19

98

AN

NU

AL

R

EP

OR

T

Our Expertise

Knows No

Boundaries.

Cognizant Technology Solutions

COGNIZANT TECHNOLOGY SOLUTIONS COGNIZANT’S CORE

COMPETENCIES INCLUDE INTERNET AND E-COMMERCE, DATA

WAREHOUSING, OBJECT-ORIENTED DEVELOPMENT, AND LARGE

SCALE CLIENT/SERVER AND LEGACY APPLICATIONS. THE

COMPANY’S SERVICES INCLUDE APPLICATION DEVELOPMENT

AND INTEGRATION, MAINTENANCE AND RE-ENGINEERING,

YEAR 2000, AND EURO CURRENCY COMPLIANCE.

HEADQUARTERED IN NEW JERSEY, COGNIZANT HAS SEVEN OFF-

SHORE DEVELOPMENT CENTERS IN INDIA, AND OFFICES IN NEW

JERSEY, CHICAGO, SAN FRANCISCO, TORONTO, AND LONDON.

Cognizant Technology

Solutions (“Cognizant”) works in partnership with Chief Information

Officers to provide high-quality, cost-effective, full life-cycle solutions

to leading corporations in diverse industries. Cognizant’s unwavering

commitment to technological excellence, the strength of its full life-

cycle project focus, and a high degree of customer satisfaction have

fostered the development of long-term customer relationships.

Cognizant’s unique on-site/offshore virtual team model enables the

Company to deliver exceptional value and world-class quality solutions

to its clients. The Company seamlessly integrates the work of the

team members located at seven development centers in India with

highly-skilled project managers and team members based at customer

sites in North America and Europe by implementing its proven propri-

etary processes, supporting IT infrastructure and high-bandwidth

network, which facilitate team communication and collaboration.

Through an industry-leading recruiting and training model, Cognizant

consistently attracts and retains top talent in India, currently one of

the largest and most cost-effective markets for technology talent in

the world.

Within the context of its client partnership, the Company offers:

new application development and integration services, including

client/server, e-commerce and data warehousing; and application

management services, which clients use to maintain existing

applications and extend their life, for example by adding Internet

functionality or re-engineering to new platforms.

The Company has a proven track record of leveraging its offshore

model to deliver solutions that are consistently on schedule, on budget

and on target. This winning formula provides substantial cost, quality,

and speed to market benefits and opens up a whole new realm of

business and competitive possibilities for Cognizant’s clients.

Cognizant’s results during 1998 reflect the continuing success of

this formula.

1

REVENUE(thousands)

OPERATING INCOME(thousands)

$10,000

8,000

6,000

4,000

2,000

0

-2,00094 95 96 97 98

$60,000

50,000

40,000

30,000

20,000

10,000

094 95 96 97 98

EMPLOYEES

2,000

1,500

1,000

500

094 95 96 97 98

$58,

606

$24,

744

$12,

032

$7,1

75

$1,6

87

$8,9

18

$2,1

29

$1,4

66

$1,0

19

($26

3)

1,56

0

990

575

365

175

1 9 9 8 C O M PA N Y P R O F I L E

Financial Highlights

2

Cognizant has

mastered the art of

leveraging a large

offshore talent pool to

offer its clients world-

class, cost-effective

IT solutions.

Cognizant has

mastered the art of

leveraging a large

offshore talent pool to

offer its clients world-

class, cost-effective

IT solutions.

At Cognizant, we’ve always been great believ-ers in the value of making a good first impression. 1998 was our first year as a publiccompany, and it made an impression that immediately captured the attention of ourindustry, our existing and prospective customers, and the investment community.

Our financial performance was a big part of the story. From the year endedDecember 31, 1997 to the year ended December 31, 1998:

• total revenue increased 137 percent to $58.6 million, up from $24.7 million• net income rose sixfold to $6.0 million from $1.0 million• diluted earnings per share were $0.73 as compared to $0.16

What’s equally remarkable is that while producing these results, we also achievedimpressive growth as an organization. During 1998, our Company nearly doubled itsclient base, ramped up staff from 990 to 1560, substantially improved already highcustomer satisfaction scores, and more than doubled our sales and account manage-ment organization at four new offices in North America and Europe.

The Company’s growth from 1994 through 1998 is even more impressive. In 1994,our revenue was just $1.7 million. We had 175 employees and just one client. In1998, our 1560 employees helped the Company to generate $58.6 million in revenuethrough work with 40 clients.

In December, Cognizant became one of only 18 organizations worldwide to be recog-nized with SEI-CMM Level 4 Certification. SEI-CMM, the capability maturity modeldeveloped by the Software Engineering Institute at Carnegie Mellon, is widelyregarded as the best way to measure the process maturity of a software organization.Process maturity translates directly into better quality, higher productivity, and strong

3

Q3 1996Cognizant expands developmentoperations in India with the inaugu-ration of its facility in Calcutta.

Q1 1996Cognizant receives ISO 9001certification for its India developmentcenters, demonstrating the strengthof its quality processes.

Q4 1996The Dun & Bradstreet Corporationcompletes its trivestiture andCognizant begins selling tocustomers outside of The Dun& Bradstreet Corporation.

Q1 1997Cognizant begins building NorthAmerican marketing infrastructureand sales force.

Q1 1994Cognizant established in Madras,India as an in-house technologydevelopment facility for The Dun& Bradstreet Corporation and itsoperating units.

Significant Events inCognizant TechnologySolutions’ History:

T O O U R S H A R E H O L D E R S

Who W

e Are

Shareholders Letter

competitive advantage. According to the Lead Assessor for KPMG,which evaluated our performance, our inclusion in this elite groupreflects “the vision and leadership of the senior management team,the professional and technical excellence of the associates, and thesolid quality management system that guides the day-to-day work ofeveryone at CTS.”

How have we accomplished so much? At the core of our success isour ability to build long-term, high-quality partnerships with ourcustomers. We often start with a single project for a new client but

through proactive account management develop long-term customer relationshipsthat evolve over the course of a series of projects. For example, in 1998, more than80% of our revenue was from existing clients. Almost every company thathas awarded us a Y2K contract has gone on to award additional contracts to ourteam. And we maintain team continuity as those projects progress becauseCognizant is distinguished by one of the lowest employee turnover rates in theindustry. Employee retention at Cognizant exceeds 85% — well above the industrynorm.

As companies grapple with a growing IT agenda of mission-critical projects thathave to be addressed within the confines of a limited budget, Cognizant deliverstop-quality solutions whose hallmarks are a high level of cost-effectiveness and aspeed to market made possible by our unique on-site/offshore model. We win repeatbusiness not just because we have the expertise our clients need, but also becausewe offer a strong value proposition.

4

(Shareholders Letter cont’d)

WijeyarajMahadevaChairmanand CEO

Q2 1998Cognizant completes initial publicoffering of 2,917,000 shares of ClassA Common Stock at a price of $10per share.

Q2 1998Cognizant expands sales andmarketing efforts in North Americaand opens offices in Chicago andSan Francisco.

Q3 1998Cognizant named fastest growingsoftware exporter in India.

Significant Eventsin 1998:

Q1 1998Cognizant opens computing centerin its India facility to further enhanceits ability to provide solutions inadvanced technologies.

Q1 1998Cognizant opens London officeand begins building a Europeanmarketing infrastructure andsales force.

Q4 1998Cognizant establishes “CognizantAcademy” to train its employees inadvanced technologies and industrypractices.

Q3 1998Cognizant launches Netolutions,its web-centric solutions practice.

Q4 1998Cognizant wins contracts from fournew customers and announcesmulti-phase agreement with SierraHealth Services for a range ofsystems integration services.

Q4 1998Cognizant achieves SEI-CMM Level4 Certification, signifying that it has awell-defined, measured process fordeveloping and maintaining softwaresolutions that is integrated into itsmanagement process.

Q3 1998Cognizant wins four new customersand announces that CCCInformation Services has namedCognizant as its applications devel-opment and maintenance partner.

5

This success in extending our relationships with our clients givesCognizant strong revenue and earnings visibility and predictabilityand the ability to continue margin expansion.

And we’re just getting started. As we continue to see our customersatisfaction rates measured in repeat business and client referrals, wesee many exciting opportunities for further growth. We see substantialgrowth from existing clients, from our expanded geographic coverageand marketing organization, and our new practices in healthcare,e-commerce, and data warehousing. Because now that we’ve madesuch a good first impression, we’re focused on making a lasting impression.

On behalf of our Board of Directors and executive team, we want to express ourthanks to our employees, customers, and shareholders. We’re grateful for your belief inCognizant during its first year as a public company, and we look forward to showingyou how much more our team can accomplish as we advance toward the opportuni-ties of 1999 and the century ahead.

Sincerely yours,

Wijeyaraj Mahadeva Lakshmi NarayananChairman and Chief Executive Officer President and Chief Operating Officer

LakshmiNarayananPresidentand COO

6

At the core of our

success is our

ability to build

long-term, high

quality partnerships

with our customers.

At the core of our

success is our

ability to build

long-term, high-

quality partnerships

with our customers.

At corporations through-

out the world, Chief Information Officers are facing the same difficult

challenges.

Their IT departments are expected to play increasingly important roles in

a growing number of mission-critical projects. They face increasing cus-

tomer demands to improve service levels, lower costs and shorten time to

market. CIOs must continually maintain and enhance back office legacy

applications and ERP systems while building a slew of new strategic front

office applications such as e-commerce, data warehousing, and sales

force management. Crucial projects that were deferred to ensure Y2K

compliance are now in critical need of attention.

But technology is advancing so rapidly that corporate IT departments

can’t keep pace – and neither can IT budgets. Rapid change in technolo-

gy also has another implication. It is increasingly important to stay flexi-

ble as the pace of change accelerates, and it is therefore strategically less

attractive to build IT capabilities in-house.

At the same time, demand for quality IT talent is escalating far beyond

the number of qualified people available for hire, and corporate IT groups

are finding it difficult to attract and retain the talent they need. As a con-

sequence, many IT groups have turned to IT contractors for help, but find

that managing numerous small relationships is unwieldy. As a result,

many are working to consolidate their sourcing relationships and work

with a limited number of key partners who can help them accomplish

their growing agenda.

Cognizant is a direct beneficiary of these trends. Cognizant has access to

a large, highly qualified pool of offshore resources and provides top quali-

ty solutions which address a large portion of a CIO’s agenda. As a result,

Cognizant is strongly positioned to become one of the CIO’s key partners.

Operations Review

7

Operations R

eview

L A R G E M A R K E T O P P O RT U N I T Y

SIERRA HEALTH SERVICESSierra Health Services, Inc., headquartered

in Las Vegas, Nevada, is one of the nation’sfastest growing integrated healthcare deliverysystems. The company has experienced phe-nomenal growth over the last decade, and nowserves more than 1.3 million people throughmanaged health care plans, a workers’compensation insurer and a military healthsubsidiary operating in 13 states in thenortheastern United States.

The Cognizant/Sierra Health Services part-nership began in 1997 following Sierra’s pur-chase of the Erisco Facets managed caresoftware package as its key operationalsystem. Cognizant’s first assignment was to:

• specify and create customized reportsfrom data contained in FacetsUsing the knowledge team members gained

while successfully completing this initialproject, Cognizant has expanded its workfor Sierra Health to include:

• integrating Facets with Sierra’s othersystems• creating enhancements and “add-ons”that extend Facets’ core functionality• supporting Sierra’s data warehousinginitiative and providing databaseadministration services

“We visited Cognizant’s computing facilitiesin India and were very impressed with theiron-site/offshore systems integration model,their programming capabilities, and their highcaliber of professionalism. Cognizant’s exper-tise on the technological platforms andadvanced database applications we wereinstalling was extremely valuable to us.”

– Wayne Haddad,

Chief Information Officer,

Sierra Health Services

Industry sources estimate the market for software maintenance, support,

development and integration services was $135 billion in 1998 and

expect it to grow at 16 percent over the next few years. Cognizant is only

starting to penetrate this huge market. Many billions of dollars of opportu-

nity lie ahead.

Cognizant

has mastered the art of leveraging a large offshore talent pool to offer its

clients world-class, cost-effective IT solutions. By using its unique on-

site/offshore virtual team model, the Company has proven its ability to

deliver a comprehensive range of successful solutions at dramatic savings

– as much as 60% less than the cost of having the same work completed

either in-house or by any of Cognizant’s U.S. peers.

While working toward consolidating relationships with a small number of

key strategic partners, Cognizant’s clients look to the resource availability,

flexibility, cost-effectiveness and technical excellence that partnering with

Cognizant provides with its full range of offerings. In this manner,

Cognizant’s value proposition extends to increasing its clients’ productivity

while reducing their risks. Cognizant’s on-site/offshore model facilitates

the design and deployment of high-quality solutions and completion of

large complex projects in a timely and cost-effective manner. Unlike most

companies in the offshore services

business, Cognizant has not

been involved in

staff augmen-

tation services.

From its early

days as a development center

for The Dun & Bradstreet

Corporation, the focus has been on full life-cycle development projects or

maintenance assignments delivered to the highest quality standards.

The quality of the Company’s work has been independently assessed and

certified by KPMG, whose audit resulted in Cognizant being awarded the

highly coveted SEI-CMM Level 4 and ISO 9001 certifications across all of

its development centers. Robust infrastructure is another key aspect of

8

(Operations Review cont’d)

CUSTOMER SITE

CTS INDIADEVELOPMENT

CENTER SITE

DetailDesign

Construction& Unit Test

ApplicationTest

IntegrationTest

Pilot/Acceptance

High-LevelDesign

Development Coordination

SEAMLESS ON-SITE / OFFSHORE MODEL

Most Cognizant projects are delivered bya global virtual team with 20 to 30% of theteam members located at the customer site,and 70 to 80% of the team located at aCognizant offshore development center. Thecustomer site team members interact dailywith the customer to define requirements,review prototypes and manage scope changes.The offshore team members ensure qualityexecution at low cost, and access toCognizant’s technology competency centers.On-site and offshore team members collabo-rate on common global systems, linked byCognizant’s global network.

C O M P R E H E N S I V E Q U A L I T Y S O L U T I O N S

9

the Cognizant model. Through high-bandwidth communications, the

Company seamlessly integrates the offshore and on-site portions of each

project team on a 24 hour, 7 day basis.

And with more than 1500 expert professionals on staff, the Company

can respond rapidly to clients’ needs for a wide range of solutions.

Cognizant’s services include:

System development and integration

Internet and e-commerce: Cognizant takes end-to-end responsibility for

designing, developing, deploying and maintaining e-commerce sites

and other Internet-technology based applications.

Data warehousing: Cognizant develops, populates and maintains data

warehouses to help clients gain analytical insight from production

data.

Object-oriented development: Cognizant builds next-generation systems

using COM/DCOM and CORBA frameworks and re-engineers legacy

systems to an object framework.

Client/server solutions: Cognizant leverages its expertise in new

client/server technologies to develop and maintain, complex large-

scale systems.

Package integration: Cognizant performs development and data

conversion work needed to integrate software packages with the

client’s existing environment, for example the Erisco Facets

package for HMOs.

Application management

Maintenance: Cognizant takes responsibility for production support and

maintenance of existing client systems. Cognizant documents and

re-engineers code to improve quality and reduce maintenance cost.

Legacy extension: Cognizant helps clients extend the life of legacy

systems by adding new functionality and user interfaces.

Re-engineering: Cognizant re-engineers legacy systems to new platforms,

which make it easier to maintain and extend the application.

Web-enabling: Cognizant adds Internet functionality to legacy systems.

NIELSEN MEDIA RESEARCHNielsen Media Research, the leading

provider of television ratings services in theU.S. and Canada, serves a national and localcustomer base that includes television net-works and affiliates, independent stations,syndicators, cable networks, cable systems,advertisers and their agencies. These cus-tomers use Nielsen Media’s television audi-ence research information to buy and selltelevision time and make programmingdecisions.

The two companies first partnered in 1995,when Nielsen Media engaged Cognizant toprovide on-site consulting services in supportof its media projects.

As Cognizant gained in-depth knowledge ofNielsen Media’s core IT systems and businessprocesses, its responsibilities grew. In 1996,Nielsen Media awarded Cognizant a contractfor the development of “New Millennium,” anend-to-end client/server development projectmanaged by Cognizant under Nielsen Media’sdirection. The project incorporated severalleading-edge technologies, took approximately350 person-months to complete, and offeredsolid proof of the advantages of using the on-site/offshore virtual team to develop largecomplex systems.

The successful completion of this projectcemented the companies’ relationship, whichsince has expanded to include such majorinitiatives as:

• ensuring Nielsen Media’s year 2000compliance• positioning Nielsen Media for theInternet revolution• maintaining Nielsen Media’s coreoperational systems• preparing Nielsen Media for the adventof digital television

“Here’s a software company that really getsit. Cognizant isn’t just out to fulfill a contract;they’re totally committed to our success. Theywant to be partners at Cognizant, and here atNielsen Media, they’ve succeeded.”

– Susan Buchanan,

General Manager, Operations,

Nielsen Media Research

GUARANTY NATIONALGuaranty National is a leading provider of

nonstandard personal automobile insurancewritten through approximately 12,000 inde-pendent agents in 35 states. The company isa wholly-owned subsidiary of Orion CapitalCorporation, a Fortune 1000 company withassets in excess of $4 billion.

In early 1998, Guaranty National awardedCognizant its first contract. Cognizant’s assign-ment was to provide Year 2000 complianceservices related to systems that were assimi-lated into Guaranty National’s portfolio ofapplications following an acquisition.

With the knowledge Cognizant gainedduring this initial project about GuarantyNational’s systems and business, the Companydemonstrated its ability to take on additionalprojects, including the re-engineering andporting of a core application that handles poli-cies, billing information, claims, and statisti-cal information.

Today, Cognizant serves as one of GuarantyNational’s principal providers of IT outsourcingsolutions.

“CTS has demonstrated that it has a trulyeffective, seamless on-site/offshore model,accompanied by a sound QA methodology andthe discipline to execute it. This has resultedin one transparent team working 24x7 to suc-cessfully meet our aggressive deadlines. Weare now moving ahead with additional partner-ship plans with Cognizant to further enhanceour business capabilities.”

– Betty J. Higby,

Assistant Vice President

of Information Systems (IS),

Guaranty National

Mass change

Y2K compliance: Cognizant takes end-to-end responsibility for Y2K

enabling, testing and implementing the remediated code.

Euro compliance: Cognizant helps clients re-engineer systems in

preparation for the EMU.

Decimalization: Cognizant takes end-to-end responsibility for converting

stock exchanges to decimalized trading.

Research and Development

Through its R&D group, Cognizant helps clients prototype and benchmark

new technology solutions.

Cognizant’s broad range of service offerings is a key competitive advan-

tage as clients move to consolidate around fewer service partners.

Cognizant maintains its

high standards of performance by aggressively recruiting and continually

developing some of the most accomplished IT talent in India. Cognizant

starts with a major investment in building its brand name at major univer-

sities in India through an industry-leading campus recruiting program.

Cognizant conducts an arduous selection process to skim the cream off

the top. Only the top 6% of applicants from the top 45 schools receive

offers from Cognizant, and the acceptance rate is more than 80%. There

is then substantial training, starting with an initial six-month program of

classroom and on-the-job training, enhanced by additional annual training

to ensure that all consultants are well versed in all processes, methodolo-

gies and emerging technologies. The Company is known to India’s IT

professionals as an “employer of choice”, and furthers that reputation by

maintaining a corporate culture that recognizes and rewards achievement.

The ability to

cultivate a big-picture perspective is the difference between a company that

fixes isolated problems and a leader like Cognizant that delivers total sys-

tem solutions. The Company’s strategy is to leverage its relationships with

customers into additional project opportunities through collaboration with

them in developing both a command of the client’s systems and expert

insight into its objectives and the steps it must take to reach their goals.

(Operations Review cont’d)

10

S T R O N G C U S T O M E R R E L AT I O N S H I P S

H I G H Q U A L I T Y P R O F E S S I O N A L S

11

Cognizant targets IT-intensive customers who require a wide range of

technology solutions. Companies first turn to Cognizant because they can

rely on the Company for its flexibility, technical excellence and cost-effec-

tiveness. Their level of satisfaction is demonstrated by the fact that they

turn to Cognizant again and again for assistance in resolving a growing

range of complex IT problems. Just as no component of a company’s sys-

tem works in isolation, no solution developed by the Cognizant team is

isolated to the immediate problem at hand. From the beginning of every

partnership, Cognizant adds value to its offerings by assessing the client’s

full applications portfolio and thinking in terms of how it can become an

indispensable partner, by providing a range of solutions. The goal, follow-

ing a thorough analysis of the customer’s IT activities, is to capture up to

50% of its development and maintenance budget.

As Cognizant delivers solutions in areas as diverse as e-commerce, data

warehousing and system maintenance, its clients’ own IT teams can focus

on their own businesses.

And by continuing to strengthen the breadth and depth of its technologi-

cal expertise and its range of solutions, Cognizant continually broadens

and adds value to the scope of services it can offer its clients. This ongo-

ing commitment is a key component of Cognizant’s strategy for develop-

ing long-term client relationships and expanding its customer base.

Consistently high levels of customer satisfaction and repeat business

demonstrate how well this strategy works. It’s a strategy that pays off for

both Cognizant and its clients.

Cognizant is strongly positioned

in the multi-billion dollar IT services market. Its existing customer

relationships continue to grow as clients see the business benefits of

Cognizant’s unique business model.

The Company makes a substantial investment in its account management

organization to facilitate this growth. At a majority of its clients’ sites,

Cognizant has a dedicated on-site account manager who is constantly

looking for ways to add value and extend the client relationships. As

I N V E S T M E N T I N G R O W T H

12

FIRST DATA INVESTORSERVICES GROUP

First Data Investor Services Group, a sub-sidiary of First Data Corporation (NYSE: FDC),is one of the nation’s leading providers ofmutual fund and retirement services. The com-pany currently services 26 million shareholderaccounts with a portfolio greater than $800billion, as well as providing services to more

than 20,000 retirement plans and over 3 mil-lion participants. First Data Investor ServicesGroup currently provides services to approxi-mately 200 financial institutions, includingbanks, mutual fund complexes, investmentadvisory firms, insurance companies, broker-age firms and benefits consulting firms.

Cognizant’s partnership with First Data beganin 1996 with a large Year 2000 project thatinvolved the transition of 11 million lines ofCOBOL code. First Data called upon theCognizant team to handle the Year 2000 pro-ject, with a fixed completion date of year-end1998. Cognizant employed its high speednetwork to work directly on First Data’s com-puters from its Indian development centers.

By maintaining an aggressive schedule,Cognizant completed the entire project by lateNovember 1998, more than a month beforeFirst Data’s fixed end date.

Early in 1998, the scope of Cognizant’s workfor First Data expanded to include new productdevelopment, maintenance, and by mid-year,Cognizant also had a role in areas as diverseas new business conversions, offshore mainte-nance of mission critical systems, and devel-opment of system enhancements to meet thespecifications of First Data’s customers.

In just two years, First Data has become oneof Cognizant’s largest customers.

“Cognizant is a world-class offshore soft-ware development and information servicescompany.”

– Chuck Gallant,

Chief Information Officer,

First Data Investors Services Group

Cognizant grows geographically and expands its sales force, it is also

adding an increasing number of new clients.

At the same time, the Company is expanding its capabilities and service

offerings to better serve its customers. In the last year, Cognizant saw

rapid growth in several practices, including Healthcare, Internet and

e-commerce, Data Warehousing and Object Oriented Development.

Because of the low cost of R&D at its offshore development centers,

Cognizant is able to invest substantial resources in new practice areas

to keep up with new technology and to train its people. It is not just

client dollars that go further with the Cognizant model. The Company’s

investment dollars also go much further. Cognizant’s investment commit-

ment is therefore highly leveraged and allows the Company to race ahead

of the competition.

Its R&D capabilities also allow Cognizant to advise clients on how best to

apply new technologies to their business problems and benchmark new

solutions to determine their viability in large-scale production environ-

ments. These services add substantial value to Cognizant’s client services,

and serve to cement already strong relationships.

And of course Cognizant continues to invest in quality. The Company has

a large software engineering group and assigns quality facilitators to every

significant client project. Once again, because of its low cost structure,

Cognizant is able to make investments that its competitors can only

dream of. The Company’s organization-wide SEI–CMM Level 4 certifica-

tion is one especially noteworthy product of its quality initiatives.

Finally, Cognizant continues to invest in infrastructure. Its development

centers are world-class, and in 1998 it added three new centers with

capacity for 750 professionals. Cognizant also substantially expanded its

communications network, the “digital nerve center” of the Company’s

operation. This network allows direct access to customer systems in North

America and Europe for development and maintenance work and keeps

the Indian development centers tightly linked with client-site personnel,

making the seamless on-site/offshore model work.

(Operations Review cont’d)

13

I N D E X T O F I N A N C I A L R E V I E W

Management’s Discussion and Analysisof Financial Condition and Results of Operations 15

Report of Independent Accountants 20

Statement of Management’s Responsibilityfor Financial Statements 20

Consolidated Statements of Operations 21

Consolidated Statements of Financial Position 22

Consolidated Statements of Cash Flows 23

Consolidated Statements of Stockholders’ Equity 24

Notes to Consolidated Financial Statements 25

Unaudited Quarterly Financial Data 33

Selected Consolidated Financial Data 34

Directors and Officers/Corporate Information 35

Management’s Review of Operations and Financial ConditionsFinancials

14

CO

GN

IZA

NT

TECH

NO

LOG

Y S

OLU

TIO

NS

15

General

The Company delivers full life cycle software development andmaintenance technology consulting services to its customersthrough the use of a seamless on-site and offshore projectteam. These services include application development andmaintenance services, Year 2000 and Eurocurrency compli-ance services, testing and quality assurance services and re-hosting and re-engineering services.

The Company began its software development and mainte-nance services business in early 1994, as an in-house tech-nology development center for The Dun & BradstreetCorporation and its operating units. In 1996, the Company,Erisco, Inc. (“Erisco”), IMS International Inc. (“IMS”), NielsenMedia Research, Inc., Pilot Software Inc. and SalesTechnologies, Inc. and certain other entities, plus a majorityinterest in Gartner Group, Inc. were spun-off from The Dun &Bradstreet Corporation to form Cognizant. In 1997, theCompany purchased the 24.0% minority interest in its Indiansubsidiary from a third party for $3.4 million, making theIndian subsidiary wholly owned by the Company. In June1998, the Company completed its IPO. On June 30, 1998,a majority interest in the Company, Erisco, IMS and certainother entities were spun-off from Cognizant to form IMSHealth. At December 31, 1998, IMS Health owned approxi-mately 61.7% of the outstanding stock of the Company andheld approximately 94.2% of the combined voting power ofthe Company’s Common Stock. During 1996, the Companymade a strategic decision to attract customers that were notaffiliated with Cognizant or any of the former affiliates of TheDun & Bradstreet Corporation. As a result, sales from cus-tomers not currently or previously affiliated with The Dun &Bradstreet Corporation, Cognizant, IMS Health, and any oftheir respective subsidiaries grew from $1.3 million, or 11.2%of revenues, in 1996 to $6.5 million, or 26.3% of revenues,in 1997 and $26.9 million, or 46.0% of revenues, in 1998.

Approximately 88.8%, 73.7% and 54.0% of the Company’srevenues in 1996, 1997 and 1998, respectively, were gener-ated from current and former affiliates of the Company includ-ing approximately 15.7%, 23.7% and 18.0%, respectively,from IMS Health and its current subsidiaries. In addition,the Company has derived and believes that it will continue toderive a significant portion of its revenues from a limited num-ber of large third-party customers. During 1996, 1997 and1998, the Company’s five largest customers (other than IMSHealth and its current subsidiaries) accounted for 80.7%,50.8% and 43.7% of revenues, respectively. In 1996, TheDun & Bradstreet Corporation accounted for more than 75.0%of revenue. In 1997, Cognizant Corporation and

ACNielsen accounted for more than 40.0% and 10.0% of rev-enues, respectively. In 1998, IMS Health, First DataCorporation and ACNielsen each accounted for more than10.0% of revenue. The volume of work performed for IMSHealth and its subsidiaries and other customers is likely tovary from year to year, and a major customer, whether affiliat-ed or unaffiliated, in one year may not provide the same levelof revenues in any subsequent year.

Approximately 26.4%, 44.4% and 44.1% of the Company’srevenues were derived from Year 2000 compliance services in1996, 1997 and 1998, respectively. Application developmentservices represented approximately 20.9%, 19.4% and 25.8%of the Company’s revenues in 1996, 1997 and 1998, respec-tively. Application maintenance services accounted for 44.2%,28.4% and 21.1% of the Company’s revenues in 1996, 1997and 1998, respectively.

The Company’s services are performed on either a time-and-materials or fixed-price basis. The Company expects that anincreasing number of its future projects will be fixed-pricerather than time-and-materials (which has historically been thebasis for its contracts). Revenues related to time-and-materi-als contracts are recognized as the service is performed.Revenues related to fixed-price contracts are recognized usingthe percentage-of-completion method of accounting, underwhich the sales value of performance, including earningsthereon, is recognized on the basis of the percentage thateach contract’s cost to date bears to the total estimated cost.Estimates are subject to adjustment as a project progresses toreflect changes in expected completion costs. The cumulativeimpact of any revision in estimates of the percentage of workcompleted is reflected in the financial reporting period inwhich the change in the estimate becomes known, and anyanticipated losses are recognized immediately. Since theCompany bears the risk of cost over-runs and inflation associ-ated with fixed-price projects, the Company’s operating resultsmay be adversely affected by changes in estimates of contractcompletion costs.

The majority of the Company’s revenues are earned withinNorth America. Revenues outside of North America totaled$2.4 million, $3.5 million and $10.7 million in 1996, 1997and 1998, respectively. Revenues from customers located out-side of North America have historically been generated primar-ily in the United Kingdom and Germany. As a percentage ofrevenues, revenues outside of North America represented19.9%, 14.3% and 18.3% in 1996, 1997 and 1998, respec-tively. The primary denomination for invoices issued by theCompany is U.S. dollars, with the exception of invoices issuedin Canada and the United Kingdom which are issued in localcurrency. Gains and losses as a result of fluctuations in foreigncurrency exchange rates have not had a significant impact onresults of operation.

Management’s Discussion and Analysisof Financial Condition and Results of Operations

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Results of OperationsThe following table sets forth for the periods indicated certainfinancial data expressed as a percentage of total revenue:

Year Ended December 31, 1998 ComparedTo Year Ended December 31, 1997

Revenue. Revenue increased by 136.8%, or $33.9 million,from $24.7 million in 1997 to $58.6 million in 1998. Thisincrease included $14.9 million of increased Year 2000 com-pliance services, and $19.0 million of increased sales of soft-ware development, maintenance and Eurocurrency complianceservices. Revenue growth resulted, in part, from the successfulimplementation of the Company’s Year 2000 rollover strategy,pursuant to which Year 2000 clients have been converted toinclude non-Year 2000 assignments including software devel-opment and maintenance. The percentage of revenues fromunrelated parties increased from 56.2% in 1997 to 76.8% in1998. This increase resulted primarily from the Company’scontinued efforts to pursue unaffiliated third-party customersand the impact of the spin-off in June 1998 of a majorityinterest in the Company, Erisco, IMS and certain other entitiesto form IMS Health, and the establishment of Nielsen MediaResearch as a separate publicly traded company. For state-ment of operations purposes, revenues from related partiesonly include revenues recognized during the period in whichthe related party was affiliated with the Company. Accordingly,as of July 1, 1998, Nielsen Media Research was no longerdeemed to be a related party.

Gross profit. The Company’s cost of revenues consists primarilyof the cost of salaries, payroll taxes, benefits, immigration andtravel for technical personnel, and the cost of sales commis-sions related to revenues. The Company’s cost of revenuesincreased by 122.3%, or $17.6 million, from $14.4 million in

1997 to $31.9 million in 1998. The increase was due primar-ily to the increased cost resulting from the increase in thenumber of the Company’s technical professionals from approx-imately 900 employees at December 31, 1997 to approxi-mately 1,400 employees at December 31, 1998. TheCompany’s gross profit increased by 157.0%, or approximately$16.3 million, from approximately $10.4 million in 1997 toapproximately $26.7 million in 1998. Gross profit marginincreased from 42.0% of revenues in 1997 to 45.5% of rev-enues in 1998. The increase in gross profit margin was pri-marily attributable to the increased third party revenue whichhave higher margins and a higher utilization level of technicalprofessionals during 1998 compared to 1997.

Selling, general and administrative expenses. Selling, generaland administrative expenses consist primarily of salaries,employee benefits, travel, promotion, communications,management, finance, administrative and occupancy costs.Selling, general and administrative expenses, including depre-ciation and amortization, increased by 115.2%, or $9.5 mil-lion, from $8.3 million in 1997 to $17.8 million in 1998, butdecreased as a percentage of revenue from 33.4% to 30.3%,respectively. The increase in such expenses in absolute dollarswas primarily due to expenses incurred to expand theCompany’s sales and marketing activities and increased infra-structure expenses to support the Company’s revenue growth.The Company expects selling, general and administrativeexpenses to continue to increase in absolute dollars to supportthe Company’s expansion. The decrease in selling, general andadministrative expenses as a percentage of revenue resultedfrom the Company’s continued ability to leverage the signifi-cant investments it made in the beginning of 1997 to estab-lish a sales and marketing organization and to create theinfrastructure necessary to operate as an independent company.

Income from Operations. Income from operations increased318.9% or $6.8 million, from $2.1 million in 1997 to $8.9million in 1998, representing 8.6% and 15.2% of revenues,respectively. The increase in operating margin was primarilydue to the increased third-party revenue which generally hashigher margins and the higher utilization level of technical pro-fessionals mentioned above.

Other Income. Other income consists primarily of interestincome and foreign currency exchange gains. Interest incomeincreased by $613,000 from $25,000 in 1997 to $638,000in 1998. The increase in such interest income was attribut-able primarily to increased interest income resulting from theinvestment of the net proceeds generated from the Company’sIPO and generally higher cash balances. The Company recog-nized a net foreign currency exchange gain of $83,000 in1998, as a result of the effect of changing exchange rates onthe Company’s transactions.

Provision for Income Taxes. Historically, the Company had beenincluded in the consolidated federal income tax returns of The

Total revenues 100.0% 100.0% 100.0%Cost of revenues 50.0 58.0 54.5

Gross profit 50.0 42.0 45.5Selling, general and

administrative expenses 31.0 27.8 26.5Depreciation and

amortization expense 6.8 5.6 3.8

Income from operations 12.2 8.6 15.2

Other income (expense):Interest income 0.1 0.1 1.1Other income (expense) – – 0.1

Total other income (expense) 0.1 0.1 1.2Income before provision

for income taxes 12.3 8.7 16.4Provision for income taxes (2.8) (2.3) (6.2)Minority interest (4.1) (2.2) –

Net income 5.3% 4.2% 10.3%

Year EndedDecember 31,

1996 1997 1998

Management’s Discussion and Analysisof Financial Condition and Results of Operations

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Dun & Bradstreet Corporation and Cognizant. The Company’sprovision for income taxes in the consolidated statements ofincome reflects federal and state income taxes calculated onthe Company’s stand alone basis. The provision for incometaxes increased from $581,000 in 1997 to $3.6 million in1998 resulting in an effective tax rate of 27.0% in 1997 and37.4% in 1998. Without the effect of minority interest, theeffective tax rate would have been approximately 35.0% in1997.

Minority Interest. In 1997, minority interest expense was$545,000. This expense was attributable to profitability of theCompany’s Indian subsidiary in which an unaffiliated thirdparty held a 24.0% minority interest. The Company purchasedthe minority interest in October 1997 for $3.4 million. TheCompany has not recognized any minority expense subsequentto such purchase. In 1997 and 1998 the Company recorded$76,000 and $317,000 of amortization expense, respectively,in connection with the goodwill recorded on the acquisition ofthe remaining portion of its Indian subsidiary.

Net Income. Net income increased from $1.0 million in 1997to $6.0 million in 1998, representing 4.2% and 10.3% as apercentage of revenues, respectively.

Year Ended December 31, 1997 Comparedto Year Ended December 31, 1996

Revenue. The Company’s revenues increased 105.7% from$12.0 million in 1996 to $24.7 million in 1997. Thisincrease included $7.8 million of increased sales of Year2000 compliance services, and $4.9 million of increasedsales of software development and maintenance services. Thepercentage of revenues from unrelated parties increased from23.1% or $2.8 million in 1996 to 56.2% or $13.9 million in1997. This increase resulted from the full-year impact in1997 of the fourth quarter 1996 spin-off of Cognizant (includ-ing the Company) from The Dun & Bradstreet Corporation, aswell as the Company’s expanded efforts to pursue unaffiliatedthird-party customers. For statement of operations purposes,revenues from related parties only include revenues recognizedduring the period in which the related party was affiliated withthe Company.

Gross profit. Gross profit increased 72.7% from $6.0 millionin 1996 to $10.4 million in 1997. As a percentage of rev-enues, gross profit declined from 50.0% in 1996 to 42.0% in1997. Cost of revenues increased 138.5% from $6.0 millionin 1996 to $14.4 million in 1997. The increase in cost of rev-enues was primarily attributable to increases in the number ofthe Company’s technical professionals from approximately 500employees at December 31, 1996 to approximately 900employees at December 31, 1997. The increase in cost of rev-enues as a percentage of revenues resulted primarily from amovement in the mix of programmers from offshore to on-sitelocations, which resulted in higher labor rates and lower grossmargins.

Selling, general and administrative expenses. Selling, generaland administrative expenses increased 81.6% from $4.5 mil-lion in 1996 to $8.3 million in 1997. This increase included$2.3 million in increased sales and marketing expenses and$1.4 million in increased infrastructure expenses to supportthe Company’s revenue growth as the Company opened itsfourth development center in India. As a percentage of rev-enues, selling, general and administrative expense declinedfrom 37.8% in 1996 to 33.4% in 1997.

Income from Operations. Income from operations increased45.2% from $1.5 million in 1996 to $2.1 million in 1997,representing 12.2% and 8.6% of revenues, respectively.The decrease in operating margin was primarily due to theCompany’s investment in its expanding sales and marketinginfrastructure to support its strategy of continued pursuit ofthird-party customers and, to a lesser extent, the movement inthe mix of project staff from offshore to on-site locations.

Provision for Income Taxes. The provision for income taxesincreased 70.4% from $341,000 in 1996 to $581,000 in1997, resulting in an effective tax rate of 23.1% in 1996 and27.0% in 1997. Without the effect of minority interest, theeffective tax rate would have been approximately 35.0% forboth periods.

Minority Interest. In 1996, minority interest expense was$492,000 compared to $545,000 in 1997. The increase inabsolute dollars was attributable to increased profitability ofthe Company’s Indian subsidiary in which a third party heldthe 24.0% minority interest offset by the effect on the incomestatement of the purchase of such minority interest in October1997 for $3.4 million. The Company has not recognized anyminority interest expense subsequent to such purchase.

Net Income. Net income was $642,000 in 1996 as comparedto $1.0 million in 1997, representing 5.3% and 4.2% as apercentage of revenues, respectively.

Backlog

The Company generally enters into written contracts with itscustomers at the time it commences work on a project. Thesewritten contracts contain varying terms and conditions and theCompany does not generally believe it is appropriate to charac-terize such written contracts as creating backlog. Additionally,because these written contracts often provide that the arrange-ment can be terminated with limited advance notice and with-out penalty, the Company does not believe that projects inprogress at any one time are a reliable indicator or measure ofexpected future revenue.

Liquidity and Capital Resources

Historically, the Company’s primary sources of funding hadbeen cash flow from operations and intercompany cash trans-fers with its majority owner and controlling parent companyIMS Health, accounting successor to Cognizant. In June

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1998, the Company consummated its IPO of 2,917,000shares of its Class A Common Stock at a price to the publicof $10.00 per share, of which 2,500,000 shares were issuedand sold by the Company and 417,000 shares were sold,at that time, by Cognizant. In July 1998, IMS Health (theaccounting successor to Cognizant) sold 437,550 shares ofClass B Common Stock pursuant to an over allotment optiongranted to the underwriters of the IPO. The net proceeds tothe Company from the offering were approximately $22.4 mil-lion after $845,000 of direct expenses. The funds received bythe Company from the IPO were invested in short-term, invest-ment grade, interest bearing securities, after the Companyused a portion of the net proceeds to repay approximately$6.6 million of non-trade related party balances to Cognizant.The Company expects to use the remainder of the net pro-ceeds from the offering for (i) expansion of existing operations,including the Company’s offshore software development cen-ters; (ii) continued development of new service lines andpossible acquisitions of related businesses; and (iii) generalcorporate purposes including working capital.

Net cash provided by operating activities was approximately$13.3 million during the year ended 1998 as compared to netcash provided by operating activities of $1.7 million duringthe year ended 1997. The increase results primarily from ahigher level of accrued liabilities, increased net income, andan increase in deferred taxes, partially offset by increasedother current assets. Accounts receivable increased from $7.4million at December 31, 1997 to $11.1 million at December31, 1998. The increase in accounts receivable was due pri-marily to the Company’s increase in revenue partially offset byimproved collection efforts and results. The Company monitorsturnover, aging and the collection of accounts receivablethrough the use of management reports which are prepared ona customer basis and evaluated by the Company’s financestaff.

The Company’s investing activities used net cash of $3.7 mil-lion for the year ended December 31, 1998 as compared tonet cash used of $6.4 million for the year ended December31, 1997. The decrease in 1998 of net cash used in investingactivities compared to 1997 primarily reflects the payment in1997 for the acquisition of the minority interest of theCompany’s Indian subsidiary.

The Company’s financing activities provided net cash of $16.1million for the year ended December 31, 1998 as comparedto $5.7 million for the year ended December 31, 1997. Theincrease in 1998 compared to 1997 resulted primarily fromthe net proceeds generated from the IPO of $22.4 million, off-set by the repayment of non-trade related party balances ofapproximately $6.6 million.

As of December 31, 1998, the Company had no significantthird-party debt.

The Company had working capital of $29.4 million atDecember 31, 1998 and $5.7 million at December 31, 1997.

The Company believes that its available funds and the cashflows expected to be generated from operations, will be ade-quate to satisfy its current and planned operations and needsfor the next 12 months.

Foreign Currency Translation

The assets and liabilities of the Company’s Canadian andEuropean subsidiaries are translated into U.S. dollars at cur-rent exchange rates and revenues and expenses are translatedat average monthly exchange rates. The resulting translationadjustments are recorded in a separate component of stock-holders’ equity. For the Company’s Indian subsidiary, the func-tional currency is the U.S. dollar since its sales are madeprimarily in the United States, the sales price is predominantlyin U.S. dollars and there is a high volume of intercompanytransactions denominated in U.S. dollars between the Indiansubsidiary and its U.S. affiliates. Non-monetary assets and lia-bilities are translated at historical exchange rates, while mone-tary assets and liabilities are translated at current exchangerates. A portion of the Company’s costs in India are denomi-nated in local currency and subject to exchange fluctuations,which have not had any material adverse effect on theCompany’s results of operations.

Effects of Inflation

The Company’s most significant costs are the salaries andrelated benefits for its programming staff and other profession-als. Competition in India and the United States for profession-als with advanced technical skills necessary to perform theservices offered by the Company have caused wages toincrease at a rate greater than the general rate of inflation.As with other IT service providers, the Company must ade-quately anticipate wage increases, particularly on its fixed-price contracts. There can be no assurance that the Companywill be able to recover cost increases through increases in theprices that it charges for its services in the United States andelsewhere.

Risks Associated with the Year 2000

Historically, certain computer programs have been writtenusing two digits rather than four to define the applicable year,which could result in the computer recognizing a date using“00” as the year 1900 rather than 2000. This in turn, couldresult in major system failures or miscalculations, and is gen-erally referred to as the “Year 2000 Problem”. The Companybelieves that it has sufficiently assessed its state of readinesswith respect to its Year 2000 compliance. As the assessmentwas completed using internal personnel, costs and time forsuch personnel were not specifically tracked. The Company,however, estimates that such costs were immaterial. There

Management’s Discussion and Analysisof Financial Condition and Results of Operations

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were no external costs incurred by the Company relating to itsYear 2000 assessment. Costs incurred to date to address theYear 2000 problem have been immaterial and the Companydoes not believe that Year 2000 compliance will result inmaterial investments by the Company in the future. TheCompany does not anticipate that the Year 2000 Problem willhave any material adverse effects on the business operationsor financial performance of the Company. The Company doesnot believe that it has any material exposure to the Year 2000Problem with respect to its own information systems andbelieves that all of its business-critical systems correctlydefine the Year 2000 and subsequent years. There can beno assurance, however, that the Year 2000 Problem will notadversely affect the Company’s business, operating resultsand financial condition.

Contingency planning is underway in all of the Company’soperations. These plans will address facilities and equipment,telecommunications infrastructure, and internal administrativeprocesses. In addition, these plans will take into accounthuman resource and communications issues that relate tothe Company’s employees. By the end of June 1999, theCompany expects to have such contingency plans in place toaddress the most likely effects on the Company from externalrisks. As more information emerges about services upon whichthe Company is critically reliant, these plans will be adjustedaccordingly.

The purchasing patterns of customers and potential customersmay be affected by issues associated with the Year 2000Problem. As companies expend significant resources to correcttheir current data storage solutions, these expenditures mayresult in reduced funds to undertake projects such as thoseoffered by the Company. There can be no assurance that theYear 2000 Problem will not adversely affect the Company’sbusiness, operating results and financial condition.Conversely, the Year 2000 Problem may cause other compa-nies to accelerate purchases, thereby causing an increase inshort-term demand and a consequent decrease in long-termdemand for the Company’s services.

Recent Accounting Pronouncements

During 1998, various new accounting pronouncements wereissued which may impact the Company’s financial statements.(See Note 2. to the Consolidated Financial Statements.)

Forward Looking Statements

The statements contained in this Annual Report that are nothistorical facts are forward-looking statements (within themeaning of Section 21E of the Securities Exchange Act of1934, as amended) that involve risks and uncertainties. Suchforward-looking statements may be identified by, among otherthings, the use of forward-looking terminology such as“believes,” “expects,” “may,” “will,” “should” or “anticipates”

or the negative thereof or other variations thereon or compara-ble terminology, or by discussions of strategy that involve risksand uncertainties. From time to time, the Company or itsrepresentatives have made or may make forward-looking state-ments, orally or in writing. Such forward-looking statementsmay be included in various filings made by the Company withthe Securities and Exchange Commission, or press releases ororal statements made by or with the approval of an authorizedexecutive officer of the Company. These forward-lookingstatements, such as statements regarding anticipated futurerevenues, contract percentage completions, capital expendi-tures, and other statements regarding matters that are not his-torical facts, involve predictions. The Company’s actual results,performance or achievements could differ materially from theresults expressed in, or implied by, these forward-looking state-ments. Potential risks and uncertainties that could affect theCompany’s future operating results include, but are not limitedto: (i) the significant fluctuations of the Company’s quarterlyoperating results caused by a variety of factors, many of whichare not within the Company’s control, including (a) the num-ber, timing, scope and contractual terms of software develop-ment and maintenance projects, (b) delays in the performanceof projects, (c) the accuracy of estimates of costs, resourcesand time to complete projects, (d) seasonal patterns of theCompany’s services required by customers, (e) levels of marketacceptance for the Company’s services, and (f) the hiring ofadditional staff; (ii) changes in the Company’s billing andemployee utilization rates; (iii) the Company’s ability to man-age its growth effectively, which will require the Company (a)to increase the number of its personnel, particularly skilledtechnical, marketing and management personnel, and (b) tocontinue to develop and improve its operational, financial,communications and other internal systems, both in theUnited States and India; (iv) the Company’s limited operatinghistory with unaffiliated customers; (v) the Company’s relianceon key customers and large projects; (vi) the highly competi-tive nature of the markets for the Company’s services; (vii) theCompany’s ability to successfully address the continuingchanges in information technology, evolving industry standardsand changing customer objectives and preferences; (viii) theCompany’s reliance on the continued services of its keyexecutive officers and leading technical personnel; (ix) theCompany’s ability to attract and retain a sufficient number ofhighly skilled employees in the future; (x) the Company’sability to protect its intellectual property rights; (xi) generaleconomic conditions; (xii) year 2000 compliance of vendors’products and related issues, including impact of the year2000 problem on customer buying patterns; and (xiii) theoutcome of the impact of Year 2000 on the Company. TheCompany’s actual results may differ materially from the resultsdisclosed in such forward-looking statements.

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To the Board of Directors and Stockholders ofCognizant Technology Solutions Corporation:

In our opinion, the accompanying consolidatedstatements of financial position and the relatedconsolidated statements of operations and stock-holders’ equity and cash flows present fairly, inall material respects, the financial position ofCognizant Technology Solutions Corporation andits subsidiaries at December 31, 1998 and1997, and the results of their operations andtheir cash flows for each of the three years in theperiod ended December 31, 1998, in conformitywith generally accepted accounting principles.These financial statements are the responsibilityof the Company’s management; our responsibilityis to express an opinion on these financial state-ments based on our audits. We conducted ouraudits of these statements in accordance withgenerally accepted auditing standards, whichrequire that we plan and perform the audit toobtain reasonable assurance about whether thefinancial statements are free of material mis-statement. An audit includes examining, on atest basis, evidence supporting the amounts anddisclosures in the financial statements, assessingthe accounting principles used and significantestimates made by management, and evaluatingthe overall financial statement presentation. Webelieve that our audits provide a reasonable basisfor the opinion expressed above.

PricewaterhouseCoopers LLPNew York, New YorkFebruary 26, 1999

Report of Independent Accountants

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To the Shareholders ofCognizant Technology Solutions Corporation:

Management is responsible for the preparation ofthe consolidated financial statements and relatedinformation that are presented in this report. Theconsolidated financial statements, which includeamounts based on management's estimates andjudgements, have been prepared in conformitywith generally accepted accounting principles.Other financial information in the report to share-holders is consistent with that in the consolidat-ed financial statements.

The Company maintains accounting and internalcontrol systems to provide reasonable assuranceat reasonable cost that assets are safeguardedagainst loss from unauthorized use or disposition,and that the financial records are reliable forpreparing financial statements and maintainingaccountability for assets. These systems areaugmented by written policies, an organizationalstructure providing division of responsibilitiesand careful selection and training of qualifiedpersonnel.

The Company engaged PricewaterhouseCoopersLLP, independent accountants, to audit and ren-der an opinion on the consolidated financialstatements in accordance with generally accept-ed auditing standards. These standards includean assessment of the systems of internal controlsand tests of transactions to the extent considerednecessary by them to support their opinion.

The Board of Directors, through its AuditCommittee consisting solely of outside directorsof the Company, meets periodically with manage-ment and our independent accountants to ensurethat each is meeting its responsibilities and todiscuss matters concerning internal controls andfinancial reporting. PricewaterhouseCoopers hasfull and free access to the Audit Committee.

Wijeyaraj MahadevaChairman and Chief Executive Officer

Gordon J. CoburnChief Financial Officer, Secretary & Treasurer

Statement of Management’sResponsibility for Financial Statements

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Revenues $45,031 $13,898 $2,775Revenues-related party 13,575 10,846 9,257

Total revenues 58,606 24,744 12,032Cost of revenues 31,919 14,359 6,020

Gross profit 26,687 10,385 6,012Selling, general and administrative expense 15,547 6,898 3,727Depreciation and amortization expense 2,222 1,358 819

Income from operations 8,918 2,129 1,466Other income:Interest income 638 25 8

Other income, net 83 — 1

Total other income 721 25 9

Income before provision for income taxes 9,639 2,154 1,475Provision for income taxes (3,606) (581) (341)Minority interest — (545) (492)

Net income $6,033 $1,028 $642

Net income per share, basic $ 0.76 $ 0.16 $ 0.10

Net income per share, diluted $ 0.73 $ 0.16 $ 0.10

Weighted average number of common sharesoutstanding - Basic 7,943 6,547 6,500

Dilutive Effect of Shares Issuable as of Period-EndUnder Stock Option Plans 302 58 —

Adjustment of Shares Applicable toExercised Stock Options during the Period 24 — —

Weighted average number of common sharesoutstanding - Diluted 8,269 6,605 6,500

Comprehensive Income:Net income $6,033 $1,028 $642Foreign currency translation adjustment (9) (2) —

Total comprehensive income $6,024 $1,026 $642

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

(in thousands, except par values) Years Ended December 31,1998 1997 1996

Consolidated Statements of Operations

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AssetsCurrent assetsCash and cash equivalents $ 28,418 $ 2,715Trade accounts receivable, net of allowances

of $274 and $239, respectively 9,230 4,733Trade accounts receivable – related party 1,877 2,670Unbilled accounts receivable 1,088 210Other current assets 1,754 568

Total current assets 42,367 10,896

Property and equipment - net 6,270 4,453Goodwill, net 1,830 2,147Other assets 1,212 802

Total assets $ 51,679 $ 18,298

Liabilities and Stockholders’ EquityCurrent liabilitiesAccounts payable $ 1,744 $ 1,543Accrued and other liabilities 11,207 3,659

Total current liabilities 12,951 5,202

Deferred income taxes 6,103 2,593Due to related party 9 6,646Minority interest — —

Total liabilities 19,063 14,441

Commitments and contingencies

Mandatorily redeemable common stock (none issuedand outstanding at December 31, 1998 and114 shares at December 31, 1997) — 438

Stockholders’ equity:Preferred stock, $.10 par value, 15,000 shares

authorized, none issued — —Class A common stock, $.01 par value,

100,000 shares authorized, 3,505 shares and417 shares issued and outstanding at December 31,1998 and 1997, respectively 35 4

Class B common stock, $.01 par value,15,000 shares authorized, 5,645 shares and 6,083shares issued and outstanding at December 31,1998 and 1997, respectively 57 61

Additional paid-in capital 24,566 1,420Retained earnings 7,969 1,936Cumulative translation adjustment (11) (2)

Total stockholders’ equity 32,616 3,419

Total liabilities and stockholders’ equity $ 51,679 $ 18,298

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

(in thousands, except par values) December 31,1998 1997

Consolidated Statements of Financial Position

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Cash flows from operating activities:Net income $ 6,033 $ 1,028 $ 642Adjustments to reconcile net income to

net cash provided by Operating activities:Depreciation and amortization 2,222 1,358 819Provision for doubtful accounts 45 239 —Deferred income taxes 3,510 1,170 518Minority interest — 545 492

Changes in assets and liabilities:Accounts receivable (3,959) (4,933) (440)Other current assets (1,854) (591) 37Other assets (410) (390) (199)Accounts payable 201 842 (474)Accrued and other liabilities 7,548 2,386 487Other adjustments for non-cash items 22 2 —

Net cash provided by operating activities 13,358 1,656 1,882

Cash flows used in investing activities:Purchase of property and equipment (3,743) (3,025) (1,329)Payment for acquisition of minority interest in subsidiary — (3,418) —

Net cash (used in) investing activities (3,743) (6,443) (1,329)

Cash flows from financing activities:Proceeds from Initial Public Offering 23,250 — —Costs associated with Initial Public Offering (843) — —Proceeds from option exercises/compensatory grant/

contributed capital 327 25 397Payments to/proceeds from related party prior to the IPO (6,637) 5,669 315

Net cash provided by financing activities 16,097 5,694 712

Effect of Currency Translation (9) (2) —

Increase in cash and cash equivalents 25,703 905 1,265Cash and cash equivalents, at beginning of year 2,715 1,810 545

Cash and cash equivalents, at end of year $ 28,418 $ 2,715 $ 1,810

Supplemental information:Cash paid for income taxes during the year $ 53 $ 158 $ 32

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

(in thousands) Years Ended December 31,1998 1997 1996

Consolidated Statements of Cash Flows

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Balance, December 31, 1995 417 $ 4 6,083 $ 61 $ 1,435 $ 266 $ — $ 1,766Net transfers (to) from related party — — — — 398 — — 398Net income — — — — — 642 — 642

Balance, December 31, 1996 417 4 6,083 61 1,833 908 — 2,806

Net transfers (to) from related party — — — — (413) — — (413)Translation adjustment — — — — — — (2) (2)Net income — — — — — 1,028 — 1,028

Balance, December 31, 1997 417 4 6,083 61 1,420 1,936 (2) 3,419

Net transfers (to) from related party — — — — 62 — — 62Translation adjustment — — — — — — (9) (9)Net Proceeds from IPO/

Issued Shares 2,613 27 — — 22,818 — — 22,845Exercise of Overallotment Stock 438 4 (438) (4) — — — —Exercise of Stock Options 37 — — — 144 — — 144Compensatory Grant — — — — 248 — — 248

Less Unearned portion — — — — (126) — — (126)Net income — — — — — 6,033 — 6,033

Balance, December 31, 1998 3,505 $ 35 5,645 $ 57 $24,566 $7,969 $ (11) $32,616

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

(in thousands) Additional Retained Cumulative TotalPaid-in Earnings/ TransactionCapital (Deficit) Adjustment

Shares Amount Shares Amount

Class A Class BCommon Stock Common Stock

Consolidated Statements of Stockholders’ Equity

1. Basis of Presentation

The Company is principally engaged in the software develop-ment and maintenance consulting services business with oper-ations and subsidiaries in India, the United Kingdom, Canadaand the United States. It delivers services to customers, prin-cipally in the United States, through an on-site and offshoreproject team. These information technology consulting servicesinclude application development and maintenance services,Year 2000 and Eurocurrency compliance services, testing andquality assurance services and re-hosting and re-engineeringservices.

The Company is a Delaware corporation originally organized in1988. The Company began its software development andmaintenance services business in early 1994, as an in-housetechnology development center for The Dun & BradstreetCorporation and its operating units. In 1996, the Company,Erisco, Inc. (“Erisco”), IMS International Inc. (“IMS”), NielsenMedia Research, Inc., Pilot Software Inc. and SalesTechnologies, Inc. and certain other entities, plus a majorityinterest in Gartner Group, Inc. were spun-off from The Dun &Bradstreet Corporation to form Cognizant Corporation(“Cognizant”). In 1997, the Company purchased the 24.0%minority interest in its Indian subsidiary from a third party for$3.4 million, making the Indian subsidiary wholly owned bythe Company. In June 1998, the Company completed its IPO.On June 30, 1998, a majority interest in the Company, Erisco,IMS and certain other entities were spun-off from Cognizant toform IMS Health Incorporated (“IMS Health”), the “account-ing successor” to Cognizant, the Company’s majority ownerand controlling parent company.

IMS Health currently provides the Company with certainadministrative services, including payroll and payables pro-cessing, e-mail, tax planning and compliance, and permittedthe Company to participate in IMS Health’s insurance andemployee benefit plans. Costs for these services for all periodsprior to the IPO were allocated to the Company based on uti-lization of certain specific services. All subsequent serviceswere performed under the CTS IMS Health intercompany ser-vices agreement. (See also Note 10. to the ConsolidatedFinancial Statements.)

2. Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial state-ments reflect the consolidated financial position, results ofoperations and cash flows of the Company and its consolidat-ed subsidiaries as if it were a separate entity for all periodspresented.

Cash and Cash Equivalents. Cash and cash equivalents primarilyinclude time and demand deposits in the Company’s operatingbank accounts. The Company considers all highly liquid instru-ments with an initial maturity of three months or less to becash equivalents.

Property and Equipment. Property and equipment are stated atcost, net of accumulated depreciation. Depreciation is calcu-lated on the straight-line basis over the estimated useful livesof the assets. Leasehold improvements are amortized on astraight-line basis over the shorter of the term of the lease orthe estimated useful life of the improvement. Maintenanceand repairs are expensed as incurred, while renewals and bet-terments are capitalized.

Goodwill. Goodwill represents the excess of the purchase priceof the former minority interest in the Company’s Indian sub-sidiary over the fair values of amounts assigned to the incre-mental net assets acquired. Amortization expense is recordedusing the straight-line method over a period of seven years.Amortization expense was $317 and $76 as of December 31,1998 and 1997, respectively. At each balance sheet date, theCompany reviews the recoverability of goodwill by comparingthe unamortized balance to the related anticipated undis-counted future cash flows from operating activities. It is theCompany’s policy to recognize any anticipated under-recoveryof goodwill as a result of this review.

Revenue Recognition. The Company’s services are entered intoon either a time-and-materials or fixed-price basis. Revenuesrelated to time-and-material contracts are recognized as theservice is performed. Revenues related to fixed-price contractsare recognized as the service is performed using the percent-age-of-completion method of accounting, under which thesales value of performance, including earnings thereon, is rec-ognized on the basis of the percentage that each contract’scost to date bears to the total estimated cost. Fixed price con-tracts are cancellable subject to a specified notice period. Allservices provided by the Company through the date of cancel-lation are due and payable under the contract terms. TheCompany issues invoices related to fixed price contracts basedupon achievement of milestones during a project. Estimatesare subject to adjustment as a project progresses to reflectchanges in expected completion costs. The cumulative impactof any revision in estimates is reflected in the financial report-ing period in which the change in estimate becomes knownand any anticipated losses on contracts are recognized imme-diately. A reserve for warranty provisions under such contracts,which generally exist for ninety days past contract completion,is estimated and accrued during the contract period.

Unbilled Accounts Receivable. Unbilled accounts receivable rep-resent revenues on contracts to be billed, in subsequent peri-ods, as per the terms of the contracts.

Foreign Currency Translation. The assets and liabilities of theCompany’s Canadian and European subsidiaries are translatedinto U.S. dollars at current exchange rates and revenues andexpenses are translated at average monthly exchange rates.The resulting translation adjustments are recorded in a sepa-rate component of stockholders’ equity. For the Company’sIndian subsidiary (“CTS India”), the functional currency is theU.S. dollar, since its sales are made primarily in the United

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Notes to Consolidated Financial Statements(in thousands, except share and per share data)

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States, the sales price is predominantly in U.S. dollars andthere is a high volume of intercompany transactions denomi-nated in U.S. dollars between CTS India and its U.S. affiliates.Non-monetary assets and liabilities are translated at historicalexchange rates, while monetary assets and liabilities are trans-lated at current exchange rates. The resulting gain (loss) isincluded in other income.

Risks and Uncertainties. The preparation of financial statementsin accordance with generally accepted accounting principlesrequires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and dis-closure of contingent assets and liabilities as of the date of thefinancial statements, and the reported amounts of revenuesand expenses during the reported period. The most significantestimates relate to the allowance for doubtful accounts,reserve for warranties, depreciation of fixed assets and long-lived assets and the recognition of revenue and profits basedon the percentage of completion method of accounting forfixed bid contracts. Actual results could vary from the esti-mates and assumptions used in the preparation of the accom-panying financial statements.

All of the Company’s software development centers, includinga substantial majority of its employees and assets, are locatedin India. As a result, the Company may be subject to certainrisks associated with international operations, including risksassociated with foreign currency exchange rate fluctuationsand risks associated with the application and imposition ofprotective legislation and regulations relating to import andexport or otherwise resulting from foreign policy or the variabil-ity of foreign economic conditions. To date, the Company hasnot engaged in any significant hedging transactions to mitigateits risks relating to exchange rate fluctuations. Additional risksassociated with international operations include difficulties inenforcing intellectual property rights, the burdens of complyingwith a wide variety of foreign laws, potentially adverse tax con-sequences, tariffs, quotas and other barriers. A significant por-tion of the Company’s current engagements are for theCompany’s Year 2000 compliance projects. An unanticipateddecline in the demand for Year 2000 compliance servicescould have a material adverse effect on the Company’s busi-ness, results of operations and financial condition.

The Company believes that demand for Year 2000 complianceservices will diminish after the year 2000, as many solutionsare implemented and tested. A core element of the Company’sstrategy is to use the business relationships and the knowledgeof its customers’ computer systems obtained in providing Year2000 services to generate additional projects from these cus-tomers. There can be no assurance that the Company will besuccessful in generating demand for other services from itsYear 2000 customers.

Net Income Per Share. In 1997, the Company adoptedStatement of Financial Accounting Standards (“SFAS”) No.

128, “Earnings Per Share,” which replaces the presentation ofprimary net income (loss) per share (“EPS”) and fully dilutedEPS with a presentation of basic EPS and diluted EPS,respectively. Basic EPS excludes dilution and is computed bydividing earnings available to common stockholders by theweighted-average number of common shares outstanding forthe period. Similar to fully diluted EPS, diluted EPS includesall dilutive potential common stock in the weighted averageshares outstanding.

Concentration of Credit Risk. Financial instruments that poten-tially subject the Company to significant concentrations ofcredit risk consist primarily of cash and cash equivalents andtrade accounts receivable. The Company maintains its cashand cash equivalents with high credit quality financial institu-tions.

Income Taxes. Prior to the consummation of the Company’sIPO, the Company had been included in the federal and cer-tain state income tax returns of Cognizant and The Dun &Bradstreet Corporation. The provision for income taxes in theCompany’s consolidated financial statements has been calcu-lated on a separate company basis. Income tax benefits real-ized by the Company and utilized by Cognizant or The Dun &Bradstreet Corporation are included in stockholders’ equity.The Company is no longer included in the consolidated returnof its majority owner and controlling parent company, and isrequired to file separate income tax returns.

On a stand-alone basis, the Company provides for incometaxes utilizing the asset and liability method of accounting forincome taxes. Under this method, deferred income taxes arerecorded to reflect the tax consequences in future years of dif-ferences between the tax basis of assets and liabilities andtheir financial reporting amounts at each year end based onenacted tax laws and statutory tax rates applicable to the peri-ods in which the differences are expected to affect taxableincome. If it is determined that it is more likely than not thatfuture tax benefits associated with a deferred tax asset will notbe realized, a valuation allowance will be provided. The effecton deferred tax assets and liabilities of a change in the taxrates is recognized in income in the period that includes theenactment date.

CTS India is an export oriented company that is entitled toclaim a tax holiday for a period of five years from April 1996through March 2001 in respect to its export profits. Under theIndian Income Tax Act of 1961, substantially all of the earn-ings of the Company’s Indian subsidiary are currently exemptfrom Indian Income Tax as profits are attributable to exportoperations. However, since management intends to repatriateall accumulated earnings from India to the United States, theCompany has provided deferred U.S. income taxes on allundistributed earnings.

Stock-Based Compensation. With respect to stock options grant-ed to employees, SFAS No. 123 “Accounting for Stock-BasedCompensation” permits companies to continue using the

Notes to Consolidated Financial Statements(in thousands, except share and per share data)

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accounting method promulgated by the Accounting PrinciplesBoard Opinion No. 25 (“APB 25”), “Accounting for StockIssued to Employees,” to measure compensation or to adoptthe fair value based method prescribed by SFAS No. 123.Management has determined not to adopt the SFAS No. 123’saccounting recognition provisions, but has included therequired pro forma disclosures.

Reclassifications. Certain prior-year amounts have been reclas-sified to conform with the 1998 presentation.

Recently Issued Accounting Standards. In March 1998, theAmerican Institute of Certified Public Accountants (the“AICPA”) issued Statement of Position (“SOP”) 98-1,“Accounting For The Costs of Computer Software DevelopedOr Obtained For Internal Use.” SOP 98-1 provides guidanceon costs to be capitalized and when capitalization of suchcosts should commence. SOP 98-1 applies to costs incurredafter adoption, including costs for software projects that are inprogress at the time of the adoption. The Company has evalu-ated the impact of this SOP on its financial position andresults of operations and will implement SOP 98-1 effectiveJanuary 1, 1999. The adoption of this pronouncement will nothave a material effect on the Company’s financial statements.

In April 1998, the AICPA issued SOP 98-5, “Accounting ForThe Costs Of Start-up Activities.” SOP 98-5 requires all costsof start-up activities to be expensed as incurred. SOP 98-5 iseffective for financial statements for the years beginning afterDecember 15, 1998. The adoption of this pronouncement willnot have a material effect on the Company’s financial state-ments.

In June 1998, the Financial Accounting Standards Board(“FASB”) issued SFAS No. 133, “Accounting For DerivativeInstruments and Hedging Activities”. SFAS No. 133 is effec-tive for all fiscal quarters for all fiscal years beginning afterJune 15, 1999 (January 1, 2000 for the company). SFAS No.133 requires that all derivative instruments be recorded on thebalance sheet at their fair value. Changes in the fair value ofderivatives are recorded each period in current earnings orother comprehensive income, depending on whether a deriva-tive is designated as part of a hedge transaction and, if it is,the type of hedge transaction. For fair-value hedge transactionsin which the Company is hedging changes in an asset’s, liabili-ty’s, or firm commitment’s fair value, changes in the fair valueof the derivative instrument will generally be offset in theincome statement by changes in the hedged item’s fair value.For cash-flow hedge transactions, in which the Company ishedging the variability of cash flows related to a variable-rateasset, liability or a forecasted transaction, changes in the fairvalue of the derivative instrument will be reported in othercomprehensive income. The gains and losses on the derivativeinstrument that are reported in other comprehensive incomewill be reclassified as earnings in the periods in which earn-ings are impacted by the variability of the cash flows of thehedged item. The ineffective portion of all hedges will be rec-

ognized in current period earnings. The adoption of this pro-nouncement is not expected to have a material effect on theCompany’s financial statements.

3. Initial Public Offering

On June 24, 1998, the Company consummated its InitialPublic Offering (“IPO”) of 2,917,000 shares of its CommonStock at a price of $10.00 per share, 2,500,000 of whichwere issued and sold by the Company and 417,000 of whichwere sold by Cognizant Corporation (“Cognizant”), theCompany’s then majority owner and controlling parent compa-ny. The net proceeds to the Company from the IPO wereapproximately $22.4 million after $845 of direct expenses.In July 1998, IMS Health (the accounting successor toCognizant) sold 437,550 shares of Class B Common Stock,which were converted to Class A Common Stock pursuant toan over allotment option granted to the underwriters of theIPO. Of the total net proceeds received by the Company uponthe consummation of its IPO, approximately $6.6 million wasused to repay the related party balance then owed toCognizant. The related party balance resulted from certainadvances to the Company from Cognizant used to purchasethe minority interest of the Company’s Indian subsidiary andto fund payroll and accounts payable. Concurrent with theIPO, the Company reclassified the amounts in mandatorilyredeemable common stock to stockholders’ equity as theredemption feature was voided. (See Note 8. to theConsolidated Financial Statements.)

4. Supplemental Financial Data

Property and EquipmentProperty and equipment consist of the following:

Accrued Expenses and Other LiabilitiesAccrued expenses and other current liabilities consist ofthe following:

Computer equipmentand purchased software 3 $ 5,542 $ 4,196

Furniture and equipment 5 – 9 3,044 1,700Leasehold improvements Various 1,805 1,099

Sub-total $ 10,391 $ 6,995Accumulated depreciation

and amortization (4,121) (2,542)

Property and Equipment - Net $ 6,270 $ 4,453

EstimatedUseful Life December 31,

(Years) 1998 1997

Accrued bonuses and commissions $ 6,600 $ 2,003Accrued vacation 800 415Other 3,807 1,241

$ 11,207 $ 3,659

December 31,1998 1997

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5. Acquisition of Minority Interest

On July 3, 1997, the Company signed a memorandum ofunderstanding to purchase the 24.0% minority interest in CTSIndia from a third party. On October 31, 1997, the Companypaid $3,468 to the minority shareholder increasing theCompany’s ownership in CTS India from 76.0% to 100.0%.The Company accounted for the acquisition of the minorityinterest using the purchase method. The incremental assetsacquired have been recorded at their fair value at the date ofacquisition. The excess of purchase price over the fair value ofthe incremental net assets acquired has been recorded asgoodwill and is being amortized on a straight-line basis over aseven year period. The following is a summary of the purchaseprice allocation for the acquisition of the minority interest:

The results of operations of CTS India have been included inthe Company’s operations since the acquisition date. Had theacquisition of the minority interest taken place on January 1,1996 or 1997, the results of operations would not havereflected minority interest expense in each year and wouldhave reflected amortization of the related goodwill of $317 for1996 and 1997.

6. Employee Benefits

Beginning in 1997, certain U.S. employees of the Companywere eligible to participate in Cognizant’s and now IMSHealth’s 401(k) plan. The Company matches up to 50.0% ofthe eligible employee’s contribution. The amount charged toexpense for the matching contribution was $55 and $15 forthe year ended December 31, 1998 and 1997, respectively.

Certain of the Company’s employees participate in IMSHealth’s defined benefit pension plan. The costs to theCompany recognized as postretirement benefit costs and relat-ed liabilities were not material to the Company’s results ofoperations or financial position for the years presented. (SeeNote 10. to the Consolidated Financial Statements.)

CTS India maintains an employee benefit plan that coverssubstantially all India-based employees. The employees’ provi-dent fund, pension and family pension plans are statutorydefined contribution retirement benefit plans. Under theplans, employees contribute up to ten percent of their basecompensation, which is matched by an equal contribution byCTS India. Contribution expense recognized was $186, $128and $73 for the years ended December 31, 1998 1997 and1996 respectively.

CTS India also maintains a statutory gratuity plan that is astatutory postemployment benefit plan providing defined lumpsum benefits. CTS India makes annual contributions to an

employees’ gratuity fund established with a government-ownedinsurance corporation to fund a portion of the estimated oblig-ation. The Company estimates its obligation based uponemployee salary and projected turnover rates. Expense recog-nized by the Company was $135, $94 and $60 for the yearsended December 31, 1998, 1997 and 1996, respectively.

7. Income Taxes

Income (loss) before provision for income taxes consisted ofthe following for years ended December 31:

The provision (benefit) for income taxes consists of the follow-ing for the years ended December 31,

The following table sets forth the significant differencesbetween the U.S. federal statutory taxes and the Company’sprovision for income taxes for consolidated financial statementpurposes:

The Company’s deferred tax assets (liabilities) are comprisedof the following at December 31:

Fair value of assets $1,727Deferred taxes (482)Goodwill 2,223

Total purchase price $3,468

U.S. (2,862) $ (1,812) $ (611)Non-U.S. 12,501 3,966 2,086

Total $ 9,639 $ 2,154 $ 1,475

1998 1997 1996

U.S. Federal and state:Current $ 75 $ (607) $ (177)Deferred 3,516 1,178 518

Total U.S. Federaland state $ 3,591 $ 571 $ 341

Non-U.S.:Current $ 20 $ 18 $ —Deferred (5) (8) —

Total non-U.S. 15 10 —

Total $ 3,606 $ 581 $ 341

1998 1997 1996

Tax expense atstatutory rate $ 3,277 $ 732 $ 502

State and LocalIncome Taxes (110) — —

Goodwill 108 26 —Effect of minority intereston foreign earnings — (185) (168)Other 331 8 7

Total Taxes $ 3,606 $ 581 $ 341

1998 1997 1996

Deferred tax assets:Net Operating Losses $ 940 $ 8

Net deferred tax assets $ 940 $ 8

Deferred tax liabilities:Undistributed Indian income (7,043) (2,601)

Total deferred tax liabilities (7,043) (2,601)

Net deferred tax liability $ (6,103) $ (2,593)

1998 1997

Notes to Consolidated Financial Statements(in thousands, except share and per share data)

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At December 31, 1998 the Company had $940 of tax creditcarry forwards primarily related to U.S. Federal net operatinglosses, which expire if not used before 2018.

CTS India is an export oriented company that is entitled toclaim a tax holiday for a period of five years from April 1996through March 2001 in respect to its export profits. Under theIndian Income Tax Act of 1961, all of the Company’s earningsare currently exempt from Indian Income Tax as profits areattributable to export operations. However, since managementintends to repatriate all earnings from India to the UnitedStates, the Company has provided deferred U.S. income taxeson all undistributed earnings. The Company has determinedthat the income taxes recorded by the Company would not bematerially different in the absence of the current tax exemp-tion and, therefore, the tax exemption had no material effecton earnings per share.

8. Capital Stock

A. Common Stock. On June 12, 1998, the Company amendedand restated its certificate of incorporation to authorize100,000,000 shares of Class A common stock, par value$.01 per share, 15,000,000 shares of Class B common stock,par value $.01 per share, and 15,000,000 shares of preferredstock, par value $.10 per share, and effected a 0.65 for onereverse stock split. All applicable shares and per shareamounts in the accompanying financial statements have beenretroactively adjusted to reflect this recapitalization. Holders ofClass A common stock have one vote per share and holders ofClass B common stock have ten votes per share. Holders ofClass B common stock are entitled to convert their shares intoClass A common stock at any time on a share for share basis.Shares of Class B Common Stock transferred to stockholdersof IMS Health in a transaction intended to be on a tax-freebasis (a “Tax-Free Spin-Off”) under the Code shall not convertto shares of Class A Common Stock upon the occurrence ofsuch Tax-Free Spin-Off. No preferred stock has been issued.

Subsequent to the IPO, the underwriters exercised their rightto purchase an additional 437,550 shares of Class A CommonStock. As a result, IMS Health, the majority owner and control-ling parent of the Company, converted 437,550 shares ofClass B Common stock into Class A Common Stock and sub-sequently sold such shares.

B. Redeemable Common Stock. On July 25, 1997, certain man-agement employees of the Company and its affiliates sub-scribed and subsequently purchased Common Stock under the“Key Employees Restricted Stock Purchase Plan.” Theseshares were purchased by the employees at the then estimatedfair market value of $3.85 per share. Holders of the stock mayput, at any time, to the Company their shares at the lower ofthe purchase price or the share price based on a valuation ofthe Company at the time of the put. Upon consummation ofthe IPO, this put right terminated. The Company initially

recorded the value of the purchased stock outside the equitysection. In 1998, upon the completion of the initial publicoffering, all redemption conditions were removed, and theshares have been reclassified to common stock.

9. Employee Stock Options Plans

In July 1997, CTS adopted a Key Employees Stock OptionPlan which provides for the grant of stock options to eligibleemployees. Options granted under this plan may not be grant-ed at an exercise price less than fair market value of theunderlying shares on the date of grant. As a result of the IPOall options have a life of ten years, vest proportionally over fouryears and have an exercise price equal to the fair market valueof the common stock on the grant date.

In December 1997, CTS adopted a Non-Employee Directors’Stock Option Plan, which provides for the grant of stockoptions to eligible directors. Options granted under this planmay not be granted at an exercise price less than fair marketvalue of the underlying shares on the date of grant. As a resultof the IPO all options have a life of ten years, vest proportion-ally over two years and have an exercise price equal to the fairmarket value of the common stock on the grant date.

In March 1998, CTS granted non-qualified stock options topurchase an aggregate of 48,750 shares to CTS’s Chairmanand Chief Executive Officer at an exercise price of $6.92 pershare, an amount less than the fair market value of the shareson the date of the grant.

A summary of the Company’s stock option activity, and relatedinformation is as follows:

Outstanding atbeginning of year 539,825 $4.04 — —

Granted, EmployeeOption Plan 185,950 9.74 520,325 $3.85

Granted, DirectorsOption Plan 36,500 10.00 19,500 9.08

Exercised (37,111) 3.85 — —Canceled (40,138) 5.57 — —

Outstanding -end of year 685,026 $ 5.85 539,825 $4.04

Exercisable -end of year 112,065 $ 4.69 — —

Weighted WeightedAverage Average

Shares Exercise Price Shares Exercise Price

December 31,1998 1997

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The following summarizes information about the Company’sstock options outstanding and exercisable by price range atDecember 31, 1998 and 1997, respectively:

For 1998, $122 of compensation cost was recognized by theCompany under APB 25. No compensation cost was recog-nized by the Company under APB 25 for 1997 or 1996.

Had compensation cost for the Company’s stock-based com-pensation plans, as well as the IMS Health options held bycertain executive officers (See Note 10. to the ConsolidatedFinancial Statements), been determined based on the fairvalue at the grant dates for awards under those plans, consis-tent with the method prescribed by SFAS No. 123, theCompany’s net income and net income per share would havebeen reduced to the pro forma amounts indicated below:

The pro forma disclosures shown above are not representativeof the effects on net income and earnings per share in futureyears.

For purposes of pro forma disclosures only, the fair value forall Company options was estimated at the date of grant usingthe Black-Scholes option model with the following weightedaverage assumptions in 1998; risk-free interest rate of 5.4 %,expected dividend yield of 0.0%, expected volatility of 48.0%and expected life of 3.6 years. 1997 assumptions: risk-free

interest rate of 6.3%, expected dividend yield of 0.0%,expected volatility of 40.0% and expected life of 8.7 years.The weighted-average fair value of the Company’s optionsgranted was $4.68 during 1998. The weighted-average fairvalue of the Company’s options granted was $2.38 during1997. The assumptions used in 1998 for IMS Health stockoptions were: risk-free interest rate of 5.5%, expected divi-dend yield of 0.3%, expected volatility of 25.0% and expectedlife of 3.0 years. The assumptions used in 1997 and 1996 forCognizant stock options were: risk-free interest rate of 5.9%,expected dividend yield of 0.3%, expected volatility of 25.0%and expected life of 4.5 years. The weighted average fair valueof IMS Health stock options granted to certain executive offi-cers in 1998 was $7.14. The weighted average fair value ofCognizant stock options granted to certain executive officers in1997 and 1996 was $9.76 and $13.12, respectively.

10. Other Transactions with Affiliates

Background. The Company began its software development andmaintenance services business in early 1994 as an in-housetechnology development center for The Dun & BradstreetCorporation and its operating units. These operating units prin-cipally included A.C.Nielsen, Dun & Bradstreet InformationServices, Dun & Bradstreet Software, Erisco, Inc. (“Erisco”),IMS International, Inc. (“IMS”), NCH Promotional Services,Inc. (“NCH Promotional Services”), Nielsen Media Research,Inc. (“Nielsen Media Research”), The Reuben H. DonnelleyCorporation (“RHDonnelley”), Pilot Software, Inc. (“PilotSoftware”) and Sales Technologies, Inc. (“SalesTechnologies”), and a majority interest in Gartner Group, Inc.(“Gartner Group”). In November 1996, the Company, Erisco,IMS, Nielsen Media Research, Pilot Software, SalesTechnologies and certain other entities, plus a majority interestin Gartner Group, were spun-off from The Dun & BradstreetCorporation to form Cognizant, the then majority owner andcontrolling parent of the Company. At that time, ACNielsenwas separately spun-off from The Dun & BradstreetCorporation and Dun & Bradstreet Software was sold to GEACSoftware. In 1997, Cognizant sold Pilot Software to a thirdparty.

On January 15, 1998, Cognizant announced that it would,subject to certain conditions, reorganize itself (the“Reorganization”), by spinning the Nielsen Media Researchbusiness from the rest of its businesses, creating two publiclytraded companies, IMS Health Corporation (“IMS Health”)and Nielsen Media Research. The reorganization becameeffective on July 1, 1998. The shares of the Company previ-ously held by Cognizant are now held by IMS Health and allservices previously provided to the Company by Cognizant arenow being provided by IMS Health.

In July 1998, IMS Health sold 437,550 shares of Class BCommon Stock pursuant to an over allotment option grantedto the underwriters of the IPO. As of December 31, 1998,

Weighted Average WeightedRange of Remaining AverageExercise Number Contractual Life ExercisePrices Outstanding in Years Options Price

1998Options Outstanding Options Exercisable

$3.85-$3.85 452,826 8.6 years 89,628 $3.85$6.92-$10.00 205,200 9.4 years 22,437 $8.06$10.88-$16.13 25,000 9.7 years — —$23.75-$23.75 2,000 9.9 years — —

$3.85-$23.75 685,026 8.8 years 112,065 $4.69

Weighted Average WeightedRange of Remaining AverageExercise Number Contractual Life ExercisePrices Outstanding in Years Options Price

1997Options Outstanding Options Exercisable

$3.85 520,325 8.6 years — —$9.08 19,500 9.0 years — —

539,825 —

Net incomeAs reported $6,033 $1,028 $642Pro forma $5,671 $778 $608

As reportedNet income per share, basic $0.76 $0.16 $0.10Net income per share, diluted $0.73 $0.16 $0.10

Pro formaNet income per share, basic $0.71 $0.12 $0.09Net income per share, diluted $0.69 $0.12 $0.09

December 31,1998 1997 1996

Notes to Consolidated Financial Statements(in thousands, except share and per share data)

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IMS Health owned a majority and controlling interest in theoutstanding Common Stock of the Company and held approxi-mately 94.2% of the combined voting power of the Company’sCommon Stock. (See also Note 3. to the ConsolidatedFinancial Statements.)

IMS Health currently provides the Company with certainadministrative services including payroll and payables process-ing, e-mail, tax planning and compliance, and permits theCompany to participate in IMS Health’s insurance and employ-ee benefit plans. Costs for these services for all periods priorto the IPO were allocated to the Company based on utilizationof certain specific services. All subsequent services were per-formed under the CTS IMS Health intercompany servicesagreement.

Affiliated Agreements. In 1997, the Company entered into vari-ous agreements with Cognizant which were assigned to IMSHealth as part of the 1998 spin-off. The agreements includean Intercompany Services Agreement for services provided byIMS Health such as payroll and payables processing, tax,finance, personnel administration, real estate and risk man-agement services, a License Agreement to use the “Cognizant”trade name and an Intercompany Agreement. On July 1,1998, IMS Health transferred all of its rights to the“Cognizant” name and related trade and service marks to theCompany.

Revenues. In 1996, the Company recognized related party rev-enues totaling $9,257 including revenues from A.C.Nielsen,Dun & Bradstreet Information Services, Dun & BradstreetSoftware and NCH Promotional Services through November 1,1996 (the effective date of the spin-off of Cognizant from TheDun & Bradstreet Corporation) and revenues from Erisco, IMS,Nielsen Media Research and Pilot Software are included asrelated party revenues for the full year.

In 1997, the Company recognized related party revenues total-ing $10,846 including revenues from Erisco, IMS, NielsenMedia Research, Sales Technologies, Pilot Software andGartner Group for the full year.

In 1998, the Company recognized related party revenues total-ing $13,575 including revenues from IMS Health, NielsenMedia Research (through June 30, 1998), Sales Technologiesand Gartner Group.

Services. The Company, IMS Health and Nielsen MediaResearch have entered into Master Services Agreements pur-suant to which the Company provides IT services to such sub-sidiaries. IMS Health, Cognizant and The Dun & BradstreetCorporation provided the Company with certain administrativeservices, including financial planning and administration,legal, tax planning and compliance, treasury and communica-tions, and permitted the Company to participate in Cognizant’sinsurance and employee benefit plans. Costs for these servicesfor all periods prior to the IPO were allocated to the Companybased on utilization of certain specific services. All subsequent

services were performed under the CTS IMS Health intercom-pany services agreement. Management believes that theseallocations are reasonable. Total costs in connection with theseservices were $1,666, $835, and $354 for the years endedDecember 31, 1998, 1997 and 1996, respectively.

The Company financed the acquisition of the minority interestand its operations through the expansion and contraction ofintercompany balances with Cognizant, which were repaid withproceeds from the IPO. No interest has been charged on thesetransactions.

Such transactions in 1998, 1997 and 1996 are as follows:

Leases. Beginning January 1, 1997 through December 31,1998, the Company began subleasing office space from asubsidiary of IMS Health. The Company made annual leasepayments to the subsidiary of $107 and $99 in 1998 and1997, respectively.

Pension Plans. Certain employees of the Company participatein IMS Health’s defined benefit pension plans. The plans arecash balance pension plans under which six percent of cred-itable compensation plus interest is credited to the employee’sretirement account on a monthly basis. The cash balanceearns monthly investment credits based on the 30-yearTreasury bond yield. At the time of retirement, the vestedemployee’s account balance is actuarially converted into anannuity. The Company’s cost for these plans is included in theallocation of expense from IMS Health for employee benefitsplans.

Stock Options. In November 1996, in consideration for servicesto the Company, Cognizant granted an executive officer anddirector of the Company options to purchase an aggregate of114,900 shares (on a pre-split basis) of the common stock ofCognizant at an exercise price of $33.38 per share. Suchexecutive officer and director agreed to forfeit options to pur-chase 58,334 shares (on a pre-split basis) of Cognizant com-mon stock upon the consummation of the Company’s initialpublic offering. All remaining such options have since beenconverted into options to purchase the common stock of IMSHealth as a result of the Reorganization that occurred on July1, 1998. In July 1998, IMS Health granted an executive offi-cer options to purchase an aggregate of 8,158 shares of thecommon stock of IMS Health at an exercise price of $30.17per share.

In November 1996, Cognizant granted an executive officeroptions to purchase an aggregate of 60,000 shares (on a pre-split basis) of the common stock of Cognizant at an exerciseprice of $33.38 per share. In addition, in November 1996,

Loans and advances(repayments), net $(6,637) $2,251 $315

Purchase of minority interest — 3,418 —

Proceeds (to) from related party $(6,637) $5,669 $315

1998 1997 1996

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such executive officer was granted options to purchase anaggregate of 20,000 shares (on a pre-split basis) of the com-mon stock of Cognizant at an exercise price of $33.38 pershare, which was equal to the fair market value at the grantdate, by paying ten percent of the option exercise price as anadvance payment toward such exercise. All remaining suchoptions have since been converted into options to purchasethe common stock of IMS Health as a result of theReorganization that occurred on July 1, 1998. The unvestedportion of such advance payment is refundable under certainconditions. The remaining 90 percent is payable at exercise.In July 1998, IMS Health granted an executive officer optionsto purchase an aggregate of 9,106 shares of the commonstock of IMS Health at an exercise price of $30.17 per share.

11. Commitments

The Company leases office space under operating leases whichexpire at various dates through the year 2007. Certain leasescontain renewal provisions and generally require the Companyto pay utilities, insurance, taxes, and other operating expenses.Future minimum rental payments under operating leases thathave initial or remaining lease terms in excess of one year asof December 31, 1998 are as follows:

Rental expense totaled $1,260, $509 and $241 for yearsended December 31, 1998, 1997 and 1996, respectively.

At December 31, 1997, the Company had a letter of credit inthe amount of $725 for the purchase of a mainframe comput-er. Subsequent to year end, the letter of credit was paid.

12. Contingencies

The Company is involved in various claims and legal actionsarising in the ordinary course of business. In the opinion ofmanagement, the outcome of such claims and legal actions, ifdecided adversely, is not expected to have a material adverseeffect on the Company’s business, financial condition andresults of operations. Additionally, many of the Company’sengagements involve projects that are critical to the operationsof its customers’ business and provide benefits that are diffi-cult to quantify. Any failure in a customer’s computer systemcould result in a claim for substantial damages against theCompany, regardless of the Company’s responsibility for suchfailure. Although the Company attempts to contractually limitits liability for damages arising from negligent acts, errors,mistakes, or omissions in rendering its software developmentand maintenance services, there can be no assurance that thelimitations of liability set forth in its contracts will be enforce-

able in all instances or will otherwise protect the Companyfrom liability for damages. Although the Company has generalliability insurance coverage, including coverage for errors oromissions, there can be no assurance that such coverage willcontinue to be available on reasonable terms or will be avail-able in sufficient amounts to cover one or more large claims,or that the insurer will not disclaim coverage as to any futureclaim. The successful assertion of one or more large claimsagainst the Company that exceed available insurance coverageor changes in the Company’s insurance policies, including pre-mium increases or the imposition of large deductible or co-insurance requirements, would have a material adverse effecton the Company’s business, results of operations and financialcondition.

13. Segment Information

The Company delivers full life cycle solutions to complex soft-ware development and maintenance problems through the useof a seamless on-site and offshore consulting project team.These solutions include application development and mainte-nance services, Year 2000 and Eurocurrency compliance ser-vices, testing and quality assurance services and re-hostingand re-engineering services. The Company has adopted SFASNo. 131, “Disclosures About Segments of an Enterprise andRelated Information.” Information about the Company’s opera-tions and total assets in North America, Europe and Asia forthe three years ended December 31, 1998, 1997 and 1996are as follows:

1999 $1,3052000 1,2032001 1,0522002 7892003 546Thereafter 139

Total minimum lease payments $5,034Revenues (1)

North America $47,883 $21,217 $9,641Europe 10,481 3,177 2,114Asia 242 350 277

Consolidated $58,606 $24,744 $12,032

Operating income (1)

North America $6,724 $1,685 $1,128Europe 2,098 400 303Asia 96 44 35

Consolidated $8,918 $2,129 $1,466

Identifiable assetsNorth America $36,294 $9,930 $3,110Europe 2,846 60 —India 12,539 8,308 4,717

Consolidated $51,679 $18,298 $7,827

(1) Revenues and resulting operating income are attributed to regions based uponcustomer location.

1998 1997 1996

Notes to Consolidated Financial Statements(in thousands, except share and per share data)

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The Company, operating globally, provides software develop-ment and maintenance services for medium and largebusinesses. North American operations consist primarily ofsoftware development and maintenance consulting services inthe United States and Canada. European operations consistprimarily of software development and maintenance servicesprincipally in the United Kingdom and Germany. Asian opera-tions consist primarily of software development and mainte-nance consulting services principally in India.

In 1998, sales to one related party customer accounted for23.2% of revenues and two third party customers accountedfor 12.5% and 11.3% of revenues, respectively. In 1997,sales to one related party customer accounted for 44.3% ofrevenues and one third party customer accounted for 13.9%of revenues. In 1996 one related party customer accounted for78.0% of revenues.

Quarterly Financial Data (Unaudited)

OperatingRevenue $10,238 $12,668 $16,200 $19,500 $58,606

Operating Income $1,124 $1,582 $2,435 $3,777 $8,918Net Income $712 $1,066 $1,700 $2,555 $6,033Earnings Per Share

of Common StockBasic $0.11 $0.15 $0.19 $0.28 $0.76Diluted $0.10 $0.15 $0.18 $0.27 $0.73

Three Months Ended1998 March 31 June 30 Sept. 30 Dec. 31 Full Year

Operating Revenue $4,257 $5,319 $7,146 $8,022 $24,744Operating Income $165 $330 $593 $1,041 $2,129Net Income $43 $107 $215 $663 $1,028Earnings Per Share

of Common StockBasic $0.01 $0.02 $0.03 $0.10 $0.16Diluted $0.01 $0.02 $0.03 $0.10 $0.16

Three Months Ended1997 March 31 June 30 Sept. 30 Dec. 31 Full Year

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The following table sets forth selected consolidated historical financial data of the Company as of thedates and for the periods indicated. The selected consolidated financial data set forth below for theCompany as of December 31, 1997 and 1998 and for each of the three years in the period endedDecember 31, 1998 are derived from the audited financial statements included elsewhere herein. Theselected consolidated financial data set forth below for the Company as of December 31, 1994, 1995and 1996 and for each of the years ended December 31, 1994 and 1995 are derived from the audit-ed financial statements not included elsewhere herein. The selected consolidated financial informationfor 1996, 1997 and 1998 should be read in conjunction with the Consolidated Financial Statementsand the Notes and “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” which are included elsewhere in this Annual Report.

Selected Consolidated Financial Data

Year Ended December 31,

(in thousands, except per share data) 1994 1995 1996 1997 1998

Statements of Income Data:Revenues $ — $ 298 $ 2,775 $ 13,898 $ 45,031Revenues - related party 1,687 6,877 9,257 10,846 13,575

Total revenues 1,687 7,175 12,032 24,744 58,606Cost of revenues 534 3,567 6,020 14,359 31,919

Gross profit 1,153 3,608 6,012 10,385 26,687Selling, general and

administrative expenses 1,351 2,213 3,727 6,898 15,547Depreciation and

amortization expense 65 376 819 1,358 2,222

Income (loss) from operations (263) 1,019 1,466 2,129 8,918

Other income:Interest income 4 7 8 25 638Other income - net (19) 44 1 — 83

Total other income (15) 51 9 25 721

Income before provisionfor income taxes (278) 1,070 1,475 2,154 9,639

Provision for income taxes 105 (247) (341) (581) (3,606)Minority interest (22) (362) (492) (545) —Net income $ (195) $ 461 $ 642 $ 1,028 $ 6,033

Basic earnings per share $ (0.03) $ 0.07 $ 0.10 $ 0.16 $ 0.76

Diluted earnings per share $ (0.03) $ 0.07 $ 0.10 $ 0.16 $ 0.73

Weighted average number ofcommon shares outstanding 6,500 6,500 6,500 6,547 7,943

Weighted average number ofcommon shares and stockoptions outstanding 6,500 6,500 6,500 6,605 8,269

Balance Sheet Data (at period end):Cash and cash equivalents $ 174 $ 546 $ 1,810 $ 2,715 $ 28,418Working capital 305 1,126 2,781 5,694 29,416Total assets 1,824 5,451 7,827 18,298 51,679Due to related party 690 662 976 6,646 9Stockholders’ equity 408 1,766 2,806 3,419 32,616

D I R E C T O R S

Wijeyaraj MahadevaChairman of the Boardand Chief Executive Officer

Anthony Bellomo (1)

PresidentErisco Managed CareTechnologies, Inc.

Victoria R. FashChief Executive OfficerIMS Health, Inc.

John Klein (1) (2)

Chief Executive OfficerMDIS Group, PLC

Venetia KontogourisPresidentEnterprise Associates, Inc.

Robert W. Howe (1) (2)

Chairman andChief Executive OfficerAtlantic Data Services Inc.

Board Committees:

(1) Compensation Committee

(2) Audit Committee

E X E C U T I V E O F F I C E R S

Wijeyaraj MahadevaChairman of the Boardand Chief Executive Officer

Lakshmi NarayananPresident andChief Operating Officer

Gordon J. CoburnChief Financial OfficerSecretary & Treasurer

Francisco D’SouzaVice PresidentNorth American Operationsand Business Development

Corporate Information

Transfer AgentContinental Stock Transfer& Trust Company2 Broadway, New York, NY 10004Phone: 212.509.4000

Independent AccountantsPricewaterhouseCoopers LLP1301 Avenue of the AmericasNew York, NY 10019

Form 10-KMany of the SEC’s 10-K informationrequirements are satisfied by this1998 Annual Report to Shareholders.However, a copy of the Form 10-K isavailable without charge upon requestby contacting Investor Relations at theaddress or phone number listedbelow.

Common Stock InformationThe Company’s Class A commonstock (CTSH) is listed on the NasdaqNational Market.

Trading for the Company's Class Acommon stock began June 19, 1998.As of February 22, 1999 there wereapproximately 17 holders of record ofthe Company’s Class A common stockand 2,225 beneficial holders of theCompany’s Class A common stock.The Company has never paid divi-dends on its Class A or Class B com-mon stock and does not anticipatepaying any cash dividends in the fore-seeable future. The following table setsforth the high and low sales price forthe Company's Class A common stockfor the calendar periods indicated.

Fiscal 1998 High Low

2nd Quarter $12 7/8 $91/2

3rd Quarter $19 5/8 $119/16

4th Quarter $331/2 $7

Executive Offices500 Glenpointe Centre WestTeaneck, N.J. 07666Phone: 201.801.0233Fax: 201.801.0243

Annual MeetingThe Company’s annual meetingfor shareholders will be held at10:00 am on May 25, 1999 at theTeaneck Marriott at Glenpointe,100 Frank W. Burr Boulevard,Teaneck, New Jersey 07666

Legal CounselBuchanan IngersollProfessional Corporation500 College Road EastPrinceton, New Jersey

InternetAdditional company information isavailable on the World Wide Web:http//www.cts-corp.com

Investor RelationsRequests for financial informationshould be sent to:Gordon J. CoburnChief Financial OfficerCognizant Technology Solutions500 Glenpointe Centre WestTeaneck, NJ 07666Phone: 201.801.0233

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Cognizant Technology Solutions500 Glenpointe Centre WestTeaneck, New Jersey 07666phone 201.801.0233fax 201.801.0243www.cts-corp.com

CognizantTechnologySolutions

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