2) | | Income before provision for income taxes | 731 | | | 15.4 | | | | 624 | | | 14.7 | | | | 107 | | | 17.1 | |
Provision for income taxes | Provision for income taxes | (276) | | | | | (160) | | | | | (116) | | | 72.5 | | Provision for income taxes | (187) | | | | | (276) | | | | | 89 | | | (32.2) | |
Income (loss) from equity method investments | — | | | | | (1) | | | | | 1 | | | (100.0) | | |
| Net income | Net income | $ | 348 | | | 8.2 | | | | $ | 497 | | | 11.7 | | | | $ | (149) | | | (30.0) | | Net income | $ | 544 | | | 11.5 | | | | $ | 348 | | | 8.2 | | | | $ | 196 | | | 56.3 | |
Diluted earnings per share | Diluted earnings per share | $ | 0.64 | | | | | $ | 0.90 | | | | | $ | (0.26) | | | (28.9) | | Diluted earnings per share | $ | 1.03 | | | | | $ | 0.64 | | | | | $ | 0.39 | | | 60.9 | |
| Other Financial Information3 | | | | | | |
Other Financial Information2 | | Other Financial Information2 | | | | | |
Adjusted Income from Operations and Adjusted Operating Margin | Adjusted Income from Operations and Adjusted Operating Margin | $ | 675 | | | 15.9 | | | | $ | 734 | | | 17.3 | | | | $ | (59) | | | (8.0) | | Adjusted Income from Operations and Adjusted Operating Margin | $ | 749 | | | 15.8 | | | | $ | 675 | | | 15.9 | | | | $ | 74 | | | 11.0 | |
Adjusted Diluted EPS | Adjusted Diluted EPS | $ | 0.97 | | | | | $ | 1.08 | | | | | $ | (0.11) | | | (10.2) | | Adjusted Diluted EPS | $ | 1.06 | | | | | $ | 0.97 | | | | | $ | 0.09 | | | 9.3 | |
(1)(a)Exclusive of depreciation and amortization expense.
Revenues forDuring the quarter ended September 30, 2020 were flat2021, revenues increased by $501 million as compared to the quarter ended September 30, 2019. 2020, representing growth of 11.8%, orAcross all business segments and regions, revenues benefited from our 11.0% on a constant currency basis2. Our recently completed acquisitions including Collaborative Solutionscontributed 300 basis points to our revenue growth. Our revenue growth also reflected our clients' continued adoption and Contino,integration of digital technologies and were negatively impacted by project deferrals, furloughsthe acceleration in the demand for cloud, mobile workplace solutions, e-commerce, automation and temporary rate concessions brought onAI and was aided by the negative impact on 2020 revenues of the COVID-19 pandemic.pandemic. We continue to experience pricing pressure withinon our core portfolio ofnon-digital services as our clients optimize the cost of supporting their legacy systems andand operations. At the same time, clients continue to adopt and integrate digital technologies and their demand for our digital operations services and solutions continues to grow. RevenuesRevenues from clients added since September 30, 20192020, including those related to acquisitions, were $145$151 million.
Revenues from our top clients as a percentage of total revenues were as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2020 | | 2019 |
Top five clients | | 8.1 | % | | 7.9 | % |
Top ten clients | | 14.0 | % | | 14.4 | % |
32 Adjusted Income Fromfrom Operations, Adjusted Operating Margin, and Adjusted Diluted EPS and constant currency revenue growth are not measures 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.
32
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Cognizant | 27 | September 30, 2021 Form 10-Q |
| | |
Revenues - Reportable Business Segments |
RevenuesThe following charts set forth revenues and change in revenues by reportable business segment were as follows for the three months ended September 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Increase/ (Decrease) | |
$ | | % | | CC %4 | |
| | (Dollars in millions) | |
Financial Services | | $ | 1,469 | | | $ | 1,492 | | | $ | (23) | | | (1.5) | | | (2.2) | | |
Healthcare | | 1,231 | | | 1,175 | | | 56 | | | 4.8 | | | 4.2 | | |
Products and Resources | | 927 | | | 966 | | | (39) | | | (4.0) | | | (4.6) | | |
Communications, Media and Technology | | 616 | | | 615 | | | 1 | | | 0.2 | | | (0.2) | | |
Total revenues | | $ | 4,243 | | | $ | 4,248 | | | $ | (5) | | | (0.1) | | | (0.7) | | |
Financial Services
Revenues from our Financial Services segment decreased 1.5%, or 2.2% on a constant currency basis4,and geography for the three months ended September 30, 2020,2021 as compared to the three months ended September 30, 2019. Revenues in this segment decrease2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | Financial Services | | Healthcare | | | | |
| | | | Increase / (Decrease) | | | | Increase / (Decrease) | | | | | | | | |
Dollars in millions | | Revenues | | $ | | % | | CC %3 | | Revenues | | $ | | % | | CC %3 | | | | | | | | |
North America | | $ | 1,075 | | | 42 | | | 4.1 | | | 3.8 | | | $ | 1,162 | | | 108 | | | 10.2 | | | 10.2 | | | | | | | | | |
United Kingdom | | 140 | | | 17 | | | 13.8 | | | 8.7 | | | 44 | | | 4 | | | 10.0 | | | 6.3 | | | | | | | | | |
Continental Europe | | 187 | | | 6 | | | 3.3 | | | 2.4 | | | 118 | | | 2 | | | 1.7 | | | 1.1 | | | | | | | | | |
Europe - Total | | 327 | | | 23 | | | 7.6 | | | 5.0 | | | 162 | | | 6 | | | 3.8 | | | 2.4 | | | | | | | | | |
Rest of World | | 142 | | | 10 | | | 7.6 | | | 6.6 | | | 30 | | | 9 | | | 42.9 | | | 42.6 | | | | | | | | | |
Total | | $ | 1,544 | | | 75 | | | 5.1 | | | 4.3 | | | $ | 1,354 | | | 123 | | | 10.0 | | | 9.8 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Products and Resources | | Communications, Media and Technology | | | | |
| | | | Increase / (Decrease) | | | | Increase / (Decrease) | | | | | | | | |
Dollars in millions | | Revenues | | $ | | % | | CC %3 | | Revenues | | $ | | % | | CC %3 | | | | | | | | |
North America | | $ | 749 | | | 83 | | | 12.5 | | | 12.3 | | | $ | 500 | | | 74 | | | 17.4 | | | 17.4 | | | | | | | | | |
United Kingdom | | 125 | | | 29 | | | 30.2 | | | 22.4 | | | 121 | | | 35 | | | 40.7 | | | 35.2 | | | | | | | | | |
Continental Europe | | 145 | | | 48 | | | 49.5 | | | 47.3 | | | 34 | | | (9) | | | (20.9) | | | (22.0) | | | | | | | | | |
Europe - Total | | 270 | | | 77 | | | 39.9 | | | 34.9 | | | 155 | | | 26 | | | 20.2 | | | 16.1 | | | | | | | | | |
Rest of World | | 88 | | | 20 | | | 29.4 | | | 27.6 | | | 84 | | | 23 | | | 37.7 | | | 37.6 | | | | | | | | | |
Total | | $ | 1,107 | | | 180 | | | 19.4 | | | 18.1 | | | $ | 739 | | | 123 | | | 20.0 | | | 19.1 | | | | | | | | | |
| | |
Financial Services - revenues increased 5.1%, or 4.3% on a constant currency basis3 |
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Banking | é | $49M | |
| | | |
Insurance | é | $26M | |
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| | | |
Revenue growth reflected the negative impact to our 2020 revenues od by $13 million from our insurance clients and $10 million from our banking clients. The decline in revenues from banking clients in this segment reflectsf the COVID-19 pandemic as well as a reduction in 2020 revenues on a large transformation project as a result of delivery delays. Additionally, growth in this segment benefited from recently completed acquisitions and revenue generated by our digital services in both banking and insurance. Declines related to our non-digital services reflected clients' continued cost optimization of supporting their legacy systems and operations. Revenues from clients added since September 30, 2020, including those related to acquisitions, since September 30, 2019 were $35 million. Demand from certain financial services 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 captives.
Healthcare
Revenues from our Healthcare segment grew 4.8%, or 4.2% on a constant currency basis4w, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Revenues in this segment increased by $49 million from our life sciences clients and $7 million from our healthcare clients. Our 2019 revenue included the negative impact of a customer dispute with a healthcare client related to a large volume based contract. Revenues from clients added, including those related to acquisitions, since September 30, 2019 were $22 million. Demand from our healthcare clients may continue to be affected by uncertainty in the regulatory and political environment while demand among our life sciences clients may be affected by industry consolidation.
Products and Resources
Revenues from our Products and Resources segment decreased 4.0%, or 4.6% on a constant currency basis4, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.ere $33 million.Retail, consumer goods, travel and hospitality clients were particularly adversely affected by the pandemic and are expected to continue to be negatively impacted for the remainder of 2020 and possibly beyond. In the third quarter of 2020, revenues decreased by $37 million among our retail and consumer goods clients and $45 million among our travel and hospitality clients. Revenues from our manufacturing, logistics, energy and utilities clients increased $43 million due to our clients' adoption and integration of digital technologies. Revenues from clients added, including those related to acquisitions, since September 30, 2019 were $41 million.3
Communications, Media and Technology
Revenues from our Communications, Media and Technology segment for the three months ended September 30, 2020 were flat as compared to the three months ended September 30, 2019. Revenues from our communications and media clients increased by $20 million while revenues from our technology clients decreased by $19 million. Revenues among our technology clients in this segment were negatively impacted by approximately $57 million due to our 2019 strategic decision to exit certain content-related services and we anticipate the impact on 2020 revenues to be approximately $180 million. Additionally, revenues were negatively impacted by the COVID-19 pandemic, particularly among our communications and media clients, partially offset by growing demand from our technology clients for other more strategic digital content services. Revenues from clients added, including those related to acquisitions, since September 30, 2019 were $47 million.
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Healthcare - revenues increased 10.0%, or 9.8% on a constant currency basis3 |
Revenue growth among our life sciences clients was driven by increased demand for our services among pharmaceutical companies while revenue growth among our healthcare customers benefited from increased demand by health insurance customers for our integrated software solutions. Revenues from clients added since September 30, 2020, including those related to acquisitions, were $19 million.
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| | | |
Healthcare | é | $53M | |
| | | |
Life Sciences | é | $70M | |
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| | | |
4
3 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
33
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Cognizant | 28 | September 30, 2021 Form 10-Q |
| | |
Products and Resources - revenues increased 19.4%, or 18.1% on a constant currency basis4 |
| | | | | | | | | | | | | | | |
Manufacturing, Logistics, Energy and Utilities | é | $102M | |
| | | | | |
Retail and Consumer Goods | é | $58M | |
| | | | | |
Travel and Hospitality | é | $20M | |
| | | | | |
Revenues from our manufacturing, logistics, energy and utilities clients benefited from our clients' adoption and integration of digital technologies. Revenue growth in this segment included approximately 600 basis points related to recently completed acquisitions. Additionally, revenue growth reflected the negative impact to our 2020 revenues of the COVID-19 pandemic. Revenues from clients added since September 30, 2020, including those related to acquisitions, were $51 million.4
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Communications, Media and Technology - revenues increased 20.0%, or 19.1% on a constant currency basis4 |
Revenue growth in this segment reflected the growing demand from our technology clients for services related to digital content, primarily driven by our largest clients in this segment, and the negative impact to our 2020 revenue of the COVID-19 pandemic. Revenue growth in this segment included approximately 500 basis points related to recently completed acquisitions. Revenues from clients added since September 30, 2020, including those related to acquisitions, were $48 million.
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Communications and Media | é | $44M | |
| | | | | |
Technology | é | $79M | |
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Revenues - Geographic Markets |
Revenues of $4,744 million by geographic market were as follows for the three months ended September 30:30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Increase / (Decrease) |
$ | | % | | CC %5 | |
| | (Dollars in millions) |
North America | | $ | 3,179 | | | $ | 3,223 | | | $ | (44) | | | (1.4) | | | (1.4) | | |
United Kingdom | | 345 | | | 325 | | | 20 | | | 6.2 | | | 2.0 | | |
Continental Europe | | 437 | | | 430 | | | 7 | | | 1.6 | | | (2.4) | | |
Europe - Total | | 782 | | | 755 | | | 27 | | | 3.6 | | | (0.5) | | |
Rest of World | | 282 | | | 270 | | | 12 | | | 4.4 | | | 7.1 | | |
Total revenues | | $ | 4,243 | | | $ | 4,248 | | | $ | (5) | | | (0.1) | | | (0.7) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Q3 2021 as compared to Q3 2020 | | | | | | Increase / (Decrease) |
(Dollars in millions) | | | $ | | % | | CC %4 | |
North America | | | | | | $ | 307 | | | 9.7 | | | 9.5 | | |
United Kingdom | | | | | | 85 | | | 24.6 | | | 18.8 | | |
Continental Europe | | | | | | 47 | | | 10.8 | | | 9.6 | | |
Europe - Total | | | | | | 132 | | | 16.9 | | | 13.7 | | |
Rest of World | | | | | | 62 | | | 22.0 | | | 21.0 | | |
Total revenues | | | | | | $ | 501 | | | 11.8 | | | 11.0 | | |
North America continues to be our largest market, representing 74.9%73.5% of total revenues forand 61.3% of total revenue growth. Revenue growth across all regions benefited from our recently completed acquisitions and was also aided by the third quarter of 2020. Our North America region was negatively impacted bynegative impact on our strategic decision to exit certain content-related services in our Communications, Media and Technology segment and the transition2020 revenues of the supportCOVID-19 pandemic. United Kingdom and Continental Europe regions also benefited from favorable foreign currency exchange rate movements. A significant portion of legacy systems for certain financial services and healthcare clients in-house or to captives. Revenuerevenue growth in our Continental Europe region was negatively affected by the decline in banking revenues in this region due to the reduction of revenues on a large transformation project as a result of delivery delays. Revenue growth in ourand Rest of World region was driven by our communicationsregions is related to clients, including those from recent acquisitions, in Germany and media clients. We believe that there are opportunities for long-term growth across all of our geographic markets.Australia, respectively.
| | |
Cost of Revenues (Exclusive of Depreciation and Amortization Expense) |
| | | | | | | | | | | | |
é | $300M | | |
ê | 0.3% as a % of revenue | |
¡ | % of Revenues | |
| | | | |
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 decreased by 1.3% during the third quarter of 2020 as compared to the third quarter of 2019, decreasing as a percentage of revenues to 62.4% in the third quarter of 2020 compared to 63.1% in the third quarter of 2019. The decrease in cost of revenues, as a percentage of revenues, was due primarily due to a significant decrease in travel and entertainment costs as a resultsavings from the implementation of a reduction in travel due to the COVID-19 pandemic, cost savings generated as a result of ourdelivery cost optimization strategy and the depreciation of the Indian rupee against the U.S. dollar, partially offset by higher incentive-based compensation accrual rates in 2020.
SG&A Expenses (Exclusive of Depreciation and Amortization Expense)
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. SG&A expenses increased by 13.9% during the third quarter of 2020 as compared to the third quarter of 2019, increasing as a percentage of revenues to 18.9% in 2020 as compared to 16.6% in 2019. The increase, as a percentage of revenues, was primarily due to an increase in compensation and benefit costs, including higher incentive-based compensation, incremental costs related to our recently completed acquisitions and an asset impairment related to the discontinuation of certain real estate construction projects, partially offset by a significant decrease in travel and entertainment costs as a result of the reduction in travel due to the pandemic.
Restructuring Charges
Restructuring charges consistinitiatives of our 2020 Fit for Growth Plan as well as the negative impact on our 2020 results of the COVID-19 pandemic, partially offset by increased subcontractor and our realignment program. Restructuring charges were $51 million or 1.2%,compensation costs (net of modestly lower incentive-based compensation accrual rates) as a percentageresult of revenues for the three months ended September 30, 2020, as compared to $65 million or 1.5%, as a percentage of revenues for the three months ended September 30, 2019. For further detail on our restructuring charges see Note 4 to our unaudited consolidated financial statements.significantly elevated attrition.Depreciation and Amortization Expense
Depreciation and amortization expense increased by 8.7% during the third quarter of 2020 as compared to the third quarter of 2019. The increase is due to procurement of additional computer equipment primarily to provision work-from-home arrangements and amortization of intangibles from recently completed acquisitions.
54 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
34
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Cognizant | 29 | September 30, 2021 Form 10-Q |
Operating Margin - Overall | | |
SG&A Expenses (Exclusive of Depreciation and Amortization Expense) |
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. The increase, as a percentage of revenues, was due primarily to investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, increased costs as a result of our recently completed acquisitions, costs related to the modernization of our core IT systems and the Class Action Settlement Loss, partially offset by a reduction in expenses attributable to the COVID-19 pandemic. Additionally, our 2020 SG&A expenses included an asset impairment related to the discontinuation of certain real estate construction projects.
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é | $120M | | |
é | 0.6% as a % of revenue | |
¡ | % of Revenues | |
| | | | |
| | |
Depreciation and Amortization Expense |
Depreciation and amortization expense increased by 4.3% but remained relatively flat as a percentage of revenue during the third quarter of 2021 as compared to the third quarter of 2020. The increase was due to the amortization of intangible assets from recently completed acquisitions.
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Operating Margin and Adjusted Operating Margin5 - Overall |
Our operating margin and Adjusted Operating Margin6 decreased to 14.2% and 15.9%, respectively, for the quarter ended September 30, 2020 from 15.7%and 17.3%, respectively, for the quarter ended September 30, 2019. Our2021 GAAP and Adjusted Operating Margin6Margins benefited from savings from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan. These benefits were adversely impactedpartially offset by higher incentive-based compensation accrual rates,investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, as well as the dilutivenegative impact on margin of our recently completed acquisitions, increased subcontractor and compensation costs (net of modestly lower incentive-based compensation accrual rates) as a result of significantly elevated attrition and costs related to the modernization of our core IT systems. Our 2020 marginswere adversely impacted by the decline in revenues brought on by the COVID-19 pandemic and an asset impairment related to the discontinuation of certain real estate construction projects, partially offsetprojects. Our 2021 GAAP operating margin was negatively impacted by a significant decrease in travel and entertainment expenses due to the COVID-19 pandemic, cost savings generated by our cost optimization initiatives and the depreciation of the Indian rupee against the U.S. dollar. In addition,Class Action Settlement Loss, while our 2020 GAAP operating margin was negatively impacted by COVID-19 Charges.costs related to our restructuring program that concluded at the end of 2020.5
Excluding the impact of applicable designated cash flow hedges, the depreciationappreciation of the Indian rupee against the U.S. dollar positivelynegatively impacted our operating margin by approxi7 mately 95 basis points, or 0.95 percentage points during the three months ended September 30, 2020.2021. 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 17 basis points or 0.17 percentage18 basis points.
We enter into hedges offoreign exchange derivative contracts to hedge certain Indian rupee denominated payments in India, whichIndia. 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 September 30, 2020, the The settlement of our cash flow hedges positively impacted our operating margin by approximately 14 32 basis points or 0.14 percentage points and positively impacted our operating margin by approximately 5 basis points or 0.05 percentage points forduring the three months ended September 30, 2019.
Segment Operating Profit
Segment operating profit was as follows for2021, and by 14 basis points during the three months ended September 30:30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | Operating Margin % | | 2019 | | Operating Margin % | | Increase / (Decrease) |
| (Dollars in millions) |
Financial Services | $ | 463 | | | 31.5 | | | $ | 418 | | | 28.0 | | | $ | 45 | |
Healthcare | 378 | | | 30.7 | | | 312 | | | 26.6 | | | 66 | |
Products and Resources | 307 | | | 33.1 | | | 274 | | | 28.4 | | | 33 | |
Communications, Media and Technology | 191 | | | 31.0 | | | 186 | | | 30.2 | | | 5 | |
Total segment operating profit | 1,339 | | | 31.6 | | | 1,190 | | | 28.0 | | | 149 | |
Less: unallocated costs | 736 | | | | | 521 | | | | | 215 | |
Income from operations | $ | 603 | | | 14.2 | | | $ | 669 | | | 15.7 | | | $ | (66) | |
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Operating margins across all our segments benefited5 Adjusted Income from a significant decrease in travelOperations and entertainment costs due to COVID-19 related reductions in travel, cost savings generated by our cost optimization initiatives and the depreciation of the Indian rupee against the U.S. dollar, partially offset by the dilutive impact of our recently completed acquisitions.
Certain SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery personnel as compared to target, restructuring costs, COVID-19 Charges, costs related to the ransomware attack, a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are included above as “unallocated costs” and adjusted against our total income from operations. The increase in unallocated costs in the third quarter of 2020 compared to the third quarter of 2019 is primarily due to a smaller shortfall in 2020 than in 2019 of incentive-based compensation as compared to target, asset impairment charge related to the discontinuation of certain real estate construction projects and COVID-19 Charges.
6 Adjusted Operating Margin isare not a measuremeasures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliationreconciliations to the most directly comparable GAAP financial measure.measures, as applicable.
35
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Cognizant | 30 | September 30, 2021 Form 10-Q |
Other Income (Expense), NetWe finished the third quarter of 2021 with approximately 318,400 employees. Annualized attrition, including both voluntary and involuntary, was approximately 37.0% for the three months ended September 30, 2021. In 2021, voluntary attrition was significantly elevated and constituted the vast majority of our attrition for the period. In comparison, voluntary attrition in the third quarter 2020 represented only approximately half of our attrition for the period as our personnel actions taken under our Fit for Growth Plan increased involuntary attrition while voluntary attrition was suppressed due to the COVID-19 pandemic. Attrition in all periods presented is weighted towards our more junior employees.
Segment operating profit and operating margin percentage were as follows:
Across all our business segments, operating margins were negatively impacted by increased subcontractor and compensation costs as a result of significantly elevated attrition and benefited from savings from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan and the negative impact on our 2020 results of the COVID-19 pandemic. In addition, segment operating profit in out Communications, Media and Technology segment during the three months ended September 30, 2020 was affected by an unfavorable allocation of costs.
Total other income (expense), net consists primarily of foreign currency exchange gainssegment operating profit and losses, interest income and interest expense. operating margin were as follows for the three months ended September 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | 2021 | | % of Revenues | | 2020 | | % of Revenues | | Increase / (Decrease) |
Total segment operating profit | $ | 1,450 | | | 30.6 | | | $ | 1,339 | | | 31.6 | | | $ | 111 | |
Less: unallocated costs | 721 | | | | | 736 | | | | | (15) | |
Income from operations | $ | 729 | | | 15.4 | | | $ | 603 | | | 14.2 | | | $ | 126 | |
| | |
Other Income (Expense), Net |
The following table sets forth total other income (expense), net for the three months ended September 30:
| | 2020 | | | 2019 | | Increase/ Decrease | | |
| (in millions) | | |
Foreign currency exchange gains (losses) | $ | 56 | | | | $ | (53) | | | $ | 109 | | | |
(Losses) gains on foreign exchange forward contracts not designated as hedging instruments | (57) | | | | 6 | | | (63) | | | |
(in millions) | | (in millions) | 2021 | | | 2020 | | Increase/ Decrease | |
Foreign currency exchange (losses) gains | | Foreign currency exchange (losses) gains | $ | (4) | | | | $ | 56 | | | $ | (60) | | |
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments | | Gains (losses) on foreign exchange forward contracts not designated as hedging instruments | 1 | | | | (57) | | | 58 | | |
Foreign currency exchange gains (losses), net | Foreign currency exchange gains (losses), net | (1) | | | | (47) | | | 46 | | | Foreign currency exchange gains (losses), net | (3) | | | | (1) | | | (2) | | |
Interest income | Interest income | 27 | | | | 43 | | | (16) | | | Interest income | 7 | | | | 27 | | | (20) | | |
Interest expense | Interest expense | (6) | | | | (7) | | | 1 | | | Interest expense | (3) | | | | (6) | | | 3 | | |
Other, net | Other, net | 1 | | | | — | | | 1 | | | Other, net | 1 | | | | 1 | | | — | | |
Total other income (expense), net | Total other income (expense), net | $ | 21 | | | | $ | (11) | | | $ | 32 | | | Total other income (expense), net | $ | 2 | | | | $ | 21 | | | $ | (19) | | |
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 foreign exchange forward contracts not designated as hedging instruments related to the realized and unrealized gains and losses on foreign exchange forward contractscontracts entered into to offset foreign currency exposure to non-U.S. dollar denominated net monetary assets and liabilities. As of September 30, 2020,2021, the notional value of our undesignated hedges wwas as $2,575 $919million. The decrease in interest income of $16 $20
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Cognizant | 31 | September 30, 2021 Form 10-Q |
million was primarilyprimarily attributable to lower yields on our invested balances in India, which generate higher yields. Our invested balances in India are lower in 2021 as a result of our repatriation of cash from India in the fourth quarter of 2020.
| | |
Provision for Income Taxes |
The provision for income taxes increased to $276 million during the three months ended September 30, 2020 from $160 million for the three months ended September 30, 2019. | | | | | | | | | | | | |
ê | $89M | | | |
| |
¡Effective Income Tax Rate ê 18.6% | |
| | |
| | | | |
The effective income taxtax rate increaseddecreased primarily as a result of our decision in the third quarter of 2020 to 44.2% for the three months ended September 30, 2020 compared to 24.3% for the three months ended September 30, 2019, primarily driven by thereverse our indefinite reinvestment assertion on Indian earnings accumulated in prior years, which resulted in a $140 million Tax on Accumulated Indian Earnings.Earnings recorded as income tax expense in the third quarter of 2020.
Net income decreased to $348 million for the three months ended September 30, 2020 from $497 million for the three months ended September 30, 2019, representing 8.2% and 11.7% of revenues, respectively. The decreaseincrease in net income was driven by higher income from operations and a lower provision for income taxes due to the Q3 2020 Tax on Accumulated Indian Earnings, and lower income from operations, partially offset by lower foreign currency exchange losses.interest income.
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 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, Adjusted Income From Operations and Adjusted Diluted EPS, 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 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.
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Cognizant | 32 | September 30, 2021 Form 10-Q |
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three months ended September 30:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | % of Revenues | | 2019 | | % of Revenues |
| (Dollars in millions, except per share amounts) |
GAAP income from operations and operating margin | $ | 603 | | | 14.2 | | | $ | 669 | | | 15.7 | |
Realignment charges (1) | 8 | | | 0.2 | | | 65 | | | 1.6 | |
2020 Fit for Growth plan restructuring charges (2) | 43 | | | 1.0 | | | — | | | — | |
COVID-19 Charges (3) | 21 | | | 0.5 | | | — | | | — | |
| | | | | | | |
Adjusted Income from Operations and Adjusted Operating Margin | $ | 675 | | | 15.9 | | | $ | 734 | | | 17.3 | |
| | | | | | | |
GAAP diluted EPS | $ | 0.64 | | | | | $ | 0.90 | | | |
Effect of above adjustments, pre-tax | 0.13 | | | | | 0.12 | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (4) | — | | | | | 0.09 | | | |
Tax effect of above adjustments (5) | (0.06) | | | | | (0.03) | | | |
Tax on Accumulated Indian Earnings (6) | 0.26 | | | | | — | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Adjusted Diluted EPS | $ | 0.97 | | | | | $ | 1.08 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions, except per share amounts) | 2021 | | % of Revenues | | 2020 | | % of Revenues |
GAAP income from operations and operating margin | $ | 729 | | | 15.4 | | | $ | 603 | | | 14.2 | |
Class Action Settlement Loss (1) | 20 | | | 0.4 | | | — | | | — | |
Realignment charges (2) | — | | | — | | | 8 | | | 0.2 | |
2020 Fit for Growth Plan restructuring charges (3) | — | | | — | | | 43 | | | 1.0 | |
COVID-19 Charges (4) | — | | | — | | | 21 | | | 0.5 | |
Adjusted Income from Operations and Adjusted Operating Margin | $ | 749 | | | 15.8 | | | $ | 675 | | | 15.9 | |
| | | | | | | |
GAAP diluted EPS | $ | 1.03 | | | | | $ | 0.64 | | | |
Effect of above adjustments, pre-tax | 0.04 | | | | | 0.13 | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (5) | 0.01 | | | | | — | | | |
Tax effect of above adjustments (6) | (0.02) | | | | | (0.06) | | | |
Tax on Accumulated Indian Earnings (7) | — | | | | | 0.26 | | | |
Adjusted Diluted EPS | $ | 1.06 | | | | | $ | 0.97 | | | |
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(1)During the three months ended September 30, 2021, we recorded a Class Action Settlement Loss in "Selling, general and administrative expenses" in our unaudited consolidated financial statements. See Note 12 to our unaudited consolidated financial statements for additional information. (2)As part of the realignment program, during the three months ended September 30, 2020, we incurred certain professional services fees. See Note 4 to our unaudited consolidated financial statements for additional information. (2)(3)As part of our 2020 Fit for Growth plan, during the three months ended September 30, 2020, we incurred certain employee separation, employee retention and facility exitexit costs and other charges. See Note 4 to our unaudited consolidated financial statements for additional information.(3)(4)During the three months ended September 30, 2020, we incurred costs in response to the COVID-19 pandemic including costs to enable our employees to work remotely. Most of the costs related to the pandemic are reported in "Cost of revenues" in our unaudited consolidated statements of operations.
(4)(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.
(5)(6)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
| | | Three Months Ended September 30, | | Three Months Ended September 30, |
| 2020 | | 2019 | |
| (in millions) | |
(in millions) | | (in millions) | 2021 | | 2020 |
Non-GAAP income tax benefit (expense) related to: | Non-GAAP income tax benefit (expense) related to: | | Non-GAAP income tax benefit (expense) related to: | |
Class Action Settlement Loss | | Class Action Settlement Loss | $ | 6 | | | $ | — | |
Realignment charges | Realignment charges | $ | 2 | | | $ | 17 | | Realignment charges | — | | | 2 | |
2020 Fit for Growth Plan restructuring charges | 2020 Fit for Growth Plan restructuring charges | 11 | | | — | | 2020 Fit for Growth Plan restructuring charges | — | | | 11 | |
COVID-19 Charges | COVID-19 Charges | 6 | | | — | | COVID-19 Charges | — | | | 6 | |
Foreign currency exchange gains and losses | Foreign currency exchange gains and losses | 15 | | | (2) | | Foreign currency exchange gains and losses | 3 | | | 15 | |
(7)
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.
(6) During the third quarter ofthree months ended September 30, 2020, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded $140 million in income tax expense.
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Cognizant | 33 | September 30, 2021 Form 10-Q |
Nine Months Ended September 30, 20202021 Compared to Nine Months Ended September 30, 20192020
The following table sets forth, for the periods indicated, certain financial data for the nine months ended September 30:
| | | | | % of | | | | % of | | | Increase / Decrease | | | | % of | | | | % of | | | Increase / Decrease |
| 2020 | | Revenues | | 2019 | | Revenues | | | $ | | % | |
(Dollars in millions, except per share data) | | (Dollars in millions, except per share data) | 2021 | | Revenues | | 2020 | | Revenues | | | $ | | % |
| | (Dollars in millions, except per share data) | |
Revenues | Revenues | $ | 12,468 | | | 100.0 | | | $ | 12,499 | | | 100.0 | | | | $ | (31) | | | (0.2) | | Revenues | $ | 13,730 | | | 100.0 | | | $ | 12,468 | | | 100.0 | | | | $ | 1,262 | | | 10.1 | |
Cost of revenues(1)(a) | Cost of revenues(1)(a) | 8,009 | | | 64.2 | | | 7,885 | | | 63.1 | | | | 124 | | | 1.6 | | Cost of revenues(1)(a) | 8,574 | | | 62.4 | | | 8,009 | | | 64.2 | | | | 565 | | | 7.1 | |
Selling, general and administrative expenses(1)(a) | Selling, general and administrative expenses(1)(a) | 2,226 | | | 17.9 | | | 2,296 | | | 18.4 | | | | (70) | | | (3.0) | | Selling, general and administrative expenses(1)(a) | 2,632 | | | 19.2 | | | 2,226 | | | 17.9 | | | | 406 | | | 18.2 | |
Restructuring charges | Restructuring charges | 177 | | | 1.4 | | | 116 | | | 1.0 | | | | 61 | | | 52.6 | | Restructuring charges | — | | | — | | | 177 | | | 1.4 | | | | (177) | | | (100.0) | |
Depreciation and amortization expense | Depreciation and amortization expense | 407 | | | 3.3 | | | 375 | | | 3.0 | | | | 32 | | | 8.5 | | Depreciation and amortization expense | 430 | | | 3.1 | | | 407 | | | 3.3 | | | | 23 | | | 5.7 | |
Income from operations | Income from operations | 1,649 | | | 13.2 | | | 1,827 | | | 14.6 | | | | (178) | | | (9.7) | | Income from operations | 2,094 | | | 15.3 | | | 1,649 | | | 13.2 | | | | 445 | | | 27.0 | |
Other income (expense), net | Other income (expense), net | (20) | | | 90 | | | | | (110) | | | (122.2) | | Other income (expense), net | (4) | | | (20) | | | | | 16 | | | (80.0) | |
Income before provision for income taxes | Income before provision for income taxes | 1,629 | | | 13.1 | | | 1,917 | | | 15.3 | | | | (288) | | | (15.0) | | Income before provision for income taxes | 2,090 | | | 15.2 | | | 1,629 | | | 13.1 | | | | 461 | | | 28.3 | |
Provision for income taxes | Provision for income taxes | (552) | | | (469) | | | | | (83) | | | 17.7 | | Provision for income taxes | (531) | | | (552) | | | | | 21 | | | (3.8) | |
Income from equity method investments | (1) | | | (1) | | | | | — | | | — | | |
Income (loss) from equity method investments | | Income (loss) from equity method investments | 2 | | | (1) | | | | | 3 | | | (300.0) | |
Net income | Net income | $ | 1,076 | | | 8.6 | | | $ | 1,447 | | | 11.6 | | | | $ | (371) | | | (25.6) | | Net income | $ | 1,561 | | | 11.4 | | | $ | 1,076 | | | 8.6 | | | | $ | 485 | | | 45.1 | |
Diluted EPS | Diluted EPS | $ | 1.98 | | | $ | 2.57 | | | | | $ | (0.59) | | | (23.0) | | Diluted EPS | $ | 2.96 | | | $ | 1.98 | | | | | $ | 0.98 | | | 49.5 | |
Other Financial Information (7) | | | | | | | | | |
Other Financial Information6 | | Other Financial Information6 | | | |
Adjusted Income From Operations and Adjusted Operating Margin | Adjusted Income From Operations and Adjusted Operating Margin | $ | 1,878 | | | 15.1 | | | $ | 2,060 | | | 16.5 | | | | $ | (182) | | | (8.8) | | Adjusted Income From Operations and Adjusted Operating Margin | $ | 2,114 | | | 15.4 | | | $ | 1,878 | | | 15.1 | | | | $ | 236 | | | 12.6 | |
Adjusted Diluted EPS | Adjusted Diluted EPS | $ | 2.75 | | | $ | 2.93 | | | | | $ | (0.18) | | | (6.1) | | Adjusted Diluted EPS | $ | 3.02 | | | $ | 2.75 | | | | | $ | 0.27 | | | 9.8 | |
(1)(a)Exclusive of depreciation and amortization expense.
Revenues forDuring the nine months ended September 30, 2020 were flat2021, revenues increased by $1,262 million as compared to the nine months ended September 30, 2019. Across all business segments2020, representing growth of 10.1%, or 8.4% on a constant currency basis. Our revenue growth reflected our clients' continued adoption and regions,integration of digital technologies and the acceleration in the demand for cloud, mobile workplace solutions, e-commerce, automation and was aided by the negative impact on 2020 revenues benefited from ourof the COVID-19 pandemic and the April 2020 ransomware attack. Our recently completed acquisitions including Zenith, Collaborative Solutions and Contino, and were negatively impacted by the ransomware attack and fulfillment challenges, project deferrals, furloughs and temporary rate concessions brought on by the COVID-19 pandemic.contributed 330 basis points to our revenue growth. We continue to experience pricing pressure withinon our core portfolio ofnon-digital services as our clients optimize the cost of supportingsupporting their legacy systems and operations. At the same time, clients continue to adopt and integrate digital technologies and their demand for our digital operations services and solutions continues to grow. In addition, our revenues from clients added since September 30, 20192020, including those related to acquisitions, were $250$305 million.
Revenues from our top clients as a percentage of total revenues were as follows:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2020 | | 2019 |
Top five clients | | 8.1 | % | | 8.1 | % |
Top ten clients | | 14.1 | % | | 14.8 | % |
6
76 Adjusted Income From Operations, Adjusted Operating Margin and Adjusted Diluted EPS are not measures 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.
38
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Cognizant | 34 | September 30, 2021 Form 10-Q |
Revenues - Reportable Business Segments
RevenuesThe following charts set forth revenues and change in revenues by reportable business segment were as follows for the nine months ended September 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Increase / (Decrease) |
$ | | % | | CC %8 |
| | (Dollars in millions) | | |
Financial Services | | $ | 4,316 | | | $ | 4,401 | | | $ | (85) | | | (1.9) | | | (1.6) | |
Healthcare | | 3,582 | | | 3,474 | | | 108 | | | 3.1 | | | 3.1 | |
Products and Resources | | 2,748 | | | 2,807 | | | (59) | | | (2.1) | | | (1.5) | |
Communications, Media and Technology | | 1,822 | | | 1,817 | | | 5 | | | 0.3 | | | 0.9 | |
Total revenues | | $ | 12,468 | | | $ | 12,499 | | | $ | (31) | | | (0.2) | | | 0.1 | |
Financial Services
Revenues from our Financial Services segment declined 1.9%, or 1.6% on a constant currency basis8,and geography for the nine months ended September 30, 2020,2021 as compared to the nine months ended September 30, 2019. 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | Financial Services | | Healthcare | | | | |
| | | | Increase / (Decrease) | | | | Increase / (Decrease) | | | | | | | | |
Dollars in millions | | Revenues | | $ | | % | | CC %7 | | Revenues | | $ | | % | | CC %7 | | | | | | | | |
North America | | $ | 3,137 | | | 114 | | | 3.8 | | | 3.4 | | | $ | 3,394 | | | 303 | | | 9.8 | | | 9.8 | | | | | | | | | |
United Kingdom | | 395 | | | 42 | | | 11.9 | | | 5.2 | | | 129 | | | 13 | | | 11.2 | | | 4.7 | | | | | | | | | |
Continental Europe | | 565 | | | 11 | | | 2.0 | | | (3.6) | | | 356 | | | 39 | | | 12.3 | | | 7.2 | | | | | | | | | |
Europe - Total | | 960 | | | 53 | | | 5.8 | | | (0.3) | | | 485 | | | 52 | | | 12.0 | | | 6.6 | | | | | | | | | |
Rest of World | | 407 | | | 21 | | | 5.4 | | | 1.8 | | | 88 | | | 30 | | | 51.7 | | | 49.7 | | | | | | | | | |
Total | | $ | 4,504 | | | 188 | | | 4.4 | | | 2.5 | | | $ | 3,967 | | | 385 | | | 10.7 | | | 10.0 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Products and Resources | | Communications, Media and Technology | | | | |
| | | | Increase / (Decrease) | | | | Increase / (Decrease) | | | | | | | | |
Dollars in millions | | Revenues | | $ | | % | | CC %7 | | Revenues | | $ | | % | | CC %7 | | | | | | | | |
North America | | $ | 2,190 | | | 215 | | | 10.9 | | | 10.5 | | | $ | 1,420 | | | 134 | | | 10.4 | | | 10.3 | | | | | | | | | |
United Kingdom | | 347 | | | 69 | | | 24.8 | | | 14.9 | | | 332 | | | 83 | | | 33.3 | | | 24.2 | | | | | | | | | |
Continental Europe | | 380 | | | 80 | | | 26.7 | | | 18.6 | | | 121 | | | (1) | | | (0.8) | | | (7.5) | | | | | | | | | |
Europe - Total | | 727 | | | 149 | | | 25.8 | | | 16.9 | | | 453 | | | 82 | | | 22.1 | | | 13.8 | | | | | | | | | |
Rest of World | | 243 | | | 48 | | | 24.6 | | | 20.4 | | | 226 | | | 61 | | | 37.0 | | | 34.1 | | | | | | | | | |
Total | | $ | 3,160 | | | 412 | | | 15.0 | | | 12.5 | | | $ | 2,099 | | | 277 | | | 15.2 | | | 13.2 | | | | | | | | | |
| | |
Financial Services - revenues increased 4.4%, or 2.5% on a constant currency basis7 |
| | | | | | | | | |
Banking | é | $114M | |
| | | |
Insurance | é | $74M | |
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| | | |
Revenues in this segment decreased $54 millionbenefited from recently completed acquisitions. Additionally, revenue growth reflected the negative impact on 2020 revenues of the COVID-19 pandemic. Our digital services generated revenue growth in both banking and insurance. Declines related to our insurance clients and $31 million from our banking clients. Demand from certain financialnon-digital services clients has been and may continue to be negatively affected as they transition the supportreflected clients' continued cost optimization of some ofsupporting their legacy systems and operations in-house or to captives.operations.7Revenues from clients added since September 30, 2020, including those related to acquisitions, since September 30, 2019 were $64$58 million.
Healthcare
| | |
Healthcare - revenues increased 10.7%, or 10.0% on a constant currency basis7 |
RevenuesRevenue growth among our life sciences clients was driven by increased demand for our services among pharmaceutical companies while revenue growth among our healthcare customers benefited from increased demand by health insurance customers for our Healthcare segment grew 3.1% for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. integrated software solutions. Revenues in this segment increased by $144 millionalso benefited from our life sciences clients includingrecently completed acquisitions. Additionally, revenue from our Zenith acquisition, while revenues from our healthcare clients decreased by $36 million.Revenues from our healthcare clients were negatively impacted bygrowth reflected the establishment of an offshore captive by a large client, partially offset by the 2019 negative impact on 2020 revenues of a customer dispute with a healthcare client related to a large volume based contract. the COVID-19 pandemic and the April 2020 ransomware attack.Revenues from clients added since September 30, 2019 were $42 million.
Products and Resources
Revenues from our Products and Resources segment declined 2.1%, or 1.5% on a constant currency basis8, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Retail, consumer goods, travel and hospitality clients were particularly adversely affected by the COVID-19 pandemic. Thus, revenues from our travel and hospitality clients and from our retail and consumer goods clients decreased by $87 million and $66 million, respectively. Revenues from our manufacturing, logistics, energy and utilities clients increased $94 million due to our clients' adoption and integration of digital technologies. Revenues from clients added since September 30, 2019 were $70 million.
Communications, Media and Technology
Revenues from our Communications, Media and Technology segment remained flat for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Revenues from our communications and media clients increased $34 million while revenues from our technology clients decreased $29 million. Revenues among our technology clients in this segment were negatively impacted by approximately $128 million due to our 2019 strategic decision to exit certain content-related services. Additionally, revenues were negatively impacted by the COVID-19 pandemic, particularly among our communications and media clients, partially offset by growing demand from our technology clients for other more strategic digital content services. Revenues from clients added, including those related to acquisitions, since September 30, 2019 were $74were $50 million.
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Healthcare | é | $192M | |
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Life Sciences | é | $193M | |
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7 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
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Cognizant | 35 | September 30, 2021 Form 10-Q |
| | |
Products and Resources - revenues increased 15.0%, or 12.5% on a constant currency basis8 |
| | | | | | | | | | | | |
Manufacturing, Logistics, Energy and Utilities | é | $290M | |
| | | | |
Retail and Consumer Goods | é | $103M | |
| | | | |
Travel and Hospitality | é | $19M | |
| | | | |
Revenue growth in this segment included approximately 500 basis points related to recently completed acquisitions. Revenues from our manufacturing, logistics, energy and utilities clients benefited from our clients' adoption and integration of digital technologies. Additionally, revenue growth reflected the negative impact of the COVID-19 pandemic on our 2020 revenue in this segment. Revenues from clients added since September 30, 2020, including those related to acquisitions, were $95 million.8
| | |
Communications, Media and Technology - revenues increased 15.2%, or 13.2% on a constant currency basis8 |
Revenue growth in this segment included approximately 750 basis points related to recently completed acquisitions, driven by acquisitions we completed during the third quarter of 2020. Revenues reflected growing demand from our technology clients for services related to digital content, primarily driven by our largest clients in this segment, and were negatively impacted by 250 basis points due to our exit from certain content-related services. Revenue growth in this segment also reflected the negative impact to our 2020 revenue of the COVID-19 pandemic. Revenues from clients added since September 30, 2020, including those related to acquisitions, were $102 million.
| | | | | | | | | | | | | | | |
Communications and Media | é | $143M | |
| | | | | |
Technology | é | $134M | |
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Revenues - Geographic Markets |
Revenues of $13,730 million by geographic market were as follows for the nine months ended September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
YTD 2021 as compared to YTD 2020 | | | | | | Increase / (Decrease) |
(Dollars in millions) | | | $ | | % | | CC %8 | |
North America | | | | | | $ | 766 | | | 8.2 | | | 7.9 | | |
United Kingdom | | | | | | 207 | | | 20.8 | | | 12.6 | | |
Continental Europe | | | | | | 129 | | | 10.0 | | | 3.8 | | |
Europe - Total | | | | | | 336 | | | 14.7 | | | 7.6 | | |
Rest of World | | | | | | 160 | | | 19.9 | | | 16.4 | | |
Total revenues | | | | | | $ | 1,262 | | | 10.1 | | | 8.4 | | |
North America continues to be our largest market, representing 73.9% of total revenues and 60.7% of total growth for the nine months ended September 30, 2021. Revenue growth across all regions benefited from our recently completed acquisitions and was also aided by the negative impact on our 2020 revenues of the COVID-19 pandemic. All regions also benefited from favorable foreign currency exchange rate movements. A significant portion of revenue growth in our Continental Europe and Rest of World regions is related to clients, including those from recent acquisitions, in Germany and Australia, respectively.
8 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
39
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Cognizant | 36 | September 30, 2021 Form 10-Q |
Revenues - Geographic Markets | | |
Cost of Revenues (Exclusive of Depreciation and Amortization Expense) |
Revenues by geographic market were as follows for the nine months ended September 30: | | | | | | | | | | | | |
é | $565M | | |
ê | 1.8% as a % of revenue | |
¡% of Revenues | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Increase / (Decrease) | |
$ | | % | | CC %9 | |
| | (Dollars in millions) | | | |
North America | | $ | 9,375 | | | $ | 9,485 | | | $ | (110) | | | (1.2) | | | (1.1) | | |
United Kingdom | | 996 | | | 976 | | | 20 | | | 2.0 | | | 2.1 | | |
Continental Europe | | 1,293 | | | 1,262 | | | 31 | | | 2.5 | | | 2.6 | | |
Europe - Total | | 2,289 | | | 2,238 | | | 51 | | | 2.3 | | | 2.4 | | |
Rest of World | | 804 | | | 776 | | | 28 | | | 3.6 | | | 8.1 | | |
Total revenues | | $ | 12,468 | | | $ | 12,499 | | | $ | (31) | | | (0.2) | | | 0.1 | | |
North America continues to be our largest market, representing 75.2% of total revenues for the nine months ended September 30, 2020. Our North America region was negatively impacted by our strategic decision to exit certain content-related services in our Communications, Media and Technology segment and the transition of the support of legacy systems for certain financial services and healthcare clients in-house or to captives. Revenue growth in our Europe and Rest of World regions was driven by our life sciences clients and our Communications, Media and Technology clients, respectively.
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 1.6% during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, increasing as a percentage of revenues to 64.2% during the 2020 period compared to 63.1% in the 2019 period. The increasedecrease in cost of revenues, as a percentage of revenues, was due primarily to an increase in costs related to higher incentive-based compensation accrual rates in 2020 and the impact on revenuessavings from the COVID-19 pandemicimplementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan and the ransomware attack. These impacts were partially offset by a significant decrease in travel and entertainment costs as a result of a reduction in travel due to the COVID-19 pandemic as well as the cost savings generatednegative impact on our 2020 results from the pandemic and the April 2020 ransomware attack, partially offset by increased subcontractor and compensation costs (net of modestly lower incentive-based compensation accrual rates) as a result of our cost optimization strategy and the depreciation of the Indian rupee against the U.S. dollar.significantly elevated attrition.
SG&A Expenses (Exclusive of Depreciation and Amortization Expense)
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SG&A Expenses (Exclusive of Depreciation and Amortization Expense) |
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. SG&AThe increase, as a percentage of revenues, was due primarily to investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, as well as increased costs as a result of our recently completed acquisitions and costs related to the modernization of our core IT systems, partially offset by a reduction in expenses decreasedattributable to the COVID-19 pandemic and the April 2020 ransomware attack.
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é | $406M | | |
é | 1.3% as a % of revenue | |
¡% of Revenues | |
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Depreciation and Amortization Expense |
Depreciation and amortization expense increased by
3.0%5.7% but remained relatively flat as a percentage of revenue during the nine months ended September 30,
20202021 as compared to the nine months ended September 30,
2019, decreasing as a percentage of revenues to 17.9% during the 2020 period as compared to 18.4% in the 2019 period.2020. The decrease, as a percentage of revenues,increase was due primarily to the $117 million incremental accrual in 2019 related to the India Defined Contribution Obligation as discussed in Note 12 to our unaudited consolidated financial statements, a significant decrease in travel and entertainment costs as a result of a reduction in travel due to the COVID-19 pandemic and lower immigration costs, partially offset by an increase in compensation and benefit costs, including higher incentive-based compensation, the incremental costs of our recently completed acquisitions, reduced revenues brought on by the COVID-19 pandemic and the impact of the ransomware attack on both revenues and costs. Restructuring Charges
Restructuring charges consist of our 2020 Fit for Growth Plan and our realignment program. Restructuring charges were $177 million or 1.4%, as a percentage of revenues for the nine months ended September 30, 2020, as compared to $116 million or 1.0%, as a percentage of revenues for the nine months ended September 30, 2019. For further detail on our restructuring charges see Note 4 to our unaudited consolidated financial statements.Depreciation and Amortization Expense
Depreciation and amortization expense increased by 8.5% during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The increase is due to procurement of additional computer equipment primarily to provision work-from-home arrangements and amortization of intangibles from recently completed acquisitions.
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Operating Margin and Adjusted Operating Margin9 - Overall |
Our 2021 operating marginbenefited from savings from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan. These benefits were partially offset by investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, as well as the negative impact on margin of our recently completed acquisitions, increased subcontractor and compensation costs (net of modestly lower incentive-based compensation accrual rates) as a result of significantly elevated attrition and costs related to the modernization of our core IT systems. Our 2020 operating marginswere adversely impacted by the decline in revenues brought on by the COVID-19 pandemic and the effect of the April 2020 ransomware attack on both revenues and costs. Our 2020 GAAP operating margin was negatively impacted by costs related to our restructuring program that concluded at the end of 2020 and COVID-19 Charges.9
9 Constant currency revenue growth isAdjusted Income from Operations and Adjusted Operating Margin are not a measuremeasures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.information and reconciliations to the most directly comparable GAAP financial measures, as applicable.
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Cognizant | 37 | September 30, 2021 Form 10-Q |
Operating Margin - Overall
Our operating margin and Adjusted Operating Margin10 decreased to 13.2% and 15.1%, respectively, for the nine months ended September 30, 2020 from 14.6% and 16.5% for the nine months ended September 30, 2019. Our GAAP and Adjusted Operating Margin10 were adversely impacted by higher incentive-based compensation accrual rates, the dilutive impact of our recently completed acquisitions, the decline in revenues brought on by the COVID-19 pandemic and the impact of the ransomware attack on both revenues and costs. These impacts were partially offset by a significant decrease in travel and entertainment expenses due to the COVID-19 pandemic, the cost savings generated as a result of our cost optimization strategy, lower immigration costs and the depreciation of the Indian rupee against the U.S. dollar. In addition, our 2019 GAAP operating margin included a 0.9% negative impact of the incremental accrual in 2019 related to the India Defined Contribution Obligation as discussed in Note 12 to our unaudited consolidated financial statements, while our 2020 GAAP operating margin was negatively impacted by higher restructuring charges as discussed in Note 4 to our unaudited consolidated financial statements as well as COVID-19 Charges.Excluding the impact of applicable designated cash flow hedges, the depreciationappreciation of the Indian rupee against the U.S. dollar positivelynegatively impacted our operating margin by approximately 102approximately 15 basis points, or 1.02 percentage points during the nine months ended September 30, 2020.2021. 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 1718 basis points or 0.17 percentage points.
We enter into hedges of certain Indian rupee denominated payments in India, which are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the nine months ended September 30, 20202021, the settlement of our cash flow hedges negativelypositively impacted our operating margin by approximately 6 approximately 36 basis points or 0.06 percentage points as compared to a positivenegative impact of approximately 26 basis points or 0.02 percentage points during the nine months ended September 30, 2019.2020.
Segment operating profit wasand operating margin percentage were as follows for the nine months ended September 30:follows:
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| 2020 | | Operating Margin % | | 2019 | | Operating Margin % | | Increase / (Decrease) |
| (Dollars in millions) |
Financial Services | $ | 1,209 | | | 28.0 | | | $ | 1,225 | | | 27.8 | | | $ | (16) | |
Healthcare | 1,004 | | | 28.0 | | | 963 | | | 27.7 | | | 41 | |
Products and Resources | 805 | | | 29.3 | | | 763 | | | 27.2 | | | 42 | |
Communications, Media and Technology | 555 | | | 30.5 | | | 544 | | | 29.9 | | | 11 | |
Total segment operating profit | 3,573 | | | 28.7 | | | 3,495 | | | 28.0 | | | 78 | |
Less: unallocated costs | 1,924 | | | | | 1,668 | | | | | 256 | |
Income from operations | $ | 1,649 | | | 13.2 | | | $ | 1,827 | | | 14.6 | | | $ | (178) | |
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Across all our business segments, operating margins benefited from a significantsavings from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan, the decrease in travel and entertainment costs due to COVID-19 related reductions in travel cost savings generated by our cost optimization initiatives and the depreciationnegative impact on our 2020 results of the Indian rupee againstCOVID-19 pandemic and the U.S. dollar partially offsetApril 2020 ransomware attack. In 2021, segment operating margins were negatively impacted by increased subcontractor and compensation costs as a result of significantly elevated attrition.
Total segment operating profit and margin were as follows for the dilutive impactnine months ended September 30:
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(Dollars in millions) | 2021 | | % of Revenues | | 2020 | | % of Revenues | | Increase / (Decrease) |
Total segment operating profit | $ | 4,181 | | | 30.5 | | | $ | 3,573 | | | 28.7 | | | $ | 608 | |
Less: unallocated costs | 2,087 | | | | | 1,924 | | | | | 163 | |
Income from operations | $ | 2,094 | | | 15.3 | | | $ | 1,649 | | | 13.2 | | | $ | 445 | |
The increase of $163 million in unallocated costs for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was primarily due to increased costs as a result of our recently completed acquisitions and the negative impact on revenues of the COVID-19 pandemiccosts related to initiatives to reposition our brand and the ransomware attack. Additionally, the 2019 operating margin inmodernization of our Healthcare segment was negatively impacted by mergers within the segment and a customer dispute with a customer related to a large volume based contract. The increase in unallocatedcore IT systems. Unallocated costs in 2020 compared to 2019 is primarily due to a smaller shortfall in 2020 than in 2019 of incentive-based compensation as compared to target, higherincluded restructuring costs COVID-19 Charges and costs related to the April 2020 ransomware attack, partially offset by the 2019 India Defined Contribution Obligation discussed in Note 12 to our unaudited consolidated financial statements.
attack.
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Other Income (Expense), Net |
10 Adjusted Operating Margin is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.
Other Income (Expense), Net
Total other income (expense), net consists primarily of foreign currency exchange gains and losses, interest income and interest expense. The following table sets forth total other income (expense), net for the nine months ended September 30:
| | 2020 | | | 2019 | | Increase/ Decrease | | |
| (in millions) | | |
(in millions) | | (in millions) | 2021 | | | 2020 | | Increase/ Decrease | |
Foreign currency exchange (losses) | Foreign currency exchange (losses) | $ | (51) | | | | $ | (30) | | | $ | (21) | | | Foreign currency exchange (losses) | $ | (26) | | | | $ | (51) | | | $ | 25 | | |
(Losses) gains on foreign exchange forward contracts not designated as hedging instruments | (54) | | | | 1 | | | (55) | | | |
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments | | Gains (losses) on foreign exchange forward contracts not designated as hedging instruments | 7 | | | | (54) | | | 61 | | |
Foreign currency exchange gains (losses), net | Foreign currency exchange gains (losses), net | (105) | | | | (29) | | | (76) | | | Foreign currency exchange gains (losses), net | (19) | | | | (105) | | | 86 | | |
Interest income | Interest income | 105 | | | | 136 | | | (31) | | | Interest income | 23 | | | | 105 | | | (82) | | |
Interest expense | Interest expense | (21) | | | | (20) | | | (1) | | | Interest expense | (7) | | | | (21) | | | 14 | | |
Other, net | Other, net | 1 | | | | 3 | | | (2) | | | Other, net | (1) | | | | 1 | | | (2) | | |
Total other income (expense), net | Total other income (expense), net | $ | (20) | | | | $ | 90 | | | $ | (110) | | | Total other income (expense), net | $ | (4) | | | | $ | (20) | | | $ | 16 | | |
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
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Cognizant | 38 | September 30, 2021 Form 10-Q |
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 to offset foreign currency exposure to non-U.S. dollar denominated net monetary assets and liabilities. TheThe decrease in interest income of $82 million $31 millionwas primarily attributable to lower yields on our invested balances in India, which generate higher yields. Our invested balances in India are lower in 2021 as a result of our repatriation of cash from India in the fourth quarter of 2020.
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Provision for Income Taxes |
The provision for income taxes increased to $552 million during the nine months ended September 30, 2020 from $469 million during the nine months ended September 30, 2019. | | | | | | | | | | | | |
ê | $21M | | | |
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¡ Effective Income Tax Rate ê 8.5% | |
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The effective income tax rate increaseddecreased primarily as a result of our decision in the third quarter of 2020 to 33.9% for the nine months ended September 30, 2020 from 24.5% for the nine months ended September 30, 2019 primarily driven by thereverse our indefinite reinvestment assertion on Indian earnings accumulated in prior years which resulted in a $140 million Tax on Accumulated Indian Earnings andrecorded as income tax expense in the depreciationthird quarter of 2020, the discrete benefit in 2021 of the Indian rupee againstsettlement of the U.S. dollar, which resultedIRS examination for tax years 2012 through 2016 as described inNote 8 to our unaudited consolidated financial statements and lower non-deductible foreign currency exchange losses onin our unaudited consolidated statement of operations.operations in 2021. Net income decreased to $1,076 million for the nine months ended September 30, 2020 from $1,447 million for the nine months ended September 30, 2019, representing 8.6% and 11.6% of revenues, respectively. The decreaseincrease in net income was driven by lowerhigher income from operations, lower foreign currency exchange losses and a lower provision for income taxes stemming primarily from the Q3 2020 Tax on Accumulated Indian Earnings, and higher foreign currency exchange losses.partially offset by lower interest income.
42
Non-GAAP Financial Measures
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the nine months ended September 30:
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| 2020 | | % of Revenues | | 2019 | | % of Revenues |
| (Dollars in millions, except per share amounts) |
GAAP income from operations and operating margin | $ | 1,649 | | | 13.2 | | | $ | 1,827 | | | 14.6 | |
Realignment charges (1) | 40 | | | 0.3 | | | 116 | | | 1.0 | |
2020 Fit for Growth plan restructuring charges (2) | 137 | | | 1.1 | | | — | | | — | |
COVID-19 Charges (3) | 52 | | | 0.5 | | | — | | | — | |
Incremental accrual related to the India Defined Contribution Obligation (4) | — | | | — | | | 117 | | | 0.9 | |
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Adjusted Income from Operations and Adjusted Operating Margin | $ | 1,878 | | | 15.1 | | | $ | 2,060 | | | 16.5 | |
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GAAP diluted EPS | $ | 1.98 | | | | | $ | 2.57 | | | |
Effect of above adjustments, pre-tax | 0.42 | | | | | 0.41 | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (5) | 0.19 | | | | | 0.06 | | | |
Tax effect of above adjustments (6) | (0.10) | | | | | (0.11) | | | |
Tax on Accumulated Indian Earnings (7) | 0.26 | | | | | — | | | |
Adjusted Diluted EPS | $ | 2.75 | | | | | $ | 2.93 | | | |
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(Dollars in millions, except per share amounts) | 2021 | | % of Revenues | | 2020 | | % of Revenues |
GAAP income from operations and operating margin | $ | 2,094 | | | 15.3 | | | $ | 1,649 | | | 13.2 | |
Class Action Settlement Loss (1) | 20 | | | 0.1 | | | — | | | — | |
Realignment charges (2) | — | | | — | | | 40 | | | 0.3 | |
2020 Fit for Growth plan restructuring charges (3) | — | | | — | | | 137 | | | 1.1 | |
COVID-19 Charges (4) | — | | | — | | | 52 | | | 0.5 | |
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Adjusted Income from Operations and Adjusted Operating Margin | $ | 2,114 | | | 15.4 | | | $ | 1,878 | | | 15.1 | |
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GAAP diluted EPS | $ | 2.96 | | | | | $ | 1.98 | | | |
Effect of above adjustments, pre-tax | 0.04 | | | | | 0.42 | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (5) | 0.03 | | | | | 0.19 | | | |
Tax effect of above adjustments (6) | (0.01) | | | | | (0.10) | | | |
Tax on Accumulated Indian Earnings (7) | — | | | | | 0.26 | | | |
Adjusted Diluted EPS | $ | 3.02 | | | | | $ | 2.75 | | | |
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(1)During the three months ended September 30, 2020, we recorded a Class Action Settlement Loss in "Selling, general and administrative expenses" in our unaudited consolidated financial statements. See Note 12 to our unaudited consolidated financial statements for additional information. (2)As part of the realignment program, during the nine months ended September 30, 2020, we incurred employee retention costs and professional fees. See Note 4 to our unaudited consolidated financial statements for additional information. (2)
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Cognizant | 39 | September 30, 2021 Form 10-Q |
(3)As part of our 2020 Fit for Growth plan, during the nine months ended September 30, 2020, we incurred certain employee separation, employee retention, and facility exitexit costs and other charges. See Note 4 to our unaudited consolidated financial statements for additional information. (3)(4)During the nine months ended September 30, 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, certain costs to enable our employees to work remotely and costs to provide medical staff and extra cleaning services for our facilities. Most of the costs related to the pandemic are reported in "Cost of revenues" in our unaudited consolidated statements of operations.
(4)In 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:
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| Nine Months Ended September 30, |
| 2020 | | 2019 |
| (in millions) |
Non-GAAP income tax benefit (expense) related to: | | | |
Realignment charges | $ | 10 | | | $ | 30 | |
2020 Fit for Growth Plan restructuring charges | 36 | | | — | |
COVID-19 Charges | 14 | | | — | |
Incremental accrual related to the India Defined Contribution Obligation | — | | | 31 | |
Foreign currency exchange gains and losses | (3) | | | (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. | | | | | | | | | | | |
(in millions) | Nine Months Ended September 30, |
| 2021 | | 2020 |
Non-GAAP income tax benefit (expense) related to: | | | |
Class Action Settlement Loss | $ | 6 | | | $ | — | |
Realignment charges | — | | | 10 | |
2020 Fit for Growth Plan restructuring charges | — | | | 36 | |
COVID-19 Charges | — | | | 14 | |
Foreign currency exchange gains and losses | (3) | | | (3) | |
(7)During the third quarter ofthree months ended September 30, 2020, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded $140 million in income tax expense.
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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 September 30, 2020,2021, we had cash, cash equivalents and short-term investments of $4,575$2,413 million. During the first quarter and available capacity under our credit facilities of 2020, we borrowed $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 our cash is held in India.approximately $1,925 million.
The following table provides a summary of our cash flows for the nine months ended September 30:
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| | 2020 | | 2019 | | Increase / Decrease | | |
| | (in millions) | | |
Net cash provided by (used in): | | | | | | | | |
Operating activities | | $ | 2,401 | | | $ | 1,561 | | | $ | 840 | | | |
Investing activities | | (1,189) | | | 1,963 | | | (3,152) | | | |
Financing activities | | 617 | | | (2,316) | | | 2,933 | | | |
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(in millions) | | 2021 | | 2020 | | Increase / Decrease | | |
Net cash provided by (used in): | | | | | | | | |
Operating activities | | $ | 1,670 | | | $ | 2,401 | | | $ | (731) | | | |
Investing activities | | (1,666) | | | (1,189) | | | (477) | | | |
Financing activities | | (1,007) | | | 617 | | | (1,624) | | | |
Operating activities
The increase indecrease in cash provided by operating activities for the nine months ended September 30, 20202021 compared to the same period in 20192020 was primarily driven by improved collections on our trade accounts receivable,the deferrals of certain tax payments due to COVID-19 pandemic regulatory relief provided by several jurisdictions in 2020, a portion of which we operate, lowerwas remitted in 2021, and higher incentive-based compensation payouts and lower cash taxes paid in 2020.2021.
We monitor turnover, aging and the collection of accounts receivable by client. Our 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 72 days as of both September 30, 2021 and September 30, 2020, 77 as of September 30, 2019 and 7370 days as of December 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 September 30, 2019. This change in policy had the effect of reducing our September 30, 2019 DSO by 1 day.2020.
Investing activities
NetThe increase in net cash used in investing activities for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was primarily driven by net purchases of investments in 2021 as compared to net sales in 2020, partially offset by lower payments for acquisitions and outflows for capital expenditures. Net cash provided by investing activities for the
nine
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Cognizant | 40 | September 30, 2021 Form 10-Q |
months ended
Financing activities
The cash used in financing activities for the nine months ended September 30, 2021 was primarily driven by repurchases of common stock. The cash provided byby financing activities for the nine months ended September 30, 2020 compared to cash used in financing activities in the nine months ended September 30, 2019 iswas primarily a result of our borrowing against the revolving credit facility, and lowerpartially offset by repurchases of common stock in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.stock.
We have a Credit Agreement providing for a $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term 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 As of September 30, 2021, 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 ishad no longer available. The outstanding balance underon our revolving credit facility as of September 30, 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.facility. See
The Credit Agreement contains customary affirmative and negative covenants as well as a to our unaudited consolidated 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 September 30, 2020.statements.
In February 2020,2021, our India subsidiary renewed its one-year 13 billion Indian rupee ($177175 million at the September 30, 20202021 exchange rate) working capital facility, which requires us to repay any balances drawn down within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made prior towithin 30 days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February. As of September 30, 2020,2021, we have not borrowed funds under this facility.
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During the nine months ended September 30, 2020,2021, we returned $1,195$1,071 million to our stockholders, through $833 millionincluding shares purchased in share repurchases underconnection with our stock repurchase program and $362 million in dividend payments.stock-based compensation plans. We review our capital return plan on an on-goingongoing basis, considering the potentialpotential impacts of COVID-19COVID-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 ensureensure 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 September 30, 2020, the amount of our cash, cash equivalents and short-term investments held outside the United States was $3,890 million, of which $2,281 million was in India. We evaluate on an ongoing basis what portion of the non-U.S. cash, cash equivalents and short-term investments is needed locally to execute our strategic plans and what amount is available for repatriation back to the United States.
In March 2020, the Indian parliament enacted the Budget of India, which contained 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 reduced the tax rate applicable to us for cash repatriated from India. Following this change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior years. In July 2020, the U.S. Treasury Department and the Internal Revenue Service released final regulations, which became effective in September 2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate growth in various international markets and expandStates.our global delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits.
On October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to its shareholders (non-Indian Cognizant entities), after payment of $105 million of India withholding tax.
We expect our operating cash flows, cash and short-term investment balances, together with our available capacity under our revolving credit facilities, to be sufficient to meet our operating requirements and 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 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.
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Commitments and Contingencies |
See Note 12 to our unaudited consolidated financial statements.
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Off-Balance Sheet Arrangements |
Other than our foreign exchange forward and option contracts, there were no off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons in the nine months ended September 30, 20202021 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.
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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,
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Cognizant | 41 | September 30, 2021 Form 10-Q |
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-goingongoing basis, we evaluate our estimates. The most significant estimates relate to the recognition of revenue and profits, including the application of the cost to costcost-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, 2019.2020. 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, 2019.2020.
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 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 as of March 31, 2020 indicated that the fair values of all of our reporting units exceeded their carrying values and thus, no impairment of goodwill existed as of March 31, 2020. No additional triggers for an interim impairment test have been identified since 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.
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Recently Adopted and New Accounting Pronouncements |
See Note 1 toThere have been no changes in the information provided in our unaudited consolidated financial statements.Annual Report on Form 10-K for the year ended December 31, 2020.
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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 Exchange Act) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,” “would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.
Such forward-looking statements may be included in various filings made by us with the SEC, in press releases or in oral statements made by or with the approval of one of our authorized executive officers. These forward-lookingforward-looking statements, such as statements regarding our anticipated future revenues or operating margin, earnings, capital expenditures, impacts to our business, financial results and financial condition as a result of the COVID-19 pandemic, the competitive marketplace for talent, anticipated effective income tax rate and income tax expense, liquidity, access to capital, capital 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, client behaviors and trends, the outcome of and costs associated with regulatory and litigation matters, the incrementalappropriateness of the 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 clients and operations are concentrated;
•the significant and continuing adverse impact of the COVID-19 pandemic, or other future pandemics, 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;condition;
•our ability to attract, train and retain skilled professionals,employees, including highly skilled technical personnel to satisfy 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 goals and capital return goals;strategy;
•our ability to successfully implementexecute on the investments outlined in 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, reputation and financial risks related to our recent ransomware attack and if we otherwise fail to protect client and/or our data from security breaches and/or cyberattacks;cyber attacks;
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Cognizant | 42 | September 30, 2021 Form 10-Q |
•the effectiveness of our risk management, business continuity and disaster recovery plans and the potential that our global delivery capacitycapabilities could be impacted;
•restrictions on visas, in particular in the United States, United Kingdom and EU, or immigration more generally or increased costs of such visas or the wages we are required to pay associates on visas, which may affect our ability to compete for and provide services to our 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 clients;
•risks and costs 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;
•potential significant expense that would occur if we change our intent not to repatriate prior year Indian accumulated undistributed earnings; and
•the factors set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as updated by “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended September 30, 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, 2019.2020. 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.
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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, 2019,2020, filed with the SEC on February 14, 2020.12, 2021.
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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 September 30, 2020.2021. Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as of September 30, 2020,2021, 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 September 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Cognizant | 43 | September 30, 2021 Form 10-Q |
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings |
See Note 12 to our unaudited consolidated financial statements.
TheThere have been no material changes in our risk factors from those disclosed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 20192020 filed with the SEC on February 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, 201912, 2021.
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, 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 in the past and potentially in the future.
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. Since March 2020, many of these countries have imposed restrictions on businesses and people, thus limiting economic activity. The timeframe for fully reopening their economies is uncertain and could be lengthy. This has reduced demand for our services, particularly from clients in the retail, consumer goods, 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, many of 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, some of our clients have requested and may continue to request extended payment terms, which may have an adverse effect 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 incur 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 may continue to face challenges in 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, where the Indian government has imposed significant restrictions on movement 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 significant restrictions on movement 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 may continue to impact our ability to deliver services to clients,
particularly for those clients for whom work-from-home arrangements may not be possible. Our work-from-home arrangements for many of our employees may be unsuccessful in mitigating the impact of such closures and increase our exposure to security breaches or cyberattacks. The ransomware attack we were subject to in April 2020 compounded the challenges we faced 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 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 and waves of infection, 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 and have other adverse impacts on our business. For example, on April 20, 2020, we announced a security incident involving a Maze ransomware attack (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 faced 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 were unable to continue providing services via client networks until access was restored. We will continue to incur incremental costs for the remediation of the security incident and investments to enhance our overall security environment. The lost revenue and containment, investigation, remediation, legal and other costs 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 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 we serve. 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.
A substantial portion of our employees in the United States, United Kingdom, European Union and other jurisdictions rely on visas to work in those areas such that any restrictions on such visas or immigration more generally or increased costs of obtaining such visas or from the wages we are required to pay associates on visas may affect our ability to compete for and provide services to clients in these jurisdictions, which could materially adversely affect our business, results of operations and financial condition.
A substantial portion of our employees in the United States and in many other jurisdictions, including countries in Europe, rely upon temporary work authorization or work permits, which makes our business particularly vulnerable to changes and variations in immigration laws and regulations, including written changes and policy changes to the manner in which the laws and regulations are interpreted or enforced, and potential enforcement actions and penalties that might cause us to lose access to such visas. The political environment in the United States, the United Kingdom and other countries in recent years has included significant support for anti-immigrant legislation and administrative changes. Many of these recent changes have resulted in, and various proposed changes may result in, increased difficulty in obtaining timely visas that impact our ability to staff projects, including as a result of visa application rejects and delays in processing applications, and significantly increased costs for us in obtaining visas or as a result of prevailing wage requirements for our associates on visas. For example, in the United States, the current administration has implemented policy changes to increase scrutiny of the issuance of new and the renewal of existing H-1B visa applications and the placement of H-1B visa workers on third party worksites, and has issued executive orders designed to limit immigration. In addition, the administration adopted policy changes that, for entities where more than 50% of the workers in the United States hold certain types of visas, increase the visa costs for such entities and, for all entities, increase the prevailing wage requirements that set a minimum level of compensation for visa holders. The increase in visa costs is subject to a court-ordered stay and the increase in the prevailing wage requirements became effective in October 2020 but is the subject of multiple court challenges seeking a stay.If fully implemented, these policy changes may over time significantly increase costs for us. In the EU, many countries continue to implement new regulations to move into compliance with the EU Directive of 2014 to harmonize immigration rules for intracompany transferees in most EU member states and to facilitate the transfer of managers, specialists and graduate trainees both into and within the region. The changes have had significant impacts on mobility programs and have led to new notification and documentation requirements for companies sending professionals to EU countries. Recent changes or any additional adverse revisions to immigration laws and regulations in the
jurisdictions in which we operate may cause us delays, staffing shortages, additional costs or an inability to bid for or fulfill projects for clients, any of which could have a material adverse effect on our business, results of operations and financial condition.
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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 amended by our Board of Directors in February 2020, allows for the repurchase of up to $7.5$9.5 billion, excluding fees and expenses, of our Class A common stock through open market purchases, including under a 10b5-1 Plan or in private transactions, including through ASR agreements entered into with financial institutions, in accordance with applicable federal securities laws. The repurchase program does not have an expiration date. The timing of repurchases and the exact number of shares to be purchased are determined by management, in its discretion, or pursuant to a 10b5-1 Plan, and will depend upon market conditions and other factors.
During the three months ended September 30, 2020,2021, we repurchased $282100 million of our Class A common stock under our stock repurchase program pursuant to a 10b5-1 Plan.stock. The stock repurchase activity under our stock repurchase program during the three months ended September 30, 20202021 was as follows:
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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) |
July 1, 2020 - July 31, 2020 | | — | | | $ | — | | | — | | | $ | 1,818 | |
August 1, 2020 - August 30, 2020 | | — | | | — | | | — | | | 1,818 | |
September 1, 2020 - September 30, 2020 | | 4,100,000 | | | $ | 68.81 | | | 4,100,000 | | | 1,536 | |
Total | | 4,100,000 | | | $ | 68.81 | | | 4,100,000 | | | |
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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) |
July 1, 2021 - July 31, 2021 | | — | | | $ | — | | | — | | | $ | 2,285 | |
August 1, 2021 - August 31, 2021 | | 922,062 | | | 75.91 | | | 922,062 | | | 2,215 | |
September 1, 2021 - September 30, 2021 | | 391,984 | | | 76.55 | | | 391,984 | | | 2,185 | |
Total | | 1,314,046 | | | $ | 76.10 | | | 1,314,046 | | | |
During the three months ended September 30, 2020,2021, 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 withholdinwithholgs.dings. For the three months ended September 30, 2020,2021, such repurchases totaled 0.20.3 million shares at an aggregate cost of $15 million.$21 million.
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Cognizant | 44 | September 30, 2021 Form 10-Q |
EXHIBIT INDEX
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Number | | Exhibit Description | | Form | | File No. | | Exhibit | | Date | | Filed or Furnished Herewith |
3.1 | | | | 8-K | | 000-24429 | | 3.1 | | | 6/7/2018 | | |
3.2 | | | | 8-K | | 000-24429 | | 3.1 | | | 9/20/2018 | | |
10.1 | | | | 10-Q | | 000-24429 | | 10.1 | | 7/29/2020 | | |
31.1 | | | | | | | | | | | | Filed |
31.2 | | | | | | | | | | | | Filed |
32.1 | | | | | | | | | | | | Furnished |
32.2 | | | | | | | | | | | | 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 | | | | 8-K | | 000-24429 | | 3.1 | | | 6/7/2018 | | |
3.2 | | | | 8-K | | 000-24429 | | 3.1 | | | 9/20/2018 | | |
31.1 | | | | | | | | | | | | Filed |
31.2 | | | | | | | | | | | | Filed |
32.1 | | | | | | | | | | | | Furnished |
32.2 | | | | | | | | | | | | Furnished |
101.INS | | 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 |
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Cognizant | 45 | September 30, 2021 Form 10-Q |
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.
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| | | Cognizant Technology Solutions Corporation |
| | | | |
Date: | October 28, 202027, 2021 | | | By: | | /s/ BRIAN HUMPHRIES |
| | | | | | Brian Humphries, |
| | | | | | Chief Executive Officer |
| | | | | | (Principal Executive Officer) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Date: | October 28, 202027, 2021 | | | By: | | /s/ JAN SIEGMUND |
| | | | | | Jan Siegmund, |
| | | | | | Chief Financial Officer |
| | | | | | (Principal Financial Officer) |
54
| | | | | | | | |
Cognizant | 46 | September 30, 2021 Form 10-Q |