10-K 1 ctsh20171231-10k.htm 10-K Document

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, 2017
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
Commission File Number 0-24429
 
 
 
 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Delaware
 
13-3728359
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
Glenpointe Centre West
500 Frank W. Burr Blvd.
Teaneck, New Jersey
 
07666
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (201) 801-0233
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
 
Class A Common Stock, $0.01 par value per share
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.    ☒  Yes     ☐ No
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
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes   ☐  No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
 (Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
 
Emerging Growth Company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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, 2017, based on $66.40 per share, the last reported sale price on the Nasdaq Global Select Market of the Nasdaq Stock Market LLC on that date, was $39.0 billion.
The number of shares of Class A common stock, $0.01 par value, of the registrant outstanding as of February 22, 2018 was 588,051,333 shares.
 
 
 
 
 
DOCUMENTS INCORPORATED BY REFERENCE
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 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.

 
 
 


TABLE OF CONTENTS
 
 
Item
 
Page
 
 
 
 
 
 
 
 
 
1.
 
 
 
 
 
 
 
1A.
 
 
 
 
 
 
 
1B.
 
 
 
 
 
 
 
2.
 
 
 
 
 
 
 
3.
 
 
 
 
 
 
 
4.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.
 
 
 
 
 
 
 
6.
 
 
 
 
 
 
 
7.
 
 
 
 
 
 
 
7A.
 
 
 
 
 
 
 
8.
 
 
 
 
 
 
 
9.
 
 
 
 
 
 
 
9A.
 
 
 
 
 
 
 
9B.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.
 
 
 
 
 
 
 
11.
 
 
 
 
 
 
 
12.
 
 
 
 
 
 
 
13.
 
 
 
 
 
 
 
14.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.
 
 
16.
 
 
 
 



PART I
 
Item 1. Business
Company Overview
Cognizant is one of the world’s leading professional services companies. We are in business to help our customers adapt, compete and grow in the face of continual shifts and disruptions within their markets. We do so by partnering with them to apply technology to transform their business, operating, and technology models, allowing them to achieve the full value of digitizing their entire enterprises. We call this being “digital at scale.” When implemented, it enables customers to achieve more efficient and effective operations while reshaping their business models for innovation and growth. Our industry-based, consultative approach helps customers envision, build and run more innovative and efficient businesses. Our core competencies include: business, process, operations and technology consulting, application development and systems integration, enterprise information management, application testing, application maintenance, information technology, or IT, infrastructure services, and business process services. We tailor our services and solutions to specific industries and use an integrated global delivery model that employs customer service teams based at customer locations and delivery teams located at dedicated global and regional delivery centers.
Industry Overview
In today’s fast-paced and complex business environment, most companies face intense competitive pressure and rapidly changing market dynamics. This more demanding environment is partially the result of the broadening use of new digital technologies such as artificial intelligence, analytics, robotic process automation, cybersecurity and hybrid cloud. These technologies have become so effective at transforming business models and core processes that no large enterprise can ignore them and still remain competitive. As a result, advanced technologies are no longer only about supporting the business; increasingly, they are the business. In response, many companies now apply digital technologies to transform the way they engage with customers and employees, and to develop innovative products and services and bring them quickly to market. Companies are also eager to automate additional aspects of their business to improve their cost structures and increase the quality and velocity of their operations. Therefore, customers seek digital transformation experts who can help them reimagine, redefine, and remake their businesses and who can provide this capability through a global sourcing model.
Business Strategy
Our objective is to create value for both our customers and stockholders by enhancing our position as a leading professional services company in the digital era. Our key strategies to achieve this objective are described below.
Align Our Digital Services and Solutions Along Three Practice Areas
Our digital services and solutions are designed to help our customers win in the digital economy by applying technology and analytics to change consumer experiences to drive sustainable growth, deploying systems of intelligence to automate and improve core business processes, and improving technology systems by deploying cloud and cyber security solutions and as-a-service models to make them simpler, more modern and secure.
We have aligned our digital services and solutions into three practice areas across our four industry-oriented business segments, to mirror our clients' needs and the parts of their enterprise they need to transform.
Cognizant Digital Business. Our digital business practice works with customers to envision and build human-centric digital solutions, fusing strategy, intelligence, experience and software to drive industry-aligned transformative growth. Our approach combines data science, design thinking, and deep industry and process knowledge with solid technology capabilities to unite the physical and virtual aspects of a company’s offerings seamlessly across every channel. We help customers identify insights, develop business models and go-to-market strategies, and design, prototype and scale meaningful experiences.
Cognizant Digital Operations. Our digital operations practice helps customers re-engineer, digitize, manage and operate their most essential business processes to lower operating costs, improve user experiences and deliver better outcomes and top-line growth. Across the practice, we are creating automated, data-driven platforms and industry utilities.
Cognizant Digital Systems & Technology. Our digital systems and technology practice helps clients create and evolve applications, platforms and infrastructure that meet the needs of modern enterprises. We work with customers to simplify, modernize and secure IT infrastructure and applications by leveraging automation, analytics and agile

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development, allowing our customers to unlock the value in their legacy technology environments, adapt to change and maintain the integrity of their core IT infrastructure. We help customers create and evolve systems that meet their needs in the modern enterprise by delivering industry-leading standards of performance, cost and flexibility.
Our global consulting team provides business, process, operations and technology consulting services to bring together the capabilities of all three of our digital practice areas into effective solutions for our customers. Our consulting professionals and domain experts from our industry-focused business segments work closely with our digital practice areas to create frameworks, platforms and solutions that customers find valuable as they pursue new efficiencies and revenue streams.
Scale Our Digital Practice Areas
We are investing to scale our digital practice areas across our business segments and geographies. We seek to drive organic growth through the extensive training and re-skilling of our technical teams and the expansion of our local workforces in the United States and other markets around the world where we operate. Additionally, we pursue select strategic acquisitions, joint ventures, investments and alliances that can expand our intellectual property portfolio, industry expertise, geographic reach, and platform and technology capabilities.

In 2017, we completed several acquisitions to further enhance our digital capabilities. These include the acquisitions of Brilliant Service, a Japan-based intelligent products and solutions company; Netcentric, a leading independent Adobe partner in Europe and a leading provider of digital experience and marketing solutions for some of the world’s most recognized brands; and Zone, a UK-based leading independent, full-service digital agency that specializes in interactive digital strategy, technology and content creation.

Continue To Develop Our Core Business
Our core business supports our ability to provide digital services and solutions to our customers. In many cases, our customers' new digital systems are built upon the backbone of their core, traditional systems. Our deep knowledge of their infrastructure and core systems provides us with a significant advantage as we work with them to build new digital capabilities. Customers often look for efficiencies in the way they run their core operations so they can fund investments in new digital capabilities. We work with them to analyze and identify opportunities to apply advanced automation and deliver new efficiencies. We deploy a variety of commercial and delivery models, including managed services, fixed priced, output- and outcome-based pricing and platforms to meet their varied needs.
Our services include consulting and technology services and outsourcing services. Consulting and technology services include business, process, operations and technology consulting, application development and systems integrations, application testing, enterprise information management and software solutions and related services. Outsourcing services include application maintenance, IT infrastructure services and business process services.
We deliver services to our customers across our four business segments in a standardized, high-quality manner through our global delivery model. During 2017, we invested to broaden and deepen our services and capabilities and have created new tools to help our sales teams more crisply convey the distinctive value of our services to clients. At the same time, we have intensified our focus on developing industry-specific solutions across technologies.
Additionally, we seek to expand the geographic reach of our core portfolio of services. We believe that Europe, the Middle East, Asia Pacific and Latin America will continue to present long-term growth opportunities.
Leverage Our Domain Expertise
Our deep domain expertise in the industries we serve is central to understanding our customers' challenges and designing effective solutions to address them. We hire professionals who are industry experts and invest in continual industry training for our teams as we build out our portfolio of industry-specific services and solutions. This approach is key to our ability to develop relevant solutions that deliver measurable business results.
Utilize a Global Delivery Model
We utilize a global delivery model, with delivery centers worldwide, to respond quickly to customers with high-quality services at competitive rates. Our four-tiered global architecture for service delivery and operations consists of employees co-located at customers’ sites, at local or in-country delivery centers, at regional delivery centers and at offshore delivery centers. As we develop our digital services, we are focused on hiring in the United States and other countries to expand our in-country delivery capabilities. Our extensive facilities, technology and communications infrastructure facilitates the seamless integration of our global workforce.

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Across our business segments, we are highly dependent upon our foreign operations. Our delivery centers and technical professionals are positioned globally, with the majority located in India. Our operations in India and the rest of the world expose us to various risks, including regulatory, economic and political risks and instability, potentially unfavorable immigration, tax, import and export policies, fluctuations in foreign exchange and inflation rates, international and civil hostilities, terrorism, natural disasters and pandemics.
Deploy Customer-Centric, Collaborative Approach
We put our customers' priorities first and continuously seek to deliver not only what they need today but also what we believe they will need in the future. Our Global Technology Office and Cognizant Accelerator focus on developing innovative offerings for customers' emerging needs and support our business segments and practice areas. A cornerstone of our success is the collaboration of our associates and teams across segments and practice areas. We believe that when we share knowledge and work together, we can achieve more for our customers and our Company.
Business Segments
We are organized around and go to market across our four industry business segments:
Financial Services
 
Healthcare
 
Products and Resources
 
Communications, Media and Technology
● Banking
● Insurance
  
● Healthcare
● Life Sciences
  
● Retail and Consumer Goods
● Manufacturing and Logistics
● Travel and Hospitality
● Energy and Utilities
  
● Communications and Media
● Technology
Our Financial Services segment includes banking, capital markets and insurance services companies. Our Healthcare segment consists of healthcare providers and payers as well as life sciences companies, including pharmaceutical, biotech and medical device companies. Our Products and Resources segment includes manufacturers, retailers, travel and other hospitality companies, as well as companies providing logistics and energy and utility services. Our Communications, Media and Technology segment includes information, media and entertainment, communications and technology companies.
This industry focus has been central to our revenue growth and high customer satisfaction. As the technology services industry continues to mature and shift from supporting the business to becoming one of the main sources of value, customers require service providers to have a deep understanding of their businesses, industry initiatives, customers, markets and cultures and the ability to create solutions tailored to meet their customers’ individual business needs. For the year ended December 31, 2017, the distribution of our revenues across our four industry-focused business segments was as follows:
chart-ctsh2017revbyseg.jpg
See Note 18 to our consolidated financial statements for additional information related to our business segments, including the disclosure of segment revenues, operating profit and financial information by geographic area.

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Demand from customers in our business segments is driven by the following trends:
Business Segment
Drivers of demand
Financial Services
Adoption and integration of digital technologies that are reshaping our customers’ business and operating models, the need for cost optimization, robotic process automation, cyber security and vendor consolidation.
Healthcare
The need for a broader range of services, including business process services and solutions that address regulatory requirements and emerging industry trends such as regulatory compliance, integrated health management, enterprise information management, claims investigative services and operational improvement in areas such as claims processing, enrollment, membership and billing, advanced data analytics and solutions that span multiple service lines while leveraging cloud technologies and platforms.
Products and Resources
Application of intelligent systems to manufacturing and logistics operations, enablement of mobile platforms to support field sales, data analytics to make better informed decisions and smart, connected products that are a portal to an ecosystem of data and services, analytics, supply chain consulting, implementation initiatives, product transformation, internet of things and omni channel commerce implementation and integration services.
Communications, Media and Technology
Digital technologies, digital content operations, the transition to new network technologies, design, development, testing and the introduction of new products and channels, improvements to customer service and satisfaction, transformation of business support systems, services to help our customers balance rationalizing costs while creating a differentiated user experience, transition to agile development methodologies and the enablement of applications for cloud deployment and an expanded range of services, such as business process services.
Our Solutions and Services
We continually invest in the expansion of our service portfolio to anticipate and meet customers’ evolving needs. These services are delivered to our customers across our four business segments in a standardized, high-quality manner through our global delivery model. Our three digital practice areas span our portfolio of service offerings. Our current service areas include:
Consulting and Technology Services
Business, Process, Operations and Technology Consulting. Our global consulting team, Cognizant Consulting, helps customers re-imagine and transform their businesses to gain competitive advantage. Cognizant Consulting works with customers to improve business performance and operational productivity in order to exceed business goals. We also provide assistance with strategy consulting, business and operations consulting, technology strategy and change management, and program management consulting.
Application Development and Systems Integration. We offer a full range of application design, application development and systems integration services, which enables our customers' technology functions to operate in the most efficient, responsive and cost-effective manner. We have particular depth of skills in implementing large, complex, business-critical technology development and integration programs.
Application Testing. Our application testing practice offers a comprehensive suite of services in testing, consulting and engineering. Our quality engineering and assurance transformation services help customers develop deep, agile capabilities that create or extend their competitive advantage. Our business-aligned services in the areas of system and integration testing, package testing, user acceptance, automation, performance testing and test data management address our customers’ critical quality needs. Consulting and infrastructure solutions in quality management, test tools and test infrastructure enable our customers to capitalize on emerging opportunities.
Enterprise Information Management. Our enterprise information management practice focuses on helping customers harness the vast amounts of data available on their operations, customers and markets, and convert that data into information and insights that are valuable to their businesses and can be used to drive management decisions. We help customers identify the types of data available both within their organizations and from outside sources and work to bring that data together in a meaningful “data to foresight” continuum. Among the trends driving this business are the desire of companies to better understand consumer demands and market opportunities in order to create new products and services, the need to manage reporting requirements in regulated industries such as healthcare and financial services, and the pressures to manage operations more efficiently and cost-effectively through the use of analytical tools.
Software Solutions and Related Services. We develop, license, implement and support proprietary and third-party software products for the healthcare industry, including solutions for health insurance plans, third party benefit

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administrators and healthcare providers that enable healthcare organizations to work more efficiently and collaboratively to deliver better healthcare services. Our solutions help health plans and third party administrators increase administrative efficiency, improve the cost and quality of care, and succeed in the retail healthcare market. Our solutions help physicians and healthcare organizations simplify business processes and execute strategies for population health management, accountable care, and value-based initiatives.
Outsourcing Services
Application Maintenance. Our application maintenance service offering supports some or all of a customer’s applications, ensuring that systems remain operational and responsive to changing user requirements, including the adaptation of systems to digital technologies, and provides on-going enhancements as required by the customer. Our application maintenance services enable customers to improve the overall agility, responsiveness, productivity and efficiency of their IT infrastructure and help reduce cost of ownership. As part of this process, we often introduce products and process enhancements and improve service levels to customers requesting modifications and on-going support. Our global delivery business model enables us to provide a range of rapid response and cost-effective support services. Our on-site personnel often provide help-desk services at the customer’s facility. As part of our application maintenance services, we assist customers in renovating their core systems to meet the requirements imposed by new regulations, new standards or other external events. We consider the future operational environment of our customers’ IT systems as we design and develop such systems. We also offer diagnostic services to assist customers in identifying issues in their IT systems and optimizing the performance of their systems.
IT Infrastructure Services. The major services we provide include data center, infrastructure security, network and convergence, end-user computing services and mobility. We also have cloud services offerings that utilize virtualization technologies across delivery solutions for private cloud, enterprise multi-tenant cloud and public cloud models. We provide services that harness and modernize legacy systems to be digital-ready with agility and speed without sacrificing the knowledge those systems contain. Customers are increasingly utilizing IT infrastructure services to sharpen their focus on core business operations, reallocate overhead costs to growth investments, enable businesses to respond more quickly to changing demands, decrease time to market, ensure that the IT infrastructure can scale as the business evolves and access skill sets outside the organization.
Business Process Services. We provide business process services through unique industry-aligned solutions that integrate process, domain and technology expertise to enable our customers to respond in an agile manner to market opportunities and challenges, while also creating variable cost structures to drive greater effectiveness and cost-efficiency. We have extensive domain-specific expertise in core front office, middle office and back office functions including finance and accounting, procurement, data administration, data management, and research and analytics. Our industry-specific solutions include clinical data management, pharmacovigilance, equity research support, commercial operations and order management. Related services include consulting to ensure process excellence and a range of platform-based services. Our goals for our customer relationships are customer satisfaction, operational productivity, strategic value and business transformation. Among the factors driving growth in our services are the desire to improve cost-effectiveness, the emergence of digital technologies and the need for customers to access capabilities beyond their organizations to adapt to rapid changes in technologies, markets and customer demands.
Sales and Marketing
We market and sell our services directly through our professional staff, senior management and direct sales personnel operating out of our global headquarters and business development offices, which are strategically located around the world. The sales and marketing group works with our customer delivery team as the sales process moves closer to the customer’s selection of a services provider. The duration of the sales process may vary widely depending on the type and complexity of services.

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Customers
The number of customers we serve has increased in recent years. As of December 31, 2017, we increased the number of our strategic customers to 357. We define a strategic customer as one offering the potential to generate at least $5 million to $50 million or more in annual revenues at maturity. We provide a significant volume of services to many customers in each of our business segments. Therefore, a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for such segment. However, no individual customer exceeded 10% of our consolidated revenues for the years ended December 31, 2017, 2016 and 2015. In addition, the services we provide to our larger customers are often critical to the operations of such customers and a termination of our services generally would require an extended transition period with gradually declining revenues. The volume of work performed for specific customers is likely to vary from year to year, and a significant customer in one year may not use our services in a subsequent year. Revenues from our top customers as a percentage of total revenues were as follows:
 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Top five customers
 
8.9
%
 
10.0
%
 
11.0
%
Top ten customers
 
14.9
%
 
16.7
%
 
18.6
%
For the year ended December 31, 2017, the distribution of our revenues across geographies was as follows:
chart-ctsh2017revbygeo.jpg
Competition
The markets for technology, digital and outsourcing services are highly competitive, characterized by a large number of participants and subject to rapid change. Various competitors in all or some of such markets include:
systems integration firms;
contract programming companies;
application software companies;
cloud computing service providers;
large or traditional consulting firms;
professional services groups of computer equipment companies;
infrastructure management and 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:
vision and strategic advisory ability;
digital services capabilities;
performance and reliability;
quality of technical support, training and services;

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responsiveness to customer needs;
reputation and experience;
financial stability and strong corporate governance; and
competitive pricing of services.
We rely on the following to compete effectively:
investments to scale our digital services practice areas;
a well-developed recruiting, training and retention model;
a successful service delivery model;
entrepreneurial culture and approach to our work;
a broad referral base;
continual investment in process improvement and knowledge capture;
investment in infrastructure and research and development;
financial stability and strong corporate governance;
continued focus on responsiveness to customer needs, quality of services and competitive prices; and
project management capabilities and technical expertise.
Intellectual Property
    
We provide value to our customers based, in part, on our proprietary innovations, methodologies, reusable knowledge capital and other intellectual property, or IP, assets. We recognize the importance of IP and its ability to differentiate us from our competitors. We rely on a combination of IP laws, as well as confidentiality procedures and contractual provisions, to protect our IP and our brand. We have registered, and applied for the registration of, U.S. and international trademarks, service marks, domain names and copyrights. Cognizant owns or is licensed under a number of patents, trademarks, copyrights, and licenses, which vary in duration, relating to our products and services. We actively seek IP protection for our innovations. While our proprietary IP rights are important to our success, we believe our business as a whole is not materially dependent on any particular intellectual property right, or any particular group of patents, trademarks, copyrights or licenses.
Employees
We had approximately 260,000 employees at the end of 2017, with approximately 50,400 in North America, approximately 13,800 in Europe and approximately 195,800 in various other locations throughout the rest of world, including 180,000 in India. We are not party to any significant collective bargaining agreements. We consider our relations with our employees to be good.

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Our Executive Officers
The following table identifies our current executive officers:
Name
 
Age
 
Capacities in Which Served
 
In Current
Position Since
Francisco D’Souza(1)
 
49

 
Chief Executive Officer
 
2007
Rajeev Mehta(2)
 
51

 
President
 
2016
Karen McLoughlin(3)
 
53

 
Chief Financial Officer
 
2012
Ramakrishnan Chandrasekaran(4)
 
60

 
Executive Vice Chairman, Cognizant India
 
2013
Debashis Chatterjee(5)
 
52

 
Executive Vice President and President, Global Delivery
 
2016
Ramakrishna Prasad Chintamaneni(6)
 
48

 
Executive Vice President and President, Global Industries and Consulting
 
2016
Malcolm Frank(7)
 
51

 
Executive Vice President, Strategy and Marketing
 
2012
Matthew Friedrich (8)
 
51

 
Executive Vice President, General Counsel, Chief Corporate Affairs Officer and Secretary
 
2017
Sumithra Gomatam(9)
 
50

 
Executive Vice President and President, Digital Operations
 
2016
Gajakarnan Vibushanan Kandiah(10)
 
50

 
Executive Vice President and President, Digital Business
 
2016
Venkat Krishnaswamy(11)
 
64

 
Executive Vice President and President, Healthcare and Life Sciences
 
2013
James Lennox(12)
 
53

 
Executive Vice President, Chief People Officer
 
2016
Sean Middleton(13)
 
36

 
Senior Vice President and President, Cognizant Accelerator
 
2017
Allen Shaheen(14)
 
55

 
Executive Vice President, North American Regional Delivery Centers
 
2018
Dharmendra Kumar Sinha(15)
 
55

 
Executive Vice President and President, Global Client Services
 
2013
Robert Telesmanic(16)
 
51

 
Senior Vice President, Controller and Chief Accounting Officer
 
2017
Santosh Thomas(17)
 
49

 
Executive Vice President and President, Global Growth Markets
 
2016
Srinivasan Veeraraghavachary(18)
 
58

 
Executive Vice President, Chief Operating Officer
 
2016
 
(1)
Francisco D’Souza has been our Chief Executive Officer and a member of the Board of Directors since 2007. He also served as our President from 2007 to 2012. Mr. D’Souza joined Cognizant as a co-founder in 1994, the year it was started as a division of The Dun & Bradstreet Corporation, and was previously our Chief Operating Officer from 2003 to 2006 and held a variety of other senior management positions at Cognizant from 1997 to 2003. Mr. D’Souza has served on the Board of Directors of General Electric Company, or GE, since 2013, where he is currently a member of the Audit Committee and the Technology and Industrial Risk Committee. He also serves on the Board of Trustees of Carnegie Mellon University and as Co-Chairman of the Board of Trustees of The New York Hall of Science. Mr. D’Souza has a Bachelor of Business Administration degree from the University of Macau and a Master of Business Administration, or MBA, degree from Carnegie Mellon University.
(2)
Rajeev Mehta has been our President since September 2016. From December 2013 to September 2016, Mr. Mehta served as our Chief Executive Officer, IT Services. From February 2012 to December 2013, Mr. Mehta served as our Group Chief Executive - Industries and Markets. Mr. Mehta held other senior management positions in client services and our financial services business segment from 2001 to 2012. Prior to joining Cognizant in 1997, Mr. Mehta was involved in implementing GE Information Services' offshore outsourcing program and also held consulting positions at Deloitte & Touche LLP and Andersen Consulting. Mr. Mehta has a Bachelor of Science degree from the University of Maryland and an MBA degree from Carnegie Mellon University.
(3)
Karen McLoughlin has been our Chief Financial Officer since February 2012. Ms. McLoughlin has held various senior management positions in our finance department since she joined Cognizant in 2003. Prior to joining Cognizant, Ms. McLoughlin held various financial management positions at Spherion Corporation and Ryder System, Inc. and served in various audit roles at Price Waterhouse (now PricewaterhouseCoopers). Ms. McLoughlin has served on the Board of Directors of Best Buy Co., Inc. since 2015, where she is currently a member of the Audit Committee and the Finance and

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Investment Policy Committee. Ms. McLoughlin has a Bachelor of Arts degree in Economics from Wellesley College and an MBA degree from Columbia University. 
(4)
Ramakrishnan Chandrasekaran has been our Executive Vice Chairman, Cognizant India since December 2013. From February 2012 to December 2013, Mr. Chandrasekaran served as our Group Chief Executive - Technology and Operations. Mr. Chandrasekaran held other senior management positions in global delivery from 1999 to 2012. Prior to joining us in 1994, Mr. Chandrasekaran worked with Tata Consultancy Services. Mr. Chandrasekaran has a Mechanical Engineering degree and an MBA degree from the Indian Institute of Management.
(5)
Debashis Chatterjee has been our Executive Vice President and President, Global Delivery and managed our Digital Systems and Technology practice area since August 2016. From December 2013 to August 2016, Mr. Chatterjee served as Executive Vice President and President, Technology Solutions. From May 2013 to December 2013, Mr. Chatterjee served as Senior Vice President and Global Head, Technology and Information Services. From March 2012 to April 2013, he was Senior Vice President, Transformational Services. Mr. Chatterjee worked at International Business Machine Corporation, or IBM, from 2011 to 2012 as Vice President and Sectors Leader, Global Business Services, Global Delivery. Prior to that, Mr. Chatterjee held various senior positions in the Banking and Financial Services, or BFS, practice at Cognizant from 2004 to 2011 and other management roles at Cognizant since joining us in 1996. He has been in our industry since 1987, having previously worked at Tata Consultancy Services and Mahindra & Mahindra. Mr. Chatterjee has a Bachelor of Engineering degree in Mechanical Engineering from Jadavpur University in India.
(6)
Ramakrishna Prasad Chintamaneni has been our Executive Vice President and President, Global Industries and Consulting since August 2016. Mr. Chintamaneni served as our Executive Vice President and President, BFS, from December 2013 to August 2016. From 2011 to December 2013, Mr. Chintamaneni served as our Global Head of the BFS practice. Mr. Chintamaneni held various senior positions in the BFS practice from 2006 to 2011 and was a client partner in our BFS practice from 1999 to 2006. Prior to joining Cognizant in 1999, Mr. Chintamaneni spent seven years in the investment banking and financial services industry, including working at Merrill Lynch and its affiliates for five years as an Investment Banker and a member of Merrill’s business strategy committee in India. Mr. Chintamaneni has a Bachelor of Technology degree in Chemical Engineering from the Indian Institute of Technology, Kanpur and a Postgraduate Diploma in Business Management from the XLRI - Xavier School of Management in India. 
(7)
Malcolm Frank has been our Executive Vice President, Strategy and Marketing since February 2012. Mr. Frank served as our Senior Vice President of Strategy and Marketing from 2005 to 2012. Prior to joining Cognizant in 2005, Mr. Frank was previously 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. Mr. Frank has a Bachelor degree in Economics from Yale University.
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Matthew Friedrich has been our Executive Vice President, General Counsel, Chief Corporate Affairs Officer and Secretary since May 2017. Prior to joining Cognizant, Mr. Friedrich was Chief Corporate Counsel for Chevron Corporation, a multinational energy company, from August 2014 through May 2017, a partner with the law firm of Freshfields Bruckhaus Deringer LLP from April 2013 through August 2014 and a partner with the law firm of Boies Schiller & Flexner LLP from June 2009 through April 2013. Mr. Friedrich began his legal career in 1995 as a federal prosecutor with the United States Department of Justice, where he remained for nearly 14 years, culminating with his designation as the acting assistant Attorney General of the Criminal Division in 2008. Mr. Friedrich is a life member of the Council on Foreign Relations and serves on the Board of Directors of the U.S.-India Business Council. Mr. Friedrich has a Bachelor of Arts degree in Foreign Affairs from the University of Virginia and a Juris Doctor degree from the University of Texas School of Law.
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Sumithra Gomatam has been our Executive Vice President and President, Digital Operations since August 2016. From December 2013 to August 2016, Ms. Gomatam served as our Executive Vice President and President, Industry Solutions. From 2008 to December 2013, Ms. Gomatam served as Senior Vice President, and global leader for our Testing practice. Ms. Gomatam held other management positions in our global delivery and BFS practices from 1995 to 2008. Ms. Gomatam has a Bachelor of Engineering degree in Electronics and Communication from Anna University.
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Gajakarnan Vibushanan Kandiah has been our Executive Vice President and President, Digital Business since August 2016. Mr. Kandiah previously served as Executive Vice President of Business Process Services, or BPS, and Digital Works from January 2014 to August 2016, and as Senior Vice President of BPS from 2011 to December 2013. Previous roles he held at Cognizant included roles in System Integration, Testing, BPS, Information, Media and Entertainment, and Communications practices. Before joining Cognizant in 2003, Mr. Kandiah was a founder and the Chief Operating Officer of NerveWire, Inc. and the Global Vice President of the Interactive Solutions business of Cambridge Technology Partners. Mr. Kandiah completed his advanced level education at the Royal College in Sri Lanka.
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Venkat Krishnaswamy has been our Executive Vice President and President, Healthcare and Life Sciences since December 2013. From February 2012 to December 2013, Mr. Krishnaswamy served as our Executive Vice President of

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Healthcare and Life Sciences. Mr. Krishnaswamy served as our Senior Vice President and General Manager of Healthcare and Life Sciences from 2007 to 2012 and in various other management positions since he joined Cognizant in 1997. Prior to joining Cognizant, Mr. Krishnaswamy spent over ten years in retail and commercial banking with Colonial State Bank (now Commonwealth Bank of Australia). Mr. Krishnaswamy has a Bachelor of Engineering degree from the University of Madras and a Master of Electrical Engineering degree from the Indian Institute of Technology, New Delhi.
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James Lennox has been our Executive Vice President, Chief People Officer since January 2016. Mr. Lennox previously served as our Senior Vice President, Chief People Officer from June 2013 to December 2016, and as Vice President, North America Human Resources, or HR, from July 2011 to June 2013. Previous roles he held at Cognizant included leading the Workforce Management team, Operations Director for our Banking and Insurance practices, leading regional HR teams, and serving as the Chief of Staff to the Company’s Chief Executive Officer. Prior to joining Cognizant in 2004, Mr. Lennox held various management roles in operations, HR, resource management and recruiting for the North American regions of Cap Gemini and Ernst & Young. He started his career at Ernst & Young Consulting. Mr. Lennox has a Bachelor of Science degree in Business Administration from St. Thomas Aquinas College and an MBA degree from Fordham University.
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Sean Middleton has been our Senior Vice President and President, Cognizant Accelerator since January 2017. He was previously Vice President and President, Cognizant Accelerator from July 2016 to January 2017. Mr. Middleton served as Chief Operating Officer of our Emerging Business Accelerator division from 2012 to July 2016 and as Chief of Staff to the Company's Chief Executive Officer from 2010 to 2013. Prior to joining Cognizant in 2010, Mr. Middleton worked at PricewaterhouseCoopers as a management consultant. Mr. Middleton has a Bachelor degree in Computer Science from Cornell University and an MBA degree from the Wharton School at the University of Pennsylvania.
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Allen Shaheen has been our Executive Vice President, North American Regional Delivery Centers since January 2018. From August 2015 to December 2017, Mr. Shaheen was Executive Vice President, Corporate Development. From December 2013 to August 2016, Mr. Shaheen was also responsible for various Cognizant practices, including our Enterprise Application Services Practice. Mr. Shaheen was the General Manager for our German business unit from February 2013 to December 2014 and our Markets Delivery Leader for Europe from May 2012 to December 2014. Mr. Shaheen's prior roles included being responsible for our IT Infrastructure Services, head of our Global Technology Office and head of our Systems Integration and Testing practices. Prior to joining Cognizant in 2006, Mr. Shaheen was a consultant for Cognizant from 2004 to 2006, a founder and Executive Vice President of International Operations of Cambridge Technology Partners and the Chief Executive Officer of ArsDigita Corporation. Mr. Shaheen has a Bachelor of Arts degree in Engineering and Applied Sciences from Harvard College.
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Dharmendra Kumar Sinha has been our Executive Vice President and President, Global Client Services since December 2013. From 2007 to December 2013, Mr. Sinha served as our Senior Vice President and General Manager, Global Sales and Field Marketing. From 2004 to 2007, Mr. Sinha served as our Vice President, responsible for our Manufacturing and Logistics, Retail and Hospitality, and Technology verticals. From 1997 to 2004, Mr. Sinha held a variety of other management roles. Prior to joining Cognizant in 1997, Mr. Sinha worked with Tata Consultancy Services and CMC Limited, an IT solutions provider. Mr. Sinha has a Bachelor of Science degree from Patna Science College, Patna and an MBA degree from the Birla Institute of Technology, Mesra. 
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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. 
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Santosh Thomas has been our Executive Vice President and President, Global Growth Markets since August 2016. Prior to his current role, Mr. Thomas served as our Head, Growth Markets from 2011 through July 2016. From 1999 to 2011, Mr. Thomas held various senior positions at Cognizant including leading Continental European operations and various roles in client relationships and market development in North America. Prior to joining Cognizant in 1999, Mr. Thomas worked with Informix and HCL Hewlett Packard Limited. Mr. Thomas has an undergraduate degree in engineering from RV College of Engineering, Bangalore and a Postgraduate Diploma in Business Management from the XLRI - Xavier School of Management in India.
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Srinivasan Veeraraghavachary has been our Executive Vice President, Chief Operating Officer since August 2016. Prior to his current role, Mr. Veeraraghavachary served as our Executive Vice President, Products and Resources from December 2013 to November 2016 and as our Senior Vice President, Products and Resources from 2011 to December 2013. Previously, he served in various senior management positions in our BFS practice and in our central U.S. operations. Mr. Veeraraghavachary joined Cognizant in 1998. Mr. Veeraraghavachary has a Bachelor degree in Mechanical Engineering from the National Institute of Technology (formerly the Regional Engineering College) in Trichy, India and an MBA degree from the Indian Institute of Management in Calcutta, India.
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.

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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 Securities and Exchange Commission, or 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.
In addition, we make available our code of ethics entitled “Core Values and Code of Ethics” free of charge through our website. 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.
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.


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Item 1A. Risk Factors
Factors That May Affect Future Results
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 Relating to our Business
We face intense competition from other service providers.
The markets for technology, digital and outsourcing services are highly competitive, characterized by a large number of participants and subject to rapid change. Various competitors in all or some of such markets include:
systems integration firms;
contract programming companies;
application software companies;
cloud computing service providers;
large or traditional consulting companies;
professional services groups of computer equipment companies;
infrastructure management and outsourcing companies; and
boutique digital companies.
These markets also include numerous smaller local competitors in the various geographic markets in which we operate or intend to operate which may have more experience with operations in these markets or be able to provide services and solutions at lower costs or on terms more attractive to customers than we can. Additionally, these companies may have long-standing or well-established relationships with desired customers which may put us at a competitive disadvantage. 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 certain markets, our competitors may have greater financial, technical and marketing resources and name recognition and, therefore, may be better able to compete for new work and skilled professionals. Some of our competitors may be more successful than us at capturing the increasing customer demand for digital services. Increased competition in any of the various market segments in which we compete may put downward pressure on the prices we can charge for our services and, in turn, on our operating margins. Similarly, if our competitors develop and implement processes and methodologies that yield greater efficiency and productivity, they may be able to offer services similar to ours at lower prices without adversely affecting their profit margins. If we are unable to provide our customers with superior services and solutions at competitive prices or successfully market those services to current and prospective customers, our business, results of operations and financial condition may suffer.
We may also face competition from companies that increase in size or scope as the result of strategic mergers or acquisitions. These transactions may include consolidation activity among hardware manufacturers, software companies and vendors, and service providers, which could result in the convergence of products and services. If buyers of products and services in the markets we serve favor using a single provider of integrated products and services, such buyers may direct more business to such providers, which could have a variety of negative effects on our competitive position and, in turn, adversely affect our business, results of operations and financial condition.

We may not be able to increase our operating margin, or our operating margin may decline, and we may not be able to improve or sustain our profitability.
We have announced a margin improvement plan to increase gradually our non-GAAP operating margins over the next two years. This plan is reliant upon a number of assumptions, including our ability to improve the efficiency of our operations, focus on higher-margin business, reduce costs and make successful investments to grow and further develop our business. There can be no assurances that we will be successful in achieving this plan, and other factors beyond our control, including the various other risks described herein, may prevent us from achieving the targeted improvements. Further, our operating margin may decline if we experience declines in demand and pricing for our services, an increase in our operating costs, including due to an imposition of new non-income related taxes or change in law or regulations related to immigration or outsourcing, or adverse fluctuations in foreign currency exchange rates. Wages in India have historically increased at a faster rate than in the United States, which has in the past and may in the future put pressure on our operating margins. Additionally, the number and type of equity-based compensation awards and the assumptions used in valuing equity-based compensation awards may change in a manner that results in increased stock-based compensation expense and lower margins.

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Our operating margin, and therefore our profitability, is dependent on the rates we are able to recover for our services. If we are not able to maintain favorable pricing for our services, our operating margin and our profitability could suffer. In addition, if we are not able to maintain an appropriate utilization rate for our professionals, our profitability may suffer. If we are unable to control our costs and operate our business in an efficient manner, our operating margin, and therefore our profitability, may decline.
We face legal, reputational and financial risks from security breaches or disclosure of sensitive data or failure to comply with data protection laws and regulations.
We are dependent on information technology networks and systems to process, transmit, host and securely store electronic information and to communicate among our locations around the world and with our customers, suppliers and partners. Security breaches, employee malfeasance, or human or technological error could lead to shutdowns or disruptions of our operations and potential unauthorized disclosure of sensitive data, which in turn could jeopardize projects that are critical to the operations of our customers’ businesses. The theft and/or unauthorized use or publication of our, or our customers’, confidential information or other proprietary business information as a result of such an incident could adversely affect our competitive position and reduce marketplace acceptance of our services. Any failure in the networks or computer systems used by us or our customers could result in a claim for substantial damages against us and significant reputational harm, regardless of our responsibility for the failure.
In addition, as a global service provider with customers in a broad range of industries, we often have access to or are required to manage, utilize, collect and store sensitive data subject to various regulatory regimes, including but not limited to U.S. federal and state laws governing the protection of personal financial and health and the European Union Directive on Data Protection (to be superseded by the European Union's General Data Protection Regulation in May 2018). If unauthorized access to or disclosure of such data in our possession or control occurs or we otherwise fail to comply with applicable laws and regulations in this regard, we could be exposed to civil or criminal enforcement actions and penalties in connection with any violation of applicable data protection laws, as well as lawsuits brought by our customers, our customers’ customers, their clients or others for breaching contractual confidentiality and security provisions or data protection laws. Laws and expectations relating to data protections continue to evolve in ways that may limit our access, use and disclosure of sensitive data, and may require increased expenditures by us or may dictate that we not offer certain types of services.
We may be the target of significant cybersecurity attacks in the future. These risks will increase as we continue to grow our cloud-based offerings and services, store and process increasingly large amounts of our customers’ data and host or manage parts of our customers’ businesses, especially in industries involving particularly sensitive data such as the financial services and healthcare industries.
Our revenues and operating results may experience significant quarterly fluctuations.
We may experience significant quarterly fluctuations in our revenues and results of operations. Among the factors that could cause these variations are:
the nature, number, timing, scope and contractual terms of the projects in which we are engaged;
delays incurred in the performance of those projects;
the accuracy of estimates of resources and time required to complete ongoing projects;
changes to the financial condition of our customers;
changes in pricing in response to customer demand and competitive pressures;
longer sales cycles and ramp-up periods for our larger, more complex projects;
volatility and seasonality of our software sales;
the mix of on-site and offshore staffing;
the mix of fixed-price contracts, time-and-materials contracts and transaction or volume-based priced contracts;
employee wage levels and utilization rates;
changes in foreign exchange rates, including the Indian rupee versus the U.S. dollar;
the timing of collection of accounts receivable;
enactment of new taxes;
changes in domestic and international income tax rates and regulations;
changes to levels and types of stock-based compensation awards and assumptions used to determine the fair value of such awards; and
general economic conditions.

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As a result of these or other factors, it is possible that in some future periods, our revenues and results of operations may be significantly below the expectations of public market analysts and investors. In such an event, the price of our common stock would likely be materially and adversely affected.
Our business, results of operations and financial condition will suffer if we fail to enhance our existing services and solutions and to develop new services and solutions that allow us to keep pace with rapidly evolving technological developments, including the demand for digital technologies and services.
The markets for technology, digital and outsourcing services are characterized by rapid technological change, evolving industry standards, changing customer preferences and new product and service introductions. We are currently in the midst of a shift towards increasing customer demand for digital technologies and services. Our future success will depend on our ability to develop digital and other services and solutions that keep pace with changes in the markets in which we operate. We cannot be sure that we will be successful in developing digital and other new services and solutions addressing evolving technologies in a timely or cost-effective manner or that any services and solutions we do develop will be successful in the marketplace. Our failure to address the demands of the rapidly evolving technological environment could have a material adverse effect on our ability to retain and attract customers and on our competitive position, which could in turn have a material adverse effect on our business, results of operations and financial condition.
Our business, results of operations and financial condition may be affected by the rate of growth in the use of technology in business and the type and level of technology spending by our customers.
Our business depends, in part, upon continued growth in the use of technology in business by our customers and prospective customers as well as their customers and suppliers. In challenging economic environments, our customers may reduce or defer their spending on new technologies in order to focus on other priorities, or may choose to use their own internal resources rather than engage an outside firm to perform the types of services and solutions we provide. In addition, many companies have already invested substantial resources in their current means of conducting commerce and exchanging information, and they may be unwilling or slow to adopt new approaches that could disrupt existing personnel, processes and infrastructures. If the growth of technology usage in business, or our customers’ spending on technology, declines, or if we cannot convince our customers or potential customers to embrace new technological solutions, our business, results of operations and financial condition could be adversely affected.
Most of our contracts with our customers are short-term, and our business, results of operations and financial condition could be adversely affected if our customers terminate their contracts on short notice.
Consistent with industry practice, most of our contracts with our customers are short-term. A majority of our contracts can be terminated by our customers with short notice and without significant early termination cost. Terminations may occur as a result of, among other things, any failure on our part to satisfy our contractual commitments or more broadly satisfy our customers’ expectations with respect to the services we provide. Our customers may also decide at any time to switch to a different provider or undertake the work themselves due to cost or other considerations. Terminations may also result from factors that are beyond our control and unrelated to our work product or the progress of the project, including the business or financial condition of a customer, changes in ownership, management or the strategy of a customer or economic or market conditions generally or specific to a customer’s industry. When contracts are terminated, we lose the anticipated revenues and might not be able to eliminate our associated costs in a timely manner. Consequently, our operating margins in subsequent periods could be lower than expected. If we are unable to replace the lost revenues with other work on terms we find acceptable or effectively eliminate costs, our business, results of operations and financial condition could be adversely affected.
If our pricing structures are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, then our contracts could be unprofitable.
We negotiate pricing terms with our customers utilizing a range of pricing structures and conditions. We predominantly contract to provide services either on a time-and-materials basis, a fixed-price basis or volume basis. Our pricing is highly dependent on our internal forecasts and predictions about our projects and the marketplace, which might be based on limited data and could turn out to be inaccurate. We face a number of risks when pricing our contracts as many of our projects entail the coordination of operations and workforces in multiple locations and utilizing workforces with different skill sets and competencies across geographically diverse service locations. Our pricing, cost and operating margin estimates for the work that we perform frequently include anticipated long-term cost savings from transformational and other initiatives that we expect to achieve and sustain over the life of the contract. There is a risk, particularly for our fixed-price and transaction or volume-based priced contracts, that we will underprice our projects, fail to accurately estimate the costs of performing the work or fail to accurately assess the risks associated with potential contracts. In particular, any increased or unexpected costs, delays, failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of this work,

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including those caused by factors outside our control, could make these contracts less profitable or unprofitable, which could have an adverse effect on our business, results of operations and financial condition.

The outcome of the internal investigation being conducted under the oversight of our Audit Committee of possible violations of the U.S. Foreign Corrupt Practices Act, or FCPA, and similar laws and related litigation could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition.
The Company is conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation is also examining various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the Department of Justice, or DOJ, and the Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel.
In 2016, there were putative securities class action complaints filed, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, or 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 control over financial reporting and our disclosure controls and procedures. Additionally, in 2017 and 2016, putative shareholder derivative complaints were filed, naming us, certain of our directors and certain of our current and former officers as defendants. See the section titled "Part I, Item 3. Legal Proceedings."

The outcome of the putative class action litigation, derivative lawsuit, or any other litigation is necessarily uncertain. We could be forced to expend significant resources in the defense of these lawsuits or future ones, and we may not prevail. The imposition of any sanctions, remedial measures or judgments against us could have a material adverse effect on our business, results of operations and financial condition.
If we fail to maintain appropriate internal controls, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business.
Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations require our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. We have committed and will be required to continue to commit significant financial and managerial resources in order to comply with these requirements. As described in "Item 9A - Controls and Procedures," during the closing process for the third quarter of 2016, we identified a material weakness in our internal control over financial reporting, which we remediated as of December 31, 2017. Other material weaknesses, significant deficiencies or deficiencies may develop or be identified in the future.
Further, we are required to integrate any acquired businesses into our system of disclosure controls and procedures and internal control over financial reporting. Companies we acquire, prior to being acquired by us, may not be required to implement or maintain the disclosure controls and procedures or internal control over financial reporting that are required of public companies. We cannot provide assurance as to how long the integration process may take.
Internal control over financial reporting has inherent limitations, including human error and the possibility that controls could be circumvented or be inadequate because of changed conditions or fraud. If we are unable to maintain effective internal controls, we may not have adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a publicly traded company or comply with the requirements of the SEC or the Sarbanes-Oxley Act of 2002. This could result in a restatement of our financial statements, the imposition of sanctions, or investigation by regulatory authorities, and could cause investors to lose confidence in our reported financial information. Any such consequence or other negative effect resulting from our inability to meet our reporting requirements or comply with legal and regulatory requirements, as well as any disclosure of an accounting, reporting or control issue, could adversely affect the trading price of our common stock and our business.
We may not be able to successfully acquire target companies or integrate acquired companies or technologies into our company, and we may become subject to certain liabilities assumed or incurred in connection with our acquisitions that could harm our business, results of operations and financial condition.
If we are unable to complete acquisitions of the number, magnitude and nature we have targeted, or if we are inefficient or unsuccessful at integrating any acquired businesses into our operations, we may not be able to achieve our planned rates of growth or improve our market share, profitability or competitive position in specific markets or services. The process of acquiring and integrating a company, business, or technology has created, and will continue to create, operating difficulties. The risks we face include:

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diversion of management time and focus from operating our core business to acquisition and integration challenges;
failure to successfully integrate the acquired business into our operations, including cultural challenges associated with integrating and retaining employees; and
failure to achieve anticipated efficiencies and benefits, realize our strategic objectives or further develop the acquired business.
Although we conduct due diligence in connection with each of our acquisitions, there may be liabilities that are not properly disclosed to us, that we fail to discover or that we inadequately or incorrectly assess. In particular, to the extent that any acquired business failed to comply with or otherwise violated applicable laws or regulations, failed to fulfill contractual obligations to customers or incurred material liabilities or obligations to customers that are not identified during the diligence process, we, as the successor owner, may be financially responsible for these violations, failures and liabilities and may suffer financial and/or reputational harm or otherwise be adversely affected. In addition, as part of an acquisition, we may assume responsibilities and obligations of the acquired business pursuant to the terms and conditions of agreements entered into by the acquired entity that are not consistent with the terms and conditions that we typically accept and require. We also have been and may in the future be subject to litigation or other claims in connection with an acquired business, including claims from employees, customers, stockholders, or other third parties. Any material liabilities associated with our acquisitions could harm our business, results of operations and financial condition.
System failures, system outages or operational disruptions in our communications or information technology systems and infrastructure could negatively impact our operations and ability to provide our services and solutions, which would have an adverse effect on our business, results of operations and financial condition.
To deliver our services and solutions to our customers, we rely upon high speed networks, including satellite, fiber optic and land lines operated by third parties, to provide active voice and data communications 24 hours per day between our main operating offices in India, our other global delivery centers, the offices of our customers and our associates worldwide. Any systems failure or outage or a significant disruption in such communications or in our information technology systems and infrastructure could result in curtailed operations, a loss of customers and reputational damage, which would have an adverse effect on our business, results of operations and financial condition.
Our business, results of operations and financial condition could be impaired if we lose key members of our management team.
Our future performance depends upon the continued service of the key members of our management team. Competition for experienced executive officers and other key employees in the industries in which we compete is intense, and there can be no assurance that we will be able to retain key persons, or that we will be successful in attracting and retaining replacements in the future. The loss of any one or more of our executive officers or significant employees, or the failure to attract, integrate and retain additional talent, could have a material adverse effect on our business, results of operations and financial condition. We do not maintain key man life insurance on any of our executive officers or significant employees.
In addition, our business could be harmed if any key member of our management team leaves our employment and joins one of our competitors. Currently, we have entered into non-competition agreements with most of our executive officers. We cannot be certain, however, that the restrictions in these agreements prohibiting such executive officers from engaging in competitive activities would be enforceable.
Competition for highly-skilled technical personnel is intense, and our ability to compete for and manage customer engagements depends on our ability to attract and retain such personnel.
Our ability to maintain and renew existing customer engagements and obtain new business depends to a significant extent on our ability to attract, train and retain highly-skilled technical personnel so as to keep our supply of skills and resources in balance with customer demand. In particular, in order to serve customer needs and grow our business, we must attract, train and retain appropriate numbers of talented people, including project managers, IT engineers and other senior technical personnel, who are able to keep pace with continuing changes in information technology, evolving industry standards and changing customer preferences. We cannot guarantee that we will be able to train and assimilate new employees successfully. In addition, we believe there is a shortage of, and significant competition for, professionals with the advanced technological skills we require, especially in the area of digital technologies and services. We have subcontracted in the past, and may continue to subcontract in the future, with other service providers in order to meet our obligations to our customers. If we are unable to attract and retain highly-skilled technical personnel in the numbers and locations and with the advanced technological skills we require, our ability to effectively execute upon our current projects, including the provision of digital technologies and services, and to develop new business, could be jeopardized and our business, results of operations and financial condition adversely affected.

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Our business could be negatively affected if we incur legal liability in connection with providing our services and solutions.
If we fail to meet our contractual obligations or otherwise breach obligations to our customers, we could be subject to legal liability. If we cannot, or do not, meet our contractual obligations to provide services and solutions, and if our exposure is not adequately limited through the enforceable terms of our agreements, we might face significant legal liability and our business, results of operations and financial condition could be adversely affected.
In the normal course of business and in conjunction with certain customer engagements, we have entered into contractual arrangements through which we may be obligated to indemnify customers or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to provide indemnification with respect to third-party claims, including matters such as our breach of certain representations or covenants, our infringement of the intellectual property of others, our violation of laws or our gross negligence or willful misconduct. Payments by us under any of these arrangements are generally conditioned on the customer making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine our maximum potential exposure under these arrangements due to the unique facts and circumstances involved in each particular agreement. If events arise requiring us to make payment for indemnification claims under our contractual indemnification obligations, such payments could have a material impact on our business, results of operations and financial condition.
Additionally, our customers may perform audits or require us to perform audits and provide audit reports with respect to the controls and procedures that we use in the performance of services for such customers, especially when we process data belonging to them. Our ability to acquire new customers and retain existing customers may be adversely affected and our reputation could be harmed if we receive a qualified opinion, or if we cannot obtain an unqualified opinion in a timely manner, with respect to our controls and procedures in connection with any such audit. We could also incur liability if our controls and procedures, or the controls and procedures we manage for a customer, were to result in an internal control failure or impair our customer’s ability to comply with its own internal control requirements.
We increasingly provide complex services and solutions for our customers and, if we do not satisfy customer expectations or if customers cancel their engagements with us, our business, results of operations and financial condition could be harmed.
The increased breadth of our service and solution offerings has resulted and may continue to result in larger and more complex projects with our customers. This requires us to establish closer relationships with our customers and achieve a thorough understanding of their operations. Our ability to establish such relationships depends on a number of factors, including the proficiency of our professionals and our management personnel. Our failure to understand our customer requirements or our failure to deliver services and solutions that meet the requirements specified by our customers could result in termination of customer contracts and potential liability for significant penalties or damages, any of which could have a material adverse effect on our business, results of operations and financial condition.
Larger projects often involve multiple engagements or stages, and there is a risk that a customer may choose not to retain us for later stages or may cancel or delay additional planned engagements. Such cancellations or delays make it difficult to plan for project resource requirements and inaccuracies in such resource planning and allocation may have a negative impact on our business, results of operations and financial condition.
If we are unable to collect from our customers for our work, our business, results of operations and financial condition could be adversely affected.
Our business depends on our ability to successfully obtain payment from our customers for work performed. We evaluate the financial condition of our customers and usually bill and collect on relatively short cycles. There is no guarantee that we will accurately assess the creditworthiness of our customers. We maintain allowances against trade accounts receivable and unbilled accounts receivable. Actual losses on customer balances could differ from those that we currently anticipate and, as a result, we might need to adjust our allowances. Macroeconomic conditions could also result in financial difficulties for our customers, including limited access to the credit markets, insolvency or bankruptcy, and, as a result, could cause customers to delay payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to us. Timely collection of customer balances also depends on our ability to complete our contractual commitments and bill and collect our contracted fees. If we do work for a customer but are nevertheless unable to meet our contractual commitments, we may not be entitled to collect for our work or may collect reduced amounts and/or experience delays in collection. Any delay or inability to collect from our customers for our work may adversely affect our business, results of operations, cash flows and financial condition.

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We rely on third parties for certain software products.
Certain of our software products contain components that are developed by third parties. In addition, we resell certain software products of third parties and we use third-party software products to deliver our services and solutions. We may not be able to replace the functions provided by these third-party software components or products if they become obsolete, defective, or incompatible with future versions of our products or with our services and solutions, or if they are not adequately maintained or updated. Any defects in or significant interruption in the availability of these third-party software products or components could harm the sale of our products and our delivery of services and solutions to our customers unless and until we can secure or develop an alternative source. If we fail to comply with the license terms applicable to third party software, we could be liable to the owners of the software for damages. In addition, third-party suppliers of software or other intellectual property assets could be unwilling to permit us to use or to continue to use their intellectual property and this could impede or disrupt use of their products or services by our customers and us. If our ability to provide services and solutions to our customers is impaired as a result of any such denial, our business, results of operations and financial condition could be adversely affected.
Alternate sources for the technologies currently licensed to us may not be available to us in a timely manner, may not provide us with the same functions as currently provided or may be more expensive. Further, our success depends on our ability to maintain our existing relationships with third-party software providers and build new relationships with other providers in order to enhance our services and remain competitive. If we are unable to maintain such existing relationships and successfully build new relationships, our business, results of operations, and financial condition could suffer.
We are exposed to credit risk and fluctuations in the market values of our investment and derivatives portfolios.
Any deterioration of the credit and capital markets in the United States, Europe or other regions of the world could result in volatility of our investment earnings and impairments to our investment portfolio, which could negatively impact our financial condition and reported income. Changes in economic conditions could adversely affect the ability of counterparties, including counterparties to our foreign exchange forward contracts, to meet their obligations to us.
Our revenues are highly dependent on customers concentrated in certain industries, including the financial services and healthcare industries. Consolidation and factors that negatively affect these industries may adversely affect our business, results of operations and financial condition.
During the year ended December 31, 2017, we earned 38.1% of our revenues from our financial services business segment, which includes banking and insurance customers, and 28.8% from our healthcare business segment, which includes healthcare and life sciences customers. Significant consolidation or a decrease in growth in the financial services industry or the healthcare industry may reduce the demand for our services and negatively affect our business, financial condition and results of operations. For example, two or more of our current customers may merge or consolidate and combine their operations, which may cause us to lose work or lose the opportunity to gain additional work. The increased market power of larger companies may also increase competitive and pricing pressures on us. Any of these possible results of industry consolidation could adversely affect our business, results of operations and financial condition. In addition, if we are unable to successfully anticipate changing regulatory, economic and political conditions affecting the industries in which we operate, we may be unable to effectively plan for or respond to those changes, and our business, results of operations and financial condition could be negatively affected.
Our revenues are highly dependent on customers located in the United States and Europe. Any weakening of economic conditions in these markets may adversely affect our business, results of operations and financial condition.
During the year ended December 31, 2017, 77.3% of our revenues were derived from customers located in North America and 16.2% of our revenues were derived from customers located in Europe. Any weakening of economic conditions in the U.S. or European economies could depress the pricing for our services and cause our customers to reduce or postpone their technology spending, which may in turn lower the demand for our services and negatively affect our business, results of operations and financial condition.
If we do not continue to improve our operational, financial and other internal controls and systems to manage our growth and size, our business, results of operations and financial condition could be adversely affected.
Our historic and anticipated growth will continue to place significant demands on our management and other resources, and will require us to continue to develop and improve our operational, financial and other internal controls. In particular, our growth has presented and will continue to present challenges with respect to:
recruiting, training and retaining technical, finance, marketing and management personnel with the knowledge, skills and experience that our business model requires;
maintaining high levels of customer satisfaction;

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developing and improving our internal administrative infrastructure, particularly our financial, operational, communications and other internal systems;
preserving our culture, values and entrepreneurial environment; and
effectively managing our personnel and operations and effectively communicating to our personnel worldwide our core values, strategies and goals.
In addition, the increasing size and scope of our operations increase the possibility that a member of our personnel will engage in unlawful or fraudulent activity, breach our contractual obligations, or otherwise expose us to unacceptable business risks, despite our efforts to train our people and maintain internal controls to prevent such instances. If we do not continue to develop and implement the right processes and tools to manage our enterprise, our business, results of operations and financial condition could be adversely affected.
We may not be able to pay dividends or repurchase shares of our common stock in accordance with our announced intent or at all.
In February 2017 we announced a plan to return $3.4 billion to stockholders by the end of 2018 through a combination of stock repurchases and cash dividends. As part of this plan, we have undertaken accelerated stock repurchase programs to repurchase a total of $1.8 billion of our Class A common stock and paid $265 million for dividends in 2017. Following the passage of the Tax Cuts and Jobs Act, or the Tax Reform Act, and due in part to the benefits we expect to receive under such act, in February 2018 we announced an increase in our quarterly dividend and have indicated that our Board of Directors intends to continue to review the capital return plan for potential future increases, subject to our financial performance, economic outlook and any other relevant considerations.
The Board of Directors’ determinations regarding dividends and share repurchases will depend on a variety of factors, including amount and location of our cash and investment balances, net income, cash flow generated from operations, overall liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. There can be no guarantee that we will achieve our announced capital return plan in the amounts or within the expected time frame that we have indicated, or at all. Our ability to declare future dividends will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand and prices for our services and other factors specific to our industry or specific projects, many of which are beyond our control. Therefore, our ability to generate cash flow depends on the performance of our operations and could be limited by decreases in our profitability or increases in costs, regulatory changes, capital expenditures or debt servicing requirements.
Any failure to achieve our announced capital return plan could negatively impact our reputation, harm investor confidence in us, and cause the market price of our common stock to decline.
Risks Relating to our International Operations
Our global operations are subject to complex risks, some of which might be beyond our control.
We have offices and operations in various countries around the world and provide services to customers globally. In 2017, 77.3% of our revenues were attributable to the North American region, 16.2% were attributable to the European region, and the remainder was attributable to the rest of the world, primarily Asia Pacific. We anticipate that revenues from customers outside North America will continue to account for a material portion of our revenues in the foreseeable future and may increase as we expand our international presence.
We may be subject to risks inherently associated with international operations, including risks associated with foreign currency exchange rate fluctuations, difficulties in enforcing intellectual property and/or contractual rights, the burdens of complying with a wide variety of foreign laws and regulations, potentially adverse tax consequences, tariffs, quotas and other barriers, potential difficulties in collecting accounts receivable, international hostilities, terrorism and natural disasters. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. If we are unable to manage the risks of our global operations, our business, results of operations and financial condition could be adversely affected.
A substantial portion of our assets and operations are located in India and we are subject to regulatory, economic, political and other uncertainties in India.
We intend to continue to develop and expand our offshore facilities in India where a majority of our technical professionals are located. While wage costs are lower in India than in the United States and other developed countries for comparably skilled professionals, wages in India have historically increased at a faster rate than in the United States and other

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countries in which we operate. If this trend continues in the future, it would result in increased costs for our skilled professionals and thereby potentially reduce our operating margins. Also, there is no assurance that, in future periods, competition for skilled professionals will not drive salaries higher in India, thereby resulting in increased costs for our technical professionals and reduced operating margins.
In the past, the Indian economy has experienced many of the problems that commonly confront the economies of developing countries, including high inflation, erratic gross domestic product growth and volatility in currency exchange rates. The Indian government has exercised, and continues to exercise, significant influence over many aspects of the Indian economy and Indian government actions concerning the economy could have a material adverse effect on private sector entities like us. In the past, the Indian government has provided significant tax incentives and relaxed certain regulatory restrictions in order to encourage foreign investment in specified sectors of the economy, including the software development services industry. Changes in government leadership in India or a change in policies of the existing government in India that results in the elimination of any of the benefits realized by us from our Indian operations or the imposition of new taxes applicable to such operations could have a material adverse effect on our business, results of operations and financial condition.
Our operating results may be adversely affected by fluctuations in the Indian rupee and other foreign currency exchange rates, restrictions on the deployment of cash across our global operations and our use of derivative financial instruments.
Although we report our operating results in U.S. dollars, a portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. Fluctuations in foreign currency exchange rates can have a number of adverse effects on us. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies will affect our revenues, income from operations, net income and the value of balance sheet items originally denominated in other currencies. There is no guarantee that our financial results will not be adversely affected by currency exchange rate fluctuations. In addition, in some countries we could be subject to strict restrictions on the movement of cash and the exchange of foreign currencies, which could limit our ability to use these funds across our global operations. Further, as we leverage our global delivery model, a portion of our expenses is incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies, such as the Indian rupee, against the U.S. dollar could increase costs for delivery of services at offshore sites by increasing labor and other costs that are denominated in local currency.
We have entered into a series of foreign exchange forward contracts that are designated as cash flow hedges of certain rupee denominated payments in India. These contracts are intended to partially offset the impact of the movement of the exchange rates on future operating costs. In addition, we have also entered into foreign exchange forward contracts in order to mitigate foreign currency risk on foreign currency denominated net monetary assets. 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. Accordingly, we may incur losses from our use of derivative financial instruments that could have a material adverse effect on our business, results of operations and financial condition.
Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violations of these regulations could harm our business, results of operations and financial condition.
Because we provide services to customers throughout the world, we are subject to numerous, and sometimes conflicting, legal rules on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, government affairs, internal and disclosure control obligations, data privacy and labor relations. Violations of these laws or regulations in the conduct of our business could result in fines, criminal sanctions against us or our officers, prohibitions on doing business, damage to our reputation and other unintended consequences such as liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process information and allegations by our customers that we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws might be insufficient to protect our rights. Our failure to comply with applicable legal and regulatory requirements could have a material adverse effect on our business, results of operations and financial condition.
Among other anti-corruption laws and regulations, we are subject to the FCPA, which prohibits improper payments or offers of improper payments to foreign officials to obtain business or any other benefit, and the U.K. Bribery Act. Violations of these laws or regulations could subject us to criminal or civil enforcement actions, including fines and suspension or disqualification from government contracting or contracting with private entities in certain highly regulated industries, any of which could have a material adverse effect on our business, results of operations and financial condition.

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International hostilities, terrorist activities, other violence or war, natural disasters, pandemics and infrastructure disruptions could delay or reduce the number of new service orders we receive and impair our ability to service our customers, thereby adversely affecting our business, results of operations and financial condition.
Hostilities involving acts of terrorism, violence or war, natural disasters, global health risks or pandemics or the threat or perceived potential for these events could materially adversely affect our operations and our ability to provide services to our customers. Such events may cause customers to delay their decisions on spending for information technology, consulting, and business process services and give rise to sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our personnel and to our and our customers’ physical facilities and operations around the world. Additionally, by disrupting communications and travel, giving rise to travel restrictions, and increasing the difficulty of obtaining and retaining highly-skilled and qualified personnel, these events could make it difficult or impossible for us to deliver services to some or all of our customers. The majority of our employees are located in India, and the majority of our technical professionals in the United States and Europe are Indian nationals who are able to work in the United States and Europe only because they hold currently valid visas and work permits. Any inability to travel could cause us to incur additional unexpected costs and expenses or could impair our ability to retain the skilled professionals we need for our operations. In addition, any extended disruptions of electricity, other public utilities or network services at our facilities could also adversely affect our ability to serve our customers.
Hostilities involving the United States, the United Kingdom, India and other countries in which we provide services to our customers, as well as acts of terrorism, violence or war, natural disasters, global health risks or pandemics may reduce the demand for our services and negatively affect our revenues. If these disruptions prevent us from effectively serving our customers, our business, results of operations and financial condition could be adversely affected.

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.

In March 2017, Prime Minister Theresa May of the United Kingdom formally began the process of withdrawing the United Kingdom from the European Union, following the June 2016 referendum in which a majority of voters in the United Kingdom supported the withdrawal, or the Brexit Referendum. The terms of the withdrawal are subject to a negotiation period that could last until March 2019. The Brexit Referendum and the ensuing process of the United Kingdom's withdrawal from the European Union has created political and economic uncertainty about the future relationship between the United Kingdom and the European Union and as to whether any other European countries may similarly seek to exit the European Union. If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms or if other European Union member states pursue withdrawal, barrier-free access between the United Kingdom and other European Union member states or among the European economic area overall could be diminished or eliminated. As we have material operations in both the United Kingdom and the Rest of Europe and our global operations serve many customers with significant operations in those regions, our financial condition and results of operation may be impacted by such uncertainty.

For the year ended December 31, 2017, revenues from our customers in the United Kingdom and Rest of Europe represented 7.8% and 8.4%, respectively, of our consolidated revenues. A significant portion of our revenues from customers in the United Kingdom is generated in British pounds. This exposure subjects us to revenue risk with respect to our customers in the United Kingdom as well as to risk resulting from adverse movements in foreign currency exchange rates. In addition, for the year ended December 31, 2017, revenues from our Financial Services customers represented 38.1% of our consolidated revenues. Uncertainty regarding future United Kingdom financial laws and regulations, the withdrawal terms of the United Kingdom from the European Union and the future trade terms between the United Kingdom and the European Union could negatively impact the financial services sector, including our customers in such sector, and as a consequence adversely impact our financial condition and results of operations. Further, it is uncertain what impact the withdrawal of the United Kingdom from the European Union will have on general economic conditions in the United Kingdom, the European Union and globally. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to Intellectual Property
We may not be able to enforce or protect our intellectual property rights, which may harm our ability to compete and harm our business.
Our future success will depend, in part, on our ability to protect our software products and other solutions, data, proprietary methodologies and other valuable IP. We presently hold a limited number of issued patents, and we have filed and intend to continue to file patent applications. There is no guarantee that any patents will be issued in the United States or in any other country where we may seek protection or that they will serve as a barrier from competition from other organizations.

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Additionally, the protection afforded by international patent laws as well as the enforcement actions differ from country to country. There is no guarantee that we will be able to maintain adequate protection or enforcement of our IP rights.
We also rely upon a combination of copyright, trademark and trade secret laws, non-disclosure and related contractual arrangements, and other security measures to protect our IP rights. We believe that laws, rules, regulations and treaties in effect in the United States, India and most other countries in which we operate are adequate to protect us from misappropriation or unauthorized use of our IP. However, there can be no assurance that these laws will not change in ways that may prevent or restrict our ability, or make it more expensive, to continue to protect the software, data and methodologies we use in the performance of our services or that we license to our clients. The existing laws of some countries in which we provide services, such as China, might offer only limited protection of our IP rights. There can be no assurance that the steps we have taken to protect our IP rights will be adequate to deter misappropriation, that we will be able to detect unauthorized use of our IP, or that we will be able to maintain adequate protection or enforcement of our IP rights.
Unauthorized use of our IP may result in development of software products or services that compete with our products and services and unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. If we are unable to protect our IP, our business may be adversely affected and our ability to compete may be impaired.
Depending on the circumstances, we might need to grant a specific customer greater rights in IP developed or used in connection with a contract than we normally do. In certain situations, we forego the right to reuse new IP we create for a customer, which limits our ability to reuse that IP for other customers. Any limitation on our ability to provide a service or solution could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future projects.
Our ability to enforce our software license agreements, service agreements, and other IP rights is subject to general litigation risks, as well as uncertainty as to the enforceability of our IP rights in various countries. To the extent that we seek to enforce our rights, we could be subject to claims that an IP right is invalid, otherwise not enforceable, or is licensed to the party against whom we are pursuing a claim. In addition, our assertion of IP rights may result in the other party seeking to assert alleged IP rights or assert other claims against us, which could harm our business. If we are not successful in defending such claims in litigation, we may not be able to sell or license a particular service or solution due to an injunction, or we may have to pay damages that could, in turn, harm our results of operations. In addition, governments may adopt regulations, or courts may render decisions, requiring compulsory licensing of intellectual property to others, or governments may require that products meet specified standards that serve to favor local companies. Our inability to enforce our IP rights under these circumstances may harm our competitive position and our business.
Our services or solutions could infringe upon the IP rights of others and we may be subject to claims of infringement of third-party IP rights.
We cannot be sure that our services and solutions, or the solutions of others that we offer to our customers, do not infringe on the IP rights of others. Third parties may assert claims against us or our customers alleging infringement of patent, copyright, trademark, or other intellectual property rights to solutions or services that are important to our business. Infringement claims could harm our reputation, cost us money and prevent us from offering some services or solutions. In our contracts, we generally agree to indemnify our customers for certain expenses or liabilities resulting from potential infringement of the IP rights of third parties. In some instances, the amount of our liability under these indemnities could be substantial. Any claims that products, services or processes we deliver infringe the intellectual property rights of others, regardless of the merit or resolution of such claims, may result in significant costs in defending and resolving such claims, and may divert the efforts and attention of our management and technical personnel from our business. In addition, as a result of such IP infringement claims, we could be required or otherwise decide that it is appropriate to:
pay third-party infringement claims;
discontinue using, licensing, or selling particular products, services or processes subject to infringement claims;
develop other technology not subject to infringement claims, which could be costly or may not be possible; and/or
license technology from the third party claiming infringement, which license may not be available on commercially reasonable terms.
The occurrence of any of the foregoing could result in unexpected expenses or require us to recognize an impairment of our assets, which would reduce the value of our assets and increase expenses. In addition, if we alter or discontinue our offering of affected items or services, our revenues could be affected. If a claim of infringement were successful against us or our customers, an injunction might be ordered against our customer or our own services or operations, causing further damages.
We expect that the risk of infringement claims against us will increase if our competitors are able to obtain patents or other intellectual property rights for software products and methods, technological solutions and processes. We may be subject

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to IP infringement claims from certain individuals or companies that have acquired patent portfolios for the primary purpose of asserting such claims against other companies. The risk of infringement claims against us may also increase as we continue to develop and license our IP to our customers and other third parties. Any infringement claim or litigation against us could have a material adverse effect on our business, results of operations and financial condition.
Risks Relating to Legislation and Government Regulation
Restrictions on immigration may affect our ability to compete for and provide services to customers, which could hamper our growth and cause our revenues to decline.
Our future success continues to depend on our ability to attract and retain employees with technical and project management skills, including those from developing countries, especially India. The ability of foreign nationals to work in the United States, Europe, Asia Pacific and other regions in which we have customers depends on their and our ability to obtain the necessary visas and work permits for our personnel who need to travel internationally. If we are unable to obtain such visas or work permits, or if their issuance is delayed or if their length is shortened, we may not be able to provide services to our customers or to continue to provide services on a timely and cost-effective basis, receive revenues as early as expected or manage our delivery centers as efficiently as we otherwise could, any of which could have a material adverse effect on our business, results of operations and financial condition.
Immigration and work permit laws and regulations in the countries in which we have customers are subject to legislative and administrative changes as well as changes in the application of standards and enforcement. For example, the U.S. Congress has been actively considering various proposals that would make extensive changes to U.S. immigration laws regarding the admission of high-skilled temporary and permanent workers. Further, the current U.S. administration or Congress may seek to limit the admission of high-skilled temporary and permanent workers and has issued and may continue to issue executive orders designed to limit immigration. Any such provisions may increase our cost of doing business in the United States and may discourage customers from seeking our services. Our international expansion strategy and our business, results of operations and financial condition may be materially adversely affected if changes in immigration and work permit laws and regulations or the administration or enforcement of such laws or regulations impair our ability to staff projects with professionals who are not citizens of the country where the work is to be performed.
Anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing could impair our ability to service our customers and 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 customers. 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. Further, the current U.S. administration or Congress may seek to limit outsourcing by U.S. companies. If enacted, such measures may broaden existing restrictions on outsourcing by federal and state government agencies and on government contracts with firms that outsource services directly or indirectly, or impact private industry with measures that include tax disincentives, fees or penalties, intellectual property transfer restrictions, mandatory government audit requirements, and new standards that have the effect of restricting the use of certain business and/or work visas. In the event that any of these measures become law, our ability to provide services to our customers could be impaired, which could adversely affect our business, results of operations and financial condition. Existing and future legislative and administrative/regulatory policies restricting the performance of business process services from an offshore location could also have a material adverse effect on our business, results of operations and financial condition.
In addition, from time to time there has been publicity about negative experiences associated with offshore outsourcing, such as domestic job loss and theft and misappropriation of sensitive customer data, particularly involving service providers in India. Current or prospective customers may elect to perform certain services themselves or may be discouraged from utilizing global service delivery providers 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 customers operate.

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Increased regulation of the financial services industry, healthcare industry or other industries in which our customers operate could harm our business, results of operations and financial condition.
The industries in which our customers are concentrated, such as the financial services industry and the healthcare industry, are, or may be, increasingly subject to governmental regulation and intervention. For instance, the financial services industry is subject to extensive and complex federal and state regulation. As a provider of services to financial institutions, portions of our operations are examined by a number of regulatory agencies. These agencies regulate the services we provide and the manner in which we operate. For example, some financial services regulators have imposed guidelines for use of cloud computing services that mandate specific controls or require financial services enterprises to obtain regulatory approval prior to outsourcing certain functions. If we are unable to comply with these guidelines or controls, or if our customers are unable to obtain regulatory approval to use our services where required, our business may be harmed. In addition, customers in the financial services sector have been subject to increased regulation following the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States. New or changing regulations under Dodd-Frank, as well as other regulations or legislation affecting our customers in the financial services industry, may reduce demand for our services or cause us to incur costly changes in our processes or personnel, thereby negatively affecting our business, results of operations and financial condition.
The healthcare industry is highly regulated at the federal, state and local levels and is subject to changing legislative, regulatory, political and other influences, particularly in light of uncertainties posed by the result of the recent presidential election in the United States. Many healthcare laws, such as the Affordable Care Act, are complex, subject to frequent change, and dependent on interpretation and enforcement decisions from government agencies with broad discretion. The application of these laws to us, our customers or the specific services and relationships we have with our customers is not always clear. Our failure to anticipate accurately any changes to or the repeal of the Affordable Care Act and similar or future laws and regulations, or our failure to comply with them, could create liability for us, result in adverse publicity and negatively affect our business, results of operations and financial condition. Further, the growth of our business, results of operations and financial condition rely, in part, on customers in the healthcare industry that receive substantial revenues from governmental and other third-party payer programs. A reduction or less than expected increase in government funding for these programs, a change in allocation methodologies or the termination of our customers’ government contracts could negatively affect our customers’ businesses and, in turn, negatively impact our business, results of operations and financial condition. In addition, as a service provider to customers who are government contractors, we may in the future become involved in governmental investigations to evaluate our or our customers’ compliance with government healthcare programs, which could result in the assessment of damages, civil or criminal fines or penalties, or other sanctions, any of which could have a material adverse effect on our business, results of operations and financial condition.
Increased regulation, changes in existing regulation or increased government intervention in the other industries in which our customers operate also may adversely affect the growth of their respective businesses and therefore negatively impact our business, results of operations and financial condition.
Risks Relating to Taxes
Our earnings and financial condition may be negatively impacted by certain tax related matters.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our provision for income taxes and cash tax liability could be adversely affected by numerous factors, including income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in accounting principles or interpretations and changes in tax laws. In addition, our income tax returns are subject to examination in the jurisdictions in which we operate. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. An unfavorable outcome of one or more of these examinations may have an adverse effect on our business, results of operations and financial condition.
In December 2017, the United States enacted the Tax Reform Act. The one-time provisional incremental income tax expense recorded in 2017 related to the Tax Reform Act reflects certain assumptions based upon our interpretation of the Tax Reform Act as of January 18, 2018, and may change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. Such changes could adversely impact our results of operations and financial condition in future periods.

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Our earnings may be adversely affected if we change our intent not to repatriate Indian accumulated undistributed earnings.
We earn a significant amount of our earnings in India and consider Indian accumulated undistributed earnings to be indefinitely reinvested. While we have no plans to do so, events may occur that could effectively force us to change our intent not to repatriate such earnings. As a result of the Tax Reform Act, U.S. federal taxes have been provisionally accrued on these earnings, as well as other non-U.S. earnings, as of December 31, 2017 as part of the one-time transition tax. However, if we were to change our assertion that our accumulated undistributed Indian earnings are indefinitely reinvested, we would expect, based on our current interpretation of Indian tax law, to accrue additional tax expense at a rate of approximately 21% of cash available for distribution, which could have a material adverse effect on our results of operations and financial condition. This estimate is subject to change based on tax legislative developments in India and other jurisdictions as well as judicial and interpretive developments of applicable tax laws.
Our earnings may be negatively impacted by the loss of certain tax benefits provided by India to companies in our industry as well as by possible changes in Indian tax laws.
Our Indian subsidiaries, collectively referred to as Cognizant India, are primarily export-oriented and are eligible for certain income tax holiday benefits granted by the Indian government for export activities conducted within Special Economic Zones, or SEZs, for periods of up to 15 years. The Indian government has announced a plan to phase out certain tax exemptions and deductions, which includes a discontinuation of tax holidays for new SEZ units commencing operations on or after April 1, 2020. These changes or any changes that would reduce or deny SEZ tax benefits could have a material adverse effect on our business, results of operations and financial condition. In addition, all Indian profits, including those generated within SEZs, are subject to the Minimum Alternative Tax, or MAT, at the rate of 21.3%. Any MAT paid is creditable against future corporate income tax, subject to limitations. Currently, we anticipate utilizing our existing MAT balances against future corporate income tax. Our ability to fully do so may be influenced by possible changes to the Indian tax laws as well as the future financial results of Cognizant India. Our potential inability to fully utilize our deferred income tax assets related to the MAT could have a material adverse effect on our results of operations and financial condition.
Risks Relating to our Common Stock and Governing Documents
Our stock price continues to be volatile.
Our stock has at times experienced substantial price volatility as a result of variations between our actual and anticipated financial results, announcements by us and our competitors, projections or speculation about our business or that of our competitors by the media or investment analysts or uncertainty about current global economic conditions. The stock market, as a whole, also has experienced extreme price and volume fluctuations that have affected the market price of many technology companies in ways that may have been unrelated to these companies’ operating performance. Furthermore, we believe our stock price should reflect future growth and profitability expectations and, if we fail to meet these expectations, our stock price may significantly decline.
Provisions in our charter and by-laws and provisions under Delaware law may discourage unsolicited takeover proposals.
Provisions in our charter and by-laws, each as amended, and Delaware General Corporate Law, or DGCL, may have the effect of deterring unsolicited takeover proposals or delaying or preventing changes in our control or management, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices. These provisions include:
authority of the Board of Directors, without further action by the stockholders, to fix the rights and preferences of and issue shares of preferred stock;
the inability of our stockholders to act by written consent and the restrictions imposed on our stockholders’ ability to call a special meeting. As a result, any action by our stockholders may be delayed until annual meetings or until a special meeting is called by our chairman, chief executive officer or board of directors;
the supermajority-voting requirement for specified amendments to our charter and by-laws, which allows a minority of our stockholders to block those amendments; and
provisions in the DGCL preventing stockholders from engaging in business combinations with us, subject to certain exceptions.
These provisions could also discourage bids for our common stock at a premium as well as create a depressive effect on the market price of the shares of our common stock.

25


Item 1B. Unresolved Staff Comments
None.

Item 2. Properties
To support our planned growth, we are continually expanding our global and regional delivery center capacity through a strategy that includes both the construction and leasing of new facilities. As presented in the table below, as of December 31, 2017, we leased 13.1 million square feet and owned 13.8 million square feet related to our global and regional delivery centers located in 32 countries and used to deliver services to our customers across all four of our business segments.
 
Geographic Area
 
Number of Locations
 
Square Footage Leased
(in millions)
 
Square Footage Owned
(in millions)
 
Total Square Footage
(in millions)
India
 
46

 
10.4

 
13.6

 
24.0

North America
 
57

 
1.5

 
0.2

 
1.7

Europe
 
39

 
0.5

 

 
0.5

Rest of World1
 
32

 
0.7

 

 
0.7

Total
 
174

 
13.1

 
13.8

 
26.9

1 
Includes our operations in Asia Pacific, the Middle East and Latin America. Substantially all of this square footage is located in the Philippines, China and Argentina.
Our executive offices are located in Teaneck, New Jersey, where we lease 0.1 million square feet. In addition to our executive office and the above global and regional delivery centers, we have business development offices in approximately 80 cities and 38 countries across the globe.

We believe that our current facilities are adequate to support our existing operations. We also believe that we will be able to obtain suitable additional facilities on commercially reasonable terms on an “as needed basis.”

Item 3. Legal Proceedings

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. The investigation is also examining various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the DOJ and SEC and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2009 and 2016 that may have been improper. Based on the results of the investigation to date, no material adjustments, restatements or other revisions to our previously issued financial statements are required.

On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the 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 control over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Under a stipulation filed by the parties on February 23, 2017, defendants filed motions to dismiss the consolidated amended complaint on June 6, 2017, plaintiffs filed an opposition brief on July 21, 2017 responding to defendants’ motions to dismiss, and defendants filed reply briefs in further support of their motions to dismiss on September 5, 2017. On September 5, 2017, defendants also filed a motion to strike certain allegations in the consolidated amended complaint, plaintiffs filed an opposition to the motion to strike on October 2, 2017, and, on October 10, 2017, we filed a reply brief in further support of the motion to strike.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The

26


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, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our then current directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our then current directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 10(b) of the Exchange Act against the individual defendants. On May 10, 2017, a sixth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our then current directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 14(a) of the Exchange Act against the individual defendants. In an order dated June 20, 2017, the United States District Court for the District of New Jersey consolidated the three putative shareholder derivative actions filed in that court 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. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to the Company as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.
 
We are presently unable to predict the duration, scope or result of the Audit Committee’s investigation, any investigations by the DOJ or the SEC, the consolidated putative securities class action, the putative shareholder derivative actions or any other lawsuits. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. In addition, the DOJ and the SEC could bring enforcement actions against the Company or individuals, including former members of senior management. Such actions, if brought, could result in dispositions, judgments, settlements, fines, injunctions, cease and desist orders, debarment or other civil or criminal penalties against the Company or such individuals.

We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. The imposition of any sanctions or the implementation of remedial measures could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition. Furthermore, while the Company intends to defend the lawsuits vigorously, these lawsuits and any other related lawsuits are subject to inherent uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is necessarily uncertain.

We are also involved in various claims and legal actions arising in the ordinary course of business. In the opinion of our management, the outcome of such claims and legal actions, if decided adversely, is not expected to have a material adverse effect on our quarterly or annual operating results, cash flows or consolidated financial position.
Item 4. Mine Safety Disclosures
Not applicable.

27


PART II

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 Global Select Market (Nasdaq) under the symbol “CTSH”.
The following table shows the per share range of high and low sale prices for shares of our Class A common stock, as listed for quotation on the Nasdaq and the dividends per share paid, for the quarterly periods indicated.
Quarter Ended
 
High
 
Low
 
Dividends
March 31, 2016
 
$
63.43

 
$
51.22

 
$

June 30, 2016
 
63.23

 
55.17

 

September 30, 2016
 
60.47

 
45.44

 

December 31, 2016
 
58.50

 
48.50

 

March 31, 2017
 
60.39

 
51.52

 

June 30, 2017
 
68.18

 
57.50

 
0.15

September 30, 2017
 
73.00

 
66.05

 
0.15

December 31, 2017
 
76.51

 
69.69

 
0.15

As of December 31, 2017, the approximate number of holders of record of our Class A common stock was 141 and the approximate number of beneficial holders of our Class A common stock was 310,800.
Cash Dividends
In May 2017 we initiated a quarterly cash dividend of $0.15 per share. On February 5, 2018, our Board of Directors approved the Company's declaration of a $0.20 per share dividend with a record date of February 22, 2018 and a payment date of February 28, 2018. We intend to continue to pay a quarterly cash dividend during 2018 and will continue to review the capital return plan, subject to our financial performance, economic outlook and any other relevant considerations. Our ability to declare future dividends will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand and prices for our services, and other factors specific to our industry or specific projects, many of which are beyond our control.
Issuer Purchases of Equity Securities
Effective March 1, 2017, the Board of Directors approved the termination of the stock repurchase program then in effect and approved a new stock repurchase program. The stock repurchase program allows for the repurchase of $3.5 billion of our outstanding shares of Class A common stock, excluding fees and expenses, through December 31, 2019.
Under the stock repurchase program, the Company is authorized to repurchase its Class A common stock through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act, or in private transactions, including through accelerated stock repurchase agreements entered into with financial institutions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased are determined by the Company’s management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors.
In December 2017, we entered into an accelerated stock repurchase agreement, referred to as the December ASR, with a financial institution under our stock repurchase program. Under the terms of the December ASR and in exchange for an up-front payment of $300 million, the financial institution initially delivered 3.6 million shares, a portion of the Company's total expected shares to be repurchased under the December ASR. The total number of shares ultimately delivered will be determined in the first quarter of 2018, at the end of the applicable purchase period.

28


As of December 31, 2017, the remaining available balance under the Board of Directors' authorized stock repurchase program was $1.7 billion.
Month
 
Total Number
of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or
Programs
 
Approximate
Dollar Value of Shares
that May Yet Be
Purchased under the
Plans or Programs
(in millions)
October 1, 2017 - October 31, 2017
 
 
 
 
 
 
 
 
Open market and privately negotiated purchases
 

 
$

 

 
$
2,000

November 1, 2017 - November 30, 2017
 
 
 
 
 
 
 
 
Open market and privately negotiated purchases
 

 

 

 
2,000

December 1, 2017 - December 31, 2017
 
 
 
 
 
 
 
 
Open market and privately negotiated purchases
 

 

 

 
 
December 2017 ASR(a)
 
3,581,964

 
(a)
 
3,581,964

 
1,700

Total
 
3,581,964

 
$

 
3,581,964

 
 
______________
(a)
The number of shares stated above represents shares initially delivered and does not represent the final number of shares to be delivered under the December ASR. The total number of shares ultimately delivered and therefore the average price paid per share, will be determined at the end of the purchase period based on the volume-weighted average price of the Company's common stock during that period.
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, 2017, we purchased 438,037 shares at an aggregate cost of $32 million in connection with employee tax withholding obligations.


29


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 and a Peer Group Index (capitalization weighted) for the period beginning December 31, 2012 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
And a Peer Group Index(3) (Capitalization Weighted)
 
 
chart-ctsh20175yr.jpg
Company / Index
 
Base
Period
12/31/12
 
12/31/13
 
12/31/14
 
12/31/15
 
12/31/16
 
12/31/17
Cognizant Technology Solutions
Corp
 
$
100

 
$
136.68

 
$
142.55

 
$
162.47

 
$
151.67

 
$
193.49

S&P 500 Index
 
100

 
132.39

 
150.51

 
152.59

 
170.84

 
208.14

Nasdaq-100
 
100

 
134.99

 
159.20

 
172.62

 
182.78

 
240.38

Peer Group
 
100

 
138.46

 
147.43

 
167.92

 
172.57

 
218.50

 
(1)
Graph assumes $100 invested on December 31, 2012 in our Class A common stock, the S&P 500 Index, the Nasdaq-100 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 (previously Computer Sciences Corporation), ExlService Holdings Inc., Genpact Limited, Infosys Ltd., Syntel Inc., Wipro Ltd. and WNS (Holdings) Limited. Historically, our peer group also included Computer Task Group, Inc. The old peer group is not presented separately as it is not materially different from the peer group information presented.

30


Item 6. Selected Financial Data
The following table sets forth our selected consolidated historical financial data as of the dates and for the periods indicated. Our selected consolidated financial data set forth below as of December 31, 2017 and 2016 and for each of the years ended December 31, 2017, 2016 and 2015 have been derived from the audited consolidated financial statements included elsewhere herein. Our selected consolidated financial data set forth below as of December 31, 2015, 2014 and 2013 and for each of the years ended December 31, 2014 and 2013 are derived from our consolidated financial statements not included elsewhere herein. Our selected consolidated financial information for 2017, 2016 and 2015 should be read in conjunction with the Consolidated Financial Statements and the Notes and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” which are included elsewhere in this Annual Report on Form 10-K.
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
(in millions, except per share data)
For the Year Ended December 31:
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
14,810

 
$
13,487

 
$
12,416

 
$
10,263

 
$
8,843

Income from operations
 
2,481

 
2,289

 
2,142

 
1,885

 
1,678

Net income(4)
 
1,504

 
1,553

 
1,624

 
1,439

 
1,229

 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share(4)
 
$
2.54

 
$
2.56

 
$
2.67

 
$
2.37

 
$
2.03

Diluted earnings per share(4)
 
$
2.53

 
$
2.55

 
$
2.65

 
$
2.35

 
$
2.02

Cash dividends declared per common share
 
$
0.45

 
$

 
$

 
$

 
$

Weighted average number of common shares outstanding-Basic
 
593

 
607

 
609

 
608

 
604

Weighted average number of common shares outstanding-Diluted
 
595

 
610

 
613

 
613

 
610

 
 
 
 
 
 
 
 
 
 
 
As of December 31:
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and short-term investments
 
$
5,056

 
$
5,169

 
$
4,949

 
$
3,775

 
$
3,748

Working capital(2)(3)
 
6,272

 
6,182

 
5,195

 
3,829

 
4,117

Total assets(1)(2)(3)
 
15,221

 
14,262

 
13,061

 
11,473

 
8,129

Total debt
 
873

 
878

 
1,283

 
1,632

 

Stockholders’ equity
 
10,669

 
10,728

 
9,278

 
7,740

 
6,136

______________________
(1)
In July 2013, the Financial Accounting Standards Board, or FASB, issued new guidance which requires the netting of any unrecognized tax benefits against all available same-jurisdiction deferred income tax carryforward assets that would apply if the uncertain tax positions were settled. We adopted this standard on January 1, 2014 and conformed prior year's presentation.
(2)
In November 2015, the FASB issued an update to the standard on income taxes pertaining to the balance sheet classification of deferred income taxes. The update requires that all deferred income tax assets and liabilities, along with any related valuation allowance, within each tax jurisdiction be classified as noncurrent on the balance sheet. As a result, each tax jurisdiction has one net noncurrent deferred income tax asset or liability. We have adopted this guidance retrospectively in the fourth quarter of 2015 and conformed prior years' presentation.
(3)
In April 2015, the FASB issued an update related to the presentation of debt issuance costs. The update requires debt issuance costs, other than costs incurred to secure lines of credit, be presented in the balance sheet as a direct deduction from the carrying value of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by this update. We have adopted this guidance retrospectively as of January 1, 2016 and conformed prior periods' presentation as applicable.
(4)
In March 2016, the FASB issued an update related to stock compensation. The update simplified the accounting for excess tax benefits and deficiencies related to employee stock-based payment transactions. We adopted this standard prospectively on January 1, 2017. For the year ended December 31, 2017, we recognized net excess tax benefits on stock-based compensation awards in our income tax provision in the amount of $40 million or $0.07 per share. In prior periods, such net excess tax benefits were recorded in additional paid in capital.


31


Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary
We are one of the world’s leading professional services companies. We are in business to help our customers adapt, compete and grow in the face of continual shifts and disruptions within their markets. We do so by partnering with them to apply technology to transform their business, operating, and technology models, allowing them to achieve the full value of digitizing their entire enterprises. We call this being “digital at scale.” When implemented, it enables customers to achieve more efficient and effective operations while reshaping their business models for innovation and growth. Our industry-based, consultative approach helps customers envision, build and run more innovative and efficient businesses. Our core competencies include: business, process, operations and technology consulting, application development and systems integration, enterprise information management, application testing, application maintenance, information technology, or IT, infrastructure services, and business process services. We tailor our services and solutions to specific industries and use an integrated global delivery model that employs customer service teams based at customer locations and delivery teams located at dedicated global and regional delivery centers.
Our objective is to create value for both our customers and stockholders by enhancing our position as a leading professional services company in the digital era. Our digital services and solutions are designed to help our customers win in the digital economy by applying technology and analytics to change consumer experiences to drive sustainable growth, deploying systems of intelligence to automate and improve core business processes, and improving technology systems by deploying cloud and cyber security solutions and as-a-service models to make them simpler, more modern and secure. To accelerate our shift to digital services and solutions, we are deploying the following strategies:
Aligning our digital services and solutions along three practice areas - Digital Business, Digital Operations and Digital Systems and Technology - to address the needs of our customers as they transform their business and technology models.
Investing to scale these digital practice areas across our business segments and geographies, including through extensive training and re-skilling of our existing technical teams, expansion of our local workforces in the United States and other markets around the world where we operate and pursuit of select strategic acquisitions, joint ventures, investments and alliances that can expand our intellectual property portfolio, industry expertise, geographic reach, and platform and technology capabilities.
Continuing to develop of our core business, which includes application services, IT infrastructure and business process services. Our customers often look for efficiencies in the running of their core operations to help them fund investments in new digital capabilities. We work with them to analyze and identify opportunities for advanced automation and delivery efficiencies. Additionally, we seek to expand the geographic reach of our core portfolio of services.
Selectively targeting higher margin work within our core business and unifying our delivery capabilities to allow for more cost-conscious delivery. We are leveraging automation and scale, improving our utilization and optimizing our pyramid.
We believe the above strategies, combined with improving the overall efficiency of our operations, will enable us to gradually expand our non-GAAP operating margins1 with the goal of achieving 22% non-GAAP operating margin1 in 2019. There can be no assurances that we will be successful in achieving this plan or that other factors beyond our control, including the various risks described in Part I, Item 1A. Risk Factors, will not cause us to fail to achieve the targeted improvements.
In 2017, we began a realignment of our business by executing on the above strategies and improving the overall efficiency of our operations while continuing to drive revenue growth. As part of this realignment plan, we incurred expenses of $72 million in 2017, which are reported in "Selling, general and administrative expenses" in our consolidated statements of operations, and are comprised of severance costs, including costs related to a voluntary separation program, or VSP, lease termination costs and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs. The costs related to the realignment are excluded from non-GAAP operating margin1 and non-GAAP diluted earnings per share1. We believe the majority of the costs related to the realignment have already been incurred, although we anticipate that we may incur additional realignment costs in 2018.

_______________
1
Non-GAAP operating margin and non-GAAP earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measures.

32


In February 2017 we announced a plan to return $3.4 billion to our stockholders over a two-year period. During 2017, as part of this plan, we entered into multiple accelerated stock repurchase agreements, collectively referred to as the ASR, to repurchase $1.8 billion of stock and, in May 2017, initiated a quarterly cash dividend. During 2017, we paid dividends totaling $265 million and, in February 2018, increased our quarterly dividend to $0.20 per share. On an ongoing basis, we review our capital return plan, considering our financial performance and liquidity position, investments required to execute our strategic initiatives, the economic outlook, regulatory changes and other relevant factors. Accordingly, we are currently evaluating the impact of the Tax Cuts and Jobs Act, or Tax Reform Act, on our capital return plan.

The following table sets forth a summary of our financial results for the years ended December 31, 2017 and 2016:
 
 
 
 
 
 
Increase (Decrease)
 
 
2017
 
2016
 
$
 
%
 
 
(Dollars in millions, except per share data)
Revenues
 
$
14,810

 
$
13,487

 
$
1,323

 
9.8

Income from operations
 
2,481

 
2,289

 
192

 
8.4

Net income
 
$
1,504

 
$
1,553

 
$
(49
)
 
(3.2
)
Diluted earnings per share
 
$
2.53

 
$
2.55

 
$
(0.02
)
 
(0.8
)
Other Financial Information2
 
 
 
 
 
 
 
 
Non-GAAP income from operations
 
$
2,912

 
$
2,636

 
$
276

 
10.5

Non-GAAP diluted earnings per share
 
$
3.77

 
$
3.39

 
$
0.38

 
11.2

The key drivers of our revenue growth in 2017 as compared to 2016 were as follows:
Solid performance in our Communications, Media and Technology (previously referred to as Other), Products and Resources (previously referred to as Manufacturing/Retail/Logistics) and Healthcare business segments with revenue growth of 17.7%, 14.3% and 10.1%, respectively;
Revenues in our Financial Services business segment grew 5.0% as certain banking customers continue to focus on optimizing their cost structure and managing their discretionary spending;
Sustained strength in the North American market where revenues grew 8.6%;
Continued penetration of the European and Rest of World (primarily Asia Pacific) markets:
In Europe, we experienced revenue growth of 11.8% after a negative currency impact of 1.2%. Specifically, revenues from our Rest of Europe customers, including revenues from our newly acquired strategic customers, increased 28.8% inclusive of a positive currency impact of 2.0%, while within the United Kingdom we experienced a decrease in revenues of 2.2% after a negative currency impact of 3.8%. Revenue growth in the United Kingdom was negatively affected by weakness in the banking sector in that country;
Revenues from our Rest of World customers increased 20.9%;
Increased customer spending on discretionary projects;
Expansion of our service offerings, including consulting and digital services, next-generation IT solutions and platform-based solutions;
Continued expansion of the market for global delivery of technology and business process services; and
Increased penetration at existing customers, including strategic customers.
Our customers seek to apply digital technologies to transform the way they engage with customers and employees, and to develop innovative products and services and bring them quickly to market. Companies are also eager to automate additional aspects of their business to improve their cost structures and increase the quality and velocity of their operations. Increasingly, the relative emphasis among our customers is shifting towards investment and innovation, as reflected in accelerated demand for our digital services. We also saw an increase in demand for larger, more complex projects, including managed services contracts, which are transformational for our customers. Such contracts may have longer sales cycles and ramp-up periods and could lead to greater variability in our period to period operating results.

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

33


In 2017, our operating margin decreased to 16.8% from 17.0% in 2016, while our non-GAAP operating margin increased to 19.7%3 from 19.5%3 in 2016. The decrease in our GAAP operating margin was due to increases in compensation and benefit costs, the impact of realignment charges and an increase in depreciation expense, partially offset by efficiencies of leveraging our cost structure over a larger organization and a reduction in immigration costs. The increase in our non-GAAP operating margin was due to efficiencies of leveraging our cost structure over a larger organization and a reduction in immigration costs, partially offset by increases in compensation and benefit costs and an increase in depreciation expense.
On December 22, 2017, the United States enacted the Tax Reform Act, which significantly revised the U.S. corporate income tax law for tax years beginning after December 31, 2017 by (among other provisions):
reducing the U.S. federal statutory corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017;
implementing a modified territorial tax system that includes a one-time transition tax on all accumulated undistributed earnings of foreign subsidiaries; and
providing for a full deduction on future dividends received from foreign affiliates.
As a result of the enactment of the Tax Reform Act, our historical and future foreign earnings are no longer subject to U.S. federal income taxes upon repatriation beyond the one-time transition tax. We therefore reevaluated our assertion that our non-U.S. earnings would be indefinitely reinvested and concluded that our Indian earnings will continue to be indefinitely reinvested while the accumulated undistributed earnings of our foreign subsidiaries, other than our Indian subsidiaries, are now available for repatriation to the United States. During the fourth quarter of 2017, we recorded a one-time provisional net income tax expense of $617 million, which is comprised of: (i) the one-time transition tax expense on accumulated undistributed earnings of foreign subsidiaries of $635 million, (ii) foreign and U.S. state income tax expense that will be applicable upon repatriation of the accumulated undistributed earnings of our foreign subsidiaries, other than our Indian subsidiaries, of $53 million, partially offset by (iii) an income tax benefit of $71 million resulting from the revaluation of U.S. net deferred income tax liabilities to the new lower U.S. income tax rate. The one-time incremental income tax expense is provisional as it reflects certain assumptions based upon our interpretation of the Tax Reform Act as of January 18, 2018 and may change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time.
Our effective income tax rate for 2017 was 43.4% as compared to 34.2% in 2016. Our 2017 effective income tax rate included a negative impact of 23.2% of pretax earnings due to the Tax Reform Act. Our 2016 effective income tax rate included a negative impact of 10.1% of pretax earnings due to the one-time tax adjustment relating to the India Cash Remittance.
For the years 2018 through 2020, we expect our effective income tax rate to be in the range of 24% to 26%, excluding the impact of discrete items, if any. Our projected effective income tax rates incorporate the anticipated impact of the Tax Reform Act, assumptions regarding our future earnings and their geographic mix, management’s assessment of tax law in the various jurisdictions in which we operate and other risks and uncertainties. As such, our effective income tax rate projections are subject to change, possibly materially, due to changes in underlying estimates and assumptions, changes in tax law and guidance that may be issued, actions the Company may take as a result of these developments, as well as other factors that may be beyond our control.
As previously disclosed, the Company is conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation is also examining various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the Department of Justice, or DOJ, and the Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2009 and 2016 that may have been improper. In the second half of 2016, we recorded an out-of-period correction related to $4 million of such payments that had been previously capitalized that should have been expensed. There were no adjustments recorded during 2017 related to the amounts under investigation.



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

34


In 2016, there were putative securities class action complaints filed, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, or 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 control over financial reporting and our disclosure controls and procedures. Additionally, in 2017 and 2016, putative shareholder derivative complaints were filed, naming us, certain of our current and former directors and certain of our current and former officers as defendants. See the section titled "Part I, Item 3. Legal Proceedings."
In 2017, we incurred $36 million in costs related to the FCPA investigation and related lawsuits in addition to the $27 million we incurred in 2016. We expect to continue to incur expenses related to these matters in 2018.
We finished the year with approximately 260,000 employees, which is a decrease of approximately 200 over the prior year end. Annualized turnover, including both voluntary and involuntary, was approximately 17.9% for the three months ended December 31, 2017. The majority of our turnover occurs in India. As a result, annualized attrition rates in the United States and Europe are below our global attrition rate. In addition, attrition is weighted towards the more junior members of our staff.
During 2018, barring any unforeseen events, we expect the following factors to affect our business and our operating results:
Demand from our customers for digital services;
Our customers' dual mandate of simultaneously achieving cost savings while investing in transformation and innovation;
Continued focus by customers on directing technology spending towards cost containment projects, such as application maintenance, infrastructure services and business process services;
Secular changes driven by evolving digital technologies and regulatory changes, including potential regulatory changes with respect to immigration and taxes;
Demand from our healthcare customers may continue to be affected by the uncertainty in the regulatory environment;
Demand from certain banking customers may continue to be negatively affected by their continued focus on optimizing their cost structure and managing their discretionary spending;
Discretionary spending by our retail customers may continue to be affected by weakness in the retail sector;
Legal fees and other expenses related to the internal investigation and related matters as described above; and
Volatility in foreign currency rates.
In response to this environment, we plan to:
Continue to invest in our digital practice areas of focus across industries and geographies;
Continue to invest in our talent base, including through local hiring and re-skilling, and new service offerings, including digital technologies and new delivery models;
Partner with our existing customers to garner an increased portion of our customers’ overall technology spend by providing innovative solutions;
Focus on growing our business in Europe, the Middle East, Asia Pacific and Latin America, where we believe there are opportunities to gain market share;
Increase our strategic customer base across all of our business segments;
Pursue strategic acquisition opportunities that we believe add new technologies, including digital technologies, or platforms that complement our existing services, improve our overall service delivery capabilities, and/or expand our geographic presence; and
Focus on operating discipline in order to appropriately manage our cost structure.
Business Segments
Our reportable segments are:
Financial Services, which consists of our banking and insurance operating segments;
Healthcare, which consists of our healthcare and life sciences operating segments;
Products and Resources (previously referred to as Manufacturing/Retail/Logistics), which consists of our retail and consumer goods, manufacturing and logistics, travel and hospitality, and energy and utilities operating segments; and
Communications, Media and Technology (previously referred to as Other), which includes our communications and media operating segment and our technology operating segment.

35


Our chief operating decision maker evaluates Cognizant’s performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by our operating groups may affect revenues and operating expenses to different degrees. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as a per seat charge for use of the global delivery centers. Certain selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, stock-based compensation expense, costs related to our realignment program, a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit.
We provide a significant volume of services to many customers in each of our business segments. Therefore, a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment. However, no individual customer accounted for sales in excess of 10% of our consolidated revenues during 2017, 2016 or 2015. In addition, the services we provide to our larger customers are often critical to the operations of such customers and we believe that a termination of our services would require an extended transition period with gradually declining revenues.

Results of Operations for the Three Years Ended December 31, 2017
The following table sets forth certain financial data for the three years ended December 31, 2017:
 
 
2017
 
% of
Revenues
 
2016
 
% of
Revenues
 
2015
 
% of
Revenues
 
Increase/Decrease
2017
 
2016
 
 
(Dollars in millions, except per share data)
Revenues
 
$
14,810

 
100.0
 
$
13,487

 
100.0
 
$
12,416

 
100.0
 
$
1,323

 
$
1,071

Cost of revenues(1)
 
9,152

 
61.8
 
8,108

 
60.1
 
7,440

 
59.9
 
1,044

 
668

Selling, general and administrative expenses(1)
 
2,769

 
18.7
 
2,731

 
20.2
 
2,509

 
20.2
 
38

 
222

Depreciation and amortization expense
 
408

 
2.8
 
359

 
2.7
 
325

 
2.6
 
49

 
34

Income from operations
 
2,481

 
16.8
 
2,289

 
17.0
 
2,142

 
17.3
 
192

 
147

Other income (expense), net
 
174

 
 
 
68

 
 
 
22

 
 
 
106

 
46

Income before provision for income taxes
 
2,655

 
17.9
 
2,357

 
17.5
 
2,164

 
17.4
 
298

 
193

Provision for income taxes
 
(1,153
)
 
 
 
(805
)
 
 
 
(540
)
 
 
 
(348
)
 
(265
)
Income from equity method investment
 
2

 
 
 
1

 
 
 

 
 
 
1

 
1

Net income
 
$
1,504

 
10.2
 
$
1,553

 
11.5
 
$
1,624

 
13.1
 
$
(49
)
 
$
(71
)
Diluted earnings per share
 
$
2.53

 
 
 
$
2.55

 
 
 
$
2.65

 
 
 
$
(0.02
)
 
$
(0.10
)
Other Financial Information (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP income from operations and non-GAAP operating margin
 
$
2,912

 
19.7
 
$
2,636

 
19.5
 
$
2,450

 
19.7
 
276

 
$
186

Non-GAAP diluted earnings per share
 
$
3.77

 
 
 
$
3.39

 
 
 
$
3.07

 
 
 
$
0.38

 
$
0.32

_____________________
(1)
Exclusive of depreciation and amortization expense.
(2)
Non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.
Revenues - Overall. Revenues increased by 9.8% during 2017 as compared to an increase of 8.6% in 2016. The increases in revenues in 2017 and 2016 were primarily attributed to services related to the integration of digital technologies that are reshaping our customers' business and operating models to align with shifts in consumer preferences, increased customer spending on discretionary projects, continued interest in using our global delivery model as a means to reduce overall technology and operations costs and continued penetration in all our geographic markets. Revenues from new customers contributed $208 million and $220 million, representing 15.7% and 20.5% of the year-over-year revenue growth for 2017 and

36


2016, respectively. In 2017, our consulting and technology services revenues increased by 10.9% and represented 58.1% of total 2017 revenues, while our outsourcing services revenues increased by 8.4% and constituted 41.9% of total revenues. In 2016, consulting and technology services revenues increased by 8.6% and represented 57.5% of total 2016 revenues, while our outsourcing services revenues increased by 8.7% and constituted 42.5% of total 2016 revenues.
We increased the number of strategic customers by 28 during the year, bringing the total number of our strategic customers to 357. We define a strategic customer as one offering the potential to generate at least $5 million to $50 million or more in annual revenues at maturity. Revenues from our top customers as a percentage of total revenues were as follows:
 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Top five customers
 
8.9
%
 
10.0
%
 
11.0
%
Top ten customers
 
14.9
%
 
16.7
%
 
18.6
%
As we continue to add new customers and increase our penetration at existing customers, we expect the percentage of revenues from our top five and top ten customers to continue to decline over time.
Revenues - Reportable Segments. Revenues by reportable business segment were as follows:
 
 
2017
 
2016
 
2015
 
Increase
2017
 
2016
$
 
%
 
$
 
%
 
 
(Dollars in millions)
Financial Services
 
$
5,636

 
$
5,366

 
$
5,003

 
$
270

 
5.0
 
$
363

 
7.3
Healthcare
 
4,263

 
3,871

 
3,668

 
392

 
10.1
 
203

 
5.5
Products and Resources
 
3,040

 
2,660

 
2,344

 
380

 
14.3
 
316

 
13.5
Communications, Media and Technology
 
1,871

 
1,590

 
1,401

 
281

 
17.7
 
189

 
13.5
Total revenues
 
$
14,810

 
$
13,487

 
$
12,416

 
$
1,323

 
9.8
 
$
1,071

 
8.6
Financial Services
Revenues from our Financial Services segment grew 5.0% in 2017. Growth was stronger among our insurance customers, where revenues increased by $191 million as compared to an increase of $79 million from our banking customers. In this segment, revenues from customers added during 2017 were $56 million and represented 20.7% of the year-over-year revenues increase in this segment. Key areas of focus for our Financial Services customers included the adoption and integration of digital technologies that are reshaping our customers' business and operating models, cost optimization, robotic process automation, cyber security and vendor consolidation. Demand from certain banking customers may continue to be negatively affected by their continued focus on optimizing their cost structure and managing their discretionary spending.
Revenues from our Financial Services segment grew 7.3% in 2016. In 2016, growth was stronger among our insurance customers, where revenues increased by $202 million as compared to an increase of $161 million from our banking customers. In 2016, revenues from customers added during that year was $64 million and represented 17.6% of the year-over-year revenues increase in this segment. In 2016, demand from certain of our banking customers was negatively affected by the macroeconomic conditions affecting the industry, including a sustained low interest rate environment and the weakening of the British pound due to the results of the June 2016 United Kingdom referendum to exit the European Union, or Brexit Referendum.
Healthcare
Revenues from our Healthcare segment grew 10.1% in 2017. Within this segment, revenues increased by $279 million from our healthcare customers as compared to an increase of $113 million among our life sciences customers. Revenues from customers added during 2017 were $40 million and represented 10.2% of the year-over-year revenue increase in this segment. The increase in revenues from our life sciences customers was driven by a growing demand for a broader range of services, including business process services, advanced data analytics and solutions that span multiple service lines while leveraging cloud technologies and platforms. The demand for our services among healthcare customers continues to be affected by uncertainty in the regulatory environment. We believe that in the long term the healthcare industry continues to present a significant growth opportunity due to factors that are transforming the industry, including the changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare.
Revenues from our Healthcare segment grew 5.5% in 2016. In 2016, our life sciences and healthcare customers contributed $139 million and $64 million, respectively, to the year-over-year revenue growth. In 2016, revenues from

37


customers added during that year were $50 million and represented 24.6% of the year-over-year revenues increase in this segment. The 2016 increase in revenues from our life sciences customers was driven by a growing demand for a broader range of services, including business process services, advanced data analytics and solutions that span multiple service lines while leveraging cloud technologies and platforms.
Products and Resources (previously referred to as Manufacturing/Retail/Logistics)
Revenues from our Products and Resources segment grew 14.3% in 2017. Revenue growth in this segment was strongest among our energy and utilities customers and manufacturing and logistic customers, where revenues increased by a combined $326 million, including revenues from new strategic customers acquired in the fourth quarter of 2016. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined $54 million. Revenues from customers added during 2017 were $85 million and represented 22.4% of the year-over-year revenues increase in this segment. Demand within this segment continues to be driven by increased adoption of digital technologies that are reshaping our customers' business and operating models, as well as growing demand for analytics, supply chain consulting, implementation initiatives, smart products, transformation of business models, internet of things and omni channel commerce implementation and integration services. Discretionary spending by our retail customers has been and may continue to be affected by weakness in the retail sector.
Revenues from our Products and Resources segment grew 13.5% in 2016. During 2016, our energy and utilities customers and manufacturing and logistic customers contributed $186 million to the year-over-year growth as compared to $130 million for our retail and consumer goods customers and travel and hospitality customers. In 2016, revenues from customers added during that year were $71 million and represented 22.5% of the year over year revenue increase in this segment. Demand within this segment in 2016 was primarily driven by the same factors that contributed to the 2017 revenue growth.
Communications, Media and Technology (previously referred to as Other)
Revenues from our Communications, Media and Technology segment grew 17.7% in 2017. In 2017, revenue growth was $154 million among our communications and media customers and $127 million among our technology customers. Revenues from customers added during 2017 were $27 million and represented 9.6% of the year-over-year revenues increase in this segment. Growth within this segment was driven by the increased adoption of digital technologies, digital content operations, services to help our customers balance rationalizing costs while creating a differentiated user experience and an expanded range of services, such as business process services.
Revenues from our Communications, Media and Technology segment grew 13.5% in 2016. In 2016, growth within this segment was driven by the increased adoption of digital technologies, platform engineering for cloud solutions and an expanded range of services, such as business process services. Revenue growth in this segment was strong among our communications and media customers, where revenues increased by $99 million, and our technology customers, where revenues increased by $90 million. Revenues from customers added during 2016 were $35 million and represented 18.5% of the year-over-year revenues increase in this segment.
Revenues - Geographic Locations. Revenues by geographic market, as determined by customer location, were as follows:
 
 
2017
 
2016
 
2015
 
Increase (Decrease)
2017
 
2016
$
 
%
 
$
 
%
 
 
(Dollars in millions)
North America
 
$
11,450

 
$
10,546

 
$
9,759

 
$
904

 
8.6

 
$
787

 
8.1

United Kingdom
 
1,150

 
1,176

 
1,188

 
(26
)
 
(2.2
)
 
(12
)
 
(1.0
)
Rest of Europe
 
1,248

 
969

 
820

 
279

 
28.8

 
149

 
18.2

Europe - Total
 
2,398

 
2,145

 
2,008

 
253

 
11.8

 
137

 
6.8

Rest of World
 
962

 
796

 
649

 
166

 
20.9

 
147

 
22.7

Total revenues
 
$
14,810

 
$
13,487

 
$
12,416

 
$
1,323

 
9.8

 
$
1,071

 
8.6

    
North America continues to be our largest market, representing 77.3% of total 2017 revenues and 68.3% of total revenue growth in 2017. The increase in revenues in 2017 in this region was primarily attributed to services related to the integration of digital technologies that are reshaping our customers' business and operating models to align with shifts in consumer preferences, increased customer spending on discretionary projects and continued interest in using our global delivery model as a means to reduce overall technology and operations costs. In 2017, revenue growth in Europe and Rest of World markets was driven by an increase in demand for an expanded range of services, such as business process services and customer adoption

38


and integration of digital technologies that are reshaping our customers' business and operating models. Revenues from our customers in Europe grew 11.8% after a negative currency impact of 1.2%. Specifically, revenues from our Rest of Europe customers, including revenues from our newly acquired strategic customers, increased 28.8% inclusive of a positive currency impact of 2.0%, while within the United Kingdom we experienced a decrease in revenues of 2.2% after a negative currency impact of 3.8%. Revenue growth in the United Kingdom was negatively affected by weakness in the banking sector in that country. Revenues from our Rest of World customers grew 20.9%, primarily driven by the Australia and India markets. We believe that Europe, the Middle East, Asia Pacific and Latin America will continue to be areas of significant investment for us as we see these regions as long term growth opportunities.

In 2016, North America was also our largest market, representing 78.2% of total revenues and 73.5% of total revenue growth. Revenue growth in Europe and Rest of World markets was driven by an increase in demand for an expanded range of services, such as business process services and customer adoption and integration of digital technologies that are reshaping our customers' business and operating models. Revenues from our customers in Europe grew 6.8%, after a negative currency impact of 6.5%. Specifically, within the United Kingdom, we experienced a decline in revenues of 1.0%, after a negative currency impact of 10.0% while revenues from our Rest of Europe customers increased 18.2% after a negative currency impact of 1.4%. Revenue growth from our United Kingdom and Rest of Europe customers was negatively affected by macroeconomic conditions, including the weakening of the British pound and uncertainty in the markets due to the result of the Brexit Referendum. Revenues from our Rest of World customers grew 22.7% after a negative currency impact of 2.5% and were primarily driven by the India, Singapore, Australia, Japan and Hong Kong markets.
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 expenses for technical personnel and subcontracting costs related to revenues. Our cost of revenues increased by 12.9% during 2017 as compared to an increase of 9.0% during 2016. In 2017, the increase was due primarily to an increase in compensation and benefits costs of $953 million and increases in certain professional service costs. In 2016, the increase was due primarily to an increase in compensation and benefits costs (partially offset by the impact of lower incentive-based compensation costs) of $508 million and increases in certain professional service costs, partially offset by the favorable impact of the depreciation of the Indian rupee against the U.S. dollar and realized gains on settlement of cash flow hedges in 2016 as compared to losses in 2015.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. Selling, general and administrative expenses, including depreciation and amortization, increased by 2.8% during 2017 as compared to an increase of 9.0% during 2016. Selling, general and administrative expenses, including depreciation and amortization, decreased as a percentage of revenues to 21.5% in 2017 as compared to 22.9% in 2016 and 22.8% in 2015. In 2017, the decrease as a percentage of revenues was due primarily to a decrease in compensation and benefit costs and a decrease in immigration expense, partially offset by increases in certain operating and professional service costs and increases in depreciation and amortization due to recent acquisitions. In 2016, the increase as a percentage of revenues was due primarily to an increase in compensation and benefit costs (excluding incentive-based compensation), certain professional service costs and increases in depreciation and amortization due to recent acquisitions, partially offset by the impact of lower incentive-based compensation costs, the favorable impact of the depreciation of the Indian rupee versus the U.S. dollar and realized gains on the settlement of cash flow hedges in 2016 as compared to losses in 2015. In 2017 and 2016, we incurred $36 million and $27 million, respectively, in costs related to the FCPA investigation and related lawsuits.
Income from Operations and Operating Margin - Overall. Income from operations increased 8.4% in 2017 as compared to an increase of 6.9% in 2016. Our operating margin decreased to 16.8% of revenues in 2017 from 17.0% of revenues in 2016, due to increases in compensation and benefit costs, the impact of realignment charges and an increase in depreciation expense, partially offset by efficiencies of leveraging our cost structure over a larger organization and a reduction in immigration costs. In 2016, operating margin decreased to 17.0% of revenues from 17.3% of revenues in 2015, due to increases in compensation and benefit costs (excluding incentive-based compensation), increases in certain professional service costs and increases in depreciation and amortization due to recent acquisitions, partially offset by the impact of lower incentive-based compensation in 2016, the depreciation of the Indian rupee against the U.S. dollar, and realized gains on settlement of cash flow hedges in 2016 as compared to losses in 2015. Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against the U.S. dollar negatively impacted our operating margin by approximately 58 basis points or 0.58 percentage points in 2017, while in 2016 the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 90 basis points or 0.90 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 19 basis points or 0.19 percentage points.

39


We have entered into foreign exchange forward contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the year ended December 31, 2017, the settlement of certain cash flow hedges positively impacted our operating margin by approximately 87 basis points or 0.87 percentage points as compared to a positive impact of approximately 13 basis points or 0.13 percentage points in 2016 and a negative impact of approximately 57 basis points or 0.57 percentage points in 2015.
For the years ended December 31, 2017, 2016 and 2015, our non-GAAP operating margins were 19.7%4, 19.5%4 and 19.7%4, respectively. As set forth in the “Non-GAAP Financial Measures” section below, our non-GAAP operating margin excludes stock-based compensation expense, acquisition-related charges and, in 2017, realignment charges.
Our most significant costs are the salaries and related benefits for our programming staff and other professionals. In certain regions, competition for professionals with advanced technical skills necessary to perform our services has caused wages to increase at a rate greater than the general rate of inflation. As with other service providers in our industry, we must adequately anticipate wage increases, particularly on our fixed-price and transaction- or volume-based priced contracts. Historically, we have experienced increases in compensation and benefit costs in India; however, this has not had a material impact on our results of operations as we have been able to absorb such cost increases through cost management strategies, such as managing discretionary costs, the mix of professional staff and utilization levels, and achieving other operating efficiencies. There can be no assurance that we will be able to offset such cost increases in the future.
Segment Operating Profit. Segment operating profits were as follows:
 
 
 
 
 
 
 
Increase / Decrease
 
 
 
 
 
 
 
2017
 
2016
 
2017
 
2016
 
2015
 
$
 
%
 
$
 
%
 
(Dollars in millions)
Financial Services
$
1,636

 
$
1,707

 
$
1,642

 
$
(71
)
 
(4.2
)
 
$
65

 
4.0

Healthcare
1,304

 
1,153

 
1,200

 
151

 
13.1

 
(47
)
 
(3.9
)
Products and Resources
868

 
851

 
803

 
17

 
2.0

 
48

 
6.0

Communications, Media and Technology
565

 
488

 
453

 
77

 
15.8

 
35

 
7.7

Total segment operating profit
4,373

 
4,199

 
4,098

 
174

 
4.1

 
101

 
2.5

Less: unallocated costs
1,892

 
1,910

 
1,956

 
(18
)
 
(0.9
)
 
(46
)
 
(2.4
)
Income from operations
$
2,481

 
$
2,289

 
$
2,142

 
$
192

 
8.4

 
$
147

 
6.9

In 2017, in our Financial Services, Products and Resources, and Communications, Media and Technology business segments, operating profits decreased as a percentage of revenues due to increases in compensation and benefits costs, investments to accelerate our shift to digital, including re-skilling of service delivery personnel, and the negative impact of the appreciation of various currencies, including the Indian rupee, against the U.S. dollar. Our Financial Services segment’s operating profit was negatively impacted by weakness in the banking sector as certain customers focused on optimizing their cost structure and managing their discretionary spending. The segment operating profit of our Healthcare business segment increased as a percentage of revenues, benefiting from lower losses on certain fixed-price contracts with customers in 2017.
In 2016, across all our segments, segment operating profit decreased as a percentage of revenues due to increases in compensation and benefit costs (excluding incentive-based compensation), increases in certain professional service costs and continued investments to grow our business, partially offset by the favorable impact of the depreciation of the Indian rupee versus the U.S. dollar. The operating profit in our Healthcare segment was further impacted by a loss on a fixed-price contract with a customer of $27 million. In 2016, the unallocated costs decreased when compared to 2015 primarily due to lower incentive-based compensation accrual rates in 2016 compared to 2015.




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

40


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:









Increase / Decrease

2017

2016

2015

2017

2016
 
(in millions)
Foreign currency exchange gains (losses)
$
90

 
$
(27
)
 
$
(43
)
 
$
117

 
$
16

(Losses) on foreign exchange forward contracts not designated as hedging instruments
(23
)
 
(3
)
 

 
(20
)
 
(3
)
Foreign currency exchange gains (losses), net
67

 
(30
)
 
(43
)
 
97

 
13

Interest income
133

 
115

 
84

 
18

 
31

Interest expense
(23
)
 
(19
)
 
(18
)
 
(4
)
 
(1
)
Other, net
(3
)
 
2

 
(1
)
 
(5
)
 
3

Total other income (expense), net
$
174

 
$
68

 
$
22

 
$
106

 
$
46


The foreign currency exchange gains (losses) in all the years presented were primarily attributable to the remeasurement of the Indian rupee denominated net monetary assets and liabilities in our U.S. dollar functional currency India subsidiaries as
well as the remeasurement of other net monetary assets denominated in currencies other than the functional currencies of our subsidiaries. The losses on foreign exchange forward contracts not designated as hedging instruments relate to the realized and unrealized gains and losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to the Indian rupee and other non-U.S. dollar denominated net monetary assets and liabilities. As of December 31, 2017, the notional value of our undesignated hedges was $255 million. The increases in interest income in 2017 and 2016 were primarily attributed to increases in average invested balances.
Provision for Income Taxes. The provision for income taxes was $1,153 million in 2017, $805 million in 2016 and $540 million in 2015. The effective income tax rate increased to 43.4% in 2017 from 34.2% in 2016 and 25.0% in 2015. Our 2017 effective income tax rate included a negative impact of 23.2% of pre-tax earnings due to the Tax Reform Act. Our 2016 effective income tax rate included a negative impact of 10.1% of pre-tax earnings due to the one-time tax adjustment relating to the India Cash Remittance.
For the years 2018 through 2020, we expect our effective income tax rate to be in the range of 24% to 26%, excluding the impact of discrete items, if any. Our projected effective income tax rates incorporate the anticipated impact of the Tax Reform Act, assumptions regarding our future earnings and their geographic mix, management’s assessment of tax law in the various jurisdictions in which we operate and other risks and uncertainties. As such, our effective income tax rate projections are subject to change, possibly materially, due to changes in underlying estimates and assumptions, changes in tax law and guidance that may be issued, actions the Company may take as a result of these developments, as well as other factors that may be beyond our control.

In May 2016, India enacted the Finance Bill 2016 that, among other things, expanded the applicability of India’s buyback distribution tax to certain share buyback transactions occurring after June 1, 2016. In mid-May, prior to the June 1, 2016 effective date of the enactment, our principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. This transaction, or the India Cash Remittance, was undertaken pursuant to a plan approved by the High Court of Madras and simplified the shareholding structure of our principal operating subsidiary in India. Pursuant to the transaction, our principal Indian operating subsidiary repurchased approximately $1.2 billion of the total $2.8 billion of shares from its U.S. shareholders, resulting in incremental tax expense, while the remaining $1.6 billion was repurchased from its shareholder outside the United States. Net of taxes, the transaction resulted in a remittance of cash to the United States in the amount of $1.0 billion. As a result of this transaction, we incurred an incremental 2016 income tax expense of $238 million.
Net Income. Net income was $1,504 million in 2017, $1,553 million in 2016 and $1,624 million in 2015. Net income as a percentage of revenues decreased to 10.2% in 2017 from 11.5% in 2016 primarily due to the incremental income tax expense related to the Tax Reform Act in 2017. In 2016, net income as a percentage of revenues decreased to 11.5% from 13.1% in 2015 primarily due to the incremental income tax expense related to the India Cash Remittance.

41


Non-GAAP Financial Measures    

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

Our non-GAAP income from operations and non-GAAP operating margin exclude stock-based compensation expense, acquisition-related charges and, in 2017, realignment charges. Our definition of non-GAAP diluted earnings per share excludes net non-operating foreign currency exchange gains or losses, the effect of recognition in the first quarter of 2017 of an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position, the impact of the one-time incremental income tax expense related to the Tax Reform Act in 2017 and the impact of a one-time incremental income tax expense related to the India Cash Remittance in 2016, in addition to excluding stock-based compensation expense, acquisition-related charges and, in 2017, realignment charges. Our non-GAAP diluted earnings per share is additionally adjusted for the income tax impact of the above items, as applicable. The income tax impact of each item is calculated by applying the statutory rate and local tax regulations in the jurisdiction in which the item was incurred.

We believe providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into the operating results of the Company. For our internal management reporting and budgeting purposes, we use non-GAAP financial measures for financial and operational decision making, to evaluate period-to-period comparisons, to determine portions of the compensation for our executive officers and for making comparisons of our operating results to those of our competitors. Therefore, it is our belief that the use of non-GAAP financial measures excluding these costs provides a meaningful supplemental measure for investors to evaluate our financial performance. Accordingly, we believe that the presentation of non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share, when read in conjunction with our reported GAAP results, can provide useful supplemental information to our management and investors regarding financial and business trends relating to our financial condition and results of operations.

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

42


The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the years ended December 31:
 
2017
 
% of
Revenues
 
2016
 
% of
Revenues
 
2015
 
% of
Revenues
 
(Dollars in millions, except per share data)
GAAP income from operations and operating margin
$
2,481

 
16.8
 
$
2,289

 
17.0
 
$
2,142

 
17.3
Add: Stock-based compensation expense (1)
221

 
1.5
 
217

 
1.6
 
192

 
1.5
Add: Acquisition-related charges (2)
138

 
0.9
 
130

 
0.9
 
116

 
0.9
Add: Realignment charges (3)
72

 
0.5
 

 
 

 
Non-GAAP income from operations and non-GAAP operating margin
$
2,912

 
19.7
 
$
2,636

 
19.5
 
$
2,450

 
19.7
 
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted earnings per share
$
2.53

 
 
 
$
2.55

 
 
 
$
2.65

 
 
Effect of above operating adjustments, pre-tax
0.72

 
 
 
0.57

 
 
 
0.50

 
 
Effect of non-operating foreign currency exchange (gains) losses, pre-tax (4)
(0.12
)
 
 
 
0.04

 
 
 
0.07

 
 
Tax effect of non-GAAP adjustments to pre-tax income (5)
(0.31
)
 
 
 
(0.16
)
 
 
 
(0.15
)
 
 
Effect of recognition of income tax benefit related to an uncertain tax position (6)
(0.09
)
 
 
 

 
 
 

 
 
Effect of incremental income tax expense related to the Tax Reform Act (7)
1.04

 
 
 

 
 
 

 
 
Effect of incremental income tax expense related to the India Cash Remittance (8)

 
 
 
0.39

 
 
 

 
 
Non-GAAP diluted earnings per share
$
3.77

 
 
 
$
3.39

 
 
 
$
3.07

 
 
_____________________
(1)
Stock-based compensation expense reported in:
 
For the years ended December 31,
 
2017
 
2016
 
2015
Cost of revenues
$
55

 
$
53

 
$
39

Selling, general and administrative expenses
166

 
164

 
153

(2)
Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.
(3)
Realignment charges include severance costs, including costs associated with the VSP, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations.
(4)
Non-operating foreign currency exchange gains (losses) are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.
(5)
Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
 
For the years ended December 31,
 
2017
 
2016
 
2015
Non-GAAP income tax benefit (expense) related to:
 
 
 
 
 
Stock-based compensation expense
$
101

 
$
49

 
$
46

Acquisition-related charges
48

 
46

 
43

Realignment charges
25

 

 

Foreign currency exchange gains (losses)
10

 
5

 
2

The effective income tax rate related to each of our non-GAAP adjustments varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions.

43


(6)
During the three months ended March 31, 2017, we recognized an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position of $55 million. The recognition of the benefit in the first quarter of 2017 was based on management’s reassessment regarding whether this unrecognized tax benefit met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefit.
(7)
In connection with the enactment of the Tax Reform Act, we recorded a one-time provisional net income tax expense of $617 million comprised of: (i) the one-time transitional tax expense on accumulated undistributed earnings of foreign subsidiaries of $635 million and (ii) foreign and U.S. state income tax expense that will be applicable upon repatriation of the accumulated undistributed earnings of our foreign subsidiaries, other than our Indian subsidiaries, of $53 million, partially offset by (iii) an income tax benefit of $71 million resulting from the revaluation of U.S. net deferred income tax liabilities to the new lower U.S. income tax rate. The one-time incremental income tax expense reflects certain assumptions based upon our interpretation of the Tax Reform Act as of January 18, 2018 and may change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time.
(8)
In May 2016, our principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of this transaction, in 2016 we incurred an incremental income tax expense of $238 million.

Liquidity and Capital Resources
Our cash generated from operations has historically been our primary source of liquidity to fund operations and investments to grow our business. In addition, as of December 31, 2017, we had cash, cash equivalents and short-term investments of $5,056 million and additional available capacity under our revolving credit facility of approximately $675 million. The following table provides a summary of our cash flows for the three years ended December 31:
 
 
 
 
 
 
 
 
Increase / Decrease
 
 
2017
 
2016
 
2015
 
2017
 
2016
 
 
(in millions)
Net cash from operating activities
 
$
2,407

 
$
1,645

 
$
2,187

 
$
762

 
$
(542
)
Net cash (used in) investing activities
 
(582
)
 
(963
)
 
(1,371
)
 
381

 
408

Net cash (used in) financing activities
 
(1,985
)
 
(743
)
 
(682
)
 
(1,242
)
 
(61
)
Operating activities. The increase in cash generated from operating activities for 2017 compared to 2016 was primarily attributable to the increase in pre-tax earnings. The decrease in cash generated from operating activities for 2016 compared to 2015 was primarily attributed to the decrease in net income, which includes the impact of incremental taxes paid in connection with the India Cash Remittance, and higher incentive based compensation payments in 2016 as compared to 2015. Trade accounts receivable increased to $2,865 million at December 31, 2017 as compared to $2,556 million at December 31, 2016 and $2,253 million at December 31, 2015. Unbilled accounts receivable were $357 million at December 31, 2017, $349 million at December 31, 2016 and $369 million at December 31, 2015. The increase in trade accounts receivable during 2017 was primarily due to increased revenues.
We monitor turnover, aging and the collection of accounts receivable by customer. Our days sales outstanding calculation includes billed and unbilled accounts receivable, net of allowance for doubtful accounts, reduced by the uncollected portion of our deferred revenue. Our days sales outstanding was 71 days as of