EDGAR 10-K Filing

Company CIK: 1058290
Filing Year: 2021
Filename: 1058290_10-K_2021_0001058290-21-000031.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era. Our services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Digital services have become an increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI, experience-driven software engineering and cloud. We tailor our services and solutions to specific industries with an integrated global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional delivery centers.
During 2020, we announced the Cognizant Agenda which articulates our purpose, vision and values.
In order to achieve this vision and support our clients, we are focusing our business on four strategic priorities to increase our commercial momentum and accelerate growth. These strategic priorities include:
•Accelerating digital - growing our digital business organically and inorganically;
•Globalizing Cognizant - growing our business in key international markets and diversifying leadership, capabilities and delivery footprint;
•Repositioning our brand - improving global brand recognition and becoming better known as a global digital partner to the entire C-suite; and
•Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients' business needs.
We seek to drive organic growth through investments in our digital capabilities across industries and geographies, including the extensive training and reskilling of our technical teams and the expansion of our local workforces in the United States and other markets around the world. Additionally, we pursue select strategic acquisitions, investments and alliances that can expand our talent, experience and capabilities in key digital areas or in particular geographies or industries. In 2020, we completed nine such acquisitions. See Note 3 to our consolidated financial statements for additional information.
Certain terms used in this Annual Report on Form 10-K are defined in the Glossary included at the end of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Segments
We go to market across our four industry-based business segments. Our clients seek to partner with service providers that have a deep understanding of their businesses, industry initiatives, customers, markets and cultures and the ability to create solutions tailored to meet their individual business needs. Across industries, our clients are confronted with the risk of being disrupted by nimble, digital-native competitors. They are therefore redirecting their focus and investment to digital operating models and embracing DevOps and key technologies that enable quick adjustments to shifts in their markets. We believe that our deep knowledge of the industries we serve and our clients’ businesses has been central to our growth and high client satisfaction, and we continue to invest in those digital capabilities that help to enable our clients to become modern businesses.
Our business segments are as follows:
Financial Services Healthcare Products and Resources Communications, Media and Technology
• Banking
• Insurance
• Healthcare
• Life Sciences
• Retail and Consumer Goods
• Manufacturing, Logistics, Energy and Utilities
• Travel and Hospitality
• Communications and Media
• Technology
Our Financial Services segment includes banking, capital markets and insurance companies. Demand in this segment is driven by our clients’ business needs for serving their customers while being compliant with significant regulatory requirements and adaptable to regulatory change, as well as our clients' adoption and integration of digital technologies, including customer experience enhancement, robotic process automation, analytics and AI in areas such as digital lending, fraud detection and next generation payments. In addition to platforms that drive outcomes at speed, demand is also created by our clients’ desire for less complexity through packaged solutions and suppliers with embedded product partners.
Our Healthcare segment consists of healthcare providers and payers as well as life sciences companies, including pharmaceutical, biotech and medical device companies. Demand in this segment is driven by emerging industry trends, including enhanced compliance, integrated health management, claims investigative services and heightened focus on patient experience, as well as services that drive operational improvements in areas such as claims processing, enrollment, membership and billing. Demand is also created by the adoption and integration of digital technologies such as AI to shape personalized care plans and predictive data analytics to improve patient outcomes.
Our Products and Resources segment includes manufacturers, retailers and travel and hospitality companies, as well as companies providing logistics, energy and utility services. Demand in this segment is driven by our clients’ focus on improving the efficiency of their operations, the enablement and integration of mobile platforms to support sales and other omni-channel commerce initiatives, and their adoption and integration of digital technologies, such as the application of intelligent systems to manage supply chains and enhance overall customer experiences, and IoT to instrument functions for factories, real estate, fleets and products to increase access to insight-generating data.
Our Communications, Media and Technology segment includes information, media and entertainment, communications and technology companies. Demand in this segment is driven by our clients’ needs to create differentiated user experiences, transition to agile development methodologies, enhance their networks, manage their digital content and adopt and integrate digital technologies, such as cloud, interactive and IoT. During 2020, we exited certain content-related work within this segment that was not in line with our long-term strategic vision for the Company. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information.
For the year ended December 31, 2020, the distribution of our revenues across our four industry-based business segments was as follows:
The services we provide are distributed among a number of clients in each of our business segments. A loss of a significant client or a few significant clients in a particular segment could materially reduce revenues for that segment. The services we provide to our larger clients are often critical to their operations and a termination of our services would typically require an extended transition period with gradually declining revenues. Nevertheless, the volume of work performed for specific clients may vary significantly from year to year.
See Note 2 to our consolidated financial statements for additional information related to disaggregation of revenues by client location, service line and contract-type for each of our business segments.
Services and Solutions
Our services include digital services and solutions, consulting, application services, systems integration, infrastructure services and business process services. Additionally, we develop, license, implement and support proprietary and third-party software products and platforms. Central to our strategy to align with our clients’ need to modernize is our continued investment in four key areas of digital: IoT, AI, experience-driven software engineering and cloud. These four capabilities enable clients to put data at the core of their operations, improve the experiences they offer to their customers, tap into new revenue streams, defend against technology-enabled competitors and reduce costs. In many cases, our clients' new digital systems are built on the backbone of their existing legacy systems. The demand for digital capabilities has continued to increase since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-commerce, automation and AI and cybersecurity services and solutions. We believe our deep knowledge of our clients' infrastructure and systems provides us with a significant advantage as we work with them to build new digital capabilities to make their operations more efficient, effective and modern. We deliver all of our services and solutions across our four industry-based business segments to best address our clients' individual needs.
In 2020, our services and solutions were organized into three practice areas: Digital Business, Digital Systems and Technology and Digital Business Operations. In January 2021, we strategically combined the Digital Business practice with the Digital Systems and Technology practice to create the new Digital Business & Technology practice. The objective of this change is to simplify our model and align it with the current state of technology.
Our consulting professionals work closely with our practice areas to create modern frameworks, platforms and solutions that leverage a wide range of digital technologies across our clients’ businesses to deliver higher levels of efficiency and new value for their customers.
Digital Business & Technology
Our Digital Business & Technology practice helps clients build modern enterprises that deliver exceptional customer experiences that are created at the intersection of cloud and digital. Our clients are able to embrace a new business and technology stack that comprises consumer-grade software, enterprise applications, modernized data and the instrumentation of everything in cloud-first architectures. Combining a technology vision, strategy, roadmap, capabilities, solutions, partnerships, and subject matter expertise, Digital Business & Technology is an integrated growth enabler for commercial markets. Areas of focus within this practice area are:
•Interactive, which leverages our global network of studios that help clients craft new experiences;
•application modernization, which updates legacy applications using agile methodologies and cloud;
•AI and analytics, which drive business growth and efficiencies through a greater understanding of customers and operations;
•IoT, which unlocks greater productivity and new business models;
•digital advisory, which provides enterprise transformation expertise;
•experience-driven software engineering, which designs, engineers and delivers modern business software;
•application services;
•quality engineering and assurance; and
•cloud, infrastructure and security.
Digital Business Operations
Our Digital Business Operations practice helps clients rethink their operating models by assessing their existing processes and recommending automation. This allows clients to fundamentally transform their processes while realizing cost savings benefits from these improvements. Areas of focus within this practice area are:
•automation, analytics and consulting for business process outsourcing;
•platform-based operations; and
•core business process operations.
We have extensive knowledge of core front office, middle office and back office processes, including finance and accounting, research and analytics, procurement and data management, which we integrate with our industry and technology expertise to deliver targeted business process services and solutions.
Global Delivery Model
We utilize a global delivery model, with delivery centers worldwide to provide our full range of services to our clients. Our delivery model includes employees deployed at client sites, local or in-country delivery centers, regional delivery centers and offshore delivery centers, as required to best serve our clients. As we scale our digital services and solutions, we are focused on hiring in the United States and other countries where we deliver services to our clients to expand our in-country delivery capabilities. Our extensive facilities, technology and communications infrastructure are designed to enable the effective collaboration of our global workforce across locations and geographies.
Competition
The markets for our services are highly competitive, characterized by a large number of participants and subject to rapid change. Competitors may include systems integration firms, contract programming companies, application software companies, cloud computing service providers, traditional consulting firms, professional services groups of computer equipment companies, infrastructure management companies, outsourcing companies and boutique digital companies. Our direct competitors include, among others, Accenture, Atos, Capgemini, Deloitte Digital, DXC Technology, EPAM Systems, Genpact, HCL Technologies, IBM Global Services, Infosys Technologies, Tata Consultancy Services and Wipro. In addition, we compete with numerous smaller local companies in the various geographic markets in which we operate.
The principal competitive factors affecting the markets for our services include the provider’s reputation and experience, strategic advisory capabilities, digital services capabilities, performance and reliability, responsiveness to customer needs, financial stability, corporate governance and competitive pricing of services. Accordingly, we rely on the following to compete effectively:
•investments to scale our digital services;
•our recruiting, training and retention model;
•our global delivery model;
•an entrepreneurial culture and approach to our work;
•a broad client referral base;
•investment in process improvement and knowledge capture;
•financial stability and good corporate governance;
•continued focus on responsiveness to client needs, quality of services and competitive prices; and
•project management capabilities and technical expertise.
Intellectual Property
We provide value to our clients based, in part, on our proprietary innovations, methodologies, software, reusable knowledge capital and other IP assets. We recognize the importance of IP and its ability to differentiate us from our competitors. We seek IP protection for many of our innovations and rely on a combination of patent, copyright and trade secret laws, confidentiality procedures and contractual provisions, to protect our IP. We have registered, and applied for the registration of, U.S. and international trademarks, service marks, and domain names to protect our brands, including our Cognizant brand, which is one of our most valuable assets. We own or are licensed under a number of patents, trademarks and copyrights of varying duration, relating to our products and services. We also have policies requiring our associates to respect the IP rights of others. While our proprietary IP rights are important to our success, we believe our business as a whole is not materially dependent on any particular IP right or any particular group of patents, trademarks, copyrights or licenses, other than our Cognizant brand.
Cognizant® and other trademarks appearing in this report are registered trademarks or trademarks of Cognizant and its affiliates in the United States and other countries, or third parties, as applicable.
Workforce
We had approximately 289,500 employees at the end of 2020, with 43,500 in North America, 13,400 in Continental Europe, 6,800 in the United Kingdom and 225,800 in various other locations throughout the rest of the world, including 204,500 in India. This represents a decrease of 3,000 employees as compared to December 31, 2019. We utilize subcontractors to provide additional capacity and flexibility in meeting client demand, though the number of subcontractors has historically been immaterial relative to our employee headcount. We are not party to any significant collective bargaining agreements.
We balance the portion of our employees in the United States and other jurisdictions that rely on visas with consideration of the needs of our business to fulfill client demand and risks to our business from potential changes in immigration laws and regulations that may increase the costs associated with and ability to staff employees on visas to work in-country.
Engaging Our People
As a global professional services company, Cognizant competes on the basis of the knowledge, experience, insights, skills and talent of its employees and the value they can provide to our clients. We aim for our employees to feel motivated, engaged, and empowered to do their best work through careers they find meaningful. In a market where competition for skilled IT professionals is intense, we focus on the following:
•Advancing Diversity & Inclusion: We believe diversity and inclusion are at the heart of our ability to execute successfully and consistently over the long term. A diverse and inclusive workforce strengthens our ability to innovate and to understand our clients’ needs and aspirations.
Highlights from our diversity & inclusion efforts include:
-Our Global D&I organization is embedded within HR’s Talent & Transformation function to drive accountability through our people processes and systems;
-Global D&I training and programs;
-Progressive hiring policies, including a diverse candidate pipeline initiative to ensure a more diverse interview slate at the Vice President level and above; and
-Seven global affinity groups that welcome, nurture and provide safe spaces in which our employees can share their unique interests and aspirations.
Our 2020 engagement survey revealed that all genders are equally engaged, and that D&I gained the second-highest score improvement across categories.
•Rewarding and Recognizing High Performance: We aim to create a work environment where every person is inspired to achieve, driven to perform and rewarded for their contributions. We leverage regular, performance-based promotions and merit increases as one lever to engage high-performing talent. During the 2020 cycle, in line with our high performance culture, we were proud to promote employees across all levels and provide merit increases to a significant number of our employees.
We regularly monitor employee retention levels and continue to enhance our pay-for-performance approach to improve attrition rates. For the three months ended December 31, 2020, annualized attrition, including both voluntary and involuntary, was 19.0%. Attrition for the years ended December 31, 2020 and 2019, including both voluntary and involuntary, was 20.6% and 21.7%, respectively. Voluntary attrition normally constitutes the significant majority of our attrition. In 2020, we saw elevated levels of involuntary attrition due to our Fit for Growth Plan, including the exit from certain content-related services. We also saw a decrease in voluntary attrition from historic levels in the early stages of the COVID-19 pandemic. Both voluntary and involuntary attrition are weighted towards our more junior employees.
•Building New Skills: Clients count on us to know their industries, businesses, and technology environments, readily gain new digital skills and insights, and apply our knowledge to help them increase their competitiveness. We continually reskill and upskill our employees with a focus on building digital skills in areas such as IoT, AI, experience-driven software engineering and cloud.
From campus hire training for our entry-level workforce to providing capability assurance programs for professional practitioners, we offer a learning ecosystem for employees at all levels. This includes learning and development, access-from-anywhere learning platforms and a variety of content curation partnerships. Our talent development approach has been recognized by leading learning and development organizations, such as the Association for Talent Development, the Brandon Hall Group and the Learning and Performance Institute.
•Leadership Development & Talent Management: Cognizant continuously fosters and builds its pipeline of diverse, high-performing leaders who have the breadth and versatility to drive our growth. To do this, we focus on engaging all levels of senior talent and enabling their success through continuous assessment and high impact development opportunities.
Highlights include:
-Targeted talent programs for key pools that include various training opportunities, digital leadership programs and custom leadership development initiatives;
-Fast-tracking high-performing and high-potential leadership talent through personalized assessments, executive coaching and executive education programs;
-Accelerating a diverse leadership pipeline through programs like Propel, an initiative focused on priming the next level of women leaders within Cognizant. In just two years, this program has helped us reach 500 women leaders globally through a cohort model supported by executive sponsors, part of our pledge to put 1,000 women through our leadership development program;
-Our LEAD@Cognizant partnership with Harvard University is a 4.5-month leadership capability program designed exclusively for Cognizant leaders to learn, practice and internalize how to set the course, connect the dots, inspire followership and deliver results through strategic alignment, collaboration and building high performing teams; and
-Periodic talent processes such as talent reviews of our top 4,000 employees at Director level and above, aimed at helping individuals develop in role and prepare for the future, while strengthening our leadership pipeline overall.
•Supporting Well-Being at Work and Home: We offer benefits to care for the diverse needs of our associates and keep them feeling resilient, innovative and engaged. These include total compensation programs, health benefits, overall well-being and family care, tax savings programs, income protection and financial planning resources. As we continue to face evolving environmental and health challenges, we continually review and enhance our offerings to improve the competitiveness of our total compensation programs, including our health benefit offerings.
Highlights include:
-In 2020, we launched WorkFlex, a program to provide employees greater flexibility to complete their required hours outside their standard schedule or to transition to a part-time schedule to accommodate personal priorities;
-We offer a variety of benefits to support employee mental health, including a robust Employee Assistance Program. In the United States, we also provide access to third party mental health platforms, including Ginger and eMindful; and
-Cognizant has crisis management protocols that are mobilized to protect employee health and safety when necessary. When the COVID-19 pandemic began, our crisis team responded quickly to close and modify offices to meet health and safety protocols, support the transition to working from home, and liaise with employees regarding various concerns.
•Measuring and Enhancing Engagement: We regularly assess employee sentiment through third-party engagement surveys. In 2020, 72% of our people participated in the survey. After each survey, we develop and communicate clear action plans to continue to build on our strengths and address shortfalls.
Governmental Regulation and Environmental Matters
As a result of the size, breadth and geographic diversity of our business, our operations are subject to a variety of laws and regulations in the jurisdictions in which we operate, including with respect to import and export controls, temporary work authorizations or work permits and other immigration laws, content requirements, trade restrictions, tariffs, taxation, anti-corruption, the environment, government affairs, internal and disclosure control obligations, data privacy, intellectual property, employee and labor relations. For additional information, see Part I, Item 1A. Risk Factors.
Information About Our Executive Officers
The following table identifies our current executive officers:
Name Age Capacities in Which Served In Current
Position Since
Brian Humphries (1)
47 Chief Executive Officer 2019
Jan Siegmund (2)
56 Chief Financial Officer 2020
Robert Telesmanic (3)
54 Senior Vice President, Controller and Chief Accounting Officer 2017
Becky Schmitt (4)
47 Executive Vice President, Chief People Officer
Malcolm Frank (5)
54 Executive Vice President and President, Digital Business & Technology 2021
Balu Ganesh Ayyar (6)
59 Executive Vice President and President, Digital Business Operations 2019
Greg Hyttenrauch (7)
53 Executive Vice President and President, North America 2021
Ursula Morgenstern (8)
55 Executive Vice President and President, Global Growth Markets 2020
Andrew Stafford (9)
56 Executive Vice President, Head of Global Delivery 2020
(1)Brian Humphries has been our Chief Executive Officer and a member of the Board of Directors since April 2019. Prior to joining Cognizant, he served as Chief Executive Officer of Vodafone Business, a division of Vodafone Group, from 2017 until 2019. Mr. Humphries joined Vodafone from Dell Technologies where he served as President and Chief Operating Officer of Dell’s Infrastructure Solutions Group from 2016 to 2017, President of Dell’s Global Enterprise Solutions from 2014 to 2016, and Vice President and General Manager, EMEA Enterprise Solutions from 2013 to 2014. Before joining Dell, Mr. Humphries was with Hewlett-Packard where his roles from 2008 to 2013 included Senior Vice President, Emerging Markets, Senior Vice President, Strategy and Corporate Development, and Chief Financial Officer of HP Services. The early part of his career was spent with Compaq and Digital Equipment Corporation. Mr. Humphries brings to the Board extensive leadership and global operations management experience from having served at public companies in the technology sector. He holds a bachelor’s degree in Business Administration from the University of Ulster, Northern Ireland.
(2)Jan Siegmund has been our Chief Financial Officer since September 2020. Prior to joining Cognizant, Mr. Siegmund spent over 19 years with Automatic Data Processing (ADP), where he served as Corporate Vice President and Chief Financial Officer from 2012 to 2019 and Chief Strategy Officer and President of the Added Value Services Division from 1999 to 2012. He began his career at McKinsey & Company as a Senior Engagement Manager. Mr. Siegmund is a member of the Board of Directors of The Western Union Company, where he is Chair of the Audit Committee. He holds a master’s degree in Industrial Engineering from Technical University Karlsruhe, Germany, a master’s degree in Economics from the University of California, Santa Barbara and a doctorate in Economics from Technical University of Dresden, Germany.
(3)Robert Telesmanic has been our Senior Vice President, Controller and Chief Accounting Officer since January 2017, a Senior Vice President since 2010 and our Corporate Controller since 2004. Prior to that, he served as our Assistant Corporate Controller from 2003 to 2004. Prior to joining Cognizant, Mr. Telesmanic spent over 14 years with Deloitte & Touche LLP. Mr. Telesmanic has a Bachelor of Science degree from New York University and an MBA degree from Columbia University.
(4)Becky Schmitt has been our Executive Vice President, Chief People Officer since February 2020. Prior to joining Cognizant, Ms. Schmitt was the Chief People Officer of Sam’s Club, a division of Walmart, Inc. from October 2018 through January 2020. Prior to that, she served as SVP, Chief People Officer, US eCommerce & Corporate Functions for Walmart from October 2016 through September 2018 and as VP, HR - Technology from February 2016 until October 2016. Prior to joining Walmart, Ms. Schmitt spent over 20 years with Accenture plc in various human resources roles, culminating in her role as HR Managing Director, North America Business from March 2014 through February 2016. Ms. Schmitt has served as a Board Member at Large for the Girl Scouts National Board since 2017. Ms. Schmitt has a Bachelor of Arts degree from University of Michigan, Ann Arbor.
(5)Malcolm Frank has been our Executive Vice President and President, Digital Business & Technology since January 2021. Prior to that, he served as Executive Vice President and President, Digital Business from May 2019 to January 2021, as our Executive Vice President and President, Strategy and Marketing at Cognizant from 2012 to May 2019 and as our Senior Vice President of Strategy and Marketing from 2005 to 2012. Prior to joining Cognizant in 2005, Mr. Frank was a founder and the President and Chief Executive Officer of CXO Systems, Inc., an independent software vendor providing dashboard solutions for senior managers, a founder and the President, Chief Executive Officer and Chairman of NerveWire Inc., a management consulting and systems integration firm, and a founder and executive officer at Cambridge Technology Partners, an information technology professional services firm. Mr. Frank has served on the Board of Directors of Factset Research Systems Inc. since June 2016, where he is a member of the Compensation Committee. He is
also a member of the Board of Directors of the US-India Strategic Partnership Forum since May 2018. Mr. Frank has a Bachelor of Arts degree in Economics from Yale University.
(6)Balu Ganesh Ayyar has been our Executive Vice President and President, Digital Business Operations since August 2019. Prior to joining Cognizant, Mr. Ayyar was the CEO of Mphasis, a global IT services company listed in India, from 2009 to 2017. Prior to Mphasis, Mr. Ayyar spent nearly two decades with Hewlett-Packard, holding a variety of leadership roles across multiple geographies.
(7)Greg Hyttenrauch has been our Executive Vice President and President, North America since January 2021. Prior to that he served as our Executive Vice President and President, Cognizant Digital Systems & Technology from December 2019 to January 2021. Prior to joining Cognizant, Mr. Hyttenrauch served as Director, Global Cloud and Security Services for Vodafone from October 2015 to November 2019. Prior to Vodafone, Mr. Hyttenrauch held a variety of senior leadership positions at Capgemini from 2008 to 2015, including Deputy CEO, Global Infrastructure Services, and Global Sales Officer and CEO of the UK and Nordic Outsourcing Business Unit. Before joining Capgemini, Mr. Hyttenrauch held positions with CSC and EDS. He began his career with 13 years in the Canadian military, rising to the rank of captain. Mr. Hyttenrauch holds a bachelor’s degree in Mechanical Engineering from the Royal Military College of Canada and an MBA in International Management from the University of Ottawa.
(8)Ursula Morgenstern has been Cognizant’s Executive Vice President and President, Global Growth Markets, which covers all of Cognizant’s markets outside of North America, since December 2020. Prior to joining Cognizant, Ms. Morgenstern spent 16 years with Atos, a multinational IT services and consulting company in various management roles from 2004 to 2020, most recently as Head of Atos Central Europe from April 2020 to October 2020, CEO of Atos Germany from March 2018 to October 2020, and Global Head of Business and Platform Solutions from July 2015 to February 2018. Before Atos, Ms. Morgenstern was a partner with KPMG from 1998 to 2002. Her other previous roles include General Manager of K&V Information Systems from 1996 to 1998 and Project Manager for Kiefer & Veittinger from 1991 to 1996. She holds a bachelor’s degree in Business Management from the University of Mannheim and an MBA from York University (Toronto).
(9)Andrew (Andy) Stafford has been our Head of Global Delivery since July 2020. Prior to joining Cognizant, he held a variety of executive positions, including Group Chief Operating Officer of Computacenter PLC from July 2017 to November 2018, and was Global Head of Services and Delivery for Unisys Inc. from April 2016 to May 2017. Mr. Stafford also spent nearly two decades with Accenture, first from 1988 to 1997 and then again from 2005 to 2013, in various leadership roles, the most recent being Senior Managing Director (Global Lead) from July 2012 to November 2013 and Managing Director of the Asia Pacific Region from 2009 to 2012. In between stints at Accenture, he was the Chief Operating Officer at Xchanging from September 2001 to November 2003, Chief Technology Officer at Virgin.com from September 2000 to March 2001, and he also spent time at Deloitte Consulting and Computacenter PLC. He holds a bachelor's degree in Electrical Engineering and Electronics from the University of Manchester Institute of Science and Technology in Manchester, England.
None of our executive officers is related to any other executive officer or to any of our Directors. Our executive officers are appointed annually by the Board of Directors and generally serve until their successors are duly appointed and qualified.
Corporate History
We began our IT development and maintenance services business in early 1994 as an in-house technology development center for The Dun & Bradstreet Corporation and its operating units. In 1996, we were spun-off from The Dun & Bradstreet Corporation and, in 1998, we completed an initial public offering to become a public company.
Available Information
We make available the following public filings with the SEC free of charge through our website at www.cognizant.com as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC:
•our Annual Reports on Form 10-K and any amendments thereto;
•our Quarterly Reports on Form 10-Q and any amendments thereto; and
•our Current Reports on Form 8-K and any amendments thereto.
No information on our website is incorporated by reference into this Form 10-K or any other public filing made by us with the SEC.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
We face various important risks and uncertainties, including those described below, that could adversely affect our business, results of operations and financial condition and, as a result, cause a decline in the trading price of our common stock.
Risks Related to our Business and Operations
Our results of operations could be adversely affected by economic and political conditions globally and in particular in the markets in which our clients and operations are concentrated.
Global macroeconomic conditions have a significant effect on our business as well as the businesses of our clients. Volatile, negative or uncertain economic conditions could cause our clients to reduce, postpone or cancel spending on projects with us and could make it more difficult for us to accurately forecast client demand and have available the right resources to profitably address such client demand. Clients may reduce demand for services quickly and with little warning, which may cause us to incur extra costs where we have employed more personnel than client demand supports.
Our business is particularly susceptible to economic and political conditions in the markets where our clients or operations are concentrated. Our revenues are highly dependent on clients located in the United States and Europe, and any adverse economic, political or legal uncertainties or adverse developments, including due to the uncertainty related to the potential economic and regulatory impacts of the United Kingdom's exit from the European Union, may cause clients in these geographies to reduce their spending and materially adversely impact our business. Many of our clients are in the financial services and healthcare industries, so any decrease in growth or significant consolidation in these industries or regulatory policies that restrict these industries may reduce demand for our services. Economic and political developments in India, where a significant majority of our operations and technical personnel are located, or in other countries where we maintain delivery operations, may also have a significant impact on our business and costs of operations. As a developing country, India has experienced and may continue to experience high inflation and wage growth, fluctuations in gross domestic product growth and volatility in currency exchange rates, any of which could materially adversely affect our cost of operations. Additionally, we benefit from governmental policies in India that encourage foreign investment and promote the ease of doing business, such as tax incentives, and any change in policy or circumstances that results in the elimination of such benefits or degradation of the rule of law, or imposition of new adverse restrictions or costs on our operations could have a material adverse effect on our business, results of operations and financial condition.
The COVID-19 pandemic has had a significant and continuing adverse impact upon, and this or other pandemics may have a material adverse impact upon, our business, liquidity, results of operations and financial condition.
The ongoing global COVID-19 pandemic has caused and continues to cause significant loss of life and interruption to the global economy and has resulted in the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease, including through business and transportation shutdowns and restrictions on people’s movement and congregation. Among other things, many of our and our clients’ offices have been closed and employees have been working from home and many consumer-facing businesses have closed or are operating at a significantly reduced level to observe various social distancing requirements and government-mandated closures. The overall result has been a dramatic reduction in activity in the global economy, a reduction in demand for many products and services and significant adverse impacts to the financial markets, including the trading price of our common stock in the past and potentially in the future.
The COVID-19 pandemic has had a significant and continuing adverse impact upon, and this or other pandemics may have a material adverse impact upon, our business, liquidity, results of operations and financial condition, including as a result of the following:
•Reduced client demand for services - The vast majority of our business is with clients in the United States, the United Kingdom and other countries in Europe, all regions that have been hard hit by the pandemic. The COVID-19 pandemic has reduced, and other future pandemics could reduce, demand for our services, particularly in regions that have been hit hard by the pandemic and from clients in the retail, consumer goods, travel and hospitality, and communications and media industries, and is likely to continue to result in reduced demand for our services as clients across many industries face reduced demand for their products and services. Among other things, some of our clients have postponed, cancelled or scaled-back existing projects and not entered into or reduced the scope of potential projects, and may continue to do so.
•Client pricing pressure, payment term extensions and insolvency risk - As clients face reduced demand for their products and services, reduce their business activity and face increased financial pressure on their businesses, we have faced and may continue to face downward pressure on our pricing and gross margins due to pricing
concessions to clients and requests from clients to extend payment terms. In addition, some of our clients have requested and may continue to request extended payment terms, which may have an adverse effect on our cash flows from operations. We may also face a significantly elevated risk of client insolvency, bankruptcy or liquidity challenges where we may perform services and incur expenses for which we are not paid.
•Delivery challenges - Due to the closures of many of our and our clients’ facilities, including as a result of various orders from national, state or local governments, we have faced and may continue to face, in the near term or in future pandemics, challenges in delivering services to our clients and satisfying contractually agreed upon service levels. The pandemic, particularly in India, but also in the Philippines and other countries where we have near-shore or offshore delivery operations for clients, as well as our in-country offices and offices of clients where our associates may normally work, has impacted and may continue to impact our ability to deliver services to clients. Our work-from-home arrangements for many of our employees may increase our exposure to security breaches or cyberattacks. The ransomware attack we were subject to in April 2020 compounded the challenges we faced in enabling work-from-home arrangements and resulted in setbacks and delays to such efforts. A significant worsening of the pandemic, particularly in India, or another security incident during the pandemic, could materially impair our ability to deliver services to clients to an extent that may have a material adverse impact to our business, liquidity, results of operations and financial condition.
•Increased costs - We face increased costs from the pandemic, including as a result of mitigation efforts such as enabling increased work-from-home capabilities and additional health and safety measures.
•Diversion of and strain on management and other corporate resources - Addressing the significant personal and business challenges presented by the pandemic, including various business continuity measures and the need to enable work-from-home arrangements for many of our associates, has demanded significant management time and attention and strained other corporate resources, and is expected to continue to do so. Among other things, this may adversely impact our client and associate development and our ability to execute our strategy and various transformation initiatives.
•Reduced employee morale and productivity - The significant personal and business challenges presented by a pandemic, including the COVID-19 pandemic, such as the potentially life-threatening health risks to employees and their families and friends, the closures of schools and the unavailability of various services our employees may rely upon, such as childcare, have been and may be a cause of employee morale concerns and may adversely impact employee productivity.
The COVID-19 pandemic continues to evolve. The ultimate extent to which the pandemic impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the delivery and effectiveness of vaccines, future mutations of the COVID-19 virus and any resulting impact on the effectiveness of vaccines, the duration and extent of the pandemic and waves of infection, travel restrictions and social distancing, the duration and extent of business closures and business disruptions and the effectiveness of actions taken to contain, treat and prevent the disease. If we or our clients experience prolonged shutdowns or other business disruptions, our business, liquidity, results of operations, financial condition and the trading price of our common stock may be materially adversely affected, and our ability to access the capital markets may be limited.
If we are unable to attract, train and retain skilled employees to satisfy client demand, including highly skilled technical personnel and personnel with experience in key digital areas, as well as senior management to lead our business globally, our business and results of operations may be materially adversely affected.
Our success is dependent, in large part, on our ability to keep our supply of skilled employees, including project managers, IT engineers and senior technical personnel, in particular those with experience in key digital areas, in balance with client demand around the world and on our ability to attract and retain senior management with the knowledge and skills to lead our business globally. Each year, we must hire tens of thousands of new employees and reskill, retain, and motivate our workforce of hundreds of thousands of employees with diverse skills and expertise in order to serve client demands across the globe, respond quickly to rapid and ongoing technological, industry and macroeconomic developments and grow and manage our business. We also must continue to maintain an effective senior leadership team that, among other things, is effective in executing on our strategic goals and growing our digital business. The loss of senior executives, or the failure to attract, integrate and retain new senior executives as the needs of our business require, could have a material adverse effect on our business and results of operations.
Competition for skilled labor is intense and, in some jurisdictions and service areas in which we operate and, in particular, in key digital areas, there are more open positions than qualified persons to fill these positions. Our business has experienced and may continue to experience significant employee attrition, which may cause us to incur increased costs to hire new employees with the desired skills. Costs associated with recruiting and training employees are significant. If we are unable to hire or deploy employees with the needed skillsets or if we are unable to adequately equip our employees with the skills needed,
this could materially adversely affect our business. Additionally, if we are unable to maintain an employee environment that is competitive and appealing, it could have an adverse effect on engagement and retention, which may materially adversely affect our business.
We face challenges related to growing our business organically as well as inorganically through acquisitions, and we may not be able to achieve our targeted growth rates.
Achievement of our targeted growth rates requires continued significant organic growth of our business as well as inorganic growth through acquisitions. To achieve such growth, we must, among other things, continue to significantly expand our global operations, increase our product and service offerings, in particular with respect to digital, and scale our infrastructure to support such business growth. Continued business growth increases the complexity of our business and places significant strain on our management, employees, operations, systems, delivery, financial resources, and internal financial control and reporting functions, which we will have to continue to develop and improve to sustain such growth. We must continually recruit and train new employees, retain and reskill, as necessary, existing sales, technical, finance, marketing and management employees with the knowledge, skills and experience that our business model requires and effectively manage our employees worldwide to support our culture, values, strategies and goals. Additionally, we expect to continue pursuing strategic and targeted acquisitions and investments to enhance our offerings of services and solutions or to enable us to expand our talent, experience and capabilities in key digital areas or in particular geographies or industries. We may not be successful in identifying suitable opportunities, completing targeted transactions or achieving the desired results, and such opportunities may divert our management's time and focus away from our core business. We may face challenges in effectively integrating acquired businesses into our ongoing operations and in assimilating and retaining employees of those businesses into our culture and organizational structure. If we are unable to manage our growth effectively, complete acquisitions of the number, magnitude and nature we have targeted, or successfully integrate any acquired businesses into our operations, we may not be able to achieve our targeted growth rates or improve our market share, profitability or competitive position generally or in specific markets or services.
We may not be able to achieve our profitability goals and maintain our capital return strategy.
Our goals for profitability and capital return rely upon a number of assumptions, including our ability to improve the efficiency of our operations and make successful investments to grow and further develop our business. Our profitability depends on the efficiency with which we run our operations and the cost of our operations, especially the compensation and benefits costs of our employees. We have incurred, and may continue to incur, substantial costs related to implementing our strategy to optimize such costs, and we may not realize the ultimate cost savings that we expect. We may not be able to efficiently utilize our employees if increased regulation, policy changes or administrative burdens of immigration, work visas or client worksite placement prevents us from deploying our employees on a timely basis, or at all, to fulfill the needs of our clients. Increases in wages and other costs may put pressure on our profitability. Fluctuations in foreign currency exchange rates can also have adverse effects on our revenues, income from operations and net income when items denominated in other currencies are translated or remeasured into U.S. dollars for presentation of our consolidated financial statements. We have entered into foreign exchange forward contracts intended to partially offset the impact of the movement of the exchange rates on future operating costs and to mitigate foreign currency risk on foreign currency denominated net monetary assets. However, the hedging strategies that we have implemented, or may in the future implement, to mitigate foreign currency exchange rate risks may not reduce or completely offset our exposure to foreign exchange rate fluctuations and may expose our business to unexpected market, operational and counterparty credit risks. We are particularly susceptible to wage and cost pressures in India and the exchange rate of the Indian rupee relative to the currencies of our client contracts due to the fact that the substantial majority of our employees are in India while our contracts with clients are typically in the local currency of the country where our clients are located. If we are unable to improve the efficiency of our operations, our operating margin may decline and our business, results of operations and financial condition may be materially adversely affected. Failure to achieve our profitability goals could adversely affect our business, financial condition and results of operations.
With respect to capital return, our ability and decisions to pay dividends and repurchase shares depend on a variety of factors, including the cash flow generated from operations, our cash and investment balances, our net income, our overall liquidity position, potential alternative uses of cash, such as acquisitions, and anticipated future economic conditions and financial results. Failure to maintain our capital return strategy may adversely impact our reputation with shareholders and shareholders’ perception of our business and the trading price of our common stock.
Our failure to meet specified service levels or milestones required by certain of our client contracts may result in our client contracts being less profitable, potential liability for penalties or damages or reputational harm.
Many of our client contracts include clauses that tie our compensation to the achievement of agreed-upon performance standards or milestones. Failure to satisfy these requirements could significantly reduce our fees under the contracts, increase the cost to us of meeting performance standards or milestones, delay expected payments, subject us to potential damage claims
under the contract terms or harm our reputation. The use of new technologies in our offerings can expose us to additional risks if those technologies fail to work as predicted, which could lead to cost overruns, project delays, financial penalties, or damage to our reputation. Clients also often have the right to terminate a contract and pursue damage claims for serious or repeated failure to meet these service commitments. Some of our contracts provide that a portion of our compensation depends on performance measures such as cost-savings, revenue enhancement, benefits produced, business goals attained and adherence to schedule. These goals can be complex and may depend on our clients’ actual levels of business activity or may be based on assumptions that are later determined not to be achievable or accurate. As such, these provisions may increase the variability in revenues and margins earned on those contracts and have in the past, and could in the future, result in significant losses on such contracts.
We face intense and evolving competition and significant technological advances that our service offerings must keep pace with in the rapidly changing markets we compete in.
The markets we serve and operate in are highly competitive, subject to rapid change and characterized by a large number of participants, as described in “Part I, Item 1. Business-Competition.” In addition to large, global competitors, we face competition in many geographic markets from numerous smaller, local competitors that may have more experience with operations in these markets, have well-established relationships with our desired clients, or be able to provide services and solutions at lower costs or on terms more attractive to clients than we can. Consolidation activity may also result in new competitors with greater scale, a broader footprint or vertical integration that makes them more attractive to clients as a single provider of integrated products and services. In addition, concurrent use by many clients of multiple professional service providers means that we are required to be continually competitive on the quality, scope and pricing of our offerings or face a reduction or elimination of our business.
Our success depends on our ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology to serve the evolving needs of our clients. Examples of areas of significant change include digital-, cloud- and security-related offerings, which are continually evolving, as well as developments in areas such as AI, augmented reality, automation, blockchain, IoT, quantum computing and as-a-service solutions. If we do not sufficiently invest in new technologies, successfully adapt to industry developments and changing demand, and evolve and expand our business at sufficient speed and scale to keep pace with the demands of the markets we serve, we may be unable to develop and maintain a competitive advantage and execute on our growth strategy, which would materially adversely affect our business, results of operations and financial condition.
Our relationships with our third party alliance partners, who supply us with necessary components to the services and solutions we offer our clients, are also critical to our ability to provide many of our services and solutions that address client demands. There can be no assurance that we will be able to maintain such relationships. Among other things, such alliance partners may in the future decide to compete with us, form exclusive or more favorable arrangements with our competitors or otherwise reduce our access to their products impairing our ability to provide the services and solutions demanded by clients.
We face legal, reputational and financial risks if we fail to protect client and/or Cognizant data from security breaches and/or cyberattacks.
In order to provide our services and solutions, we depend on global information technology networks and systems, to process, transmit, host and securely store electronic information (including our confidential information and the confidential information of our clients) and to communicate among our locations around the world and with our clients, suppliers and partners. Security breaches, employee malfeasance, or human or technological error create risks of shutdowns or disruptions of our operations and potential unauthorized access and/or disclosure of our or our clients’ sensitive data, which in turn could jeopardize projects that are critical to our operations or the operations of our clients’ businesses and have other adverse impacts on our business or the business of our clients.
Like other global companies, we and the clients and vendors we interact with face threats to data and systems, including by nation state threat actors, perpetrators of random or targeted malicious cyberattacks, computer viruses, malware, worms, bot attacks or other destructive or disruptive software and attempts to misappropriate client information and cause system failures and disruptions. For example, in April 2020, we announced a security incident involving a Maze ransomware attack. The attack resulted in unauthorized access to certain data and caused significant disruption to our business.
A security compromise of our information systems, or of those of businesses with which we interact, that results in confidential information being accessed by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions, client attrition due to reputational concerns or otherwise, containment and remediation expenses, and claims brought by our clients or others for breaching contractual confidentiality and security provisions or data protection laws. Monetary damages imposed on us could be significant and may impose costs in excess of insurance policy limits or not be covered by our insurance at all. Techniques used by bad actors to obtain unauthorized access, disable or degrade service, or
sabotage systems continuously evolve and may not immediately produce signs of intrusion, and we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, a security breach could require that we expend substantial additional resources related to the security of our information systems, diverting resources from other projects and disrupting our businesses. Any remediation measures that we have taken or that we may undertake in the future in response to the security incident announced in April 2020 or other security threats may be insufficient to prevent future attacks.
We are required to comply with increasingly complex and changing data security and privacy regulations in the United States, the United Kingdom, the European Union and in other jurisdictions in which we operate that regulate the collection, use and transfer of personal data, including the transfer of personal data between or among countries. For example, the European Union’s General Data Protection Regulation has imposed stringent compliance obligations regarding the handling of personal data and has resulted in the issuance of significant financial penalties for noncompliance. In the United States, there have been proposals for federal privacy legislation and many new state privacy laws are on the horizon. Recently enacted legislation, such as the California Consumer Privacy Act, and its successor the California Privacy Rights Act that will go into effect on January 1, 2023, impose extensive privacy requirements on organizations governing personal information. Existing U.S. sectoral laws such as the Health Insurance Portability and Accountability Act also impose extensive privacy and security requirements on organizations operating in the healthcare industry, which we serve. Additionally, in India, the Personal Data Protection Bill, 2019 continues to make progress through the Indian Parliament. If enacted in its current form it would impose stringent obligations on the handling of personal data, including certain localization requirements for sensitive data. Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders. We may also face audits or investigations by one or more domestic or foreign government agencies or our clients pursuant to our contractual obligations relating to our compliance with these regulations. Complying with changing regulatory requirements requires us to incur substantial costs, exposes us to potential regulatory action or litigation, and may require changes to our business practices in certain jurisdictions, any of which could materially adversely affect our business operations and operating results.
If our risk management, business continuity and disaster recovery plans are not effective and our global delivery capabilities are impacted, our business and results of operations may be materially adversely affected and we may suffer harm to our reputation.
Our business model is dependent on our global delivery capabilities, which include coordination between our delivery centers in India, our other global and regional delivery centers, the offices of our clients and our associates worldwide. System failures, outages and operational disruptions may be caused by factors outside of our control, such as hostilities, political unrest, terrorist attacks, natural disasters (including events that may be caused or exacerbated by climate change), and public health emergencies and pandemics, such as the COVID-19 pandemic, affecting the geographies where our people, equipment and clients are located. For example, we have substantial global delivery operations in Chennai, India, a city that has experienced severe rains, flooding and droughts in recent years and is at significant risk of increasingly severe natural disasters in future years as a result of climate change. Our risk management, business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of catastrophic events or longer term developments, such as the impacts of climate change. Any such disruption may result in lost revenues, a loss of clients and reputational damage, which would have an adverse effect on our business, results of operations and financial condition.
A substantial portion of our employees in the United States, United Kingdom, European Union and other jurisdictions rely on visas to work in those areas such that any restrictions on such visas or immigration more generally or increased costs of obtaining such visas or increases in the wages we are required to pay associates on visas may affect our ability to compete for and provide services to clients in these jurisdictions, which could materially adversely affect our business, results of operations and financial condition.
A substantial portion of our employees in the United States and in many other jurisdictions, including countries in Europe, rely upon temporary work authorization or work permits, which makes our business particularly vulnerable to changes and variations in immigration laws and regulations, including written changes and policy changes to the manner in which the laws and regulations are interpreted or enforced, and potential enforcement actions and penalties that might cause us to lose access to such visas. The political environment in the United States, the United Kingdom and other countries in recent years has included significant support for anti-immigrant legislation and administrative changes. Many of these recent changes have resulted in, and various proposed changes may result in, increased difficulty in obtaining timely visas that could impact our ability to staff projects, including as a result of visa application rejections and delays in processing applications, and significantly increased costs for us in obtaining visas or as a result of prevailing wage requirements for our associates on visas. For example, in the United States, the prior administration adopted a number of policy changes and executive orders designed to limit immigration and the ability of immigrants to be employed, including increased scrutiny of the issuance of new and the renewal of existing H-1B visa applications and the placement of H-1B visa workers on third party worksites, increases to the prevailing wage requirements that set a minimum level of compensation for visa holders and, for entities where more than 50% of the workers in the United States hold H-1B and L-1 visas, increases in the visa costs for such entities. While a number of
these policy changes and executive orders were stayed by the courts, the current administration may continue to seek their implementation or the implementation of similar measures in the future and there continues to be political support for potential new laws and regulations that, if adopted, may have a material adverse impact on companies like ours that have a substantial percentage of our employees on visas. Our principal operating subsidiary in the United States had more than 50% of its employees on H-1B or L-1 visas as of December 31, 2020 and, as a result, may be subject to increased costs if any such laws, regulations, policy changes or executive orders go into effect. In the EU, many countries continue to implement new regulations to move into compliance with the EU Directive of 2014 to harmonize immigration rules for intracompany transferees in most EU member states and to facilitate the transfer of managers, specialists and graduate trainees both into and within the region. The changes have had significant impact on mobility programs and have led to new notification and documentation requirements for companies sending employees to EU countries. Recent changes or any additional adverse revisions to immigration laws and regulations in the jurisdictions in which we operate may cause us delays, staffing shortages, additional costs or an inability to bid for or fulfill projects for clients, any of which could have a material adverse effect on our business, results of operations and financial condition.
Legal, Regulatory and Legislative Risks
Anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing could impair our ability to serve our clients and materially adversely affect our business, results of operations and financial condition.
The practice of outsourcing services to organizations operating in other countries is a topic of political discussion in the United States, which is our largest market, as well as other regions in which we have clients. For example, measures aimed at limiting or restricting outsourcing by U.S. companies have been put forward for consideration by the U.S. Congress and in state legislatures to address concerns over the perceived association between offshore outsourcing and the loss of jobs domestically. If any such measure is enacted, our ability to provide services to our clients could be impaired.
In addition, from time to time there has been publicity about purported negative experiences associated with offshore outsourcing, such as alleged domestic job loss and theft and misappropriation of sensitive client data, particularly involving service providers in India. Current or prospective clients may elect to perform certain services themselves or may be discouraged from utilizing global service delivery providers like us due to negative perceptions that may be associated with using global service delivery models or firms. Any slowdown or reversal of existing industry trends toward global service delivery would seriously harm our ability to compete effectively with competitors that provide the majority of their services from within the country in which our clients operate.
We are subject to numerous and evolving legal and regulatory requirements and client expectations in the many jurisdictions in which we operate, and violations of, unfavorable changes in or an inability to meet such requirements or expectations could harm our business.
We provide services to clients and have operations in many parts of the world and in a wide variety of different industries, subjecting us to numerous, and sometimes conflicting, laws and regulations on matters as diverse as import and export controls, temporary work authorizations or work permits and other immigration laws, content requirements, trade restrictions, tariffs, taxation, anti-corruption laws (including the FCPA and the U.K. Bribery Act), the environment, government affairs, internal and disclosure control obligations, data privacy, intellectual property, employment and labor relations. We face significant regulatory compliance costs and risks as a result of the size and breadth of our business. For example, we may experience increased costs in 2021 and future years for employment and post-employment benefits in India as a result of the issuance of the Code in late 2020.
We are also subject to a wide range of potential enforcement actions, audits or investigations regarding our compliance with these laws or regulations in the conduct of our business, and any finding of a violation could subject us to a wide range of civil or criminal penalties, including fines, debarment, or suspension or disqualification from government contracting, prohibitions or restrictions on doing business, loss of clients and business, legal claims by clients and damage to our reputation.
We commit significant financial and managerial resources to comply with our internal control over financial reporting requirements, but we have in the past and may in the future identify material weaknesses or deficiencies in our internal control over financial reporting that cause us to incur incremental remediation costs in order to maintain adequate controls. As another example, in recent years we had to spend significant resources on conducting an internal investigation and cooperating with investigations by the DOJ and the SEC, both concluded in 2019, focused on whether certain payments relating to Company-owned facilities in India were made in violation of the FCPA and other applicable laws.
Governmental bodies, investors, clients and businesses are increasingly focused on ESG issues, which has resulted and may in the future continue to result in the adoption of new laws and regulations and changing buying practices. If we fail to
keep pace with ESG trends and developments or fail to meet the expectations of our clients and investors, our reputation and business could be adversely impacted.
Changes in tax laws or in their interpretation or enforcement, failure by us to adapt our corporate structure and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or proceedings could have a material adverse effect on our effective tax rate, results of operations and financial condition.
The interpretation of tax laws and regulations in the many jurisdictions in which we operate and the related tax accounting principles are complex and require considerable judgment to determine our income taxes and other tax liabilities worldwide. Tax laws and regulations affecting us and our clients, including applicable tax rates, and the interpretation and enforcement of such laws and regulations are subject to change as a result of economic, political and other factors, and any such changes or changes in tax accounting principles could increase our effective worldwide income tax rate and have a material adverse effect on our net income and financial condition. We routinely review and update our corporate structure and intercompany arrangements, including transfer pricing policies, consistent with applicable laws and regulations, to align with our evolving business operations and provide global tax efficiencies across the numerous jurisdictions, such as the United States, India and the United Kingdom, in which we operate. Failure to successfully adapt our corporate structure and intercompany arrangements to align with our evolving business operations and achieve global tax efficiencies may increase our worldwide effective tax rate and have a material adverse effect on our earnings and financial condition.
The following are several examples of changes in tax laws that may impact us:
•The Tax Reform Act was enacted in December 2017 and made a number of significant changes to the corporate tax regime in the United States. The U.S. Treasury department continues to issue proposed and final regulations which modify relevant aspects of the new tax regime.
•In December 2019, the Government of India enacted the India Tax Law effective retroactively to April 1, 2019 that enables Indian companies to elect to be taxed at a lower income tax rate of 25.17% as compared to the current rate of 34.94%. Once a company elects into the lower income tax rate, that company may not benefit from any tax holidays associated with SEZs and certain other tax incentives, including MAT carryforwards, and may not reverse its election. As of December 31, 2020, we had deferred income tax assets related to the MAT carryforwards of $98 million. See Note 11 to our consolidated financial statements. Our current intent is to elect into the new tax regime once our MAT carryforwards are fully or substantially utilized. Our intent is based on a number of current assumptions and financial projections, and if our intent were to change and we were to opt into the new tax regime at an earlier time, the write-off of any remaining MAT deferred tax assets may materially increase our provision for income taxes and effective income tax rate and decrease our EPS, while the loss of the benefit of the MAT carryforwards may increase our cash tax payments.
•The OECD has been working on a Base Erosion and Profit Shifting project and is expected to continue to issue guidelines and proposals that may change numerous long-standing tax principles. The changes recommended by the OECD have been or are being adopted by many of the countries in which we do business and could lead to disagreements among jurisdictions over the proper allocation of profits among them. The OECD has also undertaken a new project focused on “Addressing the Tax Challenges of the Digitalization of the Economy.” This project may impact multinational businesses by implementing a global model for minimum taxation. Similarly, the European Commission and various jurisdictions have introduced proposals to or passed laws that impose a separate tax on specified digital services. These recent and potential future tax law changes create uncertainty and may materially adversely impact our provision for income taxes.
Our worldwide effective income tax rate may increase as a result of these recent developments, changes in interpretations and assumptions made, additional guidance that may be issued and ongoing and future actions the Company has or may take with respect to our corporate structure and intercompany arrangements.
Additionally, we are subject from time to time to tax audits, investigations and proceedings. Tax authorities have disagreed, and may in the future disagree, with our judgments, and are taking increasingly aggressive positions, including with respect to our intercompany transactions. For example, we are currently involved in an ongoing dispute with the ITD in which the ITD asserts that we owe additional taxes for two transactions by which CTS India repurchased shares from its shareholders, as more fully described in Note 11 to the consolidated financial statements. Adverse outcomes in any such audits, investigations or proceedings could increase our tax exposure and cause us to incur increased expense, which could materially adversely affect our results of operations and financial condition.
Our business subjects us to considerable potential exposure to litigation and legal claims and could be materially adversely affected if we incur legal liability.
We are subject to, and may become a party to, a variety of litigation or other claims and suits that arise from time to time in the conduct of our business. Our business is subject to the risk of litigation involving current and former employees, clients, alliance partners, subcontractors, suppliers, competitors, shareholders, government agencies or others through private actions, class actions, whistleblower claims, administrative proceedings, regulatory actions or other litigation. While we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable.
Our client engagements expose us to significant potential legal liability and litigation expense if we fail to meet our contractual obligations or otherwise breach obligations to third parties or if our subcontractors breach or dispute the terms of our agreements with them and impede our ability to meet our obligations to our clients. For example, third parties could claim that we or our clients, whom we typically contractually agree to indemnify with respect to the services and solutions we provide, infringe upon their IP rights. Any such claims of IP infringement could harm our reputation, cause us to incur substantial costs in defending ourselves, expose us to considerable legal liability or prevent us from offering some services or solutions in the future. We may have to engage in legal action to protect our own IP rights, and enforcing our rights may require considerable time, money and oversight, and existing laws in the various countries in which we provide services or solutions may offer only limited protection.
We also face considerable potential legal liability from a variety of other sources. Our acquisition activities have in the past and may in the future be subject to litigation or other claims, including claims from employees, clients, stockholders, or other third parties. We have also been the subject of a number of putative securities class action complaints and putative shareholder derivative complaints relating to the matters that were the subject of our now concluded internal investigation into potential violations of the FCPA and other applicable laws, and may be subject to such legal actions for these or other matters in the future. See "Part I, Item 3. Legal Proceedings" for more information. We establish reserves for these and other matters when a loss is considered probable and the amount can be reasonably estimated; however, the estimation of legal reserves and possible losses involves significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in litigation, and the actual losses arising from particular matters may exceed our estimates and materially adversely affect our results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
We have sales and marketing offices, innovation labs, and digital design and consulting centers in major business markets, including New York, London, Paris, Melbourne, Singapore, and Sao Paulo, among others, which are used to deliver services to our clients across all four of our business segments. In total, we have offices and operations in more than 85 cities and 35 countries around the world, with our worldwide headquarters located in a leased facility in Teaneck, New Jersey in the United States.
We utilize a global delivery model with delivery centers worldwide, including in-country, regional and global delivery centers. We have over 31 million square feet of owned and leased facilities for our delivery centers. Our largest delivery center presence is in India - Chennai (10 million square feet), Hyderabad (4 million square feet), Pune (3 million square feet), Bangalore (3 million square feet) and Kolkata (3 million square feet) - representing 88% of our total delivery centers on a square-foot basis. We also have a significant number of delivery centers in other countries, including the United States, Philippines, Canada, Mexico and countries throughout Europe.
We believe our current facilities are adequate to support our operations in the immediate future, and that we will be able to obtain suitable additional facilities on commercially reasonable terms as needed.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
See Note 15 to our consolidated financial statements.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A common stock trades on the Nasdaq Stock Market under the symbol “CTSH”. As of December 31, 2020, the approximate number of holders of record of our Class A common stock was 114 and the approximate number of beneficial holders of our Class A common stock was 342,100.
Cash Dividends
During 2020, we paid quarterly cash dividends of $0.22 per share, or $0.88 per share in total for the year. In February 2021, our Board of Directors approved a $0.02 increase to our quarterly cash dividends and the Company's declaration of a $0.24 per share dividend with a record date of February 18, 2021 and a payment date of February 26, 2021. We intend to continue to pay quarterly cash dividends in accordance with our capital return plan. Our ability and decisions to pay future dividends depend on a variety of factors, including our cash flow generated from operations, cash and investment balances, net income, overall liquidity position, potential alternative uses of cash, such as acquisitions, and anticipated future economic conditions and financial results.
Issuer Purchases of Equity Securities
Our stock repurchase program, as amended by our Board of Directors in December 2020, allows for the repurchase of up to $9.5 billion, excluding fees and expenses, of our Class A common stock through open market purchases, including under a 10b5-1 Plan or in private transactions, including through ASR agreements entered into with financial institutions, in accordance with applicable federal securities laws. The repurchase program does not have an expiration date. The timing of repurchases and the exact number of shares to be purchased are determined by management, in its discretion, or pursuant to 10b5-1 Plan, and will depend upon market conditions and other factors.
During the three months ended December 31, 2020, we repurchased $721 million of our Class A common stock under our stock repurchase program. The following table sets out the stock repurchase activity under our stock repurchase program during the fourth quarter of 2020 and the approximate dollar value of shares that may yet be purchased under the program as of December 31, 2020.
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)
October 1, 2020 - October 31, 2020 5,800,000 $ 72.56 5,800,000 $ 1,115
November 1, 2020 - November 30, 2020 1,700,000 76.77 1,700,000 984
December 1, 2020 - December 31, 2020 2,122,590 79.85 2,122,590 2,815
Total 9,622,590 $ 74.91 9,622,590
We regularly purchase shares in connection with our stock-based compensation plans as shares of our Class A common stock are tendered by employees for payment of applicable statutory tax withholdings. For the three months ended December 31, 2020, we purchased 0.2 shares at an aggregate cost of $18 million in connection with employee tax withholding obligations.
Performance Graph
The following graph compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the S&P 500 Index, Nasdaq-100 Index, S&P 500 Information Technology Index and a Peer Group Index (capitalization weighted) for the period beginning December 31, 2015 and ending on the last day of our last completed fiscal year. The stock performance shown on the graph below is not indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)
Among Cognizant, the S&P 500 Index, the Nasdaq-100 Index, the S&P 500 Information Technology Index(3)
and a Peer Group Index(3) (Capitalization Weighted)
Company / Index Base
Period
12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20
Cognizant Technology Solutions Corp $ 100 $ 93.35 $ 119.09 $ 107.59 $ 106.43 $ 142.54
S&P 500 Index 100 111.96 136.40 130.42 171.49 203.04
Nasdaq-100 Index 100 105.89 139.26 137.81 190.13 280.59
S&P 500 Information Technology Index 100 113.85 158.06 157.60 236.86 340.83
Peer Group 100 104.72 132.79 128.54 168.92 230.02
(1)Graph assumes $100 invested on December 31, 2015 in our Class A common stock, the S&P 500 Index, the Nasdaq-100 Index, the S&P 500 Information Technology Index and the Peer Group Index (capitalization weighted).
(2)Cumulative total return assumes reinvestment of dividends.
(3)We have constructed a Peer Group Index of other information technology consulting firms. Our peer group consists of Accenture plc., DXC Technology, EPAM Systems Inc., ExlService Holdings Inc., Genpact Limited, Infosys Ltd., Wipro Ltd. and WNS (Holdings) Limited. Beginning in 2020, we have included the S&P 500 Information and Technology Index in our comparison of total return. This index will replace our Peer Group and the Nasdaq-100 Index in future filings as the S&P 500 Information and Technology index is more representative of the broader technology sector in which we operate.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
[Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era. Our services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Digital services have become an increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and differentiated businesses. We are focused on continued investment in four key areas of digital: IoT, AI, experience-driven software engineering and cloud. We tailor our services and solutions to specific industries with an integrated global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional delivery centers.
The global COVID-19 pandemic has caused and is continuing to cause significant loss of life and interruption to the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease. In response to COVID-19, we have prioritized the safety and well-being of our employees, business continuity for our clients, and supporting the efforts of governments around the world to contain the spread of the virus. In light of our commitment to help our clients as they navigate unprecedented business challenges while protecting the safety of our employees, we have taken numerous steps, and may continue to take further actions, to address the COVID-19 pandemic. We have been working closely with our clients to support them as they implemented their contingency plans, helping them access our services and solutions remotely. We also undertook a significant effort to enable our employees to work from home by providing them with computer and Internet accessibility equipment while seeking to maintain appropriate security protocols. Despite these efforts, in the first half of 2020 we experienced some delays in project fulfillment as delivery, particularly in India and the Philippines, shifted to work-from-home in response to the pandemic. Additionally, as a result of the ongoing pandemic, we experienced reduced client demand, project deferrals, furloughs, and temporary rate concessions, which adversely affected revenues across all of our business segments in 2020. For the year ended December 31, 2020, we incurred $65 million of costs in response to the COVID-19 pandemic, including certain costs incurred to enable our employees to work remotely.
In 2020, we incurred costs related to the execution of our multi-year 2020 Fit for Growth Plan aimed at accelerating revenue growth. This plan refined our strategic focus and launched a series of measures to improve our operational and commercial models and optimize our cost structure in order to partially fund investments in key digital areas of IoT, AI, experience-driven software engineering and cloud and advance our growth agenda. The 2020 Fit for Growth Plan included our decision to exit certain content-related services that are not in line with our strategic vision for the Company. The optimization measures that were part of the 2020 Fit for Growth Plan resulted in total charges of $221 million, primarily related to severance and facility exit costs that are expected to generate an annualized savings run rate, before anticipated investments, of approximately $530 million in 2021. See Note 4 to our consolidated financial statements for additional information on these costs, which are reported in the caption "Restructuring charges" in our consolidated statements of operations. We do not expect to incur additional costs related to this plan. The COVID-19 pandemic may adversely impact our ability to realize the benefits of our strategy and various transformation initiatives, including the 2020 Fit for Growth Plan. See Part I, Item 1A. Risk Factors.
Our exit from certain content-related services negatively impacted our 2020 revenues by approximately $178 million within our Communications, Media and Technology segment in North America.
On April 20, 2020, we announced a security incident involving a Maze ransomware attack. As previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, based on numerous remediation steps that have been undertaken and our continued monitoring of our environment, we believe we have contained the attack and eradicated remnants of the attacker activity from our environment. The lost revenue and containment, investigation, remediation, legal and other costs incurred due to the ransomware attack may exceed our insurance policy limits or may not be covered by insurance at all. Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with customers, regulatory enforcement action, litigation that could result in financial judgments or the payment of settlement amounts and disputes with insurance carriers concerning coverage.
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior
years. In July 2020, the U.S. Treasury Department and the IRS released final regulations, which became effective in September 2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate growth in various international markets and expand our global delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits. On October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to its shareholders (non-Indian Cognizant entities), after payment of $106 million of India withholding tax.
On October 27, 2020, a jury returned a verdict in our favor in the amount of $854 million, including $570 million punitive damages, in our lawsuit with Syntel, which was initiated in 2015. We expect Syntel to appeal the decision and thus we will not record the gain in our financial statements until it becomes realizable. For more information, see Note 15 to our consolidated financial statements.
In the fourth quarter of 2020, we made an offer to settle and exit a large customer engagement in Financial Services in Continental Europe ("Proposed Exit"). The offer includes, among other terms, a proposed payment and the forgiveness of certain receivables. The 2020 impact of the Proposed Exit was a reduction of revenues of $118 million and additional expenses of $33 million, primarily related to the impairment of long-lived assets. The Proposed Exit negatively impacted each of our GAAP and Adjusted Diluted EPS by $0.27 for the year ended December 31, 2020. While the amounts recorded are based on our best estimate of the expected terms of the exit, the negotiations are ongoing and, as such, we may not reach an agreement or the final terms of the agreement that is reached may materially differ from those contemplated in our accounting. In either instance, there could be additional impacts to our statement of operations, financial condition and our cash flows.
2020 Financial Results
The following table sets forth a summary of our financial results for the years ended December 31, 2020 and 2019:
Increase / Decrease
2020 2019 $ %
(Dollars in millions, except per share data)
Revenues $ 16,652 $ 16,783 $ (131) (0.8)
Income from operations 2,114 2,453 (339) (13.8)
Net income 1,392 1,842 (450) (24.4)
Diluted EPS 2.57 3.29 (0.72) (21.9)
Other Financial Information1
Adjusted Income From Operations 2,394 2,787 (393) (14.1)
Adjusted Diluted EPS
3.42 3.99 (0.57) (14.3)
Our financial results were negatively impacted by our exit from certain content-related services, the Proposed Exit, the ransomware attack and the COVID-19 pandemic. We continue to experience pricing pressure within our core portfolio of services as our clients optimize the cost of supporting their legacy systems and operations. At the same time, clients are adopting and integrating digital technologies and their demand for our digital services and solutions has continued to increase since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-commerce, automation and AI and cybersecurity services and solutions.
1 Adjusted Income From Operations and Adjusted Diluted EPS are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures.
The following charts set forth revenues and change in revenues by business segment and geography for the year ended December 31, 2020 compared to the year ended December 31, 2019:
Financial Services Healthcare
Increase / (Decrease) Increase / (Decrease)
Dollars in millions Revenues $ % CC %2
Revenues $ % CC %2
North America $ 4,013 (124) (3.0) (3.0) $ 4,181 34 0.8 0.8
United Kingdom 463 (21) (4.3) (4.7) 157 27 20.8 19.8
Continental Europe 629 (99) (13.6) (14.0) 434 93 27.3 24.0
Europe - Total 1,092 (120) (9.9) (10.3) 591 120 25.5 22.9
Rest of World 516 (4) (0.8) 2.0 80 3 3.9 6.0
Total $ 5,621 (248) (4.2) (4.0) $ 4,852 157 3.3 3.1
Products and Resources Communications, Media and Technology
Increase / (Decrease) Increase / (Decrease)
Dollars in millions Revenues $ % CC %2
Revenues $ % CC %2
North America $ 2,650 (28) (1.0) (1.0) $ 1,737 (27) (1.5) (1.5)
United Kingdom 371 (9) (2.4) (3.0) 344 25 7.8 6.8
Continental Europe 413 (40) (8.8) (8.7) 177 8 4.7 2.1
Europe - Total 784 (49) (5.9) (6.1) 521 33 6.8 5.2
Rest of World 262 3 1.2 4.7 225 28 14.2 20.2
Total $ 3,696 (74) (2.0) (1.7) $ 2,483 34 1.4 1.6
Across all our business segments and regions, revenues were negatively impacted by the COVID-19 pandemic and the ransomware attack. Retail, consumer goods, travel and hospitality clients within our Products and Resources segment as well as communications and media clients in our Communications, Media and Technology segment were particularly adversely affected by the pandemic. Revenues in our Financial Services segment in our Continental Europe region were negatively impacted by $118 million due to the Proposed Exit. Additionally, we continued to see certain financial services and healthcare clients transition the support of some of their legacy systems and operations in-house. Revenue growth among our life sciences clients was driven by revenues from Zenith and increased demand for our services among pharmaceutical companies while revenues from our healthcare clients benefited from stronger software license sales. Our manufacturing, logistics, energy and utilities clients within our Products and Resources segment generated revenue growth due to our clients' continued adoption and integration of digital technologies. Revenues among our technology clients in our Communications, Media and Technology segment in the North America region were negatively impacted by approximately $178 million due to our exit from certain content-related services. We continue to see growing demand from our technology clients for other more strategic digital content services. Additionally, the year-over-year change in our revenues included 210 basis points of benefit from our recently completed acquisitions, including Collaborative Solutions, Zenith and Contino.
Our operating margin and Adjusted Operating Margin2 decreased to 12.7% and 14.4%, respectively, for the year ended December 31, 2020 from 14.6% and 16.6%, respectively, for the year ended December 31, 2019. Our GAAP and Adjusted Operating Margin2 were adversely impacted by higher incentive-based compensation accrual rates, investments intended to drive organic and inorganic revenue growth, the impact of the Proposed Exit, the decline in revenues brought on by the COVID-19 pandemic and the impact of the ransomware attack on both revenues and costs. These impacts were partially offset by a significant decrease in travel and entertainment expenses due to the COVID-19 pandemic, the cost savings generated as a result of the 2020 Fit for Growth Plan, lower immigration costs and the depreciation of the Indian rupee against the U.S. dollar. In addition, our 2019 GAAP operating margin included a 0.7% negative impact of the incremental accrual in 2019 related to the India Defined Contribution Obligation as discussed in Note 15 to our consolidated financial statements, while our 2020 GAAP operating margin was negatively impacted by COVID-19 Charges.
2 Constant currency revenue growth (CC) and Adjusted Operating Margin 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, as applicable.
Business Outlook
We have four strategic priorities as we seek to increase our commercial momentum and accelerate growth. These strategic priorities are:
•Accelerating digital - growing our digital business organically and inorganically;
•Globalizing Cognizant - growing our business in key international markets and diversifying leadership, capabilities and delivery footprint;
•Repositioning our brand - improving our global brand recognition and becoming better known as a global digital partner to the entire C-suite; and
•Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients' business needs.
We continue to expect the long-term focus of our clients to be on their digital transformation into software-driven, data-enabled, customer-centric and differentiated businesses. As our clients seek to optimize the cost of supporting their legacy systems and operations, our core portfolio of services may be subject to pricing pressure and lower demand due to clients transitioning certain work in-house. At the same time, clients continue to adopt and integrate digital technologies and their demand for our digital operations services and solutions has only increased since the beginning of the COVID-19 pandemic, as demand for mobile workplace solutions, e-commerce, automation and AI and cybersecurity services and solutions has grown.
Our clients will likely continue to contend with industry-specific changes driven by evolving digital technologies, uncertainty in the regulatory environment, industry consolidation and convergence as well as international trade policies and other macroeconomic factors, which could affect their demand for our services. The COVID-19 pandemic may continue to negatively impact demand, particularly among our retail, consumer goods, travel and hospitality clients within our Products and Resources segment as well as communications and media clients in our Communications, Media and Technology segment. The significant and evolving nature of the COVID-19 pandemic makes it difficult to estimate its future impact on our ongoing business, results of operations and overall financial performance. See Part I, Item 1A. Risk Factors.
As a global professional services company, we compete on the basis of the knowledge, experience, insights, skills and talent of our employees and the value they can provide to our clients. Competition for skilled labor is intense and our success is dependent, in large part, on our ability to keep our supply of skilled employees, in particular those with experience in key digital areas, in balance with client demand around the world. As such, we will continue to focus on recruiting, talent management and employee engagement to attract and retain our employees.
We will continue to pursue strategic acquisitions, investments and alliances that will expand our talent, experience and capabilities in key digital areas or in particular geographies or industries.
In addition, our future results may be affected by immigration law changes that may impact our ability to do business or significantly increase our costs of doing business, potential tax law changes and other potential regulatory changes, including potentially increased costs in 2021 and future years for employment and post-employment benefits in India as a result of the issuance of the Code in late 2020, as well as costs related to the potential resolution of legal and regulatory matters discussed in Note 15 to our consolidated financial statements. For additional information, see Part I, Item 1A. Risk Factors.
Results of Operations
For a discussion of our results of operations for the year ended December 31, 2018, including a year-to-year comparison between 2019 and 2018, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report Form 10-K for the year ended December 31, 2019.
The Year Ended December 31, 2020 Compared to The Year Ended December 31, 2019
The following table sets forth certain financial data for the years ended December 31:
% of % of Increase / Decrease
2020 Revenues 2019 Revenues $ %
(Dollars in millions, except per share data)
Revenues $ 16,652 100.0 $ 16,783 100.0 $ (131) (0.8)
Cost of revenues(1)
10,671 64.1 10,634 63.4 37 0.3
Selling, general and administrative expenses(1)
3,100 18.6 2,972 17.7 128 4.3
Restructuring charges
215 1.3 217 1.3 (2) (0.9)
Depreciation and amortization expense
552 3.3 507 3.0 45 8.9
Income from operations 2,114 12.7 2,453 14.6 (339) (13.8)
Other income (expense), net
(18) 90 (108) (120.0)
Income before provision for income taxes
2,096 12.6 2,543 15.2 (447) (17.6)
Provision for income taxes
(704) (643) (61) 9.5
Income (loss) from equity method investments - (58) 58 (100.0)
Net income $ 1,392 8.4 $ 1,842 11.0 $ (450) (24.4)
Diluted EPS
$ 2.57 $ 3.29 $ (0.72) (21.9)
Other Financial Information 3
Adjusted Income From Operations and Adjusted Operating Margin
$ 2,394 14.4 $ 2,787 16.6 (393) (14.1)
Adjusted Diluted EPS
$ 3.42 $ 3.99 $ (0.57) (14.3)
(1) Exclusive of depreciation and amortization expense.
Revenues - Overall
During 2020, revenues decreased by $131 million as compared to 2019, representing a decline of 0.8%, or 0.7% on a constant currency basis3. Across all business segments and regions, revenues were negatively impacted by the ransomware attack and the COVID-19 pandemic. In addition, our exit from certain content-related services and the Proposed Exit negatively impacted our revenues by $178 million and $118 million, respectively. We continue to experience pricing pressure within our core portfolio of services as our clients optimize the cost of supporting their legacy systems and operations. At the same time, clients are adopting and integrating digital technologies and their demand for our digital services and solutions has continued to increase since the beginning of the COVID-19 pandemic as a result of increased demand for mobile workplace solutions, e-commerce, automation and AI and cybersecurity services and solutions. Additionally, the year-over-year change in our revenues included 210 basis points of benefit from our recently completed acquisitions, including Collaborative Solutions, Zenith and Contino. Revenues from clients added during 2020, including those related to acquisitions, were $342 million.
3 Adjusted Income From Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measurements of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.
Revenues - Reportable Business Segments
Revenues by reportable business segment were as follows:
2020 2019 Increase / (Decrease)
$ % CC%4
(Dollars in millions)
Financial Services $ 5,621 $ 5,869 $ (248) (4.2) (4.0)
Healthcare 4,852 4,695 157 3.3 3.1
Products and Resources 3,696 3,770 (74) (2.0) (1.7)
Communications, Media and Technology
2,483 2,449 34 1.4 1.6
Total revenues $ 16,652 $ 16,783 $ (131) (0.8) (0.7)
Financial Services
Revenues from our Financial Services segment declined 4.2%, or 4.0% on a constant currency basis4, in 2020. Revenues among our insurance clients decreased by $85 million as compared to a decrease of $163 million from our banking clients. The Proposed Exit negatively impacted our revenues from banking clients by $118 million. Revenues from clients added during 2020, including those related to acquisitions, were $70 million. Moderate revenue growth generated by our digital services did not fully offset revenue declines attributable to certain financial services clients who continued to transition the support of some of their legacy systems and operations in-house.
Healthcare
Revenues from our Healthcare segment grew 3.3%, or 3.1% on a constant currency basis4, in 2020. Revenues in this segment increased by $173 million among our life science clients while revenues from our healthcare clients decreased $16 million. Revenue growth among our life sciences clients was driven by revenues from Zenith and increased demand for our services among pharmaceutical companies. Revenues from our healthcare clients were negatively impacted by the establishment of an offshore captive by a large client, partially offset by the 2019 negative impact of a customer dispute with a healthcare client related to a large volume based contract. Additionally, revenues from our healthcare clients benefited from stronger software license sales in 2020. Revenues from clients added during 2020, including those related to acquisitions, were $50 million. Demand from our healthcare clients may continue to be affected by uncertainty in the regulatory and political environment while demand from our life sciences clients may be affected by industry consolidation.
Products and Resources
Revenues from our Products and Resources segment declined 2.0%, or 1.7% on a constant currency basis4, in 2020. Retail, consumer goods, travel and hospitality clients were particularly adversely affected by the COVID-19 pandemic. Thus, revenue from our travel and hospitality clients and from our retail and consumer goods clients decreased by $126 million and $100 million, respectively. Revenues from our manufacturing, logistics, energy and utilities clients increased by $152 million due to our clients' adoption and integration of digital technologies. Revenues from clients added during 2020, including those related to acquisitions, were $105 million.
Communications, Media and Technology
Revenues from our Communications, Media and Technology segment grew 1.4%, or 1.6% on a constant currency basis4, in 2020. Revenues from our communications and media clients increased $72 million while revenues from our technology clients decreased $38 million. Revenues among our technology clients in this segment were negatively impacted by approximately $178 million due to our exit from certain content-related services. Additionally, revenues were negatively impacted by the COVID-19 pandemic, particularly among our communications and media clients, partially offset by growing demand from our technology clients for other more strategic digital content services. Revenues from clients added during 2020, including those related to acquisitions, were $117 million.
4 Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
Revenues - Geographic Locations
Revenues by geographic market, as determined by client location, were as follows:
2020 2019 Increase / (Decrease)
$ % CC %5
(Dollars in millions)
North America $ 12,581 $ 12,726 $ (145) (1.1) (1.1) %
United Kingdom 1,335 1,313 22 1.7 1.0 %
Continental Europe 1,653 1,691 (38) (2.2) (3.3) %
Europe - Total 2,988 3,004 (16) (0.5) (1.4) %
Rest of World 1,083 1,053 30 2.8 6.4 %
Total revenues $ 16,652 $ 16,783 $ (131) (0.8) (0.7) %
North America continues to be our largest market, representing 75.6% of total 2020 revenues. Our North America region was negatively impacted by our exit from certain content-related services in our Communications, Media and Technology segment and the transition of the support of legacy systems for certain financial services and healthcare clients in-house. Our Continental Europe region was negatively impacted by the Proposed Exit, partially offset by growth from our life sciences customers. Revenues in our United Kingdom region have particularly benefited from our recently completed acquisitions. Revenue growth in our Rest of World region was driven by our Communications, Media and Technology clients.
Cost of Revenues (Exclusive of Depreciation and Amortization Expense)
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, project-related immigration and travel for technical personnel, subcontracting and equipment costs relating to revenues. Our cost of revenues increased by 0.3% during 2020 as compared to 2019, increasing as a percentage of revenues to 64.1% in 2020 compared to 63.4% in 2019. The increase in cost of revenues, as a percentage of revenues, was due primarily to an increase in costs related to higher incentive-based compensation accrual rates in 2020 and the impact of the Proposed Exit, the COVID-19 pandemic and the ransomware attack. These impacts were partially offset by a significant decrease in travel and entertainment costs as a result of a reduction in travel due to the COVID-19 pandemic, the cost savings generated as a result of our cost optimization strategy and the depreciation of the Indian rupee against the U.S. dollar.
SG&A Expenses (Exclusive of Depreciation and Amortization Expense)
SG&A expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. SG&A expenses increased by 4.3% during 2020 as compared to 2019, increasing as a percentage of revenues to 18.6% in 2020 as compared to 17.7% in 2019. The increase, as a percentage of revenues, was due primarily to an increase in costs related to higher incentive-based compensation accrual rates in 2020, investments intended to drive organic and inorganic revenue growth and the impacts of the COVID-19 pandemic, the Proposed Exit and the ransomware attack. These negative impacts were partially offset by a significant decrease in travel and entertainment costs as a result of a reduction in travel due to the COVID-19 pandemic and lower immigration costs, in addition to the $117 million incremental accrual in 2019 related to the India Defined Contribution Obligation as discussed in Note 15 to our consolidated financial statements.
Restructuring Charges
Restructuring charges consist of our 2020 Fit for Growth Plan and our realignment program. Restructuring charges were $215 million, or 1.3% as a percentage of revenues during 2020, as compared to $217 million, or 1.3% as a percentage of revenues, during 2019. For further detail on our restructuring charges see Note 4 to our consolidated financial statements.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by 8.9% during 2020 as compared to 2019. The increase was due to procurement of additional computer equipment primarily to provision work-from-home arrangements and amortization of intangibles from recently completed acquisitions.
5 Constant currency revenue growth is not a measurement of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
Operating Margin - Overall
Our operating margin and Adjusted Operating Margin6 decreased to 12.7% and 14.4%, respectively, in 2020 from 14.6% and 16.6%, respectively, during 2019. Our GAAP and Adjusted Operating Margin6 were adversely impacted by higher incentive-based compensation accrual rates, investments intended to drive organic and inorganic revenue growth, the impact of the Proposed Exit, the decline in revenues brought on by the COVID-19 pandemic and the impact of the ransomware attack on both revenues and costs. These impacts were partially offset by a significant decrease in travel and entertainment expenses due to the COVID-19 pandemic, the cost savings generated as a result of the 2020 Fit for Growth Plan, lower immigration costs and the depreciation of the Indian rupee against the U.S. dollar. In addition, our 2019 GAAP operating margin included a 0.7% negative impact of the incremental accrual in 2019 related to the India Defined Contribution Obligation as discussed in Note 15 to our consolidated financial statements, while our 2020 GAAP operating margin was negatively impacted by COVID-19 Charges.
Excluding the impact of applicable designated cash flow hedges, the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 92 basis points or 0.92 percentage points in 2020, while in 2019 the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 53 basis points or 0.53 percentage points. 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 17 basis points or 0.17 percentage points.
We enter into foreign exchange derivative 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. The impact of the settlement of our cash flow hedges was immaterial in 2020 and 2019.
Our most significant costs are the salaries and related benefits for our employees. These costs are affected by the impact of inflation. In certain regions, competition for professionals with the advanced technical skills necessary to perform our services has caused wages to increase at a rate greater than the general rate of inflation.
We finished the year ended December 31, 2020 with approximately 289,500 employees, which is a decrease of 3,000 as compared to December 31, 2019. For the three months ended December 31, 2020, annualized turnover, including both voluntary and involuntary, was approximately 19.0%. Turnover for the years ended December 31, 2020 and 2019, including both voluntary and involuntary, was approximately 20.6% and 21.7%. Voluntary attrition normally constitutes the significant majority of our attrition. In 2020, we saw elevated levels of involuntary attrition due to our Fit for Growth Plan, including the exit from certain content-related services. We also saw a decrease in voluntary attrition from historic levels in the early stages of the COVID-19 pandemic. Both voluntary and involuntary attrition are weighted towards our more junior employees.
Segment Operating Profit and Margin
Segment operating profit and margin were as follows:
2020 Operating Margin % 2019 Operating Margin % Increase /(Decrease)
(Dollars in millions)
Financial Services $ 1,449 25.8 $ 1,605 27.3 $ (156)
Healthcare 1,383 28.5 1,261 26.9 122
Products and Resources 1,078 29.2 1,028 27.3 50
Communications, Media and Technology
794 32.0 732 29.9 62
Total segment operating profit and margin
4,704 28.2 4,626 27.6 78
Less: unallocated costs 2,590 2,173 417
Income from operations $ 2,114 12.7 $ 2,453 14.6 $ (339)
Across all our business segments, operating margins benefited from a significant decrease in travel and entertainment costs due to COVID-19 related reductions in travel, cost savings generated by our cost optimization initiatives and the depreciation of the Indian rupee against the U.S. dollar, partially offset by investments intended to drive organic and inorganic revenue growth and the negative impact on revenues of the COVID-19 pandemic and the ransomware attack. The 2020 operating margin in our Financial Services segment was negatively impacted by the Proposed Exit. Additionally, the 2019 operating margin in our Healthcare segment was negatively impacted by client mergers within the segment and a dispute with a customer related to a large volume based contract. The increase in unallocated costs in 2020 compared to 2019 is primarily due
6 Adjusted 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.
to a smaller shortfall in 2020 than in 2019 of incentive-based compensation as compared to target, COVID-19 Charges and costs related to the ransomware attack, partially offset by the 2019 India Defined Contribution Obligation discussed in Note 15 to our consolidated financial statements.
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 years ended December 31:
2020 2019 Increase / Decrease
(in millions)
Foreign currency exchange (losses) $ (53) $ (73) $ 20
(Losses) gains on foreign exchange forward contracts not designated as hedging instruments (63) 8 (71)
Foreign currency exchange (losses), net (116) (65) (51)
Interest income 119 176 (57)
Interest expense (24) (26) 2
Other, net 3 5 (2)
Total other income (expense), net $ (18) $ 90 $ (108)
The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets and liabilities in our U.S. dollar functional currency India subsidiaries and, to a lesser extent, 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 related to the realized and unrealized gains and losses on foreign exchange forward contracts entered into to offset foreign currency exposure to non-U.S. dollar denominated net monetary assets and liabilities. As of December 31, 2020, the notional value of our undesignated hedges was $637 million. The decrease in interest income of $57 million was primarily attributable to lower yields in 2020.
Provision for Income Taxes
The provision for income taxes was $704 million in 2020 and $643 million in 2019. The effective income tax rate increased to 33.6% in 2020 as compared to 25.3% in 2019 primarily driven by the Tax on Accumulated Indian Earnings, the impact of the Proposed Exit, which was not deductible for tax purposes, and the depreciation of the Indian rupee against the U.S. dollar, which resulted in non-deductible foreign currency exchange losses in our consolidated statement of operations.
Income (loss) from equity method investments
In 2019, we recorded an impairment charge of $57 million on one of our equity method investments as further described in Note 5 to our consolidated financial statements.
Net Income
Net income was $1,392 million in 2020 and $1,842 million in 2019. Net income as a percentage of revenues decreased to 8.4% in 2020 from 11.0% in 2019. The decrease in net income was driven by lower income from operations, higher foreign currency exchange losses (inclusive of losses on our foreign exchange forward contracts not designated as hedging instruments), lower interest income and a higher provision for income taxes.
Non-GAAP Financial Measures
Portions of our disclosure include non-GAAP financial measures. 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 financial measures used by other companies. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of our non-GAAP financial measures to the corresponding GAAP measures, set forth below, should be carefully evaluated.
Our non-GAAP financial measures, Adjusted Operating Margin, Adjusted Income From Operations and Adjusted Diluted EPS exclude unusual items. Additionally, Adjusted Diluted EPS excludes net non-operating foreign currency exchange gains or losses and the tax impact of all the applicable adjustments. 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. Constant currency revenue growth is defined as revenues for a given period restated at the comparative period’s foreign currency exchange rates measured against the comparative period's reported revenues.
We believe providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into our operating results. 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. Therefore, it is our belief that the use of non-GAAP financial measures excluding certain costs provides a meaningful supplemental measure for investors to evaluate our financial performance. We believe that the presentation of our non-GAAP financial measures along with reconciliations to the most comparable GAAP measure, as applicable, 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 financial measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and may exclude costs that are recurring such as our 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 our non-GAAP financial measures 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 years ended December 31:
2020 % of
Revenues 2019 % of
Revenues
(Dollars in millions, except per share data)
GAAP income from operations and operating margin
$ 2,114 12.7 % $ 2,453 14.6 %
Realignment charges (1)
42 0.3 169 1.0
2020 Fit for Growth Plan restructuring charges (2)
173 1.0 48 0.3
COVID-19 Charges (3)
65 0.4 - -
Incremental accrual related to the India Defined Contribution Obligation (4)
- - 117 0.7
Adjusted Income From Operations and Adjusted Operating Margin
2,394 14.4 2,787 16.6
GAAP diluted EPS $ 2.57 $ 3.29
Effect of above adjustments, pre-tax
0.52 0.60
Effect of non-operating foreign currency exchange losses (gains), pre-tax (5)
0.22 0.11
Tax effect of above adjustments (6)
(0.15) (0.15)
Tax on Accumulated Indian Earnings (7)
0.26 -
Effect of the equity method investment impairment (8)
- 0.10
Effect of the India Tax Law (9)
- 0.04
Adjusted Diluted EPS $ 3.42 $ 3.99
(1) As part of our realignment program, during 2020, we incurred employee retention costs and certain professional services fees and, during 2019, we incurred Executive Transition Costs, employee separation costs, employee retention costs and third party realignment costs. See Note 4 to our consolidated financial statements for additional information.
(2) As part of our 2020 Fit for Growth plan, during 2020, we incurred certain employee separation, employee retention and facility exit costs and other charges and, during 2019, we incurred certain employee separation, employee retention and facility exit costs under the plan. See Note 4 to our consolidated financial statements for additional information.
(3) During 2020, we incurred costs in response to the COVID-19 pandemic including a one-time bonus to our employees at the designation of associate and below in both India and the Philippines, certain costs to enable our employees to work remotely and provide medical staff and extra cleaning services for our facilities. Most of the costs related to the pandemic are reported in "Cost of revenues" in our consolidated statement of operations.
(4) In 2019, we recorded an accrual of $117 million related to the India Defined Contribution Obligation as further described in Note 15 to our consolidated financial statements.
(5) Non-operating foreign currency exchange gains and 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.
(6) Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
For the years ended December 31,
2020 2019
(in millions)
Non-GAAP income tax benefit (expense) related to:
Realignment charges $ 11 $ 43
2020 Fit for Growth Plan restructuring charges 45 13
COVID-19 Charges 17 -
Incremental accrual related to the India Defined Contribution Obligation
- 31
Foreign currency exchange gains and losses 6 (1)
(7) In 2020, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded $140 million in income tax expense.
(8) In 2019, we recorded an impairment charge of $57 million on one of our equity investments as further described in Note 5 to our consolidated financial statements.
(9) In 2019, we recorded a one-time net income tax expense of $21 million as a result of the enactment of a new tax law in India.
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. As of December 31, 2020, we had cash, cash equivalents and short-term investments of $2,724 million. Additionally, as of December 31, 2020, we had available capacity under our credit facilities of approximately $1,928 million.
The following table provides a summary of our cash flows for the years ended December 31:
2020 2019 Increase / Decrease
(in millions)
Net cash provided by (used in):
Operating activities $ 3,299 $ 2,499 $ 800
Investing activities (1,238) 1,588 (2,826)
Financing activities
(2,009) (2,569) 560
Operating activities
The increase in cash generated from operating activities for 2020 compared to 2019 was primarily driven by improved collections on our trade accounts receivable, deferrals of certain payments due to COVID-19 pandemic regulatory relief provided by several jurisdictions in which we operate, and lower incentive-based compensation payouts and cash taxes paid in 2020.
We monitor turnover, aging and the collection of trade accounts receivable by client. Our DSO calculation includes trade accounts receivable, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of our deferred revenue. DSO was 70 days as of December 31, 2020 and 73 days as of December 31, 2019.
Investing activities
Net cash used in investing activities in 2020 was primarily driven by payments for acquisitions. Net cash provided by investing activities in 2019 was driven by net sales of investments partially offset by payments for acquisitions and outflows for capital expenditures.
Financing activities
The decrease in cash used in financing activities in 2020 compared to 2019 is primarily due to lower repurchases of common stock in 2020.
We have a Credit Agreement providing for a $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan. See Note 10 to our consolidated financial statements. During the first quarter of 2020, we borrowed $1.74 billion against our revolving credit facility and repaid this amount in full in the fourth quarter of 2020. 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 December 31, 2020 and through the date of this filing. As of December 31, 2020, we had no outstanding balance on our revolving credit facility.
In February 2020, our India subsidiary renewed its one-year 13 billion Indian rupee ($178 million at the December 31, 2020 exchange rate) working capital facility, which requires us to repay any balances drawn down within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made within 30 days of disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February. As of December 31, 2020, there was no balance outstanding under the working capital facility.
During 2020, we returned $2,034 million to our stockholders through $1,554 million in share repurchases under our stock repurchase program and $480 million in dividend payments. Our stock repurchase program, as amended by our Board of Directors in December 2020, allows for the repurchase of an aggregate of up to $9.5 billion, excluding fees and expenses, of our Class A common stock. As of December 31, 2020, we have $2.8 billion, excluding fees and expenses, available for repurchases under the program. Our shares outstanding decreased to 530 million as of December 31, 2020 from 548 million as of December 31, 2019. We review our capital return plan on an on-going basis, considering the potential impacts of COVID-19 pandemic, our financial performance and liquidity position, investments required to execute our strategic plans and initiatives, acquisition opportunities, the economic outlook, regulatory changes and other relevant factors. As these factors may change over time, the actual amounts expended on stock repurchase activity, dividends, and acquisitions, if any, during any particular period cannot be predicted and may fluctuate from time to time.
Other Liquidity and Capital Resources Information
We seek to ensure that our worldwide cash is available in the locations in which it is needed. As part of our ongoing liquidity assessments, we regularly monitor the mix of our domestic and international cash flows and cash balances. We evaluate on an ongoing basis what portion of the non-U.S. cash, cash equivalents and short-term investments is needed locally to execute our strategic plans and what amount is available for repatriation back to the United States.
In March 2020, the Indian parliament enacted the Budget of India, which contained a number of provisions related to income tax, including a replacement of the DDT, previously due from the dividend payer, with a tax payable by the shareholder receiving the dividend. This provision reduced the tax rate applicable to us for cash repatriated from India. Following this change, during the first quarter of 2020, we limited our indefinite reinvestment assertion to India earnings accumulated in prior years. In July 2020, the U.S. Treasury Department and the IRS released final regulations, which became effective in September 2020, that reduced the tax applicable on our accumulated Indian earnings upon repatriation. As a result, during the third quarter of 2020, after a thorough analysis of the impact of these changes in law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate growth in various international markets and expand our global delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded a $140 million Tax on Accumulated Indian Earnings. The recorded income tax expense reflects the India withholding tax on unrepatriated Indian earnings, which were $5.2 billion as of December 31, 2019, net of applicable U.S. foreign tax credits. On October 28, 2020, our subsidiary in India remitted a dividend of $2.1 billion, which resulted in a net payment of $2.0 billion to its shareholders (non-Indian Cognizant entities), after payment of $106 million of India withholding tax.
We expect our operating cash flows, cash and short-term investment balances, together with our available capacity under our revolving credit facilities, to be sufficient to meet our operating requirements and service our debt for the next twelve months. Our ability to expand and grow our business in accordance with current plans, make acquisitions, meet our long-term capital requirements beyond a twelve-month period and execute 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 pay for acquisitions with capital stock 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.
Commitments and Contingencies
Commitments
As of December 31, 2020, we had the following obligations and commitments to make future payments under contractual obligations and commercial commitments:
Payments due by period
Total Less than
1 year 1-3 years 3-5 years More than
5 years
(in millions)
Long-term debt obligations(1)
$ 703 $ 38 $ 665 $ - $ -
Interest on long-term debt(2)
19 7 12 - -
Finance lease obligations 23 11 11 1 -
Operating lease obligations 1,271 260 398 264 349
Other purchase commitments(3)
432 216 184 28 4
Tax Reform Act transition tax 478 50 145 283 -
Total $ 2,926 $ 582 $ 1,415 $ 576 $ 353
(1) Consists of scheduled repayments of our Term Loan.
(2) Interest on the Term Loan was calculated at interest rates in effect as of December 31, 2020.
(3) Other purchase commitments include, among other things, communications and information technology obligations, as well as other obligations that we cannot cancel or where we would be required to pay a termination fee in the event of cancellation.
As of December 31, 2020, we had $193 million of unrecognized income tax benefits. This represents the income tax benefits associated with certain income tax positions on our U.S. and non-U.S. tax returns that have not been recognized on our financial statements due to uncertainty regarding their resolution. The resolution of these income tax positions with the relevant taxing authorities is at various stages, and therefore we are unable to make a reliable estimate of the eventual cash flows by period that may be required to settle these matters.
Contingencies
See Note 15 to our consolidated financial statements for additional information.
Off-Balance Sheet Arrangements
Other than our foreign exchange forward and option contracts, there were no off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons in 2020 and 2019 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 accompanying consolidated financial statements that have been prepared in accordance with GAAP. We base our estimates on historical experience, current trends and on various other assumptions that are believed to be relevant at the time our consolidated financial statements are prepared. We evaluate our estimates on a continuous basis. However, the actual amounts may differ from the estimates used in the preparation of our consolidated financial statements.
We believe the following accounting estimates are the most critical to aid in fully understanding and evaluating our consolidated financial statements as they require the most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Changes to these estimates could have a material effect on our results of operations and financial condition. Our significant accounting policies are described in Note 1 to our consolidated financial statements.
Revenue Recognition. 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 using the cost to cost method, if the right to invoice is not representative of the value being delivered. 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. Net changes in estimates of such future costs and contract losses were immaterial to the consolidated results of operations for the periods presented.
Income Taxes. Determining the consolidated provision for income tax expense, deferred income tax assets (and related valuation allowance, if any) and liabilities requires significant judgment. We are required to calculate and provide for income taxes in each of the jurisdictions where we operate. Changes in the geographic mix of income before taxes or estimated level of annual pre-tax income can affect our overall effective income tax rate. In addition, transactions between our affiliated entities are arranged in accordance with applicable transfer pricing laws, regulations and relevant guidelines. As a result, and due to the interpretive nature of certain aspects of these laws and guidelines, we have pending applications for APAs before the taxing authorities in some of our most significant jurisdictions. It could take years for the relevant taxing authorities to negotiate and conclude these applications. The consolidated provision for income taxes may change period to period based on changes in facts and circumstances, such as settlements of income tax audits or finalization of our applications for APAs.
Our provision for income taxes also includes the impact of reserves established for uncertain income tax positions, as well as the related interest, which may require us to apply judgment to complex issues and may require an extended period of time to resolve. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final outcome of these matters will not differ from our recorded amounts. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit. To the extent that the final outcome of these matters differs from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.
Business Combinations, Goodwill and Intangible Assets. Goodwill and intangible assets, including indefinite-lived intangible assets, arise from the accounting for business combinations. We account for business combinations using the acquisition method which requires us to estimate the fair value of identifiable assets acquired, liabilities assumed, including any contingent consideration, and any noncontrolling interest in the acquiree to properly allocate purchase price to the individual assets acquired and liabilities assumed. The allocation of the purchase price utilizes estimates and assumptions in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets, including the timing and amount of forecasted revenues and cash flows, anticipated growth rates, client attrition rates and the discount rate reflecting the risk inherent in future cash flows.
We exercise judgment to allocate goodwill to the reporting units expected to benefit from each business combination. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, regulatory environment, established business plans, operating performance indicators or competition. Evaluation of goodwill for impairment requires judgment, including the identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of the fair value of each reporting unit.
We estimate the fair value of our reporting units using a combination of an income approach, utilizing a discounted cash flow analysis, and a market approach, using market multiples. Under the income approach, we estimate projected future cash flows, the timing of such cash flows and long-term growth rates, and determine the appropriate discount rate that reflects the risk inherent in the projected future cash flows. The discount rate used is based on a market participant weighted-average cost of capital and may be adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected future cash flows. Under the market approach, we estimate fair value based on market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics similar to the reporting unit. The estimates used to calculate the fair value of a reporting unit change from year to year based on
operating results, market conditions and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.
We also evaluate indefinite-lived intangible assets for impairment at least annually, or as circumstances warrant. Our 2020 qualitative assessment included the review of relevant macroeconomic factors and entity-specific qualitative factors to determine if it was more-likely-than-not that the fair value of our indefinite-lived intangible assets was below carrying value.
Beginning with the first quarter of 2020, COVID-19 negatively affected all major economic and financial markets and, although there is a wide range of possible outcomes and the associated impact is highly dependent on variables that are difficult to forecast, we deemed the deterioration in general economic conditions sufficient to trigger an interim impairment testing of goodwill as of March 31, 2020. Our interim test results as of March 31, 2020 indicated that the fair values of all of our reporting units exceeded their carrying values and thus, no impairment of goodwill existed as of March 31, 2020. Based on our most recent evaluation of goodwill and indefinite-lived intangible assets performed during the fourth quarter of 2020, we concluded that the goodwill and indefinite-lived intangible asset balances in each of our reporting units were not at risk of impairment.
We review our finite-lived assets, including our finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We recognize an impairment loss when the sum of the undiscounted expected future cash flows is less than the carrying amount of such asset groups. The impairment loss is determined as the amount by which the carrying amount of the asset group exceeds its fair value. Assessing the fair value of asset groups involves significant estimates and assumptions including estimation of future cash flows, the timing of such cash flows and discount rates reflecting the risk inherent in future cash flows.
Contingencies. Loss contingencies are recorded as liabilities 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 amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Significant judgment is required in the determination of whether an exposure is considered probable and reasonably estimable. Our judgments are subjective and based on the information available from the status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information becomes available, we reassess any potential liability related to any pending litigation and may revise our estimates. Such revisions in estimates of any potential liabilities could have a material impact on our results of operations and financial position.
Recently Adopted and New Accounting Pronouncements
See Note 1 to our consolidated financial statements for additional information.
Forward Looking Statements
The statements contained in this Annual Report on Form 10-K 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 SEC, in press releases or in oral statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as statements regarding our anticipated future revenues or operating margin, earnings, capital expenditures, impacts to our business, financial results and financial condition as a result of the COVID-19 pandemic, anticipated effective income tax rate and income tax expense, liquidity, access to capital, capital return plan, investment strategies, cost management, realignment program, 2020 Fit for Growth Plan, plans and objectives, including those related to our digital practice areas, investment in our business, potential acquisitions, industry trends, client behaviors and trends, the outcome of regulatory and litigation matters, the incremental accrual related to the India Defined Contribution Obligation, the Proposed Exit 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 anticipated 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:
•economic and political conditions globally and in particular in the markets in which our clients and operations are concentrated;
•the continuing impact of the COVID-19 pandemic, or other future pandemics, on our business, results of operations, liquidity and financial condition;
•our ability to attract, train and retain skilled employees, including highly skilled technical personnel to satisfy client demand and senior management to lead our business globally;
•challenges related to growing our business organically as well as inorganically through acquisitions, and our ability to achieve our targeted growth rates;
•our ability to achieve our profitability goals and capital return strategy;
•our ability to successfully implement our 2020 Fit for Growth Plan and achieve the anticipated benefits from the plan;
•our ability to meet specified service levels or milestones required by certain of our contracts;
•intense and evolving competition and significant technological advances that our service offerings must keep pace with in the rapidly changing markets we compete in;
•legal, reputation and financial risks if we fail to protect client and/or our data from security breaches and/or cyber attacks;
•the effectiveness of our risk management, business continuity and disaster recovery plans and the potential that our global delivery capabilities could be impacted;
•restrictions on visas, in particular in the United States, United Kingdom and EU, or immigration more generally or increased costs of such visas or the wages we are required to pay associates on visas, which may affect our ability to compete for and provide services to our clients;
•risks related to anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing, both of which could impair our ability to serve our clients;
•risks related to complying with the numerous and evolving legal and regulatory requirements to which we are subject in the many jurisdictions in which we operate;
•potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or proceedings;
•potential exposure to litigation and legal claims in the conduct of our business; and
•the factors set forth in Part I, in the section entitled “Item 1A. Risk Factors” in this report.
You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC, including this report in the sections titled “Part I, Item 1. Business,” “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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.
Glossary
Defined Term Definition
10b5-1 Plan
Trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act
10th Magnitude
Pamlico 10th Magnitude Blocker LLC, now known as Cognizant 10th Magnitude Blocker, LLC
2009 Incentive Plan Cognizant Technology Solutions Corporation Amended and Restated 2009 Incentive Compensation Plan
2017 Incentive Plan Cognizant Technology Solutions Corporation 2017 Incentive Award Plan
Adjusted Diluted EPS Adjusted diluted earnings per share
AI Artificial Intelligence
APA Advance Pricing Agreement
ASC Accounting Standards Codification
ASR Accelerated Stock Repurchase
ASU Accounting Standards Update
Bright Wolf Bright Wolf, LLC
Budget of India Union Budget of India for 2020-2021
CC Constant Currency
Code The Code on Social Security, 2020
Code Zero Code Zero, LLC
Collaborative Solutions Collaborative Solutions Holdings, LLC
Contino Contino Holdings Inc.
COVID-19 The novel coronavirus disease
COVID-19 Charges Costs directly related to the COVID-19 pandemic
CPI Consumer Price Index
Credit Agreement Credit agreement with a commercial bank syndicate dated November 6, 2018
Credit Loss Standard ASC Topic 326 "Financial Instruments - Credit Losses"
CTS India Our principal operating subsidiary in India
DDT Dividend Distribution Tax
D&I Diversity and Inclusion
Division Bench Division Bench of the Madras High Court
DevOps Agile relationship between development and IT operations
DOJ United States Department of Justice
DSO Days Sales Outstanding
EI-Technologies Entrepreneurs et Investisseurs Technologies SAS
EPS Earnings Per Share
ESG Environmental, social and corporate governance
EU European Union
Exchange Act Securities Exchange Act of 1934, as amended
Executive Transition Costs Costs associated with our CEO transition and the departure of our President in 2019
FASB Financial Accounting Standards Board
FCPA Foreign Corrupt Practices Act
GAAP Generally Accepted Accounting Principles in the United States of America
High Court Madras High Court
HR Human Resources
Inawisdom Inawisdom Limited
India Defined Contribution Obligation Certain statutory defined contribution obligations of employees and employers in India
India Tax Law New tax regime enacted by the Government of India effective April 1, 2019
IP Intellectual property
IoT Internet of Things
IRS Internal Revenue Service
IT Information Technology
ITD Indian Income Tax Department
Lev Levementum, LLC
LIBOR London Inter-bank Offered Rate
Linium the ServiceNow business of Ness Digital Engineering
Magenic Magenic Technologies, Inc.
MAT Minimum Alternative Tax
Meritsoft Sterling Topco Limited
Mustache Mustache, LLC
New Revenue Standard ASC Topic 606 "Revenue from Contracts with Customers"
New Lease Standard ASC Topic 842 “Leases”
New Signature BSI Corporate Holdings, Inc.
OECD Organization for Economic Co-operation and Development
Proposed Exit
Offer to settle and exit from a large customer engagement in Financial Services in Continental Europe
PSU Performance Stock Units
Purchase Plan Cognizant Technology Solutions Corporation 2004 Employee Stock Purchase Plan, as amended
ROU Right of Use
RSU Restricted Stock Units
SaaS Software as a service
Samlink Oy Samlink Ab
SEC United States Securities and Exchange Commission
SCI Supreme Court of India
Servian SVN HoldCo Pty Limited
SEZ Special Economic Zone
SG&A Selling, general and administrative
SLP Special Leave Petition
Syntel Syntel Sterling Best Shores Mauritius Ltd.
Tax on Accumulated Indian Earnings The income tax expense related to the reversal of our indefinite reinvestment assertion on Indian earnings accumulated in prior years
Tax Reform Act Tax Cuts and Jobs Act
Term Loan Unsecured term loan under the Credit Agreement
Tin Roof Tin Roof Software, LLC
TriZetto The TriZetto Group, Inc., now known as Cognizant Technology Software Group, Inc.
Zenith Zenith Technologies Limited

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
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. 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 changes in the value of certain foreign currencies. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures.
Revenues from our clients in the United Kingdom, Continental Europe and Rest of World represented 8.0%, 9.9% and 6.5%, respectively, of our 2020 revenues, and are typically denominated in currencies other than the U.S. dollar. Accordingly, our revenues may be affected by fluctuations in the exchange rates, primarily the British pound and the Euro, as compared to the U.S. dollar.
A significant portion of our costs in India are denominated in the Indian rupee, representing approximately 20.0% of our global operating costs during 2020, and are subject to foreign currency exchange rate fluctuations. These foreign currency exchange rate fluctuations have an impact on our results of operations.
We have entered into a series of foreign exchange forward and option contracts that are designated as cash flow hedges of certain Indian rupee denominated payments in India. 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 December 31, 2020, the notional value and weighted average contract rates of these contracts by year of maturity were as follows:
Notional Value
(in millions) Weighted Average Contract Rate (Indian rupee to U.S. dollar)
2021 $ 1,470 77.0
2022 803 80.7
Total $ 2,273 78.3
As of December 31, 2020, the net unrealized gain on our outstanding foreign exchange forward and option contracts designated as cash flow hedges was $70 million. Based upon a sensitivity analysis at December 31, 2020, which estimates the fair value of the contracts assuming certain 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 our foreign exchange forward and option contracts designated as cash flow hedges of approximately $224 million.
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. In 2020, we reported foreign currency exchange losses, exclusive of hedging losses, of approximately $53 million, which were primarily attributed to the remeasurement of net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. We entered into foreign exchange forward contracts scheduled to mature in 2021. At December 31, 2020, the notional value of these outstanding contracts was $637 million and the net unrealized gain was less than $1 million. Based upon a sensitivity analysis of our foreign exchange forward contracts at December 31, 2020, which estimates the fair value of the contracts assuming certain 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 $17 million.
Interest Rate Risk
We have a Credit Agreement providing for a $750 million unsecured Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan.
The Credit Agreement requires interest to be paid, at our option, at either the ABR or the Eurocurrency Rate (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Eurocurrency Rate loans and 0.00% with respect to ABR loans. Subsequently, the
Applicable Margin with respect to Eurocurrency Rate loans may range from 0.75% to 1.125%, depending on our public debt ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Under the Credit Agreement, we are required to pay commitment fees on the unused portion of the revolving credit facility, which vary based on our public debt ratings (or, if we have not received public debt ratings, on the Leverage Ratio). 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 10.0% change in interest rates, with all other variables held constant, would have an immaterial effect on our reported interest expense.
Information provided by the sensitivity analysis of foreign currency risk and interest rate risk does not necessarily represent the actual changes that would occur under normal market conditions.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. A list of the financial statements filed herewith is found in Part IV, “Item 15. Exhibits, Financial Statements and Financial Statement Schedule.”

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. 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 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) as of December 31, 2020. Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as of December 31, 2020, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the fiscal quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Responsibility for Financial Statements
Our management is responsible for the integrity and objectivity of all information presented in this annual report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s best estimates and judgments. Management believes the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly represent the Company’s financial position and results of operations.
The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with the Company’s independent registered public accounting firm and representatives of management to review accounting, financial reporting, internal control and audit matters, as well as the nature and extent of the audit effort.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended, and is a process designed by, or under the supervision of, our chief executive and chief financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on its evaluation, our management has concluded that, as of December 31, 2020, our internal control over financial reporting was effective. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this annual report, has issued an attestation report on our internal control over financial reporting, as stated in their report which is included on page.
Inherent Limitations of Internal Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
On February 10, 2021, John N. Fox, Jr. informed the Company’s Board of Directors that he will retire from the Board of Directors effective on the date of the Company’s 2021 Annual Meeting of Stockholders.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information relating to our executive officers in response to this item is contained in part under the caption “Information About Our Executive Officers” in Part I of this Annual Report on Form 10-K.
We have adopted a written code of ethics, entitled “Code of Ethics,” that applies to all of our directors, executive officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions. We make available our code of ethics free of charge through our website which is located at www.cognizant.com. We intend to post on our website all disclosures that are required by law or Nasdaq Stock Market listing standards concerning any amendments to, or waivers from, any provision of our code of ethics.
The remaining information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference to such proxy statement.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference to such proxy statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference to such proxy statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference to such proxy statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference to such proxy statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a) (1) Consolidated Financial Statements.
Reference is made to the Index to Consolidated Financial Statements on Page.
(2) Consolidated Financial Statement Schedule.
Reference is made to the Index to Financial Statement Schedule on Page.
(3) Exhibits.
Schedules other than as listed above are omitted as not required or inapplicable or because the required information is provided in the consolidated financial statements, including the notes thereto.
EXHIBIT INDEX
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 September 24, 2018
8-K 000-24429 3.1 9/20/2018
4.1 Specimen Certificate for shares of Class A common stock
S-4/A 333-101216 4.2 1/30/2003
4.2 Description of Capital Stock
10-K 000-24429 4.2 2/14/2020
10.1† Form of Indemnification Agreement for Directors and Officers
10-Q 000-24429 10.1 8/7/2013
10.2† Form of Amended and Restated Executive Employment and Non-Disclosure, Non-Competition, and Invention Assignment Agreement, between the Company and each of the following Executive Officers: Brian Humphries, Jan Siegmund, Becky Schmitt, Robert Telesmanic, Balu Ganesh Ayyar, Greg Hyttenrauch, Ursula Morgenstern, Andrew Stafford, Karen McLoughlin and Dharmendra Kumar Sinha
10-K 000-24429 10.3 2/27/2018
10.3† Form of Amended and Restated Executive Employment and Non-Disclosure, Non-Competition, and Invention Assignment Agreement, between the Company and each of the following Executive Officers: Malcolm Frank and Santosh Thomas
10-K 000-24429 10.4 2/26/2013
10.4† Offer Letter, by and between the Company and Brian Humphries, acknowledged and agreed November 30, 2018
10-K 000-24429 10.4 2/19/2019
10.5† Offer Letter, by and between the Company and Jan Siegmund, acknowledged and agreed July 8, 2020
8-K 000-24429 10.1 7/29/2020
10.6† Offer Letter, by and between the Company and Becky Schmitt, acknowledged and agreed November 26, 2019
Filed
10.7† 2004 Employee Stock Purchase Plan (as amended and restated effective as of February 27, 2018)
8-K 000-24429 10.1 6/7/2018
10.8† Form of Stock Option Certificate
10-Q 000-24429 10.1 11/8/2004
Incorporated by Reference
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished
Herewith
10.9† Cognizant Technology Solutions Corporation Amended and Restated 2009 Incentive Compensation Plan, effective March 9, 2015
10-Q 000-24429 10.1 5/4/2015
10.10† Form of Cognizant Technology Solutions Corporation Stock Option Agreement
8-K 000-24429 10.1 7/6/2009
10.11† Form of Cognizant Technology Solutions Corporation Notice of Grant of Stock Option
8-K 000-24429 10.2 7/6/2009
10.12† Form of Cognizant Technology Solutions Corporation Restricted Stock Unit Award Agreement Time-Based Vesting
8-K 000-24429 10.3 7/6/2009
10.13† Form of Cognizant Technology Solutions Corporation Notice of Award of Restricted Stock Units Time-Based Vesting
8-K 000-24429 10.4 7/6/2009
10.14† Form of Cognizant Technology Solutions Corporation Restricted Stock Unit Award Agreement Performance-Based Vesting
8-K 000-24429 10.5 7/6/2009
10.15† Form of Cognizant Technology Solutions Corporation Notice of Award of Restricted Stock Units Performance-Based Vesting
8-K 000-24429 10.6 7/6/2009
10.16† Form of Restricted Stock Unit Award Agreement Non-Employee Director Deferred Issuance
8-K 000-24429 10.7 7/6/2009
10.17† Form of Cognizant Technology Solutions Corporation Notice of Award of Restricted Stock Units Non-Employee Director Deferred Issuance
8-K 000-24429 10.8 7/6/2009
10.18† Cognizant Technology Solutions Corporation 2017 Incentive Award Plan
8-K 000-24429 10.1 6/7/2017
10.19† Form of Restricted Stock Unit Award Grant Notice
10-Q 000-24429 10.2 8/3/2017
10.20† Form of Performance-Based Restricted Stock Unit Award Grant Notice
10-Q 000-24429 10.3 8/3/2017
10.21† Form of Restricted Stock Unit Award Grant Notice
10-Q 000-24429 10.4 8/3/2017
10.22† Form of Stock Option Grant Notice and Stock Option Agreement
10-Q 000-24429 10.5 8/3/2017
10.23† Form of Restricted Stock Unit Award Grant Notice (March 5, 2020 form)
10-Q 000-24429 10.1 5/8/2020
10.24† Form of Performance-Based Restricted Stock Unit Award Grant Notice (March 5, 2020 form)
10-Q 000-24429 10.2 5/8/2020
10.25 Form of Accelerated Stock Repurchase Agreement
8-K 000-24429 10.1 3/14/2017
10.26 Credit Agreement, dated as of November 6, 2018, among Cognizant Technology Solutions Corporation, Cognizant Worldwide Limited, certain financial institutions party thereto and JPMorgan Chase Bank, N.A., as administrative agent
8-K 000-24429 10.1 11/9/2018
10.27† Retirement, Death and Disability Policy
10-Q 000-24429 10.1 7/30/2020
21.1 List of subsidiaries of the Company
Filed
Incorporated by Reference
Number Exhibit Description Form File No. Exhibit Date Filed or Furnished
Herewith
23.1 Consent of PricewaterhouseCoopers LLP
Filed
31.1 Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
Filed
31.2 Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)
Filed
32.1 Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer)
Furnished
32.2 Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer)
Furnished
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. Filed
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Filed
† A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.