UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒ý	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, ~~2017~~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

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 ☒ý 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 ☒ý 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	☒ý	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 ☒ý

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of July ~~28, 2017:~~27, 2018:



Class		Number of Shares
Class A Common Stock, par value $.01 per share		~~590,622,691~~580,233,834

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, ~~2017~~2018 and December 31, ~~2016~~2017	1

	Consolidated Statements of Operations (Unaudited) for the Three ~~Months Ended June 30, 2017~~ and ~~2016 and for the~~ Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	2

	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, ~~2017~~2018 and ~~2016 and~~2017	3

	Consolidated Statements of Stockholders' Equity (Unaudited) for the Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	34

	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	45

	Notes to ~~Condensed~~ Consolidated Financial Statements (Unaudited)	56

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2534

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4756

Item 4.	Controls and Procedures	4856

PART II.	OTHER INFORMATION	5057

Item 1.	Legal Proceedings	5057

Item 1A.	Risk Factors	5157

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5257

Item 6.	Exhibits	5458

SIGNATURES		5559

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			June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	1,157	$	2,034		$	901		$	1,925
Short-term investments	3,221		3,135			3,346			3,131
Trade accounts receivable, net of allowances of $64 and $48, respectively	2,680		2,556
Trade accounts receivable, net of allowances of $68 and $65, respectively						3,204			2,865
Unbilled accounts receivable	409		349			—			357
Other current assets	632		526			852			833
Total current assets	8,099		8,600			8,303			9,111
Property and equipment, net	1,284		1,311			1,345			1,324
Goodwill	2,576		2,554			3,036			2,704
Intangible assets, net	894		951			1,060			981
Deferred income tax assets, net	457		425			367			418
Long-term investments	198		62			80			235
Other noncurrent assets	430		359			615			448
Total assets	$	13,938	$	14,262		$	14,806		$	15,221
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	179	$	175		$	217		$	210
Deferred revenue	337		306			308			383
Short-term debt	244		81			100			175
Accrued expenses and other current liabilities	1,655		1,856			1,912			2,071
Total current liabilities	2,415		2,418			2,537			2,839
Deferred revenue, noncurrent	133		151			77			104
Deferred income tax liabilities, net	5		6			145			146
Long-term debt	747		797			649			698
Long-term income taxes payable						508			584
Other noncurrent liabilities	155		162			242			181
Total liabilities	3,455		3,534			4,158			4,552
Commitments and contingencies (See Note 11)
Commitments and contingencies (See Note 13)
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, respectively	6		6
Class A common stock, $0.01 par value, 1,000 shares authorized, 580 and 588 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively						6			6
Additional paid-in capital	128		358			55			49
Retained earnings	10,316		10,478			10,681			10,544
Accumulated other comprehensive income (loss)	33		(114		)	(94		)	70
Total stockholders’ equity	10,483		10,728			10,648			10,669
Total liabilities and stockholders’ equity	$	13,938	$	14,262		$	14,806		$	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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues	$	3,670		$	3,370		$	7,216		$	6,572		$	4,006		$	3,670		$	7,918		$	7,216
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense shown separately below)	2,261			2,038			4,455			3,953			2,417			2,261			4,818			4,455
Selling, general and administrative expenses	709			654			1,395			1,300			805			709			1,516			1,395
Depreciation and amortization expense	94			87			190			174			114			94			221			190
Income from operations	606			591			1,176			1,145			670			606			1,363			1,176
Other income (expense), net:
Interest income	31			28			63			59			40			31			81			63
Interest expense	(6		)	(5		)	(12		)	(10		)	(7		)	(6		)	(13		)	(12		)
Foreign currency exchange gains (losses), net	5			(20		)	57			(11		)	(80		)	5			(111		)	57
Other, net	(1		)	1			—			1			—			(1		)	—			—
Total other income (expense), net	29			4			108			39			(47		)	29			(43		)	108
Income before provision for income taxes	635			595			1,284			1,184			623			635			1,320			1,284
Provision for income taxes	(165		)	(343		)	(257		)	(491		)	(168		)	(165		)	(345		)	(257		)
Income from equity method investment	—			—			—			—
Income from equity method investments													1			—			1			—
Net income	$	470		$	252		$	1,027		$	693		$	456		$	470		$	976		$	1,027
Basic earnings per share	$	0.80		$	0.42		$	1.72		$	1.14		$	0.78		$	0.80		$	1.67		$	1.72
Diluted earnings per share	$	0.80		$	0.41		$	1.71		$	1.14		$	0.78		$	0.80		$	1.66		$	1.71
Weighted average number of common shares outstanding - Basic	589			606			597			607			585			589			586			597
Dilutive effect of shares issuable under stock-based compensation plans	2			3			2			3			1			2			1			2
Weighted average number of common shares outstanding - Diluted	591			609			599			610			586			591			587			599
Dividends declared per common share	$	0.15		$	—		$	0.15		$	—		$	0.20		$	0.15		$	0.40		$	0.15

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 June 30,						Six Months Ended June 30,
	2017			2016			2017		2016			2018			2017			2018			2017
Net income	$	470		$	252		$	1,027	$	693		$	456		$	470		$	976		$	1,027
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	50			(29		)	67		(9		)	(71		)	50			(34		)	67
Change in unrealized gains and losses on cash flow hedges, net of taxes	(1		)	(8		)	78		12			(87		)	(1		)	(123		)	78
Change in unrealized gains and losses on available-for-sale securities, net of taxes	1			3			2		8			1			1			(6		)	2
Other comprehensive income (loss)	50			(34		)	147		11			(157		)	50			(163		)	147
Comprehensive income	$	520		$	218		$	1,174	$	704		$	299		$	520		$	813		$	1,174

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		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
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	—		—		—			976			—			976
Other comprehensive income (loss)	—		—		—			—			(163		)	(163		)
Common stock issued, stock-based compensation plans	4		—		102			—			—			102
Stock-based compensation expense	—		—		130			—			—			130
Repurchases of common stock	(12	)	—		(226		)	(723		)	—			(949		)
Dividends	—		—		—			(238		)	—			(238		)
Balance, June 30, 2018	580		$	6	$	55		$	10,681		$	(94	)	$	10,648

	Class A Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2016	608		$	6	$	358		$	10,478		$	(114	)	$	10,728
Net income	—		—		—			1,027			—			1,027
Other comprehensive income (loss)	—		—		—			—			147			147
Common stock issued, stock-based compensation plans	4		—		105			—			—			105
Stock-based compensation expense	—		—		109			—			—			109
Repurchases of common stock	(22	)	—		(444		)	(1,100		)	—			(1,544		)
Dividends	—		—		—			(89		)	—			(89		)
Balance, June 30, 2017	590		$	6	$	128		$	10,316		$	33		$	10,483


(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 Six Months Ended June 30,
	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	1,027		$	693		$	976		$	1,027
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	207			181			240			207
Provision for doubtful accounts	17			4			4			17
Deferred income taxes	8			26			51			8
Stock-based compensation expense	109			116			130			109
Other	(63		)	10			100			(63		)
Changes in assets and liabilities:
Trade accounts receivable	(103		)	(187		)	(330		)	(103		)
Other current assets	(81		)	(120		)	296			(81		)
Other noncurrent assets	(46		)	(6		)	(159		)	(46		)
Accounts payable	2			6			(3		)	2
Deferred revenues, current and noncurrent	10			2			(47		)	10
Other current and noncurrent liabilities	(289		)	(287		)	(230		)	(289		)
Net cash provided by operating activities	798			438			1,028			798
Cash flows from investing activities:
Purchases of property and equipment	(126		)	(139		)	(187		)	(126		)
Purchases of available-for-sale investment securities	(1,622		)	(2,578		)	(806		)	(1,622		)
Proceeds from maturity or sale of available-for-sale investment securities	1,936			2,572			906			1,936
Purchases of held-to-maturity investment securities	(662		)	—			(519		)	(662		)
Proceeds from maturity of held-to-maturity investment securities	50			—			386			50
Purchases of other investments	(213		)	(355		)	(318		)	(213		)
Proceeds from maturity or sale of other investments	345			391			205			345
Payments for business combinations, net of cash acquired and equity method investment	(6		)	(151		)
Payments for business combinations, net of cash acquired							(478		)	(6		)
Net cash (used in) investing activities	(298		)	(260		)	(811		)	(298		)
Cash flows from financing activities:
Issuance of common stock under stock-based compensation plans	104			91			102			104
Repurchases of common stock	(1,544		)	(335		)	(949		)	(1,544		)
Repayment of term loan borrowings and capital lease obligations	(42		)	(27		)	(64		)	(42		)
Net change in notes outstanding under the revolving credit facility	150			(350		)	(75		)	150
Dividends paid	(89		)	—			(236		)	(89		)
Net cash (used in) financing activities	(1,421		)	(621		)	(1,222		)	(1,421		)
Effect of exchange rate changes on cash and cash equivalents	44			2			(19		)	44
(Decrease) in cash and cash equivalents	(877		)	(441		)	(1,024		)	(877		)
Cash and cash equivalents, beginning of year	2,034			2,125			1,925			2,034
Cash and cash equivalents, end of period	$	1,157		$	1,684		$	901		$	1,157

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 Topic	Date Adopted and Method	Description	Impact
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.	There were no restricted cash balances as of June 30, 2018. The adoption of this update had no impact on our financial statements for the three and six months ended June 30, 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 presented~~in 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 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.



Date Issued and Topic	Effective Date	Description	Impact
February 2016 Leases	January 1, 2019	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. The standard offers several practical expedients for transition and certain expedients specific to lessees or lessors. The standard allows for two methods of adoption: retrospective to each prior reporting period presented with the cumulative effect of adoption recognized at the beginning of the earliest period presented or retrospective to the beginning of the period of adoption through a cumulative-effect adjustment.	While we are continuing to evaluate the provisions of this standard, the primary effect will be to require recording of right-of-use assets and corresponding lease obligations for current operating leases. We expect the adoption of this standard to have a material impact on our consolidated statement of financial position, but not on the consolidated statements of operations or cash flows. As of December 31, 2017, our undiscounted operating lease commitments were $943 million. We are currently planning to elect the package of practical expedients which permits us to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. We are also evaluating other available practical expedients. We intend to adopt the standard retrospectively to the beginning of the period of adoption through a cumulative-effect adjustment.
March 2017 Nonrefundable Fees and Other Costs	January 1, 2019	This 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 ~~2010~~2009 and ~~2015~~2016 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 amounts under investigation.



Note 3 — Revenues

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On January 1, 2018, we adopted 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 net 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 fulfill a contract, (3) the timing 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 Trade 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 for the three and six months ended June 30, 2018 to the pro-forma amounts had the previous guidance been in effect, or Pro-forma Amounts:



	June 30, 2018
	As Reported		Pro-forma Amounts		Impacts of the New Revenue Standard
	(in millions)
Assets:
Trade accounts receivable, net^{(1), (2)}	$	3,204	$	3,082	$	122
Unbilled accounts receivable^{(1), (3)}	—		416		(416		)
Other current assets^{(2), (3)}	852		534		318
Total current assets					24
Other noncurrent assets⁽⁴⁾	615		565		50
Total assets					$	74
Liabilities:
Deferred revenue⁽²⁾	$	308	$	451	$	(143	)
Total current liabilities					(143		)
Deferred revenue, noncurrent⁽²⁾	77		86		(9		)
Deferred income tax liabilities, net⁽⁵⁾	145		95		50
Total liabilities					(102		)
Stockholders’ equity:
Retained earnings	10,681		10,505		176
Total stockholders’ equity					176
Total liabilities and stockholders’ equity					$	74



	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	As Reported			Pro-forma Amounts			Impacts of the New Revenue Standard			As Reported			Pro-forma Amounts			Impacts of the New Revenue Standard
	(in millions)									(in millions)
Revenues⁽²⁾	$	4,006		$	3,975		$	31		$	7,918		$	7,866		$	52
Cost of revenues ⁽⁴⁾	2,417			2,424			(7		)	4,818			4,833			(15		)
Selling, general and administrative expenses	805			805			—			1,516			1,516			—
Depreciation and amortization expense	114			114			—			221			221			—
Income from operations	670			632			38			1,363			1,296			67
Other income (expense), net	(47		)	(47		)	—			(43		)	(43		)	—
Income before provision for income taxes⁽⁵⁾	623			585			38			1,320			1,253			67
Provision for income taxes	(168		)	(161		)	(7		)	(345		)	(332		)	(13		)
Income (loss) from equity method investment	1			1			—			1			1			—
Net income	$	456		$	425		$	31		$	976		$	922		$	54
Basic earnings per share	$	0.78		$	0.73		$	0.05		$	1.67		$	1.57		$	0.10
Diluted earnings per share	$	0.78		$	0.73		$	0.05		$	1.66		$	1.57		$	0.09


(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.

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 in the initial phases of our application maintenance, business process outsourcing and 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 satisfying the performance obligation in the future, and (3) are expected to be recovered. These costs are expensed ratably over the estimated life of the customer relationship, including expected renewals. In determining the estimated life of the customer relationship, we evaluate the average contract term, on a portfolio basis by nature of the services to be provided, and apply judgment to evaluate 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 six months ended June 30, 2018. Costs to obtain contracts were immaterial for the periods disclosed.



	Costs to Fulfill
	(in millions)
Balance - January 1, 2018	$	303
Amortization expense	(32		)
Costs capitalized	85
Other	(3		)
Balance - June 30, 2018	$	353

Costs to fulfill are recorded in "Other noncurrent assets" in our consolidated statements of financial 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 time is required before payment is due). For example, we recognize a receivable for revenues related to our time and materials and transaction or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in Trade accounts receivable, net in our consolidated statements of financial position at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated 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 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:



	Contract Assets
	(in millions)
Balance - January 1, 2018	$	306
Revenues recognized during the period but not billed	259
Amounts reclassified to accounts receivable	(247		)
Balance - June 30, 2018	$	318

Our 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	119
Revenues recognized related to the opening balance of deferred revenue	(163		)
Other	(2		)
Balance - June 30, 2018	$	385

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

Revenues recognized during the six months ended June 30, ~~2017.~~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 June 30, 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 June 30, 2018, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $1,595 million, of which approximately 64% is expected to be recognized as revenues within 2 years.

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
	June 30, 2018
	Financial Services		Healthcare		Products and Resources		Communications, Media and Technology		Total
	(in millions)
Revenues
Geography:
North America	$	1,056	$	1,060	$	585	$	366	$	3,067
United Kingdom	114		22		89		84		309
Rest of Europe	165		61		109		46		381
Europe - Total	279		83		198		130		690
Rest of World	134		13		57		45		249
Total	$	1,469	$	1,156	$	840	$	541	$	4,006

Service line:
Consulting and technology services	$	885	$	613	$	499	$	289	$	2,286
Outsourcing services	584		543		341		252		1,720
Total	$	1,469	$	1,156	$	840	$	541	$	4,006

Type of contract:
Time and materials	$	953	$	452	$	379	$	335	$	2,119
Fixed-price	460		443		367		179		1,449
Transaction or volume-based	56		261		94		27		438
Total	$	1,469	$	1,156	$	840	$	541	$	4,006



	Six Months Ended
	June 30, 2018
	Financial Services		Healthcare		Products and Resources		Communications, Media and Technology		Total
	(in millions)
Revenues
Geography:
North America	$	2,100	$	2,083	$	1,157	$	702	$	6,042
United Kingdom	230		45		176		168		619
Rest of Europe	327		122		218		88		755
Europe - Total	557		167		394		256		1,374
Rest of World	273		27		110		92		502
Total	$	2,930	$	2,277	$	1,661	$	1,050	$	7,918

Service line:
Consulting and technology services	$	1,756	$	1,251	$	980	$	567	$	4,554
Outsourcing services	1,174		1,026		681		483		3,364
Total	$	2,930	$	2,277	$	1,661	$	1,050	$	7,918

Type of contract:
Time and materials	$	1,888	$	900	$	748	$	641	$	4,177
Fixed-price	931		954		728		358		2,971
Transaction or volume-based	111		423		185		51		770
Total	$	2,930	$	2,277	$	1,661	$	1,050	$	7,918



Note 4 — Business Combinations

In 2018, we completed two business combinations for total consideration of approximately $492 million, inclusive of contingent consideration. The acquisition of Bolder Healthcare Solutions, a privately-held U.S. provider of revenue cycle management solutions to the healthcare industry expands our healthcare consulting, technology and business process services portfolio and strengthens our position in digital healthcare technology and operations. The acquisition of Hedera Consulting, a privately-held company specializing in business advisory and data analytics services across a number of industries expands our consulting, business insight and digital transformation capabilities in Belgium and the Netherlands.

~~Note 3~~These acquisitions were not material, either individually or in the aggregate, to our operations, financial position or cash flow. Accordingly, pro forma results have not been presented. These acquisitions were included in our unaudited consolidated financial statements as of the date on which the businesses were acquired. We have allocated the purchase price related to these transactions to tangible and intangible assets and liabilities, including non-deductible goodwill, based on their estimated fair values. We will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition. The allocations of purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:



	Six Months Ended June 30, 2018
	Fair Value			Weighted Average Useful Life
	(in millions)
Cash	$	10
Current assets	37
Property, plant and equipment and other noncurrent assets	10
Non-deductible goodwill ⁽¹⁾	340
Customer relationship intangible assets	123			9.7 years
Other intangible assets	26			2.4 years
Current liabilities	(15		)
Noncurrent liabilities	(39		)
Purchase price	$	492

(1) The primary items that generated goodwill are the value of the acquired assembled workforces and synergies between the acquired companies and us, neither of which qualify as an amortizable intangible asset.



Note 5 — Realignment Charges

In 2017, we began a realignment of our business to accelerate the shift to digital services and solutions while improving the overall efficiency of our operations. AsCharges we incurred 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,~~were reported in "Selling, general and administrative expenses" in our consolidated statements of operations. The realignment charges are comprised of severance costs, ~~primarily~~including those related to a voluntary separation program ~~or VSP,~~ announced in May 2017, lease termination costs and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital ~~programs, and lease termination costs.~~programs.

Realignment charges ~~for the three and six months ended June 30, 2017~~ were as follows:

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.~~



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in millions)
Employee separations	$	—	$	37	$	—	$	39
Advisory fees	—		1		—		10
Lease termination costs	—		1		1		1
Total realignment costs	$	—	$	39	$	1	$	50

~~Note 4 — Investments~~



Note 6 — Investments

Our investments were as follows:


	June 30, 2017		December 31, 2016		June 30, 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 securities	1,953		2,264		1,862			1,972
Held-to-maturity investment securities	543		40		987			745
Time deposits	700		806		472		⁽¹⁾	389
Total short-term investments	$	3,221	$	3,135	$	3,346		$	3,131



Long-term investments:
Equity and cost method investments	$	74	$	74
Held-to-maturity investment securities	6		161
Total long-term investments	$	80	$	235


(1)	Includes $419 million in restricted time deposits as of June 30, 2018. See Note 9.

Long-term investments:
Equity and cost method investments $ 69
$ 62
Held-to-maturity investment securities 129
—
Total long-term investments $ 198
$ 62

~~Trading~~Equity Investment Securities

Our ~~trading~~equity 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, 2018 and 2017 were immaterial. The value of the fixed income mutual fund 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 ~~trading~~equity securities during the three and six months ended June 30, 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, ~~2017~~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	$	647	$	—	$	(10	)	$	637
Corporate and other debt securities	442		—		(1		)	441		440		—		(5		)	435
Certificates of deposit and commercial paper	452		—		—			452		377		—		—			377
Asset-backed securities	294		1		(1		)	294		306		—		(3		)	303
Municipal debt securities	124		—		—			124		111		—		(1		)	110
Total available-for-sale investment securities	$	1,956	$	1	$	(4	)	$	1,953	$	1,881	$	—	$	(19	)	$	1,862

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at December 31, ~~2016~~2017 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 securities	407		—		(2		)	405		439		—		(2		)	437
Certificates of deposit and commercial paper	910		1		—			911		450		—		—			450
Asset-backed securities	232		—		(1		)	231		297		—		(2		)	295
Municipal debt securities	116		—		(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:~~2018:


	Less than 12 Months					12 Months or More				Total					Less 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	$	(8	)	$	86	$	(2	)	$	603	$	(10	)
Corporate and other debt securities	298		(1		)	—		—		298		(1		)	321		(4		)	97		(1		)	418		(5		)
Certificates of deposit and commercial paper	105		—			—		—		105		—			99		—			—		—			99		—
Asset-backed securities	222		(1		)	3		—		225		(1		)	212		(2		)	78		(1		)	290		(3		)
Municipal debt securities	59		—			1		—		60		—			86		(1		)	16		—			102		(1		)
Total	$	1,235	$	(4	)	$	4	$	—	$	1,239	$	(4	)	$	1,235	$	(15	)	$	277	$	(4	)	$	1,512	$	(19	)


	Less than 12 Months					12 Months or More				Total					Less 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 securities	342		(2		)	1		—		343		(2		)	297		(1		)	126		(1		)	423		(2		)
Certificates of deposit and commercial paper	185		—			—		—		185		—			49		—			—		—			49		—
Asset-backed securities	206		(1		)	1		—		207		(1		)	193		(1		)	94		(1		)	287		(2		)
Municipal debt securities	88		(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, ~~2017~~2018 and December 31, ~~2016~~2017 were primarily attributable to changes in interest rates. At each reporting date, ~~the Company performs~~we 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~~.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, ~~2017~~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	$	536	$	535
Due after one year up to two years	462		461		526		518
Due after two years up to three years	478		476		468		461
Due after three years	76		76		45		45
Asset-backed securities	294		294		306		303
Total available-for-sale investment securities	$	1,956	$	1,953	$	1,881	$	1,862

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 June 30,					Six Months Ended June 30,
	2017		2016		2017			2016		2018			2017		2018			2017
	(in millions)									(in millions)
Proceeds from sales of available-for-sale investment securities	$	397	$	1,816	$	1,645		$	2,378	$	434		$	397	$	559		$	1,645

Gross gains	$	—	$	4	$	1		$	4	$	—		$	—	$	—		$	1
Gross losses	—		—		(1		)	—		(1		)	—		(2		)	(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	)	$	—	$	(2	)	$	—

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, ~~2017~~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	$	599	$	—	$	(2	)	$	597
Commercial paper	357		—		—		357		388		—		(1		)	387
Total short-term held-to-maturity investments	543		—		—		543		987		—		(3		)	984
Long-term investments:
Corporate and other debt securities	129		—		—		129		6		—		—			6
Total held-to-maturity investment securities	$	672	$	—	$	—	$	672	$	993	$	—	$	(3	)	$	990

The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity investment securities at December 31, ~~2016~~2017 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 paper	399		—		(2		)	397
Total short-term held-to-maturity investments	745		—		(3		)	742
Long-term investments:
Corporate and other debt securities	161		—		(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, ~~2017:~~2018:


	Less than 12 Months				12 Months or More				Total				Less 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	$	—	$	485	$	(2	)	$	31	$	—	$	516	$	(2	)
Commercial paper	63		—		—		—		63		—		387		(1		)	—		—		387		(1		)
Total	$	217	$	—	$	—	$	—	$	217	$	—	$	872	$	(3	)	$	31	$	—	$	903	$	(3	)

AsThe fair value and related unrealized losses of ~~December 31, 2016,~~ held-to-maturity investment securities in ana continuous unrealized loss position for less than 12 months and for 12 months or longer were ~~immaterial.~~ as follows as of December 31, 2017:



	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	$	473	$	(2	)	$	—	$	—	$	473	$	(2	)
Commercial paper	394		(2		)	—		—		394		(2		)
Total	$	867	$	(4	)	$	—	$	—	$	867	$	(4	)

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.~~2018.

The contractual maturities of our fixed income held-to-maturity investment securities as of June 30, ~~2017~~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 years 123
123
Due after two years 6
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	$	987	$	984
Due after two years	6		6
Total held-to-maturity investment securities	$	993	$	990

During the six months ended June 30, ~~2017~~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~~



Note 7 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:


	June 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(in millions)				(in millions)
Compensation and benefits	$	1,026	$	1,134	$	928	$	1,272
Income taxes	15		10		174		48
Professional fees	85		99		113		100
Travel and entertainment	38		36		45		32
Customer volume and other incentives	223		258		312		289
Derivative financial instruments	6		4		18		5
Other	262		315		322		325
Total accrued expenses and other current liabilities	$	1,655	$	1,856	$	1,912	$	2,071

~~Note 6~~



Note 8 — 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.~~2018.

Short-term Debt

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


	June 30, 2017		December 31, 2016		June 30, 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



	June 30, 2018			December 31, 2017
	(in millions)
Term loan, due November 2019	$	750		$	800
Less:
Current maturities	(100		)	(100		)
Deferred financing costs	(1		)	(2		)
Long-term debt, net of current maturities	$	649		$	698

~~Note 7 — Income Taxes~~



Note 9 — Income Taxes

~~Our Indian subsidiaries, collectively referred to as Cognizant India, are primarily export-oriented and are eligible for certain income tax holiday benefits granted by~~On December 22, 2017, 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~~United States enacted the Tax Reform Act, which significantly revised the U.S. corporate income tax atlaw for tax years beginning after December 31, 2017 by (among other provisions):

reducing the rate of 34.6%. In addition, all Indian profits, including those generated within SEZs, are subject to the Minimum Alternative Tax, or MAT, at the rate of 21.3%. Any MAT paid is creditable against future IndianU.S. federal statutory corporate income tax ~~subject~~rate from 35% to ~~limitations.~~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 ("SAB") No. 118 - Income 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 Company has elected to pay the transition tax on undistributed earnings 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 six months ended June 30, 2018, we have not recorded any adjustments to the one-time provisional net income tax expense. We will complete the accounting for the Tax Reform Act within the one year measurement period as provided in SAB 118.

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 rate 26.0 % 57.6 % 20.0 % 41.4 %



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Effective income tax rate	27.0	%	26.0	%	26.1	%	20.0	%

InThe effective tax rate for the ~~first quarter~~six months ended June 30, 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. The estimate of our 2018 annual effective income tax rate reflects the current interpretation of the Tax Reform Act, including the GILTI provision and may change as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time.

~~In May~~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, ~~repurchased~~or CTS India, to repurchase shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 ~~billion ("India Cash Remittance"). This~~billion. As a result of that transaction, ~~was~~ undertaken pursuant to a plan approved by the Madras High Court ~~of Madras and simplified~~in 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. Pursuant~~applicable taxes owed for this transaction under Indian law. The ITD is asserting that we owe an additional 33 billion Indian rupees ($482 million at the June 30, 2018 exchange rate) 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 of~~undertaken by CTS India to repurchase shares from its ~~U.S.~~ shareholders ~~resulting in~~valued 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 June 30, 2018. The ITD Dispute is ongoing, and no final decision has been reached.

~~cash to~~ financial position. In addition, in April 2018 the ~~United States~~court placed a lien on certain time deposits of CTS India in the amount of ~~$1.0 billion.~~28 billion Indian rupees ($410 million at the June 30, 2018 exchange rate), which is the remainder of the disputed tax amount related to the 2016 India Cash Remittance. We have classified affected time deposits as restricted assets and reported them in “Short-term investments” on

our consolidated statement of financial position. As ~~a result~~ of ~~this transaction, we incurred an incremental 2016 income tax expense of $238~~June 30, 2018, the restricted time deposits balance was $419 million, including ~~a discrete item recognized in the second quarter~~accumulated interest. There were no restricted time deposits as of 2016 of $143 million 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.

December 31, 2017.

~~Note 8~~



Note 10 — 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					June 30, 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	$	36	$	—	$	134	$	—
	Other noncurrent assets	43		—		17		—		Other noncurrent assets	—		—		20		—
	Total	155		—		51		—		Accrued expenses and other current liabilities	—		18		—		—
										Other noncurrent liabilities	—		25		—		—
										Total	36		43		154		—
Foreign exchange forward contracts – Not designated as hedging instruments	Accrued expenses and other current liabilities	—		6		—		4		Other current assets	4		—		—		—
	Total	—		6		—		4		Accrued expenses and other current liabilities	—		—		—		5
										Total	4		—		—		5
Total		$	155	$	6	$	51	$	4		$	40	$	43	$	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 half 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,~~2018, we estimate that ~~$85~~$13 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, 2016		June 30, 2018			December 31, 2017
	(in millions)				(in millions)
2017	$	630	$	1,320
2018	1,050		1,020		$	690		$	1,185
2019	330		—		1,050			720
2020					315			—
Total notional value of contracts outstanding	$	2,010	$	2,340	$	2,055		$	1,905
Net unrealized gains included in accumulated other comprehensive income (loss), net of taxes	$	117	$	39
Net unrealized (losses) gains included in accumulated other comprehensive income (loss), net of taxes					$	(8	)	$	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:

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



	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	$	(91	)	$	35	Cost of revenues	$	18	$	29
						Selling, general and administrative expenses	3		6
						Total	$	21	$	35

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	$	(105	)	$	159	Cost of revenues	$	48	$	46
						Selling, general and administrative expenses	8		9
						Total	$	56	$	55

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 1012.

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, British pound and ~~the~~ Euro, other than the functional currency of our foreign subsidiaries. ~~These~~We 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 )



	June 30, 2018				December 31, 2017
	Notional		Fair Value		Notional		Fair Value
	(in millions)
Contracts outstanding	$	432	$	4	$	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:

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 instruments Foreign currency exchange gains (losses), net $ (3 ) $ 3
$ (13 ) $ —



	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,
		2018		2017			2018		2017
		(in millions)
Foreign exchange forward contracts – Not designated as hedging instruments	Foreign currency exchange gains (losses), net	$	18	$	(3	)	$	20	$	(13	)

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

~~Note 9~~



Note 11 — 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:~~2018:


	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
	(in millions)										(in millions)
Cash equivalents:
Money market funds	$	217	$	—		$	—	$	217		$	300	$	—		$	—	$	300
Certificates of deposit and commercial paper											—		81			—		81
Total cash equivalents	217		—			—		217			300		81			—		381
Short-term investments:
Time deposits	—		700			—		700
Time deposits⁽¹⁾											—		472			—		472
Available-for-sale investment securities:
U.S. Treasury and agency debt securities	550		92			—		642			572		65			—		637
Corporate and other debt securities	—		441			—		441			—		435			—		435
Certificates of deposit and commercial paper	—		452			—		452			—		377			—		377
Asset-backed securities	—		294			—		294			—		303			—		303
Municipal debt securities	—		124			—		124			—		110			—		110
Total available-for-sale investment securities	550		1,403			—		1,953			572		1,290			—		1,862
Held-to-maturity investment securities:
Commercial paper	—		357			—		357			—		387			—		387
Corporate and other debt securities	—		186			—		186			—		597			—		597
Total short-term held-to-maturity investment securities	—		543			—		543			—		984			—		984
Total short-term investments⁽¹⁾	550		2,646			—		3,196
Total short-term investments⁽²⁾											572		2,746			—		3,318
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			—		40			—		40
Accrued expenses and other current liabilities	—		(6		)	—		(6		)	—		(18		)	—		(18		)
Other noncurrent assets	—		43			—		43
Other noncurrent liabilities											—		(25		)	—		(25		)
Total	$	767	$	2,924		$	—	$	3,691		$	872	$	2,830		$	—	$	3,702

~~________________~~


(1)	~~Excludes trading securities~~ Includes $419 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 9.


(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~~$74 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		Total			Level 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 equivalents	624		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 securities	558		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 securities	558		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 securities~~an equity security invested in a mutual ~~funds~~fund valued at $25 million based on the ~~net asset value,~~NAV of the ~~fund~~fund.


(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, ~~2017~~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 six months ended June 30, ~~2017~~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 12 — Stockholders' Equity

Stock Repurchase Program

~~Under the Board of Directors' authorized~~We 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 authorized~~six months ended June 30, 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)
June 2018 ASR	⁽¹⁾	6.5	⁽¹⁾	⁽¹⁾		$	600
March 2018 ASR	May 2018	3.7	⁽²⁾	$	79.95	$	300
December 2017 ASR	March 2018	4.0	⁽³⁾	$	75.75	$	300
March 2017 ASR	August 2017	23.7		$	63.19	$	1,500

___________________

(1)

Under the terms of the June 2018 ASR and in exchange for up-front payments of $600 million, the financial institution initially delivered 6.5 million shares, a portion of the Company's total expected shares to be repurchased under the June 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 third quarter of 2018, based on the volume-weighted average price of the Company's common stock during that period.


(2)	Includes 3.0 million shares initially delivered in March 2018 and 0.7 million shares delivered in May 2018 upon the final settlement of the ASR.


(3)	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 ~~its~~program 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,~~2018, the remaining available balance under our stock repurchase program was ~~$2,000~~$800 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. WeIn 2017, we also repurchased a limited number of shares from employees at the repurchase date market price. ~~Combined, for~~For the six months ended June 30, 2018 and 2017, such repurchases totaled 0.6 million shares at an aggregate cost of $49 million, and 0.7 million shares at an aggregate cost of $44 ~~million.~~

million, respectively.

Dividends

Dividends on our Class A common stock, including dividend equivalents, during the periods presented were as follows:

~~During the second quarter of 2017, we declared and paid cash dividends of $0.15 per share, totaling $89 million.~~



	Dividends per Share		Amount
			(in millions)
2018:
Three months ended March 31, 2018	$	0.20	$	119
Three months ended June 30, 2018	0.20		119
Six months ended June 30, 2018			$	238
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,~~2, 2018, our Board of Directors approved the Company's declaration of a ~~$0.15~~$0.20 per share dividend with a record date of August 22, ~~2017~~2018 and a payment date of August 31, ~~2017.~~2018.

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~~:2018:


	Three Months									Six Months									Three Months									Six 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			Before Tax Amount			Tax Effect			Net of Tax Amount
	(in millions)																		(in millions)
Foreign currency translation adjustments:
Beginning balance	$	(132	)	$	—		$	(132	)	$	(149	)	$	—		$	(149	)	$	3		$	(4	)	$	(1	)	$	(38	)	$	—		$	(38	)
Change in foreign currency translation adjustments	50			—			50			67			—			67			(82		)	11			(71		)	(41		)	7			(34		)
Ending balance	$	(82	)	$	—		$	(82	)	$	(82	)	$	—		$	(82	)	$	(79	)	$	7		$	(72	)	$	(79	)	$	7		$	(72	)

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	)	$	(19	)	$	4		$	(15	)	$	(11	)	$	4		$	(7	)
Net unrealized gains arising during the period	1			—			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																			(1		)	1			—			(10		)	2			(8		)
Reclassification of net losses to Other, net																			1			—			1			2			—			2
Net change	1			—			1			3			(1		)	2			—			1			1			(8		)	1			(7		)
Ending balance	$	(3	)	$	1		$	(2	)	$	(3	)	$	1		$	(2	)	$	(19	)	$	5		$	(14	)	$	(19	)	$	5		$	(14	)

Unrealized gains on cash flow hedges:
Beginning balance	$	155		$	(37	)	$	118		$	51		$	(12	)	$	39		$	105		$	(26	)	$	79		$	154		$	(39	)	$	115
Unrealized gains arising during the period	35			(9		)	26			159			(39		)	120
Unrealized (losses) arising during the period																			(91		)	19			(72		)	(105		)	24			(81		)
Reclassifications of net (gains) to:
Cost of revenues	(29		)	7			(22		)	(46		)	11			(35		)	(18		)	5			(13		)	(48		)	12			(36		)
Selling, general and administrative expenses	(6		)	1			(5		)	(9		)	2			(7		)	(3		)	1			(2		)	(8		)	2			(6		)
Net change	—			(1		)	(1		)	104			(26		)	78			(112		)	25			(87		)	(161		)	38			(123		)
Ending balance	$	155		$	(38	)	$	117		$	155		$	(38	)	$	117		$	(7	)	$	(1	)	$	(8	)	$	(7	)	$	(1	)	$	(8	)

Accumulated other comprehensive income (loss):
Beginning balance	$	19		$	(36	)	$	(17	)	$	(104	)	$	(10	)	$	(114	)	$	89		$	(26	)	$	63		$	105		$	(35	)	$	70
Other comprehensive income (loss)	51			(1		)	50			174			(27		)	147			(194		)	37			(157		)	(210		)	46			(164		)
Ending balance	$	70		$	(37	)	$	33		$	70		$	(37	)	$	33		$	(105	)	$	11		$	(94	)	$	(105	)	$	11		$	(94	)


(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~~:2017:


	Three Months									Six Months									Three Months									Six 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			Before Tax Amount			Tax Effect			Net of Tax Amount
	(in millions)																		(in millions)
Foreign currency translation adjustments:
Beginning balance	$	(70	)	$	—		$	(70	)	$	(90	)	$	—		$	(90	)	$	(132	)	$	—		$	(132	)	$	(149	)	$	—		$	(149	)
Change in foreign currency translation adjustments	(29		)	—			(29		)	(9		)	—			(9		)	50			—			50			67			—			67
Ending balance	$	(99	)	$	—		$	(99	)	$	(99	)	$	—		$	(99	)	$	(82	)	$	—		$	(82	)	$	(82	)	$	—		$	(82	)

Unrealized gains (losses) on available-for-sale investment securities:
Beginning balance	$	1		$	(1	)	$	—		$	(7	)	$	2		$	(5	)	$	(4	)	$	1		$	(3	)	$	(6	)	$	2		$	(4	)
Net unrealized gains arising during the period	5			(1		)	4			13			(4		)	9			1			—			1			3			(1		)	2
Reclassification of net (gains) to Other, net	(4		)	1			(3		)	(4		)	1			(3		)	—			—			—			—			—			—
Other-than-temporary impairment losses on investment securities recognized in earnings	3			(1		)	2			3			(1		)	2
Net change	4			(1		)	3			12			(4		)	8			1			—			1			3			(1		)	2
Ending balance	$	5		$	(2	)	$	3		$	5		$	(2	)	$	3		$	(3	)	$	1		$	(2	)	$	(3	)	$	1		$	(2	)

Unrealized gains (losses) on cash flow hedges:
Unrealized gains on cash flow hedges:
Beginning balance	$	10		$	(2	)	$	8		$	(14	)	$	2		$	(12	)	$	155		$	(37	)	$	118		$	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 period																			35			(9		)	26			159			(39		)	120
Reclassifications of net (gains) to:
Cost of revenues	(3		)	—			(3		)	(1		)	—			(1		)	(29		)	7			(22		)	(46		)	11			(35		)
Selling, general and administrative expenses	—			—			—			—			—			—			(6		)	1			(5		)	(9		)	2			(7		)
Net change	(10		)	2			(8		)	14			(2		)	12			—			(1		)	(1		)	104			(26		)	78
Ending balance	$	—		$	—		$	—		$	—		$	—		$	—		$	155		$	(38	)	$	117		$	155		$	(38	)	$	117

Accumulated other comprehensive income (loss):
Beginning balance	$	(59	)	$	(3	)	$	(62	)	$	(111	)	$	4		$	(107	)	$	19		$	(36	)	$	(17	)	$	(104	)	$	(10	)	$	(114	)
Other comprehensive income (loss)	(35		)	1			(34		)	17			(6		)	11			51			(1		)	50			174			(27		)	147
Ending balance	$	(94	)	$	(2	)	$	(96	)	$	(94	)	$	(2	)	$	(96	)	$	70		$	(37	)	$	33		$	70		$	(37	)	$	33

~~Note 11~~



Note 13 — 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 ~~2010~~2009 and ~~2015~~2016 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.

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~~filed 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 ~~motion~~motions to dismiss the consolidated putative securities class action. All of the putative shareholder derivative complaints allege among other things that certain of our public disclosures were false and misleading by failing to disclose that payments allegedly in violation of the FCPA had been made and by asserting that management had determined that our internal controls were effective. The plaintiffs seek awards of compensatory damages and restitution to 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 ~~related~~DOJ 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 accrual~~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, ~~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 June 30, 2018 as we cannot estimate the ultimate outcome at this time but have expensed payments made through June 30, 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 June 30, 2018.

See Note 9 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 14 — 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, 2017, Goodwin performed legal services for the Company for which it earned approximately $1 million and $3 million, respectively. For such period and other periods when Goodwin ~~has continued to perform such legal services since June 30, 2017 through the date~~was 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 six months ended June 30, 2018, Goodwin was not a related party of the Company.

~~Note 13~~



Note 15 — 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 ~~groups~~segments 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 that differs depending on location and assets deployed. 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 ~~seat~~employee charge for use of ~~the~~our 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,~~profits, before unallocated expenses, by reportable segment were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(in millions)								(in millions)
Revenues:
Financial Services	$	1,406	$	1,351	$	2,782	$	2,637	$	1,469	$	1,406	$	2,930	$	2,782
Healthcare	1,050		959		2,053		1,873		1,156		1,050		2,277		2,053
Products and Resources	747		660		1,484		1,293		840		747		1,661		1,484
Communications, Media and Technology	467		400		897		769		541		467		1,050		897
Total revenues	$	3,670	$	3,370	$	7,216	$	6,572	$	4,006	$	3,670	$	7,918	$	7,216

Segment Operating Profit:
Financial Services	$	411	$	459	$	802	$	882	$	462	$	445	$	909	$	872
Healthcare	343		270		616		565		357		345		695		619
Products and Resources	214		226		417		445		258		230		514		447
Communications, Media and Technology	146		134		267		256		179		156		338		291
Total segment operating profit	1,114		1,089		2,102		2,148		1,256		1,176		2,456		2,229
Less: unallocated costs(1)	508		498		926		1,003		586		570		1,093		1,053
Income from operations	$	606	$	591	$	1,176	$	1,145	$	670	$	606	$	1,363	$	1,176

________________


(1)	In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on science, technology, engineering and math (or collectively, STEM) education in the United States. This charge was recorded in unallocated costs for the three and six months ended June 30, 2018.

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 June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(in millions)								(in millions)
Revenues: ⁽¹⁾
North America⁽²⁾	$	2,851	$	2,624	$	5,612	$	5,121	$	3,067	$	2,851	$	6,042	$	5,612
United Kingdom	288		311		562		610		309		288		619		562
Rest of Europe	291		237		576		463		381		291		755		576
Europe - Total	579		548		1,138		1,073		690		579		1,374		1,138
Rest of World ⁽³⁾	240		198		466		378		249		240		502		466
Total	$	3,670	$	3,370	$	7,216	$	6,572
Total revenues									$	4,006	$	3,670	$	7,918	$	7,216


	As of				As of
	June 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(in millions)				(in millions)
Long-lived Assets: ⁽⁴⁾
North America⁽²⁾	$	293	$	279	$	403	$	360
Europe	49		52		82		63
Rest of World ⁽³⁾⁽⁵⁾	942		980		860		901
Total	$	1,284	$	1,311	$	1,345	$	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.

~~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 ~~utilize~~use an integrated global delivery model ~~with~~that employs customer service teams ~~typically~~ based ~~on-site~~ at customer locations and delivery teams located at dedicated global and regional delivery centers.

~~Our objective is~~In 2017, we began a realignment of our business to ~~create value for both~~improve 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~~revenue growth. As a continuation of ~~intelligence~~this realignment program, we intend to ~~automate~~take additional actions during the remainder of 2018 to further improve our cost structure primarily by optimizing our resource pyramid. As a result of these actions, we expect to incur $25 million to $35 million in severance costs during the remainder of 2018. The final amount and ~~improve core business processes,~~timing of these charges is uncertain and ~~improving technology systems by deploying cloud and cyber security solutions and as-a-service models~~may change as the severance program continues to ~~make them simpler, more modern and secure. To~~develop. In addition, to accelerate our shift to digital services and solutions, we are ~~deploying~~continuing to deploy the following strategies:

~~Aligning~~ aligning our digital services ~~into~~and 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.~~

~~Investing~~investing to scale these digital practice areas across our business segments and geographies, including through extensive training and re-skilling of our existing technical teams 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 of~~continuing 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.

~~Selectively~~selectively targeting higher margin work within our core ~~business and unifying our delivery capabilities to allow for more cost-conscious delivery, leveraging automation and scale, improving our utilization and optimizing our pyramid.~~

~~In 2017, we began a realignment of our business by executing on~~business. We believe the above actions and strategies ~~and improving the overall efficiency of~~will enable us to gradually expand our ~~operations,~~non-GAAP operating margins¹ 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 margin~~¹ ~~and non-GAAP diluted earnings per share~~¹. 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 share~~¹.

~~_______________~~


1	Non-GAAP income from operations and Non-GAAP diluted earnings per share are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial 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 $2.7 billion of stock through accelerated stock repurchase agreements, or ASRs, and paid dividends of $501 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. 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 June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31 million, income from operations of $38 million and diluted earnings per share of $0.05 per share. See Note 3 to our unaudited consolidated financial statements for additional information.


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

The following table sets forth summarized operating results for the three months ended June 30, ~~2017~~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	$	4,006			$	3,670			$	336		9.2
Income from operations and operating margin	606		16.5	%	591		17.5	%	15		2.5	670		16.7	%	606		16.5	%	64			10.6
Net income	470				252				218		86.5	456				470				(14		)	(3.0	)
Diluted earnings per share	0.80				0.41				0.39			0.78				0.80				(0.02		)
Other Financial Information²
Non-GAAP income from operations and Non-GAAP operating margin	735		20.0	%	683		20.3	%	52		7.6	882		22.0	%	735		20.0	%	147			20.0
Non-GAAP diluted earnings per share	0.93				0.87				0.06			1.19				0.93				0.26

The ~~key drivers of~~following charts set forth revenues and revenue growth by business segment and geography for the three months ended June 30, 2017 and 2018:

The following factors impacted our revenue growth during the three months ended June 30, ~~2017~~2018 as compared to June 30, ~~2016 were as follows:~~

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 ~~our~~certain banking customers continue to ~~focus on optimizing~~optimize the cost of supporting their ~~cost structure~~systems and ~~managing~~operations 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 19.2% inclusive of a positive currency impact of 6.4%.


◦	Revenues from our Rest of ~~World~~Europe customers increased ~~21.2%, after an immaterial~~30.9% inclusive of a positive currency ~~impact;~~impact of 7.1% and revenues from a new strategic customer acquired in the third quarter of 2017.


◦	Revenues from our United Kingdom customers increased 7.3% inclusive of a positive currency impact of 5.8%. Revenue growth in the United Kingdom continues to be 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.~~

~~_______________~~


2	Non-GAAP income from operations, Non-GAAP operating margin and ~~Non-GAAP diluted~~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 ~~measure.~~measures.

Continued expansion of the market for global delivery of technology and business process services; and

Increased penetration at existing customers, including strategic customers.

Our customers seek to 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.~~371. 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.

In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on science, technology, engineering and math (or collectively, STEM) education in the United States. This funding was reported in "Selling, general and administrative expenses" in our consolidated statements of operations and was excluded from our non-GAAP income from operations³, non-GAAP operating margin³ and non-GAAP diluted earnings per share³ as it is not expected to recur at this magnitude in the foreseeable future.

Our operating margin ~~decreased~~increased to 16.7% for the quarter ended June 30, 2018 from 16.5% for the quarter ended June 30, 2017, ~~from 17.5% for the quarter ended June 30, 2016,~~ while our non-GAAP operating margin for the same period ~~decreased~~increased to ~~20.0%~~22.0%³from ~~20.3%~~20.0%³. The ~~decreases~~increases in both our GAAP and non-GAAP operating margins were due to ~~an increase~~a decrease, as a percentage of revenues, in compensation and ~~benefits~~benefit costs as revenue growth outpaced headcount growth and the ~~negative impact of the appreciation~~depreciation of the Indian rupee against the U.S. dollar, ~~and increases in certain operating and professional costs,~~ partially offset by ~~greater realized~~an increase in fees paid to strategic partners and other vendors related to our managed services and digital products and lower gains on ~~settlements~~settlement of our cash flow ~~hedges.~~hedges in 2018 compared to 2017. Our GAAP operating margin was further negatively ~~affected~~impacted by the ~~realignment charges incurred~~initial funding of the Cognizant U.S. Foundation and the increase in ~~2017. Additionally,~~amortization expense due to recent acquisitions. For the remainder of 2018, we expect our GAAP and non-GAAP operating margins to trend lower than the second quarter of 2018 as we absorb increased costs related to our annual salary revision and promotion cycles and other planned investments.

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 may change, possibly materially, as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time. During 2018, we have not recorded any adjustments to the one-time provisional net income tax expense. We anticipate completing the accounting for the ~~three months ended June 30, 2016 reflected~~Tax Reform Act within the ~~loss recognized on a fixed-price customer contract of $27 million.~~measurement period. See

Note 9 to our unaudited consolidated financial statements for additional information.

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 ~~2010~~2009 and ~~2015~~2016 that may have been improper. In ~~the second half of~~ 2016, we recorded an out-of-period correction related to $4 million of such payments that had been previously capitalized that should have been expensed. ~~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 ~~2016~~2017 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 ~~quarter~~quarters ended June 30, 2018 and 2017, we incurred $3 million and $8 million, respectively, in costs related to the FCPA investigation and related lawsuits. We expect to continue to incur expenses related to these matters.


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

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 33 billion Indian rupees ($482 million at the June 30, 2018 exchange rate) 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 June 30, 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 5 billion Indian rupees ($72 million at the June 30, 2018 exchange rate) representing 15% of the disputed tax amount related to the 2016 India Cash Remittance, to be kept in a segregated account by the ITD. This amount is presented in "Other current assets" on our consolidated statement of financial position. In addition, the court has placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($410 million at the June 30, 2018 exchange rate), which is the remainder of ~~2017~~the disputed tax amount related to the 2016 India Cash Remittance. We have classified affected time deposits as restricted assets and ~~future periods,~~reported them in “Short-term investments” on our consolidated statement of financial position. As of June 30, 2018, the restricted time deposits balance was $419 million, including ~~with respect~~accumulated interest. See Note 9 to ~~remediating the material weakness in~~ our ~~internal control over~~unaudited consolidated financial ~~reporting.~~

statements for additional information.

We finished the second quarter of ~~2017~~2018 with approximately ~~256,800~~268,900 employees, which is an increase of approximately ~~12,500~~12,100 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 in 2017. Annualized turnover, including both voluntary and involuntary, was approximately ~~23.6%~~22.6% 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.~~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;~~

~~_______________~~


3	Non-GAAP operating margin is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and a reconciliation to the most directly comparable GAAP financial 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 ~~could~~may continue to be affected by the uncertainty in the regulatory ~~environment;~~and secular environments;

Demand from ~~our~~certain banking customers may continue to be negatively affected by their ~~continued focus on optimizing~~ongoing efforts to optimize the cost of supporting their ~~cost structure~~systems and ~~managing~~operations 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;

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’s~~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 ~~business~~operating segment have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by our operating ~~groups~~segments may affect revenues and operating expenses to differing degrees.

Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per ~~seat~~employee charge for use of ~~the~~our 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, ~~2017~~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, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

The following table sets forth, for the periods indicated, certain financial data for the three months ended June 30:


				% 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		$	4,006		100.0	$	3,670		100.0	$	336		9.2
Cost of revenues⁽¹⁾⁽²⁾	2,261			61.6	2,038			60.5	223		10.9		2,417			60.3	2,261			61.6	156			6.9
Selling, general and administrative expenses⁽¹⁾⁽²⁾	709			19.3	654			19.4	55		8.4		805			20.1	709			19.3	96			13.5
Depreciation and amortization expense	94			2.6	87			2.6	7		8.0		114			2.8	94			2.6	20			21.3
Income from operations	606			16.5	591			17.5	15		2.5		670			16.7	606			16.5	64			10.6
Other income (expense), net	29				4				25		625.0		(47		)		29				(76		)	(262.1	)
Income before provision for income taxes	635			17.3	595			17.6	40		6.7		623			15.6	635			17.3	(12		)	(1.9	)
Provision for income taxes	(165		)		(343		)		178		(51.9	)	(168		)		(165		)		(3		)	1.8
Income from equity method investments													1				—				1
Net income	$	470		12.8	$	252		7.5	$	218	86.5		$	456		11.4	$	470		12.8	$	(14	)	(3.0	)
Diluted earnings per share	$	0.80			$	0.41			$	0.39			$	0.78			$	0.80			$	(0.02	)

Other Financial Information ⁽²⁾
Other Financial Information⁽³⁾
Non-GAAP income from operations and non-GAAP operating margin	$	735		20.0	$	683		20.3	$	52	7.6		$	882		22.0	$	735		20.0	$	147		20.0
Non-GAAP diluted earnings per share	$	0.93			$	0.87			$	0.06			$	1.19			$	0.93			$	0.26

_____________________

(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 June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31 million, income from operations of $38 million and diluted earnings per share of $0.05 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, ~~2016~~2017 were ~~$132~~$126 million and represented ~~44.0%~~37.5% 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, ~~2017~~2018 increased by ~~11.4%~~6.0% compared to the three months ended June 30, ~~2016~~2017 and represented ~~58.7%~~57.1% of total revenues for the three months ended June 30, ~~2017.~~2018. Our outsourcing services revenues for the three months ended June 30, ~~2017~~2018 increased by ~~5.6%~~13.6% and constituted ~~41.3%~~42.9% of total revenues for the three months ended June 30, ~~2017.~~2018.

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. For the three months ended June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31 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 %

~~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.~~



	Three Months Ended June 30,
	2018		2017
Top five customers	8.6	%	9.0	%
Top ten customers	15.4	%	15.1	%

Revenues - Reportable ~~Segments.~~ Business Segments

Revenues by reportable business segment were as follows for the three months ended June 30:


	2017		2016		Increase			2018		2017		Increase
	2017		2016		$		%	2018		2017		$		%
	(Dollars in millions)							(Dollars in millions)
Financial Services	$	1,406	$	1,351	$	55	4.1	$	1,469	$	1,406	$	63	4.5
Healthcare	1,050		959		91		9.5	1,156		1,050		106		10.1
Products and Resources	747		660		87		13.2	840		747		93		12.4
Communications, Media and Technology	467		400		67		16.8	541		467		74		15.8
Total revenues(1)	$	3,670	$	3,370	$	300	8.9	$	4,006	$	3,670	$	336	9.2

_____________________


(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%~~4.5%, inclusive of a positive currency impact of 1.0%, for the three months ended June 30, ~~2017,~~2018, as compared to the three months ended June 30, ~~2016.~~2017. Growth was stronger among our insurance customers where revenues increased by ~~$40~~$54 million as compared to an increase of ~~$15~~$9 million for our banking customers. In this segment, revenues from customers added since June 30, ~~2016~~2017 were ~~$23~~$36 million and represented ~~41.8%~~57.1% of the period-over-period ~~revenue~~revenues increase in this segment. Key areas of focus for our Financial Services customers included the adoption and integration of digital technologies that are reshaping our customers' business and operating models, cost optimization, robotic process automation, cyber security and vendor consolidation. Demand from ~~our~~certain banking customers may continue to be negatively affected by their ~~continued focus on optimizing~~ongoing efforts to optimize the cost of supporting their ~~cost structure~~systems and ~~managing~~operations as they shift their ~~discretionary spending.~~spend to transformation and digital services.

Healthcare

Revenues from our Healthcare segment grew ~~9.5%~~10.1% for the three months ended June 30, ~~2017,~~2018, as compared to the three months ended June 30, ~~2016. Revenues from~~2017. Growth was stronger among our healthcare customers where revenues increased by ~~$58~~$100 million, ~~while revenue growth among~~including revenues from Bolder Healthcare Solutions acquired in the second quarter of 2018 and a new strategic customer acquired in the third quarter of 2017, as compared to an increase of $6 million for our life sciences ~~customers was $33 million.~~ customers.Revenues from customers added since June 30, ~~2016~~2017 were ~~$22~~$52 million and represented ~~24.2%~~49.1% of the period-over-period ~~revenue~~revenues increase in this segment. The ~~increase in revenues from our life sciences customers was driven by a growing~~ demand for ~~a broader range of~~our 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 ~~could~~may 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%~~12.4%, inclusive of a positive currency impact of 1.7%, for the three months ended June 30, ~~2017,~~2018, as compared to the three months ended June 30, ~~2016.~~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.~~$66 million. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined $8$27 million. Revenues from customers added since June 30, ~~2016~~2017 were ~~$68~~$31 million, representing ~~78.2%~~33.3% 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~~smart products, transformation of business models, internet of things and omni channel commerce implementation and integration services. Discretionary spending by our retail customers has been and may continue to be affected by weakness in the retail sector.

Communications, Media and Technology

Revenues from our Communications, Media and Technology segment ~~(previously referred to as Other)~~ grew ~~16.8%~~15.8%, inclusive of a positive currency impact of 1.5%, for the three months ended June 30, ~~2017,~~2018, as compared to the three months ended June 30, ~~2016. In~~2017. Revenue growth was $59 million among our technology customers and $15 million among our communications and media customers. Revenues from customers added since June 30, 2017 were $7 million and represented 9.5% of the ~~second quarter of 2017, growth~~period-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~~including business process services. Revenue growth ~~was $43 million~~ among our communications customers has been and ~~media customers~~may continue to be negatively affected by uncertainty due to significant merger 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~~acquisition activity in ~~this segment.~~their industry.

Revenues - Geographic Markets.

Revenues by geographic market were as follows for the three months ended June 30:


	2017		2016		Increase (Decrease)					2018		2017		Increase
	2017		2016		$			%		2018		2017		$		%
	(Dollars in millions)									(Dollars in millions)
North America	$	2,851	$	2,624	$	227		8.7		$	3,067	$	2,851	$	216	7.6
United Kingdom	288		311		(23		)	(7.4	)	309		288		21		7.3
Rest of Europe	291		237		54			22.8		381		291		90		30.9
Europe - Total	579		548		31			5.7		690		579		111		19.2
Rest of World	240		198		42			21.2		249		240		9		3.8
Total revenues(1)	$	3,670	$	3,370	$	300		8.9		$	4,006	$	3,670	$	336	9.2

_____________________


(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%~~76.6% of total revenues for the second quarter of ~~2017,~~2018, and ~~accounting for $227 million~~64.3% of ~~the $300 million~~ total revenue ~~increase~~growth from the second quarter of 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.2017. Revenues from our customers in Europe grew ~~5.7%, after~~19.2% inclusive of a ~~negative~~positive currency impact of ~~6.1%~~6.4%. 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 quarter~~increased 30.9% inclusive of ~~2016, increased 22.8% after~~ a ~~negative~~positive currency impact of ~~2.7%. Revenue growth from our~~7.1%, while within the United Kingdom ~~customers has been negatively affected by the current macroeconomic conditions, including the weakening~~we experienced an increase in revenues of ~~the British pound and uncertainty in the markets due to~~ ~~the result~~7.3% inclusive of ~~the June 2016 United Kingdom referendum to exit the European Union, or Brexit Referendum.~~a positive currency impact of 5.8%. Revenues from our Rest of World customers grew ~~21.2%, after an immaterial currency impact~~3.8% in the second quarter of ~~2017, primarily driven~~2018. Revenue growth in the United Kingdom and Rest of World was negatively affected by weakness in the ~~Australia and India markets.~~banking sector in those regions. We believe that Europe, ~~the~~India, 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, project-related immigration and ~~project-related~~ travel for technical personnel and subcontracting ~~expense.~~costs relating to revenues. Our cost of revenues increased by ~~10.9%~~6.9% during the second quarter of ~~2017~~2018 as compared to the second quarter of ~~2016.~~2017, decreasing as a percentage of revenues to 60.3% in the second quarter of 2018 compared to 61.6% in the second quarter of 2017. The ~~increase~~decrease as a percentage of revenues was due primarily to ~~higher~~a decrease in compensation and benefits ~~costs~~as revenue growth outpaced headcount growth and the ~~negative impact of the appreciation~~depreciation of the Indian rupee against the U.S. dollar, partially offset by ~~greater~~an increase in fees paid to strategic partners and other vendors related to our managed services and digital products and lower realized gains on ~~settlements of~~our 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~~hedges in 2018 compared to 2017. Compensation and benefits costs increased by $66 million when compared to the three months ended June 30, 2017, ~~compensation and benefit costs, including incentive-based compensation, increased primarily~~ 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%~~14.4% during the second quarter of ~~2017~~2018 as compared to the second quarter of ~~2016, decreasing~~2017, increasing as a percentage of revenues to 22.9% in the second quarter of 2018 as compared to 21.9% in the second quarter of ~~2017 as compared to 22.0% in the second quarter of 2016.~~2017. The ~~decrease~~increase as a percentage of revenues was due primarily to the initial funding of the Cognizant U.S. Foundation and increases in amortization expense due to recent acquisitions, partially offset by a decrease in ~~certain operating and professional service costs, partially offset by higher~~ compensation 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.~~benefit costs.

Income from Operations and Operating Margin - Overall.

Income from operations increased ~~2.5%~~10.6% in the second quarter of ~~2017~~2018 as compared to the second quarter of ~~2016.~~2017. Our operating margin ~~decreased~~increased to 16.7% for the quarter ended June 30, 2018 from 16.5% for the quarter ended June 30, 2017, ~~from 17.5% for the quarter ended June 30, 2016,~~ primarily due to ~~an increase~~a decrease, as a percentage of revenues, in compensation and ~~benefits~~benefit costs ~~increases in certain operating and professional costs, realignment charges in 2017~~as revenue growth outpaced headcount growth and the ~~negative impact of the appreciation~~depreciation of the Indian rupee against the U.S. dollar, partially offset by ~~greater realized~~the initial funding of the Cognizant U.S. Foundation, an increase in fees paid to strategic partners and other vendors related to our managed services and digital products, an increase in amortization expense due to the recent acquisitions and lower gains on ~~settlements~~settlement of our 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.~~hedges in 2018 compared to 2017. Excluding the impact of applicable designated cash flow hedges, the ~~appreciation~~depreciation of the Indian rupee against the U.S. dollar ~~negatively~~positively impacted our operating margin by approximately 6966 basis points or ~~0.69~~0.66 percentage points in the three months ended June 30, ~~2017.~~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 1917 basis points or ~~0.19~~0.17 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,~~2018, the settlement of our cash flow hedges positively impacted our operating margin by approximately 9552 basis points or ~~0.95~~0.52 percentage points as compared to a positive impact of approximately 995 basis points or ~~0.09~~0.95 percentage points during the three months ended June 30, ~~2016.~~2017.

For the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, our non-GAAP operating margins were ~~20.0%~~22.0%⁴and ~~20.3%~~20.0%⁴, respectively. As set forth in the “Non-GAAP Financial Measures” section below, our non-GAAP operating margin excludes stock based compensation expense, acquisition-related charges, realignment charges and in the second quarter of 2018, the initial funding of the Cognizant U.S. Foundation.

For the remainder of 2018, we expect our GAAP and non-GAAP operating margins to trend lower than the second quarter of 2018 as we absorb increased costs related to our annual salary revision and promotion cycles and other planned investments.

Segment Operating Profit

In 2018, we made changes to the internal measurement of segment operating profits for ~~2017, realignment charges.~~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 that differs depending on location and assets deployed. 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 Profit.~~

_______________


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

Segment operating profits were as follows for the three months ended June 30:


					Increase (Decrease)									Increase
	2017		2016		$			%		2018		2017		$		%
	(Dollars in millions)									(Dollars in millions)
Financial Services	$	411	$	459	$	(48	)	(10.5	)	$	462	$	445	$	17	3.8
Healthcare	343		270		73			27.0		357		345		12		3.5
Products and Resources	214		226		(12		)	(5.3	)	258		230		28		12.2
Communications, Media and Technology	146		134		12			9.0		179		156		23		14.7
Total segment operating profit	1,114		1,089		25			2.3		1,256		1,176		80		6.8
Less: unallocated costs	508		498		10			2.0		586		570		16		2.8
Income from operations	$	606	$	591	$	15		2.5		$	670	$	606	$	64	10.6

In our Financial Services, ~~Products and Resources,~~Healthcare and Communications, Media and Technology 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, an increase in subcontractor costs and an increase in fees paid to the strategic partners and other vendors related to our managed services and digital products, partially offset by the positive impact of revenue growth outpacing headcount growth and the ~~negative impact~~depreciation of ~~the appreciation of various currencies, including~~ the Indian rupee against the U.S. dollar. In our ~~Healthcare~~Products and Resources business segment, operating profits ~~increased~~remained 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:

2017 2016
Increase/
Decrease
(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
Interest income 31
28
3
Interest expense (6 ) (5 ) (1 )
Other, net (1 ) 1
(2 )
Total other income (expense), net $ 29
$ 4
$ 25



	2018			2017			Increase/ Decrease
	(in millions)
Foreign currency exchange (losses) gains	$	(98	)	$	8		$	(106	)
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments	18			(3		)	21
Net foreign currency exchange (losses) gains	(80		)	5			(85		)
Interest income	40			31			9
Interest expense	(7		)	(6		)	(1		)
Other, net	—			(1		)	1
Total other (expense) income, net	$	(47	)	$	29		$	(76	)

The foreign currency exchange gains and losses 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 gains and 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 and liabilities. As of June 30, ~~2017,~~2018, the notional value of our undesignated hedges was ~~$269~~$432 million. The increase in interest income of $9 million was primarily attributable to an increase in average invested balances and higher yields in 2018.

~~_______________~~


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

Provision for Income Taxes.

The provision for income taxes ~~decreased~~increased to $168 million during the three months ended June 30, 2018 from $165 million during the three months ended June 30, ~~2017 from $343 million during~~2017. The effective income tax rate increased to 27.0% for the three months ended June 30, ~~2016. The effective income tax rate decreased to~~2018 from 26.0% for the three months ended June 30, 2017 primarily due to a higher effective income tax rate for our India subsidiaries resulting from ~~57.6%~~the foreign currency exchange gains on their statutory books as the Indian rupee depreciated against the U.S. dollar. The estimate of our 2018 annual effective income tax rate reflects the current interpretation of the Tax Reform Act, including the GILTI provision and may change as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time.

Net Income

Net income decreased to $456 million for the three months ended June 30, ~~2016.~~

~~In May 2016, our principal operating subsidiary in India repurchased shares~~2018 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. Pursuant to the transaction, our principal Indian operating subsidiary repurchased approximately $1.2 billion of the total $2.8 billion of shares from its U.S. shareholders, resulting in tax expense in the United States 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 an incremental 2016 income tax expense of $238 million, including a discrete item recognized in the second quarter of 2016 of $143 million 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 as compared to 2016.

~~Net Income. Net income increased to~~ $470 million for the three months ended June 30, 2017, ~~from $252 million for the three months ended June 30, 2016,~~ representing ~~12.8%~~11.4% and ~~7.5%~~12.8% of revenues, respectively. The ~~increase~~decrease in net income ~~as a percentage of revenues~~ is primarily due to ~~the decrease~~foreign currency exchange losses in ~~the income tax provision,~~2018 compared to gains in 2017, partially offset by ~~a decrease~~an 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, realignment charges and, in ~~2017, realignment charges.~~the second quarter of 2018, the initial funding of the Cognizant U.S. Foundation. 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, realignment charges and, in ~~2017, realignment charges.~~the second quarter of 2018, the initial funding of the Cognizant U.S. Foundation. 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:


	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	$	670		16.7	$	606		16.5
Add: Stock-based compensation expense ⁽¹⁾	55			1.5	62			1.9	71			1.8	55			1.5
Add: Acquisition-related charges ⁽²⁾	35			1.0	30			0.9	41			1.0	35			1.0
Add: Realignment charges ⁽³⁾	39			1.0	—			—	—			—	39			1.0
Add: Initial funding of Cognizant U.S. Foundation ⁽⁴⁾									100			2.5	—			—
Non-GAAP income from operations and non-GAAP operating margin	$	735		20.0	$	683		20.3	$	882		22.0	$	735		20.0

GAAP diluted earnings per share	$	0.80			$	0.41			$	0.78			$	0.80
Effect of above operating adjustments, pre-tax	0.22				0.15				0.36				0.22
Effect of non-operating foreign currency exchange (losses) gains, pre-tax ⁽⁴⁾	(0.01		)		0.04
Tax effect of non-GAAP adjustments to pre-tax income ⁽⁵⁾	(0.08		)		(0.04		)
Effect of incremental income tax expense related to the India Cash Remittance ⁽⁶⁾	—				0.31
Effect of non-operating foreign currency exchange (gains) losses, pre-tax ⁽⁵⁾									0.14				(0.01		)
Tax effect of non-GAAP adjustments to pre-tax income ⁽⁶⁾									(0.09		)		(0.08		)
Non-GAAP diluted earnings per share	$	0.93			$	0.87			$	1.19			$	0.93

_____________________


(1)	Stock-based compensation expense reported in:


					Three Months Ended June 30,
	Three Months Ended June 30,				2018		2017
	2017		2016		(in millions)
Cost of revenues	$	13	$	13	$	16	$	13
Selling, general and administrative expenses	42		49		55		42

(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)	In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on STEM education in the United States.


(5)	Non-operating foreign currency exchange gains ~~are~~(losses), inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.


~~(5)~~(6)	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 June 30,				2018			2017
	2017		2016		(in millions)
Non-GAAP income tax benefit (expense) related to:
Stock-based compensation expense	$	20	$	15	$	19		$	20
Acquisition-related charges	12		11		11			12
Realignment charges	14		—		—			14
Foreign currency exchange gains (losses)	—		—		(8		)	—
Initial funding of Cognizant U.S. Foundation					28			—

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


~~(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~~2018 Compared to Six Months Ended June 30, ~~2016~~2017

The following table sets forth, for the periods indicated, certain financial data for the six months ended June 30:


				% of				% of	Increase / Decrease							% of				% of	Increase / Decrease
	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	$	7,216		100.0	$	6,572		100.0	$	644	9.8		$	7,918		100.0	$	7,216		100.0	$	702		9.7
Cost of revenues⁽¹⁾⁽²⁾	4,455			61.7	3,953			60.2	502		12.7		4,818			60.8	4,455			61.7	363			8.1
Selling, general and administrative expenses⁽¹⁾⁽²⁾	1,395			19.3	1,300			19.8	95		7.3		1,516			19.1	1,395			19.3	121			8.7
Depreciation and amortization expense	190			2.6	174			2.6	16		9.2		221			2.8	190			2.6	31			16.3
Income from operations	1,176			16.3	1,145			17.4	31		2.7		1,363			17.2	1,176			16.3	187			15.9
Other income (expense), net	108				39				69		176.9		(43		)		108				(151		)	(139.8	)
Income before provision for income taxes	1,284			17.8	1,184			18.0	100		8.4		1,320			16.7	1,284			17.8	36			2.8
Provision for income taxes	(257		)		(491		)		234		(47.7	)	(345		)		(257		)		(88		)	34.2
Income from equity method investments													1				—				1
Net income	$	1,027		14.2	$	693		10.6	$	334	48.2		$	976		12.3	$	1,027		14.2	$	(51	)	(5.0	)
Diluted earnings per share	$	1.71			$	1.14			$	0.57			$	1.66			$	1.71			$	(0.05	)
Other Financial Information ⁽²⁾
Other Financial Information ⁽³⁾
Non-GAAP income from operations and non-GAAP operating margin	$	1,404		19.5	$	1,320		20.1	$	84	6.4		$	1,676		21.2	$	1,404		19.5	$	272		19.4
Non-GAAP diluted earnings per share	$	1.76			$	1.67			$	0.09			$	2.25			$	1.76			$	0.49

~~_____________________~~

(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 six months ended June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $52 million, income from operations of $67 million and diluted earnings per share of $0.09 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 ITtechnology and operations costs and continued penetration in all our geographic markets. Revenues from customers added since June 30, ~~2016~~2017 were ~~$239~~$183 million and represented ~~37.1%~~26.1% 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~~2018 increased by ~~11.0%~~8.3% compared to the six months ended June 30, ~~2016~~2017 and represented ~~58.3%~~57.5% of total revenues for the six months ended June 30, ~~2017.~~2018. Our outsourcing services revenues for the six months ended June 30, ~~2017~~2018 increased by ~~8.2%~~11.7% and constituted ~~41.7%~~42.5% of total revenues for the six months ended June 30, ~~2017.~~2018.

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. For the six months ended June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $52 million. See Note 3 to our unaudited consolidated financial statements for additional information.

Revenues from our top customers were as follows:


	Six Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2018		2017
Revenues from top five customers as a percentage of total revenues	8.9	%	10.4	%	8.6	%	8.9	%
Revenues from top ten customers as a percentage of total revenues	15.0	%	17.5	%	15.6	%	15.0	%

Revenues - Reportable ~~Segments.~~ Business Segments

Revenues by reportable business segment were as follows for the six months ended June 30:


	2017		2016		Increase			2018		2017		Increase
	2017		2016		$		%	2018		2017		$		%
	(Dollars in millions)							(Dollars in millions)
Financial Services	$	2,782	$	2,637	$	145	5.5	$	2,930	$	2,782	$	148	5.3
Healthcare	2,053		1,873		180		9.6	2,277		2,053		224		10.9
Products and Resources	1,484		1,293		191		14.8	1,661		1,484		177		11.9
Communication, Media and Technology	897		769		128		16.6
Communications, Media and Technology								1,050		897		153		17.1
Total revenues(1)	$	7,216	$	6,572	$	644	9.8	$	7,918	$	7,216	$	702	9.7

_____________________


(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 ~~5.5%~~5.3%, inclusive of a positive currency impact of 1.6%, for the six months ended June 30, ~~2017,~~2018, as compared to the six months ended June 30, ~~2016.~~2017. Growth was stronger among our insurance customers where revenues increased by ~~$92~~$109 million as compared to an increase of ~~$53~~$39 million for our banking customers. In this segment, revenues from customers added since June 30, ~~2016~~2017 were ~~$37~~$56 million and represented ~~25.5%~~37.8% 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~~certain banking customers may continue to be negatively affected by their ~~continued focus on optimizing~~ongoing efforts to optimize the cost of supporting their ~~cost structure~~systems and ~~managing~~operations as they shift their ~~discretionary spending.~~spend to transformation and digital services.

Healthcare

Revenues from our Healthcare segment grew ~~9.6%~~10.9% for the six months ended June 30, ~~2017,~~2018, as compared to the six months ended June 30, ~~2016.~~2017. Revenues from our healthcare customers increased by ~~$106~~$211 million, including revenues from Bolder Healthcare Solutions acquired in the second quarter of 2018 and a new strategic customer acquired in the third quarter of 2017, while revenue growth among our life sciences customers was ~~$74~~$13 million. Revenues from customers added since June 30, ~~2016~~2017 were ~~$38~~$66 million and represented ~~21.1%~~29.5% 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.

Products and Resources

Revenues from our Products and Resources segment ~~(previously referred to as Manufacturing/Retail/Logistics)~~ grew ~~14.8%~~11.9%, inclusive of a positive currency impact of 2.4%, for the six months ended June 30, ~~2017,~~2018, as compared to the six months ended June 30, ~~2016.~~2017. 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.~~$130 million. Revenues from our retail and consumer goods customers and travel and hospitality customers increased by a combined ~~$20~~$47 million. Revenues from customers added since June 30, ~~2016~~2017 were ~~$138~~$50 million, representing ~~72.3%~~28.2% 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~~smart products, transformation of business models, internet of things and omni channel commerce

implementation and integration services. Discretionary spending by our retail customers has been and may continue to be affected by weakness in the retail sector.

Communications, Media and Technology

Revenues from our Communications, Media and Technology segment ~~(previously referred to as Other)~~ grew ~~16.6%~~17.1%, inclusive of a positive currency impact of 2.4%, for the six months ended June 30, ~~2017,~~2018, as compared to the six months ended June 30, ~~2016.~~2017. Revenue growth was $112 million among our technology customers and $41 million among our communications and media customers. Revenues from customers added since June 30, 2017 were $11 million and represented 7.2% of the period-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~~including business process services. Revenue growth ~~was $81 million~~ among our communications customers has been and ~~media customers~~may continue to be negatively affected by uncertainty due to significant merger 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~~acquisition activity in ~~this segment.~~their industry.

Revenues - Geographic Markets.

Revenues by geographic market were as follows for the six months ended June 30:


	2017		2016		Increase					2018		2017		Increase (Decrease)
	2017		2016		$			%		2018		2017		$		%
	(Dollars in millions)									(Dollars in millions)
North America	$	5,612	$	5,121	$	491		9.6		$	6,042	$	5,612	$	430	7.7
United Kingdom	562		610		(48		)	(7.9	)	619		562		57		10.1
Rest of Europe	576		463		113			24.4		755		576		179		31.1
Europe - Total	1,138		1,073		65			6.1		1,374		1,138		236		20.7
Rest of World	466		378		88			23.3		502		466		36		7.7
Total revenues(1)	$	7,216	$	6,572	$	644		9.8		$	7,918	$	7,216	$	702	9.7

_____________________


(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 ~~77.8%~~76.3% of total revenues for the six months ended June 30, ~~2017~~2018 and ~~accounted~~accounting for ~~$491 million~~61.3% of ~~the $644 million~~ total revenue ~~increase~~growth 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.2017. Revenues from our customers in Europe grew ~~6.1%~~20.7%, after a ~~negative~~positive currency impact of ~~6.8%~~9.0%. 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%~~grew 31.1% after ~~a negative~~an positive currency impact of ~~2.6%~~9.9%, while within the United Kingdom we experienced an increase in revenues of 10.1%, after a positive currency impact of 8.2%. Revenue growth ~~from our~~in the United Kingdom ~~customers has been~~was negatively affected by ~~the current macroeconomic conditions, including the weakening of the British pound and uncertainty~~weakness in the ~~markets due to the results of the Brexit Referendum.~~banking sector in that region. 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.~~7.7%. We believe that Europe, ~~the~~India, 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, project-related immigration and ~~project-related~~ travel for technical personnel and subcontracting ~~related~~costs relating to revenues. Our cost of revenues increased by ~~12.7%~~8.1% during the six months ended June 30, ~~2017~~2018 as compared to the six months ended June 30, ~~2016.~~2017, decreasing as a percentage of revenues to 60.8% in the first half of 2018 compared to 61.7% in the first half of 2017. The ~~increase~~decrease as a percentage of revenues was due primarily to ~~an increase~~a decrease 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,as revenue growth outpaced headcount growth, 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.~~an increase in fees paid to strategic partners and other vendors related to our managed services and digital products. For the six months ended June 30, ~~2017,~~2018, compensation and ~~benefit~~benefits costs increased ~~primarily as a result of the increase in the number of our service delivery personnel~~by $245 million as compared to ~~2016.~~the six months ended June 30, 2017.

Selling, General and Administrative Expenses.

decrease as a percentage of revenues was due primarily to efficiencies of leveraging our cost structure over a ~~decrease in immigration expense and gains on settlements of cash flow hedges,~~larger organization, partially offset by ~~an increase in professional service costs, primarily related to~~ the ~~FCPA investigation and related lawsuits, and the negative impact~~initial funding of the ~~appreciation~~Cognizant U.S. Foundation in the second quarter of ~~the Indian rupee against the U.S. dollar.~~2018.

Income from Operations and Operating Margin - Overall.

Income from operations increased ~~2.7%~~15.9% for the six months ended June 30, ~~2017~~2018 as compared to the same period in ~~2016.~~2017. Our operating margin ~~decreased~~increased to 17.2% for the six months ended June 30, 2018 from 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~~a decrease, as a percentage of revenues, in compensation and benefits costs ~~(partially~~as revenue growth outpaced headcount growth, partially offset by the ~~impact~~initial funding of ~~lower incentive-based compensation accrual rates), increases~~the Cognizant U.S. Foundation in ~~professional~~the second quarter of 2018 and an increase in fees paid to strategic partners and other vendors related to our managed 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.digital products. Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against the U.S. dollar ~~negatively~~positively impacted our operating margin by approximately 412 basis points or ~~0.41%~~0.02% percentage points during the six months ended June 30, ~~2017.~~

2018. 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 1918 basis points or ~~0.19~~0.18 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 six months ended June 30, ~~2017,~~2018, the settlement of cash flow hedges positively impacted our operating margin by approximately 71 basis points or 0.71 percentage points, as compared to a positive impact of approximately 76 basis points or 0.76 percentage points ~~as compared to a minimal effect in 2016.~~during the six months ended June 30, 2017.

For the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, our non-GAAP operating margins were ~~19.5%~~21.2%⁵and ~~20.1%~~19.5%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, realignment charges and ~~for 2017, realignment charges.~~in the second quarter of 2018, the initial funding of the Cognizant U.S. Foundation.

Segment Operating ~~Profit.~~ Profit

Segment operating profits were as follows for the six months ended June 30:


					Increase (Decrease)									Increase (Decrease)
	2017		2016		$			%		2018		2017		$		%
	(Dollars in millions)									(Dollars in millions)
Financial Services	$	802	$	882	$	(80	)	(9.1	)	$	909	$	872	$	37	4.2
Healthcare	616		565		51			9.0		695		619		76		12.3
Products and Resources	417		445		(28		)	(6.3	)	514		447		67		15.0
Communications, Media and Technology	267		256		11			4.3		338		291		47		16.2
Total segment operating profit	2,102		2,148		(46		)	(2.1	)	2,456		2,229		227		10.2
Less: unallocated costs	926		1,003		(77		)	(7.7	)	1,093		1,053		40		3.8
Income from operations	$	1,176	$	1,145	$	31		2.7		$	1,363	$	1,176	$	187	15.9

In ~~all~~ our Healthcare and Products and Resources business segments, operating profits increased as a percentage of revenues as revenue growth outpaced headcount growth, partially offset by investments to accelerate our shift to digital. In our Financial Services and Communication, Media and Technology 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.~~digital.

________________


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

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), net 57
(11 ) 68
Interest income 63
59
4
Interest expense (12 ) (10 ) (2 )
Other, net —
1
(1 )
Total other income (expense), net $ 108
$ 39
$ 69



	2018			2017			Increase/ Decrease
	(in millions)
Foreign currency exchange (losses) gains	$	(131	)	$	70		$	(201	)
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments	20			(13		)	33
Foreign currency exchange (losses) gains, net	(111		)	57			(168		)
Interest income	81			63			18
Interest expense	(13		)	(12		)	(1		)
Total other (expense) income, net	$	(43	)	$	108		$	(151	)

The foreign currency exchange gains and losses 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 gains and 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.~~assets and liabilities. As of June 30, ~~2017,~~2018, the notional value of our undesignated hedges was ~~$269~~$432 million. The increase in interest income of $4$18 million was primarily attributable to an increase in average invested balances in ~~2017.~~2018.

~~________________~~


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

Provision for Income Taxes.

The provision for income taxes ~~decreased~~increased to $345 million during the six months ended June 30, 2018 from $257 million during the six months ended June 30, ~~2017 from $491 million during~~2017. The effective income tax rate increased to 26.1% for the six months ended June 30, ~~2016. The effective income tax rate decreased to~~2018 from 20.0% for the six months ended June 30, ~~2017 from 41.4% for the six months ended June 30, 2016.~~2017. The ~~decrease~~increase in our effective income tax rate was primarily ~~attributed~~due 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.~~million and a higher effective income tax rate for our India subsidiaries resulting from the foreign currency exchange gains on their statutory books as the Indian rupee depreciated against the U.S. dollar. The estimate of our 2018 annual effective income tax rate reflects the current interpretation of the Tax Reform Act, including the GILTI provision and may change as we receive additional clarification and guidance and as the interpretation of the Tax Reform Act evolves over time.

Net Income.

Net income ~~increased~~decreased to $976 million for the six months ended June 30, 2018 from $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%~~12.3% and ~~10.6%~~14.2% of revenues, respectively. The ~~increase~~decrease in net income as a percentage of revenues is primarily due to ~~the 2017~~ foreign ~~currency~~ exchange ~~gains and a decrease~~losses in ~~the provision for income taxes, partially offset by the decrease in operating margin during the six months ended June 30, 2017 as~~2018 compared to ~~the six months ended June 30, 2016.~~gains in 2017.

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	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	$	1,176		16.3	$	1,145		17.4	$	1,363		17.2	$	1,176		16.3
Add: Stock-based compensation expense ⁽¹⁾	109			1.5	116			1.8	130			1.6	109			1.5
Add: Acquisition-related charges ⁽²⁾	69			1.0	59			0.9	82			1.1	69			1.0
Add: Realignment charges ⁽³⁾	50			0.7	—			—	1			—	50			0.7
Add: Initial funding of Cognizant U.S. Foundation ⁽⁴⁾									100			1.3	—			—
Non-GAAP income from operations and non-GAAP operating margin	$	1,404		19.5	$	1,320		20.1	$	1,676		21.2	$	1,404		19.5

GAAP diluted earnings per share	$	1.71			$	1.14			$	1.66			$	1.71
Effect of above operating adjustments, pre-tax	0.38				0.29				0.53				0.38
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
Effect of non-operating foreign currency exchange losses (gains), pre-tax ⁽⁵⁾									0.19				(0.10		)
Tax effect of non-GAAP adjustments to pre-tax income ⁽⁶⁾									(0.13		)		(0.14		)
Effect of recognition of income tax benefit related to an uncertain tax position ⁽⁷⁾									—				(0.09		)
Non-GAAP diluted earnings per share	$	1.76			$	1.67			$	2.25			$	1.76

_____________________


(1)	Stock-based compensation expense reported in:


					Six Months Ended June 30,
	Six Months Ended June 30,				2018		2017
	2017		2016		(in millions)
Cost of revenues	$	28	$	26	$	31	$	28
Selling, general and administrative expenses	81		90		99		81

(2)

(3)


(4)	In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on STEM education in the United States.


(5)	Non-operating foreign currency exchange gains ~~are~~(losses), inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations.


~~(5)~~(6)	Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:


					Six Months Ended June 30,
	Six Months Ended June 30,				2018			2017
	2017		2016		(in millions)
Non-GAAP income tax benefit (expense) related to:
Stock-based compensation expense	$	41	$	27	$	38		$	41
Acquisition-related charges	24		22		20			24
Realignment charges	18		—		—			18
Foreign currency exchange gains (losses)	5		1		(9		)	5
Initial funding of Cognizant U.S. Foundation					28			—

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)~~(7)

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,~~2018, we had cash, cash equivalents and short-term investments of ~~$4,378~~$4,247 million, of which $419 million was restricted and ~~additional~~not available for use as a result of our dispute with the ITD with respect to our 2016 India Cash Remittance. See Note 9 of our unaudited consolidated financial statements for more information. As of June 30, 2018, 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 six months ended June 30:


	2017			2016			Increase / Decrease			2018			2017			Increase / Decrease
	(in millions)									(in millions)
Net cash from operating activities	$	798		$	438		$	360
Net cash provided by operating activities										$	1,028		$	798		$	230
Net cash (used in) investing activities	(298		)	(260		)	(38		)	(811		)	(298		)	(513		)
Net cash (used in) financing activities	(1,421		)	(621		)	(800		)	(1,222		)	(1,421		)	199

Operating activities.

The increase in cash generated from operating activities was primarily attributable to ~~higher net~~the increase in income from operations and the increase in non-cash expenses in the ~~first half of 2017~~six months ended June 30, 2018 as compared to the same period in ~~2016.~~2017, partially offset by the initial funding of the Cognizant U.S. Foundation in the second quarter of 2018.

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, 2017~~net 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 receivables~~Other current assets. Balances as of June 30, ~~2017 as compared~~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. Our~~Historically, our days sales outstanding calculation ~~includes~~included 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, ~~2017~~2018 was 7376 days, higher as compared to 7271 days as of December 31, ~~2016,~~2017 and ~~lower as compared to 74~~73 days as of June 30, ~~2016.~~2017. The adoption of the New Revenue Standard increased our days sales outstanding as of June 30, 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 2017 period~~ is primarily related to ~~net investment purchases~~higher payments for acquisitions and outflows for capital expenditures in the ~~2017~~2018 period as compared to ~~net investment sales in the same period in 2016, partially offset by lower payments for acquisitions in the 2017 period.~~2017.

Financing activities.

The ~~increase~~decrease in cash used in financing activities in the ~~2017~~2018 period is primarily attributable to lower repurchases of common stock ~~under~~in 2018 compared to the ~~ASR and payment of dividends,~~same period in 2017, partially offset by higher dividends paid in 2018 and net ~~borrowings~~repayments under the revolving credit facility in ~~2017~~2018 as compared to net ~~repayments of notes~~borrowings under ~~our revolving~~the 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. As of June 30, 2018, we had $750 million outstanding under the term loan and no outstanding notes under the revolving credit facility. The term loan and the revolving credit facility both mature in November ~~2019. As~~2019 with a final payment of ~~June 30, 2017, we had $844~~$625 million ~~outstanding under~~due on the term ~~loan and $150 million outstanding notes under~~loan. While we believe we will have sufficient liquidity to fund the ~~revolving credit facility.~~final payment if necessary, we plan to evaluate alternative financing arrangements prior to maturity.

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,~~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, ~~2017~~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 ~~over~~by the ~~next two years~~end of 2018 through a combination of stock repurchases and cash dividends. As part of this plan, to date we ~~entered into a $1.5~~expended $2.7 billion ~~ASR in March 2017~~to 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.~~$501 million. The ~~up-front~~ payments related to the ~~ASR~~ASRs were funded with cash on hand in the U.S. and borrowings under the revolving credit facility. ~~We intend to repurchase an additional $1.2 billion of shares during the second half of 2017 and 2018.~~ 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 the~~reviews our capital return plan ~~considering~~on 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 and~~future share repurchases and dividends will ~~depend on~~include 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 States~~Other 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 effort~~seek to ensure that our worldwide cash is available in the locations in which it is needed. ~~Most~~As 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 ~~amounts~~enactment 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 half of 2018, we repatriated $2,108 million from our foreign subsidiaries. As of June 30, 2018, $2,570 million of our cash, cash equivalents and short-term investments were held outside of the United States, ~~could be repatriated~~of which $1,723 million was held in India. As further described in Note 9 of our unaudited consolidated financial statements, $419 million of our short-term investment balances held in India were classified as restricted as of June 30, 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 to~~States.

Our Indian earnings are indefinitely ~~reinvest these funds outside the United States~~reinvested and our current plans do not demonstrate athe need to repatriate ~~these amounts~~our 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 States~~globally 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, ~~which~~that may lead us to repatriate ~~foreign~~Indian earnings. ~~This may result in an~~If we were to change our assertion that our accumulated undistributed Indian earnings are indefinitely reinvested, we would expect, based on our current interpretation of Indian tax law, to accrue additional ~~provision~~tax expense at a rate of approximately 21% of cash available for ~~income taxes,~~distribution, which could ~~materially affect~~have a material adverse effect on our future effective income tax rate. ~~Due~~This estimate is subject to ~~the various methods by which such earnings could be repatriated~~change based on tax legislative developments in ~~the future, it is not currently practicable to determine the amount~~India 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 $419 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 remaining balance of the one-time transition tax related to the Tax Reform Act, which is payable in installments through the year 2024, from a combination of cash generated from operations, borrowings 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 term~~long-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 9

~~Commitments~~ of our unaudited consolidated financial statements, certain cash, cash equivalents and ~~Contingencies~~

~~We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities~~short-term investment balances in India totaling $419 million were ~~made improperly and~~restricted in ~~possible violation of the FCPA and other applicable laws. In September 2016, we voluntarily notified the DOJ and SEC and are cooperating fully~~connection with ~~both agencies. The investigation is being conducted under the oversight of the Audit Committee,~~our dispute 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.

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 businessITD 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.

2016 India Cash Remittance. 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 connectiondispute with the ITD is ongoing, ~~internal investigation,~~and no final decision has been reached. The affected balances may continue to remain restricted and unavailable for our use while 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,~~dispute is ongoing. Additionally, while we believe that we have ~~limited revenue risk resulting from movement in foreign currency exchange rates as 77.8% of our revenues~~paid all applicable taxes related to the transactions underlying the ITD Dispute, if it is ultimately determined that we are liable for the ~~six months ended June 30, 2017 were generated from customers located in North America. Revenues from~~full amount of additional taxes the ITD claims we owe, 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~~liquidity could 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.materially adversely affected.

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
2018 1,050
73.6
2019 330
69.7
Total $ 2,010
72.4



Commitments and Contingencies

~~Our foreign subsidiaries are exposed~~See Note 13 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.unaudited consolidated financial statements.



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 six months ended June 30, ~~2017~~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 on~~including the ~~percentage~~application of ~~completion~~the cost to cost method of ~~accounting~~measuring progress to completion for certain ~~fixed price~~fixed-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 ~~2016~~2017 Annual Report on Form 10-K. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our ~~2016~~2017 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:

~~Competition~~competition from other service providers;

~~The~~the 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;

~~The~~the risk of liability or damage to our reputation resulting from security ~~breaches;~~

~~Any possible~~breaches 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;~~

~~The~~the risk that we may not be able to keep pace with the rapidly evolving technological environment;

~~The~~the rate of growth in the use of technology in business and the type and level of technology spending by our customers;

~~Mispricing~~mispricing of our services, especially on our fixed-price and transaction- or volume-based priced contracts;

~~Risks~~risks 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;

~~System~~system failure or disruptions in our communications or information technology;

~~The~~the risk that we may lose key executives and not be able to enforce non-competition agreements with them;

~~Competition~~competition for hiring highly-skilled technical personnel;

~~Possible~~possible failure to provide business solutions and deliver complex and large projects for our customers;

~~The~~the risk of reputational harm to us;

~~Our~~the 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;

~~The~~the 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;

~~The~~the effects of fluctuations in the Indian rupee and other currency exchange rates;

~~The effect~~the 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;

~~Changes~~regulatory uncertainties, including in ~~domestic and international regulations and legislation relating to~~the areas of outsourcing, immigration and ~~anti-outsourcing;~~taxes;

~~Increased~~increased regulation of the financial services and healthcare industries, as well as other industries in which our customers operate;

~~The Brexit Referendum~~the 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 and~~adverse outcome of our ~~business;~~

~~The recent U.S. presidential election and related regulatory uncertainties, including in~~dispute 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
2018 1,050
73.6
2019 330
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.~~

2018. Based on ~~the~~this evaluation, ~~of the design and effectiveness of our disclosure controls and procedures, and as a result of the material weakness described above,~~ our chief executive officer and our chief financial officer ~~have~~ concluded that, as of June 30, ~~2017, the Company’s~~2018, our disclosure controls and procedures were ~~not~~ effective.

Changes in Internal Control over Financial Reporting

~~Other than described in “Remediation” above, there were no~~No changes in ~~the Company’s~~our internal control over financial reporting ~~that~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the ~~second~~fiscal quarter ~~of 2017~~ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our 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 13 to our ~~previously issued financial statements are required.~~

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 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

~~The~~There 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, ~~2016~~2017 filed with the ~~Securities and Exchange Commission~~SEC on ~~March 1, 2017 continue to apply to our business.~~

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.

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.2018.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

~~Effective March 1, 2017, the~~Our 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 shares~~As of ~~our Class A common stock~~June 30, 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 under~~authorized by the Board of ~~Directors' authorized stock repurchase program~~Directors was ~~$2.0~~$0.8 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)
April 1, 2018 - April 30, 2018
Open market and privately negotiated purchases	—	$	—	—	$	1,400
May 1, 2018 - May 31, 2018
Open market and privately negotiated purchases	—	—		—
March 2018 ASR	708,984	(a)		708,984	1,400
June 1, 2018 - June 30, 2018
Open market and privately negotiated purchases	—	—		—
June 2018 ASR	6,492,680	(b)		6,492,680	800
Total	7,201,664	$	—	7,201,664


(a)	In March 2018, the Company entered into an ASR to purchase up to $300 million of the Company's Class A common stock. In May 2018, the purchase period for the ASR ended and an additional 0.7 million shares were delivered. In total, 3.7 million shares were delivered under the ASR at an average repurchase price of $79.95.

(b)

Under the terms of the June 2018 ASR and in exchange for up-front payments of $600 million, the financial institution initially delivered 6.5 million shares, a portion of the Company's total expected shares to be repurchased under the June 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 third 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,~~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, for~~For the three months ended June 30, ~~2017,~~2018, such repurchases totaled ~~446,346~~433,947 shares at an aggregate cost of ~~$30~~$33 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, dated June 5, 2018

8-K

000-24429

3.1

6/7/2018

3.2

Amended and Restated Bylaws, as adopted on June 5, 2018

8-K

000-24429

3.3

6/7/2018

10.1

Amendment to Employment Agreement, by and between the Company and Rajeev Mehta, dated June 12, 2018

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

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, 2017~~2, 2018		By:	/s/ ~~Francisco D’Souza~~FRANCISCO D’SOUZA
				Francisco D’Souza,
				Chief Executive Officer
				(Principal Executive Officer)




Date:	August ~~3, 2017~~2, 2018	By:	/s/ ~~Karen McLoughlin~~KAREN MCLOUGHLIN
			Karen McLoughlin,
			Chief Financial Officer
			(Principal Financial Officer)

~~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



	Notional Value (in millions)		Weighted Average Contract Rate (Indian rupee to U.S. dollar)
2017	$	630	72.0
2018	1,050		73.6
2019	330		69.7
Total	$	2,010	72.4