Attached files

file filename
EX-32.2 - EX-32.2 - COGNIZANT TECHNOLOGY SOLUTIONS CORPctshexhibit32221.htm
EX-31.2 - EX-31.2 - COGNIZANT TECHNOLOGY SOLUTIONS CORPctshexhibit31221.htm
EX-32.1 - EX-32.1 - COGNIZANT TECHNOLOGY SOLUTIONS CORPctshexhibit32121.htm
EXCEL - IDEA: XBRL DOCUMENT - COGNIZANT TECHNOLOGY SOLUTIONS CORPFinancial_Report.xls
EX-31.1 - EX-31.1 - COGNIZANT TECHNOLOGY SOLUTIONS CORPctshexhibit31121.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
ý
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2014
¨
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from                      to                     
Commission File Number 0-24429
 
 
 
 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Delaware
 
13-3728359
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
Glenpointe Centre West
500 Frank W. Burr Blvd.
Teaneck, New Jersey
 
07666
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code (201) 801-0233
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No:  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No:  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  ý
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of August 1, 2014:
Class
 
Number of Shares
Class A Common Stock, par value $.01 per share
 
607,924,314


 
 
 


COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
TABLE OF CONTENTS
 
 
 
Page
PART I.
 
 
 
Item 1.
 
 
 
 
Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2014 and 2013 and for the Six Months Ended June 30, 2014 and 2013
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended June 30, 2014 and 2013 and for the Six Months Ended June 30, 2014 and 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 



PART I. FINANCIAL INFORMATION
 
Item 1.    Condensed Consolidated Financial Statements (Unaudited).
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
Revenues
$
2,517,094

 
$
2,161,240

 
$
4,939,442

 
$
4,181,978

Operating expenses:
 
 
 
 
 
 
 
Cost of revenues (exclusive of depreciation and amortization expense shown separately below)
1,499,462

 
1,272,013

 
2,931,906

 
2,471,978

Selling, general and administrative expenses
482,985

 
420,526

 
968,380

 
833,730

Depreciation and amortization expense
46,726

 
41,898

 
91,199

 
83,560

Income from operations
487,921

 
426,803

 
947,957

 
792,710

Other income (expense), net:
 
 
 
 
 
 
 
Interest income
14,132

 
13,080

 
27,637

 
26,327

Foreign currency exchange gains (losses), net
(752
)
 
(19,074
)
 
(1,969
)
 
(22,825
)
Other, net
537

 
(412
)
 
1,401

 
1,368

Total other income (expense), net
13,917

 
(6,406
)
 
27,069

 
4,870

Income before provision for income taxes
501,838

 
420,397

 
975,026

 
797,580

Provision for income taxes
129,930

 
119,987

 
254,240

 
212,961

Net income
$
371,908

 
$
300,410

 
$
720,786

 
$
584,619

Basic earnings per share
$
0.61

 
$
0.50

 
$
1.19

 
$
0.97

Diluted earnings per share
$
0.61

 
$
0.49

 
$
1.18

 
$
0.96

Weighted average number of common shares outstanding - Basic
607,880

 
603,340

 
607,805

 
603,524

Dilutive effect of shares issuable under stock-based compensation plans
4,282

 
5,552

 
4,725

 
6,098

Weighted average number of common shares outstanding - Diluted
612,162

 
608,892

 
612,530

 
609,622

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

1


COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
371,908

 
$
300,410

 
$
720,786

 
$
584,619

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(336
)
 
(575
)
 
1,136

 
(20,163
)
Change in unrealized losses on cash flow hedges, net of taxes
55,520

 
(113,239
)
 
162,570

 
(62,089
)
Change in unrealized gains and losses on available-for-sale securities, net of taxes
641

 
(2,357
)
 
1,093

 
(2,667
)
Other comprehensive income (loss)
55,825

 
(116,171
)
 
164,799

 
(84,919
)
Comprehensive income
$
427,733

 
$
184,239

 
$
885,585

 
$
499,700

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

2


COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in thousands, except par values)
 
 
June 30,  
 2014
 
December 31, 
 2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,992,442

 
$
2,213,006

Short-term investments
2,136,779

 
1,534,467

Trade accounts receivable, net of allowances of $32,804 and $26,824, respectively
1,822,636

 
1,648,785

Unbilled accounts receivable
297,944

 
226,487

Deferred income tax assets, net
233,841

 
256,230

Other current assets
257,048

 
268,907

Total current assets
6,740,690

 
6,147,882

Property and equipment, net of accumulated depreciation of $768,618 and $719,336, respectively
1,086,116

 
1,081,164

Goodwill
449,541

 
444,236

Intangible assets, net
120,952

 
131,274

Deferred income tax assets, net
123,295

 
147,149

Other noncurrent assets
166,700

 
183,013

Total assets
$
8,687,294

 
$
8,134,718

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
119,145

 
$
113,394

Deferred revenue
179,660

 
182,893

Accrued expenses and other current liabilities
1,268,857

 
1,478,221

Total current liabilities
1,567,662

 
1,774,508

Deferred income tax liabilities, net
19,862

 
21,170

Other noncurrent liabilities
108,941

 
203,249

Total liabilities
1,696,465

 
1,998,927

Commitments and contingencies (See Note 7)

 

Stockholders’ Equity:
 
 
 
Preferred stock, $.10 par value, 15,000 shares authorized, none issued

 

Class A common stock, $.01 par value, 1,000,000 shares authorized, 607,850 and 607,729 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
6,079

 
6,077

Additional paid-in capital
513,057

 
543,606

Retained earnings
6,583,153

 
5,862,367

Accumulated other comprehensive income (loss)
(111,460
)
 
(276,259
)
Total stockholders’ equity
6,990,829

 
6,135,791

Total liabilities and stockholders’ equity
$
8,687,294

 
$
8,134,718

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

3


COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
For the Six Months Ended 
 June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
720,786

 
$
584,619

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
95,474

 
87,435

Provision for doubtful accounts
6,197

 
3,510

Deferred income taxes
2,440

 
(997
)
Stock-based compensation expense
69,351

 
59,330

Excess tax benefits on stock-based compensation plans
(12,034
)
 
(9,482
)
Other
(3,312
)
 
31,308

Changes in assets and liabilities:
 
 
 
Trade accounts receivable
(161,191
)
 
(217,294
)
Other current assets
(52,615
)
 
(36,180
)
Other noncurrent assets
19,447

 
(7,393
)
Accounts payable
8,124

 
(12,267
)
Other current and noncurrent liabilities
(127,034
)
 
(43,564
)
Net cash provided by operating activities
565,633

 
439,025

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(81,957
)
 
(122,510
)
Purchases of investments
(1,407,637
)
 
(923,311
)
Proceeds from maturity or sale of investments
809,893

 
971,184

Business combinations, net of cash acquired
(11,487
)
 
(151,137
)
Net cash (used in) investing activities
(691,188
)
 
(225,774
)
Cash flows from financing activities:
 
 
 
Issuance of common stock under stock-based compensation plans
49,839

 
48,546

Excess tax benefits on stock-based compensation plans
12,034

 
9,482

Repurchases of common stock
(161,861
)
 
(147,409
)
Net cash (used in) financing activities
(99,988
)
 
(89,381
)
Effect of exchange rate changes on cash and cash equivalents
4,979

 
(15,742
)
(Decrease) increase in cash and cash equivalents
(220,564
)
 
108,128

Cash and cash equivalents, beginning of year
2,213,006

 
1,570,077

Cash and cash equivalents, end of period
$
1,992,442

 
$
1,678,205

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

4


COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollar amounts in thousands)

Note 1 — Interim Condensed Consolidated Financial Statements
The terms “Cognizant,” “we,” “our,” “us” and “company” refer to Cognizant Technology Solutions Corporation unless the context indicates otherwise. We have prepared the accompanying unaudited condensed consolidated financial statements included herein in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2013. In our opinion, all adjustments considered necessary for a fair presentation of the accompanying unaudited condensed consolidated financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.

In August 2014, the company announced that its Board of Directors approved an expansion of its stock repurchase program. The Board of Directors increased the company’s stock repurchase authorization under the program from $1,500,000 to $2,000,000 and extended the term of the stock repurchase program from December 31, 2014 to December 31, 2015.
During the six months ended June 30, 2014, we repurchased 2,700,000 shares of our Class A common stock for $130,246, inclusive of fees and expenses, under our existing stock repurchase program approved by our Board of Directors. As of June 30, 2014, prior to the expansion of the program, the remaining available balance under the Board authorization was $371,899. Additional stock repurchases were made in connection with our stock-based compensation plans, whereby company shares were tendered by employees for payment of applicable statutory tax withholdings. During the six months ended June 30, 2014, such repurchases totaled 645,159 shares at an aggregate cost of $31,615.

Stock Split
On February 4, 2014, the company’s Board of Directors declared a two-for-one stock split of our Class A common stock in the form of a 100% stock dividend, which was paid on March 7, 2014 to stockholders of record as of February 21, 2014. The stock split has been reflected in the accompanying condensed consolidated financial statements, and all applicable references as to the number of outstanding common shares and per share information, except par values, have been retroactively adjusted to reflect the stock split as if it occurred at the beginning of the earliest period presented. Stockholders’ equity accounts have been retroactively adjusted to reflect a reclassification of an amount equal to the par value of the increase in issued shares of Class A common stock from the additional paid-in-capital account to the Class A common stock account.
Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued a standard on revenue from contracts with customers. The new standard sets forth a single comprehensive model for recognizing and reporting revenue. The standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. The new standard will be effective for periods beginning on or after January 1, 2017. Early adoption is not permitted. The standard allows for two methods of adoption: the full retrospective adoption, which requires the standard to be applied to each prior period presented, or the modified retrospective adoption, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. We are currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures.
In July 2013, the FASB issued new guidance which requires the netting of any unrecognized tax benefits against all available same-jurisdiction deferred income tax carryforward assets that would apply if the uncertain tax positions were settled. We adopted this standard on January 1, 2014. As of June 30, 2014, we netted an unrecognized tax benefit of $85,112 against same-jurisdiction non-current deferred income tax assets. In our December 31, 2013 consolidated statement of financial position, we reclassified $74,196 from "other non-current liabilities" to non-current "deferred income tax assets, net" to conform to current period's presentation. The adoption of this standard had no effect on our condensed consolidated results of operations or stockholder's equity.





5





Note 2 — Short-term Investments

Our short-term investments were as follows:
 
June 30, 2014
 
December 31, 2013
Available-for-sale investment securities:
 
 
 
U.S. Treasury and agency debt securities
$
512,684

 
$
506,285

Corporate and other debt securities
385,556

 
301,841

Certificates of deposit and commercial paper
521,309

 
99,959

Asset-backed securities
156,447

 
160,267

Municipal debt securities
116,939

 
115,196

Mutual funds
21,608

 
21,136

Total available-for-sale investment securities
1,714,543

 
1,204,684

Time deposits
422,236

 
329,783

Total short-term investments
$
2,136,779

 
$
1,534,467

Our available-for-sale investment securities consist of U.S. dollar denominated investments primarily in U.S. Treasury notes, U.S. government agency debt securities, municipal debt securities, non-U.S. government debt securities, U.S. and international corporate bonds, certificates of deposit, commercial paper, debt securities issued by supranational institutions, mutual funds invested in fixed income securities, and asset-backed securities, including Government National Mortgage Association (GNMA) mortgage backed securities and securities backed by auto loans, credit card receivables, and other receivables. Our investment guidelines are to purchase securities which are investment grade at the time of acquisition. We monitor the credit ratings of the securities in our portfolio on an ongoing basis. The carrying value of the time deposits approximated fair value as of June 30, 2014 and December 31, 2013.
Available-for-Sale Investment Securities
The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at June 30, 2014 were as follows:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury and agency debt securities
$
511,848

 
$
903

 
$
(67
)
 
$
512,684

Corporate and other debt securities
384,442

 
1,232

 
(118
)
 
385,556

Certificates of deposit and commercial paper
520,907

 
403

 
(1
)
 
521,309

Asset-backed securities
156,366

 
295

 
(214
)
 
156,447

Municipal debt securities
116,397

 
548

 
(6
)
 
116,939

Mutual funds
23,314

 
242

 
(1,948
)
 
21,608

Total available-for-sale investment securities
$
1,713,274

 
$
3,623

 
$
(2,354
)
 
$
1,714,543


6


The amortized cost, gross unrealized gains and losses and fair value of available-for-sale investment securities at December 31, 2013 were as follows:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury and agency debt securities
$
506,094

 
$
544

 
$
(353
)
 
$
506,285

Corporate and other debt securities
300,994

 
1,090

 
(243
)
 
301,841

Certificates of deposit and commercial paper
99,897

 
62

 

 
99,959

Asset-backed securities
160,559

 
99

 
(391
)
 
160,267

Municipal debt securities
114,888

 
348

 
(40
)
 
115,196

Mutual funds
22,705

 
280

 
(1,849
)
 
21,136

Total available-for-sale investment securities
$
1,205,137

 
$
2,423

 
$
(2,876
)
 
$
1,204,684

The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of June 30, 2014:
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. Treasury and agency debt securities
$
146,704

 
$
(63
)
 
$
3,242

 
$
(4
)
 
$
149,946

 
$
(67
)
Corporate and other debt securities
125,191

 
(118
)
 

 

 
125,191

 
(118
)
Certificates of deposit and commercial paper
1,999

 
(1
)
 

 

 
1,999

 
(1
)
Asset-backed securities
36,113

 
(121
)
 
12,539

 
(93
)
 
48,652

 
(214
)
Municipal debt securities
7,753

 
(6
)
 

 

 
7,753

 
(6
)
Mutual funds

 

 
20,531

 
(1,948
)
 
20,531

 
(1,948
)
Total
$
317,760

 
$
(309
)
 
$
36,312

 
$
(2,045
)
 
$
354,072

 
$
(2,354
)

The fair value and related unrealized losses of available-for-sale investment securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer were as follows as of December 31, 2013:
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. Treasury and agency debt securities
$
221,548

 
$
(353
)
 
$

 
$

 
$
221,548

 
$
(353
)
Corporate and other debt securities
106,485

 
(243
)
 

 

 
106,485

 
(243
)
Asset-backed securities
84,051

 
(333
)
 
5,048

 
(58
)
 
89,099

 
(391
)
Municipal debt securities
10,702

 
(34
)
 
1,019

 
(6
)
 
11,721

 
(40
)
Mutual funds

 

 
20,183

 
(1,849
)
 
20,183

 
(1,849
)
Total
$
422,786

 
$
(963
)
 
$
26,250

 
$
(1,913
)
 
$
449,036

 
$
(2,876
)
The unrealized losses for the above securities as of June 30, 2014 and December 31, 2013 are primarily attributable to changes in interest rates. As of June 30, 2014, we do not consider any of the investments to be other-than-temporarily impaired. The gross unrealized gains and losses in the above tables were recorded, net of tax, in accumulated other comprehensive income (loss).

7


The contractual maturities of our fixed income available-for-sale investment securities as of June 30, 2014 are set forth in the following table:
 
Amortized
Cost
 
Fair
Value
Due within one year
$
681,875

 
$
682,479

Due after one year up to two years
342,769

 
343,546

Due after two years up to three years
478,461

 
479,846

Due after three years up to four years
30,489

 
30,617

Asset-backed securities
156,366

 
156,447

Fixed income available-for-sale investment securities
$
1,689,960

 
$
1,692,935

Asset-backed securities were excluded from the maturity categories because the actual maturities may differ from the contractual maturities since the underlying receivables may be prepaid without penalties. Further, actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Proceeds from sales of available-for-sale investment securities
$
178,787

 
$
498,296

 
$
357,822

 
$
660,000

 
 
 
 
 
 
 
 
Gross gains
$
370

 
$
896

 
$
753

 
$
1,215

Gross losses
(36
)
 
(382
)
 
(66
)
 
(387
)
Net realized gains on sales of available-for-sale investment securities
$
334

 
$
514

 
$
687

 
$
828


Note 3 — Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were as follows:
 
June 30, 2014
 
December 31, 2013
Compensation and benefits
$
741,703

 
$
894,986

Income taxes
18,823

 
24,312

Professional fees
54,434

 
45,453

Travel and entertainment
33,708

 
29,645

Customer volume incentives
156,958

 
170,669

Derivative financial instruments
116,005

 
191,584

Other
147,226

 
121,572

Total accrued expenses and other current liabilities
$
1,268,857

 
$
1,478,221
















8


Note 4 — Income Taxes
Our Indian subsidiaries, collectively referred to as Cognizant India, are primarily export-oriented and are eligible for certain income tax holiday benefits granted by the government of India for export activities conducted within Special Economic Zones, or SEZs, for periods of up to 15 years. Our Indian operations outside of SEZs are subject to corporate income tax at the current rate of 33.99%. In addition, all Indian profits, including those generated within SEZs, are subject to the Minimum Alternative Tax, or MAT, at the current rate of approximately 20.9%, including surcharges. Any MAT paid is creditable against future Indian corporate income tax, subject to limitations.
Our effective income tax rates were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Effective income tax rate
25.9
%
 
28.5
%
 
26.1
%
 
26.7
%
For the 2014 and 2013 periods, the principal difference between our effective income tax rates and the U.S. federal statutory rate is the effect of the Indian tax holiday and earnings taxed in countries that have lower rates than the United States. In 2014, our effective income tax rate decreased primarily due to changes in the geographic mix of our estimated current year earnings towards countries with lower statutory rates partially offset by a scheduled reduction of certain income tax holiday benefits in India in 2014.

Note 5 — Fair Value Measurements
We measure our cash equivalents, investments and foreign exchange forward contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.
The fair value hierarchy consists of the following three levels:
Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

9


The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of June 30, 2014:
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
848,586

 
$

 
$

 
$
848,586

Time deposits

 
50,039

 

 
50,039

Total cash equivalents
848,586

 
50,039

 

 
898,625

Short-term investments:
 
 
 
 
 
 
 
Time deposits

 
422,236

 

 
422,236

Available-for-sale investment securities:
 
 
 
 
 
 
 
U.S. Treasury and agency debt securities
425,480

 
87,204

 

 
512,684

Corporate and other debt securities

 
385,556

 

 
385,556

Certificates of deposit and commercial paper

 
521,309

 

 
521,309

Asset-backed securities

 
156,447

 

 
156,447

Municipal debt securities

 
116,939

 

 
116,939

Mutual funds

 
21,608

 

 
21,608

Total available-for-sale investment securities
425,480

 
1,289,063

 

 
1,714,543

Total short-term investments
425,480

 
1,711,299

 

 
2,136,779

Derivative financial instruments - foreign exchange forward contracts:
 
 
 
 
 
 
 
Other current assets

 
1,727

 

 
1,727

Accrued expenses and other current liabilities

 
(116,005
)
 

 
(116,005
)
Other noncurrent assets

 
1,668

 

 
1,668

Other noncurrent liabilities

 
(54,419
)
 

 
(54,419
)
Total
$
1,274,066

 
$
1,594,309

 
$

 
$
2,868,375


10


The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2013:
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
694,416

 
$

 
$

 
$
694,416

Time deposits

 
128,654

 

 
128,654

Commercial paper

 
22,000

 

 
22,000

Total cash equivalents
694,416

 
150,654

 

 
845,070

Short-term investments:
 
 
 
 
 
 
 
Time deposits

 
329,783

 

 
329,783

Available-for-sale investment securities:
 
 
 
 
 
 
 
U.S. Treasury and agency debt securities
423,051

 
83,234

 

 
506,285

Corporate and other debt securities

 
301,841

 

 
301,841

Certificates of deposit and commercial paper

 
99,959

 

 
99,959

Asset-backed securities

 
160,267

 

 
160,267

Municipal debt securities

 
115,196

 

 
115,196

Mutual funds

 
21,136

 

 
21,136

Total available-for-sale investment securities
423,051

 
781,633

 

 
1,204,684

Total short-term investments
423,051

 
1,111,416

 

 
1,534,467

Derivative financial instruments - foreign exchange forward contracts:
 
 
 
 
 
 
 
Other current assets

 
11,105

 

 
11,105

Accrued expenses and other current liabilities

 
(191,584
)
 

 
(191,584
)
Other noncurrent liabilities

 
(164,490
)
 

 
(164,490
)
Total
$
1,117,467

 
$
917,101

 
$

 
$
2,034,568


We measure the fair value of money market funds and U.S. Treasury securities based on quoted prices in active markets for identical assets. The fair value of commercial paper, certificates of deposit, U.S. government agency securities, municipal debt securities, U.S. and international corporate bonds and foreign government debt securities is measured based on relevant trade data, dealer quotes, or model driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. We measure the fair value of our asset-backed securities using model driven valuations based on significant inputs derived from or corroborated by observable market data such as dealer quotes, available trade information, spread data, current market assumptions on prepayment speeds and defaults and historical data on deal collateral performance. The value of the mutual funds invested in fixed income securities is based on the net asset value, or NAV, of the fund, with appropriate consideration of the liquidity and any restrictions on disposition of our investment in the fund.
We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. The amounts are aggregated by type of contract and maturity.
During the six months ended June 30, 2014 and the year ended December 31, 2013, there were no transfers among Level 1, Level 2, or Level 3 financial assets and liabilities.










11


Note 6 — Derivative Financial Instruments
In the normal course of business, we use foreign exchange forward contracts to manage foreign currency exchange rate risk. The estimated fair value of the foreign exchange forward contracts considers the following items: discount rate, timing and amount of cash flow and counterparty credit risk. Derivatives may give rise to credit risks from the possible non-performance by counterparties. Credit risk is generally limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by entering into derivative transactions only with highly-rated global financial institutions, limiting the amount of credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial institutions with which we do business. In addition, all the assets and liabilities related to our foreign exchange forward contracts set forth in the below table are subject to International Swaps and Derivatives Association, or ISDA, master netting arrangements or other similar agreements with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. We have presented all the assets and liabilities related to our foreign exchange forward contracts on a gross basis, with no offsets, in our accompanying unaudited condensed consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to our foreign exchange forward contracts.
The following table provides information on the location and fair values of derivative financial instruments included in our unaudited condensed consolidated statement of financial position as of:
 
 
 
 
June 30, 2014
 
December 31, 2013
Designation of Derivatives
 
Location on Statement of
Financial Position
 
Assets
 
Liabilities
 
Assets  
 
Liabilities
Cash Flow Hedges – Designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
 
Other current assets
 
$
1,727

 
$

 
$

 
$

 
 
Other noncurrent assets
 
1,668

 

 

 

 
 
Accrued expenses and other current liabilities
 

 
111,540

 

 
190,386

 
 
Other noncurrent liabilities
 

 
54,419

 

 
164,490

 
 
Total
 
3,395

 
165,959

 

 
354,876

Other Derivatives – Not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
 
Other current assets
 

 

 
11,105

 

 
 
Accrued expenses and other current liabilities
 

 
4,465

 

 
1,198

 
 
Total
 

 
4,465

 
11,105

 
1,198

Total
 
 
 
$
3,395

 
$
170,424

 
$
11,105

 
$
356,074



















12


Cash Flow Hedges
We have entered into a series of foreign exchange forward contracts that are designated as cash flow hedges of Indian rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of exchange rates on future operating costs and are scheduled to mature each month during 2014, 2015, and 2016. Under these contracts, we purchase Indian rupees and sell U.S. dollars. The changes in fair value of these contracts are initially reported in the caption “Accumulated other comprehensive income (loss)” in our consolidated statements of financial position and are subsequently reclassified to earnings in the same period the hedge contract matures. As of June 30, 2014, we estimate that $92,830, net of tax, of the net losses related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income (loss) is expected to be reclassified into earnings within the next 12 months.
The notional value of our outstanding contracts by year of maturity and the net unrealized (loss) included in accumulated other comprehensive income (loss) for such contracts were as follows as of:
 
June 30, 2014
 
December 31, 2013
2014
$
600,000

 
$
1,200,000

2015
1,200,000

 
900,000

2016
240,000

 
240,000

Total notional value of contracts outstanding
$
2,040,000

 
$
2,340,000

Net unrealized (loss) included in accumulated other comprehensive income (loss), net of taxes
$
(137,423
)
 
$
(299,993
)
Upon settlement or maturity of the cash flow hedge contracts, we record the related gain or loss, based on our designation at the commencement of the contract, with the hedged Indian rupee denominated expense reported within cost of revenues and selling, general and administrative expenses. Hedge ineffectiveness was immaterial for all periods presented.
The following table provides information on the location and amounts of pre-tax (losses) on our cash flow hedges for the three months ended June 30:
 
(Increase) Decrease in
Derivative
Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative
(Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net (Loss) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
2014
 
2013
 
 
 
2014
 
2013
Cash Flow Hedges – Designated as hedging instruments
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
34,694

 
$
(167,034
)
 
Cost of revenues
 
$
(25,581
)
 
$
(25,541
)
 
 
 
 
 
Selling, general and administrative expenses
 
(5,403
)
 
(5,570
)
 
 
 
 
 
Total
 
$
(30,984
)
 
$
(31,111
)

13


The following table provides information on the location and amounts of pre-tax (losses) on our cash flow hedges for the six months ended June 30:
 
(Increase) Decrease in
Derivative
Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion)
 
Location of Net Derivative
(Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
Net (Loss) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion)
 
2014
 
2013
 
 
 
2014
 
2013
Cash Flow Hedges – Designated as hedging instruments
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
120,980

 
$
(128,369
)
 
Cost of revenues
 
$
(59,116
)
 
$
(43,093
)
 
 
 
 
 
Selling, general and administrative expenses
 
(12,216
)
 
(9,362
)
 
 
 
 
 
Total
 
$
(71,332
)
 
$
(52,455
)
The activity related to the change in net unrealized (losses) on our cash flow hedges included in accumulated other comprehensive income (loss) is presented in Note 8.
Other Derivatives
We use foreign exchange forward contracts, which have not been designated as hedges, to hedge balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries. We entered into foreign exchange forward contracts to purchase U.S. dollars and sell Indian rupees, Euros and British pounds. Contracts outstanding as of June 30, 2014 are scheduled to mature in 2014 and 2015. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our condensed consolidated statements of operations.
Additional information related to our outstanding contracts is as follows:
 
June 30, 2014
 
December 31, 2013
 
Notional
 
Market Value

 
Notional
 
Market Value

Contracts to purchase U.S. dollars and sell:
 
 
 
 
 
 
 
Indian rupees
$
159,818

 
$
(4,080
)
 
$
171,802

 
$
11,105

Euros
7,900

 
(62
)
 
55,500

 
(412
)
British pounds
57,500

 
(323
)
 
52,000

 
(786
)
Total
$
225,218

 
$
(4,465
)
 
$
279,302

 
$
9,907

The following table provides information on the location and amounts of realized and unrealized pre-tax gains and losses on our other derivative financial instruments for the three and six months ended June 30, 2014 and 2013:
 
Location of Net Gains  (Losses) on
Derivative Instruments
 
Amount of Net Gains (Losses) on Derivative Instruments
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2014
 
2013
 
2014
 
2013
Other Derivatives – Not designated as hedging instruments
Foreign currency exchange gains (losses), net
 
 
 
 
 
 
 
 
Foreign exchange forward contracts:
 
 
$
(4,266
)
 
$
17,296

 
$
(12,616
)
 
$
14,970

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


Note 7 — Commitments and Contingencies

14


 As of June 30, 2014, we had outstanding fixed capital commitments of approximately $45,393 related to our India development center expansion program to build new state-of-the-art IT development and delivery centers.
We are involved in various claims and legal actions arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, if decided adversely, is not expected to have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, many of our engagements involve projects that are critical to the operations of our customers’ business and provide benefits that are difficult to quantify. Any failure in a customer’s systems or our failure to meet our contractual obligations to our clients, including any breach involving a customer’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial condition and cash flows.





In the normal course of business and in conjunction with certain client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to hold the indemnified party and certain of their affiliated entities harmless with respect to third-party claims related to such matters as our breach of certain representations or covenants, or out of our intellectual property infringement, our gross negligence or willful misconduct or certain other claims made against certain parties. Payments by us under any of these arrangements are generally conditioned on the client making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Historically, we have not made payments under these indemnification agreements and therefore they have not had any impact on our operating results, financial position, or cash flows. However, if events arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have entered, such payments could have material impact on our business, results of operations, financial condition and cash flows.


Note 8 — Accumulated Other Comprehensive Income (Loss)

15


Changes in accumulated other comprehensive income (loss) by component were as follows for the three and six months ended June 30, 2014:
 
Three Months
 
Six Months
 
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
25,505

 
$

 
$
25,505

 
$
24,033

 
$

 
$
24,033

Change in foreign currency translation adjustments
(336
)
 

 
(336
)
 
1,136

 

 
1,136

Ending balance
$
25,169

 
$

 
$
25,169

 
$
25,169

 
$

 
$
25,169

Unrealized gains (losses) on available-for-sale investment securities:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
265

 
$
(112
)
 
$
153

 
$
(453
)
 
$
154

 
$
(299
)
Net unrealized gains arising during the period
1,308

 
(476
)
 
832

 
2,381

 
(873
)
 
1,508

Reclassification of net (gains) to Other, net
(304
)
 
113

 
(191
)
 
(659
)
 
244

 
(415
)
Net change
1,004

 
(363
)
 
641

 
1,722

 
(629
)
 
1,093

Ending balance
$
1,269

 
$
(475
)
 
$
794

 
$
1,269

 
$
(475
)
 
$
794

Unrealized gains (losses) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
(228,242
)
 
$
35,299

 
$
(192,943
)
 
$
(354,876
)
 
$
54,883

 
$
(299,993
)
Unrealized gains arising during the period
34,694

 
(5,366
)
 
29,328

 
120,980

 
(18,711
)
 
102,269

Reclassifications of losses to:
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues
25,581

 
(3,956
)
 
21,625

 
59,116

 
(9,142
)
 
49,974

Selling, general and administrative expenses
5,403

 
(836
)
 
4,567

 
12,216

 
(1,889
)
 
10,327

Net change
65,678

 
(10,158
)
 
55,520

 
192,312

 
(29,742
)
 
162,570

Ending balance
$
(162,564
)
 
$
25,141

 
$
(137,423
)
 
$
(162,564
)
 
$
25,141

 
$
(137,423
)
Accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
(202,472
)
 
$
35,187

 
$
(167,285
)
 
$
(331,296
)
 
$
55,037

 
$
(276,259
)
Other comprehensive income (loss)
66,346

 
(10,521
)
 
55,825

 
195,170

 
(30,371
)
 
164,799

Ending balance
$
(136,126
)
 
$
24,666

 
$
(111,460
)
 
$
(136,126
)
 
$
24,666

 
$
(111,460
)




16


Changes in accumulated other comprehensive income (loss) by component were as follows for the three and six months ended June 30, 2013:
 
Three Months
 
Six Months
 
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
 
Before Tax
Amount
 
Tax
Effect
 
Net of Tax
Amount
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
(8,016
)
 
$

 
$
(8,016
)
 
$
11,572

 
$

 
$
11,572

Change in foreign currency translation adjustments
(575
)
 

 
(575
)
 
(20,163
)
 

 
(20,163
)
Ending balance
$
(8,591
)
 
$

 
$
(8,591
)
 
$
(8,591
)
 
$

 
$
(8,591
)
Unrealized gains on available-for-sale investment securities:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,935

 
$
(690
)
 
$
1,245

 
$
2,440

 
$
(885
)
 
$
1,555

Net unrealized (losses) arising during the period
(3,276
)
 
1,167

 
(2,109
)
 
(3,476
)
 
1,245

 
(2,231
)
Reclassification of net (gains) to Other, net
(376
)
 
128

 
(248
)
 
(681
)
 
245

 
(436
)
Net change
(3,652
)
 
1,295

 
(2,357
)
 
(4,157
)
 
1,490

 
(2,667
)
Ending balance
$
(1,717
)
 
$
605

 
$
(1,112
)
 
$
(1,717
)
 
$
605

 
$
(1,112
)
Unrealized (losses) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
(236,586
)
 
$
34,926

 
$
(201,660
)
 
$
(296,595
)
 
$
43,785

 
$
(252,810
)
Unrealized gains arising during the period
(167,034
)
 
27,496

 
(139,538
)
 
(128,369
)
 
21,730

 
(106,639
)
Reclassifications of losses to:
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues
25,541

 
(3,949
)
 
21,592

 
43,093

 
(6,495
)
 
36,598

Selling, general and administrative expenses
5,570

 
(863
)
 
4,707

 
9,362

 
(1,410
)
 
7,952

Net change
(135,923
)
 
22,684

 
(113,239
)
 
(75,914
)
 
13,825

 
(62,089
)
Ending balance
$
(372,509
)
 
$
57,610

 
$
(314,899
)
 
$
(372,509
)
 
$
57,610

 
$
(314,899
)
Accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
(242,667
)
 
$
34,236

 
$
(208,431
)
 
$
(282,583
)
 
$
42,900

 
$
(239,683
)
Other comprehensive income (loss)
(140,150
)
 
23,979

 
(116,171
)
 
(100,234
)
 
15,315

 
(84,919
)
Ending balance
$
(382,817
)
 
$
58,215

 
$
(324,602
)
 
$
(382,817
)
 
$
58,215

 
$
(324,602
)

Note 9 — Segment Information
Our reportable segments are: Financial Services, which includes customers providing banking/transaction processing, capital markets and insurance services; Healthcare, which includes healthcare providers and payers as well as life sciences customers; Manufacturing/Retail/Logistics, which includes consumer goods, manufacturers, retailers, travel and other hospitality customers, as well as customers providing logistics services; and Other, which is an aggregation of industry segments each of which, individually, represents less than 10% of consolidated revenues and segment operating profit. The Other reportable segment includes our information, media and entertainment services, communications and high technology operating segments. Our sales managers, account executives, account managers and project teams are aligned in accordance with the specific industries they serve.
Our chief operating decision maker evaluates the company’s performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by our operating segments may affect revenue and operating expenses to differing degrees. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as a per seat charge for use of the development and delivery centers. Certain selling, general and administrative expenses, excess or shortfall of incentive compensation for delivery personnel as compared to target, stock-based compensation expense, a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are separately disclosed as “unallocated” and adjusted only against our total income from operations. Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.

17


Revenues from external customers and segment operating profit, before unallocated expenses, for the Financial Services, Healthcare, Manufacturing/Retail/Logistics, and Other reportable segments were as follows:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Financial Services
$
1,058,518

 
$
910,707

 
$
2,082,222

 
$
1,766,048

Healthcare
645,439

 
541,574

 
1,261,355

 
1,051,593

Manufacturing/Retail/Logistics
514,309

 
461,594

 
1,026,240

 
887,440

Other
298,828

 
247,365

 
569,625

 
476,897

Total revenue
$
2,517,094

 
$
2,161,240

 
$
4,939,442

 
$
4,181,978

                                                                                     Segment Operating Profit:
 
 
 
 
 
 
 
Financial Services
$
354,035

 
$
305,395

 
$
701,964

 
$
570,629

Healthcare
227,326

 
204,991

 
441,595

 
382,065

Manufacturing/Retail/Logistics
177,419

 
158,384

 
359,100

 
289,410

Other
104,022

 
80,592

 
193,689

 
151,652

Total segment operating profit
862,802

 
749,362

 
1,696,348

 
1,393,756

Less: unallocated costs(1)
374,881

 
322,559

 
748,391

 
601,046

Income from operations
$
487,921

 
$
426,803

 
$
947,957

 
$
792,710

_____________________
(1)
Includes $33,534 and $30,237 of stock-based compensation expense for the three months ended June 30, 2014 and 2013, respectively, and $69,351 and $59,330 of stock-based compensation expense for the six months ended June 30, 2014 and 2013, respectively.

Geographic Area Information
Revenue and long-lived assets, by geographic area, are as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues: (1)
 
 
 
 
 
 
 
North America(2)
$
1,928,552

 
$
1,677,394

 
$
3,764,783

 
$
3,259,585

Europe(3)
466,249

 
387,228

 
936,394

 
735,484

Rest of World (4) 
122,293

 
96,618

 
238,265

 
186,909

Total
$
2,517,094

 
$
2,161,240

 
$
4,939,442

 
$
4,181,978

 
As of
 
June 30,
2014
 
December 31,
2013
Long-lived Assets: (5)
 
 
 
North America(2)
$
47,315

 
$
48,352

Europe
21,569

 
22,707

Rest of World (4)(6) 
1,017,232

 
1,010,105

Total
$
1,086,116

 
$
1,081,164

________________
(1)
Revenues are attributed to regions based upon customer location.
(2)
Substantially all relates to operations in the United States.
(3)
Includes revenue from operations in the United Kingdom of $266,009 and $233,845 for the three months ended June 30, 2014 and 2013, respectively, and $543,535 and $450,253 for the six months ended June 30, 2014 and 2013, respectively.
(4)
Includes our operations in Asia Pacific, the Middle East and Latin America.

18


(5)
Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
(6)
Substantially all of these long-lived assets relate to our operations in India.

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

Executive Summary
We are a leading provider of information technology (IT), consulting and business process services, dedicated to helping the world’s leading companies build stronger businesses. Our clients engage us to help them build more efficient operations, provide solutions to critical business and technology problems, and to help them drive technology-based innovation and growth. Our core competencies include: Business, Process, Operations and IT Consulting, Application Development and Systems Integration, Enterprise Information Management, or EIM, Application Testing, Application Maintenance, IT Infrastructure services, or IT IS, and Business Process Services, or BPS. We tailor our services to specific industries and utilize an integrated global delivery model. This seamless global sourcing model combines client service teams based on-site at the client locations with delivery teams located at dedicated near-shore and offshore global delivery centers.
For the three and six months ended June 30, 2014, our revenue increased to $2,517.1 million and $4,939.4 million, respectively compared to $2,161.2 million and $4,182.0 million for the three and six months ended June 30, 2013, respectively. During the three and six months ended June 30, 2014, net income increased to $371.9 million and $720.8 million or $0.61 and $1.18 per diluted share, respectively, compared to net income of $300.4 million and $584.6 million or $0.49 and $0.96 per diluted share during the three and six months ended June 30, 2013, respectively. On a non-GAAP basis during the three and six months ended June 30, 2014, our diluted earnings per share increased to $0.661 and $1.281