Table of Contents

   

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   
FORM 10-Q
   
☒Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2017March 31, 2018
☐Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from                      to                     
Commission File Number 0-24429
   
cognizantcoverlogo.jpg
 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
   
Delaware 13-3728359
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
  
Glenpointe Centre West
500 Frank W. Burr Blvd.
Teaneck, New Jersey
 07666
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (201) 801-0233
   
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No:  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No:  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒Accelerated filer☐
    
Non-accelerated filer☐  (Do not check if a smaller reporting company)Smaller reporting company☐
    
  Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  ☒
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of July 28, 2017:April 30, 2018:
Class Number of Shares
Class A Common Stock, par value $.01 per share 590,622,691585,898,903

   
Table of Contents

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
TABLE OF CONTENTS
 
  Page
PART I.
FINANCIAL INFORMATION
1
   
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
1
   
 
Consolidated Statements of Financial Position (Unaudited) as of June 30, 2017March 31, 2018 and December 31, 20162017
1
   
 
Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30,March 31, 2018 and 2017 and 2016 and for the Six Months Ended June 30, 2017 and 2016
2
   
 
Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended June 30,March 31, 2018 and 2017 and 2016 and for the Six Months Ended June 30, 2017 and 2016
3
Consolidated Statements of Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2018 and 2017
4
   
 
Consolidated Statements of Cash Flows (Unaudited) for the SixThree Months Ended June 30,March 31, 2018 and 2017 and 2016
45
   
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
56
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2532
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
4748
   
Item 4.
Controls and Procedures
48
   
PART II.
OTHER INFORMATION
5049
   
Item 1.
Legal Proceedings
5049
   
Item 1A.
Risk Factors
5149
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
5250
   
Item 6.
Exhibits
5451
  
SIGNATURES
5552

Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.    Condensed     Consolidated Financial Statements (Unaudited).
 
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in millions, except par values)
June 30,  
 2017
December 31, 
 2016		March 31,  
 2018
December 31, 
 2017
Assets





Current assets:





Cash and cash equivalents$1,157

$2,034
$1,440

$1,925
Short-term investments3,221

3,135
3,390

3,131
Trade accounts receivable, net of allowances of $64 and $48, respectively2,680

2,556
Trade accounts receivable, net of allowances of $66 and $65, respectively3,145

2,865
Unbilled accounts receivable409

349
—

357
Restricted cash159
 —
Other current assets632

526
856

833
Total current assets8,099

8,600
8,990

9,111
Property and equipment, net1,284

1,311
1,333

1,324
Goodwill2,576

2,554
2,713

2,704
Intangible assets, net894

951
955

981
Deferred income tax assets, net457

425
394

418
Long-term investments198
 62
83
 235
Other noncurrent assets430

359
577

448
Total assets$13,938

$14,262
$15,045

$15,221
Liabilities and Stockholders’ Equity





Current liabilities:





Accounts payable$179

$175
$293

$210
Deferred revenue337

306
360

383
Short-term debt244

81
100

175
Accrued expenses and other current liabilities1,655

1,856
1,716

2,071
Total current liabilities2,415

2,418
2,469

2,839
Deferred revenue, noncurrent133

151
70

104
Deferred income tax liabilities, net5

6
113

146
Long-term debt747

797
673

698
Long-term income taxes payable533
 584
Other noncurrent liabilities155

162
199

181
Total liabilities3,455

3,534
4,057

4,552
Commitments and contingencies (See Note 11)

 

 
Stockholders’ equity:      
Preferred stock, $0.10 par value, 15.0 shares authorized, none issued—
 —
—
 —
Class A common stock, $0.01 par value, 1,000 shares authorized, 590 and 608 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively6
 6
Class A common stock, $0.01 par value, 1,000 shares authorized, 586 and 588 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively6
 6
Additional paid-in capital128
 358
63
 49
Retained earnings10,316
 10,478
10,856
 10,544
Accumulated other comprehensive income (loss)33
 (114)63
 70
Total stockholders’ equity10,483

10,728
10,988

10,669
Total liabilities and stockholders’ equity$13,938

$14,262
$15,045

$15,221
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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,		Three Months Ended 
 March 31,
2017 2016 2017 20162018 2017
Revenues$3,670

$3,370

$7,216

$6,572
$3,912

$3,546
Operating expenses:









Cost of revenues (exclusive of depreciation and amortization expense shown separately below)2,261

2,038

4,455

3,953
2,401

2,194
Selling, general and administrative expenses709

654

1,395

1,300
711

686
Depreciation and amortization expense94

87

190

174
107

96
Income from operations606

591

1,176

1,145
693

570
Other income (expense), net:









Interest income31

28

63

59
41

32
Interest expense(6)
(5)
(12)
(10)(6)
(6)
Foreign currency exchange gains (losses), net5

(20)
57

(11)(31)
52
Other, net(1)
1

—

1
—

1
Total other income (expense), net29

4

108

39
4

79
Income before provision for income taxes635

595

1,284

1,184
697

649
Provision for income taxes(165)
(343)
(257)
(491)(177)
(92)
Income from equity method investment—
 —
 —
 —
Income from equity method investments—
 —
Net income$470

$252

$1,027

$693
$520

$557
Basic earnings per share$0.80

$0.42

$1.72

$1.14
$0.89

$0.92
Diluted earnings per share$0.80

$0.41

$1.71

$1.14
$0.88

$0.92
Weighted average number of common shares outstanding - Basic589

606

597

607
587

605
Dilutive effect of shares issuable under stock-based compensation plans2
 3
 2
 3
2
 2
Weighted average number of common shares outstanding - Diluted591

609

599

610
589

607
Dividends declared per common share$0.15
 $—
 $0.15
 $—
$0.20
 $—
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
 
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended 
 March 31,
2017 2016 2017 20162018 2017
Net income$470
 $252
 $1,027
 $693
$520
 $557
Other comprehensive income (loss), net of tax:          
Foreign currency translation adjustments50
 (29) 67
 (9)37
 17
Change in unrealized gains and losses on cash flow hedges, net of taxes(1) (8) 78
 12
(36) 79
Change in unrealized gains and losses on available-for-sale securities, net of taxes1
 3
 2
 8
(7) 1
Other comprehensive income (loss)50
 (34) 147
 11
(6) 97
Comprehensive income$520
 $218
 $1,174
 $704
$514
 $654
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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, 2017 588
 $6
 $49
 $10,544
 $70
 $10,669
Cumulative effect of changes in accounting principle(1)
 —
 —
 —
 122
 (1) 121
Net income —
 —
 —
 520
 —
 520
Other comprehensive income (loss) —
 —
 —
 —
 (6) (6)
Common stock issued, stock-based compensation plans 2
 —
 60
 —
 —
 60
Stock-based compensation expense —
 —
 59
 —
 —
 59
Repurchases of common stock (4) —
 (105) (211) —
 (316)
Dividends —
 —
 —
 (119) —
 (119)
Balance, March 31, 2018 586
 $6
 $63
 $10,856
 $63
 $10,988
             
  Class A Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
  Total
 Shares     Amount 
Balance, December 31, 2016 608
 $6
 $358
 $10,478
 $(114) $10,728
Net income —
 —
 —
 557
 —
 557
Other comprehensive income (loss) —
 —
 —
 —
 97
 97
Common stock issued, stock-based compensation plans 3
 —
 61
 —
 —
 61
Stock-based compensation expense —
 —
 54
 —
 —
 54
Repurchases of common stock (22) —
 (414) (1,100) —
 (1,514)
Balance, March 31, 2017 589
 $6
 $59
 $9,935
 $(17) $9,983
(1)
Reflects the adoption of accounting standards as described in Note 1.            


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


COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)

For the Six Months Ended 
 June 30,		For the Three Months Ended 
 March 31,
2017 20162018 2017
Cash flows from operating activities:      
Net income$1,027
 $693
$520
 $557
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization207
 181
117
 104
Provision for doubtful accounts17
 4
2
 9
Deferred income taxes8
 26
2
 9
Stock-based compensation expense109
 116
59
 54
Other(63) 10
23
 (55)
Changes in assets and liabilities:      
Trade accounts receivable(103) (187)(273) (86)
Other current assets(81) (120)352
 20
Other noncurrent assets(46) (6)(105) (31)
Accounts payable2
 6
86
 13
Deferred revenues, current and noncurrent10
 2
(2) 67
Other current and noncurrent liabilities(289) (287)(393) (384)
Net cash provided by operating activities798
 438
388
 277
Cash flows from investing activities:      
Purchases of property and equipment(126) (139)(96) (66)
Purchases of available-for-sale investment securities(1,622) (2,578)(300) (1,176)
Proceeds from maturity or sale of available-for-sale investment securities1,936
 2,572
193
 1,488
Purchases of held-to-maturity investment securities(662) —
(222) (349)
Proceeds from maturity of held-to-maturity investment securities50
 —
171
 15
Purchases of other investments(213) (355)(31) (59)
Proceeds from maturity or sale of other investments345
 391
59
 244
Payments for business combinations, net of cash acquired and equity method investment(6) (151)
Net cash (used in) investing activities(298) (260)
Payments for business combinations, net of cash acquired(1) (6)
Net cash (used in) provided by investing activities(227) 91
Cash flows from financing activities:      
Issuance of common stock under stock-based compensation plans104
 91
60
 61
Repurchases of common stock(1,544) (335)(316) (1,514)
Repayment of term loan borrowings and capital lease obligations(42) (27)(39) (21)
Net change in notes outstanding under the revolving credit facility150
 (350)(75) 350
Dividends paid(89) —
(118) —
Net cash (used in) financing activities(1,421) (621)(488) (1,124)
Effect of exchange rate changes on cash and cash equivalents44
 2
(Decrease) in cash and cash equivalents(877) (441)
Effect of exchange rate changes on cash, cash equivalents and restricted cash1
 30
(Decrease) in cash, cash equivalents and restricted cash(326) (726)
Cash and cash equivalents, beginning of year2,034
 2,125
1,925
 2,034
Cash and cash equivalents, end of period$1,157
 $1,684
Cash, cash equivalents and restricted cash, end of period$1,599
 $1,308
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Interim Condensed 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 condensed consolidated financial statements included herein in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The accompanying unaudited condensed 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, 2016.2017. In our opinion, all adjustments considered necessary for a fair statement of the accompanying unaudited condensed 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.

Recently Adopted Accounting Pronouncements.Pronouncements
Date Issued and TopicDate Adopted and MethodDescriptionImpact
May 2014

Revenue
January 1, 2018

Modified Retrospective
The new standard, as amended, sets forth a single comprehensive model for recognizing and reporting revenues. The standard also requires additional financial statement disclosures that enable users to understand the nature, amount, timing and uncertainty of revenues and cash flows relating to customer contracts. The standard allows for two methods of adoption: the full retrospective adoption, which requires the standard to be applied to each prior period presented, or the modified retrospective adoption, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption.
See Note 3 for the impact of adoption of this standard.
November 2016

Statement of Cash Flows
January 1, 2018

Retrospective

This update requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. It also requires a reconciliation of such totals to the amounts on the statement of financial position and disclosure as to the nature of the restrictions.

As of March 31, 2018, we had a restricted cash balance of $159 million. There were no restricted cash balances in prior periods. Accordingly, the adoption of this update resulted in an increase to the ending cash, cash equivalents and restricted cash balance presented on our unaudited consolidated statement of cash flows for the three months ended March 31, 2018.
February 2018

Income Statement - Reporting Comprehensive Income
January 1, 2018

In the period of adoption
This update provides an option for entities to reclassify stranded tax effects caused by the newly-enacted Tax Cuts and Jobs Act, or Tax Reform Act, from accumulated other comprehensive income to retained earnings.We have early adopted this update as of January 1, 2018. The adoption resulted in a decrease of $1 million in accumulated other comprehensive income and a corresponding increase of $1 million to opening retained earnings.

In March 2016, the Financial Accounting Standards Board, or FASB, issued an update to the standard on derivatives and hedging, which clarifies the effect of derivative contract novations on existing hedge accounting relationships. As it relates to derivative instruments, novation refers to replacing one of the parties to a derivative instrument with a new party, which may occur for a variety of reasons such as: financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, or because of laws or regulatory requirements. The update clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedge accounting relationship provided that all other hedge accounting criteria continue to be met. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2017. We adopted this update beginning January 1, 2017. The adoption of this update did not have any effect on our financial condition or results of operations.

In March 2016, the FASB issued an update to the standard on stock compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for excess tax benefits and deficiencies, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2017. We adopted this update prospectively beginning January 1, 2017. For the three and six months ended June 30, 2017, we recognized net excess tax benefits on stock-based compensation awards in our income tax provision in the amount of $5 million and $11 million or approximately $0.01 and $0.02 per share, respectively. Additionally, the excess tax benefits and deficiencies have been presentedin operating activities in the statement of cash flows in our consolidated financial statements and the prior period presentation has been adjusted to conform to the current period.

In January 2017, the FASB issued an update to the standard on business combinations, which clarifies the definition of a business. The update requires a business to include at least an input and a substantive process that together significantly contribute to the ability to create outputs. The update also states that the definition of a business is not met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2018 with early adoption permitted. We early adopted this update prospectively beginning January 1, 2017. The adoption of this update did not have a material effect on our financial condition or results of operations.

In January 2017, the FASB issued an update to the standard on goodwill, which eliminates the need to calculate the implied fair value of goodwill when an impairment is indicated. The update states that goodwill impairment is measured as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2020 with early adoption permitted. We early adopted this update prospectively beginning January 1, 2017. The adoption of this update did not have any effect on our financial condition or results of operations.


New Accounting Pronouncements.Pronouncements

In May 2014, the FASB issued a standard on revenue from contracts with customers. In 2016, the FASB issued five amendments to the new standard. The new standard, as amended, sets forth a single comprehensive model for recognizing and reporting revenues. The standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenues and cash flows relating to customer contracts. The standard is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2018. The standard allows for two methods of adoption: the full retrospective adoption, which requires the standard to be applied to each prior period presented, or the modified retrospective adoption, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. We intend to adopt the standard using the modified retrospective method effective January 1, 2018. While we are currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures, we believe the most significant impacts primarily relate to changes in the method used to measure progress on our application maintenance and business process services fixed-price contracts, capitalization and amortization of costs to acquire and fulfill a contract, as well as the timing of revenue recognition on our software license contracts. Due to the complexity of certain of our contracts, the actual revenue recognition treatment required under the standard will be dependent on each contract's specific terms. The final impact of adoption of the new standard will be based on active contracts as of December 31, 2017. Many of our contracts are short-term in nature and may be renewed, terminated or otherwise modified after June 30, 2017. Additionally, new contracts will be signed during the second half of 2017. Thus, we are unable to provide a quantification of the impact of adoption of the new standard at this time.

In January 2016, the FASB issued an update to the standard on financial instruments. The update significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements.  The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2018. Upon adoption, entities will be required to make a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption.  Early adoption of certain sections of this update is permitted. We are currently evaluating the effect the update will have on our consolidated financial statements and related disclosures.

In
Date Issued and TopicEffective DateDescriptionImpact
February 2016 the FASB issued a standard on lease accounting. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2019. Upon adoption, entities will be required to use a modified retrospective transition which provides for certain practical expedients. Entities are required to apply the new standard at the beginning of the earliest comparative period presented. Early adoption of this new standard is permitted. We are currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures. We expect the requirement to recognize a right-of-use asset and a lease liability for operating leases to have a material impact on the presentation of our consolidated statements of financial position.

In August 2016, the FASB issued an update to the standard on the statement of cash flows, which clarifies the presentation and classification of certain cash receipts and cash payments. The update addresses specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2018. Early adoption is permitted, including adoption in an interim period, provided that all of the updates are adopted in the same period. Upon adoption, entities will be required to use a retrospective transition approach. We are currently evaluating the impact of the new guidance on our consolidated financial statements. The adoption of this guidance will affect financial statement presentation only and will have no effect on our financial position or results of operations.

In March 2017, the FASB issued an update to shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on after January 1, 2019 with early adoption permitted. Upon adoption, entities will be required to use a modified retrospective transition with the cumulative effect adjustment recognized to retained earnings as of the beginning of the period of adoption. We are currently evaluating the effect the amendments will have on our consolidated financial statements and related disclosures.


In May 2017, the FASB issued an update to amend the scope of modification accounting for share-based payment arrangements. The amendment requires that an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification are the same immediately before and after the modification. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on after January 1, 2018 with early adoption permitted. Upon adoption, entities will be required to apply this guidance prospectively to an award modified on or after the adoption date. We are currently evaluating the effect the amendments will have on our consolidated financial statements and related disclosures.


Leases
January 1, 2019The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. The methods of adoption are in the process of being finalized by the Financial Accounting Standards Board.We expect the requirement to recognize a right-of-use asset and a lease liability for operating leases to have a material impact on the presentation of our consolidated statements of financial position.
March 2017

Nonrefundable Fees and Other Costs		January 1, 2019This update shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount. Upon adoption, entities will be required to use a modified retrospective transition with the cumulative effect adjustment recognized to retained earnings as of the beginning of the period of adoption.We are currently evaluating the effect the amendments will have on our consolidated financial statements and related disclosures.
Note 2 — Internal Investigation and Related Matters

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation is also examining various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the U.S. Department of Justice, or DOJ, and Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 20102009 and 20152016 that may have been improper. During the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of such payments that had been previously capitalized that should have been expensed. These out-of-period corrections and the other $2 million in potentially improper payments were not material to any previously issued financial statements. The investigation is also examining various other payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. There were no adjustments recorded during 2018 and 2017 related to the six months ended June 30, 2017.amounts under investigation.
Note 3 — Revenues

Note 3 — Realignment ChargesAdoption of ASC Topic 606, “Revenue from Contracts with Customers”
In 2017,
On January 1, 2018, we beganadopted ASC Topic 606, “Revenue from Contracts with Customers,” or the New Revenue Standard, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For contracts that were modified before the effective date, the Company aggregated the effect of all contract modifications prior to identifying performance obligations and allocating transaction price in accordance with the practical expedient ASC 606-10-65-1-(f)-4. Upon adoption of the New Revenue Standard on January 1, 2018, we recorded a realignmentnet increase to opening retained earnings of approximately $121 million, after a tax impact of $37 million. The impact of adoption primarily relates to (1) changes in the method used to measure progress on our fixed-price application maintenance, consulting and business process services contracts, (2) the longer period of amortization for costs to acceleratefulfill a contract, (3) the shifttiming of revenue recognition and allocation of purchase price on our software license contracts, (4) the reclassification of balances representing receivables, as defined by the New Revenue Standard, from Unbilled accounts receivable to digital servicesTrade accounts receivable, net, (5) the reclassification of balances representing contract assets, as defined by the New Revenue Standard, from Unbilled accounts receivable to Other current assets, as well as (6) the income tax impact of the above items, as applicable.


The following tables compare the financial statement line items materially affected by the adoption of the New Revenue Standard as of and solutions while improving the overall efficiency of our operations. As part of this realignment, for the three and six months ended June 30, 2017,March 31, 2018, to the pro-forma amounts had the previous guidance been in effect, or Pro-forma Amounts:
  March 31, 2018
  As Reported Pro-forma Amounts Impacts of the New Revenue Standard
  (in millions)
Assets:      
Trade accounts receivable, net(1), (2)
 $3,145
 $3,015
 $130
Unbilled accounts receivable(1), (3)
 —
 412
 (412)
Other current assets(2), (3)
 856
 549
 307
Total current assets     25
Other noncurrent assets(4)
 577
 533
 44
Total assets     $69
Liabilities:      
Deferred revenue(2)
 $360
 $471
 $(111)
Total current liabilities     (111)
Deferred revenue, noncurrent(2)
 70
 79
 (9)
Deferred income tax liabilities, net(5)
 113
 70
 43
Total liabilities     (77)
Stockholders’ equity:      
Retained earnings 10,856
 10,712
 144
Accumulated other comprehensive income (loss)(6)
 63
 61
 2
Total stockholders’ equity     146
Total liabilities and stockholders’ equity     $69
  Three Months Ended March 31, 2018
  As Reported Pro-forma Amounts Impacts of the New Revenue Standard
  (in millions)
Revenues(2)
 $3,912
 $3,891
 $21
Cost of revenues (4)
 2,401
 2,409
 (8)
Selling, general and administrative expenses 711
 711
 —
Depreciation and amortization expense 107
 107
 —
Income from operations 693
 664
 29
Other income (expense), net 4
 4
 —
Income before provision for income taxes(5)
 697
 668
 29
Provision for income taxes (177) (171) (6)
Net income $520
 $497
 $23
Basic earnings per share $0.89
 $0.85
 $0.04
Diluted earnings per share $0.88
 $0.84
 $0.04
(1)Reflects the reclassification of balances representing receivables, as defined by the New Revenue Standard, from Unbilled accounts receivable to Trade accounts receivable, net.
(2)Reflects the impact of changes in the method used to measure progress on our fixed-price application maintenance, consulting and business process services contracts and the timing of revenue recognition and allocation of purchase price on our software license contracts.
(3)Reflects the reclassification of balances representing contract assets, as defined by the New Revenue Standard, from Unbilled accounts receivable to Other current assets.
(4)Reflects the impact of a longer period of amortization for costs to fulfill a contract.
(5)Reflects the income tax impact of the above items.
(6)Reflects the impact of foreign currency translation related to the above impacts.


Revenue Recognition

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

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

For performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Revenues related to fixed-price contracts for application development and systems integration services, consulting or other technology services are recognized as the service is performed using the cost to cost method, under which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18. If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. Revenues related to fixed-price hosting and infrastructure services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18. If our invoicing is not consistent with value delivered, revenues are recognized on a straight-line basis unless revenues are earned and obligations are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides the most faithful depiction of performance towards satisfaction of our performance obligations; for example, the cost to cost method is used when the value of services provided to the customer is best represented by the costs expended to deliver those services.

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

Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period the services are provided in a manner that corresponds with the value transferred to the customer to-date relative to the remaining services to be provided.

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

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

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

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

We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.

Costs to Fulfill

Recurring operating costs for contracts with customers are recognized as incurred. Certain eligible, nonrecurring costs incurred $39 millionin the initial phases of our application maintenance, business process outsourcing and $50 million, respectively,infrastructure services contracts (i.e. set-up or transition costs) are capitalized when such costs (1) relate directly to the contract, (2) generate or enhance resources of the Company that will be used in pre-tax realignment charges, reportedsatisfying the performance obligation in "Selling, generalthe future, and administrative expenses"(3) are expected to be recovered. These costs are expensed ratably over the estimated life of the customer relationship, including expected renewals. In determining the estimated life of the customer relationship, we evaluate the average contract term, on a portfolio basis by nature of the services to be provided, as well as the rate of technological and industry change. Capitalized amounts are monitored regularly for impairment. Impairment losses are recorded when projected remaining undiscounted operating cash flows are not sufficient to recover the carrying amount of the capitalized costs to fulfill.

The following table presents information related to the capitalized costs to fulfill, such as set-up or transition activities, for the three months ended March 31, 2018. Costs to obtain contracts are immaterial for the periods disclosed and were expensed as incurred.
  Costs to Fulfill
  (in millions)
Balance - January 1, 2018 $303
Amortization expense (14)
Costs capitalized 39
Other 2
Balance - March 31, 2018 $330
Costs to fulfill are recorded in "Other noncurrent assets" in our consolidated statements of operations. The realignment charges are comprisedfinancial position.

Trade Accounts Receivable and Contract Balances

We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of severance costs primarilytime is required before payment is due). For example, we recognize a receivable for revenues related to a voluntary separation program,our time and materials and transaction or VSP, announcedvolume-based contracts. We present such receivables in May 2017, advisory fees relatedTrade accounts receivable, net in our consolidated statements of financial position at their net estimated realizable value. We maintain an allowance for doubtful accounts to non-routine shareholder matters and to the development of our realignment and return of capital programs, and lease termination costs.
Realignment chargesprovide for the threeestimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and six months ended June 30, 2017 were as follows:other applicable factors.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in Other current assets in our consolidated statements of financial position and primarily relate to unbilled amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. The table below shows significant movements in contract assets:
  Three Months Six Months
  (in millions)
Employee separations $37
 $39
Advisory fees 1
 10
Lease termination costs 1
 1
Total realignment costs $39
 $50
There were no realignment charges incurred in 2016.
  Contract Assets
  (in millions)
Balance - January 1, 2018 $306
Revenues recognized during the period but not billed 225
Amounts reclassified to accounts receivable (225)
Other 1
Balance - March 31, 2018 $307

Note 4 — InvestmentsOur contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize the revenues. The noncurrent portion of deferred revenue is included in other noncurrent liabilities in our consolidated statements of financial position.

The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the period disclosed:
  Deferred Revenue
  (in millions)
Balance - January 1, 2018 $431
Amounts billed but not recognized as revenues 99
Revenues recognized related to the opening balance of deferred revenue (100)
Balance - March 31, 2018 $430
Our contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period.
Revenues recognized during the three months ended March 31, 2018 for performance obligations satisfied or partially satisfied in previous periods were immaterial.
Remaining Performance Obligations

ASC 606 requires that we disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 31, 2018. This disclosure is not required for:
(1)contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty,
(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. As of March 31, 2018, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $1,752 million, of which approximately 70% is expected to be recognized as revenues within 2 years, and the remainder thereafter.
Disaggregation of Revenues

The table below presents disaggregated revenues from contracts with customers by customer 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.

  Three Months Ended
  March 31, 2018
  Financial Services Healthcare Products and Resources Communications, Media and Technology Total
  (in millions)
Revenues          
Geography:          
North America $1,044
 $1,023
 $572
 $336
 $2,975
United Kingdom 116
 23
 87
 84
 310
Rest of Europe 162
 61
 109
 42
 374
Europe - Total 278
 84
 196
 126
 684
Rest of World 139
 14
 53
 47
 253
Total $1,461
 $1,121
 $821
 $509
 $3,912
          
Service line:         
Consulting and technology services $871
 $638
 $481
 $278
 $2,268
Outsourcing services 590
 483
 340
 231
 1,644
Total $1,461
 $1,121
 $821
 $509
 $3,912
          
Type of contract:         
Time and materials $935
 $448
 $369
 $306
 $2,058
Fixed-price 471
 511
 361
 179
 1,522
Transaction or volume-based 55

162
 91
 24
 332
Total $1,461
 $1,121
 $821
 $509
 $3,912

Note 4 — Investments
Our investments were as follows:
June 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
(in millions)(in millions)
Short-term investments:      
Trading investment securities$25
 $25
Equity investment securities$25
 $25
Available-for-sale investment securities1,953
 2,264
2,069
 1,972
Held-to-maturity investment securities543
 40
943
 745
Time deposits(1)700
 806
353
 389
Total short-term investments$3,221
 $3,135
$3,390
 $3,131
Long-term investments:      
Equity and cost method investments$69
 $62
$77
 $74
Held-to-maturity investment securities129
 —
6
 161
Total long-term investments$198
 $62
$83
 $235
(1)
Includes $348 million in restricted time deposits as of March 31, 2018. See Note 14.

TradingEquity Investment Securities

Our tradingequity investment securities consist of a U.S. dollar denominated investment in a fixed income mutual fund. Unrealized losses for the three and six months ended June 30,March 31, 2018 and 2017 were immaterial. The value of the fixed income mutual fund invested in fixed income securities is based on the net asset value, or NAV, of the fund, with appropriate consideration of the liquidity and any restrictions on disposition of our investment in the fund. There were no realized gains or losses on tradingequity securities during the three and six months ended June 30,March 31, 2018 and 2017. During the six months ended June 30, 2016, there were no investment securities in our portfolio classified as trading.

Available-for-Sale Investment Securities

Our available-for-sale investment securities consist of U.S. dollar denominated investments primarily in U.S. Treasury notes, U.S. government agency debt securities, municipal debt securities, non-U.S. government debt securities, U.S. and international corporate bonds, certificates of deposit, commercial paper, debt securities issued by supranational institutions, and asset-backed securities, including securities backed by auto loans, credit card receivables, and other receivables. Our investment guidelines are to purchase securities which are investment grade at the time of acquisition. We monitor the credit ratings of the securities in our portfolio on an ongoing basis.

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at June 30, 2017March 31, 2018 were as follows:
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 Fair
Value
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 Fair
Value
(in millions)(in millions)
U.S. Treasury and agency debt securities$644
 $—
 $(2) $642
$643
 $—
 $(9) $634
Corporate and other debt securities442
 —
 (1) 441
448
 —
 (6) 442
Certificates of deposit and commercial paper452
 —
 —
 452
563
 —
 —
 563
Asset-backed securities294
 1
 (1) 294
305
 —
 (3) 302
Municipal debt securities124
 —
 —
 124
129
 —
 (1) 128
Total available-for-sale investment securities$1,956
 $1
 $(4) $1,953
$2,088
 $—
 $(19) $2,069

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at December 31, 20162017 were as follows:
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
(in millions)(in millions)
U.S. Treasury and agency debt securities$605
 $—
 $(3) $602
$667
 $—
 $(6) $661
Corporate and other debt securities407
 —
 (2) 405
439
 —
 (2) 437
Certificates of deposit and commercial paper910
 1
 —
 911
450
 —
 —
 450
Asset-backed securities232
 —
 (1) 231
297
 —
 (2) 295
Municipal debt securities116
 —
 (1) 115
130
 —
 (1) 129
Total available-for-sale investment securities$2,270
 $1
 $(7) $2,264
$1,983
 $—
 $(11) $1,972

The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of June 30, 2017:March 31, 2018:
Less than 12 Months 12 Months or More TotalLess than 12 Months 12 Months or More Total
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
(in millions)(in millions)
U.S. Treasury and agency debt securities$551
 $(2) $—
 $—
 $551
 $(2)$517
 $(7) $94
 $(2) $611
 $(9)
Corporate and other debt securities298
 (1) —
 —
 298
 (1)331
 (5) 111
 (1) 442
 (6)
Certificates of deposit and commercial paper105
 —
 —
 —
 105
 —
399
 —
 —
 —
 399
 —
Asset-backed securities222
 (1) 3
 —
 225
 (1)214
 (2) 85
 (1) 299
 (3)
Municipal debt securities59
 —
 1
 —
 60
 —
107
 (1) 16
 —
 123
 (1)
Total$1,235
 $(4) $4
 $—
 $1,239
 $(4)$1,568
 $(15) $306
 $(4) $1,874
 $(19)

The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of December 31, 2016:2017:
Less than 12 Months 12 Months or More TotalLess than 12 Months 12 Months or More Total
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
(in millions)(in millions)
U.S. Treasury and agency debt securities$526
 $(3) $—
 $—
 $526
 $(3)$519
 $(4) $124
 $(2) $643
 $(6)
Corporate and other debt securities342
 (2) 1
 —
 343
 (2)297
 (1) 126
 (1) 423
 (2)
Certificates of deposit and commercial paper185
 —
 —
 —
 185
 —
49
 —
 —
 —
 49
 —
Asset-backed securities206
 (1) 1
 —
 207
 (1)193
 (1) 94
 (1) 287
 (2)
Municipal debt securities88
 (1) 1
 —
 89
 (1)107
 (1) 18
 —
 125
 (1)
Total$1,347
 $(7) $3
 $—
 $1,350
 $(7)$1,165
 $(7) $362
 $(4) $1,527
 $(11)

The unrealized losses for the above securities as of June 30, 2017March 31, 2018 and December 31, 20162017 were primarily attributable to changes in interest rates. At each reporting date, the Company performswe perform an evaluation of impaired available-for-sale securities to determine if the unrealized losses are other-than-temporary. We do not consider any of the investments to be other-than-temporarily impaired as of June 30, 2017.March 31, 2018. The gross unrealized gains and losses in the above tables were recorded, net of tax, in "Accumulated other comprehensive income (loss)" in our consolidated statements of financial position.

The contractual maturities of our fixed income available-for-sale investment securities as of June 30, 2017March 31, 2018 are set forth in the following table:
Amortized
Cost
 
Fair
Value
Amortized
Cost
 
Fair
Value
(in millions)(in millions)
Due within one year$646
 $646
$729
 $728
Due after one year up to two years462
 461
500
 494
Due after two years up to three years478
 476
495
 487
Due after three years76
 76
59
 58
Asset-backed securities294
 294
305
 302
Total available-for-sale investment securities$1,956
 $1,953
$2,088
 $2,069

Asset-backed securities were excluded from the maturity categories because the actual maturities may differ from the contractual maturities since the underlying receivables may be prepaid without penalties. Further, actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.

Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended 
 March 31,
2017 2016 2017 20162018 2017
(in millions)(in millions)
Proceeds from sales of available-for-sale investment securities$397
 $1,816
 $1,645
 $2,378
$125
 $1,248
          
Gross gains$—
 $4
 $1
 $4
$—
 $1
Gross losses—
 —
 (1) —
(1) (1)
Net realized gains (losses) on sales of available-for-sale investment securities$—
 $4
 $—
 $4
Net realized (losses) on sales of available-for-sale investment securities$(1) $—

Held-to-Maturity Investment Securities

Our held-to-maturity investment securities consist of Indian rupee denominated investments primarily in commercial paper, international corporate bonds and government debt securities. Our investment guidelines are to purchase securities that are investment grade at the time of acquisition. We monitor the credit ratings of the securities in our portfolio on an ongoing basis. We classify these securities with maturities beyond 90 days but less than one year at the reporting date as short-term investments and beyond one year as long-term investments.

The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at June 30, 2017March 31, 2018 were as follows:
Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value		Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
(in millions)(in millions)
Short-term investments:              
Corporate and other debt securities$186
 $—
 $—
 $186
$481
 $—
 $(1) $480
Commercial paper357
 —
 —
 357
462
 —
 (1) 461
Total short-term held-to-maturity investments543
 —
 —
 543
943
 —
 (2) 941
Long-term investments:              
Corporate and other debt securities129
 —
 —
 129
6
 —
 —
 6
Total held-to-maturity investment securities$672
 $—
 $—
 $672
$949
 $—
 $(2) $947


The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at December 31, 20162017 were as follows:
 Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
 (in millions)
Short-term investments:       
Certificates of deposit and commercial paper$40
 $—
 $—
 $40

There were no long-term held-to-maturity investment securities at December 31, 2016.

 Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
 (in millions)
Short-term investments:       
Corporate and other debt securities$346
 $—
 $(1) $345
Commercial paper399
 —
 (2) 397
Total short-term held-to-maturity investments745
 —
 (3) 742
Long-term investments:       
Corporate and other debt securities161
 —
 (1) 160
Total held-to-maturity investment securities$906
 $—
 $(4) $902

The fair value and related unrealized losses of held-to-maturity investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of June 30,March 31, 2018:
 Less than 12 Months 12 Months or More Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 (in millions)
Corporate and other debt securities$327
 $(1) $32
 $—
 $359
 $(1)
Commercial paper322
 (1) —
 —
 322
 (1)
Total$649
 $(2) $32
 $—
 $681
 $(2)

The fair value and related unrealized losses of held-to-maturity investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of December 31, 2017:
Less than 12 Months 12 Months or More TotalLess than 12 Months 12 Months or More Total
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
(in millions)(in millions)
Corporate and other debt securities$154
 $—
 $—
 $—
 $154
 $—
$473
 $(2) $—
 $—
 $473
 $(2)
Commercial paper63
 —
 —
 —
 63
 —
394
 (2) —
 —
 394
 (2)
Total$217
 $—
 $—
 $—
 $217
 $—
$867
 $(4) $—
 $—
 $867
 $(4)

As of December 31, 2016, held-to-maturity investment securities in an unrealized loss position were immaterial. At each reporting date, the Company performs an evaluation of held-to-maturity securities to determine if the unrealized losses are other-than-temporary. We do not consider any of the investments to be other-than-temporarily impaired as of June 30, 2017.March 31, 2018.
The contractual maturities of our fixed income held-to-maturity investment securities as of June 30, 2017March 31, 2018 are set forth in the following table:
 
Amortized
Cost
 
Fair
Value
 (in millions)
Due within one year$543
 $543
Due after one year up to two years123
 123
Due after two years6
 6
Total held-to-maturity investment securities$672
 $672

As of June 30, 2016, there were no investment securities in our portfolio classified as held-to-maturity.
 
Amortized
Cost
 
Fair
Value
 (in millions)
Due within one year$943
 $941
Due after two years6
 6
Total held-to-maturity investment securities$949
 $947

During the sixthree months ended June 30, 2017March 31, 2018 and the year ended December 31, 2016,2017, there were no transfers of investments between our trading, available-for-sale and held-to-maturity investment portfolios.

Note 5 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:
June 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
(in millions)(in millions)
Compensation and benefits$1,026
 $1,134
$848
 $1,272
Income taxes15
 10
74
 48
Professional fees85
 99
103
 100
Travel and entertainment38
 36
38
 32
Customer volume and other incentives223
 258
318
 289
Derivative financial instruments6
 4
2
 5
Other262
 315
333
 325
Total accrued expenses and other current liabilities$1,655
 $1,856
$1,716
 $2,071


Note 6 — Debt

In 2014, we entered into a credit agreement with a commercial bank syndicate, or, as amended, the Credit Agreement, providing for a $1,000 million unsecured term loan and a $750 million unsecured revolving credit facility. The term loan and the revolving credit facility both mature in November 2019. All notes drawn to date under the revolving credit facility have been less than 90 days in duration. We are required under the Credit Agreement to make scheduled quarterly principal payments on the term loan. We were in compliance with all debt covenants and representations as of June 30, 2017.March 31, 2018.

Short-term Debt

The following summarizes our short-term debt balances as of:
 June 30, 2017 December 31, 2016 March 31, 2018 December 31, 2017
 (in millions) (in millions)
Notes outstanding under revolving credit facility $150
 $—
 $—
 $75
Term loan - current maturities 94
 81
 100
 100
Total short-term debt $244
 $81
 $100
 $175
Long-term Debt

The following summarizes our long-term debt balances as of:
  June 30, 2017 December 31, 2016
  (in millions)
Term loan, due 2019 $844
 $881
Less:    
Current maturities (94) (81)
Deferred financing costs (3) (3)
Long-term debt, net of current maturities $747
 $797
  March 31, 2018 December 31, 2017
  (in millions)
Term loan, due November 2019 $775
 $800
Less:    
Current maturities (100) (100)
Deferred financing costs (2) (2)
Long-term debt, net of current maturities $673
 $698

Note 7 — Income Taxes
On December 22, 2017, the United States enacted the Tax Reform Act, which significantly revised the U.S. corporate income tax law for tax years beginning after December 31, 2017 by (among other provisions):
reducing the U.S. federal statutory corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017;
implementing a modified territorial tax system that includes a one-time transition tax on all accumulated undistributed earnings of foreign subsidiaries;
providing for a full deduction on future dividends received from foreign affiliates; and
imposing a U.S. income tax on global intangible low-taxed income, or GILTI.
During the fourth quarter of 2017, in accordance with the SEC Staff Accounting Bulletin No. 118 - Income Taxes

Tax Accounting Implications of the Tax Cuts and Jobs Act, we recorded a one-time provisional net income tax expense of $617 million, which was comprised of: (i) the one-time transition tax expense on accumulated undistributed earnings of foreign subsidiaries of $635 million, (ii) foreign and U.S. state income tax expense that will be applicable upon repatriation of the accumulated undistributed earnings of our foreign subsidiaries, other than our Indian subsidiaries, of $53 million, partially offset by (iii) an income tax benefit of $71 million resulting from the revaluation of U.S. net deferred income tax liabilities to the new lower U.S. income tax rate. The transition tax on undistributed earnings is payable over eight years. The one-time incremental income tax expense is provisional as it reflects certain assumptions based upon our interpretation of the Tax Reform Act and may change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. During the first quarter of 2018, we have not recorded any adjustments to the one-time provisional net income tax expense. We anticipate completing the accounting for the Tax Reform Act within the measurement period.
Our Indian subsidiaries, collectively referred to as Cognizant India, are primarily export-oriented and are eligible for certain income tax holiday benefits granted by the government of India for export activities conducted within Special Economic Zones, or SEZs, for periods of up to 15 years. Our Indian profits ineligible for SEZ benefits are subject to corporate income tax at the rate of 34.6%34.9%. In addition, all Indian profits, including those generated within SEZs, are subject to the Minimum Alternative Tax, or MAT, at the rate of 21.3%21.5%. Any MAT paid is creditable against future Indian corporate income tax, subject to limitations.

Our effective income tax rates were as follows:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2017 2016 2017 2016
Effective income tax rate26.0% 57.6% 20.0% 41.4%
 Three Months Ended 
 March 31,
 2018 2017
Effective income tax rate25.4% 14.2%
InThe effective tax rate for the first quarterthree months ended March 31, 2017 was affected by the recognition of 2017, we recognized income tax benefits previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million. The recognition of these benefits in the first quarter of 2017 was based on management’s reassessment regarding whether certain unrecognized tax benefits met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefits. Our March 31, 2018 effective tax rate benefitted from the new lower U.S. federal statutory corporate income tax rate, partially offset by the estimated incremental income tax expense related to the current interpretation of the GILTI provision of the Tax Reform Act. The estimate of our annual effective income tax rate reflects the current interpretation of the Tax Reform Act and may change as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time.
In MayWe are involved in an ongoing dispute with the Indian Income Tax Department, or ITD, in connection with which we received a notice in March 2018 asserting that the ITD is owed additional taxes on our previously disclosed 2016 India Cash Remittance, the transaction undertaken by our principal operating subsidiary in India, repurchasedor CTS India, to repurchase shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion ("India Cash Remittance"). Thisbillion. As a result of that transaction, was undertaken pursuant to a plan approved by the Madras High Court of Madras and simplifiedin Chennai, India, we previously paid $135 million in Indian income taxes, which we believe are all the shareholding structure of our principal operating subsidiary in India. Pursuantapplicable taxes owed for this transaction under Indian law. The ITD is asserting that we owe an additional $507 million related to the 2016 India Cash Remittance. In addition to the dispute on the 2016 India Cash Remittance, we are involved in another ongoing dispute with the ITD relating to a 2013 transaction our principal Indian operating subsidiary repurchased approximately $1.2 billion of the total $2.8 billion ofundertaken by CTS India to repurchase shares from its U.S. shareholders resulting invalued at $523 million (the two disputes collectively referred to as the ITD Dispute), for which we also believe we have paid all the applicable taxes owed. Accordingly, we have not recorded any reserves for these matters as of March 31, 2018. The ITD Dispute is ongoing, and no final decision has been reached.

In March 2018, the ITD placed an attachment on certain of our India bank accounts, relating to the 2016 India Cash Remittance. In April 2018, the Madras High Court granted our application for a stay of the actions of the ITD and lifted the ITD’s attachment of our bank accounts. As part of the interim stay order, we have deposited $76 million, representing 15% of the disputed tax expense inamount related to the United States and2016 India while the remaining $1.6 billion was repurchased from its shareholder outside the United States. Net of taxes, the transaction resultedCash Remittance, to be kept in a remittancesegregated account by the ITD. In addition, the court has placed a lien on certain time deposits of

cash to the United States CTS India in the amount of $1.0 billion. As$431 million, which is the remainder of the disputed tax amount related to the 2016 India Cash Remittance. See Note 14 for a resultdescription of this transaction, we incurred an incremental 2016 income tax expenseour restricted assets as of $238 million, including a discrete item recognized in the second quarter of 2016 of $143 millionMarch 31, 2018 relating to the distribution of historic undistributed accumulated foreign earnings. Total incremental tax expense of $190 million was recognized in the quarter ended June 30, 2016. This transaction is primarily responsible for the decrease in our effective income tax rate in 2017 compared to 2016.
The decrease in our effective income tax rate for the six months ended 2017 as compared to the same period in 2016 is primarily due to the India Tax Remittance and the recognition of previously unrecognized income tax benefits, as described above. For the 2017 periods, the principal reason for the difference between our effective income tax rates and the U.S. federal statutory rate is the effect of the Indian tax holiday, earnings taxed in countries that have lower rates than the United States, and, for the six months ended June 30, 2017, the recognition in the first quarter of 2017 of previously unrecognized income tax benefits. For the 2016 periods, the principal reason for the difference between our effective income tax rates and the U.S. federal statutory rate is the effect of the India Cash Remittance transaction, partially offset by the effect of the Indian tax holiday and earnings taxed in countries that have lower rates than the United States.

this matter.
Note 8 — Derivative Financial Instruments

In the normal course of business, we use foreign exchange forward contracts to manage foreign currency exchange rate risk. The estimated fair value of the foreign exchange forward contracts considers the following items: discount rate, timing and amount of cash flow and counterparty credit risk. Derivatives may give rise to credit risks from the possible non-performance by counterparties. Credit risk is generally limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by entering into derivative transactions only with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution and conducting an 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 forward contracts set forth in the below table are subject to International Swaps and Derivatives Association, or ISDA, master netting arrangements or other similar agreements 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 forward contracts on a gross basis, with no offsets, in our accompanying unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to our foreign exchange forward 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:
   June 30, 2017 December 31, 2016   March 31, 2018 December 31, 2017
Designation of Derivatives 
Location on Statement of
Financial Position
 Assets Liabilities Assets   Liabilities 
Location on Statements of
Financial Position
 Assets Liabilities Assets   Liabilities
 (in millions) (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments Other current assets $112
 $—
 $34
 $—
 Other current assets $97
 $—
 $134
 $—
 Other noncurrent assets 43
 —
 17
 —
 Other noncurrent assets 9
 —
 20
 —
 Total 155
 —
 51
 —
 Other noncurrent liabilities —
 1
 —
 —
 Total 106
 1
 154
 —
Foreign exchange forward contracts – Not designated as hedging instruments Accrued expenses and other current liabilities —
 6
 —
 4
 Other current assets 1
 —
 —
 —
 Total —
 6
 —
 4
 Accrued expenses and other current liabilities —
 2
 —
 5
 Total 1
 2
 —
 5
Total $155
 $6
 $51
 $4
 $107
 $3
 $154
 $5

Cash Flow Hedges

We have entered into a series of foreign exchange forward 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 exchange rates on future operating costs and are scheduled to mature each month during 2017, 2018, 2019 and 2019.the first quarter of 2020. Under these contracts, we purchase Indian rupees and sell U.S. dollars. The changes in fair value of these contracts are initially reported in the caption “Accumulated other comprehensive income (loss)” in our consolidated statements of financial position and are subsequently reclassified to earnings in the same period the forecasted Indian rupee denominated payments are recorded in earnings. As of June 30, 2017,March 31, 2018, we estimate that $85$72 million, net of tax, of net gains related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income (loss) is expected to be reclassified into earnings within the next 12 months.


The notional value of our outstanding contracts by year of maturity and the net unrealized gains included in accumulated other comprehensive income (loss) for such contracts were as follows as of:
June 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
(in millions)(in millions)
2017$630
 $1,320
20181,050
 1,020
$983
 $1,185
2019330
 —
885
 720
2020135
 —
Total notional value of contracts outstanding$2,010
 $2,340
$2,003
 $1,905
Net unrealized gains included in accumulated other comprehensive income (loss), net of taxes$117
 $39
$79
 $115

Upon settlement or maturity of the cash flow hedge contracts, we record the gains or losses, based on our designation at the commencement of the contract, with the related hedged Indian rupee denominated expense reported within cost of revenues and selling, general and administrative expenses. Hedge ineffectiveness was immaterial for all periods presented.

The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the three months ended June 30:March 31:
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 2017 2016   2017 2016
 (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments$35
 $(7) Cost of revenues $29
 $3
     Selling, general and administrative expenses 6
 —
     Total $35
 $3

The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the six months ended June 30:
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 2017 2016   2017 2016
 (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments$159
 $15
 Cost of revenues $46
 $1
     Selling, general and administrative expenses 9
 —
     Total $55
 $1
 
Change in
Derivative Gains/Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 2018 2017   2018 2017
 (in millions)
Foreign exchange forward contracts – Designated as cash flow hedging instruments$(14) $124
 Cost of revenues $30
 $17
     Selling, general and administrative expenses 5
 3
     Total $35
 $20

The activity related to the change in net unrealized gains (losses) on our cash flow hedges included in accumulated other comprehensive income (loss) is presented in Note 10.

Other Derivatives

We use foreign exchange forward contracts, which have not been designated as hedges, to hedge balance sheet exposure to certain monetary assets and liabilities denominated in currencies, primarily the Indian rupee and the Euro,British pound, other than the functional currency of our foreign subsidiaries. TheseWe entered into a series of foreign exchange forward contracts that are scheduled to mature in 2017 and 2018. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.

Additional information related to our outstanding foreign exchange forward contracts not designated as hedging instruments is as follows:
 June 30, 2017 December 31, 2016
 Notional Fair Value Notional Fair Value
 (in millions)
Contracts outstanding$269
 $(6) $213
 $(4)
 March 31, 2018 December 31, 2017
 Notional Fair Value Notional Fair Value
 (in millions)
Contracts outstanding$301
 $(1) $255
 $(5)


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 six months ended June 30:March 31:
 
Location of Net Gains (Losses) on
Derivative Instruments
 Amount of Net Gains (Losses) on Derivative Instruments
   Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
   2017 2016 2017 2016
   (in millions)
Foreign exchange forward contracts – Not designated as hedging instrumentsForeign currency exchange gains (losses), net $(3) $3
 $(13) $—
 
Location of Net Gains (Losses) on
Derivative Instruments
 Amount of Net Gains (Losses) on Derivative Instruments
   2018 2017
   (in millions)
Foreign exchange forward contracts – Not designated as hedging instrumentsForeign currency exchange gains (losses), net $2
 $(10)

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


Note 9 — Fair Value Measurements
We measure our cash equivalents, investments and foreign exchange forward 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 June 30, 2017:March 31, 2018:
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
(in millions)(in millions)
Cash equivalents:              
Money market funds$217
 $—
 $—
 $217
$335
 $—
 $—
 $335
Commercial paper—
 248
 —
 248
Total cash equivalents217
 —
 —
 217
335
 248
 —
 583
Short-term investments:              
Time deposits—
 700
 —
 700
Time deposits(1)
—
 353
 —
 353
Available-for-sale investment securities:              
U.S. Treasury and agency debt securities550
 92
 —
 642
566
 68
 —
 634
Corporate and other debt securities—
 441
 —
 441
—
 442
 —
 442
Certificates of deposit and commercial paper—
 452
 —
 452
—
 563
 —
 563
Asset-backed securities—
 294
 —
 294
—
 302
 —
 302
Municipal debt securities—
 124
 —
 124
—
 128
 —
 128
Total available-for-sale investment securities550
 1,403
 —
 1,953
566
 1,503
 —
 2,069
Held-to-maturity investment securities:              
Commercial paper—
 357
 —
 357
—
 461
 —
 461
Corporate and other debt securities—
 186
 —
 186
—
 480
 —
 480
Total short-term held-to-maturity investment securities—
 543
 —
 543
—
 941
 —
 941
Total short-term investments(1)
550
 2,646
 —
 3,196
Total short-term investments(2)
566
 2,797
 —
 3,363
Long-term investments:              
Held-to-maturity investment securities:              
Corporate and other debt securities—
 129
 —
 129
—
 6
 —
 6
Total long-term held-to-maturity investment securities—
 129
 —
 129
—
 6
 —
 6
Total long-term investments(2)
—
 129
 —
 129
Total long-term investments(3)
—
 6
 —
 6
Derivative financial instruments - foreign exchange forward contracts:              
Other current assets—
 112
 —
 112
—
 98
 —
 98
Accrued expenses and other current liabilities—
 (6) —
 (6)—
 (2) —
 (2)
Other noncurrent assets—
 43
 —
 43
—
 9
 —
 9
Other noncurrent liabilities—
 (1) —
 (1)
Total$767
 $2,924
 $—
 $3,691
$901
 $3,155
 $—
 $4,056
________________
(1)Excludes trading securities
Includes $348 million in mutual funds valued at $25 million based on the net asset value of the fund at June 30, 2017.restricted time deposits. See Note 14.
(2)Excludes an equity security invested in a mutual fund valued at $25 million based on the NAV of the fund.
(3)Excludes equity and cost method investments of $69$77 million, at June 30, 2017, which are accounted for using the equity method of accounting and at cost, respectively.


The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2016:2017:
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
(in millions)(in millions)
Cash equivalents:              
Money market funds$624
 $—
 $—
 $624
$334
 $—
 $—
 $334
Bank deposits—
 80
 —
 80
Commercial paper—
 131
 —
 131
—
 386
 —
 386
Total cash equivalents624
 131
 —
 755
334
 466
 —
 800
Short-term investments:              
Time deposits—
 806
 —
 806
—
 389
 —
 389
Available-for-sale investment securities:              
U.S. Treasury and agency debt securities558
 44
 —
 602
585
 76
 —
 661
Corporate and other debt securities—
 405
 —
 405
—
 437
 —
 437
Certificates of deposit and commercial paper—
 911
 —
 911
—
 450
 —
 450
Asset-backed securities—
 231
 —
 231
—
 295
 —
 295
Municipal debt securities—
 115
 —
 115
—
 129
 —
 129
Total available-for-sale investment securities558
 1,706
 —
 2,264
585
 1,387
 —
 1,972
Held-to-maturity investment securities:              
Certificates of deposit and commercial paper—
 40
 —
 40
Commercial paper—
 397
 —
 397
Corporate and other debt securities—
 345
 —
 345
Total held-to-maturity investment securities—
 40
 —
 40
—

742

—

742
Total short-term investments(1)
558
 2,552
 —
 3,110
585
 2,518
 —
 3,103
Long-term investments:       
Held-to-maturity investment securities:       
Corporate and other debt securities—
 160
 —
 160
Total held-to-maturity investment securities—
 160
 —
 160
Total long-term investments(2)
—
 160
 —
 160
Derivative financial instruments - foreign exchange forward contracts:              
Other current assets—
 34
 —
 34
—
 134
 —
 134
Accrued expenses and other current liabilities—
 (4) —
 (4)—
 (5) —
 (5)
Other noncurrent assets—
 17
 —
 17
—
 20
 —
 20
Total$1,182
 $2,730
 $—
 $3,912
$919
 $3,293
 $—
 $4,212
________________
(1)Excludes trading securitiesan equity security invested in a mutual fundsfund valued at $25 million based on the net asset value,NAV of the fundfund.
(2)Excludes equity and cost method investments of $74 million, which are accounted for using the equity method of accounting and at December 31, 2016.cost, respectively.

We measure the fair value of money market funds and U.S. Treasury securities based on quoted prices in active markets for identical assets and therefore classify these assets as Level 1. The fair value of commercial paper, certificates of deposit, U.S. government agency securities, municipal debt securities, debt securities issued by supranational institutions, U.S. and international corporate bonds and foreign government debt securities 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. We measure the fair value of our asset-backed securities using model-driven valuations based on significant inputs derived from or corroborated by observable market data such as dealer quotes, available trade information, spread data, current market assumptions on prepayment speeds and defaults and historical data on deal collateral performance. The carrying value of the time deposits approximated fair value as of June 30, 2017March 31, 2018 and December 31, 2016.2017.

We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign

exchange contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. The amounts are aggregated by type of contract and maturity.

During the sixthree months ended June 30, 2017March 31, 2018 and the year ended December 31, 2016,2017, there were no transfers among Level 1, Level 2, or Level 3 financial assets and liabilities.


Note 10 — Stockholder's
Note 10 — Stockholders' Equity
Stock Repurchase Program
Under the Board of Directors' authorizedWe have entered into multiple accelerated stock repurchase agreements, or ASRs, under our stock repurchase program authorized by our Board of Directors. The ASR activity and related information during the Company is authorizedthree months ended March 31, 2018 and the year ended December 31, 2017 were as follows:
  Purchase Period End Date Number of Shares Average Repurchase Price per Share ASR Amount
    (in millions)   (in millions)
March 2018 ASR 
(1) 
 3.0
(1) 
(1) 
 $300
December 2017 ASR March 2018 4.0
(2) 
$75.75
 $300
March 2017 ASR August 2017 23.7
 $63.19
 $1,500
___________________
(1)Under the terms of the March 2018 ASR and in exchange for up-front payments of $300 million, the financial institution initially delivered 3.0 million shares, a portion of the Company's total expected shares to be repurchased under the March 2018 ASR. The total number of shares ultimately delivered, and therefore the average price paid per share, will be determined at the end of the purchase period, which is scheduled to end during the second quarter of 2018, based on the volume-weighted average price of the Company's common stock during that period.
(2)Includes 3.6 million shares initially delivered in December 2017 and 0.4 million shares delivered in March 2018 upon the final settlement of the ASR.
Our stock repurchase itsprogram allows for the repurchase of $3,500 million of our outstanding shares of Class A common stock, excluding fees and expenses, through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act, or in private transactions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased are determined by the Company’s management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors.
In March 2017, we entered into accelerated share repurchase agreements, referred to collectively as the ASR, with certain financial institutions under our stock repurchase program. Under the terms of the ASR and in exchange for up-front payments of $1,500 million, the financial institutions have delivered 21.5 million shares, a portion of the Company's total expected shares to be repurchased under the ASR. The total number of shares ultimately delivered is determined at the end of the applicable purchase periods under the ASR based on the volume-weighted average price of the Company’s common stock during such periods. The ASR purchase periods are scheduled to end during the third quarter of 2017.

Under the ASR, the shares received are constructively retired and returned to the status of authorized and unissued shares in the periods they are delivered, and the up-front payments are accounted for as a reduction to stockholders’ equity in our consolidated statement of financial position in the period the payments are made. The $1,500 million up-front payments were accounted for as a $400 million reduction in common stock and additional paid-in capital and a $1,100 million reduction in retained earnings in our consolidated statements of financial position in March 2017. We reflected the ASR as a repurchase of common stock in the period delivered for purposes of calculating earnings per share and as forward contracts indexed to our common stock. The forward contracts met all of the applicable criteria for equity classification, and therefore were not accounted for as derivative instruments.
December 31, 2019. As of June 30, 2017,March 31, 2018, the remaining available balance under our stock repurchase program was $2,000$1,400 million.

Stock repurchases were made in connection with our stock-based compensation plans, whereby Company shares were tendered by employees for payment of applicable statutory tax withholdings. We also repurchased a limited number of shares from employees atFor the repurchase date market price. Combined, for the sixthree months ended June 30,March 31, 2018 and 2017, such repurchases totaled 0.70.2 million shares at an aggregate cost of $44 million.$16 million, and 0.2 million shares at an aggregate cost of $14 million, respectively.

Dividends

DuringDividends on our Class A common stock during the second quarter of 2017, we declared and paid cash dividends of $0.15 per share, totaling $89 million.periods presented were as follows:
  Dividends per Share Amount
    (in millions)
2018:    
Three months ended March 31, 2018 $0.20
 $119
2017:    
Three months ended June 30, 2017 $0.15
 $89
Three months ended September 30, 2017 0.15
 90
Three months ended December 31, 2017 0.15
 89
Year ended December 31, 2017   $268

On August 3, 2017, our Board of Directors approved the Company's declaration of a $0.15 per share dividend with a record date of August 22, 2017 and a payment date of August 31, 2017.

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, 2017:March 31, 2018:
Three Months Six MonthsThree Months
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 Before Tax
Amount		 Tax
Effect		 Net of Tax
Amount
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
(in millions)(in millions)
Foreign currency translation adjustments:                
Beginning balance$(132) $—
 $(132) $(149) $—
 $(149)$(38) $—
 $(38)
Change in foreign currency translation adjustments50
 —
 50
 67
 —
 67
41
 (4) 37
Ending balance$(82) $—
 $(82) $(82) $—
 $(82)$3
 $(4) $(1)
                
Unrealized gains (losses) on available-for-sale investment securities:           
Unrealized (losses) on available-for-sale investment securities:     
Beginning balance$(4) $1
 $(3) $(6) $2
 $(4)$(11) $4
 $(7)
Net unrealized gains arising during the period1
 —
 1
 3
 (1) 2
Reclassification of net (gains) to Other, net—
 —
 —
 —
 —
 —
Cumulative effect of change in accounting principle(1)
—
 (1) (1)
Net unrealized (losses) arising during the period(9) 1
 (8)
Reclassification of net losses to Other, net1
 —
 1
Net change1
 —
 1
 3
 (1) 2
(8) —
 (8)
Ending balance$(3) $1
 $(2) $(3) $1
 $(2)$(19) $4
 $(15)
                
Unrealized gains on cash flow hedges:                
Beginning balance$155
 $(37) $118
 $51
 $(12) $39
$154
 $(39) $115
Unrealized gains arising during the period35
 (9) 26
 159
 (39) 120
Unrealized (losses) arising during the period(14) 5
 (9)
Reclassifications of net (gains) to:                
Cost of revenues(29) 7
 (22) (46) 11
 (35)(30) 7
 (23)
Selling, general and administrative expenses(6) 1
 (5) (9) 2
 (7)(5) 1
 (4)
Net change—
 (1) (1) 104
 (26) 78
(49) 13
 (36)
Ending balance$155
 $(38) $117
 $155
 $(38) $117
$105
 $(26) $79
                
Accumulated other comprehensive income (loss):                
Beginning balance$19
 $(36) $(17) $(104) $(10) $(114)$105
 $(35) $70
Other comprehensive income (loss)51
 (1) 50
 174
 (27) 147
(16) 9
 (7)
Ending balance$70
 $(37) $33
 $70
 $(37) $33
$89
 $(26) $63
(1)
Reflects the adoption of accounting standards as described in Note 1.




Changes in accumulated other comprehensive income (loss) by component were as follows for the three and six months ended June 30, 2016:March 31, 2017:
Three Months Six MonthsThree Months
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 Before Tax
Amount		 Tax
Effect		 Net of Tax
Amount
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
(in millions)(in millions)
Foreign currency translation adjustments:                
Beginning balance$(70) $—
 $(70) $(90) $—
 $(90)$(149) $—
 $(149)
Change in foreign currency translation adjustments(29) —
 (29) (9) —
 (9)17
 —
 17
Ending balance$(99) $—
 $(99) $(99) $—
 $(99)$(132) $—
 $(132)
                
Unrealized gains (losses) on available-for-sale investment securities:           
Unrealized gains on available-for-sale investment securities:     
Beginning balance$1
 $(1) $—
 $(7) $2
 $(5)$(6) $2
 $(4)
Net unrealized gains arising during the period5
 (1) 4
 13
 (4) 9
2
 (1) 1
Reclassification of net (gains) to Other, net(4) 1
 (3) (4) 1
 (3)—
 —
 —
Other-than-temporary impairment losses on investment securities recognized in earnings3
 (1) 2
 3
 (1) 2
Net change4
 (1) 3
 12
 (4) 8
2
 (1) 1
Ending balance$5
 $(2) $3
 $5
 $(2) $3
$(4) $1
 $(3)
                
Unrealized gains (losses) on cash flow hedges:                
Beginning balance$10
 $(2) $8
 $(14) $2
 $(12)$51
 $(12) $39
Unrealized (losses) gains arising during the period(7) 2
 (5) 15
 (2) 13
Reclassifications of gains to:           
Unrealized gains arising during the period124
 (30) 94
Reclassifications of net (gains) to:     
Cost of revenues(3) —
 (3) (1) —
 (1)(17) 4
 (13)
Selling, general and administrative expenses—
 —
 —
 —
 —
 —
(3) 1
 (2)
Net change(10) 2
 (8) 14
 (2) 12
104
 (25) 79
Ending balance$—
 $—
 $—
 $—
 $—
 $—
$155
 $(37) $118
                
Accumulated other comprehensive income (loss):                
Beginning balance$(59) $(3) $(62) $(111) $4
 $(107)$(104) $(10) $(114)
Other comprehensive income (loss)(35) 1
 (34) 17
 (6) 11
123
 (26) 97
Ending balance$(94) $(2) $(96) $(94) $(2) $(96)$19
 $(36) $(17)

Note 11 — Commitments and Contingencies

We are involved in various claims and legal actions 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. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. The investigation is also examining various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the DOJ and SEC and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 20102009 and 20152016 that may have been improper. During the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of such payments that were previously capitalized that should have been expensed. These out-of-period corrections and the other $2 million in potentially improper payments were not material to any previously issued financial statements. The investigation is also examining various other

payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. There were no adjustments recorded during 2018 and 2017 related to the six months ended June 30, 2017.amounts under investigation.


On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal 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. Under a stipulation filed by the parties on February 23, 2017, defendants filed motions to dismiss the consolidated amended complaint on June 6, 2017, plaintiffs filed an opposition brief on July 21, 2017 responding to defendants’ motions to dismiss, and defendants have until September 5, 2017 to filefiled reply briefs in further support of their motions to dismiss.dismiss on September 5, 2017. On September 5, 2017, defendants also filed a motion to strike certain allegations in the consolidated amended complaint, plaintiffs filed an opposition to the motion to strike on October 2, 2017, and, on October 10, 2017, we filed a reply brief in further support of the motion to strike.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future. On February 22, 2017, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our then current directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our then current directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 10(b) of the Exchange Act against the individual defendants. On May 10, 2017, a sixth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our then current directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 14(a) of the Exchange Act against the individual defendants. In an order dated June 20, 2017, the United States District Court for the District of New Jersey consolidated the three putative shareholder derivative actions filed in that court into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motionmotions to dismiss the consolidated putative securities class action. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to usthe Company as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.

We are presently unable to predict the duration, scope or result of the internal investigation, any investigations by the relatedDOJ or the SEC, the consolidated putative securities class action, the putative shareholder derivative actions or any other related lawsuit, and any investigations by the DOJ or the SEC, including whether either agency will commence any legal action.lawsuits. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, and thus have not recorded an accrualany accruals related to these matters. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, and the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. In addition, the DOJ and the SEC could bring enforcement actions against the Company or individuals, including former members of senior management. Such actions, if brought, could result in dispositions, judgments, settlements, fines, injunctions, cease and desist orders, debarment or other civil or criminal penalties against the Company or such individuals.


We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. The imposition of any sanctions or the implementation of remedial measures could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition. Furthermore, while the Company intends to defend

the lawsuits vigorously, these lawsuits and any other related lawsuits are subject to inherent uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is necessarily uncertain.

We 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 directors. In connection with the ongoing internal investigation, we have received requests under such indemnification agreements and our Bylaws to provide funds for legal fees and other expenses, and expect additional requests in connection with the investigation and related litigation. We have not recorded any liability for these matters as of March 31, 2018 as we cannot estimate the ultimate outcome at this time but have expensed payments made through March 31, 2018.

We have maintained directors and officers insurance, from which a portion of the indemnification expenses and costs related to the putative securities class action complaints may be recoverable, and have recorded an insurance receivable of less than $1 million as of March 31, 2018.

See Note 7 for information relating to the ITD Dispute.
Many of our engagements involve projects that are critical to the operations of our customers’ business and provide benefits that are difficult to quantify. Any failure in a customer’s systems or our failure to meet our contractual obligations to our customers, including any breach involving a customer’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, 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 condition and cash flows.

In the normal course of business and in conjunction with certain customer engagements, we have entered into contractual arrangements through which we may be obligated to indemnify customers or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to 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 customer 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 payments under these indemnification agreements and therefore they have not had any 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 material impact on our business, results of operations, financial condition and cash flows.

The Company has indemnification and expense advancement obligations pursuant to its Bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s directors. In connection with the ongoing internal investigation, the Company has received requests under such indemnification agreements and its Bylaws to provide advances of funds for legal fees and other expenses, and expects additional requests in connection with the investigation and related litigation. The Company has not recorded any liability for these matters as of June 30, 2017 as it cannot estimate the ultimate outcome at this time but has expensed advances made through June 30, 2017. The Company has maintained directors and officers insurance, from which a portion of these expenses may be recoverable, though we have not recorded an insurance receivable as of June 30, 2017.

Note 12—
Note 12 — Related Party Transactions
Brackett B. Denniston, III was the Interim General Counsel and an executive officer of the Company from December 2016 until May 15, 2017.2017, during which period Mr. Denniston is, and was during such period, also a Senior Counsel at the law firm of Goodwin Procter LLP, or Goodwin. During the three and six months ended June 30,March 31, 2017, Goodwin performed legal services for the Company for which it earned approximately $1 million$2 million. For such period and $3 million, respectively.other periods when Goodwin has continued to perform such legal services since June 30, 2017 through the datewas a related party of this filing. Goodwin did not perform any services for the Company, during the three and six months ended June 30, 2016. The provision of legal services byfrom Goodwin was reviewed and approved by our Audit Committee. During the three months ended March 31, 2018, Goodwin was not a related party of the Company.

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, (previously referred to as Manufacturing/Retail/Logistics), which consists of our retail and consumer goods, manufacturing and logistics, travel and hospitality, and energy and utilities operating segments; and
Communications, Media and Technology, (previously referred to as Other), which includes our communications and media operating segment and our technology operating segment.
Our sales managers, account executives, account managers and project teams 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 groupssegments may affect revenues and operating expenses to differing degrees.
In 2018, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the changes is to charge to our business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes the stock-based compensation expense of sales managers, account executives, account managers and project teams, which was previously included in "unallocated costs." In addition, we have changed the methodology of charging our business segments for the use of our global delivery centers and infrastructure from a fixed per employee charge to a variable per employee charge. We have reported our segment operating profits using the new measurement methodology and have restated the prior period results to conform to the new methodology.
Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per seatemployee charge for use of theour global delivery centers.centers and infrastructure. Certain selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, stock-based compensation expense,costs related to our realignment program, a portion of depreciation and amortization costs related to our realignment program 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 separately disclosed as “unallocated costs” and adjusted only 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.
As described in Note 3 to our unaudited consolidated financial statements, on January 1, 2018, we adopted the New Revenue Standard, using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies.

Revenues from external customers and segment operating profit, before unallocated expenses, by reportable segment were as follows:
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended 
 March 31,
2017 2016 2017 20162018 2017
(in millions)(in millions)
Revenues:          
Financial Services$1,406
 $1,351
 $2,782
 $2,637
$1,461
 $1,376
Healthcare1,050
 959
 2,053
 1,873
1,121
 1,003
Products and Resources747
 660
 1,484
 1,293
821
 737
Communications, Media and Technology467
 400
 897
 769
509
 430
Total revenues$3,670
 $3,370
 $7,216
 $6,572
$3,912
 $3,546
          
Segment Operating Profit:          
Financial Services$411
 $459
 $802
 $882
$447
 $427
Healthcare343
 270
 616
 565
338
 274
Products and Resources214
 226
 417
 445
256
 217
Communications, Media and Technology146
 134
 267
 256
159
 135
Total segment operating profit1,114
 1,089
 2,102
 2,148
1,200
 1,053
Less: unallocated costs508
 498
 926
 1,003
507
 483
Income from operations$606
 $591
 $1,176
 $1,145
$693
 $570

Geographic Area Information
Revenue and long-lived assets, by geographic area, are as follows:
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended 
 March 31,
2017 2016 2017 20162018 2017
(in millions)(in millions)
Revenues: (1)
          
North America(2)
$2,851
 $2,624
 $5,612
 $5,121
$2,975
 $2,761
United Kingdom288
 311
 562
 610
310
 274
Rest of Europe291
 237
 576
 463
374
 285
Europe - Total579
 548
 1,138
 1,073
684
 559
Rest of World (3)
240
 198
 466
 378
253
 226
Total$3,670
 $3,370
 $7,216
 $6,572
$3,912
 $3,546
As ofAs of
June 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
(in millions)(in millions)
Long-lived Assets: (4)
      
North America(2)
$293
 $279
$387
 $360
Europe49
 52
66
 63
Rest of World (3)(5)
942
 980
880
 901
Total$1,284
 $1,311
$1,333
 $1,324
________________
(1)Revenues are attributed to regions based upon customer location.
(2)Substantially all relates to operations in the United States.
(3)Includes our operations in Asia Pacific, the Middle East and Latin America.
(4)Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
(5)Substantially all of these long-lived assets relate to our operations in India.

Note 14 — Subsequent Events

Business Combination

In April 2018, we completed the previously announced acquisition of Bolder Healthcare Solutions, a privately-held U.S. provider of revenue cycle management solutions to the healthcare industry for initial consideration of approximately $477 million. This acquisition expands our healthcare consulting, technology, and business process services portfolio and strengthens our position in digital healthcare technology and operations.

Restricted Cash and Time Deposits

Based on the April 2018 events related to the dispute with the ITD with respect to the 2016 India Cash Remittance described in Note 7, we have classified the March 31, 2018 cash and time deposits affected by the dispute with the ITD as restricted assets. The following table summarizes total restricted assets that are included in our consolidated statements of financial position as of March 31, 2018:
 Restricted Assets
 (in millions)
Restricted cash (1)
$159
Short-term investments (2)
348
Total restricted assets at March 31, 2018$507
(1)The restricted cash balance at March 31, 2018 is composed of $76 million of cash that in April 2018 was placed in a segregated account with the ITD and $83 million of cash that, in April 2018, was invested into a time deposit and placed under lien by court order.
(2)
The restricted short-term investments balance consists of time deposits in India as of March 31, 2018 that were subsequently restricted by court order in April 2018. This balance of $348 million, together with the additional deposit of $83 million described in note (1), comprise the $431 million of deposits currently subject to lien.

There were no restricted cash and deposits as of December 31, 2017.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statements of financial position to the amounts shown in the consolidated statements of cash flows:
 March 31
 2018 2017
 (in millions)
Cash and cash equivalents$1,440
 $1,308
Restricted cash159
 —
Total cash, cash equivalents and restricted cash$1,599
 $1,308

See Note 7 for additional information on the ITD Dispute.

Dividend

On May 4, 2018, our Board of Directors approved the Company's declaration of a $0.20 per share dividend with a record date of May 22, 2018 and a payment date of May 31, 2018.



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Executive Summary

We are one of the world’s leading professional services companies, transforming customers’companies. We are in business to help our customers adapt, compete and grow in the face of continual shifts and disruptions within their markets. We do so by partnering with them to apply technology to transform their business, operating, and technology models, allowing them to achieve the full value of digitizing their entire enterprises. We call this being “digital at scale.” When implemented, it enables customers to achieve more efficient and effective operations while reshaping their business models for the digital era.innovation and growth. Our unique industry-based, consultative approach helps customers envision, build and run more innovative and efficient businesses. Our core competencies include: business, process, operations and technology consulting, application development and systems integration, enterprise information management, application testing, application maintenance, information technology, or IT, infrastructure services, and business process services. We tailor our services and solutions to specific industries and utilizeuse an integrated global delivery model withthat employs customer service teams typically based on-site at customer locations and delivery teams located at dedicated global and regional delivery centers.
Our objective isIn 2017, we began a realignment of our business to create value for bothimprove the overall efficiency of our customers and stockholders by enhancing our position as a leading professional services company in the digital era. Digital services is work we do to help our customers win in the digital economy by applying technology and analytics to change consumer experiencesoperations while continuing to drive sustainable growth, deploying systems of intelligencerevenue growth. In addition, to automate and improve core business processes, and improving technology systems by deploying cloud and cyber security solutions and as-a-service models to make them simpler, more modern and secure. To accelerate our shift to digital services and solutions, we are deploying the following strategies:
Aligning aligning our digital services intoand solutions along three digital practice areas, - Digital Business, Digital Operations and Digital Systems and Technology - to address the needs of our customers as they transform their business and technology models.
Investinginvesting to scale these digital practice areas across our business segments and geographies, including through extensive training and re-skilling of our existing technical teams and expansion of our local workforces in the United States and other local markets around the world where we operate and pursuing select strategic acquisitions, joint ventures, investments and alliances that can expand our intellectual property, industry expertise, geographic reach, and platform and technology capabilities.
Continuing development ofcontinuing to develop our core business which includes application services, IT infrastructure and business process services. Our customers often look for efficiencies in the running of their core operations to help them fund investments in new digital capabilities. We work with them to analyze and identify opportunities for advanced automation and delivery efficiencies. Additionally, we seek to expand the geographic reach of our core portfolio of services.
Selectivelyselectively targeting higher margin work within our core business and unifyingbusiness. We believe these strategies will enable us to gradually expand our delivery capabilities to allow for more cost-conscious delivery, leveraging automation and scale, improving our utilization and optimizing our pyramid.
non-GAAP operating marginsIn 2017, we began a realignment of our business by executing on the above strategies and improving the overall efficiency of our operations,1 with the goal of achieving 22% non-GAAP operating margin1 in 2019 while continuing to drive revenue growth. As part of this realignment, for the three and six months ended June 30, 2017, we incurred $39 million and $50 million, respectively, in pre-tax realignment charges, reported in "Selling, general and administrative expenses" in our consolidated statements of operations, which are comprised of severance costs, primarily related to a voluntary separation program, or VSP, announced in May 2017, advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs and lease termination costs. The VSP was offered to ensure that our workforce is appropriately aligned to deliver sustained, high-quality growth. We expect the decrease in our workforce resulting from the VSP to reduce our compensation expense, including incentive-based compensation, by approximately $60 million on an annualized basis. We continue to recruit and hire across all of our practices and are expanding facilities globally, ensuring that we have the right expertise to help our customers.
The costs related to the realignment are excluded from non-GAAP operating margin1 and non-GAAP diluted earnings per share1. The total costs related to the realignment, which will consist primarily of severance costs under the VSP, advisory fees and lease termination costs, are expected to be incurred primarily in 2017 and will continue to be excluded from non-GAAP operating margin1 and non-GAAP diluted earnings per share1.


_______________
1Non-GAAP income from operations and Non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

We have a capital return plan that includes a combination of stock repurchases and cash dividends. As part of this plan, we entered into accelerated stock repurchase agreements, referred to collectively as the ASR, of $1.5 billion in March 2017 and paid a cash dividend of $0.15 per share in May 2017. Additionally, we have declared another cash dividend of $0.15 per share with a record date of August 22, 2017 and a payment date of August 31, 2017.
2019. There can be no assurances that we will be successful in achieving the objectives of these plans or that other factors beyond our control, including the various risks set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, will not cause us to fail to achieve the targeted improvements.

In February 2017, we announced a plan to return $3.4 billion to our stockholders over a two-year period. To date, as part of this plan, we have repurchased $2.1 billion of stock through accelerated stock repurchase agreements, or ASRs, and paid dividends of $383 million. In May 2017, we initiated a quarterly cash dividend and, in February 2018, we increased our quarterly dividend to $0.20 per share from $0.15 per share. In the first quarter of 2018, we paid dividends totaling $118 million. On an ongoing basis, we review our capital return plan, considering our financial performance and liquidity position, investments required to execute our strategic initiatives, the economic outlook, regulatory changes and other relevant factors. We are currently evaluating the impact of the Tax Cuts and Jobs Act, or Tax Reform Act, on our capital return plan.
On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers,” or New Revenue Standard, using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For the three months ended March 31, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $21 million, income from operations of $29 million and diluted earnings per share of $0.04 per share. See Note 3 to our unaudited consolidated financial statements for additional information.
The following table sets forth summarized operating results for the three months ended June 30, 2017March 31, 2018 and 2016:2017:
       Increase       Increase / Decrease
 2017 2016 $ % 2018 2017 $ %
 (Dollars in millions, except per share data) (Dollars in millions, except per share data)
Revenues $3,670
  $3,370
  $300
 8.9 $3,912
  $3,546
  $366
 10.3
Income from operations and operating margin 606
16.5% 591
17.5% 15
 2.5 693
17.7% 570
16.1% 123
 21.6
Net income 470
  252
  218
 86.5 520
  557
  (37) (6.6)
Diluted earnings per share 0.80
  0.41
  0.39
 
 0.88
  0.92
  (0.04) 

Other Financial Information2
       

 
Other Financial Information1
       

 

Non-GAAP income from operations and Non-GAAP operating margin 735
20.0% 683
20.3% 52
 7.6 794
20.3% 669
18.9% 125
 18.7
Non-GAAP diluted earnings per share 0.93
  0.87
  0.06
 
 1.06
  0.84
  0.22
 

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

The key drivers offollowing charts set forth revenues and revenue growth by business segment and geography for the three months ended March 31, 2018 and 2017:
revenuechartsa01.jpg
The following factors impacted our revenue growth during the three months ended June 30, 2017March 31, 2018 as compared to June 30, 2016 were as follows:

March 31, 2017:
Solid performance in our Communications, Media and Technology, (previously referred to as Other), Products and Resources (previously referred to as Manufacturing/Retail/Logistics) and Healthcare business segments with revenue growth of 16.8%, 13.2% and 9.5%, respectively;segments;
Revenues in our Financial Services business segment grew 4.1%below Company average as ourcertain banking customers continue to focus on optimizingoptimize the cost of supporting their cost structuresystems and managingoperations as they shift their discretionary spending;spend to transformation and digital services;
Sustained strength in the North American market where revenues grew 8.7%;market;
Continued penetration of the European and Rest of World (primarily the Asia Pacific) markets:markets.
◦In Europe, we experienced revenue growth of 5.7%, after a negative currency impact of 6.1%. Our revenues from customers in the United Kingdom declined 7.4%, after a negative currency impact of 8.7%. Revenues from our Rest of Europe customers, which included revenues from new strategic customers acquired in the fourth quarter of 2016, increased 22.8%, after a negative currency impact of 2.7%;
◦Revenues from our customers in Europe grew 22.4% inclusive of a positive currency impact of 11.7%. Specifically, revenues from our Rest of WorldEurope customers, increased 21.2%31.2% inclusive of a positive currency impact of 12.7%, afterwhile within the United Kingdom we experienced an immaterialincrease in revenues of 13.1% inclusive of a positive currency impact;impact of 10.7%. Revenue growth in the United Kingdom was negatively affected by weakness in the banking sector in that region;
Increased customer spending on discretionary projects;
Expansion of our service offerings, including consulting and digital services, next-generation IT solutions and platform-based solutions;
Continued expansion of the market for global delivery of technology and business process services; and
Increased penetration at existing customers, including strategic customers.




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

Our customers seek to meet a dual mandate of achieving more efficient and effective operations, while investing in digital technologies that are reshaping their business models. Increasingly, the relative emphasis among our customers is shifting towards investment and innovation, as reflected in accelerated demand for our digital services. We continue to see demand for larger, more complex projects that are transformational for our customers, including managed services contracts. Such contracts may have longer sales cycles and ramp-up periods and could lead to greater period-to-period variability in our operating results. We increased the number of strategic customers by 7 during the quarter, bringing the total number of our strategic customers to 343.364. We define a strategic customer as one offering the potential to generate at least $5 million to $50 million or more in annual revenues at maturity.
Our operating margin decreasedincreased to 16.5%17.7% for the quarter ended June 30, 2017March 31, 2018 from 17.5%16.1% for the quarter ended June 30, 2016,March 31, 2017, while our non-GAAP operating margin for the same period decreasedincreased to 20.0%20.3%32 from 20.3%18.9%32. The decreasesincreases in both our GAAP and non-GAAP operating margins were due to a decrease, as a percentage of revenues, in compensation and benefit costs, immigration costs and subcontractor and other operating costs, partially offset by an increase in compensationdepreciation due to recent acquisitions and benefits costs, the negative impact of the appreciation of the Indian rupee against the U.S. dollardollar.
2Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

On December 22, 2017, the United States enacted the Tax Reform Act, which significantly revised the U.S. corporate income tax law for tax years beginning after December 31, 2017. During the fourth quarter of 2017, we recorded a one-time provisional net income tax expense of $617 million, which reflects certain assumptions based upon our interpretation of the Tax Reform Act and increasesmay change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. During the first quarter of 2018, we have not recorded any adjustments to the one-time provisional net income tax expense. We anticipate completing the accounting for the Tax Reform Act within the measurement period. See Note 7 to our unaudited consolidated financial statements for additional information.
Our effective income tax rate for the first quarter of 2018 was 25.4% as compared to 14.2% in certain operating and professional costs, partially offset by greater realized gains on settlementsthe same period of cash flow hedges. Our GAAP operating margin was further negatively affected by the realignment charges incurred in 2017. Additionally, the GAAP and non-GAAP operating margins forFor the three months ended June 30, 2016 reflectedMarch 31, 2018, our effective tax rate increased primarily due to the loss recognized on a fixed-price customer contractrecognition in the first quarter of $27 million.

2017 of income tax benefits previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million and the 2018 estimated incremental income tax expense related to the current interpretation of the global intangible low-taxed income, or GILTI, provision of the Tax Reform Act, partially offset by the new lower U.S. income tax rate in 2018.
As previously disclosed, the Company is conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation is also examining various other payments made in small amounts in India that may not have complied with Company policy or applicable law. In September 2016, we voluntarily notified the Department of Justice, or DOJ, and the Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 20102009 and 20152016 that may have been improper. In the second half of 2016, we recorded an out-of-period correction related to $4 million of such payments that had been previously capitalized that should have been expensed. The investigation is also examining various other payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. There were no adjustments recorded during the six months ended June 30,2018 or 2017 related to the amounts under investigation.

In 2016, there were putative securities class action complaints filed, naming us and certain of our current and former officers as defendants and alleging violations of the Securities Exchange Act of 1934, as amended, or the Exchange Act, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal control over financial reporting and our disclosure controls and procedures. Additionally, in 20162017 and 2017,2016, putative shareholder derivative complaints were filed, naming us, certain of our current and former directors and certain of our current and former officers as defendants. See the section titled "Part II, Item 1. Legal Proceedings."
During the quarterquarters ended June 30,March 31, 2018 and 2017, we incurred $8$3 million and $14 million, respectively, in costs related to the FCPA investigation and related lawsuits. We expect to continue to incur expenses related to these matters.

We are involved in an ongoing dispute with the Indian Income Tax Department, or ITD, in connection with which we received a notice in March 2018 asserting that the ITD is owed additional taxes on our previously disclosed 2016 India Cash Remittance, the transaction undertaken by our principal operating subsidiary in India, or CTS India, to repurchase shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of that transaction, undertaken pursuant to a plan approved by the Madras High Court in Chennai, India, we previously paid $135 million in Indian income taxes, which we believe are all the applicable taxes owed for this transaction under Indian law. The ITD is asserting that we owe an additional $507 million related to the 2016 India Cash Remittance. In addition to the dispute on the 2016 India Cash Remittance, we are 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 collectively referred to as the ITD Dispute), for which we also believe we have paid all applicable taxes owed. Accordingly, we have not recorded any reserves for these matters as of March 31, 2018. The ITD Dispute is ongoing, and no final decision has been reached. While we believe that we have paid all applicable taxes related to the transactions underlying the ITD Dispute, if it is ultimately determined that we are liable for the full amount of additional taxes the ITD alleges we owe, there could be a material adverse effect on our results of operations, cash flows and financial condition.

In March 2018, the ITD placed an attachment on certain of our India bank accounts, relating to the 2016 India Cash Remittance. In April 2018, the Madras High Court granted our application for a stay of the actions of the ITD and lifted the ITD’s attachment of our bank accounts. As part of the interim stay order, we have deposited $76 million, representing 15% of the disputed tax amount related to the 2016 India Cash Remittance, to be kept in a segregated account by the ITD. In addition, the court has placed a lien on certain time deposits of CTS India in the amount of $431 million, which is the remainder of 2017the disputed tax amount related to the 2016 India Cash Remittance. See Note 7 and future periods, including with respectNote 14 to remediating the material weakness in our internal control overunaudited consolidated financial reporting.

statements for additional information and impact on our financial statements.
We finished the secondfirst quarter of 20172018 with approximately 256,800261,400 employees, which is an increase of approximately 12,500200 as compared to June 30, 2016. The increase in the number of our service delivery staff and the related infrastructure costs to meet the demand for our services are the primary drivers of the increase in our operating expenses inMarch 31, 2017. Annualized turnover, including both voluntary and involuntary, was approximately 23.6%20.3% for the

three months ended June 30, 2017. The annualized turnover rate was impacted by the reduction in headcount as a result of performance evaluations and the VSP.March 31, 2018. The majority of our turnover occurs in India. As a result,The higher than usual annualized turnover rate reflects the highly competitive labor market in our industry in the geographies in which we compete for talent, including India. Annualized attrition rates on-site at customers are below our global attrition rate. In addition, attrition is weighted towards the more junior members of our staff.

During the remainder of 2017,2018, barring any unforeseen events, we expect the following factors to affect our business and our operating results:
Demand from our customers for digital services;
Our customers' dual mandate of simultaneously achieving cost savings while investing in transformation and innovation;
Continued focus by customers on directing technology spending towards cost containment projects, such as application maintenance, infrastructure services and business process services;
_______________
3Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

projects;
Secular changes driven by evolving digital technologies and regulatory changes, including potential regulatory changes with respect to immigration and taxes;
Demand from our healthcare customers couldmay continue to be affected by the uncertainty in the regulatory environment;and secular environments;
Demand from ourcertain banking customers may continue to be negatively affected by their continued focus on optimizingongoing efforts to optimize the cost of supporting their cost structuresystems and managingoperations as they shift their discretionary spending;spend to transformation and digital services;
Discretionary spending by our retail customers may continue to be negatively affected by weakness in the retail sector;
Legal fees and other expenses related to the internal investigation and related matters as described above; and
Volatility in foreign currency rates; and
Continued uncertainty in the U.S. and world economies, including as a result of recent changes in the government administrations in the United States and elsewhere.rates.
In response to this environment, we plan to:
Continue to invest in our digital practice areas of focus across industries and geographies;
Continue to invest in our talent base, including through local hiring and re-skilling, and new service offerings, including digital technologies and new delivery models;
Partner with our existing customers to garner an increased portion of our customers’ overall technology spend by providing innovative solutions;
Focus on growing our business in Europe, the Middle East, the Asia Pacific region and Latin America, where we believe there are opportunities to gain market share;
Increase our strategic customer base across all of our business segments;
Pursue strategic acquisition opportunities that we believe add new technologies, including digital technologies, or platforms that complement our existing services, improve our overall service delivery capabilities, and/or expand our geographic presence; and
Focus on operating discipline in order to appropriately manage our cost structure; and
Locate most of our new development center facilities in tax incentivized areas.
structure.

Business Segments
Our reportable segments are:
Financial Services, which consists of our banking and insurance operating segments;
Healthcare, which consists of our healthcare and life sciences operating segments;
Products and Resources, (previously referred to as Manufacturing/Retail/Logistics), which consists of our retail and consumer goods, manufacturing and logistics, travel and hospitality, and energy and utilities operating segments; and
Communications, Media and Technology, (previously referred to as Other), which includes our communications and media operating segment and our technology operating segment.
Our sales managers, account executives, account managers and project teams are aligned in accordance with the specific industries they serve. Our chief operating decision maker evaluates Cognizant’sthe 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 businessoperating 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 groupssegments may affect revenues and operating expenses to differing degrees.
In 2018, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the changes is to charge to our business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes the stock-based compensation expense of sales managers, account executives, account managers and project teams, which was previously included in "unallocated costs." In addition, we have changed the methodology of charging our business segments for the use of our global delivery centers and infrastructure from a fixed per employee charge to a variable per employee charge. We have reported our segment operating profits using the new measurement methodology and have restated the prior period results to conform to the new methodology.
Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per seatemployee charge for use of theour global delivery centers.centers and infrastructure. Certain selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, stock-based compensation expense, costs related to our realignment program, a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit.

profit and are separately disclosed as “unallocated costs” and adjusted against our total income from operations.
We provide a significant volume of services to many customers in each of our business segments. Therefore, a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment. However, no individual customer accounted for sales in excess of 10% of our consolidated revenues for the periods ended June 30, 2017March 31, 2018 and 2016.2017. In addition, the services we provide to our larger customers are often critical to the operations of such customers. As such, we believe that a termination of our services would in many instances require an extended transition period with gradually declining revenues.

Results of Operations

Three Months Ended June 30, 2017March 31, 2018 Compared to Three Months Ended June 30, 2016March 31, 2017

The following table sets forth, for the periods indicated, certain financial data for the three months ended June 30:March 31:
  % of   % of Increase / Decrease  % of   % of 
Increase / Decrease(1)
2017 Revenues 2016 Revenues $ %
2018(1)
 Revenues 
2017(1)
 Revenues $ %
(Dollars in millions, except per share data)(Dollars in millions, except per share data)
Revenues$3,670
 100.0 $3,370
 100.0 $300
 8.9
$3,912
 100.0 $3,546
 100.0 $366
 10.3
Cost of revenues(1)(2)
2,261
 61.6 2,038
 60.5 223
 10.9
2,401
 61.4 2,194
 61.9 207
 9.4
Selling, general and administrative expenses(1)(2)
709
 19.3 654
 19.4 55
 8.4
711
 18.2 686
 19.3 25
 3.6
Depreciation and amortization expense94
 2.6 87
 2.6 7
 8.0
107
 2.7 96
 2.7 11
 11.5
Income from operations606
 16.5 591
 17.5 15
 2.5
693
 17.7 570
 16.1 123
 21.6
Other income (expense), net29
 4
 25
 625.0
4
 79
 (75) (94.9)
Income before provision for income taxes635
 17.3 595
 17.6 40
 6.7
697
 17.8 649
 18.3 48
 7.4
Provision for income taxes(165) (343) 178
 (51.9)(177) (92) (85) 92.4
Net income$470
 12.8 $252
 7.5 $218
 86.5
$520
 13.3 $557
 15.7 $(37) (6.6)
Diluted earnings per share$0.80
 $0.41
 $0.39
 
$0.88
 $0.92
 $(0.04) 
              
Other Financial Information (2)(3)
              
Non-GAAP income from operations and non-GAAP operating margin$735
 20.0 $683
 20.3 $52
 7.6
$794
 20.3 $669
 18.9 $125
 18.7
Non-GAAP diluted earnings per share$0.93
 $0.87
 $0.06
  $1.06
 $0.84
 $0.22
  
_____________________
(1)
On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For the three months ended March 31, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $21 million, income from operations of $29 million and diluted earnings per share of $0.04 per share. See Note 3 to our unaudited consolidated financial statements for additional information.
(2)Exclusive of depreciation and amortization expense.
(2)(3)Non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.
Revenues - Overall. The increase in revenues
Our revenue growth was primarily attributed to services related to integration of digital technologies that are reshaping our customers' business, operating and technology models to align with shifts in consumer preferences, increased customer spending on discretionary projects, continued interest in using our global delivery model as a means to reduce overall technology and operations costs and continued penetration in all our geographic markets. Revenues from customers added since June 30, 2016March 31, 2017 were $132$96 million and represented 44.0%26.2% of the period-over-period revenue increase. Foreign currency exchange movements negatively impacted year-over-year revenue growth by $35 million, or 1.0%, primarily due to the weakening of the British pound.
Our consulting and technology services revenues for the three months ended June 30, 2017March 31, 2018 increased by 11.4%10.7% compared to the three months ended June 30, 2016March 31, 2017 and represented 58.7%58.0% of total revenues for the three months ended June 30, 2017.March 31, 2018. Our outsourcing services revenues for the three months ended June 30, 2017March 31, 2018 increased by 5.6%9.7% and constituted 41.3%42.0% of total revenues for the three months ended June 30, 2017.March 31, 2018.

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. For the three months ended March 31, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $21 million. See Note 3 to our unaudited consolidated financial statements for additional information.

Revenues from our top customers as a percentage of total revenues were as follows:
  Three Months Ended June 30,
  2017 2016
Revenues from top five customers as a percentage of total revenues 9.0% 10.5%
Revenues from top ten customers as a percentage of total revenues 15.1% 17.5%
  Three Months Ended March 31,
  2018 2017
Top five customers 9.0% 9.0%
Top ten customers 15.9% 15.1%
As we continue to add new customers and increase our penetration at existing customers, we expect the percentage of revenues from our top five and top ten customers to continue to decline over time.


Revenues - Reportable Segments. Business Segments
Revenues by reportable business segment were as follows for the three months ended June 30:March 31:
 2017 2016 Increase 2018 2017 Increase
$ %$ %
 (Dollars in millions) (Dollars in millions)
Financial Services $1,406
 $1,351
 $55
 4.1 $1,461
 $1,376
 $85
 6.2
Healthcare 1,050
 959
 91
 9.5 1,121
 1,003
 118
 11.8
Products and Resources 747
 660
 87
 13.2 821
 737
 84
 11.4
Communications, Media and Technology 467
 400
 67
 16.8 509
 430
 79
 18.4
Total revenues(1) $3,670
 $3,370
 $300
 8.9 $3,912
 $3,546
 $366
 10.3

_____________________
(1)
Results for 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. See Note 3 to our unaudited consolidated financial statements for additional information.
Financial Services
Revenues from our Financial Services segment grew 4.1%6.2% for the three months ended June 30, 2017,March 31, 2018, as compared to the three months ended June 30, 2016.March 31, 2017. Growth was stronger among our insurance customers where revenues increased by $40$55 million as compared to an increase of $15$30 million for our banking customers. In this segment, revenues from customers added since June 30, 2016March 31, 2017 were $23$28 million and represented 41.8%32.9% of the period-over-period revenuerevenues increase in this segment. Key areas of focus for our Financial Services customers included the adoption and integration of digital technologies that are reshaping our customers' business and operating models, cost optimization, robotic process automation, cyber security and vendor consolidation. Demand from ourcertain banking customers may continue to be negatively affected by their continued focus on optimizingongoing efforts to optimize the cost of supporting their cost structuresystems and managingoperations as they shift their discretionary spending.spend to transformation and digital services.

Healthcare
Revenues from our Healthcare segment grew 9.5%11.8% for the three months ended June 30, 2017,March 31, 2018, as compared to the three months ended June 30, 2016. Revenues fromMarch 31, 2017. Growth was stronger among our healthcare customers where revenues increased by $58$111 million, while revenue growth amongincluding revenues from a new strategic customer acquired in the third quarter of 2017, as compared to an increase of $7 million for our life sciences customers was $33 million. customers.Revenues from customers added since June 30, 2016March 31, 2017 were $22$20 million and represented 24.2%16.9% of the period-over-period revenuerevenues increase in this segment. The increase in revenues from our life sciences customers was driven by a growing demand for a broader range ofour services including business process services, advanced data analytics and solutions that span multiple service lines while leveraging cloud technologies and platforms.among life science customers has been affected by reduced discretionary spending. The demand for our services among healthcare customers couldmay continue to be affected by uncertainty in the regulatory environment. We believe that in the long term the healthcare industry continues to present a significant growth opportunity due to factors that are transforming the industry, including the changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare.

Products and Resources
Revenues from our Products and Resources segment (previously referred to as Manufacturing/Retail/Logistics) grew 13.2%11.4% for the three months ended June 30, 2017,March 31, 2018, as compared to the three months ended June 30, 2016.March 31, 2017. Revenue growth in this segment was strongest among our manufacturing and logistics customers and energy and utilities customers and manufacturing and logistics customers where revenues increased by a combined $79 million, including revenues from new strategic customers acquired in the second half of 2016.$64 million. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined $8$20 million. Revenues from customers added since June 30, 2016March 31, 2017 were $68$39 million, representing 78.2%46.4% of the period-over-period revenue increase in this segment. Demand within this segment continues to be driven by increased adoption of digital technologies that are reshaping our customers' business and operating models, as well as growing demand for analytics, supply chain consulting, implementation initiatives, productsmart products, transformation of business models, internet of things and omni channel commerce implementation and integration services. Discretionary spending by our retail customers has been and may continue to be affected by weakness in the retail sector.

Communications, Media and Technology
Revenues from our Communications, Media and Technology segment (previously referred to as Other) grew 16.8%18.4% for the three months ended June 30, 2017,March 31, 2018, as compared to the three months ended June 30, 2016. InMarch 31, 2017. Revenue growth was $53 million among our technology customers and $26 million among our communications and media customers. Revenues from customers added since March 31, 2017 were $9 million and represented 11.4% of the second quarter of 2017, growthperiod-over-period revenue increase in this segment. Growth within this segment was driven by the increased adoption of digital technologies, digital content operations, services to help our customers balance rationalizing costs while creating a differentiated user experience and an expanded range of services, such as business process services. Revenue growth was $43 million among our communications and media customers and $24 million among our technology customers. Revenues from customers added since June 30, 2016 were $19 million and represented 28.4% of the period-over-period revenue increase in this segment.

Revenues - Geographic Markets.
Revenues by geographic market were as follows for the three months ended June 30:March 31:
 2017 2016 Increase (Decrease) 2018 2017 Increase
$ % $ %
 (Dollars in millions) (Dollars in millions)
North America $2,851
 $2,624
 $227
 8.7
 $2,975
 $2,761
 $214
 7.8
United Kingdom 288
 311
 (23) (7.4) 310
 274
 36
 13.1
Rest of Europe 291
 237
 54
 22.8
 374
 285
 89
 31.2
Europe - Total 579
 548
 31
 5.7
 684
 559
 125
 22.4
Rest of World 240
 198
 42
 21.2
 253
 226
 27
 11.9
Total revenues(1) $3,670
 $3,370
 $300
 8.9
 $3,912
 $3,546
 $366
 10.3
_____________________
(1)
Results for 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. See Note 3 to our unaudited consolidated financial statements for additional information.
North America continues to be our largest market, representing 77.7%76.0% of total revenues for the secondfirst quarter of 2017,2018, and accounting for $227 million58.5% of the $300 million total revenue increasegrowth from the secondfirst quarter of 2016. Revenue2017. The increase in revenues in this region was primarily attributed to services related to the integration of digital technologies that are reshaping our customers' business and operating models to align with shifts in consumer preferences, increased customer spending on discretionary projects and continued interest in using our global delivery model as a means to reduce overall technology and operations costs. In the first quarter of 2018, revenue growth in Europe and Rest of World markets was driven by an increase in demand for an expanded range of services, such as business process services and customer adoption and integration of digital technologies that are reshaping our customers' business and operating models. Revenues from our customers in Europe grew 5.7%, after22.4% inclusive of a negativepositive currency impact of 6.1%11.7%. Specifically, within the United Kingdom we experienced a decrease in revenues of 7.4%, after a negative currency impact of 8.7% while revenues from our Rest of Europe customers, including revenues from new strategic customers acquired in the fourth quarterincreased 31.2% inclusive of 2016, increased 22.8% after a negativepositive currency impact of 2.7%12.7%, while within the United Kingdom we experienced an increase in revenues of 13.1% inclusive of a positive currency impact of 10.7%. Revenue growth from ourin the United Kingdom customers has beenwas negatively affected by the current macroeconomic conditions, including the weakening of the British pound and uncertaintyweakness in the markets due to the result of the June 2016 United Kingdom referendum to exit the European Union, or Brexit Referendum.banking sector in that region. Revenues from our Rest of World customers grew 21.2%, after an immaterial currency impact11.9% in the secondfirst quarter of 2017,2018, primarily driven by the Australia and IndiaMiddle East markets. We believe that Europe, the Middle East, theIndia, Asia Pacific and Latin America regions will continue to be areas of significant investment for us as we see these regions as long term growth opportunities.

Cost of Revenues (Exclusive of Depreciation and Amortization Expense).
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, payroll taxes, employee benefits, immigration and project-related immigration and travel for technical personnel and subcontracting expense.costs relating to revenues. Our cost of revenues increased by 10.9%9.4% during the secondfirst quarter of 20172018 as compared to the secondfirst quarter of 2016.2017, decreasing as a percentage of revenues to 61.4% in the first quarter of 2018 compared to 61.9% in the first quarter of 2017. The increasedecrease as a percentage of revenues was due primarily to highera decrease in subcontractor costs, partially offset by an increase in compensation and benefits costs for our technical personnel, an increase in fees paid to strategic partners and the negative impact ofother vendors related to our managed services and digital products and the appreciation of the IndianIndia rupee against the U.S. dollar, partially offset by greater realized gains on settlements of cash flow hedges. Additionally, cost of revenues for the three months ended June 30, 2016 reflected the loss recognized on a fixed-price customer contract. For the three months ended June 30, 2017, compensationdollar. Compensation and benefitbenefits costs, including incentive-based compensation, increased primarilyby $179 million when compared to the three months ended March 31, 2017, as a result of the increase in the number of our service delivery personnel.technical personnel increased.

Selling, General and Administrative Expenses.
Selling, general and administrative expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, payroll taxes, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. Selling, general and administrative expenses, including depreciation and amortization, increased by 8.4%4.6% during the secondfirst quarter of 20172018 as compared to the secondfirst quarter of 2016,2017, decreasing as a percentage of revenues to 21.9%20.9% in the secondfirst quarter of 20172018 as compared to 22.0%22.1% in the secondfirst quarter of 2016.2017. The decrease as a percentage of revenues was due primarily to efficiencies of leveraging our cost structure over a larger organization and a reduction in immigration costs.
Income from Operations and Operating Margin - Overall
Income from operations increased 21.6% in the first quarter of 2018 as compared to the first quarter of 2017. Our operating margin increased to 17.7% for the quarter ended March 31, 2018 from 16.1% for the quarter ended March 31, 2017, primarily due to a decrease in certaincompensation and benefit costs, immigration costs, subcontractor and other operating costs and professional service costs,greater realized gains on settlement of cash flow hedges, partially offset by higher compensationan increase in depreciation expense due to recent acquisitions and benefits costs, realignment charges incurred in the second quarter of 2017 and the negative impact of the appreciation of the Indian rupee against the U.S. dollar.

Income from Operations and Operating Margin - Overall. Income from operations increased 2.5% in the second quarter of 2017 as compared to the second quarter of 2016. Our operating margin decreased to 16.5% for the quarter ended June 30, 2017 from 17.5% for the quarter ended June 30, 2016, primarily due to an increase in compensation and benefits costs, increases in certain operating and professional costs, realignment charges in 2017 and the negative impact of the appreciation of the Indian rupee against the U.S. dollar, partially offset by greater realized gains on settlements of cash flow hedges. Additionally, the operating margin for the three months ended June 30, 2016 reflected the loss recognized on a fixed-price customer contract of $27 million. Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against the U.S. dollar negatively impacted our operating margin by approximately 6972 basis points or 0.690.72 percentage points in the three months ended June 30, 2017.March 31, 2018. Each additional 1.0% change in the exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by approximately 1918 basis points or 0.190.18 percentage points.


We entered into foreign exchange forward contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the three months ended June 30, 2017,March 31, 2018, the settlement of our cash flow hedges positively impacted our operating margin by approximately 9589 basis points or 0.950.89 percentage points as compared to a positive impact of approximately 956 basis points or 0.090.56 percentage points during the three months ended June 30, 2016.March 31, 2017.
For the three months ended June 30,March 31, 2018 and 2017, and 2016, our non-GAAP operating margins were 20.0%20.3%43 and 20.3%18.9%43, respectively. As set forth in the “Non-GAAP Financial Measures” section below, our non-GAAP operating margin excludes stock based compensation expense, acquisition-related charges and for 2017, realignment charges.
Our most significant costs are the salaries and related benefits for our technical staff and other professionals. In certain regions, competition for professionals with advanced technical skills necessary to perform our services has caused wages to increase at a rate greater than the general rate of inflation. As with other service providers in our industry, we must adequately anticipate wage increases, particularly on our fixed-price and transaction- or volume-based priced contracts. Historically, we have experienced increases in compensation and benefit costs in India; however, this has not had a material impact on our results of operations as we have been able to absorb such cost increases through cost management strategies, such as managing discretionary costs, the mix of professional staff and utilization levels, and achieving other operating efficiencies. There can be no assurance that we will be able to offset such cost increases in the future.


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

Segment Operating Profit. Profit
In 2018, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the changes is to charge to our business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes the stock-based compensation expense of sales managers, account executives, account managers and project teams, which was previously included in "unallocated costs." In addition, we have changed the methodology of charging our business segments for the use of our global delivery centers and infrastructure from a fixed per employee charge to a variable per employee charge. We have reported our segment operating profits using the new measurement methodology and have restated the prior period results to conform to the new methodology.

Segment operating profits were as follows for the three months ended June 30:March 31:
    Increase (Decrease)    Increase
2017 2016 $ %2018 2017 $ %
(Dollars in millions)(Dollars in millions)
Financial Services$411
 $459
 $(48) (10.5)$447
 $427
 $20
 4.7
Healthcare343
 270
 73
 27.0
338
 274
 64
 23.4
Products and Resources214
 226
 (12) (5.3)256
 217
 39
 18.0
Communications, Media and Technology146
 134
 12
 9.0
159
 135
 24
 17.8
Total segment operating profit1,114
 1,089
 25
 2.3
1,200
 1,053
 147
 14.0
Less: unallocated costs508
 498
 10
 2.0
507
 483
 24
 5.0
Income from operations$606
 $591
 $15
 2.5
$693
 $570
 $123
 21.6

In our Financial Services, ProductsHealthcare business segment and Resources, andour Communications, Media and Technology business segments,segment, operating profits increased as a percentage of revenues due to revenue growth outpacing headcount growth, partially offset by the negative impact of the appreciation of the Indian rupee against the U.S. dollar and investments to accelerate our shift to digital. In our Financial Services business segment, operating profits decreased as a percentage of revenues due to increases in compensation and benefit costs, investments to accelerate our shift to digital, including re-skilling of service delivery personnel, and the negative impact of the appreciation of various currencies, including the Indian rupee against the U.S. dollar. In our HealthcareProducts and Resources business segment, operating profits increasedremained flat as a percentage of revenues due to revenue growth outpacing headcount growth and the $27 million loss on a fixed-price customer contract recognized in the second quarter of 2016, partially offset by the negative impact of the appreciation of the Indian rupee against the U.S. dollar and investments to grow our business.revenues.
Other Income (Expense), Net.
Total other income (expense), net consists primarily of foreign currency exchange gains and (losses), interest income and interest expense. The following table sets forth total other income (expense), net for the three months ended June 30:March 31:
2017 2016 
Increase/
Decrease
2018 2017 
Increase/
Decrease
(in millions)(in millions)
Foreign currency exchange gains (losses)$8
 $(23) $31
(Losses) gains on foreign exchange forward contracts not designated as hedging instruments(3) 3
 (6)
Net foreign currency exchange gains (losses)5
 (20) 25
Foreign currency exchange (losses) gains$(33) $62
 $(95)
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments2
 (10) 12
Net foreign currency exchange (losses) gains(31) 52
 (83)
Interest income31
 28
 3
41
 32
 9
Interest expense(6) (5) (1)(6) (6) —
Other, net(1) 1
 (2)—
 1
 (1)
Total other income (expense), net$29
 $4
 $25
$4
 $79
 $(75)

The foreign currency exchange gainslosses were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets in our U.S. dollar functional currency India subsidiaries as well as the remeasurement of other net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. The lossesgains on our foreign exchange forward contracts not designated as hedging instruments relate to the realized and unrealized gains and losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to the Indian rupee and other non-U.S. dollar denominated net monetary assets and liabilities. As of June 30, 2017,March 31, 2018, the notional value of our undesignated hedges was $269$301 million. The increase in interest income of $9 million was primarily attributable to an increase in average invested balances in 2018.

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

Provision for Income Taxes.
The provision for income taxes decreasedincreased to $165$177 million during the three months ended June 30, 2017March 31, 2018 from $343$92 million during the three months ended June 30, 2016.March 31, 2017. The effective income tax rate decreasedincreased to 26.0%25.4% for the three months ended June 30, 2017March 31, 2018 from 57.6%14.2% for the three months ended June 30, 2016.
In May 2016, our principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion ("India Cash Remittance"). This transaction was undertaken pursuant to a plan approved by the High Court of Madras and simplified the shareholding structure of our principal operating subsidiary in India. PursuantMarch 31, 2017 primarily due to the transaction, our principal Indian operating subsidiary repurchased approximately $1.2 billion of the total $2.8 billion of shares from its U.S. shareholders, resulting in tax expenserecognition in the United Statesfirst quarter of 2017 of income tax benefits previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million and India, while the remaining $1.6 billion was repurchased from its shareholder outside the United States. Net of taxes, the transaction resulted in a remittance of cash to the United States in the amount of $1.0 billion. As a result of this transaction, we incurred an2018 estimated incremental 2016 income tax expense of $238 million, including a discrete item recognized in the second quarter of 2016 of $143 million relatingrelated to the distributioncurrent interpretation of historic undistributed accumulated foreign earnings. Total incremental tax expensethe GILTI provision of $190 million was recognized in the quarter ended June 30, 2016. This transaction is primarily responsible forTax Reform Act, partially offset by the decrease in our effectivenew lower U.S. income tax rate in 2018. The recognition of these benefits in the first quarter of 2017 was based on management’s reassessment regarding whether certain unrecognized tax benefits met the more-likely-than-not threshold in light of the lapse in the statute of limitations as compared to 2016.a portion of such benefits.

Net Income.
Net income increaseddecreased to $470$520 million for the three months ended June 30, 2017March 31, 2018 from $252$557 million for the three months ended June 30, 2016,March 31, 2017, representing 12.8%13.3% and 7.5%15.7% of revenues, respectively. The increasedecrease in net income as a percentage of revenues is primarily due to the decreaseforeign currency exchange losses in 2018 compared to gains in 2017 and an increase in the provision for income tax provision,taxes, partially offset by a decreasean increase in operating margin.income from operations.

Non-GAAP Financial Measures

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

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

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

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


The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three months ended June 30:March 31:
2017 
% of
Revenues
 2016 
% of
Revenues
2018 
% of
Revenues
 2017 
% of
Revenues
(Dollars in millions, except per share amounts)(Dollars in millions, except per share amounts)
GAAP income from operations and operating margin$606
 16.5 $591
 17.5$693
 17.7 $570
 16.1
Add: Stock-based compensation expense (1)
55
 1.5 62
 1.959
 1.5 54
 1.5
Add: Acquisition-related charges (2)
35
 1.0 30
 0.941
 1.1 34
 1.0
Add: Realignment charges (3)
39
 1.0 —
 —1
 — 11
 0.3
Non-GAAP income from operations and non-GAAP operating margin$735
 20.0 $683
 20.3$794
 20.3 $669
 18.9
        
GAAP diluted earnings per share$0.80
 $0.41
 $0.88
 $0.92
 
Effect of above operating adjustments, pre-tax0.22
 0.15
 0.17
 0.16
 
Effect of non-operating foreign currency exchange (losses) gains, pre-tax (4)
(0.01) 0.04
 
Effect of non-operating foreign currency exchange (gains) losses, pre-tax (4)
0.06
 (0.08) 
Tax effect of non-GAAP adjustments to pre-tax income (5)
(0.08) (0.04) (0.05) (0.07) 
Effect of incremental income tax expense related to the India Cash Remittance (6)
—
 0.31
 
Effect of recognition of income tax benefit related to an uncertain tax position (6)
—
 (0.09) 
Non-GAAP diluted earnings per share$0.93
 $0.87
 $1.06
 $0.84
 
_____________________

(1)Stock-based compensation expense reported in:
Three Months Ended 
 June 30,		Three Months Ended 
 March 31,
2017 20162018 2017
Cost of revenues$13
 $13
$15
 $15
Selling, general and administrative expenses42
 49
44
 39
(2)Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.
(3)Realignment charges include severance costs, primarily associated with the VSP, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations and are expected to be incurred primarily in 2017.operations.
(4)Non-operating foreign currency exchange gains (losses) are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.
(5)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
Three Months Ended 
 June 30,		Three Months Ended 
 March 31,
2017 20162018 2017
Non-GAAP income tax benefit (expense) related to:      
Stock-based compensation expense$20
 $15
$19
 $21
Acquisition-related charges12
 11
9
 12
Realignment charges14
 —
—
 4
Foreign currency exchange gains (losses)—
 —
(1) 5
The effective tax rate related to each of our non-GAAP adjustments varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions.
(6)In May 2016, our principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of this transaction, we incurred an incremental income tax expense of $190 million in the three months ended June 30, 2016.

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

The following table sets forth, for the periods indicated, certain financial data for the six months ended June 30:
   % of   % of Increase / Decrease
 2017 Revenues 2016 Revenues $ %
 (Dollars in millions, except per share data)
Revenues$7,216
 100.0 $6,572
 100.0 $644
 9.8
Cost of revenues(1)
4,455
 61.7 3,953
 60.2 502
 12.7
Selling, general and administrative expenses(1)
1,395
 19.3 1,300
 19.8 95
 7.3
Depreciation and amortization expense190
 2.6 174
 2.6 16
 9.2
Income from operations1,176
 16.3 1,145
 17.4 31
 2.7
Other income (expense), net108
   39
   69
 176.9
Income before provision for income taxes1,284
 17.8 1,184
 18.0 100
 8.4
Provision for income taxes(257)   (491)   234
 (47.7)
Net income$1,027
 14.2 $693
 10.6 $334
 48.2
Diluted earnings per share$1.71
   $1.14
   $0.57
  
Other Financial Information (2)
           
Non-GAAP income from operations and non-GAAP operating margin$1,404
 19.5 $1,320
 20.1 $84
 6.4
Non-GAAP diluted earnings per share$1.76
   $1.67
   $0.09
  
_____________________
(1)Exclusive of depreciation and amortization expense.
(2)Non-GAAP income from operations, non-GAAP operating margin and non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

Revenues - Overall. The increase in revenues was primarily attributed to services related to integration of digital technologies to align with shifts in consumer preferences, increased customer spending on discretionary projects, continued interest in using our global delivery model as a means to reduce overall IT and operations costs and continued penetration in all our geographic markets. Revenues from customers added since June 30, 2016 were $239 million and represented 37.1% of the period-over-period revenue increase. Foreign currency exchange movements negatively impacted year-over-year revenue growth by $70 million, or 1.1%, primarily due to the weakening of the British pound.

Our consulting and technology services revenues for the six months ended June 30, 2017 increased by 11.0% compared to the six months ended June 30, 2016 and represented 58.3% of total revenues for the six months ended June 30, 2017. Our outsourcing services revenues for the six months ended June 30, 2017 increased by 8.2% and constituted 41.7% of total revenues for the six months ended June 30, 2017.
Revenues from our top customers were as follows:
  Six Months Ended June 30,
  2017 2016
Revenues from top five customers as a percentage of total revenues 8.9% 10.4%
Revenues from top ten customers as a percentage of total revenues 15.0% 17.5%
As we continue to add new customers and increase our penetration at existing customers, we expect the percentage of revenues from our top five and top ten customers to continue to decline over time.


Revenues - Reportable Segments. Revenues by reportable business segment were as follows for the six months ended June 30:
  2017 2016 Increase
$ %
  (Dollars in millions)
Financial Services $2,782
 $2,637
 $145
 5.5
Healthcare 2,053
 1,873
 180
 9.6
Products and Resources 1,484
 1,293
 191
 14.8
Communication, Media and Technology 897
 769
 128
 16.6
Total revenues $7,216
 $6,572
 $644
 9.8

Revenues from our Financial Services segment grew 5.5% for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Growth was stronger among our insurance customers where revenues increased by $92 million as compared to an increase of $53 for our banking customers. In this segment, revenues from customers added since June 30, 2016 were $37 million and represented 25.5% of the period-over-period revenue increase in this segment. Key areas of focus for our Financial Services customers included the adoption and integration of digital technologies that are reshaping our customers' business and operating models, cost optimization, robotic process automation, cyber security and vendor consolidation. Demand from our banking customers may continue to be negatively affected by their continued focus on optimizing their cost structure and managing their discretionary spending.

Revenues from our Healthcare segment grew 9.6% for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Revenues from our healthcare customers increased by $106 million while revenue growth among our life sciences customers was $74 million. Revenues from customers added since June 30, 2016 were $38 million and represented 21.1% of the period-over-period revenue increase in this segment. The increase in revenues from our life sciences customers was driven by a growing demand for a broader range of services, including business process services, advanced data analytics and solutions that span multiple service lines while leveraging cloud technologies and platforms. The demand for our services among healthcare customers could be affected by uncertainty in the regulatory environment. We believe that in the long term the healthcare industry continues to present a significant growth opportunity due to factors that are transforming the industry, including the changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare.

Revenues from our Products and Resources segment (previously referred to as Manufacturing/Retail/Logistics) grew 14.8% for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Revenue growth in this segment was strongest among our energy and utilities customers and manufacturing and logistics customers, where revenues increased by a combined $171 million, including revenues from new strategic customers acquired in the fourth quarter of 2016. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined $20 million. Revenues from customers added since June 30, 2016 were $138 million, representing 72.3% of the period-over-period revenue increase in this segment. Demand within this segment continues to be driven by increased adoption of digital technologies that are reshaping our customers' business and operating models, as well as growing demand for analytics, supply chain consulting, implementation initiatives, product transformation, internet of things and omni channel commerce implementation and integration services. Discretionary spending by our retail customers has been and may continue to be affected by weakness in the retail sector.

Revenues from our Communications, Media and Technology segment (previously referred to as Other) grew 16.6% for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Growth within this segment was driven by the increased adoption of digital technologies, digital content operations and an expanded range of services, such as business process services. Revenue growth was $81 million among our communications and media customers and $47 million among our technology customers. Revenues from customers added since June 30, 2016 were $26 million and represented 20.3% of the period-over-period revenue increase in this segment.




Revenues - Geographic Markets. Revenues by geographic market were as follows for the six months ended June 30:
  2017 2016 Increase
$ %
  (Dollars in millions)
North America $5,612
 $5,121
 $491
 9.6
United Kingdom 562
 610
 (48) (7.9)
Rest of Europe 576
 463
 113
 24.4
Europe - Total 1,138
 1,073
 65
 6.1
Rest of World 466
 378
 88
 23.3
Total revenues $7,216
 $6,572
 $644
 9.8
North America continues to be our largest market representing 77.8% of total revenues for the six months ended June 30, 2017 and accounted for $491 million of the $644 million total revenue increase over the six months ended June 30, 2016. Revenue growth in Europe and Rest of World markets was driven by an increase in demand for an expanded range of services, such as business process services, customer adoption and integration of digital technologies that are reshaping our customers' business and operating models. Revenues from our customers in Europe grew 6.1%, after a negative currency impact of 6.8%. Specifically, within the United Kingdom we experienced a decrease in revenues of 7.9%, after a negative currency impact of 9.9% while revenues from our Rest of Europe customers, including revenues from new strategic customers acquired in the fourth quarter of 2016, increased 24.4% after a negative currency impact of 2.6%. Revenue growth from our United Kingdom customers has been negatively affected by the current macroeconomic conditions, including the weakening of the British pound and uncertainty in the markets due to the results of the Brexit Referendum. Revenues from our Rest of World customers grew 23.3%, after an immaterial currency impact in the first half of 2017, primarily driven by the Australia and India markets. We believe that Europe, the Middle East, the Asia Pacific and Latin America regions will continue to be areas of significant investment for us as we see these regions as long term growth opportunities.

Cost of Revenues (Exclusive of Depreciation and Amortization Expense). Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, payroll taxes, employee benefits, immigration and project-related travel for technical personnel and subcontracting related to revenues. Our cost of revenues increased by 12.7% during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016. The increase was due primarily to an increase in compensation and benefits costs (partially offset by the impact of lower incentive-based compensation accrual rates), the increase in certain operating and professional service costs and the negative impact of the appreciation of the Indian rupee against the U.S. dollar, partially offset by greater realized gains on settlements of cash flow hedges. Additionally, cost of revenues for the six months ended June 30, 2016 reflected the loss recognized on a fixed-price customer contract. For the six months ended June 30, 2017, compensation and benefit costs increased primarily as a result of the increase in the number of our service delivery personnel as compared to 2016.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, payroll taxes, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. Selling, general and administrative expenses, including depreciation and amortization, increased by 7.5% during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016, decreasing as a percentage of revenues to 22.0% for the six months ended June 30, 2017 as compared to 22.4% for the six months ended June 30, 2016. The decrease as a percentage of revenues was due primarily to a decrease in immigration expense and gains on settlements of cash flow hedges, partially offset by an increase in professional service costs, primarily related to the FCPA investigation and related lawsuits, and the negative impact of the appreciation of the Indian rupee against the U.S. dollar.

Income from Operations and Operating Margin - Overall. Income from operations increased 2.7% for the six months ended June 30, 2017 as compared to the same period in 2016. Our operating margin decreased to 16.3% for the six months ended June 30, 2017 from 17.4% for the six months ended June 30, 2016, due to an increase in compensation and benefits costs (partially offset by the impact of lower incentive-based compensation accrual rates), increases in professional service and other operating costs and the negative impact of the appreciation of the Indian rupee against the U.S. dollar, partially offset by greater gains on settlements of cash flow hedges and a decrease in immigration expenses. Additionally, the operating margin for the six months ended June 30, 2016 reflected the loss recognized on a fixed-price customer contract. Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against the U.S. dollar negatively impacted our operating margin by approximately 41 basis points or 0.41% percentage points during the six months ended June 30, 2017.

Each additional 1.0% change in exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by approximately 19 basis points or 0.19 percentage points.

We entered into foreign exchange forward contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the six months ended June 30, 2017, the settlement of cash flow hedges positively impacted our operating margin by approximately 76 basis points or 0.76 percentage points, as compared to a minimal effect in 2016.

For the six months ended June 30, 2017 and 2016, our non-GAAP operating margins were 19.5%5 and 20.1%5, respectively. As set forth in the “Non-GAAP Financial Measures” section below, our non-GAAP operating margin excludes stock based compensation expense, acquisition-related charges and, for 2017, realignment charges.

Segment Operating Profit. Segment operating profits were as follows for the six months ended June 30:
     Increase (Decrease)
 2017 2016 $ %
 (Dollars in millions)
Financial Services$802
 $882
 $(80) (9.1)
Healthcare616
 565
 51
 9.0
Products and Resources417
 445
 (28) (6.3)
Communications, Media and Technology267
 256
 11
 4.3
Total segment operating profit2,102
 2,148
 (46) (2.1)
Less: unallocated costs926
 1,003
 (77) (7.7)
Income from operations$1,176
 $1,145
 $31
 2.7

In all our business segments, operating profits decreased as a percentage of revenues due to increases in compensation and benefit costs, investments to accelerate our shift to digital, including re-skilling of service delivery personnel, and the negative impact of the appreciation of various currencies, including the Indian rupee, against the U.S. dollar.
Other Income (Expense), Net. Total other income (expense), net consists primarily of foreign currency exchange gains and (losses) and interest income. The following table sets forth total other income (expense), net for the six months ended June 30:
 2017 2016 
Increase/
Decrease
 (in millions)
Foreign currency exchange gains (losses)$70
 $(11) $81
(Losses) on foreign exchange forward contracts not designated as hedging instruments(13) —
 (13)
Foreign currency exchange gains (losses), net57
 (11) 68
Interest income63
 59
 4
Interest expense(12) (10) (2)
Other, net—
 1
 (1)
Total other income (expense), net$108
 $39
 $69

The foreign currency exchange gains were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets in our U.S. dollar functional currency India subsidiaries as well as the remeasurement of other net monetary assets denominated in currencies other than the functional currencies of our subsidiaries. The losses on our foreign exchange forward contracts not designated as hedging instruments relate to the realized and unrealized gains and losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to the Indian rupee and other non-U.S. dollar denominated net monetary assets. As of June 30, 2017, the notional value of our undesignated hedges was $269 million. The increase in interest income of $4 million was primarily attributable to an increase in average invested balances in 2017.
________________
5Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial measure.

Provision for Income Taxes. The provision for income taxes decreased to $257 million during the six months ended June 30, 2017 from $491 million during the six months ended June 30, 2016. The effective income tax rate decreased to 20.0% for the six months ended June 30, 2017 from 41.4% for the six months ended June 30, 2016. The decrease in our effective income tax rate was primarily attributed to the effect of the incremental income tax expense of $190 million related to the India Cash Remittance in 2016 and the recognition in the first quarter of 2017 of income tax benefits previously unrecognized in our consolidated financial statements related to several uncertain tax positions totaling $72 million.
Net Income. Net income increased to $1,027 million for the six months ended June 30, 2017 from $693 million for the six months ended June 30, 2016, representing 14.2% and 10.6% of revenues, respectively. The increase in net income as a percentage of revenues is primarily due to the 2017 foreign currency exchange gains and a decrease in the provision for income taxes, partially offset by the decrease in operating margin during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016.

Non-GAAP Financial Measures

The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the six months ended June 30:
 2017 
% of
Revenues
 2016 
% of
Revenues
 (Dollars in millions, except per share amounts)
GAAP income from operations and operating margin$1,176
 16.3 $1,145
 17.4
Add: Stock-based compensation expense (1)
109
 1.5 116
 1.8
Add: Acquisition-related charges (2)
69
 1.0 59
 0.9
Add: Realignment charges (3)
50
 0.7 —
 —
Non-GAAP income from operations and non-GAAP operating margin$1,404
 19.5 $1,320
 20.1
        
GAAP diluted earnings per share$1.71
   $1.14
  
Effect of above operating adjustments, pre-tax0.38
   0.29
  
Effect of non-operating foreign currency exchange (losses) gains, pre-tax (4)
(0.10)   0.01
  
Tax effect of non-GAAP adjustments to pre-tax income (5)
(0.14)   (0.08)  
Effect of recognition of income tax benefit related to an uncertain tax position (6)
(0.09)   —
  
Effect of incremental income tax expense related to the India Cash Remittance (7)
—
   0.31
  
Non-GAAP diluted earnings per share$1.76
   $1.67
  
_____________________
(1)Stock-based compensation expense reported in:
 Six Months Ended 
 June 30,
 2017 2016
Cost of revenues$28
 $26
Selling, general and administrative expenses81
 90
(2)Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.
(3)Realignment charges include severance costs, primarily associated with the VSP, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations and are expected to be incurred primarily in 2017.
(4)Non-operating foreign currency exchange gains are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.

(5)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
 Six Months Ended 
 June 30,
 2017 2016
Non-GAAP income tax benefit (expense) related to:   
Stock-based compensation expense$41
 $27
Acquisition-related charges24
 22
Realignment charges18
 —
Foreign currency exchange gains (losses)5
 1
The effective tax rate related to each of our non-GAAP adjustments varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions.
(6)During the three months ended March 31, 2017, we recognized an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position of $55 million. The recognition of the benefit in the first quarter of 2017 was based on management’s reassessment regarding whether this unrecognized tax benefit met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefit.

(7)In May 2016, our principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of this transaction, we incurred an incremental income tax expense of $190 million in the six months ended June 30, 2016.Liquidity and Capital Resources

Liquidity and Capital Resources

Cash generated from operations has historically been our primary source of liquidity to fund operations and investments to grow our business. In addition, as of June 30, 2017,March 31, 2018, we had cash, cash equivalents and short-term investments of $4,378$4,989 million, of which $507 million was restricted and additionalnot available for use as a result of our dispute with the ITD with respect to our 2016 India Cash Remittance. See Note 7 and Note 14 of our unaudited consolidated financial statements for more information. In addition, we had available capacity under our revolving credit facility of approximately $600$750 million. The following table provides a summary of our cash flows for the sixthree months ended June 30:March 31:
  2017 2016 Increase / Decrease
  (in millions)
Net cash from operating activities $798
 $438
 $360
Net cash (used in) investing activities (298) (260) (38)
Net cash (used in) financing activities (1,421) (621) (800)
  2018 2017 Increase / Decrease
  (in millions)
Net cash provided by operating activities $388
 $277
 $111
Net cash (used in) provided by investing activities (227) 91
 (318)
Net cash (used in) financing activities (488) (1,124) 636

Operating activities.
The increase in cash generated from operating activities was primarily attributable to higher netan increase in income infrom operations for the first half of 2017three months ended March 31, 2018 as compared to the same period in 2016.2017, partially offset by higher incentive-based compensation payments during the three months ended March 31, 2018 as compared to 2017.

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. As a result of adoption, we classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). By contrast, a contract asset is a right to consideration that is conditional upon factors other than the passage of time. Upon adoption, we reclassified (i) balances representing receivables, as defined by the New Revenue Standard, from Unbilled accounts receivable to Trade accounts receivable, increased to $2,680 million at June 30, 2017net and (ii) balances representing contract assets, as defined by the New Revenue Standard, from $2,556 million at December 31, 2016. Unbilled accounts receivable increased to $409 million at June 30, 2017 from $349 million at December 31, 2016. The increase in trade accounts receivable and unbilled receivablesOther current assets. Balances as of June 30, 2017 as comparedMarch 31, 2018 are presented under the New Revenue Standard, while prior period balances are not adjusted and continue to December 31, 2016 was primarily due to increased revenues.be reported in accordance with our historic accounting policies.

We monitor turnover, aging and the collection of accounts receivable by customer. OurHistorically, our days sales outstanding calculation includesincluded billed and unbilled accounts receivable, net of allowance for doubtful accounts, reduced by the uncollected portion of our deferred revenue. To reflect the adoption of the New Revenue Standard and maintain the comparability of the calculation, in 2018 we adjusted the definition to include receivables, as defined by the New Revenue Standard, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of our deferred revenue. Our days sales outstanding as of June 30, 2017March 31, 2018 was 7375 days, higher as compared to 7271 days as of December 31, 2016,2017 and lower as compared to 7472 days as of June 30, 2016.March 31, 2017. The adoption of the New Revenue Standard increased our days sales outstanding as of March 31, 2018 by 2 days. We monitor turnover, aging and the collection of accounts receivable by customer.

Investing activities.
The increase in cash used in investing activities in the 2018 period compared to cash generated from investing activities in the same period of 2017 period is primarily related to net investment purchases in the 20172018 period as compared to net investment sales or maturities in the same period in 2016, partially offset by lower payments for acquisitions in the 2017 period.2017.

Financing activities.
The increasedecrease in cash used in financing activities in the 20172018 period is primarily attributable to lower repurchases of common stock underin 2018 compared to the ASR and payment of dividends,same period in 2017, partially offset by dividends paid in 2018 and net borrowingsrepayments under the revolving credit facility in 20172018 as compared to net repayments of notesborrowings under our revolvingthe credit facility in the same period in 2016.2017.

In 2014, we entered into a credit agreement with a commercial bank syndicate, or as amended, the Credit Agreement, providing for a $1,000 million unsecured term loan and a $750 million revolving credit facility. The term loan was used to pay a portion of the cash consideration in connection with our acquisition of TZ US Parent, Inc., or TriZetto. The revolving credit

facility is available for general corporate purposes. The term loan and the revolving credit facility both mature in November 2019. As of June 30, 2017,March 31, 2018, we had $844$775 million outstanding under the term loan and $150 millionno outstanding notes under the revolving credit facility.


The Credit Agreement contains certain negative covenants, including limitations on liens, mergers, consolidations and acquisitions, subsidiary indebtedness and affiliate transactions, as well as certain affirmative covenants. In addition, the Credit Agreement requires us to maintain a debt to total stockholders' equity ratio not in excess of 0.40 to 1.00. As of June 30, 2017,March 31, 2018, we were in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the Credit Agreement to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the revolving credit facility as of June 30, 2017March 31, 2018 and through the date of this filing.
We have initiated
In February 2017, we announced a plan to return $3.4 billion to stockholders overby the next two yearsend of 2018 through a combination of stock repurchases and cash dividends. As part of this plan, to date we entered into a $1.5expended $2.1 billion ASR in March 2017to repurchase our Class A common stock under ASRs and paid a cash dividend of $0.15 per share,dividends totaling $89 million in May 2017. We subsequently declared another cash dividend of $0.15 per share with a record date of August 22, 2017 and a payment date of August 31, 2017.$383 million. The up-front payments related to the ASRASRs were funded with cash on hand in the U.S. and borrowings under the revolving credit facility. We intendexpect to repurchase an additional $1.2 billionfund the remaining portion of shares during the second half of 2017capital return plan from cash from operations and 2018.from available capacity under our revolving credit facility. Stock repurchases may be made from time to time through open-market purchases, and through the use of Rule 10b5-1 plans and/or by other means. We are currently evaluating the longer term impact the Tax Reform Act may have on our overall capital return program. As a first step, in February 2018 our Board of Directors approved an increase to our quarterly dividend to $0.20 per share.

Our Board of Directors intends to continue to review thereviews our capital return plan consideringon an ongoing basis with consideration given to our financial performance, economic outlook, regulatory changes and any other relevant factors. The Board of Directors’ determinations regarding dividends andfuture share repurchases and dividends will depend oninclude evaluating the longer term impact of the Tax Reform Act, as well as a variety of other factors, including our net income, cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. As these factors may change over the course of the year,time, the amount of stock repurchase activity and actual amount of dividends declared, by our Board of Directors, if any, during any particular period cannot be predicted and may fluctuate from time to time. There can be no guarantee that we will achieve the objective of our announced capital return plan in the amounts or onwithin the expected time frame that we have indicated, or at all.
We believe the combination of our U.S. cash on hand, U.S. cash flows and ability to borrow under both existing and future debt arrangements continues to be sufficient to fund our current domestic operations and obligations, including debt service, future share repurchases and quarterly cash dividends. The amount of funds held in U.S. tax jurisdictions can fluctuate due to the timing of receipts and payments in the ordinary course of business, including debt repayments, and due to other reasons, such as acquisition-related activities. The Company’s U.S. operations historically have generated and are expected to continue to generate substantial cash flows. In circumstances where the Company has additional cash requirements in the United States, we have several additional liquidity options available to meet those requirements. These options may include borrowing additional funds, including borrowings under our committed revolving credit facility or a new syndicated lending facility should we seek one, temporarily utilizing intercompany loans with certain foreign subsidiaries on a limited basis and repatriating certain of our foreign earnings. Additionally, we believe we have access to the credit and equity markets and could borrow additional funds under acceptable terms and conditions or raise additional capital through an equity transaction.

Many of our operations are conducted outside the United StatesOther Liquidity and significant portions of our cash, cash equivalents and short-term investments are held internationally. As of June 30, 2017, $3,987 million of our cash, cash equivalents and short-term investments were held outside the United States. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows and cash balances. Capital Resources Information
We utilize certain strategies in an effortseek to ensure that our worldwide cash is available in the locations in which it is needed. MostAs part of our ongoing liquidity assessments, we regularly monitor the mix of our domestic and international cash flows and cash balances. As a result of the amountsenactment of the Tax Reform Act, our historical and future foreign earnings are no longer subject to U.S. federal income tax upon repatriation beyond the one-time transition tax accrued in the fourth quarter of 2017. During the first quarter of 2018, we repatriated $2,010 million from our foreign subsidiaries. As of March 31, 2018, $2,983 million of our cash, cash equivalents and short-term investments were held outside of the United States, could be repatriatedof which $1,565 million was held in India. As further described in Note 14 of our unaudited consolidated financial statements, $507 million of these assets were classified as restricted as of March 31, 2018. We are continuing to evaluate what portion of the non-U.S. cash, cash equivalents and short-term investments held outside India is needed locally to execute our strategic plans and what amount is available for repatriation back to the United States but, under current law, would be subject to income taxes in the United States, less applicable foreign tax credits. We intend toStates.

Our Indian earnings are indefinitely reinvest these funds outside the United Statesreinvested and our current plans do not demonstrate athe need to repatriate these amountsour historical undistributed earnings of our India subsidiaries to fund our liquidity needs in the United States.outside of India. In reaching this conclusion, we considered our global capital needs, in the United States, the available sources of liquidity in the United Statesglobally and our growth plans outside the United States.in India. However, future events may occur, such as material changes in cash estimates, discretionary transactions, including corporate restructurings, and changes in applicable laws, whichthat may lead us to repatriate foreignIndian earnings. This may result in anIf we were to change our assertion that our accumulated undistributed Indian earnings are indefinitely reinvested, we would expect, based on our current interpretation of Indian tax law, to accrue additional provisiontax expense at a rate of approximately 21% of cash available for income taxes,distribution, which could materially affecthave a material adverse effect on our future effective income tax rate. DueThis estimate is subject to the various methods by which such earnings could be repatriatedchange based on tax legislative developments in the future, it is not currently practicable to determine the amountIndia and other jurisdictions as well as judicial and interpretive developments of applicable taxes that would result from such repatriation.tax laws.
We expect our operating cash flow, cash and investment balances (excluding the $507 million of India restricted assets), and available capacity under our revolving credit facility to be sufficient to meet our operating requirements, including costs related to realignment,in India and globally, for the next twelve months. We expect to fund the one-time transition tax related to the Tax Reform Act of $635 million, which is payable over eight years, from cash generated from operations and the repatriation of a portion of our historical non-U.S. earnings that are available for distribution to the United States. Our ability to expand and grow our business in accordance with current plans, to make acquisitions and form joint ventures, to meet our long termlong-term capital requirements and to execute our announced capital return plan beyond a twelve month period and our ability to execute the remainder of our capital return plan will

depend on many factors, including the rate, if any, at which our cash flow increases, our ability and willingness to accomplish acquisitions and joint ventures with capital stock our continued intent not to repatriate foreign earnings, and the availability of public and private debt and equity financing. We cannot be certain that additional financing, if required, will be available on terms and conditions acceptable to us, if at all.

As further described in Note 7 and Note 14 of our unaudited consolidated financial statements, certain cash, cash equivalents and short-term investment balances in India totaling $507 million were restricted in connection with our dispute with the ITD with respect to our 2016 India Cash Remittance. The dispute with the ITD is ongoing, and no final decision has been reached. The affected balances may continue to remain restricted and unavailable for our use while the dispute is ongoing. Additionally, while we believe that we have paid all applicable taxes related to the transactions underlying the ITD Dispute, if it is ultimately determined that we are liable for the full amount of additional taxes the ITD claims we owe, our liquidity could be materially adversely affected.
Commitments and Contingencies

Commitments and Contingencies

We are involved in various claims and legal actions 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. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. In September 2016, we voluntarily notified the DOJ and SEC and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2010 and 2015 that may have been improper. The investigation is also examining various other payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. There were no adjustments recorded during the six months ended June 30, 2017. See Note 11 to our unaudited condensed consolidated financial statements.

On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal 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. Under a stipulation filed by the parties on February 23, 2017, defendants filed motions to dismiss the consolidated amended complaint on June 6, 2017, plaintiffs filed an opposition brief on July 21, 2017 responding to defendants’ motions to dismiss, and defendants have until September 5, 2017 to file reply briefs in further support of their motions to dismiss.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future. On February 22, 2017, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 10(b) of the Exchange Act against the individual defendants. On May 10, 2017, a sixth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 14(a) of the Exchange Act against the individual defendants. In an order dated June 20,

2017, the United States District Court for the District of New Jersey consolidated the three putative shareholder derivative actions filed in that court into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motion to dismiss the consolidated putative securities class action. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to us as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.
We are presently unable to predict the duration, scope or result of the internal investigation, any investigations by the DOJ or the SEC, the consolidated putative securities class action, the putative shareholder derivative actions or any other lawsuits. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. In addition, the DOJ and the SEC could bring enforcement actions against the Company or individuals, including former members of senior management. Such actions, if brought, could result in dispositions, judgments, settlements, fines, injunctions, cease and desist orders, debarment or other civil or criminal penalties against the Company or such individuals.

We expect to incur additional expenses related to remedial measures, and may incur additional expenses related to fines. The imposition of any sanctions or the implementation of remedial measures could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition. Furthermore, while the Company intends to defend the lawsuits vigorously, these lawsuits and any other related lawsuits are subject to inherent uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is necessarily uncertain.
Many of our engagements involve projects that are critical to the operations of our customers’ business and provide benefits that are difficult to quantify. Any failure in a customer’s systems or our failure to meet our contractual obligations to our customers, including any breach involving a customer’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, 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 condition and cash flows.

In the normal course of business and in conjunction with certain customer engagements, we have entered into contractual arrangements through which we may be obligated to indemnify customers or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to 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 customer 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 payments under these indemnification agreements and therefore they have not had any 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 material impact on our business, results of operations, financial condition and cash flows.

The Company has indemnification and expense advancement obligations pursuant to its Bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s directors. In connection with the ongoing internal investigation, the Company has received requests under such indemnification agreements and its Bylaws to provide advances of funds for legal fees and other expenses, and expects additional requests in connection with the investigation and related litigation. The Company has not recorded any liability for these matters as of June 30, 2017 as it cannot estimate the ultimate outcome at this time but has expensed advances made through June 30, 2017. The Company

has maintained directors and officers insurance, from which a portion of these expenses may be recoverable, though we have not recorded an insurance receivable as of June 30, 2017. We are unable to make a reliable estimate of the eventual cash flows by period related to the indemnification agreements described here.

Foreign Currency Risk

Overall, we believe that we have limited revenue risk resulting from movement in foreign currency exchange rates as 77.8% of our revenues for the six months ended June 30, 2017 were generated from customers located in North America. Revenues from our customers in the United Kingdom, Rest of Europe and Rest of World represented 7.8%, 8.0% and 6.5%, respectively, of our 2017 revenues. Accordingly, our operating results outside the United States may be affected by fluctuations in the exchange rates, primarily the British pound and the Euro, as compared to the U.S. dollar. In particular, the results of the Brexit Referendum and its effect on the British pound may subject us to increased volatility in foreign currency exchange rate movements.

A portion of our costs in India, representing approximately 22.7% of our global operating costs for the six months ended June 30, 2017, are denominated in the Indian rupee and are subject to foreign exchange rate fluctuations. These foreign currency exchange rate fluctuations have an impact on our results of operations. In addition, a portion of our balance sheet is exposed to foreign currency exchange rate fluctuations, which may result in non-operating foreign currency exchange gains or losses upon remeasurement. For the six months ended June 30, 2017, we reported foreign currency exchange gains, exclusive of hedging gains or losses, of $70 million, which were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets in our U.S. dollar functional currency India subsidiaries as well as the remeasurement of other net monetary assets denominated in currencies other than the functional currencies of our subsidiaries. On an ongoing basis, we manage a portion of this risk by limiting our net monetary asset exposure to certain currencies, primarily the Indian rupee and the Euro, in our foreign subsidiaries.
We entered into a series of foreign exchange forward contracts that are designated as cash flow hedges of certain Indian rupee denominated payments in India. Our Indian subsidiaries, collectively referred to as Cognizant India, convert U.S. dollar receipts from intercompany billings to Indian rupees to fund local expenses. These foreign exchange forward contracts to buy Indian rupees and sell U.S. dollars are intended to partially offset the impact of movement of exchange rates on future operating costs. For the six months ended June 30, 2017, we reported gains of $55 million on contracts that settled during this period. As of June 30, 2017, the notional value and weighted average contract rates of these contracts were as follows:
 Notional Value (in millions) Weighted Average Contract Rate (Indian rupee to U.S. dollar)
2017$630
 72.0
20181,050
 73.6
2019330
 69.7
Total$2,010
 72.4
Off-Balance Sheet Arrangements

Our foreign subsidiaries are exposed to foreign currency exchange rate risk for transactions denominated in currencies other than the functional currency of the respective subsidiary. We also use foreign exchange forward contracts to hedge balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. These contracts are not designated as hedges and are intended to offset the foreign currency exchange gains or losses upon remeasurement of these net monetary assets and liabilities. We entered into a series of foreign exchange forward contracts scheduled to mature in 2017 and 2018 which are used to hedge our foreign currency denominated net monetary assets and liabilities. At June 30, 2017, the notional value of the outstanding contracts was $269 million and the related fair value was a liability of $6 million. During the six months ended June 30, 2017, inclusive of $13 million of losses on these undesignated balance sheet hedges, we reported net foreign currency exchange gains of $57 million.

Off-Balance Sheet Arrangements

Other than our foreign exchange forward contracts, there were no off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons in the sixthree months ended June 30, 2017March 31, 2018 that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. On an on-going basis, we evaluate our estimates. The most significant estimates relate to the recognition of revenue and profits, based onincluding the percentageapplication of completionthe cost to cost method of accountingmeasuring progress to completion for certain fixed pricefixed-price contracts, the allowance for doubtful accounts, income taxes, assumptions used in valuing stock-based compensation arrangements, valuation of investments and derivative financial instruments, business combinations, valuation of goodwill and other long-lived assets valuation of investments and derivative financial instruments, assumptions used in valuing stock-based compensation arrangements, business combinations and contingencies. We base our estimates on historical experience, current trends and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual amounts may differ from the estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements. For a discussion of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20162017 Annual Report on Form 10-K. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our 20162017 Annual Report on Form 10-K. There have been no material changes to the aforementioned critical accounting estimates and policies during the quarter.

Recently Adopted and New Accounting Pronouncements

See Note 1 to our unaudited condensed consolidated financial statements for additional information.statements.

Effects of Inflation

Our most significant costs are the salaries and related benefits for our programming staff and other professionals. In certain regions, competition for professionals with advanced technical skills necessary to perform our services has caused wages to increase at a rate greater than the general rate of inflation. As with other service providers in our industry, we must adequately anticipate wage increases, particularly on our fixed-price contracts. Historically, we have experienced increases in compensation and benefit costs in India; however, this has not had a material impact on our results of operations as we have been able to absorb such cost increases through cost management strategies such as managing discretionary costs, mix of professional staff and utilization levels and achieving other operating efficiencies. There can be no assurance that we will be able to offset such cost increases in the future.

Forward Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Exchange Act) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,” “would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.

Such forward-looking statements may be included in various filings made by us with the Securities and Exchange Commission,SEC, or press releases or oral statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as statements regarding anticipated future revenues or operating margins, contract percentage completions, earnings, capital expenditures, anticipated effective tax rates, liquidity, access to capital, capital return plan, investment strategies, cost management, realignment program, plans and objectives, including those related to our digital practice areas, investment in our business and potential acquisitions, industry trends, customer behaviors and trends, and the ongoing internal investigation and other statements regarding matters that are not historical facts, are based on our current expectations, estimates and projections, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including:

Competitioncompetition from other service providers;
Thethe risk that we may not be able to achieve targeted improvements in our operating margin and level of profitability, or that our operating margin and profitability may decline;
Thethe risk of liability or damage to our reputation resulting from security breaches;
Any possiblebreaches or disclosure of sensitive data or failure to comply with or adapt to changes in data protection laws and privacy laws;regulations;
The loss of customers, especially as a few customers account for a large portion of our revenues;
Thethe risk that we may not be able to keep pace with the rapidly evolving technological environment;
Thethe rate of growth in the use of technology in business and the type and level of technology spending by our customers;
Mispricingmispricing of our services, especially on our fixed-price and transaction- or volume-based priced contracts;
Risksrisks associated with our ongoing internal investigation into possible violations of the FCPA and similar laws, including the cost of such investigation and any sanctions, fines or remedial measures that may be imposed by the DOJ or SEC, additional expenses related to remedial measures, the costs of defending and/or settling and possible judgments against us that may result from associated lawsuits against us and any possible impact on our ability to timely file the required reports with the SEC;
Risks associated with our identified material weakness in internal control over financial reporting and any other failure to maintain effective internal controls, including any potential future findings of control deficiencies through the internal investigation, in connection with any company we acquire, or otherwise;
Our inability to successfully acquire or integrate target companies;
Systemsystem failure or disruptions in our communications or information technology;
Thethe risk that we may lose key executives and not be able to enforce non-competition agreements with them;
Competitioncompetition for hiring highly-skilled technical personnel;
Possiblepossible failure to provide business solutions and deliver complex and large projects for our customers;
Thethe risk of reputational harm to us;
Ourthe effect of our use of derivative instruments;
our revenues being highly dependent on customers concentrated in certain industries, including financial services and healthcare, and located primarily in the United States and Europe;
Thethe risk that we may not be able to pay dividends or repurchase shares in accordance with our announced capital return plan, or at all;
The risks associated with the incurrence of indebtedness as we anticipate incurring additional indebtedness to help fund our announced capital return plan;
Risks relating to our global operations, including our operations in India;
Thethe effects of fluctuations in the Indian rupee and other currency exchange rates;
The effectthe risk of war, terrorist activities, pandemics and natural disasters;
the Brexit Referendum and any negative effects on global economic conditions, financial markets and our use of derivative instruments;business;
The possibility that we may be required, as a result of our indebtedness, or otherwise choose to repatriate foreign earnings or that our foreign earnings or profits may become subject to U.S. taxes;
The possibility that we may lose certain tax benefits provided to companies in our industry by the Indian government;
The risk that we may not be able to enforce or protect our intellectual property rights, or that we may infringe upon the intellectual property rights of others;
Changesregulatory uncertainties, including in domestic and international regulations and legislation relating tothe areas of outsourcing, immigration and anti-outsourcing;taxes;

Increasedincreased regulation of the financial services and healthcare industries, as well as other industries in which our customers operate;
The Brexit Referendumthe possibility that we may be required to or choose to repatriate Indian earnings;
the possibility that we may lose certain tax benefits provided to companies in our industry by the Indian government, and any negative effects on global economic conditions, financial markets andadverse outcome of our business;
The recent U.S. presidential election and related regulatory uncertainties, including indispute with the areas of outsourcing, immigration and taxes;
The risk of war, terrorist activities, pandemics and natural disasters;ITD; and
The factors set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.


You are advised to consult any further disclosures we make on related subjects in the reports we file with the Securities and Exchange Commission,SEC, including this report in the section titled “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I, Item 1. Business” in our Annual Report on Form 10-K for the year ended December 31, 2016.2017. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Item 3.     Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk.Risk, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 27, 2018.

We are exposed to foreign currency exchange rate risk in the ordinary course of doing business as we transact or hold a portion of our funds in foreign currencies, particularly the Indian rupee. Additionally, the Brexit Referendum and its effect on the British pound may subject us to increased volatility in foreign currency exchange rate movements. Accordingly, we periodically evaluate the need for hedging strategies, including the use of derivative financial instruments, to mitigate the effect of foreign currency exchange rate fluctuations and expect to continue to use such instruments in the future to reduce foreign currency exposure to appreciation or depreciation in the value of certain foreign currencies. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures.

We have entered into a series of foreign exchange forward contracts that are designated as cash flow hedges of certain Indian rupee denominated payments in India. Cognizant India converts U.S. dollar receipts from intercompany billings to Indian rupees to fund local expenses. These U.S. dollar / Indian rupee hedges are intended to partially offset the impact of movement of exchange rates on future operating costs. As of June 30, 2017, the notional value and weighted average contract rates of these contracts were as follows:
 Notional Value (in millions) Weighted Average Contract Rate (Indian rupee to U.S. dollar)
2017$630
 72.0
20181,050
 73.6
2019330
 69.7
Total$2,010
 72.4

As of June 30, 2017, the net unrealized gain on our outstanding foreign exchange forward contracts designated as cash flow hedges was $155 million. Based upon a sensitivity analysis of our foreign exchange forward contracts at June 30, 2017, which estimates the fair value of the contracts based upon market exchange rate fluctuations, a 10.0% change in the foreign currency exchange rate against the U.S. dollar with all other variables held constant would have resulted in a change in the fair value of approximately $208 million.

Our foreign subsidiaries are exposed to foreign currency exchange rate risk for transactions denominated in currencies other than the functional currency of the respective subsidiary. We also use foreign exchange forward contracts to hedge balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. These contracts are not designated as hedges and are intended to offset the foreign currency exchange gains or losses upon remeasurement of these net monetary assets and liabilities. We entered into a series of foreign exchange forward contracts scheduled to mature in 2017 and 2018 which are used to hedge our foreign currency denominated net monetary assets and liabilities. At June 30, 2017, the notional value of the outstanding contracts was $269 million and the related fair value was a liability of $6 million. Based upon a sensitivity analysis of our foreign exchange forward contracts at June 30, 2017, which estimates the fair value of the contracts based upon market exchange rate fluctuations, a 10.0% change in the foreign currency exchange rate against the U.S. dollar with all other variables held constant would have resulted in a change in the fair value of approximately $25 million.


Our Credit Agreement provides for a $1,000 million unsecured term loan and a $750 million unsecured revolving credit facility. The term loan and the revolving credit facility both mature on November 20, 2019. As of June 30, 2017, we had $844 million outstanding under the term loan and $150 million outstanding loans under the revolving credit facility. The Credit Agreement requires interest to be paid at either the base rate or the Eurocurrency rate, plus a margin. The margin over the base rate is 0.00%, and the margin over the Eurocurrency rate ranges from 0.75% to 1.125%, depending on our debt ratings (or, if we have not received debt ratings, from 0.875% to 1.00%, depending on our debt to total stockholders' equity ratio). Thus, our debt exposes us to market risk from changes in interest rates. We performed a sensitivity analysis to determine the effect of interest rate fluctuations on our interest expense. A 10% change in interest rates, with all other variables held constant, would have resulted in a 4.4% change to our reported interest expense for the six months ended June 30, 2017.

We typically invest in highly-rated securities and our policy generally limits the amount of credit exposure to any one issuer. Our investment policy requires investments to be investment grade with the objective of minimizing the potential risk of principal loss. We may sell our trading and available-for-sale investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. As of June 30, 2017, our short-term and long-term investments were $3,221 million and $198 million, respectively. Our investment portfolio is comprised primarily of time deposits, mutual funds invested in fixed income securities, Indian rupee denominated commercial paper, Indian rupee denominated international corporate bonds and government debt securities, U.S. dollar denominated corporate bonds, municipal bonds, certificates of deposit, commercial paper, debt issuances by the U.S. government, U.S. government agencies, foreign governments and supranational entities and asset-backed securities. The asset-backed securities included securities backed by auto loans, credit card receivables, and other receivables. Our long-term investments are comprised of held-to-maturity corporate and other debt securities as well as equity and cost method investments.

In addition, our cash, cash equivalents and short-term investments are subject to market risk from changes in interest rates. As of June 30, 2017, a 10% change in interest rates, with all other variables held constant, would result in a change in the fair value of our available-for-sale investment securities of approximately $4 million.

Information provided by the sensitivity analysis does not necessarily represent the actual changes that would occur under normal market conditions.

Item 4.    Controls and Procedures.

Internal Investigation
Background

As previously disclosed, the Company is conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. The investigation is also examining various other payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. In 2016, through the internal investigation, we discovered that certain members of senior management may have participated in or been aware of the making of potentially improper payments and failed to take action to prevent the making of potentially improper payments by either overriding or failing to enforce the controls established by the Company relating to real estate and procurement principally in connection with permits for certain facilities in India. Such actions would be inconsistent with the standards and tone at the top to which our Board of Directors and senior management are committed and would be in violation of the Company’s written code of conduct and procedures established in part to detect and prevent improper payments.
Material Weakness
Based on the results of the internal investigation to date and remedial actions taken through June 30, 2017, we concluded a material weakness that existed at December 31, 2016 continued to exist as of June 30, 2017 as we did not maintain an effective internal control environment. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, we did not maintain an effective tone at the top as certain members of senior management may have participated in or failed to take action to prevent the making of potentially improper payments by either overriding or failing to enforce the controls established by the Company relating to real estate and procurement principally in connection with permits for certain facilities in India.

This control deficiency did not result in a material misstatement of our current or prior period consolidated annual or interim financial statements. However, this control deficiency could have resulted in material misstatements to the annual or interim consolidated financial statements that would not have been prevented or detected. Accordingly, management has concluded that this control deficiency constitutes a material weakness.
Remediation
We have undertaken a number of measures designed to directly address, or that may contribute to, the remediation of our material weakness or the enhancement of our internal controls over financial reporting. While the internal investigation is ongoing, based on the results of the investigation to date, the members of senior management who may have participated in or been aware of the making of the identified potentially improper payments and failed to take action to prevent the making of the identified potentially improper payments are no longer with the Company or in a senior management position. Additional personnel actions have been taken with respect to other employees and further actions may be required.
Further, among other things, we have made certain new management appointments, including a new President and a new General Counsel, added resources and personnel to our compliance function and programs, enhanced our oversight controls in the areas of procurement and accounts payable as they relate to real estate transactions in India, and enhanced our compliance program and control environment through a number of actions, including additional and improved anti-corruption and ethical conduct training programs and a distribution of a revised code of ethics to all employees.
Changes to internal controls over financial reporting need to operate for a period of time in order for management to evaluate and test whether the internal control changes are effective. We have commenced our evaluation of the effectiveness of certain changes to our internal controls over financial reporting implemented to directly address the material weakness.
Item 4.     Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and our chief financial officer, evaluated the design and operating effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of June 30, 2017.
March 31, 2018. Based on thethis evaluation, our chief executive officer and our chief financial officer concluded that, as of the design and effectiveness ofMarch 31, 2018, our disclosure controls and procedures and as a result of the material weakness described above, our chief executive officer and chief financial officer have concluded that, as of June 30, 2017, the Company’s disclosure controls and procedures were not effective.
Changes in Internal Control over Financial Reporting

Other than described in “Remediation” above, there were noNo changes in the Company’sour internal control over financial reporting that(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the secondfiscal quarter of 2017ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.


PART II. OTHER INFORMATION
Item 1. Legal Proceedings

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. In September 2016, we voluntarily notified the DOJ and SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2010 and 2015 that may have been improper. The investigation is also examining various other payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. Based on the results of the investigation to date, no material adjustments, restatements or other revisionsSee Note 11 to our previously issued financial statements are required.

On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal 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. Under a stipulation filed by the parties on February 23, 2017, defendants filed motions to dismiss the consolidated amended complaint on June 6, 2017, plaintiffs filed an opposition brief on July 21, 2017 responding to defendants’ motions to dismiss, and defendants have until September 5, 2017 to file reply briefs in further support of their motions to dismiss.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future. On February 22, 2017, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 10(b) of the Exchange Act against the individual defendants. On May 10, 2017, a sixth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 14(a) of the Exchange Act against the individual defendants. In an order dated June 20, 2017, the United States District Court for the District of New Jersey consolidated the three putative shareholder derivative actions filed in that court into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motion to dismiss the consolidated putative securities class action. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to us as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.
We are presently unable to predict the duration, scope or result of the Audit Committee’s investigation, any investigations by the DOJ or the SEC, the consolidated putative securities class action, the putative shareholder derivative actions or any other lawsuits. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and

regulations including injunctive relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA. In addition, the DOJ and the SEC could bring enforcement actions against the Company or individuals, including former members of senior management. Such actions, if brought, could result in dispositions, judgments, settlements, fines, injunctions, cease and desist orders, debarment or other civil or criminal penalties against the Company or such individuals.

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

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

Item 1A. Risk Factors

TheThere have been no material changes in our risk factors from those disclosed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 filed with the Securities and Exchange CommissionSEC on March 1, 2017 continue to apply to our business.February 27, 2018.

The information presented below amends the risk factor of the same heading in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and should be read in conjunction with the other risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The outcome of the internal investigation being conducted under the oversight of our Audit Committee of possible violations of the Foreign Corrupt Practices Act, or FCPA, and similar laws and related litigation could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition.

We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the FCPA and other applicable laws. In September 2016, we voluntarily notified the DOJ and the SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. The investigation is also examining various other payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. We expect to incur additional expenses in connection with conducting the internal investigation.

On October 5, 2016, October 27, 2016, and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey, naming us and certain of our current and former officers as defendants. In an order dated February 3, 2017, the United States District Court for the District of New Jersey consolidated the three putative securities class actions into a single action and appointed lead plaintiffs and lead counsel. On April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of stockholders who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the FCPA, our business, prospects and operations, and the effectiveness of our internal 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. Under a stipulation filed by the parties on February 23, 2017, defendants filed motions to dismiss the consolidated amended complaint on June 6, 2017, plaintiffs filed an opposition brief on July 21, 2017 responding to defendants’ motions to dismiss, and defendants have until September 5, 2017 to file reply briefs in further support of their motions to dismiss.

On October 31, 2016, November 15, 2016, and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers as defendants. On January 24, 2017, the New Jersey Superior Court, Bergen County, consolidated the three putative shareholder derivative actions filed in that court into a single action and appointed lead plaintiff and lead counsel. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further

proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future. On February 22, 2017, a fourth putative shareholder derivative complaint asserting similar claims was filed in the United States District Court for the District of New Jersey, naming us and certain of our directors as defendants. On April 5, 2017, the United States District Court for the District of New Jersey entered an order staying all proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 7, 2017, a fifth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 10(b) of the Exchange Act against the individual defendants. On May 10, 2017, a sixth putative shareholder derivative complaint was filed in the United States District Court for the District of New Jersey, naming us, certain of our directors, and certain of our current and former officers as defendants. The complaint in that action asserts claims similar to those in the previously-filed putative shareholder derivative actions, but also adds a claim for violations of Section 14(a) of the Exchange Act against the individual defendants. In an order dated June 20, 2017, the United States District Court for the District of New Jersey consolidated the three putative shareholder derivative actions filed in that court into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motion to dismiss the consolidated putative securities class action. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to us as a result of the alleged violations and their costs and attorneys’ fees, experts’ fees, and other litigation expenses, among other relief.

We are presently unable to predict the duration, scope or result of the internal investigation, the related consolidated putative securities class action, the consolidated putative shareholder derivative action or any other related lawsuit, and any investigations by the DOJ or the SEC, including whether either agency will commence any legal action. 

The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including injunctive relief, disgorgement, fines, penalties, the imposition of revised compliance programs and the retention of a monitor to oversee compliance with the FCPA. In addition, the DOJ and the SEC could bring enforcement actions against the Company or individuals, including former members of senior management. Such actions, if brought, could result in dispositions, judgments, settlements, fines, injunctions, cease and desist orders, debarment or other civil or criminal penalties against the Company or such individuals. The imposition of any sanctions, fines or the implementation of remedial measures could have a material adverse effect on our business, annual and interim results of operations, cash flows and financial condition. We could also incur additional expenses related to remedial measures, including those that we are implementing in response to our conclusion that our internal control over financial reporting and our disclosure controls and procedures are not effective.

The outcome of the putative class action litigation, derivative lawsuit, or any other litigation is necessarily uncertain. We could be forced to expend significant resources in the defense of these lawsuits or future ones, and we may not prevail. The imposition of any sanctions, remedial measures or judgments against us could have a material adverse effect on our business, results of operations and financial condition.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
Effective March 1, 2017, theOur existing stock repurchase program, as approved by our Board of Directors, approved the termination of the stock repurchase program then in effect and approved a new stock repurchase program. The stock repurchase program allows for the repurchase of $3.5 billion of our outstanding shares of Class A common stock, excluding fees and expenses, through December 31, 2019.
Under the stock repurchase program, the Company is authorized to repurchase its Class A common stock through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act, or in private transactions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased are determined by the Company’s management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors.
We did not repurchase any sharesAs of our Class A common stockMarch 31, 2018, the remaining available balance under our stock repurchase program during the three months ended June 30, 2017. As of June 30, 2017, the remaining available balance underauthorized by the Board of Directors' authorized stock repurchase programDirectors was $2.0$1.4 billion.


Month Total Number
of Shares
Purchased		 Average
Price Paid
per Share		 Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or
Programs		 Approximate
Dollar Value of Shares
that May Yet Be
Purchased under the
Plans or Programs
(in millions)
January 1, 2018 - January 31, 2018        
Open market and privately negotiated purchases —
 $—
 —
 $1,700
February 1, 2018 - February 28, 2018        
Open market and privately negotiated purchases —
 —
 —
 1,700
March 1, 2018 - March 31, 2018        
Open market and privately negotiated purchases —
 —
 —
  
December 2017 ASR 378,598
 (a)
 378,598
  
March 2018 ASR 3,043,323
 (b)
 3,043,323
 1,400
Total 3,421,921
 $—
 3,421,921
  
(a)In December 2017, the Company entered into an ASR to purchase up to $300 million of the Company's Class A common stock. In March 2018, the purchase period for the ASR ended and an additional 0.4 million shares were delivered. In total, 4.0 million shares were delivered under the ASR at an average repurchase price of $75.75.
(b)Under the terms of the March 2018 ASR and in exchange for up-front payments of $300 million, the financial institution initially delivered 3.0 million shares, a portion of the Company's total expected shares to be repurchased under the March 2018 ASR. The total number of shares ultimately delivered and therefore the average price paid per share, will be determined at the end of the purchase period, which is scheduled to end during the second quarter of 2018, based on the volume-weighted average price of the Company's common stock during that period.
During the three months ended June 30, 2017,March 31, 2018, we purchased shares in connection with our stock-based compensation plans, whereby shares of our common stock were tendered by employees for payment of applicable statutory tax withholdings. We also repurchased a limited number of shares from employees at the repurchase date market price. Combined, forFor the three months ended June 30, 2017,March 31, 2018, such repurchases totaled 446,346201,888 shares at an aggregate cost of $30$16 million.

Item 6.    Exhibits.
Item 6.     Exhibit Index

EXHIBIT INDEX
    Incorporated by Reference  
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished Herewith
3.1 
Restated Certificate of Incorporation
 8-K 000-24429 3.2
 9/17/2013  
3.2 
Amended and Restated Bylaws, as adopted on March 27, 2017
 8-K 000-24429 3.1
 3/31/2017  
10.1 
Cognizant Technology Solutions Corporation 2017 Incentive Award Plan
 8-K 000-24429 10.1
 6/7/2017  
10.2 
Restricted Stock Unit Award Agreement and Grant Notice (with foreign appendix)
         Filed
10.3 
Performance-Based Restricted Stock Unit Award Agreement and Grant Notice
         Filed
10.4 
Restricted Stock Unit Award Agreement and Grant Notice
         Filed
10.5 
Stock Option Grant Notice and Stock Option Agreement
         Filed
31.1 
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         Filed
31.2 
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         Filed
32.1 
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
         Furnished
32.2 
Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
         Furnished
101.INS XBRL Instance Document         Filed
101.SCH XBRL Taxonomy Extension Schema Document         Filed
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         Filed
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         Filed
101.LAB XBRL Taxonomy Extension Label Linkbase Document         Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         Filed
    Incorporated by Reference  
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished Herewith
3.1 
Restated Certificate of Incorporation
 8-K 000-24429 3.2
 9/17/2013  
3.2 
Amended and Restated Bylaws, as adopted on March 27, 2017
 8-K 000-24429 3.1
 3/31/2017  
31.1 
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         Filed
31.2 
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         Filed
32.1 
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
         Furnished
32.2 
Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
         Furnished
101.INS XBRL Instance Document         Filed
101.SCH XBRL Taxonomy Extension Schema Document         Filed
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         Filed
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         Filed
101.LAB XBRL Taxonomy Extension Label Linkbase Document         Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         Filed


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   Cognizant Technology Solutions Corporation
     
Date:August 3, 2017May 7, 2018  By: 
/s/ Francisco D’SouzaFRANCISCO D’SOUZA
      Francisco D’Souza,
      Chief Executive Officer
      (Principal Executive Officer)
       
Date:August 3, 2017May 7, 2018  By: 
/s/ Karen McLoughlinKAREN MCLOUGHLIN
      Karen McLoughlin,
      Chief Financial Officer
      (Principal Financial Officer)

EXHIBIT INDEX
52
    Incorporated by Reference  
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished Herewith
3.1 
Restated Certificate of Incorporation
 8-K 000-24429 3.2 9/17/2013  
3.2 
Amended and Restated Bylaws, as adopted on March 27, 2017
 8-K 000-24429 3.1 3/31/2017  
10.1 
Cognizant Technology Solutions Corporation 2017 Incentive Award Plan
 8-K 000-24429 10.1 6/7/2017  
10.2 
Restricted Stock Unit Award Agreement and Grant Notice (with foreign appendix)
         Filed
10.3 
Performance-Based Restricted Stock Unit Award Agreement and Grant Notice
         Filed
10.4 
Restricted Stock Unit Award Agreement and Grant Notice
         Filed
10.5 
Stock Option Grant Notice and Stock Option Agreement
         Filed
31.1 
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         Filed
31.2 
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         Filed
32.1 
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
         Furnished
32.2 
Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
         Furnished
101.INS XBRL Instance Document         Filed
101.SCH XBRL Taxonomy Extension Schema Document         Filed
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         Filed
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         Filed
101.LAB XBRL Taxonomy Extension Label Linkbase Document         Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         Filed


56