2002 COGNIZANT FINANCIAL REVIEW Cognizant Technology Solutions Corporation (the “Company”, “Cognizant”, or “CTS”) is a leading provider of custom IT design, development, integration and maintenance services primarily for Fortune 1000 companies located in the United States and Europe. Cognizant’s core competencies include web- centric applications, data warehousing, component-based development and legacy and client-server systems. Cognizant provides the IT services it offers using an integrated onsite/offshore business model. This seamless onsite/offshore business model combines technical and account manage- ment teams located onsite at the customer location and offshore at dedicated development centers located in India and Ireland. 1. Basis of Presentation 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 of its Class A common stock (the “IPO”). 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 January 30, 2003, the Company filed a tender offer in which IMS Health stockholders could exchange IMS Health shares held by them for Cognizant Class B common stock held by IMS Health. There will be no impact on the number of Cognizant’s total shares outstanding upon the completion of the exchange offer. (See Note 13 to the Consolidated Financial Statements.) On February 13, 2003, IMS Health completed its plan to distribute all of the Cognizant Class B common stock that IMS Health owned in an exchange offer. There is no impact on the number of Cognizant's total shares out- standing as a result of the completion of the exchange offer. As of February 21, 2003, pursuant to the Company’s Restated Certificate of Incorporation, all 33,872,700 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 and the share and equity balances that relate to Class B common stock will be reclassed to the share and equity balances of Class A common stock. The conversion of Class B common stock to Class A common stock has not been reflected in the accompanying financial statements and all applicable 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 exchange offer. Stockholders’ equity accounts will subsequently be restated to reflect the reclassification of the share and equity balances that relate to Class B common stock to the share and equity balances of Class A common stock.  On March 5, 2003, the Board of Directors declared a 3-for-1 stock split of Class A common stock effected by a 200% stock dividend payable on April 1, 2003 to stockholders of record on March 19, 2003. The stock split has been reflected in the accompanying financial statements, and all applicable refer- ences to the number of outstanding common shares and per share informa- tion has been restated. Appropriate adjustments have been made in the exercise price and number of shares subject to stock options. Stockholders’ equity account 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. Principles of Consolidation. The consolidated financial statements reflect the consolidated financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as if it were a separate entity for all periods presented. All intercompany transactions are eliminated.  Cash and Cash Equivalents. Cash and cash equivalents primarily include time and demand deposits in the Company’s operating bank accounts. The Company considers all highly liquid instruments with an initial maturity of three months or less to be cash equivalents.  Allowance for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its cus- tomers to make required payments. The allowance for doubtful accounts is determined by evaluating the relative credit-worthiness of each customer based upon market capitalization and other information, including the aging of the receivables. Investments. Investments in business entities in which the Company does not have control or the ability to exercise significant influence over the operating and financial policies are accounted for under the cost method. Investments are evaluated for impairment at least annually, or as circumstances warrant. Property and Equipment. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Maintenance and repairs are expensed as incurred, while renewals and betterments are capi- talized.  Purchased Software. Purchased software that is intended for internal use is capitalized, including the salaries and benefits of employees that are directly involved in the installation of such software. The capitalized costs are amor- tized on a straight-line method over the lesser of three years or its useful life. Goodwill and Other Intangibles. Goodwill represents the excess of the purchase price of the former minority interest in the Company’s Indian sub- sidiary over the fair values of amounts assigned to the net assets acquired. Amortization expense had been recorded using the straight-line method over a period of seven years. Amortization expense was $317 for each of the years 28 2. Summary of Significant Accounting Policies Notes to Consolidated Financial Statements (in thousands, except share and per share data)