¹On January 1, 2018, we adopted ASC Topic 606, "Revenue from Contracts with Customers," or the New Revenue Standard, using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. For the three months ended June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31 million, income from operations of $38 million and diluted earnings per share of $0.05 per share.

²Non-GAAP diluted EPS and non-GAAP operating margin exclude stock-based compensation costs and acquisition-related charges, realignment charges (for the three months ended June 30, 2017 only), the initial funding of Cognizant U.S. Foundation (for the three months ended June 30, 2018 only) and, in the case of non-GAAP diluted EPS, net non-operating foreign currency exchange gains or losses and the tax effect of the above adjustments. Reconciliations of non-GAAP diluted EPS and non-GAAP operating margin to the corresponding GAAP measures are included at the end of this release.

³ 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,

2018^(a)

2017^(a)

2018^(a)

2017^(a)

Revenues

$

4,006

$

3,670

$

7,918

$

7,216

Operating expenses:

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

2,417

2,261

4,818

4,455

Selling, general and administrative expenses

805

709

1,516

1,395

Depreciation and amortization expense

114

94

221

190

Income from operations

670

606

1,363

1,176

Other income (expense), net:

Interest income

40

31

81

63

Interest expense

(7)

(6)

(13)

(12)

Foreign currency exchange gains (losses), net

(80)

5

(111)

57

Other, net

—

(1)

—

—

Total other income (expense), net

(47)

29

(43)

108

Income before provision for income taxes

623

635

1,320

1,284

Provision for income taxes

(168)

(165)

(345)

(257)

Income from equity method investments

1

—

1

—

Net income

$

456

$

470

$

976

$

1,027

Basic earnings per share

$

0.78

$

0.80

$

1.67

$

1.72

Diluted earnings per share

$

0.78

$

0.80

$

1.66

$

1.71

Weighted average number of common shares outstanding - Basic

585

589

586

597

Dilutive effect of shares issuable under stock-based compensation plans

1

2

1

2

Weighted average number of common shares outstanding - Diluted

586

591

587

599

Dividends declared per common share

$

0.20

$

0.15

$

0.40

$

0.15

(a) 

On January 1, 2018, we adopted ASC Topic 606, "Revenue from Contracts with Customers," or the New Revenue Standard, using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For the three months ended June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31 million, income from operations of $38 million and diluted earnings per share of $0.05 per share. For the six months ended June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $52 million, income from operations of $67 million and diluted earnings per share of $0.09 per share.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

(in millions, except par values)

June 30,  
 2018^(a)

December 31, 
 2017^(a)

Assets

Current assets:

Cash and cash equivalents

$

901

$

1,925

Short-term investments

3,346

3,131

Trade accounts receivable, net

3,204

2,865

Unbilled accounts receivable

—

357

Other current assets

852

833

Total current assets

8,303

9,111

Property and equipment, net

1,345

1,324

Goodwill

3,036

2,704

Intangible assets, net

1,060

981

Deferred income tax assets, net

367

418

Long-term investments

80

235

Other noncurrent assets

615

448

Total assets

$

14,806

$

15,221

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

217

$

210

Deferred revenue

308

383

Short-term debt

100

175

Accrued expenses and other current liabilities

1,912

2,071

Total current liabilities

2,537

2,839

Deferred revenue, noncurrent

77

104

Deferred income tax liabilities, net

145

146

Long-term debt

649

698

Long-term income taxes payable

508

584

Other noncurrent liabilities

242

181

Total liabilities

4,158

4,552

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, 580 and 588 shares issued
  and outstanding at June 30, 2018 and December 31, 2017, respectively

6

6

Additional paid-in capital

55

49

Retained earnings

10,681

10,544

Accumulated other comprehensive income (loss)

(94)

70

Total stockholders' equity

10,648

10,669

Total liabilities and stockholders' equity

$

14,806

$

15,221

(a) 

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. Upon adoption, we reclassified (i) balances representing receivables, as defined by the New Revenue Standard, from Unbilled accounts receivable to Trade accounts receivable, net and (ii) balances representing contract assets, as defined by the New Revenue Standard, from Unbilled accounts receivable to Other current assets. Balances as of June 30, 2018 are presented under the New Revenue Standard, while prior period balances are not adjusted and continue to be reported in accordance with our historic accounting policies.

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

2018^(a)

2017^(a)

2018^(a)

2017^(a)

Q3 2018

Full Year 2018

GAAP income from operations

$

670

$

606

$

1,363

$

1,176

Add: Stock-based compensation expense ^(b)

71

55

130

109

Add: Acquisition-related charges ^(c)

41

35

82

69

Add: Realignment charges ^(d)

—

39

1

50

Add: Initial funding of Cognizant U.S.
  Foundation ^(e)

100

—

100

—

Non-GAAP income from operations

$

882

$

735

$

1,676

$

1,404

GAAP operating margin

16.7

%

16.5

%

17.2

%

16.3

%

Effect of stock-based compensation expense

1.8

1.5

1.6

1.5

1.6% - 1.8%

Effect of acquisition-related charges

1.0

1.0

1.1

1.0

(c)

Effect of realignment charges

—

1.0

—

0.7

0.1% - 0.2%

Effect of initial funding of Cognizant U.S.
  Foundation

2.5

—

1.3

—

0.6%

Non-GAAP operating margin

22.0

%

20.0

%

21.2

%

19.5

%

approximately 21.0%

GAAP diluted earnings per share

$

0.78

$

0.80

$

1.66

$

1.71

Effect of above operating adjustments, pre-tax

0.36

0.22

0.53

0.38

(b), (c), (d), (e)

(b), (c), (d). (e)

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

0.14

(0.01)

0.19

(0.10)

(f)

(f)

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

(0.09)

(0.08)

(0.13)

(0.14)

(b), (c), (d), (e)

(b), (c), (d), (e)

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

—

—

—

(0.09)

—

—

Non-GAAP diluted earnings per share

$

1.19

$

0.93

$

2.25

$

1.76

at least $1.13

at least $4.50

(a) 

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies.

(b) 

Stock-based compensation expense reported in:

Three Months Ended
 June 30,

Six Months Ended
 June 30,

2018

2017

2018

2017

Cost of revenues

$

16

$

13

$

31

$

28

Selling, general and administrative expenses

55

42

99

81

Our guidance anticipates pre-tax stock-based compensation to be in the range of $0.11 to $0.12 per diluted share for the third quarter of 2018 and $0.45 to $0.47 per diluted share for the full year 2018. 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.

(c) 

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.

(d)

Realignment charges include severance costs, 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. Commencing in Q3 2018 and during the remainder of 2018, we intend to take additional actions to further improve our cost structure primarily by optimizing our resource pyramid. As a result of these actions, we expect to incur $25 million to $35 million in severance costs, or approximately $0.04 to $0.06 per diluted share, on a pre-tax basis during the remainder of 2018. The tax impact of these charges is expected to be $0.01 per diluted share. The final amount and timing of these charges is uncertain and may change as the program continues to develop.

(e)

In the second quarter of 2018, we provided $100 million of initial funding to Cognizant U.S. Foundation, which is focused on science, technology, engineering and math (or collectively, STEM) in the United States. This funding is not expected to recur at this magnitude in the foreseeable future and its impact on full year diluted earnings per share (pre-tax and net of tax) is not expected to change.

(f) 

Non-operating foreign currency exchange gains (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. 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.

(g) 

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,

2018

2017

2018

2017

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

Stock-based compensation expense

$

19

$

20

$

38

$

41

Acquisition-related charges

11

12

20

24

Realignment charges

—

14

—

18

Foreign currency exchange gains (losses)

(8)

—

(9)

5

Initial funding of Cognizant U.S. Foundation

28

—

28

—

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.

(h) 

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.

The above tables serve to reconcile the Non-GAAP financial measures to comparable GAAP measures. Please refer to the "About Non-GAAP Financial Measures" section of our press release for further information on the use of these Non-GAAP measures.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

Schedule of Supplemental Information

(Unaudited)

(dollars in millions)

Three Months Ended June 30, 2018^(a)

 % Change

$

 % of total

 Year over
Year

Revenues by Segment:

Financial Services

$

1,469

36.7

%

4.5

%

Healthcare

1,156

28.9

%

10.1

%

Products and Resources

840

21.0

%

12.4

%

Communications, Media and Technology

541

13.5

%

15.8

%

Total Revenues

$

4,006

9.2

%

Revenues by Geography:

North America

$

3,067

76.6

%

7.6

%

United Kingdom

309

7.7

%

7.3

%

Rest of Europe

381

9.5

%

30.9

%

Europe - Total

690

17.2

%

19.2

%

Rest of World

249

6.2

%

3.8

%

Total Revenues

$

4,006

9.2

%

Six Months Ended June 30, 2018^(a)

 % Change

$

 % of total

 Year over
Year

Revenues by Segment:

Financial Services

$

2,930

37.0

%

5.3

%

Healthcare

2,277

28.8

%

10.9

%

Products and Resources

1,661

21.0

%

11.9

%

Communications, Media and Technology

1,050

13.3

%

17.1

%

Total Revenues

$

7,918

9.7

%

Revenues by Geography:

North America

$

6,042

76.3

%

7.7

%

United Kingdom

619

7.8

%

10.1

%

Rest of Europe

755

9.5

%

31.1

%

Europe - Total

1,374

17.4

%

20.7

%

Rest of World

502

6.3

%

7.7

%

Total Revenues

$

7,918

9.7

%

Employee Metrics:

June 30, 2018

June 30, 2017

Number of employees

268,900

256,800

(a) 

On January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)

Three Months Ended
June 30,

Six Months Ended
June 30,

2018

2017

2018

2017

Cash flows from operating activities:

Net income

$

456

$

470

$

976

$

1,027

Adjustments for non-cash income and expenses

322

157

525

278

Changes in assets and liabilities

(138)

(106)

(473)

(507)

Net cash provided by operating activities

640

521

1,028

798

Cash flows from investing activities:

Purchases of property and equipment

(91)

(60)

(187)

(126)

Net (purchases) of investments

(16)

(329)

(146)

(166)

Payments for business combinations, net of cash acquired

(477)

—

(478)

(6)

Net cash (used in) investing activities

(584)

(389)

(811)

(298)

Cash flows from financing activities:

Repurchases of common stock

(633)

(30)

(949)

(1,544)

Net change in borrowings and capital lease obligations

(25)

(221)

(139)

108

Dividends paid

(118)

(89)

(236)

(89)

Issuance of common stock under stock-based compensation plans

42

43

102

104

Net cash (used in) financing activities

(734)

(297)

(1,222)

(1,421)

Effect of exchange rate changes on cash and cash equivalents

(20)

14

(19)

44

(Decrease) in cash and cash equivalents

(698)

(151)

(1,024)

(877)

Cash and cash equivalents, beginning of period

1,599

1,308

1,925

2,034

Cash and cash equivalents, end of period

$

901

$

1,157

$

901

$

1,157

SUPPLEMENTAL CASH FLOW INFORMATION

(in millions)

Three Months Ended

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

June 30, 2018

June 30, 2017

Number of shares repurchased^(a)

7.2

—

Remaining authorized balance

$

800

(a) 

In June 2018, we entered into an accelerated share repurchase agreement, or ASR, with a financial institution. Under the terms of the June 2018 ASR and in exchange for up-front payments of $600 million, the financial institution initially delivered 6.5 million shares, a portion of the Company's total expected shares to be repurchased under the June 2018 ASR. The total number of shares ultimately delivered, and therefore the average price paid per share, will be determined at the end of the purchase period, which is scheduled to end during the third quarter of 2018, based on the volume-weighted average price of the Company's common stock during that period.

In March 2018, the Company entered into an ASR to purchase up to $300 million of the Company's Class A common stock. In May 2018, the purchase period for the March ASR ended and an additional 0.7 million shares were delivered. In total, 3.7 million shares were delivered under the March ASR at an average repurchase price of $79.95.