Table of Contents

 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
☒
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2017
☐
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from                      to                     
Commission File Number 0-24429
 
 
 
  COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Delaware
 
13-3728359
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
Glenpointe Centre West
500 Frank W. Burr Blvd.
Teaneck, New Jersey
 
07666
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (201) 801-0233
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No:  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No:  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☒
Accelerated filer
☐
 
 
 
 
Non-accelerated filer
☐  (Do not check if a smaller reporting company)
Smaller reporting company
☐
 
 
 
 
 
 
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  ☒
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of April 28, 2017 :
Class
 
Number of Shares
Class A Common Stock, par value $.01 per share
 
588,996,873

 
 
 
Table of Contents

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

Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.    Condensed Consolidated Financial Statements (Unaudited).
 
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in millions, except par values)
 
 
March 31,  
 2017

December 31, 
 2016
Assets



Current assets:



Cash and cash equivalents
$
1,308


$
2,034

Short-term investments
2,966


3,135

Trade accounts receivable, net of allowances of $58 and $48, respectively
2,644


2,556

Unbilled accounts receivable
395


349

Other current assets
529


526

Total current assets
7,842


8,600

Property and equipment, net
1,306


1,311

Goodwill
2,563


2,554

Intangible assets, net
923


951

Deferred income tax assets, net
458


425

Long-term investments
110

 
62

Other noncurrent assets
427


359

Total assets
$
13,629


$
14,262

Liabilities and Stockholders’ Equity



Current liabilities:



Accounts payable
$
189


$
175

Deferred revenue
397


306

Short-term debt
437


81

Accrued expenses and other current liabilities
1,562


1,856

Total current liabilities
2,585


2,418

Deferred revenue, noncurrent
128


151

Deferred income tax liabilities, net
6


6

Long-term debt
772


797

Other noncurrent liabilities
155


162

Total liabilities
3,646


3,534

Commitments and contingencies (See Note 10 )

 

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

 
—

Class A common stock, $0.01 par value, 1,000 shares authorized, 589 and 608 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
6

 
6

Additional paid-in capital
59

 
358

Retained earnings
9,935

 
10,478

Accumulated other comprehensive income (loss)
(17
)
 
(114
)
Total stockholders’ equity
9,983


10,728

Total liabilities and stockholders’ equity
$
13,629


$
14,262

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

1
Table of Contents

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share data)
 
 
Three Months Ended 
 March 31,
 
2017
 
2016
Revenues
$
3,546


$
3,202

Operating expenses:



Cost of revenues (exclusive of depreciation and amortization expense shown separately below)
2,194


1,915

Selling, general and administrative expenses
686


646

Depreciation and amortization expense
96


87

Income from operations
570


554

Other income (expense), net:



Interest income
32


31

Interest expense
(6
)

(5
)
Foreign currency exchange gains (losses), net
52


9

Other, net
1


—

Total other income (expense), net
79


35

Income before provision for income taxes
649


589

Provision for income taxes
(92
)

(148
)
Income from equity method investment
—

 
—

Net income
$
557


$
441

Basic earnings per share
$
0.92


$
0.73

Diluted earnings per share
$
0.92


$
0.72

Weighted average number of common shares outstanding - Basic
605


608

Dilutive effect of shares issuable under stock-based compensation plans
2

 
4

Weighted average number of common shares outstanding - Diluted
607


612

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

2
Table of Contents

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
 
 
Three Months Ended 
 March 31,
 
2017
 
2016
Net income
$
557

 
$
441

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
17

 
20

Change in unrealized gains and losses on cash flow hedges, net of taxes
79

 
20

Change in unrealized gains and losses on available-for-sale securities, net of taxes
1

 
5

Other comprehensive income (loss)
97

 
45

Comprehensive income
$
654

 
$
486

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

3
Table of Contents

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

 
For the Three Months Ended 
 March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
557

 
$
441

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
104

 
88

Provision for doubtful accounts
9

 
5

Deferred income taxes
9

 
69

Stock-based compensation expense
54

 
54

Other
(55
)
 
(2
)
Changes in assets and liabilities:
 
 
 
Trade accounts receivable
(86
)
 
(55
)
Other current assets
20

 
(78
)
Other noncurrent assets
(31
)
 
(13
)
Accounts payable
13

 
48

Deferred revenues, current and noncurrent
67

 
41

Other current and noncurrent liabilities
(384
)
 
(526
)
Net cash provided by operating activities
277

 
72

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(66
)
 
(64
)
Purchases of investments
(1,584
)
 
(1,096
)
Proceeds from maturity or sale of investments
1,747

 
1,002

Payments for business combinations, net of cash acquired
(6
)
 
(70
)
Net cash provided by (used in) investing activities
91

 
(228
)
Cash flows from financing activities:
 
 
 
Issuance of common stock under stock-based compensation plans
61

 
49

Repurchases of common stock
(1,514
)
 
(257
)
Repayment of term loan borrowings and capital lease obligations
(21
)
 
(13
)
Net change in notes outstanding under the revolving credit facility
350

 
(250
)
Net cash (used in) financing activities
(1,124
)
 
(471
)
Effect of exchange rate changes on cash and cash equivalents
30

 
26

(Decrease) in cash and cash equivalents
(726
)
 
(601
)
Cash and cash equivalents, beginning of year
2,034

 
2,125

Cash and cash equivalents, end of period
$
1,308

 
$
1,524

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

4
Table of Contents

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

Note 1 — Interim Condensed Consolidated Financial Statements

The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation unless the context indicates otherwise. We have prepared the accompanying unaudited condensed consolidated financial statements included herein in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. The accompanying unaudited condensed 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, 2016 . In our opinion, all adjustments considered necessary for a fair statement of the accompanying unaudited condensed consolidated financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.

Recently Adopted Accounting Pronouncements.

In March 2016, the Financial Accounting Standards Board, or FASB, issued an update to the standard on derivatives and hedging, which clarifies the effect of derivative contract novations on existing hedge accounting relationships. As it relates to derivative instruments, novation refers to replacing one of the parties to a derivative instrument with a new party, which may occur for a variety of reasons such as: financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, or because of laws or regulatory requirements. The update clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedge accounting relationship provided that all other hedge accounting criteria continue to be met. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2017. We adopted this update beginning January 1, 2017. The adoption of this update did not have any effect on our financial condition or results of operations.

In March 2016, the FASB issued an update to the standard on stock compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for excess tax benefits and deficiencies, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2017. We adopted this update prospectively beginning January 1, 2017. In the first quarter of 2017, we recognized net excess tax benefits on stock-based compensation awards in our income tax provision in the amount of $6 million or approximately $0.01 per share. Additionally, the excess tax benefits and deficiencies have been presented in operating activities in the statement of cash flows in our consolidated financial statements and the prior period presentation has been adjusted to conform to the current period.

In January 2017, the FASB issued an update to the standard on business combinations, which clarifies the definition of a business. The update requires a business to include at least an input and a substantive process that together significantly contribute to the ability to create outputs. The update also states that the definition of a business is not met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2018 with early adoption permitted. We early adopted this update prospectively beginning January 1, 2017. The adoption of this update did not have a material effect on our financial condition or results of operations.

In January 2017, the FASB issued an update to the standard on goodwill, which eliminates the need to calculate the implied fair value of goodwill when an impairment is indicated. The update states that goodwill impairment is measured as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2020 with early adoption permitted. We early adopted this update prospectively beginning January 1, 2017. The adoption of this update did not have any effect on our financial condition or results of operations.


5

New Accounting Pronouncements.

In May 2014, the FASB issued a standard on revenue from contracts with customers. In 2016, the FASB issued five amendments to the new standard. The new standard, as amended, sets forth a single comprehensive model for recognizing and reporting revenues. The standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenues and cash flows relating to customer contracts. The standard is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2018. The standard allows for two methods of adoption: the full retrospective adoption, which requires the standard to be applied to each prior period presented, or the modified retrospective adoption, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. We intend to adopt the standard using the modified retrospective method effective January 1, 2018. While we are currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures, we currently believe the most significant impacts primarily relate to changes in the method used to measure progress on our application maintenance and business process services fixed-price contracts, capitalization and amortization of costs to acquire and fulfill a contract, as well as the timing of revenue recognition on our software license contracts. Due to the complexity of certain of our contracts, the actual revenue recognition treatment required under the standard will be dependent on each contract's specific terms.

In January 2016, the FASB issued an update to the standard on financial instruments. The update significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements.  The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2018. Upon adoption, entities will be required to make 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. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption.  Early adoption of certain sections of this update is permitted. We are currently evaluating the effect the update will have on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued a standard on lease accounting. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2019. Upon adoption, entities will be required to use a modified retrospective transition which provides for certain practical expedients. Entities are required to apply the new standard at the beginning of the earliest comparative period presented. Early adoption of this new standard is permitted. We are currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures. We expect the requirement to recognize a right-of-use asset and a lease liability for operating leases to have a material impact on the presentation of our consolidated statements of financial position.

In August 2016, the FASB issued an update to the standard on the statement of cash flows, which clarifies the presentation and classification of certain cash receipts and cash payments. The update addresses specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2018. Early adoption is permitted, including adoption in an interim period, provided that all of the updates are adopted in the same period. Upon adoption, entities will be required to use a retrospective transition approach. We are currently evaluating the impact of the new guidance on our consolidated financial statements. The adoption of this guidance will affect financial statement presentation only and will have no effect on our financial position or results of operations.

In March 2017, the FASB issued an update to shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on after January 1, 2019 with early adoption permitted. Upon adoption, entities will be required to use a modified retrospective transition with the cumulative effect adjustment recognized to retained earnings as of the beginning of the period of adoption. We are currently evaluating the effect the amendments will have on our consolidated financial statements and related disclosures.

6

Note 2 — Internal Investigation and Related Matters

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. In September 2016, we voluntarily notified the U.S. Department of Justice, or DOJ, and Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2010 and 2015 that may have been recorded improperly. During the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of such payments that were previously capitalized that should have been expensed. These out-of-period corrections and the other $2 million in potentially improper payments were not material to any previously issued financial statements.

Note 3 — Investments

Our investments were as follows:
 
March 31, 2017
 
December 31, 2016
 
(in millions)
Short-term investments:
 
 
 
Trading investment securities
$
25

 
$
25

Available-for-sale investment securities
1,953

 
2,264

Held-to-maturity investment securities
341

 
40

Time deposits
647

 
806

Total short-term investments
$
2,966

 
$
3,135


Long-term investments:
 
 
 
Equity and cost method investments
$
65

 
$
62

Held-to-maturity investment securities
45

 
—

Total long-term investments
$
110

 
$
62


Trading Investment Securities

Our trading investment securities consist of a U.S. dollar denominated investment in a fixed income mutual fund. Unrealized losses for the three months ended March 31, 2017 were immaterial. There were no realized gains or losses on trading securities during the three months ended March 31, 2017. During the three months ended March 31, 2016, there were no investment securities in our portfolio classified as trading.

Available-for-Sale Investment Securities

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


7

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at March 31, 2017 were as follows:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(in millions)
U.S. Treasury and agency debt securities
$
637

 
$
1

 
$
(3
)
 
$
635

Corporate and other debt securities
452

 
—

 
(1
)
 
451

Certificates of deposit and commercial paper
455

 
—

 
—

 
455

Asset-backed securities
290

 
—

 
(1
)
 
289

Municipal debt securities
123

 
—

 
—

 
123

Total available-for-sale investment securities
$
1,957

 
$
1

 
$
(5
)
 
$
1,953

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at December 31, 2016 were as follows:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(in millions)
U.S. Treasury and agency debt securities
$
605

 
$
—

 
$
(3
)
 
$
602

Corporate and other debt securities
407

 
—

 
(2
)
 
405

Certificates of deposit and commercial paper
910

 
1

 
—

 
911

Asset-backed securities
232

 
—

 
(1
)
 
231

Municipal debt securities
116

 
—

 
(1
)
 
115

Total available-for-sale investment securities
$
2,270

 
$
1

 
$
(7
)
 
$
2,264


The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of March 31, 2017 :
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(in millions)
U.S. Treasury and agency debt securities
$
498

 
$
(3
)
 
$
—

 
$
—

 
$
498

 
$
(3
)
Corporate and other debt securities
337

 
(1
)
 
—

 
—

 
337

 
(1
)
Certificates of deposit and commercial paper
108

 
—

 
—

 
—

 
108

 
—

Asset-backed securities
242

 
(1
)
 
—

 
—

 
242

 
(1
)
Municipal debt securities
60

 
—

 
2

 
—

 
62

 
—

Total
$
1,245

 
$
(5
)
 
$
2

 
$
—

 
$
1,247

 
$
(5
)

The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of December 31, 2016 :
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(in millions)
U.S. Treasury and agency debt securities
$
526

 
$
(3
)
 
$
—

 
$
—

 
$
526

 
$
(3
)
Corporate and other debt securities
342

 
(2
)
 
1

 
—

 
343

 
(2
)
Certificates of deposit and commercial paper
185

 
—

 
—

 
—

 
185

 
—

Asset-backed securities
206

 
(1
)
 
1

 
—

 
207

 
(1
)
Municipal debt securities
88

 
(1
)
 
1

 
—

 
89

 
(1
)
Total
$
1,347

 
$
(7
)
 
$
3

 
$
—

 
$
1,350

 
$
(7
)


8

The unrealized losses for the above securities as of March 31, 2017 and December 31, 2016 are primarily attributable to changes in interest rates. At each reporting date, the Company performs an evaluation of impaired available-for-sale securities to determine if the unrealized losses are other-than-temporary. As of March 31, 2017 , we do not consider any of the investments to be other-than-temporarily impaired. The gross unrealized gains and losses in the above tables were recorded, net of tax, in "Accumulated other comprehensive income (loss)" in our consolidated statements of financial position.
The contractual maturities of our fixed income available-for-sale investment securities as of March 31, 2017 are set forth in the following table:
 
Amortized
Cost
 
Fair
Value
 
(in millions)
Due within one year
$
628

 
$
629

Due after one year up to two years
481

 
479

Due after two years up to three years
484

 
483

Due after three years
74

 
73

Asset-backed securities
290

 
289

Total available-for-sale investment securities
$
1,957

 
$
1,953


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

Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(in millions)
Proceeds from sales of available-for-sale investment securities
$
1,248

 
$
562

 
 
 
 
Gross gains
$
1

 
$
—

Gross losses
(1
)
 
—

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

 
$
—


Held-to-Maturity Investment Securities

Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial paper, international corporate bonds and government debt securities. Our investment guidelines are to purchase securities that are investment grade at the time of acquisition. We monitor the credit ratings of the securities in our portfolio on an ongoing basis. We classify these securities with maturities beyond 90 days but less than one year as short-term investments and beyond one year as long-term investments.

9

The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at March 31, 2017 were as follows:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(in millions)
Short-term investments:
 
 
 
 
 
 
 
Corporate and other debt securities
$
96

 
$
—

 
$
—

 
$
96

Commercial paper
245

 
—

 
—

 
245

Total short-term held-to-maturity investments
341

 
—

 
—

 
341

Long-term investments:
 
 
 
 
 
 
 
Corporate and other debt securities
45

 
—

 
—

 
45

Total held-to-maturity investment securities
$
386

 
$
—

 
$
—

 
$
386


The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at December 31, 2016 were as follows:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(in millions)
Short-term investments:
 
 
 
 
 
 
 
Certificates of deposit and commercial paper
$
40

 
$
—

 
$
—

 
$
40


There were no long-term held-to-maturity investment securities at December 31, 2016 .

The fair value and related unrealized losses of held-to-maturity investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of March 31, 2017 :
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(in millions)
Corporate and other debt securities
$
86

 
$
—

 
$
—

 
$
—

 
$
86

 
$
—

Commercial paper
137

 
—

 
—

 
—

 
137

 
—

Total
$
223

 
$
—

 
$
—

 
$
—

 
$
223

 
$
—


As of December 31, 2016 , held-to-maturity investment securities in an unrealized loss position were immaterial. At each reporting date, the Company performs an evaluation of held-to-maturity securities to determine if the unrealized losses are other-than-temporary. As of March 31, 2017 , we do not consider any of the investments to be other-than-temporarily impaired.
The contractual maturities of our fixed income held-to-maturity investment securities as of March 31, 2017 are set forth in the following table:
 
Amortized
Cost
 
Fair
Value
 
(in millions)
Due within one year
$
341

 
$
341

Due after one year up to two years
39

 
39

Due after two years
6

 
6

Total held-to-maturity investment securities
$
386

 
$
386


As of March 31, 2016, there were no investment securities in our portfolio classified as held-to-maturity.

During the three months ended March 31, 2017 and the year ended December 31, 2016, there were no transfers of investments between our trading, available-for-sale and held-to-maturity investment portfolios.

10

Note 4 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:
 
March 31, 2017
 
December 31, 2016
 
(in millions)
Compensation and benefits
$
857

 
$
1,134

Income taxes
12

 
10

Professional fees
103

 
99

Travel and entertainment
34

 
36

Customer volume incentives
247

 
258

Derivative financial instruments
13

 
4

Other
296

 
315

Total accrued expenses and other current liabilities
$
1,562

 
$
1,856


Note 5 — Debt

In 2014, we entered into a credit agreement with a commercial bank syndicate, or, as amended, the Credit Agreement, providing for a  $1,000 million unsecured term loan and a  $750 million unsecured revolving credit facility. The term loan and the revolving credit facility both mature in November 2019. All notes drawn to date under the revolving credit facility have been less than 90 days in duration. We are required under the Credit Agreement to make scheduled quarterly principal payments on the term loan. We were in compliance with all debt covenants and representations as of March 31, 2017.

Short-term Debt

The following summarizes our short-term debt balances as of:
 
 
March 31, 2017
 
December 31, 2016
 
 
(in millions)
Notes outstanding under revolving credit facility
 
$
350

 
$
—

Term loan - current maturities
 
87

 
81

Total short-term debt
 
$
437

 
$
81

Long-term Debt

The following summarizes our long-term debt balances as of:
 
 
March 31, 2017
 
December 31, 2016
 
 
(in millions)
Term loan, due 2019
 
$
862

 
$
881

Less:
 
 
 
 
Current maturities
 
(87
)
 
(81
)
Deferred financing costs
 
(3
)
 
(3
)
Long-term debt, net of current maturities
 
$
772

 
$
797


Note 6 — Income Taxes

Our Indian subsidiaries, collectively referred to as Cognizant India, are primarily export-oriented and are eligible for certain income tax holiday benefits granted by the government of India for export activities conducted within Special Economic Zones, or SEZs, for periods of up to 15 years . Our Indian profits ineligible for SEZ benefits are subject to corporate income tax at the rate of 34.6% . In addition, all Indian profits, including those generated within SEZs, are subject to the Minimum Alternative Tax, or MAT, at the rate of 21.3% . Any MAT paid is creditable against future Indian corporate income tax, subject to limitations.


11

Our effective income tax rates were as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
Effective income tax rate
14.2
%
 
25.1
%

For the three months ended March 31, 2017, our effective income tax rate decreased primarily due to the recognition in the first quarter of 2017 of income tax benefits previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million. The recognition of these benefits in the first quarter of 2017 was based on management’s reassessment regarding whether certain unrecognized tax benefits met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefits. For the 2017 period, the principal reason for the difference between our effective income tax rates and the U.S. federal statutory rate is the effect of the Indian tax holiday, earnings taxed in countries that have lower rates than the United States and the recognition in the first quarter of 2017 of previously unrecognized income tax benefits as described above. For the 2016 period, the principal reason for the difference between our effective income tax rates and the U.S. federal statutory rate is the effect of the Indian tax holiday and earnings taxed in countries that have lower rates than the United States.

Note 7 — Derivative Financial Instruments

In the normal course of business, we use foreign exchange forward contracts to manage foreign currency exchange rate risk. The estimated fair value of the foreign exchange forward contracts considers the following items: discount rate, timing and amount of cash flow and counterparty credit risk. Derivatives may give rise to credit risks from the possible non-performance by counterparties. Credit risk is generally limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by entering into derivative transactions only with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution and conducting an ongoing evaluation of the creditworthiness of the financial institutions with which we do business. In addition, all the assets and liabilities related to our foreign exchange forward contracts set forth in the below table are subject to International Swaps and Derivatives Association, or ISDA, master netting arrangements or other similar agreements with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. We have presented all the assets and liabilities related to our foreign exchange forward contracts on a gross basis, with no offsets, in our accompanying unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to our foreign exchange forward contracts.

The following table provides information on the location and fair values of derivative financial instruments included in our unaudited consolidated statements of financial position as of:
 
 
 
 
March 31, 2017
 
December 31, 2016
Designation of Derivatives
 
Location on Statement of
Financial Position
 
Assets
 
Liabilities
 
Assets  
 
Liabilities
 
 
 
 
(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments
 
Other current assets
 
$
101

 
$
—

 
$
34

 
$
—

 
 
Other noncurrent assets
 
54

 
—

 
17

 
—

 
 
Total
 
155

 
—

 
51

 
—

Foreign exchange forward contracts – Not designated as hedging instruments
 
Other current assets
 
1

 
—

 
—

 
—

 
 
Accrued expenses and other current liabilities
 
—

 
13

 
—

 
4

 
 
Total
 
1

 
13

 
—

 
4

Total
 
 
 
$
156

 
$
13

 
$
51

 
$
4


12

Cash Flow Hedges

We have entered into a series of foreign exchange forward contracts that are designated as cash flow hedges of Indian rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of exchange rates on future operating costs and are scheduled to mature each month during 2017 and 2018 . Under these contracts, we purchase Indian rupees and sell U.S. dollars. The changes in fair value of these contracts are initially reported in the caption “Accumulated other comprehensive income (loss)” in our consolidated statements of financial position and are subsequently reclassified to earnings in the same period the forecasted Indian rupee denominated payments are recorded in earnings. As of March 31, 2017 , we estimate that $77 million , net of tax, of net gains related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income (loss) is expected to be reclassified into earnings within the next 12 months.

The notional value of our outstanding contracts by year of maturity and the net unrealized gains included in accumulated other comprehensive income (loss) for such contracts were as follows as of:
 
March 31, 2017
 
December 31, 2016
 
(in millions)
2017
$
975

 
$
1,320

2018
1,020

 
1,020

Total notional value of contracts outstanding
$
1,995

 
$
2,340

Net unrealized gains included in accumulated other comprehensive income (loss), net of taxes
$
118

 
$
39


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

The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the three months ended March 31 :
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative 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)
 
2017
 
2016
 
 
 
2017
 
2016
 
(in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments
$
124

 
$
22

 
Cost of revenues
 
$
17

 
$
(2
)
 
 
 
 
 
Selling, general and administrative expenses
 
3

 
—

 
 
 
 
 
Total
 
$
20

 
$
(2
)

The activity related to the change in net unrealized gains (losses) on our cash flow hedges included in accumulated other comprehensive income (loss) is presented in Note 9 .

13

Other Derivatives

We use foreign exchange forward contracts, which have not been designated as hedges, to hedge balance sheet exposure to certain monetary assets and liabilities denominated in currencies, primarily the Indian rupee and the British pound, other than the functional currency of our foreign subsidiaries. These foreign exchange forward contracts are scheduled to mature in 2017. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.

Additional information related to our outstanding foreign exchange forward contracts not designated as hedging instruments is as follows:
 
March 31, 2017
 
December 31, 2016
 
Notional
 
Fair Value
 
Notional
 
Fair Value
 
(in millions)
Contracts outstanding
$
412

 
$
(12
)
 
$
213

 
$
(4
)

The following table provides information on the location and amounts of realized and unrealized pre-tax gains and losses on our other derivative financial instruments for the three months ended March 31:
 
Location of Net Gains (Losses) on
Derivative Instruments
 
Amount of Net (Losses) on Derivative Instruments
 
 
 
2017
 
2016
 
 
 
(in millions)
Foreign exchange forward contracts – Not designated as hedging instruments
Foreign currency exchange gains (losses), net
 
$
(10
)
 
$
(3
)

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

Note 8 — Fair Value Measurements

We measure our cash equivalents, investments and foreign exchange forward contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.

The fair value hierarchy consists of the following three levels:
•
Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
•
Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
•
Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

14

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2017 :
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
350

 
$
—

 
$
—

 
$
350

Commercial paper
—

 
8

 
—

 
8

Total cash equivalents
350

 
8

 
—

 
358

Short-term investments:
 
 
 
 
 
 
 
Time deposits
—

 
647

 
—

 
647

Available-for-sale investment securities:
 
 
 
 
 
 
 
U.S. Treasury and agency debt securities
544

 
91

 
—

 
635

Corporate and other debt securities
—

 
451

 
—

 
451

Certificates of deposit and commercial paper
—

 
455

 
—

 
455

Asset-backed securities
—

 
289

 
—

 
289

Municipal debt securities
—

 
123

 
—

 
123

Total available-for-sale investment securities
544

 
1,409

 
—

 
1,953

Held-to-maturity investment securities:
 
 
 
 
 
 
 
Commercial paper
—

 
245

 
—

 
245

Corporate and other debt securities
—

 
96

 
—

 
96

Total short-term held-to-maturity investment securities
—

 
341

 
—

 
341

Total short-term investments (1)
544

 
2,397

 
—

 
2,941

Long-term investments:
 
 
 
 
 
 
 
Held-to-maturity investment securities:
 
 
 
 
 
 
 
Corporate and other debt securities
—

 
45

 
—

 
45

Total long-term held-to-maturity investment securities
—

 
45

 
—

 
45

Total long-term investments (2)
—

 
45

 
—

 
45

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

 
102

 
—

 
102

Accrued expenses and other current liabilities
—

 
(13
)
 
—

 
(13
)
Other noncurrent assets
—

 
54

 
—

 
54

Total
$
894

 
$
2,593

 
$
—

 
$
3,487

________________
(1)
Excludes trading securities in mutual funds valued at $25 million based on the net asset value, or NAV, of the fund at March 31, 2017.
(2)
Excludes equity and cost method investments of $65 million at March 31, 2017, which are accounted for using the equity method of accounting and at cost, respectively.


15

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2016 :
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
624

 
$
—

 
$
—

 
$
624

Commercial paper
—

 
131

 
—

 
131

Total cash equivalents
624

 
131

 
—

 
755

Short-term investments:
 
 
 
 
 
 
 
Time deposits
—

 
806

 
—

 
806

Available-for-sale investment securities:
 
 
 
 
 
 
 
U.S. Treasury and agency debt securities
558

 
44

 
—

 
602

Corporate and other debt securities
—

 
405

 
—

 
405

Certificates of deposit and commercial paper
—

 
911

 
—

 
911

Asset-backed securities
—

 
231

 
—

 
231

Municipal debt securities
—

 
115

 
—

 
115

Total available-for-sale investment securities
558

 
1,706

 
—

 
2,264

Held-to-maturity investment securities:
 
 
 
 
 
 
 
Certificates of deposit and commercial paper
—

 
40

 
—

 
40

Total held-to-maturity investment securities
—

 
40

 
—

 
40

Total short-term investments (1)
558

 
2,552

 
—

 
3,110

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

 
34

 
—

 
34

Accrued expenses and other current liabilities
—

 
(4
)
 
—

 
(4
)
Other noncurrent assets
—

 
17

 
—

 
17

Total
$
1,182

 
$
2,730

 
$
—

 
$
3,912

________________
(1)
Excludes trading securities in mutual funds valued at $25 million based on the net asset value, or NAV, of the fund at December 31, 2016.

We measure the fair value of money market funds and U.S. Treasury securities based on quoted prices in active markets for identical assets and therefore classify these assets as Level 1. The fair value of commercial paper, certificates of deposit, U.S. government agency securities, municipal debt securities, debt securities issued by supranational institutions, U.S. and international corporate bonds and foreign government debt securities is measured based on relevant trade data, dealer quotes, or model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. We measure the fair value of our asset-backed securities using model-driven valuations based on significant inputs derived from or corroborated by observable market data such as dealer quotes, available trade information, spread data, current market assumptions on prepayment speeds and defaults and historical data on deal collateral performance. The carrying value of the time deposits approximated fair value as of March 31, 2017 and December 31, 2016 .

We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. The amounts are aggregated by type of contract and maturity.

During the three months ended March 31, 2017 and the year ended December 31, 2016 , there were no transfers among Level 1, Level 2, or Level 3 financial assets and liabilities.

16

Note 9 — Stockholder's Equity
Stock Repurchase Program
Under the Board of Directors' authorized stock repurchase program, the Company is authorized to repurchase its Class A common stock through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, or in private transactions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased are determined by the Company’s management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors.
Effective March 1, 2017, the Board of Directors approved the termination of the stock repurchase program then in effect and approved a new stock repurchase program ("New Stock Repurchase Program"). The New Stock Repurchase Program allows for the repurchase of $3,500 million of our outstanding shares of Class A common stock, excluding fees and expenses, through December 31, 2019.
In March 2017, we entered into accelerated share repurchase agreements, referred to collectively as the ASR, with certain financial institutions under our New Stock Repurchase Program. Under the terms of the ASR and in exchange for up-front payments of $1,500 million , the financial institutions initially delivered 21.5 million shares, a portion of the Company's total expected shares to be repurchased under the ASR. The total number of shares ultimately delivered is determined at the end of the applicable purchase periods under the ASR based on the volume-weighted average price of the Company’s common stock during such periods. The ASR purchase periods are scheduled to end during or prior to the third quarter of 2017.

Under the ASR, the shares received are constructively retired and returned to the status of authorized and unissued shares in the periods they are delivered, and the up-front payments are accounted for as a reduction to stockholders’ equity in our consolidated statement of financial position in the period the payments are made. The $1,500 million up-front payments were accounted for as a $400 million reduction in common stock and additional paid-in capital and a $1,100 million reduction in retained earnings in our consolidated statements of financial position in March 2017. We reflected the ASR as a repurchase of common stock in the period delivered for purposes of calculating earnings per share and as forward contracts indexed to our common stock. The forward contracts met all of the applicable criteria for equity classification, and therefore were not accounted for as derivative instruments.
As of March 31, 2017 , the remaining available balance under our New Stock Repurchase Program was $2,000 million .

Additional stock repurchases were made in connection with our stock-based compensation plans, whereby Company shares were tendered by employees for payment of applicable statutory tax withholdings. We also repurchased a limited number of shares from employees at the repurchase date market price. Combined, for the three months ended March 31, 2017 , such repurchases totaled 0.2 million shares at an aggregate cost of $14 million .

Dividends

On May 4, 2017, our Board of Directors approved the Company's declaration of a $0.15 per share dividend with a record date of May 22, 2017 and a payment date of May 31, 2017.

17

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component were as follows for the three months ended March 31, 2017 :
 
Three Months
 
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 
(in millions)
Foreign currency translation adjustments:
 
 
 
 
 
Beginning balance
$
(149
)
 
$
—

 
$
(149
)
Change in foreign currency translation adjustments
17

 
—

 
17

Ending balance
$
(132
)
 
$
—

 
$
(132
)
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale investment securities:
 
 
 
 
 
Beginning balance
$
(6
)
 
$
2

 
$
(4
)
Net unrealized gains arising during the period
2

 
(1
)
 
1

Reclassification of net (gains) to Other, net
—

 
—

 
—

Net change
2

 
(1
)
 
1

Ending balance
$
(4
)
 
$
1

 
$
(3
)
 
 
 
 
 
 
Unrealized gains on cash flow hedges:
 
 
 
 
 
Beginning balance
$
51

 
$
(12
)
 
$
39

Unrealized gains arising during the period
124

 
(30
)
 
94

Reclassifications of net (gains) to:
 
 
 
 
 
Cost of revenues
(17
)
 
4

 
(13
)
Selling, general and administrative expenses
(3
)
 
1

 
(2
)
Net change
104

 
(25
)
 
79

Ending balance
$
155

 
$
(37
)
 
$
118

 
 
 
 
 
 
Accumulated other comprehensive income (loss):
 
 
 
 
 
Beginning balance
$
(104
)
 
$
(10
)
 
$
(114
)
Other comprehensive income (loss)
123

 
(26
)
 
97

Ending balance
$
19

 
$
(36
)
 
$
(17
)




18

Changes in accumulated other comprehensive income (loss) by component were as follows for the three months ended March 31, 2016 :
 
Three Months
 
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 
(in millions)
Foreign currency translation adjustments:
 
 
 
 
 
Beginning balance
$
(90
)
 
$
—

 
$
(90
)
Change in foreign currency translation adjustments
20

 
—

 
20

Ending balance
$
(70
)
 
$
—

 
$
(70
)
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale investment securities:
 
 
 
 
 
Beginning balance
$
(7
)
 
$
2

 
$
(5
)
Net unrealized gains arising during the period
8

 
(3
)
 
5

Reclassification of net (gains) to Other, net
—

 
—

 
—

Net change
8

 
(3
)
 
5

Ending balance
$
1

 
$
(1
)
 
$
—

 
 
 
 
 
 
Unrealized (losses) on cash flow hedges:
 
 
 
 
 
Beginning balance
$
(14
)
 
$
2

 
$
(12
)
Unrealized gains arising during the period
22

 
(4
)
 
18

Reclassifications of losses to:
 
 
 
 
 
Cost of revenues
2

 
—

 
2

Selling, general and administrative expenses
—

 
—

 
—

Net change
24

 
(4
)
 
20

Ending balance
$
10

 
$
(2
)
 
$
8

 
 
 
 
 
 
Accumulated other comprehensive income (loss):
 
 
 
 
 
Beginning balance
$
(111
)
 
$
4

 
$
(107
)
Other comprehensive income (loss)
52

 
(7
)
 
45

Ending balance
$
(59
)
 
$
(3
)
 
$
(62
)

Note 10 — Commitments and Contingencies

We are involved in various claims and legal actions arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. In September 2016, we voluntarily notified the DOJ and SEC and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2010 and 2015 that may have been recorded improperly. During the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of such payments that were previously capitalized that should have been expensed. These out-of-period corrections and the other $2 million in potentially improper payments were not material to any previously issued financial statements.

On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated

19

the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Under a stipulation filed by the parties on February 23, 2017, defendants have until June 6, 2017 to answer or move to dismiss the consolidated amended complaint.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future. On February 22, 2017, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of the federal securities laws against the individual defendants. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to us as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.

We are presently unable to predict the duration, scope or result of the internal investigation, the related consolidated putative securities class action, the putative shareholder derivative actions or any other related lawsuit, and any investigations by the DOJ or the SEC, including whether either agency will commence any legal action. 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 an accrual related to these matters. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices including the termination or modification of existing business relationships and the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. Furthermore, while the Company intends to defend the lawsuits vigorously, these lawsuits and any other 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. As such, these matters could have a material adverse effect on our business, results of operations, cash flows or our financial condition.
Many of our engagements involve projects that are critical to the operations of our customers’ business and provide benefits that are difficult to quantify. Any failure in a customer’s systems or our failure to meet our contractual obligations to our customers, including any breach involving a customer’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial condition and cash flows.


20

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

The Company has indemnification and expense advancement obligations pursuant to its Bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s directors. In connection with the ongoing internal investigation, the Company has received requests under such indemnification agreements and its Bylaws to provide advances of funds for legal fees and other expenses, and expects additional requests in connection with the investigation and related litigation. The Company has not recorded any liability for these matters as of March 31, 2017 as it cannot estimate the ultimate outcome at this time but has expensed advances made through March 31, 2017. The Company has maintained directors and officers insurance, from which a portion of these expenses may be recoverable, though we have not recorded an insurance receivable as of March 31, 2017.

As of March 31, 2017, we had outstanding fixed capital commitments of approximately $184 million related to our India real estate development program to build new Company owned state-of-the-art technology global delivery centers.

Note 11— Related Party Transactions
Brackett B. Denniston, III, has been the Interim General Counsel and an executive officer of the Company since December 2016. Mr. Denniston is also a Senior Counsel at the law firm of Goodwin Procter LLP, or Goodwin. During the three months ended March 31, 2017, Goodwin performed legal services for the Company for which it earned approximately $2 million . Goodwin has continued to perform such legal services since March 31, 2017 through the date of this filing. Goodwin did not perform any services for the Company during the three months ended March 31, 2016. The provision of legal services by Goodwin was reviewed and approved by our Audit Committee at the time Mr. Denniston was appointed an executive officer of the Company.

Note 12 — 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 (previously referred to as Manufacturing/Retail/Logistics), which consists of our retail and consumer goods, manufacturing and logistics, travel and hospitality, and energy and utilities operating segments;
•
Communications, Media and Technology (previously referred to as Other), which includes our communications and media operating segment and our technology operating segment.
Our sales managers, account executives, account managers and project teams are aligned in accordance with the specific industries they serve. Our chief operating decision maker evaluates the Company’s performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by our operating groups may affect revenues and operating expenses to differing degrees. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as a per seat charge for use of the global delivery centers. Certain selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, stock-based compensation expense, a portion of depreciation and amortization, costs related to our realignment program and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are separately disclosed as “unallocated costs” and adjusted only against our total income from operations. Additionally,

21

management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.
Revenues from external customers and segment operating profit, before unallocated expenses, by reportable segment were as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(in millions)
Revenues:
 
 
 
Financial Services
$
1,376

 
$
1,286

Healthcare
1,003

 
914

Products and Resources
737

 
633

Communications, Media and Technology
430

 
369

Total revenue
$
3,546

 
$
3,202

 
 
 
 
Segment Operating Profit:
 
 
 
Financial Services
$
391

 
$
423

Healthcare
273

 
295

Products and Resources
203

 
219

Communications, Media and Technology
121

 
122

Total segment operating profit
988

 
1,059

Less: unallocated costs
418

 
505

Income from operations
$
570

 
$
554


Geographic Area Information
Revenue and long-lived assets, by geographic area, are as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(in millions)
Revenues: (1)
 
 
 
North America (2)
$
2,761

 
$
2,497

United Kingdom
274

 
299

Rest of Europe
285

 
226

Europe - Total
559

 
525

Rest of World (3)  
226

 
180

Total
$
3,546

 
$
3,202

 
As of
 
March 31, 2017
 
December 31, 2016
 
(in millions)
Long-lived Assets: (4)
 
 
 
North America (2)
$
286

 
$
279

Europe
53

 
52

Rest of World (3)(5)  
967

 
980

Total
$
1,306

 
$
1,311

________________
(1)
Revenues are attributed to regions based upon customer location.
(2)
Substantially all relates to operations in the United States.
(3)
Includes our operations in Asia Pacific, the Middle East and Latin America.
(4)
Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
(5)
Substantially all of these long-lived assets relate to our operations in India.

22

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

Executive Summary
We are one of the world’s leading professional services companies, transforming customers’ business, operating and technology models for the digital era. Our unique industry-based, consultative approach helps customers envision, build and run more innovative and efficient businesses. Our core competencies include: business, process, operations and technology consulting, application development and systems integration, enterprise information management, application testing, application maintenance, information technology, or IT, infrastructure services, and business process services. We tailor our services to specific industries and utilize an integrated global delivery model with customer service teams typically based on site at customer locations and delivery teams located at dedicated global delivery centers.
Our objective is to create value for both our customers and stockholders by enhancing our position as a leading professional services company in the digital era. Digital services is work we do to help our customers win in the digital economy by applying technology and analytics to change consumer experiences to drive sustainable growth, deploying systems of intelligence to automate and improve core business processes, and improving technology systems by deploying cloud and cyber security solutions and as-a-service models to make them simpler, more modern and secure. To accelerate our shift to digital services and solutions, we are deploying the following strategies:
•
Aligning our digital services into three digital practice areas - Digital Business, Digital Operations and Digital Systems and Technology - to address the needs of our customers as they transform their business and technology models.
•
Investing to scale these digital practice areas across our business segments and geographies, including through extensive training and re-skilling of our existing technical teams and expansion of our local workforces in the United States and other local markets around the world where we operate and pursuing select strategic acquisitions, joint ventures, investments and alliances that can expand our intellectual property, industry expertise, geographic reach, and platform and technology capabilities.
•
Continuing development of our core business, which includes application services, IT infrastructure and business process services. Our customers often look for efficiencies in the running of their core operations to help them fund investments in new digital capabilities. We work with them to analyze and identify opportunities for advanced automation and delivery efficiencies. Additionally, we seek to expand the geographic reach of our core portfolio of services.
•
Selectively targeting higher margin work within our core business and unifying our delivery capabilities to allow for more cost-conscious delivery, leveraging automation and scale, improving our utilization and optimizing our pyramid.
In 2017, we began realigning our business by executing on the above strategies and improving the overall efficiency of our operations, with the goal of achieving 22% non-GAAP operating margin 1 in 2019 while continuing to drive revenue growth. During the first quarter of 2017, we incurred severance costs related to the realignment and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs. These costs are excluded from non-GAAP operating margin 1 and non-GAAP diluted earnings per share 1 in the first quarter of 2017.

In May 2017, as part of the realignment, we announced a voluntary separation program for certain groups of employees, which we expect to result in severance costs primarily in the second quarter of 2017. Since the separation program is entirely voluntary, we cannot estimate the total costs related to this program at the time of this filing. The total costs related to the realignment, which will consist primarily of severance costs under the voluntary separation program, advisory fees and lease termination costs, are expected to be incurred primarily in 2017 and will continue to be excluded from non-GAAP operating margin 1 and non-GAAP diluted earnings per share 1 .

We have initiated a capital return plan that includes a combination of stock repurchases and cash dividends. As part of this plan, we entered into accelerated stock repurchase agreements, referred to collectively as the ASR, of $1.5 billion in March 2017 and declared a cash dividend of $0.15 per share with a record date of May 22, 2017 and a payment date of May 31, 2017.


_______________
1
Non-GAAP income from operations and Non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

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There can be no assurances that we will be successful in achieving the objectives of these plans or that other factors beyond our control, including the various risks set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, will not cause us to fail to achieve the targeted improvements.

The following table sets forth summarized operating results for the three months ended March 31, 2017 and 2016:
 
 
 
 
 
 
 
 
Increase (Decrease)
 
 
2017
 
2016
 
$
 
%
 
 
(Dollars in millions, except per share data)
Revenues
 
$
3,546

 
 
$
3,202

 
 
$
344

 
10.7
Income from operations and operating margin
 
570

16.1
%
 
554

17.3
%
 
16

 
2.9
Net income
 
557

 
 
441

 
 
116

 
26.3
Diluted earnings per share
 
0.92

 
 
0.72

 
 
0.20

 

Other Financial Information 2
 
 
 
 
 
 
 


 

Non-GAAP income from operations and Non-GAAP operating margin
 
669

18.9
%
 
637

19.9
%
 
32

 
5.0
Non-GAAP diluted earnings per share
 
0.84

 
 
0.80

 
 
0.04

 


The key drivers of our revenue growth during the three months ended March 31, 2017 as compared to March 31, 2016 were as follows:

•
Solid performance in our Communications, Media and Technology (previously referred to as Other) and Products and Resources (previously referred to as Manufacturing/Retail/Logistics) business segments with revenue growth of 16.5% and 16.4% , respectively;
•
Revenues in our Healthcare business segment grew 9.7% as demand continues to be affected by uncertainty in the regulatory environment;
•
Revenues in our Financial Services business segment grew 7.0% as our banking customers continue to manage their spending under the current macroeconomic conditions;
•
Sustained strength in the North American market where revenues grew 10.6% ;
•
Continued penetration of the European and Rest of World (primarily the Asia Pacific) markets.
◦
In Europe, we experienced revenue growth of 6.5% , after a negative currency impact of 7.4%. Our revenues from customers in the United Kingdom declined 8.4% , after a negative currency impact of 11.2%. Revenues from our Rest of Europe customers, which included revenues from new strategic customers acquired in the fourth quarter of 2016, increased 26.1% , after a negative currency impact of 2.4%;
◦
Revenues from our Rest of World customers increased 25.6% with an immaterial currency impact;
•
Increased customer spending on discretionary projects;
•
Expansion of our service offerings, including consulting and digital services, next-generation IT solutions and platform-based solutions;
•
Continued expansion of the market for global delivery of technology and business process services; and
•
Increased penetration at existing customers, including strategic customers.







_______________
2
Non-GAAP income from operations and Non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

24
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Our customers seek to meet a dual mandate of achieving more efficient and effective operations, while investing in digital technologies that are reshaping their business models. Increasingly, the relative emphasis among our customers is shifting towards investment and innovation, as reflected in accelerated demand for our digital services. We also saw an increase in demand for larger, more complex projects that are transformational for our customers, including managed services contracts. Such contracts may have longer sales cycles and ramp-up periods and could lead to greater variability in our period to period operating results. We increased the number of strategic customers by 7 during the quarter, bringing the total number of our strategic customers to 336 . We define a strategic customer as one offering the potential to generate at least $5 million to $50 million or more in annual revenues at maturity.

Our operating margin decreased to 16.1% for the quarter ended March 31, 2017 from 17.3% for the quarter ended March 31, 2016 , while our non-GAAP operating margin for the same period decreased to 18.9% 3 from 19.9% 3 . The decreases in both our GAAP and non-GAAP operating margins were due to an increase in compensation and benefits costs (net of lower incentive-based compensation) and increases in certain operating and professional costs, partially offset by a decrease in immigration expense.

As previously disclosed, the Company is conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. In September 2016, we voluntarily notified the Department of Justice, or DOJ, and the Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2010 and 2015 that may have been recorded improperly. In the second half of 2016, we recorded an out-of-period correction related to $4 million of such payments that were previously capitalized that should have been expensed. There were no additional adjustments recorded during the three months ended March 31, 2017 related to the amounts under investigation.

In 2016, there were putative securities class action complaints filed, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal control over financial reporting and our disclosure controls and procedures. Additionally, in 2016 and February and April 2017, putative shareholder derivative complaints were filed, naming us, certain of our directors and certain of our current and former officers as defendants. See the section titled " Part II, Item 1. Legal Proceedings. "
During the quarter ended March 31, 2017, we incurred $14 million in costs related to the FCPA investigation and related lawsuits. We expect to continue to incur expenses related to these matters for the remainder of 2017 and future periods, including with respect to remediating the material weakness in our internal control over financial reporting.

The effective income tax rate decreased to 14.2% for the three months ended March 31, 2017 from 25.1% for the three months ended March 31, 2016 . The decrease in our effective income tax rate was primarily attributed to the recognition in the first quarter of 2017 of an income tax benefit previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million. The recognition of these benefits in the first quarter of 2017 was based on management’s reassessment regarding whether certain unrecognized tax benefits met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefits.

We finished the first quarter of 2017 with approximately 261,200 employees, which is an increase of approximately 28,200 as compared to March 31, 2016 . The increase in the number of our service delivery staff and the related infrastructure costs to meet the demand for our services are the primary drivers of the increase in our operating expenses in 2017. Annualized turnover, including both voluntary and involuntary, was approximately 14.7% for the three months ended March 31, 2017 . The majority of our turnover occurs in India. As a result, annualized attrition rates on-site at customers are below our global attrition rate. In addition, attrition is weighted towards the more junior members of our staff.






_______________
3
Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

25
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During the remainder of 2017 , barring any unforeseen events, we expect the following factors to affect our business and our operating results:
•
Demand from our customers for digital services;
•
Our customers' dual mandate of simultaneously achieving cost savings while investing in transformation and innovation;
•
Continued focus by customers on directing technology spending towards cost containment projects, such as application maintenance, infrastructure services and business process services;
•
Secular changes driven by evolving digital technologies and regulatory changes, including potential regulatory changes with respect to immigration and taxes;
•
Demand from our healthcare customers may continue to be negatively affected by the uncertainty in the regulatory environment;
•
Discretionary spending by our retail customers may be affected by weakness in the retail sector;
•
Legal fees and other expenses related to the internal investigation and related matters as described above;
•
Volatility in foreign currency rates; and
•
Continued uncertainty in the U.S. and world economies, including as a result of recent changes in the government administrations in the United States and elsewhere.
In response to this environment, we plan to:
•
Continue to invest in our digital practice areas of focus across industries and geographies;
•
Continue to invest in our talent base, including through local hiring and re-skilling, and new service offerings, including digital technologies and new delivery models;
•
Partner with our existing customers to garner an increased portion of our customers’ overall technology spend by providing innovative solutions;
•
Focus on growing our business in Europe, the Middle East, the Asia Pacific region and Latin America, where we believe there are opportunities to gain market share;
•
Increase our strategic customer base across all of our business segments;
•
Pursue strategic acquisition opportunities that we believe add new technologies, including digital technologies, or platforms that complement our existing services, improve our overall service delivery capabilities, and/or expand our geographic presence;
•
Focus on operating discipline in order to appropriately manage our cost structure; and
•
Locate most of our new development center facilities in tax incentivized areas.

Business Segments
Our reportable segments are:
•
Financial Services, which consists of our banking and insurance operating segments;
•
Healthcare, which consists of our healthcare and life sciences operating segments;
•
Products and Resources (previously referred to as Manufacturing/Retail/Logistics), which consists of our retail and consumer goods, manufacturing and logistics, travel and hospitality, and energy and utilities operating segments;
•
Communications, Media and Technology (previously referred to as Other), which includes our communications and media operating segment and our technology operating segment.
Our chief operating decision maker evaluates Cognizant’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 groups may affect revenues and operating expenses to differing degrees. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as a per seat charge for use of the global delivery centers. Certain selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, stock-based compensation expense, a portion of depreciation and amortization, costs related to our realignment program 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.

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We provide a significant volume of services to many customers in each of our business segments. Therefore, a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment. However, no individual customer accounted for sales in excess of 10% of our consolidated revenues for the periods ended March 31, 2017 and 2016. In addition, the services we provide to our larger customers are often critical to the operations of such customers and we believe that a termination of our services would require an extended transition period with gradually declining revenues.

Results of Operations

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

The following table sets forth, for the periods indicated, certain financial data for the three months ended March 31 :
 
 
 
% of
 
 
 
% of
 
Increase / Decrease
 
2017
 
Revenues
 
2016
 
Revenues
 
$
 
%
 
(Dollars in millions, except per share data)
Revenues
$
3,546

 
100.0
 
$
3,202

 
100.0
 
$
344

 
10.7

Cost of revenues (1)
2,194

 
61.9
 
1,915

 
59.8
 
279

 
14.6

Selling, general and administrative expenses (1)
686

 
19.3
 
646

 
20.2
 
40

 
6.2

Depreciation and amortization expense
96

 
2.7
 
87

 
2.7
 
9

 
10.3

Income from operations
570

 
16.1
 
554

 
17.3
 
16

 
2.9

Other income (expense), net
79

 
 
 
35

 
 
 
44

 
125.7

Income before provision for income taxes
649

 
18.3
 
589

 
18.4
 
60

 
10.2

Provision for income taxes
(92
)
 
 
 
(148
)
 
 
 
56

 
(37.8
)
Net income
$
557

 
15.7
 
$
441

 
13.8
 
$
116

 
26.3

Diluted earnings per share
$
0.92

 
 
 
$
0.72

 
 
 
$
0.20

 

 
 
 
 
 
 
 
 
 
 
 
 
Other Financial Information   (2)
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP income from operations and non-GAAP operating margin
$
669

 
18.9
 
$
637

 
19.9
 
$
32

 
5.0

Non-GAAP diluted earnings per share
$
0.84

 
 
 
$
0.80

 
 
 
$
0.04

 
 
_____________________
(1)
Exclusive of depreciation and amortization expense.
(2)
Non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.
Revenues - Overall . The increase in revenues was primarily attributed to services related to integration of digital technologies that are reshaping our customers' business and operating models, increased customer spending on discretionary projects, continued interest in using our global delivery model as a means to reduce overall technology and operations costs and continued penetration in all our geographic markets. Revenues from customers added since March 31, 2016 were $138 million and represented 40.1% of the period over period revenue increase. Foreign currency exchange movements negatively impacted year-over-year revenue growth by $35 million, or 1.1%, primarily due to the weakening of the British pound.
Our consulting and technology services revenues for the three months ended March 31, 2017 increased by 10.6% compared to the three months ended March 31, 2016 and represented 57.8% of total revenues for the three months ended March 31, 2017 . Our outsourcing services revenues for the three months ended March 31, 2017 increased by 10.9% and constituted 42.2% of total revenues for the three months ended March 31, 2017 .
Revenues from our top customers were as follows:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Revenues from top five customers as a percentage of total revenues
 
9.0
%
 
10.5
%
Revenues from top ten customers as a percentage of total revenues
 
15.1
%
 
17.7
%
As we continue to add new customers and increase our penetration at existing customers, we expect the percentage of revenues from our top five and top ten customers to continue to decline over time.

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Revenues - Reportable Segments. Revenues by reportable business segment were as follows for the three months ended March 31 :
 
 
2017
 
2016
 
Increase
$
 
%
 
 
(Dollars in millions)
Financial Services
 
$
1,376

 
$
1,286

 
$
90

 
7.0
Healthcare
 
1,003

 
914

 
89

 
9.7
Products and Resources
 
737

 
633

 
104

 
16.4
Communications, Media and Technology
 
430

 
369

 
61

 
16.5
Total revenues
 
$
3,546

 
$
3,202

 
$
344

 
10.7

Revenues from our Financial Services segment grew 7.0% for the three months ended March 31, 2017 , as compared to the three months ended March 31, 2016 . Growth was stronger among our insurance customers where revenues increased by $52 million as compared to an increase of $38 million for our banking customers. In this segment, revenues from customers added since March 31, 2016 were $22 million and represented 24.4% of the period over period revenue increase in this segment. Key areas of focus for our Financial Services customers included the adoption and integration of digital technologies that are reshaping our customers' business and operating models, cost optimization, robotic process automation, cyber security and vendor consolidation. Our banking customers continue to manage their spending under the current macroeconomic conditions affecting the industry.

Revenues from our Healthcare segment grew 9.7% for the three months ended March 31, 2017 , as compared to the three months ended March 31, 2016 . Growth was stronger among our life sciences customers, where revenues increased by $41 million as compared to an increase of $48 million for our healthcare customers. Revenues from customers added since March 31, 2016 were $20 million and represented 22.5% of the period over period revenue increase in this segment. The increase in revenues from our life sciences customers was driven by a growing demand for a broader range of services, including business process services, advanced data analytics and solutions that span multiple service lines while leveraging cloud technologies and platforms. The demand for our services has been and may continue to be affected by uncertainty in the regulatory environment. We believe that in the long term the healthcare industry continues to present a significant growth opportunity due to factors that are transforming the industry, including the changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare.

Revenues from our Products and Resources segment (previously referred to as Manufacturing/Retail/Logistics) grew 16.4% for the three months ended March 31, 2017 , as compared to the three months ended March 31, 2016 . Revenue growth in this segment was strongest among our energy and utilities customers and manufacturing and logistics customers, where revenues increased by a combined $91 million, including revenues from new strategic customers acquired in the fourth quarter of 2016. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined $13 million. Revenues from customers added since March 31, 2016 were $85 million , representing 81.7% of the period over period revenue increase in this segment. Demand within this segment continues to be driven by increased adoption of digital technologies that are reshaping our customers' business and operating models, as well as growing demand for analytics, supply chain consulting, implementation initiatives, product transformation, internet of things and omni channel commerce implementation and integration services. Discretionary spending by our retail customers has been and may continue to be affected by weakness in the retail sector.

Revenues from our Communications, Media and Technology segment (previously referred to as Other) grew 16.5% for the three months ended March 31, 2017 , as compared to the three months ended March 31, 2016 . In the first quarter of 2017 , growth within this segment was driven by the increased adoption of digital technologies, digital content operations and an expanded range of services, such as business process services. Revenue growth was $39 million among our communications and media customers and $22 million among our technology customers. Revenues from customers added since March 31, 2016 were $11 million and represented 18.0% of the period over period revenue increase in this segment.

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Revenues - Geographic Markets . Revenues by geographic market were as follows for the three months ended March 31 :
 
 
2017
 
2016
 
Increase (Decrease)
 
$
 
%
 
 
(Dollars in millions)
North America
 
$
2,761

 
$
2,497

 
$
264

 
10.6

United Kingdom
 
274

 
299

 
(25
)
 
(8.4
)
Rest of Europe
 
285

 
226

 
59

 
26.1

Europe - Total
 
559

 
525

 
34

 
6.5

Rest of World
 
226

 
180

 
46

 
25.6

Total revenues
 
$
3,546

 
$
3,202

 
$
344

 
10.7

North America continues to be our largest market, representing 77.9% of total revenues for the first quarter of 2017 , and accounting for $264 million of the $344 million total revenue increase from the first quarter of 2016 . Revenue growth in Europe and Rest of World markets was driven by an increase in demand for an expanded range of services, such as business process services, customer adoption and integration of digital technologies that are reshaping our customers' business and operating models. Revenues from our customers in Europe grew 6.5% , after a negative currency impact of 7.4%. Specifically, within the United Kingdom we experienced a decrease in revenues of 8.4% , after a negative currency impact of 11.2% while revenues from our Rest of Europe customers, including revenues from new strategic customers acquired in the fourth quarter of 2016, increased 26.1% after a negative currency impact of 2.4%. Revenue growth from our United Kingdom customers has been negatively affected by the current macroeconomic conditions, including the weakening of the British pound and uncertainty in the markets due to the results of the Brexit Referendum. Revenues from our Rest of World customers grew 25.6% with an immaterial currency impact in the first quarter of 2017 , and was primarily driven by the Australia and India markets. We believe that Europe, the Middle East, the Asia Pacific and Latin America regions will continue to be areas of significant investment for us as we see these regions as long term growth opportunities.

Cost of Revenues (Exclusive of Depreciation and Amortization Expense) . Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, payroll taxes, employee benefits, immigration and project-related travel for technical personnel and subcontracting expense. Our cost of revenues increased by 14.6% during the first quarter of 2017 as compared to the first quarter of 2016 . The increase was due primarily to higher compensation and benefits costs (net of lower incentive-based compensation) and professional service costs. For the three months ended March 31, 2017 , compensation and benefit costs, including incentive-based compensation, increased by $220 million , primarily as a result of the increase in the number of our service delivery personnel.

Selling, General and Administrative Expenses . Selling, general and administrative expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, payroll taxes, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. Selling, general and administrative expenses, including depreciation and amortization, increased by 6.7% during the first quarter of 2017 as compared to the first quarter of 2016 . Selling, general and administrative expenses, including depreciation and amortization, decreased as a percentage of revenues to 22.1% in the first quarter of 2017 as compared to 22.9% in the first quarter of 2016 . The decrease as a percentage of revenues was due primarily to lower compensation and benefits costs (including lower incentive-based compensation) and lower immigration expenses, partially offset by an increase in professional service costs, primarily related to the FCPA investigation and related lawsuits.

Income from Operations and Operating Margin - Overall . Income from operations increased 2.9% in the first quarter of 2017 as compared to the first quarter of 2016 . Our operating margin decreased to 16.1% for the quarter ended March 31, 2017 from 17.3% for the quarter ended March 31, 2016 , primarily due to an increase in compensation and benefits costs (net of lower incentive-based compensation) and increases in certain operating and professional costs, partially offset by a decrease in immigration expense. Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against the U.S. dollar negatively impacted our operating margin by approximately 13 basis points or 0.13 percentage points in the three months ended March 31, 2017 . Each additional 1.0% change in the exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by approximately 19 basis points or 0.19 percentage points.

We entered into foreign exchange forward contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the three months ended March 31, 2017 , the settlement of our cash flow hedges positively impacted our operating margin by approximately 56 basis points or 0.56 percentage points as compared to a negative impact of approximately 8 basis points or 0.08 percentage points during the three months ended March 31, 2016.

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For the three months ended March 31, 2017 and 2016 , our non-GAAP operating margins were 18.9% 4 and 19.9% 4 , respectively. As set forth in the “Non-GAAP Financial Measures” section below, our non-GAAP operating margin excludes stock based compensation expense, acquisition-related charges and, for the three months ended March 31, 2017, realignment charges.

Segment Operating Profit. Segment operating profits were as follows for the three months ended March 31 :
 
 
 
 
 
Increase (Decrease)
 
2017
 
2016
 
$
 
%
 
(Dollars in millions)
Financial Services
$
391

 
$
423

 
$
(32
)
 
(7.6
)
Healthcare
273

 
295

 
(22
)
 
(7.5
)
Products and Resources
203

 
219

 
(16
)
 
(7.3
)
Communications, Media and Technology
121

 
122

 
(1
)
 
(0.8
)
Total segment operating profit
988

 
1,059

 
(71
)
 
(6.7
)
Less: unallocated costs
418

 
505

 
(87
)
 
(17.2
)
Income from operations
$
570

 
$
554

 
$
16

 
2.9


Across all our business segments, operating profits decreased as a percentage of revenues due to headcount growth outpacing revenue growth. The decrease in unallocated costs is attributable to lower incentive-based compensation in 2017 as compared to the 2016 period.
Other Income (Expense), Net . Total other income (expense), net consists primarily of foreign currency exchange gains and (losses), interest income and interest expense. The following table sets forth total other income (expense), net for the three months ended March 31 :
 
2017
 
2016
 
Increase/
Decrease
 
(in millions)
Foreign currency exchange gains
$
62

 
$
12

 
$
50

(Losses) on foreign exchange forward contracts not designated as hedging instruments
(10
)
 
(3
)
 
(7
)
Net foreign currency exchange gains
52

 
9

 
43

Interest income
32

 
31

 
1

Interest expense
(6
)
 
(5
)
 
(1
)
Other, net
1

 
—

 
1

Total other income (expense), net
$
79

 
$
35

 
$
44


The foreign currency exchange gains were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets in our U.S. dollar functional currency India subsidiaries as well as the remeasurement of other net monetary assets denominated in currencies other than the functional currencies of our subsidiaries. The losses on our foreign exchange forward contracts not designated as hedging instruments relate to the realized and unrealized gains and losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to the Indian rupee and other non-U.S. dollar denominated net monetary assets and liabilities. As of March 31, 2017 , the notional value of our undesignated hedges was $412 million.






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

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Provision for Income Taxes . The provision for income taxes decreased to $92  million during the three months ended March 31, 2017 from $148 million during the three months ended March 31, 2016 . The effective income tax rate decreased to 14.2% for the three months ended March 31, 2017 from 25.1% for the three months ended March 31, 2016 . The decrease in our effective income tax rate was primarily attributed to the recognition in the first quarter of 2017 of an income tax benefit previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million. The recognition of these benefits in the first quarter of 2017 was based on management’s reassessment regarding whether certain unrecognized tax benefits met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefits.

Net Income . Net income increased to $557 million for the three months ended March 31, 2017 from $441 million for the three months ended March 31, 2016 , representing 15.7% and 13.8% of revenues, respectively. The increase in net income as a percentage of revenues is primarily due to the increase in net foreign currency exchange gains and decrease in provision for income taxes, partially offset by the decrease in operating margin.

Non-GAAP Financial Measures

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

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

We believe providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into the operating results of the Company. For our internal management reporting and budgeting purposes, we use 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 these costs provides a meaningful supplemental measure for investors to evaluate our financial performance. Accordingly, we believe that the presentation of non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share, when read in conjunction with our reported GAAP results, can provide useful supplemental information to our management and investors regarding financial and business trends relating to our financial condition and results of operations.

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

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The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three months ended March 31 :
 
2017
 
% of
Revenues
 
2016
 
% of
Revenues
 
(Dollars in millions, except per share amounts)
GAAP income from operations and operating margin
$
570

 
16.1
 
$
554

 
17.3
Add: Stock-based compensation expense
54

 
1.5
 
54

 
1.7
Add: Acquisition-related charges (1)
34

 
1.0
 
29

 
0.9
Add: Realignment charges (2)
11

 
0.3
 
—

 
—
Non-GAAP income from operations and non-GAAP operating margin
$
669

 
18.9
 
$
637

 
19.9
 
 
 
 
 
 
 
 
GAAP diluted earnings per share
$
0.92

 
 
 
$
0.72

 
 
Effect of above operating adjustments, net of tax (3)
0.10

 
 
 
0.10

 
 
Effect of non-operating foreign currency exchange (gains) losses, net of tax (4)
(0.09
)
 
 
 
(0.02
)
 
 
Effect of recognition of income tax benefit related to an uncertain tax position (5)
(0.09
)
 
 
 
—

 
 
Non-GAAP diluted earnings per share
$
0.84

 
 
 
$
0.80

 
 
_____________________
(1)
Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.
(2)
Realignment charges include severance costs, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable.
(3)
The non-GAAP income tax benefits related to stock-based compensation expense were $21 million and $12 million for the three months ended March 31, 2017 and 2016, respectively.
The non-GAAP income tax benefits related to acquisition-related charges were $12 million and $11 million for the three months ended March 31, 2017 and 2016, respectively.
The non-GAAP income tax benefits related to realignment charges were $4 million for the three months ended March 31, 2017.
(4)
Non-operating foreign currency exchange gains and losses are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes. The non-GAAP pre-tax non-operating foreign currency exchange gains were $52 million and $9 million for the three months ended March 31, 2017 and 2016, respectively, with related incremental non-GAAP income tax benefits of $5 million and $1 million , respectively. The effective tax rate related to the reported non-operating foreign currency exchange gains and losses varies depending on the jurisdictions in which such gains and losses are generated and the statutory rates applicable in those jurisdictions.
(5)
During the three months ended March 31, 2017, we recognized an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position of $55 million . The recognition of the benefit in the first quarter of 2017 was based on management’s reassessment regarding whether this unrecognized tax benefit met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefit.


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Liquidity and Capital Resources

Cash generated from operations has historically been our primary source of liquidity to fund operations and investments to grow our business. In addition, as of March 31, 2017 , we had cash, cash equivalents and short-term investments of $4,274 million and additional available capacity under our revolving credit facility of approximately $400 million . The following table provides a summary of our cash flows for the three months ended March 31 :
 
 
2017
 
2016
 
Increase / Decrease
 
 
(in millions)
Net cash from operating activities
 
$
277

 
$
72

 
$
205

Net cash provided by (used in) investing activities
 
91

 
(228
)
 
319

Net cash (used in) financing activities
 
(1,124
)
 
(471
)
 
(653
)

Operating activities . The increase in cash generated from operating activities was primarily attributable to lower incentive-based compensation payments in the first quarter of 2017 as compared to the same period in 2016. Trade accounts receivable increased to $2,644 million at March 31, 2017 from $2,556 million at December 31, 2016 . Unbilled accounts receivable increased to $395  million at March 31, 2017 from $349 million at December 31, 2016 . The increase in trade accounts receivable and unbilled receivables as of March 31, 2017 as compared to December 31, 2016 was primarily due to increased revenues.

We monitor turnover, aging and the collection of accounts receivable by customer. Our days sales outstanding calculation includes billed and unbilled accounts receivable, net of allowance for doubtful accounts, reduced by the uncollected portion of our deferred revenue. Our days sales outstanding as of March 31, 2017 was 72 days, flat when compared to December 31, 2016 , and lower as compared to 74 days as of March 31, 2016 .

Investing activities . The net cash generated by investing activities in the first quarter of 2017 is primarily related to net investment sales in 2017 as compared to net investment purchases in the first quarter of 2016. Additionally, cash used for acquisitions was lower in 2017 as compared to the same period in 2016.

Financing activities . The increase in cash used in financing activities in the 2017 period is primarily attributable to repurchases of common stock under the ASR in the first quarter of 2017, partially offset by borrowings under the revolving credit facility in the first quarter of 2017 as compared to repayments of notes under our revolving credit facility in the same period in 2016.

In 2014, we entered into a credit agreement with a commercial bank syndicate, or, as amended, the Credit Agreement, providing for a $1,000 million unsecured term loan and a $750 million revolving credit facility. The term loan was used to pay a portion of the cash consideration in connection with our acquisition of TZ US Parent, Inc., or TriZetto. The revolving credit facility is available for general corporate purposes. The term loan and the revolving credit facility both mature in November 2019. As of March 31, 2017 , we had $862 million outstanding under the term loan and $350 million outstanding loans under the revolving credit facility.

The Credit Agreement contains certain negative covenants, including limitations on liens, mergers, consolidations and acquisitions, subsidiary indebtedness and affiliate transactions, as well as certain affirmative covenants. In addition, the Credit Agreement requires us to maintain a debt to total stockholders' equity ratio not in excess of 0.40 to 1.00. As of March 31, 2017, we were in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the Credit Agreement to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the revolving credit facility as of March 31, 2017 and through the date of this filing.
We have initiated a plan to return $3.4 billion to stockholders over the next two years through a combination of stock repurchases and cash dividends. As part of this plan, we entered into a $1.5 billion ASR in March 2017 and declared a cash dividend of $0.15 per share with a record date of May 22, 2017 and a payment date of May 31, 2017. The up-front payments related to the ASR were funded with cash on hand in the U.S. and borrowings under the revolving credit facility. We intend to repurchase an additional $1.2 billion of shares during 2017 and 2018. Stock repurchases may be made from time to time through open-market purchases and through the use of Rule 10b5-1 plans and/or by other means.

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Our Board of Directors intends to continue to review the capital return plan, considering our financial performance, economic outlook, regulatory changes and any other relevant factors. The Board of Directors’ determinations regarding dividends and share repurchases will depend on a variety of factors, including our net income, cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. As these factors may change over the course of the year, the amount of stock repurchase activity and actual amount of dividends declared by our Board of Directors, if any, during any particular period cannot be predicted and may fluctuate from time to time. There can be no guarantee that we will achieve the objective of our announced capital return plan in the amounts or on the expected time frame that we have indicated, or at all.
We believe the combination of our U.S. cash on hand, U.S. cash flows and ability to borrow under both existing and future debt arrangements continues to be sufficient to fund our current domestic operations and obligations, including debt service, future share repurchases and quarterly cash dividends. The amount of funds held in U.S. tax jurisdictions can fluctuate due to the timing of receipts and payments in the ordinary course of business, including debt repayments, and due to other reasons, such as acquisition-related activities. The Company’s U.S. operations historically have generated and are expected to continue to generate substantial cash flows. In circumstances where the Company has additional cash requirements in the United States, we have several additional liquidity options available to meet those requirements. These options may include borrowing additional funds, including borrowings under our committed revolving credit facility or a new syndicated lending facility should we seek one, temporarily utilizing intercompany loans with certain foreign subsidiaries on a limited basis and repatriating certain of our foreign earnings. Additionally, we believe we have access to the credit and equity markets and could borrow additional funds under acceptable terms and conditions or raise additional capital through an equity transaction.

Many of our operations are conducted outside the United States and significant portions of our cash, cash equivalents and short-term investments are held internationally. As of March 31, 2017 , $3,790 million of our cash, cash equivalents and short-term investments were held outside the United States. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows and cash balances. We utilize certain strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. Most of the amounts held outside of the United States could be repatriated to the United States but, under current law, would be subject to income taxes in the United States, less applicable foreign tax credits. We intend to indefinitely reinvest these funds outside the United States and our current plans do not demonstrate a need to repatriate these amounts to fund our liquidity needs in the United States. In reaching this conclusion, we considered our capital needs in the United States, the available sources of liquidity in the United States and our growth plans outside the United States. However, future events may occur, such as material changes in cash estimates, discretionary transactions, including corporate restructurings, and changes in applicable laws, which may lead us to repatriate foreign earnings. This may result in an additional provision for income taxes, which could materially affect our future effective income tax rate. Due to the various methods by which such earnings could be repatriated in the future, it is not currently practicable to determine the amount of applicable taxes that would result from such repatriation.
We expect our operating cash flow, cash and investment balances, and available capacity under our revolving credit facility to be sufficient to meet our operating requirements, including costs related to realignment, for the next twelve months. Our ability to expand and grow our business in accordance with current plans, to make acquisitions and form joint ventures, to meet our long term capital requirements and to execute our announced capital return plan beyond a twelve month period will depend on many factors, including the rate, if any, at which our cash flow increases, our ability and willingness to accomplish acquisitions and joint ventures with capital stock, our continued intent not to repatriate foreign earnings, and the availability of public and private debt and equity financing. We cannot be certain that additional financing, if required, will be available on terms and conditions acceptable to us, if at all.

Commitments and Contingencies

We are involved in various claims and legal actions arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. In September 2016, we voluntarily notified the DOJ and SEC and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of

34
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approximately $6 million in payments made between 2010 and 2015 that may have been recorded improperly. See Note 10 to our unaudited condensed consolidated financial statements.

On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Under a stipulation filed by the parties on February 23, 2017, defendants have until June 6, 2017 to answer or move to dismiss the consolidated amended complaint.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future. On February 22, 2017, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of the federal securities laws against the individual defendants. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to us as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.
We are presently unable to predict the duration, scope or result of the internal investigation, any investigations by the DOJ or the SEC, the consolidated putative securities class action, the putative shareholder derivative actions or any other lawsuits. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. Furthermore, while the Company intends to defend the lawsuits vigorously, these lawsuits and any other 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. As such, these matters could have a material adverse effect on our business, results of operations, cash flows or our financial condition.
Many of our engagements involve projects that are critical to the operations of our customers’ business and provide benefits that are difficult to quantify. Any failure in a customer’s systems or our failure to meet our contractual obligations to our customers, including any breach involving a customer’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large

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claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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

The Company has indemnification and expense advancement obligations pursuant to its Bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s directors. In connection with the ongoing internal investigation, the Company has received requests under such indemnification agreements and its Bylaws to provide advances of funds for legal fees and other expenses, and expects additional requests in connection with the investigation and related litigation. The Company has not recorded any liability for these matters as of March 31, 2017 as it cannot estimate the ultimate outcome at this time but has expensed advances made through March 31, 2017. The Company has maintained directors and officers insurance, from which a portion of these expenses may be recoverable, though we have not recorded an insurance receivable as of March 31, 2017. We are unable to make a reliable estimate of the eventual cash flows by period related to the indemnification agreements described here.

As of March 31, 2017, we had outstanding fixed capital commitments of approximately $184 million related to our India real estate development program to build new Company owned state-of-the-art technology global delivery centers.

Foreign Currency Risk

Overall, we believe that we have limited revenue risk resulting from movement in foreign currency exchange rates as 77.9% of our revenues for the three months ended March 31, 2017 were generated from customers located in North America. Revenues from our customers in the United Kingdom, Rest of Europe and Rest of World represented 7.7% , 8.0% and 6.4% , respectively, of our 2017 revenues. Accordingly, our operating results outside the United States may be affected by fluctuations in the exchange rates, primarily the British pound and the Euro, as compared to the U.S. dollar. In particular, the results of the Brexit Referendum and its effect on the British pound may subject us to increased volatility in foreign currency exchange rate movements.

A portion of our costs in India, representing approximately 22.4% of our global operating costs for the three months ended March 31, 2017 , are denominated in the Indian rupee and are subject to foreign exchange rate fluctuations. These foreign currency exchange rate fluctuations have an impact on our results of operations. In addition, a portion of our balance sheet is exposed to foreign currency exchange rate fluctuations, which may result in non-operating foreign currency exchange gains or losses upon remeasurement. For the three months ended March 31, 2017 , we reported foreign currency exchange gains , exclusive of hedging gains or losses, of $62 million , which were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets in our U.S. dollar functional currency India subsidiaries as well as the remeasurement of other net monetary assets denominated in currencies other than the functional currencies of our subsidiaries. On an ongoing basis, we manage a portion of this risk by limiting our net monetary asset exposure to certain currencies, primarily the Indian rupee and British pound, in our foreign subsidiaries.

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We entered into a series of foreign exchange forward contracts that are designated as cash flow hedges of certain Indian rupee denominated payments in India. Our Indian subsidiaries, collectively referred to as Cognizant India, convert U.S. dollar receipts from intercompany billings to Indian rupees to fund local expenses. These foreign exchange forward contracts to buy Indian rupees and sell U.S. dollars are intended to partially offset the impact of movement of exchange rates on future operating costs. For the three months ended March 31, 2017 , we reported gains of $20 million on contracts that settled during this period. As of March 31, 2017 , the notional value and weighted average contract rates of these contracts were as follows:
 
Notional Value (in millions)
 
Weighted Average Contract Rate (Indian rupee to U.S. dollar)
2017
$
975

 
71.6

2018
1,020

 
73.8

Total
$
1,995

 
72.7


Our foreign subsidiaries are exposed to foreign currency exchange rate risk for transactions denominated in currencies other than the functional currency of the respective subsidiary. We also use foreign exchange forward contracts to hedge balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. These contracts are not designated as hedges and are intended to offset the foreign currency exchange gains or losses upon remeasurement of these net monetary assets and liabilities. We entered into a series of foreign exchange forward contracts scheduled to mature in 2017 which are used to hedge our foreign currency denominated net monetary assets and liabilities. At March 31, 2017 , the notional value of the outstanding contracts was $412 million and the related fair value was a liability of $12 million . During the three months ended March 31, 2017 , inclusive of $10 million of losses on these undesignated balance sheet hedges, we reported net foreign currency exchange gains of $52 million .

Off-Balance Sheet Arrangements

Other than our foreign exchange forward contracts, there were no off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons in the three months ended March 31, 2017 that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. On an on-going basis, we evaluate our estimates. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for certain fixed price contracts, the allowance for doubtful accounts, income taxes, valuation of goodwill and other long-lived assets, valuation of investments and derivative financial instruments, assumptions used in valuing stock-based compensation arrangements, business combinations and contingencies. We base our estimates on historical experience 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 condensed 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 2016 Annual Report on Form 10-K. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our 2016 Annual Report on Form 10-K. There have been no material changes to the aforementioned critical accounting estimates and policies during the quarter.

Recently Adopted and New Accounting Pronouncements

See Note 1 to our unaudited condensed consolidated financial statements for additional information.


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Effects of Inflation

Our most significant costs are the salaries and related benefits for our programming staff and other professionals. In certain regions, competition for professionals with advanced technical skills necessary to perform our services has caused wages to increase at a rate greater than the general rate of inflation. As with other service providers in our industry, we must adequately anticipate wage increases, particularly on our fixed-price contracts. Historically, we have experienced increases in compensation and benefit costs in India; however, this has not had a material impact on our results of operations as we have been able to absorb such cost increases through cost management strategies such as managing discretionary costs, mix of professional staff and utilization levels and achieving other operating efficiencies. There can be no assurance that we will be able to offset such cost increases in the future.

Forward Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended) 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 Securities and Exchange Commission, or press releases or oral statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as statements regarding anticipated future revenues or operating margins, contract percentage completions, earnings, capital expenditures, liquidity, access to capital, capital return plan, investment strategies, cost management, realignment program, plans and objectives, including those related to our digital practice areas, investment in our business and potential acquisitions, industry trends, customer behaviors and trends, and the ongoing internal investigation and other statements regarding matters that are not historical facts, are based on our current expectations, estimates and projections, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including:

•
Competition from other service providers;
•
The risk that we may not be able to achieve targeted improvements in our operating margin and level of profitability, or that our operating margin and profitability may decline;
•
The risk of liability or damage to our reputation resulting from security breaches;
•
Any possible failure to comply with or adapt to changes in data protection and privacy laws;
•
The loss of customers, especially as a few customers account for a large portion of our revenues;
•
The risk that we may not be able to keep pace with the rapidly evolving technological environment;
•
The rate of growth in the use of technology in business and the type and level of technology spending by our customers;
•
Mispricing of our services, especially on our fixed-price contracts;
•
Risks associated with our ongoing internal investigation into possible violations of the FCPA and similar laws, including the cost of such investigation and any sanctions, fines or remedial measures that may be imposed by the DOJ or SEC, additional expenses related to remedial measures, the costs of defending and/or settling and possible judgments against us that may result from associated lawsuits against us and any possible impact on our ability to timely file the required reports with the SEC;
•
Risks associated with our identified material weakness in internal control over financial reporting and any other failure to maintain effective internal controls, including any potential future findings of control deficiencies through the internal investigation, as we acquire and integrate other companies or otherwise;
•
Our inability to successfully acquire or integrate target companies;
•
System failure or disruptions in our communications or information technology;
•
The risk that we may lose key executives and not be able to enforce non-competition agreements with them;
•
Competition for hiring highly-skilled technical personnel;
•
Possible failure to provide business solutions and deliver complex and large projects for our customers;

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•
The risk of reputational harm to us;
•
Our revenues being highly dependent on customers concentrated in certain industries, including financial services and healthcare, and located primarily in the United States and Europe;
•
The risk that we may not be able to pay dividends or repurchase shares in accordance with our announced capital return plan, or at all;
•
The risks associated with the incurrence of indebtedness as we anticipate incurring additional indebtedness to help fund our announced capital return plan;
•
Risks relating to our global operations, including our operations in India;
•
The effects of fluctuations in the Indian rupee and other currency exchange rates;
•
The effect of our use of derivative instruments;
•
The possibility that we may be required, as a result of our indebtedness, or otherwise choose to repatriate foreign earnings or that our foreign earnings or profits may become subject to U.S. taxes;
•
The possibility that we may lose certain tax benefits provided to companies in our industry by the Indian government;
•
The risk that we may not be able to enforce or protect our intellectual property rights, or that we may infringe upon the intellectual property rights of others;
•
Changes in domestic and international regulations and legislation relating to immigration and anti-outsourcing;
•
Increased regulation of the financial services and healthcare industries, as well as other industries in which our customers operate;
•
The Brexit Referendum and any negative effects on global economic conditions, financial markets and our business;
•
The recent U.S. presidential election and related regulatory uncertainties, including in the areas of outsourcing, immigration and taxes;
•
The risk of war, terrorist activities, pandemics and natural disasters; 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, 2016.

You are advised to consult any further disclosures we make on related subjects in the reports we file with the Securities and Exchange Commission, 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, 2016 . We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to foreign currency exchange rate risk in the ordinary course of doing business as we transact or hold a portion of our funds in foreign currencies, particularly the Indian rupee. Additionally, the Brexit Referendum and its effect on the British pound may subject us to increased volatility in foreign currency exchange rate movements. Accordingly, we periodically evaluate the need for hedging strategies, including the use of derivative financial instruments, to mitigate the effect of foreign currency exchange rate fluctuations and expect to continue to use such instruments in the future to reduce foreign currency exposure to appreciation or depreciation in the value of certain foreign currencies. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures.

We have entered into a series of foreign exchange forward contracts that are designated as cash flow hedges of certain Indian rupee denominated payments in India. Cognizant India converts U.S. dollar receipts from intercompany billings to Indian rupees to fund local expenses. These U.S. dollar / Indian rupee hedges are intended to partially offset the impact of movement of exchange rates on future operating costs. As of March 31, 2017 , the notional value and weighted average contract rates of these contracts were as follows:
 
Notional Value (in millions)
 
Weighted Average Contract Rate (Indian rupee to U.S. dollar)
2017
$
975

 
71.6

2018
1,020

 
73.8

Total
$
1,995

 
72.7



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As of March 31, 2017 , the net unrealized gain on our outstanding foreign exchange forward contracts designated as cash flow hedges was $155 million . Based upon a sensitivity analysis of our foreign exchange forward contracts at March 31, 2017 , which estimates the fair value of the contracts based upon market exchange rate fluctuations, a 10.0% change in the foreign currency exchange rate against the U.S. dollar with all other variables held constant would have resulted in a change in the fair value of approximately $207 million .

Our foreign subsidiaries are exposed to foreign currency exchange rate risk for transactions denominated in currencies other than the functional currency of the respective subsidiary. We also use foreign exchange forward contracts to hedge balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. These contracts are not designated as hedges and are intended to offset the foreign currency exchange gains or losses upon remeasurement of these net monetary assets and liabilities. We entered into a series of foreign exchange forward contracts scheduled to mature in 2017 which are used to hedge our foreign currency denominated net monetary assets and liabilities. At March 31, 2017 , the notional value of the outstanding contracts was $412 million and the related fair value was a liability of $12 million. Based upon a sensitivity analysis of our foreign exchange forward contracts at March 31, 2017 , which estimates the fair value of the contracts based upon market exchange rate fluctuations, a 10.0% change in the foreign currency exchange rate against the U.S. dollar with all other variables held constant would have resulted in a change in the fair value of approximately $4 million .

In 2014, we entered into the Credit Agreement providing for a $1,000 million unsecured term loan and a $750 million unsecured revolving credit facility. The term loan and the revolving credit facility both mature on November 20, 2019. As of March 31, 2017 , we had $862 million outstanding under the term loan and $350 million outstanding loans under the revolving credit facility. The Credit Agreement requires interest to be paid at either the base rate or the Eurocurrency rate, plus a margin. The margin over the base rate is 0.00%, and the margin over the Eurocurrency rate ranges from 0.75% to 1.125%, depending on our debt ratings (or, if we have not received debt ratings, from 0.875% to 1.00%, depending on our debt to total stockholders' equity ratio). Thus, our debt exposes us to market risk from changes in interest rates. We performed a sensitivity analysis to determine the effect of interest rate fluctuations on our interest expense. A 10% change in interest rates, with all other variables held constant, would have resulted in a 4.0% change to our reported interest expense for the three months ended March 31, 2017.

We typically invest in highly-rated securities and our policy generally limits the amount of credit exposure to any one issuer. Our investment policy requires investments to be investment grade with the objective of minimizing the potential risk of principal loss. We may sell our trading and available-for-sale investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. As of March 31, 2017 , our short-term and long-term investments were $2,966 million and $110 million , respectively. Our investment portfolio is comprised primarily of time deposits, mutual funds invested in fixed income securities, Indian rupee denominated commercial paper, Indian rupee denominated international corporate bonds and government debt securities, U.S. dollar denominated corporate bonds, municipal bonds, certificates of deposit, commercial paper, debt issuances by the U.S. government, U.S. government agencies, foreign governments and supranational entities and asset-backed securities. The asset-backed securities included securities backed by auto loans, credit card receivables, and other receivables. Our long-term investments are comprised of held-to-maturity corporate and other debt securities as well as equity and cost method investments.

In addition, our cash, cash equivalents and short-term investments are subject to market risk from changes in interest rates. As of March 31, 2017 , a 10% change in interest rates, with all other variables held constant, would result in a change in the fair value of our available-for-sale investment securities of approximately $4 million.

Information provided by the sensitivity analysis does not necessarily represent the actual changes that would occur under normal market conditions.

Item 4.    Controls and Procedures.

Background and Internal Investigation

As previously disclosed, the Company is conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. In 2016, through the internal investigation, we discovered that certain members of senior management may have participated in or been aware of the making of potentially improper payments and failed to take action to prevent the making of potentially improper payments by either overriding or failing to enforce the controls established by the Company relating to real estate and procurement principally in connection with permits for certain facilities in India. Such actions would be inconsistent with the standards and tone at the top to which our Board of Directors and senior management are committed and

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would be in violation of the Company’s written code of conduct and procedures established in part to detect and prevent improper payments. Based on the results of the investigation to date, the members of senior management who may have participated in or been aware of the making of the identified potentially improper payments and failed to take action to prevent the making of the identified potentially improper payments are no longer with the Company or in a senior management position.
As a result of the foregoing, as disclosed in our 2016 Annual Report on Form 10-K, we determined that a material weakness in our internal control over financial reporting existed as of December 31, 2016. Our management has concluded that we continued to have a material weakness in our internal control over financial reporting as of March 31, 2017. However, based on the results of the investigation to date, no material adjustments, restatement or other revisions to our previously issued financial statements are required.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and our chief financial officer, evaluated the design and operating effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of March 31, 2017.
We have identified a material weakness in our internal control over financial reporting, as described further below. Based on the evaluation of the design and effectiveness of our disclosure controls and procedures, and as a result of the material weakness described below, our chief executive officer and chief financial officer have concluded that, as of March 31, 2017, the Company’s disclosure controls and procedures were not effective.
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Based on the results of the internal investigation to date and remedial actions taken through March 31, 2017, we concluded that a material weakness continued to exist as of March 31, 2017 as we did not maintain an effective internal control environment. Specifically, we did not maintain an effective tone at the top as certain members of senior management may have participated in or failed to take action to prevent the making of potentially improper payments by either overriding or failing to enforce the controls established by the Company relating to real estate and procurement principally in connection with permits for certain facilities in India.
This control deficiency did not result in a material misstatement of our current or prior period consolidated annual or interim financial statements. However, this control deficiency could have resulted in material misstatements to the annual or interim consolidated financial statements that would not have been prevented or detected. Accordingly, management has concluded that this control deficiency constitutes a material weakness.

Remediation Plans

We have begun and expect to continue implementing various changes in our internal control over financial reporting to remediate the material weakness described above.

While the internal investigation is ongoing, based on the results of the investigation to date, the members of senior management who may have participated in or been aware of the making of the identified potentially improper payments and failed to take action to prevent the making of the identified potentially improper payments are no longer with the Company or in a senior management position. Additional personnel actions have been taken with respect to other employees and further actions may be required.

We are implementing additional measures to address the above deficiencies which we believe will contribute to the ultimate remediation of the material weakness. These additional measures include enhanced oversight controls in the areas of procurement and accounts payable as they relate to real estate transactions in India.
Changes in Internal Control over Financial Reporting

Other than described in "Remediation Plans" above, there were no changes in the Company’s internal control over financial reporting that occurred during the first quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. In September 2016, we voluntarily notified the DOJ and SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2010 and 2015 that may have been improper. Based on the results of the investigation to date, no material adjustments, restatements or other revisions to our previously issued financial statements are required.

On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Under a stipulation filed by the parties on February 23, 2017, defendants have until June 6, 2017 to answer or move to dismiss the consolidated amended complaint.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future. On February 22, 2017, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of the federal securities laws against the individual defendants. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to us as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.
 
We are presently unable to predict the duration, scope or result of the Audit Committee’s investigation, any investigations by the DOJ or the SEC, the consolidated putative securities class action, the putative shareholder derivative actions or any other lawsuits. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. The imposition of any of these sanctions or remedial measures could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition. Furthermore, 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.


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We are also involved in various claims and legal actions arising in the ordinary course of business. In the opinion of our management, the outcome of such claims and legal actions, if decided adversely, is not expected to have a material adverse effect on our quarterly or annual operating results, cash flows or consolidated financial position.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission on March 1, 2017.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
Effective March 1, 2017, the Board of Directors approved the termination of the stock repurchase program then in effect and approved a new stock repurchase program ("New Stock Repurchase Program"). The New Stock Repurchase Program allows for the repurchase of $3.5 billion of our outstanding shares of Class A common stock, excluding fees and expenses, through December 31, 2019.
Under the New Stock Repurchase Program, the Company is authorized to repurchase its Class A common stock through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, or in private transactions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased are determined by the Company’s management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors.
In March 2017, we entered into accelerated share repurchase agreements, referred to collectively as the ASR, with certain financial institutions under our New Stock Repurchase Program. Under the terms of the ASR and in exchange for up-front payments of $1.5 billion , the financial institutions initially delivered 21.5 million shares, a portion of the Company's total expected shares to be repurchased under the ASR. The total number of shares ultimately delivered is determined at the end of the applicable purchase periods under the ASR based on the volume-weighted average price of the Company’s common stock during such periods. The ASR purchase periods are scheduled to end during or prior to the third quarter of 2017.
As of March 31, 2017 , the remaining available balance under the Board of Directors' authorized New Stock Repurchase Program was $2.0 billion .
Month
 
Total Number
of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or
Programs
 
Approximate
Dollar Value of Shares
that May Yet Be
Purchased under the
Plans or Programs
(in millions)
January 1, 2017 - January 31, 2017
 
 
 
 
 
 
 
 
Open market and privately negotiated purchases
 
—

 
$
—

 
—

 
$
3,500

February 1, 2017 - February 28, 2017
 
 
 
 
 
 
 
 
Open market and privately negotiated purchases
 
—

 
—

 
—

 
3,500

March 1, 2017 - March 31, 2017
 
 
 
 
 
 
 
 
Open market and privately negotiated purchases
 
—

 
—

 
—

 
 
March 2017 ASR (1)
 
21,518,988

 
 
 
21,518,988

 
2,000

Total
 
21,518,988

 
$
—

 
21,518,988

 
 
______________
(1)
The number of shares stated above represents shares initially delivered and does not represent the final number of shares to be delivered under the ASR. The total number of shares ultimately delivered and therefore the average price paid per share, will be determined at the end of the purchase period based on the volume weighted average price of the Company's common stock during that period.

In addition, during the three months ended March 31, 2017 , we purchased additional shares in connection with our stock-based compensation plans, whereby shares of our common stock were tendered by employees for payment of applicable statutory tax withholdings. We also repurchased a limited number of shares from employees at the repurchase date market price. Combined, for the three months ended March 31, 2017 , such repurchases totaled 237,299 shares at an aggregate cost of $14 million .

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Item 6.    Exhibits.
EXHIBIT INDEX
 
 
 
 
Incorporated by Reference
 
 
Number
 
Exhibit Description
 
Form
 
File No.
 
Exhibit
 
Date
 
Filed or Furnished Herewith
3.1
 
 
8-K
 
000-24429
 
3.2

 
9/17/2013
 
 
3.2
 
 
8-K
 
000-24429
 
3.1

 
3/31/2017
 
 
10.1
 
 
8-K
 
000-24429
 
10.1

 
2/8/2017
 
 
10.2
 
 
 
 
 
 
 
 
 
 
Filed
10.3
 
 
8-K
 
000-24429
 
10.1

 
3/14/2017
 
 
31.1
 
 
 
 
 
 
 
 
 
 
Filed
31.2
 
 
 
 
 
 
 
 
 
 
Filed
32.1
 
 
 
 
 
 
 
 
 
 
Furnished
32.2
 
 
 
 
 
 
 
 
 
 
Furnished
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
Filed
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
 
Filed
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
Filed
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
 
 
Filed
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
 
 
Filed
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
Filed


44
Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
Cognizant Technology Solutions Corporation
 
 
 
 
 
Date:
May 5, 2017
 
 
By:
 
/s/ Francisco D’Souza
 
 
 
 
 
 
Francisco D’Souza,
 
 
 
 
 
 
Chief Executive Officer
 
 
 
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
Date:
May 5, 2017
 
 
By:
 
/s/ Karen McLoughlin
 
 
 
 
 
 
Karen McLoughlin,
 
 
 
 
 
 
Chief Financial Officer
 
 
 
 
 
 
(Principal Financial Officer)

45
Table of Contents

EXHIBIT INDEX
 
 
 
 
Incorporated by Reference
 
 
Number
 
Exhibit Description
 
Form
 
File No.
 
Exhibit
 
Date
 
Filed or Furnished Herewith
3.1
 
 
8-K
 
000-24429
 
3.2
 
9/17/2013
 
 
3.2
 
 
8-K
 
000-24429
 
3.1
 
3/31/2017
 
 
10.1
 
 
8-K
 
000-24429
 
10.1
 
2/8/2017
 
 
10.2
 
 
 
 
 
 
 
 
 
 
Filed
10.3
 
 
8-K
 
000-24429
 
10.1
 
3/14/2017
 
 
31.1
 
 
 
 
 
 
 
 
 
 
Filed
31.2
 
 
 
 
 
 
 
 
 
 
Filed
32.1
 
 
 
 
 
 
 
 
 
 
Furnished
32.2
 
 
 
 
 
 
 
 
 
 
Furnished
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
Filed
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
 
Filed
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
Filed
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
 
 
Filed
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
 
 
Filed
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
Filed


46


EXHIBIT 10.2

Cognizant Technology Solutions
Corporation 500 Frank West Burr Boulevard
Teaneck, NJ 07666



March 28, 2017

Elliott Associates, L.P.
Elliott International, L.P.
Elliott International Capital Advisors Inc.
40 West 57 th Street
New York, NY 10019

Gentlemen:

This letter agreement amends that certain agreement, dated as of February 8, 2017 (the “ February 8 th Agreement ”), between Cognizant Technology Solutions Corporation, a Delaware corporation (the “ Company ”), Elliott Associates, L.P., a Delaware limited partnership (“ Elliott Associates ”), Elliott International, L.P., a Cayman Islands limited partnership (“ Elliott International ”), and Elliott International Capital Advisors Inc., a Delaware corporation (together with Elliott Associates and Elliott International, the “ Investors ”). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the February 8 th Agreement.

In accordance with Section 20 of the February 8 th Agreement, the February 8 th Agreement is hereby amended as follows:

1.
The last two sentences of Section 2 of the February 8 th Agreement are hereby replaced with the following two sentences:

The Financial Policy Committee shall be comprised of four (4) members: Francisco D’Souza, John Dineen, Michael Patsalos-Fox and Betsy Atkins. If, prior to the Expiration Date, Ms. Atkins (or any replacement Investor Designee) shall cease to be a director of the Company for any reason, the Investors shall have the right to select her (or his) replacement on the Financial Policy Committee; provided that, if such replacement is not the individual selected by the Investors to replace Ms. Atkins (or such replacement Investor Designee) as the Investor Designee in accordance with Section 6 of this Agreement, then such replacement shall also be reasonably acceptable to the Board.

2.
Schedule 1 to the February 8 th Agreement is hereby deleted.

The provisions of Sections 20 through 27 of the February 8 th Agreement shall apply to this letter agreement mutatis mutandis . This letter agreement, together with the February 8 th Agreement, set forth the full and complete understanding between us with respect to the subject matter hereof and supersedes all prior representations and understandings, whether written or oral.




If the terms of this letter agreement are in accordance with your understanding, please sign below, whereupon this shall constitute a binding agreement among us.

Very truly yours,
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
 
 
By:
/s/ Karen McLoughlin
Name:
Karen McLoughlin
Title:
Chief Financial Officer


Accepted and agreed to as of the date
first written above:

ELLIOTT ASSOCIATES, L.P.
 
 
By:
Elliott Capital Advisors, L.P.,
its General Partner
By:
Braxton Associates, Inc.,
its General Partner
By:
/s/ Elliot Greenberg
Name:
Elliot Greenberg
Title:
Vice President
ELLIOTT INTERNATIONAL, L.P.
 
 
By:
Elliott International Capital Advisors Inc.,
as Attorney-in-Fact
By:
/s/ Elliot Greenberg
Name:
Elliot Greenberg
Title:
Vice President
ELLIOTT INTERNATIONAL CAPITAL ADVISORS INC.
 
 
By:
/s/ Elliot Greenberg
Name:
Elliot Greenberg
Title:
Vice President




EXHIBIT 31.1
CERTIFICATION
I, Francisco D’Souza, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Cognizant Technology Solutions Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
Dated:
May 5, 2017
 
/s/ Francisco D’Souza
 
 
 
 
Francisco D’Souza,
 
 
 
 
Chief Executive Officer
(Principal Executive Officer)
 




EXHIBIT 31.2
CERTIFICATION
I, Karen McLoughlin, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Cognizant Technology Solutions Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  
 
Dated:
May 5, 2017
 
/s/ Karen McLoughlin
 
 
 
 
Karen McLoughlin
 
 
 
 
Chief Financial Officer
(Principal Financial Officer)




EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*
In connection with the Quarterly Report on Form 10-Q of Cognizant Technology Solutions Corporation (the “Company”) for the period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Francisco D’Souza, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated:
May 5, 2017
 
/s/    Francisco D’Souza
 
 
 
 
Francisco D’Souza,
 
 
 
 
Chief Executive Officer
(Principal Executive Officer)
 
 
___________________
*
A signed original of this written statement required by Section 906 has been provided to Cognizant Technology Solutions Corporation and will be retained by Cognizant Technology Solutions Corporation and furnished to the Securities and Exchange Commission or its staff upon request.




EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*
In connection with the Quarterly Report on Form 10-Q of Cognizant Technology Solutions Corporation (the “Company”) for the period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Karen McLoughlin, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated:
May 5, 2017
 
/s/    Karen McLoughlin
 
 
 
 
Karen McLoughlin
 
 
 
 
Chief Financial Officer
(Principal Financial Officer)
 
___________________
*
A signed original of this written statement required by Section 906 has been provided to Cognizant Technology Solutions Corporation and will be retained by Cognizant Technology Solutions Corporation and furnished to the Securities and Exchange Commission or its staff upon request.