Business Combinations and Equity and Cost Method Investments

Other than the acquisition of TZ US Parent, Inc., or TriZetto, in 2014, all acquisitions completed during the three years ended December 31, 2016 were not material to our operations, financial position or cash flow. All acquisitions were included in our consolidated financial statements as of the date on which the businesses were acquired. We have allocated the purchase price related to these transactions to tangible and intangible assets and liabilities, including non-deductible goodwill, based on their fair values. We finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition. During the three years ended December 31, 2016, the primary items that generated goodwill are synergies expected to be realized between the acquired companies and us and the value of the acquired assembled workforces, neither of which qualify as an amortizable intangible asset.

2016

Business Combinations

In 2016, we completed eight business combinations for total initial consideration of approximately $270 million (net of cash acquired). These transactions included (a) an acquisition of a global consulting and technology services company that strengthens and expands our digital capabilities to deliver cloud-based application services, (b) three acquisitions of delivery centers spanning several industries such as oil and gas services, steel and metal products, and banking and insurance to enhance our delivery capabilities across Europe along with multi-year service agreements, (c) an acquisition of tangible property, an assembled workforce and a multi-year service agreement which qualifies as a business combination under accounting guidance, (d) an acquisition of a global consulting company that offers digital innovation, strategy, design and technology services, (e) an acquisition of a digital marketing and customer experience agency that expands our digital business capabilities across Europe, and (f) an acquisition of an Australia-based consulting, business transformation and technology services provider in the insurance industry.

Specifically-identified intangible assets and goodwill acquired were as follows:



	Fair Value		Weighted Average Useful Life
	(in millions)
Non-deductible goodwill	$	157

Customer relationship intangible assets	$	199	6.6 years
Other intangible assets	1		3.3 years
Total identified intangible assets	$	200	6.6 years

Supplemental Schedule of Noncash Investing Activities

In conjunction with the 2016 acquisitions, liabilities were assumed as follows:



	Year Ended December 31, 2016
	(in millions)
Fair value of assets acquired	$	494
Purchase price paid in cash (net of cash acquired)	(270		)
Liabilities assumed	$	224

Equity Method Investment

In April 2016, we acquired a 49% ownership interest in a strategic consulting firm specializing in the use of human sciences to help business leaders better understand customer behavior for a purchase price of $59 million. We have accounted for this investment as an equity method investment within our consolidated financial statements. In addition, we have the option to buy from the investee, or Call Option, and the investee has the option to sell to us, or Written Put Option, the remaining 51% of the investee at pre-determined purchase prices and contingent on certain performance conditions being satisfied. The Call Option, which has been recorded at cost, and our 49% ownership interest are included within "Equity method investment" in our consolidated statements of financial position. The Written Put Option is included within "Accrued expenses and other current liabilities." If we acquire the remaining 51% of the investee and the investee meets certain performance conditions, we would be obligated to make incremental payments up to a maximum of $100 million, in addition to the purchase price for the remaining 51% of the investee. We did not hold any equity method investments during the years ended December 31, 2015 and 2014.

Cost Method Investment

In December 2016, we acquired a 5.7% ownership interest in an entity for $5 million. As we do not exercise significant influence or control over the investee, we have accounted for this ownership interest as a cost method investment within our consolidated financial statements. We did not hold any cost method investments during the years ended December 31, 2015 and 2014.

2015

We did not complete any material business combinations in 2015.

2014 - TriZetto Acquisition

On November 20, 2014, we completed the acquisition of TriZetto, a private U.S. healthcare information technology company for an aggregate purchase price, after giving effect to various purchase price adjustments, of approximately $2,628 million (net of cash acquired of $170 million). The TriZetto acquisition positioned Cognizant to better serve a wider cross-section of customers with an integrated solution set, combining technology with our healthcare services business. In connection with the acquisition of TriZetto, we entered into a credit agreement with a commercial bank syndicate providing for a $1,000 million unsecured term loan and a $750 million unsecured revolving credit facility. The term loan was used to pay a portion of the cash consideration in connection with the TriZetto acquisition.

Our allocation of purchase price as of November 20, 2014 (the closing date of the TriZetto acquisition) to the fair value of assets acquired and liabilities assumed was as follows:



	Amount
	(in millions)
Cash	$	170
Trade accounts receivable	83
Unbilled accounts receivable	33
Other current assets	11
Property and equipment	124
Identifiable intangible assets	849
Other noncurrent assets	15
Accounts payable	(13		)
Deferred revenue	(48		)
Accrued expenses and other current liabilities	(118		)
Other noncurrent liabilities	(55		)
Deferred income tax liabilities, net	(209		)
Goodwill	1,956
Total purchase price	$	2,798

We allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their fair values. The excess of purchase price over the estimated fair value of the underlying assets acquired and liabilities assumed was allocated to goodwill. The goodwill is not deductible for tax purposes and has been allocated to our Healthcare reportable segment. The above allocation of the purchase price is based upon our analysis of the fair value of identifiable assets acquired and liabilities assumed as of the acquisition date. We finalized the purchase price allocation within the measurement period ended on November 20, 2015, resulting in no material adjustments.

Acquired identifiable intangible assets were measured at fair value determined primarily using the income approach, which required a forecast of all expected future cash flows either through the use of the relief-from-royalty method or the excess earnings method. The fair value of the identifiable intangible assets and their weighted-average useful lives at the time of acquisition were as follows:



	Fair Value		Weighted Average Useful Life
	(Dollars in millions)
Corporate trademark	$	63	Indefinite

Product trademarks	21		16.9 years
Technology	328		7.7 years
Customer relationships	437		15.8 years
Total definite lived intangible assets	786		12.4 years
Total	$	849

TriZetto’s results of operations have been included in our financial statements for the period subsequent to the completion of the acquisition on November 20, 2014. The following unaudited pro forma information reflecting the combined operating results of Cognizant and TriZetto for the year ended December 31, 2014 assumes the TriZetto acquisition occurred on January 1, 2013. Such pro forma information does not reflect the potential realization of cost savings relating to the integration of TriZetto. Further, the pro forma information is not indicative of the combined results of operations that actually would have occurred had the TriZetto acquisition been completed on January 1, 2013 nor is it intended to be a projection of future operating results.



	Unaudited Pro Forma Information
	For the Year Ended
	December 31, 2014
	(in millions)
Revenues	$	10,893
Income from operations	1,960

These amounts have been calculated after adjusting for the additional amortization and depreciation expense that would have been recorded assuming the fair value adjustments to finite-lived intangible assets and property, plant and equipment had been applied on January 1, 2013.

The pro forma income from operations for the year ended December 31, 2014 was adjusted to exclude $41 million of transaction related professional services costs and $94 million of other costs incurred.

Supplemental Schedule of Noncash Investing Activities

In conjunction with the TriZetto acquisition, liabilities were assumed as follows:



	Year Ended December 31, 2014
	(in millions)
Fair value of assets acquired	$	3,071
Purchase price paid in cash (net of cash acquired)	(2,628		)
Liabilities assumed	$	443

2014 - Other Acquisitions

During 2014, excluding the acquisition of TriZetto, we completed three business combinations for total cash consideration of approximately $46 million (net of cash acquired). These transactions strengthened our digital business capabilities and expertise to further develop the portfolio of digital solutions and services we offer our customers. As part of these business combinations, we acquired customer relationship assets, assembled workforces, developed technology and other assets.

Specifically-identified intangible assets and goodwill acquired were as follows:



	2014
	Fair Value		Weighted Average Useful Life
	(Dollars in millions)
Non-deductible goodwill	$	31

Customer relationship intangible assets	$	12	6.0 years
Other intangible assets	4		3.1 years
Total identified intangible assets	$	16	5.2 years