2002 COGNIZANT FINANCIAL REVIEW GENERAL Cognizant is a leading provider of custom IT design, development, integra- tion and maintenance services primarily for Fortune 1000 companies locat- ed in the United States and Europe. Cognizant’s core competencies include web-centric applications, data warehousing, component-based develop- ment and legacy and client-server systems. Cognizant provides the IT serv- ices it offers using an integrated onsite/offshore business model. This seamless onsite/offshore business model combines technical and account management teams located onsite at the customer location and offshore at dedicated development centers located in India and Ireland. Cognizant began its 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, Cognizant, along with certain other entities, was spun-off from the Dun & Bradstreet Corporation to form a new company, Cognizant Corporation. On June 24, 1998, Cognizant completed its initial public offering. On June 30, 1998, a majority interest in Cognizant, and certain other entities were spun-off from Cognizant Corporation to form IMS Health Incorporated (“IMS Health”). Subsequently, Cognizant Corporation was renamed Nielsen Media Research, Incorporated. At December 31, 2002, IMS Health owned 55.3% of the outstanding stock of Cognizant (representing all of Cognizant's Class B common stock) and held 92.5% of the combined voting power of Cognizant’s common stock. Holders of Cognizant’s Class A common stock have one vote per share and holders of Cognizant’s Class B common stock have ten votes per share. On June 30, 2002, the Company acquired the assets of UHCI, a subsidiary of UnitedHealth Group. UHCI previously provided, and will continue to provide through CTS Ireland, application development and maintenance services, using the existing staff of approximately 70 software profession- als. This acquisition is designed to enable the Company to provide a wide range of services to the Company’s clients in Europe and worldwide and represents the initial implementation of the Company’s previously announced international expansion strategy.  Additionally, on October 29, 2002, the Company completed the transfer of Silverline Technologies, Inc.’s practice, which serviced a major financial services company to the Company. Under the terms of the transfer, the Company will provide application design, development and maintenance services to such major financial services company through an acquired workforce of approximately three hundred IT and support professionals located primarily in the United States and India. On February 13, 2003, IMS Health distributed all of the Cognizant Class B common stock that IMS Health owned (a total of 33,872,700 shares) in an exchange offer to its stockholders. IMS Health distributed 0.927 shares of Cognizant Class B common stock to its stockholders for every one share of IMS Health’s common stock tendered. There was no impact on the number of Cognizant’s total shares of common stock outstanding as a result of the completion of the exchange offer. As a direct result of the IMS Health exchange offer Cognizant has incurred charges in the fourth quarter of 2002 of $1.7 million and expects total charges aggregating approximately $3.5 million. Such charges primarily relate to direct and incremental legal, accounting, printing and other costs. In addition, total estimated charges include approximately $0.5 million of costs related to the retention and acceleration of Cognizant stock options by two former Directors of Cognizant who resigned on February 13, 2003 as a result of the split-off. As of February 21, 2003, pursuant to the Company’s Restated Certificate of Incorporation, all of the shares of Class B common stock converted into shares of Class A common stock. Accordingly, as of such date, there are no shares of Class B common stock outstanding. The conversion of Class B common stock to Class A common stock has not been reflected in the accompanying financial statements and all applica- ble references to the number of outstanding Class A and Class B common stock, as well as IMS Health’s ownership interest have not been restated to reflect the conversion of Class B common stock to Class A common stock. Stockholders’ equity accounts will subsequently be restated to reflect the exchange offer. On March 5, 2003, the Board of Directors declared a 3-for-1 stock split effected by a 200% stock dividend payable on April 1, 2003 to stockhold- ers of record on March 19, 2003. The stock split has been reflected in the accompanying financial statements, and all applicable references as to the number of outstanding common shares and per share information have been restated. Appropriate adjustments have been made in the exercise price and number of shares subject to stock options. Stockholders’ equity accounts have been restated to reflect the reclassification of an amount equal to the par value of the increase in issued common shares from the additional paid in capital account to the common stock accounts. Financial Reporting Release No. 60 requires all companies to include a dis- cussion of critical accounting policies or methods used in the preparation of financial statements. Note 2 to the Consolidated Financial Statements include a summary of the significant accounting policies and methods used in the preparation of the Company’s Consolidated Financial Statements. The following is a brief discussion of the more significant accounting policies and methods used by the Company. In addition, Financial Reporting Release No. 61 requires all companies to includes a discussion to address, among other things, liquidity, off-bal- ance sheet arrangements, contractual obligations and commercial commit- ments. The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles gener- ally accepted in the United States. The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recov- erability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. 13 Critical Accounting Policies, Estimates and Risks Management’s Discussion and Analysis of Financial Condition and Results of Operations