Item 1. Consolidated Financial Statements (Unaudited).

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)


(in millions, except par values)	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	1,664	$	2,680
Short-term investments	749		44
Trade accounts receivable, net	3,510		3,087
Other current assets	1,072		1,040
Total current assets	6,995		6,851
Property and equipment, net	1,179		1,251
Operating lease assets, net	956		1,013
Goodwill	5,451		5,031
Intangible assets, net	1,198		1,046
Deferred income tax assets, net	282		445
Long-term investments	466		440
Other noncurrent assets	705		846
Total assets	$	17,232	$	16,923
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	351	$	389
Deferred revenue	312		383
Short-term debt	38		38
Operating lease liabilities	200		211
Accrued expenses and other current liabilities	2,418		2,519
Total current liabilities	3,319		3,540
Deferred revenue, noncurrent	37		36
Operating lease liabilities, noncurrent	804		846
Deferred income tax liabilities, net	214		206
Long-term debt	636		663
Long-term income taxes payable	378		428
Other noncurrent liabilities	298		368
Total liabilities	5,686		6,087
Commitments and contingencies (See Note 12)
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 September 30, 2021 and December 31, 2020, respectively	5		5
Additional paid-in capital	29		32
Retained earnings	11,479		10,689
Accumulated other comprehensive income (loss)	33		110
Total stockholders’ equity	11,546		10,836
Total liabilities and stockholders’ equity	$	17,232	$	16,923

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


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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(in millions, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues	$	4,744	$	4,243	$	13,730	$	12,468
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense shown separately below)	2,947		2,647		8,574		8,009
Selling, general and administrative expenses	924		804		2,632		2,226
Restructuring charges	—		51		—		177
Depreciation and amortization expense	144		138		430		407
Income from operations	729		603		2,094		1,649
Other income (expense), net:
Interest income	7		27		23		105
Interest expense	(3)		(6)		(7)		(21)
Foreign currency exchange gains (losses), net	(3)		(1)		(19)		(105)
Other, net	1		1		(1)		1
Total other income (expense), net	2		21		(4)		(20)
Income before provision for income taxes	731		624		2,090		1,629
Provision for income taxes	(187)		(276)		(531)		(552)
Income (loss) from equity method investments	—		—		2		(1)
Net income	$	544	$	348	$	1,561	$	1,076
Basic earnings per share	$	1.04	$	0.64	$	2.96	$	1.98
Diluted earnings per share	$	1.03	$	0.64	$	2.96	$	1.98
Weighted average number of common shares outstanding - Basic	525		542		527		543
Dilutive effect of shares issuable under stock-based compensation plans	1		1		1		—
Weighted average number of common shares outstanding - Diluted	526		543		528		543

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


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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


(in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	544	$	348	$	1,561	$	1,076
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(63)		90		(74)		(7)
Change in unrealized gains and losses on cash flow hedges	14		58		(3)		5

Other comprehensive income (loss)	(49)		148		(77)		(2)
Comprehensive income	$	495	$	496	$	1,484	$	1,074

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


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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


(in millions)		Class A Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares		Amount
Balance, December 31, 2020		530		$	5	$	32	$	10,689	$	110	$	10,836
Net income		—		—		—		505		—		505
Other comprehensive income (loss)		—		—		—		—		(29)		(29)
Common stock issued, stock-based compensation plans		1		—		43		—		—		43
Stock-based compensation expense		—		—		62		—		—		62
Repurchases of common stock		(3)		—		(93)		(159)		—		(252)
Dividends declared, $0.24 per share		—		—		—		(128)		—		(128)
Balance, March 31, 2021		528		5		44		10,907		81		11,037
Net income		—		—		—		512		—		512
Other comprehensive income (loss)		—		—		—		—		1		1
Common stock issued, stock-based compensation plans		1		—		32		—		—		32
Stock-based compensation expense		—		—		67		—		—		67
Repurchases of common stock		(4)		—		(111)		(205)		—		(316)
Dividends declared, $0.24 per share		—		—		—		(128)		—		(128)
Balance, June 30, 2021		525		5		32		11,086		82		11,205
Net income		—		—		—		544		—		544
Other comprehensive income (loss)		—		—		—		—		(49)		(49)
Common stock issued, stock-based compensation plans		2		—		29		—		—		29
Stock-based compensation expense		—		—		65		—		—		65
Repurchases of common stock		(2)		—		(97)		(24)		—		(121)
Dividends declared, $0.24 per share		—		—		—		(127)		—		(127)
Balance, September 30, 2021		525		$	5	$	29	$	11,479	$	33	$	11,546


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(in millions)		Class A Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares		Amount
Balance, December 31, 2019		548		$	5	$	33	$	11,022	$	(38)	$	11,022
Cumulative effect of changes in accounting principle(1)		—		—		—		1		—		1
Net income		—		—		—		367		—		367
Other comprehensive income (loss)		—		—		—		—		(226)		(226)
Common stock issued, stock-based compensation plans		2		—		40		—		—		40
Stock-based compensation expense		—		—		55		—		—		55
Repurchases of common stock		(9)		—		(87)		(439)		—		(526)
Dividends declared, $0.22 per share		—		—		—		(120)		—		(120)
Balance, March 31, 2020		541		5		41		10,831		(264)		10,613
Net income		—		—		—		361		—		361
Other comprehensive income (loss)		—		—		—		—		76		76
Common stock issued, stock-based compensation plans		2		—		36		—		—		36
Stock-based compensation expense		—		—		65		—		—		65
Repurchases of common stock		(1)		—		(59)		—		—		(59)
Dividends declared, $0.22 per share		—		—		—		(120)		—		(120)
Balance, June 30, 2020		542		5		83		11,072		(188)		10,972
Net income		—		—		—		348		—		348
Other comprehensive income (loss)		—		—		—		—		148		148
Common stock issued, stock-based compensation plans		1		—		33		—		—		33
Stock-based compensation expense		—		—		58		—		—		58
Repurchases of common stock		(4)		—		(141)		(156)		—		(297)
Dividends declared, $0.22 per share		—		—		—		(122)		—		(122)
Balance, September 30, 2020		539		$	5	$	33	$	11,142	$	(40)	$	11,140

(1)Reflects the adoption of the Credit Loss Standard on January 1, 2020. Refer to the notes in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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


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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(in millions)	For the Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	1,561	$	1,076
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	430		411

Deferred income taxes	146		290
Stock-based compensation expense	194		178

Other	(1)		107
Changes in assets and liabilities:
Trade accounts receivable	(371)		212
Other current and noncurrent assets	257		96
Accounts payable	(39)		83
Deferred revenues, current and noncurrent	(75)		(36)
Other current and noncurrent liabilities	(432)		(16)
Net cash provided by operating activities	1,670		2,401
Cash flows from investing activities:
Purchases of property and equipment	(214)		(309)
Purchases of available-for-sale investment securities	(400)		—
Proceeds from maturity or sale of available-for-sale investment securities	105		—
Purchases of held-to-maturity investment securities	(160)		(202)
Proceeds from maturity of held-to-maturity investment securities	150		373
Purchases of other investments	(1,192)		(446)
Proceeds from maturity or sale of other investments	760		464
Payments for business combinations, net of cash acquired	(715)		(1,069)
Net cash (used in) investing activities	(1,666)		(1,189)
Cash flows from financing activities:
Issuance of common stock under stock-based compensation plans	104		109


Repurchases of common stock	(689)		(833)
Repayment of Term Loan borrowings and finance lease and earnout obligations	(40)		(37)
Proceeds from borrowings under the revolving credit facility	—		1,740
Dividends paid	(382)		(362)
Net cash (used in) provided by financing activities	(1,007)		617
Effect of exchange rate changes on cash and cash equivalents	(13)		(38)
(Decrease) increase in cash and cash equivalents	(1,016)		1,791
Cash and cash equivalents, beginning of year	2,680		2,645
Cash and cash equivalents, end of period	$	1,664	$	4,436

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


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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Note 1 — Interim Consolidated Financial Statements

The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation and its subsidiaries unless the context indicates otherwise. We have prepared the accompanying unaudited consolidated financial statements included herein in accordance with GAAP and the Exchange Act. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2020. In our opinion, all adjustments considered necessary for a fair statement of the accompanying unaudited consolidated financial statements have been included and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.


Note 2 — Revenues and Trade Accounts Receivable

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. 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 operations in the United States.

We have defined our Financial Services, Healthcare, Products and Resources and Communications, Media and Technology segments as ("FS"), ("HC"), ("P&R"), and ("CMT"), respectively, in our disaggregation of revenues tables.


	Three Months Ended September 30, 2021										Nine Months Ended September 30, 2021

(in millions)	FS		HC		P&R		CMT		Total		FS		HC		P&R		CMT		Total

Geography:
North America	$	1,075	$	1,162	$	749	$	500	$	3,486	$	3,137	$	3,394	$	2,190	$	1,420	$	10,141
United Kingdom	140		44		125		121		430		395		129		347		332		1,203
Continental Europe	187		118		145		34		484		565		356		380		121		1,422
Europe - Total	327		162		270		155		914		960		485		727		453		2,625
Rest of World	142		30		88		84		344		407		88		243		226		964
Total	$	1,544	$	1,354	$	1,107	$	739	$	4,744	$	4,504	$	3,967	$	3,160	$	2,099	$	13,730

Service line:
Consulting and technology services	$	1,049	$	785	$	715	$	441	$	2,990	$	3,028	$	2,299	$	1,999	$	1,259	$	8,585
Outsourcing services	495		569		392		298		1,754		1,476		1,668		1,161		840		5,145
Total	$	1,544	$	1,354	$	1,107	$	739	$	4,744	$	4,504	$	3,967	$	3,160	$	2,099	$	13,730

Type of contract:
Time and materials	$	922	$	515	$	468	$	437	$	2,342	$	2,729	$	1,548	$	1,332	$	1,256	$	6,865
Fixed-price	527		554		530		265		1,876		1,498		1,582		1,517		744		5,341
Transaction or volume-based	95		285		109		37		526		277		837		311		99		1,524
Total	$	1,544	$	1,354	$	1,107	$	739	$	4,744	$	4,504	$	3,967	$	3,160	$	2,099	$	13,730


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	Three Months Ended September 30, 2020										Nine Months Ended September 30, 2020

(in millions)	FS		HC		P&R		CMT		Total		FS		HC		P&R		CMT		Total

Geography:
North America	$	1,033	$	1,054	$	666	$	426	$	3,179	$	3,023	$	3,091	$	1,975	$	1,286	$	9,375
United Kingdom	123		40		96		86		345		353		116		278		249		996
Continental Europe	181		116		97		43		437		554		317		300		122		1,293
Europe - Total	304		156		193		129		782		907		433		578		371		2,289
Rest of World	132		21		68		61		282		386		58		195		165		804
Total	$	1,469	$	1,231	$	927	$	616	$	4,243	$	4,316	$	3,582	$	2,748	$	1,822	$	12,468

Service line:
Consulting and technology services	$	984	$	725	$	564	$	369	$	2,642	$	2,864	$	2,053	$	1,674	$	1,055	$	7,646
Outsourcing services	485		506		363		247		1,601		1,452		1,529		1,074		767		4,822
Total	$	1,469	$	1,231	$	927	$	616	$	4,243	$	4,316	$	3,582	$	2,748	$	1,822	$	12,468

Type of contract:
Time and materials	$	932	$	505	$	392	$	372	$	2,201	$	2,689	$	1,448	$	1,164	$	1,112	$	6,413
Fixed price	450		466		434		218		1,568		1,377		1,292		1,286		638		4,593
Transaction or volume-based	87		260		101		26		474		250		842		298		72		1,462
Total	$	1,469	$	1,231	$	927	$	616	$	4,243	$	4,316	$	3,582	$	2,748	$	1,822	$	12,468

Costs to Fulfill

Costs to fulfill, such as setup or transition activities, are recorded in "Other noncurrent assets" in our unaudited consolidated statements of financial position and the amortization expense of costs to fulfill is included in "Cost of revenues" in our unaudited consolidated statements of operations. Costs to obtain contracts were immaterial for the periods disclosed. The following table presents information related to the capitalized costs to fulfill for the nine months ended September 30:


(in millions)	2021		2020
Beginning balance	$	467	$	485
Amortization expense	(88)		(71)
Costs capitalized	38		78
Impairment	(11)		(10)
Ending balance	$	406	$	482

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 unaudited 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 for the nine months ended September 30:


(in millions)	2021		2020
Beginning balance	$	315	$	334
Revenues recognized during the period but not billed	298		281
Amounts reclassified to trade accounts receivable	(264)		(282)

Ending balance	$	349	$	333


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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) for the nine months ended September 30:


(in millions)	2021		2020
Beginning balance	$	419	$	336
Amounts billed but not recognized as revenues	309		260
Revenues recognized related to the opening balance of deferred revenue	(379)		(279)

Ending balance	$	349	$	317

Revenues recognized during the three and nine months ended September 30, 2021 for performance obligations satisfied or partially satisfied in previous periods were immaterial.

Remaining Performance Obligations

As of September 30, 2021, the aggregate amount of transaction price allocated to remaining performance obligations was $1,658 million, of which approximately 80% is expected to be recognized as revenue 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 Loss

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 trade accounts receivable for the nine months ended September 30:


(in millions)	2021		2020
Beginning balance	$	57	$	67
Impact of adoption of the Credit Loss Standard	—		(1)
Credit loss expense	5		18
Write-offs charged against the allowance	(12)		(11)

Ending balance	$	50	$	73


Note 3 — Business Combinations

Acquisitions completed during the nine months ended September 30, 2021 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. Goodwill from our acquisition of ESG Mobility has been allocated to our Products and Resources segment and goodwill from our acquisition of TQS has been allocated to our Healthcare and Products and Resources segments. Goodwill from other 2021 acquisitions is expected to benefit all of our reportable segments and has been allocated as such. 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.


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During the nine months ended September 30, 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); and
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 U.S. (acquired August 16, 2021).

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


(in millions)	Servian		Magenic		ESG Mobility		Linium		Other		Total		Weighted Average Useful Life
Cash	$	4	$	13	$	28	$	—	$	2	$	47
Trade accounts receivable	15		17		24		5		12		73
Property and equipment and other assets	6		4		8		1		4		23
Operating lease assets, net	5		10		27		—		1		43
Non-deductible goodwill	180		10		31		—		16		237
Tax-deductible goodwill	—		138		24		57		10		229
Customer relationship assets	77		90		77		24		32		300		10.0 years
Other intangible assets	2		1		—		—		—		3		3.8 years

Current liabilities	(12)		(30)		(20)		(2)		(7)		(71)
Noncurrent liabilities	(29)		(7)		(65)		—		(5)		(106)
Purchase price, inclusive of contingent consideration	$	248	$	246	$	134	$	85	$	65	$	778

The above allocations are 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.


Note 4 — Restructuring Charges

During 2020, we incurred costs related to both our realignment program and our 2020 Fit for Growth Plan. Our realignment program, which began in 2017, improved our client focus, 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 unaudited consolidated statements of operations. During the three months ended September 30, 2020, we incurred $8 million of professional fees related to our realignment program and $43 million of employee separation and facility exit costs and other charges related to our 2020 Fit for Growth Plan. During the nine months ended September 30, 2020, we incurred $40 million of certain employee retention costs and professional fees related to our realignment program and $137 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 the three and nine months ended September 30, 2021.


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Note 5 — Investments

Our investments were as follows:


(in millions)	September 30, 2021		December 31, 2020
Short-term investments:
Equity investment security	$	27	$	27
Available-for-sale investment securities	295		—
Held-to-maturity investment securities	23		14
Time deposits	404		3
Total short-term investments	$	749	$	44


Long-term investments:
Equity and cost method investments	$	67	$	35
Restricted time deposits(1)	399		405
Total long-term investments	$	466	$	440

(1)See Note 8.

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 three and nine months ended September 30, 2021 and 2020.

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 September 30, 2021, the amortized cost and fair value of our available-for-sale investments were $295 million. Unrealized gains and losses were immaterial as of September 30, 2021 and there were no realized gains or losses related to our available-for-sale investment securities during the nine months ended September 30, 2021 and 2020.

Held-to-Maturity Investment Securities

Our held-to-maturity investment securities consist of Indian rupee denominated investments 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 investment securities is Level 2 in the fair value hierarchy.

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


(in millions)	September 30, 2021		December 31, 2020
	Amortized Cost			Fair Value		Amortized Cost		Fair Value
Short-term investments, maturing within one year:
Corporate and other debt securities	$	3		$	3	$	14	$	14
Commercial paper	20			20		—		—
Total short-term held-to-maturity investments	$	23		$	23	$	14	$	14

As of September 30, 2021, corporate and other debt securities in the amount of $3 million and commercial paper in the amount of $7 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 September 30, 2021, our corporate and other debt securities were rated AAA and our commercial paper securities were rated A-1+ by CRISIL, an Indian subsidiary of S&P Global.


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Equity and Cost Method Investments

During the third quarter of 2021, we increased our equity method investment in the technology sector by $32 million. As of September 30, 2021 and December 31, 2020, we had equity method investments of $64 million and $31 million, respectively, and cost method investments of $3 million and $4 million, respectively.


Note 6 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:


(in millions)	September 30, 2021		December 31, 2020
Compensation and benefits	$	1,578	$	1,607
Customer volume and other incentives	267		266

Income taxes	35		34
Professional fees	189		143
Other	349		469
Total accrued expenses and other current liabilities	$	2,418	$	2,519


Note 7 — Debt

In 2018, we entered into the Credit Agreement providing for the $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023.

The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Our Credit Agreement also provides a mechanism for determining an alternative rate of interest to the Eurocurrency rate after LIBOR is no longer available.

We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan. The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. We were in compliance with all debt covenants and representations as of September 30, 2021.

In February 2021, our India subsidiary renewed its 13 billion Indian rupee ($175 million at the September 30, 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 prior to 30 days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February.

Short-term Debt

As of both September 30, 2021 and December 31, 2020, we had $38 million of short-term debt related to current maturities of our Term Loan.

Long-term Debt

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


(in millions)	September 30, 2021		December 31, 2020

Term Loan	$	676	$	703
Less:
Current maturities - Term Loan	(38)		(38)
Deferred financing costs	(2)		(2)
Long-term debt, net of current maturities	$	636	$	663

The carrying value of our debt approximated its fair value as of September 30, 2021 and December 31, 2020.


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Note 8 — Income Taxes

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 reduction of $43 million to our uncertain tax position balance, which resulted in a $14 million discrete benefit to the provision for income taxes and a $29 million adjustment to our current income tax balance sheet accounts. Tax years that remain subject to examination by the IRS are 2017 onward.

Our effective income tax rates were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Effective income tax rate	25.6	%	44.2	%	25.4	%	33.9	%

The effective tax rate decreased in 2021 as compared to 2020 primarily as a result of our decision in the third quarter of 2020 to reverse our indefinite reinvestment assertion on Indian earnings accumulated in prior years, which resulted in a $140 million Tax on Accumulated Indian Earnings recorded as income tax expense in the third quarter of 2020.

We are involved in an ongoing dispute with the ITD in connection with a previously disclosed transaction undertaken by CTS India in 2016 to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $2.8 billion. As a result of that transaction, which was undertaken pursuant to a plan approved by the High Court in Chennai, India, we previously paid $135 million in Indian income taxes - an amount we believe includes all applicable taxes owed for this transaction under Indian law. In March 2018, we received a communication from the ITD asserting that the ITD is owed an additional 33 billion Indian rupees ($445 million at the September 30, 2021 exchange rate) on the 2016 transaction. Immediately thereafter, the ITD placed an attachment on certain of our India bank accounts. In addition to the dispute on the 2016 transaction, we are also involved in another ongoing dispute with the ITD relating to a 2013 transaction undertaken by CTS India to repurchase shares from its shareholders valued at $523 million (the two disputes are collectively referred to as the "ITD Dispute").

In April 2018, the High Court admitted our writ petition for a stay of the actions of the ITD and lifted the ITD’s attachment on our bank accounts. As part of the interim stay order, we deposited 5 billion Indian rupees ($67 million at the September 30, 2021 exchange rate and $68 million at the December 31, 2020 exchange rate) representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. In addition, the High Court placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($378 million at the September 30, 2021 exchange rate and $384 million at the December 31, 2020 exchange rate), which is the remainder of the disputed tax amount related to the 2016 transaction.

In June 2019, the High Court dismissed our previously admitted writ petitions on the ITD Dispute, holding that the Company must exhaust other remedies, such as pursuing the matter before other appellate bodies, for resolution of the ITD Dispute prior to intervention by the High Court. The High Court did not issue a ruling on the substantive issue of whether we owe additional tax as a result of either the 2016 or the 2013 transaction. In July 2019, we appealed the High Court’s orders before the Division Bench. In September 2019, the Division Bench partly allowed the Company’s appeal with respect to the 2016 transaction, but did not issue a ruling on the substantive issue of the tax implications of the transactions. In October 2019, we filed a SLP before the SCI with respect to the 2016 transaction. In March 2020, the SCI referred the case based on the 2016 transaction back to the ITD with directions to carry out the assessment following the due process of law. Further, until the conclusion of the assessment, the SCI maintained in place the lien on our 28 billion Indian rupees time deposit and did not order the release of the 5 billion Indian rupees deposit held by the ITD. In April 2020, we received an assessment from the ITD, which is consistent with its previous assertions regarding our 2016 transaction. In June 2020, we filed an appeal against this assessment.

As of September 30, 2021 and December 31, 2020, the balance of deposits under lien was $399 million and $405 million, respectively, presented in "Long-term investments", including a portion of the interest previously earned. As of September 30, 2021 and December 31, 2020, the deposit with the ITD was $67 million and $68 million respectively, presented in "Other noncurrent assets".

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 September 30, 2021.


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Note 9 — 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 unaudited 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 unaudited consolidated statements of financial position as of:


(in millions)		September 30, 2021				December 31, 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	$	46	$	—	$	45	$	—
	Other noncurrent assets	13		—		26		—

	Other noncurrent liabilities	—		1		—		—
	Total	59		1		71		—
Foreign exchange forward contracts – Not designated as hedging instruments	Other current assets	8		—		1		—
	Accrued expenses and other current liabilities	—		2		—		1
	Total	8		2		1		1
Total		$	67	$	3	$	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 the remainder of 2021, 2022 and the first nine months of 2023. The changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position and are subsequently reclassified to earnings within "Cost of revenues" and "Selling, general and administrative expenses" in our unaudited consolidated statements of operations in the same period that the forecasted Indian rupee denominated payments are recorded in earnings. As of September 30, 2021, we estimate that $43 million, net of tax, of net gains related to derivatives designated as cash flow hedges reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position is expected to be reclassified into earnings within the next 12 months.

The notional values of our outstanding contracts by year of maturity were as follows:


(in millions)	September 30, 2021		December 31, 2020
2021	$	467	$	1,470
2022	1,288		803
2023	555		—
Total notional value of contracts outstanding (1)	$	2,310	$	2,273

(1)Includes $93 million and $133 million notional value of option contracts as of September 30, 2021 and December 31, 2020, respectively, with the remaining notional value related to forward contracts.


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The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the three months ended September 30:


(in millions)	Change in Derivative Gains Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion)				Location of Net 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	$	33	$	77	Cost of revenues	$	13	$	5
					SG&A expenses	2		1
					Total	$	15	$	6

The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the nine months ended September 30:


(in millions)	Change in Derivative Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion)				Location of Net Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)	Net Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)
	2021		2020			2021		2020
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments	$	47	$	(1)	Cost of revenues	$	43	$	(7)
					SG&A expenses	7		(1)
					Total	$	50	$	(8)

The activity related to the change in net unrealized gains and losses on our cash flow hedges included in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of stockholders' equity is presented in Note 11.

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 2021. 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 unaudited consolidated statements of operations.

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


(in millions)	September 30, 2021				December 31, 2020
	Notional		Fair Value		Notional		Fair Value
Contracts outstanding	$	919	$	6	$	637	$	—

The following table provides information on the location and amounts of realized and unrealized pre-tax gains and losses on our other derivative financial instruments for the three and nine months ended September 30:


	Location of Net Gains (Losses) on Derivative Instruments	Amount of Net Gains (Losses) on Derivative Instruments
		Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)		2021		2020		2021		2020
Foreign exchange forward contracts – Not designated as hedging instruments	Foreign currency exchange gains (losses), net	$	1	$	(57)	$	7	$	(54)

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


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Note 10 — Fair Value Measurements

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

The fair value hierarchy consists of the following three levels:

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

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of September 30, 2021:


(in millions)	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	582	$	—	$	—	$	582
Time deposits	—		4		—		4
Commercial paper	—		290		—		290
Short-term investments:
Time deposits	—		404		—		404
Equity investment security	27		—		—		27
Available-for-sale investment securities:
Commercial paper	—		295		—		295
Other current assets:
Foreign exchange forward and option contracts	—		54		—		54
Long-term investments:
Restricted time deposits(1)	—		399		—		399
Other noncurrent assets
Foreign exchange forward contracts	—		13		—		13
Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(2)		—		(2)
Contingent consideration liabilities	—		—		(29)		(29)
Other noncurrent liabilities:
Foreign exchange forward contracts	—		(1)		—		(1)
Contingent consideration liabilities	—		—		(9)		(9)

(1)See Note 8.


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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 and option contracts	—		(1)		—		(1)
Contingent consideration liabilities	—		—		(11)		(11)
Other noncurrent liabilities:

Contingent consideration liabilities	—		—		(43)		(43)

(1)See Note 8.

The following table summarizes the changes in Level 3 contingent consideration liabilities for the nine months ended September 30:


(in millions)	2021		2020
Beginning balance	$	54	$	38
Initial measurement recognized at acquisition	11		42
Change in fair value recognized in SG&A expenses	(24)		(24)
Payments	(3)		(3)
Ending balance	$	38	$	53

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 our time deposits approximated fair value as of September 30, 2021 and December 31, 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 forward 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 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 nine months ended September 30, 2021 and the year ended December 31, 2020, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.


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Note 11 — Accumulated Other Comprehensive Income (Loss)

Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three and nine months ended September 30, 2021:


	Three Months						Nine Months
(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	$	44	$	—	$	44	$	56	$	(1)	$	55
Change in foreign currency translation adjustments	(65)		2		(63)		(77)		3		(74)
Ending balance	$	(21)	$	2	$	(19)	$	(21)	$	2	$	(19)
Unrealized gains on cash flow hedges:
Beginning balance	$	46	$	(8)	$	38	$	67	$	(12)	$	55
Unrealized gains arising during the period	33		(6)		27		47		(9)		38
Reclassifications of net (gains) to:
Cost of revenues	(13)		2		(11)		(43)		8		(35)
SG&A expenses	(2)		—		(2)		(7)		1		(6)
Net change	18		(4)		14		(3)		—		(3)
Ending balance	$	64	$	(12)	$	52	$	64	$	(12)	$	52
Accumulated other comprehensive income (loss):
Beginning balance	$	90	$	(8)	$	82	$	123	$	(13)	$	110
Other comprehensive income (loss)	(47)		(2)		(49)		(80)		3		(77)
Ending balance	$	43	$	(10)	$	33	$	43	$	(10)	$	33

Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three and nine months ended September 30, 2020:


	Three Months						Nine Months
(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	$	(165)	$	4	$	(161)	$	(63)	$	(1)	$	(64)
Change in foreign currency translation adjustments	93		(3)		90		(9)		2		(7)
Ending balance	$	(72)	$	1	$	(71)	$	(72)	$	1	$	(71)
Unrealized (losses) gains on cash flow hedges:
Beginning balance	$	(33)	$	6	$	(27)	$	31	$	(5)	$	26
Unrealized gains (losses) arising during the period	77		(14)		63		(1)		(1)		(2)
Reclassifications of net (gains) losses to:
Cost of revenues	(5)		1		(4)		7		(1)		6
SG&A expenses	(1)		—		(1)		1		—		1
Net change	71		(13)		58		7		(2)		5
Ending balance	$	38	$	(7)	$	31	$	38	$	(7)	$	31
Accumulated other comprehensive income (loss):
Beginning balance	$	(198)	$	10	$	(188)	$	(32)	$	(6)	$	(38)
Other comprehensive income (loss)	164		(16)		148		(2)		—		(2)
Ending balance	$	(34)	$	(6)	$	(40)	$	(34)	$	(6)	$	(40)


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Note 12— 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 United States Court of Appeals for the Second Circuit, and on June 3, 2021 the USDC-SDNY stayed execution of judgment pending appeal. 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 unaudited 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 seek 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


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dismiss the second amended complaint on June 10, 2019. On June 7, 2020, the USDC-NJ issued an order denying our motion to dismiss the second amended complaint. On July 10, 2020, we filed our answer to the second amended complaint. On July 23, 2020, the DOJ filed a motion on consent for leave to intervene and to stay all discovery through the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), except for documents produced by us to the DOJ in connection with those criminal proceedings. On July 24, 2020, the 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, subject to the approval of the USDC-NJ, would resolve 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 unaudited consolidated financial statements. The loss is referred to as the Class Action Settlement Loss. We and the other defendants are entering 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. The settlement is subject to final approval by the USDC-NJ and certain other conditions, and we cannot provide assurance that the USDC-NJ will grant final approval of the settlement. Notice is being provided to potential class members who will have an opportunity to opt out of the settlement and make any objections to the USDC-NJ, which the USDC-NJ will then review. After the notice and objection period, the USDC-NJ is scheduled to hold a hearing on December 20, 2021 to determine whether to grant final approval of the settlement. If final approval is not granted by the USDC-NJ, or if the settlement does not become final for any other reason, we will return to our position prior to the settlement and we are unable to predict the duration, scope or result of the subsequent litigation.

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. On October 19, 2020, the USDC-NJ approved a stipulation that stayed all of these suits through the earlier of the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), or November 1, 2021.

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


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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.

We are presently unable to predict the duration, scope or result of the putative shareholder derivative actions. Although the Company continues to defend the putative shareholder derivative actions vigorously, 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 of 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 8 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 13 — 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.


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

Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per employee charge for use of our global delivery centers and infrastructure. Certain SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery personnel as compared to target, restructuring and COVID-19 Charges, 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. 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Financial Services	$	463	$	463	$	1,308	$	1,209
Healthcare	383		378		1,182		1,004
Products and Resources	351		307		988		805
Communications, Media and Technology	253		191		703		555
Total segment operating profit	1,450		1,339		4,181		3,573
Less: unallocated costs	721		736		2,087		1,924
Income from operations	$	729	$	603	$	2,094	$	1,649

Geographic Area Information

Long-lived assets by geographic area are as follows:


	As of
(in millions)	September 30, 2021		December 31, 2020
Long-lived Assets: (1)
North America(2)	$	366	$	399
Europe	80		88
Rest of World (3)	733		764
Total	$	1,179	$	1,251

(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 14 — Subsequent Events

Dividend

On October 26, 2021, our Board of Directors approved the Company's declaration of a $0.24 per share dividend with a record date of November 19, 2021 and a payment date of November 30, 2021.


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