Living our
purpose
Engineering modern businesses
to improve everyday life
Annual Report 2020
To our
shareholders
GAAP operating margin was 12.7%. GAAP
diluted EPS was $2.57, and free cash flow2 was
$2.9 billion.
In 2020, Cognizant returned approximately
$2.1 billion to shareholders through share
repurchases and dividend payments.
Moving into a new
growth phase
We entered 2021 with growing
confidence in our prospects.
We believe we are in a new phase
of growth propelled by increased
commercial momentum, a portfolio
focused on faster-growing market
and geographic segments, a
stronger partner ecosystem, a
more robust demand environment,
and a better cost structure. We are
resolved to reestablish Cognizant as
an industry leader.
During 2020, we made significant
progress in our effort to strengthen
the company’s position for accelerated
revenue growth. We intensified our
client-centricity, refined our strategy,
and established a healthier cost
structure that enabled us to make
further investments in growth.
In line with our strategy, we reshaped our
portfolio of services and solutions by exiting
non-strategic businesses and investing
organically and inorganically.
We complemented our talented teams with
the hiring of diverse, highly skilled leaders,
among them new executive committee
members. We also lifted the engagement
levels of our associates to new highs.
Our strategic, commercial, and operational
progress is a tribute to the cohesiveness
and energy of our leadership team and the
engagement of our nearly 300,000 associates.
They stepped up to deliver tremendous value
to clients, colleagues, and the communities in
which we work and live.
Cognizant’s full-year 2020 revenue was
$16.7 billion, a year-over-year decline of 0.8%,
or a decline of 0.7% in constant currency1.
1 Constant currency revenue growth is not a measurement of financial performance prepared in accordance with U.S. GAAP. See “Non-GAAP Financial
Measures” on pages 27-29 of the Annual Report on Form 10-K.
2 Free cash flow is not a measurement of financial performance prepared in accordance with U.S. GAAP. See “2020 performance” on page 20 for
additional information.
Cognizant 2020 Annual Report 1
In our knowledge-intensive business, the
road to that future begins with our associates.
They are the source of our creative problem-
solving, innovative solutions, and competitive
advantage. We are investing in their learning
and professional development, and have
overhauled our talent management and
annual performance evaluation processes
to develop a high-performance culture that
creates conditions for everyone to thrive.
We see value in being the trusted advisor
to our clients’ most senior leaders and in
increasing the percentage of the Global
2000 that rely on us to sharpen their
competitiveness.
To achieve this vision, we are now several
quarters into executing a strategy with four
related priorities: repositioning the Cognizant
brand, globalizing the company, accelerating
digital, and increasing our client relevance.
Living our purpose,
improving lives
Our associates are united and
energized by the company’s new
purpose, vision, strategic priorities,
bold moves, and values, which we call
the Cognizant Agenda. Cognizant’s
purpose is to engineer modern
businesses to improve everyday
life. This statement explains why we
are in business, serves as our North
Star, and conveys that, although
we are a B2B company, the work
we do with and for clients, most
of whom are among the world’s
largest corporations, helps improve
everyday life for people globally.
To gauge how well we are living our purpose
and clarify our aspirations, we established a
vision: to become the preeminent technology
services partner to the Global 2000 C-suite.
2 Cognizant 2020 Annual Report
Building a stronger,
global brand
Our aim is to position Cognizant as
a preeminent technology services
leader with world-class digital
solutions and the talent to deliver
transformative business outcomes
to clients. This will enable us to
reach beyond the CIO office to the
entire C-suite as well as to the next
generation of talent we want to
attract to Cognizant.
Accordingly, we are investing substantially in
our brand and executing a fully integrated
marketing approach that combines experiential
engagement, sponsorships, broad-reach
advertising, flagship thought leadership, and
an always-on digital presence, along with public
relations, employee communications, and social
media campaigns.
Globalizing our business
Elevating the visibility of our brand
dovetails with further globalizing
Cognizant. About three-quarters
of our annual revenue comes from
North America, creating a substantial
opportunity to diversify our revenue
mix by scaling our business
internationally.
We are investing for growth in select
countries, including through M&A. For
example, in Australia, we acquired Servian,
a Sydney-based enterprise transformation
consultancy that specializes in data analytics,
AI, digital services, experience design, and
cloud. In Germany, we signed an agreement
in March 2021 to acquire Munich-based ESG
Mobility, a digital automotive engineering R&D
provider for connected, autonomous, and
electric vehicles.
We are also drawing on a new team of
international leaders who bring fresh thinking
along with local expertise and business
connections, and position us for exponential
growth in our international business.
In addition, we are extending our Global
Delivery Network with a geographically
diverse footprint that will ensure greater
robustness and resilience in our capabilities,
further industrialize and automate our
distributed work models, and provide more
access to local talent. This network, which
will complement our major hub in India,
will include more near-shore and on-shore
locations to enable deeper collaboration
with clients at every stage of their digital
transformation journeys.
Accelerating digital,
modernizing businesses
The pandemic’s shockwaves
have driven digital into the heart
of clients’ operating models and
processes. Clients are shifting from
an industrial to a software-centric
model, transforming their business
and IT architectures in parallel,
and developing agile workflows
underpinned by AI and data.
In response, we are helping clients deploy
a new business and technology stack to
modernize their businesses. That way they can
innovate faster, become more agile, and stay
relevant to their customers.
To strengthen our ability to engineer modern
businesses, we invested more than $1 billion
in acquisitions focused on building our
leadership positions in experience-driven
software engineering, data and AI, cloud, and
IoT. Seven of our recent acquisitions have been
cloud-related, among them Collaborative
Solutions, a global consultancy specializing
in Workday enterprise cloud applications for
finance and human resources, and Linium,
which broadens our enterprise service
management capabilities and complements
our ServiceNow practice.
Cognizant 2020 Annual Report 3
We have also built close relationships with
the world’s leading hyperscale and SaaS
companies and can help clients run their core
applications and create more agile workflows
in the cloud with our dedicated business
groups for Microsoft, Amazon Web Services,
and Google Cloud Platform.
We expect to be one of the biggest
beneficiaries of clients moving digital into the
heart of their businesses.
Increasing our
client relevance
We are grateful for our clients.
They inspire us to learn, grow, and
provide increasing value year after
year. In return, they count on us to
bring them insights and innovative
thinking. To increase our relevance
to clients, we are determined to
present a deeply informed point of
view about their business challenges,
along with the technology solutions
and partner orchestration required
to solve them.
Therefore, we are deepening our industry
and sub-industry knowledge to better serve
their business priorities. In keeping with our
evolution to more outcome-based client
engagements, we are drawing on our rich
history in application and data services, the
scale and breadth of our skills, and our ability
to develop and deliver industry-specific
solutions that leverage our partner ecosystem.
Cognizant is speeding its pivot from a
provider of resources and capabilities to a
solution designer and integrator, assisting
clients in their digital transformations.
Engineering a better world
The public health, economic,
and societal damage wrought
by COVID-19 have caused most
businesses to reflect deeply on
what they owe their stakeholders. In
keeping with our purpose, we strive
to be a modern corporation that is
responsive to the larger contexts
in which we operate—societal,
environmental, technological,
economic, and more.
That is why the principle of sustainability is
so important to us. It expresses our intent to
create medium- and long-term shareholder
value in ways that do not jeopardize the
future for other stakeholders. It speaks to our
interdependence with local communities and
global ecosystems.
With that in mind, we joined the United
Nations Global Compact (UNGC), a network
of more than 12,000 companies that are
committed to building a sustainable future.
4 Cognizant 2020 Annual Report
By signing this compact, we have committed
Cognizant to integrating the relevant
principles embodied in the UNGC into our
company’s strategy, day-to-day operations,
and organizational culture.
Meeting our responsibilities to stakeholders
begins with protecting the safety, health, and
well-being of associates, maintaining business
continuity for clients, and supporting the
efforts of governments globally to contain the
spread of COVID-19.
One aspect of associate well-being is building
a diverse and inclusive organization that
creates conditions for everyone to thrive.
With that in mind, we have increased our
investment in driving greater D&I throughout
the company. We have D&I training programs
to foster inclusivity. We are expanding our
sponsorship programs and hiring initiatives
for underrepresented talent across leadership
levels. Our improving hiring policies include
a candidate pipeline initiative designed to
ensure a more diverse interview slate at the
vice president level and above.
We are also quickly building a more diverse
leadership pipeline through programs like
Propel, our initiative focused on readying the
company’s next level of women leaders. We
are on track to put 1,000 high-performing
women in leadership levels through Propel
by the end of 2021. Cognizant was named a
Top Employer 2021 in 17 countries globally by
the Top Employers Institute, an authority on
recognizing excellence in people practices in
the workplace.
As a global company, we care deeply about
unlocking human potential. Therefore, in
January 2021, we became a founding member
of the World Economic Forum’s Partnering
for Racial Justice in Business initiative. This
coalition is committed to building equitable
and just workplaces for professionals with
underrepresented racial and ethnic identities.
And in February 2021, we announced a
five-year $250 million global initiative to
advance economic mobility, educational
opportunity, D&I, and health and well-being
in communities as they emerge from the
pandemic. This initiative will leverage new
philanthropic capital, volunteer programs, in-
kind contributions, and business expertise to
help build stronger, healthier, more inclusive
communities worldwide.
Within a larger societal context, we announced
a $10 million philanthropic commitment in
2020 to help communities worldwide address
the immediate and long-term impacts
of COVID-19.
Cognizant partnered with XPRIZE, the world’s
leader in designing and operating incentive
competitions to solve humankind’s big
problems, to launch the Pandemic Response
Challenge. This competition was aimed at
harnessing the power of data and AI to equip
policymakers and health officials with the
insights needed to implement public safety
measures that can keep local economies open
while minimizing virus outbreaks. We have
also supported clients in their work to bring
vaccines to market and assisted more than
100 million people with healthcare enrollment.
Cognizant 2020 Annual Report 5
Cognizant is a proud, resourceful, and
determined company. We are building
our future on a quarter-century heritage
of client passion, growth, innovation, and
commercial success.
We are working diligently through a
multi- year evolution to reposition Cognizant
to achieve its full growth potential. Far from
letting anything distract us from this essential
work, we are forging ahead as a reinvigorated
Cognizant, 100% committed to the success of
our clients.
We expect to emerge into a post-COVID
world as a stronger, more focused, disciplined,
diverse, and meritocratic company, and move
closer to realizing our vision of becoming the
preeminent technology services partner to the
Global 2000 C-suite.
We thank you, our shareholders, for
your continued trust and support.
We recognize how much we, along with
enterprises everywhere, must evolve to
become a sustainable business. To do so, we
will embed Environmental, Social, Governance
(ESG) into our thinking, decisions, and
actions, a multi-year endeavor of increasing
importance to our clients, associates,
investors, and other stakeholders. To mark our
progress along this journey, we are planning
a series of announcements including the
publication of Cognizant’s 2020 ESG report,
which will incorporate the most applicable
elements of third-party ESG reporting
frameworks.
Engaging associates to
build our future
Despite the stress our associates
have been under in this COVID-19
era, they have put their hearts into
living client-centricity. I am grateful
for their selflessness, perseverance,
and professionalism under such
difficult conditions.
Brian Humphries
Chief Executive Officer
April 21, 2021
6 Cognizant 2020 Annual Report
Cognizant 2020 Annual Report 7
Imagine.
A business that is always aware of
what people need—and ready to
deliver the moment they need it.
8 Cognizant 2020 Annual Report
2020 was a year that called
for heroes. Pandemic,
political turmoil, social unrest
and billions of lives upended.
Amid the many challenges,
science, technology and
industry stepped forward to
answer the call. Businesses
marshalled resources, R&D
shifted into hyperdrive
and generation-defining
advances were made
when the world needed
them most.
While everyday life remained far
from normal, humankind’s hardwired
appetite for new and better showed no
signs of softening. Modern businesses
delivered, gearing every aspect of their
operations around one, all-consuming
goal: to stay relevant for the people
they serve. Fortified with resilience and
adaptable by design, preparations for
an unpredictable future led to a reserve
of strength in uncertain times.
These companies represent a new
kind of enterprise. We call them
modern businesses because they’re
equipped for the future and engineered
for change. With technology-fluent
workforces, reimagined processes and
continuously improving experiences,
these organizations are able to act on
humanity’s most noble goal: to improve
the world around them. Modern
businesses are instantly aware of
people’s needs and immediately ready
to respond to them.
Cognizant 2020 Annual Report 9
We design, build and
implement new ways
of operating that help
businesses anticipate
and act, instantaneously.
10 Cognizant 2020 Annual Report
Imagine
what modern
businesses can
do for the world
around us.
We engineer modern businesses
to improve everyday life. This is our
purpose and 2020 has only increased
the resolve and urgency with which
we pursue it. Our ambition is to help
companies anticipate needs so they
can perform well by doing good.
Whether that means speeding the
development of life-saving vaccines
or taking proactive steps to become
more efficient and save energy,
society-wide progress is the aim of a
modern business.
For a company to stay relevant into
the future, it needs more than just the
latest technologies. We believe it needs
the right technology in capable hands
and the intention to solve real, human
problems. This combination creates a
powerful force for good. Informed by
machines, focused on communities and
guided by data, these organizations
are keenly aware of the most pressing
challenges of our time—and equipped
with the tools to address them. With
software engineering, data and AI, cloud
and IoT, they turn business processes
into engines for understanding that
accelerate positive change.
Cognizant 2020 Annual Report 11
12 Cognizant 2020 Annual Report
A COVID-19 symptom
tracker is developed and
delivered in days
From the earliest days of the coronavirus
pandemic, healthcare technology
company Sensyne Health PLC wanted
to help people track their symptoms
and share that information with medical
providers. Up against the clock as the virus
spread, we worked with Sensyne to create a
free digital-first mobile app called CVm-Health.
It helped people record and monitor their
symptoms to assess their COVID-19 risks.
Built and launched in just 16 days, the speed
of our collective purpose improved efficacy of
care in a pandemic that was evolving by the
minute. Together, we met an urgent call
to help people in need.
Cognizant 2020 Annual Report 13
14 Cognizant 2020 Annual Report
Small and midsize businesses
can now better serve the
needs of their communities
Small and midsize businesses (SMBs) are
the heart and soul of local economies—and
the communities that depend on them for
services. Comcast’s advertising sales division,
Effectv, partnered with us to uncover new ways
for these vital institutions to promote their
businesses and connect with their audiences.
We conducted deep field research to learn
firsthand how TV advertising could help smaller
businesses expand their reach and relevance.
Using those insights, we helped create an
industry-first solution: the Effectv TV Ad Planner.
This innovative media buying platform makes
ad spending more precise to promote growth
in communities.
Cognizant 2020 Annual Report 15
16 Cognizant 2020 Annual Report
Dreams and determination should be enough
to ensure the success of every child. However,
obstacles exist that require action from
the larger community. Teach For America
(TFA) is a non-profit founded to confront
educational inequities in underserved areas.
The organization depends on strong donor
relationships to support its mission. Working
together with their executive sponsors and
strategists, we engineered TFA to better sense
and act on donor trends—introducing multiple
payment options, increased automation and
improved reporting. Amping up relationship
insights with our banking expertise and
transforming their contribution processing, we
help maximize every dollar they raise to multiply
the good they do for U.S. students nationwide.
Cognizant 2020 Annual Report 17
Improving
educational equity
by sensing and acting
on donor trends
Tomorrow’s heroes
imagine a better world.
At Cognizant, we help
them engineer it.
Our purpose—engineering modern businesses to improve
everyday life—seeks to facilitate positive transformation for our
clients. In doing this, we strive to lead by example, measuring,
managing and disclosing our own efforts to improve everyday
life. Our impact starts with our associates: the nearly 300,000
creative, knowledgeable and caring people working at home
or onsite around the world. Their impact extends through
our clients, who are guided by a purpose of their own and
committed to making life better for their customers. As we look
to the work ahead, real, human problems persist. At Cognizant,
we’ll continue to explore new ways for technology to be a force
for good.
18 Cognizant 2020 Annual Report
We stay attuned to the needs
of our many stakeholders and
take actions to meet them.
Environmental
As greenhouse gas emissions rise, modern businesses must offer
solutions by taking direct action and helping their clients do the
same. At Cognizant, we are developing a global greenhouse gas
reduction strategy, which we address in detail in our 2020 ESG
report. By reducing energy consumption, increasing renewables
and applying various technologies, we plan to improve our own
energy efficiency and lay the groundwork to help our clients.
Social
The gap between what many people can do today and what they’ll
need to be able to do in the future is getting wider. As a knowledge-
driven business with unique technology solutions, our social efforts
focus partly on education and the future of work to drive inclusion
in technology. In 2020, we announced a five-year, $250 million
initiative that included new funding and in-kind contributions to
help build stronger, healthier and more inclusive communities
worldwide. And as a purpose-driven organization, over 31,000 of
our associates in 40 global locations leveraged their professional
skills and personal talents through over 221,000 volunteering hours
to support our communities.
Governance
We are dedicated to the highest standards of personal and
corporate conduct and align our business to these standards.
Whether it’s our commitment to ethics and compliance, or our
safeguarding of data security and data privacy, “doing the right
thing, the right way” is the cornerstone of our approach and is
fundamental to our collective success. We seek to operate with
integrity, transparency and security to reduce risk and build trust.
Cognizant 2020 Annual Report 19
2020 performance
As a result of consistent execution and transformational progress, we exited
2020 well-positioned for future growth. Strong cash flow funded an accelerated
pace of investments, driving improved commercial momentum and greater
value for our shareholders.
REVENUE
CAPITAL RETURNED
$16.7B
down 0.8% as reported
and 0.7% in constant currency1
from 2019
$2.1B
through dividends and share
repurchases
GAAP OPERATING INCOME
FREE CASH FLOW2
$2.1B
with 12.7% operating margin
$2.9B
comprised of operating cash flow of
$3.3B net of capex of $0.4B
ADJUSTED OPERATING INCOME1
CAPITAL DEPLOYED ON ACQUISITIONS
$2.4B
with 14.4% adjusted operating margin1
$1.1B
1 Constant currency revenue growth (CC), Adjusted Operating Income and Adjusted Operating Margin are not measurements
of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” in our 10-K (pages 27-29)
for more information and a reconciliation to the most directly comparable GAAP financial measure, as applicable.
2 Free cash flow is not a measurement of financial performance prepared in accordance with GAAP and is defined as cash
flows from operating activities ($3.3 billion) net of purchases of property and equipment ($0.4 billion).
20 Cognizant 2020 Annual Report
2020 acquisitions
EI-Technologies
EI-Technologies, a Paris-based,
privately-held digital technology
consulting firm and leading
independent Salesforce
specialist in France. The
acquisition complements
Cognizant’s global Salesforce
practice, expanding client
resources in Europe.
Code Zero
Code Zero specializes in helping
companies digitally transform by
providing strategy, implementation
and migration capabilities to evolve
legacy systems to cloud-based
configure, price and quote (CPQ)
and billing systems.
Collaborative Solutions
Collaborative Solutions, a
privately-held global consultancy
specializing in Workday enterprise
cloud applications for finance and
human resources .
Tin Roof
Tin Roof is dedicated to providing
comprehensive software services
for digitally focused companies.
Tin Roof’s top-tier talent is the
go-to source for cloud, enterprise,
APIs, full-stack web, mobile,
IoT, data, analytics, BI, AI/ML
development, DevOps and
delivery services.
New Signature
Focused on consistently
delivering greater customer
experiences, New Signature
helps organizations transform
their businesses with full-service
Microsoft solutions.
Lev
Lev, a privately-held, digital
marketing consultancy in the U.S.,
Lev helps businesses simplify
and modernize their marketing
campaigns using Salesforce
Marketing Cloud to provide data-
driven insight and personalization
across the customer journey, and
ultimately drive revenue .
10th Magnitude
10th Magnitude specializes
in Microsoft Azure. Founded
in 2010, the company has been
helping businesses transform
and blaze trails to increase
disruption across industries.
Bright Wolf
Bright Wolf is a strategic systems
integration and technology partner
for industrial enterprises seeking
digital transformation through
adaptable connected systems
and services. It serves some of the
largest companies in the world in
manufacturing, energy production,
supply logistics, environmental
controls, and other industries.
Inawisdom
Inawisdom is a leader in artificial
intelligence (AI) and machine
learning (ML) and specializes
in advanced analytics, business
intelligence/market intelligence
and data science. Inawisdom
provides full-stack Amazon Web
Services (AWS) cloud and data
services, including data lake
and data platform through to
engineering, predictive analytics
and IoT.
Cognizant 2020 Annual Report 21
Recognition
Top Employers Institute 2021
Named a top employer across
17 countries
5th
Fortune World’s Most Admired
Companies in the IT services sector
19th
Forbes World’s Best Employers
193rd
Forbes America’s Best Employer
for New Graduates
A Leader in the Gartner*
Magic Quadrant for Public
Cloud Infrastructure Professional &
Managed Service Providers
(published May 4, 2020)
Cognizant named a leader in the
IDC MarketScape: Worldwide
Cloud Business Analytics Services
2020 Vendor Assessment
(doc #US45353120, June 2020)
A Leader in The Forrester WaveTM:
Digital Process Automation Service
Providers, Q3 2020
A Leader in Everest Group
PEAK Matrix® Data and Analytics
(D&A) Services 2020
* Gartner does not endorse any vendor, product or service depicted in its research publications and does not advise technology users to select only
those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s Research & Advisory
organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research,
including any warranties of merchantability or fitness for a particular purpose. The Gartner content described herein (the “Gartner Content”) represent(s)
research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of
fact. Gartner Content speaks as of its original publication date (and not as of the date of this Shareholder Letter), and the opinions expressed in
the Gartner Content are subject to change without notice.
22 Cognizant 2020 Annual Report
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-24429
OR
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
13-3728359
(I.R.S. Employer
Identification No.)
300 Frank W. Burr Blvd.
Teaneck, New Jersey 07666
(Address of Principal Executive Offices including Zip Code)
Registrant’s telephone number, including area code: (201) 801-0233
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $0.01 par value
per share
CTSH
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☒ Yes ☐ No
☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
☒
☐
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the registrant’s voting shares of common stock held by non-affiliates of the registrant on June 30, 2020, based on $56.82 per share, the last reported sale
price on the Nasdaq Global Select Market of the Nasdaq Stock Market LLC on that date, was $30.8 billion.
The number of shares of Class A common stock, $0.01 par value, of the registrant outstanding as of February 5, 2021 was 530,614,258 shares.
The following documents are incorporated by reference into the Annual Report on Form 10-K: Portions of the registrant’s definitive Proxy Statement for its 2021 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item
PART I
1.
Business
1A. Risk Factors
1B. Unresolved Staff Comments
2.
3.
Properties
Legal Proceedings
4. Mine Safety Disclosures
PART II
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
6.
Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8.
9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
PART III
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accountant Fees and Services
PART IV
15. Exhibits, Financial Statements Schedules
16. Form 10-K Summary
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
Page
1
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9
16
16
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F-1
Item 1. Business
Overview
Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era.
Our services include digital services and solutions, consulting, application development, systems integration, application
testing, application maintenance, infrastructure services and business process services. Digital services have become an
increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and
differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI, experience-driven
software engineering and cloud. We tailor our services and solutions to specific industries with an integrated global delivery
model that employs client service and delivery teams based at client locations and dedicated global and regional delivery
centers.
During 2020, we announced the Cognizant Agenda which articulates our purpose, vision and values.
In order to achieve this vision and support our clients, we are focusing our business on four strategic priorities to increase
our commercial momentum and accelerate growth. These strategic priorities include:
Accelerating digital - growing our digital business organically and inorganically;
Globalizing Cognizant - growing our business in key international markets and diversifying leadership,
•
•
•
•
capabilities and delivery footprint;
partner to the entire C-suite; and
business needs.
Repositioning our brand - improving global brand recognition and becoming better known as a global digital
Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients'
We seek to drive organic growth through investments in our digital capabilities across industries and geographies,
including the extensive training and reskilling of our technical teams and the expansion of our local workforces in the United
States and other markets around the world. Additionally, we pursue select strategic acquisitions, investments and alliances that
can expand our talent, experience and capabilities in key digital areas or in particular geographies or industries. In 2020, we
completed nine such acquisitions. See Note 3 to our consolidated financial statements for additional information.
Certain terms used in this Annual Report on Form 10-K are defined in the Glossary included at the end of Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Segments
We go to market across our four industry-based business segments. Our clients seek to partner with service providers that
have a deep understanding of their businesses, industry initiatives, customers, markets and cultures and the ability to create
solutions tailored to meet their individual business needs. Across industries, our clients are confronted with the risk of being
disrupted by nimble, digital-native competitors. They are therefore redirecting their focus and investment to digital operating
models and embracing DevOps and key technologies that enable quick adjustments to shifts in their markets. We believe that
our deep knowledge of the industries we serve and our clients’ businesses has been central to our growth and high client
satisfaction, and we continue to invest in those digital capabilities that help to enable our clients to become modern businesses.
1
Item
PART I
PART II
8.
9.
PART III
PART IV
SIGNATURES
SCHEDULE
1.
Business
1A. Risk Factors
1B. Unresolved Staff Comments
2.
3.
Properties
Legal Proceedings
4. Mine Safety Disclosures
of Equity Securities
6.
Selected Financial Data
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
Stockholder Matters
12. Security Ownership of Certain Beneficial Owners and Management and Related
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accountant Fees and Services
15. Exhibits, Financial Statements Schedules
16. Form 10-K Summary
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
Page
1
1
9
16
16
16
16
17
17
19
19
37
38
38
38
39
40
40
40
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41
41
43
44
F-1
TABLE OF CONTENTS
PART I
Item 1. Business
Overview
Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era.
Our services include digital services and solutions, consulting, application development, systems integration, application
testing, application maintenance, infrastructure services and business process services. Digital services have become an
increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and
differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI, experience-driven
software engineering and cloud. We tailor our services and solutions to specific industries with an integrated global delivery
model that employs client service and delivery teams based at client locations and dedicated global and regional delivery
centers.
During 2020, we announced the Cognizant Agenda which articulates our purpose, vision and values.
In order to achieve this vision and support our clients, we are focusing our business on four strategic priorities to increase
our commercial momentum and accelerate growth. These strategic priorities include:
•
•
•
•
Accelerating digital - growing our digital business organically and inorganically;
Globalizing Cognizant - growing our business in key international markets and diversifying leadership,
capabilities and delivery footprint;
Repositioning our brand - improving global brand recognition and becoming better known as a global digital
partner to the entire C-suite; and
Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients'
business needs.
We seek to drive organic growth through investments in our digital capabilities across industries and geographies,
including the extensive training and reskilling of our technical teams and the expansion of our local workforces in the United
States and other markets around the world. Additionally, we pursue select strategic acquisitions, investments and alliances that
can expand our talent, experience and capabilities in key digital areas or in particular geographies or industries. In 2020, we
completed nine such acquisitions. See Note 3 to our consolidated financial statements for additional information.
Certain terms used in this Annual Report on Form 10-K are defined in the Glossary included at the end of Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Segments
We go to market across our four industry-based business segments. Our clients seek to partner with service providers that
have a deep understanding of their businesses, industry initiatives, customers, markets and cultures and the ability to create
solutions tailored to meet their individual business needs. Across industries, our clients are confronted with the risk of being
disrupted by nimble, digital-native competitors. They are therefore redirecting their focus and investment to digital operating
models and embracing DevOps and key technologies that enable quick adjustments to shifts in their markets. We believe that
our deep knowledge of the industries we serve and our clients’ businesses has been central to our growth and high client
satisfaction, and we continue to invest in those digital capabilities that help to enable our clients to become modern businesses.
1
Our business segments are as follows:
Financial Services
• Banking
• Insurance
Healthcare
• Healthcare
• Life Sciences
Products and Resources
• Retail and Consumer Goods
• Manufacturing, Logistics,
Energy and Utilities
• Travel and Hospitality
Communications, Media and Technology
• Communications and Media
• Technology
Our Financial Services segment includes banking, capital markets and insurance companies. Demand in this segment is
driven by our clients’ business needs for serving their customers while being compliant with significant regulatory requirements
and adaptable to regulatory change, as well as our clients' adoption and integration of digital technologies, including customer
experience enhancement, robotic process automation, analytics and AI in areas such as digital lending, fraud detection and next
generation payments. In addition to platforms that drive outcomes at speed, demand is also created by our clients’ desire for less
complexity through packaged solutions and suppliers with embedded product partners.
Our Healthcare segment consists of healthcare providers and payers as well as life sciences companies, including
pharmaceutical, biotech and medical device companies. Demand in this segment is driven by emerging industry trends,
including enhanced compliance, integrated health management, claims investigative services and heightened focus on patient
experience, as well as services that drive operational improvements in areas such as claims processing, enrollment, membership
and billing. Demand is also created by the adoption and integration of digital technologies such as AI to shape personalized care
plans and predictive data analytics to improve patient outcomes.
Our Products and Resources segment includes manufacturers, retailers and travel and hospitality companies, as well as
companies providing logistics, energy and utility services. Demand in this segment is driven by our clients’ focus on improving
the efficiency of their operations, the enablement and integration of mobile platforms to support sales and other omni-channel
commerce initiatives, and their adoption and integration of digital technologies, such as the application of intelligent systems to
manage supply chains and enhance overall customer experiences, and IoT to instrument functions for factories, real estate,
fleets and products to increase access to insight-generating data.
Our Communications, Media and Technology segment includes information, media and entertainment, communications
and technology companies. Demand in this segment is driven by our clients’ needs to create differentiated user experiences,
transition to agile development methodologies, enhance their networks, manage their digital content and adopt and integrate
digital technologies, such as cloud, interactive and IoT. During 2020, we exited certain content-related work within this
segment that was not in line with our long-term strategic vision for the Company. Refer to Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations for further information.
For the year ended December 31, 2020, the distribution of our revenues across our four industry-based business segments
• AI and analytics, which drive business growth and efficiencies through a greater understanding of customers and
was as follows:
Revenues by business segment for 2020
Financial Services: 33.8%
Healthcare: 29.1%
Communication,
Media and
Technology: 14.9%
Products and
Resources: 22.2%
The services we provide are distributed among a number of clients in each of our business segments. A loss of a
significant client or a few significant clients in a particular segment could materially reduce revenues for that segment. The
services we provide to our larger clients are often critical to their operations and a termination of our services would typically
require an extended transition period with gradually declining revenues. Nevertheless, the volume of work performed for
specific clients may vary significantly from year to year.
See Note 2 to our consolidated financial statements for additional information related to disaggregation of revenues by
client location, service line and contract-type for each of our business segments.
2
3
Services and Solutions
Our services include digital services and solutions, consulting, application services, systems integration, infrastructure
services and business process services. Additionally, we develop, license, implement and support proprietary and third-party
software products and platforms. Central to our strategy to align with our clients’ need to modernize is our continued
investment in four key areas of digital: IoT, AI, experience-driven software engineering and cloud. These four capabilities
enable clients to put data at the core of their operations, improve the experiences they offer to their customers, tap into new
revenue streams, defend against technology-enabled competitors and reduce costs. In many cases, our clients' new digital
systems are built on the backbone of their existing legacy systems. The demand for digital capabilities has continued to increase
since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-commerce,
automation and AI and cybersecurity services and solutions. We believe our deep knowledge of our clients' infrastructure and
systems provides us with a significant advantage as we work with them to build new digital capabilities to make their
operations more efficient, effective and modern. We deliver all of our services and solutions across our four industry-based
business segments to best address our clients' individual needs.
In 2020, our services and solutions were organized into three practice areas: Digital Business, Digital Systems and
Technology and Digital Business Operations. In January 2021, we strategically combined the Digital Business practice with the
Digital Systems and Technology practice to create the new Digital Business & Technology practice. The objective of this
change is to simplify our model and align it with the current state of technology.
Our consulting professionals work closely with our practice areas to create modern frameworks, platforms and solutions
that leverage a wide range of digital technologies across our clients’ businesses to deliver higher levels of efficiency and new
value for their customers.
Digital Business & Technology
Our Digital Business & Technology practice helps clients build modern enterprises that deliver exceptional customer
experiences that are created at the intersection of cloud and digital. Our clients are able to embrace a new business and
technology stack that comprises consumer-grade software, enterprise applications, modernized data and the instrumentation of
everything in cloud-first architectures. Combining a technology vision, strategy, roadmap, capabilities, solutions, partnerships,
and subject matter expertise, Digital Business & Technology is an integrated growth enabler for commercial markets. Areas of
focus within this practice area are:
Interactive, which leverages our global network of studios that help clients craft new experiences;
application modernization, which updates legacy applications using agile methodologies and cloud;
operations;
IoT, which unlocks greater productivity and new business models;
digital advisory, which provides enterprise transformation expertise;
experience-driven software engineering, which designs, engineers and delivers modern business software;
application services;
quality engineering and assurance; and
cloud, infrastructure and security.
Digital Business Operations
Our Digital Business Operations practice helps clients rethink their operating models by assessing their existing processes
and recommending automation. This allows clients to fundamentally transform their processes while realizing cost savings
benefits from these improvements. Areas of focus within this practice area are:
automation, analytics and consulting for business process outsourcing;
platform-based operations; and
core business process operations.
We have extensive knowledge of core front office, middle office and back office processes, including finance and
accounting, research and analytics, procurement and data management, which we integrate with our industry and technology
expertise to deliver targeted business process services and solutions.
•
•
•
•
•
•
•
•
•
•
•
Our business segments are as follows:
Services and Solutions
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
• Banking
• Insurance
• Healthcare
• Retail and Consumer Goods
• Communications and Media
• Life Sciences
• Manufacturing, Logistics,
• Technology
Energy and Utilities
• Travel and Hospitality
Our Financial Services segment includes banking, capital markets and insurance companies. Demand in this segment is
driven by our clients’ business needs for serving their customers while being compliant with significant regulatory requirements
and adaptable to regulatory change, as well as our clients' adoption and integration of digital technologies, including customer
experience enhancement, robotic process automation, analytics and AI in areas such as digital lending, fraud detection and next
generation payments. In addition to platforms that drive outcomes at speed, demand is also created by our clients’ desire for less
complexity through packaged solutions and suppliers with embedded product partners.
Our Healthcare segment consists of healthcare providers and payers as well as life sciences companies, including
pharmaceutical, biotech and medical device companies. Demand in this segment is driven by emerging industry trends,
including enhanced compliance, integrated health management, claims investigative services and heightened focus on patient
experience, as well as services that drive operational improvements in areas such as claims processing, enrollment, membership
and billing. Demand is also created by the adoption and integration of digital technologies such as AI to shape personalized care
plans and predictive data analytics to improve patient outcomes.
Our Products and Resources segment includes manufacturers, retailers and travel and hospitality companies, as well as
companies providing logistics, energy and utility services. Demand in this segment is driven by our clients’ focus on improving
the efficiency of their operations, the enablement and integration of mobile platforms to support sales and other omni-channel
commerce initiatives, and their adoption and integration of digital technologies, such as the application of intelligent systems to
manage supply chains and enhance overall customer experiences, and IoT to instrument functions for factories, real estate,
fleets and products to increase access to insight-generating data.
Our Communications, Media and Technology segment includes information, media and entertainment, communications
and technology companies. Demand in this segment is driven by our clients’ needs to create differentiated user experiences,
transition to agile development methodologies, enhance their networks, manage their digital content and adopt and integrate
digital technologies, such as cloud, interactive and IoT. During 2020, we exited certain content-related work within this
segment that was not in line with our long-term strategic vision for the Company. Refer to Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations for further information.
was as follows:
Revenues by business segment for 2020
Financial Services: 33.8%
Healthcare: 29.1%
Communication,
Media and
Technology: 14.9%
Products and
Resources: 22.2%
The services we provide are distributed among a number of clients in each of our business segments. A loss of a
significant client or a few significant clients in a particular segment could materially reduce revenues for that segment. The
services we provide to our larger clients are often critical to their operations and a termination of our services would typically
require an extended transition period with gradually declining revenues. Nevertheless, the volume of work performed for
specific clients may vary significantly from year to year.
See Note 2 to our consolidated financial statements for additional information related to disaggregation of revenues by
client location, service line and contract-type for each of our business segments.
Our services include digital services and solutions, consulting, application services, systems integration, infrastructure
services and business process services. Additionally, we develop, license, implement and support proprietary and third-party
software products and platforms. Central to our strategy to align with our clients’ need to modernize is our continued
investment in four key areas of digital: IoT, AI, experience-driven software engineering and cloud. These four capabilities
enable clients to put data at the core of their operations, improve the experiences they offer to their customers, tap into new
revenue streams, defend against technology-enabled competitors and reduce costs. In many cases, our clients' new digital
systems are built on the backbone of their existing legacy systems. The demand for digital capabilities has continued to increase
since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-commerce,
automation and AI and cybersecurity services and solutions. We believe our deep knowledge of our clients' infrastructure and
systems provides us with a significant advantage as we work with them to build new digital capabilities to make their
operations more efficient, effective and modern. We deliver all of our services and solutions across our four industry-based
business segments to best address our clients' individual needs.
In 2020, our services and solutions were organized into three practice areas: Digital Business, Digital Systems and
Technology and Digital Business Operations. In January 2021, we strategically combined the Digital Business practice with the
Digital Systems and Technology practice to create the new Digital Business & Technology practice. The objective of this
change is to simplify our model and align it with the current state of technology.
Our consulting professionals work closely with our practice areas to create modern frameworks, platforms and solutions
that leverage a wide range of digital technologies across our clients’ businesses to deliver higher levels of efficiency and new
value for their customers.
Digital Business & Technology
Our Digital Business & Technology practice helps clients build modern enterprises that deliver exceptional customer
experiences that are created at the intersection of cloud and digital. Our clients are able to embrace a new business and
technology stack that comprises consumer-grade software, enterprise applications, modernized data and the instrumentation of
everything in cloud-first architectures. Combining a technology vision, strategy, roadmap, capabilities, solutions, partnerships,
and subject matter expertise, Digital Business & Technology is an integrated growth enabler for commercial markets. Areas of
focus within this practice area are:
•
•
Interactive, which leverages our global network of studios that help clients craft new experiences;
application modernization, which updates legacy applications using agile methodologies and cloud;
For the year ended December 31, 2020, the distribution of our revenues across our four industry-based business segments
• AI and analytics, which drive business growth and efficiencies through a greater understanding of customers and
operations;
IoT, which unlocks greater productivity and new business models;
digital advisory, which provides enterprise transformation expertise;
experience-driven software engineering, which designs, engineers and delivers modern business software;
application services;
quality engineering and assurance; and
cloud, infrastructure and security.
•
•
•
•
•
•
Digital Business Operations
Our Digital Business Operations practice helps clients rethink their operating models by assessing their existing processes
and recommending automation. This allows clients to fundamentally transform their processes while realizing cost savings
benefits from these improvements. Areas of focus within this practice area are:
•
•
•
automation, analytics and consulting for business process outsourcing;
platform-based operations; and
core business process operations.
We have extensive knowledge of core front office, middle office and back office processes, including finance and
accounting, research and analytics, procurement and data management, which we integrate with our industry and technology
expertise to deliver targeted business process services and solutions.
2
3
Global Delivery Model
We utilize a global delivery model, with delivery centers worldwide to provide our full range of services to our clients.
Our delivery model includes employees deployed at client sites, local or in-country delivery centers, regional delivery centers
and offshore delivery centers, as required to best serve our clients. As we scale our digital services and solutions, we are
focused on hiring in the United States and other countries where we deliver services to our clients to expand our in-country
delivery capabilities. Our extensive facilities, technology and communications infrastructure are designed to enable the
effective collaboration of our global workforce across locations and geographies.
Competition
The markets for our services are highly competitive, characterized by a large number of participants and subject to rapid
change. Competitors may include systems integration firms, contract programming companies, application software companies,
cloud computing service providers, traditional consulting firms, professional services groups of computer equipment
companies, infrastructure management companies, outsourcing companies and boutique digital companies. Our direct
competitors include, among others, Accenture, Atos, Capgemini, Deloitte Digital, DXC Technology, EPAM Systems, Genpact,
HCL Technologies, IBM Global Services, Infosys Technologies, Tata Consultancy Services and Wipro. In addition, we
compete with numerous smaller local companies in the various geographic markets in which we operate.
The principal competitive factors affecting the markets for our services include the provider’s reputation and experience,
strategic advisory capabilities, digital services capabilities, performance and reliability, responsiveness to customer needs,
financial stability, corporate governance and competitive pricing of services. Accordingly, we rely on the following to compete
effectively:
•
•
•
•
•
•
•
•
•
investments to scale our digital services;
our recruiting, training and retention model;
our global delivery model;
an entrepreneurial culture and approach to our work;
a broad client referral base;
investment in process improvement and knowledge capture;
financial stability and good corporate governance;
continued focus on responsiveness to client needs, quality of services and competitive prices; and
project management capabilities and technical expertise.
Intellectual Property
We provide value to our clients based, in part, on our proprietary innovations, methodologies, software, reusable
knowledge capital and other IP assets. We recognize the importance of IP and its ability to differentiate us from our
competitors. We seek IP protection for many of our innovations and rely on a combination of patent, copyright and trade secret
laws, confidentiality procedures and contractual provisions, to protect our IP. We have registered, and applied for the
registration of, U.S. and international trademarks, service marks, and domain names to protect our brands, including our
Cognizant brand, which is one of our most valuable assets. We own or are licensed under a number of patents, trademarks and
copyrights of varying duration, relating to our products and services. We also have policies requiring our associates to respect
the IP rights of others. While our proprietary IP rights are important to our success, we believe our business as a whole is not
materially dependent on any particular IP right or any particular group of patents, trademarks, copyrights or licenses, other than
our Cognizant brand.
Cognizant® and other trademarks appearing in this report are registered trademarks or trademarks of Cognizant and its
affiliates in the United States and other countries, or third parties, as applicable.
Workforce
We had approximately 289,500 employees at the end of 2020, with 43,500 in North America, 13,400 in Continental
Europe, 6,800 in the United Kingdom and 225,800 in various other locations throughout the rest of the world, including
204,500 in India. This represents a decrease of 3,000 employees as compared to December 31, 2019. We utilize subcontractors
to provide additional capacity and flexibility in meeting client demand, though the number of subcontractors has historically
been immaterial relative to our employee headcount. We are not party to any significant collective bargaining agreements.
We balance the portion of our employees in the United States and other jurisdictions that rely on visas with consideration
of the needs of our business to fulfill client demand and risks to our business from potential changes in immigration laws and
regulations that may increase the costs associated with and ability to staff employees on visas to work in-country.
Engaging Our People
As a global professional services company, Cognizant competes on the basis of the knowledge, experience, insights, skills
and talent of its employees and the value they can provide to our clients. We aim for our employees to feel motivated, engaged,
and empowered to do their best work through careers they find meaningful. In a market where competition for skilled IT
professionals is intense, we focus on the following:
•
Advancing Diversity & Inclusion: We believe diversity and inclusion are at the heart of our ability to execute
successfully and consistently over the long term. A diverse and inclusive workforce strengthens our ability to innovate
and to understand our clients’ needs and aspirations.
Highlights from our diversity & inclusion efforts include:
accountability through our people processes and systems;
– Global D&I training and programs;
– Our Global D&I organization is embedded within HR’s Talent & Transformation function to drive
– Progressive hiring policies, including a diverse candidate pipeline initiative to ensure a more diverse interview
slate at the Vice President level and above; and
– Seven global affinity groups that welcome, nurture and provide safe spaces in which our employees can share
their unique interests and aspirations.
Our 2020 engagement survey revealed that all genders are equally engaged, and that D&I gained the second-highest
score improvement across categories.
•
Rewarding and Recognizing High Performance: We aim to create a work environment where every person is
inspired to achieve, driven to perform and rewarded for their contributions. We leverage regular, performance-based
promotions and merit increases as one lever to engage high-performing talent. During the 2020 cycle, in line with our
high performance culture, we were proud to promote employees across all levels and provide merit increases to a
significant number of our employees.
We regularly monitor employee retention levels and continue to enhance our pay-for-performance approach to
improve attrition rates. For the three months ended December 31, 2020, annualized attrition, including both voluntary
and involuntary, was 19.0%. Attrition for the years ended December 31, 2020 and 2019, including both voluntary and
involuntary, was 20.6% and 21.7%, respectively. Voluntary attrition normally constitutes the significant majority of
our attrition. In 2020, we saw elevated levels of involuntary attrition due to our Fit for Growth Plan, including the exit
from certain content-related services. We also saw a decrease in voluntary attrition from historic levels in the early
stages of the COVID-19 pandemic. Both voluntary and involuntary attrition are weighted towards our more junior
employees.
•
Building New Skills: Clients count on us to know their industries, businesses, and technology environments, readily
gain new digital skills and insights, and apply our knowledge to help them increase their competitiveness. We
continually reskill and upskill our employees with a focus on building digital skills in areas such as IoT, AI,
experience-driven software engineering and cloud.
From campus hire training for our entry-level workforce to providing capability assurance programs for professional
practitioners, we offer a learning ecosystem for employees at all levels. This includes learning and development,
access-from-anywhere learning platforms and a variety of content curation partnerships. Our talent development
approach has been recognized by leading learning and development organizations, such as the Association for Talent
Development, the Brandon Hall Group and the Learning and Performance Institute.
•
Leadership Development & Talent Management: Cognizant continuously fosters and builds its pipeline of diverse,
high-performing leaders who have the breadth and versatility to drive our growth. To do this, we focus on engaging all
levels of senior talent and enabling their success through continuous assessment and high impact development
opportunities.
4
5
Global Delivery Model
We utilize a global delivery model, with delivery centers worldwide to provide our full range of services to our clients.
Our delivery model includes employees deployed at client sites, local or in-country delivery centers, regional delivery centers
and offshore delivery centers, as required to best serve our clients. As we scale our digital services and solutions, we are
focused on hiring in the United States and other countries where we deliver services to our clients to expand our in-country
delivery capabilities. Our extensive facilities, technology and communications infrastructure are designed to enable the
effective collaboration of our global workforce across locations and geographies.
Competition
The markets for our services are highly competitive, characterized by a large number of participants and subject to rapid
change. Competitors may include systems integration firms, contract programming companies, application software companies,
cloud computing service providers, traditional consulting firms, professional services groups of computer equipment
companies, infrastructure management companies, outsourcing companies and boutique digital companies. Our direct
competitors include, among others, Accenture, Atos, Capgemini, Deloitte Digital, DXC Technology, EPAM Systems, Genpact,
HCL Technologies, IBM Global Services, Infosys Technologies, Tata Consultancy Services and Wipro. In addition, we
compete with numerous smaller local companies in the various geographic markets in which we operate.
The principal competitive factors affecting the markets for our services include the provider’s reputation and experience,
strategic advisory capabilities, digital services capabilities, performance and reliability, responsiveness to customer needs,
financial stability, corporate governance and competitive pricing of services. Accordingly, we rely on the following to compete
effectively:
investments to scale our digital services;
our recruiting, training and retention model;
our global delivery model;
an entrepreneurial culture and approach to our work;
a broad client referral base;
investment in process improvement and knowledge capture;
financial stability and good corporate governance;
•
•
•
•
•
•
•
•
•
continued focus on responsiveness to client needs, quality of services and competitive prices; and
project management capabilities and technical expertise.
Intellectual Property
We provide value to our clients based, in part, on our proprietary innovations, methodologies, software, reusable
knowledge capital and other IP assets. We recognize the importance of IP and its ability to differentiate us from our
competitors. We seek IP protection for many of our innovations and rely on a combination of patent, copyright and trade secret
laws, confidentiality procedures and contractual provisions, to protect our IP. We have registered, and applied for the
registration of, U.S. and international trademarks, service marks, and domain names to protect our brands, including our
Cognizant brand, which is one of our most valuable assets. We own or are licensed under a number of patents, trademarks and
copyrights of varying duration, relating to our products and services. We also have policies requiring our associates to respect
the IP rights of others. While our proprietary IP rights are important to our success, we believe our business as a whole is not
materially dependent on any particular IP right or any particular group of patents, trademarks, copyrights or licenses, other than
Cognizant® and other trademarks appearing in this report are registered trademarks or trademarks of Cognizant and its
affiliates in the United States and other countries, or third parties, as applicable.
our Cognizant brand.
Workforce
We had approximately 289,500 employees at the end of 2020, with 43,500 in North America, 13,400 in Continental
Europe, 6,800 in the United Kingdom and 225,800 in various other locations throughout the rest of the world, including
204,500 in India. This represents a decrease of 3,000 employees as compared to December 31, 2019. We utilize subcontractors
to provide additional capacity and flexibility in meeting client demand, though the number of subcontractors has historically
been immaterial relative to our employee headcount. We are not party to any significant collective bargaining agreements.
We balance the portion of our employees in the United States and other jurisdictions that rely on visas with consideration
of the needs of our business to fulfill client demand and risks to our business from potential changes in immigration laws and
regulations that may increase the costs associated with and ability to staff employees on visas to work in-country.
Engaging Our People
As a global professional services company, Cognizant competes on the basis of the knowledge, experience, insights, skills
and talent of its employees and the value they can provide to our clients. We aim for our employees to feel motivated, engaged,
and empowered to do their best work through careers they find meaningful. In a market where competition for skilled IT
professionals is intense, we focus on the following:
•
Advancing Diversity & Inclusion: We believe diversity and inclusion are at the heart of our ability to execute
successfully and consistently over the long term. A diverse and inclusive workforce strengthens our ability to innovate
and to understand our clients’ needs and aspirations.
Highlights from our diversity & inclusion efforts include:
– Our Global D&I organization is embedded within HR’s Talent & Transformation function to drive
accountability through our people processes and systems;
– Global D&I training and programs;
– Progressive hiring policies, including a diverse candidate pipeline initiative to ensure a more diverse interview
slate at the Vice President level and above; and
– Seven global affinity groups that welcome, nurture and provide safe spaces in which our employees can share
their unique interests and aspirations.
Our 2020 engagement survey revealed that all genders are equally engaged, and that D&I gained the second-highest
score improvement across categories.
Rewarding and Recognizing High Performance: We aim to create a work environment where every person is
inspired to achieve, driven to perform and rewarded for their contributions. We leverage regular, performance-based
promotions and merit increases as one lever to engage high-performing talent. During the 2020 cycle, in line with our
high performance culture, we were proud to promote employees across all levels and provide merit increases to a
significant number of our employees.
We regularly monitor employee retention levels and continue to enhance our pay-for-performance approach to
improve attrition rates. For the three months ended December 31, 2020, annualized attrition, including both voluntary
and involuntary, was 19.0%. Attrition for the years ended December 31, 2020 and 2019, including both voluntary and
involuntary, was 20.6% and 21.7%, respectively. Voluntary attrition normally constitutes the significant majority of
our attrition. In 2020, we saw elevated levels of involuntary attrition due to our Fit for Growth Plan, including the exit
from certain content-related services. We also saw a decrease in voluntary attrition from historic levels in the early
stages of the COVID-19 pandemic. Both voluntary and involuntary attrition are weighted towards our more junior
employees.
Building New Skills: Clients count on us to know their industries, businesses, and technology environments, readily
gain new digital skills and insights, and apply our knowledge to help them increase their competitiveness. We
continually reskill and upskill our employees with a focus on building digital skills in areas such as IoT, AI,
experience-driven software engineering and cloud.
From campus hire training for our entry-level workforce to providing capability assurance programs for professional
practitioners, we offer a learning ecosystem for employees at all levels. This includes learning and development,
access-from-anywhere learning platforms and a variety of content curation partnerships. Our talent development
approach has been recognized by leading learning and development organizations, such as the Association for Talent
Development, the Brandon Hall Group and the Learning and Performance Institute.
Leadership Development & Talent Management: Cognizant continuously fosters and builds its pipeline of diverse,
high-performing leaders who have the breadth and versatility to drive our growth. To do this, we focus on engaging all
levels of senior talent and enabling their success through continuous assessment and high impact development
opportunities.
•
•
•
4
5
Highlights include:
Information About Our Executive Officers
– Targeted talent programs for key pools that include various training opportunities, digital leadership programs
The following table identifies our current executive officers:
and custom leadership development initiatives;
– Fast-tracking high-performing and high-potential leadership talent through personalized assessments,
executive coaching and executive education programs;
– Accelerating a diverse leadership pipeline through programs like Propel, an initiative focused on priming the
next level of women leaders within Cognizant. In just two years, this program has helped us reach 500 women
leaders globally through a cohort model supported by executive sponsors, part of our pledge to put 1,000
women through our leadership development program;
– Our LEAD@Cognizant partnership with Harvard University is a 4.5-month leadership capability program
designed exclusively for Cognizant leaders to learn, practice and internalize how to set the course, connect the
dots, inspire followership and deliver results through strategic alignment, collaboration and building high
performing teams; and
– Periodic talent processes such as talent reviews of our top 4,000 employees at Director level and above, aimed
at helping individuals develop in role and prepare for the future, while strengthening our leadership pipeline
overall.
•
Supporting Well-Being at Work and Home: We offer benefits to care for the diverse needs of our associates and
keep them feeling resilient, innovative and engaged. These include total compensation programs, health benefits,
overall well-being and family care, tax savings programs, income protection and financial planning resources. As we
continue to face evolving environmental and health challenges, we continually review and enhance our offerings to
improve the competitiveness of our total compensation programs, including our health benefit offerings.
Highlights include:
– In 2020, we launched WorkFlex, a program to provide employees greater flexibility to complete their required
hours outside their standard schedule or to transition to a part-time schedule to accommodate personal
priorities;
– We offer a variety of benefits to support employee mental health, including a robust Employee Assistance
Program. In the United States, we also provide access to third party mental health platforms, including Ginger
and eMindful; and
– Cognizant has crisis management protocols that are mobilized to protect employee health and safety when
necessary. When the COVID-19 pandemic began, our crisis team responded quickly to close and modify
offices to meet health and safety protocols, support the transition to working from home, and liaise with
employees regarding various concerns.
• Measuring and Enhancing Engagement: We regularly assess employee sentiment through third-party engagement
surveys. In 2020, 72% of our people participated in the survey. After each survey, we develop and communicate clear
action plans to continue to build on our strengths and address shortfalls.
Governmental Regulation and Environmental Matters
As a result of the size, breadth and geographic diversity of our business, our operations are subject to a variety of laws and
regulations in the jurisdictions in which we operate, including with respect to import and export controls, temporary work
authorizations or work permits and other immigration laws, content requirements, trade restrictions, tariffs, taxation, anti-
corruption, the environment, government affairs, internal and disclosure control obligations, data privacy, intellectual property,
employee and labor relations. For additional information, see Part I, Item 1A. Risk Factors.
Name
Brian Humphries (1)
Jan Siegmund (2)
Robert Telesmanic (3)
Becky Schmitt (4)
Malcolm Frank (5)
Balu Ganesh Ayyar (6)
Greg Hyttenrauch (7)
Ursula Morgenstern (8)
Andrew Stafford (9)
Age
Capacities in Which Served
In Current
Position Since
47 Chief Executive Officer
56 Chief Financial Officer
54 Senior Vice President, Controller and Chief Accounting Officer
47 Executive Vice President, Chief People Officer
54 Executive Vice President and President, Digital Business & Technology
59 Executive Vice President and President, Digital Business Operations
53 Executive Vice President and President, North America
55 Executive Vice President and President, Global Growth Markets
56 Executive Vice President, Head of Global Delivery
2019
2020
2017
2020
2021
2019
2021
2020
2020
(1) Brian Humphries has been our Chief Executive Officer and a member of the Board of Directors since April 2019. Prior to
joining Cognizant, he served as Chief Executive Officer of Vodafone Business, a division of Vodafone Group, from 2017
until 2019. Mr. Humphries joined Vodafone from Dell Technologies where he served as President and Chief Operating
Officer of Dell’s Infrastructure Solutions Group from 2016 to 2017, President of Dell’s Global Enterprise Solutions from
2014 to 2016, and Vice President and General Manager, EMEA Enterprise Solutions from 2013 to 2014. Before joining
Dell, Mr. Humphries was with Hewlett-Packard where his roles from 2008 to 2013 included Senior Vice President,
Emerging Markets, Senior Vice President, Strategy and Corporate Development, and Chief Financial Officer of HP
Services. The early part of his career was spent with Compaq and Digital Equipment Corporation. Mr. Humphries brings
to the Board extensive leadership and global operations management experience from having served at public companies
in the technology sector. He holds a bachelor’s degree in Business Administration from the University of Ulster, Northern
(2) Jan Siegmund has been our Chief Financial Officer since September 2020. Prior to joining Cognizant, Mr. Siegmund
spent over 19 years with Automatic Data Processing (ADP), where he served as Corporate Vice President and Chief
Financial Officer from 2012 to 2019 and Chief Strategy Officer and President of the Added Value Services Division from
1999 to 2012. He began his career at McKinsey & Company as a Senior Engagement Manager. Mr. Siegmund is a
member of the Board of Directors of The Western Union Company, where he is Chair of the Audit Committee. He holds a
master’s degree in Industrial Engineering from Technical University Karlsruhe, Germany, a master’s degree in Economics
from the University of California, Santa Barbara and a doctorate in Economics from Technical University of Dresden,
Ireland.
Germany.
(3) Robert Telesmanic has been our Senior Vice President, Controller and Chief Accounting Officer since January 2017, a
Senior Vice President since 2010 and our Corporate Controller since 2004. Prior to that, he served as our Assistant
Corporate Controller from 2003 to 2004. Prior to joining Cognizant, Mr. Telesmanic spent over 14 years with Deloitte &
Touche LLP. Mr. Telesmanic has a Bachelor of Science degree from New York University and an MBA degree from
Columbia University.
(4) Becky Schmitt has been our Executive Vice President, Chief People Officer since February 2020. Prior to joining
Cognizant, Ms. Schmitt was the Chief People Officer of Sam’s Club, a division of Walmart, Inc. from October 2018
through January 2020. Prior to that, she served as SVP, Chief People Officer, US eCommerce & Corporate Functions for
Walmart from October 2016 through September 2018 and as VP, HR - Technology from February 2016 until October
2016. Prior to joining Walmart, Ms. Schmitt spent over 20 years with Accenture plc in various human resources roles,
culminating in her role as HR Managing Director, North America Business from March 2014 through February 2016. Ms.
Schmitt has served as a Board Member at Large for the Girl Scouts National Board since 2017. Ms. Schmitt has a
Bachelor of Arts degree from University of Michigan, Ann Arbor.
(5) Malcolm Frank has been our Executive Vice President and President, Digital Business & Technology since January 2021.
Prior to that, he served as Executive Vice President and President, Digital Business from May 2019 to January 2021, as
our Executive Vice President and President, Strategy and Marketing at Cognizant from 2012 to May 2019 and as our
Senior Vice President of Strategy and Marketing from 2005 to 2012. Prior to joining Cognizant in 2005, Mr. Frank was a
founder and the President and Chief Executive Officer of CXO Systems, Inc., an independent software vendor providing
dashboard solutions for senior managers, a founder and the President, Chief Executive Officer and Chairman of
NerveWire Inc., a management consulting and systems integration firm, and a founder and executive officer at Cambridge
Technology Partners, an information technology professional services firm. Mr. Frank has served on the Board of
Directors of Factset Research Systems Inc. since June 2016, where he is a member of the Compensation Committee. He is
6
7
Highlights include:
and custom leadership development initiatives;
– Fast-tracking high-performing and high-potential leadership talent through personalized assessments,
executive coaching and executive education programs;
– Accelerating a diverse leadership pipeline through programs like Propel, an initiative focused on priming the
next level of women leaders within Cognizant. In just two years, this program has helped us reach 500 women
leaders globally through a cohort model supported by executive sponsors, part of our pledge to put 1,000
women through our leadership development program;
– Our LEAD@Cognizant partnership with Harvard University is a 4.5-month leadership capability program
designed exclusively for Cognizant leaders to learn, practice and internalize how to set the course, connect the
dots, inspire followership and deliver results through strategic alignment, collaboration and building high
performing teams; and
overall.
– Periodic talent processes such as talent reviews of our top 4,000 employees at Director level and above, aimed
at helping individuals develop in role and prepare for the future, while strengthening our leadership pipeline
•
Supporting Well-Being at Work and Home: We offer benefits to care for the diverse needs of our associates and
keep them feeling resilient, innovative and engaged. These include total compensation programs, health benefits,
overall well-being and family care, tax savings programs, income protection and financial planning resources. As we
continue to face evolving environmental and health challenges, we continually review and enhance our offerings to
improve the competitiveness of our total compensation programs, including our health benefit offerings.
Highlights include:
priorities;
and eMindful; and
– In 2020, we launched WorkFlex, a program to provide employees greater flexibility to complete their required
hours outside their standard schedule or to transition to a part-time schedule to accommodate personal
– We offer a variety of benefits to support employee mental health, including a robust Employee Assistance
Program. In the United States, we also provide access to third party mental health platforms, including Ginger
– Cognizant has crisis management protocols that are mobilized to protect employee health and safety when
necessary. When the COVID-19 pandemic began, our crisis team responded quickly to close and modify
offices to meet health and safety protocols, support the transition to working from home, and liaise with
employees regarding various concerns.
• Measuring and Enhancing Engagement: We regularly assess employee sentiment through third-party engagement
surveys. In 2020, 72% of our people participated in the survey. After each survey, we develop and communicate clear
action plans to continue to build on our strengths and address shortfalls.
Governmental Regulation and Environmental Matters
As a result of the size, breadth and geographic diversity of our business, our operations are subject to a variety of laws and
regulations in the jurisdictions in which we operate, including with respect to import and export controls, temporary work
authorizations or work permits and other immigration laws, content requirements, trade restrictions, tariffs, taxation, anti-
corruption, the environment, government affairs, internal and disclosure control obligations, data privacy, intellectual property,
employee and labor relations. For additional information, see Part I, Item 1A. Risk Factors.
– Targeted talent programs for key pools that include various training opportunities, digital leadership programs
The following table identifies our current executive officers:
Information About Our Executive Officers
Name
Brian Humphries (1)
Jan Siegmund (2)
Robert Telesmanic (3)
Becky Schmitt (4)
Malcolm Frank (5)
Balu Ganesh Ayyar (6)
Greg Hyttenrauch (7)
Ursula Morgenstern (8)
Andrew Stafford (9)
Age
47 Chief Executive Officer
56 Chief Financial Officer
Capacities in Which Served
54 Senior Vice President, Controller and Chief Accounting Officer
47 Executive Vice President, Chief People Officer
54 Executive Vice President and President, Digital Business & Technology
59 Executive Vice President and President, Digital Business Operations
53 Executive Vice President and President, North America
55 Executive Vice President and President, Global Growth Markets
56 Executive Vice President, Head of Global Delivery
In Current
Position Since
2019
2020
2017
2020
2021
2019
2021
2020
2020
(1) Brian Humphries has been our Chief Executive Officer and a member of the Board of Directors since April 2019. Prior to
joining Cognizant, he served as Chief Executive Officer of Vodafone Business, a division of Vodafone Group, from 2017
until 2019. Mr. Humphries joined Vodafone from Dell Technologies where he served as President and Chief Operating
Officer of Dell’s Infrastructure Solutions Group from 2016 to 2017, President of Dell’s Global Enterprise Solutions from
2014 to 2016, and Vice President and General Manager, EMEA Enterprise Solutions from 2013 to 2014. Before joining
Dell, Mr. Humphries was with Hewlett-Packard where his roles from 2008 to 2013 included Senior Vice President,
Emerging Markets, Senior Vice President, Strategy and Corporate Development, and Chief Financial Officer of HP
Services. The early part of his career was spent with Compaq and Digital Equipment Corporation. Mr. Humphries brings
to the Board extensive leadership and global operations management experience from having served at public companies
in the technology sector. He holds a bachelor’s degree in Business Administration from the University of Ulster, Northern
Ireland.
(2) Jan Siegmund has been our Chief Financial Officer since September 2020. Prior to joining Cognizant, Mr. Siegmund
spent over 19 years with Automatic Data Processing (ADP), where he served as Corporate Vice President and Chief
Financial Officer from 2012 to 2019 and Chief Strategy Officer and President of the Added Value Services Division from
1999 to 2012. He began his career at McKinsey & Company as a Senior Engagement Manager. Mr. Siegmund is a
member of the Board of Directors of The Western Union Company, where he is Chair of the Audit Committee. He holds a
master’s degree in Industrial Engineering from Technical University Karlsruhe, Germany, a master’s degree in Economics
from the University of California, Santa Barbara and a doctorate in Economics from Technical University of Dresden,
Germany.
(3) Robert Telesmanic has been our Senior Vice President, Controller and Chief Accounting Officer since January 2017, a
Senior Vice President since 2010 and our Corporate Controller since 2004. Prior to that, he served as our Assistant
Corporate Controller from 2003 to 2004. Prior to joining Cognizant, Mr. Telesmanic spent over 14 years with Deloitte &
Touche LLP. Mr. Telesmanic has a Bachelor of Science degree from New York University and an MBA degree from
Columbia University.
(4) Becky Schmitt has been our Executive Vice President, Chief People Officer since February 2020. Prior to joining
Cognizant, Ms. Schmitt was the Chief People Officer of Sam’s Club, a division of Walmart, Inc. from October 2018
through January 2020. Prior to that, she served as SVP, Chief People Officer, US eCommerce & Corporate Functions for
Walmart from October 2016 through September 2018 and as VP, HR - Technology from February 2016 until October
2016. Prior to joining Walmart, Ms. Schmitt spent over 20 years with Accenture plc in various human resources roles,
culminating in her role as HR Managing Director, North America Business from March 2014 through February 2016. Ms.
Schmitt has served as a Board Member at Large for the Girl Scouts National Board since 2017. Ms. Schmitt has a
Bachelor of Arts degree from University of Michigan, Ann Arbor.
(5) Malcolm Frank has been our Executive Vice President and President, Digital Business & Technology since January 2021.
Prior to that, he served as Executive Vice President and President, Digital Business from May 2019 to January 2021, as
our Executive Vice President and President, Strategy and Marketing at Cognizant from 2012 to May 2019 and as our
Senior Vice President of Strategy and Marketing from 2005 to 2012. Prior to joining Cognizant in 2005, Mr. Frank was a
founder and the President and Chief Executive Officer of CXO Systems, Inc., an independent software vendor providing
dashboard solutions for senior managers, a founder and the President, Chief Executive Officer and Chairman of
NerveWire Inc., a management consulting and systems integration firm, and a founder and executive officer at Cambridge
Technology Partners, an information technology professional services firm. Mr. Frank has served on the Board of
Directors of Factset Research Systems Inc. since June 2016, where he is a member of the Compensation Committee. He is
6
7
also a member of the Board of Directors of the US-India Strategic Partnership Forum since May 2018. Mr. Frank has a
Bachelor of Arts degree in Economics from Yale University.
(6) Balu Ganesh Ayyar has been our Executive Vice President and President, Digital Business Operations since August 2019.
Prior to joining Cognizant, Mr. Ayyar was the CEO of Mphasis, a global IT services company listed in India, from 2009
to 2017. Prior to Mphasis, Mr. Ayyar spent nearly two decades with Hewlett-Packard, holding a variety of leadership
roles across multiple geographies.
(7) Greg Hyttenrauch has been our Executive Vice President and President, North America since January 2021. Prior to that
he served as our Executive Vice President and President, Cognizant Digital Systems & Technology from December 2019
to January 2021. Prior to joining Cognizant, Mr. Hyttenrauch served as Director, Global Cloud and Security Services for
Vodafone from October 2015 to November 2019. Prior to Vodafone, Mr. Hyttenrauch held a variety of senior leadership
positions at Capgemini from 2008 to 2015, including Deputy CEO, Global Infrastructure Services, and Global Sales
Officer and CEO of the UK and Nordic Outsourcing Business Unit. Before joining Capgemini, Mr. Hyttenrauch held
positions with CSC and EDS. He began his career with 13 years in the Canadian military, rising to the rank of captain.
Mr. Hyttenrauch holds a bachelor’s degree in Mechanical Engineering from the Royal Military College of Canada and an
MBA in International Management from the University of Ottawa.
(8) Ursula Morgenstern has been Cognizant’s Executive Vice President and President, Global Growth Markets, which covers
all of Cognizant’s markets outside of North America, since December 2020. Prior to joining Cognizant, Ms. Morgenstern
spent 16 years with Atos, a multinational IT services and consulting company in various management roles from 2004 to
2020, most recently as Head of Atos Central Europe from April 2020 to October 2020, CEO of Atos Germany from
March 2018 to October 2020, and Global Head of Business and Platform Solutions from July 2015 to February 2018.
Before Atos, Ms. Morgenstern was a partner with KPMG from 1998 to 2002. Her other previous roles include General
Manager of K&V Information Systems from 1996 to 1998 and Project Manager for Kiefer & Veittinger from 1991 to
1996. She holds a bachelor’s degree in Business Management from the University of Mannheim and an MBA from York
University (Toronto).
(9) Andrew (Andy) Stafford has been our Head of Global Delivery since July 2020. Prior to joining Cognizant, he held a
variety of executive positions, including Group Chief Operating Officer of Computacenter PLC from July 2017 to
November 2018, and was Global Head of Services and Delivery for Unisys Inc. from April 2016 to May 2017. Mr.
Stafford also spent nearly two decades with Accenture, first from 1988 to 1997 and then again from 2005 to 2013, in
various leadership roles, the most recent being Senior Managing Director (Global Lead) from July 2012 to November
2013 and Managing Director of the Asia Pacific Region from 2009 to 2012. In between stints at Accenture, he was the
Chief Operating Officer at Xchanging from September 2001 to November 2003, Chief Technology Officer at Virgin.com
from September 2000 to March 2001, and he also spent time at Deloitte Consulting and Computacenter PLC. He holds a
bachelor's degree in Electrical Engineering and Electronics from the University of Manchester Institute of Science and
Technology in Manchester, England.
None of our executive officers is related to any other executive officer or to any of our Directors. Our executive officers
are appointed annually by the Board of Directors and generally serve until their successors are duly appointed and qualified.
Corporate History
We began our IT development and maintenance services business in early 1994 as an in-house technology development
center for The Dun & Bradstreet Corporation and its operating units. In 1996, we were spun-off from The Dun & Bradstreet
Corporation and, in 1998, we completed an initial public offering to become a public company.
Available Information
We make available the following public filings with the SEC free of charge through our website at www.cognizant.com as
soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC:
The COVID-19 pandemic has had a significant and continuing adverse impact upon, and this or other pandemics may
have a material adverse impact upon, our business, liquidity, results of operations and financial condition, including as a result
• our Annual Reports on Form 10-K and any amendments thereto;
• our Quarterly Reports on Form 10-Q and any amendments thereto; and
• our Current Reports on Form 8-K and any amendments thereto.
No information on our website is incorporated by reference into this Form 10-K or any other public filing made by us
with the SEC.
8
9
We face various important risks and uncertainties, including those described below, that could adversely affect our
business, results of operations and financial condition and, as a result, cause a decline in the trading price of our common
Item 1A. Risk Factors
stock.
Risks Related to our Business and Operations
Our results of operations could be adversely affected by economic and political conditions globally and in
particular in the markets in which our clients and operations are concentrated.
Global macroeconomic conditions have a significant effect on our business as well as the businesses of our clients.
Volatile, negative or uncertain economic conditions could cause our clients to reduce, postpone or cancel spending on projects
with us and could make it more difficult for us to accurately forecast client demand and have available the right resources to
profitably address such client demand. Clients may reduce demand for services quickly and with little warning, which may
cause us to incur extra costs where we have employed more personnel than client demand supports.
Our business is particularly susceptible to economic and political conditions in the markets where our clients or operations
are concentrated. Our revenues are highly dependent on clients located in the United States and Europe, and any adverse
economic, political or legal uncertainties or adverse developments, including due to the uncertainty related to the potential
economic and regulatory impacts of the United Kingdom's exit from the European Union, may cause clients in these
geographies to reduce their spending and materially adversely impact our business. Many of our clients are in the financial
services and healthcare industries, so any decrease in growth or significant consolidation in these industries or regulatory
policies that restrict these industries may reduce demand for our services. Economic and political developments in India, where
a significant majority of our operations and technical personnel are located, or in other countries where we maintain delivery
operations, may also have a significant impact on our business and costs of operations. As a developing country, India has
experienced and may continue to experience high inflation and wage growth, fluctuations in gross domestic product growth and
volatility in currency exchange rates, any of which could materially adversely affect our cost of operations. Additionally, we
benefit from governmental policies in India that encourage foreign investment and promote the ease of doing business, such as
tax incentives, and any change in policy or circumstances that results in the elimination of such benefits or degradation of the
rule of law, or imposition of new adverse restrictions or costs on our operations could have a material adverse effect on our
business, results of operations and financial condition.
The COVID-19 pandemic has had a significant and continuing adverse impact upon, and this or other pandemics
may have a material adverse impact upon, our business, liquidity, results of operations and financial condition.
The ongoing global COVID-19 pandemic has caused and continues to cause significant loss of life and interruption to the
global economy and has resulted in the curtailment of activities by businesses and consumers in much of the world as
governments and others seek to limit the spread of the disease, including through business and transportation shutdowns and
restrictions on people’s movement and congregation. Among other things, many of our and our clients’ offices have been
closed and employees have been working from home and many consumer-facing businesses have closed or are operating at a
significantly reduced level to observe various social distancing requirements and government-mandated closures. The overall
result has been a dramatic reduction in activity in the global economy, a reduction in demand for many products and services
and significant adverse impacts to the financial markets, including the trading price of our common stock in the past and
potentially in the future.
of the following:
•
Reduced client demand for services – The vast majority of our business is with clients in the United States, the
United Kingdom and other countries in Europe, all regions that have been hard hit by the pandemic. The
COVID-19 pandemic has reduced, and other future pandemics could reduce, demand for our services, particularly
in regions that have been hit hard by the pandemic and from clients in the retail, consumer goods, travel and
hospitality, and communications and media industries, and is likely to continue to result in reduced demand for
our services as clients across many industries face reduced demand for their products and services. Among other
things, some of our clients have postponed, cancelled or scaled-back existing projects and not entered into or
reduced the scope of potential projects, and may continue to do so.
•
Client pricing pressure, payment term extensions and insolvency risk – As clients face reduced demand for their
products and services, reduce their business activity and face increased financial pressure on their businesses, we
have faced and may continue to face downward pressure on our pricing and gross margins due to pricing
also a member of the Board of Directors of the US-India Strategic Partnership Forum since May 2018. Mr. Frank has a
Item 1A. Risk Factors
Bachelor of Arts degree in Economics from Yale University.
(6) Balu Ganesh Ayyar has been our Executive Vice President and President, Digital Business Operations since August 2019.
Prior to joining Cognizant, Mr. Ayyar was the CEO of Mphasis, a global IT services company listed in India, from 2009
to 2017. Prior to Mphasis, Mr. Ayyar spent nearly two decades with Hewlett-Packard, holding a variety of leadership
roles across multiple geographies.
(7) Greg Hyttenrauch has been our Executive Vice President and President, North America since January 2021. Prior to that
he served as our Executive Vice President and President, Cognizant Digital Systems & Technology from December 2019
to January 2021. Prior to joining Cognizant, Mr. Hyttenrauch served as Director, Global Cloud and Security Services for
Vodafone from October 2015 to November 2019. Prior to Vodafone, Mr. Hyttenrauch held a variety of senior leadership
positions at Capgemini from 2008 to 2015, including Deputy CEO, Global Infrastructure Services, and Global Sales
Officer and CEO of the UK and Nordic Outsourcing Business Unit. Before joining Capgemini, Mr. Hyttenrauch held
positions with CSC and EDS. He began his career with 13 years in the Canadian military, rising to the rank of captain.
Mr. Hyttenrauch holds a bachelor’s degree in Mechanical Engineering from the Royal Military College of Canada and an
MBA in International Management from the University of Ottawa.
(8) Ursula Morgenstern has been Cognizant’s Executive Vice President and President, Global Growth Markets, which covers
all of Cognizant’s markets outside of North America, since December 2020. Prior to joining Cognizant, Ms. Morgenstern
spent 16 years with Atos, a multinational IT services and consulting company in various management roles from 2004 to
2020, most recently as Head of Atos Central Europe from April 2020 to October 2020, CEO of Atos Germany from
March 2018 to October 2020, and Global Head of Business and Platform Solutions from July 2015 to February 2018.
Before Atos, Ms. Morgenstern was a partner with KPMG from 1998 to 2002. Her other previous roles include General
Manager of K&V Information Systems from 1996 to 1998 and Project Manager for Kiefer & Veittinger from 1991 to
1996. She holds a bachelor’s degree in Business Management from the University of Mannheim and an MBA from York
University (Toronto).
(9) Andrew (Andy) Stafford has been our Head of Global Delivery since July 2020. Prior to joining Cognizant, he held a
variety of executive positions, including Group Chief Operating Officer of Computacenter PLC from July 2017 to
November 2018, and was Global Head of Services and Delivery for Unisys Inc. from April 2016 to May 2017. Mr.
Stafford also spent nearly two decades with Accenture, first from 1988 to 1997 and then again from 2005 to 2013, in
various leadership roles, the most recent being Senior Managing Director (Global Lead) from July 2012 to November
2013 and Managing Director of the Asia Pacific Region from 2009 to 2012. In between stints at Accenture, he was the
Chief Operating Officer at Xchanging from September 2001 to November 2003, Chief Technology Officer at Virgin.com
from September 2000 to March 2001, and he also spent time at Deloitte Consulting and Computacenter PLC. He holds a
bachelor's degree in Electrical Engineering and Electronics from the University of Manchester Institute of Science and
Technology in Manchester, England.
None of our executive officers is related to any other executive officer or to any of our Directors. Our executive officers
are appointed annually by the Board of Directors and generally serve until their successors are duly appointed and qualified.
Corporate History
Available Information
We began our IT development and maintenance services business in early 1994 as an in-house technology development
center for The Dun & Bradstreet Corporation and its operating units. In 1996, we were spun-off from The Dun & Bradstreet
Corporation and, in 1998, we completed an initial public offering to become a public company.
We make available the following public filings with the SEC free of charge through our website at www.cognizant.com as
soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC:
• our Annual Reports on Form 10-K and any amendments thereto;
• our Quarterly Reports on Form 10-Q and any amendments thereto; and
• our Current Reports on Form 8-K and any amendments thereto.
No information on our website is incorporated by reference into this Form 10-K or any other public filing made by us
with the SEC.
We face various important risks and uncertainties, including those described below, that could adversely affect our
business, results of operations and financial condition and, as a result, cause a decline in the trading price of our common
stock.
Risks Related to our Business and Operations
Our results of operations could be adversely affected by economic and political conditions globally and in
particular in the markets in which our clients and operations are concentrated.
Global macroeconomic conditions have a significant effect on our business as well as the businesses of our clients.
Volatile, negative or uncertain economic conditions could cause our clients to reduce, postpone or cancel spending on projects
with us and could make it more difficult for us to accurately forecast client demand and have available the right resources to
profitably address such client demand. Clients may reduce demand for services quickly and with little warning, which may
cause us to incur extra costs where we have employed more personnel than client demand supports.
Our business is particularly susceptible to economic and political conditions in the markets where our clients or operations
are concentrated. Our revenues are highly dependent on clients located in the United States and Europe, and any adverse
economic, political or legal uncertainties or adverse developments, including due to the uncertainty related to the potential
economic and regulatory impacts of the United Kingdom's exit from the European Union, may cause clients in these
geographies to reduce their spending and materially adversely impact our business. Many of our clients are in the financial
services and healthcare industries, so any decrease in growth or significant consolidation in these industries or regulatory
policies that restrict these industries may reduce demand for our services. Economic and political developments in India, where
a significant majority of our operations and technical personnel are located, or in other countries where we maintain delivery
operations, may also have a significant impact on our business and costs of operations. As a developing country, India has
experienced and may continue to experience high inflation and wage growth, fluctuations in gross domestic product growth and
volatility in currency exchange rates, any of which could materially adversely affect our cost of operations. Additionally, we
benefit from governmental policies in India that encourage foreign investment and promote the ease of doing business, such as
tax incentives, and any change in policy or circumstances that results in the elimination of such benefits or degradation of the
rule of law, or imposition of new adverse restrictions or costs on our operations could have a material adverse effect on our
business, results of operations and financial condition.
The COVID-19 pandemic has had a significant and continuing adverse impact upon, and this or other pandemics
may have a material adverse impact upon, our business, liquidity, results of operations and financial condition.
The ongoing global COVID-19 pandemic has caused and continues to cause significant loss of life and interruption to the
global economy and has resulted in the curtailment of activities by businesses and consumers in much of the world as
governments and others seek to limit the spread of the disease, including through business and transportation shutdowns and
restrictions on people’s movement and congregation. Among other things, many of our and our clients’ offices have been
closed and employees have been working from home and many consumer-facing businesses have closed or are operating at a
significantly reduced level to observe various social distancing requirements and government-mandated closures. The overall
result has been a dramatic reduction in activity in the global economy, a reduction in demand for many products and services
and significant adverse impacts to the financial markets, including the trading price of our common stock in the past and
potentially in the future.
The COVID-19 pandemic has had a significant and continuing adverse impact upon, and this or other pandemics may
have a material adverse impact upon, our business, liquidity, results of operations and financial condition, including as a result
of the following:
•
•
Reduced client demand for services – The vast majority of our business is with clients in the United States, the
United Kingdom and other countries in Europe, all regions that have been hard hit by the pandemic. The
COVID-19 pandemic has reduced, and other future pandemics could reduce, demand for our services, particularly
in regions that have been hit hard by the pandemic and from clients in the retail, consumer goods, travel and
hospitality, and communications and media industries, and is likely to continue to result in reduced demand for
our services as clients across many industries face reduced demand for their products and services. Among other
things, some of our clients have postponed, cancelled or scaled-back existing projects and not entered into or
reduced the scope of potential projects, and may continue to do so.
Client pricing pressure, payment term extensions and insolvency risk – As clients face reduced demand for their
products and services, reduce their business activity and face increased financial pressure on their businesses, we
have faced and may continue to face downward pressure on our pricing and gross margins due to pricing
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•
•
•
•
concessions to clients and requests from clients to extend payment terms. In addition, some of our clients have
requested and may continue to request extended payment terms, which may have an adverse effect on our cash
flows from operations. We may also face a significantly elevated risk of client insolvency, bankruptcy or liquidity
challenges where we may perform services and incur expenses for which we are not paid.
Delivery challenges – Due to the closures of many of our and our clients’ facilities, including as a result of various
orders from national, state or local governments, we have faced and may continue to face, in the near term or in
future pandemics, challenges in delivering services to our clients and satisfying contractually agreed upon service
levels. The pandemic, particularly in India, but also in the Philippines and other countries where we have near-
shore or offshore delivery operations for clients, as well as our in-country offices and offices of clients where our
associates may normally work, has impacted and may continue to impact our ability to deliver services to clients.
Our work-from-home arrangements for many of our employees may increase our exposure to security breaches or
cyberattacks. The ransomware attack we were subject to in April 2020 compounded the challenges we faced in
enabling work-from-home arrangements and resulted in setbacks and delays to such efforts. A significant
worsening of the pandemic, particularly in India, or another security incident during the pandemic, could
materially impair our ability to deliver services to clients to an extent that may have a material adverse impact to
our business, liquidity, results of operations and financial condition.
Increased costs – We face increased costs from the pandemic, including as a result of mitigation efforts such as
enabling increased work-from-home capabilities and additional health and safety measures.
Diversion of and strain on management and other corporate resources – Addressing the significant personal and
business challenges presented by the pandemic, including various business continuity measures and the need to
enable work-from-home arrangements for many of our associates, has demanded significant management time and
attention and strained other corporate resources, and is expected to continue to do so. Among other things, this
may adversely impact our client and associate development and our ability to execute our strategy and various
transformation initiatives.
Reduced employee morale and productivity – The significant personal and business challenges presented by a
pandemic, including the COVID-19 pandemic, such as the potentially life-threatening health risks to employees
and their families and friends, the closures of schools and the unavailability of various services our employees
may rely upon, such as childcare, have been and may be a cause of employee morale concerns and may adversely
impact employee productivity.
The COVID-19 pandemic continues to evolve. The ultimate extent to which the pandemic impacts our business, liquidity,
results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be
predicted with confidence, including the delivery and effectiveness of vaccines, future mutations of the COVID-19 virus and
any resulting impact on the effectiveness of vaccines, the duration and extent of the pandemic and waves of infection, travel
restrictions and social distancing, the duration and extent of business closures and business disruptions and the effectiveness of
actions taken to contain, treat and prevent the disease. If we or our clients experience prolonged shutdowns or other business
disruptions, our business, liquidity, results of operations, financial condition and the trading price of our common stock may be
materially adversely affected, and our ability to access the capital markets may be limited.
If we are unable to attract, train and retain skilled employees to satisfy client demand, including highly skilled
technical personnel and personnel with experience in key digital areas, as well as senior management to lead our
business globally, our business and results of operations may be materially adversely affected.
Our success is dependent, in large part, on our ability to keep our supply of skilled employees, including project
managers, IT engineers and senior technical personnel, in particular those with experience in key digital areas, in balance with
client demand around the world and on our ability to attract and retain senior management with the knowledge and skills to lead
our business globally. Each year, we must hire tens of thousands of new employees and reskill, retain, and motivate our
workforce of hundreds of thousands of employees with diverse skills and expertise in order to serve client demands across the
globe, respond quickly to rapid and ongoing technological, industry and macroeconomic developments and grow and manage
our business. We also must continue to maintain an effective senior leadership team that, among other things, is effective in
executing on our strategic goals and growing our digital business. The loss of senior executives, or the failure to attract,
integrate and retain new senior executives as the needs of our business require, could have a material adverse effect on our
business and results of operations.
Competition for skilled labor is intense and, in some jurisdictions and service areas in which we operate and, in particular,
in key digital areas, there are more open positions than qualified persons to fill these positions. Our business has experienced
and may continue to experience significant employee attrition, which may cause us to incur increased costs to hire new
employees with the desired skills. Costs associated with recruiting and training employees are significant. If we are unable to
hire or deploy employees with the needed skillsets or if we are unable to adequately equip our employees with the skills needed,
this could materially adversely affect our business. Additionally, if we are unable to maintain an employee environment that is
competitive and appealing, it could have an adverse effect on engagement and retention, which may materially adversely affect
our business.
We face challenges related to growing our business organically as well as inorganically through acquisitions, and
we may not be able to achieve our targeted growth rates.
Achievement of our targeted growth rates requires continued significant organic growth of our business as well as
inorganic growth through acquisitions. To achieve such growth, we must, among other things, continue to significantly expand
our global operations, increase our product and service offerings, in particular with respect to digital, and scale our
infrastructure to support such business growth. Continued business growth increases the complexity of our business and places
significant strain on our management, employees, operations, systems, delivery, financial resources, and internal financial
control and reporting functions, which we will have to continue to develop and improve to sustain such growth. We must
continually recruit and train new employees, retain and reskill, as necessary, existing sales, technical, finance, marketing and
management employees with the knowledge, skills and experience that our business model requires and effectively manage our
employees worldwide to support our culture, values, strategies and goals. Additionally, we expect to continue pursuing strategic
and targeted acquisitions and investments to enhance our offerings of services and solutions or to enable us to expand our
talent, experience and capabilities in key digital areas or in particular geographies or industries. We may not be successful in
identifying suitable opportunities, completing targeted transactions or achieving the desired results, and such opportunities may
divert our management's time and focus away from our core business. We may face challenges in effectively integrating
acquired businesses into our ongoing operations and in assimilating and retaining employees of those businesses into our
culture and organizational structure. If we are unable to manage our growth effectively, complete acquisitions of the number,
magnitude and nature we have targeted, or successfully integrate any acquired businesses into our operations, we may not be
able to achieve our targeted growth rates or improve our market share, profitability or competitive position generally or in
specific markets or services.
We may not be able to achieve our profitability goals and maintain our capital return strategy.
Our goals for profitability and capital return rely upon a number of assumptions, including our ability to improve the
efficiency of our operations and make successful investments to grow and further develop our business. Our profitability
depends on the efficiency with which we run our operations and the cost of our operations, especially the compensation and
benefits costs of our employees. We have incurred, and may continue to incur, substantial costs related to implementing our
strategy to optimize such costs, and we may not realize the ultimate cost savings that we expect. We may not be able to
efficiently utilize our employees if increased regulation, policy changes or administrative burdens of immigration, work visas or
client worksite placement prevents us from deploying our employees on a timely basis, or at all, to fulfill the needs of our
clients. Increases in wages and other costs may put pressure on our profitability. Fluctuations in foreign currency exchange rates
can also have adverse effects on our revenues, income from operations and net income when items denominated in other
currencies are translated or remeasured into U.S. dollars for presentation of our consolidated financial statements. We have
entered into foreign exchange forward contracts intended to partially offset the impact of the movement of the exchange rates
on future operating costs and to mitigate foreign currency risk on foreign currency denominated net monetary assets. However,
the hedging strategies that we have implemented, or may in the future implement, to mitigate foreign currency exchange rate
risks may not reduce or completely offset our exposure to foreign exchange rate fluctuations and may expose our business to
unexpected market, operational and counterparty credit risks. We are particularly susceptible to wage and cost pressures in
India and the exchange rate of the Indian rupee relative to the currencies of our client contracts due to the fact that the
substantial majority of our employees are in India while our contracts with clients are typically in the local currency of the
country where our clients are located. If we are unable to improve the efficiency of our operations, our operating margin may
decline and our business, results of operations and financial condition may be materially adversely affected. Failure to achieve
our profitability goals could adversely affect our business, financial condition and results of operations.
With respect to capital return, our ability and decisions to pay dividends and repurchase shares depend on a variety of
factors, including the cash flow generated from operations, our cash and investment balances, our net income, our overall
liquidity position, potential alternative uses of cash, such as acquisitions, and anticipated future economic conditions and
financial results. Failure to maintain our capital return strategy may adversely impact our reputation with shareholders and
shareholders’ perception of our business and the trading price of our common stock.
Our failure to meet specified service levels or milestones required by certain of our client contracts may result in
our client contracts being less profitable, potential liability for penalties or damages or reputational harm.
Many of our client contracts include clauses that tie our compensation to the achievement of agreed-upon performance
standards or milestones. Failure to satisfy these requirements could significantly reduce our fees under the contracts, increase
the cost to us of meeting performance standards or milestones, delay expected payments, subject us to potential damage claims
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concessions to clients and requests from clients to extend payment terms. In addition, some of our clients have
requested and may continue to request extended payment terms, which may have an adverse effect on our cash
flows from operations. We may also face a significantly elevated risk of client insolvency, bankruptcy or liquidity
challenges where we may perform services and incur expenses for which we are not paid.
•
Delivery challenges – Due to the closures of many of our and our clients’ facilities, including as a result of various
orders from national, state or local governments, we have faced and may continue to face, in the near term or in
future pandemics, challenges in delivering services to our clients and satisfying contractually agreed upon service
levels. The pandemic, particularly in India, but also in the Philippines and other countries where we have near-
shore or offshore delivery operations for clients, as well as our in-country offices and offices of clients where our
associates may normally work, has impacted and may continue to impact our ability to deliver services to clients.
Our work-from-home arrangements for many of our employees may increase our exposure to security breaches or
cyberattacks. The ransomware attack we were subject to in April 2020 compounded the challenges we faced in
enabling work-from-home arrangements and resulted in setbacks and delays to such efforts. A significant
worsening of the pandemic, particularly in India, or another security incident during the pandemic, could
materially impair our ability to deliver services to clients to an extent that may have a material adverse impact to
our business, liquidity, results of operations and financial condition.
•
•
Increased costs – We face increased costs from the pandemic, including as a result of mitigation efforts such as
enabling increased work-from-home capabilities and additional health and safety measures.
Diversion of and strain on management and other corporate resources – Addressing the significant personal and
business challenges presented by the pandemic, including various business continuity measures and the need to
enable work-from-home arrangements for many of our associates, has demanded significant management time and
attention and strained other corporate resources, and is expected to continue to do so. Among other things, this
may adversely impact our client and associate development and our ability to execute our strategy and various
transformation initiatives.
•
Reduced employee morale and productivity – The significant personal and business challenges presented by a
pandemic, including the COVID-19 pandemic, such as the potentially life-threatening health risks to employees
and their families and friends, the closures of schools and the unavailability of various services our employees
may rely upon, such as childcare, have been and may be a cause of employee morale concerns and may adversely
impact employee productivity.
The COVID-19 pandemic continues to evolve. The ultimate extent to which the pandemic impacts our business, liquidity,
results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be
predicted with confidence, including the delivery and effectiveness of vaccines, future mutations of the COVID-19 virus and
any resulting impact on the effectiveness of vaccines, the duration and extent of the pandemic and waves of infection, travel
restrictions and social distancing, the duration and extent of business closures and business disruptions and the effectiveness of
actions taken to contain, treat and prevent the disease. If we or our clients experience prolonged shutdowns or other business
disruptions, our business, liquidity, results of operations, financial condition and the trading price of our common stock may be
materially adversely affected, and our ability to access the capital markets may be limited.
If we are unable to attract, train and retain skilled employees to satisfy client demand, including highly skilled
technical personnel and personnel with experience in key digital areas, as well as senior management to lead our
business globally, our business and results of operations may be materially adversely affected.
Our success is dependent, in large part, on our ability to keep our supply of skilled employees, including project
managers, IT engineers and senior technical personnel, in particular those with experience in key digital areas, in balance with
client demand around the world and on our ability to attract and retain senior management with the knowledge and skills to lead
our business globally. Each year, we must hire tens of thousands of new employees and reskill, retain, and motivate our
workforce of hundreds of thousands of employees with diverse skills and expertise in order to serve client demands across the
globe, respond quickly to rapid and ongoing technological, industry and macroeconomic developments and grow and manage
our business. We also must continue to maintain an effective senior leadership team that, among other things, is effective in
executing on our strategic goals and growing our digital business. The loss of senior executives, or the failure to attract,
integrate and retain new senior executives as the needs of our business require, could have a material adverse effect on our
business and results of operations.
Competition for skilled labor is intense and, in some jurisdictions and service areas in which we operate and, in particular,
in key digital areas, there are more open positions than qualified persons to fill these positions. Our business has experienced
and may continue to experience significant employee attrition, which may cause us to incur increased costs to hire new
employees with the desired skills. Costs associated with recruiting and training employees are significant. If we are unable to
hire or deploy employees with the needed skillsets or if we are unable to adequately equip our employees with the skills needed,
this could materially adversely affect our business. Additionally, if we are unable to maintain an employee environment that is
competitive and appealing, it could have an adverse effect on engagement and retention, which may materially adversely affect
our business.
We face challenges related to growing our business organically as well as inorganically through acquisitions, and
we may not be able to achieve our targeted growth rates.
Achievement of our targeted growth rates requires continued significant organic growth of our business as well as
inorganic growth through acquisitions. To achieve such growth, we must, among other things, continue to significantly expand
our global operations, increase our product and service offerings, in particular with respect to digital, and scale our
infrastructure to support such business growth. Continued business growth increases the complexity of our business and places
significant strain on our management, employees, operations, systems, delivery, financial resources, and internal financial
control and reporting functions, which we will have to continue to develop and improve to sustain such growth. We must
continually recruit and train new employees, retain and reskill, as necessary, existing sales, technical, finance, marketing and
management employees with the knowledge, skills and experience that our business model requires and effectively manage our
employees worldwide to support our culture, values, strategies and goals. Additionally, we expect to continue pursuing strategic
and targeted acquisitions and investments to enhance our offerings of services and solutions or to enable us to expand our
talent, experience and capabilities in key digital areas or in particular geographies or industries. We may not be successful in
identifying suitable opportunities, completing targeted transactions or achieving the desired results, and such opportunities may
divert our management's time and focus away from our core business. We may face challenges in effectively integrating
acquired businesses into our ongoing operations and in assimilating and retaining employees of those businesses into our
culture and organizational structure. If we are unable to manage our growth effectively, complete acquisitions of the number,
magnitude and nature we have targeted, or successfully integrate any acquired businesses into our operations, we may not be
able to achieve our targeted growth rates or improve our market share, profitability or competitive position generally or in
specific markets or services.
We may not be able to achieve our profitability goals and maintain our capital return strategy.
Our goals for profitability and capital return rely upon a number of assumptions, including our ability to improve the
efficiency of our operations and make successful investments to grow and further develop our business. Our profitability
depends on the efficiency with which we run our operations and the cost of our operations, especially the compensation and
benefits costs of our employees. We have incurred, and may continue to incur, substantial costs related to implementing our
strategy to optimize such costs, and we may not realize the ultimate cost savings that we expect. We may not be able to
efficiently utilize our employees if increased regulation, policy changes or administrative burdens of immigration, work visas or
client worksite placement prevents us from deploying our employees on a timely basis, or at all, to fulfill the needs of our
clients. Increases in wages and other costs may put pressure on our profitability. Fluctuations in foreign currency exchange rates
can also have adverse effects on our revenues, income from operations and net income when items denominated in other
currencies are translated or remeasured into U.S. dollars for presentation of our consolidated financial statements. We have
entered into foreign exchange forward contracts intended to partially offset the impact of the movement of the exchange rates
on future operating costs and to mitigate foreign currency risk on foreign currency denominated net monetary assets. However,
the hedging strategies that we have implemented, or may in the future implement, to mitigate foreign currency exchange rate
risks may not reduce or completely offset our exposure to foreign exchange rate fluctuations and may expose our business to
unexpected market, operational and counterparty credit risks. We are particularly susceptible to wage and cost pressures in
India and the exchange rate of the Indian rupee relative to the currencies of our client contracts due to the fact that the
substantial majority of our employees are in India while our contracts with clients are typically in the local currency of the
country where our clients are located. If we are unable to improve the efficiency of our operations, our operating margin may
decline and our business, results of operations and financial condition may be materially adversely affected. Failure to achieve
our profitability goals could adversely affect our business, financial condition and results of operations.
With respect to capital return, our ability and decisions to pay dividends and repurchase shares depend on a variety of
factors, including the cash flow generated from operations, our cash and investment balances, our net income, our overall
liquidity position, potential alternative uses of cash, such as acquisitions, and anticipated future economic conditions and
financial results. Failure to maintain our capital return strategy may adversely impact our reputation with shareholders and
shareholders’ perception of our business and the trading price of our common stock.
Our failure to meet specified service levels or milestones required by certain of our client contracts may result in
our client contracts being less profitable, potential liability for penalties or damages or reputational harm.
Many of our client contracts include clauses that tie our compensation to the achievement of agreed-upon performance
standards or milestones. Failure to satisfy these requirements could significantly reduce our fees under the contracts, increase
the cost to us of meeting performance standards or milestones, delay expected payments, subject us to potential damage claims
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under the contract terms or harm our reputation. The use of new technologies in our offerings can expose us to additional risks
if those technologies fail to work as predicted, which could lead to cost overruns, project delays, financial penalties, or damage
to our reputation. Clients also often have the right to terminate a contract and pursue damage claims for serious or repeated
failure to meet these service commitments. Some of our contracts provide that a portion of our compensation depends on
performance measures such as cost-savings, revenue enhancement, benefits produced, business goals attained and adherence to
schedule. These goals can be complex and may depend on our clients’ actual levels of business activity or may be based on
assumptions that are later determined not to be achievable or accurate. As such, these provisions may increase the variability in
revenues and margins earned on those contracts and have in the past, and could in the future, result in significant losses on such
contracts.
We face intense and evolving competition and significant technological advances that our service offerings must
keep pace with in the rapidly changing markets we compete in.
The markets we serve and operate in are highly competitive, subject to rapid change and characterized by a large number
of participants, as described in “Part I, Item 1. Business-Competition.” In addition to large, global competitors, we face
competition in many geographic markets from numerous smaller, local competitors that may have more experience with
operations in these markets, have well-established relationships with our desired clients, or be able to provide services and
solutions at lower costs or on terms more attractive to clients than we can. Consolidation activity may also result in new
competitors with greater scale, a broader footprint or vertical integration that makes them more attractive to clients as a single
provider of integrated products and services. In addition, concurrent use by many clients of multiple professional service
providers means that we are required to be continually competitive on the quality, scope and pricing of our offerings or face a
reduction or elimination of our business.
Our success depends on our ability to continue to develop and implement services and solutions that anticipate and
respond to rapid and continuing changes in technology to serve the evolving needs of our clients. Examples of areas of
significant change include digital-, cloud- and security-related offerings, which are continually evolving, as well as
developments in areas such as AI, augmented reality, automation, blockchain, IoT, quantum computing and as-a-service
solutions. If we do not sufficiently invest in new technologies, successfully adapt to industry developments and changing
demand, and evolve and expand our business at sufficient speed and scale to keep pace with the demands of the markets we
serve, we may be unable to develop and maintain a competitive advantage and execute on our growth strategy, which would
materially adversely affect our business, results of operations and financial condition.
Our relationships with our third party alliance partners, who supply us with necessary components to the services and
solutions we offer our clients, are also critical to our ability to provide many of our services and solutions that address client
demands. There can be no assurance that we will be able to maintain such relationships. Among other things, such alliance
partners may in the future decide to compete with us, form exclusive or more favorable arrangements with our competitors or
otherwise reduce our access to their products impairing our ability to provide the services and solutions demanded by clients.
We face legal, reputational and financial risks if we fail to protect client and/or Cognizant data from security
breaches and/or cyberattacks.
In order to provide our services and solutions, we depend on global information technology networks and systems, to
process, transmit, host and securely store electronic information (including our confidential information and the confidential
information of our clients) and to communicate among our locations around the world and with our clients, suppliers and
partners. Security breaches, employee malfeasance, or human or technological error create risks of shutdowns or disruptions of
our operations and potential unauthorized access and/or disclosure of our or our clients’ sensitive data, which in turn could
jeopardize projects that are critical to our operations or the operations of our clients’ businesses and have other adverse impacts
on our business or the business of our clients.
Like other global companies, we and the clients and vendors we interact with face threats to data and systems, including
by nation state threat actors, perpetrators of random or targeted malicious cyberattacks, computer viruses, malware, worms, bot
attacks or other destructive or disruptive software and attempts to misappropriate client information and cause system failures
and disruptions. For example, in April 2020, we announced a security incident involving a Maze ransomware attack. The attack
resulted in unauthorized access to certain data and caused significant disruption to our business.
A security compromise of our information systems, or of those of businesses with which we interact, that results in
confidential information being accessed by unauthorized or improper persons, could harm our reputation and expose us to
regulatory actions, client attrition due to reputational concerns or otherwise, containment and remediation expenses, and claims
brought by our clients or others for breaching contractual confidentiality and security provisions or data protection laws.
Monetary damages imposed on us could be significant and may impose costs in excess of insurance policy limits or not be
covered by our insurance at all. Techniques used by bad actors to obtain unauthorized access, disable or degrade service, or
sabotage systems continuously evolve and may not immediately produce signs of intrusion, and we may be unable to anticipate
these techniques or to implement adequate preventative measures. In addition, a security breach could require that we expend
substantial additional resources related to the security of our information systems, diverting resources from other projects and
disrupting our businesses. Any remediation measures that we have taken or that we may undertake in the future in response to
the security incident announced in April 2020 or other security threats may be insufficient to prevent future attacks.
We are required to comply with increasingly complex and changing data security and privacy regulations in the United
States, the United Kingdom, the European Union and in other jurisdictions in which we operate that regulate the collection, use
and transfer of personal data, including the transfer of personal data between or among countries. For example, the European
Union’s General Data Protection Regulation has imposed stringent compliance obligations regarding the handling of personal
data and has resulted in the issuance of significant financial penalties for noncompliance. In the United States, there have been
proposals for federal privacy legislation and many new state privacy laws are on the horizon. Recently enacted legislation, such
as the California Consumer Privacy Act, and its successor the California Privacy Rights Act that will go into effect on January
1, 2023, impose extensive privacy requirements on organizations governing personal information. Existing U.S. sectoral laws
such as the Health Insurance Portability and Accountability Act also impose extensive privacy and security requirements on
organizations operating in the healthcare industry, which we serve. Additionally, in India, the Personal Data Protection Bill,
2019 continues to make progress through the Indian Parliament. If enacted in its current form it would impose stringent
obligations on the handling of personal data, including certain localization requirements for sensitive data. Other countries have
enacted or are considering enacting data localization laws that require certain data to stay within their borders. We may also
face audits or investigations by one or more domestic or foreign government agencies or our clients pursuant to our contractual
obligations relating to our compliance with these regulations. Complying with changing regulatory requirements requires us to
incur substantial costs, exposes us to potential regulatory action or litigation, and may require changes to our business practices
in certain jurisdictions, any of which could materially adversely affect our business operations and operating results.
If our risk management, business continuity and disaster recovery plans are not effective and our global delivery
capabilities are impacted, our business and results of operations may be materially adversely affected and we may suffer
harm to our reputation.
Our business model is dependent on our global delivery capabilities, which include coordination between our delivery
centers in India, our other global and regional delivery centers, the offices of our clients and our associates worldwide. System
failures, outages and operational disruptions may be caused by factors outside of our control, such as hostilities, political unrest,
terrorist attacks, natural disasters (including events that may be caused or exacerbated by climate change), and public health
emergencies and pandemics, such as the COVID-19 pandemic, affecting the geographies where our people, equipment and
clients are located. For example, we have substantial global delivery operations in Chennai, India, a city that has experienced
severe rains, flooding and droughts in recent years and is at significant risk of increasingly severe natural disasters in future
years as a result of climate change. Our risk management, business continuity and disaster recovery plans may not be effective
at preventing or mitigating the effects of such disruptions, particularly in the case of catastrophic events or longer term
developments, such as the impacts of climate change. Any such disruption may result in lost revenues, a loss of clients and
reputational damage, which would have an adverse effect on our business, results of operations and financial condition.
A substantial portion of our employees in the United States, United Kingdom, European Union and other
jurisdictions rely on visas to work in those areas such that any restrictions on such visas or immigration more generally
or increased costs of obtaining such visas or increases in the wages we are required to pay associates on visas may affect
our ability to compete for and provide services to clients in these jurisdictions, which could materially adversely affect
our business, results of operations and financial condition.
A substantial portion of our employees in the United States and in many other jurisdictions, including countries in
Europe, rely upon temporary work authorization or work permits, which makes our business particularly vulnerable to changes
and variations in immigration laws and regulations, including written changes and policy changes to the manner in which the
laws and regulations are interpreted or enforced, and potential enforcement actions and penalties that might cause us to lose
access to such visas. The political environment in the United States, the United Kingdom and other countries in recent years has
included significant support for anti-immigrant legislation and administrative changes. Many of these recent changes have
resulted in, and various proposed changes may result in, increased difficulty in obtaining timely visas that could impact our
ability to staff projects, including as a result of visa application rejections and delays in processing applications, and
significantly increased costs for us in obtaining visas or as a result of prevailing wage requirements for our associates on visas.
For example, in the United States, the prior administration adopted a number of policy changes and executive orders designed
to limit immigration and the ability of immigrants to be employed, including increased scrutiny of the issuance of new and the
renewal of existing H-1B visa applications and the placement of H-1B visa workers on third party worksites, increases to the
prevailing wage requirements that set a minimum level of compensation for visa holders and, for entities where more than 50%
of the workers in the United States hold H-1B and L-1 visas, increases in the visa costs for such entities. While a number of
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under the contract terms or harm our reputation. The use of new technologies in our offerings can expose us to additional risks
if those technologies fail to work as predicted, which could lead to cost overruns, project delays, financial penalties, or damage
to our reputation. Clients also often have the right to terminate a contract and pursue damage claims for serious or repeated
failure to meet these service commitments. Some of our contracts provide that a portion of our compensation depends on
performance measures such as cost-savings, revenue enhancement, benefits produced, business goals attained and adherence to
schedule. These goals can be complex and may depend on our clients’ actual levels of business activity or may be based on
assumptions that are later determined not to be achievable or accurate. As such, these provisions may increase the variability in
revenues and margins earned on those contracts and have in the past, and could in the future, result in significant losses on such
contracts.
We face intense and evolving competition and significant technological advances that our service offerings must
keep pace with in the rapidly changing markets we compete in.
The markets we serve and operate in are highly competitive, subject to rapid change and characterized by a large number
of participants, as described in “Part I, Item 1. Business-Competition.” In addition to large, global competitors, we face
competition in many geographic markets from numerous smaller, local competitors that may have more experience with
operations in these markets, have well-established relationships with our desired clients, or be able to provide services and
solutions at lower costs or on terms more attractive to clients than we can. Consolidation activity may also result in new
competitors with greater scale, a broader footprint or vertical integration that makes them more attractive to clients as a single
provider of integrated products and services. In addition, concurrent use by many clients of multiple professional service
providers means that we are required to be continually competitive on the quality, scope and pricing of our offerings or face a
reduction or elimination of our business.
Our success depends on our ability to continue to develop and implement services and solutions that anticipate and
respond to rapid and continuing changes in technology to serve the evolving needs of our clients. Examples of areas of
significant change include digital-, cloud- and security-related offerings, which are continually evolving, as well as
developments in areas such as AI, augmented reality, automation, blockchain, IoT, quantum computing and as-a-service
solutions. If we do not sufficiently invest in new technologies, successfully adapt to industry developments and changing
demand, and evolve and expand our business at sufficient speed and scale to keep pace with the demands of the markets we
serve, we may be unable to develop and maintain a competitive advantage and execute on our growth strategy, which would
materially adversely affect our business, results of operations and financial condition.
Our relationships with our third party alliance partners, who supply us with necessary components to the services and
solutions we offer our clients, are also critical to our ability to provide many of our services and solutions that address client
demands. There can be no assurance that we will be able to maintain such relationships. Among other things, such alliance
partners may in the future decide to compete with us, form exclusive or more favorable arrangements with our competitors or
otherwise reduce our access to their products impairing our ability to provide the services and solutions demanded by clients.
We face legal, reputational and financial risks if we fail to protect client and/or Cognizant data from security
breaches and/or cyberattacks.
In order to provide our services and solutions, we depend on global information technology networks and systems, to
process, transmit, host and securely store electronic information (including our confidential information and the confidential
information of our clients) and to communicate among our locations around the world and with our clients, suppliers and
partners. Security breaches, employee malfeasance, or human or technological error create risks of shutdowns or disruptions of
our operations and potential unauthorized access and/or disclosure of our or our clients’ sensitive data, which in turn could
jeopardize projects that are critical to our operations or the operations of our clients’ businesses and have other adverse impacts
on our business or the business of our clients.
Like other global companies, we and the clients and vendors we interact with face threats to data and systems, including
by nation state threat actors, perpetrators of random or targeted malicious cyberattacks, computer viruses, malware, worms, bot
attacks or other destructive or disruptive software and attempts to misappropriate client information and cause system failures
and disruptions. For example, in April 2020, we announced a security incident involving a Maze ransomware attack. The attack
resulted in unauthorized access to certain data and caused significant disruption to our business.
A security compromise of our information systems, or of those of businesses with which we interact, that results in
confidential information being accessed by unauthorized or improper persons, could harm our reputation and expose us to
regulatory actions, client attrition due to reputational concerns or otherwise, containment and remediation expenses, and claims
brought by our clients or others for breaching contractual confidentiality and security provisions or data protection laws.
Monetary damages imposed on us could be significant and may impose costs in excess of insurance policy limits or not be
covered by our insurance at all. Techniques used by bad actors to obtain unauthorized access, disable or degrade service, or
sabotage systems continuously evolve and may not immediately produce signs of intrusion, and we may be unable to anticipate
these techniques or to implement adequate preventative measures. In addition, a security breach could require that we expend
substantial additional resources related to the security of our information systems, diverting resources from other projects and
disrupting our businesses. Any remediation measures that we have taken or that we may undertake in the future in response to
the security incident announced in April 2020 or other security threats may be insufficient to prevent future attacks.
We are required to comply with increasingly complex and changing data security and privacy regulations in the United
States, the United Kingdom, the European Union and in other jurisdictions in which we operate that regulate the collection, use
and transfer of personal data, including the transfer of personal data between or among countries. For example, the European
Union’s General Data Protection Regulation has imposed stringent compliance obligations regarding the handling of personal
data and has resulted in the issuance of significant financial penalties for noncompliance. In the United States, there have been
proposals for federal privacy legislation and many new state privacy laws are on the horizon. Recently enacted legislation, such
as the California Consumer Privacy Act, and its successor the California Privacy Rights Act that will go into effect on January
1, 2023, impose extensive privacy requirements on organizations governing personal information. Existing U.S. sectoral laws
such as the Health Insurance Portability and Accountability Act also impose extensive privacy and security requirements on
organizations operating in the healthcare industry, which we serve. Additionally, in India, the Personal Data Protection Bill,
2019 continues to make progress through the Indian Parliament. If enacted in its current form it would impose stringent
obligations on the handling of personal data, including certain localization requirements for sensitive data. Other countries have
enacted or are considering enacting data localization laws that require certain data to stay within their borders. We may also
face audits or investigations by one or more domestic or foreign government agencies or our clients pursuant to our contractual
obligations relating to our compliance with these regulations. Complying with changing regulatory requirements requires us to
incur substantial costs, exposes us to potential regulatory action or litigation, and may require changes to our business practices
in certain jurisdictions, any of which could materially adversely affect our business operations and operating results.
If our risk management, business continuity and disaster recovery plans are not effective and our global delivery
capabilities are impacted, our business and results of operations may be materially adversely affected and we may suffer
harm to our reputation.
Our business model is dependent on our global delivery capabilities, which include coordination between our delivery
centers in India, our other global and regional delivery centers, the offices of our clients and our associates worldwide. System
failures, outages and operational disruptions may be caused by factors outside of our control, such as hostilities, political unrest,
terrorist attacks, natural disasters (including events that may be caused or exacerbated by climate change), and public health
emergencies and pandemics, such as the COVID-19 pandemic, affecting the geographies where our people, equipment and
clients are located. For example, we have substantial global delivery operations in Chennai, India, a city that has experienced
severe rains, flooding and droughts in recent years and is at significant risk of increasingly severe natural disasters in future
years as a result of climate change. Our risk management, business continuity and disaster recovery plans may not be effective
at preventing or mitigating the effects of such disruptions, particularly in the case of catastrophic events or longer term
developments, such as the impacts of climate change. Any such disruption may result in lost revenues, a loss of clients and
reputational damage, which would have an adverse effect on our business, results of operations and financial condition.
A substantial portion of our employees in the United States, United Kingdom, European Union and other
jurisdictions rely on visas to work in those areas such that any restrictions on such visas or immigration more generally
or increased costs of obtaining such visas or increases in the wages we are required to pay associates on visas may affect
our ability to compete for and provide services to clients in these jurisdictions, which could materially adversely affect
our business, results of operations and financial condition.
A substantial portion of our employees in the United States and in many other jurisdictions, including countries in
Europe, rely upon temporary work authorization or work permits, which makes our business particularly vulnerable to changes
and variations in immigration laws and regulations, including written changes and policy changes to the manner in which the
laws and regulations are interpreted or enforced, and potential enforcement actions and penalties that might cause us to lose
access to such visas. The political environment in the United States, the United Kingdom and other countries in recent years has
included significant support for anti-immigrant legislation and administrative changes. Many of these recent changes have
resulted in, and various proposed changes may result in, increased difficulty in obtaining timely visas that could impact our
ability to staff projects, including as a result of visa application rejections and delays in processing applications, and
significantly increased costs for us in obtaining visas or as a result of prevailing wage requirements for our associates on visas.
For example, in the United States, the prior administration adopted a number of policy changes and executive orders designed
to limit immigration and the ability of immigrants to be employed, including increased scrutiny of the issuance of new and the
renewal of existing H-1B visa applications and the placement of H-1B visa workers on third party worksites, increases to the
prevailing wage requirements that set a minimum level of compensation for visa holders and, for entities where more than 50%
of the workers in the United States hold H-1B and L-1 visas, increases in the visa costs for such entities. While a number of
12
13
these policy changes and executive orders were stayed by the courts, the current administration may continue to seek their
implementation or the implementation of similar measures in the future and there continues to be political support for potential
new laws and regulations that, if adopted, may have a material adverse impact on companies like ours that have a substantial
percentage of our employees on visas. Our principal operating subsidiary in the United States had more than 50% of its
employees on H-1B or L-1 visas as of December 31, 2020 and, as a result, may be subject to increased costs if any such laws,
regulations, policy changes or executive orders go into effect. In the EU, many countries continue to implement new regulations
to move into compliance with the EU Directive of 2014 to harmonize immigration rules for intracompany transferees in most
EU member states and to facilitate the transfer of managers, specialists and graduate trainees both into and within the region.
The changes have had significant impact on mobility programs and have led to new notification and documentation
requirements for companies sending employees to EU countries. Recent changes or any additional adverse revisions to
immigration laws and regulations in the jurisdictions in which we operate may cause us delays, staffing shortages, additional
costs or an inability to bid for or fulfill projects for clients, any of which could have a material adverse effect on our business,
results of operations and financial condition.
Legal, Regulatory and Legislative Risks
Anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing could
impair our ability to serve our clients and materially adversely affect our business, results of operations and financial
condition.
The practice of outsourcing services to organizations operating in other countries is a topic of political discussion in the
United States, which is our largest market, as well as other regions in which we have clients. For example, measures aimed at
limiting or restricting outsourcing by U.S. companies have been put forward for consideration by the U.S. Congress and in state
legislatures to address concerns over the perceived association between offshore outsourcing and the loss of jobs domestically.
If any such measure is enacted, our ability to provide services to our clients could be impaired.
In addition, from time to time there has been publicity about purported negative experiences associated with offshore
outsourcing, such as alleged domestic job loss and theft and misappropriation of sensitive client data, particularly involving
service providers in India. Current or prospective clients may elect to perform certain services themselves or may be
discouraged from utilizing global service delivery providers like us due to negative perceptions that may be associated with
using global service delivery models or firms. Any slowdown or reversal of existing industry trends toward global service
delivery would seriously harm our ability to compete effectively with competitors that provide the majority of their services
from within the country in which our clients operate.
We are subject to numerous and evolving legal and regulatory requirements and client expectations in the many
jurisdictions in which we operate, and violations of, unfavorable changes in or an inability to meet such requirements or
expectations could harm our business.
We provide services to clients and have operations in many parts of the world and in a wide variety of different industries,
subjecting us to numerous, and sometimes conflicting, laws and regulations on matters as diverse as import and export controls,
temporary work authorizations or work permits and other immigration laws, content requirements, trade restrictions, tariffs,
taxation, anti-corruption laws (including the FCPA and the U.K. Bribery Act), the environment, government affairs, internal
and disclosure control obligations, data privacy, intellectual property, employment and labor relations. We face significant
regulatory compliance costs and risks as a result of the size and breadth of our business. For example, we may experience
increased costs in 2021 and future years for employment and post-employment benefits in India as a result of the issuance of
the Code in late 2020.
We are also subject to a wide range of potential enforcement actions, audits or investigations regarding our compliance
with these laws or regulations in the conduct of our business, and any finding of a violation could subject us to a wide range of
civil or criminal penalties, including fines, debarment, or suspension or disqualification from government contracting,
prohibitions or restrictions on doing business, loss of clients and business, legal claims by clients and damage to our reputation.
We commit significant financial and managerial resources to comply with our internal control over financial reporting
requirements, but we have in the past and may in the future identify material weaknesses or deficiencies in our internal control
over financial reporting that cause us to incur incremental remediation costs in order to maintain adequate controls. As another
example, in recent years we had to spend significant resources on conducting an internal investigation and cooperating with
investigations by the DOJ and the SEC, both concluded in 2019, focused on whether certain payments relating to Company-
owned facilities in India were made in violation of the FCPA and other applicable laws.
Governmental bodies, investors, clients and businesses are increasingly focused on ESG issues, which has resulted and
may in the future continue to result in the adoption of new laws and regulations and changing buying practices. If we fail to
keep pace with ESG trends and developments or fail to meet the expectations of our clients and investors, our reputation and
business could be adversely impacted.
Changes in tax laws or in their interpretation or enforcement, failure by us to adapt our corporate structure and
intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or
proceedings could have a material adverse effect on our effective tax rate, results of operations and financial condition.
The interpretation of tax laws and regulations in the many jurisdictions in which we operate and the related tax accounting
principles are complex and require considerable judgment to determine our income taxes and other tax liabilities worldwide.
Tax laws and regulations affecting us and our clients, including applicable tax rates, and the interpretation and enforcement of
such laws and regulations are subject to change as a result of economic, political and other factors, and any such changes or
changes in tax accounting principles could increase our effective worldwide income tax rate and have a material adverse effect
on our net income and financial condition. We routinely review and update our corporate structure and intercompany
arrangements, including transfer pricing policies, consistent with applicable laws and regulations, to align with our evolving
business operations and provide global tax efficiencies across the numerous jurisdictions, such as the United States, India and
the United Kingdom, in which we operate. Failure to successfully adapt our corporate structure and intercompany arrangements
to align with our evolving business operations and achieve global tax efficiencies may increase our worldwide effective tax rate
and have a material adverse effect on our earnings and financial condition.
The following are several examples of changes in tax laws that may impact us:
• The Tax Reform Act was enacted in December 2017 and made a number of significant changes to the corporate tax
regime in the United States. The U.S. Treasury department continues to issue proposed and final regulations which
modify relevant aspects of the new tax regime.
•
In December 2019, the Government of India enacted the India Tax Law effective retroactively to April 1, 2019 that
enables Indian companies to elect to be taxed at a lower income tax rate of 25.17% as compared to the current rate
of 34.94%. Once a company elects into the lower income tax rate, that company may not benefit from any tax
holidays associated with SEZs and certain other tax incentives, including MAT carryforwards, and may not reverse
its election. As of December 31, 2020, we had deferred income tax assets related to the MAT carryforwards of $98
million. See Note 11 to our consolidated financial statements. Our current intent is to elect into the new tax regime
once our MAT carryforwards are fully or substantially utilized. Our intent is based on a number of current
assumptions and financial projections, and if our intent were to change and we were to opt into the new tax regime
at an earlier time, the write-off of any remaining MAT deferred tax assets may materially increase our provision for
income taxes and effective income tax rate and decrease our EPS, while the loss of the benefit of the MAT
carryforwards may increase our cash tax payments.
• The OECD has been working on a Base Erosion and Profit Shifting project and is expected to continue to issue
guidelines and proposals that may change numerous long-standing tax principles. The changes recommended by
the OECD have been or are being adopted by many of the countries in which we do business and could lead to
disagreements among jurisdictions over the proper allocation of profits among them. The OECD has also
undertaken a new project focused on “Addressing the Tax Challenges of the Digitalization of the Economy.” This
project may impact multinational businesses by implementing a global model for minimum taxation. Similarly, the
European Commission and various jurisdictions have introduced proposals to or passed laws that impose a separate
tax on specified digital services. These recent and potential future tax law changes create uncertainty and may
materially adversely impact our provision for income taxes.
Our worldwide effective income tax rate may increase as a result of these recent developments, changes in interpretations
and assumptions made, additional guidance that may be issued and ongoing and future actions the Company has or may take
with respect to our corporate structure and intercompany arrangements.
Additionally, we are subject from time to time to tax audits, investigations and proceedings. Tax authorities have
disagreed, and may in the future disagree, with our judgments, and are taking increasingly aggressive positions, including with
respect to our intercompany transactions. For example, we are currently involved in an ongoing dispute with the ITD in which
the ITD asserts that we owe additional taxes for two transactions by which CTS India repurchased shares from its shareholders,
as more fully described in Note 11 to the consolidated financial statements. Adverse outcomes in any such audits, investigations
or proceedings could increase our tax exposure and cause us to incur increased expense, which could materially adversely affect
our results of operations and financial condition.
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these policy changes and executive orders were stayed by the courts, the current administration may continue to seek their
implementation or the implementation of similar measures in the future and there continues to be political support for potential
new laws and regulations that, if adopted, may have a material adverse impact on companies like ours that have a substantial
percentage of our employees on visas. Our principal operating subsidiary in the United States had more than 50% of its
employees on H-1B or L-1 visas as of December 31, 2020 and, as a result, may be subject to increased costs if any such laws,
regulations, policy changes or executive orders go into effect. In the EU, many countries continue to implement new regulations
to move into compliance with the EU Directive of 2014 to harmonize immigration rules for intracompany transferees in most
EU member states and to facilitate the transfer of managers, specialists and graduate trainees both into and within the region.
The changes have had significant impact on mobility programs and have led to new notification and documentation
requirements for companies sending employees to EU countries. Recent changes or any additional adverse revisions to
immigration laws and regulations in the jurisdictions in which we operate may cause us delays, staffing shortages, additional
costs or an inability to bid for or fulfill projects for clients, any of which could have a material adverse effect on our business,
results of operations and financial condition.
Legal, Regulatory and Legislative Risks
Anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing could
impair our ability to serve our clients and materially adversely affect our business, results of operations and financial
condition.
The practice of outsourcing services to organizations operating in other countries is a topic of political discussion in the
United States, which is our largest market, as well as other regions in which we have clients. For example, measures aimed at
limiting or restricting outsourcing by U.S. companies have been put forward for consideration by the U.S. Congress and in state
legislatures to address concerns over the perceived association between offshore outsourcing and the loss of jobs domestically.
If any such measure is enacted, our ability to provide services to our clients could be impaired.
In addition, from time to time there has been publicity about purported negative experiences associated with offshore
outsourcing, such as alleged domestic job loss and theft and misappropriation of sensitive client data, particularly involving
service providers in India. Current or prospective clients may elect to perform certain services themselves or may be
discouraged from utilizing global service delivery providers like us due to negative perceptions that may be associated with
using global service delivery models or firms. Any slowdown or reversal of existing industry trends toward global service
delivery would seriously harm our ability to compete effectively with competitors that provide the majority of their services
from within the country in which our clients operate.
We are subject to numerous and evolving legal and regulatory requirements and client expectations in the many
jurisdictions in which we operate, and violations of, unfavorable changes in or an inability to meet such requirements or
expectations could harm our business.
We provide services to clients and have operations in many parts of the world and in a wide variety of different industries,
subjecting us to numerous, and sometimes conflicting, laws and regulations on matters as diverse as import and export controls,
temporary work authorizations or work permits and other immigration laws, content requirements, trade restrictions, tariffs,
taxation, anti-corruption laws (including the FCPA and the U.K. Bribery Act), the environment, government affairs, internal
and disclosure control obligations, data privacy, intellectual property, employment and labor relations. We face significant
regulatory compliance costs and risks as a result of the size and breadth of our business. For example, we may experience
increased costs in 2021 and future years for employment and post-employment benefits in India as a result of the issuance of
the Code in late 2020.
We are also subject to a wide range of potential enforcement actions, audits or investigations regarding our compliance
with these laws or regulations in the conduct of our business, and any finding of a violation could subject us to a wide range of
civil or criminal penalties, including fines, debarment, or suspension or disqualification from government contracting,
prohibitions or restrictions on doing business, loss of clients and business, legal claims by clients and damage to our reputation.
We commit significant financial and managerial resources to comply with our internal control over financial reporting
requirements, but we have in the past and may in the future identify material weaknesses or deficiencies in our internal control
over financial reporting that cause us to incur incremental remediation costs in order to maintain adequate controls. As another
example, in recent years we had to spend significant resources on conducting an internal investigation and cooperating with
investigations by the DOJ and the SEC, both concluded in 2019, focused on whether certain payments relating to Company-
owned facilities in India were made in violation of the FCPA and other applicable laws.
Governmental bodies, investors, clients and businesses are increasingly focused on ESG issues, which has resulted and
may in the future continue to result in the adoption of new laws and regulations and changing buying practices. If we fail to
keep pace with ESG trends and developments or fail to meet the expectations of our clients and investors, our reputation and
business could be adversely impacted.
Changes in tax laws or in their interpretation or enforcement, failure by us to adapt our corporate structure and
intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or
proceedings could have a material adverse effect on our effective tax rate, results of operations and financial condition.
The interpretation of tax laws and regulations in the many jurisdictions in which we operate and the related tax accounting
principles are complex and require considerable judgment to determine our income taxes and other tax liabilities worldwide.
Tax laws and regulations affecting us and our clients, including applicable tax rates, and the interpretation and enforcement of
such laws and regulations are subject to change as a result of economic, political and other factors, and any such changes or
changes in tax accounting principles could increase our effective worldwide income tax rate and have a material adverse effect
on our net income and financial condition. We routinely review and update our corporate structure and intercompany
arrangements, including transfer pricing policies, consistent with applicable laws and regulations, to align with our evolving
business operations and provide global tax efficiencies across the numerous jurisdictions, such as the United States, India and
the United Kingdom, in which we operate. Failure to successfully adapt our corporate structure and intercompany arrangements
to align with our evolving business operations and achieve global tax efficiencies may increase our worldwide effective tax rate
and have a material adverse effect on our earnings and financial condition.
The following are several examples of changes in tax laws that may impact us:
• The Tax Reform Act was enacted in December 2017 and made a number of significant changes to the corporate tax
regime in the United States. The U.S. Treasury department continues to issue proposed and final regulations which
modify relevant aspects of the new tax regime.
•
In December 2019, the Government of India enacted the India Tax Law effective retroactively to April 1, 2019 that
enables Indian companies to elect to be taxed at a lower income tax rate of 25.17% as compared to the current rate
of 34.94%. Once a company elects into the lower income tax rate, that company may not benefit from any tax
holidays associated with SEZs and certain other tax incentives, including MAT carryforwards, and may not reverse
its election. As of December 31, 2020, we had deferred income tax assets related to the MAT carryforwards of $98
million. See Note 11 to our consolidated financial statements. Our current intent is to elect into the new tax regime
once our MAT carryforwards are fully or substantially utilized. Our intent is based on a number of current
assumptions and financial projections, and if our intent were to change and we were to opt into the new tax regime
at an earlier time, the write-off of any remaining MAT deferred tax assets may materially increase our provision for
income taxes and effective income tax rate and decrease our EPS, while the loss of the benefit of the MAT
carryforwards may increase our cash tax payments.
• The OECD has been working on a Base Erosion and Profit Shifting project and is expected to continue to issue
guidelines and proposals that may change numerous long-standing tax principles. The changes recommended by
the OECD have been or are being adopted by many of the countries in which we do business and could lead to
disagreements among jurisdictions over the proper allocation of profits among them. The OECD has also
undertaken a new project focused on “Addressing the Tax Challenges of the Digitalization of the Economy.” This
project may impact multinational businesses by implementing a global model for minimum taxation. Similarly, the
European Commission and various jurisdictions have introduced proposals to or passed laws that impose a separate
tax on specified digital services. These recent and potential future tax law changes create uncertainty and may
materially adversely impact our provision for income taxes.
Our worldwide effective income tax rate may increase as a result of these recent developments, changes in interpretations
and assumptions made, additional guidance that may be issued and ongoing and future actions the Company has or may take
with respect to our corporate structure and intercompany arrangements.
Additionally, we are subject from time to time to tax audits, investigations and proceedings. Tax authorities have
disagreed, and may in the future disagree, with our judgments, and are taking increasingly aggressive positions, including with
respect to our intercompany transactions. For example, we are currently involved in an ongoing dispute with the ITD in which
the ITD asserts that we owe additional taxes for two transactions by which CTS India repurchased shares from its shareholders,
as more fully described in Note 11 to the consolidated financial statements. Adverse outcomes in any such audits, investigations
or proceedings could increase our tax exposure and cause us to incur increased expense, which could materially adversely affect
our results of operations and financial condition.
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15
Our business subjects us to considerable potential exposure to litigation and legal claims and could be materially
PART II
adversely affected if we incur legal liability.
We are subject to, and may become a party to, a variety of litigation or other claims and suits that arise from time to time
in the conduct of our business. Our business is subject to the risk of litigation involving current and former employees, clients,
alliance partners, subcontractors, suppliers, competitors, shareholders, government agencies or others through private actions,
class actions, whistleblower claims, administrative proceedings, regulatory actions or other litigation. While we maintain
insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is
subject to various exclusions as well as caps on amounts recoverable.
Our client engagements expose us to significant potential legal liability and litigation expense if we fail to meet our
contractual obligations or otherwise breach obligations to third parties or if our subcontractors breach or dispute the terms of
our agreements with them and impede our ability to meet our obligations to our clients. For example, third parties could claim
that we or our clients, whom we typically contractually agree to indemnify with respect to the services and solutions we
provide, infringe upon their IP rights. Any such claims of IP infringement could harm our reputation, cause us to incur
substantial costs in defending ourselves, expose us to considerable legal liability or prevent us from offering some services or
solutions in the future. We may have to engage in legal action to protect our own IP rights, and enforcing our rights may require
considerable time, money and oversight, and existing laws in the various countries in which we provide services or solutions
may offer only limited protection.
We also face considerable potential legal liability from a variety of other sources. Our acquisition activities have in the
past and may in the future be subject to litigation or other claims, including claims from employees, clients, stockholders, or
other third parties. We have also been the subject of a number of putative securities class action complaints and putative
shareholder derivative complaints relating to the matters that were the subject of our now concluded internal investigation into
potential violations of the FCPA and other applicable laws, and may be subject to such legal actions for these or other matters
in the future. See "Part I, Item 3. Legal Proceedings" for more information. We establish reserves for these and other matters
when a loss is considered probable and the amount can be reasonably estimated; however, the estimation of legal reserves and
possible losses involves significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes
inherent in litigation, and the actual losses arising from particular matters may exceed our estimates and materially adversely
affect our results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We have sales and marketing offices, innovation labs, and digital design and consulting centers in major business markets,
including New York, London, Paris, Melbourne, Singapore, and Sao Paulo, among others, which are used to deliver services to
our clients across all four of our business segments. In total, we have offices and operations in more than 85 cities and
35 countries around the world, with our worldwide headquarters located in a leased facility in Teaneck, New Jersey in the
United States.
We utilize a global delivery model with delivery centers worldwide, including in-country, regional and global delivery
centers. We have over 31 million square feet of owned and leased facilities for our delivery centers. Our largest delivery center
presence is in India - Chennai (10 million square feet), Hyderabad (4 million square feet), Pune (3 million square feet),
Bangalore (3 million square feet) and Kolkata (3 million square feet) - representing 88% of our total delivery centers on a
square-foot basis. We also have a significant number of delivery centers in other countries, including the United States,
Philippines, Canada, Mexico and countries throughout Europe.
We believe our current facilities are adequate to support our operations in the immediate future, and that we will be able to
obtain suitable additional facilities on commercially reasonable terms as needed.
Item 3. Legal Proceedings
See Note 15 to our consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our Class A common stock trades on the Nasdaq Stock Market under the symbol “CTSH”. As of December 31, 2020, the
approximate number of holders of record of our Class A common stock was 114 and the approximate number of beneficial
holders of our Class A common stock was 342,100.
Cash Dividends
During 2020, we paid quarterly cash dividends of $0.22 per share, or $0.88 per share in total for the year. In February
2021, our Board of Directors approved a $0.02 increase to our quarterly cash dividends and the Company's declaration of a
$0.24 per share dividend with a record date of February 18, 2021 and a payment date of February 26, 2021. We intend to
continue to pay quarterly cash dividends in accordance with our capital return plan. Our ability and decisions to pay future
dividends depend on a variety of factors, including our cash flow generated from operations, cash and investment balances, net
income, overall liquidity position, potential alternative uses of cash, such as acquisitions, and anticipated future economic
conditions and financial results.
Issuer Purchases of Equity Securities
Our stock repurchase program, as amended by our Board of Directors in December 2020, allows for the repurchase of up
to $9.5 billion, excluding fees and expenses, of our Class A common stock through open market purchases, including under a
10b5-1 Plan or in private transactions, including through ASR agreements entered into with financial institutions, in accordance
with applicable federal securities laws. The repurchase program does not have an expiration date. The timing of repurchases
and the exact number of shares to be purchased are determined by management, in its discretion, or pursuant to 10b5-1 Plan,
and will depend upon market conditions and other factors.
During the three months ended December 31, 2020, we repurchased $721 million of our Class A common stock under
our stock repurchase program. The following table sets out the stock repurchase activity under our stock repurchase program
during the fourth quarter of 2020 and the approximate dollar value of shares that may yet be purchased under the program as of
December 31, 2020.
Month
October 1, 2020 - October 31, 2020
November 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 2020
Total
Total Number
of Shares
Purchased
Average
Price Paid
per Share
5,800,000 $
1,700,000
2,122,590
9,622,590 $
72.56
76.77
79.85
74.91
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)
5,800,000 $
1,700,000
2,122,590
9,622,590
1,115
984
2,815
We regularly purchase shares in connection with our stock-based compensation plans as shares of our Class A common
stock are tendered by employees for payment of applicable statutory tax withholdings. For the three months ended
December 31, 2020, we purchased 0.2 shares at an aggregate cost of $18 million in connection with employee tax withholding
obligations.
16
17
We are subject to, and may become a party to, a variety of litigation or other claims and suits that arise from time to time
in the conduct of our business. Our business is subject to the risk of litigation involving current and former employees, clients,
alliance partners, subcontractors, suppliers, competitors, shareholders, government agencies or others through private actions,
class actions, whistleblower claims, administrative proceedings, regulatory actions or other litigation. While we maintain
insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is
subject to various exclusions as well as caps on amounts recoverable.
Our client engagements expose us to significant potential legal liability and litigation expense if we fail to meet our
contractual obligations or otherwise breach obligations to third parties or if our subcontractors breach or dispute the terms of
our agreements with them and impede our ability to meet our obligations to our clients. For example, third parties could claim
that we or our clients, whom we typically contractually agree to indemnify with respect to the services and solutions we
provide, infringe upon their IP rights. Any such claims of IP infringement could harm our reputation, cause us to incur
substantial costs in defending ourselves, expose us to considerable legal liability or prevent us from offering some services or
solutions in the future. We may have to engage in legal action to protect our own IP rights, and enforcing our rights may require
considerable time, money and oversight, and existing laws in the various countries in which we provide services or solutions
may offer only limited protection.
We also face considerable potential legal liability from a variety of other sources. Our acquisition activities have in the
past and may in the future be subject to litigation or other claims, including claims from employees, clients, stockholders, or
other third parties. We have also been the subject of a number of putative securities class action complaints and putative
shareholder derivative complaints relating to the matters that were the subject of our now concluded internal investigation into
potential violations of the FCPA and other applicable laws, and may be subject to such legal actions for these or other matters
in the future. See "Part I, Item 3. Legal Proceedings" for more information. We establish reserves for these and other matters
when a loss is considered probable and the amount can be reasonably estimated; however, the estimation of legal reserves and
possible losses involves significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes
inherent in litigation, and the actual losses arising from particular matters may exceed our estimates and materially adversely
affect our results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We have sales and marketing offices, innovation labs, and digital design and consulting centers in major business markets,
including New York, London, Paris, Melbourne, Singapore, and Sao Paulo, among others, which are used to deliver services to
our clients across all four of our business segments. In total, we have offices and operations in more than 85 cities and
35 countries around the world, with our worldwide headquarters located in a leased facility in Teaneck, New Jersey in the
United States.
We utilize a global delivery model with delivery centers worldwide, including in-country, regional and global delivery
centers. We have over 31 million square feet of owned and leased facilities for our delivery centers. Our largest delivery center
presence is in India - Chennai (10 million square feet), Hyderabad (4 million square feet), Pune (3 million square feet),
Bangalore (3 million square feet) and Kolkata (3 million square feet) - representing 88% of our total delivery centers on a
square-foot basis. We also have a significant number of delivery centers in other countries, including the United States,
Philippines, Canada, Mexico and countries throughout Europe.
We believe our current facilities are adequate to support our operations in the immediate future, and that we will be able to
obtain suitable additional facilities on commercially reasonable terms as needed.
Item 3. Legal Proceedings
See Note 15 to our consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
Our business subjects us to considerable potential exposure to litigation and legal claims and could be materially
PART II
adversely affected if we incur legal liability.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our Class A common stock trades on the Nasdaq Stock Market under the symbol “CTSH”. As of December 31, 2020, the
approximate number of holders of record of our Class A common stock was 114 and the approximate number of beneficial
holders of our Class A common stock was 342,100.
Cash Dividends
During 2020, we paid quarterly cash dividends of $0.22 per share, or $0.88 per share in total for the year. In February
2021, our Board of Directors approved a $0.02 increase to our quarterly cash dividends and the Company's declaration of a
$0.24 per share dividend with a record date of February 18, 2021 and a payment date of February 26, 2021. We intend to
continue to pay quarterly cash dividends in accordance with our capital return plan. Our ability and decisions to pay future
dividends depend on a variety of factors, including our cash flow generated from operations, cash and investment balances, net
income, overall liquidity position, potential alternative uses of cash, such as acquisitions, and anticipated future economic
conditions and financial results.
Issuer Purchases of Equity Securities
Our stock repurchase program, as amended by our Board of Directors in December 2020, allows for the repurchase of up
to $9.5 billion, excluding fees and expenses, of our Class A common stock through open market purchases, including under a
10b5-1 Plan or in private transactions, including through ASR agreements entered into with financial institutions, in accordance
with applicable federal securities laws. The repurchase program does not have an expiration date. The timing of repurchases
and the exact number of shares to be purchased are determined by management, in its discretion, or pursuant to 10b5-1 Plan,
and will depend upon market conditions and other factors.
During the three months ended December 31, 2020, we repurchased $721 million of our Class A common stock under
our stock repurchase program. The following table sets out the stock repurchase activity under our stock repurchase program
during the fourth quarter of 2020 and the approximate dollar value of shares that may yet be purchased under the program as of
December 31, 2020.
Month
October 1, 2020 - October 31, 2020
November 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 2020
Total
Average
Price Paid
per Share
Total Number
of Shares
Purchased
5,800,000 $
1,700,000
2,122,590
9,622,590 $
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)
72.56
76.77
79.85
74.91
5,800,000 $
1,700,000
2,122,590
9,622,590
1,115
984
2,815
We regularly purchase shares in connection with our stock-based compensation plans as shares of our Class A common
stock are tendered by employees for payment of applicable statutory tax withholdings. For the three months ended
December 31, 2020, we purchased 0.2 shares at an aggregate cost of $18 million in connection with employee tax withholding
obligations.
16
17
Performance Graph
The following graph compares the cumulative total stockholder return on our Class A common stock with the cumulative
total return on the S&P 500 Index, Nasdaq-100 Index, S&P 500 Information Technology Index and a Peer Group Index
(capitalization weighted) for the period beginning December 31, 2015 and ending on the last day of our last completed fiscal
year. The stock performance shown on the graph below is not indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)
Among Cognizant, the S&P 500 Index, the Nasdaq-100 Index, the S&P 500 Information Technology Index(3)
and a Peer Group Index(3) (Capitalization Weighted)
Comparison of Cumulative Five Year Total Return
$350
$300
$250
$200
$150
$100
$50
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Peer Group
Nasdaq 100 Index
Cognizant Technology Solutions Corporation
S&P 500 Information Technology Index
S&P 500 Index
Company / Index
Cognizant Technology Solutions Corp
S&P 500 Index
Nasdaq-100 Index
S&P 500 Information Technology Index
Peer Group
12/31/18
12/31/16
12/31/17
Base
Period
12/31/15
$ 100 $ 93.35 $ 119.09 $ 107.59 $ 106.43 $ 142.54
203.04
280.59
340.83
230.02
171.49
190.13
236.86
168.92
111.96
105.89
113.85
104.72
136.40
139.26
158.06
132.79
130.42
137.81
157.60
128.54
100
100
100
100
12/31/19
12/31/20
(1) Graph assumes $100 invested on December 31, 2015 in our Class A common stock, the S&P 500 Index, the
Nasdaq-100 Index, the S&P 500 Information Technology Index and the Peer Group Index (capitalization weighted).
(2) Cumulative total return assumes reinvestment of dividends.
(3) We have constructed a Peer Group Index of other information technology consulting firms. Our peer group consists of
Accenture plc., DXC Technology, EPAM Systems Inc., ExlService Holdings Inc., Genpact Limited, Infosys Ltd.,
Wipro Ltd. and WNS (Holdings) Limited. Beginning in 2020, we have included the S&P 500 Information and
Technology Index in our comparison of total return. This index will replace our Peer Group and the Nasdaq-100 Index
in future filings as the S&P 500 Information and Technology index is more representative of the broader technology
sector in which we operate.
18
19
Item 6. Selected Financial Data
[Reserved]
Executive Summary
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era.
Our services include digital services and solutions, consulting, application development, systems integration, application
testing, application maintenance, infrastructure services and business process services. Digital services have become an
increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and
differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI, experience-driven
software engineering and cloud. We tailor our services and solutions to specific industries with an integrated global delivery
model that employs client service and delivery teams based at client locations and dedicated global and regional delivery
centers.
The global COVID-19 pandemic has caused and is continuing to cause significant loss of life and interruption to the
global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and
others seek to limit the spread of the disease. In response to COVID-19, we have prioritized the safety and well-being of our
employees, business continuity for our clients, and supporting the efforts of governments around the world to contain the spread
of the virus. In light of our commitment to help our clients as they navigate unprecedented business challenges while protecting
the safety of our employees, we have taken numerous steps, and may continue to take further actions, to address the COVID-19
pandemic. We have been working closely with our clients to support them as they implemented their contingency plans, helping
them access our services and solutions remotely. We also undertook a significant effort to enable our employees to work from
home by providing them with computer and Internet accessibility equipment while seeking to maintain appropriate security
protocols. Despite these efforts, in the first half of 2020 we experienced some delays in project fulfillment as delivery,
particularly in India and the Philippines, shifted to work-from-home in response to the pandemic. Additionally, as a result of the
ongoing pandemic, we experienced reduced client demand, project deferrals, furloughs, and temporary rate concessions, which
adversely affected revenues across all of our business segments in 2020. For the year ended December 31, 2020, we incurred
$65 million of costs in response to the COVID-19 pandemic, including certain costs incurred to enable our employees to work
remotely.
In 2020, we incurred costs related to the execution of our multi-year 2020 Fit for Growth Plan aimed at accelerating
revenue growth. This plan refined our strategic focus and launched a series of measures to improve our operational and
commercial models and optimize our cost structure in order to partially fund investments in key digital areas of IoT, AI,
experience-driven software engineering and cloud and advance our growth agenda. The 2020 Fit for Growth Plan included our
decision to exit certain content-related services that are not in line with our strategic vision for the Company. The optimization
measures that were part of the 2020 Fit for Growth Plan resulted in total charges of $221 million, primarily related to severance
and facility exit costs that are expected to generate an annualized savings run rate, before anticipated investments, of
approximately $530 million in 2021. See Note 4 to our consolidated financial statements for additional information on these
costs, which are reported in the caption "Restructuring charges" in our consolidated statements of operations. We do not expect
to incur additional costs related to this plan. The COVID-19 pandemic may adversely impact our ability to realize the benefits
of our strategy and various transformation initiatives, including the 2020 Fit for Growth Plan. See Part I, Item 1A. Risk Factors.
Our exit from certain content-related services negatively impacted our 2020 revenues by approximately $178 million
within our Communications, Media and Technology segment in North America.
On April 20, 2020, we announced a security incident involving a Maze ransomware attack. As previously reported in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, based on numerous remediation steps that have been
undertaken and our continued monitoring of our environment, we believe we have contained the attack and eradicated remnants
of the attacker activity from our environment. The lost revenue and containment, investigation, remediation, legal and other
costs incurred due to the ransomware attack may exceed our insurance policy limits or may not be covered by insurance at all.
Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with
customers, regulatory enforcement action, litigation that could result in financial judgments or the payment of settlement
amounts and disputes with insurance carriers concerning coverage.
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to
income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder
receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this
change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior
Performance Graph
The following graph compares the cumulative total stockholder return on our Class A common stock with the cumulative
total return on the S&P 500 Index, Nasdaq-100 Index, S&P 500 Information Technology Index and a Peer Group Index
(capitalization weighted) for the period beginning December 31, 2015 and ending on the last day of our last completed fiscal
year. The stock performance shown on the graph below is not indicative of future price performance.
Among Cognizant, the S&P 500 Index, the Nasdaq-100 Index, the S&P 500 Information Technology Index(3)
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)
and a Peer Group Index(3) (Capitalization Weighted)
Comparison of Cumulative Five Year Total Return
$350
$300
$250
$200
$150
$100
$50
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Peer Group
Nasdaq 100 Index
Cognizant Technology Solutions Corporation
S&P 500 Information Technology Index
S&P 500 Index
Cognizant Technology Solutions Corp
$ 100 $ 93.35 $ 119.09 $ 107.59 $ 106.43 $ 142.54
Company / Index
S&P 500 Index
Nasdaq-100 Index
Peer Group
S&P 500 Information Technology Index
Base
Period
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
100
100
100
100
111.96
136.40
130.42
171.49
203.04
105.89
139.26
137.81
190.13
280.59
113.85
158.06
157.60
236.86
340.83
104.72
132.79
128.54
168.92
230.02
(1) Graph assumes $100 invested on December 31, 2015 in our Class A common stock, the S&P 500 Index, the
Nasdaq-100 Index, the S&P 500 Information Technology Index and the Peer Group Index (capitalization weighted).
(2) Cumulative total return assumes reinvestment of dividends.
(3) We have constructed a Peer Group Index of other information technology consulting firms. Our peer group consists of
Accenture plc., DXC Technology, EPAM Systems Inc., ExlService Holdings Inc., Genpact Limited, Infosys Ltd.,
Wipro Ltd. and WNS (Holdings) Limited. Beginning in 2020, we have included the S&P 500 Information and
Technology Index in our comparison of total return. This index will replace our Peer Group and the Nasdaq-100 Index
in future filings as the S&P 500 Information and Technology index is more representative of the broader technology
sector in which we operate.
Item 6. Selected Financial Data
[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era.
Our services include digital services and solutions, consulting, application development, systems integration, application
testing, application maintenance, infrastructure services and business process services. Digital services have become an
increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and
differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI, experience-driven
software engineering and cloud. We tailor our services and solutions to specific industries with an integrated global delivery
model that employs client service and delivery teams based at client locations and dedicated global and regional delivery
centers.
The global COVID-19 pandemic has caused and is continuing to cause significant loss of life and interruption to the
global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and
others seek to limit the spread of the disease. In response to COVID-19, we have prioritized the safety and well-being of our
employees, business continuity for our clients, and supporting the efforts of governments around the world to contain the spread
of the virus. In light of our commitment to help our clients as they navigate unprecedented business challenges while protecting
the safety of our employees, we have taken numerous steps, and may continue to take further actions, to address the COVID-19
pandemic. We have been working closely with our clients to support them as they implemented their contingency plans, helping
them access our services and solutions remotely. We also undertook a significant effort to enable our employees to work from
home by providing them with computer and Internet accessibility equipment while seeking to maintain appropriate security
protocols. Despite these efforts, in the first half of 2020 we experienced some delays in project fulfillment as delivery,
particularly in India and the Philippines, shifted to work-from-home in response to the pandemic. Additionally, as a result of the
ongoing pandemic, we experienced reduced client demand, project deferrals, furloughs, and temporary rate concessions, which
adversely affected revenues across all of our business segments in 2020. For the year ended December 31, 2020, we incurred
$65 million of costs in response to the COVID-19 pandemic, including certain costs incurred to enable our employees to work
remotely.
In 2020, we incurred costs related to the execution of our multi-year 2020 Fit for Growth Plan aimed at accelerating
revenue growth. This plan refined our strategic focus and launched a series of measures to improve our operational and
commercial models and optimize our cost structure in order to partially fund investments in key digital areas of IoT, AI,
experience-driven software engineering and cloud and advance our growth agenda. The 2020 Fit for Growth Plan included our
decision to exit certain content-related services that are not in line with our strategic vision for the Company. The optimization
measures that were part of the 2020 Fit for Growth Plan resulted in total charges of $221 million, primarily related to severance
and facility exit costs that are expected to generate an annualized savings run rate, before anticipated investments, of
approximately $530 million in 2021. See Note 4 to our consolidated financial statements for additional information on these
costs, which are reported in the caption "Restructuring charges" in our consolidated statements of operations. We do not expect
to incur additional costs related to this plan. The COVID-19 pandemic may adversely impact our ability to realize the benefits
of our strategy and various transformation initiatives, including the 2020 Fit for Growth Plan. See Part I, Item 1A. Risk Factors.
Our exit from certain content-related services negatively impacted our 2020 revenues by approximately $178 million
within our Communications, Media and Technology segment in North America.
On April 20, 2020, we announced a security incident involving a Maze ransomware attack. As previously reported in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, based on numerous remediation steps that have been
undertaken and our continued monitoring of our environment, we believe we have contained the attack and eradicated remnants
of the attacker activity from our environment. The lost revenue and containment, investigation, remediation, legal and other
costs incurred due to the ransomware attack may exceed our insurance policy limits or may not be covered by insurance at all.
Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with
customers, regulatory enforcement action, litigation that could result in financial judgments or the payment of settlement
amounts and disputes with insurance carriers concerning coverage.
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to
income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder
receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this
change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior
18
19
years. In July 2020, the U.S. Treasury Department and the IRS released final regulations, which became effective in September
2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter
of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our
strategic decision to increase our investments to accelerate growth in various international markets and expand our global
delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded
a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on
unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits. On
October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to
its shareholders (non-Indian Cognizant entities), after payment of $106 million of India withholding tax.
On October 27, 2020, a jury returned a verdict in our favor in the amount of $854 million, including $570 million punitive
damages, in our lawsuit with Syntel, which was initiated in 2015. We expect Syntel to appeal the decision and thus we will not
record the gain in our financial statements until it becomes realizable. For more information, see Note 15 to our consolidated
financial statements.
In the fourth quarter of 2020, we made an offer to settle and exit a large customer engagement in Financial Services in
Continental Europe ("Proposed Exit"). The offer includes, among other terms, a proposed payment and the forgiveness of
certain receivables. The 2020 impact of the Proposed Exit was a reduction of revenues of $118 million and additional expenses
of $33 million, primarily related to the impairment of long-lived assets. The Proposed Exit negatively impacted each of our
GAAP and Adjusted Diluted EPS by $0.27 for the year ended December 31, 2020. While the amounts recorded are based on
our best estimate of the expected terms of the exit, the negotiations are ongoing and, as such, we may not reach an agreement or
the final terms of the agreement that is reached may materially differ from those contemplated in our accounting. In either
instance, there could be additional impacts to our statement of operations, financial condition and our cash flows.
2020 Financial Results
The following table sets forth a summary of our financial results for the years ended December 31, 2020 and 2019:
Revenues
Income from operations
Net income
Diluted EPS
Other Financial Information1
Adjusted Income From Operations
Adjusted Diluted EPS
2020
2019
$
%
(Dollars in millions, except per share data)
Increase / Decrease
$
16,652 $
16,783 $
2,114
1,392
2.57
2,394
3.42
2,453
1,842
3.29
2,787
3.99
(131)
(339)
(450)
(0.72)
(393)
(0.57)
(0.8)
(13.8)
(24.4)
(21.9)
(14.1)
(14.3)
Our financial results were negatively impacted by our exit from certain content-related services, the Proposed Exit, the
ransomware attack and the COVID-19 pandemic. We continue to experience pricing pressure within our core portfolio of
services as our clients optimize the cost of supporting their legacy systems and operations. At the same time, clients are
adopting and integrating digital technologies and their demand for our digital services and solutions has continued to increase
since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-commerce,
automation and AI and cybersecurity services and solutions.
The following charts set forth revenues and change in revenues by business segment and geography for the year ended
December 31, 2020 compared to the year ended December 31, 2019:
Dollars in millions
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Dollars in millions
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Financial Services
Increase / (Decrease)
Healthcare
Increase / (Decrease)
Revenues
$
%
CC %2
Revenues
$
%
CC %2
$ 4,013
(124)
463
629
1,092
516
(21)
(99)
(120)
(4)
$ 5,621
(248)
(3.0)
(4.3)
(13.6)
(9.9)
(0.8)
(4.2)
(3.0)
(4.7)
(14.0)
(10.3)
2.0
(4.0)
$ 2,650
371
413
784
262
$ 3,696
(28)
(9)
(40)
(49)
3
(74)
(1.0)
(2.4)
(8.8)
(5.9)
1.2
(2.0)
(1.0)
(3.0)
(8.7)
(6.1)
4.7
(1.7)
$ 4,181
157
434
591
80
$ 4,852
344
177
521
225
$ 2,483
34
27
93
120
3
157
25
8
33
28
34
0.8
20.8
27.3
25.5
3.9
3.3
7.8
4.7
6.8
14.2
1.4
0.8
19.8
24.0
22.9
6.0
3.1
6.8
2.1
5.2
20.2
1.6
Products and Resources
Communications, Media and Technology
Increase / (Decrease)
Increase / (Decrease)
Revenues
$
%
CC %2
Revenues
$
%
CC %2
$ 1,737
(27)
(1.5)
(1.5)
Across all our business segments and regions, revenues were negatively impacted by the COVID-19 pandemic and the
ransomware attack. Retail, consumer goods, travel and hospitality clients within our Products and Resources segment as well as
communications and media clients in our Communications, Media and Technology segment were particularly adversely
affected by the pandemic. Revenues in our Financial Services segment in our Continental Europe region were negatively
impacted by $118 million due to the Proposed Exit. Additionally, we continued to see certain financial services and healthcare
clients transition the support of some of their legacy systems and operations in-house. Revenue growth among our life sciences
clients was driven by revenues from Zenith and increased demand for our services among pharmaceutical companies while
revenues from our healthcare clients benefited from stronger software license sales. Our manufacturing, logistics, energy and
utilities clients within our Products and Resources segment generated revenue growth due to our clients' continued adoption and
integration of digital technologies. Revenues among our technology clients in our Communications, Media and Technology
segment in the North America region were negatively impacted by approximately $178 million due to our exit from certain
content-related services. We continue to see growing demand from our technology clients for other more strategic digital
content services. Additionally, the year-over-year change in our revenues included 210 basis points of benefit from our recently
completed acquisitions, including Collaborative Solutions, Zenith and Contino.
Our operating margin and Adjusted Operating Margin2 decreased to 12.7% and 14.4%, respectively, for the year ended
December 31, 2020 from 14.6% and 16.6%, respectively, for the year ended December 31, 2019. Our GAAP and Adjusted
Operating Margin2 were adversely impacted by higher incentive-based compensation accrual rates, investments intended to
drive organic and inorganic revenue growth, the impact of the Proposed Exit, the decline in revenues brought on by the
COVID-19 pandemic and the impact of the ransomware attack on both revenues and costs. These impacts were partially offset
by a significant decrease in travel and entertainment expenses due to the COVID-19 pandemic, the cost savings generated as a
result of the 2020 Fit for Growth Plan, lower immigration costs and the depreciation of the Indian rupee against the U.S. dollar.
In addition, our 2019 GAAP operating margin included a 0.7% negative impact of the incremental accrual in 2019 related to the
India Defined Contribution Obligation as discussed in Note 15 to our consolidated financial statements, while our 2020 GAAP
operating margin was negatively impacted by COVID-19 Charges.
1
Adjusted Income From Operations and Adjusted Diluted EPS are not measurements of financial performance prepared
in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most
directly comparable GAAP financial measures.
2
Constant currency revenue growth (CC) and Adjusted Operating Margin 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, as applicable.
20
21
years. In July 2020, the U.S. Treasury Department and the IRS released final regulations, which became effective in September
The following charts set forth revenues and change in revenues by business segment and geography for the year ended
2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter
December 31, 2020 compared to the year ended December 31, 2019:
of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our
strategic decision to increase our investments to accelerate growth in various international markets and expand our global
delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded
a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on
unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits. On
October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to
its shareholders (non-Indian Cognizant entities), after payment of $106 million of India withholding tax.
On October 27, 2020, a jury returned a verdict in our favor in the amount of $854 million, including $570 million punitive
damages, in our lawsuit with Syntel, which was initiated in 2015. We expect Syntel to appeal the decision and thus we will not
record the gain in our financial statements until it becomes realizable. For more information, see Note 15 to our consolidated
financial statements.
In the fourth quarter of 2020, we made an offer to settle and exit a large customer engagement in Financial Services in
Continental Europe ("Proposed Exit"). The offer includes, among other terms, a proposed payment and the forgiveness of
certain receivables. The 2020 impact of the Proposed Exit was a reduction of revenues of $118 million and additional expenses
of $33 million, primarily related to the impairment of long-lived assets. The Proposed Exit negatively impacted each of our
GAAP and Adjusted Diluted EPS by $0.27 for the year ended December 31, 2020. While the amounts recorded are based on
our best estimate of the expected terms of the exit, the negotiations are ongoing and, as such, we may not reach an agreement or
the final terms of the agreement that is reached may materially differ from those contemplated in our accounting. In either
instance, there could be additional impacts to our statement of operations, financial condition and our cash flows.
2020 Financial Results
The following table sets forth a summary of our financial results for the years ended December 31, 2020 and 2019:
Revenues
Income from operations
Net income
Diluted EPS
Other Financial Information1
Adjusted Income From Operations
Adjusted Diluted EPS
2020
2019
$
%
(Dollars in millions, except per share data)
Increase / Decrease
$
16,652 $
16,783 $
2,114
1,392
2.57
2,394
3.42
2,453
1,842
3.29
2,787
3.99
(131)
(339)
(450)
(0.72)
(393)
(0.57)
(0.8)
(13.8)
(24.4)
(21.9)
(14.1)
(14.3)
Our financial results were negatively impacted by our exit from certain content-related services, the Proposed Exit, the
ransomware attack and the COVID-19 pandemic. We continue to experience pricing pressure within our core portfolio of
services as our clients optimize the cost of supporting their legacy systems and operations. At the same time, clients are
adopting and integrating digital technologies and their demand for our digital services and solutions has continued to increase
since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-commerce,
automation and AI and cybersecurity services and solutions.
Dollars in millions
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Dollars in millions
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Financial Services
Increase / (Decrease)
Healthcare
Increase / (Decrease)
Revenues
$
%
CC %2
Revenues
$
%
CC %2
$ 4,013
(124)
463
629
1,092
516
(21)
(99)
(120)
(4)
$ 5,621
(248)
(3.0)
(4.3)
(13.6)
(9.9)
(0.8)
(4.2)
(3.0)
(4.7)
(14.0)
(10.3)
2.0
(4.0)
$ 4,181
157
434
591
80
$ 4,852
34
27
93
120
3
157
0.8
20.8
27.3
25.5
3.9
3.3
0.8
19.8
24.0
22.9
6.0
3.1
Products and Resources
Communications, Media and Technology
Increase / (Decrease)
Increase / (Decrease)
Revenues
$
%
CC %2
Revenues
$
%
CC %2
$ 2,650
371
413
784
262
$ 3,696
(28)
(9)
(40)
(49)
3
(74)
(1.0)
(2.4)
(8.8)
(5.9)
1.2
(2.0)
(1.0)
(3.0)
(8.7)
(6.1)
4.7
(1.7)
$ 1,737
(27)
(1.5)
(1.5)
344
177
521
225
$ 2,483
25
8
33
28
34
7.8
4.7
6.8
14.2
1.4
6.8
2.1
5.2
20.2
1.6
Across all our business segments and regions, revenues were negatively impacted by the COVID-19 pandemic and the
ransomware attack. Retail, consumer goods, travel and hospitality clients within our Products and Resources segment as well as
communications and media clients in our Communications, Media and Technology segment were particularly adversely
affected by the pandemic. Revenues in our Financial Services segment in our Continental Europe region were negatively
impacted by $118 million due to the Proposed Exit. Additionally, we continued to see certain financial services and healthcare
clients transition the support of some of their legacy systems and operations in-house. Revenue growth among our life sciences
clients was driven by revenues from Zenith and increased demand for our services among pharmaceutical companies while
revenues from our healthcare clients benefited from stronger software license sales. Our manufacturing, logistics, energy and
utilities clients within our Products and Resources segment generated revenue growth due to our clients' continued adoption and
integration of digital technologies. Revenues among our technology clients in our Communications, Media and Technology
segment in the North America region were negatively impacted by approximately $178 million due to our exit from certain
content-related services. We continue to see growing demand from our technology clients for other more strategic digital
content services. Additionally, the year-over-year change in our revenues included 210 basis points of benefit from our recently
completed acquisitions, including Collaborative Solutions, Zenith and Contino.
Our operating margin and Adjusted Operating Margin2 decreased to 12.7% and 14.4%, respectively, for the year ended
December 31, 2020 from 14.6% and 16.6%, respectively, for the year ended December 31, 2019. Our GAAP and Adjusted
Operating Margin2 were adversely impacted by higher incentive-based compensation accrual rates, investments intended to
drive organic and inorganic revenue growth, the impact of the Proposed Exit, the decline in revenues brought on by the
COVID-19 pandemic and the impact of the ransomware attack on both revenues and costs. These impacts were partially offset
by a significant decrease in travel and entertainment expenses due to the COVID-19 pandemic, the cost savings generated as a
result of the 2020 Fit for Growth Plan, lower immigration costs and the depreciation of the Indian rupee against the U.S. dollar.
In addition, our 2019 GAAP operating margin included a 0.7% negative impact of the incremental accrual in 2019 related to the
India Defined Contribution Obligation as discussed in Note 15 to our consolidated financial statements, while our 2020 GAAP
operating margin was negatively impacted by COVID-19 Charges.
1
Adjusted Income From Operations and Adjusted Diluted EPS are not measurements of financial performance prepared
in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most
directly comparable GAAP financial measures.
2
Constant currency revenue growth (CC) and Adjusted Operating Margin 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, as applicable.
20
21
Business Outlook
We have four strategic priorities as we seek to increase our commercial momentum and accelerate growth. These strategic
priorities are:
•
•
•
•
Accelerating digital - growing our digital business organically and inorganically;
Globalizing Cognizant - growing our business in key international markets and diversifying leadership,
capabilities and delivery footprint;
Repositioning our brand - improving our global brand recognition and becoming better known as a global
digital partner to the entire C-suite; and
Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients'
business needs.
We continue to expect the long-term focus of our clients to be on their digital transformation into software-driven, data-
enabled, customer-centric and differentiated businesses. As our clients seek to optimize the cost of supporting their legacy
systems and operations, our core portfolio of services may be subject to pricing pressure and lower demand due to clients
transitioning certain work in-house. At the same time, clients continue to adopt and integrate digital technologies and their
demand for our digital operations services and solutions has only increased since the beginning of the COVID-19 pandemic, as
demand for mobile workplace solutions, e-commerce, automation and AI and cybersecurity services and solutions has grown.
Our clients will likely continue to contend with industry-specific changes driven by evolving digital technologies,
uncertainty in the regulatory environment, industry consolidation and convergence as well as international trade policies and
other macroeconomic factors, which could affect their demand for our services. The COVID-19 pandemic may continue to
negatively impact demand, particularly among our retail, consumer goods, travel and hospitality clients within our Products and
Resources segment as well as communications and media clients in our Communications, Media and Technology segment. The
significant and evolving nature of the COVID-19 pandemic makes it difficult to estimate its future impact on our ongoing
business, results of operations and overall financial performance. See Part I, Item 1A. Risk Factors.
As a global professional services company, we compete on the basis of the knowledge, experience, insights, skills and
talent of our employees and the value they can provide to our clients. Competition for skilled labor is intense and our success is
dependent, in large part, on our ability to keep our supply of skilled employees, in particular those with experience in key
digital areas, in balance with client demand around the world. As such, we will continue to focus on recruiting, talent
management and employee engagement to attract and retain our employees.
We will continue to pursue strategic acquisitions, investments and alliances that will expand our talent, experience and
capabilities in key digital areas or in particular geographies or industries.
In addition, our future results may be affected by immigration law changes that may impact our ability to do business or
significantly increase our costs of doing business, potential tax law changes and other potential regulatory changes, including
potentially increased costs in 2021 and future years for employment and post-employment benefits in India as a result of the
issuance of the Code in late 2020, as well as costs related to the potential resolution of legal and regulatory matters discussed in
Note 15 to our consolidated financial statements. For additional information, see Part I, Item 1A. Risk Factors.
Results of Operations
For a discussion of our results of operations for the year ended December 31, 2018, including a year-to-year comparison
between 2019 and 2018, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report Form 10-K for the year ended December 31, 2019.
The Year Ended December 31, 2020 Compared to The Year Ended December 31, 2019
The following table sets forth certain financial data for the years ended December 31:
Revenues
Cost of revenues(1)
Selling, general and administrative expenses(1)
Restructuring charges
Depreciation and amortization expense
Income from operations
Other income (expense), net
Income before provision for income taxes
Provision for income taxes
Income (loss) from equity method investments
Net income
Diluted EPS
Other Financial Information 3
Adjusted Income From Operations and Adjusted
Operating Margin
Adjusted Diluted EPS
% of
% of
Increase / Decrease
2020
Revenues
2019
Revenues
$
%
(Dollars in millions, except per share data)
$ 16,652
100.0
$ 16,783
100.0
$
(131)
(0.8)
10,671
3,100
215
552
2,114
(18)
2,096
(704)
—
1,392
2.57
2,394
3.42
$
$
$
$
64.1
18.6
1.3
3.3
12.7
12.6
8.4
14.4
2,543
15.2
10,634
2,972
217
507
2,453
90
(643)
(58)
1,842
3.29
2,787
3.99
$
$
$
$
63.4
17.7
1.3
3.0
14.6
11.0
16.6
37
128
(2)
45
(339)
(108)
(447)
(61)
58
$
$
(450)
(0.72)
0.3
4.3
(0.9)
8.9
(13.8)
(120.0)
(17.6)
9.5
(100.0)
(24.4)
(21.9)
(393)
$
(0.57)
(14.1)
(14.3)
(1)
Exclusive of depreciation and amortization expense.
Revenues - Overall
During 2020, revenues decreased by $131 million as compared to 2019, representing a decline of 0.8%, or 0.7% on a
constant currency basis3. Across all business segments and regions, revenues were negatively impacted by the ransomware
attack and the COVID-19 pandemic. In addition, our exit from certain content-related services and the Proposed Exit negatively
impacted our revenues by $178 million and $118 million, respectively. We continue to experience pricing pressure within our
core portfolio of services as our clients optimize the cost of supporting their legacy systems and operations. At the same time,
clients are adopting and integrating digital technologies and their demand for our digital services and solutions has continued to
increase since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-
commerce, automation and AI and cybersecurity services and solutions. Additionally, the year-over-year change in our
revenues included 210 basis points of benefit from our recently completed acquisitions, including Collaborative Solutions,
Zenith and Contino. Revenues from clients added during 2020, including those related to acquisitions, were $342 million.
22
23
3
Adjusted Income From Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue
growth are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP
Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial
measures, as applicable.
Business Outlook
priorities are:
We have four strategic priorities as we seek to increase our commercial momentum and accelerate growth. These strategic
Accelerating digital - growing our digital business organically and inorganically;
•
•
•
•
capabilities and delivery footprint;
digital partner to the entire C-suite; and
business needs.
Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients'
We continue to expect the long-term focus of our clients to be on their digital transformation into software-driven, data-
enabled, customer-centric and differentiated businesses. As our clients seek to optimize the cost of supporting their legacy
systems and operations, our core portfolio of services may be subject to pricing pressure and lower demand due to clients
transitioning certain work in-house. At the same time, clients continue to adopt and integrate digital technologies and their
demand for our digital operations services and solutions has only increased since the beginning of the COVID-19 pandemic, as
demand for mobile workplace solutions, e-commerce, automation and AI and cybersecurity services and solutions has grown.
Our clients will likely continue to contend with industry-specific changes driven by evolving digital technologies,
uncertainty in the regulatory environment, industry consolidation and convergence as well as international trade policies and
other macroeconomic factors, which could affect their demand for our services. The COVID-19 pandemic may continue to
negatively impact demand, particularly among our retail, consumer goods, travel and hospitality clients within our Products and
Resources segment as well as communications and media clients in our Communications, Media and Technology segment. The
significant and evolving nature of the COVID-19 pandemic makes it difficult to estimate its future impact on our ongoing
business, results of operations and overall financial performance. See Part I, Item 1A. Risk Factors.
As a global professional services company, we compete on the basis of the knowledge, experience, insights, skills and
talent of our employees and the value they can provide to our clients. Competition for skilled labor is intense and our success is
dependent, in large part, on our ability to keep our supply of skilled employees, in particular those with experience in key
digital areas, in balance with client demand around the world. As such, we will continue to focus on recruiting, talent
management and employee engagement to attract and retain our employees.
We will continue to pursue strategic acquisitions, investments and alliances that will expand our talent, experience and
capabilities in key digital areas or in particular geographies or industries.
In addition, our future results may be affected by immigration law changes that may impact our ability to do business or
significantly increase our costs of doing business, potential tax law changes and other potential regulatory changes, including
potentially increased costs in 2021 and future years for employment and post-employment benefits in India as a result of the
issuance of the Code in late 2020, as well as costs related to the potential resolution of legal and regulatory matters discussed in
Note 15 to our consolidated financial statements. For additional information, see Part I, Item 1A. Risk Factors.
Globalizing Cognizant - growing our business in key international markets and diversifying leadership,
The Year Ended December 31, 2020 Compared to The Year Ended December 31, 2019
Repositioning our brand - improving our global brand recognition and becoming better known as a global
The following table sets forth certain financial data for the years ended December 31:
% of
% of
Increase / Decrease
2020
Revenues
2019
Revenues
$
%
Results of Operations
For a discussion of our results of operations for the year ended December 31, 2018, including a year-to-year comparison
between 2019 and 2018, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report Form 10-K for the year ended December 31, 2019.
Revenues
Cost of revenues(1)
Selling, general and administrative expenses(1)
Restructuring charges
Depreciation and amortization expense
Income from operations
Other income (expense), net
Income before provision for income taxes
Provision for income taxes
Income (loss) from equity method investments
Net income
Diluted EPS
Other Financial Information 3
Adjusted Income From Operations and Adjusted
Operating Margin
Adjusted Diluted EPS
$ 16,652
10,671
3,100
215
552
2,114
(18)
2,096
(704)
—
1,392
2.57
$
$
$
$
2,394
3.42
(1)
Exclusive of depreciation and amortization expense.
Revenues - Overall
(Dollars in millions, except per share data)
$
100.0
64.1
18.6
1.3
3.3
12.7
12.6
8.4
14.4
$ 16,783
10,634
2,972
217
507
2,453
90
2,543
(643)
(58)
1,842
3.29
$
$
$
$
2,787
3.99
100.0
63.4
17.7
1.3
3.0
14.6
15.2
11.0
16.6
(131)
37
128
(2)
45
(339)
(108)
(447)
(61)
58
(450)
(0.72)
(0.8)
0.3
4.3
(0.9)
8.9
(13.8)
(120.0)
(17.6)
9.5
(100.0)
(24.4)
(21.9)
$
$
(393)
$
(0.57)
(14.1)
(14.3)
During 2020, revenues decreased by $131 million as compared to 2019, representing a decline of 0.8%, or 0.7% on a
constant currency basis3. Across all business segments and regions, revenues were negatively impacted by the ransomware
attack and the COVID-19 pandemic. In addition, our exit from certain content-related services and the Proposed Exit negatively
impacted our revenues by $178 million and $118 million, respectively. We continue to experience pricing pressure within our
core portfolio of services as our clients optimize the cost of supporting their legacy systems and operations. At the same time,
clients are adopting and integrating digital technologies and their demand for our digital services and solutions has continued to
increase since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-
commerce, automation and AI and cybersecurity services and solutions. Additionally, the year-over-year change in our
revenues included 210 basis points of benefit from our recently completed acquisitions, including Collaborative Solutions,
Zenith and Contino. Revenues from clients added during 2020, including those related to acquisitions, were $342 million.
22
23
3
Adjusted Income From Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue
growth are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP
Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial
measures, as applicable.
Revenues - Reportable Business Segments
Revenues - Geographic Locations
Revenues by reportable business segment were as follows:
Revenues by geographic market, as determined by client location, were as follows:
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total revenues
Financial Services
2020
2019
$
%
CC%4
Increase / (Decrease)
(Dollars in millions)
$
5,621 $
5,869 $ (248)
4,852
3,696
2,483
4,695
3,770
2,449
157
(74)
34
$
16,652 $
16,783 $ (131)
(4.2)
3.3
(2.0)
1.4
(0.8)
(4.0)
3.1
(1.7)
1.6
(0.7)
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total revenues
2020
2019
$
%
CC %5
Increase / (Decrease)
(Dollars in millions)
$ 12,581 $ 12,726 $
(145)
(1.1)
(1.1) %
1,335
1,653
2,988
1,083
1,313
1,691
3,004
1,053
22
(38)
(16)
30
1.7
(2.2)
(0.5)
2.8
1.0 %
(3.3) %
(1.4) %
6.4 %
$ 16,652 $ 16,783 $
(131)
(0.8)
(0.7) %
Revenues from our Financial Services segment declined 4.2%, or 4.0% on a constant currency basis4, in 2020. Revenues
among our insurance clients decreased by $85 million as compared to a decrease of $163 million from our banking clients. The
Proposed Exit negatively impacted our revenues from banking clients by $118 million. Revenues from clients added during
2020, including those related to acquisitions, were $70 million. Moderate revenue growth generated by our digital services did
not fully offset revenue declines attributable to certain financial services clients who continued to transition the support of some
of their legacy systems and operations in-house.
North America continues to be our largest market, representing 75.6% of total 2020 revenues. Our North America region
was negatively impacted by our exit from certain content-related services in our Communications, Media and Technology
segment and the transition of the support of legacy systems for certain financial services and healthcare clients in-house. Our
Continental Europe region was negatively impacted by the Proposed Exit, partially offset by growth from our life sciences
customers. Revenues in our United Kingdom region have particularly benefited from our recently completed acquisitions.
Revenue growth in our Rest of World region was driven by our Communications, Media and Technology clients.
Healthcare
Cost of Revenues (Exclusive of Depreciation and Amortization Expense)
Revenues from our Healthcare segment grew 3.3%, or 3.1% on a constant currency basis4, in 2020. Revenues in this
segment increased by $173 million among our life science clients while revenues from our healthcare clients decreased $16
million. Revenue growth among our life sciences clients was driven by revenues from Zenith and increased demand for our
services among pharmaceutical companies. Revenues from our healthcare clients were negatively impacted by the
establishment of an offshore captive by a large client, partially offset by the 2019 negative impact of a customer dispute with a
healthcare client related to a large volume based contract. Additionally, revenues from our healthcare clients benefited from
stronger software license sales in 2020. Revenues from clients added during 2020, including those related to acquisitions, were
$50 million. Demand from our healthcare clients may continue to be affected by uncertainty in the regulatory and political
environment while demand from our life sciences clients may be affected by industry consolidation.
Products and Resources
Revenues from our Products and Resources segment declined 2.0%, or 1.7% on a constant currency basis4, in 2020.
Retail, consumer goods, travel and hospitality clients were particularly adversely affected by the COVID-19 pandemic. Thus,
revenue from our travel and hospitality clients and from our retail and consumer goods clients decreased by $126 million and
$100 million, respectively. Revenues from our manufacturing, logistics, energy and utilities clients increased by $152 million
due to our clients' adoption and integration of digital technologies. Revenues from clients added during 2020, including those
related to acquisitions, were $105 million.
Communications, Media and Technology
Revenues from our Communications, Media and Technology segment grew 1.4%, or 1.6% on a constant currency basis4,
in 2020. Revenues from our communications and media clients increased $72 million while revenues from our technology
clients decreased $38 million. Revenues among our technology clients in this segment were negatively impacted by
approximately $178 million due to our exit from certain content-related services. Additionally, revenues were negatively
impacted by the COVID-19 pandemic, particularly among our communications and media clients, partially offset by growing
demand from our technology clients for other more strategic digital content services. Revenues from clients added during 2020,
including those related to acquisitions, were $117 million.
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense,
employee benefits, project-related immigration and travel for technical personnel, subcontracting and equipment costs relating
to revenues. Our cost of revenues increased by 0.3% during 2020 as compared to 2019, increasing as a percentage of revenues
to 64.1% in 2020 compared to 63.4% in 2019. The increase in cost of revenues, as a percentage of revenues, was due primarily
to an increase in costs related to higher incentive-based compensation accrual rates in 2020 and the impact of the Proposed Exit,
the COVID-19 pandemic and the ransomware attack. These impacts were partially offset by a significant decrease in travel and
entertainment costs as a result of a reduction in travel due to the COVID-19 pandemic, the cost savings generated as a result of
our cost optimization strategy and the depreciation of the Indian rupee against the U.S. dollar.
SG&A Expenses (Exclusive of Depreciation and Amortization Expense)
SG&A expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense,
employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs.
SG&A expenses increased by 4.3% during 2020 as compared to 2019, increasing as a percentage of revenues to 18.6% in 2020
as compared to 17.7% in 2019. The increase, as a percentage of revenues, was due primarily to an increase in costs related to
higher incentive-based compensation accrual rates in 2020, investments intended to drive organic and inorganic revenue growth
and the impacts of the COVID-19 pandemic, the Proposed Exit and the ransomware attack. These negative impacts were
partially offset by a significant decrease in travel and entertainment costs as a result of a reduction in travel due to the
COVID-19 pandemic and lower immigration costs, in addition to the $117 million incremental accrual in 2019 related to the
India Defined Contribution Obligation as discussed in Note 15 to our consolidated financial statements.
Restructuring Charges
Restructuring charges consist of our 2020 Fit for Growth Plan and our realignment program. Restructuring charges were
$215 million, or 1.3% as a percentage of revenues during 2020, as compared to $217 million, or 1.3% as a percentage of
revenues, during 2019. For further detail on our restructuring charges see Note 4 to our consolidated financial statements.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by 8.9% during 2020 as compared to 2019. The increase was due to
procurement of additional computer equipment primarily to provision work-from-home arrangements and amortization of
intangibles from recently completed acquisitions.
4
Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP.
See “Non-GAAP Financial Measures” for more information.
5
Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP.
See “Non-GAAP Financial Measures” for more information.
24
25
Revenues - Reportable Business Segments
Revenues - Geographic Locations
Revenues by reportable business segment were as follows:
Revenues by geographic market, as determined by client location, were as follows:
Financial Services
Healthcare
Products and Resources
Total revenues
Financial Services
Communications, Media and Technology
2020
2019
$
%
CC%4
Increase / (Decrease)
(Dollars in millions)
$
5,621 $
5,869 $ (248)
4,852
3,696
2,483
4,695
3,770
2,449
157
(74)
34
$
16,652 $
16,783 $ (131)
(4.2)
3.3
(2.0)
1.4
(0.8)
(4.0)
3.1
(1.7)
1.6
(0.7)
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total revenues
2020
2019
$
%
CC %5
Increase / (Decrease)
(Dollars in millions)
$ 12,581 $ 12,726 $
(145)
(1.1)
(1.1) %
1,335
1,653
2,988
1,083
1,313
1,691
3,004
1,053
22
(38)
(16)
30
1.7
(2.2)
(0.5)
2.8
1.0 %
(3.3) %
(1.4) %
6.4 %
$ 16,652 $ 16,783 $
(131)
(0.8)
(0.7) %
Revenues from our Financial Services segment declined 4.2%, or 4.0% on a constant currency basis4, in 2020. Revenues
among our insurance clients decreased by $85 million as compared to a decrease of $163 million from our banking clients. The
Proposed Exit negatively impacted our revenues from banking clients by $118 million. Revenues from clients added during
2020, including those related to acquisitions, were $70 million. Moderate revenue growth generated by our digital services did
not fully offset revenue declines attributable to certain financial services clients who continued to transition the support of some
of their legacy systems and operations in-house.
Healthcare
Revenues from our Healthcare segment grew 3.3%, or 3.1% on a constant currency basis4, in 2020. Revenues in this
segment increased by $173 million among our life science clients while revenues from our healthcare clients decreased $16
million. Revenue growth among our life sciences clients was driven by revenues from Zenith and increased demand for our
services among pharmaceutical companies. Revenues from our healthcare clients were negatively impacted by the
establishment of an offshore captive by a large client, partially offset by the 2019 negative impact of a customer dispute with a
healthcare client related to a large volume based contract. Additionally, revenues from our healthcare clients benefited from
stronger software license sales in 2020. Revenues from clients added during 2020, including those related to acquisitions, were
$50 million. Demand from our healthcare clients may continue to be affected by uncertainty in the regulatory and political
environment while demand from our life sciences clients may be affected by industry consolidation.
Products and Resources
Revenues from our Products and Resources segment declined 2.0%, or 1.7% on a constant currency basis4, in 2020.
Retail, consumer goods, travel and hospitality clients were particularly adversely affected by the COVID-19 pandemic. Thus,
revenue from our travel and hospitality clients and from our retail and consumer goods clients decreased by $126 million and
$100 million, respectively. Revenues from our manufacturing, logistics, energy and utilities clients increased by $152 million
due to our clients' adoption and integration of digital technologies. Revenues from clients added during 2020, including those
related to acquisitions, were $105 million.
Communications, Media and Technology
Revenues from our Communications, Media and Technology segment grew 1.4%, or 1.6% on a constant currency basis4,
in 2020. Revenues from our communications and media clients increased $72 million while revenues from our technology
clients decreased $38 million. Revenues among our technology clients in this segment were negatively impacted by
approximately $178 million due to our exit from certain content-related services. Additionally, revenues were negatively
impacted by the COVID-19 pandemic, particularly among our communications and media clients, partially offset by growing
demand from our technology clients for other more strategic digital content services. Revenues from clients added during 2020,
including those related to acquisitions, were $117 million.
North America continues to be our largest market, representing 75.6% of total 2020 revenues. Our North America region
was negatively impacted by our exit from certain content-related services in our Communications, Media and Technology
segment and the transition of the support of legacy systems for certain financial services and healthcare clients in-house. Our
Continental Europe region was negatively impacted by the Proposed Exit, partially offset by growth from our life sciences
customers. Revenues in our United Kingdom region have particularly benefited from our recently completed acquisitions.
Revenue growth in our Rest of World region was driven by our Communications, Media and Technology clients.
Cost of Revenues (Exclusive of Depreciation and Amortization Expense)
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense,
employee benefits, project-related immigration and travel for technical personnel, subcontracting and equipment costs relating
to revenues. Our cost of revenues increased by 0.3% during 2020 as compared to 2019, increasing as a percentage of revenues
to 64.1% in 2020 compared to 63.4% in 2019. The increase in cost of revenues, as a percentage of revenues, was due primarily
to an increase in costs related to higher incentive-based compensation accrual rates in 2020 and the impact of the Proposed Exit,
the COVID-19 pandemic and the ransomware attack. These impacts were partially offset by a significant decrease in travel and
entertainment costs as a result of a reduction in travel due to the COVID-19 pandemic, the cost savings generated as a result of
our cost optimization strategy and the depreciation of the Indian rupee against the U.S. dollar.
SG&A Expenses (Exclusive of Depreciation and Amortization Expense)
SG&A expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense,
employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs.
SG&A expenses increased by 4.3% during 2020 as compared to 2019, increasing as a percentage of revenues to 18.6% in 2020
as compared to 17.7% in 2019. The increase, as a percentage of revenues, was due primarily to an increase in costs related to
higher incentive-based compensation accrual rates in 2020, investments intended to drive organic and inorganic revenue growth
and the impacts of the COVID-19 pandemic, the Proposed Exit and the ransomware attack. These negative impacts were
partially offset by a significant decrease in travel and entertainment costs as a result of a reduction in travel due to the
COVID-19 pandemic and lower immigration costs, in addition to the $117 million incremental accrual in 2019 related to the
India Defined Contribution Obligation as discussed in Note 15 to our consolidated financial statements.
Restructuring Charges
Restructuring charges consist of our 2020 Fit for Growth Plan and our realignment program. Restructuring charges were
$215 million, or 1.3% as a percentage of revenues during 2020, as compared to $217 million, or 1.3% as a percentage of
revenues, during 2019. For further detail on our restructuring charges see Note 4 to our consolidated financial statements.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by 8.9% during 2020 as compared to 2019. The increase was due to
procurement of additional computer equipment primarily to provision work-from-home arrangements and amortization of
intangibles from recently completed acquisitions.
4
Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP.
See “Non-GAAP Financial Measures” for more information.
5
Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP.
See “Non-GAAP Financial Measures” for more information.
24
25
Operating Margin - Overall
Our operating margin and Adjusted Operating Margin6 decreased to 12.7% and 14.4%, respectively, in 2020 from 14.6%
and 16.6%, respectively, during 2019. Our GAAP and Adjusted Operating Margin6 were adversely impacted by higher
incentive-based compensation accrual rates, investments intended to drive organic and inorganic revenue growth, the impact of
the Proposed Exit, the decline in revenues brought on by the COVID-19 pandemic and the impact of the ransomware attack on
both revenues and costs. These impacts were partially offset by a significant decrease in travel and entertainment expenses due
to the COVID-19 pandemic, the cost savings generated as a result of the 2020 Fit for Growth Plan, lower immigration costs and
the depreciation of the Indian rupee against the U.S. dollar. In addition, our 2019 GAAP operating margin included a 0.7%
negative impact of the incremental accrual in 2019 related to the India Defined Contribution Obligation as discussed in Note 15
to our consolidated financial statements, while our 2020 GAAP operating margin was negatively impacted by COVID-19
Charges.
Excluding the impact of applicable designated cash flow hedges, the depreciation of the Indian rupee against the U.S.
dollar positively impacted our operating margin by approximately 92 basis points or 0.92 percentage points in 2020, while in
2019 the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 53
basis points or 0.53 percentage points. Each additional 1.0% change in exchange rate between the Indian rupee and the U.S.
dollar will have the effect of moving our operating margin by approximately 17 basis points or 0.17 percentage points.
We enter into foreign exchange derivative 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.
The impact of the settlement of our cash flow hedges was immaterial in 2020 and 2019.
Our most significant costs are the salaries and related benefits for our employees. These costs are affected by the impact
of inflation. In certain regions, competition for professionals with the advanced technical skills necessary to perform our
services has caused wages to increase at a rate greater than the general rate of inflation.
We finished the year ended December 31, 2020 with approximately 289,500 employees, which is a decrease of 3,000 as
compared to December 31, 2019. For the three months ended December 31, 2020, annualized turnover, including both
voluntary and involuntary, was approximately 19.0%. Turnover for the years ended December 31, 2020 and 2019, including
both voluntary and involuntary, was approximately 20.6% and 21.7%. Voluntary attrition normally constitutes the significant
majority of our attrition. In 2020, we saw elevated levels of involuntary attrition due to our Fit for Growth Plan, including the
exit from certain content-related services. We also saw a decrease in voluntary attrition from historic levels in the early stages
of the COVID-19 pandemic. Both voluntary and involuntary attrition are weighted towards our more junior employees.
Segment Operating Profit and Margin
Segment operating profit and margin were as follows:
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total segment operating profit and margin
Less: unallocated costs
Income from operations
2020
Operating
Margin %
2019
Operating
Margin %
Increase /
(Decrease)
$
$
1,449
1,383
1,078
794
4,704
2,590
2,114
(Dollars in millions)
25.8 $
28.5
29.2
32.0
28.2
12.7 $
1,605
1,261
1,028
732
4,626
2,173
2,453
27.3 $
26.9
27.3
29.9
27.6
14.6 $
(156)
122
50
62
78
417
(339)
Across all our business segments, operating margins benefited from a significant decrease in travel and entertainment
costs due to COVID-19 related reductions in travel, cost savings generated by our cost optimization initiatives and the
depreciation of the Indian rupee against the U.S. dollar, partially offset by investments intended to drive organic and inorganic
revenue growth and the negative impact on revenues of the COVID-19 pandemic and the ransomware attack. The 2020
operating margin in our Financial Services segment was negatively impacted by the Proposed Exit. Additionally, the 2019
operating margin in our Healthcare segment was negatively impacted by client mergers within the segment and a dispute with a
customer related to a large volume based contract. The increase in unallocated costs in 2020 compared to 2019 is primarily due
to a smaller shortfall in 2020 than in 2019 of incentive-based compensation as compared to target, COVID-19 Charges and
costs related to the ransomware attack, partially offset by the 2019 India Defined Contribution Obligation discussed in Note 15
to our consolidated financial statements.
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 years ended December 31:
Foreign currency exchange (losses)
(Losses) gains on foreign exchange forward contracts not designated as hedging
Foreign currency exchange (losses), net
instruments
Interest income
Interest expense
Other, net
2020
2019
(in millions)
Increase /
Decrease
$
(53)
$
(73)
$
20
(63)
(116)
119
(24)
3
8
(65)
176
(26)
5
90
(71)
(51)
(57)
2
(2)
Total other income (expense), net
$
(18)
$
$
(108)
The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee
denominated net monetary assets and liabilities in our U.S. dollar functional currency India subsidiaries and, to a lesser extent,
the remeasurement of other net monetary assets and liabilities denominated in currencies other than the functional currencies of
our subsidiaries. The gains and losses on our foreign exchange forward contracts not designated as hedging instruments related
to the realized and unrealized gains and losses on foreign exchange forward contracts entered into to offset foreign currency
exposure to non-U.S. dollar denominated net monetary assets and liabilities. As of December 31, 2020, the notional value of
our undesignated hedges was $637 million. The decrease in interest income of $57 million was primarily attributable to lower
yields in 2020.
Provision for Income Taxes
The provision for income taxes was $704 million in 2020 and $643 million in 2019. The effective income tax rate
increased to 33.6% in 2020 as compared to 25.3% in 2019 primarily driven by the Tax on Accumulated Indian Earnings, the
impact of the Proposed Exit, which was not deductible for tax purposes, and the depreciation of the Indian rupee against the
U.S. dollar, which resulted in non-deductible foreign currency exchange losses in our consolidated statement of operations.
In 2019, we recorded an impairment charge of $57 million on one of our equity method investments as further described
Income (loss) from equity method investments
in Note 5 to our consolidated financial statements.
Net Income
Net income was $1,392 million in 2020 and $1,842 million in 2019. Net income as a percentage of revenues decreased to
8.4% in 2020 from 11.0% in 2019. The decrease in net income was driven by lower income from operations, higher foreign
currency exchange losses (inclusive of losses on our foreign exchange forward contracts not designated as hedging
instruments), lower interest income and a higher provision for income taxes.
Non-GAAP Financial Measures
Portions of our disclosure include non-GAAP financial measures. These non-GAAP financial measures are not based on
any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial
measures calculated in accordance with GAAP, and may be different from non-GAAP financial measures used by other
companies. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements
prepared in accordance with GAAP. The reconciliations of our non-GAAP financial measures to the corresponding GAAP
measures, set forth below, should be carefully evaluated.
6
Adjusted Operating Margin is not a measurement of financial performance prepared in accordance with GAAP. See
“Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP
financial measure.
Our non-GAAP financial measures, Adjusted Operating Margin, Adjusted Income From Operations and Adjusted Diluted
EPS exclude unusual items. Additionally, Adjusted Diluted EPS excludes net non-operating foreign currency exchange gains or
losses and the tax impact of all the applicable adjustments. The income tax impact of each item is calculated by applying the
26
27
(63)
(116)
119
(24)
3
Total other income (expense), net
$
(18)
$
8
(65)
176
(26)
5
90
(71)
(51)
(57)
2
(2)
$
(108)
2020
2019
(in millions)
Increase /
Decrease
$
(53)
$
(73)
$
20
Foreign currency exchange (losses)
(Losses) gains on foreign exchange forward contracts not designated as hedging
instruments
Foreign currency exchange (losses), net
Interest income
Interest expense
Other, net
to a smaller shortfall in 2020 than in 2019 of incentive-based compensation as compared to target, COVID-19 Charges and
costs related to the ransomware attack, partially offset by the 2019 India Defined Contribution Obligation discussed in Note 15
to our consolidated financial statements.
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 years ended December 31:
Operating Margin - Overall
Our operating margin and Adjusted Operating Margin6 decreased to 12.7% and 14.4%, respectively, in 2020 from 14.6%
and 16.6%, respectively, during 2019. Our GAAP and Adjusted Operating Margin6 were adversely impacted by higher
incentive-based compensation accrual rates, investments intended to drive organic and inorganic revenue growth, the impact of
the Proposed Exit, the decline in revenues brought on by the COVID-19 pandemic and the impact of the ransomware attack on
both revenues and costs. These impacts were partially offset by a significant decrease in travel and entertainment expenses due
to the COVID-19 pandemic, the cost savings generated as a result of the 2020 Fit for Growth Plan, lower immigration costs and
the depreciation of the Indian rupee against the U.S. dollar. In addition, our 2019 GAAP operating margin included a 0.7%
negative impact of the incremental accrual in 2019 related to the India Defined Contribution Obligation as discussed in Note 15
to our consolidated financial statements, while our 2020 GAAP operating margin was negatively impacted by COVID-19
Charges.
Excluding the impact of applicable designated cash flow hedges, the depreciation of the Indian rupee against the U.S.
dollar positively impacted our operating margin by approximately 92 basis points or 0.92 percentage points in 2020, while in
2019 the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 53
basis points or 0.53 percentage points. Each additional 1.0% change in exchange rate between the Indian rupee and the U.S.
dollar will have the effect of moving our operating margin by approximately 17 basis points or 0.17 percentage points.
We enter into foreign exchange derivative 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.
The impact of the settlement of our cash flow hedges was immaterial in 2020 and 2019.
Our most significant costs are the salaries and related benefits for our employees. These costs are affected by the impact
of inflation. In certain regions, competition for professionals with the advanced technical skills necessary to perform our
services has caused wages to increase at a rate greater than the general rate of inflation.
We finished the year ended December 31, 2020 with approximately 289,500 employees, which is a decrease of 3,000 as
compared to December 31, 2019. For the three months ended December 31, 2020, annualized turnover, including both
voluntary and involuntary, was approximately 19.0%. Turnover for the years ended December 31, 2020 and 2019, including
both voluntary and involuntary, was approximately 20.6% and 21.7%. Voluntary attrition normally constitutes the significant
majority of our attrition. In 2020, we saw elevated levels of involuntary attrition due to our Fit for Growth Plan, including the
exit from certain content-related services. We also saw a decrease in voluntary attrition from historic levels in the early stages
of the COVID-19 pandemic. Both voluntary and involuntary attrition are weighted towards our more junior employees.
Segment Operating Profit and Margin
Segment operating profit and margin were as follows:
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total segment operating profit and margin
Less: unallocated costs
Income from operations
2020
Operating
Margin %
2019
Operating
Margin %
Increase /
(Decrease)
$
1,449
25.8 $
1,605
27.3 $
(Dollars in millions)
1,383
1,078
794
4,704
2,590
28.5
29.2
32.0
28.2
1,261
1,028
732
4,626
2,173
26.9
27.3
29.9
27.6
$
2,114
12.7 $
2,453
14.6 $
(156)
122
50
62
78
417
(339)
Across all our business segments, operating margins benefited from a significant decrease in travel and entertainment
costs due to COVID-19 related reductions in travel, cost savings generated by our cost optimization initiatives and the
depreciation of the Indian rupee against the U.S. dollar, partially offset by investments intended to drive organic and inorganic
revenue growth and the negative impact on revenues of the COVID-19 pandemic and the ransomware attack. The 2020
operating margin in our Financial Services segment was negatively impacted by the Proposed Exit. Additionally, the 2019
operating margin in our Healthcare segment was negatively impacted by client mergers within the segment and a dispute with a
customer related to a large volume based contract. The increase in unallocated costs in 2020 compared to 2019 is primarily due
The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee
denominated net monetary assets and liabilities in our U.S. dollar functional currency India subsidiaries and, to a lesser extent,
the remeasurement of other net monetary assets and liabilities denominated in currencies other than the functional currencies of
our subsidiaries. The gains and losses on our foreign exchange forward contracts not designated as hedging instruments related
to the realized and unrealized gains and losses on foreign exchange forward contracts entered into to offset foreign currency
exposure to non-U.S. dollar denominated net monetary assets and liabilities. As of December 31, 2020, the notional value of
our undesignated hedges was $637 million. The decrease in interest income of $57 million was primarily attributable to lower
yields in 2020.
Provision for Income Taxes
The provision for income taxes was $704 million in 2020 and $643 million in 2019. The effective income tax rate
increased to 33.6% in 2020 as compared to 25.3% in 2019 primarily driven by the Tax on Accumulated Indian Earnings, the
impact of the Proposed Exit, which was not deductible for tax purposes, and the depreciation of the Indian rupee against the
U.S. dollar, which resulted in non-deductible foreign currency exchange losses in our consolidated statement of operations.
Income (loss) from equity method investments
In 2019, we recorded an impairment charge of $57 million on one of our equity method investments as further described
in Note 5 to our consolidated financial statements.
Net Income
Net income was $1,392 million in 2020 and $1,842 million in 2019. Net income as a percentage of revenues decreased to
8.4% in 2020 from 11.0% in 2019. The decrease in net income was driven by lower income from operations, higher foreign
currency exchange losses (inclusive of losses on our foreign exchange forward contracts not designated as hedging
instruments), lower interest income and a higher provision for income taxes.
Non-GAAP Financial Measures
Portions of our disclosure include non-GAAP financial measures. These non-GAAP financial measures are not based on
any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial
measures calculated in accordance with GAAP, and may be different from non-GAAP financial measures used by other
companies. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements
prepared in accordance with GAAP. The reconciliations of our non-GAAP financial measures to the corresponding GAAP
measures, set forth below, should be carefully evaluated.
6
Adjusted Operating Margin is not a measurement of financial performance prepared in accordance with GAAP. See
“Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP
financial measure.
Our non-GAAP financial measures, Adjusted Operating Margin, Adjusted Income From Operations and Adjusted Diluted
EPS exclude unusual items. Additionally, Adjusted Diluted EPS excludes net non-operating foreign currency exchange gains or
losses and the tax impact of all the applicable adjustments. The income tax impact of each item is calculated by applying the
26
27
statutory rate and local tax regulations in the jurisdiction in which the item was incurred. Constant currency revenue growth is
defined as revenues for a given period restated at the comparative period’s foreign currency exchange rates measured against
the comparative period's reported revenues.
We believe providing investors with an operating view consistent with how we manage the Company provides enhanced
transparency into our operating results. For our internal management reporting and budgeting purposes, we use various GAAP
and non-GAAP financial measures for financial and operational decision-making, to evaluate period-to-period comparisons, to
determine portions of the compensation for our executive officers and for making comparisons of our operating results to those
of our competitors. Therefore, it is our belief that the use of non-GAAP financial measures excluding certain costs provides a
meaningful supplemental measure for investors to evaluate our financial performance. We believe that the presentation of our
non-GAAP financial measures along with reconciliations to the most comparable GAAP measure, as applicable, can provide
useful supplemental information to our management and investors regarding financial and business trends relating to our
financial condition and results of operations.
A limitation of using non-GAAP financial measures versus financial measures calculated in accordance with GAAP is
that non-GAAP financial measures do not reflect all of the amounts associated with our operating results as determined in
accordance with GAAP and may exclude costs that are recurring such as our net non-operating foreign currency exchange gains
or losses. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby limiting the
usefulness of these non-GAAP financial measures as a comparative tool. We compensate for these limitations by providing
specific information regarding the GAAP amounts excluded from our non-GAAP financial measures to allow investors to
evaluate such non-GAAP financial measures.
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP
measure for the years ended December 31:
2020
% of
Revenues
2019
% of
Revenues
(Dollars in millions, except per share data)
GAAP income from operations and operating margin
$
2,114
12.7 %
$
2,453
14.6 %
Realignment charges (1)
2020 Fit for Growth Plan restructuring charges (2)
COVID-19 Charges (3)
Incremental accrual related to the India Defined Contribution
Obligation (4)
Adjusted Income From Operations and Adjusted Operating Margin
GAAP diluted EPS
Effect of above adjustments, pre-tax
$
Effect of non-operating foreign currency exchange losses (gains),
pre-tax (5)
Tax effect of above adjustments (6)
Tax on Accumulated Indian Earnings (7)
Effect of the equity method investment impairment (8)
Effect of the India Tax Law (9)
42
173
65
—
2,394
2.57
0.52
0.22
(0.15)
0.26
—
—
0.3
1.0
0.4
—
14.4
$
Adjusted Diluted EPS
$
3.42
$
1.0
0.3
—
0.7
16.6
169
48
—
117
2,787
3.29
0.60
0.11
(0.15)
—
0.10
0.04
3.99
(1)
(2)
As part of our realignment program, during 2020, we incurred employee retention costs and certain professional
services fees and, during 2019, we incurred Executive Transition Costs, employee separation costs, employee retention
costs and third party realignment costs. See Note 4 to our consolidated financial statements for additional information.
As part of our 2020 Fit for Growth plan, during 2020, we incurred certain employee separation, employee retention
and facility exit costs and other charges and, during 2019, we incurred certain employee separation, employee
retention and facility exit costs under the plan. See Note 4 to our consolidated financial statements for additional
information.
(3)
During 2020, we incurred costs in response to the COVID-19 pandemic including a one-time bonus to our employees
at the designation of associate and below in both India and the Philippines, certain costs to enable our employees to
work remotely and provide medical staff and extra cleaning services for our facilities. Most of the costs related to the
pandemic are reported in "Cost of revenues" in our consolidated statement of operations.
(4)
In 2019, we recorded an accrual of $117 million related to the India Defined Contribution Obligation as further
described in Note 15 to our consolidated financial statements.
(5)
Non-operating foreign currency exchange gains and losses, inclusive of gains and losses on related foreign exchange
forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency
exchange gains (losses), net" in our consolidated statements of operations.
(6)
Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
For the years ended December 31,
2020
2019
(in millions)
Non-GAAP income tax benefit (expense) related to:
Realignment charges
$
11 $
2020 Fit for Growth Plan restructuring charges
COVID-19 Charges
Obligation
Incremental accrual related to the India Defined Contribution
Foreign currency exchange gains and losses
45
17
—
6
43
13
—
31
(1)
(7)
In 2020, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded
(8)
In 2019, we recorded an impairment charge of $57 million on one of our equity investments as further described in
$140 million in income tax expense.
Note 5 to our consolidated financial statements.
(9)
In 2019, we recorded a one-time net income tax expense of $21 million as a result of the enactment of a new tax law in
India.
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. As of December 31, 2020, we had cash, cash equivalents and short-term investments of $2,724 million.
Additionally, as of December 31, 2020, we had available capacity under our credit facilities of approximately $1,928 million.
The following table provides a summary of our cash flows for the years ended December 31:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating activities
2020
2019
(in millions)
Increase /
Decrease
$
3,299 $
2,499 $
800
(1,238)
1,588
(2,009)
(2,569)
(2,826)
560
The increase in cash generated from operating activities for 2020 compared to 2019 was primarily driven by improved
collections on our trade accounts receivable, deferrals of certain payments due to COVID-19 pandemic regulatory relief
provided by several jurisdictions in which we operate, and lower incentive-based compensation payouts and cash taxes paid in
2020.
We monitor turnover, aging and the collection of trade accounts receivable by client. Our DSO calculation includes trade
accounts receivable, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of our
deferred revenue. DSO was 70 days as of December 31, 2020 and 73 days as of December 31, 2019.
28
29
statutory rate and local tax regulations in the jurisdiction in which the item was incurred. Constant currency revenue growth is
defined as revenues for a given period restated at the comparative period’s foreign currency exchange rates measured against
the comparative period's reported revenues.
We believe providing investors with an operating view consistent with how we manage the Company provides enhanced
transparency into our operating results. For our internal management reporting and budgeting purposes, we use various GAAP
and non-GAAP financial measures for financial and operational decision-making, to evaluate period-to-period comparisons, to
determine portions of the compensation for our executive officers and for making comparisons of our operating results to those
of our competitors. Therefore, it is our belief that the use of non-GAAP financial measures excluding certain costs provides a
meaningful supplemental measure for investors to evaluate our financial performance. We believe that the presentation of our
non-GAAP financial measures along with reconciliations to the most comparable GAAP measure, as applicable, can provide
useful supplemental information to our management and investors regarding financial and business trends relating to our
financial condition and results of operations.
A limitation of using non-GAAP financial measures versus financial measures calculated in accordance with GAAP is
that non-GAAP financial measures do not reflect all of the amounts associated with our operating results as determined in
accordance with GAAP and may exclude costs that are recurring such as our net non-operating foreign currency exchange gains
or losses. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby limiting the
usefulness of these non-GAAP financial measures as a comparative tool. We compensate for these limitations by providing
specific information regarding the GAAP amounts excluded from our non-GAAP financial measures to allow investors to
evaluate such non-GAAP financial measures.
measure for the years ended December 31:
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP
GAAP income from operations and operating margin
$
2,114
12.7 %
$
2,453
14.6 %
2020
% of
Revenues
2019
% of
Revenues
(Dollars in millions, except per share data)
GAAP diluted EPS
Effect of above adjustments, pre-tax
$
$
Realignment charges (1)
2020 Fit for Growth Plan restructuring charges (2)
COVID-19 Charges (3)
Obligation (4)
Incremental accrual related to the India Defined Contribution
Adjusted Income From Operations and Adjusted Operating Margin
Effect of non-operating foreign currency exchange losses (gains),
pre-tax (5)
Tax effect of above adjustments (6)
Tax on Accumulated Indian Earnings (7)
Effect of the equity method investment impairment (8)
Effect of the India Tax Law (9)
Adjusted Diluted EPS
0.3
1.0
0.4
—
14.4
42
173
65
—
2,394
2.57
0.52
0.22
(0.15)
0.26
—
—
1.0
0.3
—
0.7
16.6
169
48
—
117
2,787
3.29
0.60
0.11
(0.15)
—
0.10
0.04
3.99
$
3.42
$
(1)
As part of our realignment program, during 2020, we incurred employee retention costs and certain professional
services fees and, during 2019, we incurred Executive Transition Costs, employee separation costs, employee retention
costs and third party realignment costs. See Note 4 to our consolidated financial statements for additional information.
(2)
As part of our 2020 Fit for Growth plan, during 2020, we incurred certain employee separation, employee retention
and facility exit costs and other charges and, during 2019, we incurred certain employee separation, employee
retention and facility exit costs under the plan. See Note 4 to our consolidated financial statements for additional
information.
(3)
(4)
(5)
During 2020, we incurred costs in response to the COVID-19 pandemic including a one-time bonus to our employees
at the designation of associate and below in both India and the Philippines, certain costs to enable our employees to
work remotely and provide medical staff and extra cleaning services for our facilities. Most of the costs related to the
pandemic are reported in "Cost of revenues" in our consolidated statement of operations.
In 2019, we recorded an accrual of $117 million related to the India Defined Contribution Obligation as further
described in Note 15 to our consolidated financial statements.
Non-operating foreign currency exchange gains and losses, inclusive of gains and losses on related foreign exchange
forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency
exchange gains (losses), net" in our consolidated statements of operations.
(6)
Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
For the years ended December 31,
2020
2019
(in millions)
Non-GAAP income tax benefit (expense) related to:
Realignment charges
$
11 $
2020 Fit for Growth Plan restructuring charges
COVID-19 Charges
Incremental accrual related to the India Defined Contribution
Obligation
Foreign currency exchange gains and losses
45
17
—
6
43
13
—
31
(1)
(7)
(8)
(9)
In 2020, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded
$140 million in income tax expense.
In 2019, we recorded an impairment charge of $57 million on one of our equity investments as further described in
Note 5 to our consolidated financial statements.
In 2019, we recorded a one-time net income tax expense of $21 million as a result of the enactment of a new tax law in
India.
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. As of December 31, 2020, we had cash, cash equivalents and short-term investments of $2,724 million.
Additionally, as of December 31, 2020, we had available capacity under our credit facilities of approximately $1,928 million.
The following table provides a summary of our cash flows for the years ended December 31:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating activities
2020
2019
(in millions)
Increase /
Decrease
$
3,299 $
(1,238)
(2,009)
2,499 $
1,588
(2,569)
800
(2,826)
560
The increase in cash generated from operating activities for 2020 compared to 2019 was primarily driven by improved
collections on our trade accounts receivable, deferrals of certain payments due to COVID-19 pandemic regulatory relief
provided by several jurisdictions in which we operate, and lower incentive-based compensation payouts and cash taxes paid in
2020.
We monitor turnover, aging and the collection of trade accounts receivable by client. Our DSO calculation includes trade
accounts receivable, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of our
deferred revenue. DSO was 70 days as of December 31, 2020 and 73 days as of December 31, 2019.
28
29
Investing activities
Net cash used in investing activities in 2020 was primarily driven by payments for acquisitions. Net cash provided by
investing activities in 2019 was driven by net sales of investments partially offset by payments for acquisitions and outflows for
capital expenditures.
Financing activities
The decrease in cash used in financing activities in 2020 compared to 2019 is primarily due to lower repurchases of
common stock in 2020.
We have a Credit Agreement providing for a $750 million Term Loan and a $1,750 million unsecured revolving credit
facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly
principal payments on the Term Loan. See Note 10 to our consolidated financial statements. During the first quarter of 2020,
we borrowed $1.74 billion against our revolving credit facility and repaid this amount in full in the fourth quarter of 2020. 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 December 31, 2020 and through the date of this filing. As of December 31, 2020, we had no outstanding balance
on our revolving credit facility.
In February 2020, our India subsidiary renewed its one-year 13 billion Indian rupee ($178 million at the December 31,
2020 exchange rate) working capital facility, which requires us to repay any balances drawn down within 90 days from the date
of disbursement. There is a 1.0% prepayment penalty applicable to payments made within 30 days of disbursement. This
working capital facility contains affirmative and negative covenants and may be renewed annually in February. As of
December 31, 2020, there was no balance outstanding under the working capital facility.
During 2020, we returned $2,034 million to our stockholders through $1,554 million in share repurchases under our stock
repurchase program and $480 million in dividend payments. Our stock repurchase program, as amended by our Board of
Directors in December 2020, allows for the repurchase of an aggregate of up to $9.5 billion, excluding fees and expenses, of
our Class A common stock. As of December 31, 2020, we have $2.8 billion, excluding fees and expenses, available for
repurchases under the program. Our shares outstanding decreased to 530 million as of December 31, 2020 from 548 million as
of December 31, 2019. We review our capital return plan on an on-going basis, considering the potential impacts of COVID-19
pandemic, our financial performance and liquidity position, investments required to execute our strategic plans and initiatives,
acquisition opportunities, the economic outlook, regulatory changes and other relevant factors. As these factors may change
over time, the actual amounts expended on stock repurchase activity, dividends, and acquisitions, if any, during any particular
period cannot be predicted and may fluctuate from time to time.
Other Liquidity and Capital Resources Information
We seek to ensure that our worldwide cash is available in the locations in which it is needed. As part of our ongoing
liquidity assessments, we regularly monitor the mix of our domestic and international cash flows and cash balances. We
evaluate on an ongoing basis what portion of the non-U.S. cash, cash equivalents and short-term investments is needed locally
to execute our strategic plans and what amount is available for repatriation back to the United States.
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to
income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder
receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this
change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior
years. In July 2020, the U.S. Treasury Department and the IRS released final regulations, which became effective in September
2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter
of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our
strategic decision to increase our investments to accelerate growth in various international markets and expand our global
delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded
a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on
unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits. On
October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to
its shareholders (non-Indian Cognizant entities), after payment of $106 million of India withholding tax.
We expect our operating cash flows, cash and short-term investment balances, together with our available capacity under
our revolving credit facilities, to be sufficient to meet our operating requirements and service our debt for the next twelve
months. Our ability to expand and grow our business in accordance with current plans, make acquisitions, meet our long-term
capital requirements beyond a twelve-month period and execute our capital return plan will depend on many factors, including
the rate, if any, at which our cash flow increases, our ability and willingness to pay for acquisitions with capital stock and the
availability of public and private debt and equity financing. We cannot be certain that additional financing, if required, will be
available on terms and conditions acceptable to us, if at all.
As of December 31, 2020, we had the following obligations and commitments to make future payments under contractual
Commitments and Contingencies
Commitments
obligations and commercial commitments:
Long-term debt obligations(1)
Interest on long-term debt(2)
Finance lease obligations
Operating lease obligations
Other purchase commitments(3)
Tax Reform Act transition tax
Total
Payments due by period
Total
Less than
1 year
1-3 years
3-5 years
(in millions)
More than
5 years
$
703 $
38 $
665 $
— $
19
23
1,271
432
478
7
11
260
216
50
12
11
398
184
145
—
1
264
28
283
$
2,926 $
582 $
1,415 $
576 $
—
—
—
349
4
—
353
Consists of scheduled repayments of our Term Loan.
Interest on the Term Loan was calculated at interest rates in effect as of December 31, 2020.
Other purchase commitments include, among other things, communications and information technology obligations, as
well as other obligations that we cannot cancel or where we would be required to pay a termination fee in the event of
(1)
(2)
(3)
cancellation.
As of December 31, 2020, we had $193 million of unrecognized income tax benefits. This represents the income tax
benefits associated with certain income tax positions on our U.S. and non-U.S. tax returns that have not been recognized on our
financial statements due to uncertainty regarding their resolution. The resolution of these income tax positions with the relevant
taxing authorities is at various stages, and therefore we are unable to make a reliable estimate of the eventual cash flows by
period that may be required to settle these matters.
Contingencies
See Note 15 to our consolidated financial statements for additional information.
Off-Balance Sheet Arrangements
Other than our foreign exchange forward and option contracts, there were no off-balance sheet transactions, arrangements
or other relationships with unconsolidated entities or other persons in 2020 and 2019 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 accompanying
consolidated financial statements that have been prepared in accordance with GAAP. We base our estimates on historical
experience, current trends and on various other assumptions that are believed to be relevant at the time our consolidated
financial statements are prepared. We evaluate our estimates on a continuous basis. However, the actual amounts may differ
from the estimates used in the preparation of our consolidated financial statements.
30
31
Investing activities
capital expenditures.
Financing activities
common stock in 2020.
Net cash used in investing activities in 2020 was primarily driven by payments for acquisitions. Net cash provided by
investing activities in 2019 was driven by net sales of investments partially offset by payments for acquisitions and outflows for
The decrease in cash used in financing activities in 2020 compared to 2019 is primarily due to lower repurchases of
We have a Credit Agreement providing for a $750 million Term Loan and a $1,750 million unsecured revolving credit
facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly
principal payments on the Term Loan. See Note 10 to our consolidated financial statements. During the first quarter of 2020,
we borrowed $1.74 billion against our revolving credit facility and repaid this amount in full in the fourth quarter of 2020. 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 December 31, 2020 and through the date of this filing. As of December 31, 2020, we had no outstanding balance
on our revolving credit facility.
In February 2020, our India subsidiary renewed its one-year 13 billion Indian rupee ($178 million at the December 31,
2020 exchange rate) working capital facility, which requires us to repay any balances drawn down within 90 days from the date
of disbursement. There is a 1.0% prepayment penalty applicable to payments made within 30 days of disbursement. This
working capital facility contains affirmative and negative covenants and may be renewed annually in February. As of
December 31, 2020, there was no balance outstanding under the working capital facility.
During 2020, we returned $2,034 million to our stockholders through $1,554 million in share repurchases under our stock
repurchase program and $480 million in dividend payments. Our stock repurchase program, as amended by our Board of
Directors in December 2020, allows for the repurchase of an aggregate of up to $9.5 billion, excluding fees and expenses, of
our Class A common stock. As of December 31, 2020, we have $2.8 billion, excluding fees and expenses, available for
repurchases under the program. Our shares outstanding decreased to 530 million as of December 31, 2020 from 548 million as
of December 31, 2019. We review our capital return plan on an on-going basis, considering the potential impacts of COVID-19
pandemic, our financial performance and liquidity position, investments required to execute our strategic plans and initiatives,
acquisition opportunities, the economic outlook, regulatory changes and other relevant factors. As these factors may change
over time, the actual amounts expended on stock repurchase activity, dividends, and acquisitions, if any, during any particular
period cannot be predicted and may fluctuate from time to time.
Other Liquidity and Capital Resources Information
We seek to ensure that our worldwide cash is available in the locations in which it is needed. As part of our ongoing
liquidity assessments, we regularly monitor the mix of our domestic and international cash flows and cash balances. We
evaluate on an ongoing basis what portion of the non-U.S. cash, cash equivalents and short-term investments is needed locally
to execute our strategic plans and what amount is available for repatriation back to the United States.
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to
income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder
receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this
change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior
years. In July 2020, the U.S. Treasury Department and the IRS released final regulations, which became effective in September
2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter
of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our
strategic decision to increase our investments to accelerate growth in various international markets and expand our global
delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded
a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on
unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits. On
October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to
its shareholders (non-Indian Cognizant entities), after payment of $106 million of India withholding tax.
We expect our operating cash flows, cash and short-term investment balances, together with our available capacity under
our revolving credit facilities, to be sufficient to meet our operating requirements and service our debt for the next twelve
months. Our ability to expand and grow our business in accordance with current plans, make acquisitions, meet our long-term
capital requirements beyond a twelve-month period and execute our capital return plan will depend on many factors, including
the rate, if any, at which our cash flow increases, our ability and willingness to pay for acquisitions with capital stock and the
availability of public and private debt and equity financing. We cannot be certain that additional financing, if required, will be
available on terms and conditions acceptable to us, if at all.
Commitments and Contingencies
Commitments
As of December 31, 2020, we had the following obligations and commitments to make future payments under contractual
obligations and commercial commitments:
Long-term debt obligations(1)
Interest on long-term debt(2)
Finance lease obligations
Operating lease obligations
Other purchase commitments(3)
Tax Reform Act transition tax
Total
Payments due by period
Total
Less than
1 year
1-3 years
3-5 years
(in millions)
More than
5 years
$
703 $
38 $
665 $
— $
19
23
1,271
432
7
11
260
216
12
11
398
184
—
1
264
28
478
2,926 $
50
582 $
145
1,415 $
283
576 $
$
—
—
—
349
4
—
353
(1)
(2)
(3)
Consists of scheduled repayments of our Term Loan.
Interest on the Term Loan was calculated at interest rates in effect as of December 31, 2020.
Other purchase commitments include, among other things, communications and information technology obligations, as
well as other obligations that we cannot cancel or where we would be required to pay a termination fee in the event of
cancellation.
As of December 31, 2020, we had $193 million of unrecognized income tax benefits. This represents the income tax
benefits associated with certain income tax positions on our U.S. and non-U.S. tax returns that have not been recognized on our
financial statements due to uncertainty regarding their resolution. The resolution of these income tax positions with the relevant
taxing authorities is at various stages, and therefore we are unable to make a reliable estimate of the eventual cash flows by
period that may be required to settle these matters.
Contingencies
See Note 15 to our consolidated financial statements for additional information.
Off-Balance Sheet Arrangements
Other than our foreign exchange forward and option contracts, there were no off-balance sheet transactions, arrangements
or other relationships with unconsolidated entities or other persons in 2020 and 2019 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 accompanying
consolidated financial statements that have been prepared in accordance with GAAP. We base our estimates on historical
experience, current trends and on various other assumptions that are believed to be relevant at the time our consolidated
financial statements are prepared. We evaluate our estimates on a continuous basis. However, the actual amounts may differ
from the estimates used in the preparation of our consolidated financial statements.
30
31
We believe the following accounting estimates are the most critical to aid in fully understanding and evaluating our
consolidated financial statements as they require the most difficult, subjective or complex judgments, resulting from the need to
make estimates about the effect of matters that are inherently uncertain. Changes to these estimates could have a material effect
on our results of operations and financial condition. Our significant accounting policies are described in Note 1 to our
consolidated financial statements.
Revenue Recognition. Revenues related to fixed-price contracts for application development and systems integration
services, consulting or other technology services are recognized as the service is performed using the cost to cost method, under
which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears
to the total expected labor costs. Revenues related to fixed-price application maintenance, testing and business process services
are recognized using the cost to cost method, if the right to invoice is not representative of the value being delivered. The cost to
cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available
information. Such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in
estimates is reflected in the financial reporting period in which the change in estimate becomes known. Net changes in
estimates of such future costs and contract losses were immaterial to the consolidated results of operations for the periods
presented.
Income Taxes. Determining the consolidated provision for income tax expense, deferred income tax assets (and related
valuation allowance, if any) and liabilities requires significant judgment. We are required to calculate and provide for income
taxes in each of the jurisdictions where we operate. Changes in the geographic mix of income before taxes or estimated level of
annual pre-tax income can affect our overall effective income tax rate. In addition, transactions between our affiliated entities
are arranged in accordance with applicable transfer pricing laws, regulations and relevant guidelines. As a result, and due to the
interpretive nature of certain aspects of these laws and guidelines, we have pending applications for APAs before the taxing
authorities in some of our most significant jurisdictions. It could take years for the relevant taxing authorities to negotiate and
conclude these applications. The consolidated provision for income taxes may change period to period based on changes in
facts and circumstances, such as settlements of income tax audits or finalization of our applications for APAs.
Our provision for income taxes also includes the impact of reserves established for uncertain income tax positions, as
well as the related interest, which may require us to apply judgment to complex issues and may require an extended period of
time to resolve. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given
that the final outcome of these matters will not differ from our recorded amounts. We adjust these reserves in light of changing
facts and circumstances, such as the closing of a tax audit. To the extent that the final outcome of these matters differs from the
amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is
made.
Business Combinations, Goodwill and Intangible Assets. Goodwill and intangible assets, including indefinite-lived
intangible assets, arise from the accounting for business combinations. We account for business combinations using the
acquisition method which requires us to estimate the fair value of identifiable assets acquired, liabilities assumed, including any
contingent consideration, and any noncontrolling interest in the acquiree to properly allocate purchase price to the individual
assets acquired and liabilities assumed. The allocation of the purchase price utilizes estimates and assumptions in determining
the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets, including the
timing and amount of forecasted revenues and cash flows, anticipated growth rates, client attrition rates and the discount rate
reflecting the risk inherent in future cash flows.
We exercise judgment to allocate goodwill to the reporting units expected to benefit from each business combination.
Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These
events or circumstances could include a significant change in the business climate, regulatory environment, established business
plans, operating performance indicators or competition. Evaluation of goodwill for impairment requires judgment, including the
identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of the fair
value of each reporting unit.
We estimate the fair value of our reporting units using a combination of an income approach, utilizing a discounted cash
flow analysis, and a market approach, using market multiples. Under the income approach, we estimate projected future cash
flows, the timing of such cash flows and long-term growth rates, and determine the appropriate discount rate that reflects the
risk inherent in the projected future cash flows. The discount rate used is based on a market participant weighted-average cost
of capital and may be adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related
to the reporting unit’s ability to execute on the projected future cash flows. Under the market approach, we estimate fair value
based on market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics
similar to the reporting unit. The estimates used to calculate the fair value of a reporting unit change from year to year based on
operating results, market conditions and other factors. Changes in these estimates and assumptions could materially affect the
determination of fair value for each reporting unit.
We also evaluate indefinite-lived intangible assets for impairment at least annually, or as circumstances warrant. Our 2020
qualitative assessment included the review of relevant macroeconomic factors and entity-specific qualitative factors to
determine if it was more-likely-than-not that the fair value of our indefinite-lived intangible assets was below carrying value.
Beginning with the first quarter of 2020, COVID-19 negatively affected all major economic and financial markets and,
although there is a wide range of possible outcomes and the associated impact is highly dependent on variables that are difficult
to forecast, we deemed the deterioration in general economic conditions sufficient to trigger an interim impairment testing of
goodwill as of March 31, 2020. Our interim test results as of March 31, 2020 indicated that the fair values of all of our reporting
units exceeded their carrying values and thus, no impairment of goodwill existed as of March 31, 2020. Based on our most
recent evaluation of goodwill and indefinite-lived intangible assets performed during the fourth quarter of 2020, we concluded
that the goodwill and indefinite-lived intangible asset balances in each of our reporting units were not at risk of impairment.
We review our finite-lived assets, including our finite-lived intangible assets, for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset group may not be recoverable. We recognize an impairment loss
when the sum of the undiscounted expected future cash flows is less than the carrying amount of such asset groups. The
impairment loss is determined as the amount by which the carrying amount of the asset group exceeds its fair value. Assessing
the fair value of asset groups involves significant estimates and assumptions including estimation of future cash flows, the
timing of such cash flows and discount rates reflecting the risk inherent in future cash flows.
Contingencies. Loss contingencies are recorded as liabilities 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 amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be
made. Significant judgment is required in the determination of whether an exposure is considered probable and reasonably
estimable. Our judgments are subjective and based on the information available from the status of the legal or regulatory
proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information
becomes available, we reassess any potential liability related to any pending litigation and may revise our estimates. Such
revisions in estimates of any potential liabilities could have a material impact on our results of operations and financial position.
Recently Adopted and New Accounting Pronouncements
See Note 1 to our consolidated financial statements for additional information.
Forward Looking Statements
The statements contained in this Annual Report on Form 10-K that are not historical facts are forward-looking statements
(within the meaning of Section 21E of the Exchange Act) that involve risks and uncertainties. Such forward-looking statements
may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,”
“would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or
other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From
time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.
Such forward-looking statements may be included in various filings made by us with the SEC, in press releases or in oral
statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as
statements regarding our anticipated future revenues or operating margin, earnings, capital expenditures, impacts to our
business, financial results and financial condition as a result of the COVID-19 pandemic, anticipated effective income tax rate
and income tax expense, liquidity, access to capital, capital return plan, investment strategies, cost management, realignment
program, 2020 Fit for Growth Plan, plans and objectives, including those related to our digital practice areas, investment in our
business, potential acquisitions, industry trends, client behaviors and trends, the outcome of regulatory and litigation matters,
the incremental accrual related to the India Defined Contribution Obligation, the Proposed Exit and other statements regarding
matters that are not historical facts, are based on our current expectations, estimates and projections, management’s beliefs and
certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control.
Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or anticipated or
implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ
materially from those indicated by such forward-looking statements, including:
•
economic and political conditions globally and in particular in the markets in which our clients and operations are
concentrated;
32
33
We believe the following accounting estimates are the most critical to aid in fully understanding and evaluating our
consolidated financial statements as they require the most difficult, subjective or complex judgments, resulting from the need to
make estimates about the effect of matters that are inherently uncertain. Changes to these estimates could have a material effect
on our results of operations and financial condition. Our significant accounting policies are described in Note 1 to our
consolidated financial statements.
Revenue Recognition. Revenues related to fixed-price contracts for application development and systems integration
services, consulting or other technology services are recognized as the service is performed using the cost to cost method, under
which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears
to the total expected labor costs. Revenues related to fixed-price application maintenance, testing and business process services
are recognized using the cost to cost method, if the right to invoice is not representative of the value being delivered. The cost to
cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available
information. Such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in
estimates is reflected in the financial reporting period in which the change in estimate becomes known. Net changes in
estimates of such future costs and contract losses were immaterial to the consolidated results of operations for the periods
presented.
Income Taxes. Determining the consolidated provision for income tax expense, deferred income tax assets (and related
valuation allowance, if any) and liabilities requires significant judgment. We are required to calculate and provide for income
taxes in each of the jurisdictions where we operate. Changes in the geographic mix of income before taxes or estimated level of
annual pre-tax income can affect our overall effective income tax rate. In addition, transactions between our affiliated entities
are arranged in accordance with applicable transfer pricing laws, regulations and relevant guidelines. As a result, and due to the
interpretive nature of certain aspects of these laws and guidelines, we have pending applications for APAs before the taxing
authorities in some of our most significant jurisdictions. It could take years for the relevant taxing authorities to negotiate and
conclude these applications. The consolidated provision for income taxes may change period to period based on changes in
facts and circumstances, such as settlements of income tax audits or finalization of our applications for APAs.
Our provision for income taxes also includes the impact of reserves established for uncertain income tax positions, as
well as the related interest, which may require us to apply judgment to complex issues and may require an extended period of
time to resolve. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given
that the final outcome of these matters will not differ from our recorded amounts. We adjust these reserves in light of changing
facts and circumstances, such as the closing of a tax audit. To the extent that the final outcome of these matters differs from the
amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is
made.
Business Combinations, Goodwill and Intangible Assets. Goodwill and intangible assets, including indefinite-lived
intangible assets, arise from the accounting for business combinations. We account for business combinations using the
acquisition method which requires us to estimate the fair value of identifiable assets acquired, liabilities assumed, including any
contingent consideration, and any noncontrolling interest in the acquiree to properly allocate purchase price to the individual
assets acquired and liabilities assumed. The allocation of the purchase price utilizes estimates and assumptions in determining
the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets, including the
timing and amount of forecasted revenues and cash flows, anticipated growth rates, client attrition rates and the discount rate
reflecting the risk inherent in future cash flows.
We exercise judgment to allocate goodwill to the reporting units expected to benefit from each business combination.
Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These
events or circumstances could include a significant change in the business climate, regulatory environment, established business
plans, operating performance indicators or competition. Evaluation of goodwill for impairment requires judgment, including the
identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of the fair
value of each reporting unit.
We estimate the fair value of our reporting units using a combination of an income approach, utilizing a discounted cash
flow analysis, and a market approach, using market multiples. Under the income approach, we estimate projected future cash
flows, the timing of such cash flows and long-term growth rates, and determine the appropriate discount rate that reflects the
risk inherent in the projected future cash flows. The discount rate used is based on a market participant weighted-average cost
of capital and may be adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related
to the reporting unit’s ability to execute on the projected future cash flows. Under the market approach, we estimate fair value
based on market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics
similar to the reporting unit. The estimates used to calculate the fair value of a reporting unit change from year to year based on
operating results, market conditions and other factors. Changes in these estimates and assumptions could materially affect the
determination of fair value for each reporting unit.
We also evaluate indefinite-lived intangible assets for impairment at least annually, or as circumstances warrant. Our 2020
qualitative assessment included the review of relevant macroeconomic factors and entity-specific qualitative factors to
determine if it was more-likely-than-not that the fair value of our indefinite-lived intangible assets was below carrying value.
Beginning with the first quarter of 2020, COVID-19 negatively affected all major economic and financial markets and,
although there is a wide range of possible outcomes and the associated impact is highly dependent on variables that are difficult
to forecast, we deemed the deterioration in general economic conditions sufficient to trigger an interim impairment testing of
goodwill as of March 31, 2020. Our interim test results as of March 31, 2020 indicated that the fair values of all of our reporting
units exceeded their carrying values and thus, no impairment of goodwill existed as of March 31, 2020. Based on our most
recent evaluation of goodwill and indefinite-lived intangible assets performed during the fourth quarter of 2020, we concluded
that the goodwill and indefinite-lived intangible asset balances in each of our reporting units were not at risk of impairment.
We review our finite-lived assets, including our finite-lived intangible assets, for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset group may not be recoverable. We recognize an impairment loss
when the sum of the undiscounted expected future cash flows is less than the carrying amount of such asset groups. The
impairment loss is determined as the amount by which the carrying amount of the asset group exceeds its fair value. Assessing
the fair value of asset groups involves significant estimates and assumptions including estimation of future cash flows, the
timing of such cash flows and discount rates reflecting the risk inherent in future cash flows.
Contingencies. Loss contingencies are recorded as liabilities 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 amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be
made. Significant judgment is required in the determination of whether an exposure is considered probable and reasonably
estimable. Our judgments are subjective and based on the information available from the status of the legal or regulatory
proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information
becomes available, we reassess any potential liability related to any pending litigation and may revise our estimates. Such
revisions in estimates of any potential liabilities could have a material impact on our results of operations and financial position.
Recently Adopted and New Accounting Pronouncements
See Note 1 to our consolidated financial statements for additional information.
Forward Looking Statements
The statements contained in this Annual Report on Form 10-K that are not historical facts are forward-looking statements
(within the meaning of Section 21E of the Exchange Act) that involve risks and uncertainties. Such forward-looking statements
may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,”
“would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or
other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From
time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.
Such forward-looking statements may be included in various filings made by us with the SEC, in press releases or in oral
statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as
statements regarding our anticipated future revenues or operating margin, earnings, capital expenditures, impacts to our
business, financial results and financial condition as a result of the COVID-19 pandemic, anticipated effective income tax rate
and income tax expense, liquidity, access to capital, capital return plan, investment strategies, cost management, realignment
program, 2020 Fit for Growth Plan, plans and objectives, including those related to our digital practice areas, investment in our
business, potential acquisitions, industry trends, client behaviors and trends, the outcome of regulatory and litigation matters,
the incremental accrual related to the India Defined Contribution Obligation, the Proposed Exit and other statements regarding
matters that are not historical facts, are based on our current expectations, estimates and projections, management’s beliefs and
certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control.
Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or anticipated or
implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ
materially from those indicated by such forward-looking statements, including:
•
economic and political conditions globally and in particular in the markets in which our clients and operations are
concentrated;
32
33
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the continuing impact of the COVID-19 pandemic, or other future pandemics, on our business, results of operations,
liquidity and financial condition;
our ability to attract, train and retain skilled employees, including highly skilled technical personnel to satisfy client
demand and senior management to lead our business globally;
challenges related to growing our business organically as well as inorganically through acquisitions, and our ability to
achieve our targeted growth rates;
our ability to achieve our profitability goals and capital return strategy;
our ability to successfully implement our 2020 Fit for Growth Plan and achieve the anticipated benefits from the plan;
our ability to meet specified service levels or milestones required by certain of our contracts;
intense and evolving competition and significant technological advances that our service offerings must keep pace with
in the rapidly changing markets we compete in;
legal, reputation and financial risks if we fail to protect client and/or our data from security breaches and/or cyber
attacks;
the effectiveness of our risk management, business continuity and disaster recovery plans and the potential that our
global delivery capabilities could be impacted;
restrictions on visas, in particular in the United States, United Kingdom and EU, or immigration more generally or
increased costs of such visas or the wages we are required to pay associates on visas, which may affect our ability to
compete for and provide services to our clients;
risks related to anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing,
both of which could impair our ability to serve our clients;
risks related to complying with the numerous and evolving legal and regulatory requirements to which we are subject
in the many jurisdictions in which we operate;
potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure
and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or
proceedings;
potential exposure to litigation and legal claims in the conduct of our business; and
the factors set forth in Part I, in the section entitled “Item 1A. Risk Factors” in this report.
You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC,
including this report in the sections titled “Part I, Item 1. Business,” “Part I, Item 1A. Risk Factors” and “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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.
Definition
Trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act
Pamlico 10th Magnitude Blocker LLC, now known as Cognizant 10th Magnitude Blocker, LLC
Cognizant Technology Solutions Corporation Amended and Restated 2009 Incentive
2009 Incentive Plan
2017 Incentive Plan
Compensation Plan
Cognizant Technology Solutions Corporation 2017 Incentive Award Plan
Adjusted Diluted EPS
Adjusted diluted earnings per share
Glossary
Defined Term
10b5-1 Plan
10th Magnitude
AI
APA
ASC
ASR
ASU
Bright Wolf
Budget of India
CC
Code
Code Zero
Contino
COVID-19
Artificial Intelligence
Advance Pricing Agreement
Accounting Standards Codification
Accelerated Stock Repurchase
Accounting Standards Update
Bright Wolf, LLC
Union Budget of India for 2020-2021
Constant Currency
The Code on Social Security, 2020
Code Zero, LLC
Contino Holdings Inc.
The novel coronavirus disease
Collaborative Solutions
Collaborative Solutions Holdings, LLC
COVID-19 Charges
Costs directly related to the COVID-19 pandemic
CPI
Consumer Price Index
Credit Agreement
Credit agreement with a commercial bank syndicate dated November 6, 2018
Credit Loss Standard
ASC Topic 326 "Financial Instruments - Credit Losses"
CTS India
DDT
D&I
Our principal operating subsidiary in India
Dividend Distribution Tax
Diversity and Inclusion
Division Bench
Division Bench of the Madras High Court
DevOps
Agile relationship between development and IT operations
EI-Technologies
Entrepreneurs et Investisseurs Technologies SAS
United States Department of Justice
Days Sales Outstanding
Earnings Per Share
European Union
Environmental, social and corporate governance
Exchange Act
Securities Exchange Act of 1934, as amended
Executive Transition Costs
Costs associated with our CEO transition and the departure of our President in 2019
Financial Accounting Standards Board
Foreign Corrupt Practices Act
Generally Accepted Accounting Principles in the United States of America
DOJ
DSO
EPS
ESG
EU
FASB
FCPA
GAAP
High Court
HR
Inawisdom
Madras High Court
Human Resources
Inawisdom Limited
India Defined Contribution
Obligation
Certain statutory defined contribution obligations of employees and employers in India
34
35
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the continuing impact of the COVID-19 pandemic, or other future pandemics, on our business, results of operations,
liquidity and financial condition;
our ability to attract, train and retain skilled employees, including highly skilled technical personnel to satisfy client
demand and senior management to lead our business globally;
challenges related to growing our business organically as well as inorganically through acquisitions, and our ability to
achieve our targeted growth rates;
our ability to achieve our profitability goals and capital return strategy;
our ability to successfully implement our 2020 Fit for Growth Plan and achieve the anticipated benefits from the plan;
our ability to meet specified service levels or milestones required by certain of our contracts;
intense and evolving competition and significant technological advances that our service offerings must keep pace with
in the rapidly changing markets we compete in;
legal, reputation and financial risks if we fail to protect client and/or our data from security breaches and/or cyber
attacks;
the effectiveness of our risk management, business continuity and disaster recovery plans and the potential that our
global delivery capabilities could be impacted;
restrictions on visas, in particular in the United States, United Kingdom and EU, or immigration more generally or
increased costs of such visas or the wages we are required to pay associates on visas, which may affect our ability to
compete for and provide services to our clients;
risks related to anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing,
both of which could impair our ability to serve our clients;
risks related to complying with the numerous and evolving legal and regulatory requirements to which we are subject
in the many jurisdictions in which we operate;
potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure
and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or
proceedings;
potential exposure to litigation and legal claims in the conduct of our business; and
the factors set forth in Part I, in the section entitled “Item 1A. Risk Factors” in this report.
You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC,
including this report in the sections titled “Part I, Item 1. Business,” “Part I, Item 1A. Risk Factors” and “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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.
Glossary
Defined Term
10b5-1 Plan
10th Magnitude
2009 Incentive Plan
2017 Incentive Plan
Definition
Trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act
Pamlico 10th Magnitude Blocker LLC, now known as Cognizant 10th Magnitude Blocker, LLC
Cognizant Technology Solutions Corporation Amended and Restated 2009 Incentive
Compensation Plan
Cognizant Technology Solutions Corporation 2017 Incentive Award Plan
Adjusted Diluted EPS
Adjusted diluted earnings per share
AI
APA
ASC
ASR
ASU
Bright Wolf
Budget of India
CC
Code
Code Zero
Artificial Intelligence
Advance Pricing Agreement
Accounting Standards Codification
Accelerated Stock Repurchase
Accounting Standards Update
Bright Wolf, LLC
Union Budget of India for 2020-2021
Constant Currency
The Code on Social Security, 2020
Code Zero, LLC
Collaborative Solutions
Collaborative Solutions Holdings, LLC
Contino
COVID-19
Contino Holdings Inc.
The novel coronavirus disease
COVID-19 Charges
Costs directly related to the COVID-19 pandemic
CPI
Consumer Price Index
Credit Agreement
Credit agreement with a commercial bank syndicate dated November 6, 2018
Credit Loss Standard
ASC Topic 326 "Financial Instruments - Credit Losses"
CTS India
DDT
D&I
Our principal operating subsidiary in India
Dividend Distribution Tax
Diversity and Inclusion
Division Bench
Division Bench of the Madras High Court
DevOps
DOJ
DSO
Agile relationship between development and IT operations
United States Department of Justice
Days Sales Outstanding
EI-Technologies
Entrepreneurs et Investisseurs Technologies SAS
EPS
ESG
EU
Earnings Per Share
Environmental, social and corporate governance
European Union
Exchange Act
Securities Exchange Act of 1934, as amended
Executive Transition Costs
Costs associated with our CEO transition and the departure of our President in 2019
FASB
FCPA
GAAP
High Court
HR
Inawisdom
India Defined Contribution
Obligation
Financial Accounting Standards Board
Foreign Corrupt Practices Act
Generally Accepted Accounting Principles in the United States of America
Madras High Court
Human Resources
Inawisdom Limited
Certain statutory defined contribution obligations of employees and employers in India
34
35
India Tax Law
New tax regime enacted by the Government of India effective April 1, 2019
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
IP
IoT
IRS
IT
ITD
Lev
LIBOR
Linium
Magenic
MAT
Meritsoft
Mustache
Intellectual property
Internet of Things
Internal Revenue Service
Information Technology
Indian Income Tax Department
Levementum, LLC
London Inter-bank Offered Rate
the ServiceNow business of Ness Digital Engineering
Magenic Technologies, Inc.
Minimum Alternative Tax
Sterling Topco Limited
Mustache, LLC
New Revenue Standard
ASC Topic 606 "Revenue from Contracts with Customers"
New Lease Standard
ASC Topic 842 “Leases”
New Signature
OECD
Proposed Exit
PSU
BSI Corporate Holdings, Inc.
Organization for Economic Co-operation and Development
Offer to settle and exit from a large customer engagement in Financial Services in Continental
Europe
Performance Stock Units
Purchase Plan
Cognizant Technology Solutions Corporation 2004 Employee Stock Purchase Plan, as amended
ROU
RSU
SaaS
Samlink
SEC
SCI
Servian
SEZ
SG&A
SLP
Right of Use
Restricted Stock Units
Software as a service
Oy Samlink Ab
United States Securities and Exchange Commission
Supreme Court of India
SVN HoldCo Pty Limited
Special Economic Zone
Selling, general and administrative
Special Leave Petition
Syntel
Tax on Accumulated Indian
Earnings
Syntel Sterling Best Shores Mauritius Ltd.
The income tax expense related to the reversal of our indefinite reinvestment assertion on
Indian earnings accumulated in prior years
Tax Reform Act
Term Loan
Tin Roof
TriZetto
Zenith
Tax Cuts and Jobs Act
Unsecured term loan under the Credit Agreement
Tin Roof Software, LLC
The TriZetto Group, Inc., now known as Cognizant Technology Software Group, Inc.
Zenith Technologies Limited
Foreign Currency 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. 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 changes in the
value of certain foreign currencies. All hedging transactions are authorized and executed pursuant to regularly reviewed policies
Revenues from our clients in the United Kingdom, Continental Europe and Rest of World represented 8.0%, 9.9% and
6.5%, respectively, of our 2020 revenues, and are typically denominated in currencies other than the U.S. dollar. Accordingly,
our revenues may be affected by fluctuations in the exchange rates, primarily the British pound and the Euro, as compared to
A significant portion of our costs in India are denominated in the Indian rupee, representing approximately 20.0% of our
global operating costs during 2020, and are subject to foreign currency exchange rate fluctuations. These foreign currency
exchange rate fluctuations have an impact on our results of operations.
We have entered into a series of foreign exchange forward and option contracts that are designated as cash flow hedges of
certain Indian rupee denominated payments in India. 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 December 31, 2020, the notional value and weighted
average contract rates of these contracts by year of maturity were as follows:
and procedures.
the U.S. dollar.
2021
2022
Total
Notional Value
(in millions)
Weighted Average
Contract Rate (Indian
rupee to U.S. dollar)
$
$
1,470
803
2,273
77.0
80.7
78.3
As of December 31, 2020, the net unrealized gain on our outstanding foreign exchange forward and option contracts
designated as cash flow hedges was $70 million. Based upon a sensitivity analysis at December 31, 2020, which estimates the
fair value of the contracts assuming certain 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 our foreign
exchange forward and option contracts designated as cash flow hedges of approximately $224 million.
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. In 2020, we reported foreign currency exchange
losses, exclusive of hedging losses, of approximately $53 million, which were primarily attributed to the remeasurement of net
monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. We use
foreign exchange forward contracts to provide an economic hedge against balance sheet exposure to certain monetary assets and
liabilities denominated in currencies other than the functional currency of the subsidiary. We entered into foreign exchange
forward contracts scheduled to mature in 2021. At December 31, 2020, the notional value of these outstanding contracts was
$637 million and the net unrealized gain was less than $1 million. Based upon a sensitivity analysis of our foreign exchange
forward contracts at December 31, 2020, which estimates the fair value of the contracts assuming certain 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 $17 million.
Interest Rate Risk
We have a Credit Agreement providing for a $750 million unsecured Term Loan and a $1,750 million unsecured
revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make
scheduled quarterly principal payments on the Term Loan.
The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as
defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the
Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the
36
37
India Tax Law
New tax regime enacted by the Government of India effective April 1, 2019
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
New Revenue Standard
ASC Topic 606 "Revenue from Contracts with Customers"
New Lease Standard
ASC Topic 842 “Leases”
New Signature
OECD
BSI Corporate Holdings, Inc.
Organization for Economic Co-operation and Development
Proposed Exit
Europe
Offer to settle and exit from a large customer engagement in Financial Services in Continental
Purchase Plan
Cognizant Technology Solutions Corporation 2004 Employee Stock Purchase Plan, as amended
IP
IoT
IRS
IT
ITD
Lev
LIBOR
Linium
Magenic
MAT
Meritsoft
Mustache
PSU
ROU
RSU
SaaS
Samlink
SEC
SCI
Servian
SEZ
SG&A
SLP
Syntel
Earnings
Tax Reform Act
Term Loan
Tin Roof
TriZetto
Zenith
Intellectual property
Internet of Things
Internal Revenue Service
Information Technology
Indian Income Tax Department
Levementum, LLC
London Inter-bank Offered Rate
Magenic Technologies, Inc.
Minimum Alternative Tax
Sterling Topco Limited
Mustache, LLC
the ServiceNow business of Ness Digital Engineering
Performance Stock Units
Right of Use
Restricted Stock Units
Software as a service
Oy Samlink Ab
Supreme Court of India
SVN HoldCo Pty Limited
Special Economic Zone
United States Securities and Exchange Commission
Selling, general and administrative
Special Leave Petition
Syntel Sterling Best Shores Mauritius Ltd.
Indian earnings accumulated in prior years
Tax Cuts and Jobs Act
Unsecured term loan under the Credit Agreement
Tin Roof Software, LLC
Tax on Accumulated Indian
The income tax expense related to the reversal of our indefinite reinvestment assertion on
The TriZetto Group, Inc., now known as Cognizant Technology Software Group, Inc.
Zenith Technologies Limited
Foreign Currency 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. 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 changes in the
value of certain foreign currencies. All hedging transactions are authorized and executed pursuant to regularly reviewed policies
and procedures.
Revenues from our clients in the United Kingdom, Continental Europe and Rest of World represented 8.0%, 9.9% and
6.5%, respectively, of our 2020 revenues, and are typically denominated in currencies other than the U.S. dollar. Accordingly,
our revenues may be affected by fluctuations in the exchange rates, primarily the British pound and the Euro, as compared to
the U.S. dollar.
A significant portion of our costs in India are denominated in the Indian rupee, representing approximately 20.0% of our
global operating costs during 2020, and are subject to foreign currency exchange rate fluctuations. These foreign currency
exchange rate fluctuations have an impact on our results of operations.
We have entered into a series of foreign exchange forward and option contracts that are designated as cash flow hedges of
certain Indian rupee denominated payments in India. 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 December 31, 2020, the notional value and weighted
average contract rates of these contracts by year of maturity were as follows:
2021
2022
Total
Notional Value
(in millions)
Weighted Average
Contract Rate (Indian
rupee to U.S. dollar)
$
$
1,470
803
2,273
77.0
80.7
78.3
As of December 31, 2020, the net unrealized gain on our outstanding foreign exchange forward and option contracts
designated as cash flow hedges was $70 million. Based upon a sensitivity analysis at December 31, 2020, which estimates the
fair value of the contracts assuming certain 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 our foreign
exchange forward and option contracts designated as cash flow hedges of approximately $224 million.
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. In 2020, we reported foreign currency exchange
losses, exclusive of hedging losses, of approximately $53 million, which were primarily attributed to the remeasurement of net
monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. We use
foreign exchange forward contracts to provide an economic hedge against balance sheet exposure to certain monetary assets and
liabilities denominated in currencies other than the functional currency of the subsidiary. We entered into foreign exchange
forward contracts scheduled to mature in 2021. At December 31, 2020, the notional value of these outstanding contracts was
$637 million and the net unrealized gain was less than $1 million. Based upon a sensitivity analysis of our foreign exchange
forward contracts at December 31, 2020, which estimates the fair value of the contracts assuming certain 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 $17 million.
Interest Rate Risk
We have a Credit Agreement providing for a $750 million unsecured Term Loan and a $1,750 million unsecured
revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make
scheduled quarterly principal payments on the Term Loan.
The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as
defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the
Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the
36
37
Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt
ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the
ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Under the Credit
Agreement, we are required to pay commitment fees on the unused portion of the revolving credit facility, which vary based on
our public debt ratings (or, if we have not received public debt ratings, on the Leverage 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 10.0% change in interest rates, with all other variables held constant, would have an
immaterial effect on our reported interest expense.
Information provided by the sensitivity analysis of foreign currency risk and interest rate risk does not necessarily
represent the actual changes that would occur under normal market conditions.
dispositions of our assets;
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. A
list of the financial statements filed herewith is found in Part IV, “Item 15. Exhibits, Financial Statements and Financial
Statement Schedule.”
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and our chief financial
officer, evaluated the 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) as of December 31, 2020. Based on this evaluation, our chief
executive officer and our chief financial officer concluded that, as of December 31, 2020, our disclosure controls and
procedures were effective.
Changes in Internal Control over Financial Reporting
Item 9B. Other Information
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended) that occurred during the fiscal quarter ended December 31, 2020 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Responsibility for Financial Statements
Our management is responsible for the integrity and objectivity of all information presented in this annual report. The
consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United
States of America and include amounts based on management’s best estimates and judgments. Management believes the
consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly
represent the Company’s financial position and results of operations.
The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with
the Company’s independent registered public accounting firm and representatives of management to review accounting,
financial reporting, internal control and audit matters, as well as the nature and extent of the audit effort.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as
amended, and is a process designed by, or under the supervision of, our chief executive and chief financial officers and effected
by our Board of Directors, management and other personnel, 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 and includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial statements.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on its evaluation, our management has concluded that, as of December 31, 2020, our internal control over financial
reporting was effective. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the
financial statements included in this annual report, has issued an attestation report on our internal control over financial
•
•
•
reporting, as stated in their report which is included on page F-2.
Inherent Limitations of Internal Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
On February 10, 2021, John N. Fox, Jr. informed the Company’s Board of Directors that he will retire from the Board of
Directors effective on the date of the Company’s 2021 Annual Meeting of Stockholders.
38
39
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as
amended, and is a process designed by, or under the supervision of, our chief executive and chief financial officers and effected
by our Board of Directors, management and other personnel, 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 and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial statements.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on its evaluation, our management has concluded that, as of December 31, 2020, our internal control over financial
reporting was effective. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the
financial statements included in this annual report, has issued an attestation report on our internal control over financial
reporting, as stated in their report which is included on page F-2.
Inherent Limitations of Internal Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
Item 9B. Other Information
On February 10, 2021, John N. Fox, Jr. informed the Company’s Board of Directors that he will retire from the Board of
Directors effective on the date of the Company’s 2021 Annual Meeting of Stockholders.
Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt
ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the
ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Under the Credit
Agreement, we are required to pay commitment fees on the unused portion of the revolving credit facility, which vary based on
our public debt ratings (or, if we have not received public debt ratings, on the Leverage 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 10.0% change in interest rates, with all other variables held constant, would have an
immaterial effect on our reported interest expense.
Information provided by the sensitivity analysis of foreign currency risk and interest rate risk does not necessarily
represent the actual changes that would occur under normal market conditions.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. A
list of the financial statements filed herewith is found in Part IV, “Item 15. Exhibits, Financial Statements and Financial
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Statement Schedule.”
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and our chief financial
officer, evaluated the 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) as of December 31, 2020. Based on this evaluation, our chief
executive officer and our chief financial officer concluded that, as of December 31, 2020, our disclosure controls and
procedures were effective.
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended) that occurred during the fiscal quarter ended December 31, 2020 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Responsibility for Financial Statements
Our management is responsible for the integrity and objectivity of all information presented in this annual report. The
consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United
States of America and include amounts based on management’s best estimates and judgments. Management believes the
consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly
represent the Company’s financial position and results of operations.
The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with
the Company’s independent registered public accounting firm and representatives of management to review accounting,
financial reporting, internal control and audit matters, as well as the nature and extent of the audit effort.
38
39
PART III
PART IV
Item 10. Directors, Executive Officers and Corporate Governance
The information relating to our executive officers in response to this item is contained in part under the caption
“Information About Our Executive Officers” in Part I of this Annual Report on Form 10-K.
We have adopted a written code of ethics, entitled “Code of Ethics,” that applies to all of our directors, executive officers
and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller,
or persons performing similar functions. We make available our code of ethics free of charge through our website which is
located at www.cognizant.com. We intend to post on our website all disclosures that are required by law or Nasdaq Stock
Market listing standards concerning any amendments to, or waivers from, any provision of our code of ethics.
The remaining information required by this item will be included in our definitive proxy statement for the 2021 Annual
provided in the consolidated financial statements, including the notes thereto.
Meeting of Stockholders and is incorporated herein by reference to such proxy statement.
Item 11. Executive Compensation
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Number
Exhibit Description
Form
File No.
Exhibit
Date
Stockholders and is incorporated herein by reference to such proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Stockholders and is incorporated herein by reference to such proxy statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Stockholders and is incorporated herein by reference to such proxy statement.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Stockholders and is incorporated herein by reference to such proxy statement.
Item 15. Exhibits, Financial Statement Schedules
(a)
(1) Consolidated Financial Statements.
Reference is made to the Index to Consolidated Financial Statements on Page F-1.
(2) Consolidated Financial Statement Schedule.
Reference is made to the Index to Financial Statement Schedule on Page F-1.
(3) Exhibits.
EXHIBIT INDEX
Schedules other than as listed above are omitted as not required or inapplicable or because the required information is
Incorporated by Reference
Filed or Furnished
Herewith
Restated Certificate of Incorporation, dated
June 5, 2018
Amended and Restated Bylaws, as adopted
on September 24, 2018
Specimen Certificate for shares of Class A
common stock
Description of Capital Stock
8-K
000-24429
3.1
6/7/2018
8-K
000-24429
3.1
9/20/2018
S-4/A 333-101216
10-K
000-24429
4.2
4.2
1/30/2003
2/14/2020
10.1†
Form of Indemnification Agreement for
Directors and Officers
10-Q
000-24429 10.1
8/7/2013
Form of Amended and Restated Executive
Employment and Non-Disclosure, Non-
Competition, and Invention Assignment
Agreement, between the Company and each
of the following Executive Officers: Brian
Humphries, Jan Siegmund, Becky Schmitt,
Robert Telesmanic, Balu Ganesh Ayyar,
Greg Hyttenrauch, Ursula Morgenstern,
Andrew Stafford, Karen McLoughlin and
Dharmendra Kumar Sinha
Form of Amended and Restated Executive
Employment and Non-Disclosure, Non-
Competition, and Invention Assignment
Agreement, between the Company and each
of the following Executive Officers:
Malcolm Frank and Santosh Thomas
Offer Letter, by and between the Company
and Brian Humphries, acknowledged and
agreed November 30, 2018
Offer Letter, by and between the Company
and Jan Siegmund, acknowledged and
agreed July 8, 2020
Offer Letter, by and between the Company
and Becky Schmitt, acknowledged and
agreed November 26, 2019
2004 Employee Stock Purchase Plan (as
amended and restated effective as of
February 27, 2018)
10-K
000-24429 10.3
2/27/2018
10-K
000-24429 10.4
2/26/2013
10-K
000-24429 10.4
2/19/2019
8-K
000-24429 10.1
7/29/2020
Filed
10.8†
Form of Stock Option Certificate
8-K
10-Q
000-24429 10.1
6/7/2018
000-24429 10.1
11/8/2004
3.1
3.2
4.1
4.2
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
40
41
The information relating to our executive officers in response to this item is contained in part under the caption
“Information About Our Executive Officers” in Part I of this Annual Report on Form 10-K.
We have adopted a written code of ethics, entitled “Code of Ethics,” that applies to all of our directors, executive officers
and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller,
or persons performing similar functions. We make available our code of ethics free of charge through our website which is
located at www.cognizant.com. We intend to post on our website all disclosures that are required by law or Nasdaq Stock
Market listing standards concerning any amendments to, or waivers from, any provision of our code of ethics.
Meeting of Stockholders and is incorporated herein by reference to such proxy statement.
Item 11. Executive Compensation
Stockholders and is incorporated herein by reference to such proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Stockholders and is incorporated herein by reference to such proxy statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Stockholders and is incorporated herein by reference to such proxy statement.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Stockholders and is incorporated herein by reference to such proxy statement.
Item 10. Directors, Executive Officers and Corporate Governance
Item 15. Exhibits, Financial Statement Schedules
PART III
PART IV
The remaining information required by this item will be included in our definitive proxy statement for the 2021 Annual
provided in the consolidated financial statements, including the notes thereto.
EXHIBIT INDEX
(a)
(1) Consolidated Financial Statements.
Reference is made to the Index to Consolidated Financial Statements on Page F-1.
(2) Consolidated Financial Statement Schedule.
Reference is made to the Index to Financial Statement Schedule on Page F-1.
(3) Exhibits.
Schedules other than as listed above are omitted as not required or inapplicable or because the required information is
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of
Number
3.1
3.2
4.1
4.2
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
Exhibit Description
Restated Certificate of Incorporation, dated
June 5, 2018
Amended and Restated Bylaws, as adopted
on September 24, 2018
Specimen Certificate for shares of Class A
common stock
Description of Capital Stock
Form of Indemnification Agreement for
Directors and Officers
Form of Amended and Restated Executive
Employment and Non-Disclosure, Non-
Competition, and Invention Assignment
Agreement, between the Company and each
of the following Executive Officers: Brian
Humphries, Jan Siegmund, Becky Schmitt,
Robert Telesmanic, Balu Ganesh Ayyar,
Greg Hyttenrauch, Ursula Morgenstern,
Andrew Stafford, Karen McLoughlin and
Dharmendra Kumar Sinha
Form of Amended and Restated Executive
Employment and Non-Disclosure, Non-
Competition, and Invention Assignment
Agreement, between the Company and each
of the following Executive Officers:
Malcolm Frank and Santosh Thomas
Offer Letter, by and between the Company
and Brian Humphries, acknowledged and
agreed November 30, 2018
Offer Letter, by and between the Company
and Jan Siegmund, acknowledged and
agreed July 8, 2020
Offer Letter, by and between the Company
and Becky Schmitt, acknowledged and
agreed November 26, 2019
2004 Employee Stock Purchase Plan (as
amended and restated effective as of
February 27, 2018)
10.8†
Form of Stock Option Certificate
Incorporated by Reference
Form
File No.
Exhibit
Date
Filed or Furnished
Herewith
8-K
000-24429
3.1
6/7/2018
8-K
000-24429
3.1
9/20/2018
S-4/A 333-101216
10-K
000-24429
4.2
4.2
1/30/2003
2/14/2020
10-Q
000-24429 10.1
8/7/2013
10-K
000-24429 10.3
2/27/2018
10-K
000-24429 10.4
2/26/2013
10-K
000-24429 10.4
2/19/2019
8-K
000-24429 10.1
7/29/2020
Filed
8-K
10-Q
000-24429 10.1
6/7/2018
000-24429 10.1
11/8/2004
40
41
Number
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25
10.26
10.27†
21.1
Exhibit Description
Form
File No.
Exhibit
Date
Filed or Furnished
Herewith
Number
Exhibit Description
Form
File No.
Exhibit
Date
Filed or Furnished
Herewith
Incorporated by Reference
Incorporated by Reference
Cognizant Technology Solutions
Corporation Amended and Restated 2009
Incentive Compensation Plan, effective
March 9, 2015
Form of Cognizant Technology Solutions
Corporation Stock Option Agreement
Form of Cognizant Technology Solutions
Corporation Notice of Grant of Stock Option
Form of Cognizant Technology Solutions
Corporation Restricted Stock Unit Award
Agreement Time-Based Vesting
Form of Cognizant Technology Solutions
Corporation Notice of Award of Restricted
Stock Units Time-Based Vesting
Form of Cognizant Technology Solutions
Corporation Restricted Stock Unit Award
Agreement Performance-Based Vesting
Form of Cognizant Technology Solutions
Corporation Notice of Award of Restricted
Stock Units Performance-Based Vesting
Form of Restricted Stock Unit Award
Agreement Non-Employee Director
Deferred Issuance
Form of Cognizant Technology Solutions
Corporation Notice of Award of Restricted
Stock Units Non-Employee Director
Deferred Issuance
Cognizant Technology Solutions
Corporation 2017 Incentive Award Plan
Form of Restricted Stock Unit Award Grant
Notice
Form of Performance-Based Restricted
Stock Unit Award Grant Notice
Form of Restricted Stock Unit Award Grant
Notice
Form of Stock Option Grant Notice and
Stock Option Agreement
Form of Restricted Stock Unit Award Grant
Notice (March 5, 2020 form)
Form of Performance-Based Restricted
Stock Unit Award Grant Notice (March 5,
2020 form)
Form of Accelerated Stock Repurchase
Agreement
Credit Agreement, dated as of November 6,
2018, among Cognizant Technology
Solutions Corporation, Cognizant
Worldwide Limited, certain financial
institutions party thereto and JPMorgan
Chase Bank, N.A., as administrative agent
10-Q
000-24429 10.1
5/4/2015
8-K
000-24429 10.1
7/6/2009
8-K
000-24429 10.2
7/6/2009
8-K
000-24429 10.3
7/6/2009
8-K
000-24429 10.4
7/6/2009
8-K
000-24429 10.5
7/6/2009
8-K
000-24429 10.6
7/6/2009
8-K
000-24429 10.7
7/6/2009
8-K
000-24429 10.8
7/6/2009
8-K
000-24429 10.1
6/7/2017
10-Q
000-24429 10.2
8/3/2017
10-Q
000-24429 10.3
8/3/2017
10-Q
000-24429 10.4
8/3/2017
10-Q
000-24429 10.5
8/3/2017
10-Q
000-24429 10.1
5/8/2020
10-Q
8-K
000-24429 10.2
000-24429 10.1
5/8/2020
3/14/2017
8-K
000-24429 10.1
11/9/2018
Retirement, Death and Disability Policy
10-Q
000-24429 10.1
7/30/2020
List of subsidiaries of the Company
Filed
23.1
31.1
31.2
32.1
32.2
101.INS
Consent of PricewaterhouseCoopers LLP
Certification Pursuant to Rule 13a-14(a) and
15d-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (Chief Executive Officer)
Certification Pursuant to Rule 13a-14(a) and
15d-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (Chief Financial Officer)
Certification Pursuant to 18 U.S.C.
Section 1350 (Chief Executive Officer)
Certification Pursuant to 18 U.S.C.
Section 1350 (Chief Financial Officer)
Inline XBRL Instance Document - the
instance document does not appear in the
Interactive Data File because its XBRL tags
are embedded within the Inline XBRL
document.
Document
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
101.DEF
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
Inline XBRL Taxonomy Extension
Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label
101.PRE
104
Linkbase Document
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit
101)
Item 15(a)(3) of Form 10-K.
Item 16. Form 10-K Summary
None.
†
A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to
Furnished
Furnished
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
42
43
Exhibit Description
Form
File No.
Exhibit
Date
Filed or Furnished
Herewith
Number
Exhibit Description
Form
File No.
Exhibit
Date
Filed or Furnished
Herewith
Incorporated by Reference
Incorporated by Reference
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Consent of PricewaterhouseCoopers LLP
Certification Pursuant to Rule 13a-14(a) and
15d-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (Chief Executive Officer)
Certification Pursuant to Rule 13a-14(a) and
15d-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (Chief Financial Officer)
Certification Pursuant to 18 U.S.C.
Section 1350 (Chief Executive Officer)
Certification Pursuant to 18 U.S.C.
Section 1350 (Chief Financial Officer)
Inline XBRL Instance Document - the
instance document does not appear in the
Interactive Data File because its XBRL tags
are embedded within the Inline XBRL
document.
Inline XBRL Taxonomy Extension Schema
Document
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
Inline XBRL Taxonomy Extension
Definition Linkbase Document
Inline XBRL Taxonomy Extension Label
Linkbase Document
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit
101)
Filed
Filed
Filed
Furnished
Furnished
Filed
Filed
Filed
Filed
Filed
Filed
Filed
†
A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to
Item 15(a)(3) of Form 10-K.
Item 16. Form 10-K Summary
None.
Number
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
Cognizant Technology Solutions
Corporation Amended and Restated 2009
Incentive Compensation Plan, effective
March 9, 2015
Form of Cognizant Technology Solutions
Corporation Stock Option Agreement
Form of Cognizant Technology Solutions
Corporation Notice of Grant of Stock Option
Form of Cognizant Technology Solutions
Corporation Restricted Stock Unit Award
Agreement Time-Based Vesting
Form of Cognizant Technology Solutions
Corporation Notice of Award of Restricted
Stock Units Time-Based Vesting
Form of Cognizant Technology Solutions
Corporation Restricted Stock Unit Award
Agreement Performance-Based Vesting
Form of Cognizant Technology Solutions
Corporation Notice of Award of Restricted
Stock Units Performance-Based Vesting
Form of Restricted Stock Unit Award
Agreement Non-Employee Director
Deferred Issuance
Form of Cognizant Technology Solutions
Corporation Notice of Award of Restricted
Stock Units Non-Employee Director
Deferred Issuance
10-Q
000-24429 10.1
5/4/2015
8-K
000-24429 10.1
7/6/2009
8-K
000-24429 10.2
7/6/2009
8-K
000-24429 10.3
7/6/2009
8-K
000-24429 10.4
7/6/2009
8-K
000-24429 10.5
7/6/2009
8-K
000-24429 10.6
7/6/2009
8-K
000-24429 10.7
7/6/2009
8-K
000-24429 10.8
7/6/2009
8-K
000-24429 10.1
6/7/2017
10-Q
000-24429 10.2
8/3/2017
10.18†
Cognizant Technology Solutions
Corporation 2017 Incentive Award Plan
10.19†
Form of Restricted Stock Unit Award Grant
Notice
Notice
10.20†
Form of Performance-Based Restricted
Stock Unit Award Grant Notice
10-Q
000-24429 10.3
8/3/2017
10.21†
Form of Restricted Stock Unit Award Grant
10-Q
000-24429 10.4
8/3/2017
10.22†
Form of Stock Option Grant Notice and
Stock Option Agreement
10-Q
000-24429 10.5
8/3/2017
10.23†
Form of Restricted Stock Unit Award Grant
Notice (March 5, 2020 form)
10-Q
000-24429 10.1
5/8/2020
10.26
Credit Agreement, dated as of November 6,
8-K
000-24429 10.1
11/9/2018
10-Q
8-K
000-24429 10.2
5/8/2020
000-24429 10.1
3/14/2017
10.24†
Form of Performance-Based Restricted
Stock Unit Award Grant Notice (March 5,
10.25
Form of Accelerated Stock Repurchase
2020 form)
Agreement
2018, among Cognizant Technology
Solutions Corporation, Cognizant
Worldwide Limited, certain financial
institutions party thereto and JPMorgan
Chase Bank, N.A., as administrative agent
10.27†
21.1
Retirement, Death and Disability Policy
10-Q
000-24429 10.1
7/30/2020
List of subsidiaries of the Company
Filed
42
43
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Position as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule of Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019 and 2018
F-44
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
By:
/S/ BRIAN HUMPHRIES
Brian Humphries,
Chief Executive Officer
(Principal Executive Officer)
Date:
February 12, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ BRIAN HUMPHRIES
Brian Humphries
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ JAN SIEGMUND
Jan Siegmund
Chief Financial Officer
(Principal Financial Officer)
/s/ ROBERT TELESMANIC
Robert Telesmanic
Senior Vice President, Controller and Chief
Accounting Officer
(Principal Accounting Officer)
/s/ MICHAEL PATSALOS-FOX
Michael Patsalos-Fox
Chairman of the Board and Director
/s/ ZEIN ABDALLA
Zein Abdalla
/s/ VINITA BALI
Vinita Bali
Director
Director
/s/ MAUREEN BREAKIRON-EVANS
Maureen Breakiron-Evans
Director
/s/ ARCHANA DESKUS
Director
Archana Deskus
/s/ JOHN M. DINEEN
John M. Dineen
/s/ JOHN N. FOX, JR.
John N. Fox, Jr.
/s/ LEO S. MACKAY, JR.
Leo S. Mackay, Jr.
/s/ JOSEPH M. VELLI
Joseph M. Velli
/s/ SANDRA S. WIJNBERG
Sandra S. Wijnberg
Director
Director
Director
Director
Director
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
44
F-1
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
By:
/S/ BRIAN HUMPHRIES
Brian Humphries,
Chief Executive Officer
(Principal Executive Officer)
Date:
February 12, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ BRIAN HUMPHRIES
Brian Humphries
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ JAN SIEGMUND
Jan Siegmund
Chief Financial Officer
(Principal Financial Officer)
/s/ ROBERT TELESMANIC
Robert Telesmanic
Senior Vice President, Controller and Chief
Accounting Officer
(Principal Accounting Officer)
/s/ MICHAEL PATSALOS-FOX
Chairman of the Board and Director
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Position as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
Schedule of Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019 and 2018
F-44
Michael Patsalos-Fox
/s/ ZEIN ABDALLA
Zein Abdalla
/s/ VINITA BALI
Vinita Bali
Director
Director
/s/ MAUREEN BREAKIRON-EVANS
Director
Maureen Breakiron-Evans
/s/ ARCHANA DESKUS
Director
Archana Deskus
John M. Dineen
John N. Fox, Jr.
/s/ JOHN M. DINEEN
Director
/s/ JOHN N. FOX, JR.
Director
/s/ LEO S. MACKAY, JR.
Director
Leo S. Mackay, Jr.
/s/ JOSEPH M. VELLI
Director
Joseph M. Velli
/s/ SANDRA S. WIJNBERG
Director
Sandra S. Wijnberg
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
44
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Cognizant Technology Solutions Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Cognizant Technology Solutions
Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of
operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended
December 31, 2020, including the related notes and financial statement schedule listed in the accompanying index (collectively
referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Expected Labor Costs to Complete for Certain Fixed-Price Contracts
As described in Notes 1 and 2 to the consolidated financial statements, fixed-price contracts comprised $6.1 billion of the
Company’s total revenues for the year ended December 31, 2020, which includes performance obligations where control is
transferred over time. For performance obligations where control is transferred over time, revenues are recognized based on the
extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards
completion requires judgment and is based on the nature of the deliverables to be provided. Management recognizes revenues
related to fixed-price contracts for application development and systems integration services, consulting or other technology
services as the service is performed using the cost to cost method, under which the total value of revenues is recognized on the
basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. The cost to cost
method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information.
Revenues related to fixed-price application maintenance, testing and business process services are recognized based on
management’s right to invoice for services performed for contracts in which the invoicing is representative of the value being
delivered. If management’s invoicing is not consistent with value delivered, revenues are recognized as the service is performed
based on the cost to cost method described above.
The principal considerations for our determination that performing procedures relating to revenue recognition – expected labor
costs to complete for certain fixed-price contracts is a critical audit matter are the significant judgment by management when
developing the estimated total expected labor costs to complete fixed-price contracts and the significant auditor judgment,
subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s estimate of total
expected labor costs.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
revenue recognition process, including controls over the development of the estimated total expected labor costs to complete
fixed-price contracts. These procedures also included, among others, evaluating and testing management’s process for
developing the estimated total expected labor costs for a sample of contracts, which included evaluating the reasonableness of
the total expected labor cost assumptions used by management. Evaluating the reasonableness of the assumptions related to the
total expected labor costs involved assessing management’s ability to reasonably develop total expected labor costs by (i)
performing a comparison of actual labor costs incurred with expected labor costs for similar completed projects and (ii)
evaluating the timely identification of circumstances that may warrant a modification to previous labor cost estimates, including
actual labor costs in excess of estimates.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 12, 2021
We have served as the Company’s auditor since 1997.
F-2
F-3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Cognizant Technology Solutions Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Cognizant Technology Solutions
Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of
operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended
December 31, 2020, including the related notes and financial statement schedule listed in the accompanying index (collectively
referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United
issued by the COSO.
Change in Accounting Principle
Basis for Opinions
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
Revenue Recognition – Expected Labor Costs to Complete for Certain Fixed-Price Contracts
financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
As described in Notes 1 and 2 to the consolidated financial statements, fixed-price contracts comprised $6.1 billion of the
Company’s total revenues for the year ended December 31, 2020, which includes performance obligations where control is
transferred over time. For performance obligations where control is transferred over time, revenues are recognized based on the
extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards
completion requires judgment and is based on the nature of the deliverables to be provided. Management recognizes revenues
related to fixed-price contracts for application development and systems integration services, consulting or other technology
services as the service is performed using the cost to cost method, under which the total value of revenues is recognized on the
basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. The cost to cost
method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information.
Revenues related to fixed-price application maintenance, testing and business process services are recognized based on
management’s right to invoice for services performed for contracts in which the invoicing is representative of the value being
delivered. If management’s invoicing is not consistent with value delivered, revenues are recognized as the service is performed
based on the cost to cost method described above.
The principal considerations for our determination that performing procedures relating to revenue recognition – expected labor
costs to complete for certain fixed-price contracts is a critical audit matter are the significant judgment by management when
developing the estimated total expected labor costs to complete fixed-price contracts and the significant auditor judgment,
subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s estimate of total
expected labor costs.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
revenue recognition process, including controls over the development of the estimated total expected labor costs to complete
fixed-price contracts. These procedures also included, among others, evaluating and testing management’s process for
developing the estimated total expected labor costs for a sample of contracts, which included evaluating the reasonableness of
the total expected labor cost assumptions used by management. Evaluating the reasonableness of the assumptions related to the
total expected labor costs involved assessing management’s ability to reasonably develop total expected labor costs by (i)
performing a comparison of actual labor costs incurred with expected labor costs for similar completed projects and (ii)
evaluating the timely identification of circumstances that may warrant a modification to previous labor cost estimates, including
actual labor costs in excess of estimates.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 12, 2021
We have served as the Company’s auditor since 1997.
F-2
F-3
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Cost of revenues (exclusive of depreciation and amortization expense shown
Revenues
Operating expenses:
separately below)
Selling, general and administrative expenses
Restructuring charges
Depreciation and amortization expense
Income from operations
Other income (expense), net:
Interest income
Interest expense
Other, net
Foreign currency exchange gains (losses), net
Total other income (expense), net
Income before provision for income taxes
Provision for income taxes
Income (loss) from equity method investments
Net income
Basic earnings per share
Diluted earnings per share
Year Ended December 31,
2020
2019
2018
$
16,652 $
16,783 $
16,125
10,671
3,100
215
552
2,114
119
(24)
(116)
3
(18)
2,096
(704)
—
10,634
2,972
217
507
2,453
176
(26)
(65)
5
90
2,543
(643)
(58)
9,838
3,007
19
460
2,801
177
(27)
(152)
(2)
(4)
2,797
(698)
2
3.61
3.60
582
2
584
Weighted average number of common shares outstanding—Basic
Dilutive effect of shares issuable under stock-based compensation plans
Weighted average number of common shares outstanding—Diluted
The accompanying notes are an integral part of the consolidated financial statements.
1,392 $
1,842 $
2,101
$
$
$
2.58 $
2.57 $
3.30 $
3.29 $
540
1
541
559
1
560
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions, except par values)
Assets
At December 31,
2020
2019
Current assets:
Cash and cash equivalents
Short-term investments
Trade accounts receivable, net
Other current assets
Total current assets
Property and equipment, net
Operating lease assets, net
Goodwill
Intangible assets, net
Deferred income tax assets, net
Long-term investments
Other noncurrent assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Deferred revenue
Short-term debt
Operating lease liabilities
Accrued expenses and other current liabilities
Total current liabilities
Deferred revenue, noncurrent
Operating lease liabilities, noncurrent
Deferred income tax liabilities, net
Long-term debt
Long-term income taxes payable
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (See Note 15)
Stockholders’ equity:
Preferred stock, $0.10 par value, 15 shares authorized, none issued
Class A common stock, $0.01 par value, 1,000 shares authorized, 530 and 548 shares issued
and outstanding at December 31, 2020 and 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
2,680
44
3,087
1,040
6,851
1,251
1,013
5,031
1,046
445
440
846
16,923
389
383
38
211
2,519
3,540
36
846
206
663
428
368
6,087
—
5
32
10,689
110
10,836
16,923
$
$
$
$
2,645
779
3,256
931
7,611
1,309
926
3,979
1,041
585
17
736
16,204
239
313
38
202
2,191
2,983
23
745
35
700
478
218
5,182
—
5
33
11,022
(38)
11,022
16,204
The accompanying notes are an integral part of the consolidated financial statements.
F-4
F-5
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions, except par values)
Assets
At December 31,
2020
2019
$
2,680
$
Current assets:
Cash and cash equivalents
Short-term investments
Trade accounts receivable, net
Other current assets
Total current assets
Property and equipment, net
Operating lease assets, net
Goodwill
Intangible assets, net
Deferred income tax assets, net
Long-term investments
Other noncurrent assets
Total assets
Current liabilities:
Accounts payable
Deferred revenue
Short-term debt
Operating lease liabilities
Accrued expenses and other current liabilities
Total current liabilities
Deferred revenue, noncurrent
Operating lease liabilities, noncurrent
Deferred income tax liabilities, net
Long-term debt
Long-term income taxes payable
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (See Note 15)
Stockholders’ equity:
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
44
3,087
1,040
6,851
1,251
1,013
5,031
1,046
445
440
846
389
383
38
211
2,519
3,540
36
846
206
663
428
368
—
5
32
10,689
110
10,836
16,923
2,645
779
3,256
931
7,611
1,309
926
3,979
1,041
585
17
736
239
313
38
202
2,191
2,983
23
745
35
700
478
218
—
5
33
11,022
(38)
11,022
16,204
6,087
5,182
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Revenues
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense shown
separately below)
Selling, general and administrative expenses
Restructuring charges
Depreciation and amortization expense
Income from operations
Other income (expense), net:
Interest income
Interest expense
Foreign currency exchange gains (losses), net
Other, net
Total other income (expense), net
Income before provision for income taxes
Liabilities and Stockholders’ Equity
$
$
$
16,923
$
16,204
Provision for income taxes
Income (loss) from equity method investments
Net income
Basic earnings per share
Diluted earnings per share
Weighted average number of common shares outstanding—Basic
Dilutive effect of shares issuable under stock-based compensation plans
Weighted average number of common shares outstanding—Diluted
Year Ended December 31,
2020
2019
2018
$
16,652 $
16,783 $
16,125
10,671
3,100
215
552
2,114
119
(24)
(116)
3
(18)
2,096
(704)
—
10,634
2,972
217
507
2,453
176
(26)
(65)
5
90
2,543
(643)
(58)
9,838
3,007
19
460
2,801
177
(27)
(152)
(2)
(4)
2,797
(698)
2
$
$
$
1,392 $
1,842 $
2,101
2.58 $
2.57 $
3.30 $
3.29 $
540
1
541
559
1
560
3.61
3.60
582
2
584
The accompanying notes are an integral part of the consolidated financial statements.
Preferred stock, $0.10 par value, 15 shares authorized, none issued
Class A common stock, $0.01 par value, 1,000 shares authorized, 530 and 548 shares issued
and outstanding at December 31, 2020 and 2019, respectively
The accompanying notes are an integral part of the consolidated financial statements.
$
$
F-4
F-5
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except per share data)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Change in unrealized gains and losses on cash flow hedges
Change in unrealized losses on available-for-sale investment securities
Other comprehensive income (loss)
Comprehensive income
Year Ended December 31,
2020
2019
2018
$
1,392 $
1,842 $
2,101
119
29
—
148
39
29
8
76
(65)
(118)
—
(183)
$
1,540 $
1,918 $
1,918
The accompanying notes are an integral part of the consolidated financial statements.
Balance, December 31, 2017
Cumulative effect of changes in
accounting principle (1)
Net income
Other comprehensive income (loss)
Common stock issued, stock-based
compensation plans
Stock-based compensation expense
Repurchases of common stock
Dividends declared, $0.80 per share
Balance, December 31, 2018
Cumulative effect of changes in
accounting principle (2)
Net income
Other comprehensive income (loss)
Common stock issued, stock-based
compensation plans
Stock-based compensation expense
Repurchases of common stock
Dividends declared, $0.80 per share
Balance, December 31, 2019
Cumulative effect of changes in
accounting principle (3)
Net income
Other comprehensive income (loss)
Common stock issued, stock-based
compensation plans
Stock-based compensation expense
Dividends declared, $0.88 per share
Balance, December 31, 2020
Class A Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
588 $
6 $
49 $
10,544 $
70 $
10,669
(17)
—
577
—
—
—
6
—
—
—
—
7
—
—
—
—
6
—
—
—
548
—
—
—
—
—
—
—
6
—
—
—
—
—
—
5
—
—
—
—
—
—
—
122
2,101
(1)
—
(183)
(450)
(811)
(471)
11,485
(114)
11,424
—
—
—
181
267
—
47
—
—
—
159
217
—
33
—
—
—
142
232
—
—
—
2
—
—
—
1
—
—
—
1,842
(451)
11,022
1,392
121
2,101
(183)
181
267
(1,261)
(471)
2
1,842
76
159
217
(2,247)
(451)
1
1,392
148
142
232
(1,621)
(480)
—
—
—
—
—
—
76
—
—
—
—
—
—
148
—
—
—
—
(36)
(1)
(390)
(1,856)
(38)
11,022
Repurchases of common stock
(24)
(375)
(1,246)
—
(480)
530 $
5 $
32 $
10,689 $
110 $
10,836
Reflects the adoption of the New Revenue Standard as well as ASU 2018-02 "Reclassification of Certain Tax Effects
(1)
(2)
(3)
from Accumulated Other Comprehensive Income" on January 1, 2018.
Reflects the adoption of the New Lease Standard on January 1, 2019.
Reflects the adoption of the Credit Loss Standard as described in Note 1.
The accompanying notes are an integral part of the consolidated financial statements.
F-6
F-7
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except per share data)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Change in unrealized gains and losses on cash flow hedges
Change in unrealized losses on available-for-sale investment securities
Other comprehensive income (loss)
Comprehensive income
Year Ended December 31,
2020
2019
2018
$
1,392 $
1,842 $
2,101
119
29
—
148
39
29
8
76
(65)
(118)
—
(183)
$
1,540 $
1,918 $
1,918
The accompanying notes are an integral part of the consolidated financial statements.
Balance, December 31, 2017
Cumulative effect of changes in
accounting principle (1)
Net income
Other comprehensive income (loss)
Common stock issued, stock-based
compensation plans
Stock-based compensation expense
Repurchases of common stock
Dividends declared, $0.80 per share
Balance, December 31, 2018
Cumulative effect of changes in
accounting principle (2)
Net income
Other comprehensive income (loss)
Common stock issued, stock-based
compensation plans
Stock-based compensation expense
Repurchases of common stock
Dividends declared, $0.80 per share
Balance, December 31, 2019
Cumulative effect of changes in
accounting principle (3)
Net income
Other comprehensive income (loss)
Common stock issued, stock-based
compensation plans
Stock-based compensation expense
Repurchases of common stock
Dividends declared, $0.88 per share
Balance, December 31, 2020
Class A Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
588 $
6 $
49 $
10,544 $
70 $
10,669
—
—
—
6
—
(17)
—
577
—
—
—
7
—
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
181
267
(450)
—
47
—
—
—
159
217
2
1,842
—
—
—
(36)
(1)
(390)
(1,856)
—
548
—
—
—
6
—
(24)
—
—
5
—
—
—
—
—
—
—
—
33
—
—
—
142
232
(451)
11,022
1
1,392
—
—
—
(375)
(1,246)
—
(480)
122
2,101
—
—
—
(811)
(471)
(1)
—
(183)
—
—
—
—
121
2,101
(183)
181
267
(1,261)
(471)
11,485
(114)
11,424
—
—
76
—
—
—
—
2
1,842
76
159
217
(2,247)
(451)
(38)
11,022
—
—
148
—
—
—
—
1
1,392
148
142
232
(1,621)
(480)
530 $
5 $
32 $
10,689 $
110 $
10,836
(1)
(2)
(3)
Reflects the adoption of the New Revenue Standard as well as ASU 2018-02 "Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive Income" on January 1, 2018.
Reflects the adoption of the New Lease Standard on January 1, 2019.
Reflects the adoption of the Credit Loss Standard as described in Note 1.
The accompanying notes are an integral part of the consolidated financial statements.
F-6
F-7
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
2020
Year Ended December 31,
2019
2018
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
$
1,392
$
1,842
$
2,101
its subsidiaries unless the context indicates otherwise.
activities:
Depreciation and amortization
Deferred income taxes
Stock-based compensation expense
Other
Changes in assets and liabilities:
Trade accounts receivable
Other current and noncurrent assets
Accounts payable
Deferred revenue, current and noncurrent
Other current and noncurrent liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of available-for-sale investment securities
Proceeds from maturity or sale of available-for-sale investment
securities
Purchases of held-to-maturity investment securities
Proceeds from maturity of held-to-maturity investment securities
Purchases of other investments
Proceeds from maturity or sale of other investments
Payments for business combinations, net of cash acquired
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of common stock under stock-based compensation plans
Repurchases of common stock
Repayment of term loan borrowings and finance lease and earnout
obligations
Proceeds from borrowing under the revolving credit facility
Repayment of notes outstanding under the revolving credit facility
Net repayments in notes outstanding under the revolving credit facility
Proceeds from debt modification
Debt issuance costs
Dividends paid
Net cash (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental information:
Cash paid for income taxes during the year
Cash interest paid during the year
$
$
$
559
184
232
119
264
73
109
65
302
3,299
(398)
—
—
(202)
467
(531)
549
(1,123)
(1,238)
142
(1,621)
(50)
1,740
(1,740)
—
—
—
(480)
(2,009)
(17)
35
2,645
2,680
745
25
$
$
$
526
(306)
217
119
37
159
8
56
(159)
2,499
(392)
(333)
2,107
(693)
1,498
(483)
501
(617)
1,588
159
(2,247)
(28)
—
—
—
—
—
(453)
(2,569)
(34)
1,484
1,161
2,645
870
25
$
$
$
498
8
267
125
(365)
(8)
(4)
(86)
56
2,592
(377)
(1,630)
1,838
(1,363)
1,164
(513)
365
(1,111)
(1,627)
181
(1,261)
(91)
—
—
(75)
25
(4)
(468)
(1,693)
(36)
(764)
1,925
1,161
597
21
The accompanying notes are an integral part of the consolidated financial statements.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
Note 1 — Business Description and Summary of Significant Accounting Policies
The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation and
Description of Business. We are one of the world’s leading professional services companies, engineering modern
business for the digital era. Our services include digital services and solutions, consulting, application development, systems
integration, application testing, application maintenance, infrastructure services and business process services. Digital services
have become an increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled,
customer-centric and differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI,
experience-driven software engineering and cloud. We tailor our services and solutions to specific industries with an integrated
global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional
delivery centers.
Basis of Presentation, Principles of Consolidation and Use of Estimates. The consolidated financial statements are
presented in accordance with GAAP and reflect the consolidated financial position, results of operations, comprehensive
income and cash flows of our consolidated subsidiaries for all periods presented. All intercompany balances and transactions
have been eliminated in consolidation.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts in the consolidated financial statements and accompanying disclosures. The COVID-19 pandemic may affect
management's estimates and assumptions of variable consideration in contracts with customers as well as other estimates and
assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions,
such as the annual effective tax rate, the allowance for doubtful accounts, the recoverability of capitalized deferred charges and
the fair value of goodwill, long-lived assets and indefinite-lived intangible assets We evaluate our estimates on a continuous
basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated
financial statements.
Cash and Cash Equivalents and Investments. Cash and cash equivalents consist of all cash balances, including money
market funds, certificates of deposits and commercial paper that have a maturity, at the date of purchase, of 90 days or less.
We determine the appropriate classification of our investments in marketable securities at the date of purchase and
reevaluate such designation at each balance sheet date. Our held-to-maturity investment securities are financial instruments for
which we have the intent and ability to hold to maturity and we classify these securities with maturities less than one year as
short-term investments. Any held-to-maturity investment securities with maturities beyond one year from the balance sheet date
are classified as noncurrent. Held-to-maturity securities are reported at amortized cost. Interest and amortization of premiums
and discounts for debt securities are included in interest income.
On initial recognition and on an ongoing basis, we evaluate our held-to-maturity investment securities for expected credit
losses collectively when they share similar risk characteristics or individually, when the risk characteristics are different. The
allowance for expected credit losses is determined using our historical loss experience. We monitor the credit ratings of the
securities in our portfolio to evaluate the need for any changes to the allowance. An increase or a decrease in the allowance for
expected credit losses is recorded through income as a credit loss expense or a reversal thereof. The allowance for expected
credit losses is presented as a deduction from the amortized cost. A held-to-maturity investment security is written off when
deemed uncollectible.
Financial Assets and Liabilities. Cash and certain cash equivalents, time deposits, trade receivables, accounts payable and
other accrued liabilities are short-term in nature and, accordingly, their carrying values approximate fair value.
Property and Equipment. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is
calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the lease or the estimated useful life of the asset. Deposits paid towards
acquisition of long-lived assets and the cost of assets not put in use by the balance sheet date are disclosed under the caption
"Capital work-in-progress" in Note 6.
F-8
F-9
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
Adjustments to reconcile net income to net cash provided by operating
Cash flows from operating activities:
Net income
activities:
Depreciation and amortization
Deferred income taxes
Stock-based compensation expense
Other
Changes in assets and liabilities:
Trade accounts receivable
Other current and noncurrent assets
Accounts payable
Deferred revenue, current and noncurrent
Other current and noncurrent liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of available-for-sale investment securities
Proceeds from maturity or sale of available-for-sale investment
securities
Purchases of held-to-maturity investment securities
Proceeds from maturity of held-to-maturity investment securities
Purchases of other investments
Proceeds from maturity or sale of other investments
Payments for business combinations, net of cash acquired
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of common stock under stock-based compensation plans
Repurchases of common stock
Repayment of term loan borrowings and finance lease and earnout
obligations
Proceeds from borrowing under the revolving credit facility
Repayment of notes outstanding under the revolving credit facility
Net repayments in notes outstanding under the revolving credit facility
Proceeds from debt modification
Debt issuance costs
Dividends paid
Net cash (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental information:
Cash paid for income taxes during the year
Cash interest paid during the year
Year Ended December 31,
2020
2019
2018
$
1,392
$
1,842
$
2,101
559
184
232
119
264
73
109
65
302
3,299
(398)
—
—
(202)
467
(531)
549
(1,123)
(1,238)
142
(1,621)
(50)
1,740
(1,740)
—
—
—
(480)
(2,009)
(17)
35
2,645
2,680
745
25
526
(306)
217
119
37
159
8
56
(159)
2,499
(392)
(333)
2,107
(693)
1,498
(483)
501
(617)
1,588
159
(2,247)
(28)
—
—
—
—
—
(453)
(2,569)
(34)
1,484
1,161
2,645
870
25
498
8
267
125
(365)
(8)
(4)
(86)
56
2,592
(377)
(1,630)
1,838
(1,363)
1,164
(513)
365
(1,111)
(1,627)
181
(1,261)
(91)
—
—
(75)
25
(4)
(468)
(1,693)
(36)
(764)
1,925
1,161
597
21
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
Note 1 — Business Description and Summary of Significant Accounting Policies
The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation and
its subsidiaries unless the context indicates otherwise.
Description of Business. We are one of the world’s leading professional services companies, engineering modern
business for the digital era. Our services include digital services and solutions, consulting, application development, systems
integration, application testing, application maintenance, infrastructure services and business process services. Digital services
have become an increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled,
customer-centric and differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI,
experience-driven software engineering and cloud. We tailor our services and solutions to specific industries with an integrated
global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional
delivery centers.
Basis of Presentation, Principles of Consolidation and Use of Estimates. The consolidated financial statements are
presented in accordance with GAAP and reflect the consolidated financial position, results of operations, comprehensive
income and cash flows of our consolidated subsidiaries for all periods presented. All intercompany balances and transactions
have been eliminated in consolidation.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts in the consolidated financial statements and accompanying disclosures. The COVID-19 pandemic may affect
management's estimates and assumptions of variable consideration in contracts with customers as well as other estimates and
assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions,
such as the annual effective tax rate, the allowance for doubtful accounts, the recoverability of capitalized deferred charges and
the fair value of goodwill, long-lived assets and indefinite-lived intangible assets We evaluate our estimates on a continuous
basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated
financial statements.
Cash and Cash Equivalents and Investments. Cash and cash equivalents consist of all cash balances, including money
market funds, certificates of deposits and commercial paper that have a maturity, at the date of purchase, of 90 days or less.
We determine the appropriate classification of our investments in marketable securities at the date of purchase and
reevaluate such designation at each balance sheet date. Our held-to-maturity investment securities are financial instruments for
which we have the intent and ability to hold to maturity and we classify these securities with maturities less than one year as
short-term investments. Any held-to-maturity investment securities with maturities beyond one year from the balance sheet date
are classified as noncurrent. Held-to-maturity securities are reported at amortized cost. Interest and amortization of premiums
and discounts for debt securities are included in interest income.
On initial recognition and on an ongoing basis, we evaluate our held-to-maturity investment securities for expected credit
losses collectively when they share similar risk characteristics or individually, when the risk characteristics are different. The
allowance for expected credit losses is determined using our historical loss experience. We monitor the credit ratings of the
securities in our portfolio to evaluate the need for any changes to the allowance. An increase or a decrease in the allowance for
expected credit losses is recorded through income as a credit loss expense or a reversal thereof. The allowance for expected
credit losses is presented as a deduction from the amortized cost. A held-to-maturity investment security is written off when
deemed uncollectible.
Financial Assets and Liabilities. Cash and certain cash equivalents, time deposits, trade receivables, accounts payable and
other accrued liabilities are short-term in nature and, accordingly, their carrying values approximate fair value.
Property and Equipment. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is
calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the lease or the estimated useful life of the asset. Deposits paid towards
acquisition of long-lived assets and the cost of assets not put in use by the balance sheet date are disclosed under the caption
"Capital work-in-progress" in Note 6.
F-8
F-9
Leases. Our lease asset classes primarily consist of operating leases for office space, data centers and IT equipment. At
inception of a contract, we determine whether a contract contains a lease, and if a lease is identified, whether it is an operating
or finance lease. In determining whether a contract contains a lease we consider whether (1) we have the right to obtain
substantially all of the economic benefits from the use of the asset throughout the term of the contract, (2) we have the right to
direct how and for what purpose the asset is used throughout the term of the contract and (3) we have the right to operate the
asset throughout the term of the contract without the lessor having the right to change the terms of the contract. Some of our
lease agreements contain both lease and non-lease components that we account for as a single lease component for all of our
lease asset classes.
Our ROU lease assets represent our right to use an underlying asset for the lease term and may include any advance lease
payments made and any initial direct costs and exclude lease incentives. Our lease liabilities represent our obligation to make
lease payments arising from the terms of the lease. ROU lease assets and lease liabilities are recognized at the commencement
of the lease and are calculated using the present value of lease payments over the lease term. Typically, our lease agreements do
not provide sufficient detail to arrive at an implicit interest rate. Therefore, we use our estimated country-specific incremental
borrowing rate based on information available at the commencement date of the lease to calculate the present value of the lease
payments. In estimating our country-specific incremental borrowing rates, we consider market rates of comparable
collateralized borrowings for similar terms. Our lease terms may include the option to extend or terminate the lease before the
end of the contractual lease term. Our ROU lease assets and lease liabilities include these options when it is reasonably certain
that they will be exercised.
A portion of our real estate lease costs is subject to annual changes in the CPI. The changes to the CPI are treated as
variable lease payments and are recognized in the period in which the obligation for those payments is incurred. Other variable
lease costs primarily relate to adjustments for common area maintenance, utilities, property tax and lease concessions due to the
COVID-19 pandemic. These variable costs are recognized in the period in which the obligation for those payments is incurred.
We elect not to recognize ROU assets and lease liabilities for short-term leases with a term equal to or less than 12
months. We recognize the lease payments in our income statement on a straight-line basis over the lease term and variable lease
payments in the period in which the obligation for those payments is incurred.
Both ROU assets and finance lease assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset group may not be recoverable.
Internal Use Software. We capitalize certain costs that are incurred to purchase, develop and implement internal-use
software during the application development phase, which primarily include coding, testing and certain data conversion
activities. Capitalized costs are amortized on a straight-line basis over the useful life of the software. Costs incurred in
performing planning and post-implementation activities are expensed as incurred.
Cloud Computing Arrangements. We capitalize certain implementation costs within prepaid assets that are incurred when
implementing cloud computing service or SaaS arrangements, which primarily include efforts associated with configuration and
development activities. Once the service is ready for use, capitalized costs are amortized over the term of the arrangement and
recognized in income from operations.
Software to be Sold, Leased or Marketed. We capitalize costs incurred after technological feasibility is reached but before
software is available for general release to clients, which primarily include coding and testing activities. Once the product is
ready for general release, capitalized costs are amortized over the useful life of the software.
Business Combinations. We account for business combinations using the acquisition method, which requires the
identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the
acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent
consideration and any noncontrolling interest in the acquiree at their acquisition date fair values. Goodwill represents the excess
of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.
Identifiable intangible assets with finite lives are amortized over their expected useful lives. Acquisition-related costs are
expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our
consolidated financial statements from the acquisition date.
During the fourth quarter of 2019, the Company adjusted the allocation of the purchase price of certain prior period
acquisitions that included revenue contracts with the sellers of the acquired businesses. As a result, we recorded a balance sheet
adjustment to decrease total assets (primarily impacting intangible assets, goodwill and deferred income taxes) and total
liabilities (primarily impacting deferred revenue) by approximately $70 million each. The impact of the adjustment to our
operating results was immaterial. Management concluded that the adjustment was not material to any previously issued
consolidated financial statements or to the consolidated financial statements as of and for the year ended December 31, 2019.
Equity Method Investments. Equity investments that give us the ability to exercise significant influence, but not control,
over an investee are accounted for using the equity method of accounting and recorded in the caption "Long-term investments"
on our consolidated statements of financial position. Equity method investments are initially recorded at cost. We periodically
review the carrying value of our equity method investments to determine if there has been an other-than-temporary decline in
the carrying value. The investment balance is increased to reflect contributions and our share of earnings and decreased to
reflect our share of losses, distributions, and other-than-temporary impairments. The Company's proportionate share of the net
income or loss of the investee is recorded in the caption "Income (loss) from equity method investments" on our consolidated
statements of operations.
Long-lived Assets and Finite-lived Intangible Assets. We review long-lived assets and certain finite-lived identifiable
intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
group may not be recoverable. The carrying amount may not be recoverable when the sum of undiscounted expected future
cash flows is less than the carrying amount of such asset groups. The impairment loss is determined as the amount by which the
carrying amount of the asset group exceeds its fair value. Intangible assets consist primarily of customer relationships and
developed technology, which are being amortized on a straight-line basis over their estimated useful lives.
Goodwill and Indefinite-lived Intangible Assets. We evaluate goodwill and indefinite-lived intangible assets for
impairment at least annually, or as circumstances warrant. Goodwill is evaluated at the reporting unit level by comparing the
fair value of the reporting unit with its carrying amount including goodwill. An impairment of goodwill exists if the carrying
amount of the reporting unit exceeds its fair value. The impairment loss is the amount by which the carrying amount exceeds
the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit. For indefinite-lived
intangible assets, if our annual qualitative assessment indicates that it is more-likely-than-not that an indefinite-lived intangible
asset is impaired, we test the assets for impairment by comparing the fair value of such assets to their carrying value. If an
impairment is indicated, a write down to the fair value of indefinite-lived intangible asset is recorded.
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 10b5-1 Plan, or in private
transactions, including through ASR agreements entered into with financial institutions, in accordance with applicable federal
securities laws. We account for the repurchased shares as constructively retired. Shares are returned to the status of authorized
and unissued shares at the time of repurchase or in the periods they are delivered if repurchased under an ASR. To reflect share
repurchases in the consolidated statements of financial position, we (1) reduce common stock for the par value of the shares, (2)
reduce additional paid-in capital for the amount in excess of par during the period in which the shares are repurchased and (3)
record any residual amount in excess of available additional paid-in capital to retained earnings. Upfront payments related to
ASRs are accounted for as a reduction to stockholders’ equity in the consolidated statements of financial position in the period
the payments are made.
Revenue Recognition. We recognize revenues as we transfer control of deliverables (products, solutions and services) to
our clients in an amount reflecting the consideration to which we expect to be entitled. To recognize revenues, we apply the
following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract,
(3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5)
recognize revenues when a performance obligation is satisfied. We account for a contract when it has approval and commitment
from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and
collectability of consideration is probable. We apply judgment in determining the customer’s ability and intention to pay based
on a variety of factors including the customer’s historical payment experience.
For performance obligations where control is transferred over time, revenues are recognized based on the extent of
progress towards completion of the performance obligation. The selection of the method to measure progress towards
completion requires judgment and is based on the nature of the deliverables to be provided.
Revenues related to fixed-price contracts for application development and systems integration services, consulting or
other technology services are recognized as the service is performed using the cost to cost method, under which the total value
of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected
labor costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based
on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered.
If our invoicing is not consistent with the value delivered, revenues are recognized as the service is performed based on the cost
to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project
progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The
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Leases. Our lease asset classes primarily consist of operating leases for office space, data centers and IT equipment. At
inception of a contract, we determine whether a contract contains a lease, and if a lease is identified, whether it is an operating
or finance lease. In determining whether a contract contains a lease we consider whether (1) we have the right to obtain
substantially all of the economic benefits from the use of the asset throughout the term of the contract, (2) we have the right to
direct how and for what purpose the asset is used throughout the term of the contract and (3) we have the right to operate the
asset throughout the term of the contract without the lessor having the right to change the terms of the contract. Some of our
lease agreements contain both lease and non-lease components that we account for as a single lease component for all of our
lease asset classes.
Our ROU lease assets represent our right to use an underlying asset for the lease term and may include any advance lease
payments made and any initial direct costs and exclude lease incentives. Our lease liabilities represent our obligation to make
lease payments arising from the terms of the lease. ROU lease assets and lease liabilities are recognized at the commencement
of the lease and are calculated using the present value of lease payments over the lease term. Typically, our lease agreements do
not provide sufficient detail to arrive at an implicit interest rate. Therefore, we use our estimated country-specific incremental
borrowing rate based on information available at the commencement date of the lease to calculate the present value of the lease
payments. In estimating our country-specific incremental borrowing rates, we consider market rates of comparable
collateralized borrowings for similar terms. Our lease terms may include the option to extend or terminate the lease before the
end of the contractual lease term. Our ROU lease assets and lease liabilities include these options when it is reasonably certain
that they will be exercised.
A portion of our real estate lease costs is subject to annual changes in the CPI. The changes to the CPI are treated as
variable lease payments and are recognized in the period in which the obligation for those payments is incurred. Other variable
lease costs primarily relate to adjustments for common area maintenance, utilities, property tax and lease concessions due to the
COVID-19 pandemic. These variable costs are recognized in the period in which the obligation for those payments is incurred.
We elect not to recognize ROU assets and lease liabilities for short-term leases with a term equal to or less than 12
months. We recognize the lease payments in our income statement on a straight-line basis over the lease term and variable lease
payments in the period in which the obligation for those payments is incurred.
Both ROU assets and finance lease assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset group may not be recoverable.
Internal Use Software. We capitalize certain costs that are incurred to purchase, develop and implement internal-use
software during the application development phase, which primarily include coding, testing and certain data conversion
activities. Capitalized costs are amortized on a straight-line basis over the useful life of the software. Costs incurred in
performing planning and post-implementation activities are expensed as incurred.
Cloud Computing Arrangements. We capitalize certain implementation costs within prepaid assets that are incurred when
implementing cloud computing service or SaaS arrangements, which primarily include efforts associated with configuration and
development activities. Once the service is ready for use, capitalized costs are amortized over the term of the arrangement and
recognized in income from operations.
Software to be Sold, Leased or Marketed. We capitalize costs incurred after technological feasibility is reached but before
software is available for general release to clients, which primarily include coding and testing activities. Once the product is
ready for general release, capitalized costs are amortized over the useful life of the software.
Business Combinations. We account for business combinations using the acquisition method, which requires the
identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the
acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent
consideration and any noncontrolling interest in the acquiree at their acquisition date fair values. Goodwill represents the excess
of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.
Identifiable intangible assets with finite lives are amortized over their expected useful lives. Acquisition-related costs are
expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our
consolidated financial statements from the acquisition date.
During the fourth quarter of 2019, the Company adjusted the allocation of the purchase price of certain prior period
acquisitions that included revenue contracts with the sellers of the acquired businesses. As a result, we recorded a balance sheet
adjustment to decrease total assets (primarily impacting intangible assets, goodwill and deferred income taxes) and total
liabilities (primarily impacting deferred revenue) by approximately $70 million each. The impact of the adjustment to our
operating results was immaterial. Management concluded that the adjustment was not material to any previously issued
consolidated financial statements or to the consolidated financial statements as of and for the year ended December 31, 2019.
Equity Method Investments. Equity investments that give us the ability to exercise significant influence, but not control,
over an investee are accounted for using the equity method of accounting and recorded in the caption "Long-term investments"
on our consolidated statements of financial position. Equity method investments are initially recorded at cost. We periodically
review the carrying value of our equity method investments to determine if there has been an other-than-temporary decline in
the carrying value. The investment balance is increased to reflect contributions and our share of earnings and decreased to
reflect our share of losses, distributions, and other-than-temporary impairments. The Company's proportionate share of the net
income or loss of the investee is recorded in the caption "Income (loss) from equity method investments" on our consolidated
statements of operations.
Long-lived Assets and Finite-lived Intangible Assets. We review long-lived assets and certain finite-lived identifiable
intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
group may not be recoverable. The carrying amount may not be recoverable when the sum of undiscounted expected future
cash flows is less than the carrying amount of such asset groups. The impairment loss is determined as the amount by which the
carrying amount of the asset group exceeds its fair value. Intangible assets consist primarily of customer relationships and
developed technology, which are being amortized on a straight-line basis over their estimated useful lives.
Goodwill and Indefinite-lived Intangible Assets. We evaluate goodwill and indefinite-lived intangible assets for
impairment at least annually, or as circumstances warrant. Goodwill is evaluated at the reporting unit level by comparing the
fair value of the reporting unit with its carrying amount including goodwill. An impairment of goodwill exists if the carrying
amount of the reporting unit exceeds its fair value. The impairment loss is the amount by which the carrying amount exceeds
the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit. For indefinite-lived
intangible assets, if our annual qualitative assessment indicates that it is more-likely-than-not that an indefinite-lived intangible
asset is impaired, we test the assets for impairment by comparing the fair value of such assets to their carrying value. If an
impairment is indicated, a write down to the fair value of indefinite-lived intangible asset is recorded.
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 10b5-1 Plan, or in private
transactions, including through ASR agreements entered into with financial institutions, in accordance with applicable federal
securities laws. We account for the repurchased shares as constructively retired. Shares are returned to the status of authorized
and unissued shares at the time of repurchase or in the periods they are delivered if repurchased under an ASR. To reflect share
repurchases in the consolidated statements of financial position, we (1) reduce common stock for the par value of the shares, (2)
reduce additional paid-in capital for the amount in excess of par during the period in which the shares are repurchased and (3)
record any residual amount in excess of available additional paid-in capital to retained earnings. Upfront payments related to
ASRs are accounted for as a reduction to stockholders’ equity in the consolidated statements of financial position in the period
the payments are made.
Revenue Recognition. We recognize revenues as we transfer control of deliverables (products, solutions and services) to
our clients in an amount reflecting the consideration to which we expect to be entitled. To recognize revenues, we apply the
following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract,
(3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5)
recognize revenues when a performance obligation is satisfied. We account for a contract when it has approval and commitment
from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and
collectability of consideration is probable. We apply judgment in determining the customer’s ability and intention to pay based
on a variety of factors including the customer’s historical payment experience.
For performance obligations where control is transferred over time, revenues are recognized based on the extent of
progress towards completion of the performance obligation. The selection of the method to measure progress towards
completion requires judgment and is based on the nature of the deliverables to be provided.
Revenues related to fixed-price contracts for application development and systems integration services, consulting or
other technology services are recognized as the service is performed using the cost to cost method, under which the total value
of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected
labor costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based
on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered.
If our invoicing is not consistent with the value delivered, revenues are recognized as the service is performed based on the cost
to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project
progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The
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cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate
becomes known and any anticipated losses on contracts are recognized immediately, where appropriate.
Revenues related to fixed-price hosting and infrastructure services are recognized based on our right to invoice for
services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not
consistent with the value delivered, revenues are recognized on a straight-line basis unless revenues are earned and obligations
are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides
the most faithful depiction of performance towards satisfaction of our performance obligations; for example, the cost to cost
method is used when the value of services provided to the customer is best represented by the costs expended to deliver those
services.
Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period
the services are provided either using an output method such as labor hours, or a method that is otherwise consistent with the
way in which value is delivered to the customer.
Revenues related to our non-hosted software license arrangements that do not require significant modification or
customization of the underlying software are recognized when the software is delivered as control is transferred at a point in
time. For software license arrangements that require significant functionality enhancements or modification of the software,
revenues for the software license and related services are recognized as the services are performed in accordance with the
methods applicable to application development and systems integration services described above. In software hosting
arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the
feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a
service. Sales and usage-based fees promised in exchange for licenses of intellectual property are not recognized as revenue
until the uncertainty related to the variable amounts is resolved. Revenues related to software maintenance and support are
generally recognized on a straight-line basis over the contract period.
Incentive revenues, volume discounts, or any other form of variable consideration is estimated using either the sum of
probability weighted amounts in a range of possible consideration amounts (expected value) or the single most likely amount in
a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of
consideration to which we may be entitled. We include in the transaction price variable consideration only to the extent it is
probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable
consideration is resolved. Our estimates of variable consideration and determination of whether and when to include estimated
amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance
and all information that is reasonably available to us.
Revenues also include the reimbursement of out-of-pocket expenses. Our warranties generally provide a customer with
assurance that the related deliverable will function as the parties intended because it complies with agreed-upon specifications
and is therefore not considered an additional performance obligation in the contract.
We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any
combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to
determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these
criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with
multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative
standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to
the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a
margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic
basis or when facts and circumstances change.
We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to
determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a
significant financing component when the difference between payment and transfer of deliverables is a year or less. If the
difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component
is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of
purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees
paid upfront by our customers to represent a financing component, as such fees are required to encourage customer
commitment to the project and protect us from early termination of the contract.
Our contracts may be modified to add, remove or change existing performance obligations. The accounting for
modifications to our contracts involves assessing whether the services added to an existing contract are distinct and whether the
pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis,
while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at
the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the
standalone selling price. Services added to our application development and systems integration service contracts are typically
not distinct, while services added to our other contracts, including application maintenance, testing and business process
services contracts, are typically distinct.
From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases,
we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). In
doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good
or service before it is transferred to the customer, we are the principal; if not, we are the agent. Determining whether we control
the good or service before it is transferred to the customer may require judgment.
Trade Accounts Receivable, Contract Assets and Contract Liabilities. We classify our right to consideration in exchange
for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e., only
the passage of time is required before payment is due). For example, we recognize a receivable for revenues related to our time
and materials and transaction or volume-based contracts when earned regardless of whether amounts have been billed. We
present such receivables in "Trade accounts receivable, net" in our consolidated statements of financial position at their net
estimated realizable value. A contract asset is a right to consideration that is conditional upon factors other than the passage of
time. Contract assets are presented in "Other current assets" in our consolidated statements of financial position and primarily
relate to unbilled amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. Our contract
liabilities, or deferred revenue, consist of advance payments from clients and billings in excess of revenues recognized. We
classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize the revenues.
Our contract assets and contract liabilities are reported on a net basis by contract at the end of each reporting period. The
difference between the opening and closing balances of our contract assets and contract liabilities primarily results from the
timing difference between our performance obligations and the client’s payment. We receive payments from clients based on
the terms established in our contracts, which vary by contract type.
Allowance for Expected Credit Losses. We calculate expected credit losses for our trade accounts receivable and contract
assets. Expected credit losses include losses expected based on known credit issues with specific customers as well as a general
expected credit loss allowance based on relevant information about past events, including historical loss rates, current
conditions, and reasonable economic forecasts that affect collectibility. We update our allowance for expected credit losses on a
quarterly basis with changes in the allowance recognized in income from operations.
Costs to Fulfill. Recurring operating costs for contracts with customers are recognized as incurred. Certain eligible,
nonrecurring costs (i.e., set-up or transition costs) are capitalized when such costs (1) relate directly to the contract, (2) generate
or enhance resources of the Company that will be used in satisfying the performance obligation in the future, and (3) are
expected to be recovered. These costs are expensed ratably over the estimated life of the customer relationship, including
expected contract renewals. In determining the estimated life of the customer relationship, we evaluate the average contract
term, on a portfolio basis by nature of the services to be provided, and apply judgment in evaluating the rate of technological
and industry change. Capitalized amounts are monitored regularly for impairment. Impairment losses are recorded when
projected remaining undiscounted operating cash flows are not sufficient to recover the carrying amount of the capitalized costs
to fulfill.
Stock-Based Compensation. Stock-based compensation expense for awards of equity instruments to employees and non-
employee directors is determined based on the grant date fair value of those awards. We recognize these compensation costs net
of an estimated forfeiture rate over the requisite service period of the award. Forfeitures are estimated on the date of grant and
revised if actual or expected forfeiture activity differs materially from original estimates. Stock-based compensation costs for
PSUs that vest proportionally are recognized on a graded-vesting basis over the vesting period based on the most probable
outcome of the performance conditions. If the minimum performance targets are not met, no compensation cost is recognized
and any recognized compensation cost is reversed except for awards subject to a market condition. The fair value of RSUs and
PSUs is determined based on the number of stock units granted and the quoted price of our stock at the date of grant. The fair
value of PSUs granted subject to a market condition is determined using a Monte Carlo valuation model.
Foreign Currency. The assets and liabilities of our foreign subsidiaries whose functional currency is not the U.S. dollar
are translated into U.S. dollars at current exchange rates while revenues and expenses are translated at average monthly
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cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate
becomes known and any anticipated losses on contracts are recognized immediately, where appropriate.
Revenues related to fixed-price hosting and infrastructure services are recognized based on our right to invoice for
services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not
consistent with the value delivered, revenues are recognized on a straight-line basis unless revenues are earned and obligations
are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides
the most faithful depiction of performance towards satisfaction of our performance obligations; for example, the cost to cost
method is used when the value of services provided to the customer is best represented by the costs expended to deliver those
services.
Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period
the services are provided either using an output method such as labor hours, or a method that is otherwise consistent with the
way in which value is delivered to the customer.
Revenues related to our non-hosted software license arrangements that do not require significant modification or
customization of the underlying software are recognized when the software is delivered as control is transferred at a point in
time. For software license arrangements that require significant functionality enhancements or modification of the software,
revenues for the software license and related services are recognized as the services are performed in accordance with the
methods applicable to application development and systems integration services described above. In software hosting
arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the
feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a
service. Sales and usage-based fees promised in exchange for licenses of intellectual property are not recognized as revenue
until the uncertainty related to the variable amounts is resolved. Revenues related to software maintenance and support are
generally recognized on a straight-line basis over the contract period.
Incentive revenues, volume discounts, or any other form of variable consideration is estimated using either the sum of
probability weighted amounts in a range of possible consideration amounts (expected value) or the single most likely amount in
a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of
consideration to which we may be entitled. We include in the transaction price variable consideration only to the extent it is
probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable
consideration is resolved. Our estimates of variable consideration and determination of whether and when to include estimated
amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance
and all information that is reasonably available to us.
Revenues also include the reimbursement of out-of-pocket expenses. Our warranties generally provide a customer with
assurance that the related deliverable will function as the parties intended because it complies with agreed-upon specifications
and is therefore not considered an additional performance obligation in the contract.
We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any
combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to
determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these
criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with
multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative
standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to
the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a
margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic
basis or when facts and circumstances change.
We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to
determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a
significant financing component when the difference between payment and transfer of deliverables is a year or less. If the
difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component
is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of
purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees
paid upfront by our customers to represent a financing component, as such fees are required to encourage customer
commitment to the project and protect us from early termination of the contract.
Our contracts may be modified to add, remove or change existing performance obligations. The accounting for
modifications to our contracts involves assessing whether the services added to an existing contract are distinct and whether the
pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis,
while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at
the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the
standalone selling price. Services added to our application development and systems integration service contracts are typically
not distinct, while services added to our other contracts, including application maintenance, testing and business process
services contracts, are typically distinct.
From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases,
we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). In
doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good
or service before it is transferred to the customer, we are the principal; if not, we are the agent. Determining whether we control
the good or service before it is transferred to the customer may require judgment.
Trade Accounts Receivable, Contract Assets and Contract Liabilities. We classify our right to consideration in exchange
for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e., only
the passage of time is required before payment is due). For example, we recognize a receivable for revenues related to our time
and materials and transaction or volume-based contracts when earned regardless of whether amounts have been billed. We
present such receivables in "Trade accounts receivable, net" in our consolidated statements of financial position at their net
estimated realizable value. A contract asset is a right to consideration that is conditional upon factors other than the passage of
time. Contract assets are presented in "Other current assets" in our consolidated statements of financial position and primarily
relate to unbilled amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. Our contract
liabilities, or deferred revenue, consist of advance payments from clients and billings in excess of revenues recognized. We
classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize the revenues.
Our contract assets and contract liabilities are reported on a net basis by contract at the end of each reporting period. The
difference between the opening and closing balances of our contract assets and contract liabilities primarily results from the
timing difference between our performance obligations and the client’s payment. We receive payments from clients based on
the terms established in our contracts, which vary by contract type.
Allowance for Expected Credit Losses. We calculate expected credit losses for our trade accounts receivable and contract
assets. Expected credit losses include losses expected based on known credit issues with specific customers as well as a general
expected credit loss allowance based on relevant information about past events, including historical loss rates, current
conditions, and reasonable economic forecasts that affect collectibility. We update our allowance for expected credit losses on a
quarterly basis with changes in the allowance recognized in income from operations.
Costs to Fulfill. Recurring operating costs for contracts with customers are recognized as incurred. Certain eligible,
nonrecurring costs (i.e., set-up or transition costs) are capitalized when such costs (1) relate directly to the contract, (2) generate
or enhance resources of the Company that will be used in satisfying the performance obligation in the future, and (3) are
expected to be recovered. These costs are expensed ratably over the estimated life of the customer relationship, including
expected contract renewals. In determining the estimated life of the customer relationship, we evaluate the average contract
term, on a portfolio basis by nature of the services to be provided, and apply judgment in evaluating the rate of technological
and industry change. Capitalized amounts are monitored regularly for impairment. Impairment losses are recorded when
projected remaining undiscounted operating cash flows are not sufficient to recover the carrying amount of the capitalized costs
to fulfill.
Stock-Based Compensation. Stock-based compensation expense for awards of equity instruments to employees and non-
employee directors is determined based on the grant date fair value of those awards. We recognize these compensation costs net
of an estimated forfeiture rate over the requisite service period of the award. Forfeitures are estimated on the date of grant and
revised if actual or expected forfeiture activity differs materially from original estimates. Stock-based compensation costs for
PSUs that vest proportionally are recognized on a graded-vesting basis over the vesting period based on the most probable
outcome of the performance conditions. If the minimum performance targets are not met, no compensation cost is recognized
and any recognized compensation cost is reversed except for awards subject to a market condition. The fair value of RSUs and
PSUs is determined based on the number of stock units granted and the quoted price of our stock at the date of grant. The fair
value of PSUs granted subject to a market condition is determined using a Monte Carlo valuation model.
Foreign Currency. The assets and liabilities of our foreign subsidiaries whose functional currency is not the U.S. dollar
are translated into U.S. dollars at current exchange rates while revenues and expenses are translated at average monthly
F-12
F-13
exchange rates. The resulting translation adjustments are recorded in the caption "Accumulated other comprehensive income
(loss)" on the consolidated statements of financial position.
Foreign currency transactions and balances are those that are denominated in a currency other than the entity’s functional
currency. An entity's functional currency is the currency of the primary economic environment in which it operates. The U.S.
dollar is the functional currency for some of our foreign subsidiaries. For these subsidiaries, transactions and balances
denominated in the local currency are foreign currency transactions. Foreign currency transactions and balances related to non-
monetary assets and liabilities are remeasured to the functional currency of the entity at historical exchange rates while
monetary assets and liabilities are remeasured to the functional currency of the entity at current exchange rates. Foreign
currency exchange gains or losses from remeasurement are included in the caption "Foreign currency exchange gain (losses),
net" on our consolidated statements of operations together with gains or losses on our undesignated foreign currency hedges.
Derivative Financial Instruments. Derivative financial instruments are recorded on our consolidated statements of
financial position as either an asset or liability measured at its fair value as of the reporting date. Our derivative financial
instruments consist primarily of foreign exchange forward and option contracts. For derivative financial instruments to qualify
for hedge accounting, the following criteria must be met: (1) the hedging instrument must be designated as a hedge; (2) the
hedged exposure must be specifically identifiable and must expose us to risk; and (3) it must be expected that a change in fair
value of the hedging instrument and an opposite change in the fair value of the hedged exposure will have a high degree of
correlation. Changes in our derivatives’ fair values are recognized in net income unless specific hedge accounting and
documentation criteria are met (i.e., the instruments are designated and accounted for as hedges). We record the effective
portion of the unrealized gains and losses on our derivative financial instruments that are designated as cash flow hedges in the
caption "Accumulated other comprehensive income (loss)" in the consolidated statements of financial position. Any
ineffectiveness or excluded portion of a designated cash flow hedge is recognized in net income. Upon occurrence of the
hedged transaction, the gains and losses on the derivative are recognized in net income.
Income Taxes. We provide for income taxes utilizing the asset and liability method of accounting. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely
than not that future tax benefits associated with a deferred income tax asset will not be realized, a valuation allowance is
provided. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in the provision for
income taxes in the period that includes the enactment date.
Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as
well as any related penalties and interest. We adjust these reserves in light of changing facts and circumstances, such as the
closing of a tax audit. To the extent that the final outcome of these matters differs from the amounts recorded, such differences
will impact the provision for income taxes in the period in which such determination is made.
Earnings Per Share. Basic EPS is computed by dividing earnings available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS includes all potential dilutive common stock in the
weighted average shares outstanding. We exclude from the calculation of diluted EPS options with exercise prices that are
greater than the average market price and shares related to stock-based awards whose combined exercise price and unamortized
fair value were greater in each of those periods than the average market price of our common stock for the period, because their
effect would be anti-dilutive. We excluded less than 1 million of anti-dilutive shares in each of 2020, 2019 and 2018 from our
diluted EPS calculation. We include PSUs in the dilutive potential common shares when they become contingently issuable per
the authoritative guidance and exclude them when they are not contingently issuable.
Recently Adopted Accounting Pronouncements
Date Issued
and Topic
Date Adopted
and Method
May 2014
January 1, 2018
The new standard, as amended, sets forth a single
As a result of the adoption, we
Revenue
Modified
Retrospective
comprehensive model for recognizing and reporting
recorded
an
adjustment
to
revenues. The standard also
requires additional
opening
retained earnings of
financial statement disclosures that enable users to
approximately $121 million.
Description
Impact
February 2016
January 1, 2019
The new standard replaces the existing guidance on
As a result of the adoption, we
Leases
Effective Date
Method
leases and requires the lessee to recognize a ROU asset
recorded an
increase
to
and a lease liability for all leases with lease terms
assets of $758 million,
total
total
greater than twelve months. For finance leases, the
liabilities of $756 million, and
lessee recognizes interest expense and amortization of
opening retained earnings of $2
the ROU asset, and for operating leases, the lessee
million.
understand the nature, amount, timing and uncertainty
of revenues and cash flows relating to customer
contracts. The standard allows for two methods of
adoption:
the
full
retrospective adoption, which
requires the standard to be applied to each prior period
presented, or the modified retrospective adoption,
which requires the cumulative effect of adoption to be
recognized as an adjustment to opening retained
earnings in the period of adoption.
recognizes total lease expense on a straight-line basis.
The standard offers several practical expedients for
transition and certain expedients specific to lessees or
lessors. The standard allows for two methods of
adoption: retrospective to each prior reporting period
presented with the cumulative effect of adoption
recognized at the beginning of the earliest period
presented or the effective date method, which is
retrospective to the beginning of the period of adoption
through a cumulative-effect adjustment.
June 2016
January 1, 2020
The new standard requires the measurement and
As a result of the adoption, we
Financial
Instruments-
Credit Losses
Modified
Retrospective
recognition of expected credit losses using the current
expected credit loss model for financial assets held at
amortized cost, which includes the Company’s trade
accounts receivable, certain financial instruments and
recorded an
increase
to our
opening retained earnings and
"Trade accounts receivable, net"
of $1 million each.
contract assets. It replaces the existing incurred loss
Prior year amounts are not
impairment model with an expected loss methodology.
The recorded credit losses are adjusted each period for
changes in expected lifetime credit losses. The standard
requires a cumulative effect adjustment to the statement
of financial position as of the beginning of the first
reporting period in which the guidance is effective.
adjusted and continue
to be
reported in accordance with our
historical accounting policies.
F-14
F-15
exchange rates. The resulting translation adjustments are recorded in the caption "Accumulated other comprehensive income
Recently Adopted Accounting Pronouncements
Date Issued
and Topic
May 2014
Date Adopted
and Method
January 1, 2018
Revenue
Modified
Retrospective
February 2016
January 1, 2019
Leases
Effective Date
Method
Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as
June 2016
January 1, 2020
Financial
Instruments-
Credit Losses
Modified
Retrospective
(loss)" on the consolidated statements of financial position.
Foreign currency transactions and balances are those that are denominated in a currency other than the entity’s functional
currency. An entity's functional currency is the currency of the primary economic environment in which it operates. The U.S.
dollar is the functional currency for some of our foreign subsidiaries. For these subsidiaries, transactions and balances
denominated in the local currency are foreign currency transactions. Foreign currency transactions and balances related to non-
monetary assets and liabilities are remeasured to the functional currency of the entity at historical exchange rates while
monetary assets and liabilities are remeasured to the functional currency of the entity at current exchange rates. Foreign
currency exchange gains or losses from remeasurement are included in the caption "Foreign currency exchange gain (losses),
net" on our consolidated statements of operations together with gains or losses on our undesignated foreign currency hedges.
Derivative Financial Instruments. Derivative financial instruments are recorded on our consolidated statements of
financial position as either an asset or liability measured at its fair value as of the reporting date. Our derivative financial
instruments consist primarily of foreign exchange forward and option contracts. For derivative financial instruments to qualify
for hedge accounting, the following criteria must be met: (1) the hedging instrument must be designated as a hedge; (2) the
hedged exposure must be specifically identifiable and must expose us to risk; and (3) it must be expected that a change in fair
value of the hedging instrument and an opposite change in the fair value of the hedged exposure will have a high degree of
correlation. Changes in our derivatives’ fair values are recognized in net income unless specific hedge accounting and
documentation criteria are met (i.e., the instruments are designated and accounted for as hedges). We record the effective
portion of the unrealized gains and losses on our derivative financial instruments that are designated as cash flow hedges in the
caption "Accumulated other comprehensive income (loss)" in the consolidated statements of financial position. Any
ineffectiveness or excluded portion of a designated cash flow hedge is recognized in net income. Upon occurrence of the
hedged transaction, the gains and losses on the derivative are recognized in net income.
Income Taxes. We provide for income taxes utilizing the asset and liability method of accounting. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely
than not that future tax benefits associated with a deferred income tax asset will not be realized, a valuation allowance is
provided. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in the provision for
income taxes in the period that includes the enactment date.
well as any related penalties and interest. We adjust these reserves in light of changing facts and circumstances, such as the
closing of a tax audit. To the extent that the final outcome of these matters differs from the amounts recorded, such differences
will impact the provision for income taxes in the period in which such determination is made.
Earnings Per Share. Basic EPS is computed by dividing earnings available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS includes all potential dilutive common stock in the
weighted average shares outstanding. We exclude from the calculation of diluted EPS options with exercise prices that are
greater than the average market price and shares related to stock-based awards whose combined exercise price and unamortized
fair value were greater in each of those periods than the average market price of our common stock for the period, because their
effect would be anti-dilutive. We excluded less than 1 million of anti-dilutive shares in each of 2020, 2019 and 2018 from our
diluted EPS calculation. We include PSUs in the dilutive potential common shares when they become contingently issuable per
the authoritative guidance and exclude them when they are not contingently issuable.
Description
The new standard, as amended, sets forth a single
comprehensive model for recognizing and reporting
revenues. The standard also
requires additional
financial statement disclosures that enable users to
understand the nature, amount, timing and uncertainty
of revenues and cash flows relating to customer
contracts. The standard allows for two methods of
adoption:
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.
full
the
The new standard replaces the existing guidance on
leases and requires the lessee to recognize a ROU asset
and a lease liability for all leases with lease terms
greater than twelve months. For finance leases, the
lessee recognizes interest expense and amortization of
the ROU asset, and for operating leases, the lessee
recognizes total lease expense on a straight-line basis.
The standard offers several practical expedients for
transition and certain expedients specific to lessees or
lessors. The standard allows for two methods of
adoption: retrospective to each prior reporting period
presented with the cumulative effect of adoption
recognized at the beginning of the earliest period
presented or the effective date method, which is
retrospective to the beginning of the period of adoption
through a cumulative-effect adjustment.
The new standard requires the measurement and
recognition of expected credit losses using the current
expected credit loss model for financial assets held at
amortized cost, which includes the Company’s trade
accounts receivable, certain financial instruments and
contract assets. It replaces the existing incurred loss
impairment model with an expected loss methodology.
The recorded credit losses are adjusted each period for
changes in expected lifetime credit losses. The standard
requires a cumulative effect adjustment to the statement
of financial position as of the beginning of the first
reporting period in which the guidance is effective.
Impact
As a result of the adoption, we
adjustment
recorded
to
opening
retained earnings of
approximately $121 million.
an
increase
As a result of the adoption, we
total
recorded an
to
assets of $758 million,
total
liabilities of $756 million, and
opening retained earnings of $2
million.
As a result of the adoption, we
to our
recorded an
opening retained earnings and
"Trade accounts receivable, net"
of $1 million each.
increase
Prior year amounts are not
adjusted and continue
to be
reported in accordance with our
historical accounting policies.
F-14
F-15
Note 2 — Revenues
Disaggregation of Revenues
The tables below present disaggregated revenues from contracts with clients by client location, service line and contract-
type for each of our business segments. We believe this disaggregation best depicts how the nature, amount, timing and
uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. Our consulting and
technology services include consulting, application development, systems integration, and application testing services as well as
software solutions and related services while our outsourcing services include application maintenance, infrastructure and
business process services. Revenues are attributed to geographic regions based upon client location. Substantially all of the
revenue in our North America region relates to operations in the United States.
Financial
Services
Healthcare
Year Ended
December 31, 2020
Products and
Resources
(in millions)
Communications,
Media and
Technology
Total
Revenues
Geography:
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Service line:
Consulting and technology services
Outsourcing services
Total
Type of contract:
Time and materials
Fixed-price
Transaction or volume-based
Total
$
$
$
$
$
$
4,013 $
463
629
1,092
516
5,621 $
4,181 $
157
434
591
80
4,852 $
2,650 $
371
413
784
262
3,696 $
1,737 $
344
177
521
225
2,483 $
12,581
1,335
1,653
2,988
1,083
16,652
3,691 $
1,930
5,621 $
2,786 $
2,066
4,852 $
2,249 $
1,447
3,696 $
1,456 $
1,027
2,483 $
10,182
6,470
16,652
3,548 $
1,736
337
5,621 $
1,950 $
1,777
1,125
4,852 $
1,548 $
1,741
407
3,696 $
1,515 $
871
97
2,483 $
8,561
6,125
1,966
16,652
Consulting and technology services
3,782 $
2,564 $
2,295 $
1,305 $
2,087
2,131
1,475
1,144
5,869 $
4,695 $
3,770 $
2,449 $
16,783
Financial
Services
Healthcare
Communications,
Media and
Technology
Total
Year Ended
December 31, 2019
Products and
Resources
(in millions)
$
4,137 $
4,147 $
2,678 $
1,764 $
12,726
484
728
1,212
520
130
341
471
77
380
453
833
259
319
169
488
197
5,869 $
4,695 $
3,770 $
2,449 $
16,783
3,651 $
1,845 $
1,632 $
1,528 $
1,922
296
1,635
1,215
1,730
408
803
118
5,869 $
4,695 $
3,770 $
2,449 $
16,783
Financial
Services
Healthcare
Communications,
Media and
Technology
Total
Year Ended
December 31, 2018
Products and
Resources
(in millions)
$
4,162 $
4,254 $
2,397 $
1,480 $
12,293
481
666
1,147
536
91
270
361
53
358
440
798
220
344
187
531
186
5,845 $
4,668 $
3,415 $
2,197 $
16,125
1,313
1,691
3,004
1,053
9,946
6,837
8,656
6,090
2,037
1,274
1,563
2,837
995
9,309
6,816
8,470
5,966
1,689
Revenues
Geography:
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Service line:
Outsourcing services
Total
Type of contract:
Time and materials
Fixed-price
Transaction or volume-based
Total
Revenues
Geography:
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Service line:
Outsourcing services
Total
Type of contract:
Time and materials
Fixed-price
Transaction or volume-based
Total
$
$
$
$
$
$
$
$
$
$
Consulting and technology services
3,571 $
2,553 $
2,024 $
1,161 $
2,274
2,115
1,391
1,036
5,845 $
4,668 $
3,415 $
2,197 $
16,125
3,762 $
1,836 $
1,506 $
1,366 $
1,859
224
1,852
980
1,521
388
734
97
5,845 $
4,668 $
3,415 $
2,197 $
16,125
F-16
F-17
Note 2 — Revenues
Disaggregation of Revenues
The tables below present disaggregated revenues from contracts with clients by client location, service line and contract-
type for each of our business segments. We believe this disaggregation best depicts how the nature, amount, timing and
uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. Our consulting and
technology services include consulting, application development, systems integration, and application testing services as well as
software solutions and related services while our outsourcing services include application maintenance, infrastructure and
business process services. Revenues are attributed to geographic regions based upon client location. Substantially all of the
revenue in our North America region relates to operations in the United States.
Financial
Services
Healthcare
Communications,
Media and
Technology
Total
Year Ended
December 31, 2020
Products and
Resources
(in millions)
$
4,013 $
4,181 $
2,650 $
1,737 $
12,581
463
629
1,092
516
157
434
591
80
371
413
784
262
344
177
521
225
5,621 $
4,852 $
3,696 $
2,483 $
16,652
Revenues
Geography:
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Service line:
Outsourcing services
Total
Type of contract:
Time and materials
Fixed-price
Transaction or volume-based
Total
$
$
$
$
$
Consulting and technology services
3,691 $
2,786 $
2,249 $
1,456 $
1,930
2,066
1,447
1,027
5,621 $
4,852 $
3,696 $
2,483 $
3,548 $
1,950 $
1,548 $
1,515 $
1,736
337
1,777
1,125
1,741
407
871
97
5,621 $
4,852 $
3,696 $
2,483 $
16,652
1,335
1,653
2,988
1,083
10,182
6,470
16,652
8,561
6,125
1,966
Financial
Services
Healthcare
Year Ended
December 31, 2019
Products and
Resources
(in millions)
Communications,
Media and
Technology
Total
4,137 $
484
728
1,212
520
5,869 $
4,147 $
130
341
471
77
4,695 $
2,678 $
380
453
833
259
3,770 $
1,764 $
319
169
488
197
2,449 $
12,726
1,313
1,691
3,004
1,053
16,783
3,782 $
2,087
5,869 $
2,564 $
2,131
4,695 $
2,295 $
1,475
3,770 $
1,305 $
1,144
2,449 $
9,946
6,837
16,783
3,651 $
1,922
296
5,869 $
1,845 $
1,635
1,215
4,695 $
1,632 $
1,730
408
3,770 $
1,528 $
803
118
2,449 $
8,656
6,090
2,037
16,783
Financial
Services
Healthcare
Year Ended
December 31, 2018
Products and
Resources
(in millions)
Communications,
Media and
Technology
Total
4,162 $
481
666
1,147
536
5,845 $
4,254 $
91
270
361
53
4,668 $
2,397 $
358
440
798
220
3,415 $
1,480 $
344
187
531
186
2,197 $
12,293
1,274
1,563
2,837
995
16,125
3,571 $
2,274
5,845 $
2,553 $
2,115
4,668 $
2,024 $
1,391
3,415 $
1,161 $
1,036
2,197 $
9,309
6,816
16,125
3,762 $
1,859
224
5,845 $
1,836 $
1,852
980
4,668 $
1,506 $
1,521
388
3,415 $
1,366 $
734
97
2,197 $
8,470
5,966
1,689
16,125
Revenues
Geography:
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Service line:
Consulting and technology services
Outsourcing services
Total
Type of contract:
Time and materials
Fixed-price
Transaction or volume-based
Total
Revenues
Geography:
North America
United Kingdom
Continental Europe
Europe - Total
Rest of World
Total
Service line:
Consulting and technology services
Outsourcing services
Total
Type of contract:
Time and materials
Fixed-price
Transaction or volume-based
Total
$
$
$
$
$
$
$
$
$
$
$
$
F-16
F-17
In the fourth quarter of 2020, we made an offer to settle and exit a large customer engagement in Financial Services in
Continental Europe. The offer includes, among other terms, a proposed payment and the forgiveness of certain receivables. The
2020 impact of the Proposed Exit was a reduction of revenues of $118 million and additional expenses of $33 million, primarily
related to the impairment of long-lived assets. While the amounts recorded are based on our best estimate of the expected terms
of the exit, the negotiations are ongoing and, as such, we may not reach an agreement or the final terms of the agreement that is
reached may materially differ from those contemplated in our accounting. In either instance, there could be additional impacts
to our statement of operations, financial condition and our cash flows.
Costs to Fulfill
The following table presents information related to the capitalized costs to fulfill, such as setup or transition activities.
Costs to fulfill are recorded in "Other noncurrent assets" in our consolidated statements of financial position and the
amortization expense of costs to fulfill is included in "Cost of revenues" in our consolidated statement of operations. Costs to
obtain contracts were immaterial for the period disclosed.
2020
2019
Many of our performance obligations meet one or more of these exemptions and therefore are not included in the
Beginning balance
Costs capitalized
Amortization expense
Impairment charge
Ending balance
Contract Balances
$
$
(in millions)
485 $
98
(102)
(14)
467 $
400
189
(79)
(25)
485
A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets
are presented in "Other current assets" in our consolidated statements of financial position and primarily relate to unbilled
amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. The table below shows significant
movements in contract assets:
Beginning balance
Impact of adoption of the Credit Loss Standard
Provision for expected credit losses
Write-offs charged against the allowance
2020
2019
Ending balance
Beginning balance
Revenues recognized during the period but not billed
Amounts reclassified to trade accounts receivable
Ending balance
$
$
(in millions)
334 $
289
(308)
315 $
305
313
(284)
334
Our contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized.
The table below shows significant movements in the deferred revenue balances (current and noncurrent):
Beginning balance
Amounts billed but not recognized as revenues
Revenues recognized related to the opening balance of deferred revenue
Other (1)
Ending balance
$
$
(1)
See the Business Combinations section in Note 1.
2020
2019
(in millions)
336 $
368
(285)
—
419 $
348
319
(261)
(70)
336
amortizable intangible asset.
2020
In 2020, we acquired 100% ownership of:
Revenues recognized during the year ended December 31, 2020 for performance obligations satisfied or partially satisfied
• EI-Technologies, a digital technology consulting firm and leading Salesforce specialist acquired to expand our
in previous periods were immaterial.
global Salesforce practice (acquired on May 29, 2020);
F-18
F-19
Remaining Performance Obligations
As of December 31, 2020, the aggregate amount of transaction price allocated to remaining performance obligations, was
$1,446 million, of which approximately 75% is expected to be recognized as revenues within 2 years. Disclosure is not required
for performance obligations that meet any of the following criteria:
(1) contracts with a duration of one year or less as determined under the New Revenue Standard,
(2) contracts for which we recognize revenues based on the right to invoice for services performed,
(3) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied
promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with
ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or
(4) variable consideration in the form of a sales-based or usage based royalty promised in exchange for a license of
intellectual property.
remaining performance obligation amount disclosed above.
Trade Accounts Receivable and Allowance for Doubtful Accounts
We calculate expected credit losses for our trade accounts receivable based on historical credit loss rates for each aging
category as adjusted for the current market conditions and forecasts about future economic conditions. The following table
presents the activity in the allowance for our trade accounts receivable:
2020
2019
(in millions)
67 $
(1)
8
(17)
57 $
(11)
78
—
—
67
$
$
Note 3 — Business Combinations
Acquisitions completed during each of the three years ended December 31, 2020, 2019 and 2018 were not individually or
in the aggregate material to our operations. Accordingly, pro forma results have not been presented. We have allocated the
purchase price related to these transactions to tangible and intangible assets and liabilities, including deductible and non-
deductible goodwill, based on their estimated fair values. The primary items that generated goodwill are the value of the
acquired assembled workforces and synergies between the acquired companies and us, neither of which qualify as an
• Code Zero, a provider of consulting and implementation services acquired to strengthen our cloud solutions
portfolio and Salesforce Configure-Price-Quote and billing capabilities (acquired on January 31, 2020);
• Lev, a Salesforce Platinum Partner specializing in digital marketing consultancy and implementation of custom
cloud solutions acquired to further expand our global Salesforce practice (acquired on March 27, 2020);
• Collaborative Solutions, a provider of Workday enterprise cloud applications for finance and human resources
acquired to strengthen our portfolio of cloud offerings (acquired on June 10, 2020);
• New Signature, an independent Microsoft public cloud transformation company acquired to expand our hyperscale
cloud advisory services and provide the foundation for our new, dedicated practice centered on Microsoft cloud
solutions (acquired on August 18, 2020);
Costs to Fulfill
Beginning balance
Costs capitalized
Amortization expense
Impairment charge
Ending balance
Contract Balances
$
$
$
$
$
$
(in millions)
485 $
98
(102)
(14)
467 $
(in millions)
334 $
289
(308)
315 $
(in millions)
336 $
368
(285)
—
419 $
400
189
(79)
(25)
485
305
313
(284)
334
348
319
(261)
(70)
336
Beginning balance
Ending balance
Revenues recognized during the period but not billed
Amounts reclassified to trade accounts receivable
Our contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized.
The table below shows significant movements in the deferred revenue balances (current and noncurrent):
2020
2019
Beginning balance
Amounts billed but not recognized as revenues
Revenues recognized related to the opening balance of deferred revenue
Other (1)
Ending balance
(1)
See the Business Combinations section in Note 1.
In the fourth quarter of 2020, we made an offer to settle and exit a large customer engagement in Financial Services in
Continental Europe. The offer includes, among other terms, a proposed payment and the forgiveness of certain receivables. The
2020 impact of the Proposed Exit was a reduction of revenues of $118 million and additional expenses of $33 million, primarily
related to the impairment of long-lived assets. While the amounts recorded are based on our best estimate of the expected terms
of the exit, the negotiations are ongoing and, as such, we may not reach an agreement or the final terms of the agreement that is
reached may materially differ from those contemplated in our accounting. In either instance, there could be additional impacts
to our statement of operations, financial condition and our cash flows.
The following table presents information related to the capitalized costs to fulfill, such as setup or transition activities.
Costs to fulfill are recorded in "Other noncurrent assets" in our consolidated statements of financial position and the
amortization expense of costs to fulfill is included in "Cost of revenues" in our consolidated statement of operations. Costs to
obtain contracts were immaterial for the period disclosed.
Remaining Performance Obligations
As of December 31, 2020, the aggregate amount of transaction price allocated to remaining performance obligations, was
$1,446 million, of which approximately 75% is expected to be recognized as revenues within 2 years. Disclosure is not required
for performance obligations that meet any of the following criteria:
(1) contracts with a duration of one year or less as determined under the New Revenue Standard,
(2) contracts for which we recognize revenues based on the right to invoice for services performed,
(3) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied
promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with
ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or
(4) variable consideration in the form of a sales-based or usage based royalty promised in exchange for a license of
intellectual property.
2020
2019
Many of our performance obligations meet one or more of these exemptions and therefore are not included in the
remaining performance obligation amount disclosed above.
Trade Accounts Receivable and Allowance for Doubtful Accounts
We calculate expected credit losses for our trade accounts receivable based on historical credit loss rates for each aging
category as adjusted for the current market conditions and forecasts about future economic conditions. The following table
presents the activity in the allowance for our trade accounts receivable:
A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets
are presented in "Other current assets" in our consolidated statements of financial position and primarily relate to unbilled
amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. The table below shows significant
movements in contract assets:
Beginning balance
Impact of adoption of the Credit Loss Standard
Provision for expected credit losses
Write-offs charged against the allowance
2020
2019
Ending balance
2020
2019
(in millions)
67 $
(1)
8
(17)
57 $
78
—
(11)
—
67
$
$
Note 3 — Business Combinations
Acquisitions completed during each of the three years ended December 31, 2020, 2019 and 2018 were not individually or
in the aggregate material to our operations. Accordingly, pro forma results have not been presented. We have allocated the
purchase price related to these transactions to tangible and intangible assets and liabilities, including deductible and non-
deductible goodwill, based on their estimated fair values. The primary items that generated goodwill are the value of the
acquired assembled workforces and synergies between the acquired companies and us, neither of which qualify as an
amortizable intangible asset.
2020
In 2020, we acquired 100% ownership of:
• Code Zero, a provider of consulting and implementation services acquired to strengthen our cloud solutions
portfolio and Salesforce Configure-Price-Quote and billing capabilities (acquired on January 31, 2020);
• Lev, a Salesforce Platinum Partner specializing in digital marketing consultancy and implementation of custom
cloud solutions acquired to further expand our global Salesforce practice (acquired on March 27, 2020);
Revenues recognized during the year ended December 31, 2020 for performance obligations satisfied or partially satisfied
• EI-Technologies, a digital technology consulting firm and leading Salesforce specialist acquired to expand our
in previous periods were immaterial.
global Salesforce practice (acquired on May 29, 2020);
• Collaborative Solutions, a provider of Workday enterprise cloud applications for finance and human resources
acquired to strengthen our portfolio of cloud offerings (acquired on June 10, 2020);
• New Signature, an independent Microsoft public cloud transformation company acquired to expand our hyperscale
cloud advisory services and provide the foundation for our new, dedicated practice centered on Microsoft cloud
solutions (acquired on August 18, 2020);
F-18
F-19
•
•
•
•
the net assets of Tin Roof, a custom software and digital product development services company acquired to
expand our software product engineering footprint in the United States (acquired on September 16, 2020);
10th Magnitude, a leading cloud specialist focused on the Microsoft Azure cloud computing platform acquired to
expand our Microsoft Azure expertise (acquired on September 30, 2020);
the net assets of Bright Wolf, a technology service provider specializing in customer Industrial IoT solutions
acquired to expand our smart products offering and expertise in architecting and implementing Industrial IoT
solutions (acquired on November 2, 2020); and
Inawisdom, an Amazon Web Services consulting partner with expertise in AI, machine learning, and data analytics
acquired to expand our client services in Europe and strengthen our end-to-end cloud-native AI and machine
learning solutions portfolio (acquired on December 18, 2020).
The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed
were as follows:
Collaborative
Solutions
New
Signature
Tin Roof
10th
Magnitude
Others
Total
Weighted
Average
Useful Life
The allocations of purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as
follows:
Cash
Current assets
Property and equipment and other noncurrent assets
Non-deductible goodwill
Customer relationship intangible assets
Other intangible assets
Current liabilities
Noncurrent liabilities
Contino
Meritsoft
Zenith
Others
Total
(dollars in millions)
$
7 $
14 $
9 $
15 $
16
4
198
29
2
6
1
147
46
29
52
6
76
73
4
21
14
21
19
6
(11)
(10)
(3)
(12)
(35)
(17)
(22)
(10)
Weighted
Average
Useful Life
10.7 years
6.1 years
45
95
25
442
167
41
(71)
(49)
(dollars in millions)
Purchase price, inclusive of contingent consideration
$
235 $
228 $
168 $
64 $
695
Cash
$
10 $
13 $ — $
2 $
10 $
Trade accounts receivable
Property and equipment and other assets
Operating lease assets, net
Non-deductible goodwill
Deductible goodwill
Customer relationship intangible assets
Other intangible assets
Current liabilities
Noncurrent liabilities
38
6
6
44
281
37
8
13
6
7
292
—
8
1
10
1
2
—
86
69
—
7
2
4
90
39
10
—
21
15
13
66
92
21
2
(25)
(5)
(20)
(8)
(13)
(2)
(15)
(5)
(23)
(15)
35
89
30
32
492
498
145
11
(96)
(35)
9.8 years
5.4 years
Purchase price, inclusive of contingent
consideration (1)
$
400 $
312 $
153 $
134 $
202 $ 1,201
(1)
The purchase price for our acquisitions includes contingent consideration components with a collective maximum
payout of $59 million, valued at $42 million at the date of acquisition, which is contingent upon achieving certain
performance thresholds during the first two calendar years following the date of acquisition.
For the year ended December 31, 2020, revenues from acquisitions completed in 2020, since the dates of acquisition,
were $222 million. For acquisitions completed in 2020, the allocation is preliminary and will be finalized as soon as practicable
within the measurement period, but in no event later than one year following the date of acquisition.
2019
In 2019, we acquired 100% ownership of:
• Mustache, a creative content agency based in the United States, acquired to extend our capabilities in creating
original and branded content for digital, broadcast and social mediums (acquired on January 15, 2019);
• Meritsoft, a financial software company based in Ireland, acquired to complement our service offerings to capital
markets institutions (acquired on March 4, 2019);
• Samlink, a developer of services and solutions for the financial sector based in Finland, acquired to strengthen our
banking capabilities and create a strategic partnership with three Finnish financial institutions to transform and
operate a shared core banking platform (acquired on April 1, 2019);
• Zenith, a life sciences company based in Ireland, acquired to extend our service capabilities for connected
biopharmaceutical and medical device manufacturers (acquired on July 29, 2019); and
• Contino, a technology consulting firm acquired to extend our capabilities in enterprise DevOps and cloud
transformation (acquired on October 31, 2019).
Note 4 — Restructuring Charges
During 2020, we incurred costs related to both our realignment program and our 2020 Fit for Growth Plan. Our
realignment program, which began in 2017, improved our client focus, our cost structure and the efficiency and effectiveness of
our delivery while continuing to drive revenue growth. Our 2020 Fit for Growth Plan, which began in the fourth quarter of
2019, simplified our organizational model and optimized our cost structure in order to partially fund the investments required to
execute on our strategy and advance our growth agenda and included our decision to exit certain content-related services that
were not in line with our strategic vision for the Company. The total costs related to our realignment program and our 2020 Fit
for Growth Plan are reported in "Restructuring charges" in our consolidated statements of operations. We do not allocate these
charges to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such
expenses are included in our segment reporting as “unallocated costs”. See Note 19.
Charges related to our realignment program and our 2020 Fit for Growth Plan were as follows:
Realignment Program:
Employee separation costs
Executive Transition Costs
Employee retention costs
Professional fees
2020 Fit for Growth Plan:
Employee separation costs
Employee retention costs
Facility exit costs and other charges (1)
Total restructuring charges
Years Ended December 31,
2020
2019
2018
(in millions)
$ — $
64 $
—
15
27
127
5
41
22
45
38
45
2
1
$
215 $
217 $
18
—
—
1
—
—
—
19
(1)
Includes $7 million of accelerated depreciation for the year ended December 31, 2020.
The 2020 Fit for Growth Plan charges include $23 million and $5 million of costs incurred in 2020 and 2019,
respectively, related to our exit from certain content-related services.
F-20
F-21
•
•
•
10th Magnitude, a leading cloud specialist focused on the Microsoft Azure cloud computing platform acquired to
expand our Microsoft Azure expertise (acquired on September 30, 2020);
the net assets of Bright Wolf, a technology service provider specializing in customer Industrial IoT solutions
acquired to expand our smart products offering and expertise in architecting and implementing Industrial IoT
solutions (acquired on November 2, 2020); and
•
Inawisdom, an Amazon Web Services consulting partner with expertise in AI, machine learning, and data analytics
acquired to expand our client services in Europe and strengthen our end-to-end cloud-native AI and machine
learning solutions portfolio (acquired on December 18, 2020).
The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed
were as follows:
Property and equipment and other assets
Cash
Trade accounts receivable
Operating lease assets, net
Non-deductible goodwill
Deductible goodwill
Other intangible assets
Current liabilities
Noncurrent liabilities
Customer relationship intangible assets
Collaborative
Solutions
New
Signature
Tin Roof
Magnitude
Others
Total
10th
Weighted
Average
Useful Life
$
10 $
13 $ — $
2 $
10 $
(dollars in millions)
38
6
6
44
281
37
8
13
6
7
292
—
8
1
10
1
2
—
86
69
—
7
2
4
90
39
10
—
21
15
13
66
92
21
2
(25)
(5)
(20)
(8)
(13)
(2)
(15)
(5)
(23)
(15)
35
89
30
32
492
498
145
11
(96)
(35)
9.8 years
5.4 years
Purchase price, inclusive of contingent
consideration (1)
$
400 $
312 $
153 $
134 $
202 $ 1,201
(1)
The purchase price for our acquisitions includes contingent consideration components with a collective maximum
payout of $59 million, valued at $42 million at the date of acquisition, which is contingent upon achieving certain
performance thresholds during the first two calendar years following the date of acquisition.
For the year ended December 31, 2020, revenues from acquisitions completed in 2020, since the dates of acquisition,
were $222 million. For acquisitions completed in 2020, the allocation is preliminary and will be finalized as soon as practicable
within the measurement period, but in no event later than one year following the date of acquisition.
2019
In 2019, we acquired 100% ownership of:
• Mustache, a creative content agency based in the United States, acquired to extend our capabilities in creating
original and branded content for digital, broadcast and social mediums (acquired on January 15, 2019);
• Meritsoft, a financial software company based in Ireland, acquired to complement our service offerings to capital
markets institutions (acquired on March 4, 2019);
• Samlink, a developer of services and solutions for the financial sector based in Finland, acquired to strengthen our
banking capabilities and create a strategic partnership with three Finnish financial institutions to transform and
operate a shared core banking platform (acquired on April 1, 2019);
• Zenith, a life sciences company based in Ireland, acquired to extend our service capabilities for connected
biopharmaceutical and medical device manufacturers (acquired on July 29, 2019); and
• Contino, a technology consulting firm acquired to extend our capabilities in enterprise DevOps and cloud
transformation (acquired on October 31, 2019).
the net assets of Tin Roof, a custom software and digital product development services company acquired to
The allocations of purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as
expand our software product engineering footprint in the United States (acquired on September 16, 2020);
follows:
Cash
Current assets
Property and equipment and other noncurrent assets
Non-deductible goodwill
Customer relationship intangible assets
Other intangible assets
Current liabilities
Noncurrent liabilities
Contino
Meritsoft
Zenith
Others
Total
(dollars in millions)
$
7 $
14 $
9 $
15 $
16
4
198
29
2
6
1
147
46
29
52
6
76
73
4
21
14
21
19
6
(11)
(10)
(3)
(12)
(35)
(17)
(22)
(10)
45
95
25
442
167
41
(71)
(49)
Weighted
Average
Useful Life
10.7 years
6.1 years
Purchase price, inclusive of contingent consideration
$
235 $
228 $
168 $
64 $
695
Note 4 — Restructuring Charges
During 2020, we incurred costs related to both our realignment program and our 2020 Fit for Growth Plan. Our
realignment program, which began in 2017, improved our client focus, our cost structure and the efficiency and effectiveness of
our delivery while continuing to drive revenue growth. Our 2020 Fit for Growth Plan, which began in the fourth quarter of
2019, simplified our organizational model and optimized our cost structure in order to partially fund the investments required to
execute on our strategy and advance our growth agenda and included our decision to exit certain content-related services that
were not in line with our strategic vision for the Company. The total costs related to our realignment program and our 2020 Fit
for Growth Plan are reported in "Restructuring charges" in our consolidated statements of operations. We do not allocate these
charges to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such
expenses are included in our segment reporting as “unallocated costs”. See Note 19.
Charges related to our realignment program and our 2020 Fit for Growth Plan were as follows:
Realignment Program:
Employee separation costs
Executive Transition Costs
Employee retention costs
Professional fees
2020 Fit for Growth Plan:
Employee separation costs
Employee retention costs
Facility exit costs and other charges (1)
Total restructuring charges
Years Ended December 31,
2020
2019
2018
(in millions)
$ — $
64 $
—
15
27
127
5
41
22
45
38
45
2
1
$
215 $
217 $
18
—
—
1
—
—
—
19
(1)
Includes $7 million of accelerated depreciation for the year ended December 31, 2020.
The 2020 Fit for Growth Plan charges include $23 million and $5 million of costs incurred in 2020 and 2019,
respectively, related to our exit from certain content-related services.
F-20
F-21
Changes in our accrued employee separation costs, for both our realignment program and our 2020 Fit for Growth Plan,
included in "Accrued expenses and other current liabilities" in our consolidated statements of financial position, are presented
in the table below.
Held-to-Maturity Investment Securities
Beginning balance
Employee separation costs accrued
Payments made
Ending balance
Note 5 — Investments
Our investments were as follows as of December 31:
Short-term investments:
Equity investment security
Held-to-maturity investment securities
Time deposits (1)
Total short-term investments
Long-term investments:
Equity and cost method investments
Time deposits (1)
Total long-term investments
2020
2019
$
$
(in millions)
47 $
127
157
17 $
2020
2019
(in millions)
$
$
$
$
27
14
3
44
35
405
440
$
$
$
$
—
109
62
47
26
287
466
779
17
—
17
(1)
As of December 31, 2020, $405 million in restricted time deposits related to deposits under lien with the ITD were
classified as long-term. As of December 31, 2019, $414 million in restricted time deposits were classified as short-
term. See Note 11.
Equity Investment Security
Our equity investment security is a U.S. dollar denominated investment in a fixed income mutual fund. Realized and
unrealized gains and losses were immaterial for the years ended December 31, 2020 and 2019.
Available-for-Sale Investment Securities
During 2019, all of our available-for-sale investment securities either matured or were sold. We determine the cost of the
securities sold based on the specific identification method. 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:
Proceeds from sales of available-for-sale investment securities
Gross gains
Gross losses
Net realized gains (losses) on sales of available-for-sale investment securities
2020
2019
2018
(in millions)
—
—
—
—
$
$
$
$
$
1,712
6
(5)
1
$
1,285
—
(4)
(4)
$
$
$
Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial
paper and international corporate bonds. Our investment guidelines are to purchase securities that are investment grade at the
time of acquisition. The basis for the measurement of fair value of our held-to-maturity investments is Level 2 in the fair value
hierarchy.
The amortized cost and fair value of held-to-maturity investment securities were as follows as of December 31:
Short-term investments, due within one year:
Corporate and other debt securities
Commercial paper
Total short-term held-to-maturity investments
2020
2019
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(in millions)
$
$
14
—
14
$
$
14
—
14
$
$
101
186
287
$
$
101
186
287
As of December 31, 2020, there were no held-to-maturity investment securities in an unrealized loss position. As of
December 31, 2019, $70 million in commercial paper and $42 million in corporate and other debt securities were in an
unrealized loss position, the total unrealized loss was less than $1 million and none of the securities had been in an unrealized
loss position for longer than 12 months.
The securities in our portfolio are highly rated and short-term in nature. As of December 31, 2020, our corporate and other
debt securities were rated AAA by CRISIL, an Indian subsidiary of S&P Global.
Equity and Cost Method Investments
As of December 31, 2020 and 2019, we had equity method investments of $31 million and $9 million, respectively.
During 2020, we acquired a $26 million equity method investment in the technology sector. In addition, we have an equity
method investment which consists of a 49% ownership interest in a strategic consulting firm specializing in the use of human
sciences to help business leaders better understand customer behavior. During 2019, as a result of events indicating one of our
investments experienced an other-than-temporary impairment, we assessed its fair value and determined that the carrying value
exceeded the fair value. As such, we recorded an impairment charge of $57 million in the fourth quarter of 2019 within the
caption "Income (loss) from equity method investments" in our consolidated statement of operations. In determining the fair
value of the equity method investment we considered results from the following valuation methodologies: income approach,
based on discounted future cash flows, market approach, based on current market multiples and net asset value approach, based
on the assets and liabilities of the investee. The basis for the measurement of fair value for this equity method investment is
Level 3 in the fair value hierarchy.
As of December 31, 2020 and 2019, we had cost method investments of $4 million and $8 million, respectively.
F-22
F-23
Changes in our accrued employee separation costs, for both our realignment program and our 2020 Fit for Growth Plan,
included in "Accrued expenses and other current liabilities" in our consolidated statements of financial position, are presented
Held-to-Maturity Investment Securities
Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial
paper and international corporate bonds. Our investment guidelines are to purchase securities that are investment grade at the
time of acquisition. The basis for the measurement of fair value of our held-to-maturity investments is Level 2 in the fair value
hierarchy.
Employee separation costs accrued
The amortized cost and fair value of held-to-maturity investment securities were as follows as of December 31:
Short-term investments, due within one year:
Corporate and other debt securities
Commercial paper
Total short-term held-to-maturity investments
2020
2019
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(in millions)
$
$
14
—
14
$
$
14
—
14
$
$
101
186
287
$
$
101
186
287
As of December 31, 2020, there were no held-to-maturity investment securities in an unrealized loss position. As of
December 31, 2019, $70 million in commercial paper and $42 million in corporate and other debt securities were in an
unrealized loss position, the total unrealized loss was less than $1 million and none of the securities had been in an unrealized
loss position for longer than 12 months.
The securities in our portfolio are highly rated and short-term in nature. As of December 31, 2020, our corporate and other
debt securities were rated AAA by CRISIL, an Indian subsidiary of S&P Global.
Equity and Cost Method Investments
As of December 31, 2020 and 2019, we had equity method investments of $31 million and $9 million, respectively.
During 2020, we acquired a $26 million equity method investment in the technology sector. In addition, we have an equity
method investment which consists of a 49% ownership interest in a strategic consulting firm specializing in the use of human
sciences to help business leaders better understand customer behavior. During 2019, as a result of events indicating one of our
investments experienced an other-than-temporary impairment, we assessed its fair value and determined that the carrying value
exceeded the fair value. As such, we recorded an impairment charge of $57 million in the fourth quarter of 2019 within the
caption "Income (loss) from equity method investments" in our consolidated statement of operations. In determining the fair
value of the equity method investment we considered results from the following valuation methodologies: income approach,
based on discounted future cash flows, market approach, based on current market multiples and net asset value approach, based
on the assets and liabilities of the investee. The basis for the measurement of fair value for this equity method investment is
Level 3 in the fair value hierarchy.
As of December 31, 2020 and 2019, we had cost method investments of $4 million and $8 million, respectively.
in the table below.
Beginning balance
Payments made
Ending balance
Note 5 — Investments
Our investments were as follows as of December 31:
Short-term investments:
Equity investment security
Held-to-maturity investment securities
Time deposits (1)
Total short-term investments
Long-term investments:
Equity and cost method investments
Time deposits (1)
Total long-term investments
term. See Note 11.
Equity Investment Security
2020
2019
$
$
(in millions)
47 $
127
157
17 $
—
109
62
47
26
287
466
779
17
—
17
2020
2019
(in millions)
$
$
$
$
27
14
3
44
35
405
440
$
$
$
$
(1)
As of December 31, 2020, $405 million in restricted time deposits related to deposits under lien with the ITD were
classified as long-term. As of December 31, 2019, $414 million in restricted time deposits were classified as short-
Our equity investment security is a U.S. dollar denominated investment in a fixed income mutual fund. Realized and
unrealized gains and losses were immaterial for the years ended December 31, 2020 and 2019.
Available-for-Sale Investment Securities
During 2019, all of our available-for-sale investment securities either matured or were sold. We determine the cost of the
securities sold based on the specific identification method. 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:
Proceeds from sales of available-for-sale investment securities
Gross gains
Gross losses
Net realized gains (losses) on sales of available-for-sale investment securities
2020
2019
2018
(in millions)
1,712
1,285
$
$
$
—
—
—
—
$
$
$
$
$
6
(5)
1
$
—
(4)
(4)
F-22
F-23
Note 6 — Property and Equipment, net
Property and equipment were as follows as of December 31:
Estimated Useful Life
2020
2019
The following table provides information on the weighted average remaining lease term and weighted average discount
Buildings
Computer equipment
Computer software
Furniture and equipment
Land
Capital work-in-progress
Leasehold improvements
Sub-total
Accumulated depreciation and amortization
Property and equipment, net
(in years)
30
3 – 5
3 – 8
5 – 9
Shorter of the lease term or
the life of the asset
(in millions)
783
$
636
840
761
7
122
790
516
820
702
11
133
424
3,573
(2,322)
1,251
$
379
3,351
(2,042)
1,309
$
$
Depreciation and amortization expense related to property and equipment was $407 million, $363 million and $347
million for the years ended December 31, 2020, 2019 and 2018, respectively.
The following table provides the schedule of maturities of our operating lease liabilities and a reconciliation of the
undiscounted cash flows to the operating lease liabilities recognized in the statement of financial position as of December 31:
The gross amount of property and equipment recorded under finance leases was $37 million and $30 million as of
December 31, 2020 and 2019, respectively. Accumulated amortization for our ROU finance lease assets was $23 million and
$14 million as of December 31, 2020 and 2019, respectively. Amortization expense related to our ROU finance lease assets was
$7 million and $11 million for the year ended December 31, 2020 and 2019, respectively. Amortization expense related to our
capital lease assets was immaterial for the year ended December 31, 2018.
The gross amount of property and equipment recorded for software to be sold, leased or marketed reported in the caption
"Computer software" above was $159 million and $129 million as of December 31, 2020 and 2019, respectively. Accumulated
amortization for software to be sold, leased or marketed was $73 million and $46 million as of December 31, 2020 and 2019,
respectively. Amortization expense for software to be sold, leased or marketed recorded as property and equipment was $30
million, $22 million and $14 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 7 — Leases
The following table provides information on the components of our operating and finance leases included in our
consolidated statement of financial position as of December 31:
For the years ended December 31, 2020 and 2019, our operating lease costs were $302 million and $264 million,
respectively, including variable lease costs of $14 million and $18 million, respectively. Our short-term lease rental expense
was $20 million and $16 million for the years ended December 31, 2020 and 2019, respectively. Lease interest expense related
to our finance leases for years ended December 31, 2020 and 2019 was immaterial.
rate for our operating leases as of December 31:
Operating Lease Term and Discount Rate
Weighted average remaining lease term
Weighted average discount rate
The following table provides supplemental cash flow information related to our operating leases as of December 31:
Cash paid for amounts included in the measurement of operating lease liabilities
$
ROU assets obtained in exchange for operating lease liabilities
Cash paid for amounts included in the measurement of finance lease liabilities and ROU assets obtained in exchange for
finance lease liabilities were each immaterial for the years ended December 31, 2020 and 2019.
2020
2019
6.2 years
5.7 %
6.0 years
6.0 %
2020
2019
(in millions)
271 $
273
232
274
2020
(in millions)
$
2021
2022
2023
2024
2025
Thereafter
Interest
Total lease payments
Total lease liabilities
$
260
218
180
143
121
349
1,271
(214)
1,057
As of December 31, 2020, we had $92 million of additional obligations related to operating leases whose lease term had
yet to commence and which are therefore not included in our statement of financial position. These leases are primarily related
to real estate and will commence in various months in 2021 and 2022 with lease terms of 1 year to 11 years.
Note 8 — Goodwill and Intangible Assets, net
Changes in goodwill by our reportable segments were as follows for the years ended December 31, 2020 and 2019:
Segment
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total goodwill
January 1,
2020
Goodwill
Additions and
Adjustments
Foreign Currency
Translation
Adjustments
December 31,
2020
$
700
$
2,595
417
267
$
3,979
$
(in millions)
204
149
346
289
988
$
$
28
11
17
8
64
$
932
2,755
780
564
$
5,031
ROU operating lease assets
Operating lease assets, net
ROU finance lease assets
Property and equipment, net
Total
Liabilities
Current
Operating lease
Finance lease
Noncurrent
Operating lease
Finance lease
Operating lease liabilities
Accrued expenses and other current liabilities
Operating lease liabilities, noncurrent
Other noncurrent liabilities
$
$
$
(in millions)
1,013 $
14
1,027
211
11
846
11
Location on Statement of Financial Position
2020
2019
Leases
Assets
Total
$
1,079 $
926
16
942
202
11
745
15
973
F-24
F-25
Note 6 — Property and Equipment, net
Property and equipment were as follows as of December 31:
For the years ended December 31, 2020 and 2019, our operating lease costs were $302 million and $264 million,
respectively, including variable lease costs of $14 million and $18 million, respectively. Our short-term lease rental expense
was $20 million and $16 million for the years ended December 31, 2020 and 2019, respectively. Lease interest expense related
to our finance leases for years ended December 31, 2020 and 2019 was immaterial.
Estimated Useful Life
2020
2019
The following table provides information on the weighted average remaining lease term and weighted average discount
Buildings
Computer equipment
Computer software
Furniture and equipment
Land
Capital work-in-progress
Leasehold improvements
Sub-total
Accumulated depreciation and amortization
Property and equipment, net
(in years)
30
3 – 5
3 – 8
5 – 9
Shorter of the lease term or
the life of the asset
$
(in millions)
$
783
636
840
761
7
122
790
516
820
702
11
133
424
3,573
(2,322)
379
3,351
(2,042)
$
1,251
$
1,309
rate for our operating leases as of December 31:
Operating Lease Term and Discount Rate
Weighted average remaining lease term
Weighted average discount rate
2020
2019
6.2 years
5.7 %
6.0 years
6.0 %
The following table provides supplemental cash flow information related to our operating leases as of December 31:
Cash paid for amounts included in the measurement of operating lease liabilities
$
ROU assets obtained in exchange for operating lease liabilities
2020
2019
(in millions)
271 $
273
232
274
Cash paid for amounts included in the measurement of finance lease liabilities and ROU assets obtained in exchange for
finance lease liabilities were each immaterial for the years ended December 31, 2020 and 2019.
Depreciation and amortization expense related to property and equipment was $407 million, $363 million and $347
million for the years ended December 31, 2020, 2019 and 2018, respectively.
The following table provides the schedule of maturities of our operating lease liabilities and a reconciliation of the
undiscounted cash flows to the operating lease liabilities recognized in the statement of financial position as of December 31:
The gross amount of property and equipment recorded under finance leases was $37 million and $30 million as of
December 31, 2020 and 2019, respectively. Accumulated amortization for our ROU finance lease assets was $23 million and
$14 million as of December 31, 2020 and 2019, respectively. Amortization expense related to our ROU finance lease assets was
$7 million and $11 million for the year ended December 31, 2020 and 2019, respectively. Amortization expense related to our
capital lease assets was immaterial for the year ended December 31, 2018.
The gross amount of property and equipment recorded for software to be sold, leased or marketed reported in the caption
"Computer software" above was $159 million and $129 million as of December 31, 2020 and 2019, respectively. Accumulated
amortization for software to be sold, leased or marketed was $73 million and $46 million as of December 31, 2020 and 2019,
respectively. Amortization expense for software to be sold, leased or marketed recorded as property and equipment was $30
million, $22 million and $14 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 7 — Leases
Leases
Assets
Liabilities
Current
Operating lease
Finance lease
Noncurrent
Operating lease
Finance lease
The following table provides information on the components of our operating and finance leases included in our
consolidated statement of financial position as of December 31:
ROU operating lease assets
Operating lease assets, net
ROU finance lease assets
Property and equipment, net
Total
$
$
$
(in millions)
1,013 $
14
1,027
211
11
846
11
926
16
942
202
11
745
15
973
Operating lease liabilities
Accrued expenses and other current liabilities
Operating lease liabilities, noncurrent
Other noncurrent liabilities
Total
$
1,079 $
2020
(in millions)
$
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Interest
Total lease liabilities
$
260
218
180
143
121
349
1,271
(214)
1,057
Location on Statement of Financial Position
2020
2019
Note 8 — Goodwill and Intangible Assets, net
As of December 31, 2020, we had $92 million of additional obligations related to operating leases whose lease term had
yet to commence and which are therefore not included in our statement of financial position. These leases are primarily related
to real estate and will commence in various months in 2021 and 2022 with lease terms of 1 year to 11 years.
Changes in goodwill by our reportable segments were as follows for the years ended December 31, 2020 and 2019:
Segment
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total goodwill
January 1,
2020
Goodwill
Additions and
Adjustments
Foreign Currency
Translation
Adjustments
December 31,
2020
$
700
$
2,595
417
267
$
3,979
$
(in millions)
204
149
346
289
988
$
$
28
11
17
8
64
$
932
2,755
780
564
$
5,031
F-24
F-25
Segment
January 1,
2019
Goodwill
Additions and
Adjustments
Foreign Currency
Translation
Adjustments
Other(1)
December
31, 2019
(in millions)
Note 9 — Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were as follows as of December 31:
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total goodwill
$
$
411
2,469
384
217
3,481
$
$
288
86
18
49
441
$
$
(2)
—
1
1
—
$
$
3
40
14
—
57
$
$
700
2,595
417
267
3,979
(1)
See the Business Combinations section in Note 1.
Beginning with the first quarter of 2020, COVID-19 negatively affected all major economic and financial markets and,
although there is a wide range of possible outcomes and the associated impact is highly dependent on variables that are difficult
to forecast, we deemed the deterioration in general economic conditions sufficient to trigger an interim impairment testing of
goodwill as of March 31, 2020. Our interim test results as of March 31, 2020 indicated that the fair values of all of our reporting
units exceeded their carrying values and thus, no impairment of goodwill existed as of March 31, 2020. Based on our most
recent goodwill impairment assessment performed as of October 31, 2020, we concluded that the goodwill in each of our
reporting units was not at risk of impairment. We have not recognized any impairment losses on our goodwill.
Components of intangible assets were as follows as of December 31:
2020
2019
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
Customer relationships
Developed technology
Indefinite lived trademarks
Finite lived trademarks
and other
Total intangible assets
$
1,333
388
72
80
1,873
$
$
(490) $
(286)
—
$
(in millions)
843
102
72
(51)
(827) $
29
1,046
$
1,181
388
72
71
1,712
$
$
(390) $
(239)
—
791
149
72
(42)
(671) $
29
1,041
Other than certain trademarks with indefinite lives, our intangible assets have finite lives and, as such, are subject to
amortization. Amortization of intangible assets totaled $152 million for 2020, $162 million for 2019 and $151 million for 2018.
The following table provides the estimated amortization expense related to our existing intangible assets for the next five
years.
Estimated Amortization
(in millions)
$
2021
2022
2023
2024
2025
159
150
107
102
99
2020
2019
(in millions)
$
1,607
$
1,239
266
1
34
143
7
461
251
8
152
137
24
380
Compensation and benefits
Customer volume and other incentives
Derivative financial instruments
Income taxes
Professional fees
Travel and entertainment
Other
Note 10 — Debt
Total accrued expenses and other current liabilities
$
2,519
$
2,191
In 2018, we entered into a Credit Agreement providing for a $750 million Term Loan and a $1,750 million unsecured
revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make
scheduled quarterly principal payments on the Term Loan.
The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as
defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the
Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the
Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt
ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the
ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Our Credit
Agreement also provides a mechanism for determining an alternative rate of interest to the Eurocurrency rate after LIBOR is no
longer available. Under the Credit Agreement, we are required to pay commitment fees on the unused portion of the revolving
credit facility, which vary based on our public debt ratings (or, if we have not received public debt ratings, on the Leverage
Ratio). As the interest rates on our Term Loan and any notes outstanding under the revolving credit facility are variable, the fair
value of our debt balances approximates their carrying value as of December 31, 2020 and 2019.
The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. The
financial covenant is tested at the end of each fiscal quarter and requires us to maintain a Leverage Ratio, which is the ratio of
indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement, not in excess of 3.50 to 1.00,
or for a period of up to four quarters following certain material acquisitions, 3.75 to 1.00. We were in compliance with all debt
covenants and representations of the Credit Agreement as of December 31, 2020.
In February 2020, our India subsidiary renewed its 13 billion Indian rupee ($178 million at the December 31, 2020
exchange rate) working capital facility, which requires us to repay any balances within 90 days from the date of disbursement.
There is a 1.0% prepayment penalty applicable to payments made within 30 days of disbursement. This working capital facility
contains affirmative and negative covenants and may be renewed annually in February. As of December 31, 2020, we have not
borrowed funds under this facility.
Short-term Debt
The following summarizes our short-term debt balances as of December 31:
Term Loan - current maturities
$
38
1.0 % $
38
2.6 %
2020
Weighted Average
Interest Rate
2019
Weighted Average
Interest Rate
Amount
(in millions)
Amount
(in millions)
F-26
F-27
Segment
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
January 1,
2019
Goodwill
Additions and
Adjustments
Foreign Currency
Translation
Adjustments
(in millions)
Other(1)
December
31, 2019
$
411
$
288
$
$
$
2,469
384
217
86
18
49
(2)
—
1
1
3
40
14
—
57
700
2,595
417
267
Total goodwill
$
3,481
$
441
$
—
$
$
3,979
(1)
See the Business Combinations section in Note 1.
Beginning with the first quarter of 2020, COVID-19 negatively affected all major economic and financial markets and,
although there is a wide range of possible outcomes and the associated impact is highly dependent on variables that are difficult
to forecast, we deemed the deterioration in general economic conditions sufficient to trigger an interim impairment testing of
goodwill as of March 31, 2020. Our interim test results as of March 31, 2020 indicated that the fair values of all of our reporting
units exceeded their carrying values and thus, no impairment of goodwill existed as of March 31, 2020. Based on our most
recent goodwill impairment assessment performed as of October 31, 2020, we concluded that the goodwill in each of our
reporting units was not at risk of impairment. We have not recognized any impairment losses on our goodwill.
Components of intangible assets were as follows as of December 31:
2020
2019
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Customer relationships
$
1,333
$
(490) $
$
1,181
$
(390) $
Developed technology
Indefinite lived trademarks
Finite lived trademarks
and other
388
72
80
(286)
—
(51)
(in millions)
843
102
72
29
388
72
71
(239)
—
(42)
791
149
72
29
Total intangible assets
$
1,873
$
(827) $
1,046
$
1,712
$
(671) $
1,041
Other than certain trademarks with indefinite lives, our intangible assets have finite lives and, as such, are subject to
amortization. Amortization of intangible assets totaled $152 million for 2020, $162 million for 2019 and $151 million for 2018.
The following table provides the estimated amortization expense related to our existing intangible assets for the next five
years.
Estimated Amortization
(in millions)
$
159
150
107
102
99
2021
2022
2023
2024
2025
Note 9 — Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were as follows as of December 31:
Compensation and benefits
Customer volume and other incentives
Derivative financial instruments
Income taxes
Professional fees
Travel and entertainment
Other
2020
2019
(in millions)
$
1,607
$
1,239
266
1
34
143
7
461
251
8
152
137
24
380
Total accrued expenses and other current liabilities
$
2,519
$
2,191
Note 10 — Debt
In 2018, we entered into a Credit Agreement providing for a $750 million Term Loan and a $1,750 million unsecured
revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make
scheduled quarterly principal payments on the Term Loan.
The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as
defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the
Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the
Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt
ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the
ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Our Credit
Agreement also provides a mechanism for determining an alternative rate of interest to the Eurocurrency rate after LIBOR is no
longer available. Under the Credit Agreement, we are required to pay commitment fees on the unused portion of the revolving
credit facility, which vary based on our public debt ratings (or, if we have not received public debt ratings, on the Leverage
Ratio). As the interest rates on our Term Loan and any notes outstanding under the revolving credit facility are variable, the fair
value of our debt balances approximates their carrying value as of December 31, 2020 and 2019.
The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. The
financial covenant is tested at the end of each fiscal quarter and requires us to maintain a Leverage Ratio, which is the ratio of
indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement, not in excess of 3.50 to 1.00,
or for a period of up to four quarters following certain material acquisitions, 3.75 to 1.00. We were in compliance with all debt
covenants and representations of the Credit Agreement as of December 31, 2020.
In February 2020, our India subsidiary renewed its 13 billion Indian rupee ($178 million at the December 31, 2020
exchange rate) working capital facility, which requires us to repay any balances within 90 days from the date of disbursement.
There is a 1.0% prepayment penalty applicable to payments made within 30 days of disbursement. This working capital facility
contains affirmative and negative covenants and may be renewed annually in February. As of December 31, 2020, we have not
borrowed funds under this facility.
Short-term Debt
The following summarizes our short-term debt balances as of December 31:
Term Loan - current maturities
$
38
1.0 % $
38
2.6 %
2020
Weighted Average
Interest Rate
Amount
(in millions)
Amount
(in millions)
2019
Weighted Average
Interest Rate
F-26
F-27
of $2.1 billion, which resulted in a net payment of $2.0 billion to its shareholders (non-Indian Cognizant entities), after payment
of $106 million of India withholding tax.
We are involved in an ongoing dispute with the ITD in connection with a previously disclosed 2016 share repurchase
transaction undertaken by CTS India to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $2.8
billion. As a result of that transaction, which was undertaken pursuant to a plan approved by the High Court in Chennai, India,
we previously paid $135 million in Indian income taxes - an amount we believe includes all the applicable taxes owed for this
transaction under Indian law. In March 2018, we received a communication from the ITD asserting that the ITD is owed an
additional 33 billion Indian rupees ($452 million at the December 31, 2020 exchange rate) on the 2016 transaction. Immediately
thereafter, the ITD placed an attachment on certain of our India bank accounts. In addition to the dispute on the 2016
transaction, we are also involved in another ongoing dispute with the ITD relating to a 2013 transaction undertaken by CTS
India to repurchase shares from its shareholders valued at $523 million (the two disputes collectively referred to as the "ITD
Dispute").
In April 2018, the High Court admitted our writ petition for a stay of the actions of the ITD and lifted the ITD’s
attachment on our bank accounts. As part of the interim stay order, we deposited 5 billion Indian rupees ($68 million at the
December 31, 2020 exchange rate and $70 million at the December 31, 2019 exchange rate) representing 15% of the disputed
tax amount related to the 2016 transaction, with the ITD. In addition, the Court also placed a lien on certain time deposits of
CTS India in the amount of 28 billion Indian rupees ($384 million at the December 31, 2020 exchange rate and $393 million at
the December 31, 2019 exchange rate), which is the remainder of the disputed tax amount related to the 2016 transaction. In
June 2019, the High Court dismissed our previously admitted writ petitions on the ITD Dispute, holding that the Company must
exhaust other remedies, such as pursuing the matter before other appellate bodies, for resolution of the ITD Dispute prior to
intervention by the High Court. The High Court did not issue a ruling on the substantive issue of whether we owe additional tax
as a result of either the 2016 or the 2013 transaction. In July 2019, we appealed the High Court’s orders before the Division
Bench. In September 2019, the Division Bench partly allowed the Company’s appeal with respect to the 2016 transaction, but
did not issue a ruling on the substantive issue of the tax implications of the transactions. In October 2019, we filed a SLP before
the SCI with respect to the 2016 transaction.
In March 2020, the SCI referred the case based on the 2016 transaction back to the ITD with directions to carry out the
assessment following the due process of law. Further, until the conclusion of the assessment, the SCI maintained in place the
lien on our 28 billion Indian rupees time deposit and did not order the release of the 5 billion Indian rupees deposit held by the
ITD. In April 2020, we received an assessment from the ITD, which is consistent with its previous assertions regarding our
2016 transaction. In June 2020, we filed an appeal against this assessment. The ruling of the SCI and the ITD's assessment
created additional uncertainty as to the timing of the resolution of this case and, as a result, in the first quarter of 2020 we
reclassified the deposits under lien, which are considered restricted assets, and the deposit with the ITD to noncurrent assets. As
of December 31, 2020 and 2019, the balance of deposits under lien was $405 million presented in "Long-term investments" and
$414 million presented in "Short-term investments", respectively, including a portion of the interest previously earned. As of
December 31, 2020 and 2019, the deposit with the ITD was $68 million presented in "Other noncurrent assets" and $70 million
presented in "Other current assets", respectively.
We believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions. Accordingly, we have not
recorded any reserves for these matters as of December 31, 2020.
Long-term Debt
The following summarizes our long-term debt balances as of December 31:
Term Loan
Less:
Current maturities
Deferred financing costs
Long-term debt, net of current maturities
The following represents the schedule of maturities of our term loan:
2020
2019
(in millions)
703 $
(38)
(2)
663 $
741
(38)
(3)
700
$
$
Year
2021
2022
2023
Amounts
(in millions)
$
$
38
38
627
703
Note 11 — Income Taxes
Income before provision for income taxes shown below is based on the geographic location to which such income was
attributed for years ended December 31:
2020
2019
2018
United States
Foreign
Income before provision for income taxes
$
$
814
1,282
2,096
(in millions)
931
1,612
2,543
$
$
$
$
947
1,850
2,797
The provision for income taxes consisted of the following components for the years ended December 31:
Current:
Federal and state
Foreign
Total current provision
Deferred:
Federal and state
Foreign
Total deferred provision (benefit)
Total provision for income taxes
2020
2019
2018
(in millions)
$
$
137
383
520
(77)
261
184
704
$
$
549
400
949
(320)
14
(306)
643
$
$
241
449
690
1
7
8
698
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to
income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder
receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this
change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior
years. In July 2020, the U.S. Treasury Department and the IRS released final regulations on Global Intangible Low-Taxed
Income ("GILTI"), which became effective in September 2020, that reduced the tax applicable on our accumulated Indian
earnings upon repatriation. As a result, during the third quarter of 2020, after a thorough analysis of the impact of these changes
in law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate
growth in various international markets and expand our global delivery footprint, we reversed our indefinite reinvestment
assertion on Indian earnings accumulated in prior years and recorded a $140 million Tax on Accumulated Indian Earnings. The
recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of
December 31, 2019, net of applicable U.S. foreign tax credits. On October 28, 2020, our subsidiary in India remitted a dividend
F-28
F-29
The following summarizes our long-term debt balances as of December 31:
Long-term Debt
Term Loan
Less:
Current maturities
Deferred financing costs
Long-term debt, net of current maturities
The following represents the schedule of maturities of our term loan:
Year
2021
2022
2023
Amounts
(in millions)
$
$
38
38
627
703
2020
2019
(in millions)
703 $
(38)
(2)
663 $
741
(38)
(3)
700
$
$
Income before provision for income taxes shown below is based on the geographic location to which such income was
Note 11 — Income Taxes
attributed for years ended December 31:
United States
Foreign
Income before provision for income taxes
Current:
Federal and state
Foreign
Deferred:
Federal and state
Foreign
Total current provision
Total deferred provision (benefit)
Total provision for income taxes
2020
2019
2018
814
1,282
2,096
(in millions)
931
1,612
2,543
947
1,850
2,797
2020
2019
2018
(in millions)
$
$
$
$
$
$
$
$
$
137
383
520
(77)
261
184
704
549
400
949
(320)
14
(306)
241
449
690
1
7
8
$
$
643
$
698
The provision for income taxes consisted of the following components for the years ended December 31:
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to
income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder
receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this
change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior
years. In July 2020, the U.S. Treasury Department and the IRS released final regulations on Global Intangible Low-Taxed
Income ("GILTI"), which became effective in September 2020, that reduced the tax applicable on our accumulated Indian
earnings upon repatriation. As a result, during the third quarter of 2020, after a thorough analysis of the impact of these changes
in law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate
growth in various international markets and expand our global delivery footprint, we reversed our indefinite reinvestment
assertion on Indian earnings accumulated in prior years and recorded a $140 million Tax on Accumulated Indian Earnings. The
recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of
December 31, 2019, net of applicable U.S. foreign tax credits. On October 28, 2020, our subsidiary in India remitted a dividend
of $2.1 billion, which resulted in a net payment of $2.0 billion to its shareholders (non-Indian Cognizant entities), after payment
of $106 million of India withholding tax.
We are involved in an ongoing dispute with the ITD in connection with a previously disclosed 2016 share repurchase
transaction undertaken by CTS India to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $2.8
billion. As a result of that transaction, which was undertaken pursuant to a plan approved by the High Court in Chennai, India,
we previously paid $135 million in Indian income taxes - an amount we believe includes all the applicable taxes owed for this
transaction under Indian law. In March 2018, we received a communication from the ITD asserting that the ITD is owed an
additional 33 billion Indian rupees ($452 million at the December 31, 2020 exchange rate) on the 2016 transaction. Immediately
thereafter, the ITD placed an attachment on certain of our India bank accounts. In addition to the dispute on the 2016
transaction, we are also involved in another ongoing dispute with the ITD relating to a 2013 transaction undertaken by CTS
India to repurchase shares from its shareholders valued at $523 million (the two disputes collectively referred to as the "ITD
Dispute").
In April 2018, the High Court admitted our writ petition for a stay of the actions of the ITD and lifted the ITD’s
attachment on our bank accounts. As part of the interim stay order, we deposited 5 billion Indian rupees ($68 million at the
December 31, 2020 exchange rate and $70 million at the December 31, 2019 exchange rate) representing 15% of the disputed
tax amount related to the 2016 transaction, with the ITD. In addition, the Court also placed a lien on certain time deposits of
CTS India in the amount of 28 billion Indian rupees ($384 million at the December 31, 2020 exchange rate and $393 million at
the December 31, 2019 exchange rate), which is the remainder of the disputed tax amount related to the 2016 transaction. In
June 2019, the High Court dismissed our previously admitted writ petitions on the ITD Dispute, holding that the Company must
exhaust other remedies, such as pursuing the matter before other appellate bodies, for resolution of the ITD Dispute prior to
intervention by the High Court. The High Court did not issue a ruling on the substantive issue of whether we owe additional tax
as a result of either the 2016 or the 2013 transaction. In July 2019, we appealed the High Court’s orders before the Division
Bench. In September 2019, the Division Bench partly allowed the Company’s appeal with respect to the 2016 transaction, but
did not issue a ruling on the substantive issue of the tax implications of the transactions. In October 2019, we filed a SLP before
the SCI with respect to the 2016 transaction.
In March 2020, the SCI referred the case based on the 2016 transaction back to the ITD with directions to carry out the
assessment following the due process of law. Further, until the conclusion of the assessment, the SCI maintained in place the
lien on our 28 billion Indian rupees time deposit and did not order the release of the 5 billion Indian rupees deposit held by the
ITD. In April 2020, we received an assessment from the ITD, which is consistent with its previous assertions regarding our
2016 transaction. In June 2020, we filed an appeal against this assessment. The ruling of the SCI and the ITD's assessment
created additional uncertainty as to the timing of the resolution of this case and, as a result, in the first quarter of 2020 we
reclassified the deposits under lien, which are considered restricted assets, and the deposit with the ITD to noncurrent assets. As
of December 31, 2020 and 2019, the balance of deposits under lien was $405 million presented in "Long-term investments" and
$414 million presented in "Short-term investments", respectively, including a portion of the interest previously earned. As of
December 31, 2020 and 2019, the deposit with the ITD was $68 million presented in "Other noncurrent assets" and $70 million
presented in "Other current assets", respectively.
We believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions. Accordingly, we have not
recorded any reserves for these matters as of December 31, 2020.
F-28
F-29
The reconciliation between our effective income tax rate and the U.S. federal statutory rate were as follows for the years
income by $48 million, $90 million and $146 million, respectively, and increase diluted EPS by $0.09, $0.16 and $0.25,
ended December 31:
respectively.
Tax expense, at U.S. federal statutory rate
State and local income taxes, net of federal
benefit
Non-taxable income for Indian tax purposes
Rate differential on foreign earnings
Net impact related to the implementation of the
Tax Reform Act
Net impact related to the India Tax Law
Recognition of previously unrecognized income
tax benefits related to uncertain tax positions
Credits and other incentives
Reversal of indefinite reinvestment assertion
Other
Total provision for income taxes
$
2020
%
2019
%
2018
%
$
440
21.0
$
534
21.0
$
587
21.0
(Dollars in millions)
52
(48)
178
—
—
—
(51)
140
(7)
704
2.5
(2.3)
8.5
—
—
—
(2.4)
6.6
(0.3)
33.6
$
59
(90)
145
—
21
—
(57)
—
31
643
2.3
(3.5)
5.7
—
0.8
—
(2.2)
—
1.2
25.3
$
56
(146)
206
2.0
(5.2)
7.4
(5)
—
(0.2)
—
(12)
(19)
—
31
698
(0.4)
(0.7)
—
1.1
25.0
The significant components of deferred income tax assets and liabilities recorded on the consolidated statements of
financial position were as follows as of December 31:
Deferred income tax assets:
Net operating losses
Revenue recognition
Compensation and benefits
MAT and credit carryforwards
Expenses not currently deductible
Less: valuation allowance
Deferred income tax assets, net
Deferred income tax liabilities:
Depreciation and amortization
Deferred costs
Other
Deferred income tax liabilities
Net deferred income tax assets
2020
2019
(in millions)
$
$
36
41
259
109
147
592
(29)
563
198
105
21
324
239
$
$
27
39
171
307
352
896
(24)
872
187
110
25
322
550
At December 31, 2020, we had foreign and U.S. net operating loss carryforwards of approximately $55 million and $98
million, respectively. We have recorded valuation allowances on certain net operating loss carryforwards. As of December 31,
2020 and 2019, deferred income tax assets related to the MAT carryforwards were $98 million and $176 million, respectively.
The calculation of the MAT includes all profits realized by our Indian subsidiaries and any MAT paid is creditable against
future corporate income tax, subject to certain limitations.
Our Indian subsidiaries are primarily export-oriented and are eligible for certain income tax holiday benefits granted by
the government of India for export activities conducted within SEZs for periods of up to 15 years. Our SEZ income tax holiday
benefits are currently scheduled to expire in whole or in part through the year 2028 and may be extended on a limited basis for
an additional five years per unit if certain reinvestment criteria are met. Our Indian profits ineligible for SEZ benefits are
subject to corporate income tax at the rate of 34.94%. In addition, all Indian profits, including those generated within SEZs, are
subject to the MAT. The current rate of MAT is 17.47%. For the years ended December 31, 2020, 2019 and 2018, the effect of
the income tax holidays granted by the Indian government was to reduce the overall income tax provision and increase net
F-30
F-31
In December 2019, the Government of India enacted the India Tax Law effective retroactively to April 1, 2019 that
enables Indian companies to elect to be taxed at a lower income tax rate of 25.17%, as compared to the current income tax rate
of 34.94%. Once a company elects into the lower income tax rate, a company may not benefit from any tax holidays associated
with SEZs and certain other tax incentives, including MAT carryforwards, and may not reverse its election. Our current intent is
to elect into the new tax regime once our MAT carryforwards are fully or substantially utilized. While our existing MAT
carryforwards expire between March 2027 and March 2032, we expect to fully or substantially utilize our existing MAT
carryforwards in or after the India financial year starting April 1, 2022. Our intent is based on a number of assumptions and
financial projections. An election into the new tax law regime prior to utilization of our MAT carryforwards would result in a
write-off of any remaining deferred income tax assets relating to the MAT carryforwards. As a result of the enactment of the
India Tax Law, we recorded a one-time net income tax expense of $21 million in 2019, due to the revaluation to the lower
income tax rate of our India net deferred income tax assets that are expected to reverse after we expect to elect into the new tax
regime.
We conduct business globally and file income tax returns in the United States, including federal and state, as well as
various foreign jurisdictions. Tax years that remain subject to examination by the IRS are 2012 and onward, and years that
remain subject to examination by state authorities vary by state. Years under examination by foreign tax authorities are 2001
and onward. In addition, transactions between our affiliated entities are arranged in accordance with applicable transfer pricing
laws, regulations and relevant guidelines. As a result, and due to the interpretive nature of certain aspects of these laws and
guidelines, we have pending applications for APAs before the taxing authorities in some of our most significant jurisdictions.
We record incremental tax expense, based upon the more-likely-than-not standard, for any uncertain tax positions. In
addition, when applicable, we adjust the previously recorded income tax expense to reflect examination results when the
position is effectively settled or otherwise resolved. Our ongoing evaluations of the more-likely-than-not outcomes of the
examinations and related tax positions require judgment and can result in adjustments that increase or decrease our effective
income tax rate, as well as impact our operating results. The specific timing of when the resolution of each tax position will be
reached is uncertain.
Changes in unrecognized income tax benefits were as follows for the years ended December 31:
Balance, beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Additions for tax positions of acquired subsidiaries
Reductions for tax positions due to lapse of statutes of limitations
Reductions for tax positions of prior years
Settlements
Foreign currency exchange movement
Balance, end of year
2020
2019
2018
(in millions)
$
152
$
117
$
28
10
3
—
—
—
—
22
14
—
—
(1)
—
—
97
8
19
6
(12)
—
—
(1)
$
193
$
152
$
117
The unrecognized income tax benefits would affect our effective income tax rate, if recognized. While the Company
believes uncertain tax positions may be settled or resolved within the next twelve months, it is difficult to estimate the income
tax impact of these potential resolutions at this time. We recognize accrued interest and any penalties associated with uncertain
tax positions as part of our provision for income taxes. The total amount of accrued interest and penalties at December 31, 2020
and 2019 was approximately $22 million and $16 million, respectively, and relates to U.S. and foreign tax matters. The
amounts of interest and penalties recorded in the provision for income taxes in 2020, 2019 and 2018 were immaterial.
The reconciliation between our effective income tax rate and the U.S. federal statutory rate were as follows for the years
ended December 31:
income by $48 million, $90 million and $146 million, respectively, and increase diluted EPS by $0.09, $0.16 and $0.25,
respectively.
Tax expense, at U.S. federal statutory rate
$
440
21.0
$
534
21.0
$
587
21.0
2020
%
2019
%
2018
%
(Dollars in millions)
State and local income taxes, net of federal
benefit
Non-taxable income for Indian tax purposes
Rate differential on foreign earnings
Net impact related to the implementation of the
Tax Reform Act
Net impact related to the India Tax Law
Recognition of previously unrecognized income
tax benefits related to uncertain tax positions
Credits and other incentives
Reversal of indefinite reinvestment assertion
Other
52
(48)
178
—
—
—
(51)
140
(7)
704
2.5
(2.3)
8.5
—
—
—
(2.4)
6.6
(0.3)
59
(90)
145
—
21
—
(57)
—
31
2.3
(3.5)
5.7
—
0.8
—
(2.2)
—
1.2
56
(146)
206
2.0
(5.2)
7.4
(5)
—
(0.2)
—
(12)
(19)
—
31
(0.4)
(0.7)
—
1.1
25.0
Total provision for income taxes
$
33.6
$
643
25.3
$
698
The significant components of deferred income tax assets and liabilities recorded on the consolidated statements of
financial position were as follows as of December 31:
Deferred income tax assets:
Net operating losses
Revenue recognition
Compensation and benefits
MAT and credit carryforwards
Expenses not currently deductible
Less: valuation allowance
Deferred income tax assets, net
Deferred income tax liabilities:
Depreciation and amortization
Deferred costs
Other
Deferred income tax liabilities
Net deferred income tax assets
2020
2019
(in millions)
$
$
36
41
259
109
147
592
(29)
563
198
105
21
324
239
27
39
171
307
352
896
(24)
872
187
110
25
322
550
$
$
At December 31, 2020, we had foreign and U.S. net operating loss carryforwards of approximately $55 million and $98
million, respectively. We have recorded valuation allowances on certain net operating loss carryforwards. As of December 31,
2020 and 2019, deferred income tax assets related to the MAT carryforwards were $98 million and $176 million, respectively.
The calculation of the MAT includes all profits realized by our Indian subsidiaries and any MAT paid is creditable against
future corporate income tax, subject to certain limitations.
Our Indian subsidiaries are primarily export-oriented and are eligible for certain income tax holiday benefits granted by
the government of India for export activities conducted within SEZs for periods of up to 15 years. Our SEZ income tax holiday
benefits are currently scheduled to expire in whole or in part through the year 2028 and may be extended on a limited basis for
an additional five years per unit if certain reinvestment criteria are met. Our Indian profits ineligible for SEZ benefits are
subject to corporate income tax at the rate of 34.94%. In addition, all Indian profits, including those generated within SEZs, are
subject to the MAT. The current rate of MAT is 17.47%. For the years ended December 31, 2020, 2019 and 2018, the effect of
the income tax holidays granted by the Indian government was to reduce the overall income tax provision and increase net
In December 2019, the Government of India enacted the India Tax Law effective retroactively to April 1, 2019 that
enables Indian companies to elect to be taxed at a lower income tax rate of 25.17%, as compared to the current income tax rate
of 34.94%. Once a company elects into the lower income tax rate, a company may not benefit from any tax holidays associated
with SEZs and certain other tax incentives, including MAT carryforwards, and may not reverse its election. Our current intent is
to elect into the new tax regime once our MAT carryforwards are fully or substantially utilized. While our existing MAT
carryforwards expire between March 2027 and March 2032, we expect to fully or substantially utilize our existing MAT
carryforwards in or after the India financial year starting April 1, 2022. Our intent is based on a number of assumptions and
financial projections. An election into the new tax law regime prior to utilization of our MAT carryforwards would result in a
write-off of any remaining deferred income tax assets relating to the MAT carryforwards. As a result of the enactment of the
India Tax Law, we recorded a one-time net income tax expense of $21 million in 2019, due to the revaluation to the lower
income tax rate of our India net deferred income tax assets that are expected to reverse after we expect to elect into the new tax
regime.
We conduct business globally and file income tax returns in the United States, including federal and state, as well as
various foreign jurisdictions. Tax years that remain subject to examination by the IRS are 2012 and onward, and years that
remain subject to examination by state authorities vary by state. Years under examination by foreign tax authorities are 2001
and onward. In addition, transactions between our affiliated entities are arranged in accordance with applicable transfer pricing
laws, regulations and relevant guidelines. As a result, and due to the interpretive nature of certain aspects of these laws and
guidelines, we have pending applications for APAs before the taxing authorities in some of our most significant jurisdictions.
We record incremental tax expense, based upon the more-likely-than-not standard, for any uncertain tax positions. In
addition, when applicable, we adjust the previously recorded income tax expense to reflect examination results when the
position is effectively settled or otherwise resolved. Our ongoing evaluations of the more-likely-than-not outcomes of the
examinations and related tax positions require judgment and can result in adjustments that increase or decrease our effective
income tax rate, as well as impact our operating results. The specific timing of when the resolution of each tax position will be
reached is uncertain.
Changes in unrecognized income tax benefits were as follows for the years ended December 31:
Balance, beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Additions for tax positions of acquired subsidiaries
Reductions for tax positions due to lapse of statutes of limitations
Reductions for tax positions of prior years
Settlements
Foreign currency exchange movement
Balance, end of year
2020
2019
2018
$
$
152
28
10
3
—
—
—
—
193
(in millions)
117
$
22
14
—
—
(1)
—
—
152
$
$
$
97
8
19
6
(12)
—
—
(1)
117
The unrecognized income tax benefits would affect our effective income tax rate, if recognized. While the Company
believes uncertain tax positions may be settled or resolved within the next twelve months, it is difficult to estimate the income
tax impact of these potential resolutions at this time. We recognize accrued interest and any penalties associated with uncertain
tax positions as part of our provision for income taxes. The total amount of accrued interest and penalties at December 31, 2020
and 2019 was approximately $22 million and $16 million, respectively, and relates to U.S. and foreign tax matters. The
amounts of interest and penalties recorded in the provision for income taxes in 2020, 2019 and 2018 were immaterial.
F-30
F-31
Note 12 — Derivative Financial Instruments
In the normal course of business, we use foreign exchange forward and option contracts to manage foreign currency
exchange rate risk. Derivatives may give rise to credit risk from the possible non-performance by counterparties. Credit risk is
limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by limiting the amount of
credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial
institutions with which we do business. In addition, all the assets and liabilities related to our foreign exchange derivative
contracts set forth in the below table are subject to master netting arrangements, such as the International Swaps and
Derivatives Association Master Agreement, with each individual counterparty. These master netting arrangements generally
provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination
event. We have presented all the assets and liabilities related to our foreign exchange derivative contracts, as applicable, on a
gross basis, with no offsets, in our consolidated statements of financial position. There is no financial collateral (including cash
collateral) posted or received by us related to our foreign exchange derivative contracts.
The following table provides information on the location and fair values of derivative financial instruments included in
our consolidated statements of financial position as of December 31:
2020
2019
Designation of Derivatives
Location on Statement of
Financial Position
Assets
Liabilities
Assets
Liabilities
year ended December 31:
Foreign exchange forward and option
contracts – Designated as cash flow
hedging instruments
Foreign exchange forward contracts -
Not designated as cash flow hedging
instruments
Total
Cash Flow Hedges
Other current assets
$
Other noncurrent assets
Accrued expenses and
other current liabilities
Other noncurrent liabilities
Total
Other current assets
Accrued expenses and
other current liabilities
Total
$
45
26
—
—
71
1
—
1
72
$
$
(in millions)
—
—
—
—
—
—
1
1
1
$
$
32
8
—
—
40
3
—
3
43
$
$
—
—
7
2
9
—
1
1
10
We have entered into a series of foreign exchange derivative contracts that are designated as cash flow hedges of Indian
rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of the Indian
rupee against the U.S. dollar on future operating costs and are scheduled to mature each month during 2021 and 2022. The
changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our
consolidated statements of financial position and are subsequently reclassified to earnings within the captions "Cost of
revenues" and "Selling, general and administrative expenses" in our consolidated statements of operations in the same period
that the forecasted Indian rupee denominated payments are recorded in earnings. As of December 31, 2020, we estimate that
$35 million, net of tax, of the net gains related to derivatives designated as cash flow hedges reported in the caption
"Accumulated other comprehensive income (loss)" in our consolidated statements of financial position is expected to be
reclassified into earnings within the next 12 months.
The notional value of our outstanding contracts by year of maturity and the net unrealized gains and losses included in the
caption "Accumulated other comprehensive income (loss)" in our consolidated statements of financial position, for such
contracts were as follows as of December 31:
2020
2021
2022
of taxes
Total notional value of contracts outstanding (1)
Net unrealized gains included in accumulated other comprehensive income (loss), net
2020
2019
(in millions)
—
$
1,470
803
2,273
55
$
$
1,505
883
—
2,388
26
$
$
$
(1)
Includes $133 million notional value of option contracts as of December 31, 2020, with the remaining notional value
related to forward contracts.
The following table provides information on the location and amounts of pre-tax gains on our cash flow hedges for the
Change in
Derivative Gains Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
2020
2019
Location of Net Derivative
Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
(in millions)
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
2020
2019
Foreign exchange forward and
option contracts – Designated as
cash flow hedging instruments
$
39
$
39
Cost of revenues
Selling, general and
administrative expenses
Total
$
$
3
$
—
3
$
3
1
4
The activity related to the change in net unrealized gains and losses on our cash flow hedges included in "Accumulated
other comprehensive income (loss)" in our consolidated statements of stockholders' equity is presented in Note 14.
Other Derivatives
We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain
monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries,
primarily the Indian rupee, the British Pound and the Euro. We entered into foreign exchange forward contracts that are
scheduled to mature in 2021. Realized gains or losses and changes in the fair value of these derivative financial instruments are
recorded in the caption "Foreign currency exchange gains (losses), net" on our consolidated statements of operations.
Additional information related to our outstanding foreign exchange forward contracts not designated as hedging
instruments was as follows as of December 31:
2020
2019
Notional
Fair Value
Notional
Fair Value
Contracts outstanding
$
637
$
702
$
2
(in millions)
—
$
F-32
F-33
Note 12 — Derivative Financial Instruments
In the normal course of business, we use foreign exchange forward and option contracts to manage foreign currency
exchange rate risk. Derivatives may give rise to credit risk from the possible non-performance by counterparties. Credit risk is
limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by limiting the amount of
credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial
institutions with which we do business. In addition, all the assets and liabilities related to our foreign exchange derivative
contracts set forth in the below table are subject to master netting arrangements, such as the International Swaps and
Derivatives Association Master Agreement, with each individual counterparty. These master netting arrangements generally
provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination
event. We have presented all the assets and liabilities related to our foreign exchange derivative contracts, as applicable, on a
gross basis, with no offsets, in our consolidated statements of financial position. There is no financial collateral (including cash
collateral) posted or received by us related to our foreign exchange derivative contracts.
The following table provides information on the location and fair values of derivative financial instruments included in
our consolidated statements of financial position as of December 31:
Designation of Derivatives
Location on Statement of
Financial Position
Foreign exchange forward and option
contracts – Designated as cash flow
hedging instruments
Other current assets
$
$
$
$
Other noncurrent assets
Accrued expenses and
other current liabilities
Other noncurrent liabilities
Total
Other current assets
Accrued expenses and
other current liabilities
Total
Foreign exchange forward contracts -
Not designated as cash flow hedging
instruments
Total
Cash Flow Hedges
2020
2019
(in millions)
45
26
—
—
71
1
—
1
72
—
—
—
—
—
—
1
1
1
32
8
—
—
40
3
—
3
43
—
—
7
2
9
—
1
1
10
The notional value of our outstanding contracts by year of maturity and the net unrealized gains and losses included in the
caption "Accumulated other comprehensive income (loss)" in our consolidated statements of financial position, for such
contracts were as follows as of December 31:
2020
2021
2022
Total notional value of contracts outstanding (1)
Net unrealized gains included in accumulated other comprehensive income (loss), net
of taxes
$
$
$
2020
2019
(in millions)
$
—
1,470
803
2,273
$
55
$
1,505
883
—
2,388
26
(1)
Includes $133 million notional value of option contracts as of December 31, 2020, with the remaining notional value
related to forward contracts.
The following table provides information on the location and amounts of pre-tax gains on our cash flow hedges for the
Assets
Liabilities
Assets
Liabilities
year ended December 31:
Change in
Derivative Gains Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
2020
2019
Location of Net Derivative
Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
(in millions)
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
2020
2019
Foreign exchange forward and
option contracts – Designated as
cash flow hedging instruments
$
39
$
39
Cost of revenues
Selling, general and
administrative expenses
Total
$
$
3
$
—
3
$
3
1
4
The activity related to the change in net unrealized gains and losses on our cash flow hedges included in "Accumulated
other comprehensive income (loss)" in our consolidated statements of stockholders' equity is presented in Note 14.
$
$
$
$
Other Derivatives
We have entered into a series of foreign exchange derivative contracts that are designated as cash flow hedges of Indian
rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of the Indian
rupee against the U.S. dollar on future operating costs and are scheduled to mature each month during 2021 and 2022. The
changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our
consolidated statements of financial position and are subsequently reclassified to earnings within the captions "Cost of
revenues" and "Selling, general and administrative expenses" in our consolidated statements of operations in the same period
that the forecasted Indian rupee denominated payments are recorded in earnings. As of December 31, 2020, we estimate that
$35 million, net of tax, of the net gains related to derivatives designated as cash flow hedges reported in the caption
"Accumulated other comprehensive income (loss)" in our consolidated statements of financial position is expected to be
reclassified into earnings within the next 12 months.
We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain
monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries,
primarily the Indian rupee, the British Pound and the Euro. We entered into foreign exchange forward contracts that are
scheduled to mature in 2021. Realized gains or losses and changes in the fair value of these derivative financial instruments are
recorded in the caption "Foreign currency exchange gains (losses), net" on our consolidated statements of operations.
Additional information related to our outstanding foreign exchange forward contracts not designated as hedging
instruments was as follows as of December 31:
2020
2019
Notional
Fair Value
Notional
Fair Value
Contracts outstanding
$
637
$
(in millions)
—
$
702
$
2
F-32
F-33
The following table provides information on the location and amounts of realized and unrealized pre-tax (losses) gains on
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of
our other derivative financial instruments for the year ended December 31:
December 31, 2019:
Location of Net (Losses) Gains
on Derivative Instruments
Amount of Net (Losses) Gains
on Derivative Instruments
2020
2019
(in millions)
Foreign exchange forward contracts - Not designated as hedging
instruments
Foreign currency exchange
gains (losses), net
$
(63) $
8
The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.
Note 13 — Fair Value Measurements
We measure our cash equivalents, certain investments, contingent consideration liabilities and foreign exchange forward
and option contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the
measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and
comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation
techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions
market participants would use in pricing an asset or liability based on market data obtained from independent sources while
unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.
The fair value hierarchy consists of the following three levels:
• Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
• Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or
similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and
market-corroborated inputs which are derived principally from or corroborated by observable market data.
• Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are
unobservable.
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of
December 31, 2020:
Cash equivalents:
Money market funds
Time deposits
Commercial paper
Short-term investments:
Time deposits
Equity investment security
Other current assets
Foreign exchange forward and option contracts
Long-term investments:
Time deposits (1)
Other noncurrent assets
Foreign exchange forward and option contracts
Accrued expenses and other current liabilities:
Foreign exchange forward contracts
Contingent consideration liabilities
Other noncurrent liabilities
Contingent consideration liabilities
(1) Balance represents restricted time deposits. See Note 11.
Level 1
Level 2
Level 3
Total
(in millions)
$
$
209
—
—
—
27
—
—
—
—
—
—
$
—
203
200
3
—
46
405
26
(1)
—
—
$
—
—
—
—
—
—
—
—
—
(11)
(43)
209
203
200
3
27
46
405
26
(1)
(11)
(43)
Cash equivalents:
Money market funds
Short-term investments:
Time deposits(1)
Equity investment security
Other current assets:
Foreign exchange forward contracts
Other noncurrent assets:
Foreign exchange forward contracts
Accrued expenses and other current liabilities:
Foreign exchange forward contracts
Contingent consideration liabilities
Other noncurrent liabilities:
Foreign exchange forward contracts
Contingent consideration liabilities
Beginning balance
Initial measurement recognized at acquisition
Change in fair value recognized in SG&A expenses
Payments
Ending balance
Level 1
Level 2
Level 3
Total
(in millions)
$
1,646
$
—
$
—
$
1,646
—
26
—
—
—
—
—
—
466
—
35
8
(8)
—
(2)
—
$
$
—
—
—
—
—
(8)
—
(30)
466
26
35
8
(8)
(8)
(2)
(30)
23
33
(4)
(14)
38
2020
2019
(in millions)
38 $
42
(23)
(3)
54 $
(1) Includes $414 million in restricted time deposits. See Note 11
The following table summarizes the changes in Level 3 contingent consideration liabilities:
We measure the fair value of money market funds based on quoted prices in active markets for identical assets and
measure the fair value of our equity security based on the published daily net asset value at which investors can freely subscribe
to or redeem from the fund. The fair value of commercial paper is measured based on relevant trade data, dealer quotes, or
model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves
and credit spreads. The carrying value of the time deposits approximated fair value as of December 31, 2020 and 2019.
We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows
model. This model calculates the difference between the current market forward price and the contracted forward price for each
foreign exchange contract and applies the difference in the rates to each outstanding contract. The market forward rates include
a discount and credit risk factor. We estimate the fair value of each foreign exchange option contract by using a variant of the
Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on
observable market rates.
We estimate the fair value of our contingent consideration liabilities associated with our acquisitions using a variation of
the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair
value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target
performance metric, discounted to present value when appropriate.
During the years ended December 31, 2020, 2019 and 2018 there were no transfers among Level 1, Level 2 or Level 3
financial assets and liabilities.
F-34
F-35
The following table provides information on the location and amounts of realized and unrealized pre-tax (losses) gains on
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of
our other derivative financial instruments for the year ended December 31:
December 31, 2019:
Location of Net (Losses) Gains
on Derivative Instruments
Amount of Net (Losses) Gains
on Derivative Instruments
2020
2019
(in millions)
Foreign exchange forward contracts - Not designated as hedging
Foreign currency exchange
instruments
gains (losses), net
$
(63) $
8
The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.
Note 13 — Fair Value Measurements
We measure our cash equivalents, certain investments, contingent consideration liabilities and foreign exchange forward
and option contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the
measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and
comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation
techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions
market participants would use in pricing an asset or liability based on market data obtained from independent sources while
unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.
The fair value hierarchy consists of the following three levels:
• Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
• Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or
similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and
market-corroborated inputs which are derived principally from or corroborated by observable market data.
• Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are
The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of
unobservable.
December 31, 2020:
Cash equivalents:
Money market funds
Time deposits
Commercial paper
Short-term investments:
Time deposits
Equity investment security
Other current assets
Long-term investments:
Time deposits (1)
Other noncurrent assets
Foreign exchange forward and option contracts
Foreign exchange forward and option contracts
Accrued expenses and other current liabilities:
Foreign exchange forward contracts
Contingent consideration liabilities
Other noncurrent liabilities
Contingent consideration liabilities
(1) Balance represents restricted time deposits. See Note 11.
Level 1
Level 2
Level 3
Total
(in millions)
$
209
$
$
$
—
—
—
27
—
—
—
—
—
—
—
203
200
3
—
46
405
26
(1)
—
—
—
—
—
—
—
—
—
—
—
(11)
(43)
209
203
200
3
27
46
405
26
(1)
(11)
(43)
Cash equivalents:
Money market funds
Short-term investments:
Time deposits(1)
Equity investment security
Other current assets:
Foreign exchange forward contracts
Other noncurrent assets:
Foreign exchange forward contracts
Accrued expenses and other current liabilities:
Foreign exchange forward contracts
Contingent consideration liabilities
Other noncurrent liabilities:
Foreign exchange forward contracts
Contingent consideration liabilities
Level 1
Level 2
Level 3
Total
(in millions)
$
1,646
$
—
$
—
$
1,646
—
26
—
—
—
—
—
—
466
—
35
8
(8)
—
(2)
—
—
—
—
—
—
(8)
—
(30)
(1) Includes $414 million in restricted time deposits. See Note 11
The following table summarizes the changes in Level 3 contingent consideration liabilities:
Beginning balance
Initial measurement recognized at acquisition
Change in fair value recognized in SG&A expenses
Payments
Ending balance
2020
2019
$
$
(in millions)
38 $
42
(23)
(3)
54 $
466
26
35
8
(8)
(8)
(2)
(30)
23
33
(4)
(14)
38
We measure the fair value of money market funds based on quoted prices in active markets for identical assets and
measure the fair value of our equity security based on the published daily net asset value at which investors can freely subscribe
to or redeem from the fund. The fair value of commercial paper is measured based on relevant trade data, dealer quotes, or
model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves
and credit spreads. The carrying value of the time deposits approximated fair value as of December 31, 2020 and 2019.
We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows
model. This model calculates the difference between the current market forward price and the contracted forward price for each
foreign exchange contract and applies the difference in the rates to each outstanding contract. The market forward rates include
a discount and credit risk factor. We estimate the fair value of each foreign exchange option contract by using a variant of the
Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on
observable market rates.
We estimate the fair value of our contingent consideration liabilities associated with our acquisitions using a variation of
the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair
value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target
performance metric, discounted to present value when appropriate.
During the years ended December 31, 2020, 2019 and 2018 there were no transfers among Level 1, Level 2 or Level 3
financial assets and liabilities.
F-34
F-35
Note 14 — Accumulated Other Comprehensive Income (Loss)
December 31, 2019 and 2018:
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the year ended
December 31, 2020:
Before Tax
Amount
2020
Tax
Effect
(in millions)
Net of Tax
Amount
Foreign currency translation adjustments:
Beginning balance
Change in foreign currency translation adjustments
Ending balance
Unrealized gains on cash flow hedges:
Beginning balance
Unrealized gains arising during the period
Reclassifications of net (gains) to:
Cost of revenues
Net change
Ending balance
Accumulated other comprehensive income (loss):
Beginning balance
Other comprehensive income (loss)
Ending balance
$
$
$
$
$
$
(63)
119
56
31
39
(3)
36
67
$
$
$
$
$
$
(1)
—
(1)
(5)
(8)
1
(7)
$
(12)
$
(64)
119
55
26
31
(2)
29
55
(32)
$
155
123
(6)
(7)
$
$
(38)
148
110
$
(13)
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the years ended
Before Tax
Amount
Net of Tax
Amount
Before Tax
Amount
Net of Tax
Amount
2018
Tax
Effect
2019
Tax
Effect
(in millions)
Beginning balance
$
(108)
$
5
$
(103)
$
(38)
$ —
$
(38)
Foreign currency translation adjustments:
Change in foreign currency
translation adjustments
Ending balance
Unrealized (losses) on available-for-sale
investment securities:
Beginning balance
Cumulative effect of change in
accounting principle
Net unrealized gains (losses)
arising during the period
Reclassification of net (gains)
losses to Other, net
Net change
Ending balance
Unrealized (loses) gains on cash flow
hedges:
Beginning balance
Unrealized gains (losses) arising
during the period
Reclassifications of net gains to:
$
$
Cost of revenues
SG&A expenses
Net change
Ending balance
Accumulated other comprehensive
income (loss):
Beginning balance
Other comprehensive income
(loss)
Ending balance
45
$
(63)
$
(6)
(1)
$
39
(64)
(70)
(65)
$
(108)
$
$
(103)
5
5
$
(12)
$
4
$
(8)
$
(11)
$
4
$
$ —
$
$
(12)
$
$
(4)
$
1
$
(3)
$
154
$
(39)
$
115
—
13
(1)
12
—
39
(3)
(1)
35
31
—
(4)
—
(4)
(7)
1
—
(6)
(5)
—
9
(1)
8
—
32
(2)
(1)
29
26
—
(5)
4
(1)
(87)
(61)
(10)
(158)
(1)
2
(1)
—
4
23
15
2
40
1
(7)
(1)
(3)
3
(1)
(8)
(64)
(46)
(8)
(118)
(3)
$
$
$
$
(4)
$
$
$
(124)
$
10
$
(114)
$
105
$
(35)
$
70
92
(16)
$
(32)
$
(6)
$
76
(38)
(229)
(124)
$
45
10
$
(184)
(114)
$
F-36
F-37
Foreign currency translation adjustments:
Beginning balance
Ending balance
Change in foreign currency translation adjustments
Unrealized gains on cash flow hedges:
Beginning balance
Unrealized gains arising during the period
Reclassifications of net (gains) to:
Cost of revenues
Net change
Ending balance
Accumulated other comprehensive income (loss):
Beginning balance
Ending balance
Other comprehensive income (loss)
Before Tax
Amount
Net of Tax
Amount
2020
Tax
Effect
(in millions)
$
$
$
$
$
$
$
$
$
(63)
119
56
31
39
(3)
36
67
(1)
—
(1)
(5)
(8)
1
(7)
(6)
(7)
$
$
$
$
$
(64)
119
55
26
31
(2)
29
55
(38)
148
110
$
(12)
$
(32)
$
155
123
$
(13)
Note 14 — Accumulated Other Comprehensive Income (Loss)
December 31, 2019 and 2018:
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the years ended
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the year ended
December 31, 2020:
Before Tax
Amount
2019
Tax
Effect
Net of Tax
Amount
Before Tax
Amount
(in millions)
2018
Tax
Effect
Net of Tax
Amount
Foreign currency translation adjustments:
Beginning balance
$
(108)
$
5
$
(103)
$
(38)
$ —
$
(38)
Change in foreign currency
translation adjustments
Ending balance
Unrealized (losses) on available-for-sale
investment securities:
Beginning balance
Cumulative effect of change in
accounting principle
Net unrealized gains (losses)
arising during the period
Reclassification of net (gains)
losses to Other, net
Net change
Ending balance
Unrealized (loses) gains on cash flow
hedges:
Beginning balance
Unrealized gains (losses) arising
during the period
Reclassifications of net gains to:
Cost of revenues
SG&A expenses
Net change
Ending balance
Accumulated other comprehensive
income (loss):
Beginning balance
Other comprehensive income
(loss)
Ending balance
$
$
$
45
$
(63)
$
(6)
(1)
$
39
(64)
(70)
$
(108)
$
5
5
(65)
$
(103)
$
(12)
$
4
$
(8)
$
(11)
$
4
$
—
13
(1)
12
—
—
(4)
—
(4)
$ —
$
—
9
(1)
8
—
—
(5)
4
(1)
$
(12)
$
(1)
2
(1)
—
4
$
(7)
(1)
(3)
3
(1)
(8)
(4)
$
1
$
(3)
$
154
$
(39)
$
115
39
(3)
(1)
35
31
$
(7)
1
—
(6)
(5)
$
32
(2)
(1)
29
26
(87)
(61)
(10)
(158)
$
(4)
$
23
15
2
40
1
(64)
(46)
(8)
(118)
(3)
$
$
(124)
$
10
$
(114)
$
105
$
(35)
$
70
92
(16)
$
(32)
$
(6)
$
76
(38)
(229)
(124)
$
45
10
$
(184)
(114)
$
F-36
F-37
Note 15 — Commitments and Contingencies
We are involved in various claims and legal proceedings arising in the ordinary course of business. We accrue a liability
when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is
reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim,
and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. While we do
not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matters described below,
if decided adversely), individually or in the aggregate, will have a material adverse effect on our financial position, an
unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash
flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As
such, our view of these matters is subject to inherent uncertainties and may change in the future.
On January 15, 2015, Syntel sued TriZetto and Cognizant in the United States District Court for the Southern District of
New York. Syntel’s complaint alleged breach of contract against TriZetto, and tortious interference and misappropriation of
trade secrets against Cognizant and TriZetto, stemming from Cognizant’s hiring of certain former Syntel employees. Cognizant
and TriZetto countersued on March 23, 2015, for breach of contract, misappropriation of trade secrets and tortious interference,
based on Syntel’s misuse of TriZetto confidential information and abandonment of contractual obligations. Cognizant and
TriZetto subsequently added federal Defend Trade Secrets Act and copyright infringement claims for Syntel’s misuse of
TriZetto’s proprietary technology. The parties’ claims were narrowed by the court and the case was tried before a jury, which
on October 27, 2020 returned a verdict in favor of Cognizant in the amount of $854 million, including $570 million in punitive
damages. We expect Syntel to appeal the decision and thus we will not record the gain in our financial statements until it
becomes realizable.
On February 28, 2019, a ruling of the SCI interpreting the India Defined Contribution Obligation altered historical
understandings of the obligation, extending it to cover additional portions of the employee’s income. As a result, the ongoing
contributions of our affected employees and the Company were required to be increased. In the first quarter of 2019, we
accrued $117 million with respect to prior periods, assuming retroactive application of the Supreme Court’s ruling, in "Selling,
general and administrative expenses" in our consolidated statement of operations. There is significant uncertainty as to how the
liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with
respect to certain current and former employees and whether interest and penalties may be assessed. Since the ruling, a variety
of trade associations and industry groups have advocated to the Indian government, highlighting the harm to the information
technology sector, other industries and job growth in India that would result from a retroactive application of the ruling. It is
possible the Indian government will review the matter and there is a substantial question as to whether the Indian government
will apply the SCI’s ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different
from the amount accrued.
On October 5, 2016, October 27, 2016 and November 18, 2016, three putative securities class action complaints were
filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers
as defendants. These complaints were consolidated into a single action and on April 7, 2017, the lead plaintiffs filed a
consolidated amended complaint on behalf of a putative class of persons and entities who purchased our common stock during
the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as
defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential
violations of the 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. Defendants filed a motion to dismiss the consolidated
amended complaint on June 6, 2017. On August 8, 2018, the United States District Court for the District of New Jersey issued
an order which granted the motion to dismiss in part, including dismissal of all claims against current officers of the Company,
and denied them in part. On September 7, 2018, we filed a motion in the United States District Court for the District of New
Jersey to certify the August 8, 2018 order for immediate appeal to the United States Court of Appeals for the Third Circuit
pursuant to 28 U.S.C. § 1292(b). On October 18, 2018, the District Court issued an order granting our motion, and staying the
action pending the outcome of our appeal petition to the Third Circuit. On October 29, 2018, we filed a petition for permission
to appeal with the United States Court of Appeals for the Third Circuit. On March 6, 2019, the Third Circuit denied our petition
without prejudice. In an order dated March 19, 2019, the District Court directed the lead plaintiffs to provide the defendants
with a proposed amended complaint. On April 26, 2019, lead plaintiffs filed their second amended complaint. We filed a
motion to dismiss the second amended complaint on June 10, 2019. On June 7, 2020, the District Court issued an order denying
our motion to dismiss the second amended complaint. On July 10, 2020, we filed our answer to the second amended complaint.
On July 23, 2020, the DOJ filed a motion on consent for leave to intervene and to stay all discovery through the conclusion of
the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), except for
documents produced by us to the DOJ in connection with those criminal proceedings. On July 24, 2020, the District Court
granted the DOJ’s motion; and on that same day, we filed a motion in the District Court to certify the June 7, 2020 order for
immediate appeal to the Third Circuit pursuant to 28 U.S.C. 1292(b), which motion is now fully briefed.
On October 31, 2016, November 15, 2016 and November 18, 2016, three putative shareholder derivative complaints were
filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and
former officers as defendants. These actions were consolidated in an order dated January 24, 2017. The complaints assert
claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider
selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-
appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017,
in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing
the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate
the dismissal in the future.
On February 22, 2017, April 7, 2017 and May 10, 2017, three additional putative shareholder derivative complaints
alleging similar claims were filed in the United States District Court for the District of New Jersey, naming us and certain of our
current and former directors and officers as defendants. These complaints asserted claims similar to those in the previously-filed
putative shareholder derivative actions. In an order dated June 20, 2017, the United States District Court for the District of New
Jersey consolidated these actions into a single action, appointed lead plaintiff and lead counsel, and stayed all further
proceedings pending a final, non-appealable ruling on the motions to dismiss the consolidated putative securities class action.
On October 30, 2018, lead plaintiff filed a consolidated verified derivative complaint.
On March 11, 2019, a seventh putative shareholder derivative complaint was filed in the United States District Court for
the District of New Jersey, naming us, certain of our current and former directors, and certain of our current and former officers
as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative
actions. On May 14, 2019, the United States District Court for the District of New Jersey approved a stipulation that (i)
consolidated this action with the putative shareholder derivative suits that were previously filed in the United States District
Court for the District of New Jersey; and (ii) stayed all of these suits pending order on the motion to dismiss the second
amended complaint in the securities class action. On August 3, 2020, lead plaintiffs filed an amended complaint.
We are presently unable to predict the duration, scope or result of the consolidated putative securities class action, the
putative shareholder derivative actions or any other lawsuits. As such, we are presently unable to develop a reasonable estimate
of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters. While the
Company intends to defend the lawsuits vigorously, these lawsuits and any other related lawsuits are subject to inherent
uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is
necessarily uncertain.
We have indemnification and expense advancement obligations pursuant to our bylaws and indemnification agreements
with respect to certain current and former members of senior management and the Company’s directors. In connection with the
matters that were the subject of our previously disclosed internal investigation, the DOJ and SEC investigations and the related
litigation, we have received and expect to continue to receive requests under such indemnification agreements and our bylaws
to provide funds for legal fees and other expenses. We have expensed such costs incurred through December 31, 2020.
We have maintained directors and officers insurance and have recorded an insurance receivable of $7 million and
$20 million as of December 31, 2020 and 2019, respectively, in "Other current assets" on our consolidated statement of
financial position related to the recovery of a portion of the indemnification expenses and costs related to the putative securities
class action complaints. We are unable to make a reliable estimate of the eventual cash flows by period related to the
indemnification and expense advancement obligations described here.
See Note 11 for information relating to the ITD Dispute.
Many of our engagements involve projects that are critical to the operations of our clients’ business and provide benefits
that are difficult to quantify. Any failure in a client’s systems or our failure to meet our contractual obligations to our clients,
including any breach involving a client’s confidential information or sensitive data, or our obligations under applicable laws or
regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although
we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in
rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in
all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage,
including coverage for errors or omissions, there can be no assurance that such coverage will cover all types of claims, continue
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Note 15 — Commitments and Contingencies
We are involved in various claims and legal proceedings arising in the ordinary course of business. We accrue a liability
when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is
reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim,
and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. While we do
not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matters described below,
if decided adversely), individually or in the aggregate, will have a material adverse effect on our financial position, an
unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash
flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As
such, our view of these matters is subject to inherent uncertainties and may change in the future.
On January 15, 2015, Syntel sued TriZetto and Cognizant in the United States District Court for the Southern District of
New York. Syntel’s complaint alleged breach of contract against TriZetto, and tortious interference and misappropriation of
trade secrets against Cognizant and TriZetto, stemming from Cognizant’s hiring of certain former Syntel employees. Cognizant
and TriZetto countersued on March 23, 2015, for breach of contract, misappropriation of trade secrets and tortious interference,
based on Syntel’s misuse of TriZetto confidential information and abandonment of contractual obligations. Cognizant and
TriZetto subsequently added federal Defend Trade Secrets Act and copyright infringement claims for Syntel’s misuse of
TriZetto’s proprietary technology. The parties’ claims were narrowed by the court and the case was tried before a jury, which
on October 27, 2020 returned a verdict in favor of Cognizant in the amount of $854 million, including $570 million in punitive
damages. We expect Syntel to appeal the decision and thus we will not record the gain in our financial statements until it
becomes realizable.
On February 28, 2019, a ruling of the SCI interpreting the India Defined Contribution Obligation altered historical
understandings of the obligation, extending it to cover additional portions of the employee’s income. As a result, the ongoing
contributions of our affected employees and the Company were required to be increased. In the first quarter of 2019, we
accrued $117 million with respect to prior periods, assuming retroactive application of the Supreme Court’s ruling, in "Selling,
general and administrative expenses" in our consolidated statement of operations. There is significant uncertainty as to how the
liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with
respect to certain current and former employees and whether interest and penalties may be assessed. Since the ruling, a variety
of trade associations and industry groups have advocated to the Indian government, highlighting the harm to the information
technology sector, other industries and job growth in India that would result from a retroactive application of the ruling. It is
possible the Indian government will review the matter and there is a substantial question as to whether the Indian government
will apply the SCI’s ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different
from the amount accrued.
On October 5, 2016, October 27, 2016 and November 18, 2016, three putative securities class action complaints were
filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers
as defendants. These complaints were consolidated into a single action and on April 7, 2017, the lead plaintiffs filed a
consolidated amended complaint on behalf of a putative class of persons and entities who purchased our common stock during
the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as
defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential
violations of the 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. Defendants filed a motion to dismiss the consolidated
amended complaint on June 6, 2017. On August 8, 2018, the United States District Court for the District of New Jersey issued
an order which granted the motion to dismiss in part, including dismissal of all claims against current officers of the Company,
and denied them in part. On September 7, 2018, we filed a motion in the United States District Court for the District of New
Jersey to certify the August 8, 2018 order for immediate appeal to the United States Court of Appeals for the Third Circuit
pursuant to 28 U.S.C. § 1292(b). On October 18, 2018, the District Court issued an order granting our motion, and staying the
action pending the outcome of our appeal petition to the Third Circuit. On October 29, 2018, we filed a petition for permission
to appeal with the United States Court of Appeals for the Third Circuit. On March 6, 2019, the Third Circuit denied our petition
without prejudice. In an order dated March 19, 2019, the District Court directed the lead plaintiffs to provide the defendants
with a proposed amended complaint. On April 26, 2019, lead plaintiffs filed their second amended complaint. We filed a
motion to dismiss the second amended complaint on June 10, 2019. On June 7, 2020, the District Court issued an order denying
our motion to dismiss the second amended complaint. On July 10, 2020, we filed our answer to the second amended complaint.
On July 23, 2020, the DOJ filed a motion on consent for leave to intervene and to stay all discovery through the conclusion of
the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), except for
documents produced by us to the DOJ in connection with those criminal proceedings. On July 24, 2020, the District Court
granted the DOJ’s motion; and on that same day, we filed a motion in the District Court to certify the June 7, 2020 order for
immediate appeal to the Third Circuit pursuant to 28 U.S.C. 1292(b), which motion is now fully briefed.
On October 31, 2016, November 15, 2016 and November 18, 2016, three putative shareholder derivative complaints were
filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and
former officers as defendants. These actions were consolidated in an order dated January 24, 2017. The complaints assert
claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider
selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-
appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017,
in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing
the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate
the dismissal in the future.
On February 22, 2017, April 7, 2017 and May 10, 2017, three additional putative shareholder derivative complaints
alleging similar claims were filed in the United States District Court for the District of New Jersey, naming us and certain of our
current and former directors and officers as defendants. These complaints asserted claims similar to those in the previously-filed
putative shareholder derivative actions. In an order dated June 20, 2017, the United States District Court for the District of New
Jersey consolidated these actions into a single action, appointed lead plaintiff and lead counsel, and stayed all further
proceedings pending a final, non-appealable ruling on the motions to dismiss the consolidated putative securities class action.
On October 30, 2018, lead plaintiff filed a consolidated verified derivative complaint.
On March 11, 2019, a seventh putative shareholder derivative complaint was filed in the United States District Court for
the District of New Jersey, naming us, certain of our current and former directors, and certain of our current and former officers
as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative
actions. On May 14, 2019, the United States District Court for the District of New Jersey approved a stipulation that (i)
consolidated this action with the putative shareholder derivative suits that were previously filed in the United States District
Court for the District of New Jersey; and (ii) stayed all of these suits pending order on the motion to dismiss the second
amended complaint in the securities class action. On August 3, 2020, lead plaintiffs filed an amended complaint.
We are presently unable to predict the duration, scope or result of the consolidated putative securities class action, the
putative shareholder derivative actions or any other lawsuits. As such, we are presently unable to develop a reasonable estimate
of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters. While the
Company intends to defend the lawsuits vigorously, these lawsuits and any other related lawsuits are subject to inherent
uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is
necessarily uncertain.
We have indemnification and expense advancement obligations pursuant to our bylaws and indemnification agreements
with respect to certain current and former members of senior management and the Company’s directors. In connection with the
matters that were the subject of our previously disclosed internal investigation, the DOJ and SEC investigations and the related
litigation, we have received and expect to continue to receive requests under such indemnification agreements and our bylaws
to provide funds for legal fees and other expenses. We have expensed such costs incurred through December 31, 2020.
We have maintained directors and officers insurance and have recorded an insurance receivable of $7 million and
$20 million as of December 31, 2020 and 2019, respectively, in "Other current assets" on our consolidated statement of
financial position related to the recovery of a portion of the indemnification expenses and costs related to the putative securities
class action complaints. We are unable to make a reliable estimate of the eventual cash flows by period related to the
indemnification and expense advancement obligations described here.
See Note 11 for information relating to the ITD Dispute.
Many of our engagements involve projects that are critical to the operations of our clients’ business and provide benefits
that are difficult to quantify. Any failure in a client’s systems or our failure to meet our contractual obligations to our clients,
including any breach involving a client’s confidential information or sensitive data, or our obligations under applicable laws or
regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although
we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in
rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in
all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage,
including coverage for errors or omissions, there can be no assurance that such coverage will cover all types of claims, continue
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to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the
insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that
exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of
operations, financial position and cash flows for a particular period.
In the normal course of business and in conjunction with certain client engagements, we have entered into contractual
arrangements through which we may be obligated to indemnify clients or other parties with whom we conduct business with
respect to certain matters. These arrangements can include provisions whereby we agree to hold the indemnified party and
certain of their affiliated entities harmless with respect to third-party claims related to such matters as our breach of certain
representations or covenants, our intellectual property infringement, our gross negligence or willful misconduct or certain other
claims made against certain parties. Payments by us under any of these arrangements are generally conditioned on the client
making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine
the maximum potential liability under these indemnification agreements due to the unique facts and circumstances involved in
each particular agreement. Historically, we have not made material payments under these indemnification agreements and
therefore they have not had a material impact on our operating results, financial position, or cash flows. However, if events
arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have
entered, such payments could have a material adverse effect on our business, results of operations, financial position and cash
flows for a particular period.
Note 16 — Employee Benefits
We contribute to defined contribution plans in the United States and Europe, including 401(k) savings and supplemental
retirement plans in the United States. Total expenses for our contributions to these plans were $118 million, $117 million and
$108 million for the years ended December 31, 2020, 2019 and 2018, respectively.
We maintain employee benefit plans that cover substantially all India-based employees. The employees’ provident fund,
pension and family pension plans are statutorily defined contribution retirement benefit plans. Under the plans, employees
contribute up to 12.0% of their eligible compensation, which is matched by an equal contribution by the Company. For these
plans, we recognized a contribution expense of $98 million, $101 million and $88 million for the years ended December 31,
2020, 2019 and 2018, respectively. On February 28, 2019, a ruling of the SCI altered historical understandings of the obligation
under these plans, extending them to cover additional portions of the employee’s income. In the first quarter of 2019, we
accrued $117 million with respect to prior periods, assuming retroactive application of the SCI’s ruling, in "Selling, general and
administrative expenses" in our consolidated statements of operations. See Note 15 for further information.
We also maintain a gratuity plan in India that is a statutory post-employment benefit plan providing defined lump sum
benefits. We make annual contributions to the employees’ gratuity fund established with a government-owned insurance
corporation to fund a portion of the estimated obligation. Accordingly, our liability for the gratuity plan reflected the
undiscounted benefit obligation payable as of the balance sheet date, which was based upon the employees’ salary and years of
service. As of December 31, 2020 and 2019, the amount accrued under the gratuity plan was $124 million and $135 million,
which is net of fund assets of $186 million and $160 million, respectively. Expense recognized by us was $35 million, $38
million and $53 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 17 — Stock-Based Compensation Plans
The Company's 2017 Incentive Plan and the Purchase Plan provide for the issuance of up to 48.8 million (plus any shares
underlying outstanding awards that are forfeited under the 2009 Incentive Plan) and 40.0 million shares, respectively, of
Class A common stock to eligible employees. The 2017 Incentive Plan does not affect any awards outstanding under the 2009
Incentive Plan. As of December 31, 2020, we have 28.8 million and 5.9 million shares available for grant under the 2017
Incentive Plan and the Purchase Plan, respectively.
The allocation of total stock-based compensation expense between cost of revenues and selling, general and
administrative expenses as well as the related income tax benefit were as follows for the three years ended December 31:
Cost of revenues
SG&A expenses
Total stock-based compensation expense
Income tax benefit
2020
$
$
$
51
181
232
48
2019
(in millions)
54
$
163
217
39
$
$
2018
$
$
$
62
205
267
66
Restricted Stock Units and Performance Stock Units
We granted RSUs that vest proportionately in quarterly or annual installments ranging from one year to four years to
employees, including our executive officers. Stock-based compensation expense relating to RSUs is recognized on a straight-
line basis over the requisite service period. A summary of the activity for RSUs granted under our stock-based compensation
plans as of December 31, 2020 and changes during the year then ended is presented below:
The weighted-average grant date fair value of RSUs granted in 2020, 2019 and 2018 was $61.85, $64.12 and $74.94,
respectively. As of December 31, 2020, $247 million of total remaining unrecognized stock-based compensation cost related to
RSUs is expected to be recognized over the weighted-average remaining requisite service period of 1.8 years.
We granted PSUs that vest over periods ranging from one year to four years to employees, including our executive
officers. The vesting of PSUs is contingent on both meeting certain financial performance targets and continued service. A
summary of the activity for PSUs granted under our stock-based compensation plans as of December 31, 2020 and changes
during the year then ended is presented below. The presentation reflects the number of PSUs at the maximum performance
Unvested at January 1, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2020
milestones.
Granted
Vested
Forfeited
Unvested at January 1, 2020
Number of
Units
(in millions)
Weighted Average
Grant Date
Fair Value
(in dollars)
4.5
3.9
(3.0)
(1.0)
4.4
$
$
67.07
61.85
65.42
64.91
64.09
Number of
Units
(in millions)
Weighted Average
Grant Date
Fair Value
(in dollars)
2.0
1.9
(0.2)
(0.9)
(1.1)
1.7
$
$
69.73
62.00
60.63
67.59
70.67
62.60
Adjustment at the conclusion of the performance measurement period
Unvested at December 31, 2020
The weighted-average grant date fair value of PSUs granted in 2020, 2019 and 2018 was $62.00, $70.77 and $81.98,
respectively. As of December 31, 2020, $34 million of the total remaining unrecognized stock-based compensation cost related
to PSUs is expected to be recognized over the weighted-average remaining requisite service period of 2.0 years.
All RSUs and PSUs have dividend equivalent rights, which entitle holders to the same dividend value per share as holders
of common stock. Dividend equivalent rights are subject to the same vesting and other terms and conditions as the
corresponding unvested RSUs and PSUs and are accumulated and paid when the underlying shares vest.
The Purchase Plan
The Purchase Plan provides for eligible employees to purchase shares of Class A common stock at a price of 90% of the
lesser of: (a) the fair market value of a share of Class A common stock on the first date of the purchase period or (b) the fair
market value of a share of Class A common stock on the last date of the purchase period. Stock-based compensation expense
for the Purchase Plan is recognized over the vesting period of three months on a straight-line basis.
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to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the
insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that
exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of
operations, financial position and cash flows for a particular period.
In the normal course of business and in conjunction with certain client engagements, we have entered into contractual
arrangements through which we may be obligated to indemnify clients or other parties with whom we conduct business with
respect to certain matters. These arrangements can include provisions whereby we agree to hold the indemnified party and
certain of their affiliated entities harmless with respect to third-party claims related to such matters as our breach of certain
representations or covenants, our intellectual property infringement, our gross negligence or willful misconduct or certain other
claims made against certain parties. Payments by us under any of these arrangements are generally conditioned on the client
making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine
the maximum potential liability under these indemnification agreements due to the unique facts and circumstances involved in
each particular agreement. Historically, we have not made material payments under these indemnification agreements and
therefore they have not had a material impact on our operating results, financial position, or cash flows. However, if events
arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have
entered, such payments could have a material adverse effect on our business, results of operations, financial position and cash
flows for a particular period.
Note 16 — Employee Benefits
We contribute to defined contribution plans in the United States and Europe, including 401(k) savings and supplemental
retirement plans in the United States. Total expenses for our contributions to these plans were $118 million, $117 million and
$108 million for the years ended December 31, 2020, 2019 and 2018, respectively.
We maintain employee benefit plans that cover substantially all India-based employees. The employees’ provident fund,
pension and family pension plans are statutorily defined contribution retirement benefit plans. Under the plans, employees
contribute up to 12.0% of their eligible compensation, which is matched by an equal contribution by the Company. For these
plans, we recognized a contribution expense of $98 million, $101 million and $88 million for the years ended December 31,
2020, 2019 and 2018, respectively. On February 28, 2019, a ruling of the SCI altered historical understandings of the obligation
under these plans, extending them to cover additional portions of the employee’s income. In the first quarter of 2019, we
accrued $117 million with respect to prior periods, assuming retroactive application of the SCI’s ruling, in "Selling, general and
administrative expenses" in our consolidated statements of operations. See Note 15 for further information.
We also maintain a gratuity plan in India that is a statutory post-employment benefit plan providing defined lump sum
benefits. We make annual contributions to the employees’ gratuity fund established with a government-owned insurance
corporation to fund a portion of the estimated obligation. Accordingly, our liability for the gratuity plan reflected the
undiscounted benefit obligation payable as of the balance sheet date, which was based upon the employees’ salary and years of
service. As of December 31, 2020 and 2019, the amount accrued under the gratuity plan was $124 million and $135 million,
which is net of fund assets of $186 million and $160 million, respectively. Expense recognized by us was $35 million, $38
million and $53 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 17 — Stock-Based Compensation Plans
The Company's 2017 Incentive Plan and the Purchase Plan provide for the issuance of up to 48.8 million (plus any shares
underlying outstanding awards that are forfeited under the 2009 Incentive Plan) and 40.0 million shares, respectively, of
Class A common stock to eligible employees. The 2017 Incentive Plan does not affect any awards outstanding under the 2009
Incentive Plan. As of December 31, 2020, we have 28.8 million and 5.9 million shares available for grant under the 2017
Incentive Plan and the Purchase Plan, respectively.
The allocation of total stock-based compensation expense between cost of revenues and selling, general and
administrative expenses as well as the related income tax benefit were as follows for the three years ended December 31:
Cost of revenues
SG&A expenses
Income tax benefit
Total stock-based compensation expense
2020
2019
2018
(in millions)
$
$
$
51
181
232
48
$
$
$
54
163
217
39
$
$
$
62
205
267
66
Restricted Stock Units and Performance Stock Units
We granted RSUs that vest proportionately in quarterly or annual installments ranging from one year to four years to
employees, including our executive officers. Stock-based compensation expense relating to RSUs is recognized on a straight-
line basis over the requisite service period. A summary of the activity for RSUs granted under our stock-based compensation
plans as of December 31, 2020 and changes during the year then ended is presented below:
Unvested at January 1, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2020
Number of
Units
(in millions)
Weighted Average
Grant Date
Fair Value
(in dollars)
4.5
3.9
(3.0)
(1.0)
4.4
$
$
67.07
61.85
65.42
64.91
64.09
The weighted-average grant date fair value of RSUs granted in 2020, 2019 and 2018 was $61.85, $64.12 and $74.94,
respectively. As of December 31, 2020, $247 million of total remaining unrecognized stock-based compensation cost related to
RSUs is expected to be recognized over the weighted-average remaining requisite service period of 1.8 years.
We granted PSUs that vest over periods ranging from one year to four years to employees, including our executive
officers. The vesting of PSUs is contingent on both meeting certain financial performance targets and continued service. A
summary of the activity for PSUs granted under our stock-based compensation plans as of December 31, 2020 and changes
during the year then ended is presented below. The presentation reflects the number of PSUs at the maximum performance
milestones.
Unvested at January 1, 2020
Granted
Vested
Forfeited
Adjustment at the conclusion of the performance measurement period
Unvested at December 31, 2020
Number of
Units
(in millions)
Weighted Average
Grant Date
Fair Value
(in dollars)
2.0
1.9
(0.2)
(0.9)
(1.1)
1.7
$
$
69.73
62.00
60.63
67.59
70.67
62.60
The weighted-average grant date fair value of PSUs granted in 2020, 2019 and 2018 was $62.00, $70.77 and $81.98,
respectively. As of December 31, 2020, $34 million of the total remaining unrecognized stock-based compensation cost related
to PSUs is expected to be recognized over the weighted-average remaining requisite service period of 2.0 years.
All RSUs and PSUs have dividend equivalent rights, which entitle holders to the same dividend value per share as holders
of common stock. Dividend equivalent rights are subject to the same vesting and other terms and conditions as the
corresponding unvested RSUs and PSUs and are accumulated and paid when the underlying shares vest.
The Purchase Plan
The Purchase Plan provides for eligible employees to purchase shares of Class A common stock at a price of 90% of the
lesser of: (a) the fair market value of a share of Class A common stock on the first date of the purchase period or (b) the fair
market value of a share of Class A common stock on the last date of the purchase period. Stock-based compensation expense
for the Purchase Plan is recognized over the vesting period of three months on a straight-line basis.
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The fair values of the options granted under the Purchase Plan, were estimated at the date of grant during the years ended
Segment operating profits by reportable segment were as follows:
December 31, 2020, 2019, and 2018 based upon the following assumptions and were as follows:
Dividend yield
Weighted average volatility factor
Weighted average risk-free interest rate
Weighted average expected life (in years)
Weighted average grant date fair value
2020
1.1 %
35.9 %
0.6 %
0.25
2019
1.3 %
24.9 %
2.2 %
0.25
2018
1.0 %
21.0 %
1.9 %
0.25
$ 9.38
$ 9.82
$ 10.87
During the year ended December 31, 2020, we issued 3.0 million shares of Class A common stock under the Purchase
Plan with a total fair value of approximately $28 million.
Note 18 — Related Party Transactions
In 2018, we provided $100 million of initial funding to the Cognizant U.S. Foundation. The expense was reported in the
caption "Selling, general and administrative expenses" in our consolidated statement of operations. Additionally, two of our
executive officers served as directors of the Cognizant U.S. Foundation in 2020, 2019 and 2018.
Note 19 — Segment Information
Our reportable segments are:
• Financial Services, which consists of our banking and insurance operating segments;
• Healthcare, which consists of our healthcare and life sciences operating segments;
• Products and Resources, which consists of our retail and consumer goods; manufacturing, logistics, energy, and
Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
utilities; and travel and hospitality operating segments; and
• Communications, Media and Technology, which includes our communications and media operating segment and our
technology operating segment.
Our client partners, account executives and client relationship managers are aligned in accordance with the specific
industries they serve. Our chief operating decision maker evaluates the Company's performance and allocates resources based
on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated
costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors,
pressures and challenges. However, the economic environment and its effects on industries served by our operating segments
may affect revenues and operating expenses to differing degrees.
Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-
based compensation expense) as well as a per employee charge for use of our global delivery centers and infrastructure. Certain
SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery employees as compared
to target, restructuring costs, COVID-19 Charges, costs related to the ransomware attack, a portion of depreciation and
amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal
management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment
operating profit and are included below as “unallocated costs” and adjusted against our total income from operations. The
incremental accrual related to the India Defined Contribution Obligation recorded in 2019 has been excluded from segment
operating profits for the year ended December 31, 2019. These costs are included in "unallocated costs" in the table below.
Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are
used interchangeably among the segments.
For revenues by reportable segment and geographic area see Note 2.
2020
2019
2018
(in millions)
1,449
1,383
1,078
794
4,704
2,590
2,114
$
$
1,605
1,261
1,028
732
4,626
2,173
2,453
$
$
1,713
1,416
1,023
692
4,844
2,043
2,801
$
$
2020
2019
2018
(in millions)
$
$
$
399
88
764
445
104
760
436
105
853
$
1,251
$
1,309
$
1,394
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total segment operating profit
Less: unallocated costs
Income from operations
Geographic Area Information
Long-lived assets by geographic area are as follows:
Long-lived Assets:(1)
North America(2)
Europe
Rest of World(3)
Total
Dividend
Acquisitions
(1)
(2)
(3)
Substantially all relates to the United States.
Substantially all relates to India.
Note 20 — Subsequent Events
On February 3, 2021, our Board of Directors approved the Company's declaration of a $0.24 per share dividend with a
record date of February 18, 2021 and a payment date of February 26, 2021.
In January 2021, we completed the acquisition of Linium for a preliminary purchase price of $85 million. Linium is a
cloud transformation consultancy group specializing in the ServiceNow platform and solutions for smart digital enterprise
workflows, acquired to broaden our enterprise service management capabilities.
In January 2021, we entered into an agreement to acquire Servian for a preliminary purchase price of $240 million.
Servian is an Australia-based enterprise transformation consultancy specializing in data analytics, AI, digital services,
experience design and cloud, which is expected to enhance our digital portfolio and market presence in Australia and New
Zealand. The transaction is expected to close during the first quarter of 2021.
In February 2021, we completed the acquisition of Magenic Technologies, Inc. for a preliminary purchase price of
$240 million, excluding contingent consideration. Magenic provides agile software and cloud development, DevOps,
experience design and advisory services across a range of industries and was acquired to enhance our global software
engineering expertise.
F-42
F-43
The fair values of the options granted under the Purchase Plan, were estimated at the date of grant during the years ended
Segment operating profits by reportable segment were as follows:
December 31, 2020, 2019, and 2018 based upon the following assumptions and were as follows:
2020
2019
2018
Dividend yield
Weighted average volatility factor
Weighted average risk-free interest rate
Weighted average expected life (in years)
Weighted average grant date fair value
2020
1.1 %
35.9 %
0.6 %
0.25
2019
1.3 %
24.9 %
2.2 %
0.25
2018
1.0 %
21.0 %
1.9 %
0.25
$ 9.38
$ 9.82
$ 10.87
During the year ended December 31, 2020, we issued 3.0 million shares of Class A common stock under the Purchase
Plan with a total fair value of approximately $28 million.
Note 18 — Related Party Transactions
In 2018, we provided $100 million of initial funding to the Cognizant U.S. Foundation. The expense was reported in the
caption "Selling, general and administrative expenses" in our consolidated statement of operations. Additionally, two of our
executive officers served as directors of the Cognizant U.S. Foundation in 2020, 2019 and 2018.
Note 19 — Segment Information
Our reportable segments are:
• Financial Services, which consists of our banking and insurance operating segments;
• Healthcare, which consists of our healthcare and life sciences operating segments;
• Products and Resources, which consists of our retail and consumer goods; manufacturing, logistics, energy, and
utilities; and travel and hospitality operating segments; and
• Communications, Media and Technology, which includes our communications and media operating segment and our
technology operating segment.
Our client partners, account executives and client relationship managers are aligned in accordance with the specific
industries they serve. Our chief operating decision maker evaluates the Company's performance and allocates resources based
on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated
costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors,
pressures and challenges. However, the economic environment and its effects on industries served by our operating segments
may affect revenues and operating expenses to differing degrees.
Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-
based compensation expense) as well as a per employee charge for use of our global delivery centers and infrastructure. Certain
SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery employees as compared
to target, restructuring costs, COVID-19 Charges, costs related to the ransomware attack, a portion of depreciation and
amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal
management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment
operating profit and are included below as “unallocated costs” and adjusted against our total income from operations. The
incremental accrual related to the India Defined Contribution Obligation recorded in 2019 has been excluded from segment
operating profits for the year ended December 31, 2019. These costs are included in "unallocated costs" in the table below.
Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are
used interchangeably among the segments.
For revenues by reportable segment and geographic area see Note 2.
Financial Services
Healthcare
Products and Resources
Communications, Media and Technology
Total segment operating profit
Less: unallocated costs
Income from operations
Geographic Area Information
Long-lived assets by geographic area are as follows:
Long-lived Assets:(1)
North America(2)
Europe
Rest of World(3)
Total
$
$
$
$
(in millions)
$
1,449
1,383
1,078
794
4,704
2,590
2,114
$
1,605
1,261
1,028
732
4,626
2,173
2,453
$
$
1,713
1,416
1,023
692
4,844
2,043
2,801
2020
2019
2018
(in millions)
399
88
764
1,251
$
$
445
104
760
1,309
$
$
436
105
853
1,394
(1)
(2)
(3)
Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
Substantially all relates to the United States.
Substantially all relates to India.
Note 20 — Subsequent Events
Dividend
On February 3, 2021, our Board of Directors approved the Company's declaration of a $0.24 per share dividend with a
record date of February 18, 2021 and a payment date of February 26, 2021.
Acquisitions
In January 2021, we completed the acquisition of Linium for a preliminary purchase price of $85 million. Linium is a
cloud transformation consultancy group specializing in the ServiceNow platform and solutions for smart digital enterprise
workflows, acquired to broaden our enterprise service management capabilities.
In January 2021, we entered into an agreement to acquire Servian for a preliminary purchase price of $240 million.
Servian is an Australia-based enterprise transformation consultancy specializing in data analytics, AI, digital services,
experience design and cloud, which is expected to enhance our digital portfolio and market presence in Australia and New
Zealand. The transaction is expected to close during the first quarter of 2021.
In February 2021, we completed the acquisition of Magenic Technologies, Inc. for a preliminary purchase price of
$240 million, excluding contingent consideration. Magenic provides agile software and cloud development, DevOps,
experience design and advisory services across a range of industries and was acquired to enhance our global software
engineering expertise.
F-42
F-43
Cognizant Technology Solutions Corporation
Valuation and Qualifying Accounts
For the Years Ended December 31, 2020, 2019 and 2018
(in millions)
Description
Warranty accrual:
2020
2019
2018
Valuation allowance—deferred income tax assets:
2020
2019
2018
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
(in millions)
Deductions
/Other
Balance at
End of
Period
$
$
$
$
$
$
33
32
30
24
11
10
$
$
$
$
$
$
32
33
32
5
15
1
$
$
$
$
$
$
—
—
—
—
—
—
$
$
$
$
$
$
33
32
30
—
2
—
$
$
$
$
$
$
32
33
32
29
24
11
EXHIBIT 31.1
I, Brian Humphries, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Cognizant Technology Solutions Corporation;
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;
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;
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;
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
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):
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
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.
c)
d)
a)
b)
Dated: February 12, 2021
/s/ BRIAN HUMPHRIES
Brian Humphries
Chief Executive Officer
(Principal Executive Officer)
F-44
Cognizant Technology Solutions Corporation
Valuation and Qualifying Accounts
For the Years Ended December 31, 2020, 2019 and 2018
(in millions)
Description
Warranty accrual:
2020
2019
2018
2020
2019
2018
Valuation allowance—deferred income tax assets:
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
(in millions)
Deductions
/Other
Balance at
End of
Period
$
$
$
$
$
$
33
32
30
24
11
10
$
$
$
$
$
$
32
33
32
5
15
1
$
$
$
$
$
$
—
—
—
—
—
—
$
$
$
$
$
$
33
32
30
—
2
—
$
$
$
$
$
$
32
33
32
29
24
11
EXHIBIT 31.1
I, Brian Humphries, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Cognizant Technology Solutions Corporation;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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: February 12, 2021
/s/ BRIAN HUMPHRIES
Brian Humphries
Chief Executive Officer
(Principal Executive Officer)
F-44
EXHIBIT 31.2
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 Annual Report on Form 10-K of Cognizant Technology Solutions Corporation (the
“Company”) for the period ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), the undersigned, Brian Humphries, Chief Executive Officer of the Company, hereby certifies, pursuant to 18
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
U.S.C. Section 1350, that:
and
of operations of the Company.
Dated: February 12, 2021
/s/ BRIAN HUMPHRIES
Brian Humphries
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.
I, Jan Siegmund, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Cognizant Technology Solutions Corporation;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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: February 12, 2021
/s/ JAN SIEGMUND
Jan Siegmund
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 31.2
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 Annual Report on Form 10-K of Cognizant Technology Solutions Corporation (the
“Company”) for the period ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), the undersigned, Brian Humphries, 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: February 12, 2021
/s/ BRIAN HUMPHRIES
Brian Humphries
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.
I, Jan Siegmund, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Cognizant Technology Solutions Corporation;
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;
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;
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;
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
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):
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
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.
c)
d)
a)
b)
Dated: February 12, 2021
/s/ JAN SIEGMUND
Jan Siegmund
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*
EXHIBIT 32.2
In connection with the Annual Report on Form 10-K of Cognizant Technology Solutions Corporation (the
“Company”) for the period ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), the undersigned, Jan Siegmund, 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: February 12, 2021
/s/ JAN SIEGMUND
Jan Siegmund
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.
This page intentionally left blank.
Executive offices
300 Frank W. Burr Blvd.
Suite 36, 6th Floor
Teaneck, NJ 07666 USA
Phone: 201.801.0233
www.cognizant.com
Form 10-K
A copy of the Company’s Annual Report
on Form 10-K is available without
charge upon request by contacting
Investor Relations.
Common stock information
The Company’s Class A Common Stock
(CTSH) is listed on the Nasdaq Global
Select Market.
Annual meeting date
The Company’s annual meeting
of stockholders will be held on
Tuesday, June 1, 2021 via live webcast at
www.virtualshareholdermeeting.com/CTSH2021;
Online check-in begins: 9:15 am;
Meeting begins: 9:30 am;
(all times U.S. Eastern Time)
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
Transfer agent
American Stock Transfer &
Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Investor relations
For more information, contact:
Katie Royce
Global Head of Investor Relations
Katie.Royce@cognizant.com
Corporate information
Directors
Michael Patsalos-Fox (CC) (FC) (GC)
Chairman of the Board
Cognizant
Former Chairman, the Americas
McKinsey & Company
Former CEO
Stroz Friedberg
Zein Abdalla (FC) (GC*)
Former President
PepsiCo
Executive officers
Brian Humphries
Chief Executive Officer
Jan Siegmund
Chief Financial Officer
Robert Telesmanic
Senior Vice President, Controller
and Chief Accounting Officer
Becky Schmitt
Executive Vice President,
Chief People Officer
Vinita Bali (CC) (FC)
Former CEO and Managing Director
Britannia Industries
Malcolm Frank
Executive Vice President and President,
Digital Business & Technology
Balu Ganesh Ayyar
Executive Vice President and
President, Digital Business Operations
Greg Hyttenrauch
Executive Vice President and
President, North America
Ursula Morgenstern
Executive Vice President and
President, Global Growth Markets
Andrew Stafford
Executive Vice President,
Head of Global Delivery
John Kim
Executive Vice President,
General Counsel, Chief Corporate
Affairs Officer and Secretary
Former Vice President
The Coca-Cola Company
Maureen Breakiron-Evans (AC) (GC)
Former CFO
Towers Perrin
Archana Deskus (AC)
Chief Information Officer
Intel
John M. Dineen (AC) (FC*)
Former President & CEO
GE Healthcare
John N. Fox, Jr. (CC) (GC)
Former Vice Chairman
Deloitte & Touche
Brian Humphries
Chief Executive Officer
Cognizant
Leo S. Mackay, Jr. (AC) (CC*) (GC)
Senior Vice President,
Ethics & Enterprise Assurance
Lockheed Martin
Joseph M. Velli (AC) (CC)
Former Senior Executive Vice President
The Bank of New York
Sandra S. Wijnberg (AC*) (FC)
Former CFO,
Marsh & McLennan Companies
Board committees
AC Audit Committee
FC Finance & Strategy Committee
CC Management Development
& Compensation Committee
GC Governance & Sustainability
Committee
* Denotes committee chairperson
This Annual Report includes statements which may constitute forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject
to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. These statements include,
but are not limited to, express or implied forward-looking statements relating to our vision and strategy, our expectations
regarding opportunities in the marketplace, our cost structure, investment in and growth of our business, our realignment
plans, the timing, our shift to digital solutions and services, and our anticipated financial performance. These statements
are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our
control, which could cause actual results to differ materially from those contemplated in these forward-looking statements.
Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Factors that could cause actual results to differ materially from those expressed or implied
include general economic conditions, the impact of the COVID-19 pandemic, changes in the regulatory environment,
including with respect to immigration and taxes, and the other factors discussed in our most recent Annual Report on
Form 10-K and other filings with the SEC. Cognizant undertakes 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 law.