¹

Non-GAAP diluted EPS and non-GAAP operating margin exclude stock-based compensation costs and acquisition-related charges, realignment charges and, in the case of non-GAAP diluted EPS, net non-operating foreign currency exchange gains or losses, the effect of recognition of an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position (for the six months ended June 30, 2017 only) and the effect of incremental income tax expense related to the India cash remittance transaction (for the three and six months end June 30, 2016). Reconciliations of non-GAAP diluted EPS and non-GAAP operating margin to the corresponding GAAP measures are included at the end of this release.

²

A full reconciliation of non-GAAP diluted EPS guidance to GAAP diluted EPS guidance on a forward-looking basis cannot be provided without unreasonable efforts, as we are unable to provide reconciling information with respect to acquisition-related charges, realignment charges and net non-operating foreign currency exchange gains or losses, and the tax effects of these adjustments, as well as the tax effects of stock-based compensation expense, all of which are adjustments to non-GAAP diluted EPS. The reconciling information for non-GAAP diluted EPS guidance to GAAP EPS guidance that is available without unreasonable efforts is included at the end of this release.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions, except per share data)

Three Months Ended
 June 30,

Six Months Ended
 June 30,

2017

2016

2017

2016

Revenues

$

3,670

$

3,370

$

7,216

$

6,572

Operating expenses:

Cost of revenues (exclusive of depreciation and amortization expense 
     shown separately below)

2,261

2,038

4,455

3,953

     Selling, general and administrative expenses

709

654

1,395

1,300

     Depreciation and amortization expense

94

87

190

174

Income from operations

606

591

1,176

1,145

Other income (expense), net:

Interest income

31

28

63

59

Interest expense

(6)

(5)

(12)

(10)

Foreign currency exchange gains (losses), net

5

(20)

57

(11)

Other, net

(1)

1

—

1

Total other income (expense), net

29

4

108

39

Income before provision for income taxes

635

595

1,284

1,184

Provision for income taxes

(165)

(343)

(257)

(491)

Income from equity method investment

—

—

—

—

Net income

$

470

$

252

$

1,027

$

693

Basic earnings per share

$

0.80

$

0.42

$

1.72

$

1.14

Diluted earnings per share

$

0.80

$

0.41

$

1.71

$

1.14

Weighted average number of common shares outstanding - Basic

589

606

597

607

Dilutive effect of shares issuable under stock-based compensation plans

2

3

2

3

Weighted average number of common shares outstanding - Diluted

591

609

599

610

Dividends declared per common share

$

0.15

$

—

$

0.15

$

—

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

(in millions, except par values)

June 30,
 2017

December 31,
 2016

Assets

Current assets:

Cash and cash equivalents

$

1,157

$

2,034

Short-term investments

3,221

3,135

Trade accounts receivable, net

2,680

2,556

Unbilled accounts receivable

409

349

Other current assets

632

526

Total current assets

8,099

8,600

Property and equipment, net

1,284

1,311

Goodwill

2,576

2,554

Intangible assets, net

894

951

Deferred income tax assets, net

457

425

Long-term investments

198

62

Other noncurrent assets

430

359

Total assets

$

13,938

$

14,262

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

179

$

175

Deferred revenue

337

306

Short-term debt

244

81

Accrued expenses and other current liabilities

1,655

1,856

Total current liabilities

2,415

2,418

Deferred revenue, noncurrent

133

151

Deferred income tax liabilities, net

5

6

Long-term debt

747

797

Other noncurrent liabilities

155

162

Total liabilities

3,455

3,534

Stockholders' equity:

Preferred stock, $0.10 par value, 15.0 shares authorized, none issued

—

—

Class A common stock, $0.01 par value, 1,000 shares authorized, 590 and 608 shares issued 
     and outstanding at June 30, 2017 and December 31, 2016, respectively

6

6

Additional paid-in capital

128

358

Retained earnings

10,316

10,478

Accumulated other comprehensive income (loss)

33

(114)

Total stockholders' equity

10,483

10,728

Total liabilities and stockholders' equity

$

13,938

$

14,262

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

Reconciliations of Non-GAAP Financial Measures

(Unaudited)

(dollars in millions, except per share amounts)

Three Months Ended
 June 30,

Six Months Ended
 June 30,

Guidance

2017

2016

2017

2016

Q3 2017

Full Year 2017

GAAP income from operations

$

606

$

591

$

1,176

$

1,145

Add: Stock-based compensation expense ^(a)

55

62

109

116

Add: Acquisition-related charges ^(b)

35

30

69

59

Add: Realignment charges ^(c)

39

—

50

—

Non-GAAP income from operations

$

735

$

683

$

1,404

$

1,320

GAAP operating margin

16.5

%

17.5

%

16.3

%

17.4

%

Effect of stock-based compensation expense

1.5

1.9

1.5

1.8

1.4% - 1.7%

Effect of acquisition-related charges

1.0

0.9

1.0

0.9

(b)

Effect of realignment charges

1.0

—

0.7

—

(c)

Non-GAAP operating margin

20.0

%

20.3

%

19.5

%

20.1

%

at least 19.5%

GAAP diluted earnings per share

$

0.80

$

0.41

$

1.71

$

1.14

Effect of above operating adjustments, pre-tax

0.22

0.15

0.38

0.29

(a), (b), (c)

(a), (b), (c)

Effect of non-operating foreign currency 
     exchange (losses) gains, pre-tax ^(d)

(0.01)

0.04

(0.10)

0.01

(d)

(d)

Tax effect of non-GAAP adjustments to pre-tax income ^(e)

(0.08)

(0.04)

(0.14)

(0.08)

(a), (b), (c), (d)

(a), (b), (c), (d)

Effect of recognition of income tax benefit 
     related to an uncertain tax position ^(f)

—

—

(0.09)

—

—

(0.09)

Effect of incremental income tax expense related 
     to the India Cash Remittance ^(g)

—

0.31

—

0.31

—

—

Non-GAAP diluted earnings per share

$

0.93

$

0.87

$

1.76

$

1.67

at least $0.94

at least $3.67

Notes:

(a)     Stock-based compensation expense reported in:

Three Months Ended
 June 30,

Six Months Ended
 June 30,

2017

2016

2017

2016

Cost of revenues

$

13

$

13

$

28

$

26

Selling, general and administrative expenses

42

49

81

90

Our guidance anticipates pre-tax stock-based compensation to be in the range of $0.09 to $0.10 per share for the third quarter of 2017 and $0.38 to $0.39 per share for the full year 2017. We cannot provide the tax effect of stock-based compensation on a forward-looking basis without unreasonable effort as it is subject to significant fluctuations based on the timing and number of stock options exercised by employees, the price of our stock at the time of such exercises and the price of our stock at the time of vesting of other stock-based awards.

(b)  

Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs. We cannot provide acquisition-related charges on a forward-looking basis without unreasonable effort as such charges may fluctuate based on the timing, size, and complexity of future acquisitions as well as other uncertainty inherent in mergers and acquisitions.

(c)   

Realignment charges include severance costs, primarily associated with the voluntary separation program, or VSP, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations and are expected to be incurred primarily in 2017. As part of our realignment program, management is currently evaluating various strategies, including real estate consolidation and possible additional severance programs. The timing, nature and magnitude of these initiatives are not finalized at this time. As such, we cannot provide realignment charges on a forward-looking basis without unreasonable effort.

(d)   

Non-operating foreign currency exchange gains are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, reported in "Foreign currency exchange gains (losses), net" in our consolidated statements of operations. Non-operating foreign currency exchange gains and losses are subject to high variability and low visibility and therefore cannot be provided on a forward-looking basis without unreasonable efforts.

(e)  

Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:

Three Months Ended
 June 30,

Six Months Ended
 June 30,

2017

2016

2017

2016

Non-GAAP income tax benefit (expense) related to:

Stock-based compensation expense

$

20

$

15

$

41

$

27

Acquisition-related charges

12

11

24

22

Realignment charges

14

—

18

—

Foreign currency exchange gains (losses)

—

—

5

1

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

(f)   

During the three months ended March 31, 2017, we recognized an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position of $55 million. The recognition of the benefit in the first quarter of 2017 was based on management's reassessment regarding whether this unrecognized tax benefit met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefit.

(g)  

In May 2016, our principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of this transaction, we incurred an incremental income tax expense of $190 million in the second quarter of 2016.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

Schedule of Supplemental Information

(Unaudited)

(dollars in millions)

Three Months Ended June 30, 2017

 % Change

$

 % of total

 Sequential

 Year over Year

Revenues by Segment:

Financial Services

$

1,406

38.3

%

2.2

%

4.1

%

Healthcare

1,050

28.6

%

4.7

%

9.5

%

Products and Resources ^(a)

747

20.4

%

1.4

%

13.2

%

Communications, Media and Technology ^(b)

467

12.7

%

8.6

%

16.8

%

Total Revenues

$

3,670

3.5

%

8.9

%

Revenues by Geography:

North America

$

2,851

77.7

%

3.3

%

8.7

%

United Kingdom

288

7.8

%

5.1

%

(7.4)

%

Rest of Europe

291

7.9

%

2.1

%

22.8

%

Europe - Total

579

15.8

%

3.6

%

5.7

%

Rest of World

240

6.5

%

6.2

%

21.2

%

Total Revenues

$

3,670

3.5

%

8.9

%

Six Months Ended June 30, 2017

 % Change

$

 % of total

 Year over
Year

Revenues by Segment:

Financial Services

$

2,782

38.6

%

5.5

%

Healthcare

2,053

28.5

%

9.6

%

Products and Resources ^(a)

1,484

20.6

%

14.8

%

Communications, Media and Technology ^(b)

897

12.4

%

16.6

%

Total Revenues

$

7,216

9.8

%

Revenues by Geography:

North America

$

5,612

77.8

%

9.6

%

United Kingdom

562

7.8

%

(7.9)

%

Rest of Europe

576

8.0

%

24.4

%

Europe - Total

1,138

15.8

%

6.1

%

Rest of World

466

6.5

%

23.3

%

Total Revenues

$

7,216

9.8

%

Employee Metrics:

June 30, 2017

March 31, 2017

June 30, 2016

Number of employees

256,800

261,200

244,300

Notes:

(a)  

Previously referred to as Manufacturing/Retail/Logistics.

(b)    

Previously referred to as Other.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)

Three Months Ended
 June 30,

Six Months Ended
 June 30,

2017

2016

2017

2016

Cash flows from operating activities:

Net income

$

470

$

252

$

1,027

$

693

Adjustments for non-cash income and expenses

157

123

278

337

Changes in assets and liabilities

(106)

(9)

(507)

(592)

Net cash provided by operating activities^(a)

521

366

798

438

Cash flows from investing activities:

Purchases of property and equipment

(60)

(75)

(126)

(139)

Net sales (purchases) of investments

(329)

124

(166)

30

Payments for business combinations, net of cash acquired

—

(81)

(6)

(151)

Net cash provided by (used in) investing activities

(389)

(32)

(298)

(260)

Cash flows from financing activities:

Repurchases of common stock

(30)

(77)

(1,544)

(335)

Net change in borrowings and capital lease obligations

(221)

(114)

108

(377)

Dividends paid

(89)

—

(89)

—

Issuance of common stock under stock-based compensation plans

43

41

104

91

Net cash (used in) financing activities^(a)

(297)

(150)

(1,421)

(621)

Effect of exchange rate changes on cash and cash equivalents

14

(24)

44

2

(Decrease) in cash and cash equivalents

(151)

160

(877)

(441)

Cash and cash equivalents, beginning of year

1,308

1,524

2,034

2,125

Cash and cash equivalents, end of period

$

1,157

$

1,684

$

1,157

$

1,684

SUPPLEMENTAL CASH FLOW INFORMATION

(in millions)

Three Months Ended

Stock Repurchases under Board of Directors' authorized stock 
     repurchase program:

June 30, 2017

March 31, 2017

June 30, 2016

Shares repurchased^(b)

—

21.5

0.8

Remaining authorized balance

$

2,000

Notes:

(a)  

In March 2016, the FASB issued an update to the standard on stock compensation, which among other things, changed the classification of the excess tax benefits and deficiencies in the statement of cash flows to cash flows from operating activities. We adopted this standard on January 1, 2017 and conformed prior year presentation. This resulted in a $7 million reduction in net cash used in financing activities and a $7 million increase in the net cash provided by operating activities for the three months ended June 30, 2016 and a $10 million reduction in net cash used in financing activities and a $10 million increase in the net cash provided by operating activities for the six months ended June 30, 2016.

(b)  

In March 2017, we entered into accelerated share repurchase agreements, referred to collectively as the ASR with certain financial institutions. Under the terms of the ASR and in exchange for up-front payments of $1.5 billion, the financial institutions initially delivered 21.5 million shares, a portion of total expected shares to be repurchased under the ASR. The total number of shares ultimately delivered is determined at the end of the applicable purchase periods under the ASR based on the volume-weighted average price of our common stock during such periods. The ASR purchase periods are scheduled to end during the third quarter of 2017.