Item 16. Form 10-K Summary

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Item 16. Form 10-K Summary

None.


Cognizant			43			December 31, 2021 Form 10-K

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

By:						/S/ BRIAN HUMPHRIES
						Brian Humphries,
						Chief Executive Officer
						(Principal Executive Officer)

Date:						February 16, 2022

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



Signature	Title	Date

/s/ BRIAN HUMPHRIES	Chief Executive Officer and Director (Principal Executive Officer)	February 16, 2022
Brian Humphries

/s/ JAN SIEGMUND	Chief Financial Officer (Principal Financial Officer)	February 16, 2022
Jan Siegmund

/s/ ROBERT TELESMANIC	Senior Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)	February 16, 2022
Robert Telesmanic

/s/ MICHAEL PATSALOS-FOX	Chairman of the Board and Director	February 16, 2022
Michael Patsalos-Fox

/s/ ZEIN ABDALLA	Director	February 16, 2022
Zein Abdalla

/s/ VINITA BALI	Director	February 16, 2022
Vinita Bali

/s/ MAUREEN BREAKIRON-EVANS	Director	February 16, 2022
Maureen Breakiron-Evans

/s/ ARCHANA DESKUS	Director	February 16, 2022
Archana Deskus

/s/ JOHN M. DINEEN	Director	February 16, 2022
John M. Dineen

/s/ LEO S. MACKAY, JR.	Director	February 16, 2022
Leo S. Mackay, Jr.

/s/ JOSEPH M. VELLI	Director	February 16, 2022
Joseph M. Velli

/s/ SANDRA S. WIJNBERG	Director	February 16, 2022
Sandra S. Wijnberg


Cognizant			44			December 31, 2021 Form 10-K

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE



	Page

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238)		F-2
Consolidated Statements of Financial Position as of December 31, 2021 and 2020		F-4
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019		F-5
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019		F-6
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019		F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019		F-8
Notes to Consolidated Financial Statements		F-9
Financial Statement Schedule:
Schedule of Valuation and Qualifying Accounts for the years ended December 31, 2021, 2020 and 2019		F-42


Cognizant			F-1			December 31, 2021 Form 10-K

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Cognizant Technology Solutions Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Cognizant Technology Solutions Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Cognizant			F-2			December 31, 2021 Form 10-K

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Expected Labor Costs to Complete for Certain Fixed-Price Contracts

As described in Notes 1 and 2 to the consolidated financial statements, fixed-price contracts comprised $7.3 billion of the Company’s total revenues for the year ended December 31, 2021, which includes performance obligations where control is transferred over time. For performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Management recognizes revenues related to fixed-price contracts for application development and systems integration services, consulting or other technology services as the service is performed using the cost to cost method, under which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. The cost to cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information. Revenues related to fixed-price application maintenance, testing and business process services are recognized based on management’s right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If management’s invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above.

The principal considerations for our determination that performing procedures relating to revenue recognition – expected labor costs to complete for certain fixed-price contracts is a critical audit matter are the significant judgment by management when developing the estimated total expected labor costs to complete fixed-price contracts and the significant auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s estimate of total expected labor costs.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the development of the estimated total expected labor costs to complete fixed-price contracts. These procedures also included, among others, evaluating and testing management’s process for developing the estimated total expected labor costs for a sample of contracts, which included evaluating the reasonableness of the total expected labor cost assumptions used by management. Evaluating the reasonableness of the assumptions related to the total expected labor costs involved assessing management’s ability to reasonably develop total expected labor costs by (i) performing a comparison of actual labor costs incurred with expected labor costs for similar completed projects and (ii) evaluating the timely identification of circumstances that may warrant a modification to previous labor cost estimates, including actual labor costs in excess of estimates.

/s/ PricewaterhouseCoopers LLP

New York, New York

February 16, 2022

We have served as the Company’s auditor since 1997.


Cognizant			F-3			December 31, 2021 Form 10-K

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


	December 31,
(in millions, except par values)	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	1,792	$	2,680
Short-term investments	927		44
Trade accounts receivable, net	3,557		3,087
Other current assets	1,066		1,040
Total current assets	7,342		6,851
Property and equipment, net	1,171		1,251
Operating lease assets, net	933		1,013
Goodwill	5,620		5,031
Intangible assets, net	1,218		1,046
Deferred income tax assets, net	404		445
Long-term investments	463		440
Other noncurrent assets	701		846
Total assets	$	17,852	$	16,923
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	361	$	389
Deferred revenue	403		383
Short-term debt	38		38
Operating lease liabilities	195		211
Accrued expenses and other current liabilities	2,532		2,519
Total current liabilities	3,529		3,540
Deferred revenue, noncurrent	40		36
Operating lease liabilities, noncurrent	783		846
Deferred income tax liabilities, net	218		206
Long-term debt	626		663
Long-term income taxes payable	378		428
Other noncurrent liabilities	287		368
Total liabilities	5,861		6,087
Commitments and contingencies (See Note 15)
Stockholders’ equity:
Preferred stock, $0.10 par value, 15 shares authorized, none issued	—		—
Class A common stock, $0.01 par value, 1,000 shares authorized, 525 and 530 shares issued and outstanding as of December 31, 2021 and 2020, respectively	5		5
Additional paid-in capital	27		32
Retained earnings	11,922		10,689
Accumulated other comprehensive income (loss)	37		110
Total stockholders’ equity	11,991		10,836
Total liabilities and stockholders’ equity	$	17,852	$	16,923

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


Cognizant			F-4			December 31, 2021 Form 10-K

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
(in millions, except per share data)	2021		2020		2019
Revenues	$	18,507	$	16,652	$	16,783
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense shown separately below)	11,604		10,671		10,634
Selling, general and administrative expenses	3,503		3,100		2,972
Restructuring charges	—		215		217
Depreciation and amortization expense	574		552		507
Income from operations	2,826		2,114		2,453
Other income (expense), net:
Interest income	30		119		176
Interest expense	(9)		(24)		(26)
Foreign currency exchange gains (losses), net	(20)		(116)		(65)
Other, net	—		3		5
Total other income (expense), net	1		(18)		90
Income before provision for income taxes	2,827		2,096		2,543
Provision for income taxes	(693)		(704)		(643)
Income (loss) from equity method investments	3		—		(58)
Net income	$	2,137	$	1,392	$	1,842
Basic earnings per share	$	4.06	$	2.58	$	3.30
Diluted earnings per share	$	4.05	$	2.57	$	3.29
Weighted average number of common shares outstanding—Basic	527		540		559
Dilutive effect of shares issuable under stock-based compensation plans	1		1		1
Weighted average number of common shares outstanding—Diluted	528		541		560

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


Cognizant			F-5			December 31, 2021 Form 10-K

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Year Ended December 31,
(in millions)	2021		2020		2019
Net income	$	2,137	$	1,392	$	1,842
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(75)		119		39
Change in unrealized gains and losses on cash flow hedges	2		29		29
Change in unrealized losses on available-for-sale investment securities	—		—		8
Other comprehensive income (loss)	(73)		148		76
Comprehensive income	$	2,064	$	1,540	$	1,918

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


Cognizant			F-6			December 31, 2021 Form 10-K

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


(in millions, except per share data)		Class A Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares		Amount
Balance, December 31, 2018		577		$	6	$	47	$	11,485	$	(114)	$	11,424
Cumulative effect of changes in accounting principle (1)		—		—		—		2		—		2
Net income		—		—		—		1,842		—		1,842
Other comprehensive income (loss)		—		—		—		—		76		76
Common stock issued, stock-based compensation plans		7		—		159		—		—		159
Stock-based compensation expense		—		—		217		—		—		217
Repurchases of common stock		(36)		(1)		(390)		(1,856)		—		(2,247)
Dividends declared, $0.80 per share		—		—		—		(451)		—		(451)
Balance, December 31, 2019		548		5		33		11,022		(38)		11,022
Cumulative effect of changes in accounting principle (2)		—		—		—		1		—		1
Net income		—		—		—		1,392		—		1,392
Other comprehensive income (loss)		—		—		—		—		148		148
Common stock issued, stock-based compensation plans		6		—		142		—		—		142
Stock-based compensation expense		—		—		232		—		—		232
Repurchases of common stock		(24)		—		(375)		(1,246)		—		(1,621)
Dividends declared, $0.88 per share		—		—		—		(480)		—		(480)
Balance, December 31, 2020		530		5		32		10,689		110		10,836
Net income		—		—		—		2,137		—		2,137
Other comprehensive income (loss)		—		—		—		—		(73)		(73)
Common stock issued, stock-based compensation plans		5		—		130		—		—		130
Stock-based compensation expense		—		—		246		—		—		246
Repurchases of common stock		(10)		—		(381)		(394)		—		(775)
Dividends declared, $0.96 per share		—		—		—		(510)		—		(510)
Balance, December 31, 2021		525		$	5	$	27	$	11,922	$	37	$	11,991

(1) Reflects the adoption of the New Lease Standard on January 1, 2019.

(2) Reflects the adoption of the Credit Loss Standard on January 1, 2020.

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


Cognizant			F-7			December 31, 2021 Form 10-K

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
(in millions)	2021		2020		2019
Cash flows from operating activities:
Net income	$	2,137	$	1,392	$	1,842
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	574		559		526

Deferred income taxes	27		184		(306)
Stock-based compensation expense	246		232		217
Other	(1)		119		119
Changes in assets and liabilities:
Trade accounts receivable	(407)		264		37
Other current and noncurrent assets	348		73		159
Accounts payable	(35)		109		8
Deferred revenue, current and noncurrent	19		65		56
Other current and noncurrent liabilities	(413)		302		(159)
Net cash provided by operating activities	2,495		3,299		2,499
Cash flows from investing activities:
Purchases of property and equipment	(279)		(398)		(392)
Purchases of available-for-sale investment securities	(430)		—		(333)
Proceeds from maturity or sale of available-for-sale investment securities	120		—		2,107
Purchases of held-to-maturity investment securities	(203)		(202)		(693)
Proceeds from maturity of held-to-maturity investment securities	180		467		1,498
Purchases of other investments	(1,660)		(531)		(483)
Proceeds from maturity or sale of other investments	1,078		549		501
Payments for business combinations, net of cash acquired	(970)		(1,123)		(617)
Net cash (used in) provided by investing activities	(2,164)		(1,238)		1,588
Cash flows from financing activities:
Issuance of common stock under stock-based compensation plans	130		142		159


Repurchases of common stock	(771)		(1,621)		(2,247)
Repayment of Term Loan borrowings and finance lease and earnout obligations	(53)		(50)		(28)
Proceeds from borrowing under the revolving credit facility	—		1,740		—
Repayment of notes outstanding under the revolving credit facility	—		(1,740)		—
Dividends paid	(509)		(480)		(453)
Net cash (used in) financing activities	(1,203)		(2,009)		(2,569)
Effect of exchange rate changes on cash and cash equivalents	(16)		(17)		(34)
(Decrease) increase in cash and cash equivalents	(888)		35		1,484
Cash and cash equivalents, beginning of year	2,680		2,645		1,161
Cash and cash equivalents, end of year	$	1,792	$	2,680	$	2,645

Supplemental information:
Cash paid for income taxes during the year	$	625	$	745	$	870
Cash interest paid during the year	$	7	$	25	$	25

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


Cognizant			F-8			December 31, 2021 Form 10-K

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share data)


Note 1 — Business Description and Summary of Significant Accounting Policies

The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation and its subsidiaries unless the context indicates otherwise.

Description of Business. We are one of the world’s leading professional services companies, engineering modern business for the digital era. Our services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Digital services have become an increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and differentiated businesses. We are continuing to invest in digital services with a focus on four key areas: IoT, digital engineering, data and cloud. We tailor our services and solutions to specific industries with an integrated global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional delivery centers. We help clients modernize technology, reimagine processes and transform experiences so they can stay ahead in a fast-changing world.

Basis of Presentation, Principles of Consolidation and Use of Estimates. The consolidated financial statements are presented in accordance with GAAP and reflect the consolidated financial position, results of operations, comprehensive income and cash flows of our consolidated subsidiaries for all periods presented. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying disclosures. We evaluate our estimates on a continuous basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.

Cash and Cash Equivalents and Investments. Cash and cash equivalents consist of all cash balances, including money market funds, certificates of deposits and commercial paper that have a maturity, at the date of purchase, of 90 days or less.

We determine the appropriate classification of our investments in marketable securities at the date of purchase and reevaluate such designation at each balance sheet date. We classify and account for our marketable debt securities as either available-for-sale or held-to-maturity. After consideration of our risk versus reward objectives, as well as our liquidity requirements, we may sell our available-for-sale securities prior to their stated maturities. We classify these marketable securities with maturities at the date of purchase beyond 90 days as short-term investments based on their highly liquid nature and because such marketable securities represent an investment of cash that is available for current operations. Available-for-sale securities are reported at fair value with changes in unrealized gains and losses recorded as a separate component of "Accumulated other comprehensive income (loss)" on the consolidated statements of financial position until realized. We determine the cost of the securities sold based on the specific identification method. Our held-to-maturity investment securities are financial instruments for which we have the intent and ability to hold to maturity and we classify these securities with maturities less than one year as short-term investments. Any held-to-maturity investment securities with maturities beyond one year from the balance sheet date are classified as long-term investments. Held-to-maturity securities are reported at amortized cost. Interest and amortization of premiums and discounts for debt securities are included in interest income.

For available-for-sale debt securities, if we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate qualitative criteria, such as the financial health of and specific prospects for the issuer, to determine whether we do not expect to recover the amortized cost basis of the security. We also evaluate quantitative criteria including determining whether there has been an adverse change in expected future cash flows. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to contain an expected credit loss, and we record the difference between the security’s amortized cost basis and its recoverable amount in earnings as an allowance for credit loss and the difference between the security’s recoverable amount and fair value in other comprehensive income. If we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, the security is considered impaired, and we recognize the entire difference between the security’s amortized cost basis and its fair value in earnings.

On initial recognition and on an ongoing basis, we evaluate our held-to-maturity investment securities for expected credit losses collectively when they share similar risk characteristics or individually, when the risk characteristics are different. The allowance for expected credit losses is determined using our historical loss experience. We monitor the credit ratings of the


Cognizant			F-9			December 31, 2021 Form 10-K

securities in our portfolio to evaluate the need for any changes to the allowance. An increase or a decrease in the allowance for expected credit losses is recorded through income as a credit loss expense or a reversal thereof. The allowance for expected credit losses is presented as a deduction from the amortized cost. A held-to-maturity investment security is written off when deemed uncollectible.

Financial Assets and Liabilities. Cash and certain cash equivalents, time deposits, trade receivables, accounts payable and other accrued liabilities are short-term in nature and, accordingly, their carrying values approximate fair value.

Property and Equipment. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the asset. Deposits paid towards acquisition of long-lived assets and the cost of assets not put in use by the balance sheet date are disclosed under the caption "Capital work-in-progress" in Note 6.

Leases. Our lease asset classes primarily consist of operating leases for office space, data centers and IT equipment. At inception of a contract, we determine whether a contract contains a lease, and if a lease is identified, whether it is an operating or finance lease. In determining whether a contract contains a lease we consider whether (1) we have the right to obtain substantially all of the economic benefits from the use of the asset throughout the term of the contract, (2) we have the right to direct how and for what purpose the asset is used throughout the term of the contract and (3) we have the right to operate the asset throughout the term of the contract without the lessor having the right to change the terms of the contract. Some of our lease agreements contain both lease and non-lease components that we account for as a single lease component for all of our lease asset classes.

Our ROU lease assets represent our right to use an underlying asset for the lease term and may include any advance lease payments made and any initial direct costs and exclude lease incentives. Our lease liabilities represent our obligation to make lease payments arising from the terms of the lease. ROU lease assets and lease liabilities are recognized at the commencement of the lease and are calculated using the present value of lease payments over the lease term. Typically, our lease agreements do not provide sufficient detail to determine the rate implicit in the lease. Therefore, we use our estimated country-specific incremental borrowing rate based on information available at the commencement date of the lease to calculate the present value of the lease payments. In estimating our country-specific incremental borrowing rates, we consider market rates of comparable collateralized borrowings for similar terms. Our lease terms may include the option to extend or terminate the lease before the end of the contractual lease term. Our ROU lease assets and lease liabilities include these options when it is reasonably certain that they will be exercised.

A portion of our real estate lease costs is subject to annual changes in the CPI. The changes to the CPI are treated as variable lease payments and are recognized in the period in which the obligation for those payments is incurred. Other variable lease costs primarily relate to adjustments for common area maintenance, utilities, property tax and lease concessions. These variable costs are recognized in the period in which the obligation is incurred.

We elect not to recognize ROU assets and lease liabilities for short-term leases with a term equal to or less than 12 months. We recognize the lease payments in our income statement on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

Both ROU assets and finance lease assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the related asset group may not be recoverable.

Internal Use Software. We capitalize certain costs that are incurred to purchase, develop and implement internal-use software during the application development phase, which primarily include coding, testing and certain data conversion activities. Capitalized costs are amortized on a straight-line basis over the useful life of the software. Costs incurred in performing planning and post-implementation activities are expensed as incurred.

Cloud Computing Arrangements. We defer certain implementation costs that are incurred when implementing cloud computing service or SaaS arrangements, which primarily include efforts associated with configuration and development activities. Once the service is ready for use, deferred costs are expensed over the term of the arrangement and recognized in income from operations.

Software to be Sold, Leased or Marketed. We capitalize costs incurred after technological feasibility is reached but before software is available for general release to clients, which primarily include coding and testing activities. Once the product is ready for general release, capitalized costs are amortized over the useful life of the software.


Cognizant			F-10			December 31, 2021 Form 10-K

Business Combinations. We account for business combinations using the acquisition method, which requires the identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration and any noncontrolling interest in the acquiree at their acquisition date fair values. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Identifiable intangible assets with finite lives are amortized over their expected useful lives. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date.

Equity Method Investments. Equity investments that give us the ability to exercise significant influence, but not control, over an investee are accounted for using the equity method of accounting and recorded in the caption "Long-term investments" on our consolidated statements of financial position. Equity method investments are initially recorded at cost. We periodically review the carrying value of our equity method investments to determine if there has been an other-than-temporary decline in the carrying value. The investment balance is increased to reflect contributions and our share of earnings and decreased to reflect our share of losses, distributions, and other-than-temporary impairments. Our proportionate share of the net income or loss of the investee is recorded in the caption "Income (loss) from equity method investments" on our consolidated statements of operations.

Long-lived Assets and Finite-lived Intangible Assets. We review long-lived assets and certain finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. The carrying amount may not be recoverable when the sum of undiscounted expected future cash flows is less than the carrying amount of such asset groups. The impairment loss is determined as the amount by which the carrying amount of the asset group exceeds its fair value. Intangible assets consist primarily of customer relationships and developed technology, which are being amortized on a straight-line basis over their estimated useful lives.

Goodwill and Indefinite-lived Intangible Assets. We evaluate goodwill and indefinite-lived intangible assets for impairment at least annually, or as circumstances warrant. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount including goodwill. An impairment of goodwill exists if the carrying amount of the reporting unit exceeds its fair value. The impairment loss is the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit. For indefinite-lived intangible assets, if our qualitative assessment indicates that it is more-likely-than-not that an indefinite-lived intangible asset is impaired, we test the assets for impairment by comparing the fair value of such assets to their carrying value. If an impairment is indicated, a write down to the fair value of indefinite-lived intangible asset is recorded.

Stock Repurchase Program. Under the Board of Directors authorized stock repurchase program, the Company is authorized to repurchase its Class A common stock through open market purchases, including under a 10b5-1 Plan, or in private transactions, including through ASR agreements entered into with financial institutions, in accordance with applicable federal securities laws. We account for the repurchased shares as constructively retired. Shares are returned to the status of authorized and unissued shares at the time of repurchase or in the periods they are delivered if repurchased under an ASR. To reflect share repurchases in the consolidated statements of financial position, we (1) reduce common stock for the par value of the shares, (2) reduce additional paid-in capital for the amount in excess of par during the period in which the shares are repurchased and (3) record any residual amount in excess of available additional paid-in capital to retained earnings. Upfront payments related to ASRs are accounted for as a reduction to stockholders’ equity in the consolidated statements of financial position in the period the payments are made.

Revenue Recognition. We recognize revenues as we transfer control of deliverables (products, solutions and services) to our clients in an amount reflecting the consideration to which we expect to be entitled. To recognize revenues, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. We account for a contract when it has approval and commitment from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We apply judgment in determining the customer’s ability and intention to pay based on a variety of factors including the customer’s historical payment experience.

For performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided.

Revenues related to fixed-price contracts for application development and systems integration services, consulting or other technology services are recognized as the service is performed using the cost to cost method, under which the total value


Cognizant			F-11			December 31, 2021 Form 10-K

of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with the value delivered, revenues are recognized as the service is performed based on the cost to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately, where appropriate.

Revenues related to fixed-price hosting and infrastructure services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with the value delivered, revenues are recognized on a straight-line basis unless revenues are earned and obligations are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides the most faithful depiction of performance towards satisfaction of our performance obligations; for example, the cost to cost method is used when the value of services provided to the customer is best represented by the costs expended to deliver those services.

Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period the services are provided either using an output method such as labor hours, or a method that is otherwise consistent with the way in which value is delivered to the customer.

Revenues related to our non-hosted software license arrangements that do not require significant modification or customization of the underlying software are recognized when the software is delivered as control is transferred at a point in time. For software license arrangements that require significant functionality enhancements or modification of the software, revenues for the software license and related services are recognized as the services are performed in accordance with the methods applicable to application development and systems integration services described above. In software hosting arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a service. Sales and usage-based fees promised in exchange for licenses of intellectual property are not recognized as revenue until the uncertainty related to the variable amounts is resolved. Revenues related to software maintenance and support are generally recognized on a straight-line basis over the contract period.

Incentive revenues, volume discounts, or any other form of variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value) or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration to which we may be entitled. We include in the transaction price variable consideration only to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether and when to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.

Revenues also include the reimbursement of out-of-pocket expenses. Our warranties generally provide a customer with assurance that the related deliverable will function as the parties intended because it complies with agreed-upon specifications and are therefore not considered an additional performance obligation in the contract.

We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.

We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component


Cognizant			F-12			December 31, 2021 Form 10-K

is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.

Our contracts may be modified to add, remove or change existing performance obligations. The accounting for modifications to our contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price. Services added to our application development and systems integration service contracts are typically not distinct, while services added to our other contracts, including application maintenance, testing and business process services contracts, are typically distinct.

From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). In doing so, we evaluate whether we control the good or service before it is transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Determining whether we control the good or service before it is transferred to the customer may require judgment.

Trade Accounts Receivable, Contract Assets and Contract Liabilities. We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). For example, we recognize a receivable for revenues related to our time and materials and transaction or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in "Trade accounts receivable, net" in our consolidated statements of financial position at their net estimated realizable value. A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in "Other current assets" in our consolidated statements of financial position and primarily relate to unbilled amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. Our contract liabilities, or deferred revenue, consist of advance payments from clients and billings in excess of revenues recognized. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize the revenues.

Our contract assets and contract liabilities are reported on a net basis by contract at the end of each reporting period. The difference between the opening and closing balances of our contract assets and contract liabilities primarily results from the timing difference between our performance obligations and the client’s payment. We receive payments from clients based on the terms established in our contracts, which vary by contract type.

Allowance for Credit Losses. We calculate expected credit losses for our trade accounts receivable and contract assets. Expected credit losses include losses expected based on known credit issues with specific customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectibility. We update our allowance for credit losses on a quarterly basis with changes in the allowance recognized in income from operations.

Costs to Fulfill. Recurring operating costs for contracts with customers are recognized as incurred. Certain eligible, nonrecurring costs (i.e., set-up or transition costs) are capitalized when such costs (1) relate directly to the contract, (2) generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future, and (3) are expected to be recovered. These costs are expensed ratably over the estimated life of the customer relationship, including expected contract renewals. In determining the estimated life of the customer relationship, we evaluate the average contract term, on a portfolio basis by nature of the services to be provided, and apply judgment in evaluating the rate of technological and industry change. Capitalized amounts are monitored regularly for impairment. Impairment losses are recorded when projected remaining undiscounted operating cash flows are not sufficient to recover the carrying amount of the capitalized costs to fulfill.

Stock-Based Compensation. Stock-based compensation expense for awards of equity instruments to employees and non-employee directors is determined based on the grant date fair value of those awards. We recognize these compensation costs net of an estimated forfeiture rate over the requisite service period of the award. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates. Stock-based compensation costs for PSUs are recognized on a graded-vesting basis over the vesting period based on the most probable outcome of the performance conditions. If the minimum performance targets are not met, no compensation cost is recognized and any recognized compensation cost is reversed, except for awards subject to a market condition. The fair value of RSUs and PSUs is determined


Cognizant			F-13			December 31, 2021 Form 10-K

based on the number of stock units granted and the quoted price of our stock at the date of grant. The fair value of PSUs granted subject to a market condition is determined using a Monte Carlo valuation model.

Foreign Currency. The assets and liabilities of our foreign subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollars at current exchange rates while revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in the caption "Accumulated other comprehensive income (loss)" on the consolidated statements of financial position.

Foreign currency transactions and balances are those that are denominated in a currency other than the entity’s functional currency. An entity's functional currency is the currency of the primary economic environment in which it operates. The U.S. dollar is the functional currency for some of our foreign subsidiaries. For these subsidiaries, transactions and balances denominated in the local currency are foreign currency transactions. Foreign currency transactions and balances related to non-monetary assets and liabilities are remeasured to the functional currency of the entity at historical exchange rates while monetary assets and liabilities are remeasured to the functional currency of the entity at current exchange rates. Foreign currency exchange gains or losses from remeasurement are included in the caption "Foreign currency exchange gain (losses), net" on our consolidated statements of operations together with gains or losses on our undesignated foreign currency hedges.

Derivative Financial Instruments. Derivative financial instruments are recorded on our consolidated statements of financial position as either an asset or liability measured at its fair value as of the reporting date. Our derivative financial instruments consist primarily of foreign exchange forward and option contracts. For derivative financial instruments to qualify for hedge accounting, the following criteria must be met: (1) the hedging instrument must be designated as a hedge; (2) the hedged exposure must be specifically identifiable and must expose us to risk; and (3) it must be expected that a change in fair value of the hedging instrument and an opposite change in the fair value of the hedged exposure will have a high degree of correlation. Changes in our derivatives’ fair values are recognized in net income unless specific hedge accounting and documentation criteria are met (i.e., the instruments are designated and accounted for as hedges). We record the effective portion of the unrealized gains and losses on our derivative financial instruments that are designated as cash flow hedges in the caption "Accumulated other comprehensive income (loss)" in the consolidated statements of financial position. Any ineffectiveness or excluded portion of a designated cash flow hedge is recognized in net income. Upon occurrence of the hedged transaction, the gains and losses on the derivative are recognized in net income.

Income Taxes. We provide for income taxes utilizing the asset and liability method of accounting. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred income tax asset will not be realized, a valuation allowance is provided. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date.

Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as well as any related penalties and interest. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit. To the extent that the final outcome of these matters differs from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.

Earnings Per Share. Basic EPS is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS includes all potential dilutive common stock in the weighted average shares outstanding. We exclude from the calculation of diluted EPS options with exercise prices that are greater than the average market price and shares related to stock-based awards whose combined exercise price and unamortized fair value were greater in each of those periods than the average market price of our common stock for the period, because their effect would be anti-dilutive. We excluded less than 1 million of anti-dilutive shares in each of 2021, 2020 and 2019 from our diluted EPS calculation. We include PSUs in the dilutive common shares when they become contingently issuable per the authoritative guidance and exclude them when they are not contingently issuable.


Cognizant			F-14			December 31, 2021 Form 10-K

Recently Adopted Accounting Pronouncements


Date Issued and Topic	Date Adopted and Method	Description	Impact
February 2016 Leases	January 1, 2019 Effective Date Method	The new standard replaces the existing guidance on leases and requires the lessee to recognize a ROU asset and a lease liability for all leases with lease terms greater than twelve months. For finance leases, the lessee recognizes interest expense and amortization of the ROU asset, and for operating leases, the lessee recognizes total lease expense on a straight-line basis.	As a result of the adoption, we recorded an increase to opening retained earnings of $2 million.
June 2016 Financial Instruments-Credit Losses	January 1, 2020 Modified Retrospective	The new standard requires the measurement and recognition of expected credit losses using the current expected credit loss model for financial assets held at amortized cost, which includes the Company’s trade accounts receivable, certain financial instruments and contract assets. It replaces the existing incurred loss impairment model with an expected loss methodology. The recorded credit losses are adjusted each period for changes in expected lifetime credit losses. The standard requires a cumulative effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective.	As a result of the adoption, we recorded an increase to our opening retained earnings and "Trade accounts receivable, net" of $1 million each. Prior year amounts are not adjusted and continue to be reported in accordance with our historical accounting policies.


Note 2 — Revenues

Disaggregation of Revenues

The tables below present disaggregated revenues from contracts with clients by client location, service line and contract-type for each of our business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. Our consulting and technology services include consulting, application development, systems integration, and application testing services as well as software solutions and related services while our outsourcing services include application maintenance, infrastructure and business process services. Revenues are attributed to geographic regions based upon client location, which is the client's billing address. Substantially all revenues in our North America region relate to clients in the United States.


Cognizant			F-15			December 31, 2021 Form 10-K


	Year Ended
	December 31, 2021
(in millions)	FS		HC		P&R		CMT		Total
Revenues
Geography:
North America	$	4,204	$	4,571	$	2,937	$	1,924	$	13,636
United Kingdom	547		168		471		456		1,642
Continental Europe	745		477		539		158		1,919
Europe - Total	1,292		645		1,010		614		3,561
Rest of World	555		121		329		305		1,310
Total	$	6,051	$	5,337	$	4,276	$	2,843	$	18,507

Service line:
Consulting and technology services	$	4,079	$	3,090	$	2,725	$	1,693	$	11,587
Outsourcing services	1,972		2,247		1,551		1,150		6,920
Total	$	6,051	$	5,337	$	4,276	$	2,843	$	18,507

Type of contract:
Time and materials	$	3,613	$	2,063	$	1,785	$	1,679	$	9,140
Fixed-price	2,063		2,157		2,085		1,032		7,337
Transaction or volume-based	375		1,117		406		132		2,030
Total	$	6,051	$	5,337	$	4,276	$	2,843	$	18,507


	Year Ended
	December 31, 2020
(in millions)	FS		HC		P&R		CMT		Total
Revenues
Geography:
North America	$	4,013	$	4,181	$	2,650	$	1,737	$	12,581
United Kingdom	463		157		371		344		1,335
Continental Europe	629		434		413		177		1,653
Europe - Total	1,092		591		784		521		2,988
Rest of World	516		80		262		225		1,083
Total	$	5,621	$	4,852	$	3,696	$	2,483	$	16,652

Service line:
Consulting and technology services	$	3,691	$	2,786	$	2,249	$	1,456	$	10,182
Outsourcing services	1,930		2,066		1,447		1,027		6,470
Total	$	5,621	$	4,852	$	3,696	$	2,483	$	16,652

Type of contract:
Time and materials	$	3,548	$	1,950	$	1,548	$	1,515	$	8,561
Fixed-price	1,736		1,777		1,741		871		6,125
Transaction or volume-based	337		1,125		407		97		1,966
Total	$	5,621	$	4,852	$	3,696	$	2,483	$	16,652


Cognizant			F-16			December 31, 2021 Form 10-K


	Year Ended
	December 31, 2019
(in millions)	FS		HC		P&R		CMT		Total
Revenues
Geography:
North America	$	4,137	$	4,147	$	2,678	$	1,764	$	12,726
United Kingdom	484		130		380		319		1,313
Continental Europe	728		341		453		169		1,691
Europe - Total	1,212		471		833		488		3,004
Rest of World	520		77		259		197		1,053
Total	$	5,869	$	4,695	$	3,770	$	2,449	$	16,783

Service line:
Consulting and technology services	$	3,782	$	2,564	$	2,295	$	1,305	$	9,946
Outsourcing services	2,087		2,131		1,475		1,144		6,837
Total	$	5,869	$	4,695	$	3,770	$	2,449	$	16,783

Type of contract:
Time and materials	$	3,651	$	1,845	$	1,632	$	1,528	$	8,656
Fixed-price	1,922		1,635		1,730		803		6,090
Transaction or volume-based	296		1,215		408		118		2,037
Total	$	5,869	$	4,695	$	3,770	$	2,449	$	16,783

During the fourth quarter of 2021, we reached a settlement agreement with the final customer involved in our previously disclosed proposed exit from a large customer engagement of our Samlink subsidiary and additionally entered into an agreement to sell this subsidiary. We reached settlement agreements with the other two customers to this engagement in the second quarter of 2021. The financial terms of the final settlement agreements with the three customers did not materially differ from our original 2020 offer and, accordingly, the impact to our 2021 consolidated statement of operations was immaterial. In 2020, in connection with our settlement offer, we recorded a reduction of revenues of $118 million and additional expenses of $33 million, primarily related to the impairment of long-lived assets. The sale of our Samlink subsidiary closed on February 1, 2022.

Costs to Fulfill

The following table presents information related to the capitalized costs to fulfill, such as setup or transition activities*.* Costs to fulfill are recorded in "Other noncurrent assets" in our consolidated statements of financial position and the amortization expense of costs to fulfill is included in "Cost of revenues" in our consolidated statements of operations. Costs to obtain contracts were immaterial for the period disclosed.


(in millions)	2021		2020
Beginning balance	$	467	$	485
Costs capitalized	56		98
Amortization expense	(118)		(102)
Impairment charge	(11)		(14)
Ending balance	$	394	$	467


Cognizant			F-17			December 31, 2021 Form 10-K

Contract Balances

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in "Other current assets" in our consolidated statements of financial position and primarily relate to unbilled amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. The table below shows significant movements in contract assets:


(in millions)	2021		2020
Beginning balance	$	315	$	334
Revenues recognized during the period but not billed	275		289
Amounts reclassified to trade accounts receivable	(280)		(308)

Ending balance	$	310	$	315

Our contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. The table below shows significant movements in the deferred revenue balances (current and noncurrent):


(in millions)	2021		2020
Beginning balance	$	419	$	336
Amounts billed but not recognized as revenues	413		368
Revenues recognized related to the beginning balance of deferred revenue	(389)		(285)

Ending balance	$	443	$	419

Revenues recognized during the year ended December 31, 2021 for performance obligations satisfied or partially satisfied in previous periods were immaterial.

Remaining Performance Obligations

As of December 31, 2021, the aggregate amount of transaction price allocated to remaining performance obligations, was $1,586 million, of which approximately 80% is expected to be recognized as revenues within 2 years. Disclosure is not required for performance obligations that meet any of the following criteria:

(1)contracts with a duration of one year or less as determined under ASC Topic 606 "Revenue from Contracts with Customers",

(2)contracts for which we recognize revenues based on the right to invoice for services performed,

(3)variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

(4)variable consideration in the form of a sales-based or usage based royalty promised in exchange for a license of intellectual property.

Many of our performance obligations meet one or more of these exemptions and therefore are not included in the remaining performance obligation amount disclosed above.

Trade Accounts Receivable and Allowance for Credit Losses

We calculate expected credit losses for our trade accounts receivable based on historical credit loss rates for each aging category as adjusted for the current market conditions and forecasts about future economic conditions. The following table presents the activity in the allowance for credit losses for the trade accounts receivable:


(in millions)	2021		2020		2019
Beginning balance	$	57	$	67	$	78
Impact of adoption of the Credit Loss Standard	—		(1)		—
Credit loss expense	6		8		(11)
Write-offs charged against the allowance	(13)		(17)		—

Ending balance	$	50	$	57	$	67


Cognizant			F-18			December 31, 2021 Form 10-K


Note 3 — Business Combinations

Acquisitions completed during each of the three years ended December 31, 2021, 2020 and 2019 were not individually or in the aggregate material to our operations. Accordingly, pro forma results have not been presented. We have allocated the purchase price related to these transactions to tangible and intangible assets acquired and liabilities assumed, including goodwill, based on their estimated fair values. The primary items that generated goodwill are the value of the acquired assembled workforces and synergies between the acquired companies and us, neither of which qualify as an identifiable intangible asset.

2021

In 2021, we acquired 100% ownership in each of the following:

Linium, a cloud transformation consultancy group specializing in the ServiceNow platform and solutions for smart digital enterprise workflows, acquired to broaden our enterprise service management capabilities (acquired January 31, 2021);
Magenic, a provider of agile software and cloud development, DevOps, experience design and advisory services across a range of industries, acquired to enhance our global software engineering expertise (acquired February 1, 2021);
Servian, an Australia-based enterprise transformation consultancy specializing in data analytics, AI, digital services, experience design and cloud, acquired to enhance our digital portfolio and market presence in Australia and New Zealand (acquired April 1, 2021);
ESG Mobility, a digital automotive engineering research and development provider for connected, autonomous and electric vehicles, acquired to expand our digital engineering expertise, particularly in connected vehicles (acquired June 1, 2021);
TQS, a global industrial data and intelligence company, acquired to accelerate our growth in IoT, data and analytics (acquired July 30, 2021).
Hunter, a provider of digital engineering and project management services, acquired to extend our talent network in key markets, expanding our digital engineering resources in the United States (acquired August 16, 2021); and
Devbridge, a software consultancy and product development company, acquired to expand our software product engineering capabilities and global delivery footprint (acquired December 9, 2021).

The allocations of preliminary purchase price to the fair value of the assets acquired and liabilities assumed were as follows:


(dollars in millions)	Devbridge		Servian		Magenic		ESG Mobility		Linium		Other		Total		Weighted Average Useful Life
Cash	$	7	$	4	$	13	$	28	$	—	$	2	$	54
Trade accounts receivable	12		15		17		30		5		12		91
Property and equipment and other assets	5		6		4		8		1		4		28
Operating lease assets, net	11		5		10		27		—		1		54
Non-deductible goodwill	41		184		10		26		—		18		279
Tax-deductible goodwill	140		—		137		24		57		10		368
Customer relationship assets	72		77		90		77		24		32		372		9.8 years
Other intangible assets	—		2		1		—		—		—		3		3.8 years

Current liabilities	(11)		(12)		(29)		(22)		(2)		(7)		(83)
Noncurrent liabilities	(9)		(29)		(7)		(66)		—		(6)		(117)
Purchase price, inclusive of contingent consideration	$	268	$	252	$	246	$	132	$	85	$	66	$	1,049

For the year ended December 31, 2021, revenues from acquisitions completed in 2021, since the dates of acquisition, were $301 million. For acquisitions completed in 2021, the allocation of purchase price is preliminary and will be finalized as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition.


Cognizant			F-19			December 31, 2021 Form 10-K

2020

In 2020, we acquired 100% ownership in each of the following:

Code Zero, a provider of consulting and implementation services acquired to strengthen our cloud solutions portfolio and Salesforce Configure-Price-Quote and billing capabilities (acquired on January 31, 2020);
Lev, a Salesforce Platinum Partner specializing in digital marketing consultancy and implementation of custom cloud solutions acquired to expand our global Salesforce practice (acquired on March 27, 2020);
EI-Technologies, a digital technology consulting firm and leading Salesforce specialist acquired to expand our global Salesforce practice (acquired on May 29, 2020);
Collaborative Solutions, a provider of Workday enterprise cloud applications for finance and human resources acquired to strengthen our portfolio of cloud offerings (acquired on June 10, 2020);
New Signature, an independent Microsoft public cloud transformation company acquired to expand our hyperscale cloud advisory services and provide the foundation for our dedicated practice centered on Microsoft cloud solutions (acquired on August 18, 2020);
the net assets of Tin Roof, a custom software and digital product development services company acquired to expand our software product engineering footprint in the United States (acquired on September 16, 2020);
10th Magnitude, a leading cloud specialist focused on the Microsoft Azure cloud computing platform acquired to expand our Microsoft Azure expertise (acquired on September 30, 2020);
the net assets of Bright Wolf, a technology service provider specializing in customer Industrial IoT solutions acquired to expand our smart products offering and expertise in architecting and implementing Industrial IoT solutions (acquired on November 2, 2020); and
Inawisdom, an Amazon Web Services consulting partner with expertise in AI, machine learning, and data analytics acquired to expand our client services in Europe and strengthen our end-to-end cloud-native AI and machine learning solutions portfolio (acquired on December 18, 2020).

The allocations of purchase price to the fair value of the assets acquired and liabilities assumed were as follows:


(dollars in millions)	Collaborative Solutions		New Signature		Tin Roof		10th Magnitude		Others		Total		Weighted Average Useful Life
Cash	$	10	$	13	$	—	$	2	$	10	$	35
Trade accounts receivable	38		13		10		7		21		89
Property and equipment and other assets	6		6		1		2		15		30
Operating lease assets, net	6		7		2		4		13		32
Non-deductible goodwill	44		292		—		90		66		492
Deductible goodwill	281		—		86		39		92		498
Customer relationship intangible assets	37		8		69		10		21		145		9.8 years
Other intangible assets	8		1		—		—		2		11		5.4 years
Current liabilities	(25)		(20)		(13)		(15)		(23)		(96)
Noncurrent liabilities	(5)		(8)		(2)		(5)		(15)		(35)
Purchase price, inclusive of contingent consideration (1)	$	400	$	312	$	153	$	134	$	202	$	1,201

(1)The purchase price for our acquisitions includes contingent consideration components with a collective maximum payout of $59 million, valued at $42 million at the date of acquisition, which is contingent upon achieving certain performance thresholds during the first two calendar years following the date of acquisition.

For the year ended December 31, 2020, revenues from acquisitions completed in 2020, since the dates of acquisition, were $222 million.


Cognizant			F-20			December 31, 2021 Form 10-K


Note 4 — Restructuring Charges

During 2020 and 2019, we incurred costs related to both our realignment program and our 2020 Fit for Growth Plan. Our realignment program, which began in 2017, improved our client focus, cost structure and the efficiency and effectiveness of our delivery while continuing to drive revenue growth. Our 2020 Fit for Growth Plan, which began in the fourth quarter of 2019, simplified our organizational model and optimized our cost structure in order to partially fund the investments required to execute on our strategy and advance our growth agenda and included our decision to exit certain content-related services that were not in line with our strategic vision for the Company. The total costs related to our realignment program and our 2020 Fit for Growth Plan are reported in "Restructuring charges" in our consolidated statements of operations. We do not allocate these charges to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are included in our segment reporting as “unallocated costs”. See Note 18.

During 2020 we incurred $42 million of certain employee retention costs and professional fees related to our realignment program and $173 million of employee separation, employee retention and facility exit costs and other charges related to our 2020 Fit for Growth Plan. During 2019, we incurred $169 million of employee separation costs, certain employee retention costs, professional fees and Executive Transition Costs related to our realignment program and $48 million of employee separation, employee retention and facility exit costs and other charges related to our 2020 Fit for Growth Plan. We did not incur any costs related to these plans during 2021.


Note 5 — Investments

Our investments were as follows as of December 31:


(in millions)	2021		2020
Short-term investments:
Equity investment security	$	26	$	27
Available-for-sale investment securities	310		—
Held-to-maturity investment securities	37		14
Time deposits	554		3
Total short-term investments	$	927	$	44


Long-term investments:
Other investments	$	66	$	35
Restricted time deposits (1)	397		405
Total long-term investments	$	463	$	440

(1)See Note 11.

Equity Investment Security

Our equity investment security is a U.S. dollar denominated investment in a fixed income mutual fund. Realized and unrealized gains and losses were immaterial for the years ended December 31, 2021, 2020 and 2019.

Available-for-Sale Investment Securities

Our available-for-sale investment securities consist of highly rated U.S. dollar denominated investments in commercial paper maturing within one year. As of December 31, 2021, the amortized cost and fair value of our available-for-sale investments were $310 million. Unrealized gains and losses were immaterial as of December 31, 2021.


Cognizant			F-21			December 31, 2021 Form 10-K

Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:


(in millions)	2021		2020		2019
Proceeds from sales of available-for-sale investment securities	$	—	$	—	$	1,712

Gross gains	$	—	$	—	$	6
Gross losses	—		—		(5)
Net realized gains on sales of available-for-sale investment securities	$	—	$	—	$	1

Held-to-Maturity Investment Securities

Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial paper and international corporate bonds. Our investment guidelines are to purchase securities that are investment grade at the time of acquisition. The basis for the measurement of fair value of our held-to-maturity investments is Level 2 in the fair value hierarchy.

The amortized cost and fair value of held-to-maturity investment securities were as follows as of December 31:


	2021		2020
(in millions)	Amortized Cost			Fair Value		Amortized Cost		Fair Value
Short-term investments, due within one year:
Corporate and other debt securities	$	17		$	17	$	14	$	14
Commercial paper	20			20		—		—
Total held-to-maturity investments	$	37		$	37	$	14	$	14

As of December 31, 2021, corporate and other debt securities in the amount of $17 million and commercial paper in the amount of $10 million were in an unrealized loss position. The total unrealized loss was less than $1 million and none of the securities had been in an unrealized loss position for longer than 12 months. As of December 31, 2020, there were no held-to-maturity investment securities in an unrealized loss position.

The securities in our portfolio are highly rated and short-term in nature. As of December 31, 2021, our corporate and other debt securities were rated AA+ or better and our commercial paper securities were rated A-1+ by CRISIL, an Indian subsidiary of S&P Global.

Other Investments

As of December 31, 2021 and 2020, we had equity method investments of $63 million and $31 million, respectively, primarily related to an investment in the technology sector. As of December 31, 2021 and 2020, we had equity securities without a readily determinable fair value of $3 million and $4 million, respectively.

During 2019, as a result of events indicating one of our equity method investments, valued at $66 million as of December 31, 2018, experienced an other-than-temporary impairment, we assessed its fair value and determined that the carrying value exceeded the fair value. As such, we recorded an impairment charge of $57 million in the fourth quarter of 2019 within the caption "Income (loss) from equity method investments" in our consolidated statement of operations. In determining the fair value of the equity method investment, we considered results from the following valuation methodologies: income approach, based on discounted future cash flows, market approach, based on current market multiples and net asset value approach, based on the assets and liabilities of the investee.


Cognizant			F-22			December 31, 2021 Form 10-K


Note 6 — Property and Equipment, net

Property and equipment were as follows as of December 31:


	Estimated Useful Life	2021		2020
	(in years)	(in millions)
Buildings	30	$	777	$	783
Computer equipment	3 – 5	638		636
Computer software	3 – 8	926		840
Furniture and equipment	5 – 9	772		761
Land		7		7

Capital work-in-progress		116		122
Leasehold improvements	Shorter of the lease term or the life of the asset	431		424
Sub-total		3,667		3,573
Accumulated depreciation and amortization		(2,496)		(2,322)
Property and equipment, net		$	1,171	$	1,251

Depreciation and amortization expense related to property and equipment was $392 million, $407 million and $363 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The gross amount of property and equipment recorded under finance leases was $24 million and $37 million as of December 31, 2021 and 2020, respectively. Accumulated amortization for our ROU finance lease assets was $17 million and $23 million as of December 31, 2021 and 2020, respectively. Amortization expense related to our ROU finance lease assets was $7 million, $7 million, and $11 million for the years ended December 31, 2021, 2020, and 2019 respectively.

The gross amount of property and equipment recorded for software to be sold, leased or marketed reported in the caption "Computer software" above was $201 million and $159 million as of December 31, 2021 and 2020, respectively. Accumulated amortization for software to be sold, leased or marketed was $106 million and $73 million as of December 31, 2021 and 2020, respectively. Amortization expense for software to be sold, leased or marketed recorded as property and equipment was $33 million, $30 million and $22 million for the years ended December 31, 2021, 2020 and 2019, respectively.


Note 7 — Leases

The following table provides information on the components of our operating and finance leases included in our consolidated statement of financial position as of December 31:


Leases	Location on Statement of Financial Position	2021		2020
Assets		(in millions)
ROU operating lease assets	Operating lease assets, net	$	933	$	1,013
ROU finance lease assets	Property and equipment, net	7		14
	Total	$	940	$	1,027

Liabilities
Current
Operating lease	Operating lease liabilities	$	195	$	211
Finance lease	Accrued expenses and other current liabilities	8		11
Noncurrent
Operating lease	Operating lease liabilities, noncurrent	783		846
Finance lease	Other noncurrent liabilities	5		11
	Total	$	991	$	1,079

For the years ended December 31, 2021, 2020 and 2019, our operating lease costs were $293 million, $302 million and $264 million, respectively, including variable lease costs of $10 million, $14 million and $18 million, respectively. Our short-


Cognizant			F-23			December 31, 2021 Form 10-K

term lease rental expense was $22 million, $20 million and $16 million for the years ended December 31, 2021, 2020 and 2019, respectively. Lease interest expense related to our finance leases for years ended December 31, 2021, 2020 and 2019 was immaterial.

The following table provides information on the weighted average remaining lease term and weighted average discount rate for our operating leases as of December 31:


Operating Lease Term and Discount Rate	2021		2020

Weighted average remaining lease term	6.5 years		6.2 years


Weighted average discount rate	5.4	%	5.7	%

The following table provides supplemental cash flow and non-cash information related to our operating leases as of December 31:


(in millions)	2021		2020		2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	274	$	271	$	232
ROU assets obtained in exchange for operating lease liabilities	100		273		274

Cash paid for amounts included in the measurement of finance lease liabilities and ROU assets obtained in exchange for finance lease liabilities were each immaterial for the years ended December 31, 2021, 2020 and 2019.

The following table provides the schedule of maturities of our operating lease liabilities and a reconciliation of the undiscounted cash flows to the operating lease liabilities recognized in the statement of financial position as of December 31:


(in millions)	2021
2022	$	241
2023	197
2024	161
2025	138
2026	112
Thereafter	318
Total operating lease payments	1,167
Interest	(189)
Total operating lease liabilities	$	978

As of December 31, 2021, we had $88 million of additional obligations related to operating leases whose lease term had yet to commence and which are therefore not included in our statement of financial position. These leases are primarily related to real estate and will commence in various months in 2022 and 2023 with lease terms of 1 year to 15 years.


Cognizant			F-24			December 31, 2021 Form 10-K


Note 8 — Goodwill and Intangible Assets, net

Changes in goodwill by our reportable segments were as follows for the years ended December 31, 2021 and 2020:


Segment	January 1, 2021		Goodwill Additions and Adjustments		Foreign Currency Translation Adjustments		December 31, 2021
	(in millions)
Financial Services	$	932	$	198	$	(21)	$	1,109
Healthcare	2,755		84		(8)		2,831
Products and Resources	780		200		(13)		967
Communications, Media and Technology	564		156		(7)		713
Total goodwill	$	5,031	$	638	$	(49)	$	5,620


Segment	January 1, 2020		Goodwill Additions and Adjustments		Foreign Currency Translation Adjustments		December 31, 2020
	(in millions)
Financial Services	$	700	$	204	$	28	$	932
Healthcare	2,595		149		11		2,755
Products and Resources	417		346		17		780
Communications, Media and Technology	267		289		8		564
Total goodwill	$	3,979	$	988	$	64	$	5,031

Based on our most recent goodwill impairment assessment performed as of October 31, 2021, we concluded that the goodwill in each of our reporting units was not at risk of impairment. We have not recognized any impairment losses on our goodwill.

Components of intangible assets were as follows as of December 31:


	2021						2020
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	1,679	$	(610)	$	1,069	$	1,333	$	(490)	$	843
Developed technology	385		(330)		55		388		(286)		102
Indefinite lived trademarks	72		—		72		72		—		72
Finite lived trademarks and other	81		(59)		22		80		(51)		29
Total intangible assets	$	2,217	$	(999)	$	1,218	$	1,873	$	(827)	$	1,046

Other than certain trademarks with indefinite lives, our intangible assets have finite lives and, as such, are subject to amortization. Amortization of intangible assets totaled $182 million for 2021, $152 million for 2020 and $162 million for 2019.

The following table provides the estimated amortization expense related to our existing intangible assets for the next five years.


(in millions)	Estimated Amortization
2022	$	186
2023	144
2024	139
2025	136
2026	132


Cognizant			F-25			December 31, 2021 Form 10-K


Note 9 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows as of December 31:


(in millions)	2021		2020
Compensation and benefits	$	1,601	$	1,607
Customer volume and other incentives	242		266
Income taxes	74		34
Professional fees	220		143
Other	395		469
Total accrued expenses and other current liabilities	$	2,532	$	2,519


Note 10 — Debt

In 2018, we entered into a Credit Agreement providing for a $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan.

The Credit Agreement requires interest to be paid, at our option, at either the ABR, the Eurocurrency Rate or the Daily Simple RFR (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Eurocurrency Rate and Daily Simple RFR and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Eurocurrency Rate and Daily Simple RFR may range from 0.75% to 1.125%, depending on our public debt ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). The Term Loan is a Eurocurrency loan. As the interest rates on our Term Loan and any notes outstanding under the revolving credit facility are variable, the fair value of our debt balances approximates their carrying value as of December 31, 2021 and 2020. Under the Credit Agreement, we are required to pay commitment fees on the unused portion of the revolving credit facility, which vary based on our public debt ratings (or, if we have not received public debt ratings, on the Leverage Ratio).

The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. The financial covenant is tested at the end of each fiscal quarter and requires us to maintain a Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement, not in excess of 3.50 to 1.00, or for a period of up to four quarters following certain material acquisitions, 3.75 to 1.00. We were in compliance with all debt covenants and representations of the Credit Agreement as of December 31, 2021.

In February 2021, our India subsidiary renewed its 13 billion Indian rupee ($175 million at the December 31, 2021 exchange rate) working capital facility, which requires us to repay any balances within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made within 30 days of disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February. As of December 31, 2021, we have not borrowed funds under this facility.

Short-term Debt

As of both December 31, 2021 and December 31, 2020, we had $38 million of short-term debt related to current maturities of our Term Loan, with a weighted average interest rate of 1.0% in both periods.


Cognizant			F-26			December 31, 2021 Form 10-K

Long-term Debt

The following summarizes our long-term debt balances as of December 31:


(in millions)	2021		2020
Term Loan	$	666	$	703
Less:
Current maturities	(38)		(38)
Deferred financing costs	(2)		(2)
Long-term debt, net of current maturities	$	626	$	663

The following represents the schedule of maturities of our term loan:


Year	Amounts (in millions)

2022	$	38
2023	628
Total	$	666


Note 11 — Income Taxes

Income before provision for income taxes shown below is based on the geographic location to which such income was attributed for years ended December 31:


(in millions)	2021		2020		2019
United States	$	818	$	814	$	931
Foreign	2,009		1,282		1,612
Income before provision for income taxes	$	2,827	$	2,096	$	2,543

The provision for income taxes consisted of the following components for the years ended December 31:


(in millions)	2021		2020		2019
Current:
Federal and state	$	210	$	137	$	549
Foreign	456		383		400
Total current provision	666		520		949
Deferred:
Federal and state	(50)		(77)		(320)
Foreign	77		261		14
Total deferred provision (benefit)	27		184		(306)
Total provision for income taxes	$	693	$	704	$	643

In the third quarter of 2020, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits.

We are involved in two separate ongoing disputes with the ITD in connection with previously disclosed share repurchase transactions undertaken by CTS India in 2013 and 2016 to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $523 million and $2.8 billion, respectively.

The 2016 transaction was undertaken pursuant to a plan approved by the High Court in Chennai, India, and resulted in the payment of $135 million in Indian income taxes - an amount we believe includes all the applicable taxes owed for this transaction under Indian law. In March 2018, the ITD asserted that it is owed an additional 33 billion Indian rupees ($443 million at the December 31, 2021 exchange rate) on the 2016 transaction. We deposited 5 billion Indian rupees, representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. As of December 31, 2021 and 2020, the deposit


Cognizant			F-27			December 31, 2021 Form 10-K

with the ITD was $67 million and $68 million, respectively, presented in "Other noncurrent assets" in our consolidated statements of financial position. Additionally, certain time deposits of CTS India were placed under lien in favor of the ITD, representing the remainder of the disputed tax amount. As of December 31, 2021 and 2020, the balance of deposits under lien was 30 billion Indian rupees, including previously earned interest, or $397 million and $405 million, respectively, as presented in "Long-term investments" in our consolidated statements of financial position.

We are currently in litigation with the ITD on the 2016 share repurchase transaction dispute. More recently, in April 2020, we received a formal assessment from the ITD, which is consistent with its previous assertions regarding our 2016 transaction. In June 2020, we filed an appeal against this assessment. The dispute in relation to the 2013 share repurchase transaction is also in litigation. At this time, the ITD has not made specific demands with regards to the 2013 share repurchase transaction.

We believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions. Accordingly, we have not recorded any reserves for these matters as of December 31, 2021.

The reconciliation between the U.S. federal statutory rate and our effective income tax rate were as follows for the years ended December 31:


(Dollars in millions)	2021		%	2020		%	2019		%
Tax expense, at U.S. federal statutory rate	$	594	21.0	$	440	21.0	$	534	21.0
State and local income taxes, net of federal benefit	50		1.8	52		2.5	59		2.3
Non-taxable income for Indian tax purposes	(36)		(1.3)	(48)		(2.3)	(90)		(3.5)
Rate differential on foreign earnings	137		4.8	178		8.5	145		5.7
Net impact related to the India Tax Law	—		—	—		—	21		0.8
Recognition of benefits related to uncertain tax positions	(14)		(0.5)	—		—	—		—
Credits and other incentives	(42)		(1.5)	(51)		(2.4)	(57)		(2.2)
Reversal of indefinite reinvestment assertion	—		—	140		6.6	—		—
Other	4		0.2	(7)		(0.3)	31		1.2
Total provision for income taxes	$	693	24.5	$	704	33.6	$	643	25.3

The significant components of deferred income tax assets and liabilities recorded on the consolidated statements of financial position were as follows as of December 31:


(in millions)	2021		2020
Deferred income tax assets:
Net operating losses	$	52	$	36
Revenue recognition	116		41
Compensation and benefits	230		259

MAT and credit carryforwards	27		109

Expenses not currently deductible	121		147

	546		592
Less: valuation allowance	(46)		(29)
Deferred income tax assets, net	500		563
Deferred income tax liabilities:
Depreciation and amortization	202		198
Deferred costs	84		105
Other	28		21
Deferred income tax liabilities	314		324
Net deferred income tax assets	$	186	$	239

At December 31, 2021, we had foreign and U.S. net operating loss carryforwards of approximately $117 million and $114 million, respectively. We have recorded valuation allowances on certain net operating loss carryforwards. As of December 31,


Cognizant			F-28			December 31, 2021 Form 10-K

2021 and 2020, deferred income tax assets related to the MAT carryforwards were $16 million and $98 million, respectively. The calculation of the MAT includes all profits realized by our Indian subsidiaries and any MAT paid is creditable against future corporate income tax, subject to certain limitations.

Our Indian subsidiaries are primarily export-oriented and are eligible for certain income tax holiday benefits granted by the government of India for export activities conducted within SEZs for periods of up to 15 years. Our SEZ income tax holiday benefits are currently scheduled to expire in whole or in part through the year 2028 and may be extended on a limited basis for an additional five years per unit if certain reinvestment criteria are met. Our Indian profits ineligible for SEZ benefits are subject to corporate income tax at the rate of 34.94%. In addition, all Indian profits, including those generated within SEZs, are subject to the MAT. The current rate of MAT is 17.47%. For the years ended December 31, 2021, 2020 and 2019, the effect of the income tax holidays granted by the Indian government was to reduce the overall income tax provision and increase net income by $36 million, $48 million and $90 million, respectively, and increase diluted EPS by $0.07, $0.09 and $0.16, respectively.

In December 2019, the Government of India enacted the India Tax Law effective retroactively to April 1, 2019 that enables Indian companies to elect to be taxed at a lower income tax rate of 25.17%, as compared to the current income tax rate of 34.94%. Once a company elects into the lower income tax rate, a company may not benefit from any tax holidays associated with SEZs and certain other tax incentives, including MAT carryforwards, and may not reverse its election. While our existing MAT carryforwards expire between March 2027 and March 2032, we expect to fully or substantially utilize our existing MAT carryforwards prior to the start of the new India fiscal year on April 1, 2022. Our current intent is to elect into the new tax regime once our MAT carryforwards are fully or substantially utilized. As a result of the enactment of the India Tax Law, we recorded a one-time net income tax expense of $21 million in 2019, due to the revaluation to the lower income tax rate of our India net deferred income tax assets that are expected to reverse after we expect to elect into the new tax regime.

We conduct business globally and file income tax returns in the United States, including federal and state, as well as various foreign jurisdictions. In 2021, we reached an agreement with the IRS, which settled tax years 2012 through 2016. As a result of this settlement, in the first quarter of 2021, we recorded a $14 million discrete benefit to the provision for income taxes. Tax years that remain subject to examination by the IRS are 2017 and onward, and years that remain subject to examination by state authorities vary by state. Years under examination by foreign tax authorities are 2001 and onward. In addition, transactions between our affiliated entities are arranged in accordance with applicable transfer pricing laws, regulations and relevant guidelines. As a result, and due to the interpretive nature of certain aspects of these laws and guidelines, we have pending applications for APAs before the taxing authorities in some of our most significant jurisdictions.

We record incremental tax expense, based upon the more-likely-than-not standard, for any uncertain tax positions. In addition, when applicable, we adjust the previously recorded income tax expense to reflect examination results when the position is effectively settled or otherwise resolved. Our ongoing evaluations of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can result in adjustments that increase or decrease our effective income tax rate, as well as impact our operating results. The specific timing of when the resolution of each tax position will be reached is uncertain.

Changes in unrecognized income tax benefits were as follows for the years ended December 31:


(in millions)	2021		2020		2019
Balance, beginning of year	$	193	$	152	$	117
Additions based on tax positions related to the current year	34		28		22
Additions for tax positions of prior years	16		10		14
Additions for tax positions of acquired subsidiaries	12		3		—
Reductions for tax positions due to lapse of statutes of limitations	(17)		—		—
Reductions for tax positions of prior years	—		—		(1)
Settlements	(43)		—		—
Foreign currency exchange movement	(1)		—		—
Balance, end of year	$	194	$	193	$	152

The unrecognized income tax benefits would affect our effective income tax rate, if recognized. While the Company believes uncertain tax positions may be settled or resolved within the next twelve months, it is difficult to estimate the income tax impact of these potential resolutions at this time. We recognize accrued interest and any penalties associated with uncertain tax positions as part of our provision for income taxes. The total amount of accrued interest and penalties at December 31, 2021 and 2020 was $30 million and $22 million, respectively, and relates to U.S. and foreign tax matters. The amounts of interest and penalties recorded in the provision for income taxes in 2021, 2020 and 2019 were immaterial.


Cognizant			F-29			December 31, 2021 Form 10-K


Note 12 — Derivative Financial Instruments

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

The following table provides information on the location and fair values of derivative financial instruments included in our consolidated statements of financial position as of December 31:


(in millions)		2021				2020
Designation of Derivatives	Location on Statement of Financial Position	Assets		Liabilities		Assets		Liabilities

Foreign exchange forward and option contracts – Designated as cash flow hedging instruments	Other current assets	$	51	$	—	$	45	$	—
	Other noncurrent assets	15		—		26		—


	Total	66		—		71		—
Foreign exchange forward contracts - Not designated as cash flow hedging instruments	Other current assets	3		—		1		—
	Accrued expenses and other current liabilities	—		7		—		1
	Total	3		7		1		1
Total		$	69	$	7	$	72	$	1

Cash Flow Hedges

We have entered into a series of foreign exchange derivative contracts that are designated as cash flow hedges of Indian rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of the Indian rupee against the U.S. dollar on future operating costs and are scheduled to mature each month during 2022 and 2023. The changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our consolidated statements of financial position and are subsequently reclassified to earnings within "Cost of revenues" and "Selling, general and administrative expenses" in our consolidated statements of operations in the same period that the forecasted Indian rupee denominated payments are recorded in earnings. As of December 31, 2021, we estimate that $45 million, net of tax, of the net gains related to derivatives designated as cash flow hedges reported in the caption "Accumulated other comprehensive income (loss)" in our consolidated statements of financial position is expected to be reclassified into earnings within the next 12 months.

The notional value of our outstanding contracts by year of maturity was as follows as of December 31:


(in millions)	2021		2020
2021	$	—	$	1,470
2022	1,643		803
2023	880		—
Total notional value of contracts outstanding (1)	$	2,523	$	2,273

(1)Includes $78 million and $133 million notional value of option contracts as of December 31, 2021 and 2020, with the remaining notional value related to forward contracts.


Cognizant			F-30			December 31, 2021 Form 10-K

The following table provides information on the location and amounts of pre-tax gains on our cash flow hedges for the year ended December 31:


(in millions)	Change in Derivative Gains Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion)				Location of Net Derivative Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)	Net Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)
	2021		2020			2021		2020

Foreign exchange forward and option contracts – Designated as cash flow hedging instruments	$	67	$	39	Cost of revenues	$	55	$	3
					Selling, general and administrative expenses	8		—
					Total	$	63	$	3

The activity related to the change in net unrealized gains on our cash flow hedges included in "Accumulated other comprehensive income (loss)" in our consolidated statements of stockholders' equity is presented in Note 14.

Other Derivatives

We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries. We entered into foreign exchange forward contracts that are scheduled to mature in 2022. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.

Additional information related to our outstanding foreign exchange forward contracts not designated as hedging instruments was as follows as of December 31:


(in millions)	2021				2020
	Notional		Fair Value		Notional		Fair Value
Contracts outstanding	$	847	$	(4)	$	637	$	—

The following table provides information on the location and amounts of realized and unrealized pre-tax gains (losses) on our other derivative financial instruments for the year ended December 31:


(in millions)	Location of Net Gains (Losses) on Derivative Instruments	Amount of Net Gains (Losses) on Derivative Instruments
		2021		2020
Foreign exchange forward contracts - Not designated as hedging instruments	Foreign currency exchange gains (losses), net	$	13	$	(63)

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


Note 13 — Fair Value Measurements

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


Cognizant			F-31			December 31, 2021 Form 10-K

The fair value hierarchy consists of the following three levels:

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

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2021:


(in millions)	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	507	$	—	$	—	$	507
Time deposits	—		4		—		4
Commercial paper	—		266		—		266
Short-term investments:
Time deposits	—		554		—		554
Equity investment security	26		—		—		26
Available-for-sale investment securities:
Commercial paper	—		310		—		310
Other current assets
Foreign exchange forward and option contracts	—		54		—		54
Long-term investments:
Restricted time deposits (1)	—		397		—		397
Other noncurrent assets
Foreign exchange forward contracts	—		15		—		15
Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(7)		—		(7)
Contingent consideration liabilities	—		—		(14)		(14)
Other noncurrent liabilities

Contingent consideration liabilities	—		—		(21)		(21)

(1) See Note 11.


Cognizant			F-32			December 31, 2021 Form 10-K

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2020:


(in millions)	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	209	$	—	$	—	$	209
Time Deposits	—		203		—		203
Commercial Paper	—		200		—		200
Short-term investments:
Time deposits	—		3		—		3
Equity investment security	27		—		—		27






Other current assets:
Foreign exchange forward and option contracts	—		46		—		46
Long-term investments
Restricted time deposits (1)	—		405		—		405
Other noncurrent assets:
Foreign exchange forward and option contracts	—		26		—		26
Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(1)		—		(1)
Contingent consideration liabilities	—		—		(11)		(11)
Other noncurrent liabilities:

Contingent consideration liabilities	—		—		(43)		(43)

(1)See Note 11

The following table summarizes the changes in Level 3 contingent consideration liabilities:


(in millions)	2021		2020
Beginning balance	$	54	$	38
Initial measurement recognized at acquisition	24		42
Change in fair value recognized in SG&A expenses	(30)		(23)
Payments and other adjustments	(13)		(3)
Ending balance	$	35	$	54

We measure the fair value of money market funds based on quoted prices in active markets for identical assets and measure the fair value of our equity security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The fair value of commercial paper is measured based on relevant trade data, dealer quotes, or model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. The carrying value of the time deposits approximated fair value as of December 31, 2021 and 2020.

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

Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on

observable market rates.

We estimate the fair value of our contingent consideration liabilities associated with our acquisitions using a variation of the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate.

During the years ended December 31, 2021, 2020 and 2019 there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.


Cognizant			F-33			December 31, 2021 Form 10-K


Note 14 — Accumulated Other Comprehensive Income (Loss)

Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the year ended December 31, 2021:


	2021
(in millions)	Before Tax Amount		Tax Effect		Net of Tax Amount
Foreign currency translation adjustments:
Beginning balance	$	56	$	(1)	$	55
Change in foreign currency translation adjustments	(78)		3		(75)
Ending balance	$	(22)	$	2	$	(20)






Unrealized gains on cash flow hedges:
Beginning balance	$	67	$	(12)	$	55
Unrealized gains arising during the period	67		(13)		54
Reclassifications of net (gains) to:
Cost of revenues	(55)		10		(45)
SG&A expenses	(8)		1		(7)
Net change	4		(2)		2
Ending balance	$	71	$	(14)	$	57
Accumulated other comprehensive income (loss):
Beginning balance	$	123	$	(13)	$	110
Other comprehensive income (loss)	(74)		1		(73)
Ending balance	$	49	$	(12)	$	37


Cognizant			F-34			December 31, 2021 Form 10-K

Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the years ended December 31, 2020 and 2019:


	2020						2019
(in millions)	Before Tax Amount		Tax Effect		Net of Tax Amount		Before Tax Amount		Tax Effect		Net of Tax Amount
Foreign currency translation adjustments:
Beginning balance	$	(63)	$	(1)	$	(64)	$	(108)	$	5	$	(103)
Change in foreign currency translation adjustments	119		—		119		45		(6)		39
Ending balance	$	56	$	(1)	$	55	$	(63)	$	(1)	$	(64)
Unrealized (losses) on available-for-sale investment securities:
Beginning balance	$	—	$	—	$	—	$	(12)	$	4	$	(8)
Net unrealized gains arising during the period	—		—		—		13		(4)		9
Reclassification of net (gains) to Other, net	—		—		—		(1)		—		(1)
Net change	—		—		—		12		(4)		8
Ending balance	$	—	$	—	$	—	$	—	$	—	$	—
Unrealized gains (losses) on cash flow hedges:
Beginning balance	$	31	$	(5)	$	26	$	(4)	$	1	$	(3)
Unrealized gains arising during the period	39		(8)		31		39		(7)		32
Reclassifications of net (gains) to:
Cost of revenues	(3)		1		(2)		(3)		1		(2)
SG&A expenses	—		—		—		(1)		—		(1)
Net change	36		(7)		29		35		(6)		29
Ending balance	$	67	$	(12)	$	55	$	31	$	(5)	$	26
Accumulated other comprehensive income (loss):
Beginning balance	$	(32)	$	(6)	$	(38)	$	(124)	$	10	$	(114)
Other comprehensive income (loss)	155		(7)		148		92		(16)		76
Ending balance	$	123	$	(13)	$	110	$	(32)	$	(6)	$	(38)


Cognizant			F-35			December 31, 2021 Form 10-K


Note 15 — Commitments and Contingencies

We are involved in various claims and legal proceedings arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. While we do not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matters described below, if decided adversely), individually or in the aggregate, will have a material adverse effect on our financial position, an unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.

On January 15, 2015, Syntel sued TriZetto and Cognizant in the USDC-SDNY. Syntel’s complaint alleged breach of contract against TriZetto, and tortious interference and misappropriation of trade secrets against Cognizant and TriZetto, stemming from Cognizant’s hiring of certain former Syntel employees. Cognizant and TriZetto countersued on March 23, 2015, for breach of contract, misappropriation of trade secrets and tortious interference, based on Syntel’s misuse of TriZetto confidential information and abandonment of contractual obligations. Cognizant and TriZetto subsequently added federal Defend Trade Secrets Act and copyright infringement claims for Syntel’s misuse of TriZetto’s proprietary technology. The parties’ claims were narrowed by the court and the case was tried before a jury, which on October 27, 2020, returned a verdict in favor of Cognizant in the amount of $855 million, including $570 million in punitive damages. On April 20, 2021, the USDC-SDNY issued a post-trial order that, among other things, affirmed the jury’s award of $285 million in actual damages, but reduced the award of punitive damages from $570 million to $285 million, thereby reducing the overall damages award from $855 million to $570 million. The USDC-SDNY subsequently issued a final judgment consistent with the April 20th order. On May 26, 2021, Syntel filed a notice of appeal to the Second Circuit, and on June 3, 2021 the USDC-SDNY stayed execution of judgment pending appeal. The appeal is pending before the Second Circuit. We will not record the gain in our financial statements until it becomes realizable.

On February 28, 2019, a ruling of the SCI interpreting the India Defined Contribution Obligation altered historical understandings of the obligation, extending it to cover additional portions of the employee’s income. As a result, the ongoing contributions of our affected employees and the Company were required to be increased. In the first quarter of 2019, we accrued $117 million with respect to prior periods, assuming retroactive application of the Supreme Court’s ruling, in "Selling, general and administrative expenses" in our consolidated statement of operations. There is significant uncertainty as to how the liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. Since the ruling, a variety of trade associations and industry groups have advocated to the Indian government, highlighting the harm to the information technology sector, other industries and job growth in India that would result from a retroactive application of the ruling. It is possible the Indian government will review the matter and there is a substantial question as to whether the Indian government will apply the SCI’s ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different from the amount accrued.

On October 5, 2016, October 27, 2016 and November 18, 2016, three putative securities class action complaints were filed in the USDC-NJ naming us and certain of our current and former officers at that time as defendants. These complaints were consolidated into a single action and on April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of persons and entities who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers at that time as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the Foreign Corrupt Practices Act, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs sought an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Defendants filed motions to dismiss the consolidated amended complaint on June 6, 2017. On August 8, 2018, the USDC-NJ issued an order which granted the motions to dismiss in part, including dismissal of all claims against then-current officers of the Company, and denied them in part. On September 7, 2018, we filed a motion in the USDC-NJ to certify the August 8, 2018 order for immediate appeal to the United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 1292(b). On October 18, 2018, the USDC-NJ issued an order granting our motion, and staying the action pending the outcome of our appeal petition to the Third Circuit. On October 29, 2018, we filed a petition for permission to appeal with the Third Circuit. On March 6, 2019, the Third Circuit denied our petition without prejudice. In an order dated March 19, 2019, the USDC-NJ directed the lead plaintiffs to provide the defendants with a proposed amended complaint. On April 26, 2019, lead plaintiffs filed their second amended complaint. We filed a motion to dismiss the second amended complaint on June 10, 2019. On June 7, 2020, the USDC-NJ issued an order denying our motion to


Cognizant			F-36			December 31, 2021 Form 10-K

dismiss the second amended complaint. On July 10, 2020, we filed our answer to the second amended complaint. On July 23, 2020, the DOJ filed a motion on consent for leave to intervene and to stay all discovery through the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), except for documents produced by us to the DOJ in connection with those criminal proceedings. On July 24, 2020, the USDC-NJ granted the DOJ’s motion; and on that same day, we filed a motion in the USDC-NJ to certify the June 7, 2020 order for immediate appeal to the Third Circuit pursuant to 28 U.S.C. § 1292(b). On March 17, 2021, the USDC-NJ issued an order denying our motion.

On September 7, 2021, the parties filed a settlement agreement that resolved the consolidated putative securities class action against us and certain of our former officers. The settlement agreement provides for a payment of $95 million to the putative class (inclusive of attorneys’ fees and litigation expenses). Adjusting for indemnification expenses, legal fees and other covered expenses incurred through September 7, 2021, the remaining available balance under the applicable directors and officers insurance policies was $75 million. As a result, we recorded a loss of $20 million in "Selling, general and administrative expenses" in our consolidated financial statements. The loss is referred to as the Class Action Settlement Loss. We and the other defendants entered into the settlement agreement to eliminate the uncertainty, burden, and expense of further protracted litigation. We and the other defendants expressly deny that the plaintiffs in the consolidated putative securities class action have asserted any valid claims as to us and them, respectively. On September 9, 2021, the USDC-NJ granted preliminary approval of the settlement. On December 21, 2021, the USDC-NJ granted final approval of the settlement and entered a judgment dismissing the consolidated putative securities class action with prejudice. The deadline to appeal the judgement was January 20, 2022, and no appeals were filed before that date.

On October 31, 2016, November 15, 2016 and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers at that time as defendants. These actions were consolidated in an order dated January 24, 2017. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then-anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future.

On February 22, 2017, April 7, 2017 and May 10, 2017, three additional putative shareholder derivative complaints alleging similar claims were filed in the USDC-NJ, naming us and certain of our current and former directors and officers at that time as defendants. These complaints asserted claims similar to those in the previously-filed putative shareholder derivative actions. In an order dated June 20, 2017, the USDC-NJ consolidated these actions into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motions to dismiss the consolidated putative securities class action. On October 30, 2018, lead plaintiff filed a consolidated verified derivative complaint.

On March 11, 2019, a seventh putative shareholder derivative complaint was filed in the USDC-NJ, naming us and certain of our current and former directors and officers at that time as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions. On May 14, 2019, the USDC-NJ approved a stipulation that (i) consolidated this action with the putative shareholder derivative suits that were previously filed in the USDC-NJ; and (ii) stayed all of these suits pending an order on the motion to dismiss the second amended complaint in the consolidated putative securities class action. On August 3, 2020, lead plaintiffs filed an amended complaint. The USDC-NJ extended the stay through February 14, 2022. On February 14, 2022, we and certain of our current and former directors and officers moved to dismiss the amended complaint.

On June 1, 2021, an eighth putative shareholder derivative complaint was filed in the USDC-NJ, naming us and certain of our current and former directors and officers at that time as defendants. The complaint asserts claims similar to those in the previously-filed putative shareholder derivative actions. On August 2, 2021, the USDC-NJ approved a stipulation that stayed this action through the earliest of (i) the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), (ii) the dissolution of the stay in the consolidated putative securities class action, provided that the dissolution of the stay in the consolidated putative securities class action is not the result of a settlement agreement or other mutual resolution of the consolidated putative securities class action, or (iii) the dissolution of the stay in the consolidated putative shareholder derivative action pending in USDC-NJ, provided that we are required to answer, move to dismiss, or otherwise respond to the operative complaint in that action following the dissolution of the stay. The stay ended on February 14, 2022, and the litigation is ongoing.


Cognizant			F-37			December 31, 2021 Form 10-K

We are presently unable to predict the duration, scope or result of the putative shareholder derivative actions. These lawsuits are subject to inherent uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is necessarily uncertain.

We have indemnification and expense advancement obligations pursuant to our bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s board of directors. In connection with the matters that were the subject of our previously disclosed internal investigation, the DOJ and SEC investigations and the related litigation, we have received and expect to continue to receive requests under such indemnification agreements and our bylaws to provide funds for legal fees and other expenses. As of the filing of the settlement agreement on September 7, 2021, there are no amounts remaining available to us under applicable insurance policies for our ongoing indemnification and advancement obligations with respect to certain of our current and former officers and directors or incremental legal fees and other expenses related to the above matters.

See Note 11 for information relating to the ITD Dispute.

Many of our engagements involve projects that are critical to the operations of our clients’ business and provide benefits that are difficult to quantify. Any failure in a client’s systems or our failure to meet our contractual obligations to our clients, including any breach involving a client’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage, including coverage for errors or omissions, we retain a significant portion of risk through our insurance deductibles and there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.

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


Note 16 — Employee Benefits

We contribute to defined contribution plans in the United States and Europe, including 401(k) savings and supplemental retirement plans in the United States. Total expenses for our contributions to these plans were $135 million, $118 million and $117 million for the years ended December 31, 2021, 2020 and 2019, respectively.

We maintain employee benefit plans that cover substantially all India-based employees. The employees’ provident fund, pension and family pension plans are statutorily defined contribution retirement benefit plans. Under the plans, employees contribute up to 12.0% of their eligible compensation, which is matched by an equal contribution by the Company. For these plans, we recognized a contribution expense of $121 million, $98 million and $101 million for the years ended December 31, 2021, 2020 and 2019, respectively. On February 28, 2019, a ruling of the SCI altered historical understandings of the obligation under these plans, extending them to cover additional portions of the employee’s income. In the first quarter of 2019, we accrued $117 million with respect to prior periods, assuming retroactive application of the SCI’s ruling, in "Selling, general and administrative expenses" in our consolidated statements of operations. See Note 15 for further information.


Cognizant			F-38			December 31, 2021 Form 10-K

We also maintain a gratuity plan in India that is a statutory post-employment benefit plan providing defined lump sum benefits. We make annual contributions to the employees’ gratuity fund established with a government-owned insurance corporation to fund a portion of the estimated obligation. Accordingly, our liability for the gratuity plan reflected the undiscounted benefit obligation payable as of the balance sheet date, which was based upon the employees’ salary and years of service. As of December 31, 2021 and 2020, the amount accrued under the gratuity plan was $118 million and $124 million, which is net of fund assets of $212 million and $186 million, respectively. Expense recognized by us was $70 million, $35 million and $38 million for the years ended December 31, 2021, 2020 and 2019, respectively.


Note 17 — Stock-Based Compensation Plans

The Company's 2017 Incentive Plan and the Purchase Plan provide for the issuance of up to 48.8 million (plus any shares underlying outstanding awards that are forfeited under the 2009 Incentive Plan) and 40.0 million shares, respectively, of Class A common stock to eligible employees. The 2017 Incentive Plan does not affect any awards outstanding under the 2009 Incentive Plan. As of December 31, 2021, we have 22.2 million and 3.9 million shares available for grant under the 2017 Incentive Plan and the Purchase Plan, respectively.

The allocation of total stock-based compensation expense between cost of revenues and selling, general and administrative expenses as well as the related income tax benefit were as follows for the three years ended December 31:


(in millions)	2021		2020		2019
Cost of revenues	$	49	$	51	$	54
SG&A expenses	197		181		163
Total stock-based compensation expense	$	246	$	232	$	217
Income tax benefit	$	59	$	48	$	39

Restricted Stock Units and Performance Stock Units

We granted RSUs that vest proportionately in quarterly or annual installments over periods of up to three years to employees, including our executive officers. Stock-based compensation expense relating to RSUs is recognized on a straight-line basis over the requisite service period. A summary of the activity for RSUs granted under our stock-based compensation plans as of December 31, 2021 and changes during the year then ended is presented below:


	Number of Units (in millions)	Weighted Average Grant Date Fair Value (in dollars)
Unvested at January 1, 2021	4.4	$	64.09
Granted	3.5	74.66
Vested	(3.0)	67.50
Forfeited	(1.0)	67.23
Unvested at December 31, 2021	3.9	$	70.11

The weighted-average grant date fair value of RSUs granted in 2021, 2020 and 2019 was $74.66, $61.85 and $64.12, respectively. As of December 31, 2021, $233 million of total remaining unrecognized stock-based compensation cost related to RSUs is expected to be recognized over the weighted-average remaining requisite service period of 1.7 years.

We granted PSUs that vest over periods up to four years to employees, including our executive officers. The vesting of PSUs is contingent on meeting certain financial performance targets, market conditions and continued service. A summary of the activity for PSUs granted under our stock-based compensation plans as of December 31, 2021 and changes during the year then ended is presented below. The presentation reflects the number of PSUs at the maximum performance milestones.


	Number of Units (in millions)	Weighted Average Grant Date Fair Value (in dollars)
Unvested at January 1, 2021	1.7	$	62.60
Granted	1.2	73.38
Vested	—	—
Forfeited	(0.5)	67.11
Adjustment at the conclusion of the performance measurement period	(0.1)	61.83
Unvested at December 31, 2021	2.3	$	67.55

The weighted-average grant date fair value of PSUs granted in 2021, 2020 and 2019 was $73.38, $62.00 and $70.77, respectively. As of December 31, 2021, $41 million of the total remaining unrecognized stock-based compensation cost related to PSUs is expected to be recognized over the weighted-average remaining requisite service period of 1.6 years.

All RSUs and PSUs have dividend equivalent rights, which entitle holders to the same dividend value per share as holders of common stock. Dividend equivalent rights are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs and PSUs and are accumulated and paid when the underlying shares vest.

The Purchase Plan provides for eligible employees to purchase shares of Class A common stock at a price of 90% of the lesser of: (a) the fair market value of a share of Class A common stock on the first date of the purchase period or (b) the fair market value of a share of Class A common stock on the last date of the purchase period. In December 2021, we amended the Purchase Plan to modify the purchase price for eligible employees to be equal to 95% of the fair market value per share of our Class A common stock on the last date of the purchase period. This change is effective for the first purchase period in 2022.

Stock-based compensation expense for the Purchase Plan is recognized over the vesting period of three months on a straight-line basis.

The fair values of the options granted under the Purchase Plan, were estimated at the date of grant during the years ended December 31, 2021, 2020, and 2019 based upon the following assumptions and were as follows:


	2021			2020			2019
Dividend yield	1.3		%	1.1		%	1.3		%
Weighted average volatility factor	27.5		%	35.9		%	24.9		%
Weighted average risk-free interest rate	0.03		%	0.6		%	2.2		%
Weighted average expected life (in years)	0.25			0.25			0.25
Weighted average grant date fair value	$	11.72		$	9.38		$	9.82

During the year ended December 31, 2021, we issued 2.0 million shares of Class A common stock under the Purchase Plan with a total fair value of approximately $23 million.


Note 18 — Segment Information

Our reportable segments are:

Financial Services, which consists of our banking and insurance operating segments;
Healthcare, which consists of our healthcare and life sciences operating segments;
Products and Resources, which consists of our retail and consumer goods; manufacturing, logistics, energy, and utilities; and travel and hospitality operating segments; and
Communications, Media and Technology, which includes our communications and media operating segment and our technology operating segment.

Our client partners, account executives and client relationship managers are aligned in accordance with the specific industries they serve. Our chief operating decision maker evaluates the Company's performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by our operating segments may affect revenues and operating expenses to differing degrees.


Cognizant			F-39			December 31, 2021 Form 10-K

Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per employee charge for use of our global delivery centers and infrastructure. Certain SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery employees as compared to target, restructuring costs, the 2020 COVID-19 Charges, costs related to the ransomware attack, the 2019 incremental accrual related to the India Defined Contribution Obligation, a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are included below as “unallocated costs” and adjusted against our total income from operations in the table below. Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.

For revenues by reportable segment and geographic area see Note 2.

Segment operating profits by reportable segment were as follows:


(in millions)	2021		2020		2019
Financial Services	$	1,740	$	1,449	$	1,605
Healthcare	1,551		1,383		1,261
Products and Resources	1,325		1,078		1,028
Communications, Media and Technology	941		794		732
Total segment operating profit	5,557		4,704		4,626
Less: unallocated costs	2,731		2,590		2,173
Income from operations	$	2,826	$	2,114	$	2,453

Geographic Area Information

Long-lived assets by geographic area are as follows:


(in millions)	2021		2020		2019
Long-lived Assets:(1)
North America(2)	$	377	$	399	$	445
Europe	75		88		104
Rest of World(3)	719		764		760
Total	$	1,171	$	1,251	$	1,309

(1) Long-lived assets include property and equipment, net of accumulated depreciation and amortization.

(2) Substantially all relates to the United States.

(3) Substantially all relates to India.


Note 19 — Subsequent Events

Dividend

On January 31, 2022, our Board of Directors approved the Company's declaration of a $0.27 per share dividend with a record date of February 18, 2022 and a payment date of March 1, 2022.


Cognizant			F-40			December 31, 2021 Form 10-K

Cognizant Technology Solutions Corporation

Valuation and Qualifying Accounts

For the Years Ended December 31, 2021, 2020 and 2019

(in millions)


Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions /Other		Balance at End of Period
	(in millions)




Warranty accrual:
2021	$	32	$	36	$	3	$	32	$	39
2020	$	33	$	32	$	—	$	33	$	32
2019	$	32	$	33	$	—	$	32	$	33
Valuation allowance—deferred income tax assets:
2021	$	29	$	17	$	—	$	—	$	46
2020	$	24	$	5	$	—	$	—	$	29
2019	$	11	$	15	$	—	$	2	$	24


Cognizant			F-41			December 31, 2021 Form 10-K

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