Item 1. Consolidated Financial Statements (Unaudited).

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Item 1. Consolidated Financial Statements (Unaudited).

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)


(in millions, except par values)	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	2,055	$	2,191
Short-term investments	40		310
Trade accounts receivable, net	3,755		3,796
Other current assets	1,101		969
Total current assets	6,951		7,266
Property and equipment, net	1,087		1,101
Operating lease assets, net	788		876
Goodwill	6,065		5,710
Intangible assets, net	1,228		1,168
Deferred income tax assets, net	762		642
Long-term investments	425		427
Other noncurrent assets	661		662
Total assets	$	17,967	$	17,852
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	318	$	360
Deferred revenue	380		398
Short-term debt	24		8
Operating lease liabilities	171		174
Accrued expenses and other current liabilities	2,163		2,407
Total current liabilities	3,056		3,347
Deferred revenue, noncurrent	30		19
Operating lease liabilities, noncurrent	664		714
Deferred income tax liabilities, net	220		180
Long-term debt	622		638
Long-term income taxes payable	157		283
Other noncurrent liabilities	315		362
Total liabilities	5,064		5,543
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, 505 and 509 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	5		5
Additional paid-in capital	17		15
Retained earnings	13,022		12,588
Accumulated other comprehensive income (loss)	(141)		(299)
Total stockholders’ equity	12,903		12,309
Total liabilities and stockholders’ equity	$	17,967	$	17,852

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


Cognizant Technology Solutions			4			June 30, 2023 Form 10-Q

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(in millions, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues	$	4,886	$	4,906	$	9,698	$	9,732
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense shown separately below)	3,231		3,119		6,374		6,216
Selling, general and administrative expenses	830		883		1,665		1,745
Restructuring charges	117		—		117		—
Depreciation and amortization expense	131		144		263		287
Income from operations	577		760		1,279		1,484
Other income (expense), net:
Interest income	30		9		60		15
Interest expense	(10)		(3)		(19)		(5)
Foreign currency exchange gains (losses), net	(9)		(4)		3		(4)
Other, net	(1)		(1)		2		—
Total other income (expense), net	10		1		46		6
Income before provision for income taxes	587		761		1,325		1,490
Provision for income taxes	(124)		(184)		(282)		(354)
Income (loss) from equity method investments	—		—		—		4
Net income	$	463	$	577	$	1,043	$	1,140
Basic earnings per share	$	0.92	$	1.11	$	2.05	$	2.18
Diluted earnings per share	$	0.91	$	1.11	$	2.05	$	2.18
Weighted average number of common shares outstanding - Basic	506		520		508		522
Dilutive effect of shares issuable under stock-based compensation plans	1		1		—		1
Weighted average number of common shares outstanding - Diluted	507		521		508		523

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


Cognizant Technology Solutions			5			June 30, 2023 Form 10-Q

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


(in millions)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	463	$	577	$	1,043	$	1,140
Change in Accumulated other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	51		(193)		94		(230)
Unrealized gains and losses on cash flow hedges	30		(57)		64		(76)

Other comprehensive income (loss)	81		(250)		158		(306)
Comprehensive income	$	544	$	327	$	1,201	$	834

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


Cognizant Technology Solutions			6			June 30, 2023 Form 10-Q

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, 2022		509		$	5	$	15	$	12,588	$	(299)	$	12,309
Net income		—		—		—		580		—		580
Other comprehensive income (loss)		—		—		—		—		77		77
Common stock issued, stock-based compensation plans		2		—		23		—		—		23
Stock-based compensation expense		—		—		44		—		—		44
Repurchases of common stock		(4)		—		(60)		(163)		—		(223)
Dividends declared, $0.29 per share		—		—		—		(149)		—		(149)
Balance, March 31, 2023		507		5		22		12,856		(222)		12,661
Net income		—		—		—		463		—		463
Other comprehensive income (loss)		—		—		—		—		81		81
Common stock issued, stock-based compensation plans		1		—		18		—		—		18
Stock-based compensation expense		—		—		42		—		—		42
Repurchases of common stock		(3)		—		(65)		(150)		—		(215)
Dividends declared, $0.29 per share		—		—		—		(147)		—		(147)
Balance, June 30, 2023		505		$	5	$	17	$	13,022	$	(141)	$	12,903


(in millions)		Class A Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares		Amount
Balance, December 31, 2021		525		$	5	$	27	$	11,922	$	37	$	11,991
Net income		—		—		—		563		—		563
Other comprehensive income (loss)		—		—		—		—		(56)		(56)
Common stock issued, stock-based compensation plans		1		—		31		—		—		31
Stock-based compensation expense		—		—		56		—		—		56
Repurchases of common stock		(5)		—		(83)		(387)		—		(470)
Dividends declared, $0.27 per share		—		—		—		(142)		—		(142)
Balance, March 31, 2022		521		5		31		11,956		(19)		11,973
Net income		—		—		—		577		—		577
Other comprehensive income (loss)		—		—		—		—		(250)		(250)
Common stock issued, stock-based compensation plans		1		—		21		—		—		21
Stock-based compensation expense		—		—		89		—		—		89
Repurchases of common stock		(4)		—		(120)		(198)		—		(318)
Dividends declared, $0.27 per share		—		—		—		(142)		—		(142)
Balance, June 30, 2022		518		$	5	$	21	$	12,193	$	(269)	$	11,950

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


Cognizant Technology Solutions			7			June 30, 2023 Form 10-Q

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(in millions)	For the Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	1,043	$	1,140
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	273		287

Deferred income taxes	(113)		(74)
Stock-based compensation expense	86		145

Other	29		51
Changes in assets and liabilities, net of the effect of business combinations:
Trade accounts receivable, current	50		(251)
Other current and noncurrent assets	(96)		131
Accounts payable	(40)		(9)
Deferred revenues, current and noncurrent	(20)		(8)
Other current and noncurrent liabilities	(447)		(578)
Net cash provided by operating activities	765		834
Cash flows from investing activities:
Purchases of property and equipment	(166)		(163)
Purchases of available-for-sale investment securities	—		(513)
Proceeds from maturity or sale of available-for-sale investment securities	225		375
Purchases of held-to-maturity investment securities	(3)		(32)
Proceeds from maturity of held-to-maturity investment securities	18		30
Purchases of other investments	(199)		(256)
Proceeds from maturity or sale of other investments	234		769
Proceeds from sales of businesses	—		19
Payments for business combinations, net of cash acquired	(409)		—
Net cash (used in) provided by investing activities	(300)		229
Cash flows from financing activities:
Issuance of common stock under stock-based compensation plans	41		52


Repurchases of common stock	(436)		(792)
Repayment of Term Loan borrowings and finance lease and earnout obligations	(11)		(26)

Dividends paid	(298)		(284)
Net cash (used in) financing activities	(704)		(1,050)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	—		(37)
(Decrease) in cash, cash equivalents and restricted cash	(239)		(24)
Cash, cash equivalents and restricted cash beginning of year	2,294		1,792
Cash and cash equivalents, end of period	$	2,055	$	1,768

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


Cognizant Technology Solutions			8			June 30, 2023 Form 10-Q

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, 2022. 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 the business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of 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 the North America region relate to clients in the United States.


	Three Months Ended June 30, 2023										Six Months Ended June 30, 2023

(in millions)	FS		HS		P&R		CMT		Total		FS		HS		P&R		CMT		Total
Revenues
Geography:
North America	$	1,027	$	1,233	$	780	$	549	$	3,589	$	2,060	$	2,481	$	1,521	$	1,072	$	7,134
United Kingdom	155		44		137		137		473		317		81		269		284		951
Continental Europe	155		135		160		44		494		307		259		310		79		955
Europe - Total	310		179		297		181		967		624		340		579		363		1,906
Rest of World	126		28		100		76		330		255		52		195		156		658
Total	$	1,463	$	1,440	$	1,177	$	806	$	4,886	$	2,939	$	2,873	$	2,295	$	1,591	$	9,698

Service line:
Consulting and technology services	$	1,006	$	822	$	763	$	436	$	3,027	$	2,006	$	1,634	$	1,495	$	878	$	6,013
Outsourcing services	457		618		414		370		1,859		933		1,239		800		713		3,685
Total	$	1,463	$	1,440	$	1,177	$	806	$	4,886	$	2,939	$	2,873	$	2,295	$	1,591	$	9,698

Type of contract:
Time and materials	$	811	$	517	$	475	$	460	$	2,263	$	1,672	$	1,007	$	920	$	924	$	4,523
Fixed-price	608		655		612		305		2,180		1,153		1,305		1,197		598		4,253
Transaction or volume-based	44		268		90		41		443		114		561		178		69		922
Total	$	1,463	$	1,440	$	1,177	$	806	$	4,886	$	2,939	$	2,873	$	2,295	$	1,591	$	9,698


Cognizant Technology Solutions			9			June 30, 2023 Form 10-Q


	Three Months Ended June 30, 2022										Six Months Ended June 30, 2022

(in millions)	FS		HS		P&R		CMT		Total		FS		HS		P&R		CMT		Total
Revenues
Geography:
North America	$	1,104	$	1,210	$	770	$	572	$	3,656	$	2,184	$	2,405	$	1,531	$	1,105	$	7,225
United Kingdom	147		44		134		133		458		298		88		266		259		911
Continental Europe	143		126		143		33		445		300		246		288		70		904
Europe - Total	290		170		277		166		903		598		334		554		329		1,815
Rest of World	148		28		93		78		347		288		61		185		158		692
Total	$	1,542	$	1,408	$	1,140	$	816	$	4,906	$	3,070	$	2,800	$	2,270	$	1,592	$	9,732

Service line:
Consulting and technology services	$	1,078	$	805	$	753	$	465	$	3,101	$	2,135	$	1,609	$	1,507	$	913	$	6,164
Outsourcing services	464		603		387		351		1,805		935		1,191		763		679		3,568
Total	$	1,542	$	1,408	$	1,140	$	816	$	4,906	$	3,070	$	2,800	$	2,270	$	1,592	$	9,732

Type of contract:
Time and materials	$	894	$	505	$	471	$	471	$	2,341	$	1,784	$	999	$	938	$	919	$	4,640
Fixed-price	578		617		581		309		2,085		1,135		1,235		1,153		601		4,124
Transaction or volume-based	70		286		88		36		480		151		566		179		72		968
Total	$	1,542	$	1,408	$	1,140	$	816	$	4,906	$	3,070	$	2,800	$	2,270	$	1,592	$	9,732

Costs to Fulfill

The following table presents information related to the capitalized costs to fulfill for the six months ended June 30:


(in millions)	2023		2022
Beginning balance	$	265	$	394
Costs capitalized	27		19
Amortization expense	(43)		(55)

Ending balance	$	249	$	358

Costs to obtain contracts were immaterial for the periods disclosed.

Contract Balances

The table below shows movements in contract assets (current and noncurrent) for the six months ended June 30:


(in millions)	2023		2022
Beginning balance	$	326	$	310
Revenues recognized during the period but not billed	327		318
Amounts reclassified to trade accounts receivable	(296)		(243)
Amounts acquired in business combinations	9		—
Effect of foreign currency exchange movements	—		(7)
Ending balance	$	366	$	378


Cognizant Technology Solutions			10			June 30, 2023 Form 10-Q

The table below shows movements in the deferred revenue balances (current and noncurrent) for the six months ended June 30:


(in millions)	2023		2022
Beginning balance	$	417	$	443
Amounts billed but not recognized as revenues	277		385
Revenues recognized related to the beginning balance of deferred revenue	(299)		(388)
Amounts acquired in business combinations	13		—
Effect of foreign currency exchange movements	2		(8)
Ending balance	$	410	$	432

Revenues recognized during the six months ended June 30, 2023 for performance obligations satisfied or partially satisfied in previous periods were immaterial.

Remaining Performance Obligations

As of June 30, 2023, the aggregate amount of transaction price allocated to remaining performance obligations was $3,841 million, of which approximately 55% is expected to be recognized as revenues within 2 years and approximately 85% is expected to be recognized as revenues within 5 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 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 trade accounts receivable for the six months ended June 30:


(in millions)	2023		2022
Beginning balance	$	43	$	50
Credit loss expense (1)	9		—
Write-offs charged against the allowance	(15)		(7)

Ending balance	$	37	$	43

(1)Reported in "Selling, general and administrative expenses" in our unaudited consolidated statements of operations.


Note 3 — Business Combinations

Acquisitions completed during the six months ended June 30, 2023 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.

During the six months ended June 30, 2023, we acquired 100% ownership in each of the following:

certain net assets of OneSource Virtual, the professional and application management services business of OneSource Virtual, Inc. and OneSource Virtual (UK) Ltd., a leading provider of Workday services, solutions and products, acquired to complement our existing finance and human resources advisory implementation services related to Workday (acquired January 1, 2023), and


Cognizant Technology Solutions			11			June 30, 2023 Form 10-Q

Mobica, an IoT software engineering services provider, acquired to expand our IoT embedded software engineering capabilities (acquired March 10, 2023).

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


(in millions)	OneSource Virtual		Mobica		Total		Weighted Average Useful Life
Cash	$	—	$	20	$	20
Trade accounts receivable	—		10		10
Other current assets	4		8		12
Property and equipment and other assets	1		6		7

Non-deductible goodwill	18		202		220
Tax-deductible goodwill	88		—		88
Customer relationship assets	11		120		131		10.9 years


Current liabilities	(17)		(9)		(26)
Noncurrent liabilities	(1)		(32)		(33)
Purchase price	$	104	$	325	$	429

Goodwill from our acquisition of OneSource Virtual is expected to benefit all of our reportable segments and has been allocated as such. Goodwill from our acquisition of Mobica has been allocated to our Financial Services, Products and Resources and Communications, Media and Technology segments. 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. 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

In the second quarter of 2023, we initiated the NextGen program aimed at simplifying our operating model, optimizing corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment.

The total costs related to our NextGen program are reported in "Restructuring charges" in our unaudited 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 separately disclosed in our segment reporting as “unallocated costs”. See Note 13.


(in millions)	Three and Six Months Ended June 30, 2023




Employee separation costs	$	78

Facility exit costs (1)	37
Third party and other costs (2)	2
Total restructuring charges	$	117

(1)Facility exit costs include lease restructuring of $26 million, related accelerated depreciation charges of $10 million and impairment of long-lived assets of $1 million.

(2)Third party and other costs include certain non-facility related asset impairments, as well as legal and other professional services fees directly related to the NextGen program.

We expect to record total costs of approximately $350 million in connection with the NextGen program, consisting of approximately $150 million of employee separation costs and $200 million of facility exit and other costs.


Cognizant Technology Solutions			12			June 30, 2023 Form 10-Q

Changes in our accrued employee separation costs included in "Accrued expenses and other current liabilities" in our consolidated statements of financial position are presented in the table below for the six months ended June 30.


(in millions)	2023

Beginning balance	$	—
Employee separation costs accrued	78
Payments made	(27)
Ending balance	$	51

There were no restructuring charges during 2022.


Note 5 — Investments

Our investments were as follows:


(in millions)	June 30, 2023		December 31, 2022
Short-term investments:
Equity investment security	$	10	$	10
Available-for-sale investment securities	—		225
Held-to-maturity investment securities	9		24
Time deposits	21		51
Total short-term investments	$	40	$	310


Long-term investments:
Other investments	$	65	$	70
Restricted time deposits(1)	360		357
Total long-term investments	$	425	$	427

(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 six months ended June 30, 2023 and 2022.

Available-for-Sale Investment Securities

As of June 30, 2023, we had no available-for-sale investment securities. As of December 31, 2022, the amortized cost and fair value of the available-for-sale investments were each $225 million. Our available-for-sale investment securities consisted of highly rated U.S. dollar denominated investments in certificates of deposit and commercial paper maturing within one year. Unrealized losses were immaterial as of December 31, 2022. There were no realized gains or losses related to the available-for-sale investment securities during the six months ended June 30, 2023 and 2022. There were no sales of available-for sale investment securities during the six months ended June 30, 2023 and 2022.

Held-to-Maturity Investment Securities

Our held-to-maturity investment securities consist of Indian rupee denominated investments in commercial paper and international corporate bonds. The basis for the measurement of fair value of the held-to-maturity investment securities is Level 2 in the fair value hierarchy.

The amortized cost and fair value of corporate debt securities as of June 30, 2023 and December 31, 2022 were each $3 million and $12 million, respectively. The amortized cost and fair value of commercial paper securities as of June 30, 2023 and December 31, 2022 were each $6 million and $12 million, respectively.

As of June 30, 2023, $3 million of corporate debt securities and $3 million of commercial paper 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, 2022, $12 million of corporate debt securities and $12 million of commercial paper 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.


Cognizant Technology Solutions			13			June 30, 2023 Form 10-Q

The securities in our portfolio are highly rated and short-term in nature. As of June 30, 2023, the corporate debt securities were rated AAA and the commercial paper securities were rated A-1+ by CRISIL, an Indian subsidiary of S&P Global.

Other Investments

As of June 30, 2023 and December 31, 2022, we had equity method investments of $63 million and $68 million, respectively, primarily related to an investment in the technology sector. As of each of June 30, 2023 and December 31, 2022, we had equity securities without a readily determinable fair value of $2 million.


Note 6 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:


(in millions)	June 30, 2023		December 31, 2022
Compensation and benefits	$	1,305	$	1,446
Customer volume and other incentives	247		222

Income taxes	45		217
Professional fees	154		165
Other	412		357
Total accrued expenses and other current liabilities	$	2,163	$	2,407


Note 7 — Debt

In 2022, we entered into the Credit Agreement providing for the $650 million Term Loan and a $1,850 million unsecured revolving credit facility, which are each due to mature in October 2027. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan beginning in December 2023.

The Credit Agreement requires interest to be paid, at our option, at either the Term Benchmark, Adjusted Daily Simple RFR or the ABR 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 Term Benchmark loans and RFR loans and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Term Benchmark loans and RFR loans will be determined quarterly and 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. Since issuance of the Term Loan, the Term Loan has been a Term Benchmark 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 of the Credit Agreement as of June 30, 2023.

In March 2023, our India subsidiary renewed its working capital facility at 15 billion Indian rupees ($183 million at the June 30, 2023 exchange rate). The facility 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. As of June 30, 2023, we have not borrowed funds under this facility or any of its predecessor facilities.

Short-term Debt

As of June 30, 2023 and December 31, 2022, we had $24 million and $8 million, respectively of short-term debt related to current maturities of our Term Loan.


Cognizant Technology Solutions			14			June 30, 2023 Form 10-Q

Long-term Debt

The following table summarizes the long-term debt balances as of:


(in millions)	June 30, 2023		December 31, 2022

Term Loan	$	650	$	650
Less:
Current maturities	(24)		(8)
Unamortized deferred financing costs	(4)		(4)
Long-term debt, net of current maturities	$	622	$	638

The carrying value of our debt approximated its fair value as of June 30, 2023 and December 31, 2022.


Note 8 — Income Taxes

Our effective income tax rates were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Effective income tax rate	21.1	%	24.2	%	21.3	%	23.8	%

In the second quarter of 2023, we reached a settlement related to U.S. state income taxes resulting in a discrete income tax benefit, which decreased our effective income tax rate for the three months ended June 30, 2023 as compared to the same period in 2022.

In March 2023, we reached an agreement with the IRS, which settled tax years 2017 and 2018. As a result of this settlement, in the first quarter of 2023, we recorded a reduction of $42 million to our uncertain tax position balance, which resulted in a $25 million discrete benefit to the provision for income taxes and a $17 million adjustment to our current income tax balance sheet accounts. Tax years that remain subject to examination by the IRS are 2019 onward.

The effective tax rate for the six months ended June 30, 2023 decreased primarily as a result of the discrete benefits related to the two settlements described above.

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 ($402 million at the June 30, 2023 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 each of June 30, 2023 and December 31, 2022, the deposit with the ITD was $60 million, presented in "Other noncurrent assets". 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 June 30, 2023 and December 31, 2022, the balance of deposits under lien was 30 billion Indian rupees, including previously earned interest, or $360 million and $357 million, respectively, as presented in "Long-term investments". 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 transaction.

In April 2020, we received a formal assessment from the ITD on the 2016 transaction, which is consistent with the ITD's previous assertions. In June 2020, we filed an appeal against this assessment to the CITA. In March 2022, we received a negative decision from the CITA. The matter is currently pending before the Income Tax Appellate Tribunal.

We continue to believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions and we continue to defend our positions with respect to both matters. Accordingly, we have not recorded any reserves for these matters as of June 30, 2023.


Cognizant Technology Solutions			15			June 30, 2023 Form 10-Q


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 the 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 the 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 the 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)		June 30, 2023				December 31, 2022
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	$	12	$	—	$	1	$	—
	Other noncurrent assets	15		—		1		—
	Accrued expenses and other current liabilities	—		10		—		53
	Other noncurrent liabilities	—		—		—		17
	Total	27		10		2		70
Foreign exchange forward contracts – Not designated as hedging instruments	Other current assets	8		—		4		—
	Accrued expenses and other current liabilities	—		1		—		5
	Total	8		1		4		5
Total		$	35	$	11	$	6	$	75

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 2023, 2024 and the first six months of 2025. 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 June 30, 2023, we estimate that $2 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.


Cognizant Technology Solutions			16			June 30, 2023 Form 10-Q

The notional value of the outstanding contracts by year of maturity was as follows:


(in millions)	June 30, 2023		December 31, 2022
2023	$	1,075	$	1,865
2024	1,420		1,010
2025	420		—
Total notional value of contracts outstanding (1)	$	2,915	$	2,875

(1)Includes $40 million notional value of option contracts as of June 30, 2023, with the remaining notional value related to forward contracts. There were no option contracts outstanding as of December 31, 2022.

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 June 30:


(in millions)	Change in Derivative Gains and Losses Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion)				Location of Net (Losses) and Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)	Net (Losses) and Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)
	2023		2022			2023		2022
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments	$	35	$	(66)	Cost of revenues	$	(4)	$	5
					SG&A expenses	(1)		1
					Total	$	(5)	$	6

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


(in millions)	Change in Derivative Gains and Losses Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion)				Location of Net (Losses) Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)	Net (Losses) Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion)
	2023		2022			2023		2022
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments	$	68	$	(76)	Cost of revenues	$	(15)	$	17
					SG&A expenses	(2)		2
					Total	$	(17)	$	19

The activity related to the change in net unrealized gains and losses on the 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 the third quarter of 2023. 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 the outstanding foreign exchange forward contracts not designated as hedging instruments was as follows:


(in millions)	June 30, 2023				December 31, 2022
	Notional		Fair Value		Notional		Fair Value
Contracts outstanding	$	1,511	$	7	$	1,433	$	(1)


Cognizant Technology Solutions			17			June 30, 2023 Form 10-Q

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


	Location of Net (Losses) Gains on Derivative Instruments	Amount of Net (Losses) Gains on Derivative Instruments
		Three Months Ended June 30,				Six Months Ended June 30,
(in millions)		2023		2022		2023		2022
Foreign exchange forward contracts – Not designated as hedging instruments	Foreign currency exchange gains (losses), net	$	(14)	$	32	$	(24)	$	45

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


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. 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.

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 the financial assets and (liabilities) measured at fair value on a recurring basis as of June 30, 2023:


(in millions)	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	129	$	—	$	—	$	129
Time deposits	—		616		—		616

Short-term investments:
Time deposits	—		21		—		21
Equity investment security	10		—		—		10


Other current assets:
Foreign exchange forward contracts	—		20		—		20
Long-term investments:
Restricted time deposits(1)	—		360		—		360
Other noncurrent assets
Foreign exchange forward contracts	—		15		—		15
Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(11)		—		(11)
Contingent consideration liabilities	—		—		(26)		(26)

(1)See Note 8.


Cognizant Technology Solutions			18			June 30, 2023 Form 10-Q

The following table summarizes the financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2022:


(in millions)	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	367	$	—	$	—	$	367
Time deposits	—		359		—		359
Commercial paper	—		512		—		512
Short-term investments:
Time deposits	—		51		—		51
Equity investment security	10		—		—		10
Available-for-sale investment securities:
Certificates of deposit and commercial paper	—		225		—		225
Other current assets:
Foreign exchange forward contracts	—		5		—		5
Long-term investments:
Restricted time deposits(1)	—		357		—		357
Other noncurrent assets:
Foreign exchange forward contracts	—		1		—		1
Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(58)		—		(58)
Contingent consideration liabilities	—		—		(9)		(9)
Other noncurrent liabilities:
Foreign exchange forward contracts	—		(17)		—		(17)
Contingent consideration liabilities	—		—		(13)		(13)

(1)See Note 8.

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


(in millions)	June 30, 2023		June 30, 2022
Beginning balance	$	22	$	35
Initial measurement recognized at acquisition	—		1
Change in fair value recognized in SG&A expenses	13		5
Payments	(9)		(4)
Ending balance	$	26	$	37

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 investment 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 certificates of deposit and 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 June 30, 2023 and December 31, 2022.

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 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 six months ended June 30, 2023 and the year ended December 31, 2022, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.


Cognizant Technology Solutions			19			June 30, 2023 Form 10-Q


Note 11 — Accumulated Other Comprehensive Income (Loss)

Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three and six months ended June 30, 2023:


	Three Months						Six 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	$	(215)	$	10	$	(205)	$	(256)	$	8	$	(248)
Change in foreign currency translation adjustments	55		(4)		51		96		(2)		94
Ending balance	$	(160)	$	6	$	(154)	$	(160)	$	6	$	(154)
Unrealized gains and losses on cash flow hedges:
Beginning balance	$	(23)	$	6	$	(17)	$	(68)	$	17	$	(51)
Unrealized gains arising during the period	35		(9)		26		68		(17)		51
Reclassifications of net losses to:
Cost of revenues	4		—		4		15		(3)		12
SG&A expenses	1		(1)		—		2		(1)		1
Net change	40		(10)		30		85		(21)		64
Ending balance	$	17	$	(4)	$	13	$	17	$	(4)	$	13
Accumulated other comprehensive income (loss):
Beginning balance	$	(238)	$	16	$	(222)	$	(324)	$	25	$	(299)
Other comprehensive income (loss)	95		(14)		81		181		(23)		158
Ending balance	$	(143)	$	2	$	(141)	$	(143)	$	2	$	(141)

Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three and six months ended June 30, 2022:


	Three Months						Six 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	$	(60)	$	3	$	(57)	$	(22)	$	2	$	(20)
Change in foreign currency translation adjustments	(197)		4		(193)		(235)		5		(230)
Ending balance	$	(257)	$	7	$	(250)	$	(257)	$	7	$	(250)
Unrealized gains and losses on cash flow hedges:
Beginning balance	$	48	$	(10)	$	38	$	71	$	(14)	$	57
Unrealized (losses) arising during the period	(66)		14		(52)		(76)		16		(60)
Reclassifications of net (gains) to:
Cost of revenues	(5)		1		(4)		(17)		3		(14)
SG&A expenses	(1)		—		(1)		(2)		—		(2)
Net change	(72)		15		(57)		(95)		19		(76)
Ending balance	$	(24)	$	5	$	(19)	$	(24)	$	5	$	(19)
Accumulated other comprehensive income (loss):
Beginning balance	$	(12)	$	(7)	$	(19)	$	49	$	(12)	$	37
Other comprehensive income (loss)	(269)		19		(250)		(330)		24		(306)
Ending balance	$	(281)	$	12	$	(269)	$	(281)	$	12	$	(269)


Cognizant Technology Solutions			20			June 30, 2023 Form 10-Q


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 DTSA 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. On May 25, 2023, the Second Circuit issued an opinion affirming in part and vacating in part the judgment of the USDC-SDNY and remanding the case for further proceedings consistent with its opinion. The Second Circuit affirmed the judgment in all respects on liability but vacated the $570 million award that had been based on avoided development costs under the DTSA, and it remanded the case to the USDC-SDNY for further evaluation of damages. We will not record any 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 SCI’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 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 April 26, 2017, 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, May 10, 2017 and March 11, 2019, four additional putative shareholder derivative complaints were filed in the USDC-NJ, naming us and certain of our current and former directors and officers at that time as defendants. These actions were consolidated in an order dated May 14, 2019. On August 3, 2020, lead plaintiffs filed a consolidated amended complaint. The consolidated amended complaint asserts claims similar to those in the previously-filed putative shareholder derivative actions. On February 14, 2022, we and certain of our current and former directors and officers moved to dismiss the consolidated amended complaint. On September 27, 2022, the USDC-NJ granted those motions and dismissed the consolidated amended complaint in its entirety with prejudice. Plaintiffs filed a notice of appeal on October 27, 2022.


Cognizant Technology Solutions			21			June 30, 2023 Form 10-Q

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 March 31, 2022, we and certain of our current and former directors and officers moved to dismiss the complaint. On November 30, 2022, the USDC-NJ denied without prejudice those motions. The USDC-NJ ordered the parties to conduct limited discovery related to the issue of whether our board of directors wrongfully refused the plaintiff’s earlier litigation demand and, after the conclusion of such limited discovery, to file targeted motions for summary judgment on the issue of wrongful refusal.

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 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. 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.


Cognizant Technology Solutions			22			June 30, 2023 Form 10-Q


Note 13 — Segment Information

We have seven industry-based operating segments, which are aggregated into four reportable business segments:

Financial Services, which consists of the banking and insurance operating segments;
Health Sciences, which consists of a single operating segment of the same name;
Products and Resources, which consists of the retail and consumer goods; manufacturing, logistics, energy, and utilities; and travel and hospitality operating segments; and
Communications, Media and Technology, which consists of a single operating segment of the same name.

Our segments are industry-based, and as such, we report revenue from clients in the segment with which our clients are most closely aligned. 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 the operating segments may affect revenues and operating expenses to differing degrees.

In the first quarter of 2023, we made certain changes to the internal measurement of segment operating profit for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to reflect a more complete cost of delivery. Specifically, segment operating profit now includes an allocation of both SG&A costs related to our integrated practices and the excess or shortfall of incentive-based compensation for commercial and delivery employees as compared to target, which were previously included in "unallocated costs." We have reported 2023 segment operating profits using the new allocation methodology and have recast the 2022 results to conform to the new methodology.

Corporate expenses, expenses related to our NextGen program, a portion of depreciation and amortization and the impact of the settlements of the 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, we do not disclose assets by segment as a significant portion of the assets is used interchangeably among the segments and the chief operating decision maker does not review such information.

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

Segment operating profits by reportable segment were as follows for the three and six months ended June 30:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2023		2022		2023		2022
Financial Services	$	273	$	327	$	579	$	645
Health Sciences	352		298		679		594
Products and Resources	248		254		463		499
Communications, Media and Technology	139		203		297		391
Total segment operating profit	1,012		1,082		2,018		2,129
Less: unallocated costs	435		322		739		645
Income from operations	$	577	$	760	$	1,279	$	1,484


Cognizant Technology Solutions			23			June 30, 2023 Form 10-Q

Geographic Area Information

Long-lived assets by geographic area are as follows:


	As of
(in millions)	June 30, 2023		December 31, 2022
Long-lived Assets: (1)
North America(2)	$	353	$	354
Europe	99		86
Rest of World (3)	635		661
Total	$	1,087	$	1,101

(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 August 1, 2023, the Board of Directors approved the Company's declaration of a $0.29 per share dividend with a record date of August 21, 2023 and a payment date of August 29, 2023.


Cognizant Technology Solutions			24			June 30, 2023 Form 10-Q

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